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Proceedings
of the Tenth Annual Conference
of the
Applied Business and Entrepreneurship
Association International
Program Chair Bahram Adrangi
Program Co-Chairs Arjun Chatrath
Richard Gritta
Pamplin School of Business Administration
The University of Portland November 2013
Honolulu, Hawaii
Articles published in this Conference Proceedings are accepted based on
the double-blind peer-review process.
Giving Hollywood a Brand-Lift: A Marketing Case Study
Frank Sadighian and Michael R. Summers, Business Administration Division,
Pepperdine University, Malibu, CA 90263, Phone: (310) 506-4536,
email: [email protected]
Abstract
For nearly a century the Hollywood brand has been associated with the filmmaking industry, movie
stars, music, and entertainment. It has attracted large numbers of tourists and visitors for decades,
creating economic benefits for the city of Los Angeles and the state of California. The present
reality for visitors, however, is drastically different from their expectations, thereby leaving them
disappointed. They come with perceptions of the Hollywood phenomenon and leave with the reality
of Hollywood Boulevard. This case study gives students the opportunity to maximize the brand
potential of Hollywood by creating a cohesive and enjoyable experience for visitors. They must
perform research and analysis of a potential development by a major entertainment company, such
as Universal Studios or Paramount Pictures. By focusing on the glamour of past and present
Hollywood, this project should provide economic benefits to stakeholders as well as enjoyment for
visitors.
Introduction
Just as an individual may decide to undergo a face-lift in order to present a more youthful
appearance, so also might an organization or group try to improve an outdated and uninspiring image
with a “brand-lift.” This paper describes a case study for undergraduate marketing students where
the students must do their own research on the background data and then present an analysis and
proposal to help update one of the most well-known brands in the world – Hollywood, California.
In its Golden Age (1930’s and 1940’s) Hollywood’s image was of a place where dreams came true
and stars were born. That period saw the rise of the studio system, where the eight major studios
produced over 7,500 films between 1930 and 1945. Each week over 80 million Americans saw at
least one movie; and 95% of all American movies were produced by the Hollywood studios. With
the breakup of the studio system and the introduction of television, these gaudy numbers began to
decline in the late 1940’s.
Over the years Hollywood’s image has gradually become tarnished. Today people are more likely to
associate Hollywood with congestion, homelessness, crime, and a sense of unwelcome. Currently
the Hollywood neighborhood of Los Angeles, with a population of about 85,000 people in 2008,
averages 68.1 crimes per week. It ranks 28th
worst out of 209 Los Angeles neighborhoods in violent
crimes and 32nd
worst in property crimes per 10,000 people. Also, the production of movies is no
longer concentrated so heavily in Hollywood, with major international competition from Bollywood
and with financial incentives luring filmmakers to locations all over the United States and the world.
Hollywood’s brand could definitely use some sprucing up. Stakeholders such as the state of
California and the city of Los Angeles depend on Hollywood for tourism, tax revenues, and jobs.
While these governmental agencies are currently unable to give much financial help to boost
Hollywood’s image, they can at least help in facilitating improvements in the area that in turn can
improve Hollywood’s brand. Other stakeholders in the brand of Hollywood include such
entertainment giants as Universal Studios, Paramount Pictures, and Disney. Such corporations
might have an interest in investing in Hollywood’s improved image. Local citizens and merchants
also have an obvious stake in the success of Hollywood’s brand, as do potential visitors from near
and far seeking entertainment.
Figure 1 shows the central Hollywood area. A few miles to the northwest along the 101 freeway is
Universal City, including Universal Studios and Citywalk. Paramount Pictures is a couple of miles
to the southeast. Many of the major television and movie studios, such as Warner Brothers, NBC,
and Disney, are about 5 miles to the north in the Burbank area.
Figure 1
The Hollywood Area
The Situation
Hollywood’s brand is obviously tarnished and underutilized. When moviegoers around the
world see the spectacular results of Hollywood’s efforts on the screen, they have high
expectations when they visit the area, only too often to be disappointed. In the areas where
visitors tend to congregate, near the intersection of Hollywood and Highland and the intersection
of Hollywood and Vine, they most often are confronted with beggars and trinket sellers rather
than the magic place that they had expected. On the other hand, places such as the Hollywood
Bowl and Universal Studios are much more satisfying because they are destinations for a specific
experience and one that is provided with high quality. The challenge is for the rest of Hollywood
to capitalize on its brand and to meet the expectations of the stakeholders.
The focus of this project is the area near Hollywood Boulevard and Highland Avenue (Figure 2).
On the northwest corner of that intersection is the Hollywood and Highland Center, built in
2001. The center includes more than 75 shops, the TCL Chinese Theatre (formerly Grauman’s
and Mann’s), and the Dolby Theatre (formerly Kodak), which hosts the Academy Awards and
previously the Cirque du Soleil show “Iris.” The surrounding area is a hodgepodge of uses that
fails to provide a satisfying Hollywood experience to visitors and, in fact, can be dangerous. On
June 18, 2013, at 8:10 in the evening a visitor was stabbed to death by panhandlers at that
intersection when she wouldn’t give them a dollar after taking a picture with her cell phone.
Figure 2
Hollywood and Highland
Source: http://hollywood and highland.com
The challenge is to produce a plan whereby an interested party with the necessary expertise and financial
resources, such as Paramount or Universal, would develop the nearby area south of Hollywood Boulevard into
a cohesive, safe, and attractive entertainment complex that would take advantage of and reinvigorate the
Hollywood brand. A Hollywood-focused theme park in that area could include such attractions as museums
devoted to Hollywood history, hands-on film-making, live Las Vegas-style entertainment, restaurants, rides,
retail stores, theaters, and hotels. These attractions might not necessarily be confined within one contiguous
area, and existing theaters and hotels could be incorporated into the plan.
Areas of research necessary to develop this plan would include such things as land costs, zoning, traffic, a
survey of attitudes of various stakeholders, existing attractions in the area, the economic impact of movies to
the area, trends in the number of visitors to local theme parks and the general southern California area, and
how the locations of other attractions might affect and be affected by the proposal.
The Assignment
Student groups are asked to conduct research, including the areas mentioned above, and to prepare a
marketing plan for the project. Exhibit 1 shows the general outline for marketing plans that students are
supposed to follow in their written and oral presentations. As can be seen, the project requires a substantial
amount of data collection and analysis.
Exhibit 1
Marketing Plan Outline
1. Cover page (subject, authors, date)
2. Table of Contents
3. Executive Summary (1 page – explain the product/value, then summary of the plan)
4. What is our business? (the big picture) **Note: steps 4-9 require primary & secondary data
Mission/vision statement
Company background
Core competencies
5. Where are we now? (situation analysis – snapshot as of today)
SWOT analysis (the overall company)
Environmental scan and description of trends (social, including demographics and cultural effects;
economic, micro and macro; technology; competitive; political; regulatory; and natural)
Detailed description of plan objectives (financial and non-financial; related to the target product)
Industry analysis/market needs (related to the target product)
Buyer behavior (related to the target product)
Competitor analysis (related to the target product)
6. Where do we want to go?
Business portfolio analysis (market growth rate vs. market share; company’s related products)
Product-market analysis (current/new; product/market; company’s related products)
7. How do we get there? **Note: step 7 requires FAB sheet(s)
Marketing mix strategies (detailed 4P’s plus Positioning; related to the target product)
8. Implementation (related to the target product)
Resources required (estimate – HR, operations and production)
Action/timing and who is responsible (Gantt chart)
Estimated budget (required total $ for above required resources)
Organization chart
9. Evaluation and control (related to the target product)
What data to monitor (sales, growth rate, market share, profit, etc.)
Frequency to check the results
Marketing mix modifications required to achieve objectives
Teaching Note
This project has so far been assigned to two student groups in the basic undergraduate marketing course,
which consists mainly of sophomores and juniors. Different student groups are assigned different topics for
their projects. Students are given 5 weeks to work on the project, and it represents 20% of their course grade.
They work closely with the professor throughout the process. The two groups that have worked on this
project took the roles of two potential companies capable of undertaking such a development, Universal
Studios and Paramount Pictures. Other companies, including the possibility of a foreign investor group, could
also be assigned.
The objective is that students undertaking this project will
Better understand and define market opportunities
Apply creativity and innovation in identifying possible strategies
Experience developing marketing 4P strategies for a real situation
Analyze alternatives and evaluate their potential results
Develop control mechanisms to monitor and implement future necessary changes in their plans
Student papers, and also their Powerpoint presentations, closely follow the Marketing Plan Outline in Exhibit
1. Exhibit 2 shows examples of student Powerpoint slides that address several of the topics in the Outline,
taking the role of Universal Studios. These slides demonstrate the level of detail that students undertake; of
course, their paper explains these points much more completely. In our experience so far, students really
seem to enjoy the project and are willing to devote a great deal of time and effort to it. Their numerical results
may not always be completely realistic, but for an introductory marketing course they get to experience some
important marketing processes.
Exhibit 2
Examples of Powerpoint Slides (Universal Studios)
Experienced in product and image development
Experience in research and development
Brand Equity Loyal Customers One of the “Big 6”
in the industry Huge disposable
income
Too much diversification Lack of influence in City of
Hollywood Only 9.8% of theme park
market share Competitor Cooperation Not as innovative as
competitors Plummeting Advertising
Sales
Exhibit 2 (Cont.)
Examples of Powerpoint Slides (Universal Studios)
Growing demand for quality Hollywood tourism
Increase travel Promote brand image Premium architects Revenues
Current stores Traffic Artery Competition Earthquakes Traffic Regulations Economic state Zoning laws High crime area
Exhibit 2 (Cont.)
Examples of Powerpoint Slides (Universal Studios)
Technological Netflix, Hulu, Blockbuster and others Ticket Purchasing Interactive Visual Display Systems Mobile Apps Amusement Parks
Competition Disneyland, 14.7 million visitors a year La Live Six Flags Knott's Berry Farm
Regulatory
City of Los Angeles Environmental Quality Act
Regulations of LA Green Code
Mobility & Transportation initiatives
Zoning regulations and conditional use permits
Exhibit 2 (Cont.)
Examples of Powerpoint Slides (Universal Studios)
Segmented by income demographics
Income 50-60K +
Young Los Angeles Natives International Tourists Families Higher income demographics
•99 million domestic tourists•13.4 million tourists international•11.5% of all domestic travels in the US•Traveler Spending-68.23 billion dollars•873,000 jobs•$2.1 billion in local taxes and $4.0 billion dollars in California state taxes. •Universal Studios is also the top 10 US theme parks •5 million visitors per year
Exhibit 2 (Cont.)
Examples of Powerpoint Slides (Universal Studios)
Features Advantages Benefits
A single tangible location for the
Hollywood Experience
Conveniently experiencing
all Hollywood has to offer
Saves time and money
Entertainment options for all
ages
Occupies all members of the
family
Saves time and money
Improved safety of Hollywood Safer feel for visitors Saves time and money
Improved brand equity of
Hollywood
Improved reputation of the
entertainment industry
Saves time and money
Increase in tourism Increase in revenues for
businesses and taxes for the
state
Saves time and money
Creation of Jobs Increase economic state of
California
Saves time and money
•Museum•Retail Stores •Restaurants•Architecture•Nightlife•Ticket Kiosks•Movie Studios
Exhibit 2 (Cont.)
Examples of Powerpoint Slides (Universal Studios)
TICKET
PACKAGES
General
Admission
Senior Citizen Children under 18 Children under 5
Elvis Presley
Museum Access
$30 $20 $20 Free*
Audrey Hepburn
Museum and Rides
$65 $50 $50 Free*
Marilyn Monroe
Museum and Rides plus a tour of a
Television Set plus Dinner
$150 $130 $130 Free*
Discounts
Hollywood Hotel Discount for
Museum Plus Rides
$10 discount on any
package or 25%
discount on the Marilyn
Monroe Package
$10 discount on any package or
25% discount on the Marilyn
Monroe Package
$10 discount on any package or
25% discount on the Marilyn
Monroe Package
No Discount
•Advertising •Commercials on television networks & online•Featured in TV shows •Out-of-home advertising
•Busses, billboards, buildings
Exhibit 2 (Cont.)
Examples of Powerpoint Slides (Universal Studios)
•Several Blocks of Hollywood Blvd.•NBC website•NBC Television Production
Low quality High quality
Low Price
High Price
Hollywood Experience
Disney Land
Universal Studios
Walk of Fame
Kodak Theatre Grauman’s Chinese Theatre
Ripley’s Believe it or Not
Six Flags
Exhibit 2 (Cont.)
Examples of Powerpoint Slides (Universal Studios)
Estimate Budget & Resources Required:
*Design & architectural fees, legal fees, furnishings, engineering, site clearing, advertising, insurance…etc. Also included in soft costs are our Human Resources. Primary costs are for engineers, architects, and managers of various departments.
References
Google Maps. “Hollywood Map.” http://maps.google.com
Hollywood and Highland Center. http://hollywoodandhighland.com
Los Angeles Times. “Fatal Stabbing a Reminder of Gussied-Up Tinseltown’s Darker Past.”
http://articles.latimes.com/2013/jun/21/local/la-me-hollywood-killing-20130622
Los Angeles Times. “Hollywood Crime – Mapping LA.”
http://projects.latimes.com/mapping-la/neighborhoods/neighborhood/hollywood/crime/
University of North Carolina. “The Golden Age of Hollywood: 1930s – 1940s.”
http://ils.unc.edu/dpr/path/goldenhollywood/
Expatriate adjustment in the UAE: Effects of pre-departure training
Dr. Hanan Al Mazrouei, Department of Business and Economics, United Arab Emirates University, Al Ain,
UAE, Phone: +97150 783 8886, [email protected],
Abstract
The purpose of this study is to investigate the impact of cross-cultural pre-departure training on expatriate
leaders’ adjustment. Questionnaires are used to examine the factors relating to expatriate leader adjustment in
the United Arab Emirates (UAE). There was a positive correlation between expatriate adjustment and
attending ‘pre-departure training’. Analysis concluded that ‘pre-departure training’ was a significant variable
predicting expatriate adjustment. The results provide notable implications for organizational leaders facing a
posting to the UAE and HRM specialists in their organizations.
Introduction
Expatriate assignments are a fact of life in the international business world today. With the rapid spread of
international organizations, many managers concentrate on their organization’s core business at the expense
of understanding cultural variations (Miroshnik, 2002). Managers who can effectively work across cultures
and achieve organizational objectives are increasingly sought after as a source of competitive advantage.
These managers must successfully negotiate the many challenges that cross-cultural leadership presents if
they are to overcome the barriers related to working with members of a different culture and manage their
organization’s business and its local idiosyncrasies.
Frequently the inability to adapt is based on a lack of preparation (Deresky, 2002; Hodgetts and Luthans,
2000). Proper preparation would emphasise the difficulties associated with developing effective working
relationships with people in foreign cultures (Beamish, Killing, Lecraw and Morrison, 1994). Inadequate
cross-cultural training (CCT) is one of a number of reasons for less than successful expatriate adaptation and
an early return from a failed assignment (Dowling and Welch, 2004; Edwards and Rees 2006). This can often
be the result of poor organizational planning but, unfortunately, usually the individual takes the blame
(Deresky, 2002; Hodgetts and Luthans, 2000).
The aim of this study is to add to the fields of international business, management, and human resource management by
focusing on global leadership and cultural awareness and is aimed both at the development of existing adjustment
theory and its practical application for HR practitioners. This article examines HRM in the international context,
particularly as it relates to the pre-departure training of candidates for expatriate assignments to enhance expatriates’ ability
to adapt to their new environment. This study contributes to current knowledge by addressing critical gaps in cross-
cultural management theory including training, adaptation and intercultural awareness. It also improves the
understanding of adaptation as well as enhancing expatriates’ ability to work in the UAE which will assist organizations
with expatriates in the UAE or those intending to send leaders there. This study uses quantitative methods to analyze
the hypotheses and address the research objectives. Exploratory research is utilised to determine the relationship
between CCT and expatriate leaders’ adjustment within the context of UAE organizations.
Data and methodology
This article uses quantitative methods to address the hypotheses. Exploratory research is utilised to establish
the critical determinants influencing expatriate adaptation to the culture within UAE organizations. Primary
data is collected using questionnaires to assist the researcher to identify the effectiveness of pre-departure
training undertaken by expatriate leaders who have successfully adapted to the UAE culture. Self-reporting
surveys may not be the most effective way to quantify cultural values (Schaffer and Riordan, 2003) but are
considered the most popular and efficient method of doing so as it is less demanding on researcher resources
(Taras, Rowney and Steel, 2009).
Participants in this study include expatriate senior executive and middle management from a variety of UAE
industries. Respondents in this research were expatriate leaders coming from a number of different countries
and working in hospitals, hotels and commercial centers. The selection criteria for this research sample were
based on respondents being non-UAE nationals and their having worked between two months and twenty
years in UAE organizations. Two weeks were allowed for them to complete their surveys. After this time,
those who had not yet completed their questionnaires were urged to do so. A further week was allowed
following which further responses were collected. Any expatriates with surveys still outstanding were
reminded of the benefits of the research. The total number of useable questionnaires was 185, which
represents a response rate of 35% of the original 530 questionnaires.
Results
The relationship for all variables in this paper is shown in Table 1. In relation to the analyses, hypothesis 1
was partially supported while 1a and 2 were rejected. A positive correlation was established between pre-
departure CCT and adjustment (r =.310, p < .05). This indicates that there is a weak linear relationship
between adjustment and pre-departure training. Additionally, there was a negative relationship found between
adapting the communication style and attending training in understanding the UAE culture (r = -.06, p < .10).
This means that attending this type of training has a negligible negative effect on adapting communication
style. Also, no correlation were found between the frequency of attending the training on cross culture and
learning the local language (r = .07, p< .01). This implies that language has no effect on expatriate leader’s
adjustment. These reject hypotheses 1a and 2.
To test the hypothesis further, ANOVA was conducted. We tested the effects of the independent variables to
determine whether or not they were statistically significant. Results (see Table 2) show that the independent
variable pre-departure training has an effect on cross cultural adjustment. The result suggests that there is a
significant positive effect of this independent variable on cross cultural adjustment. Pre-departure training
predicted cross- cultural adjustment (F=5.53, p<.05). In addition, ANOVA was used to determine the
relationship between adapting the communication style of expatriate leaders and training in understanding the
UAE culture. We found that there is no relationship between attending training on understanding UAE
culture and adapting the communication style of expatriate leaders (F=.76, p<.05). Frequency of attending
cross cultural training has no effect on learning the local language (F=.55, P<.05).
Summary and Conclusions
This study aimed to test the impact of pre-departure CCT, training on understanding the UAE culture and
frequency of training attendance on cross-cultural adjustment, learning the local language and adapting
communication style. The expected relationship that CCT training has on UAE cultural understanding and
adapting communication style, and the frequency of training attendance and learning the local language would
increase expatriate adjustment was not supported by our data. However, this study has emphasized the effect
of pre-departure CCT on expatriate leaders’ adjustment to the UAE culture.
Because the sample used in this study does not represent all the industries nor all cities in the UAE the results
are only applicable to the sample population. If a result is not able to be applied to the general population
then conclusions must be restricted to the study sample (Field, 2009). In conclusion, the results of this
research support the findings of Waxin and Panaccio (2005) relating to the impact of pre-departure CCT on
expatriate adjustment.
References
Beamish, P.W., Killing, J.P., Lecraw, D.J. and Morrison, A.J. (1994), International Management: Text and
Cases, Burr Ridge, Illinois, USA, Richard Irwin.
Deresky, H. (2002), International Management: Managing Across Borders and Cultures, Fourth edition,
Upper Saddle River, New Jersey, Pearson Education.
Dowling, P.J. and Welch, D. (2004), International Human Resource Management: Managing People in a
Multinational Context, Fourth edition, London, Thomson Learning.
Edwards, T. and Rees, C. (2006), International Human Resource Management: Globalisation, National
Systems and Multinational Companies, Harlow, Essex, UK, Pearson Education Limited.
Field, A. (2009), Discovering Statistics Using SPSS, London, Sage Publications.
Miroshnik, V. (2002), “Culture and international management: a review”, Journal of Management
Development, Vol. 21, pp. 521-44.
Schaffer, B.S. and Riordan, C.M. (2003), “A review of cross-cultural methodology for organizational
research: a best-practices approach”, Organizational Research Methods, Vol. 6, pp. 169-215.
Taras, V., Rowney, J. and Steel, P. (2009), “Half a century of measuring culture – review of approaches,
challenges, and limitations based on the analysis 121 instruments for quantifying culture”, Journal of International
Management, Vol. 15, pp. 357-373.
Waxin, M-F. and Panaccio, A. (2005), “Cross-cultural training to facilitate expatriate adjustment: it works!”,
Personnel Review, Vol. 34, pp. 51-67.
A Panel Data Analysis of Small and Medium-sized Business Enterprises in Pretoria,
South Africa
Zeleke Worku, Tshwane University of Technology Business School, 159 Nana Sita Street, Pretoria 0001,
South Africa, Phone: (+27-12) 382-3050, email: [email protected]
Abstract
This article is a result of a 5-year long follow-up study (2007 to 2012) of a random sample of 349 small and
medium-sized business enterprises that operate in and around the City of Pretoria in South Africa. Data was
gathered from each of the businesses on socioeconomic factors that are known to affect the long-term survival
of small businesses. The objective of the study was to identify and quantify key predictors of viability and
long term survival. The study found that 188 of the 349 businesses that took part in the study (54%) were not
viable, and that the long-term survival and viability of small businesses was adversely affected by lack of
entrepreneurial skills, lack of supervisory support to newly established businesses, and inability to operators
running newly established businesses to acquire relevant vocational skills.
Introduction and Background
A 5-year long study (2007 to 2012) of a random sample of 349 small and medium sized enterprises
conducting business in and around the city of Pretoria, South Africa in which factors responsible for failure in
small and medium-sized business enterprises were investigated by using panel data analysis. At the end of the
study, 188 of the 349 small businesses were not financially viable. The purpose of the study is to identify and
quantify key variables that were responsible for failure in the 188 businesses that were not viable. This is the
first study of its kind in Pretoria, is exploratory in nature, and describes the current state of small businesses
that are operating in Pretoria.
