Vilakshan-2 2

Vilakshan, XIMB Journal of Management
Impact of Microfinance through SHG-Bank Linkage in India: A Micro Study*

B. Kumar1
Abstract
Indian micro-finance sector, dominated by self help groups (SHGs), addresses issues like actualizing equitable gains from the development and fighting poverty. NABARD, the apex governmental financial institution, provides micro-finance services to the very poor through the existing banking network and NGOs. It claims that around 90 per cent of the beneficiaries were women SHGs. Its impact evaluation2003 finds that there was a significant growth in assets (30%) and income levels (23%) of the beneficiaries. However, some other researches assert that non-productive loans and procedural delays, high interest rates and lack of training etc. are the major constraints affecting the growth. This paper examines some of the impacts of SHGs-Bank linkage through a micro study of Athmallick Block, one of the backward regions of the backward state of Orissa, which is also a drought prone and flood affected area. The study finds that impacts were not substantial and calls for immediate interventions for the sustainability of the programme.
I. INTRODUCTION
Poverty has degraded human lives for centuries. One of the greatest achievements in 20 th century is the significant reduction in poverty. The Human Development Report (1997) asserts that eradicating severe poverty in the first decade of the 21st century is feasible. This may seem an extraordinary ambition, but it is well within our grasp. In this direction, grassroots finance assumes great significance as an innovative policy instrument. Most of the
* 1
developing nations have been striving to accomplish substantial gains in narrowing down poverty levels by adopting wide range of innovative micro-credit policies. Micro-finance is an innovative credit delivery mechanism that ensures viable financial services to the needy in the developing countries. It has the potential to address issues like actualizing equitable gains from the development on a sustainable basis and fight poverty. In any one year a large number of people move into and out of poverty. The most
Received July 9, 2005. Reader and Placement Officer, Department of Business Administration, Utkal University, Bhubaneswar, baghar@rediffmail.com
significant impact of micro-finance is to keep those just above the poverty line from falling below it particularly through building assets, financing a diversification of household income and smoothing consumption through emergency finance (DFID, 2000; Yunus, 2004).
II. MICRO FINANCE: GLOBAL EXPERIENCES
among those who have successfully served hundreds of thousands of the Worlds poor particularly targeting women (Berg, et.al. 1998; EDA, 2002; Fuglesang and Chandler, 1996; Gibbons and Kasim, 1995; Panjaitan, et.al, 1999; Shehabuddin, 1992; Wilson, 2002). The academic researches (Falaiye, 2002; Hema, 2003; Afrane, 2003; Doocy, 2004) in some developing countries confirm and acknowledge the positive impact of microfinance. Falaiye(2002) in his study on the impact of micro credit on rural Nigerian women finds that the micro credit has positively changed the clients self-esteem and confidence, leadership abilities and decision-making process; contributing to their households wellbeing and increasingly seeking out solutions to their own problems and the community. Hemas(2003)research on influence of microfinance programme of SEWA Bank in India on womens financial decision making within the household confirms that clients have gained from programme membership which has improved their knowledge, skill, attitude and financial decision making power. Impact assessment of microfinance interventions in Ghana and South Africa by Afrane(2003) strongly confirms that microfinance interventions have achieved significant improvement in terms of increased business income, improved access to life-enhancing facilities, and empowerment of people, particularly women. Doocy(2004) who studied on microfinance programmes as means of improving coping capacity in drought
Recognizing the substantial impact of micro-finance on poverty alleviation, both governmental and non-governmental organizations (NGOs) have been prioritizing micro-finance schemes. In June 1998, the Micro-credit Summit tallied 14,808,871 borrowers and the World Bank chairs a coalition of lenders whose objective is to extend Micro Credit to 100 million borrowers by the year 2005 (Panjaitan et.al.1999). In India 11.6 million poor families have accessed bank credit and 90 million poor people have been assisted through 1,079,091 self-help groups upto March 2003 (NABARD, 2004). Besides, Small Industries Development Bank of India (SIDBI) through its Foundation for Micro Credit since January, 1999 has sanctioned aggregate assistance of more than Rs.1100million to about 180 micro-finance institutions (MFIs), benefiting over 7,00,000 poor, mostly women (SIDBI,2003). It is evident from several studies that Grameen Bank in Bangladesh, Badan Kredit Kecamatan (BKK) in Indonesia, Action Comunitaria in Peru, Amnah Ikhtiar Malaysia in Malaysia, SelfEmployment Womens Associaiton (SEWA) and MYRADA in India are
prone Ehiopia reiterates that microfinance programmes in the country are successful in increasing household coping capacity in chronic natural disasters, especially when clients are female, and indicate that microfinance programmes may have an important role as a means of enhancing population well-being in the context of natural disasters and humanitarian emergencies.
III. SHG-BANK LINKAGE IN INDIA
The micro-finance scene in the country is dominated by SHG-bank linkage. NABARD is the nodal apex government financial institution to provide microfinance services to the very poor through the existing banking network and NGOs. The pilot program aiming at building financial capabilities and self-confidence among the deprived, through sustainable development of SHG-Bank linkage was first initiated in 1992. Since then, the growth is significant, and benefits are widely acclaimed. The performance and its sustainability are briefly discussed below:
3.1 Outreach and performance of SHGs in India
In terms of outreach, the SHGs experiment is an important step to cover a large number of beneficiaries across the country, particularly targeting the poor women. The analysis of performance as on 31st March 2004 presented through Table-1 reveals that after more than a decade long experimentation through SHG linkage program with 1,079,091
groups (90% women groups), 16 million low income households( 90 million people app.) now access credit from NABARD via 48 Commercial Banks, 196 Regional Rural Banks, 361 Cooperative Banks or other intermediaries. About 50 percent of all SHGs were linked with commercial banks followed by 39 percent with RRBs and 11 percent with co-operatives. The average loan per SHG amounted to Rs.36182 with the average bank loan per family at Rs.2440. There has been constant decrease in the growth rate of SHGs formed and amount of loan advanced. This is possibly due to the fact that growth of NGOs has reached almost a saturation point and their participation in new SHGs formation has been constricted due to inadequate inflow of funds (mainly donations and grants) from outside sources and stringent government regulations. However, the heavy reliance on the existing network of formal financial institutions has given immense uplift to the growth of SHGs in India. NABARDs corporate mission was aiming to reach micro finance services to one million SHGs by the year 2007-08.This translates to about 100 million rural poor or 1/3rd of the total poor in the country. NABARD has provided more than 69 per cent refinance to commercial Banks, RRBs, cooperative banks and primary agricultural credit societies for loans disbursed to SHGs at a subsidized rate which has created necessary confidence among financial institutions regarding financing of SHGs. In India, the
Table-1: Micro-financing in India - Performance up to March 2004 (cumulative) Particulars Number of SHGs provided with bank loans Percentage of women groups Number of participating banks Commercial Banks Regional Rural Banks (RRB) District Co-operative Banks (DCB) Bank branches participating Number of states and Union territories participating Bank loans (Rs. billion) Refinance (Rs. billion) Number of districts covered Number of Partner agencies Number of families assisted (in million) Average loan/SHG (Rs.) Average loan/family (Rs.) 2000-01 2,63,825 90 314 43 177 94 4.8 4.0 412 1030 4.5 18,227 1,072 2001-02 2002-03 2003-04
461,478(75) 717,360(55) 1,079,091(50) 90 444 44 191 209 17085 All 10.3 8 488 2,115(105) 7.85(74) 22,240(22) 1,316(23) 90 504 48 192 264 30942(81) All 20.5 14.2 523 2800(32) 11.6(48) 28,560(28) 1766(34) 90 560 48 196 316 35294(14) All 39.0 21.2 563 16.(38) 36182(27) 2440(38)
N.B: Figure within parentheses indicates percentage increase over previous year Source: Progress of SHG Bank linkage in India 2003-04, NABARD; www.nabard.org
government at both the regional and the national levels has increasingly identified a potential role for SHGs in rural finance: in particular, the new Swarna Jayanti Swarozagar Yojana (SJSY) initiative of the Government of India to replace existing poverty alleviation programmes such as Integrated Rural Development Program (IRDP) is primarily based on SHGs. The entry of the government into the SHG movement was through the Rashtriya Mahila Kosh (A government created fund which extends financial support to NGOs
in developing SHGs) and Indira Mahila Yojana (a government scheme for womens empowerment which works through SHGs). The relative success of SHG model has established that large number of people who are traditionally excluded from the formal financial sector could hold out a profit potential for innovative banking systems. However, for all their exponential growth over the last few years, SHGs remain regionally clustered:
about 65 per cent are in the four southern states of Tamil Nadu, Kerala, Karnataka and Andhra Pradesh (Andhra Pradesh with 39% tops the list), followed by eastern region with 13 per cent. The most poverty ridden states such as Bihar, Madhya Pradesh, Rajastatan and (undivided) Uttar Pradesh have only a small presence of SHG programmes. This highlights one of the greatest challenges faced by the movement, i,e., how effectively to move from a regional to a national base. NGOs play pivotal role in the growth of SHGs-Bank linkage process. Normally, NGOs which are active in a particular village take initiative in forming the groups and link these with banks that mostly prefer to lend directly to SHGs. The SHGs financed by banks using NGOs has declined over the years and NABARD encourages the banks to lend directly to SHGs by refinancing the loans they make to SHGs. As on 31st March 2004, 20 per cent of the total SHGs were under Model-I, i.e. SHGs formed and financed by banks, 72 per cent were Model-II, i.e. SHGs formed by formal agencies other than banks, NGOs and others, but directly financed by banks, and other 8 per cent were SHGs financed by banks using NGOs and other agencies as financial intermediaries. This trend is completely different from the all India trend. The various operational models of SHGs are presented in Table-2 for a comparative picture. As regards capacity building, NABARD provided grant support to train 26,200 bank officials, 7,300 NGO staff, 5,900
government officials and 1,59,000 SHG members during 2003-04 making a cumulative total of 6,87,000 persons till 31st March 2004.
3.2 SHGs-Bank linkage in State of Orissa
Orissa is one of the backward states coming under eastern region of the country. Kalahandi, Bolangir and Koraput (KBK) region of the country is most backward and tribal dominated area. Poverty is deep rooted in this region, for which it has attracted every bodys attention worldwide. Therefore, NABARD, one of the main governmental financial agencies, has given priority for alleviating poverty through SHGs-Bank linkage in the state particularly targeting the KBK region. As on 31st March 2004, Rs.1275 million (39% for KBK region) bank loan was provided to 77588 SHGs (41% in KBK region). As regards specific bank linkage, 33 per cent SHGs covered by commercial banks, 56 per cent by RRBs and 11 per cent by DCBs. So far models are concerned, 51 per cent of the total SHGs were under Model-I, 23 per cent were Model-II, and other 26 per cent were Model-III SHGs. This trend is completely contrary to the all India trend. As regards Angul district, under which the sample Athmallick Block falls, is concerned the SHGs-Bank linage program portrays a dismal picture. Only 2.7 per cent of the total SHGs credit linked in the state availed loan to the tune of only Rs.31 million i.e, 2.4 per cent of the state lending by the year ending 2003-04. All the channels of lending were almost evenly shared.
Table-2: Operational models of SHGs in India (31st March 2004) Models Role of NGO Role of Bank Forming, nurturing and financing . SHGs Remarks* Nearly 20 per cent of the groups linked are under this model. NABARD has been providing assistance to willing RRBs, to function as SHG promoting institutions. Direct contact with clients, fast decisions without reference to others, no political or other interests except business, no withdrawal problem. Costly in staff time and expenses such as transport is a burden on bank managers. This is the popular model with 72 per cent of the groups linked as on 31 March 2004 falling under this category. The government agencies have a presence in villages and known to the community and panchayat officials. Some times the schemes are politicized and grant or subsidy oriented.
SHGs formed and Nil financed by banks
SHGs formed by NGOs/ farmers clubs/ Government departments and financed by banks
Forming and Financing nurturing SHGs groups. Facilitating linkage with banks by liaising with bank. Forming and nurturing groups. Financing of SHGs
SHGs formed by banks using NGOs or intermediate Structures
Financing The share of SHGs linked under this NGOs/ federa- model is relatively small at 8 percent tions for onas on 31 March 2004. lending to the groups No cost to Bank
* Adopted from Harper (2002) with revised official data
The SHGs-Bank linkage has taken a stride in the state with the implementation of Mission Shakti project to promote empowerment of poor women by the state government on 8th March 2001. Out
of 119,994 women SHGs formed by the government departments at Block level (15.39 lakh members) as on 31 st March 2004, 43 per cent were provided bank credit of Rs. 1313- million with an average
of Rs.25616- per group. The members savings amounted to Rs. 710- million making an average savings of Rs.5918- per group. The comparison between the average group savings and credit assistance indicates that the formal yardstick of providing credit four times of the savings is conveniently relaxed depending on the credibility of the SHG.
IV. EVALUATION STUDIES ON IMPACT
Review of studies on multi-perspective evaluation on Indian micro-finance system by international micro-finance experts like Seibel, Kropp, Harper, and Puhazhendi presented on a seminar on SHG-Bank linkage during November 2526, 2002 (www.nabard.org) reveals that SHGs Bank linkage in the country has brought significant changes on the rural economy. Seibels study on profitability establishes that SHGs portfolio is profitable, despite the lower rates of interest charged by some banks, mainly due to nil non performing assets (NPAs). SHG banking was found to be a robust financial product, performing well both in healthy and distressed financial institutions. While appreciating the philosophy of SHG-Bank linkage program Kropp, in his holistic review suggested that the vision-2007 for reaching out to one third of the rural poor through this program was quite realistic. Being predominantly women focused, SHGBank linkage is the first step towards feminization of the (micro) banking portfolio of Indian banks. Harper in his study, compared strengths and
weaknesses of different SHG promoting institutions viz., NGOs, banks, farmers clubs and government agencies which were required to be factored in the scaling of strategy. The study on economic impact of the program by Puhazhendi for NABARD, covering 115 members from 60 SHGs in three backward eastern states, viz., Chattisgarh, Orissa,and Jharkhand revealed that there was significant increase in assets (up by 30%) and income level (up by 23%) of the members , with more than 80 per cent members coming from SC/ST and backward classes. The study by MYRADA on social empowerment of the women members of SHGs reconfirmed the general belief that women empowerment was the major outcome of the SHG-bank linkage programme. In spite of these successes, some research studies (Joanne, 1998; Tripathy, 2003) find that government agencies particularly banks and micro credit institutions, work with a safe target group not the real poorest, because of funding accountability concerns; government micro credit programs and staff tend to be both paternalistic and distrustful of the poorest; and identifying and reaching the poorest is extremely time consuming. Tripathy (2003) asserts that Indian mainstream financial institutions are generally seen as flushed with funds and have access to enormous amounts of lowcost savings deposits. He further reveals that the poorer the region, the lower the credit-deposit ratio. Most of eastern UP, Bihar, Orissa and North-East regions have
credit-deposit ratios of 20-30 per cent. Some of the important reasons pointed out for the constraints associated with micro finance are non-productive loans and procedural delays for productive loans, inflexibility and delay in sanction and disbursement, high transaction costs, social obligations not a business opportunity, high interest rates and lack of training. The RBIs mid-term review of monetary and credit policy for 2003-04 (ET, Nov.4, 2003) recognizing these bottlenecks recommended that banks, to make micro-finance requirement of SHGs hassle-free, should keep SHGs out of formal regulations, follow simple and easy procedures with flexibility to suit local needs, and provide adequate incentives etc to strengthen the microfinance delivery mechanism. Evidence on impact studies of SHG-Bank linkage programme reveals that there has been only few studies Bansal (1998), Puhazhendhi(2000) , Puhazhendhi and Satyasai (2000), and Puhazhendhi and Bdatya(2002) which merit reference. Bansals study is too general and provides little information about the sustainability of the operations. Other three studies were comprehensive macro studies and covered mainly intended economic impacts but were official studies of NABARD. These developments suggest that independent impact study is a gray area of research and hence, provide interest for research at micro level to understand the effects of real interventions through SHG-Bank linkage for all round development of the poorer sections of the society.
V. THE PRESENT STUDY 5.1 The Trigger for the Study
Impacts are effects and changes caused by a project, programme or policy. They may be intended (planned, positive), unintended (unplanned but imaginable, positive or negative) or occur unexpectedly (positive or negative). Impacts occur in economic, political, environmental, socio-cultural areas, which are often closely interrelated (www.worldbank.org/poverty). In the present study the scope of the assessment covers three important intended impacts which would be measured and described. As it is a micro level study, it was decided to study the Athmallick block for four reasons. Firstly, it is a flood affected, drought prone and backward area. Out of 24 Gram Panchayats (GP), 14 GPs situated on the bank of river Mahanadi are perennially affected by flood. If there is no flood, it would be drought. Official data for the previous three years indicate that about 22 per cent cultivable land (total cultivable land being 9924 hector.) during 2001-02 with 2112.9mm rainfall and about 12 per cent during 2003-04 with 1758.6mm rainfall were damaged by flood causing heavy agricultural loss. During 2002-03, about 61 per cent of the cultivable lands were under dry spell (rain fall 1105.4 mm). Pani panchayats i.e management of lift irrigation (LI) points by the farmers community replacing the old system of government management has not been well perceived by the farmers community
and hence, most of the LI points are defunct. Its revenue generation capacity is very low- less than one per cent (Total revenue of the District-Rs 4600mn in 200304). All these factors indicate the economic backwardness of the region. Secondly, some of the important interventions of governmental agencies particularly the anti-poverty measures in the block are some what encouraging .The forward-backward linkage among such promotional agencies like block authority, banks and NGOs etc. are understandably very weak. Consequently, three nationalized banks i.e State Bank of India, Indian Bank and Bank of Baroda operating in the block have not played desired role supporting the SHG-Bank linkage. As on 31st March 2004 only 15 percent or 34 out of 234 SHGs were financed with 13 per cent of the total credit of Rs.3.6mn provided in the Block against the Commercial Bank credit national average of 56%, and state average of 30%. These figures explain that Athmallick is a neglected area. Thirdly, not a single NGO of local origin is established in the block to promote SHG-Bank linkage. One NGO established about 20 years back has switched its priorities to some other socio-economic activities with political orientation. Other two outside NGOs work on SHG promotion at convenience. This piecemeal approach speaks about benign negligence of NGOs participation in the development process. One micro-finance institution (mFI) under Co-operative Act established in 2000 exclusively to promote SHGs
approach is yet to gain credibility due to obvious reasons. Finally, the area is chosen for convenience of qualitative data collection since the researcher is well versed with the local language and acclimatized with the climatic and socio-economic conditions of the area. The study is confined to the river belt of the block covering 14 Gram Panchayats (GPs) which are flood affected, drought prone and mostly backward. The study of the Athmallick Block with these features would reveal the magnitude of SHG-Bank linkage impact on the quality of life of the beneficiaries of a drought prone and flood affected area and the scope of further interventions.
5.2 Objective
An impact evaluation is intended to assess the changes in the well-being of individuals who are expected to benefit from a particular project, program or policy. Such a causal analysis is essential for understanding the relative role of alternative interventions in reducing poverty. Hence, the aim of the research was to assess the impact of micro-finance chanalized through SHG-Bank linkage program in Athmallick Block. Based on a pilot study of three SHGs from different age groups with eighteen respondents, three important intended impact areas namely; knowledge and awareness, income and savings, and decision-making power of SHG members were considered for in-depth study.
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5.3 Methodology
The quality of every impact assessment, i.e. the relevance and accuracy of the statements, depends on two crucial factors: the sample size and structure as well as the reliability and expressiveness of the indicators. Therefore, adequate care was taken, while deciding the methodology, to ensure that these twin objectives of impact evaluation, guidelines on impact evaluation as suggested by Baker (2000) for World Bank projects were followed. In order to decide the sample size, multistage random sampling method was adopted. In the first stage, 78 SHGs operating in 14 GPs in the river belt of the block financed by all types of banks till
31st March 2004 were identified. In the second stage19 SHGs (25% app) having completed at least one year of bank linkage were selected for the study assuming that the benefits from the SHGBank linkage programme would have been fairly pronounced in one year. In the final stage, a sample of five respondents comprising President, Secretary and at least three other members from each group totaling 100 SHG members (47%) were selected at random. The distribution of sample SHGs and members were proportionate to the number of SHGs linked as on 31st March 2004 (Table-3). Besides, another 8 SHGs out of 80 groups (10%) with 40 members (50% app) promoted by the local MFI without outside support were purposefully
Table 3: Sample chosen for the study- with and without Bank linkage Bank SHGs & linkage members Total No. of SHGs formed as on 31.03.04 in the block SHGs financed as on 31.03.04 In the In river block belt Sample SHGs selected SHGs members selected
3.1 SHGs with Bank linkage SBI Indian Bank Bank of Baroda AUCCB Mini Bank D.G Bank Sub-Total 28 34 83 121 256 232 754 4 9 21 37 125 48 234 4 9 37 12 16 78 80 27 1 2 9 3 4 19 8 140 5 11 49 15 20 100 40
3.2 SHGs without bank linkage Total (3.1) +(3.2)
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selected for a comparative analysis wherever required. In order to allow meaningful statements about the development of these groups
(and their members) and about the occurrence of intended and unintended impacts over time, the sample SHGs were divided into three sub-groups according to their age (Table-4).