According to the South African Small Enterprise Development Agency (2013), 60% of South African small
businesses fail within their first year of operation. The agency has found that although the South African
Department of Trade and Industry provides incentives and support to small and medium sized enterprises, the
degree of support provided to newly established small businesses is grossly inadequate. As a result, small and
medium sized enterprises are seen failing in a number of areas of specialization (the South African Chamber
of Commerce and Industry, 2013; the South African Department of Trade and Industry, 2013; the South
African Small Enterprise Development Agency, 2013; Ladzani & Netswera, 2009). The purpose of this
research was to identify factors that affect the growth and development of small enterprises that conduct
business in and around Pretoria. The South African Chamber of Commerce and Industry (2013:2-3) has
reported that more than 30% of the total gross domestic product of South Africa is attributed to small and
medium-sized enterprises. Also, 20% of all units exported by South Africa are produced by small and
medium-sized enterprises. It is impossible to grow the South African national economy on a sustainable basis
without simultaneously achieving sustained growth and development in small and medium-sized enterprises
(Saru, 2007). Swanson (2007) has reported that realizing sustained growth and development in small and
medium-sized enterprises is a critical requirement for achieving sustained growth and development at the
national level. Failure in small and medium-sized enterprises amounts to failure in the national economy
according to Zheng, O’Neill and Morrison (2011), Friedman, Miles and Adams (2000) and Nieman (2001).
This particular study is essential for finding out the root causes of failure in small and medium-sized
enterprises that are conducting business in the Pretoria region of South Africa. Very few studies have been
conducted so far in and around the city of Pretoria. For this reason, this study carries significant weight and
importance. Future researchers can use findings from this study for conducting large scale studies at other
regions of South Africa. Small businesses and enterprises make a significant contribution to the South African
national economy. The growth and development of national economies is dependent on the rate at which
small enterprises grow. In recognition of this fact, the South African National Government supports and
actively promotes the growth and development of small businesses in South Africa (South African Parliament,
2008). However, the failure rate of newly established small businesses in South Africa is high.
Objectives of Study
The overall objective of this study was to identify key predictors of failure in small enterprises in Pretoria, and
to propose feasible remedial actions so that support could be provided to struggling small business enterprises.
The study had the following specific objectives:
To describe the characteristics of small enterprises conducting business in and around Pretoria;
To identify factors that adversely affect sustained growth and viability in small enterprises in Pretoria;
and
To propose suitable and feasible remedial actions that could assist small and medium-sized enterprises
in Pretoria.
Research Questions
This study aims to provide adequate answers to the following research questions:
What are the socioeconomic characteristics of small business enterprises operating in and around the
city of Pretoria?
What are the key factors that adversely affect long-term viability in newly established small
enterprises operating in and around the city of Pretoria?
Literature Review
According to the South African Small Enterprise Development Agency (2013), although the South African
Government promotes the growth and development of small and medium-sized enterprises by massively
investing in local institutions such as the South African Centre for Small Business Promotion (CSBP), Ntsika
Enterprise Promotion Agency and Khula Enterprise Finance, the failure rate in newly established South
African small and medium-sized enterprises is as high as 60%. The study conducted by Ladzani and Netswera
(2009) has found that small and medium-sized enterprises often fail due to lack of access to finance and lack
of entrepreneurial skills. At the national level, South African small and medium-sized enterprises in all
economic sectors are characterized by an acute shortage of entrepreneurial and technical skills and difficulty
in raising finance from micro-lending institutions at favourable rates (South African Small Enterprise
Development Agency, 2013). According to research conducted by the South African Chamber of Commerce
and Industry (2013), the situation at the Pretoria region is not different from the situation at the national level.
The purpose of the study is to identify and quantify key factors that are responsible for failure in small and
medium-sized enterprises operating in the Pretoria region. Findings obtained from the study conducted by the
South African Small Enterprise Development Agency (2013) show that 60% of all newly established small
businesses in South Africa fail within their first year of operation. According to the report, although the South
African Department of Trade and Industry provides incentives and support to small and medium sized
enterprises, the degree of support provided is grossly inadequate. As a result, small and medium sized
enterprises are seen failing in a number of areas of specialization (the South African Chamber of Commerce
and Industry, 2013; the South African Department of Trade and Industry, 2013; the South African Small
Enterprise Development Agency, 2013; Ladzani & Netswera, 2009). According to Zheng, O’Neill and
Morrison (2011), Friedman, Miles and Adams (2000) and Nieman (2001), it is essential to develop small and
medium-sized business enterprises in order to develop national economies.
To date, very few studies have been conducted in the Pretoria region to identify and quantify the key factors
that are responsible for failure in small and medium-sized enterprises. Small Businesses are often regarded as
high risk operations locally and globally due to the presence of factors that are difficult to predict adequately
(Thomas, 2000). According to Useem (2001), it is essential to support and guide small business enterprises in
the early stage of establishment by providing them with supervisory and skills-related support and
supervision. White (2005) has found that small and medium-sized enterprises often experience costly
bureaucratic and administrative challenges. In South Africa, small and medium-sized enterprises are set up
with minimal support and guidance from the national Government although the duty of the national
Government is to create an enabling economic environment. The study was conducted against the background
of the need to obtain vital information that explains why more than half of all newly established small and
medium-sized enterprises fail in the first three years of their establishment in Pretoria. Findings from the
study are valuable for providing meaningful assistance to businesses that operate in Pretoria.
According to Lawal (2002) and Joseph (2005), small, micro and medium-sized enterprises are defined as an
enterprise with a maximum asset base of about 10 million Rand excluding land and working capital in which
between 10 and 300 employees work. According to Oboh (2004), small, micro and medium-sized enterprises
are defined as an enterprise that has an asset of between 2, 500 and 20 million Rand excluding the cost of land
and working capital. According to the National Small Business Act of South Africa (the South African
Department of Trade and Industry, 2013), small, micro and medium-sized enterprises are defined as follows:
Micro enterprises: With growth potential that involves the owner and family members or at the most four
employees and whose turnover is below 150, 000 Rand, the threshold for VAT registration;
Small enterprises: With 5 to 100 employees and are owner-managed and fulfill all the
trappings associated with formality.
Medium-sized enterprises: With 100 to 200 employees which are still owner-managed and fulfill all the
trappings associated with formality.
Small, Micro, Medium-scale Enterprises (SMMEs) are also defined as enterprises with a minimum asset base
of 25 million Rand excluding the cost of land and working capital by the South African Department of Trade
and Industry (2013).
The rapid increase in consumer expenditure by residents in the Pretoria region since the early 1990s and the
fact that the overwhelming majority of township dwellers have chosen to stay in their townships has enabled
small businesses to set up shops with a view to render essential services to residents in the Pretoria region of
Gauteng Province. The importance of small and medium-sized enterprises is well documented in terms of
economic development, competitiveness, and innovation. The contribution and importance of small
enterprises to the national economy is based on the ability of the sector to create employment opportunities to
the masses, utilization of local resources, output expansion, transformation of traditional and local technology,
the production of intermediate goods, the promotion of an even development, the reduction of income
disparities, and its ability to increase the revenue base for the South African Government. Small, micro and
medium-sized enterprises (SMMEs) are of a great importance in the area of low capital and output ratio,
optimal utilization of local inputs and other multiplier effect per unit of investment. The SMME sector is
viewed by the South African Department of Trade and Industry (2003) as the key element in fostering
economic growth among the unemployed masses in urban and semi-urban parts of Pretoria. Small and
medium-sized enterprises often use locally made and available technologies for operation, growth in SMMEs
amounts to growth in local and indigenous technology. The SMME sector is crucially needed for achieving
overall economic growth and for the alleviation of poverty among the masses. The SMME sector is supported
by the South African Government as a means of building capacity in local entrepreneurs and to promote the
use of local raw materials, technologies and manpower.
The SMME sector plays a critical role in job creation, skills development, technology transfer, and the
alleviation of poverty among the unemployed. As a result, the South African Government regards the SMME
sector as an engine of growth and economic expansion. The SMME sector in South Africa is similar to the
SMME sectors in other Sub-Saharan African countries, and is exposed to high failure rate, lack of
entrepreneurial skills, lack of resources, lack of access to finance and lack of modern technology. Although
growth in the SMME sector is essential for establishing sustained growth in the overall economy, the sector is
characterized by high failure rate due to lack of entrepreneurial and technical skills that are essential at the
market place (Hashim, Ahmad and Leng, 2006).
According to the South African Department of Trade and Industry (2003), small, micro and medium-sized
enterprises (SMMEs) contribute around 40% of South Africa’s gross domestic profit, and employ more than
half of the private sector work- force. It is estimated that as much as 80% of new jobs in world economies are
being created by SMMEs, and this makes the SMME sector a key player in the national economy. There are
more than 1.5 million self-employed people in the SMME sector, and they contribute about 40% of the total
remuneration in South Africa. The South African Department of Trade and Industry (2003: 4-5) promotes
small businesses by implementing a number of key initiatives. Examples of such initiatives are the Centre for
Small Business Promotion (CSBP), Ntsika Enterprise Promotion Agency and Khula Enterprise Finance. The
CSBP implements and administers the aims of the national strategy, which includes job creation. The DTI has
recently signed an agreement with the European Union which will see the EU donating R550m to start a risk
capital fund for SMMEs. The fund will be administered by the Industrial Development Corporation (IDC) and
the European Investment Bank, and 90 enterprises will benefit. The IDC allocates 75% of new business loans
to SMMEs. The South African Women's Entrepreneur Network was rolled out countrywide in 2002, alongside
manufacturing advisory centres in all provinces. Non-governmental organizations include the Small
Enterprise Foundation, which has a microcredit programme aimed at micro-enterprises, and the Tshumisano
credit programme that specifically supports and promotes female entrepreneurs. The NTSIKA programme
provides non-financial support services to the SMME sector, tackling issues like management development,
marketing and business development services. The agency also helps with research and inter-business
linkages. Khula offers financial support mechanisms to the sector. The financial products include loans, the
national credit guarantee system, grants and institutional capacity building. The KHULA programme provides
micro-lending to newly established businesses. The BRAIN programme (Business Referral and Information
Network) offers basic information and essential service links to entrepreneurs. The BRAIN website includes
information about the government’s incentives and SMME support agencies, as well as links to business
centres. The Franchise Advice and Information Network (FRAIN) programme strives to supply high quality
information and support services to individuals and small businesses in order to promote growth and
improvement in franchise businesses. The FRAIN programme is implemented by NAMAC (National
Coordinating Office for Manufacturing Advisory Centres) with assistance from the Council for Scientific and
Industrial Research (CSIR). The Namac programme has developed an extensive delivery structure across
South Africa that serves as a channel for the application of new tools, information, products and projects, thus
enabling the effective delivery of solutions aimed at SMMEs. The emphasis is on Historically Disadvantaged
Individuals' (HDI) businesses. The Business Partners Limited (BPL) programme provides assistance to small
and medium enterprises financially. The programme provides financial assistance at a cost of between 150,
000 Rand and 15 million Rand. The Tourism Enterprise Programme (TEP) supports small businesses in the
tourism industry financially and technically. The main objectives of the programme are to encourage and
facilitate the growth and expansion of small and medium enterprises in the tourism economy, resulting in job
creation and revenue generating opportunities. Primary emphasis is placed on historically disadvantaged
entrepreneurs and enterprises. For example, at the World Parks Congress the TEP was instrumental in
facilitated deals which provided employment for its beneficiaries. The National Small Business Office
(NSBO) in SARS is the custodian of all small business tax and customs policy matters within SARS. The
office exists to maximize compliance among small businesses while at the same time finding ways to reduce
the compliance burden faced by these businesses in South Africa.
There are various business structures that are suitable for small businesses. The structure of the business
determines the legal status of the business enterprise. Depending on the nature of the business, the number of
people involved, management capabilities, personal risk and future business plans, a suitable business
structure can be chosen for a newly established company. A sole-trading company is suitable for running a
business that has no fixed assets. The owner is the sole employee. Income accrues directly to the owner and
there are no complicated statutory returns other than meeting basic legal and tax requirements. The
disadvantage is that the business is not a separate legal entity, so the owner is liable for, and can be sued for,
the business’s debts. If the owner of the business dies, the business ceases to exist. A business based on
partnership enables 20 or fewer partners to operate a business by pooling their resources and skills together.
By South African law, a closed corporation or CC company is allowed to operate as a business without
fulfilling the formalities indicated in the South African Companies Act that governs (Pty) Ltd companies in
South Africa. This structure is ideal for a business that purchases stock on credit. A closed corporation can
have between one and 10 members, each of whom owns an agreed percentage of the business and who is
liable for managing it properly. A closed corporation cannot be owned by a company or be a subsidiary of
another closed corporation. A closed corporation, rather than its members, can sue and be sued. All closed
corporations in South Africa are governed by the Closed Corporations Act, which is administered by the
Companies and Intellectual Property Registration Office (CIPRO).
A review of the literature shows that small and medium-sized enterprises are often beset by a host of factors
that curtail their survival. In the majority of Sub-Saharan African countries, the most notable obstacles to
sustained growth and development are lack of access to finance (Clemens, 2006), the acute shortage of
entrepreneurial skills (Chromie, 2000), poor infrastructural development (Cooper and Schindler, 2006) and
heavy bureaucracy and legislative obstacles (Bosworth, 2009). The study conducted by Chapman (2000) has
found that superior and well-proven entrepreneurial skills are essential for establishing viable small, micro
and medium enterprises globally, and that business operators who lack entrepreneurial skills must aspire to
improve their capacity of business leadership constantly. Globally, all national governments of the world’s
leading economies actively support the Small, Micro and Medium Enterprises (SMME) sector globally (Fuller
and Tian, 2006). Support is provided to the SMME sector in various ways. One commonly used method of
providing SMMEs with support is the adoption of tax-related policies that provide preferential treatment to
newly established small businesses (Gilmore, Carson and Grant, 2001). The study by Hussey and Eagan
(2007) has shown that small and medium enterprises that thrive to protect the environment are often granted
tax breaks in view of their contribution to values that are deemed important to the national economy. The
other commonly used method of supporting small and medium-sized enterprises is the provision of skills-
based and entrepreneurial trainings free of charge (Jenkins, 2006). Small and medium-sized enterprises that
spend significant resources in promoting basic innovation and research and development are often provided
with adequate support by national governments as a means of promoting science and technology in the
economic sector. In this regard, the most notable examples are small and medium-sized enterprises in
countries such as China, South Korea, Singapore and Japan (Jones, 2010). The rationale of providing such
support is motivated by the desire to use the SMME sector as a driver of national technological advancement
(Khade, 2003).
Based on findings from the study conducted by Porter and Tanner (2004), the world’s most successful and
vibrant small businesses and enterprises are characterized by service excellence, dedication for satisfying their
customers, research, innovation and development, and attention to quality. In this regard, small and medium-
sized enterprises in Sub-Saharan African countries including South Africa are characterized by lack of
entrepreneurial skills and relatively lower professional standards. The authors argue that service excellence
often leads to a solid and sustainable customer base, and that dedication for rendering quality services is a
requirement for sustained growth and development at the market place. The level of skills possessed by the
majority of business operators in newly established businesses is often poor. As such, operators working in
newly established businesses must be dedicated for achieving service excellence and reliable clientele.
However, it is impossible to secure reliable clientele without demonstrating devotion for service excellence
(Chen, Papazafeiropoulou and Dwivedi, 2010). The study by Chetty and Stangl (2010) has found that
dedication for service excellence is a key requirement for credibility at the marketplace, and that newly
established businesses cannot survive without possessing solid reputation and credibility at the market place.
This assessment is consistent with findings reported by Bekele and Worku (2008), Carroll and Wagar (2010),
Cooper and Schindler (2006) and Bosworth (2009). According to Abor and Adjasi (2007), the vast majority
of newly established businesses that fail in their first three years of establishment are characterized by poor
reputation and low entrepreneurial skills in the eyes of potential customers, and often struggle to establish
credibility. This explains why service excellence is critically needed in newly established small and medium-
sized enterprises in the Pretoria region of Gauteng Province. It follows that newly established firms need to
allocate enough resources for the acquisition of essential entrepreneurial and technical skills in their first three
years of establishment. Workers employed in business enterprises where the leadership is autocratic in style
are less efficient and productive in comparison with workers employed in business enterprises where the
leadership is democratic (Isaksson, 2006). The styles of managerial leadership towards subordinate staff and
the focus of power can be classified into three categories. The authoritarian style of leadership is autocratic,
and the focus of power is with the manager and all interactions within the group move towards the manager.
The manager alone exercises decision-making and authority for determining policy, procedures for achieving
goals, work tasks and relationships , control of rewards or punishment (Mullins, 2007).
Methods and Materials of Study
The study design of the research is longitudinal (01 January 2007 to 31 December 2012) and descriptive. Data
was gathered from a random sample of 349 small and medium-sized business enterprises conducting business
in and around the city of Pretoria. Data was gathered on a large number of socio-economic variables that
affect the long-term survival of businesses. Data were gathered regularly from each of the 349 enterprises
selected for the study on socioeconomic variables such as duration of operation, amount of startup capital,
level of education of business operators, level of skills of business operators, suitability of business premises,
level of support provided by the South African Department of Trade and Industry to small businesses, source
of finance, amount of loan borrowed by business operators, profit made, total revenue, operational cost,
access to training opportunities on business operations, supervisory assistance, tax amount, method used for
tax assessment, access to supplies needed by businesses, demand for goods and services in the local market,
perception on level of assistance provided by the government, etc. Data collection was made on a monthly
basis during the period of study by a Doctoral student enrolled at the Business School of Tshwane University
of Technology in Pretoria.
Statistical data analysis was done by using Pearson’s chi-square tests of association (Dawson and Trapp,
2004), binary logistic regression analysis (Hosmer and Lemeshow, 2002) and the Cox Proportional Hazards
Model (Cleves, Gould & Gutierrez, 2004). Some of the 349 businesses in the study were right censored. Odds
ratios were estimated by performing binary logistic regression analysis under the random effects assumption.
Hazard ratios were estimated by performing panel data analysis based on the Cox Proportional Hazards
Model. Estimated odds ratios and hazard ratios were used as a measure of effect, and for ranking influential
predictors of viability and survival in order of their strength. Kaplan-Meier survival probability curves were
used for comparing viable and non-viable businesses with regards to the most influential predictor variable
(level of entrepreneurial skills). Descriptive and summary statistics were also obtained. The adequacy of the
fitted Cox regression model was assessed using the likelihood ratio test and Akaike’s information criterion
(AIC) statistic. The fulfilment of the proportional hazards assumption was tested by use of log-minus-log
plots. Data analysis was done using the statistical package STATA version 12 (STATA Corporation, 2011).
The duration of survival of businesses was measured for each of the 349 enterprises in the study by using 01
January 2007 as the starting point. Enterprises that were still operational at the end of the study period (31
December 2012) were considered right-censored observations as their exact durations of survival could not be
measured due to administrative censoring (inability to measure the survival times of businesses beyond the
date at which the study came to an end) at the end of the study period. For enterprises that ceased operation
prior to 31 December 2012, survival time was defined as the number of days of operation between 01 January
2007 and the date of closure.
The Cox Proportional Hazards Model takes censored observations into account, and this property of the
model makes it quite attractive in comparison with other models used for panel data analysis in economic
studies (Cleves, Gould & Gutierrez, 2004; Kleinbaum, 1996). In Cox regression, hazard ratios are used as an
econometric measure of effect. Key predictors of survival are identified and estimated based on hazard ratios.
Kaplan-Meier survival probability curves were used for comparing businesses that survived the 5-year study
period (viable businesses ) with businesses that did not survive the study period (non-viable businesses ) with
regards to key predictors of survival. Kaplan-Meier survival probability curves were used for comparing
viable businesses with non-viable businesses graphically. At the 5% level of significance, influential
predictors of survival are characterized by hazard ratios that differ from 1 significantly, 95% confidence
intervals of hazard ratios that do not contain 1, and P-values that are smaller than 0.05.
Results of Data Analysis
Table 1 shows the distribution of factors that affect the long-term survival of enterprises for viable and non-
viable businesses. The table provides frequency proportions for 6 key predictors of viability and long-term
survival for viable and non-viable businesses. In the 5-yearstudy period, 188 of the 349 businesses in the
study (54%) failed while the remaining 161 businesses (46%) managed to survive. The table shows that 68%
of viable businesses possessed adequate entrepreneurial skills whereas only 26% of non-viable businesses did
the same. Viable businesses managed to acquire adequate supervisory support when they were newly
established (51%). The corresponding figure for non-viable businesses was 27%. The level of vocational
skills possessed by viable businesses (77%) was relatively higher than the level of vocational skills possessed
by non-viable businesses (38%). Viable businesses were able to secure loans relatively easily (74%) in
comparison with non-viable businesses (37%). Viable businesses were operated by managers with relatively
higher levels of formal education (71%) in comparison with non-viable businesses (43%). Non-viable
businesses were characterized by a past history of bankruptcy (58%). The corresponding figure for viable
businesses was only 11%.
Table 1: Group proportions with regards to the financial viability of small businesses
Predictor
variable
Viable
(n=161)
Not viable (n=188)
Level of
entrepreneurial skills
Adequate: 68%
Inadequate: 32%
Adequate: 26%
Inadequate: 74%
Acquisition of
supervisory support
by newly established
small businesses
Adequate: 51%
Inadequate: 49%
Adequate: 27%
Inadequate: 73%
Level of relevant
vocational skills
acquired by business
operator
Adequate: 77%
Inadequate: 33%
Adequate: 38%
Inadequate: 62%
Ability to secure loan
needed for operation
Easy: 74%
Difficult: 26%
Easy: 37%
Difficult: 63%
Level of formal
education acquired by
business operator
College level or
above: 71%
Below college level:
29%
College level or above:
43%
Below college level:
57%
Past history of
bankruptcy
Yes: 11%
No: 89%
Yes: 58%
No: 42%
Table 2, below, shows adjusted odds ratios estimated from binary logistic regression analysis in which the
random effects model was used. It can be seen from the table that viability in small businesses is significantly
influenced by 4 predictor variables. The 4 influential predictor variables are lack of entrepreneurial skills, lack
of supervisory support to newly established small businesses, inability to acquire relevant vocational skills,
and low initial capital, in a decreasing order of strength. The most influential predictor variable affecting long-
term viability and survival is lack of entrepreneurial skills.
Table 2: Adjusted odds ratios estimated from binary logistic regression analysis
Variable *Adjusted Odds Ratio P-value 95% C.I.
Lack of
entrepreneurial
skills
3.86 0.000 (1.43, 6.02)
Lack of supervisory
support to newly
established small
businesses
3.54 0.000 (1.71, 5.96)
Inability to acquire
relevant vocational
skills
3.27 0.000 (1.77, 5.81)
Low initial capital 2.03 0.004 (0.35, 3.42)
* Adjustment was done for geographical location, age of owner and gender.
The percentage of overall correct classification for the fitted logistic regression model was equal to 89.07%.
The P-value for the Hosmer-Lemeshow goodness-of-fit test was equal to 0.1076 > 0.05, thereby indicating
that the fitted logistic regression model was theoretically reliable.
Hazard ratios estimated from the Cox Proportional Hazards Model are shown below in Table 3. It can be seen
from the table that viability in small businesses was significantly influenced by 3 factors. The 3 influential
predictor variables are lack of entrepreneurial skills, lack of supervisory support to newly established small
businesses, and inability to acquire relevant vocational skills, in a decreasing order of strength. The most
influential predictor variable affecting long-term viability and survival is lack of entrepreneurial skills.
Table 3: Adjusted hazard ratios from the Cox Proportional Hazards Model
Variable *Adjusted Hazard Ratio P-value 95% C.I.
Lack of
entrepreneurial
skills
3.87 0.000 (1.44, 6.01)
Lack of supervisory
support to newly
established small
businesses
3.55 0.000 (1.72, 5.94)
Inability to acquire
relevant vocational
skills
3.29 0.000 (1.79, 5.83)
* Adjustment was done for geographical location, age of owner and gender.
It can be seen from Tables 2 and 3 that hazard ratios estimated from the Cox Proportional Hazards Model
were fairly similar to odds ratios estimated from binary logistic regression analysis. In view of the fact that the
design of the study is longitudinal, and not cross-sectional, hazard ratios estimated from the Cox Proportional
Hazards Model carry more weight theoretically in comparison with odds ratios estimated from binary logistic
regression model. As such, interpretation of results will be made based on hazard ratios.
The hazard ratio of the variable “Lack of entrepreneurial skills” is 3.87. This shows that businesses that are
run by operators who do not have adequate entrepreneurial skills are 3.87 times more likely to fail in
comparison with businesses that are run by operators who have adequate entrepreneurial skills. It can be seen
from Table 1 that 68% of the 161 viable businesses in the study were run by operators who had adequate
entrepreneurial skills, whereas only 26% of the 188 non-viable businesses in the study were run by operators
who had adequate entrepreneurial skills. The hazard ratio of the variable “Lack of supervisory support to
newly established small businesses” is 3.55. This shows that newly established businesses that had
inadequate supervisory support were 3.55 times as likely to fail in comparison with businesses that enjoyed
adequate supervisory support. The hazard ratio of the variable “Inability to acquire relevant vocational
skills” is 3.29. This shows that businesses that were run by operators with poor vocational skills were 3.29
times as likely to fail in comparison with businesses that were run by operators with adequate vocational
skills. Adjustment was done for three potential confounding variables: geographical location of business in the
city, age of owner and gender of owner. Unadjusted and adjusted hazard ratios did not differ much. This
shows that none of the three variables used for adjustment was a confounding or effect modifying variable.
The adequacy of the fitted Cox model was assessed using log-minus-log plots, the likelihood ratio test and the
AIC (Akaike’s Information Criterion) as diagnostic procedures. All log-minus-log plots were parallel,
showing that the assumption of proportional hazards was satisfied. The P-value from the likelihood ratio test
was small (0.0001 < 0.01), thereby showing that the 6 variables constituting the fitted Cox model were jointly
efficient in explaining variability in long term survival at the 1% level of significance. The estimated value of
the AIC statistic was also small (10.01), thereby showing that the discrepancy between the fitted and true
models was insignificant (Verbeek, 2000).
Kaplan-Meier survival probability plots were used for comparing the survival probabilities of viable and non-
viable businesses with regards to entrepreneurial skills. The plot shows that businesses that were run by
operators with adequate entrepreneurial skills have a relatively larger probability of survival in comparison
with businesses that were run by operators with inadequate entrepreneurial skills.
Figure 1: Kaplan-Meier survival probabilities by level of entrepreneurial skills
0.0
00.2
50.5
00.7
51.0
0
0 20 40 60analysis time
Adequate skills Inadequate skills
Kaplan-Meier survival estimates
Discussion of Results
The study has found that 188 of the 349 businesses that took part in the study (54%) were not viable, and that
the long-term survival and viability of small businesses was adversely affected by lack of entrepreneurial
skills, lack of supervisory support to newly established businesses, and inability to operators running newly
established businesses to acquire relevant vocational skills. The 188 non-viable businesses in the study (46%)
were characterized by low level of entrepreneurial skills, low level of supervisory support, lack of relevant
vocational skills, difficulty in securing loans, low level of formal education, and a past history of bankruptcy.
The study has shown that businesses that were run by operators with adequate entrepreneurial skills have
survived much better than those that were run by operators who did not possess adequate entrepreneurial
skills. Results obtained from Pearson’s chi-square tests of associations (P < 0.05) showed that businesses fail
due to lack of initial capital, failure to utilize finance in accordance with business plan, high labour cost,
shortage of entrepreneurial skills that are needed for operating business, adverse market conditions, difficulty
in securing loans needed for business, inability to pay fees that are required for renting business premises,
inability to draw up business plans, inability to do bookkeeping, the practice of selling on credit, the status of
business being operated, and lack of training opportunities that are relevant to the business being operated.
Businesses that failed were characterized by loss of money, inability to draw up business plans, inability to do
book-keeping, inability to acquire technical and vocational skills due to shortage of finance. The key findings
of this study are in agreement with results reported by Jiang & Peng (2011), Globerman, Peng & Shapiro
(2011), Zoogah, Vora, Richard & Peng (2011), Peng, Rabi & Sea-Jin (2010) and Daley-Harris (2011). The
South African educational curriculum does not prepare potential entrepreneurs adequately for the task of
operating newly established businesses. The content of the curriculum for vocational training at the high
school and undergraduate level is vastly inadequate and irrelevant to the specific needs of young graduates
who aspire to thrive in business. This failure constitutes a major obstacle to the growth and development in
small and medium-sized businesses and enterprises in South Africa.
The study has shown that the failure to utilize finance in accordance with business plan is detrimental for
viability, and that non-viable businesses are characterized by a past history of bankruptcy. Similar findings
have been reported in other Sub-Saharan African and South-East Asian countries in which it has been found
that successful businesses are often run by operators with sound entrepreneurial skills and fiscal discipline
(Kumar, Antony, Madu, Montgomery and Park, 2008). Successful operators improve their managerial,
vocational and technical skills incrementally. Managerial ability was assessed in terms of the ability of owners
or operators to produce sound business plans, perform standard bookkeeping, auditing and record-keeping
duties, introducing appropriate technologies and expertise, acquiring innovative business skills from rival
enterprises, degree of motivation and commitment in sharing useful experience with employees, commitment
in terms of empowering employees, investing in skills related training opportunities for employees, ability in
resolving business related disputes amicably, etc. Successful businesses and enterprises were associated with
managers who enjoyed what they were doing, whereas unsuccessful businesses and enterprises were
associated with mangers with little or no motivation and commitment.
Newly established businesses seek financial assistance from financial institutions such as the Industrial
Development Compotation (IDC), Business Partners Limited (BPL), Khula Enterprise Finance Limited
(KFL), as well as the big four South African commercial banks (Amalgamated Bank of South Africa (ABSA),
First National Bank (FNB), Standard Bank and Nedbank). Although the commercial banks have adequate
funds to lend, their lending policies are quite stringent, and are based on collateral. The other microfinance
institutions do not have adequate funds to satisfy the needs of newly established firms. Also, their lending
rates are quite high, and are not affordable to small enterprises. Qian, Theodore, Peng & Zeming (2010) have
found that it is quite difficult and unaffordable for the majority of small enterprises to borrow money on
unfavourable terms from financial institutions conducting business. Basically, these financial institutions have
limited resources, and impose rather stringent repayment conditions on borrowers. This condition exacerbates
the plight of newly established firms (Smedlund). Newly established firms often lack the ability to utilize
borrowed money wisely and according to plan. They have poor auditing, managerial and entrepreneurial
skills. They do not report their progress at the workplace regularly to financial institutions that choose to lend
them money. As a result, the majority of commercial banks and micro-lending financial institutions are often
reluctant to lend monies to newly established small and medium-sized enterprises conducting business in the
Pretoria region of Gauteng Province.
The academic curriculum used in South African tertiary level academic institutions needs a fundamental
overhaul and review in order for young graduates to acquire entrepreneurial and technical skills that are
essential for operating businesses successfully. Studies conducted by Bekele and Worku (2008) and Zoogah,
Vora, Richard and Peng (2011) have found that the failure of tertiary level academic institutions to equip
young graduates with skills that are relevant to the actual needs of society is the key reason why young
graduates in the world’s least developed nations are virtually unemployable.
Recommendations
Based on findings obtained from the study, the following recommendations are made to the South African
Department of Trade and Industry, the South African Department of Higher Education and Training, and the
South African Chamber of Commerce and Industry with a view to improve viability in small and medium-
sized enterprises operating in the Pretoria region of Gauteng Province. The recommendations have the
potential for improving the plight of struggling small and medium-sized enterprises in the region.
It is necessary to design relevant and tailor-made skills based training programmes on vocational and
entrepreneurial activities in which young matric graduates can be equipped with the skills they need to
run businesses successfully;
It is necessary to provide mentorship and supervisory assistance to newly established small and
medium-sized enterprises for a period of at least three years or more;
It is vital to encourage academic and research institutions to create academic programmes in which
trainees can acquire experiential training by working for businesses and industries as part of their
academic training in South African institutions of higher learning. Such programmes should be jointly
coordinated and funded by the South African Department of Higher Education and Training, the South
African Department of Trade and Industry, and the South African Chamber of Commerce. Doing so
has the potential for producing graduates who possess skills that are relevant to the actual needs of
business, industry and government.
It is necessary to monitor and evaluate the viability of newly established small businesses on a
monthly basis. This task falls under the ambit of the South African Department of Trade and Industry.
Such an intervention has the potential for minimizing the rate at which newly established small
businesses fail in and around the city of Pretoria.
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Process Capability Approaches for the Process Improvement of a Meal Line:
Some Experiments and Observations
Dr. Ram Roy, Eastern Institute of Technology, Hawke’s Bay, New Zealand, [email protected]
Abstract This study was initiated by Meal Line of XYZ Food Company which has received numerous
complaints from customers regarding missing fillings in their meals. These meals are prepared
with multiple ingredients filled in by various machineries in the Meal Line. The ingredients
weights in the meals are designed in such a way that a missed drop/fill should cause the meal to
be underweight. In spite of having a validated checkweigher, that should detect and remove
underweight meals, such meals are still making into the market. The objective of this study was to
identify the causes behind the problem. To search for the problems, an understanding of the line,
machinery and process was undertaken. Then the Six Sigma approach (DMAIC) was used to
understand and improve the capability of the process. It was identified that the weight of the
fillings dropped into meals by the fillers were heavier than specifications, causing finished meals
to be heavier. This allowed the meals with missed fillings to go past the checkweigher without
being detected. Samples were collected and analysed to determine the capability of the process.
Along with the general observations, certain experiments were also conducted during the study.
The operators and quality controller were interviewed and their opinions noted. The outcomes of
these observations and results were analysed and the conclusions drawn were: rejection
capability of the system is not high; improvements on the fill weights may not be enough to
improve the efficiency of rejection process and more changes to the checkweigher and other
machinery are required. These recommendations should improve the process capability and reduce
the number of customer complaints.
Introduction Process capability indices, according to Jackson (2001), were invented to enable an organization
to make economically sound decisions for process management. Process capability is a
comparison of the voice of the process with the voice of the customer. The two popular process
capability indices in use are Cp and Cpk. Cp = {USL – LSL}/6σ, and Cpk = min of {(USL-µ)/3σ,
(µ-LSL)/3σ}; where, LSL = lower specification limit; USL = upper specification limit; σ =
process standard deviation, and µ = process mean (Jackson, 2001).
Meagher (2000) explained the concept of process capability with an interesting example. Think
of driving different types of vehicles on a road under construction. The vehicle's width is the
variability of the process (±3σ), and construction barriers on either side of the road are
specification limits. Every time the vehicle approaches a barrier, getting closer to one of the
specification lines, the opportunity for success is lowered. This is equivalent to Cpk, the process
performance, which is the distance from the centre of the vehicle to the closest barrier
divided by the distance from the centre of the vehicle to its edge closest to the same barrier.
Let the width of a lane is 10 feet, through which different vehicles have to pass: a motorcycle (3
feet wide), a car (6 feet wide); a truck (9.5 feet wide); and a home (14 feet wide). All the vehicles
running through the lane is, Cp, the process potential (width of lane or specification/variability).
So, the capability of motorcycle would be 3.33 (10/3); car, 1.67 (10/6); truck, 1.05 (10/9.5); and
home, just 0.71 (10/14). So, which vehicle would you like to be driving? Your only concern will
be the closest side as that is the only one likely to be damaged. For example, capability of
motorcycle running 2 feet away from barrier would be 2 {i.e. (5 - 2)/1.5 = 2, and capability of
car would be 1 {i.e. (5 - 2)/3 = 1} (Meagher, 2000).
Some researchers are sceptical about using capability indices as they do not deal with all the problems in the process. According to Nelson, “. . . the concept of attempting to characterize a process with a single number is fundamentally flawed” (Nelson….cited in Jackson, 2001). Similarly, Kitska stated, “I would prefer eliminating Cp and Cpk statistics. They grossly oversimplify process characteristics and, without adequate exploratory analysis, often lead to erroneous or meaningless conclusions” (Kitska….cited in Jackson, 2001).
Palmer and Tsui (1999) suggested some indices other than the popular ones used by practitioners
of industrial statistics. According to them, selection of a set of capability indices, for use in
directing process improvement activities, should be based on the stated requirements of the
customer and the current ability of the process to satisfy those requirements.
Taking the opinions of various researchers into account, this paper deals with the issues of process
control from various perspectives without depending too much on the process capability indices.
Company’s Background
XYZ is an iconic company of New Zealand that manufactures jams, dressings, soups, sauces, and
even burgers. It also processes tonnes of fruits, vegetables, baked beans, spaghetti, and various
meals. XYZ has three manufacturing sites, two in the north and one in the south island of New
Zealand. In 2011 XYZ won Readers Digest most trusted food brand in New Zealand for the
second year in a row. Marketing general manager of HW considers this award as recognition by
people of NZ, as a privilege. One of the two food processing sites of XYZ is located in Hastings
where they have they have a major production centre called the Meal Line. Here they make
various types of meals for XYZ and other brands like Weight Watchers (WW). There are two
Meal Lines capable of producing meals. This paper is based on products made on Meal line 2
which is used to make ‘ready to eat’ frozen meals such as: Tuna Bake, Chicken Hotpot, Chicken
Risotto, Macaroni Cheese, Thai Chicken Curry, Chicken Fried Rice, etc. As the meals are
prepared for weight watchers, the final meals are required to be within the specific weight limits.
Meal specifications: The meals are assigned to meet certain weight specifications. Every meal
must ‘fit’ within the minimum and maximum weights specified for the particular meal. Each
component of the meal is given a weight specification (min and max) and the overall design is
such that if a component is missed then the total weight will be outside the specifications and
therefore will be rejected by the checkweigher. Every meal has its own set of fillings as part of
recipe. There are five different machineries used to dispense each of these fillings on empty plates
placed on a moving conveyor belt. Figure 1 shows detailed layout of Meal Line 2. A part of its
quality control system is a checkweigher which is attached with a reject system. It works
perfectly every time it is tested but customer complaints show that underweight meals are still
getting through to the market. The meals have up to 5 ingredients, and the validated
checkweigher should remove underweight products. However, the missed filling complaints on
all the WW products are consistently high. Customers complain on missing pasta or
chicken/meat in the meal.
Objectives and Approach
The objective of this paper is to determine causes behind the meals with missed fillings making
past the checkweigher without being rejected, and to work with the meal line to fix the issue.
The approach for this study will be to understand the process of making meals and then to look at
the customers’ complaints to find out the reasons and then suggest ways to process improvement.
This will require applying the principles of Six Sigma (DMAIC) at Meal Line (Muthiah, 2011).
Learning at the Process
The Meal Line makes use of 11 equipment/machineries out of which 8 are filling stations. The
scope of the project is quite broad as the causes are not specifically known. The steps taken are as
follows: (a) Understanding the machinery and processes involved as there could be multiple
factors causing the problems. (b) Full process and machinery will be looked at to find the
contributing factors. Observations will start from the checkweigher end of the line and continue
towards other machineries and filling stations. (c) A series of experiments will be conducted to
determine the efficiency of the checkweigher and the process. They will be conducted with the
cooperation from the operators (OP) and quality controllers (QC) working on the line along with
the team leaders (TL) and some casual workers. Their opinions and suggestions will be noted
down during the study along with other activities. (d) The data collected during the study will be
analysed and discussed with the team members and any new development will be reported. This
study would also include the opinions and actions taken by the team. (e) Effectiveness of these
changes will be observed and improvements noted.
Process Observation for various Meals
1. Weight Watcher’s Tuna Bake: The first meal observed on Meal Line 2 was Weight Watcher’s
Tuna Bake with the specifications given in Table 1. Fillings added by different dispensers are:
multi filler (pasta), piston filler (sauce), manual filling (Tuna), mondini (broccoli), and cheese
dispenser (cheese). There was high inconsistency in the amount of tuna placed in the plates
manually. According to the quality controller (QC) the inconsistency was because of the texture
of tuna and the high speed of meals moving on the belt. The workers were sometimes unable to
keep up with the speed at which the meals moved. The checkweigher is placed at the end of the
production line after the meal gets sealed by mondini sealer (Figure 1 Appendix).
There is no cover on the belt of the checkweigher, and the belt does not seem tight enough. It
appears slightly lifted above the surface on one side. The machine operator commented that the
key slot used to tighten the belt was ground so it cannot be further tightened. It can be observed
that the key slot to tighten the belt is worn-out.
Sometimes a pile of meals get accumulated at the rework table. There are no fillings/ingredients
placed at the rework table to fill the missing ingredients in the meal. The workers at the rework
station use one of the existing rejected meals on the table to fill the others with the help of a
spoon. First the seals of the meals are removed by hand. The weights are then adjusted to within
the specifications with the help of a scale. A small sealer that is positioned next to the rework
table is used to reseal the meals. They are then placed on the moving belt after the checkweigher
which takes them towards pack offs (final product packaging).
At times the rework table is completely full, and the meals start to build up back towards the
rejecter arm. There is a sensor between the rework table belt and the rejecter arm to stop the main
belt when the meals start piling up towards the rejecter arm. This stops the whole processing line
and prevents meals from reaching towards belt going to the pack offs.
The meals that have been rejected by the checkweigher are shaken up in the process and are
mixed up. The appearance of most of the meals going through to reworks and even some of the
finished meals from reworks, do not look anything like the picture on the packaging. It is
observed that the meals get literally whacked by the rejecter arm and are mixed up.
Upon observing the meals moving on checkweigher, it seems like there is a lag between the
readings of weights on the checkweigher panel. Meals are moving too fast for the eye to detect if
checkweigher is weighing every meal. The checkweigher displays the number of meals passing
through it every minute and it matches the speed on the panel used by the operator to control the
meal line. The checkweigher is capable of rejecting 100 meals a minute. According to an operator
the testing process is such that they pass 100 out of specifications items within a minute.
The QC checks the meals every half hour. Four samples of each of the fillings are taken in empty
plates. The results are fed into a system that calculates process capability with the aid of graphs
for records. 4 samples of each fillings are tested from 3000/2400 meals depending on the speed of
the line. A discussion with OP revealed that the checkweigher is not required to be zero error
tested. But, he kept an unofficial record of the results of testing done by him over a period of time.
The results of the test conducted on request are given in Table 2.
Table 1: WW’s Tuna Bake
Ingredient USL LSL Target
Sauce 200 183 193
Pasta 93 80 86
Tuna 36 12 24
Broccoli 37 15 26
Cheese 6 2 2.9
QC Sheets 359 311 353
Rework 357 320
Checkweigher 357 311
Table 2
Average weight (gms) 0
Standard deviation 1.26
Min weight -3.20
Max weight 3.10 Calculated range 6.30
As per the operator the accumulated grime (on that day) on the checkweigher was due to the
cheese dispenser. If the Meal Line is stopped for any reasons the cheese dispenser does not stop
the flow of cheese which gets collected on the conveyor belts and then gets spread across the belt
by sticking to the bottom of the plates.
The QC and the OPs differed whether the meal with weight equal to LSL should be rejected or
accepted by the checkweigher. The QC believed it should be rejected whereas in operators’
opinion the meal should be acceptable. It was observed that meals that weighed equal to LSL were
accepted by the checkweigher. The QC suggested that it was due to the alteration in the target
weight which gets updated every 10 minutes (see discussion in Appendix).
Ishida display panel shows the weights passing through its buckets to the next one. It also shows
the combined weight dropped. Frozen broccoli being filled by Ishida bounces and drops outside
often. QC commented that when they do the visual observations for tuna they look highly
inconsistent. However, when it comes down to weighing the samples, the weights are accurate.
The QC believes that this is because when they weigh the manual feeding of tuna, the people on
line doing the hand fill become aware of QC’s intentions when empty plates approach them and
so the readings are always within limits. Checkweigher rejecter arms are mounted on a belt. It is
inside a cage. Some meals after rejection collide inside the cage area, and observation is
summarised in Table 3.
Table 3
Total observations
No. of collision
Total collisions
inside cage
Recoiled back after
colliding
Recoiled back onto conveyor
belt
Comments
74 51 20 3 0 Seal coverings came off many times
causing spillage around cage and
sensor
Experiment 1 Comparing meals: Meals were first weighted on scales and then reading taken
from the checkweigher. According to the QC the scales and checkweigher have been calibrated
but they are not sure why there is variation (Table 4).