Table 4: Stratification of sample according to model and age of SHGs Model Age No of SHGs and members 1-2 years 2-3 years 3 years & more 3/15 2/10 5/25 7/36 3/15 10/51 9/49 3/15 12/64 Total
Bank linkage Without bank linkage Total
19/100 8/40 27/140
As the study is mainly based on primary data, Participatory Rural Appraisal (PRA) techniques, consisting of in-depth interview of individual respondents with semi-structured questionnaires, group discussions, community meetings with mapping techniques and observation methods, were employed. For cross verification, the documents and records maintained by the groups were verified. Besides, informal discussions were held with the NGO facilitators, village Anganwadi workers, Supervisor of ICDS and Project Associate in the Block, and Branch Managers of the respective sponsored banks. The field study was conducted during April 20-June 10, 2004 and further cross verification through field visits were done during October 1025, 2004. Considering complex nature of the field study, the data so collected were processed and tabulated using a computer for analysis and interpretation.
VI. DISCUSSIONS AND FINDINGS
Before discussing the impact results, it is desired to present the structure, conduct and performance of the SHGs and the profile of the respondents. Data collected from 8 SHGs without bank linkage formed by a local NGO-cum-MFI and linked to their own system of operation as per co-operative Act and regulations is excluded from the tabulation and discussed for cross reference and comparison wherever necessary.
6.1 Structure, conduct and performance
i. All the sample SHGs were women groups and all the groups with bank linkage were under Model-II, i.e SHGs formed by NGOs (63%) and Block authority (37%) and linked to Banks for finance. The number of the members in a group varied between10 and 15, with an average of 12 members. ii. The socio-economic status of the respondents shows that they were
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within the age group between 19-65 years and maximum of them (69%) were between 30-40 years. The average age estimated was 32 years. About 93 per cent were married, 54 per cent had nucleus family and the average family size was 5 members. The caste pattern shows that 32 per cent of the members belonged to SC/ST, 49 per cent belonged to other backward communities and rests were from upper caste. As high as 69 per cent of them were semi literate (only knew how to sign) under total literacy campaign program of the government, followed by 15 per cent studied up to 5 th standard, 9 per cent up to 7 th standard and rest up to 10th standard. About 17 per cent of the members found to have occupied officially recognized positions i.e, Sarpanch, Ward member, Anganwadi Worker, office bearer in milk co-operative or political activists. As regards economic conditions, 74 per cent of the respondents reported to be within the official category of below the poverty line (BPL): average annual income less than Rs. 11,800 and nearly 58 per cent of them enjoyed Indira awas (a housing scheme for people below poverty line launched by the government in the memory of late Prime Minister Mrs. Indira Gandhi) provided by the government. With 43 per cent of the respondents being landless, 25 per cent having land between 0.5 acre and 1.5 acres, 17 per cent between 1.5 and 3 acres, and the
rest between 3 and 7 acres, the average size of land holding was 1.4 acres. The major sources of earnings of the BPL members were daily labour, petty trades and share cultivation. iii. SHGs have to function in a democratic manner. Regular meetings of group members are one of the activities of the SHGs that ensure effective participation of members. Most of the SHGs (87%) conducted monthly meetings and in many of the cases under the supervision of the animator concerned. Venue of the meeting was either village community hall or President/Secretarys house. In about 70 per cent of the groups, either President or Secretary or jointly organized the meetings with the involvement of NGO animator. iv. Savings formed one of the main products of the program. The amount of savings per member during a given period varied across the groups based on their capacity to save and age of SHG. The sample SHGs saved from the low level of Rs. 20 to a high level of Rs. 100 per month. Majority of the SHGs (52%) saved Rs. 30 per month and about 23 per cent reported increase in savings rate from Rs. 20 to Rs. 50 over a period of time. Individual passbook of members was maintained and the collections were deposited in respective sponsored banks. Subscription payments in most of the cases were reported to be regular. About 15 per cent of SHGs had
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provision for fine of Rs. 5 per month, in case of default due to avoidable reasons. v. As on 31st March 2004, the total savings of the sample groups excluding accumulated interest was Rs.1, 02, 000 making an average of Rs5368, about 9 per cent less than state average of Rs.5918.The purpose of loan availed from group fund by the sample members reveals that 65 per cent utilized for income generating activities, viz vending of vegetables/ rice or rice products, purchase of agricultural inputs, goat or sheep farming etc and 29 per cent utilized for non-income generating purposes like settlement of old debts from local money lenders, meeting medical expenses, and other social obligations such as marriage, childrens educational expenses and funeral rites etc. In about 79 per cent cases, repayment was regular. vi. All the groups availed first time loan amounting to Rs.406, 000 in the range between Rs.14, 000 and Rs.50, 000 during 2001-04, maximum of them (63%) availed Rs.25, 000. Three of them who availed the loan during March 2002 were found to be defaulters. The maximum subsidy component in each loan amounted to Rs10, 000. The outstanding amount together with interest lying with 52 per cent of the sample groups was estimated at Rs.189, 798, nearly 46 per cent of the total loan. It was interesting to find that the loan amount was equally
distributed among the members in all the groups and only 36 per cent invested in traditional income generating activities, 29 per cent of the members utilized in their construction of Indira awas and rest utilized for other social purposes. In most cases, repayment was made by selling goat/ sheep/agricultural produce and even by incurring further loan. vii. Two SHGs formed during October 1999 availed repeat finance of Rs.261, 000 each with 50 per cent subsidy component from Dhenkanal Gramya Bank for brick manufacturing during 2002-03. Both of them started their operations but one is more riddled with internal problems concerning mutual distrust among the members engineered by some of the members husbands and other outside forces. The other group merits special mention which at least exhibits some courage of women power and it is presented as a live case later on. Three more sample SHGs availed repeat loan amounting to Rs.400, 000 from Angul United Central Cooperative Bank during NovemberMarch 2003-04. One group invested in readymade garments. Results of their operations would be visible at least by the end of the year. viii. Except in one case there were no reports of bribery or harassments by the animators or bankers or other officials involved in the linkage process. It was also noticed that
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members were found to be comfortable since there was flexibility (no pressure) in repayment of loan. Little motivation would encourage them to avail loan without having eye on the subsidy component and activate their vocation. ix. The study of the profile of the local mFI sponsored sample groups and their members reveals that all these groups were women groups, formed during 2001-03. The socio-economic features of these groups and their members are almost similar to the sample of SHGBank linkage groups. Only their operations are different since they are regulated by the mFI, which came into existence in October 2001. The group members gradually were converted to regular members of the society and lost their group identity. They availed loan five times of their savings subject to a maximum of Rs. 5,000 with 24 per cent simple interest per annum against 12 per cent annual compound interest on their deposits. The purpose of loan is specific such as, education, health, festival, and marriage, repayment of old debt, petty trade, and cultivation. The progress is satisfactory because the mFI needs its survival; works hard to improve the knowledge and awareness of the members, provides hassle free lending, regular counselling etc. As a result, many of the members (about 72%) are more concerned about their role and responsibilities. Some members (20%) see things with a jaundiced view regarding safety and security of their deposits and higher
rate of interest However, operations of the MFI is under close scrutiny and observation by the public in general and members in particular.
Maheswari Mahila SHG: A Case
Maheswari Mahila SHG of Ranjana village under Madhapur Gram Panchayat with 10 married members came into being in October 1999. The group was formed with the active initiation of an Anganwadi worker who was also the founder Secretary of the group. All the members were within the age group of 25-40 years. The Secretary studied up to 10th standard, eight other members had become literate under Total Literacy Campaign (TLC) programme and one member was illiterate. All the members families came under the below-the-poverty-line (BPL) category. Among them one is a widow and other six members have adopted permanent family planning measures. The group availed its first loan of Rs.25, 000 including subsidy component of Rs.10, 000 on 23rd November 2001. All the members shared this loan amount equally. Except Secretary who utilized this loan amount for her sons higher education, eight members made additional investments in their day to day petty businesses like selling of rice, dried rice, vegetables etc. in the local market and the other member purchased a pair of bullocks for share cultivation. The loan together with interest was cleared within a year. Subsequent repeat loan of Rs.2,61,200 was sanctioned on 22 nd November 2002 for brick manufacturing
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by the group. The total loan was released in four installments between November 22, 2002 and February 25, 2003. The members saved regularly and lent to the needy members @3% interest per month. Repayments of loan in installments were in time. Meetings were held regularly, at least once in a month with an average attendance of 90 percent. The group followed sanctions i.e. fine for delayed payment of loan and monthly contribution. It maintained the required books of accounts in the prescribed manner. As regards their new venture in brick making was concerned, the first brick bhatti with 40000 bricks fetched them a profit of about Rs.2, 000 and the second one with 80000 bricks under fire was expected to earn a return of about Rs.26, 000. The group members, except the Secretary who belonged to the upper caste, along with their husbands, together worked for the entire operation of brick making and were paid for their labour. The group was able to see the light of the day and face all challenges because of the able leadership of the Secretary. Members had high regards for the Secretary for her unmatched skill and knowledge. Experience suggests that voluntary organizations with only one man leadership survive comfortably provided the leader carries on the business ethically during his life time and we see this phenomenon in practice in this group.
6.2 Impact assessment
The study analyses the following impacts and shows as follows:

1. Increased knowledge and awareness of SHG members
The impact Increased knowledge and awareness of SHG members constitutes an essential foundation for the achievement of other impacts. The results of the indicator measurement presented in Table-5 are grouped in three categories: basic, understanding and clarity. Again, the assessment results are grouped along the different subjects and clustered into the different group ages. Generally, the results show a gradual increase in clarity varying from 12 per cent to 44 per cent along the different group ages except for banking and income-generating activities. Most of the respondents lacking adequate knowledge in banking subjects were in the level of either basic or understanding. A conspicuous feature of the results in the field of income generating programs observed is that clarity level of the members significantly increased from24 per cent to 63 per cent from the newly formed groups to the three year old groups. In the category health and sanitation and family planning, all group members performed very well. However, the SHG members seem to have acquired a good knowledge even before becoming group members. The two-year-old groups show a remarkably high degree of understanding in this field. With regard
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Table-5: Results of impact measurement: knowledge and awareness (%) Subject A: Self-help Group approach Age of SHG 1-2 years 2-3 years 3 years& above Age of SHG 1-2 years 2-3 years 3 years& above Age of SHG 1-2 years 2-3 years 3 years& above Age of SHG 1-2 years 2-3 years 3 years& above Age of SHG 1-2 years 2-3 years 3 years& above Age of SHG 1-2 years 2-3 years 3 years& above Basic 56 33 19 Basic 88 61 47 Basic 32 14 14 Basic 28 16 12 Basic 32 18 4 Basic 48 27 20 Understanding 32 47 44 Understanding 12 35 42 Understanding 56 57 44 Understanding 56 43 44 Understanding 44 49 33 Understanding 36 43 44 Clarity 12 20 37 Clarity 0 4 11 Clarity 12 29 42 Clarity 16 39 44 Clarity 24 33 63 Clarity 16 30 36
Subject B: Banking
Subject C: Health and Sanitation
Subject D: Family planning
Subject E: Income generating activities
Subject F: common properties management
Chi-square is 35.2037; Chi-square at 15 df with 0.05 level of significance is 26.296
to Family planning, the results show a good knowledge of this field. In the area of awareness of Common properties management, respondents almost evenly distributed and this shows their concern about the management of public properties in the village.
2. Increased income and savings of the SHG members
When dealing with increased income and savings of the SHG members, two different intended impacts are concerned:
the increased income of the SHG members on the one hand, and their increased savings on the other. However, both impacts are very much interrelated, and is, therefore, be discussed simultaneously. The increased income of the SHG members can be viewed as the economic expression of an improvement in living conditions. Increased income of the SHG members is the major goals. Saving, on the other hand, is considered to be an important factor when mobilizing and sustaining self-help potential. Without
17
saving, there is no investment which could lead to an increase in income. This makes enhancing the practice of thrift amongst SHG members. As can be seen from the Table-6 below the average non-basic income, i.e. income excluding food expenditure of the SHG members increased over the years. The bulk of increase, from Rs.6, 400 to Rs.11,
400 occurred between the first and the third year of existence of an SHG. The observed increase could possibly be under/ overestimated because the respondents sometimes do not give entirely reliable information about their indebtedness. But other measurement results, such as net expenditure on major festivals, supports a substantial increase in income.
Table-6: Increased income and savings of the SHG members Age of SHGs Attributes Average household monthly non-basic income Average monthly savings i. in kind ii . financial savings iii. Total (i+ii) Percentage of households beyond the poverty line* Rs.6, 400 Rs.9, 300 1-2 years 2-3 years 3 years & more Rs. 11, 400
Rs.970 Rs.540 Rs1, 510 28%
Rs1, 180 Rs.780 Rs.1, 960 32%
Rs.1320 Rs.1040 Rs.2360 43%
The savings measurement results show that the average savings of SHG members increase in accordance with age of the group. Like the income, the total average annual savings increased from Rs.1510 to Rs.2360. In all group classes; savings in kind are much higher than financial savings. This is because of the very nature of such savings. They serve partly as investment, and sometimes also satisfy consumption purposes. This makes savings in kind very attractive and may, at the same time, lead to an overestimation of the actual savings. If the income of the investigated households is examined in relation to an
amount of income slightly above the poverty line the following figures are obtained: 28 per cent of the members for SHGs which are one year old are clearly above the poverty line. A marginal increase of this percentage (32%) can be observed from the one-to the two-year-old SHGs. From the two to the three-yearsold groups, there is further increase of this figure upto 43 per cent. The overall increase in the percentage of households above the poverty line is definitely encouraging. The increase from the newer to the slightly older groups corresponds to the observations concerning the average household income
18
and shows that this increase is not only due to a few people whose improved incomes are out of the ordinary, but is part of a broader development. As the increase in the percentage of people above the poverty line from the two-to the threeyear-old groups is not accompanied by an increasing average household income, it can moreover be concluded that income differences among group members tend to reduce, and that especially those people close to the poverty line benefit from it.
3. Increased decision making power of SHG members in their families
work in favor of women. For measuring the decision making power of SHG members in their families, three typical decisions usually made by them were selected. These decisions on the purpose of loans, on the adoption of household infrastructure programs and on house hold purchases are analyzed according to the degree of the womens participation in the decision making process. The assessment results as depicted in Table-7 indicate that for purpose of availing loan, there was a shift from husband dominating decision-making process to wife dominating process over the years. An increase from 19 per cent in one year group to 29 per cent in three year group was observed in the case of women controlling the decision. The percentage of decisions made jointly, which made up approximately one third of the cases, does not differ substantially. With regard to decisions on the adoption of household infrastructure programs and purchase of household goods a peculiar phenomenon can be observed. While
Women are considered as protagonists who can actively take part in their own development and change their socially predefined discrimination. Womens promotions an integral element of SHG approach shall contribute to a structural change in society. A strengthened social position of women would also result in an increase in the decision-making power of women in their families. Investigating this impact is thus a suitable approach to assess the extent to which interventions
Table-7: Impact measurement: Decision making power (%) Decision Type Age of SHGs Decision maker Husband Joint Wife Total Purpose of loan 1-2 2-3 3 years years years & more 51 30 19 100 44 33 23 100 40 31 29 100 Purchase of Household infrastructure 1-2 years 36 47 17 100 Purchase of household goods
2-3 3 years 1-2 2-3 3 years years & more years years & more 36 43 21 100 32 34 34 100 32 48 30 100 32 34 34 100 30 31 39 100
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husbands power was hardly affected, wifes decision making power improved at the cost of substantially decreasing joint decision making power. Joint decision making processes for purchase of household infrastructure reduced from 47 per cent in case of one year age group SHG to 34 per cent in three years group. Similarly, for purchase of household goods the percentage reduced from 48 to 31. On the other hand wifes controlling power increased from 17 per cent to 34 per cent and 30 per cent to 39 per cent in respective categories.
6.3 Implications and interventions
of them could not recognize their signature), these developments do not provide scope for real democratic function of the group. Outside forces like husbands conflicting views and his control on decision making power, political interest of some influential members, who consider the group as a potential vote bank, often create problems. This trend obviously vitiates the basic objective of microfinance delivery to the very poor. The analysis of impact on knowledge and awareness suggests that there has been positive change among the members of older groups. The SHG approach has promoted closeness among the members with the formation of group and has caused a significant improvement in the knowledge and awareness level among them so far as health and family planning matters are concerned. Their understanding on banking knowledge is found to be sufficiently inadequate. At least, a member should know clearly her account number, name of the bank, balance in the credit, rate of interest, banking days, and deposit and withdrawal methods, and sometimes such knowledge is missing. With regard to income generating activities, they have realized the limitations of traditional sources. But, the interesting revelation in this regard is that maximum members (69%) do not want to leave their traditional source of earnings from forest products i.e Mahula (Madhuca Longifolia), Kendu and Kendu leaves
The objective of SHG-Bank linkage is to provide credit support to very poor people who do not have access to formal financial institutions/ banking systems. Hence, it is expected that only the very poor should form the SHG group and ripe the benefits. The field situations allow some people above below poverty line (BPL) to become members in a group. The findings suggest that women of higher income range (26%) also became the members. It is known from informal discussions with the members that the groups are formed with like-minded persons in order to avoid future conflicts. Every group has hardly two members including the Secretary who are capable of writing minutes, maintaining records and handling bank operations. In view of the fact that many of the members are literate for the sake of putting their signature only( during cross verification at the time of interview nearly 40 per cent
20
(Diospyrous Melanoxylon) which fetch them at least a monthly income of Rs 1000 per head during March-May and go for pursuing a regular vocation. They feel beneficial if they simultaneously pursue other source of earnings. It is believed that the low level of education comes in their way. They are also handicapped because of lack of counselling support, skill training and other allied opportunities. The chi-square test at 5 per cent level of significance (calculated value is more than the table value) as stated in Table-5 also suggests that microfinance through SHGBank linkage has not made significant impact in creating awareness and developing knowledge about the basic purpose of such a scheme among the beneficiaries in a backward, flood affected and drought prone areas like Athmallick. SHGs with almost low level literate members badly need constant and continuous counselling till they reach the clarity level which may be attained within 3 to 5 years. The study finds that members save more in kind than in financial terms. The reasons are obvious-poor banking knowledge, meager earnings in hard cash, more return on investment in kind, and privacy to some extent. The SHG-Bank linkage approach has allowed some members marginally to move from BPL to above BPL. Pursuing of possible vocations/trades beyond the traditional ways on regular basis is required to allow the members to move out of BPL at the earliest time.
As regards decision making power of members, in fact, there is a positive change in controlling decision making power on household matters in favor of wives from one year groups to three year groups without much affecting either the husbands power or joint controlling decisions. This is a healthy trend and explains about the necessity of women empowerment for a decent family. The weaknesses in the delivery system of SHG-Bank linkage are many. The major obstacle is very poor linkage among the promotional agencies. Since many NGOs activities are restricted, who solely depend on state support, due to stringent control measures by the government, their involvement is gradually reducing. As a result, some SHGs who need their support and guidance during capital formation or stabilization stage are left in the crossroad. Moreover, banks prefer and encourage for direct lending. Therefore, interventions of local banks and Block officials are urgently needed for counseling of these groups.
VII. CONCLUSION
The review of past research and performance of SHG-Bank linkage in India suggest that SHG-Bank linkage approach is found to be an effective instrument by which very poor people can access hassle free formal credit without any collateral security and simultaneously improve their thrift habits. The approach successfully builds upon the self help potential of the target group. Due to enhanced education of the people and
21
their opportunity to build common fund for investment, they are induced to a considerable improvement in their economic situation. The approach also contributes to a social empowerment of the women. But the in-depth study of sample SHGs in Athmallick Block explains a different picture. The SHG programme in the Block mainly suffers from apathetic attitude of the promotional agencies and low level of literacy. However, the linkage and its impact can be made sustainable with the sincere interventions by the promotional agencies particularly the banks and Block authority in the areas of awareness building, skill development and training, and continuous counseling till they reach in the runway within the scheduled time.
NOTES
In Indian context, self help groups (SHGs) are regarded as small groups of poor people (i.e people below poverty line) with an ideal size of 10-20 members formed with or without the assistance of the animator or facilitator to build own financial capabilities through mobilization of internal savings and availing small credit from banks-linked with their own savings, and in the process gain self-confidence. Practically, some people above the poverty line (around 20%) are also allowed to be members in the groups.
M.S University of www.prism.gatech.edu)
Baroda,
(see
Baker,(2000), Evaluating the Impact of Development Projects on Poverty: A Handbook for Practitioners, Directions in Development, World Bank, Wasington, D.C.(see www.worldbank.org/poverty) Berg, et.al., (1988), NGO based Participatory Impact Monitoring of an Integrated Rural Development Project in Holalkere Taluk, Karnatak State, India, Margraf Verlag, Berlin DFID, Annual Plan, 2000 Doocy, Shannon C, (2004), Recurrent drought in Ethiopia: Microfinance programs as means of improving coping capacity, unpublished PhD dissertations,The John Hopkins University (see www.lib.umi.com/dissertations Economic Times,(2003), Mid-term Review of Monetary and Credit Policy for 2003-04, November 4 EDA report on Impact Assessment of Micro-Finance for SMFC, 2002 Falaiye Caroline, (2002), Assessing the Household Impact of Microfinance on Rural Nigerian Women, unpublished PhD dissertations,The University of Guelph (see www.lib.umi.com/dissertations). Fuglesang and Chandler, (1996), Participation as Process: What we can Learn from Grameen Bank, Bangladesh, Packages Corp. Ltd., Chittagong Gibbons and Kasim, (1995), Banking on the Rural Poor, University Sains Malaysia Harper Malcolm, (2002), Role and Scope of NGOs and non-NGOs agencies as SHPI, NABARD, ( see nabard.org) Hema Vyas, (2003), SEWA Banks savings and credit groups and their influence on womens financial decision making within the household, unpublished PhD dissertations,The University of Guelph (see www.lib.umi.com/dissertations). Joanne Foirley, (1998), New Strategies for Microenterprise Development: Innovation, Integration, and the Trickle up Approach, Fall, Vol.52.
REFERENCES
Afrane Sam (2003), Impact Assessment of Microfinance Interventions in Ghana and South Africa, Journal of Microfinance, Vol 4 No. 1 ( see www.microjournal.com/articles) Bansal,H.(1998), Self-Help Group- NGOs-Bank Linkage Programmes in India: A Case Study,
22
Kropp, E.W.,(2002), A Review of the Progress and Impact of the overall Strategy for Scaling up the SHGBank Linkage Programme over the Last Decade, NABARD,,( see www.nabard.org) NABARD & Micro Finance, years 2000-01, 200102, 2002-03 NABARD, (2003), Progress of SHG-Bank Linkage in India, 2002-03 Panjaitan et. al, (1999), Gender, Self-Employment and Micro Credit Programmes :An Indonesian Case Study, Quarterly Review of Economics and Finance, Vol.39 Puhazhendhi, V, (2000), Evaluation Study of Self Help Groups In Tamilnadu, NABARD (see www.nabard.org) Puhazhendhi, V, and Satyasai, K.J.S.(2000), Microfinance for Rural People- An Impact Study, NABARD,( see www.nabard.org) Puhazhendhi, V, and Badatya, K.C,(2002), SHG-
Bank Linkage Programme-An Impact NABARD, (see www.nabard.org)
Evaluation,
Seibel, H.D.(2002), Study on Commercialm Aspects of Imact of SHG-Bank Linkage Programme on bank Branches, NABARD, ( see nabard.org) Shehabuddin Rahnuma, (1992), Impact of Grameen Bank in Bangladesh, Grameen Bank, Bangladesh SIDBI Performance Report, 2003 Tripathy K.K., (2003) Poverty Alleviation: Making Micro-Finance Sustainable, Business Line, November 1 Wilson Kim,(2002), The Role of Self Help Group Bank Linkage Programme in Preventing Rural Emergencies in India, NABARD,(see www.nabard.org) Yunus Muhammad (2004), Grameen Bank, Microcredit and Millennium Development Goals, Economic and Political Weekly, September 4, pp 4077-4080
23
Assessment of IT Acquisition Process: A Metrics Based Measurement Approach*

H. K. Misra1 , M. Satpathy2 , B. Mohanty3
Abstract
Information technology has made phenomenal progress in developing various soft components such as application and component based products and services, and also in hard components including networks and communication technologies. Due to convergence of these two major components i.e. hardware and software; process and application specific products are gradually making the users IT savvy. However, inspite of pervasive use of information technology, IT acquiring organizations are finding it increasingly difficult to measure the effectiveness of these acquisitions. Many IT projects are failing, many are abandoned mid-way and many are declared unsuccessful after much hyped project delivery. More often these failures are attributed to unsuccessful alignment between the processes and technology and even poor elicitation of user requirements. Measuring IT acquisition in an organization has become a difficult task as the process becomes more complex and organizations become dynamic. Organizations have also become quite complex as these operate in stochastic ambience. In this kind of a context an attempt is made to develop a framework by using attribute-based metrics to capture the preacquisition climate and process prepareness and suggest metrics for evaluation of the process. The framework is applied to a pilot organization and the experience reasonably show that the framework can be applied to study and evaluate the preacquisition scenario effectively.
I. INTRODUCTION
Acquisition of information technology (IT) in any organization is a very common activity, irrespective of the organizations size and business processes. IT in an organization can bring many benefits to the organization. The advent of process specific products such as enterprise resource planning (ERP) have also provided the much needed environment for the organization to manage huge and
* 1 2 3
dispersed processes as well as complex transactions. Immediate benefits however, are mostly limited to transaction and coordination costs (Broadbent et al.; 1999). While the progress in IT adoption in organizations has been rapid, it is noted that the process in many organizations has not provided the expected results and even ERP deployment has in a number of cases been declared unsuccessful (Palanyswamy,2002). Though evaluating the success of an IT project can be taken
Received August 16, 2005. Associate Professor, Institute of Rural Management, Anand, hkmishra@irma.ac.in Faculty, Department of Computer Science, University of Reading, m.satpathy@reading.ac.uk Professor, Xavier Institute of Management, Bhubaneswar, brajaraj@ximb.ac.in
24
up based on economic indicators which are broadly available as project metrics such as cost-benefit analysis and physical and financial variances of the project, it is rather difficult to understand overall effectiveness of the IT projects at the organizational level (Luftman, 2003). Various quality models, such as, capability maturity models (CMM) and its family (Jalote,2002) and international standards organization (ISO) and its family (Paulk, 1995) advocate for measuring capability of the IT developers, IT service providers and even management of IT project based contracts (Ibrahim, 2000) as contributors to the success of IT acquisition. However, these models assume that a project specific need exists in the organization and all the stakeholders in the acquisition process are involved in various stages of the acquisition process. It is also assumed that IT acquisition process can be a project by itself and each acquisition project originates with a requirement. As the acquisition process begins to take shape, more requirements are identified and refined and this evolution provides scope for building the process capability in the organization. This process capability relates to specific business objectives in the organization irrespective of its nature i.e. whether it is the business process or any other process supporting it. Mostly processes are independent. In some cases one process may support another. For example, marketing is a process that supports the main business process called sales in an organization. Disjoint and automated processes for sales as well as
marketing might drive both the processes without synergy and in the process both might have a low life cycle, requiring frequently re-engineering to meet the dynamic requirement in the organization. This dynamic requirement affects the process of IT infrastructure acquisition. Therefore, an IT acquiring organization needs to develop a road map for the IT acquisition process and this can be possible only when there is a strategy for information systems planning in the organization (Ward and Peppard, 2002). This planning will facilitate the interfacing among various processes prior to embarking on IT acquisition process. These interlinkages make it amply clear that acquisition of IT involves risks. Besides, the acquirer needs to appreciate that IT as a technology is acquired in a staged manner and each stage can undergo a planning process. Figure 1 suggests this process. An acquisition process might deliver a good IT infrastructure, if the information system infrastructure is well defined and planned (Broadbent et al., 1999). IT infrastructure is the foundation for the IT portfolio, which is shared throughout the organization in the form of reliable services and is usually, coordinated by information systems. It therefore, demands certain capability in the acquiring organization to manage the infrastructure. The IT infrastructure capability includes both the technical and managerial expertise required to provide reliable physical services and extensive electronic connectivity within and outside
25
the organization. There is a well accepted iterative relationship between the strategic context of the organization, the nature of business processes, and the significance of IT investments. Improving processes usually involves implementing information systems and process management within as well as across business function boundaries. The IT capability therefore, is based on a strategic process that concurrently evaluates the IS capability of the acquiring organization (Broadbent et al., 1999). Information Technology in the form of communication networks and shared databases, often underpins the architecture of business processes. Due to this, the capability of the IT infrastructure is one of the most important issues that information system executives face. IT infrastructure investments can be a constraint where information systems are not compatible, or where inconsistent data models have been used in different
Users Business Practices captured
parts of business. Process oriented architectures are necessary for business processes and this emphasizes lateral data models, integration and interfaces among processes and this would take time to build if there is no IS preparedness in the organization. This delay might affect the managements perspective on IT infrastructure capabilities and the way in which IT infrastructure is justified. On the other hand, extensive IT infrastructure capabilities facilitate process simplification and process innovation, but without a clear strategy such facilitation may prove to be over-estimated. This may have a direct bearing on the organizational readiness. This is the reason why process readiness is mandatory before any investment in IT infrastructure. This process readiness apriori refers to the issues related to involvement of all stakeholders and existence of information system (IS) infrastructure (Luftman et al., 2002).
Information System Identified, prioritised
Information System Infrastructure
Hardware
Software
Networks
Information Technology Infrastructure
Vendors/ IT Service Providers Figure 1: IT Acquisition Process
26
In order to address the issues related to right sizing of the investments in IT infrastructure, many models have been suggested. One of such recently developed models belongs to the CMM family and named as capability maturity model-integrated (CMMI). The CMMI argues in favour of an integrated approach to the acquisition process (Ahen, 2001; Bernard et al., 2004). Luftmans strategic alignment model also indicates the importance of alignment of IS and IT in an organization in order to bring success to the acquisition process (Luftman, 2003). Since there is no clear and definite process to effect an alignment and make it sustainable, identifying an alignment maturity indicator will certainly provide an excellent vehicle for
Requirement Determination
understanding the IS-IT relationship. This paper carries forward the work done in these two approaches and provides a reoriented insight to the acquisition assessment process.
II. IT ACQUISITION PROCESS
In order to assess an IT acquisition process and the organizations capability to manage the process, a clear understanding on the IT acquisition process is very important. As discussed in figure 1, an IT acquisition process is dependent on the IS infrastructure and therefore, organizations involvement is absolutely necessary at an early stage of the planning process. The acquisition process can broadly be divided into four stages as shown in figure 2 (Eskelin, 2001).
Organizing Acquisition PostAcquisition
Conceptualisation
Figure 2: Stages of IT Acquisition Process Stage-I : Conceptualisation
This stage relates to pre-acquisition scenario in which the need for ITacquisition is felt by the organization. Probably an impending problem, competitors threat, recommendations from manufacturing process delivery agency (suppliers) or even requirement raised internally initiates this idea. At times impressed by the delivery capabilities of the IT in general, an organization just needs to acquire IT. But it is a fact that irrespective of the size and
the type of the organizations, they are increasingly becoming dependent on IT. It is often seen that while immediate benefits are quite high for any IT acquired, its long-term usability is increasingly felt to be unproductive because of lack of proper understanding of the business process and IT alignment issues. Introducing IT in an organization requires a consistent professional approach since IT acquisition process normally demands various selection and implementation activities. In recent times, investment in IT is seen with a focus at the strategic level
27
and has shifted from usual process improvement or production efficiency

Business Needs Cost /Time Optimisation Quality Needs Competition Improved Decision Transforms
paradox (Ward et al., (1990); Sohal and Ng, (1998)). Figure-3 below explains the conceptualisation stage.
IT Acquisition Demand Generation
Possible input(s) Figure-3: Conceptualisation Stage Stage-II: Requirement Determination
In this stage specific processes that need to be IT aligned are prioritised. While it is evident that any organization can leverage the advancement of technology in hardware / software to enhance its performance (Raymond et al., 1995; Naylor and Williams, 1994); it will increasingly become difficult to justify investments in IT if there is no proper planning. Justification for investment in IT is currently an important issue before senior management as well as IT manager in an organization (Campbell, 1992). It is pertinent that an organization should be appropriately prepared to take an
informed decision for investing on IT infrastructure and provide a long term planning for the same. This should be backed by the understanding that many benefits may not be visible in the short run, but may be manifested with much larger perspective later on (Dos, 1991; Weill, 1992). Thus understanding the requirement prior to proceeding to the acquisition stage is absolutely necessary. Figure-4 describes the requirement determination stage in an organization for acquiring IT. It normally takes the route of a project that could be typical to the organization and mostly the internal policy, knowledge and/or consultants involvement play a vital role.
IS and IT Requirements/ Roadmap
Business Needs
Alternatives and Priorities; Systems Planning
Figure 4: Requirement Determination Stage
28
Stage-III: Organizing Acquisition
This stage brings in an interface between the stated- requirements and realdeliveries and here expertise matters most in transforming the perceptions to reality. Various projects are executed in this stage as explained in figure 5. Commercially off-the-shelf (COTS) product may be acquired to meet the requirement and/ or to supplement with in-house capability driven development of a product. However, mostly hard components such as hardware, OS, firmware and groupware are acquired on COTS mode. As regards application software infrastructure, which rather drives the hardware infrastructure is the central issue in this stage. The software engineering principles are applied rigorously in this stage and it grows complex due to the involvement of
IS and IT Requirements/ Roadmap
various IT service providers in the process apart from the IT-users. These IT users are explained later in the text. These users are mostly the employees of the organization including the programmers and IT managers who are assigned to the project as well. It is relevant to understand that an acquisition process has these stakeholders. Mostly IT service providers are IT-centric with little knowledge of the processes they try to align with IT components and similar is the case with IT end-users who have little knowledge of the technology itself. Therefore, there lies a gap that normally is addressed in this stage. Systems development life cycle (SDLC) and other process as well as product models in software engineering discipline try to understand this behaviour and attempt to bridge the gap.
Project Execution: Product based/ Process based
Project Identification Figure 5: Acquisition Stage
Stage-IV: Post Acquisition Stage
Any acquisition in general and IT acquisition in particular needs introspection on its meeting the requirement and perceptions generated during the pre-acquisition stage. Probably there are quantitative indicators such as budget vs. actual financial and physical performances. A process of an audit trail might provide clues for understanding the success of acquisition. However,
success of IT acquisition is hard to define because unlike a machine, systems are in abstracted form and are conceptualised at pre-acquisition stages and therefore, do not easily lend themselves to direct measurement (Zviran and Erlich, 2003). In absence of such clarity, it also becomes much difficult to understand the nature of acquisition of related IT components and its successful acquisition. Therefore,
29
post acquisition stage needs critical evaluation of the infrastructure thus acquired and its future course of action on maintenance and even sustenance. Apart from judging the justifiability of the IT acquired, benefits drawn out of such
Project # 1 Project # 2 Project # n
an attempt are to be assessed during this stage. Software engineering principles provide certain metrics to indicate the success of the project, but the overall IT acquisition success is hard to measure (vide figure 6).
IT Acquisition Life Cycle
Component/ Services Evaluation
Figure 6: Post Acquisition Stage
This figure suggests that components and services are evaluated based on the project specific goals originally planned. Feedback at each stage in the acquisition cycle is taken for improvement as well as for sustenance.
III. DEVELOPMENT OF METRICS
Explanations for the stages of the IT acquisition process above suggest that, each stage should have a framework to evaluate its appropriateness for the acquiring organizations (Jokela, 2000). Various models do contribute to this evaluation. Success of a model is dependent on preparing effective metrics and therefore, designing metrics is quite an important factor for the model (Pandian, 2004). Metrics are based on the objective of the model whereas measures do determine the metrics developed. These measures can be supported by empirical evidences through quantitative as well as qualitative techniques (IFPUG,
2002). In this section a model is developed to understand the whole IT acquisition process and capture the discussed stages. Secondly, metrics are developed based on the supporting models for each stage. Thirdly, measures are developed with the help of goal-question-metrics model (GQM) (Basili and Rombach, 1994). The framework based on which the model is developed tries to relate the organizations objectives with that of the technology being planned or acquired. Three stages are felt to be important: Pre-Acquisition Organization Assessment stage that includes conceptualization and requirement analysis, Acquisition stage and Post Acquisition stage (Misra et al., 2003; Misra et al., 2004, Misra et al., 2005). Early stages of conceptualization and requirement determination are quite interrelated (Luftman, 2003). These stages have been based on the four stage model discussed earlier (Eskelin, 2001).
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3.1 Pre-Acquisition Organization Assessment
Figure 7 explains the first stage of the framework. It explains that early stages of the acquiring process should formulate the stated objectives through preparation of a strategic plan for the information systems. The organization should build its capacity to organize business processes and attempt to formalize these before considering process automation (Halle, 2002; Anderson and Felici, 2001 ). It would be better that these processes are formalised before initiation of IT
BUSINESS STRATEGY BUSINESS MODEL BUSINESS PROCESS
acquisition process. Business process owners and system developers (software engineering in particular) benefit from the business rules approach (Pressman, 1997). The immediate benefits that business draw are closer control over systems specifications, changes in system requirement becomes infrequent whereas software engineers benefit in shape of shortened development time, easy implementation of computer based systems (CBS) and above all to write less codes but efficiently capturing rules (Rai et al., 2002).
DATABASE/ DATA MODEL
MIS
ORGANIZATION
Fig-7: Pre-Acquisition Organization Assessment
It is viewed that management information systems (MIS) paradigm provides a base for federating the IS developed for the organization and a MIS plan should be the first step towards organizing as well as planning IT components (Davis and Olson,(2000)). Integration of IT components especially for functional information systems is one of the major deliverables of the MIS plan. The MIS plan originating from the mission of the organization traverses a path to provide
a road map for integration. This also provides an ambience to create internal and organizational preparedness for IT acquisition since IT plan is an offshoot of the MIS plan. IT acquiring organization should therefore, understand the urgency of MIS plan for the organization to reflect on its preparedness. It is not always true that organizations do not acquire IT components without having an MIS plan. In most of the cases this approach is either lacking or even not organized (Kanter,
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2000). In such cases it becomes rather difficult to leverage the investments already made while considering for integration at enterprise level (Linthicom, 2004). MIS plan along with a strategy for enterprise application integration (EAI) would rather consolidate the strategy for the organization. Understanding the issues of integration prior to IT acquisition process capacitates the organization in identifying products and/or processes with better fit (Palaniswamy, 2002). For example, acquiring an ERP which is based on integration of functional information systems needs an extensive exercise. Information islands formed by the organization with induction of automation technologies forces the business manager to think of integration because of availability of tools, technology and products. Any information system devoid of integration/interface capability will affect the productivity in the long run. Linthicum finds that around 35 percent of time is devoted for creating and implementing interface and integration rules for existing applications. Organizations preparedness is therefore, essential to understand the implications. Interfaces challenge the integration projects at enterprise level and are very much critical to packaged applications. Unless properly planned, packaged applications and ERPs in particular would pose serious threat to the integration projects (Brown and Vessey, 2003). An ERP implementation is a significant intervention in organizations life. Preparedness or lack of it in the context of organizations culture, user involvement
and leadership practices affect success of ERP acquisition and it needs to be ascertained (Stewart et al., 2000). Another important aspect of IT acquiring organizations capabilities is preparedness on architectural issues and it is important from integration point of view. IT architecture has distinct architectural styles for its components (software, hardware, networks etc) and should be a part of enterprise architecture. Architecture is the fundamental organization of a system reflected in its components and establishes a framework for relationships and provides a guideline for design and evolution. A good architectural representation in an organization saves a lot of effort during design and development process. Identifying software architecture for an organization is an important step to understand the underlying technology architecture, business architecture (Kown and Zmud, 1987); Garlan and Anthony,(2003).An architectural approach (Richardson et al., 1990) provides scope for decomposition and integration of the systems as well and ITacquiring organization prepare itself with a MIS plan as well as an integration plan at all the level of the MIS architecture as shown in figure-8 below. It should also address all issues at the decomposed levels such as transaction process system (TPS), Management of Reporting Structure (MRS) and Executive Support System (ESS). Processes and technology (if any) architectures should also match with that of the MIS.
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MIS Architecture
TPS Architecture
MRS Architecture
ESS Architecture
Technology Architecture Figure 8: Integrative Feature of MIS
Need for integration has been felt since long and the Federal Aviation Administration (FAA) considered it seriously with development of integrated capability maturity model (FAA-iCMM) (Ibrahim, Linda 2000). The FAA developed this in order to provide guidance to acquiring organization for improvement in engineering, management process. Though FAA experienced it to be very difficult to implement, it said that FAA-iCMM could be used as a learning tool at the organizational level spread across processes and disciplines in the organization. Integrated CMM (CMMI) is aimed at providing a framework for the acquiring organizations to improve processes in an integrated environment (Ahen et al.,2001). End-User motivation is one of the most critical organizational responsibilities that the acquiring organization should display (Lamb and Kling, 2003). End-User is the mostly ignored class during the acquiring
and especially in pre-acquisition scenario. Involving these users at this stage would benefit the organization immensely. Research reveal however, that user involvement assessment during post acquisition stage is quite strong (Venakatesh, 2003). Table 1 below explains various users involved in the acquisition process. Importance of users in an acquisition process for the organization has been discussed by many researchers (Marple et al., 2001; Luftman et al., 2002; Davis and Olson, 2000; Ditsa and MacGregor, 1995). Role of user depends on the stage of the acquisition scenario that exists in the organization and can vary depending on the level of association in the decision making process. Successful IT acquisition in an organization can be thought at enterprise level on the basis of operational, managerial, strategic, IT infrastructure and organizational dimensions (Ross et al., 2000; Shang and Seddon, 1991).