Table 4 Weight on scale (gms) Weight on checkweigher
(gms)
Difference (gms)
331 333 -2 346 347 -1 335 336 -1
340 341 -1 324 323 -1 333 330 3 334 332 2
During later observations, a series of meals that were partially full were rejected by the rejecter.
Some empty and very partially filled meals got trapped in the cage. It was suggested by the
operator that the empty or light meals have a high tendency to get trapped inside the cage of the
rejecter arm. An experiment was conducted which required putting back rejected meals that were
still intact back on the line, before checkweigher for a second time to check if the checkweigher
rejects them again. The results of the experiment are shown in Table 5.
QC’s underweight sample got accepted while the above trial was being conducted. Upon second
trial the same meal got rejected. The QC mentioned they had no idea why the same test meal
which was under weight, was accepted at first and then rejected the second time. The QC added
that it does not happen often but there are times when similar incident has happened.
Table 5: LSL = 311, USL = 357
Number Weight on checkweigher Weight on scales Difference Comments
1 358 355 3 2nd time accepted 2 353 353 0 2nd time accepted 3 306 309 3 Rejected both times 4 313 315 2 2nd time accepted 5 311 315 4 2nd time accepted 6 313 314 1 2nd time accepted 7 362 358 4 Rejected both times 8 336 335 1 2nd time accepted
So why does it happen?
According to QC the checkweigher resets itself every 5 or 10 mins depending on the settings.
Resetting according to QC works like this: if the mean weight of the meals passing through is
low/high then it will accept the meals slightly low/high in weight specs. This could be the
possible reason for the checkweigher accepting rejected meals second time around or maybe there
is some other factor.
The operators had a different view on this problem. They say that the target weight changes as per
the giveaway percentage, which is the amount of weight over or below the target weight of the
final meal. They add that this giveaway rate adjusts every so many meals. They added that it is
only the target weight that changes and not the lower or higher limits set for the meal. Therefore
the meals below the specification should not be accepted under any circumstances. 2. Chicken and Beans: Chicken and beans are mixed and dropped together into the plate. The combined weight target is 49 grams (Table 6). QC randomly checks the weight of samples after the checkweigher to verify if the meals are within specifications. The samples recorded on the day were within the specification.
Table 6 Chicken Hotpot
Ingredient USL LSL Target
Sauce 192 178 185
Potato Mesh 100 88 94
Chicken 34 24 28
Beans 27 15 21
Bean &
Chicken 61 39 49
QC Sheets 360 312 353
Rework 360 320
Checkweigher 360 312
The mixed chicken and beans are dispensed by Ishida. According to QC, the weights of the
combined drops are within the specifications but there is inconsistency in the individual weight of
chicken and beans in the samples. QC feels that if they were added separately the weights of each
product could be more accurate. At the base of Ishida there is a feeding vessel from which the
frozen fillings (chicken, bean, etc.) flowed into the Ishida bottom collector. On several occasions
the opening at the bottom clogs which stops the flow of materials into Ishida. When this occurs, it
makes a vibrating sound to alert the operators to stir it so the flow can return to normal.
Examining the motion of Ishida buckets dropping into the plates it was found that some of the
fillings bounce off the plate. The fillings being dropped are in a frozen state and the position of
buckets from which they get dropped in the plates is high.
Experiment 2: According to OPs, the maximum number of meals passing through
checkweigher in a minute is 100, so the checkweigher should be capable of rejecting upto 100
meals/minute. An experiment was conducted to test the rejection capability of the checkweigher.
To pass 10 meals at the speed of 100 meals/min, the time of opening is 6 seconds. So, the plan of
experiment is to place meals on line in such a way that 10 meals pass through the checkweigher
in 6 seconds. If all the meals get rejected, it will validate the checkweigher to be capable of
rejecting up to 100 meals a minute. 10 underweight meals were placed simultaneously, and
observations are shown in Table 7.
Table 7
Trial
no
Total out of spec meals
No of
meals rejected
Result Time target
Time taken Comments
1 10 10 All meals rejected
6 seconds Unable to keep track
Could not keep track of
time between meals
while observing the
experiment
2 10 10 All meals
rejected
6 seconds Unable to keep
track
Experiment 3: Missed drops from Ishida: The purpose of this is to check if the checkweigher
rejects the meals with drops missed by Ishida. The Operator made Ishida miss fillings on purpose.
We expect the meals (with the missed fillings) to be below the LSL and should be rejected by the
checkweigher (Table 8). For higher confidence level of accuracy it is suggested that more
observations are taken. In spite of missing the drop weight of 28 gms (target weight in Table 6)
of chicken, some of the meals were within the specification limits.
According to the operators, the line would automatically stop only if Ishida misses 5 drops in a
row. So if Ishida was to miss up to 4 drops in a row, line will continue to run. The operators
believe there are many reasons that contribute to the missing drops: (i) If the weight in the final
buckets is too heavy, drop will be missed. (ii) If the ingredients are not getting fed into the line it
causes missed drops. (iii) If the fillings have clumps, being in frozen state, weight of the clumps
will be heavier than the specifications and the filling will be missed.
Table 8: LSL = 311 on checkweigher
Trial
no
No. of meals
with
missed
drops
No. of meals
rejected
No. of Meals
accepted
Weight of accepted
meals
LSL % not rejected
Comments
1 12 9 3 311, 309, 312 311 25.0 309 is below LSL and still
accepted
2 14 10 4 308, 314, 309, 316
311 28.6 308, 309 below LSL & 314,
316 above LSL 3 12 10 2 323, 311 311 16.7 323 within spec, 311 on LSL
The manual of checkweigher reveals that its capacity is 20-80 m/min (Scanvaegt checkweigher).
This speed is assumed to be in meters/minute of belt speed. The checkweigher manual says:
never run the machine without cover, and the belts must be equally tight without being loose at
the sides. But, the checkweigher on the Meal Line does not have a cover on it. On the next day,
the belt on the checkweigher seems loose, and is moving up and down on the side. OPs
commented that during the day the belt could have gotten loose but they are unable to stop
production for it. QC mentioned that the key slot is worn-out and belt cannot be tightened further.
3. Chicken Risotto: Risotto is filled in the plates by the Piston Filler. 5 samples were collected
from each side of the line at regular intervals (Table 9), and their weights are shown on control
chart 1. Ishida ran empty and caused the line to stop several times over a couple of hours. OPs
were alerted by its typical vibrating sound. Normally OPs remove the plates with missed drops
but if the meal line is busy, they leave it to the checkweigher to reject the meals.
4. WW Thai Chicken Curry (WWTCC): According to customer data, WWTCC has high
number of complaints (Table 10). The problems range from rice being too sticky causing
dispensing problem with multi filler to frozen chicken having clumps causing multiple missed
drops by Ishida. OP commented that their main focus on the line has been to get maximum
number of meals to the pack offs. Due to the lack of staff on several occasions they were unable
to check the meals at the end but the checkweigher is in place to do that. OP explained that there
are times when they get occupied on both ends of line. They do checks by themselves but the
weights of the fills are tested by the QC and the results are relayed to them.
Table 9: Chicken Risotto
Ingredient USL LSL Target
Risotto 305 288 300
Chicken 35 24 28
QC Sheets 340 312 328
Rework 340 320
Checkweigher 340 312
Table 10: WW Thai Chicken Curry
Ingredient USL LSL Target Gap
Rice 112 102 108
Chicken 35 23 29 12
Sauce 171 159 165
Beans &Peas 39 19 28 20
QC Sheets 360 312 48
Rework 360 320 40
Checkweigher 360 312 48
A change was made on the line affecting the motion of the belts. The entire belt would stop if the
belts after the rejecter stop for any reason. The purpose of this change is to stop meals from
building up and pushing their way through the rejecter. The sensors have tripped off few times
stopping the entire line. Samples were collected over 3 hours as shown in control chart 2.
Analysis of Observations
Checkweigher: This is the sole mechanism to control the end product. It shows high variations
upon testing yet nobody knows the exact cause of the problem. The experiment shows the
inconsistency in weights of meals taken by checkweigher and scales (Table 4). The fact that same
meals are first rejected and then accepted by the checkweigher indicates the inconsistency on its
part (Table 5). There is no cover on top of the checkweigher. Vents of air conditioning and stray
wind can cause variations in the weighing process (Kopczynski & Ness, n. d.). The checkweigher
manual also suggests never to use it without a cover.
Gap within specification limits: The gap (Gap = USL – LSL) is more than the weights of certain
fill ingredients. This gap can be observed from the target weight of the fillings and finished
product from Table 10. This means that if the drop of fillings highlighted in the tables are missed
and other ingredients are heavier than specified, the meals can get past the checkweigher
undetected. For example, in the making of Thai Chicken Curry if the drop of chicken was missed
and the rice or sauce is being filled heavier than specification, it is highly likely the meal will
sneak past the checkweigher without being rejected.
Impact of target weight: Result of the experiment of placing rejected meals for second time
before checkweigher (Table 5) is explained by QC who says it could be due to checkweigher
updating itself every 10 minutes which changes its target weight and acceptance limits.
Checkweigher efficiency: Table 8 shows that upto 28.6% of meals with missed drops made
through the checkweigher undetected. The average flawed meals that went past the checkweigher
is 23.43%. The process is automated and relies on the checkweigher to detect missed drops. We
may conclude that out of 100 meals with missed drops, only 77 will be rejected and 23 will make
it to the market as there is no other check point beyond the checkweigher.
Checkweigher validity: Table 7 indicates that the checkweigher is capable of rejecting meals at
high speed. However, the meals used were hugely underweight and the checkweigher does
perform properly with acutely underweight meals. The meal samples used by QC for testing the
checkweigher are quite under and overweight. Even then on some occasions the samples have
made past the checkweigher undetected which shows it is not just the process but the
checkweigher needs to be improved. Checkweigher validated this way may still be incapable of
detecting slightly underweight meals.
Reworks station: At the reworks the meals are placed after the checkweigher. According to OP,
to place them before the checkweigher, he will need to use a movable table to move meals and
possibly interrupt the line to place them. Observing the pattern of placement of meals after the
checkweigher and rejecter, it was noted that they are placed in the gaps between the lots of six
meals. Normally the little gap occurs because of the pattern of 6 meals movement by the main
sealer. This pattern of gap starts before the checkweigher and follows through. Therefore the
meals can be placed before the checkweigher using the same time gap. This will eliminate human
errors from reworked meals in weight of ingredients.
Multi fillers: Chart 2 (appendix) shows that both the multi fillers were dropping significantly
heavier fills. The observations were made independently and within 3 hours. The sheet used by
QC showed all the weights within the specifications. This indicates that the sample size used by
the QC is too small to identify heavier meals being processed. Due to the management’s decision,
the sample size of fillings was increased from 4 to 10 every half hour. Instead of 2, now 5
samples are taken from each side of the line and weighed. Management intends to designate the
OP instead of the QC to record the weights of the meals. Management instructed OP to run the
machinery in such a way that the fill weights are on par with the target weight required instead of
being anywhere within the specifications. The focus is to document optimum settings of the
machinery for particular fills.
Grime on checkweigher belts and its effects: Residue from potato meshed and cheese dropper
sticks to the bottom of the meal plates and gets carried to the checkweigher belt. The deposit on
the belt has been observed on many occasions but it is not known whether it affects the weighing
process or not. Few particles also get collected on the edges of the belt as a result of that.
According to QC, the only weight that is measured is at the centre of the checkweigher. However,
OP demonstrated by using hand compression that the weight on the sides is also measured. The
answer to whether the grime and particles contribute to added weight variation is inconclusive.
Mixed fillings: The fillings of chicken and vegetables mixed together, as pointed by the QC,
leads to inconsistent amount of both chicken and vegetables into the fill. But it has its advantages
also. The combined weight of the drops is heavier than the individual weights of chicken and
vegetables. Due to this, if there was a missed drop of this mixture, it is more likely to be detected
by the checkweigher.
Ishida: The line gets automatically stopped if Ishida misses 5 drops in a row. It can be reduced to
up to 3 missed drops. The issue of clumps is a major factor for Ishida to miss the drops. The
clumps are not always easy to find and the operators do not particularly look for them. The
clumps get removed by the operators only if they come across any. As the process is highly
automated the chances of that happening is quite low. The low efficiency of checkweigher and
other factors involved indicate that Meal Line should not fully rely on the checkweigher. The
clumps in frozen ingredients should be stopped before making into the fillers.
Rejecter: Instead of rejected meals passing easily onto the reworks table, they collide within the
cage of the rejecter. This collision rate is fairly high and has been observed on almost all types of
meals. This collision causes spillage of packaging inside the cage.
Piston fillers: The potato mesh is difficult to weigh because of the fillings getting stuck to the
plates. The operators try and use heavier fills in the mesh to keep them from getting off the line.
However from chart 2 the sauce dispensed is fairly accurate. The data fed into NWA for mesh is
not accurate as this weight is derived by using estimated weights of other fillings. The workers at
the reworks sometimes try to clear tables in a rush. This may lead to slightly underweight meals
getting to pack offs. Throughout the observations no meals processed after the reworks lacked
any fillings. Although this suggests the meals were complete, there may still be discrepancy in
the quantity of fillings processed at the reworks station. It can be an issue but it does not seem to
fit in to the nature of the customer complaints described for this project.
Process capability
Cpk indicates the capability of the process. Cpk = 1 shows that the process meets the capability and
Cpk > 1 shows that process is better than specifications required. However, if the Cpk < 1, the
products do not meet the specifications (Heizer & Render, 2008, p. 237). Therefore it is ideal to
have Cpk value greater than 1. The analysis of the samples collected has shown mixed results. The
Cpk of multi filler 1 is between -0.33 and 1.11, and Cpk for multi filler 2 is between - 0.95 and
1.17. Cpk over 1 is good but in most instances Cpk < 1 or sometimes even negative. The multi
fillers, piston filler and Ishida, all have low Cpk values, indicating that most of the fillers have a
big room for improvement. This means the process is out of control, and serious changes need to
be made on the multi fillers.
Multi fillers are the starting point for the fillings in the meal, and they are not operated to the
specific requirements of fill weights. If the fillings done by the first filler is heavy then the rest of
the machinery may have to be altered for adjustment of remaining weight. This could, however,
alter the fill weights of other ingredients. If they continue to run heavy then any missed drops are
unlikely to be detected by the checkweigher and will add to the customer complaints of missing
ingredients.
Conclusions The process related questions and their answers are as follows: (a) Is the process rejecting the
correct meals? Yes, it is rejecting the correct meals. (b) Is it rejecting all of the required meals? It
is not rejecting all the meals that it should. (c) If it doesn’t reject correctly, what is the root cause?
The checkweigher has high variation in its testing which causes underweight meals to be read
wrongly as within the specifications. The difference in the USL and LSL of the finished meals is
such that if a drop of some ingredients is missed, it will not be detected by the checkweigher. It
does not help that the weights of the fills have very high variation. Some of the ingredients in the
meal are being filled very heavily, contributing to the problem. (d) What causes the reject arm to
jam up? The belt on which the arms are mounted gets jammed sometimes. (e) Do meals bounce
back on the line after being rejected? No meals were observed to be bouncing back on the line
but they do collide inside the cage and bounce back towards the rejecter arms. (f) What is the root
cause of this? It has been observed to occur due to low space for meals to pass through because
of the mounted cage on top of rejecter. (g) When the reject table is full, do the sensors correctly
trigger the conveyors to stop in the correct sequence? Yes. (h) What actions should be taken to
error proof the checkweigher and reject system? As explained in recommendations. (i) Do we
need to make changes to our control systems? Yes.
Further improvements are needed in the entire process so the fill weights being dropped in the
meals are within the specifications. Initiatives taken for improvement include new sensors for
rejecter, plates around Ishida dispenser and recently weighing of samples by the operators. Other
areas that need improvement are: missed drops by Ishida due to clumps of frozen ingredients, and
inability to accurately measure the fills of potato mesh by piston fillers.
The improvement in the process should be backed by high capability rejection process as just the
awareness of the workers would not be enough. On an average, 23% of the meals that should be
rejected could be making it to the market. The rejection process is largely automated and raising
its current capability is essential.
The progress in process capability may not bring the same amount of improvement in rejection
ability. In fact there may not be much influence of the improvements in the fill weights on the
accuracy of rejection process. As long as necessary changes to the checkweigher are not made
there can be little certainty that all the meals that should be removed are being rejected.
Other issues like: the amount of acceptable variation on checkweigher, whether it should be
covered, and whether the grime stuck on belts from time to time contribute to its high variation
also need to be addressed.
Recommendations
a) By raising cage on top of the rejecter arms, to the level of cage above the belts (or just above),
the number of recoils and collisions of the meals can be reduced considerably.
b) Meals altered at rework table should be fed into the line before and not after the
checkweigher. There would be no need to stop line for this and it should take the same time as it
is currently to place the meals. The only extra time consumed will be the time taken to move
meals from reworks table to the point before checkweigher.
c) An expert advice should be sought to address the issues of variation in readings of the
checkweigher. A cover should be used to reduce the impact of environmental factors.
d) Customer complaints have mentions of missing fillings (chicken, etc.), which are dispensed
by Ishida. The clumps have been identified as the biggest problem by operators and QC on the
line. Currently a grill covers Ishida feeder for safety purpose. Instead of the frozen fillings
(chicken, beef, etc.) passing under the grill they could be made to pass through the grill with
some modification. This will prevent any frozen clumps from entering the Ishida belts. None of
the clumps would sneak past the operators while they are attending other jobs.
e) By increasing the lower limit of all the meals on the checkweigher itself, the problem of
weight variation could be countered. This may result in few more meals at the rework but will
give much higher assurance that meals with missed fillings will not make it to the market. The
lower limit could be raised upto 3 or 4 grams which is close to the maximum difference found
between weight of meals on scales and checkweigher. For example, if the lower limit of the meal
is 311 grams it could be raised to 314 or 315 grams.
f) For future reference and improvement purpose a check sheet should be used by the operators
to record the variation of checkweigher during testing. The variations should be recorded twice a
day to compare and observe changes in the readings.
References
Cudney, E. A. & Drain, D. (2007). Effective use of process capability indices for supplier management. Proceedings of the 2007 Industrial Engineering Research Conference, p.584-589.
Heinz Wattie’s, Our Company (2012). Retrieved 28 February 2012, from
http://www.heinzwatties.co.nz/About-Us/Our-Company
Heizer, J., & Render, B. (2008). Operations Management (9th ed.), p.237, Upper Saddle
River, New Jersey: Pearson, Prentice Hall.
Kitska, D. Cp and Cpk statistics should be discontinued. Quality Progress. 24(3), p.188-195. Kopczynski, T., & Ness, D., n.d. Five factors that can affect your weighing system’s
accuracy, p. 1. Retrieved 5 March 2012, from
http://www.hardyinst.com/newsletter/march2006/weighing%20_accuracy.pdf Meagher, J. (2000). Process capability: Understanding the concept. Quality Progress, Jan 2000;
33, 1; p.136.
Muthiah, G. (2011). Retrieved from, http://ganeshmuthiah.com/dmaic-explained-under-60-seconds/
Nelson, P., Editorial, Journal of Quality Technology, 24, p.175.
Palmer, K. & Tsui, K. (1999). A review and interpretations of process capability indices.
Annals of Operations Research; 1999; 87, p. 31-47.
Appendix
Table 13: Discussion with Operator and Quality Controller on various issues
Checkweigher variation
When was the checkweigher calibration done last? Officially not required.
Did you ever do it? Yes.
When? It is not required but I do it sometimes before the line starts.
How was it done? It was not exactly calibration but just the readings on empty belts.
What was the empty reading on running belt? Average weight = 0; Std deviation = 1.26;
min wt = -3.2; max wt = 3.1
Is this reading acceptable? No, readings should be close to zero.
What is the reason for variation? I do not know.
Do you think a daily check sheet to calibrate checkweigher help? Maybe. But it is not
required as yet. Cheese Dispenser: Upon pointing to the grime on the belts of the
checkweigher.
Do you think that this grime on the belt is causing the variations? Maybe.
How does get collected on the belt? Takes me over to the cheese dispenser. The cheese just
falls off the dispenser even if there is no meal passing underneath. If there is a hold up for a
while and we are busy the cheese keeps dispensing. This collects on the belt and under the
plates of the meals. It moves along the belt and sticks on the belt of the checkweigher.
Meals on LSL: Many meals that pass through have the reading on the checkweigher
as 311gms (which is the LSL).Should they be rejected or accepted by the checkweigher?
QC: It should be rejected. OP: Not sure.
So, why does it not get rejected? QC: This could be due to the average weight of the meals.
If average weight is above target then the meal close to LSL gets accepted. The same
happens, when the average weight is below target. The checkweigher updates the average
weight every 10 mins.
Control Chart 1
310
305
300
295
Weights
LSL
US
L
290
285
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
Control Chart 2: For Multi-fillers 1 & 2 135
130
125
120
115
110
105
Multi filler 1
Multi filler 2
USL
Target
LSL
100
95
0 5 10 15 20 25 30
8
Mu
lti
fill
er 2
Mu
lti
fill
er 1
Co
nvey
or
bel
t w
ith
pla
tes
Em
pty
pla
tes
Pla
te A
ddin
g S
tati
on
The conveyor belt moves from right end to left end.
Meal within spec
moving towards
pack offs
Check
Weigher
Ishida 2 Ishida 1
Rejecter
Arm
Plate (meal)
Sealer
Direction of belt movement
Reworks
Table
Out of spec, rejected
meals
Pocket filler
Rework
Plate
Sealer
Piston filler 2
Piston filler 1
Cheese dropper
Figure 1 Meal Line Layout
Measuring Efficiency in Management Decision Making - Theoretical
Analysis and State of Research
Josef Neuert, Faculty of International Business Economics, Fulda University, Germany, Marquardstrasse 35, 36039 Fulda, Germany,
Phone: 0049-661-9640-2551, [email protected]
Christopher A. Hoeckel, Faculty of Economics and Management, University of Latvia, Biberstrasse 19, 83098 Brannenburg, Germany,
Phone: 0049-8034-70588-63, [email protected]
Abstract
In the past many authors (cf. Gzuk, 1975; Hauschildt et al. 1983; Simon, 1997; Witte, 1988)
have dealt with the issue of efficiency in management decision making and therefore various
concepts were proposed on how to measure efficiency in management decision making. But very
few, like Neuert (1984), have covered socio-economic efficiency measures within the decision
making process, meaning the combination of economic efficiency measures like benefits, costs,
time, etc. in decision making with behavioral efficiency measures of managers (Hauschildt et al.,
1983). To give a clearer picture on the current status on how to measure efficiency in
management decision making, this paper aims to provide an overview of different approaches
and outlines the operationalization of a socio-economic efficiency measurement in decision
making processes.