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Table 1: End-User Profiling for IT use in the Organization Type of User Operational end-users Description Accesses the system through a pre-determined and structured interface, do not have adequate knowledge in programming Some exposure to high level commands; Appreciate Use of IT, but limited in identifying the IT components Operational level, with high exposure to tools, equipments; Least on Business Process IT: system developers/ analysts/ architects Domain Moderate exposure to Business, Least on IT
Command level end-user
High exposure to Business Process, Low on IT High exposure to IT Component specific use High exposure to IT Component specific use, Understand the requirements of IS High exposure to Business, Understand the use of IT High exposure to IT Strategy High exposure to Business Strategy
Programmer/ Component users Functional Support
Business: Functional users
Strategic Business:
IT: CIO CEO
3.2 Acquisition Stage
Therefore, this stage has three important aspects to monitor : the planning and policy in the acquiring organization that would display how well the planning process and the IS-IT alignment issues are addressed, the project management capability of the organization dealing with the IT roadmap and its fitness with that of the IS infrastructure, and existence of user motivation in the acquiring organization.
Any technology acquisition needs innovation at the user-level (Shrama and Rai, 2003; Rastogi, 1995). Innovation is a key concept in technology development and needs to be demand driven. This will determine the type of technology, and its use. The effectiveness of technology depends on its capacity to meet perceived needs and also other non-technical factors. Thus management of technology focuses on the principles of strategy.
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Value-Driven
Technology Strategy
Organization
Technology Choice Figure 9: Management of Technology
Figure-9 explains the relationship of various technical and non-technical elements involved in its management (Narayanan, 2001). With a strategy for information systems and information technology in place, the next important stage is the acquisition of information technology itself. But the core issue is to understand the way should one proceed. Alike any technology as explained above, IT requires a path to successfully meet the purpose for which it is being acquired. Mostly this stage in the acquisition process assumes a project status (Eskelin,2001). A project initiated with a requirement should fit in to the roadmap prepared with IS-IT alignment for the organization in order to raise the expectancy level for success. IT acquisition can be based on this concept, but is not same since software is a subset of the whole IT conglomerate. As explained in figure 1, end user dictates the use of the technology acquired and therefore, it is perhaps applicable to term the IT acquisition to be application
software centric in any organization. Software development projects accomplish the task through distinct stages with setting the goal of the project in the initial stage through a series of activities (process based and could be iteratively organized standard procedures). These stages provide a scope to look back to its previous one in order to introspect and improve upon. The acquisition though is not generic, holds good for software development projects. Commercial Off the Self (COTS) or product based software also fall into these stages though treatment is little different. For example, ERP package purchased through a vendor also go through the same cycle. However, design and development stages are taken care of by the product while shipped. Most of the requirements are defined well by the product. Unlike the software projects, IT projects encompass a group of activities related to multiple components, multiple vendors (IT component/service providers). While software acquisition can
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be termed as a project, IT acquisition however, generates from the IT strategy formulated for the organization. The relationship among multiple stakeholders is quite complex and dynamic. Each stakeholder needs to be encouraged to involve in the process to make IT acquisition process successful. Role of ITacquiring organization in the acquisition stage is as important as that of the IT service providers. The entire IT acquisition scenario therefore, is based on the capability of IT service providers and IT-users. Success of an IT acquisition depends on these two groups of stakeholders and ability of these two groups are necessary metrics that this paper discusses in this acquisition stage. With the support form the organizational metrics discussed previously, the metric for the IT user is to manage the project and the IT service provider/ vendors engaged in the project without diluting the overall objective of the acquiring organization. Similarly, the metric for the IT service provider is to understand the ability to understand the requirement of the business process of the acquiring organization and execute the project as agreed and with quality (Luftman, 2003; Ahen et al., 2001). These two metrics considered for the framework are discussed below. Ability of IT Acquiring Organization to Manage IT Service Providers It assumes that pre-acquisition stage needs to be taken care of as stated before. It therefore, accepts the fact that various
projects are in hand for the acquiring organization leading to acquisition of IT components. Responsibility of the acquiring organization therefore, is manifold. Requirement determination and prioritization of the project delivery needs to be formulated in this stage. Vendor relationship needs to be developed in this stage as well. The next stage involves research in the market, benchmarking similar projects in order to assess vendor credibility, product suitability, cost, time efficiency and effectiveness etc. of the project at hand. Tendering process and vendor evaluation for the product and/or process takes place in Evaluation and Negotiation stages. Implementation and Operation stages are last stages of the acquisition process where delivered product(s) are assessed, evaluated and implemented with the help of users. Since mostly software is the central issue, it is the driver for testing the IT infrastructure thus built for the purpose. In each stage capability of the acquiring organization needs to be ensured for successful execution of the project. As explained in figure 1, IT acquisition is software centric, and quality in software acquisition is a concern in recent times. Software acquisition-CMM (SA-CMM) is one of the quality models associated with quality acquisition of software. It tries to understand the acquisition process through management plan for acquisition and software risk assessment. It involves the acquirer and the contractor. Each acquisition project germinates with a
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requirement. At times IT manager pushes an idea to introduce IT enabled services (Ferguson et al.,1997). For the purpose of SA-CMM, the requirements must be baselined (managed and controlled), not frozen. As software requirements further evolve (e.g. allocation, elaboration, and refinement) they are incorporated into the requirement baseline and managed and controlled. Management and control remain the acquirers responsibility even though contractor may be involved in the requirements development process. SACMM is based on the expectation that a mature organization and its projects will do a thorough job of planning an acquisition. SA-CMM accommodates the software that is acquired as a part of total system acquisition. It does not specifically address the system acquisition process; however, it is in harmony with that process. SA-CMM focuses on building the process capability of an organization. Aligning information systems with the information technology is a major delivery at this stage of the acquisition process (Staples et al., 2002). This alignment process demands implementation of information systems developed in the pre-acquisition stage (Wang and Tai, 2003). Involvement of users in the projects is a critical issue for the alignment process as well. Systems usefulness, ease of use, information quality are three determinants of expectations of users which need to be advocated in this stage and are frozen (Hartwick and Barki, 1999; Hendorson and Venkatraman, 1993). Lack of trust and
understanding, hostility, and frustration between IS developers and business managers are very much likely in any ISD project and an organization has to deal with the conflicts. Research on conflict suggests that a business organizations survival hinges on its ability to align IT capabilities with business goals (Yeh and Tsai, 2001). Even fear of computer dominance and distrust on computer professionals inhibits IT adoption and is a serious threat to IT acquisition process in an organization (Abdul-Gader and Kozar, 1995). Care should therefore, be taken to manage stakeholders requirements appropriately at all levels and manage the conflicts which is rather natural in project between the users and project managers. This issue is organization centric and strategic users need to address this preparedness (Yetton and et al.,2000).
Capability of IT Service Providers to Manage Projects
In an IT acquisition process it is the responsibility of the IT service provider to display its credibility on providing required services to the acquiring organization as demanded. In some cases also it has to guide the IT acquiring organization to understand all the aspects of the technology and various options that can be considered before deciding on the same. Ways of displaying such credibility and competence could be in the form of acquiring quality certification manufacturing through maintenance, past established experiences and the
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strength of the organization. This competence should also be reflected in the product being supplied. There are various models which attempt to increase the level of understanding the issues and raise the level of expertise in approaching for this type of IT acquisition process. These categories of stakeholders are progressively adopting various quality models on enhancing their roles, capability in acquisition process. Certifying organizations like ISO etc. have effectively worked on various models and also suggested guidelines, procedures that may be adopted by IT-Vendors. Most of these models have focused on process improvements. The reasoning behind developing these models is to effectively put in place a quality system, which can manage the process of acquisition. A standard and audited quality system underwrites three of the most important factors for any buyer which are to understand the business process, competence of the supplier to understand the buyer, and mutual trust (Luftman, 2003). The basic idea behind developing quality system is to formalize a process of acquisition, which would be a tool for stakeholders to assess each other (Humphrey,1989). Besides, it also would enhance the understanding of
the buyer while dealing with such processes. Obviously a big part of building trust rests on the vendor being able to guaranty that they can deliver on commitments. At the same time the vendor should also look at the intrinsic factors that could affect the quality of supply of IT components and/or implementation of the IT project in the acquiring organization. Usability capability of the product and/ or services are such indicators that provide a better understanding on the credibility of the supplier/developer and organization and could leverage better results if quality aspects are ensured (Jokela, 2001). IT service providers should therefore, work towards achieving this capability. User centered design (UCD) methods of ISO 13407 can be used for development of software that might add to the credibility of software as well as the product quality. Usability is defined as one of the main software quality attributes in standard ISO 9216 (Jokela and Abrhamsson, (2000). ISO 9216 says that The capability of the software product should be understood, learned, used and should also be attractive to the user, when used under specific conditions. Usability capability is a characteristic of software developing organization (contextually
Usability Capability Assessments
Determines
Effectiveness of User Centred Design
Lead to
Usable Products
Figure 10: Usability Capability Actions
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named as IT service provider/ IT supplier) that could predict the level of usability. The concept behind the usability capability is to understand usability, user-centered design and usability-capability. As per quality standards ISO 13407 specifies usability as The extent to which a product can be used by specified users to achieve specified goals with effectiveness, efficiency and satisfaction in a specified context of use. Figure 10 tries to explain how the IT service provider can organize its usability capability so that user can use the product developed or supplied. Usability capability models like Trillium, PHILPS, INUSE, INUSE HCS and IBM profess some capability statements for the software development agencies and since IT acquisition is software centric, these models make sense to discuss about. However, how far will it be applicable to the IT acquisition as a whole, is to be deliberated. For example Trillium is a process assessment model oriented towards telecommunication products. PHILPS refers to an assessment model aimed at Human-ware process assessment. INUSE is a process assessment model oriented for software processes defined in ISO15504. INUSE HRC (human centeredness) is based on IBM and that of ISO 13407, but looks at human dimension. However, these models give an indication that if followed an organization can approximate to user acceptable software, if not precise. Usability gives many benefits like increased productivity, enhanced quality of work, improved user satisfaction,
reduction in support and training costs. ISO 13407 defines four processes of UCD:
l
Understand and specify context of use: know the user, the environment of use and what are the tasks that he or she was the product for. Specify the user and organizational requirements: how quickly the user is able to complete the task with the product. Produce designs against requirements. The designs are evaluated against user requirement.
ISO 13407 defines a set of principles aimed at allocating functions between systems and users, iteration of design solutions, active involvement of users and a multidisciplinary teamwork. This calls for skill sets, tools and methods to carryout the process well and therefore, determines and displays the capability of the product developer for evaluation by an IT acquirer and provides a scope to build trust. CMM indicates the software developing organizations capability to organize its processes and technology along with its people, but it is not comprehensive (Paulk et al.,1994).There is a danger in adhering to the guiding principles of CMM and usability models that the project life cycle might linger unnecessarily. Besides, the problem is that, given the complexity of most IT projects it is difficult for any supplier or purchaser to provide that sort of guarantee (IFPUG,2002). But a quality model can be thought of or at least be explored among various models available so as to make it fit for improvement of the
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process. Both supplier and purchaser should understand each other based on credibility and trust (Irani,2002). In this stage of the acquisition process, two of the most ideal circumstances could be the awareness and comfort level between IT service provider and IT acquirer. In any case the supplier must be demonstrably competent. And second, the buyer must be able to reliably identify a competent supplier. But at times history does not successfully repeat in the case a supplier to meet the requirements of a purchaser. However, if quality system modeling is done to ensure these two, it could be beneficial to both the stakeholders. In order to understand the capability of IT service providers, quality systems methodologies also are developed. These quality systems methodologies are based on three basic issues viz. People, Process and Product. The capability statement primarily depends on: 1. how people are capable of identifying and managing user needs and how the IT service providing organization manages strength of its people and prepares them, 2. what is the process the IT service provider adopts and how capable is the organization to conduct the process management 3. what product (IT component) the IT service provider uses to bring out the final product; what service capability the organization has to render in post implementation scenario
The CMMI model, in its acquisition module, defines efficient and effective practices for government acquisition (Bernard et al., 2004). These best practices are aimed at providing a foundation for acquisition process discipline and rigor that enable product and service development to be repeatedly executed with high level of ultimate acquisition success. This model is in the proximity of the research problem identified in this dissertation, but this is applicable for large organizations involved in repeated and voluminous acquisition transactions with high value and large projects. Strategic alignment model also advocates for this trust between these stakeholders and understanding each other in the acquisition process (Luftman,2003).
3.2 Post Acquisition Stage
Though not generic, it is a normal phenomenon that a project germinates with a requirement albeit at a higher level (Ferguson et al., 1997). IS planning is a part of the strategic planning process and commitment of the strategic users is of paramount importance. Acquisition stage travels the difficult path to acquire the technology, product(s) and processes as well. During the post acquisition stage therefore, it is essential to understand the outcome of the attempt made during the acquisition process. IT service providers enter into the maintenance stage whereas IT acquiring organization starts using the services rendered by the IT infrastructure developed. It is worth noting that it is not important how well
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the IS is planned or designed, but it is of importance to understand how well these are used in the organizational context (Dewire, 2003; Dvorak, 1997). Post acquisition stage just involves this exercise. In this context role of end users is quite critical in the IT acquisition which might pass through five stages: initiation, adoption, adaptation, acceptance, routine use (Cooper and Zmud, 1990). Though initiation stage is related to the pre-acquisition and acquisition stages, remaining stages are reflective of the post-acquisition stage. During system development mostly project is guided by the skilled users of IT till acceptance stage and after this end users (actual users) take over the IT enabled IS product. Success of the test depends on the actual use by the end users. Therefore, end users bear larger responsibilities to guide IT acquisition especially IS product being delivered and/or developed. It is argued that skill set of end users should be measured in terms of their interaction with application software developed, users knowledge on and ability to use hardware, procedures to manage applications in their domain. Besides, end users must develop skills to interact effectively during analysis of information requirements, evaluation of application features, and even ability design/direct designers to develop screens and output forms/reports (Torkzadeh and Lee, 2003). Enhanced skill set in end users definitely leads to quality design decisions for information systems and may prevent in acquiring costly
system features which might not ever be used by these set of users. After all, the caveat is that these users must be in the category of product designers, managers and may be domain analysts like finance, marketing and sales etc. and not as systems analysts or system designers. Assessing the post acquisition performance is not a new area of concern. Despite the innovations it is found in organizations where IT acquisition has taken place, many efforts have yielded advantage to the users (Johntson and Carrico, 1998). Some efforts are abandoned prior to completion or fail to yield the expected advantages. The study reveals that successful deployment depends on the presence of a set of external environmental factors and also depends on developing a set of internal capabilities at tactical and operational levels that extends beyond the IS function. Internal conditions supporting strategic utilization of IT i.e. Leadership, integration of IT and strategy functions in the organization, direct contact between IS function and line divisions and capability of IS function also affect depployment. Executives in the successful companies attributed their success to capabilities developed in the process of identifying opportunities to improve performance. Both line and IS executives believed that line leadership, integration of line and IS objectives are key to past success. It is also viewed that there are concerns about knowledge of IS employees, (though high on technology competence) on business which has
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affected the success. Computer users perceive a variety of skills needed to accomplish their work and that they experience freedom and independence associated with their jobs. Regular computer users characterized the motivating potential of their jobs in much the same way as employees who did not utilize computer regularly. It also revealed that the amount of course work completed was not linked to motivating potential. The study shows that efforts in work re-design must be concentrated in the areas where boredom and fear are producing motivational problems and job dissatisfaction. Managers and professional workers do not perceive their jobs as more meaningful as a result of technological innovation. Instead, anxiety and fear are often associated with the introduction of new technology. These issues needed a careful diagnosis during
IT Vender Metrics Project Metrics
post-acquisition stage. In this conclusive stage of the acquisition process, the metrics are expected to generate information on the success of the IT acquisition process. It therefore, should support the stated objectives of the stakeholders as discussed in figure 1. While user satisfaction metric is related to the end users; IS-IT alignment, life cycle of IT acquired, system acquisition are organizational metrics that need to be verified at this stage. These metrics will be useful for understanding the behavior of the system, stakeholders and services.
IV. DEVELOPMENT OF A MODEL
A model is expected to represent the real world so as to manage a complex phenomenon. Each model performs with certain measurable goals albeit at a higher and abstracted level (Pandian, 2003).
IT User Metrics IS Metrics
Product/ Services IT Metrics Organization Metrics Figure 11: Metrics for the Model
The possible three stages in the IT acquisition process discussed above have indicated that certain metrics can be developed to measure each stage. This measurement through metrics however, needs a model. In this paper the framework is developed with the objective to understand the IT acquisition
process, existence of any IT strategy to acquire and manage and above all the usefulness of the IT acquired. The model in general is intended to capture the knowledgebase and the proposed model captures the knowledge on the IT three acquisition. Secondly, model is based on an architecture and therefore, the
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proposed model displays the relationships among various metrics across all the three stages in the acquisition process as shown in figure 11 (Shaw and Gralan, 1996). The figure establishes a relationship among the stakeholders i.e. organization, IT service provider and IT user. The relationships with relation to the IT acquisition process in the organization are also explained through metrics in three stages. Firstly, the organization needs to develop the metrics at a macro level that would spearhead the entire process and monitor it in the post acquisition stage. Secondly, IT project management is done through an established relationship between the IT service provider and the acquiring organization and therefore, it
calls for project metrics as well as IS metrics. These metrics are meant for understanding the project behavior with respect to the MIS plan thus developed at the organizational level. Thirdly, IS oriented projects are meant for extending services as well as developing products that would benefit the processes and its owners in the organization. Therefore, it is essential that products and services metrics are developed which would be measured through the projects being executed. These metrics also can be helpful in understanding the status of IT projects executed and the possible after effects. These metrics are explained comprehensively in table 2 below that appreciates the formulation of model.
Table 2: Construction of Framework for Understanding IT Acquisition Metrics Post Acquisition Stage Metrics IS-IT Alignment Life Cycle Systems Acquisition Success User Satisfaction Acquiring Stage Metrics IT Capability Vendor Control Pre-Acquisition Stage Metrics Planning and Policy Project Management User Motivation
As discussed earlier the IT acquisition process is a staged process whereas IS development is a continuous process (Ahen et al., 2001 ; Luftman, 2003). These stages of IT acquisition can become a process in itself. However, atomic processes will not be helpful in this type of acquisition where a high stake is involved (Misra et al., 2004) and therefore inter-stage relationship is essential to accomplish such a task. This will help IS
development projects function seamlessly. The table 3 provides details on the metrics classification for the acquisition process.
The Developed Model
Based on the principles discussed the model is presented in figure 12. The model suggests a sequential relationship among the stages of IT acquisition process. These stages are associated with stated metrics.
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Table 3: Metrics classification Metrics Class IS Metrics IT Metrics Project Metrics Description IS-IT Alignment Systems Acquisition Success Life Cycle IT Capability Vendor Control Project Management IT Capability Systems Acquisition Success User Satisfaction Planning and Policy User Motivation Life Cycle of Systems Acquired
User Metrics Organization Metrics
Planning and Policy (PP)
Project Management (PM) H1
User Motivation (UM)
Organisational PreAcquisition Stage Preparedness ( PRAS ) IT Acquisition Stage ( AQS )
H3
PostAcquisition Stage ( PAS )
H4
IS-IT Alignment (AL) User Satisfaction (US) Life Cycle (LL)
H2
Vendor Capability ( VC )
IT-Cell Capability (ITC )
Success of System (SS)
Note: Indicates forward aggregation of metrics for assessing the preparedness Figure 12: The Developed Model
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The model considers three stages for the entire acquisition process and each stage has a goal to perform. These goals are then supported by suitable metrics as described in table 2. Measurement of these metrics is based on the scale used. Testing of fitness of the model developed through structural equation modeling demands responses (measures) form the organizations involved in the IT acquisition process. For the purpose, twenty organizations were identified at random which are engaged in different activities. Thirteen of these organizations showed interest to participate. The methodology for organization responses
was based on group discussions, workshops for eliciting status of IT acquisitions. Besides, questionnaires were administered to the respondents to elicit their response on various stages of the acquisition process. Figure 13 shows the profile of the organizations responded and it displays heterogeneity. Sample size of the respondents is 604. Since the exercise was organization specific and it required involvement of strategic level managers through an operational employee, researchers stayed in the organization to propagate the objective of the exercise and invite them for participating.
Organisation Demography
2 15% 2 15% 4 32%
Manufacturing PSU Manufacturing Private Cooperatives Development Power Utility
2 15%
3 23%
Figure 13: Demography of Responding Organizations V. FITNESS OF THE MODEL
Metrics developed for the model are to be satisfactorily measured and their aggregating relationship among these stages is to be verified for satisfactory fitness of the model. Goodness-of-fit methodology is one of the techniques applied for this model since the metrics
are mostly qualitative in nature (Pedhazur, 1997) through structural equation model (SEM). Fitness of the model has been tested using LISREL ver8.7 through confirmatory factor analysis that postulates one-way causal flow. The SEM methodology supported by path analysis (PA) provides an extension to multiple regression and factor analysis.
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While SEM tests the fitness of the model, PA tests the causal relationship among variables identified. The LISREL-SEM depends on two kinds of variables based on which the fitness is tested. These two variables are exogenous variables and endogenous variables. The exogenous variables are the variables that are independently assessed by the path analyses and SEM whereas endogenous
Metrics Used* Planning and Policy Project Management User Motivation Vendor Capability IT-Cell Capability IS-IT Alignment User Satisfaction Life Cycle Systems Success
variables are dependent on these exogenous variables. Therefore, endogenous variables are predicted variables whereas exogenous variables are predictors. Metrics identified in this paper are used as predictor variables and each stage in the acquisition process expresses predicted variables. Table 4 explains these variables.
Table 4: Variables fro the SEM and Path Analysis Variable Notation PP PM UM VC ITC AL US LL SS Stages of Acquisition Process** Pre-Acquisition (PRAS)
IT Acquisition (AQS) Post Acquisition(PAS)
Note: * are Exogenous Variables, ** are Endogenous Variables
Path analysis is an important exercise in SEM methodology where each path establishes a relationship between these two variables and these are assessed for fitness. These relationships are hypothesised. These hypotheses are tested with the estimates generated by the path analyses. Table 5 captures the hypotheses proposed, path coefficients each path displayed establishes the relationship between latent endogenous variables and latent exogenous variables; loadings that each latent exogenous variable provides on each observed exogenous variable related to it (Pedhazur, 1997). Path analysis looks
for a relationship through the "sign" attached to the coefficients. These path coefficients (standardized) are called "parameters" and are 's in a regression equation. Since hypotheses proposed expected a "positive" relationship among the variables with a direction attached to each and coefficients displayed the positive relationship, the result is in conformity with the hypotheses postulated. Besides, statistical tests can be applied to the paths mentioned in the model. In this process "theory of trimming" can be applied as is done in any "significance testing" for the hypotheses through regression analysis using F-test
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Table 5: Testing of Hypotheses proposed through the Model Hypothesis : Proposition Path T-Statistics* Z-Test Coefficient 16.74 17.98 16.81 28.66 18.10 16.77 R2
(Note: p < 0.05) Remarks
H10: Policy of the organisation 0.43 (PP) on users, Planning and Policy on technology,User Motivation 0.67(UM) and Project Management Capability do not positively 0.52(PM) relate to organisational prepared ness in the pre-acquisition phase. H20: Capability of vendors and 0.57(VC) capability of IT acquisition organisation do not have positive 0.52(ATC) effect IT acquisition process
0.42 0.72 0.61
Path coefficient is positive and t-statistics significant, Hypothesis H10 is rejected in favor of H1A Path coefficient is positive and t-statistics is significant, Hypothesis H240 is rejected in favor of H24A Path coefficient is influenpositive and tstatistics is significant Hypothesis H30 is rejected in favor of H3A Path coefficient is positiveand tstatistics is significant Hypothesis H40 is rejected in favor of H4A
22.15 21.96
21.92 21.60
0.60 0.59
H30**:Delivery of IT in post0.45 (O) acquisition phase does not get influenced positively with 0.53 (AQ) preparedness of the organisation and proper IT acquisition process H40: Success of IT acquired in 0.58 (AL) post-acquisition phase does not depend positively on technology 0.62(LL) acquisition, user satisfaction, longer life cycle, IS-IT alignment, 0.67(SA) Systems success 0.41(US)
2.19(O) 2.60(AQ)
2.14 (O) 0.98 2.52 (AQ)
15.14(AL) 52.77 24.83(LL) 24.80 25.43(SA) 25.76 20.81(US) 20.50
0.68 0.69 0.72 0.54
or t-test. It is accepted that t-statistics values lower than tabled values are termed as unacceptable and need to be dropped from model. Though tests of the significance of path coefficients do not constitute a test of the model as a whole, it can be tested for individual equations
generated by the model and suitably delete the equation or relationship from the model. This would specify that though over all model tests to be significant, individual path does not. Researchers tend to chose an arbitrary criterion of meaningfulness for deletion of path
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coefficients having t-values smaller than 0.05. Though theory of trimming has serious limitations of being applied posthoc for hypothesis testing, it provides rather an indication to understand the status of the path coefficients (Pedhazur, 1997). Further testing a parameter for its significance is as important to support a hypothesis as the applicability of theory of trimming. It is noted that "t-values" for parameter estimates larger than 2 (two) are normally judged to be different form zero and therefore, can be said to be significant (Joreskog and Sorbom, 1989). In some methods z-test are derived through the equation Z Test = PathCeofficient SandardError
and is examined. Z-value exceeding critical value of 1.96 is termed to be significant. As table 5 describes all path coefficients are above 0.05 indicating usefulness of the relationships that each path portrays. Therefore, all the paths are declared to be fit for the model. Besides, all t-statistics are well above the threshold value of 2. Since values used for tests of significance are quite reasonably well satisfying, hypotheses are tested to be acceptable. Table 6 provides structural equations and measurement equations that the SEM methodology generated through LISREL.
Table 6: Measurement Equations and Structural Equations Path Traced VC-AQS** ITC-AQS** PP-PRAS** PM-PRAS** UM-PRAS** AL-PAS** LL- PAS ** SA- PAS ** US- PAS ** PAS-AQSPRAS *** Relationship VC=0.57*AQS ITC=0.52*AQS PP=0.43* PRAS PM=0.67* PRAS UM=0.52* PRAS AL=0.58* PAS LL=0.62* PAS SA=0.67* PAS US=0.41* PAS PAS=0.45*PRAS + 0.53*AQS Error Variance 0.21 0.18 0.26 0.17 0.17 0.16 0.17 0.18 0.14 0.035 T-Statistics* 22.15 21.96 16.74 17.98 16.81 15.14 24.83 25.43 20.81 2.35(PRAS) 2.60 (AQS) Standard Error 0.026 0.024 0.015 0.037 0.031 0.011 0.025 0.026 0.020 0.12 (PRAS) 0.14 (AQS) R2 0.60 0.59 0.42 0.72 0.61 0.68 0.69 0.72 0.54 0.97
*Note: p < 0.05; ** Measurement Equation *** Structural Equation
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The measurement equations depict the relationship between exogenous and endogenous variables whereas structural equations display the relationship among the endogenous variables. The structural equation is central to the study through which the stages in the acquisition processes are related. This relationship establishes a linear relationship and therefore, can predict the post acquisition stage if earlier stages are computed with some predictability.
VI. STUDY OF A PILOT CASE
In this section a pilot case is taken for understanding the usefulness of the model. A case based approach is used in an empirical research in order to investigate a phenomenon. This method is very much useful for evaluation of software engineering methods and tools used. The modelling approach proposed in our research is an attempt to understand the application of software engineering principles to examine outcome. The Case is related to a cement company, a state public sector undertaking set up with an installed licensed capacity 0.4 million metric tonnes of portland cement per annum in the year 1962 in a state in India and went into production in 1968. The plant achieved 100 percent capacity utilisation in almost all the years and got appreciation from the state as well as the central government. In 1985 it expanded its production capacity to 0.56 million MT per annum. The technology chosen for
this plant initially was of wet-process technology and was therefore, not energy efficient. In order to survive stiff competition from private sectors which rather expanded base in the state , the management was forced to consider complete change in the production system to dry-process and this change was effective in 1995 with an increased production capacity of 0.96 million MT of Portland slag cement. This plant during modernisation introduced latest technology with centralised process control system based on Supervisory Control and Data Acquisition (SCADA) with programmable Logic Controls (PLC) with a project cost of 1860 million rupees. The plant has been certified with quality standard confirming to ISO-9001:2000 and ISO-14001. The brand of the product is quite popular in the state as well as in the country. The market share in the state is 20 percent. Marketing set up is quite strong in the company and its major customers are state government agencies, Defence and Power generating companies. The market network depends on dealer network who are managed though branch offices manned by marketing managers of the company. As regards human resource, it has strength of 816 directly employed and around 2000 indirectly employed persons. Training is a part of the HR policy in the company. In the year 1989-90 the company started its computerised activities and details of IT acquisition path it has travelled are shown table-7 below.
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Table-7: History of IT Acquisition in the Company Year Description of IT Activity Component DOS / Fox-Base DOS/ Fox Base. Remarks In-House activity and batch processing -do-
1989-90 Pay-Roll System 1991-93 Inventory Management and Finance-Accounting Systems
1993-97 Sales and Marketing Manage- OS upgraded ment Modules replicated at the to SCO-Unix mines as well as zonal offices. 1998 MIS Plan CMC as consultant 1999 Execution of MIS Plan Migration to Oracle+ D2K platform with Unix as OS (Sales and Marketing modules); Ethernet based Network environment introduced Finance and Accounting Inventory Management, Purchase, Stores accounting Query Processing Optimisation (Modules) and Attempt for Integration
-do-
User Involvement low Vendor developed applications on-site. Batch Processing
2000
-do-
2001
-do-
Application developed on- site. Batch Processing Application developed on-site. Batch Processing
2002-03 -do-
Attempt to migrate from Batch-processing (Off-Line) to On-Line. Motive was to reduce transaction time.
With regard to application of strategic alignment of business IS and IT model, it is a major concern since causal analyses have time and again proved to be inadequate (Luftman, 2003). Alignment
has still remained a perennial business priority. Success of IT acquisition largely depends on a successful alignment of IT with the business process. The capability maturity model for integration (CMMI) of
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Carnegie Mellons Software Engineering Institute provides a basis to assess the organization for alignment [188]. However, Luftmans strategic alignment studies (Luftman, 2003) advocate that despite having a powerful tool like CMM to assess the alignment process in the organization which is applicable to development projects (similar to all software engineering models) IT alignment strategies are still devoid of focussing on business strategies / practices. Luftmans assessment model applied to 60 global 2000 companies is based on this premise and is an attempt to assess this gap. The Luftmans model measures how well the technical and
business organizations work together or even to understand the effective link between IT department and other department in the organization. Luftmans assessment model effectively uses Likert scaling. It suggests that assessment value as noted below in table 8 should be used for studying the scenario. In the proposed model however, Luftman has suggested that rating of an organization for a successful IS-IT alignment is perpetual in nature and it is teamwork. The team must comprise IT and business representatives to perform the assessment. The scale used for the proposed model is a 7-point scale in liker scaling. As table 164 suggests a score in
Table 8: Scaling Attributes in Luftman's Strategic IS-IT Alignment Model Scale in Percent > 1 20 Percent >20 40 Percent >40 60 Percent > 60 80 Percent 80 Percent Organizational Description Assessment Fit does not exist, organization is ineffective Low level of Fit Moderate Fit, moderately effective Mostly Fit Strong level of Fit Scale for Assessment in Proposed Model 1.4 > 1.4 2.8 > 2.8 4.2 > 4.2 5.6 5.6
the range > 4.2 5.6 is expected in an organization in order to appreciate its success. Table 9 reflects the status of IT acquisition scenario in the sample organization analyzed through the model developed and based on Luftmans analysis framework as shown in table 8. It reflects
that the organization shows existence of moderate planning and policy for the IT acquisition process. Similarly, moderate preparedness does exist in project management and user motivation. This situation prevails probably due to the fact that the company a state sponsored organization. The situation is also not
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Table 9: Application of Model for assessment of IT Acquisition Post Acquisition Stage Metrics (3.10) IS-IT Alignment (3.18) Life Cycle (2.97) Systems Acquisition Success (2.86) User Satisfaction (3.15) Acquiring Stage Metrics (3.06) IT Capability (3.24) Vendor Control (2.53) Pre-Acquisition Stage Metrics(3.37) Planning and Policy (3.57) Project Management (3.75) User Motivation (3.64)
encouraging in the areas of vendor management as well as capability of IT cell to handle IT acquisition process. This has reflected in the overall scenario in the post acquisition stage where a moderate success exits. There is a scope to improve in all the metrics used for this stage. Especially life cycle of IT components needs to be improved. This can possibly happen only when IS-IT alignment strategy is rigorously followed.
VII. CONCLUSION
findings with the results that could be arrived through SEM methodologies such as AMOS and alike.
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A Review of Data Mining Tasks and Techniques*

G. K. Nayak1
Abstract
Data mining has grown in importance with the growth of data due to explosive use of information technology. Data mining is an interdisciplinary set of tasks and techniques borrowed from principles of decision sciences, statistics and soft computing techniques. The present article attempts to do a review of the various tasks that data mining is expected to perform and the techniques used to perform those tasks.
INTRODUCTION
The rapid adoption of information technology for transaction processing by all forms of business and government has resulted in large scale databases. Examples of such application include supermarket transaction data, credit card usage data and telephone call details. Other forms of technologies such as satellites, remote data acquisitions techniques, medical records have given birth to databases of enormous size. Data mining is a technique which helps in extracting information and hidden patterns of value to the owners and the other stakeholders of the data. Data mining is used in many areas of interest. They include identification of financial fraud, evaluating risk involved with a customer, identification of terrorist activity etc. Business organizations derive special value from data mining. The
* 1
knowledge weaned from data mining exercises would be of immense value in customer relationship management (CRM), employee management relationship (ERM) and other decision areas. Data mining applications are concerned about discovering and learning hidden and unknown patterns of knowledge from the archived data. The learning tasks are classification, prediction, clustering, summarization, dependency modeling and visualization. The techniques for performing the above mentioned tasks are derived from many disciplines. The most important discipline which has contributed to the data mining techniques is Statistics. There are other related disciplines which are related to probability and statistics which have also contributed to data mining. These are association rules, clustering techniques
Received August 27,2005 Director, School of Technology, KIIT, Bhubaneswar and Professor, Xavier Institute of Management, Bhubaneswar, gopal@ximb.ac.in
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and decision trees. More recently, soft computing techniques such as artificial neural networks, genetics algorithms have contributed to the data mining techniques. This article attempts to review and summarize the data mining tasks and techniques. The article is organized as follows. The section 2 describes some generic data mining applications. The section 3 deals with the process of learning from data with special mention to the machine learning process. The section 4 describes the learning tasks in data mining. The Section 5 outlines and describes the various techniques which are used in data mining which are derived from multiple disciplines such as statistics and soft computing techniques. The Section 6 is the concluding section.
II. APPLICATIONS OF DATA MINING
bring in more customers for the same marketing cost. Lifetime value modeling will identify prospects with a high likelihood of being profitable customers in the long term. Risk or approval models will identify customers or prospects that have a high likelihood of creating a loss for the company. Profile analysis helps to identify important characteristics of profitable customers which will help in segmenting the customer base. Cross sell and up-sell targeting models help in deriving more profits from the existing customers. Retention or churn models help in identifying customers with high likelihood of lowering their current level of activity. Win-back models are built to target former customers
III THE PROCESS OF LEARNING FROM DATA
Data mining is applied in all fields of human Endeavour. However, in certain fields such as marketing and business, data mining applications have assumed great importance (Fayyad et al. 1996). One of the common applications of data mining in business is in customer relationship management. Customer relationship management addresses many questions such as how to attract new customers, how to make customers profitable, how to identify high-risk customers, how to segment customers, how to retain customers etc. There are many data mining techniques which address these issues. Targeted response modeling on new customer acquisition campaigns will
Data mining deals with the process of learning from the archived data obtained through various sources. Traditional approaches to learning relied on Statistical techniques for obtaining knowledge from available data. Many of the contemporary approaches to learning from data are influenced by the learning process of biological systems such as humans. Since, it is observed that biological systems learn empirically with the unknown statistical nature of the environment while being ignorant of the structure or the principle
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behind the process. Examples of such learning can be seen in babies learning to walk while being unaware of principles of physics. It is useful to categorize learning through data mining into types of tasks, corresponding to different objectives of analyzing the data. The categorization, however, is not unique, and further division into finer tasks is possible. Exploratory Data Analysis (EDA): The goal here is simply to explore the data in many different ways with no specific search criteria. Generally, EDA techniques are interactive and visual. Effective graphical display methods are used for representing relatively small, low dimensional data sets. Descriptive Modeling: The goal of a descriptive model is to describe all of the data or the process generating the data. Examples of such descriptions include models for the probability distribution of the data, partitioning of thee-dimensional space into groups (cluster analysis and segmentation), and models describing the relationship between variables (dependency modeling). Predictive Modeling: The objective here is to build a model that will permit the value of one variable to be predicted from the known values of other variables. The common predictive models are classification and regression. While in classification, the variable being predicted is categorical, in regression the variable is quantitative . The term prediction is used here in a general sense, and no notion of a time continuum is implied .
Discovering Patterns and Rules: The aim here is to identify and detect patterns. Retrieval by Content: The objective here is to find known or hypothesized patterns in the data set. This task is most commonly used for text and image data sets. For text, the pattern may be a set of keywords, and the objective is to find relevant documents within a large set of possibly relevant documents (e.g., Web pages). For images, the user may have a sample image, a sketch of an image, or a description of an image, and wish to find similar images from a large set of images. In both cases the definition of similarity is critical, but so are the details of the search strategy. It may be noted that the problem of learning from data samples has its origin in the general notion of inference in classical philosophy. Every predictivelearning process consists of two main phases: learning or estimating unknown dependencies in the system from a given set of samples, and b. using estimated dependencies to predict new outputs for future input values of the system. These two steps correspond to the two classical types of inference known as induction (progressing from particular cases-training data-to a general mapping or model) and deduction (progressing from a general model and given input values to particular cases of output values). Though, Statistical learning theory (SLT) is relatively new, but it is a highly formalized theories for finite-sample
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inductive learning. It defines all the important concepts for inductive learning and provides mathematical proofs for most inductive-learning results. However, other approaches such as neural networks, Bayesian inference, and decision rules are more engineeringoriented. They have an emphasis on practical implementation and have avoided need for strong theoretical proofs and formalizations. Statistical learning theory describes the process statistical estimation and hypothesis testing with small data samples. It explicitly considers the sample size and provides quantitative description of the trade-off between the complexity of the model and the available information. Understanding SLT is important for designing methods of inductive learning. Many nonlinear learning procedures recently developed in neural networks, artificial intelligence, data mining, and statistics can be understood and interpreted in terms of general SLT principles. Though SLT is quite general, it was originally developed for pattern recognition or classification problems. Therefore, the theory are mainly applied for classification tasks. There is growing empirical evidence, however, of successful application of the theory to other types of learning problems. There are two common types of the inductive-learning methods known as a. supervised learning (or learning with a teacher), and b. unsupervised learning (or learning without a teacher).
Supervised learning is useful in estimating an unknown relationship from given input-output samples. Classification and regression are common applications supported by this type of inductive learning. It may be noted that supervised learning assumes the existence of a teacher-fitness function for estimating the proposed model. The term supervised denotes that the output values for training samples are known. In the case of unsupervised learning there is no need for a teacher. Only sample data with input values are given. The learner is required form and evaluate models by itself. It may be noted that the objective of unsupervised learning is to discover natural structure with the sample data.
IV. COMMON TASKS IN LEARNING
The generic inductive-learning problem can be subdivided into several common learning tasks. Classification discovery of a predictive learning function that classifies a data item into one of several predefined classes (Hand, 1997; Michie et al 1994; Weiss & Kulikowski, 1991). Regression discovery of a predictive learning function, which maps a data item to a real-value prediction variable. Clustering a common descriptive task in which one seeks to identify a finite set of categories or clusters to describe the data. Summarization an additional descriptive task that involves methods for finding a compact description for a set (or subset) of data.
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Dependency Modeling finding a local model that describes significant dependencies between variables or between the values of a feature in a data set or in a part of a data set. Change and Deviation Detection discovering the most significant changes in the data set.
V. DATA MINING TECHNIQUES
Data mining techniques have been influenced by statistics and soft computing techniques. This section provides a brief description of such methods.
5.1. Statistical Methods
Statistics is the science of collecting and organizing data and drawing conclusions from data sets. The organization and description of the general characteristics of data sets is the subject area of descriptive statistics. How to draw conclusions from data is the subject of statistical inference. Statistical data analysis is the most wellestablished set of methodologies for data mining. Historically, the first computerbased applications of data analysis were developed with the support of statisticians. Ranging from onedimensional data analysis to multivariate data analysis, statistics offered a variety of methods for data mining, including different types of regression and discriminant analyses (Agresti 1990; Chirstensen 1997, James 1985, Berthold and Hand 1999, Cherkassky and Mulier 1998, Engel and Van den Broeck 2001).