The Notion of Decision Making Efficiency
Organizations and respectively their members are interested in satisfying the purposes and aims
of the organization so that at least in an indirect manner their own needs are satisfied. In the case
of decision making within the organization, Gzuk (1975) believes the purpose or aim is to reach
high quality within the decision making process. For Gzuk (1975), quality in this sense, can be
substantiated as an activity to reach a purpose or aim. He refers to activity, in this context, also as
efficiency. Gzuk (1975) sees the main purpose in managerial decision making in its relevant
economic efficiency. Barnard (1938/1968) describes a personal or organizational action as
effective, if a specific desired end is attained or a certain aim is reached. This action can also be
considered as efficient if it satisfies motives of that aim. In the case that a certain aim is not
reached but the motives are still satisfied, the action may not be effective but still efficient and
the other way around. For Barnard, efficiency most likely relates to the satisfaction of motives of
individuals in an organization and effectiveness relates to the achievement of certain aims of the
organization. Hauschildt et al. (1983) see the main causes of efficiency of decision making
processes by this complexity, mainly displayed by the type of decision (routine decision,
decision of mid complexity or innovative decision), the amount of alternatives, and how much
information is requested.
For Gzuk (1988), efficiency in general shows, how well a dedicated target is reached with a
minimum of resources (output versus input). Gzuk understands, in this sense, the output as
tangible or intangible results, and the input as the deployment of mental or tangible resources.
For him efficient decisions are characterized by fulfilling the target with a comparatively low
amount of resources (input). Simon (1997) describes efficiency more generally as the ratio
between input and output. For commercial organizations, which are generally guided by profits,
the criterion of efficiency is the yield of the greatest net income. The simplicity is related to the
fact that money provides a common understanding for the measurement of efficiency in terms of
output and income. But this concept needs to be expanded for specific activities in commercial
organizations (e.g. personell department) or for non-commercial organizations where factors are
involved which cannot be directly measured in monetary terms. For Simon (1997), to make an
efficient decision, it is necessary to have empirical knowledge of the expected results that are
associated with different alternative and possibilities. Neuert (1987) supports this view. He
believes that efficiency can be characterized as an expression of a performance rate (output-input
relation) and “quality”. He explicitly differentiates the term effectiveness from efficiency. For
him, effectiveness characterizes whether a measure is in general suitable to achieve a certain
target. In this case efficiency can be seen as the “quality level” of the results within the decision
making process. In the context of decisions, Gzuk (1975) sees efficiency as the degree of which a
purpose is reached containing two additional conditions: first, the purpose is reached with a
minimum use of resources (economic input) and the result of the decision ensures a problem
solution which lasts for a longer period of time. It seems not to be enough to measure the
efficiency of a decision by itself rather than the outcome of a mental or tangible activity (cf.
Bronner, 1973, Gzuk, 1975).
Efficiency within the organization can also be reviewed by different approaches. Within the
target approach, organizations have explicit targets and efficiency can be defined by the degree
of target achievement. The systems approach considers, besides the targets, also the structures
and processes of the system-environment relationship. Efficiency in this case evolves from a
“concrete”, uni-dimensional to an “abstract” and multidimensional construct. The organizational
member approach considers the interests of the external stakeholders. An organization in this
sense is efficient when the expectances of these members satisfied or fulfilled. Closely related to
the organizational member’s approach is the interest approach. The interest approach assumes
that evaluating the same object will lead to different efficiency evaluations due to different
evaluating persons and their individual value and preference structure as well as to their different
interests. The management audit approach is a more application orientated approach. Within the
management audit approach the organizational efficiency is determined by evaluating the
organization through analyzing certain “parts” of it in periodical intervals with relevant questions
and by variance analysis (budget-actual) of the key indicators (Grabatin).
Dimensions and Approaches of Decision Making Efficiency and Efficiency Measurement
Decision making in business management can be characterized by different dimensions of
decision efficiency. Neuert (1987) describes as one dimension the material efficiency, where the
measurement is a “realistic” input and output comparison in “commercial” activities which can
be measured by objective criteria like earnings, profitability, growth and financial independence.
Bronner (1973) refers to this part of efficiency as the economic efficiency. As it seems
undisputed that the individual behavior also has a major impact on the decision making
outcomes, the individual efficiency can serve as a further dimension of the decision making
efficiency (Neuert, 1987). For Neuert (1987) in contrast to the material efficiency, the individual
efficiency shows rather subjective results of the decision making processes. As “subjective
results” he understands expected team outcomes, identification with the team work, self
reflection of the group behavior and the individual role within the group. In sum, he
characterizes the individual efficiency as the subjective evaluation of the decision makers
concerning the results of their decision making process as well as the self reflection on their
behavior during the decision making process. Bronner (1973) supports this view. For him it is
also not possible to measure the individual efficiency on an objective base. He advocates
measuring it via the personal activity of the decision maker within a decision making group and
the satisfaction of other group members with his activity, in addition to the estimation of the
overall achievement of the decision making group. For Bronner (1973), within the decision
making process, time or time pressure is usually an influencing factor. He believes, there is also
a dimension of “temporal” efficiency. “Temporal” efficiency again is an objective criterion
because it can be measured by time. For Bronner time, in this sense, can be a direct measurement
(e.g when trying to reduce lead time in a process) or an indirect measurement (e.g. measuring not
quantifiable deployment of persons or material in rather complex mental processes).
Grabatin (1981), reviewing efficiency from an organizational perspective, splits the total
efficiency into different efficiency dimensions. For him, the dimensions are the “general”
economic efficiency, the efficiency of the internal system, which includes indicators to evaluate
organizational processes and the necessary constrains for the realization of the organizational
efficiency. Typical criteria for the general economic efficiency (for Grabatin) are turnover,
profit, market share, etc. For the necessary constraints he picks criteria like flexibility, growth,
communication, etc. Grabatin splits the internal system efficiency dimension again into various
dimensions, like the efficiency of the organizational structure, the efficiency of the task
fulfillment and socioeconomic efficiency factors. For the socioeconomic efficiency, Grabatin
introduces efficiency criteria like satisfaction of individuals, motivation, etc.
According to Nutt (2008), decision makers in real life business report that rapid actions are a key
factor for them. In this case he sees the duration of the decision making process as a relevant
indicator for measuring efficiency. On the other hand, efficiency also depends on the “quality” of
the decision and this also needs to be taken into account. In this sense the duration is measured
by the elapsed time from the point of recognition until the time when the decision is adopted or
abandoned. To Nutt objective indicators to value the quality of the decision are preferred. But as
they are mostly difficult to collect and they need to be converted into common metrics and those
conversions again can be argumentative and hard to describe, he advocates for measures by
informants who subjectively estimate the values. Therefore the quality of the decision is rated by
an anchored rating scale using five anchors. A rating of 5 (outstanding) is to be given to a
decisive contribution which provides an exceptional quality. A rating of 1 (poor) is to be given to
a decision which had no impact or merit. The rating of 4 is termed good, the rating of 3 is
adequate and the rating 2 is disappointing. To avoid the fact that decision makers can make self
serving estimates on rating the quality of the decision, Nutt advocates that only two secondary
informants value the quality of the decision. These two informants value the quality of the
decision independently along the rating scale and without discussion. To enhance the precision
of rating the quality and move the subjective estimates to a rather true value, Nutt introduces the
estimate-discuss-estimate (EDE) procedure. He therefore computes the initial results and then
has them discussed by the informants. When the individual results are far off, the informants
need to explain this with compulsory arguments, which are then weighted. Taking the average
out of the second rating with weighted arguments seems, for Nutt (2008), to raise the rating
toward a true value.
To define the concept of efficiency by Gzuk (1975) it is necessary to have a purpose or aim, a
realized output or result and an input or the use of resources. For Gzuk (1975), to achieve
efficiency in the decision making process there are two conditions which need to be fulfilled:
first, a decision must realize the most efficient ratio between output and input and second, a
decision must bring results which ensure that the aimed objectives will be achieved. To
operationalize the measurement of efficiency in the decision making process, Gzuk (1975)
advocates establishing a multi dimensional indicator model (Figure 1). This multi dimensional
indicator model contains four efficiency dimensions: The target-output relation, the input-output
relation, the target-input relation and the provision for the realization of the decision. Within
those efficiency dimensions indicators need to be established to enable the operationalization of
the model which then allows the measurement of the “total” efficiency of a decision (Neuert,
1987). To achieve an acceptable certainty on the measurement of efficiency, Gzuk (1988)
advocates that for each dimension there should be more than one indicator.
Figure 1. Multi-dimensional indicator model for the efficiency measurement
By definition the decision making process can be understood as a target orientated process
(target-output relationship) where from a current/actual state we aim to reach a future/target
state. In this sense the decision making with its various sub processes can be seen as a formal
instrument for solving problems by taking choices when selecting between alternatives (Gzuk,
1975). The comparison between those alternatives can be described as formal efficiency. The
level of the formal efficiency can be determined by comparing the aimed target or the desired
situation with the current situation. In this sense a higher coincidence between the targeted and
the current state/situation indicates a higher efficiency and in turn a lower coincidence between
the targeted and the current situation indicates a lower efficiency.
To measure the total efficiency Neuert (1987) has modified the multi dimensional model of Gzuk
(Figure 2). In Neuert’s multi dimensional model there are three relevant dimensions, the formal
efficiency, the material efficiency and the individual efficiency.
Figure 2. Modified multi dimensional indicator model for the efficiency measurement
Each dimension can have from one to several efficiency criteria. A criterion for the formal
efficiency could, for example, be the comparison between a targeted situation and the actual
situation. The formal efficiency in this case reflects more the qualitative aspect of the decision
making efficiency. In turn, the material efficiency reflects more the quantitative part of the
decision making efficiency. Management science has created a series of key indicators to display
the material efficiency in decision making. Mostly these are measures which indicate economic
achievements as input-output relationships with performance indicators like profitability, costs
and returns or costs and benefits. The formal and the material efficiency rather deal with the
“hard facts” and reflect more the economic and therefore the “objective” detectable and
reproducible side of the decision making. The individual efficiency reflects more the socio-
psychological and “subjective” part in decision making and therefore deals with results which
can be considered as “soft facts” and are related to the emotions, feelings, acceptance and
satisfaction of individuals. From a more general view the authors see the individual efficiency
here as the subjective expectance of the decision maker when comparing the factual results and
the formerly planed results after the decision making processes. The individual efficiency is
more characterized by the decision makers hope to fulfill the expectation. The individual
efficiency in this sense can also be described as the satisfaction of the decision maker concerning
the achieved results (Neuert, 1987).
The classification of the three efficiency dimensions (the formal, the material and the individual
efficiency) seem to provide a relevant concept to measure various dimensions of efficiency in the
management decision making processes. The single efficiency dimensions are suitable to
measure special aspects of the decision making processes under a certain view but still need to be
combined to result in a comprehensive efficiency concept, the total efficiency. There are various
concepts being developed (cf. Grabatin, 1981, Gzuk, 1975, Neuert, 1987) on how to combine the
different efficiency dimensions to satisfy the efficiency concept and to achieve the total “socio-
economic” efficiency. Grabatin (1981) advocates an “efficiency analysis of the organization” as
an approach to determine the efficiency of organizations in general. In this case he defines an n-
dimensional area which is limited by negotiated tolerance (target) limits. As satisfying solutions
are in the focus instead of optimal solutions, the tolerance or target limits frame a valid solution
space which then can be defined as the area of the efficient organization. Neuert (1987) criticizes
this approach, as tolerance (target) limits always need to be known, which does not seem to be
the case in reality. Grabatins concept also does not give the possibility to weight the efficiency
dimensions differently. Gzuk (1975), in his approach, defines an algorithm for the construction
of the total efficiency index, where the total efficiency of a decision is measured by the positive
discrepancy of the worst possible efficiency profile. As in this approach the possibility to weight
different dimensions of efficiency is up to the user, this concept also does not seem to be suitable
for the real life business. Neuert (1987) has conducted a survey, taking a representative sample
from the business management population, to evaluate the weighting of different efficiency
dimensions as they are present in reality to setup a “amalgamation” concept. The evaluation
indicated the material efficiency with a 70% weight, the formal efficiency with a 20% weight
and the individual efficiency with a 10% weight.
Exemplary Excursus: Decision Efficiency Distribution Measurement
From an empirical point of view the question arises, how decision making efficiency is
comprised of not only from a theoretical angle but particularly how it is “shaped” in “real world
cases”. In this context, it is of special interest if in reality business decisions are made according
to the requirements of rational conduct and/or to which degree actual decision making behavior
and decision making efficiency deviate from the ideal decision making/decision efficiency
function, assuming that increasing degrees of decision making rationality induce increased levels
of decision making efficiency (cf. Isen, 2008).
The data sets gained from an own laboratory experiment, conducted by Neuert (Neuert, 1987)
and replicated in 2007 (in a slightly modified way, Neuert, 2010) provide the following empirical
findings:
- There is indeed a functional relation between the degree of rational behavior and the degree
outcomes efficiency in strategic business decision making processes;
- however, there is no linear relation observable, but a degressively shaped function,
approximately depictable by a second degree function(y=a+bx+cx²…);
- in addition, by standardizing the described regression function, it is empirically obvious that
none of the “tested” decision makers within the experimental sample shows a decision making
behavior with a degree of less than ca.20% of “standard rationality”, but also none of them
exceeds a degree of more than 80% “standard rationality”;
- also, the degree of decision making efficiency is indeed shaped along the expectations of the
formulated degressive regression function, suggesting that none of “tested” decisions was either
“totally inefficient” or “totally efficient”.
Given those experimental findings, there is-in particular- another research question evolving,
reasoning whether any kind of typical distribution patterns concerning business decision making
behavior (and thus decision making efficiency) can be theoretically developed and empirically
observed.
Dealing with this research question we utilize the analytical procedures of the Lorenz-curve and
the Gini-coefficient in order to form a hypothetical outline of a “generalizable” decision making
efficiency distribution and to empirically examine the actual “concentration measures” of the
“distributive patterns” of decision making outcomes (Krapp & Kraus, 2013).
Applying the Lorenz-curve approach to our research question, it suggests that the actual
distribution of decision making efficiency outcomes within a “population” or a sample of real
world decisions more or less strongly deviates from a linear distribution, based on the notion that
decision efficiency is “equally” distributed over a sample divided into quintiles (cf. Cowell,
2011). The Lorenz-curve indicates the actual concentration or dispersion of the decision making
efficiency measures within the specific quintiles (i.e. 20% of the sample efficiency “very low” up
to20% “very high”) in comparison to the 45-degree line of the coordinate system, depicting the
accumulated portions of the sample quintiles of the decisions made on the x-axis, and the
respective accumulated average degrees of decision making efficiencies on the y-axis (Krapp &
Kraus, 2013).
In order to measure the actual distribution of the empirically gained decision efficiency data
within our experimental sample quintiles, we utilize the concept of the Gini-coefficient (GC).The
GC measures the areas between the 45-degree y/x-linear line and the “empirical” curve, gained
by the experimental data of decision efficiency assigned to the respective sample quintiles.
The experimental data are based on a sample of advanced business students (n1=65) and a
“reference” sample of business managers (n2=16) with a total sample size of 81. All of the
experimentees had to fulfill 4 strategic business decision rounds each, ultimately providing an
overall sample of ca. 320 single decision making measures pertaining to the respective degrees
of decision making rationality and the respective degrees of decision efficiencies as well (Neuert,
1987).The results were the following ones:
- The average degrees of decision efficiency vary between 0.2 (meaning 20% of the optimal
decision making efficiency) and 0.8 (80% of the optimum);
- those data represent the following distribution of the average decision efficiencies within the
sample quintiles (Qn):Q1=0.2; Q2=0.4; Q3=0.5; Q4=0.6; Q5=0.7);
- the accumulated decision efficiency averages are Q1=0.2; Q1-2=0.3; Q1-3=0.37; Q1-4=0.42;
Q1-5=0.48.
In order to compute the Gini-coefficient (GC) for our empirical efficiencies distribution, we have
to take into account that the “45-degree” line starts out at the 0.2 level on the y-axis and ends at
the 0.8 level on the y-axis, because the actual data do neither “deceed” nor exceed the 0.2 resp.
the 0.8-echelon.The linear line has to be shaped accordingly and the efficiency average values
have to be modified by a 0.2-subtraction as well, accordingly. Thus, the actual modified values
read as follows: Q1=0; Q2=0.1; Q3=0.17; Q4=0.22; Q5=0.28. Finally, the relative contribution
of each quintile to the overall decision efficiency of the experimental sample has to be computed.
Therefore, the single experimentees (n=81) degrees of decision efficiencies per round have to be
added up and assigned to each quintile in relation to the total sum of decision efficiencies (x%
for each of the 5 quintiles as a relation between the total sum of 320 single efficiency measures
divided by the sum of each relative quintile for n=81 that means 16 “lowest” efficiencies up to
16 “highest” efficiencies. The “shares” of each quintile are as follows: Q1=8%; Q2=12%;
Q3=40%; Q4=30%; Q5=10%. This empirical distribution approximates a “normal distribution”.
The following table depicts the development of the GC:
Table 1. Gini-coefficient of decision efficiency distribution
1 2 3 4 5
Cumulated portion of decision
makers (n=81) in %20 20 20 20 20
Standardized cumulated average
decision efficiency degree0.0 0.1 0.17 0.22 0.28
Relative "share" of decision making
efficiencies per quintile (p)0.08 0.12 0.40 0.30 0.10
Quintiles
Gini-coefficient computation:
(1)
The GC of 0.09 suggests that the distribution of decision making efficiency in our experimental
sample shows a fairly equal dispersion of “low”, ”average” up to “high” degrees of decision
efficiencies and thus represents a normal distribution of decision making performance.
The concept of the Lorenz-curve and the Gini-coefficient can be further demonstrated by the
following graphical representation:
Figure 3. Empirical decision efficiencies and Lorenz-curve
The Lorenz-curve approach and the Gini-coefficient represent one possible concept-among
various others (cf. Newell et al., 2011) to measure the distribution of decision making efficiency
and decision making rationality, based on the assumption of “rational choice” behavior and in
comparison to that the respective deviation of “actual conduct” in “real world” decision making
processes.
Remaining Operationalization Issues of the Measurement of Decision Making Efficiency
Management science has created a series of key indicators to display efficiencies in decision
making. Mostly these are measures which indicate economic activities as input-output
relationships with performance indicators like profitability, costs and returns or costs and
benefits (Neuert, 1987). So whenever profitability, costs or returns can be brought into
relationship with decision making effort these indicators seem to provide a valid base to measure
management decision making efficiencies. But especially in complex environments or decision
making situations where rather qualitative issues are addressed it sometimes seems rather
difficult to directly measure costs and returns. In this context the time consumption of the
decision making process, as an indirect measure for costs, can serve as a suitable indicator for the
material efficiency (cf. Bronner, 1973, Nutt, 2008). As the time as a measurement indictor does
not give any indication on quality of the decision making process, which is also a main criterion
of efficiency (Gzuk, 1975), the measurement of the formal efficiency can give an indication on
the quality of the decision making process. The formal efficiency in this case can be measured by
comparing the results of problem solutions to the “optimal results”. The formal efficiency in this
case can either be evaluated by quantitative facts like a calculation, if it pertains to a rather
mathematical task, or by an expert’s solution, if it pertains to a rather qualitative task.
The socio-psychological efficiency can be represented by the individual or personal efficiency
and represents the more “subjective part” within the decision making process, dealing with
results which can be considered as “soft facts” and are related to emotions, feelings, acceptance
and satisfaction of individuals. The individual efficiency is more characterized by the decision
makers hope to fulfill the expectation and in this sense can also be described as the satisfaction
of the decision maker concerning the achieved results. As in this case it is rather hard or almost
impossible to track personal “attitudes” (like satisfaction, self reflection, etc.) by observing
participants, the utilization of a questionnaire which contains mainly questions about the
personal satisfaction of the participants on solving the problem tasks, how systematic they rate
their approach solving the task and how they rate their own cognitive style, seems to appropriate.
In this case the satisfaction and acceptance of the decision making behavior of the participants
describe their individual efficiency.
Examples of phrases within a questionnaire (Neuert, 1987) could have the following structure: How satisfied were you today with your problem solution process?
very unsatisfied 1 2 3 4 5 very satisfied
To which degree can you identify yourself with the final problem solution?
very little 1 2 3 4 5 very much
These two questions would measure the satisfaction of the participants concerning their decision
making process. According to the needs of the decision making problem the structure of the
questionnaire needs to be setup in detail.
Conclusion
Various authors (cf. Gzuk, 1975; Neuert, 1987; Nutt, 2008) in the literature have identified
several kinds of efficiency terms and measures, like the material, the formal and the individual
efficiency in one or the other way. Therefore, the models of Gzuk (1975) and Neuert (1987)
seem to provide a solid foundation for the measurement of decision making efficiencies.
Unfortunally, there a not many studies conducted having used this methodology to measure
decision making efficiencies and therefore there is not much to compare or to draw deeper
conclusions on how these indicators might reflect the “reality”. Therefore more research studies
concerning improved measurement approaches of decision making behavior and decision
making performance could provide a deeper insight and would allow for creating more
standardized “application” how to measure various kinds of decision problem situations and
solutions.
References
Barnard, C.I. (1938/1968), The functions of the executive. Cambridge MA, USA, Harvard Univ.
Press, p. 334.
Bronner, R. (1973), Entscheidung unter Zeitdruck. Tübingen, Germany, Mohr, p. 180.
Cowell, F.A. (2011), Measuring Inequality. 3rd
ed., Oxford, England, Oxford University Press, p.
233.
Grabatin, G. (1981), Effizienz von Organisationen. Berlin, Germany, Walter de Gruyter, p. 341.
Gzuk, R. (1975), Messung der Effizienz von Entscheidungen. Tübingen, Germany, J.C.B. Mohr, p.
490.
Gzuk, R. (1988), Messung der Effizienz von Entscheidungen. In: Eberhard Witte (Hg.): Innovative
Entscheidungsprozesse. Die Ergebnisse des Projektes "Columbus". Tübingen: J.C.B. Mohr, pp.
125–140.
Hauschildt, J., Gmünden, H.G., Grotz-Martin, S., Haidle, U. (1983). Entscheidungen der
Geschäftsführung Typologie, Informationsverhalten, Effizienz. Tübingen, J.C.B. Mohr, p. 299.
Hoeckel, C. (2012), The Impact of Personality Traits and Behavioral Patterns on the Outcomes of
Business Management Decision Making – A Framework for an Empirical Study. In: New
Challenges of Economic and Business Development Conference Proceedings, Riga, Latvia, pp.
259–269.
Isen, A. (2008), Positive affect and decision making. In: Goldstein, W., Hogarth, R.: Research on
Judgment and Decision Making. Cambridge, U.K, Cambridge University Press, p. 768.
Krapp, M, Kraus, J. (2013). Konzentrationsrechnung. In: Das Wirtschaftsstudium 7/13, pp. 967-
972.
Neuert, J.O. (1987), Planungsgrade Eine experimentelle Untersuchung zum Zusammenhang
zwischen Planungsverhalten und Planungserfolg. Spardorf, Germany, Rene F. Wilfer, p. 359.
Neuert, J. O. (2010), The Impact of Intuitive and Discursive Behavioral Patterns on Decision
Making Outcomes: Some Conjectures and Empirical Findings. In: WDSI Annual Conference
Readings, Lake Tahoe, USA, pp. 4471–4496.
Neuert, J., Hoeckel, C. (2013), The Impact of Personality Traits and Problem Structures on
Management Decision-Making Outcomes. In: Journal of Modern Accounting and Auditing 9 (3),
pp. 382-393.
Newell, B., Weston, N., Shanks, D. (2011), Empirical Tests of a Fast and Frugal Heuristic. In:
Gigerenzer, G., Hertwig, R., Pachur, T.:Heuristics-The Foundations of Adaptive Behavior. Oxford,
England, Oxford University Press, p. 872.
Nutt, P.C. (2008), Investigating the Success of Decision Making Processes. Journal of Management
Studies, Vol. 45, No. 2, pp. 425–455.
Simon, H. A. (1997), Administrative behavior. A study of decision-making processes in
administrative organizations. 4. Aufl. New York, USA, Free Press, p. 384.
Witte, E. (Ed.) (1988), Innovative Entscheidungsprozesse. Die Ergebnisse des Projektes
"Columbus". Tübingen: J.C.B. Mohr.
Who Are Mexican Entrepreneurs And Small Business Owners: An analysis of
motivation and obstacles?
Nina Radojevich-Kelley, Metropolitan State University of Denver, Campus Box 78, PO Box
173362
email : [email protected]
Abstract
Entrepreneurship and small business have traditionally been key financial chauffeurs for many
nations throughout the world. Free enterprise is a perplexing challenge for all countries, but it is
especially difficult when a nation is ruled by corruption, or has a wide-spread gap between
wealthy and poor citizens, as evident in Mexico. Mexican entrepreneurs tussle with numerous
problems from gaining electricity to operate their venture, to registering property, to paying
taxes, to enforcing business contracts. Many claim that bribery is widespread, and that
government bureaucracy makes it difficult to run their business efficiently. The purpose of this
study is to examine entrepreneurship and small business in Mexico. The intent is to understand
how Mexican small business owners operate in their country and the obstacles they face.
Specifically, the study investigates 64 Mexican entrepreneurs and small business owners.
Commonalities in funding a venture are identified, motivations for starting a business are
discussed and challenge or obstacles that small business owner face are addressed. Results from
the study indicate that the majority of Mexican entrepreneurs rely on equity funding more than
debt funding to start their business. In addition, Mexican small business owners use cash as their
primary means to fund, then rely on family and friends with few owners using bank loans to
finance their businesses. The primary motivation for a Mexican business owner to start a
business is for financial independence, with few owners citing personal freedom and pursuing
their dreams as primary motivations. In the early years, entrepreneurs in Mexico tend to
bootstrap their ventures and borrow money from friends or family. Lastly, they tend to provide
services, rather than create or develop new products. The study highlights similarities and
differences between entrepreneurs in America and other nations similar to Mexico.
Discussions of Systems Thinking in Books about Toyota Motor Company John H. Seiler, Rutgers University Mini-MBA Program
Rutgers, the State University of New Jersey, New Brunswick, NJ USA
ABSTRACT
This study used a document and content analysis framework to study reported instances of
systems thinking concepts in monographs about the Toyota Motor Company. Since Toyota is a
well-known leader in using systems thinking for operations, planning, and customer service, this
project aimed to uncover whether details of this complex cognitive and organizational process
made it into the secondary literature about the company. The researcher, with an independent
second coder, documented evidence of discussion about systems as a thought and decision
process deployed purposefully by individual managers or the organization as a whole, as
described in a sample of the secondary monograph literature. Results showed that while many
detailed ideas of systems thinking were clearly pervasive throughout the company, there weren’t
as many instances of their description in the company’s popular legacy as expected. In the
future, companies may want to emphasize to researchers, interviewers, and journalists the
important theoretical contributions they have made to their industry and to business in general,
so that their cerebral efforts are praised in similar degrees to their operational or financial
achievements.
INTRODUCTION
Systems thinking has become a buzz-worthy topic lately among executives and scholars
alike, mainly due in part to the emergence of large data streams and the increased analytical
capabilities across a bevy of industries. No longer can a construction company, a taxi service or
even a wholesale liquidator say they can make substantial and sound business decisions solely
based on simple hunches or past successes. Since data mining has become a more high-volume,
high-yield normality in 2013, it too appears that the mechanism for which decisions are being
made also needs to be upgraded. Thinking about how a system balances and interacts insures
that more than one source of data is taken into account, and that knowledge of ways in which one
action affects other components in the system is evaluated before action is taken.
The fundamentals of systems thinking require decision making to become a fluid,
learning continuum by which all sets of possibilities and opportunities are acknowledged. By
doing so, the individual, company, or institution is able to make informed decisions along several
sectors of business simultaneously, and therefore can manipulate this knowledge to his/her
advantage. While diagraming a systems platform for day-to-day business tasks can seem simple
enough, the adoption and implementation of doing so certainly is not an easy undertaking. This
complexity is what researchers inherently find interesting about this topic. Only a select few in
the history of business have been able to apply data, theory, and practice into such a sustained
amalgam of success.
BACKGROUND
The Toyota Motor Company is one of the few entities in today’s corporate landscape
provides us with a documented account of both process and achievement. With over 60
monographs written exclusively about the company and its history, and another hundred
mentioning the company among its peers, a vast amount of knowledge is available for
examination. Also, the author pool provides us with a diverse mix of former employees, industry
analysts, historical scholars, as well as a cross-cultural group of Americans and Japanese. It
certainly cannot be overlooked that the largest and most successful automobile manufacturer in
the world (with profits of over 900 billion yen in the 2012 fiscal year) uses systems thinking as
one of its foundational tools. Furthermore, Toyota has consistently been acclaimed as one the
top quality manufacturers of vehicles for decades, surpassing competition whose prices are three
times as high. This factor seems to reveal a paradox. How can Toyota charge less for an
automobile and still achieve a higher level of craftsmanship over a competitor? Could it be the
financial benefit of systems thinking? These are just a few examples which demonstrate why the
Toyota Motor Company is a unique case to examine in regards to maintaining a physically and
theoretically holistic systems-driven environment.
While Toyota may be the considered the king of the everyman’s automobile, it is also
regarded as a pioneer in successful systems thinking implementation. A tenet of Toyota’s
systems thinking is their organizational concentration on a program of self-awareness and
continual development, called the Toyota Production System (TPS). The active learning that
occurs in the TPS allows Toyota to build a foundation of perpetual growth. This progress is
evidence that Toyota’s TPS is a monument to systematic learning – a type of learning that started
in the company long ago, and as they continue to learn, shows that the performance gap is still
growing (Seddon & Caulkin, 2007). Heralded not only as a model for its peers, the Toyota
system is so efficient that it has garnered praise as an ideal illustration for the business world
itself. In many publications over the last 30 years, the TPS has been lauded as probably the most
highly developed, best articulated, and most successful examples of systems thinking applied to
business organization in the world (Seddon & Caulkin, 2007). This study begins to examine the
ways in which monographs about Toyota capture the aspects of systems thinking which have
naturally occurred in the operations and development of the Toyota Motor Company.
METHODS & RESULTS
Two independent readers evaluated four foundational books about the Toyota Motor
Company. The readers were academic researchers knowledgeable about the concept of systems
thinking and familiar with the field of business. The readers also independently coded the
monographs via a content analysis framework, marking themes and ideas in the text in a master
Excel spreadsheet before comparison. Each reader approached the text with slightly different
theoretical constructs of systems thinking. Reader/coder #1 appeared to approach the text from
the conceptual frameworks of business authors. Reader/coder #1:
Defines Systems Thinking as an approach for studying and managing complex feedback
systems, such as one finds in corporations and other social systems.
Believes Systems Thinking is a set of habits or practices to problem solving in which
"problems" are viewed as parts of an overall system, rather than reacting to specific part,
outcomes or events and potentially contributing to further development of unintended
consequences.
Maintains that Systems Thinking is based on the assumption that a component of a
system can best be understood in the context of relationships with each other and with
other systems, rather than in isolation.
Theorists which formulated their theoretical lens: Forrester, Senge, Checkland, Sterman
In a similar way, Reader/coder #2 approached the text from the conceptual frameworks of
the broader field of education and learning dynamics. Reader/coder #2:
Defines Systems Thinking is a representation of the dynamic between the different or
contributing parts of an event, activity, or process.
Believes components of a process function much like Activity Theory, in which all of the
elements in balance can be upset by any particular element being out of balance.
Maintains that Systems Thinking is therefore a way of seeing how a change in only one
component can affect all of the other components in different ways.
Theorists which helped formulate their theoretical lens: Leont'ev, Engeström, Nardi,
Kaptelinin
Although any combination of reader/coders will produce a measure of dissent in content
validity when performing an open-coding exercise such as this, the pilot was nevertheless
successful. Coder compliance, or agreement on the application of a code which identified a
systems thinking concept, has helped to determining how any educated reader might find similar
information on this topic in these works.
The table below presents the coding results of the four books our two coders used in this
study. The first numerical column inhabits the results of Coder 1and the second column has the
data of Coder 2. The third column houses the number of results that both Coders marked
similarly for evidence of systems thinking. Additionally, the Total Compliance percentage for
each title is represented in the last column.
Table 1. Coding Results for Individual Readers and Compliance on Codes
Books Reviewed
Coder 1 Coder 2 Both Total Compliance
Chester Dawson 23 8 8 34.8
Lexus: The relentless pursuit: How Toyota
Motor went from "0-60" in the Global
Luxury Car Market (2004)
Matthew E. May 32 35 22 62.9The Elegant Solution: Toyota's Formula for
Mastering Innovation (2007)
David Magee 34 18 13 33.3How Toyota Became #1: Leadership Lessons
from the World's Greatest Car Company
(2007)
Satoshi Hino 45 30 21 38.9Inside the Mind of Toyota: Management
Principles for Enduring Growth (2006)
The results of the table show a striking similarity among three of the four compliance
levels at approximately 35 percent. Coder 1 found a higher number of results in these three
books which may suggest his/her definition is broader than Coder 2. The May book, with a
compliance level of 63 percent, is the most unusual of the group in both compliance and trend.
While the compliance is much higher than any other selection, the number of results from Coder
2 is greater than Coder 1 in this singular instance. It is unknown if further study with more
selections may reveal the May book to be an anomaly. While this study did not factor in total
page or word counts against sheer results, the Dawson selection did yield the lowest volume of
examples by both Coders.
CONCLUSION
The reverence for Toyota does not end with its ability to perpetually learn and extend
profits vertically, as the last 15 years have recognized TPS’s lateral suppleness in a multitude of
departments as well. Many authors have noted that in terms of its manufacturing capabilities,
Toyota’s TPS is famous for its shift from the flexibility-and-efficiency tradeoff in order to attain
both superior flexibility and efficiency in operational processes (Yang & Liu, 2008). Moreover,
Toyota’s systems thinking culture has introduced a variety of progressive systems that may be
adopted on a variety of levels (in totality or à la carte) by competitors and admiring industries
alike. The TPS system has been termed “ambidextrous,” yielding a bevy of associated tactics
including: lean operations, Just-in-Time, pull system for defects, total quality control, and kaizen
(Yang & Liu 2008).
One item that appears to be in dispute is whether or not the adoption of such a vast
system as that of Toyota’s is even possible for others. Some scholars believe that even with the
abundance of information readily available on TPS and the Toyota culture, “it is now almost
impossible for its U. S. rivals to catch up” (Seddon & Caulkin, 2007, p. 13). Does this mean that
companies in direct competition with Toyota have no chance of succeeding at their level? Or
does it mean that any company that wants to follow Toyota’s principles of systems thinking must
also follow a strict diet of processes and procedures? Another view points in the direction of
compartmentalizing ventures into smaller battles in hopes of one day winning the automobile
war. Yang and Liu (2008) note that “although it currently seemed almost no company outside
Toyota’s family has ever been able to match Toyota’s systematic and continuous improvement in
quality and cost competitiveness, Western companies have shown impressive improvements in
operational performance such as inventory management in 1990s” (p. 3). A salient argument
here is that the systems thinking culture seasoned at Toyota is transferable to external companies
to some extent -- even if it cannot be argued that the entire matrix of idiosyncrasies can be. Even
scholars themselves are perplexed by the apparent failure by some to adopt these topics in their
boardroom meetings, “it is something of a mystery as to why these disciplines have not been
applied more widely” (Seddon & Caulkin, 2007, p. 9), nor, as evidenced via this research,
documented more widely when the opportunity arises.
REFERENCES
Dawson, C. (2004). Lexus: The relentless pursuit: How Toyota Motor went from "0-60" in the
global luxury car market. Hoboken, NJ: John Wiley & Sons.
Hino, S. (2006). Inside the mind of Toyota : management principles for enduring growth.
New York, NY: Productivity Press.
Magee, D. (2007). How Toyota became #1: Leadership lessons from the world's greatest car
company. New York: Portfolio.
May, M. E. (2007). The elegant solution: Toyota's formula for mastering innovation.
New York, NY: Free Press.
Nielsen, K. A., & Nielsen, J. A. (2009). Systems thinking: Understanding services as a system.
Dethinking Service Rethinking Design: First Nordic Conference on Service Design &
Service Implementation. Oslo, Norway, November 6-9.
Seddon, J., & Caulkin, S. (2007). Systems thinking, lean production and action learning. Action
Learning: Research and Practice, 4(1), 9-24.
Yang, S. J. S., & Liu, Y. E. (2010). Competitive dynamics of business process improvement.
Proceedings of the 28th International Conference of the System Dynamics Society. Seoul,
Korea, July 25-29.
Legal and Ethical Issues in Teaching about Electronic Business Resources
Michelle Kowalsky and Susan Fink
Rowan University, 201 Mullica Hill Road, Glassboro, NJ 08028
[email protected]; [email protected]
ABSTRACT
Many colleges and universities demonstrate a need for awareness about the specific legal and
ethical issues encountered by users of their library’s electronic resources. In addition, users need
to understand the implicit agreements which govern their use of these licensed resources,
although they may seem easily and seamlessly available on the Web. This study performed a
recent review of websites of the top business colleges and universities in the U.S. as accessed via
their official university web presence. Not surprisingly, they generally demonstrate a lack of
user instruction and overall instruction about the ways in which users are able to obtain and use
information gleaned from these online databases. Also, the sites do not appear to have any
technological means, such as agreement or warning screens as we do regularly with Title 17
Copyright laws, to remind users of appropriate or fair uses of the information gathered therein.
Most do not mention salient details of common but illegal student and faculty use of database
information, such as having students download and share industry reports with their internship
sites, or using business statistics from library databases wholesale to gain clients for their student
start-up businesses without students digesting the data and forming their own analyses. Results
of this study suggest recommendations which include interpersonal solutions as well as technical
solutions that can help assist the educational community. Describing the ways in which
subscription-based database information can be used, and how access or availability alone is not
a guarantee of legal and ethical use of licensed resources, become important opportunities to
teach about the legal and ethical use of information in a business context.
Introduction
The American Library Association (ALA) has been offering training for their members for the
past ten years in dealing with database license agreements and other legal issues associated with
providing information to the public. ALA’s Business Reference and Services Section (BRASS)
and the College & University Business Libraries (CUBL) Section’s Core Competencies Task
Force committee is also currently writing guidelines for core competencies (discipline-specific
and task-oriented information literacy standards) for business students. The committee is basing
the standards on their own professional experiences, on student and faculty feedback, on broad-
based literature reviews, and on identified employer needs. Reference & User Services
Association (RUSA) Standards and those of the Association of College and Research Libraries
(ACRL) also exist to aid those teaching business students or answering business reference
questions in all types of libraries. This paper will examine some of these issues as well as those
related to license agreements, access points, and training of staff and students to insure
compliance. Database vendors are also helpful in providing training, generating customizable
data, or modifying agreements based on institutional needs. More of this type of training is
clearly needed at all levels of academia to insure development of legally and ethically sound
information habits.
Related Literature
Most colleges and universities demonstrate a need for awareness about the specific legal and
ethical issues encountered by users of their library’s electronic resources, as well as the implicit
agreements they must uphold in using resources that seem easily available on the Web. Business
degree programs may not have embraced widespread use of library resources such as databases,
especially when it comes to involving faculty in collaborative teaching models with librarians.
Matthies (2004), Arp, Woodward, Lindstrom, and Shonrock (2006), and Detlor, Julien, Willson,
Serenko, and Lavallee (2011) provide a variety of individual examples of university library
outcomes of information literacy instruction for business students with a variety of beneficial
results.
In typical style of the most common information literacy lessons, students in these scenarios
were taught how to critically evaluate the content and credibility of their chosen sources, and the
benefits of these efforts are too numerous to count. Much effort over a sustained period of time
has indeed improved business faculty’s use of the discipline-specific resources that libraries have
to offer. However, direct instruction is only part of the legal and ethical discussion about
information. Research indicates that libraries need to strive toward a more complex
communication of their understandings of database content use by both students and faculty.
The present study aims to expand the call for added information fluency by requesting users’
improved facility with the legal and ethical processes surrounding use of database information
for a variety of different purposes. Ideally, users would not only think of ethics when quoting
sources effectively, but also when using information gleaned from licensed sources for other
non-research-paper assignments or on-the-job activities.
Related studies have uncovered a variety of issues which make widespread information literacy
for business sources difficult to develop and sustain. Dewald (2005) found that business faculty
regularly view free Web information sources as acceptable for their own research and for their
students’ research, and that business faculty in a large and geographically distributed public
university did not strongly encourage the use of subscription databases for their students'
research to any appreciable levels (p. 214). Dubicki (2010) found that when business students
did request assistance from faculty on assignments, only a few students suggested that faculty
provided useful support in finding sources for their projects, and so a full 70 percent of the
students who encountered problems in business classes turned instead to their peers for help (p.
373). In the Dubicki study, librarians were only consulted by 28 percent of the students who
encountered problems, while family members provided additional help for 24 percent of those
students (p. 373). This proves to be in alarming alignment with other studies that explain how
many of today’s students see people in their closest social network as “just as useful” or
sometimes more useful than experts or professionals to which they have access. In the case of
legal and ethical use of information, however, nearest peers may not be the best source of
comparison for learning the parameters of ethical information behavior -- the letter and spirit of
the law will be the ultimate arbiter of this behavior, not the judgment of one’s nearest social
network -- whether at school or in the field.
Methodology & Results
Using the U. S. News and World Report’s “2014 Best Business Graduate Schools -- Top 25
List,” we reviewed each business school’s university library pages to determine if had any
statement or acknowledgement of copyright or license requirements were displayed for the end-
users. Researchers specifically started at the library’s main page or business library’s page,
looking for some type of article searching or A-Z database list, which would be the starting point
for a user’s interaction with these licensed resources. Some institutions listed a specific link
including key words such as ‘copyright,’ ‘terms & conditions’ or ‘appropriate use.’ If those or
similar terms were not obvious, then researchers would select one of the prominent databases
such as ABI-Inform or Academic Search Premier to see if there were any notices which appeared
closer to the point at which the user may have to login (if using it remotely) to access a resource.
Ideally, it was assumed that users would be instructed about their appropriate use before or near
the point of access. The website reviews took place in late September and October of 2013.
Twelve of the 25 institutions (48%) had no obvious warning or acknowledgement to the user
about copyright or license restrictions related to the databases provided to them. Four of the 25
institutions (16%) had a vague copyright statement somewhere on the webpages leading to the
database access. Two of the 25 institutions (8%) had a statement but it was not easy to find
because it was located away from the database access pages. Seven of the 25 institutions (28%)
had specific statements about copyright/licensing reasonably close to the point of access.
Most universities have statements which identify a general use of network resources by un-
authenticated users as prohibited, but it is unclear if this type of warning is sufficient for either
teaching or policy enforcement purposes. An institution’s own students and staff have access to
resources, so blanket adherence to authenticated use does not cover many of the more detailed
questions and issues which arise when users are apprised of their many rights and responsibilities
regarding electronically-supplied resources.
Unfortunately, most websites do not mention salient details of common but illegal student and
faculty use of database information, such as having students download and share industry reports
with their internship sites, or using business statistics from library databases wholesale to gain
clients for their student start-up businesses, without digesting the data and forming their own
analyses and original reports. The scenarios encountered may become useful contextual
explanations, or teaching topics, for both online and in-person education of all users. Yet some
universities have determined ways to deal with these issues, as uncovered via this systematic
investigation.