Statistical inference: In the field of statistical inference, it is necessary to arrive at conclusions concerning a population when it is impractical to observe the entire set of observations that make up the population. The theory of statistical inference consists of those methods by which one makes inferences or generalizations about a population. These methods may be categorized into two major areas: estimation, and tests of hypotheses. In estimation, one wants to come up with a plausible value or a range of plausible values for the unknown parameters of the system. In statistical testing, on the other hand, one has to decide whether a hypothesis concerning the value of the population characteristic should be accepted or rejected in the light of an analysis of the data set. A statistical hypothesis is an assertion or conjecture concerning one or more populations. Bayseian inference: The Bayesian method provides a principled way to incorporate this external information into the dataanalysis process. This process starts with an already given probability distribution for the analyzed data set. As this distribution is given before any data is considered, it is called a prior distribution. The new data set updates this prior distribution into a posterior distribution. The basic tool for this updating is the Bayes Theorem. Based on the Bayes Theorem, Naive Bayesian Classification Process, or the Simple Bayesian Classifier process can be used to classify new samples (Cheeseman & Stutz, 1996).
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Predictive Regression: The prediction of continuous values can be modeled by regression analysis. The objective of regression analysis is to determine the best model that can relate the output variable to various input variables. More formally, regression analysis is the process of determining how a variable Y is related to one or more other variables X1, X2, , Xn. Y is usually called the dependent variable, and X1 - Xn are called independent variables. Common reasons for performing regression analysis include, a. the output is expensive to measure but the inputs are not, and so a cheap prediction of the output is sought; b.the values of the inputs are known before the output is known, and a working prediction of the output is required; c. controlling the input values, we can predict the behavior of corresponding outputs; d. there might be a causal link between some of the inputs and the output, and we want to identify the links. Generalized linear models are currently the most frequently applied statistical techniques. They are used to describe the relationship between the trend of one variable and the values taken by several other variables (Agresti, 1990; Chirstensen, 1997; James, 1985). Analysis of Variance: This is a procedure where the total variation in the dependent variable is subdivided into meaningful components that are then observed and treated in a systematic fashion. The analysis of variance is a powerful tool that is used in many data-mining applications. In one-way anova, the dependent is a ratio
variable while the independent is a nominal variable (Agresti, 1990; Chirstensen, 1997; James, 1985). Logistics regression: Logistic regression models the probability of some event occurring as a linear function of a set of predictor variables. Rather than predicting the value of the dependent variable, the logistic regression method tries to estimate the probability p that the dependent variable will have a given value. Linear discriminant analysis: This technique is concerned with classification problems where the dependent variable is categorical (nominal or ordinal) and the independent variables are metric. The objective of LDA is to construct a discriminant function that yields different scores when computed with data from different output classes. The construction of a discriminant function z involves finding a set of weight values wi that maximizes the ratio of the between-class to the within-class variance of the discriminant score for a preclassified set of samples. Once constructed, the discriminant function z is used to predict the class of a new nonclassified sample. Cutting scores serve as the criteria against which each individual discriminant score is judged. The choice of cutting scores depends upon a distribution of samples in classes. (Hand 1999) has summarized the differences between statistics and data mining. Most important differences are a. statistics tends to adopt rigorous methods
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while data mining often adopts ad-hoc methods, b. statistical studies are sample based while in data mining the population is available and hence a score function is more suitable, c. data mining is often exploratory while statistics is confirmatory, and d. data mining techniques are developed to be used with help of computers while statistical techniques can be used by hand
5.2. Cluster Analysis
examples (Duda, Hart, & Stork, 2001). However, in case of data mining, it is necessary to perform effective and efficient clustering on large data sets. Traditional approaches to clustering include partitional methods such as kmeans, hierarchical agglomerative clustering, unsupervised Bayes, mode finding, or density based approaches. Besides, there exist a few soft clustering techniques, such as those based on fuzzy logic or statistical mechanics, where a data point may belong to multiple clusters with different degrees of membership. It is to be noted that while clustering problem is easy to conceptualize, it may be quite difficult to solve in practice. Moreover, the quality of clustering obtained by a given method is very data dependent. Although some methods perform poorly in general, there is no method that works best over all types of data sets. Indeed, each approach has its own underlying assumptions about the data and thus is relevant for specific scenarios, and there is no method that is best across all situations. For example, given the correct guess for k and good initialization, k-means clustering works fine if the data is well captured by a mixture of identical, isotropic Gaussians (or Gaussians with identical diagonal covariances if Mahalonobis distance is used), but can degrade rapidly if one deviates from these assumptions. For nonGaussian distributions in very high dimensional space, k-means clustering has the same degree of performance as random partitioning. Conceptual
Clustering is the process of grouping a collection of N patterns into distinct segments or clusters based on a suitable notion of closeness or similarity among these patterns. Good clusters show high similarity within a group and low similarity across groups. For applications such as segmentation of customers or products, clustering is the primary goal. Often, it is a step needed for further data analysis (Han and Kamber 2000, Hand et al 2001, Jain et al 1999). Cluster analysis has been studied extensively for many decades and across many disciplines, including the social sciences (Hartigan, 1975; Jain & Dubes, 1988). This is because clustering is a fundamental data analysis step and a pattern is a very general concept. Application of clustering include grouping similar species, sounds, gene sequences, images, signals, or database records. Clustering has been used in the fields of machine learning and statistical pattern recognition as a type of unsupervised learning because it does not rely on predefined class-labeled training
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clustering, which maximizes category utility, a measure of predictability improvement in attribute values given a clustering, is popular in the machine learning literature, but is most applicable only when data is binary or categorical with small numerosity values.
5.3. Decision Trees and Decision Rules
Decision tree is an efficient method for producing classifiers from data. One can observe large number of decision-tree induction algorithms described primarily in the machine-learning and appliedstatistics literature. These methods are supervised learning methods that construct decision trees from a given set of input-output samples. Usually a decision-tree learning system adopts a top-down strategy that searches for a solution in a part of the search space. It guarantees that a simple, but not necessarily the simplest, tree will be found. A decision tree consists of nodes that where attributes are tested. The outgoing branches of a node correspond to all the possible outcomes of the test at the node. The samples, at a non-leaf node in the tree structure, are thus partitioned along the branches and each child node gets its corresponding subset of samples. Decision trees that use univariate splits have a simple representational form, making it relatively easy for the user to understand the inferred model. However, they represent a restriction on the expressiveness of the model. In general, any restriction on a particular tree representation can significantly restrict
the functional form and thus the approximation power of the model. A well-known tree-growing algorithm for generating decision trees based on univariate splits is Quinlans ID3 with an extended version called C4.5. Greedy search methods, which involve growing and pruning decision-tree structures, are typically employed in these algorithms to explore the exponential space of possible models. (Breiman et al 1984, Quinlan 1986, Dzeroski and Lavrac 2001, Mitchell 1997, Quinlan 1992, Russell and Norvig 1995)
5.4. Association Rules
Association rule discovery shares many features of classification rule. Both these rules characterize regularities within data set. However, while classification rule induction focuses on acquiring a capacity to make predictions, association rule discovery focuses on providing insight to the user. More specifically, it focuses on detecting and characterizing unexpected interrelationships between data elements. Substantial differences in methods and techniques within the two paradigms are a result of difference in focus. Association rule discovery typically uses complete search to find large numbers of rules with no regard for covering all training data (Adamo 2001, Chang et al 2001, Han and Kamber 2001, Mulvenna 2000). Because of the focus on discovering small rule sets, classification rule induction systems often make choices between alternative rules with similar performance. Although the machine
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learning system may have no basis on which to distinguish between such rules, the user may find substantial value due to factors extraneous to those represented in the data. Such factors may include the usefulness of formulating business rules based on the discovered rule and the extent to which the discovered rule integrates with the users wider understanding of the domain. In contrast, association rule discovery systems present all the rules that satisfy user specified constraints, and permit the user to identify specific rules that have the greatest value. To expose features of association rules, a common application market basket analysis is explained in greater detail. Market basket analysis is one of the first application of association rules. A market basket is a collection of items purchased by a customer in a single transaction, which is a well-defined business activity. For instance, a customers purchases from a grocery store or on the web are typical customer transactions. Merchants accumulate records of huge collections of transactions over time. One common analysis run against a transactions database is to find itemsets, that appear together in many transactions. A business can use knowledge of these patterns to improve the placement of these items in the store or catalog page and Web pages. The percentage of transactions that contain an itemset is called the itemsets support. For an itemset to be interesting, its support must be higher than specified minimum. Finding frequent itemsets is a
nontrivial problem. The number of customer transactions can be very large and usually will not fit in the memory of a computer. The potential number of frequent itemsets is exponential to the number of different items, although the actual number of frequent itemsets can be much smaller. Therefore, it is necessary to find algorithms which are not NP hard and that examine as few infrequent itemsets as possible. The algorithm Apriori used for market basket analysis computes the frequent itemsets in the database through several iterations. Iterations i computes all frequent i-itemsets (itemsets with i elements). Each iteration has two steps: candidate generation and candidate counting and selection. In the first phase of the first iteration, the generated set of candidate itemsets contains all I-itemsets (i.e, all items in the database). In the counting phase, the algorithm counts their support searching again through the whole database. Finally, only I-itemsets (items) with s above required threshold will be selected as frequent. Thus, after the first iteration, all frequent I-itemsets will be known. The second phase in discovering association rules based on all frequent iitemsets, which have been found in the first phase using the Apriori or some other similar algorithm, is relatively simple and straightforward. For a rule that implies {x1, x2, x3,}? x4, it is necessary that both itemset {x1, x2, x3 x4} and {x1, x2, x3} are frequent. Then, the confidence of the rule is computed as the quotient of supports for the itemsets c= s{x1, x2, x3, x4}/s(x1 x2,
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x3). Strong association rules are rules with a confidence value c above a given threshold
5.5. Artificial Neural Networks
distributed adaptive system. ANNs are also referred to in the literature as neurocomputers A neural network is a network structure consisting of a number of nodes connected through directional links. Each node represents a processing unit, and the links between nodes specify the causal relationship between connected nodes. All nodes are adaptive implying that the outputs of these nodes depend on modifiable parameters pertaining to these nodes. One important task for an ANN is to learn a model of the world in which it exists and to maintain consistency with the real world to achieve the specified goals of the concerned application. The learning process is based on data samples from the real world. There is a fundamental difference between the design of an ANN and a classical information-processing system. In the later case, formularizing a mathematical model of environmental observations is the first step followed by validating the model with real data, and then building the system on the basis of the model. In contrast, the design of an ANN is based directly on real-life data, with the data set being permitted to justify for itself. Thus, an ANN not only provides the implicit model formed through the learning process, but also performs the information-processing function of interest. One significant property of an artificial neural network is the ability of the network to learn from its environment
Artificial neural networks (ANNs) has been motivated by the fact that the human brain computes in an entirely different way from the conventional digital computer. It was a great challenge to model the brains computational processes which is a highly complex, nonlinear, and parallel informationprocessing system. It has the capability to organize its components so as to perform certain computations with a higher quality and very fast. Examples of these processes are pattern recognition, perception, and motor control. Artificial neural networks have been studied extensively since Rosenblatt first applied the single-layer perceptrons to patternclassification learning in the late 1950s (Bishop 1995, Ripley 1996, , Hagan et al 1996, Haykin 1999, Zurada 1992). An artificial neural network is an abstract computational model of the human brain. The human brain has an estimated 1011tiny units called neurons which are interconnected with an estimated 1015 links. Inspired by the brain, an ANN is composed of artificial neurons and interconnections. In a ANN, neurons are represented as nodes and interconnections as edges. While it is common to use the term artificial neural network, other names include neural network, parallel distributed-processing system (PDP), connectionist model, and
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based on real-life examples, and to improve its performance through that learning process. An ANN learns about its environment through an interactive process of adjustments applied to its connection weights. Ideally, the network becomes more knowledgeable about its environment after each iteration in the learning process. ANNs can be used for following learning tasks: pattern association, pattern recognition, function approximation, control, filtering.
5.6. Genetic Algorithms
Genetic algorithms (GA) are derivativefree, stochastic-optimization methods based loosely on the concepts of natural selection and evolutionary processes. They were first proposed and investigated by John Holland at the University of Michigan in 1975. The basic idea of genetic algorithms was revealed by a number of biologists when they used computers to perform simulations of natural genetic systems. In these systems, one or more chromosomes combine to form the total genetic prescription for the construction and operation of some organism. The chromosomes are composed of genes, which may take a number of values called allela values. The position of a gene (its locus) is identified separately from the genes function. Thus, we can talk of a particular gene, e.g., an animals eye-color gene with its locus at position 10 and its allela value as blue eyes (Goldberg 1989, Fogel 1998, Goldenberg 1989, Michalewicz 1999).
GAs encode each point in a parameter or solution space into a binary-bit string called a chromosome. These points in an n-dimensional space do not represent samples in the terms that we defined them at the beginning of this book. While samples in other data-mining methodologies are data sets given in advance for training and testing, sets of n-dimensional points in GAs are a part of a GA and they are produced iteratively in the optimization process. Each point or binary string represents a potential solution to the problem that is to be solved. In GAs, the decision variables of an optimization problem are coded by a structure of one or more strings, which are analogous to chromosomes in natural genetic systems. The coding strings are composed of features that are analogous to genes. Features are located in different positions in the string, where each feature has its own position (locus) and a definite allele value, which complies with the proposed coding method. The string structures in the chromosomes go through different operations similar to the naturalevolution process to produce better alternative solutions. The quality of new chromosomes is estimated based on the fitness value, which can be considered as the objective function for the optimization problem. Instead of single a point, GAs usually keep a set of points as a population, which is then evolved repeatedly toward a better overall fitness value. In each generation, the GA constructs a new population using genetic operators such as crossover and mutation.
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Members with higher fitness values are more likely to survive and participate in mating or crossover operations. GAs are popular because they do not depend on functional derivatives and they have the following interesting characteristics: GAs are parallel-search procedures that can be implemented on parallel-processing machines for massively speeding up their operations, GAs are applicable to both continuousand discrete-optimization problems, GAs are stochastic and less likely to get trapped in local minima, which inevitably are present in any practical, optimization application, and GAs flexibility facilitates both structure and parameter identification in complex models. While common applications of GA are optimization problems, it can be used for discovery of input-to-output mapping for a given complex system, which is the type of problem that all machine-learning algorithms try to solve. The basic idea of input-to-output mapping is to come up with an appropriate form of a function or a model, which is typically simpler than the mapping given originally in the form of a set of input-output samples. We believe that a function best describes this mapping. Measures of the term best depend on the specific application. Common measures are accuracy of the function, its robustness, and its computational efficiency. Generally, determining a function that satisfies all these criteria is not an easy task; therefore,
a GA determines a good function, which can then be used successfully in applications such as pattern classification, control, and prediction. The process of mapping may be automated, and this automation by using GA technology represents another approach to the formation of a model for inductive machine learning.
5.7. Visualization Methods
Computation, based on these large data sets and databases, creates content. Visualization makes computation and its content accessible to humans. Therefore, visual data mining uses visualization to augment the data-mining process. Some data-mining techniques and algorithms are difficult for decision-makers to understand and use. Visualization can make the data and the mining results more accessible, allowing comparison and verification of results. Visualization can also be used to steer the data-mining algorithm (Fayyad 2002, Gallaghar 1995, Spence 2001, Westphal and Blaxton 1998). Visualization techniques can be classified in a number of ways. They can be classified as to whether their focus is geometric or symbolic, whether the stimulus is 2D, 3D, or n-D, or whether the display is static or dynamic. Many visualization tasks involve detection of differences in data rather than a measurement of absolute values. It is the well-known Webers Law that states that the likelihood of detection is proportional to the relative change, not the absolute change, of a graphical attribute. In
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general, visualizations can be used to explore data, to confirm a hypothesis, or to manipulate a view. In exploratory visualizations, the user does not necessarily know what s/he is looking for. This creates a dynamic scenario in which interaction is critical. The user is searching for structures or trends and is attempting to arrive at some hypothesis. In confirmatory visualizations, the user has a hypothesis that needs only to be tested. This scenario is more stable and predictable. System parameters are often predetermined and visualization tools are necessary for the user to confirm or refute the hypothesis. In manipulative (production) visualizations, the user has a validated hypothesis and so knows exactly what is to be presented. Therefore, he focuses on refining the visualization to optimize the presentation. This type is the most stable and predictable of all visualizations. Visualization techniques are divided roughly into two classes, depending on whether physical data is involved. These two classes are scientific visualization and information visualization. Scientific visualization focuses primarily on physical data such as the human body, the earth, molecules, and so on. Scientific visualization also deals with multidimensional data, but most of the data sets used in this field use the spatial attributes of the data for visualization purposes; e.g., Computer-Aided Tomography(CAT) and Computer-Aided Design(CAD). Also, many of the Geographical Information Systems (GIS)
use either the Cartesian coordinate system or some modified geographical coordinates to achieve a reasonable visualization of the data. Information visualization focuses on abstract, nonphysical data such as text, hierarchies, and statistical data. Datamining techniques are primarily oriented toward information visualization. The challenge for nonphysical data is in designing a visual representation of multidimensional samples (where the number of dimensions is greater than three). Multidimensional-information visualizations present data that is not primarily plenary or spatial. One-, two-, and three-dimensional, but also temporal information-visualization schemes can be viewed as a subset of multidimensional information visualization. One approach is to map the nonphysical data to a virtual object such as a cone tree, which can be manipulated as if it were a physical object. Another approach is to map the nonphysical data to the graphical properties of points, lines, and areas. Using historical developments as criteria, we can divide information-visualization techniques (IVT) into two broad categories: traditional IVT and novel IVT. Traditional methods of 2D and 3D graphics offer an opportunity for information visualization, even though these techniques are more often used for presentation of physical data in scientific visualization. Traditional visual metaphors are used for a single or a small number of dimensions, and they include
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Bar charts, Histograms, Line charts, Pie Scatter plots. With the development of large datawarehouses, data cubes became very popular information-visualization techniques. A data cube, the raw-data structure in a multidimensional database, organizes information along a sequence of categories. The categorizing variables are called dimensions. The data, called measures, are stored in cells along given dimensions. The cube dimensions are organized into hierarchies and usually include a dimension representing time. The hierarchical levels for the dimension time may be year, quarter, month, day, and hour. Similar hierarchies could be defined for other dimensions given in a data-warehouse. Multi-dimensional databases in modern data-warehouses automatically aggregate measures across hierarchical dimensions; they support hierarchical navigation, expand and collapse dimensions, enable drill-down, drill-up, or drill-across, and facilitate comparisons through time. The dimensions are predefined indices in a cube cell and the measures in a cell are roll-ups or aggregations over the transactions. They are usually sums but may include functions such as average, standard deviation, percentage, etc.
V. CONCLUSION
knowledge trapped in these databases may be of strategic importance to the organizations. While certain businesses have taken cognizance of the importance of the data mining and have used it extensively in decision making process, others are yet to do so. This article has attempted to summarize the basic learning tasks and the techniques used in data mining applications. However, it is to be noted that the list of techniques are not exhaustive. They represent majority of techniques which are used in data mining applications.
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1. Adamo, J. (2001), Data Mining for Association Rules and Sequential Patterns, Springer, Berlin,. 2. Agresti, A. (1990). Categorical Data Analysis. New York: Wiley. 3. Berthold, M. and D. J. Hand, (1999) eds., Intelligent Data Analysis-An Introduction, Springer, Berlin,. 4. Bishop, C. (1995). Neural networks for pattern recognition. New York: Oxford University Press. 5. Brandt, S., (1999) Data Analysis: Statistical and Computational Methods for Scientists and Engineers, 3rd ed., Springer, New York,. 6. Breiman, L., Friedman, J. H., Olshen, R. A., & Stone, C. J. (1984). Classification and Regression Trees. Boca Raton,FL: CRC Press. 7. Chang, G., M. J. Haeley, J. A. M. McHugh, J. T. L. Wang, (2001). Mining the World Wide Web: An Information Search Approach, Kluwer Academic Publishers, Boston: MA,. 8. Cheeseman, P., & Stutz, J. (1996). Bayesian classification (autoclass): Theory and results,
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19. Hand, D. (1997). Construction and assessment of classification rules. Chichester, UK: John Wiley & Sons.IBM (2002). IBM intelligent miner [online]. Retrieved from http://www.ibm.com/software/data/ iminer/ 20. Hand, D., Mannila H., Smith P., (2001). Principles of Data Mining, MIT Press, Cambridge: MA,. 21. Jain, A. K., M. N. Murty, P. J. Flynn. (September 1999). Data Clustering: A Review, ACM Computing Surveys. 31, no. 3, : 264-323. 22. James, M. (1985). Classification algorithms. New York: Wiley. 23. Michalewicz, Z., (1999). Genetic Algorithms + Data Structures = Evolution Programs, Springer, Berlin: Germany,. 24. Michie, D., Spiegelhalter,D. J.,&Taylor,C.C. (1994). Machine learning, neural and statistical classification. London: 25. Mitchell, T., (1997). Machine Learning, McGraw Hill, New York: NY,. 26. Miyamoto S., (1990). Fuzzy Sets in Information Retrieval and Cluster Analysis, Cluver Academic Publishers, Dodrecht: Gennany,. 27. Mulvenna, M. D. et al., (2000) eds., Personalization on the Net using Web Mining: A collection of articles, CACM 43, no.8,. 28. Nong Ye, (2003). Handbook of data mining, L B Associates, New Jersey,. 29. Quinlan, J. R. (1993). C4.5: Programs for machine learning. San Francisco: Morgan Kaufmann. 30. Quinlan, J. R. (1992). C4.5: Programs for Machine Learning, Morgan Kaufmann, San Mateo: CA,.
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31. Ripley, B. (1996). Pattern recognition and neural networks. Cambridge, UK: Cambridge University Press. 32. Russell, S. and P. Norvig, (1995). Artificial Intelligence: A Modern Approach, Prentice Hall, Upper Saddle River: NJ,.
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A Model for Corporate Development A Holistic Approach *

Subhash Sharma1
Abstract
Since its advent within the framework of maximization of shareholders wealth, the corporate model has been undergoing a series of transformations. In its next evolutionary step, the concept of multiple stakeholders emerged. As corporates are playing a dominant role in the society, the idea of corporate citizenship has been emerging during recent years. This paper suggests a new age corporate model, rooted in the social discourse and the holistic vision of development. While core competence allows a corporate to be competitive, new age corporates need to include other dimensions in their corporate activities. Social concern and innovation competence among others are the additional requirements. Further, it also needs to have character competence, then only it would be able to lead others. In fact, corporate governance has already emerged as an important concern for the corporates. This paper also presents the evolution of the corporate model from its shareholder framework to corporate citizen framework and relates this evolution to the nature of social discourse in the market economy. Using ideas from Indian thought it formulates the corporate HOPE model and suggests a new age score carding mechanism to evaluate corporate performance from a holistic perspective.
I. INTRODUCTION
Since its advent within the framework of maximization of shareholders wealth, the corporate model has been undergoing a transformation. In its next evolutionary step, the concept of multiple stakeholders has emerged. As corporates are playing a dominant role in the society, the idea of corporate citizenship has been emerging during recent years. This paper suggests a new age corporate model, rooted in the social discourse and the holistic vision of development.
Sharma (1996) articulated a holistic view of social discourse in a globalized era centred around following four concepts: 1) 2) 3) 4) Survival of the fittest Survival of the weakest Survival of the uniquest Arrival of the best
Survival of the fittest has been a dominant idea since the days of Darwin. It is rooted in the conflict model of nature and struggle for survival. Though Kautilaya also talked about the law of the fishes, wherein big fish eats the small
* Received June 27, 2005. 1. Author is Director, Indian Institute of Plantation Management, Bangalore, ssiipm@vsnl.net
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fish, he suggested that in a civilized society, it is the duty of the King/leader to provide protection to the small fish. Thus, originated the concept of the survival of the weakest, which later was well articulated by Gandhi in his famous Talisman. In addition to these well known ideas, we also have the concept of survival of the uniquest, which emphasizes the uniqueness and creativity dimension of
human beings. Further, from Gita, we have the concept of the arrival of the best to lead the rest derived from a well known sloka, yada yada hi dharmasya.... An interaction between these four perspectives about the individuals, organizations and society, leads us to interesting viewpoints. Fig.1 presents the cognitive space these four ideas strive to occupy in the discourse dynamics of the society.
Arrival of the Best
Survival of the Weakest
Survival of the Fittest
Survival of the Uniquest

Source: Management in New Age: Western Windows Eastern Doors, Subhash Sharma, 1996, p.216
Fig.1: Discourse Dynamics in the Society II. CORPORATE IMPLICATIONS OF THE SOCIAL DISCOURSE
The four concepts discussed above also represent four forces in the society viz. force of competition, force of compassion, force of innovation and force of leadership. Survival of the fittest represents the force of competition, survival of the weakest represents the force of compassion, survival of the
uniquest represents the force of innovation and arrival of the best represents the force of leadership. This holistic view of four forces has equivalence in the corporate world. As mentioned, survival of the fittest is indicative of the competition. Survival of the weakest implies that corporates should have social concern and compassion. The concept of Corporate
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Social Responsibility (CSR) reflects this sentiment in one form or other. Survival of the uniquest represents the corporate innovation and creativity dimension and arrival of the best represents the corporate leadership dimension. Fig.2 presents the
Best
social discourse and its corporate equivalence. Since, corporates have come to acquire a dominant role in society, a new social expectation has emerged. In fact, in market economy expectations from
Leadership
Weakest
Fittest
Social Concern
Competition
Uniquest
Innovation
Fig.2: Social Discourse and Corporate Equivalence
This equivalence is also presented in Table 1.

Table 1: Elements of the Social Discourse & Their Corporate Equivalence Elements of the Social Discourse Survival of the fittest Survival of the weakest Survival of the uniquest Arrival of the best Corporate Equivalence Competition Compassion / Social concern Innovation and Creativity Leadership
corporates are very high because, corporates have taken-over many functions of the State. In view of the same, emergence of a new corporate model could be viewed in terms of an evolutionary perspective. Initially, corporates were driven by the maxim of wealth maximization for the shareholders. In their next stage of evolution, corporates incorporated the idea of multiple stakeholders in the corporate philosophy.
Now, with the emergence of the idea of Corporate Social Responsibility, a new model for the corporates is emerging. This is the model of corporate citizenship which represents the third evolutionary step in the evolution of corporates. As responsible citizens, corporates should become role models for other organizations and institutions in the society. This is the new expectation from the corporates. This expectation reflects
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the social discourse and the corresponding requirements of competition, social concern, innovation and leadership. Thus, the new age corporates should be driven by HOPE Higher Order Purpose of Existence and super-ordinate goals. Fig.3 presents the evolutionary development of corporate philosophy.
Performance of the corporates could be measured through a new age score card that would measure performance in terms of; 1) competition parameters reflecting the competitiveness; 2) Social concerns parameters reflecting the social orientation; 3) Innovation parameters reflecting innovative competence of the corporate; 4) Leadership parameters reflecting the
HOPE / Superordinate Goals CSR / Corporate Citizenship
Stakeholders
Shareholders Fig.3: An Evolutionary Perspective on Corporate Models
leadership capability and role model capability of the corporate. Such a Management Score card (MSc) would provide a comprehensive picture of performance of the corporate as a corporate citizen. It may be indicated that the idea of a new age score card suggested here has its intellectual roots in the social discourse and not merely in organization theory.
III. CORPORATE APPLICATION OF THE SOCIAL DISCOURSE: TOWARDS A NEW AGE CORPORATE MODEL
While core competence allows a corporate to be competitive, new age
corporates need to include other dimensions in its corporate activities. Social concern, innovation competence are the additional requirements. Further, it also needs to have character competence, then only it would be able to lead others. In fact, corporate governance has already emerged as an important concern for the corporates. Fig.4 presents this framework of new age corporates in consonance with the discourse dynamics. It may be indicated that focus of C.K.Prahlads core competence concept was on competition and competitiveness, while focus of
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Character Competence/ Corporate Governance
Corporate Social Responsibility
Core Competence
Innovation Competence Fig.4: A New Age Corporate Model
Sharmas (2002), character competence model is on ethics of doing the business and the nature of Corporate Governance. While professional managers tend to pay more attention to core competence and innovation competence, the Boards have to take a broader view and also focus on Corporate Social Responsibility (CSR) and Corporate Governance or the character competence. It may be indicated that the new age corporate model, suggested through the concept of HOPE - Higher Order Purpose of Existence, has links with some well
known concepts from Indian thought. Three important concepts from Indian thought having relevance for the corporate HOPE are; 1) Loksangraha (Social Concern); 2) Shubh-labh (Ethical Profits); 3) Danam (Philanthropy). Indian scholars such as Chakraborty (1995) and Athreya (2002) have highlighted the importance of loksangrah and danam as essential role and expectations from modern corporates. Sharma (2002) integrates these three concepts in an Indian model of corporate development. Fig.5 presents this model as Corporate HOPE model.
Loksangraha (Social Concern)
Shubh-labh (Ethical Profits)
Corporate Citizen
Danam (Philanthropy)
Fig.5: Corporate HOPE Model
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In the earlier discussion, we suggested a Managerial Score Card. In view of the subsequent discussion, the key elements of this score card are presented in Table 2. The specific measurement parameters for the above indicated components of the score card could be further developed. It may be indicated that this score card takes
a holistic view of the corporate performance. Hence, it takes us beyond the Balanced Score Card (BSc), though elements of the Balanced Score Card are included in it. It may also be indicated that in the holistic framework of the new age corporate model, the CEO is not merely a shareholders leader but a visionary
Table 2 : Key Elements of the Managerial Score card (MSc) Element of the Score card Competition Innovation Social Concern Leadership Key Concept Customer Orientation and Core Competence Innovation Competence Corporate Social Responsibility (CSR) Character Competence Measure Competitive Index Innovative Capacity Contribution to Society Character Competence Index
leader of all the stakeholders and the Managerial Score Card suggested here reflects this dimension of the leadership.
IV. DUTY OF THE FITTEST: LOCATING NEW AGE CORPORATE MODEL WITHIN THE HOLISTIC VISION
It may be indicated that the new age corporate model suggested here is consistent with the holistic vision of development. There are three visions of the world viz. socialistic, capitalistic and holistic. Socialistic vision aimed at distribution of the existing wealth without much consideration of wealth generation. Capitalistic vision aimed at wealth generation but wealth generation was largely for the selfish end. Holistic vision
emphasizes wealth generation with values and social concerns. The shareholder model of the corporates belonged to the capitalistic vision. The corporate citizenship model or the corporate HOPE model belongs to the holistic vision of the world. It may be indicated that the social discourse framework presented at the beginning of the paper provides us with a foundational premise of the holistic vision, taking us beyond the capitalistic vision that is rooted in the survival of the fittest paradigm and socialistic vision rooted in the survival of the weakest paradigm to a new vision, which emphasizes the Duty of the Fittest (Sharma, 2003). It may be mentioned that since Darwin was dealing
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with the law of jungle, he never asked the question about the Duty of the Fittest, as a result, he ended up emphasizing the survival of the fittest. The holistic vision seeks a balancing between survival of the fittest and survival of the weakest and incorporates additional dimensions of innovation and leadership. Further, it also considers Duty of the Fittest as part of the corporate life. In fact, CSR (Corporate Social Responsibility) could as well be considered, Duty of the Fittest towards the society. It may also be indicated that the holistic vision takes us beyond the sustainable development vision, which was evolved to make a correction in the capitalistic view of the world. The holistic vision is also rooted in balancing the dharma, artha, kama, moksha and thus it has Indian linkages and could as well be considered as an Indian model. It may also be indicated that Gandhi anticipated the emergence of the new age corporates through his concept of Trusteeship model of organizations. In fact, multistakeholder concept and the corporate citizenship concept are essentially reformulations and extensions of the Trusteeship concept in one form or other. The need for a new age corporate model has also become important because of the dominance of the corporates and dominance of the markets in the economic activities of humans. During socialist economy era, there was dominance of State. In market economy, market acquires dominance. With the emergence
of corporates as a dominant force, an appropriate phrase to describe the current scenario would be corporate-market economy or market-corporate economy, wherein visible hands of the corporates are very visible. Hence, the need for a new age corporate model. This paper presents the evolution of the corporate model from its shareholder framework to corporate citizen framework and relates this evolution to the nature of social discourse in the market economy. Using ideas from Indian thought it formulates the corporate HOPE model. It also suggests a new age score carding mechanism to evaluate corporate performance from a holistic perspective.
NOTES & REFERENCES
1. This is a revised and extended version of the paper, Towards A New Age Corporate Model: A Holistic Approach to Corporate Development, presented at the International Conference on Strategic Management in a Globalizing World: Perspectives from a Developing Economy, organized by Strategic Management Forum during its 6th Annual Convention, in association with XLRI Jamshedpur, April 24-26, 2003 at XLRI, Jamshedpur. 2. Sharma, Subhash (1996), Management in New Age: Western Windows Eastern Doors, New Delhi, New Age International Publishers. 3. Sharma, Subhash (2002), Character Competence of the Corporation, Journal of Human Values, Vol.8, No.2, July-December, pp.107-118. 4. Chakraborty, S.K. (1995), Ethics in
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Management: Vedantic Perspective, New Delhi, Oxford University Press. 5. Athreya, M.B. (2002), Shastras for Danam (Philanthropy), Keynote Address delivered at the 13th Shankara Darshana Management Conference, organized by Sri Sringeri Institute of Management (SriSIM), New Delhi, November 22, Indian Institute of Science, Bangalore. 6. Sharma, Subhash (2002), Danam: Towards
An Indian Model of Corporate Development, in Conference Papers, 13th Shankara Darshana Management Conference, Shastras for Danam / Philanthropy, organized by Sri Sringeri Institute of Management, November 22, at Indian Institute of Science, Bangalore,. 7. Sharma, Subhash (2003), Duty of the Fittest, Concept Note/SS/IIPM/March, Indian Institute of Plantation Management, Bangalore.
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Managing New Product Innovation Process: A Case-based Study*

J. Mukherjee1, S. Dey2, K. K. Guin3 and G. Sinha4
Abstract
Innovation is critical to the success of business enterprises. However, it is an uncertain process, contextual in nature and there is no single prescription for success. In this study, we have focused on the new product development aspect of innovation management. Based on relevant literature survey, we have first developed a theoretical framework for the new product innovation process and then compared it with the actual process followed by Deys Medical, a wellestablished, fifty year old pharmaceutical company in India. Based on the comparison, we have modified the theoretical framework. This modified framework is expected to add to the repository of knowledge organizing a new product innovation initiative. Based on the study we conclude that any new product development process may follow different routes. The commonality is that, the process has to overcome only five challenges, which could be classified as strategic, marketing, development, production and commercial challenges. The key insight gained in the study was that the process of new product introduction does not ensure success of the product in the market. Hence there is a possibility that some important elements were not considered in the NPIP process frameworks. We suggest that consumer trust new product is an important aspect, which influences the commercial success of the new product and this could be included as an element in NPPI. Further research is required to establish this aspect and also to find out how to incorporate the same in the NPIP, and thereby improve the process.
I. INTRODUCTION
Innovation in product as well as marketing, which gains customer acceptance, can happen only with good understanding of local needs and conditions. Innovating firms are also more protected from cyclical downturns.
However, the innovation processes used by firms have changed very little although the business environment has changed significantly (Joe, 2001). Continuous innovation can be sustained by focusing on the process of innovation and its management. The New Product
* Received September 10, 2005. 1. Assistant Professor (Marketing), Xavier Institute of Management, Bhubaneswar, jaydeep@ximb.ac.in 2. Director, Deys Medical Stores (Mfg.) Limited, 62, Bondel Road, Kolkata, subho@cal2.vsnl.net 3. Professor, Vinod Gupta School of Management, IIT, Kharagpur, kalyan@vgsom.iitkgp.ernet.in 4. Professor, Vinod Gupta School of Management, IIT Kharagpur, gautam@vgsom.iitkgp.ernet.in
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Innovation Process (NPIP) can thus significantly impact on the success of any new product in the market and thereby the continued success of a business (Birou & Fawcett, 1994). In this paper, we shall focus on the new product development aspect of the innovation process. The paper is organized as follows: in Section 2, we study the innovation literature to find out the emerging trends and debates in the management of new product development process. We also attempt to understand the components of the new product innovation process and review the relevant frameworks of Product Innovation Process and identify the gaps in literature. In Section 3, we propose a conceptual framework for managing new product innovation. In Section 4, we test the proposed framework through a case study of Deys Medical Ltd. Section 5 reports the findings of the research and analysis. The insight generated by the case study is in section 6. This research paper concludes with the limitations of the study and the scope for future work in Section 7.
II. LITERATURE REVIEW 2.1 Innovation in the context of a business enterprise
influence on the organization and management of innovation: uncertainty and complexity. Uncertainty is function of rate of change of technologies and product markets, whereas complexity is a function of technological and organizational interdependencies (Tidd, 2001). Change and innovation are not synonymous; although all innovations involve change, the reverse is not always true. The notion of newness being essential to concept of innovation as it helps differentiate innovation from change (Johannessen, Olsen, & Lumpkin, 2001). To be able to innovate, invent and discover, involves using existing knowledge, but often requires generating and acquiring new knowledge and certainly involves learning. Innovation also requires sharing of learned knowledge. This knowledge can be tacit knowledge, which is experiential in nature as well as codified (explicit) knowledge, which does not require direct experience for learning (Howells, 2002). Creativity is an important ingredient in the innovation process and has been conceptualized as going against the accepted, while innovation is to implement the creative solution. Hence, innovation is conceptualized as an outcome of some creative endeavor (Soudijn, 1989). Innovation is an interactive process. The feedback has central role in coordinating the different innovation related activities of the firm. Through interaction and feedback, different pieces of knowledge
Innovation is the effort to create purposeful, focused change in an enterprises economic or social potential. It is linked it to work rather than genius, requiring knowledge, ingenuity and focus(Drucker, 1985). Research suggests that two contingencies exert significant
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become combined in new ways or new knowledge is created (Fischer, 2001).

2.2 Types of Innovation
Innovation has been classified differently in literature.(Alam, 2003) has quoted Booz, Allen & Hamiltons classification of innovation under six categories: a) New-to-the-world products (which are new in the eyes of customer) b) New product lines (products that represent new challenges to the firm) c) Additions to existing products lines (these are new products that supplement a firms established product lines) d) Improvement and revisions to existing products (products that provide improved performance) e) Repositioning (existing products that are targeted to new market segments) f) Cost reductions (new products that offer similar performance at a lower cost). Similarly, Alam has also quoted Kleinschmidt & Coopers classification of innovation as a continuum from low, through moderate to high innovation. Innovation may be broadly classified as incremental or radical innovation. Incremental innovation is any idea, practice or material artifact that is perceived to be new to the firm, but which may have been used previously by another firms. Radical innovation is, by contrast, any idea, practice or material artifact that is perceived to be new to the
industry (Johannessen et al., 2001). There are various other classifications, which exist in literature, with the underlying theme aligning innovation with newness. Innovation can be in any area of business like product, marketing, production or even process management.
2.3 Managing Product Innovation
In the context of business enterprises, innovation should be a managed process rather than sporadic sparks of individual brilliance or inspiration. (Drucker, 1985) says: Innovation is a process dependent on creativity, inspiration and some luck. Most of successful innovation is not about a flash of insight but a careful implementation of unspectacular but systematic management discipline. It can be achieved by a commitment to systematic practice of innovation: the effort to create purposeful, focused change in an enterprises economic and social potential. Drucker has also propounded that effective innovations start small. They are not grandiose. They try to do one specific thing. Grandiose ideas, plans that aim at revolutionizing an industry, are unlikely to work. Many experienced companies rely less on early market research and more on interactive development with lead customers. They learn from the customers needs and innovations and modify designs accordingly (Quinn, 1985). Knowing your business, customers, competitors and the marketplace and analyzing them all at once is a good source
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of innovative ideas. Ideas may come from any of the abovementioned sources, and the development is incremental with changes during the conversion from concept to execution (Pearson, 2002). The innovation process is likened to managed chaos or somewhat orderly chaos (Quinn, 2000). From our survey of literature involving the works of Alam, Johannessen, Drucker, Quinn, Perason a central theme emerges: (a) Innovation process is uncertain (b) Possibly the outcomes cant be controlled with certainty (c) A systematic process-driven approach is likely to deliver better results We shall concentrate only on the product innovation process for the rest of this paper, in order to maintain the necessary focus.
Importance of process
and innovation, the foremost of which is leadership. The other factors are the individual employees, the informal organization and formal organizational arrangements. The individual employees provide the skills and expertise. The informal organization is the norms, values, communication and behavior that can be observed but perhaps not controlled. Finally, the organizing arrangements are the organizational structures, reward systems, training etc. that are in place to support innovation. Innovation is an uncertain process, which require investment of time, energy and money. Since the payoffs are uncertain, there is increasing emphasis on the critical importance of identifying and developing a balanced portfolio of new products. This includes focusing on incremental changes and extensions to existing product lines while at the same time spending energy and resources on developing products that are completely new and have the potential to create markets (McDermott & Handfield, 2000). Hence, it is important to develop and follow a process of innovation, which will make the NPIP systematic, more reliable in terms of output and easier to implement with lesser degree of uncertainty.
Sequential process versus Concurrent process
New product innovation process (NPIP) is a set of tasks and steps through which a company converts ideas into products or services. It has stages and activities from idea to launch of new product. If there is no systematic approach to these phases in the company, failure is inevitable. Creating a common disciplined NPIP process is an important step and makes it easier for the same individual to work on different projects (McDonough & Barczak, 1999). (Sundstrom, 2002) has identified the critical factors for managing new tasks
Having accepted (product) innovation as a process with a set of tasks and steps the next important question is that whether
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the steps can be taken in a predefined sequence or concurrently. And whether this choice between sequential and concurrent product innovation process is context dependent. (McDermott & Handfield, 2000) indicate that concurrent development is appropriate for minor changes to an existing product line, but does not necessarily help develop a product that is truly different from previous generations. In order to develop such basic new technologies, direct contact with other engineers and face-to-face contact with suppliers working on complementary technologies are useful. The authors also suggest in a deterministic environment, concurrent process is unquestionably better than a serial process (i.e., reduces the development time at no additional cost). However, this may not be true in a realistic environment where success at each stage in the development process is not guaranteed(the uncertainty) erodes the benefits of concurrent engineering and in some cases may be worse than the serial engineering. A review of the various frameworks of NPIP shows that although different approaches have been proposed, they are in fact all variants on a linear theme: Some may include feedback loops, but they all essentially advocate that certain steps precede, or are preceded by, others (Naude, Blackman & Dengler, 1998). Flows of information have also increased as a result of increased international
collaboration; international agreements have grown as firms attempt to share the costs and risks of innovation in technology-intensive sectors such as information technology, biotechnology and new materials. Such collaborations are conducive for concurrent NPIP process. In conclusion, if NPIP is perceived as a process with different stages, some stages will be sequential as well as some will concurrent. The process should have enough flexibility built in to accommodate the changing needs of the situation.