A few of the better examples are as follows:
The University of California at Berkeley provides a clear list of actions that are permitted and
not such as bullet number four under the not permitted – “transmitting, disseminating or
otherwise making online content available to unauthorized users.”
http://www.lib.berkeley.edu/AboutLibrary/conditions_of_use.html
Duke University also provides clear language for the users and note that it is above the “A-Z
List” in the side menu to help bring attention to it.
http://library.fuqua.duke.edu/dbterms.htm
Dartmouth College provides some clear language for their users with the ‘Peer-to-Peer’
wording on their policy and guidelines, but could add a section specifically about database
articles and licensed database information.
http://www.dartmouth.edu/copyright/peer2peer/index.html
The University of Texas at Austin has a comprehensive of list of policies for the user, but
they are not located at or along the path to access the databases.
http://www.utexas.edu/cio/policies
Discussion
Naturally, we would be interested in seeing more universities, their libraries, and information
vendors adopt a more detailed system of alerts and notices to encourage appropriate uses of
database content. Our recommendations include interpersonal solutions as well as technical
solutions which can help educate the business community about the ways in which licensed
information can be used. Similarly, the university community could use a refresher, since new
ways of access or new online methods encouraging the availability of information is not a
guarantee of legal and ethical use of that information. We encourage the initiation and
continuation of these types of activities by faculty and librarians in order to facilitate a campus-
wide understanding of electronic resources:
1) Continue to improve student instruction at both the undergraduate and graduate levels.
Again, many regular library users may not be aware of the contexts in which their use of
electronic information is authorized. Using examples and scenarios as teaching methods may
help prevent information-use violations and bad habits from developing in the first place.
2) Investigate multiple methods of collaboration with faculty. Librarians also have an
obligation to influence faculty-designed assignments to include practice in using more
subscription-based resources appropriately. Dewald (2005) explains that:
An additional important factor in faculty resource requirements is the nature of
the assignments given. If the types of information students are asked to find is
available on the free Web, then free Web resources will suffice. On the other
hand, if faculty ask students to find in-depth company and industry analyses,
economic data and analysis, legal resources, research reports, trend data, etc., that
can only be found in subscription databases, then students will need to access the
databases. Librarians need to work with individual faculty members to identify
the unique capabilities of subscription databases (p. 214).
3) Work toward extinguishing “sufficing” behaviors. University librarians can help re-adjust
documented student and faculty tendencies to use “less-knowledgeable” or “non-expert”
others as a source of legal or ethical information simply because their opinions may be “good
enough.” Waters, Kasuto, and McNaughton (2012) identified that particular skills in finding
and interpreting gray literature were considered most useful for new engineering students as
they entered the workforce (p. 131). Helping students identify good information in ethical
ways, rather than relying on the web searches to make decisions for them, will be another
important result of the collaborations above.
4) Provide technical solutions which require acknowledgement of policies “in the path of
search.” In other words, visibility of license agreement information and terms of use should
appear somewhere within the sequence of clicks which a typical user may follow.
5) Participate in the dissemination of ethics information. Increasingly, information about
ethical dilemmas or resolutions is becoming scarce as publishers and authors fear litigation
for even discussing this topic as we have here. Schlegelmilch and Öberseder (2010) show
that the Journal of Marketing, a top journal, even has begun to “appear reluctant to publish
marketing ethics manuscripts despite their high practical relevance and importance” (p. 13).
Without a broad and deep discussion of legal and ethical topics by the profession itself, there
may not be a need for any training, particularly if the profession itself does not encourage
scholarly or practical discussion of appropriate ethical behaviors.
Conclusion
The information landscape in which any university community operates is now more complex
than ever. Licensed business, marketing, industry, and company information, as well as online
journals and reports, are a mainstay of modern learning, decision making, and research. In the
workplace, even “entry-level business-information researchers may not be held accountable [...],
nor may they appreciate, the difference between information their organization pays for and
information that is passed along without regard for license agreements” (Sokoloff, 2012, p. 16).
This makes a higher education experience which praises appropriate and ethical use of
information all the more important for our students’ futures. As librarians, faculty, and business
professionals, we have an obligation not only to train others about legal and ethical uses of
information, but also to contribute to the ongoing discussion of standards and guidelines
ourselves.
References
Arp, L., Woodward, B. S., Lindstrom, J., & Shonrock, D. D. (2006). Faculty-librarian
collaboration to achieve integration of information literacy. Reference & User Services
Quarterly, 46(1), 18-23.
“Conditions of use and licensing restrictions [University of California at Berkeley].” Last
retrieved November 5, 2013, from http://www.lib.berkeley.edu/AboutLibrary/
conditions_of_use.html
Detlor, B., Julien, H., Willson, R., Serenko, A., & Lavallee, M. (2011). Learning outcomes of
information literacy instruction at business schools. Journal of the American Society for
Information Science and Technology, 62, 572–585.
Dewald, N. H. (2005). What do they tell their students? Business faculty acceptance of the web
and library databases for student research. The Journal of Academic Librarianship, 31(3),
209-15.
Dubicki, E. (2010). Research behavior patterns of business students. Reference Services Review,
38(3), 360-84.
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http://library.fuqua.duke.edu/dbterms.htm
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November 5, 2013, from http://www.utexas.edu/cio/policies/
Matthies, B. (2004). The road to faculty-librarian collaboration. Academic Exchange Quarterly,
8(4), 138–39.
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November 5, 2013, from http://www.dartmouth.edu/copyright/peer2peer/index.html
Schlegelmilch, B. & Öberseder, M. (2010). Half a century of marketing ethics: Shifting
perspectives and emerging trends. Journal of Business Ethics, 93(1), 1-19.
Sokoloff, J. (2012). Information literacy in the workplace: Employer expectations. Journal of
Business and Finance Librarianship, 17(1), p. 1-17.
Waters, N., Kasuto, E., & McNaughton, F. (2012). Partnership between engineering libraries:
Identifying information literacy skills for a successful transition from student to
professional. Science & Technology Libraries, 31(1), 124-32.
Concepts of Human Nature, Social Effectiveness and Communication in the
Workplace
Anna Horodecka, Ph.D., Warsaw School of Economics, al. Niepodległości 162, 02-554
Warszawa, Poland, phone: +48 507 252 149, email: [email protected];
Katarzyna Martowska, Ph.D., Institute of Psychology, Cardinal Stefan Wyszyński University in
Warsaw, ul. Wóycickiego 1/3, 01-938 Warszawa, Poland, email: [email protected]
Emilia Wrocławska-Warchala, Ph.D., Psychological Test Laboratory of the Polish Psychological
Association, ul. Belwederska 6A, 00-762 Warszawa, Poland, email:
Abstract Concepts of human nature may be seen as crucial for explaining human behavior, however they
are not explored enough in contemporary social sciences and economics. The concepts of human
nature may serve as a basis for perceiving the social world, judging the problems occurring in
professional life and building relationships with other people at work. In our research we
checked the relation between concepts of human nature and various psychological variables
predicting social effectiveness (locus of control, sense of coherence, emotional intelligence and
leadership style, measured with the use of questionnaires). We measured concepts of human
nature using questionnaire and narrative methods. The results showed that accepted images of
man may affect social effectiveness and communication in the workplace – both in positive and
in negative way, depending on the content of a given image.
Introduction
The first purpose of the paper is to explore the role of the concept of human nature in developing
social effectiveness and good communication in the organization. The second purpose is to
evaluate different possibilities of measurement of relation between concepts of human nature and
various aspects of social effectiveness.
Concepts of human nature (or “images of man”) are seen as crucial for explaining human
behavior and so an important subject of research in social sciences and in economics
(Fahrenberg, 2004, 2006; Fahrenberg & Cheetham, 2007; Müller, 2012; Oerter, 1988, 1991,
1996, 1999, 2007; Rollka & Schultz, 2011). In the business area of research classical works
describe the influence of the concepts of human nature on organizational life (McGregor, 2002;
Schein, 1970; Weber, 2000; Weinert, 1984, 1995).
However, there are some problems and shortages with using the theoretical concepts of human
nature. Concepts of human nature described in the literature are based on different schools of
psychology (psychoanalytical, behavioral, humanistic and cognitive); these concepts may not
reflect the whole spectrum of common images of man, and in consequence they do not have
enough explaining power for phenomena of general human behavior. In our research (Study B)
we tried to overcome this difficulty by using a discourse method to explore variety of concepts of
man.
The Theoretical Framework
The theoretical context of the exploration can be placed in the broad field of business ethics,
which is a good platform to explore connections between different forms of communication
taking place in the organization (internal communication between workers and their leaders
determined by preferred styles of management, and external communication encompassed as
well within the concept of stakeholder) and on the same time concerned with the human being as
an individual and his/her attitude to other people determined by images of world and image of
man the person has. It is as well a good opportunity to address the issue of values people have,
which are behavior leading and are connected with a specific concept of human nature (cf.
Schwartz, 1992).
Why this theoretical context is the one chosen for this exploration? It is because the specific
attitude to other people is something what can be traced in all social relations occurring in the
workplace and all affairs conducted by the organization – concept of human nature affects not
only the contacts with other people in the organization but the way we solve specific problems,
deal with business partners, clients, suppliers and launching business strategy. If there is a
specific model of human nature which could prove to have positive influence on human
communication, it should be not only involved in all relationships, but also introduced in all
processes and decisions taken in the organization. The problem is, that without introducing such
a model deliberately, decisions taken in the organization implicitly or explicitly transmit an
image of man we have, and if we don't reflect it – this will be the dominant economic model of
man we adopted in other organizations. Therefore it is important to reflect on the image we
transmit and possibly choose the right one.
In our research we focused on psychological dispositions which may be crucial for functioning
of the individual in the context of organization. In the first part of our research (Study A) we
decided to check if concepts of human nature may be connected with leadership style and work
locus of control. In this study we based on the list of concepts of human nature described in
earlier works: Economic (utility maximizer), Social (adopting values and goal of its
environment), Imperfect (driven by unconscious drives) and Humanistic (striving for self-
realization) (McGregor, 2002; Schein, 1970; Turek, 2010).
In the second part (Study B) we checked if there is a relationship between concepts of human
nature, emotional intelligence and sense of coherence. In this study we decided to explore the
variety of concepts of human nature with the use of narrative methods.
Hypotheses
In Study A we formulated two main hypotheses:
H1 There is a connection between individual concept of human nature and leadership styles
H2 There is a connection between individual concept of human nature and locus of control
In Study B we formulated also two main hypotheses:
H3 There is a connection between individual concept of human nature and leadership style emotional intelligence
H4 There is a connection between individual concept of human nature and sense of coherence
Figure 1
Note. WLC – Work Locus of Control; INEF – Inefficacy; F-D – Fate Dependence; O-D – Other Dependence; PC –
Personal Control; IC – Ideology of Control; LOS – Locus of Successes; LOF – Locus of Failures; CS – Control
Scale.
Methodology
Study A
Participants were students of social sciences and arts (N = 154, 121 women, 33 man, aged 19-23,
M = 21.26; SD = .81). In the analysis of the connection between concepts of human nature and
leadership styles due to lack of data we could analyze only 148 questionnaires, in the analysis of
the connection between concepts of human nature and locus of control we used all 154
questionnaires.
In this study only questionnaire measures and quantitative analysis were used.
Concepts of human nature were measured with the use of self-report questionnaire by Dariusz
Turek (Concepts of Human Nature Questionnaire; CNHQ, Turek, 2010); The questionnaire
comprises of 24 statement describing different behaviors. The respondent’s task is to specify, on
a five point continuum (from “definitely disagree” to “definitely agree”), to what extent each
statement relates to him or her. This tool consists of four scales, corresponding to four concepts
of human nature: Economic, Social, Imperfect and Humanistic.
Leadership styles were measured with the use of self-report questionnaire prepared by the
research team of Psychological Test Laboratory of Polish Psychological Association (Leadership
Styles Questionnaire, WERK, Brzezińska & Rafalak, in print); this tool allows to measure four
leadership styles: Cheerleader (cooperative, agreeable), Steward (perfectionist, conservative),
Revolutionist (creative, innovative) and Captain (realistic, stable); this questionnaire consists of
15 items; in each item the respondent evaluate four adjectives, corresponding to four leadership
styles, ranging them from the one, which describes him/her best, to the one which does not
describe him/her well.
Locus of control was measured with the use of another self-report questionnaire Individual in the
Workplace (Matczak et al., 2009). It consists of 60 items in form of declarative sentences,
subject has to answer in four-grade Likert scale. This questionnaire allows to check general type
of locus of control (internal or external), as well as specific aspects of the individual locus of
control and comprises of following scales: Inefficacy, Personal Control, Control Ideology, Locus
of Success, Locus of Failure, Fate Dependence, Other Dependence. For all scales high result
means external locus of control, low – internal one. Both reliability (internal consistency as well
as stability) and validity of the questionnaires proved to be satisfactory.
Study B
In this study participated students and adults with differentiated level of education, coming from
different regions of Poland (N = 120; 75 women, 45 men, aged 18-60, M = 27.31, SD = 11.06).
The main method applied in this study was semi-structured narrative interview, elaborated by the
authors for the purpose of the research. The aim of applying this tool was to check the implicit
concepts of human nature, which reflect in the narrative schemes of the individual. Interview
consisted of two parts; in the first part research participants were asked some questions
concerning possible scenarios of the future of humanity in general, about the possible reactions
of people in difficult life circumstances and the motives in situations demanding making choices.
The second part was a kind of undisclosed stories test; one-sentence beginnings of the stories
were presented to the participants and they were asked to finish them.
Interviews were made by the students research team from Cardinal Stefan Wyszynski University
in Warsaw (Sylwia Dudziak, Magdalena Dziedzic, Katarzyna Glińska, Barbara Janota-Bzowska,
Agnieszka Poniatowska, Patrycja Wyszyńska, Marta Zając and Malwina Zielińska); students
received training in narrative methods prior to the research.
Narratives were recorded, transcribed and then subjected to the content analysis (Krejtz, Krejtz,
2005). After distinguishing 20 concepts of human nature by one author, the narratives were
analyzed by two independent raters. If there were any differences between raters, narrative was
revalued by the arbiter. Inter-rater reliability was satisfactory, considering the complex character
of the narrative data (c.a. 80% of the same ratings) for all of the distinguished concepts except
for two concepts, which were revalued. Then the frequency of the concepts in the narratives was
checked.
83 interviewees (47 women and 36 men, aged 18-58, M = 26.05; SD = 9.80) fulfilled also two
self-report questionnaires. Emotional intelligence was estimated by means of Polish version of
the Schutte et al. questionnaire (INTE; Schutte et al., 1998; Jaworowska, Matczak, 2001). The
tool is based on the first version of the emotional intelligence model by Peter Salovey and John
D. Mayer. INTE comprises of 33 statement describing different behaviors. The respondent’s task
is to specify, on a five point continuum (from “definitely disagree” to “definitely agree”), to what
extent each statement relates to him or her. Sense of Coherence was estimated by questionnaire
SOC (Antonovsky, 1993). SOC comprises of 29 items, each single item offers seven possible
answers (seven-grade Likert scale). The respondent is requested to select the number which best
corresponds to the extent to which each statement is applicable to him/her. SOC measures the
general sense of coherence and three dimensions: comprehensibility (cognitive component of
sense of coherence), manageability (behavioral component of sense of coherence) and
meaningfulness.
Empirical Results
Study A
As it is presented in the Table 1, we found many significant correlations between Humanistic
concept of human nature and locus of control. This concept of man appears to be connected with
the internal locus of control (for all scales high result means external locus of control, low –
internal one; negative correlations show that humanistic concept of man is negatively correlated
with eternal locus o control). Correlations with the subscales show that people having humanistic
image of man feel more efficacious, certain that they control their life-course and their success
depend on themselves, but also are persuaded that people in general may control their life. They
may also feel less fate-dependent and other-dependent. Fewer correlations were found for Social
and Economic concepts of man; the direction show, that in some aspects these images of man
may be connected also with internal locus of control.
Many significant correlations, but negative ones, were found for Imperfect man concept and
locus of control. People having this concept of man tend to have external locus of control - feel
more other-dependent and fate-dependent, do not think that people have control over successes
and failures in their life and are persuaded that people in general do not control their life-course.
As far as connection between concepts of human nature and leadership styles is concerned, we
found significant correlation only for social sciences students (N = 54) and not for students of art
(N = 94). In the first group we found positive correlation between Humanistic concept of man
and Revolutionist (r = .37; p < .05) and negative correlation between Humanistic concept of
man and Captain (r = -.34; p < .05) and Steward (r = -36; p < .05). Moreover, we found that
Social concept of man is connected with Cheerleader leadership style.
[Table 1]
Study B
In the analysis of the narratives 20 concepts of human nature were distinguished. These were (in
order of frequency): Society-made-man, Family man, Self-made-man, Materialistic man, Selfish
man, Reasonable man (Enlightened man), Technocrat, Moral man, Inert man, Self-actualizing
man, Aggressive man, Pro-social man (Altruist man), Animal sociale, Spiritual man, Irrational
man, Nature-made man, Ecological man, Romantic man, Idle man, Virtual man.
[Table 2]
Statistically significant results of the analysis of the relation between emotional intelligence,
sense of coherence and concepts of human nature used in the narratives are presented in the
Table 3.
[Table 3]
First, we compared the group with high and low emotional intelligence (criteria: “high” was
defined as the result of half of standard deviation over the mean; as “low” the results half of
standard deviation below the mean) as far as the frequency of various concepts of man in the
narratives is concerned.
In the narratives of respondents with high level of emotional intelligence less often appears
concept of Materialistic man than in the narratives of respondents with low level of emotional
intelligence (chi2 = 3.97; p < .05).
Then we compared the group with high and low sense of coherence (criteria: “high” was defined
as the result of half of standard deviation over the mean; as “low” the results half of standard
deviation below the mean).
In the narratives of respondents with high level of sense of coherence less often appears concept
of Aggressive man (chi2 = 4.05; p < .05) and Technocrat (chi
2 = 4.15; p < .05) than in the
narratives of respondents with low level of sense of coherence.
In the narratives of respondents with high results in comprehensibility (cognitive component of
sense of coherence) less often appears concept of Egoistic man (chi2 = 8.41; p < .05) than in the
narratives of respondents with low level of comprehensibility. In the narratives of respondents
with high level of manageability (behavioral component of sense of coherence) less often
appears concept of Aggressive man (chi2 = 7.08; p < .05) and concept of Egoistic man (chi
2 =
7.71; p < .05), than in the narratives of respondents whit low level of comprehensibility. In the
narratives of respondents with high level of meaningfulness, in comparison with those with
lower level, less often appears concept of Aggressive man (chi2 = 3.30; p < .10; statistical
tendency), and more often concept of Rational man (chi2 = 11.06; p < .05).
Conclusions
From among concepts of man often described in the literature (Economic, Social, Humanistic
and Imperfect) we found that only two last ones have a lot of connections with work locus of
control (Humanistic and Imperfect) and leadership styles (Humanistic). It may be due to the fact,
that Economic and Social man concepts are complex, have various aspects which should be
measured separately.
Humanistic concept of human nature seems to be most important correlate of variables
connected with social effectiveness – more in-depth analysis of the concept may enable to
elaborate ways of introducing it within the organization.
The results of the second part of our research point to the fact, that a Rational man concept
should be introduced in the organization; it may enhance sense of coherence among the
employees. It is interesting that it is not Animal sociale nor Altruist – for these concepts we did
not find important correlation with sense of coherence – maybe they are not sufficient for
adjusting to changing environment and structure of the organization. Results also show that we
should avoid following concepts of human nature among leaders and employees, by introducing
alternatives (in bracks): (1) non-aggressive (cooperative); (2) non-materialistic (oriented on other
than materialistic goals); (3) non-egoistic (his/her goals integrated with group goals). We may do
it by the means of: checking existing images of man for any signals of such components.
Acknowledgments
The theoretical section of this paper is funded within the project NR 170503 based on the contract NO.
UMO-2011/03/D/HS4/00849 from 20.08.2014.
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Table 1
CONCEPTS OF HUMAN NATURE AND LOCUS OF CONTROL (N = 154)
WLC INEF F-D O-D PC IC LOS LOF CS
Economic -.21* .19*
Social -.26* -.14† -.17* .20*
Imperfect .20* .25* .33* .21* .19* .22* .14† -.16†
Humanistic -.30* -.37* -.19* -.14† -.27* -.30* -.32* -.19* .24* Note. WLC – Work Locus of Control; INEF – Inefficacy; F-D – Fate Dependence; O-D – Other Dependence; PC –
Personal Control; IC – Ideology of Control; LOS – Locus of Successes; LOF – Locus of Failures; CS – Control
Scale.
* p < .05; †p < .10 (tendency)
Table 2
CONCEPTS OF HUMAN NATURE IN THE NARRATIVES
Concept of human nature Frequency Definition
Society-made man 103 is shaped by the society, by the social
group he/she belongs to and by its
values
Family man 101 takes care about others, but only about
those others who are his/her family
members
Materialistic man 95 strives for material goods (money,
wealth), is motivated by the lack of
money (wants to make money)
Self-made-man 95 is the smith of his own destiny - he
strives to set himself/herself targets, has
strong will
Selfish man 91 strives for his/her own good, without
any concern for others
Rational man (Enlightened man) 89 is reflective, perceives reason as a main
factor that shapes his/her life and makes
rational choices
Technocrat 84 in a positive sense - controlling the
world through technology \ in a negative
sense – alienating himself/herself from
the world and other people by
technology
Moral man 73 rates on the scale of good-evil, evaluates
behaviors according to the moral
standards
Inert man 73 externally controlled, has no influence
on the important events in his/her life
and on his/her fate
Self-actualizing man 65 strives for self-development, pursues the
voice of personal passion
Pro-social man (Altruist man) 64 helps other people
Aggressive man 62 fights with others for resources,
according to the belief that homo homini
lupus est
Animal sociale 55 lives among the people and needs other
people, seeks harmonious relationships
with others; without the presence of
others, he/she loses the joy and meaning
of life
Spiritual man 49 seeks for spiritual experiences
Irrational man 41 is driven by the impulse and intuition,
not by reason
Nature-made man 35 biologically determined, he/she
inherited his/her essential characteristics
and tendencies
Ecological man 33 protects the environment, tries to reverse
the process of alienation from nature
Romantic man 27 strives for love
Idle man 26 lives from day to day, striving for
nothing
Virtual man 13 has poor direct relationships with others,
communicates only with the use of
technology
Table 3
EMOTIONAL INTELLIGENCE, SENSE OF COHERENCE, AND CONCEPTS OF
HUMAN NATURE
Concepts of Human Nature Emotional intelligence Chi2
Low High
Materialistic Man 87.5% 61.9% 3.97*
Sense of coherence – comprehensibility
Low High
Selfish Man 100.0% 71.4% 8.41*
Sense of coherence – manageability
Low High
Aggressive Man 79.2% 42.9% 7.08*
Selfish Man 95.8% 64.3% 7.71*
Sense of coherence – meaningfulness
Low High
Aggressive Man 63.0% 37.5% 3.30
Reasonable Man 63.0% 100.0% 11.06* Note. * p < .05
Optimizing Operational and Financial Efficiency in Corporate Treasury
Management
Petr Polak, FBEPS, Universiti Brunei Darussalam, Jalan Tungku Link, Gadong
BE1410, Brunei, e-mail: [email protected]
Abdullah Ejaz, Universiti Brunei Darussalam, Jalan Tungku Link, Gadong BE1410,
Brunei, e-mail: [email protected]
Abstract
The paper sheds the light on treasury efficiency. It discusses the definition of treasury efficiency,
its importance, benefits and problems. Then it further discusses about improvement in treasury
efficiency. It also converses about the treasury efficiency in practice, treasury efficiency surveys.
In the last it argues about treasury management model to achieve treasury efficiency.
Optimizing operational and financial efficiency has been among the main objectives for
treasurers for some years. Increasing operational efficiency in treasury management is closely
connected to risk management. There are wide variety of ways to increase efficiecy, which in
turn mitigates the risk of human failure and fraud. Furthermore, efficient business processes
reduce costs, which reduce pressure on marging, and facilitate better decision-making based on
greater visibility over information and transactions. One of the foundations for achieving
efficiency is to have full visibility over cash flow in all currencies and countries.
Keywords: treasury management, treasury, efficiency, automation, standardization, risk
management.
Introduction According to Merriam-Webster dictionary, the meaning of efficiency is the capability to generate
something while not wasting resources which are provided for the generation. According to the
meaning of efficiency above, “Treasury Efficiency” can be defined as the ability to achieve
maximum output with given amount of funds or the ability to use the funds of the company in a
way that it can create the maximum value of the firm with given amount of funds.
Treasury efficiency has become more important after the financial crisis and Polak, Robertson
and Lind (2011) in their research paper “The New Role of the Corporate Treasurer: Emerging
Trends in Response to the Financial Crisis” have categorized “Treasury Efficiency” as one of the
most important emerging challenges that a corporate treasurer could face. Blake (2011) also
highlighted the importance of treasury efficiency by arguing that extraordinary challenges have
been experienced by the firms in modern corporate world and these unparalleled challenges are
‘risk management, access to cash/credit and efficiency”. Seifert (2011) also argued that financial
regulations like Basel III also emphasizes on betterment of indigenous financing efficiencies.
While talking about the efficient treasury process, Ala (2011) argued that centralization,
standardization, simplification and automation should be the central part of the efficient treasury
process. Polak et al. (2010) further argued that greater amount of efficiency can be achieved
through centralization of treasury functions. Hartung (2010) further argued that financial crisis
has led more companies to take advantage of the expertise of the regional treasury centers for the
better management of their liquidity. Similarly, Polak, Sirpal and Hamdan (2012) wrote in their
paper “Post-Crisis Emerging Role of the Treasurer” that before financial crunch it was easy to
access capital or the circumstances were not severe for the cash accessibility. But financial crisis
and post financial crisis period made corporate financial managers realized the necessity of
building dependable ways of financing and lifting up the cash liquidity. But Stewart (2005)
argues that financial motivations have significant impacts on the legal composition and financial
activities of the multi-national companies and it gives the rise of usage of “special purpose
vehicles”, “inter firms’ loans”, “back to back loans” etc. Therefore it is necessary to have right
combinations of funds to improve treasury efficiency in an organization to achieve maximum
value.
How to achieve improvements in efficiency
Optimizing operational and financial efficiency has been among the objectives for treasurers in
recent years. Increasing operational efficiency in treasury and finance management is closely
connected to its risk management role. There are a wide variety of ways to increase efficiency,
which in turn help to mitigate the risk of error and fraud. Efficient business processes reduce
costs, which reduce pressure on margins, and facilitate better decision-making based on greater
visibility over information and transactions. Automation and process optimization reduce the
potential for errors or data latency. Improved efficiency can also improve the speed and quality
of information – a critical component for Treasury in dynamically assessing risk and liquidity.
Potential efficiency improvements for MNCs (Multi National Corporations) include:
• Automation of low value added operational tasks including basic intelligence activities,
such as, for example, managing payment and investments.
• Location of staff in low cost / high talent centers.
• Removal of paper documentation from the entire process.
• Migration to e-payments and mobile payments
• Leveraging the scale of partners to reduce unit costs of activities.
• Improving straight-through processing of payments and collections to minimize costly
exception processing.
One of the foundations for achieving efficiency is to have full visibility over cash flow in all
currencies and countries. While it is very easy to understand in theory, it is a problem in practice
as detailed payment formats vary by country and companies often work with multiple banks that
frequently store and communicate information in disparate formats and frequencies. Companies
may also operate multiple general ledger systems, often due to acquisitions, each with unique
data elements and formats. Another problem is that in many of the fastest growing economies,
e.g. China and India, movement of cash is trapped or, at best, severely constrained through
regulation and cannot be sweeped to a single concentration location. Further, many emerging
economies are characterized by banks with incomplete or delayed information reporting
capabilities and poor transparency into payment execution and settlement.A common first step in
increasing the efficiency of treasury operations is to centralize the control of the treasury
processes. A centralized treasury management system is a prerequisite for supporting efficiency.
But even if the company has centralized processes, it may still need to standardize and simplify
both the internal and external processes, and those steps must be attempted before automation.
During the recent credit crisis, the value of real-time access to key information – global visibility
of cash position, immediate access to counterparty risk, and global cash flow forecasting - was
further highlighted. The crisis also increased the need for real-time management reporting.
There are a variety of reasons why companies decide to automate their treasury functions,
including improved cash forecasting and straight-through processing, integration with multiple
banks and multiple formats, increased visibility of cash, improved management of risk, and
regulatory compliance – just to name a few. However, the recent convergence of several
environmental factors such as globalization, rapid business growth, increased competition, has
made treasury automation a priority for many corporations. In addition, treasury’s increasing
ability to affect the bottom line has resulted in a significant shift in the role and responsibilities
of corporate treasury professionals. This shift has brought about a renewed focus on cash
forecasting and global cash management, interest rate and foreign currency risk management,
and overall working capital management. This, in turn, is further driving the need for automation
and collaboration across a broader ecosystem. Corporate treasurers continue to demand more
automated solutions for the cash management function. This is certainly not a new development;
over the past few years, corporate treasurers have pursued various automation initiatives. Early
initiatives focused on streamlining of settlement processes, enabling many corporate treasury
departments to settle transactions automatically via treasury workstations or direct interfaces
with their banks.
A second wave of automation initiatives focused on automating the cash position and liquidity
forecasting processes. Corporate treasurers asked their banks to build interfaces directly into
their treasury workstation or ERP systems in order to provide timely cash positions and liquidity
forecasts. Automation provides transparency, mitigates operational risks and creates one
standardized process that is repeated every time. Today, automation can include daily cash
investments and borrowings (via sweeps or portals). Further, as the reporting requirements of
treasury have grown due to risk and regulatory pressures, many treasury units have automated a
battery of periodic and ad-hoc reports so as to avoid time rekeying and formatting data.
Efficiency is strongly tied with a pressure on standardization of the format of financial
messaging between counterparties, which in turn facilitates greater interoperability. At the
present time the scene is set for substantial progress towards standardization in the form of ISO
20022 financial messaging standards based on XML. ISO 20022 is succeeding where previous
efforts have failed, because it is supported by SWIFT to consolidate channels to over 8,000
banks and almost 1,000 corporations globally. In emerging economies, especially in Asia, where
financial markets and their regulation are taking a different evolutionary path from those of
Europe or the United States, deploying new technology and leveraging new technical standards
is often easier as there are fewer legacy issues and vested interests to address. But the most
important trend amongst companies that are mostly operating in emerging or growing markets is
to adopt significant automation and leverage their standards to integrate payment and treasury
data directly to the core system to maintain their competitive edge and reduce costs. As more
companies expand operations across international borders, the erratic behavior of the
international financial market forces standardization of international payments, as the
simplification of fund movements becomes the extended challenge for corporate treasury.
Corporate treasury is required to be more aware of the volatility of the international financial
market and conversant with the current payment standards practiced by other corporate
treasuries, in order to keep up with international trends. For example, the recent implementation
of the single euro payments area (SEPA) has resulted in the SEPA Credit Transfer (SCT)
replacing myriad payment instruments across the EU countries. The SCT was introduced in
January 2008, and the SEPA Direct Debit in November 2009. Standardization of data promises
faster, more comprehensive, and more efficient consolidation of data – which in turn will enable
treasurers to access strategic insights more quickly – e.g., identifying variances to forecast and
expediting the inclusion of data into automated general ledger posting and forecasting systems.
Treasury efficiency in practice
Bird (2013) at Financial Times is of the view that in today’s world automation is the key to
achieve efficiency. Treasurers in the companies are asked to avoid extra funds in the deposits
that have low interest rates, immediately indicate overdue payments and lessen the costs of
transaction. But one problem in achieving above targets is the downsizing in finance
departments. Cindy Murray, head of global treasurer, platforms and e-channels at BoAML
argued that Treasurers are asked to do achieve more through automation in order to make
activities more efficient. Paul Bramwell, senior vice president for treasury solutions at SunGard
is of the view that the purpose of the financial managers is to display how much amount of
liquidity they possess and where it is at any given point of time. Some clients require the update
on financial situation daily or hourly. One client of BoAML wants accounting equation updates
in the subsidiaries after every five minutes. In case of overseas companies, numerous payment
formats just made the task difficult for instance Brazil have her own payment formats. Ms.
Murray is of the view that several formats only permit to join 15 to 20 characters to the data.
Then, it becomes very difficult to identify which data belongs to what and when for instance
corresponding payment to invoice. But automation has solved this problem, Ms. Murray argued.
BoAML’s has automated treasury service that collects the data on payments from clients and
transform into a format which is in conformity with the International Standards Organizations
Guidelines. It improves efficiency and frees the treasurer from spending time on reconciliation,
hence, allowing manager to spend more time on analysis. Having data in standard formats is very
helpful in answering questions like “what if?” says, Mr. Bramwell. Paul Tivnann, global head of
foreign exchange and commodity electronic trading at Bloomberg, also says that more currencies
and more interest rates increases risk due to price variation but automation helps to manage risks.
Bloomberg has FXGO service that can unite many news analyses internationally with
simultaneously performing transactions with 300 banks. It helps greatly in buying or selling
currencies and chose the best available offer from the range of offers. FXGO requests several
banks for the quotes and also calculates the difference in dollar terms. It eliminates the risks of
human errors, follows up on audit and helps in bringing compliance. BoAML’s CashPro
Accelerate has locked the historical data of the company so that it cannot be manipulated and use
this data to forecast the future trend. Hence, avoiding the problem of the creation of individual
spread sheets based on inefficient data by many managers.
Ludovic A. Pech is a chief financial officer at Orange Romania. Pech (2012) wrote an article “A
Local Approach to Treasury Efficiency” in Treasury International Management. Pech wrote that
Orange brand is owned by The France Télécom group. Pech (2012) further wrote that there is a
central group based in Paris with the name of “Group Treasury” and there are in-country finance
teams whereas Group Treasury is responsible for designing financial policies and carrying out
broad set of activities around the globe for the group and for its subsidiaries as well. In-country
finance teams are responsible for managing cash position locally, performing daily treasury
activities and managing risk. Pech is of the view that the organization follows a collaborative
approach. In-country teams works very closely to the Group treasury. The central group provides
them with financing, liquidity and refined treasury management and financing tools which are
difficult to obtain in the local environment. As Romania, although EU member since 2007, is
not included in the Euro Zone, therefore the nature of risks faced Orange Romania are different
than the risk faced by the other group members. The risks involved are currency risk, credit
default risk etc. In the presence of such risks, the close cooperation between the central group
and in-country finance team at Orange Romania is termed as “positive one” by Pech. They also
seek advises from the group on short term financing strategies. But Pech is of the view that
Orange is the third largest profit earning organization in Romania and investing of its two-third
profits to bring innovation to the market. Therefore, it is very necessary to maintain strong
relationship with the local businesses and banking fraternity. Pech is also of the view that local
bank ING in Romania helped Orange to achieve that status by providing them exceptional
service. Nicoleta Forfota, Head of local sector – Telecom, Media and Technology at ING, is of
the view that there bank is very proud on its contribution of making Orange as one of the leading
company in the market. Nicoleta is also of the view that bank has supported this rapid growth of
orange by the provision of quality banking infrastructure, appropriate operational support, advice
on key matters and continuous expert opinion on products in a rapidly changing and difficult
business environment. She further wrote that ING tries to build close relationship with clients by
detailed understanding of clients’ business and responding them with “tailor-made” customized
solutions. Pech (2012) also wrote that there must be a balance between centralization and
decentralization of treasury activities. To achieve a successful combination of centralized and
decentralized treasury management activities, policy, procedures and information flow should be
clearly defined between central and regional finance teams and also, in-country finance teams
should ensure that they have right skills to manage liquidity positions, risks and banking
relationships. Similarly, a right local banking partner is also needed that can understand the
business, offer efficient solutions and able to support centralized treasury activities.
Treasury efficiency surveys
Lindorff (2010) wrote that companies spent large amount of money on automating their treasury
activities but Association for Finance Professionals’ (AFP) benchmarking survey indicates that
the most important factor in bringing betterment to treasury efficiency is possessing highly
educated, continuously trained and experienced employees in departments of treasury. Tom
Hunt, treasury services director at AFP, told that it was found out through the survey that
education level of employees was the important indicator in achieving efficiency. Certified and
degree holder employees could efficiently perform treasury activities at treasury departments.
The survey also revealed that training also played a role in achieving efficiency. The employees
who received training for four to six days in a year in order to remain up to date on
technological, regulatory and industrial changes performed better than those employees who
spend only two days on training in a year but training more than six days had diminishing
benefits. Tom Hunt also told that generally firms spent three-fourths of finance budgets on
employees yet they receive different results because results are based on factors like level of
education, experience, training and service duration. He further said that there were areas where
ability of employees mattered than other factors for instance long duration on job had little effect
on treasury functions’ performance but experienced employees are better at physical pooling of
cash and maintain daily cash positions. Similarly survey also revealed that long tenure
employees achieved some treasury activities at a slower rate but they were able to work with
small work force. They survey also surfaced some important findings. For instance efficient
treasury companies takes a day to resolve inconsistencies in a day whereas average treasury
companies will take two days to solve this issue. Traditionally it is a two hour operation of
physical pooling of cash and setting up daily cash position but efficiently managed companies
could achieve the same in an hour. Similarly short term cash flow forecasting could be achieved
by good companies in 1.7 hours whereas the same achieved by the average companies in 4 hours.
The survey is of the clear view that highly educated, well experienced and trained employees are
necessary for improving efficiency in treasury departments.
Staff at Treasury and Risk (2013) discussed a survey that was done by Kyriba and UK’s
Association of Corporate Treasurers. The survey provided the statistical evidence that spread
sheets are not the efficient way for performing treasury functions. Most of the respondents
belonged to UK and Ireland. There were total 269 respondents in the survey whereas 78% and
75% of the respondents were involved in cash management and reporting and forecasting of
liquidity positions on daily basis respectively. Also, 66%, 58% and 43% of respondents were
involved in managing risk, providing data to higher management on corporate decisions and
strategic financial analysis on day to day basis respectively.
Figure 1: Platform used for treasury and cash management (broken out by company revenues)
Source: Treasury and Risk Staff, 2013.
It is clear from the Figure 1 that companies that have annual revenue of £500m or under £500m
have used the spread sheets for managing their cash up to almost 50%. It is observable that as the
revenue of the firms’ increases, the use of spread sheets decreases which leads to the increased
usage of a software for managing funds. Server software is a Treasury Management System
(TMS) which provides services to clients for managing their funds. Firms that have revenue of £
10b or more have taken the support of automation for managing their treasury whether this
automation is in the name of TMS or ERP or In-house system. One thing is very clear from the
above figure that companies encourage the use of automation in managing treasury once their
revenue increases. Similarly automation of treasury management could also increase
productivity and save ample amount time as it is evident from the figure below.
Figure 2: Time per day spent on manual/operational tasks
Source: Treasury and Risk Staff, 2013.
It is clear from figure 2, employees that used TMS to perform operational task were almost 45%
and spend less than hour to complete the given task where ERP users were only 38%. And, only
30% were the once who used spread sheets and performed the task in less than an hour. It is quite
evident from figure 2 that automation of treasury management can increase productivity, could
save the time of employees and that saved time can be used on other strategic matters which in
turn will increase the overall level of productivity and efficiency of the firm.
PWC’s treasury management model
PWC’s Finland has prepared the following model to manage treasury activities efficiently.
Picture 1: Finance and treasury value chain
Source: http://www.pwc.fi
The above model clearly suggests that there should be a holistic approach to achieve treasury
efficiency. Such policy of treasury should be made that supports the vision and strategy of the
firm, loan requirements should be outlined and excess funds should be invested. Working capital
should be managed efficiently with simultaneously managing risks and implementation of
management information system should be insured in order to achieve treasury efficiency.
Conclusion The meaning of efficiency is the capability to generate something while not wasting resources
which are provided for the generation. According to the meaning of efficiency above, “Treasury
Efficiency” can be defined as the ability to achieve maximum output with given amount of funds
or the ability to use the funds of the company in a way that it can create the maximum value of
the firm with given amount of funds.
Potential efficiency improvements for MNCs (Multi National Corporations) include:
• Automation of low value added operational tasks including basic intelligence activities,
such as, for example, managing payment and investments.
• Location of staff in low cost / high talent centers.
• Removal of paper documentation from the entire process.
• Migration to e-payments and mobile payments
• Leveraging the scale of partners to reduce unit costs of activities.
• Improving straight-through processing of payments and collections to minimize costly
exception processing.
Treasury policy
Establish
treasury
policy and
align this with
corporate
vision and
strategy
Funding
management
(Liability)
Set funding
Requirements,
raise funds;
manage group
finance
structure;
repay funds
Surplus
management
(Asset)
Investing
surplus
cash; equity
repatriation
Cash
management
(Working
Capital) make efficient
use of liquid
funds; cash
concentration;
debt factoring
Risk
Management
FX hedging,
credit and
interest risk
management
Information
Management
Design and
implement
systems
One of the foundations for achieving efficiency is to have full visibility over cash flow in all
currencies and countries. While it is very easy to understand in theory, it is a problem in practice
as detailed payment formats vary by country and companies often work with multiple banks that
frequently store and communicate information in disparate formats and frequencies. Companies
may also operate multiple general ledger systems, often due to acquisitions, each with unique
data elements and formats. Another problem is that in many of the fastest growing economies,
e.g. in China, movement of cash is trapped or, at best, severely constrained through regulation
and cannot be sweeped to a single concentration location. Further, many emerging economies
are characterized by banks with incomplete or delayed information reporting capabilities and
poor transparency into payment execution and settlement.A common first step in increasing the
efficiency of treasury operations is to centralize the control of the treasury processes. A
centralized treasury management system is a prerequisite for supporting efficiency. But even if
the company has centralized processes, it may still need to standardize and simplify both the
internal and external processes, and those steps must be attempted before automation. During the
recent credit crisis, the value of real-time access to key information – global visibility of cash
position, immediate access to counterparty risk, and global cash flow forecasting - was further
highlighted. The crisis also increased the need for real-time management reporting.
References
[1] Ala, Laura., 2011. “Treasury Trends for 2011.” GTNews, viewed 18 May 2013,
http://gtnews.com/article/8216.cfm
[2] Bird, J., 2013. Cash Management: Automation Drives Treasury Efficiency. Financial Times
March 26, http://www.ft.com/intl/cms/s/0/19b5fe96-8717-11e2-9dd7-
00144feabdc0.html#axzz2TuSV0qnA
[3] Blake, N., 2011. “What matters today in the treasurer’s role?” In: Association of Corporate
Treasurers. The International Treasurer’s Handbook 2011 (pp.58-60). London: ACT.
[4] Hartung, R., 2010. “Regional Treasury Centres Grow in Asia.” GTNews, viewed 18 May
2013, http://www.gtnews.com/feature/428.cfm
[5] Lindorff, D., 2010. Quality Staff Key to Treasury Efficiency. Treasury and Risk Nov. 15, http://www.treasuryandrisk.com/2010/11/15/quality-of-employees-is-key-to-
treasury-efficiency
[6] Pech, L. A., 2012. A Local Approach to Treasury Efficiency. Treasury Management
International 210, 46-48.
[7]Polak, P., Robertson D.C. and Lind, M., 2011. The New Role of the Corporate Treasurer:
Emerging Trends in Response to the Financial Crisis. International Research Journal of Finance
and Economics 78.
[8] Polak, P. and Klusacek, I., 2010. Centralization of Treasury Management. 1st Ed. Sumy:
Business Perspectives. 100 pages. ISBN 978-966-2965-08-7.
[9] Polak, P., Sirpal, R. and Hamdan, M., 2012. Post-Crisis Emerging Role of the Treasurer.
European Journal of Scientific Research, issue 86, 319-339.
[10] Seifert, E., 2011. “The Future Role of the Corporate Treasurer.” GTNews, viewed 18 May
2013, http://gtnews.com/article/8415.cfm
[11] Stewart, J., 2005. Fiscal incentives, corporate structure and financial aspects of treasury
management operations. Accounting Forum 29, 271 – 288.
[12] Treasury and Risk Staff. 2013. Treasury Management Systems Boost Productivity. Treasury and Risk May 9, http://www.treasuryandrisk.com/2013/05/09/treasury-
management-systems-boost-productivity
Online Links:
http://www.learnersdictionary.com/search/efficiency
https://www.pwc.fi/fi/tilintarkastus-ja-muut-
varmennuspalvelut/tiedostot/PwC_Treasury_Solution_Services_2011_web.pdf