In-house development versus Outsourcing option
Outsourcing is a business reality of current times. A firm may outsource a certain part of its product because of the following reasons, either singly or in combinations: 1. Lack of core competence 2. Cost and time considerations and 3. Supplier having technological edge Outsourcing key phases of new product introductions speeds the process, lowers the cost and amplifies impact (Quinn, 2000). Many companies are opening up their own process and product frameworks sufficiently enough to allow the selected potential suppliers to innovate freely for their needs (Quinn, 1999). There is no denying that outsourcing has a place in any innovating organization. The reasons for outsourcing are accelerated re-engineering benefits, access world-class capabilities, cash
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savings and free resource for other purposes and improve company focus. The more the firm is focused on developing innovative products, the greater the likelihood that outsourcing is part of the NPIP process (Nijssen, Biemans & deKort, 2002). Critiques of outsourcing point out that it leads to dependence on outside parties, lack of control over the quality and the time aspect of the product innovation, which actually harms the organizations interest. It has the potential to delay as well as reduce the chances of success of the new product introduction. Most companies keep certain critical aspects of the innovation process in-house along with the coordination function so that they do not lose control (Adler, 2000).
2.4 Management of new innovation process: product
the primary reason for most new product launches ending in failure. The key points to know about the customer needs are: What do customers need, how they satisfy their need now, how do they view alternative solutions and how important is it to customers? (Swaddling & Miller, 2003) The company should adequately understand not only the customers needs but also the total economic environment in which the customer lives, as they influence the changes in the customer needs (Wyner, 2003). The manufacturers are inviting customers to aid product development as partners in problem solving. These co-creation projects not only allow the consumers to feel involved but also enable the businesses to share the burden of innovation responsibility (Purnell, 2004). The user involvement generates ideas that are original and more valuable than the ones generated by the professional development team (Magnusson, 2003). Customers have various needs; identification of new combination of customers need, which can be gainfully addressed by the company, is the challenge. One of the methods suggested for this is the concept of Listening in to the dialogues created in the internet while the customer is searching for a product or service solution (Urban & Hauser, 2004). The other way to manage the customer needs is the use of Quality Function Deployment, which seeks out customer needs and ensures that they are met (Han, Chen, Ebrahimpour & Sodhi,
Succeeding in the market place requires speed to market (introduce new product before competition) with a product offer, which the customers are going to accept. This requires the development of the new product (technical solution) and coordination between the different functions to deliver the result (Gorchels, 2003). Hence the product innovation process may be understood as understanding customer needs, developing solutions to take care of the needs and ensuring market acceptance.
Understanding customer needs
The buyer-seller relationship has changed, failure to understand customer needs is
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2001). Research suggests that most companies have customer service function (which can be a good repository of customer concerns), however very few seem to use it to its full potential (Wikstrom, 1996). Improvement in innovation management is required in the area of preliminary market assessment, market research and product launch. All of them integrate the customer interface with the innovation process (Bastic, 2004). There is no standard methodology of researching the customer requirements, it generally involves working closely with customers, listening to their problems and understanding their business or operations and its workflow. Customers are constrained by their inability to think beyond current experience and practice. This may be overcome by using the concept of reverse brainstorming, where a customer group rips apart the current solution or product, identifying all that is wrong with it, leading to a problem inventory. These are then clustered into major problem themes and developing the ammunition for initiating a creative problem solving (Cooper, Edgett & Kleinschmidt, 2002).
Meeting the technological challenge
and created consumer expectations. Honda, thus, has been working towards a long-term solution without customer feedback at different stages of product development. In contrast, Sony realized the technical problem, did not raise the expectations of customers and offered the currently developed imperfect product as an entertaining and lovable pet that no one expects to be useful. Sony has been able to attract lead customers (who are invaluable source of information for product development), get revenue from the market (to fund the further development work) and most significantly check and learn from the performance of the product in the actual customer homes (Moon, 2004). Breakthrough innovations are the result of highly committed managers making commitments that press the limits of technical understanding. In doing so, they create an environment of tremendous uncertainty. Then they bet on a few well tested veterans and emergence of a few other junior technologists to invent solutions that make good on their commitments (James, 2003). Research suggests that the NPIP project team, which is cross-functional in nature, is a common practice followed by the organizations. Some of the best practices are to have a defined project leader, make the team stick till the end of the project, be responsible for the result of the project and enable them handle outside the team decisions (Cooper, Edgett & Kleinschmidt, 2004).
Solving the technical challenge is a critical part of innovation management. The contrasting strategy of Honda and Sony towards personal robot development is quite insightful. The technical challenge of developing a useful robot is immense. Honda committed publicly about delivering a truly useful robot (ASIMO)
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Earlier R&D was considered to be a vital strategic asset and in many industries a barrier to entry. Large companies are complementing their in house R&D with open innovation, which draws on the technologies from networks of universities, startups, suppliers and competitors (Chesbrough, 2001). The early involvement of suppliers in a new product development is imperative and a big challenge. The internet is a facilitator in managing the co-development process (Huang & Mak, 2003). Virtual frameworking tools and technologies provide the scope to virtually framework, prototype and simulate their proposed innovations. This changes the economics of iteration and cost of making changes becomes marginal (Schrage, 2001). Mass customization and personalization aim at providing goods and services that serve individual customers personal needs with nearmass-production efficiency. A popular way to achieve this is configuration design (where a customer can pick and choose components and assemble them to form a product) as well as product platforms. For the vast majority of products, the toolkit concept may only be an ideal to be approached persistently. User toolkits are considered to be the best bet for optimum customization of a product obviating the risks of customer dissatisfaction or a sense of supplier futility. This would, nevertheless, prove invaluable in the product development (PD) process by inducing an acute understanding of mainstream as well as
new stream customers and thus providing a long term competitive advantage (Thomas, 2003). Tacit knowledge (knowledge that cannot be codified) is acquired through emulation and practice. It is an important factor underlying the technological capabilities of innovative firms. Without developing an adequate internal base of tacit knowledge, firms are limited in their ability to implement new technologies. On the other hand, firms with strong innovative capabilities are well positioned to accumulate new knowledge and build on their past successes. Organizational knowledge creation is a complex non linear interactive process characterized by a continuous and dynamic interaction between tacit and explicit knowledge (Fischer, 2001).
2.5 Review of existing frameworks of product innovation process
The traditional new product development process (Yelkur & Herbig, 1996) consists of eight sequential stages: 1. 2. 3. 4. 5. 6. 7. 8. Idea generation Screening Concept Development and testing Marketing strategy Business analysis Product development Market testing and commercialization
Global new product development cannot be a step-by-step process. Not just concurrent engineering (where prototype and manufacturing process development
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occur together) but also concurrent marketing where the soft side of the product development, target market analysis, strategy creation and evaluation also overlap. And at the heart of this lies the multidisciplinary team (Yelkar & Herbig, 1996; Yelkur & Herbig, 1996). The current five-stage new product development process (Cooper et al., 2002), commonly referred to as stage gate process, provides a way to drive new products to market. It includes five stages: 1. 2. 3. 4. 5. Discovery and Scoping Build Business Case Development Testing and Validation Launch followed by Post Launch Review.
Innovation requires interaction, within different departments of the firm and also with outside the firms which include suppliers, competition and customers. The interactive framework of innovation process (Fischer, 2001) suggests feedbacks and interactions as given in Figure 1: Environmental uncertainty influences both the magnitude and the nature of innovation. The second contingency, complexity, is a function of the number of technologies and their interactions, and recent research suggests that innovation in complex products and systems is fundamentally different from that in other fields (Dvir et al, 1998; Hobday et al, 2000). (Thomas, 2003)Double loop innovation process involves the concurrent development of two products 1) the base, general purpose product to be delivered to the customer, and 2) the
The transition from one stage to another is like a gate where the project may clear the gate or may be stopped.
Research
General Scientific & Technological Knowledge base Firm specific knowledge base
Potential Market
Invent/ Produce Analytical Design
Detailed Design & Test
Redesign & Produce
Distribute And Market
Figure 1: Interactive framework of Innovation Process (Fischer, 2001).
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toolkit which would help the customer to effect the required customerization to the base. Besides the toolkit proper, customization toolkits would also include supplementary elements such as education, training, and familiarization programmers and other instructional materials such as manuals (Thomas, 2003).
2.6 Gaps in the existing Frameworks
Research suggests that though there are various limitations of the study of new product development processes, there is improvement in the success rate of new product introductions from 1-2% in 1960s to 10-15% in 1980s. It is possible that a contribution to this increase has been made by the past research, which has allowed managers to understand the process better (Naude et al., 1998). New product development has been a continuously evolving field, where the new ideas from different fields of knowledge get integrated. Studies of new processes and contexts have helped enrich the understanding and extend the existing knowledge base. There is clear need to continue the process of integrating the accumulated knowledge, conceptualizing newer ways of managing the new product development and testing them and integrating them in the already existing base of literature. There is need for interdisciplinary conceptual integration of contextual factors, management system factors, the NPIP process and outcomes (Olin & Shani, 2003) Requirements for an ideal product development process framework, as proposed by Coopers study (Cooper, 1994; Cooper et al., 2002; Cooper & Kleinschmidt, 1996) are as follows: 1. First it must be sufficiently in detail to act as an action guide to managers. But it also must not be so complex as to discourage its use.
Several decades of research on the management of technology and innovation have created many insights into the innovation process, but to date have failed to provide a comprehensive framework to guide innovation research or management practice. Studies of innovation have been based on a broad range of disciplines, including management science, economics, geography, sociology and psychology; and have adopted very different methods, definitions and samples. This diversity of research has limited the coherent accumulation of knowledge regarding innovation management. In addition, most studies have failed to include some measure of performance or success, which makes it difficult to translate much of the research into management prescription (Tidd, 2001). Another important consideration is also how to organize for successful innovation and product development. The process of innovation is highly strategic and connected to many of the key aspects of the functioning of a firm. This might be an explanation why there is so little advice to find within literature on how to practically set up innovation.
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2. Second, it must be strongly market oriented, and market research and market planning must be executed well in the process. 3. The framework must contain multidisciplinary features to provide the internal communication between the key groups of the process. 4. The framework finally must recognize the risks and high failure risks of new products by evaluating the process as a whole. One of the rich sources of new knowledge would be to conceptualize a newer way to manage the new product development based on integrating the current developments in literature and testing it in the context of Indian organizations.
III. PROPOSED CONCEPTUAL FRAMEWORK FOR NPIP
knowledge like new technology etc. The proposed framework tries to include these aspects in NPI process. This framework separates the marketing function from the New Product Introduction team (new product cell), which is well supported by literature (Sethi, Smith, & Park, 2001). The researchers view NPI as a complex task and propose that the team should preferably be cross-functional in nature. The major focus of NPI team is to improve the process by increasing the coordination level in the process. It also shows the linkages between different functions. The framework recognizes increasing use of outsourcing of value adding services like new technology development, advertising and standard manufacturing work. It is incorporated in the framework by including supplier interface by the usage of the concept of Network, which is applicable in research and development functions, marketing as well as production function. The use of the term network is to encompass in-house as well as outsourced work. The framework is flexible and can be adapted to different organizational sizes and structures. For example, in case the organization is small and can not have separate manpower dedicated to each function, it shows the links clearly so that two contiguous functions can be merged and assigned a complete overall responsibility. Marketing may take up the New Product Introduction function and
The proposed framework accommodates diverse market situations where customer requirements can vary from very specific (requiring customized solutions) to very general (where one has to produce a massmarket product, having commercially viable market size). This is achieved by incorporating customer input in the New Product Introduction process. This approach increases the probability of acceptance of the new product by the customer and reduces market uncertainty. However, a lot of NPI is not driven by consumer inputs only, as organizations attach greater importance to needs like growth and profit targets, competitive moves or even developments in human
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provide all the coordination with the manufacturing and design and development team. Also, small companies may not have a separate research and technology team, the research work may be given outsourced and the total arrangement may be incorporated in our framework as research network. To sum up, the salient points of the conceptual framework are: a. It depicts a continuous process, with three potential point of input for example, it can be initiated by the customer needs, development in human knowledge or pure business needs. b. It introduces the concept of networks in the context of marketing, research and development and production. The use of the term network is to incorporate the growing use of outsourced services in these functions for example, use of advertising and market research agencies by marketing function.
Customer Need
c. It clearly gives the linkages between functional areas. Since there is interaction between the functions, dotted lines are used to indicate porosity and overlap. d. The framework is sustainable as it is a closed loop process. It can take care of small changes in the customer needs leading to incremental developments in the existing products in an iterative manner. It has the flexibility to incorporate radical changes driven by new knowledge or even business needs. The NPIP framework is not sequence specific but relationship and functional interdependency specific. This allows the conceptualization to take care of wide variety of new product developments, for example, the engineered to order situation (with low consumer uncertainty but higher production challenge) to massproduced consumer products (which may have low production challenge but very high marketing challenge).
Knowledge Developments
Business Needs
Marketing Network
NPI Team co-ordination
Research Network
Production Network manufacturing Figure 2: Proposed framework for NPIP
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3.1 Applicability of the proposed framework
situation specific factors may be the main driver of innovation. ii) If it has worked once, it will work once again. The assumption is that new product development process, like manufacturing or other structured processes, can be designed in such a way so as to guarantee success. iii) There is a cure all or quick fix to for the ills affecting organizations inability to improve its new product development processes. Hence there are various alternate frameworks possible for the new product development processes. However the above argument should not be used to conclude that studies of new product development processes are futile and have no use. The study helps build on the existing knowledge by providing fresh perspective and more importantly paves the way for development of newer and more efficient new product innovation process.
IV. METHODOLOGY ADOPTED TO TEST THE FRAMEWORK
The framework will be useful for managers of organizations, who manage their NPIP activities as well as those who want to set up NPIP operations. It would be of use to consultants who advise organizations on new product development. It would be of use to research and academic communities, as it would provide an alternative way to conceptualize and analyze the management of the new product introduction process.
3.2 Probable use of the study
Objective of this paper was to explore the recent developments in the area of new product development, highlight the relevant issues, rather than to test our propositions empirically. Although we would provide preliminary evidence from in depth understanding of a typical case, in support of our proposed framework, a different method would be necessary for the next step, which would be attempted at a wider generalization.
3.3 Possible alternate frameworks
The new product development process as well as the techniques and tools required for improving the process are complex process (Gordon, Ayers, Hanna, & Ridnour, 1995). There are various misconceptions, which shroud the NPIP process, they are: i) If a process works in one place, it need not work elsewhere as various
Since we plan to check the applicability of the theoretical conceptualization in the real world context, the case study approach was one of the possible alternatives along with quantitative studies. For this research, the desired approach would have been to study the process in the organizational context (where the researcher cant control variables, and hence quantitative studies are not very useful). Also, the fact that one
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of the researchers had considerable past work experience as a manager responsible for new product development, an in depth case study appeared to be a viable alternative (Yin, 1984). Our objective is to add to the knowledge and understanding beyond the general guidelines often found in the management of NPD literature through studies of the practices within projects. Case study is normally used when researcher is searching for answers to how and why questions and can be of exploratory, descriptive and explanatory nature. What we chose to do was a mix of descriptive and exploratory case study. We did not enter the organization with a totally blank sheet of paper. We had some idea of what we were primarily looking for. Building on the experience and results from the literature survey and the framework developed, we wanted to know more of how individual projects were managed while working with constant changes in the market requirements (Sundstrom, 2002). We also understand that any new product development framework is very context specific and to that extent, the quality of the findings are not so much on the number of cases studied but on the quality of the study, the insights generated as well as the selection of the site. Hence we felt a single case study would provide a good start and the selection of the case study site was important.
4.1
Unit of Analysis: Deys Medical Ltd.
Selection of the case study site was very critical to the research and we chose Deys Medical Manufacturing Company, Kolkata. It is known for its commitment to quality and innovation, which has made it a household name in Indian pharmaceutical market for over five decades. The products are medicinal formulations both for the prescription market and OTC. The products in themselves require considerable research and development work as well as marketing skills to establish. Competition is intense with local as well as international players. It is a sector that is going through a transition driven by the WTO agreements. The study is topical and has possibility of knowledge creation, which could have potential for wide application. The pharmaceutical market is intensely competitive and demonstrates complex buyer behavior (as the consumers are primarily the patients but what they buy is dictated by the doctors prescription and/or the chemists suggestion). The market can be broadly classified as prescription market and over-the-counter (OTC), with distinct consumer behavior. Deys medical is present in both the segments. The competition faced by Deys Medical is intense, as there are many players with virtually undifferentiated product offers. Hence, the marketing challenge is immense and a lot of focus is on selecting the right product (judge the future needs
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of the market), develop product to satisfy the consumer need and market them effectively. Thus, market risk is considerable. The research and development is done in the companys laboratory and sometimes the research competence is outsourced (through a tie up with Indian Institute of Chemical Biology). Drug formulation is a lengthy process with long, variable leadtime (it takes anywhere from six months to two years) and a risky process to the extent that not all projects get completed or pass the legal requirement (it is a highly legislated field and compliance requirements are stiff). Hence, to be able to manage the process, Deys Medical requires a very sound new product development process the focus of our attention. Increasing competition in the market has reduced the life cycle of a product and new products are required for survival in the market. Each formulation is unique and can be considered an individual new product venture with associated market, development, production and regulatory uncertainty. This type of complexity and uncertainty management in long term and sustained basis requires a defined and disciplined process. Deys Medical has been operating successfully in the Indian market for more than five decades. It has grown from a Rupees 0.94 million company in 1980 to a Rupees 4.89 million company in 2003, which signifies a 7.3% CAGR over 23 years. It is reasonable to assume that the organization is a rich
source of coded as well as tacit organizational knowledge on new product development. Hence, there was potential for findings, which could augment the knowledge of the research team. Deys Medical markets its products all over India; key research, marketing and production operations are concentrated at their offices at Kolkata.
4.2 The data collection methods
The data collection was based on semistructured interview with a lot of openended questions to respondents. The records were collected in the form of hand written notes by the researchers. Interview protocol (attached in Appendix 1) was used to guide the researcher in conducting the interview. The researchers also collected the relevant formats and organizational documents which were relevant for the study apart from the syndicated study reports and secondary data available with the company. The respondents selected were essentially all the heads of the functions and/or their deputies related to the new product development process. Only the senior members were interviewed so as to get the advantage of their rich workexperience and broader perspective on the entire process. The respondents interviewed were the Managing Director, G.M. Marketing, Product Manager, Head- New Product Development, Head Research and Technology, Production Manager,
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Functional in-charge of Quality Control and the Procurement and Logistics function.
V. FINDINGS OF THE CASE STUDY
give less time to medical representatives for delivering marketing communication. Also, there are regulatory controls (State Drug Controller and Central Drug Control Department), which give the permit to launch new products in the market. So the companies in the market undertake considerable market risk and product development uncertainty.
How does Deys manage the process:
5.1 Indian Pharmaceutical Industry: A snapshot
This sector has intense competition with 26,000 (ORG IMS Report -2004) companies in organized and unorganized sectors. Most companies manufacture generic products and sell at very competitive prices. There is normally intense pricecutting and a new product is profitable only for a short period of time (ORG IMS Report -2004). So, the challenge is to introduce a new product quickly, gain sufficient volumes and earn profits quickly (till the time competition catches up). Hence, new product development on sustained basis is a key success factor in the industry. The role of chemists and doctors is vital in the market. They influence the success of a company by controlling the availability as well as in shop conversion to the branded generics, which are normally priced much more competitively. The challenge of marketing to doctors is that they know more about the product than the marketer (medical representative). Their preference of a particular product (from a set of relatively undifferentiated products) is critical for marketing success. The other important factor is that the key customers are the busy doctors and hence, these doctors
Deys medical essentially faces the following challenges in the NPI initiative: A. Assessment of market trends (Identifying the commercially viable gaps in the market). B. Product Development Uncertainty (Time, Efficacy and Regulatory approval) C. The Marketing Uncertainty (acceptance of product by the market) Each aspect is dealt with separately, with very clear responsibility to different teams in the organization and the top management coordinates the overall process.
Assessment of the market trends
The formulation drug market is intensely competitive. Drugs have short product life cycles and the profitability of the organization depends on developing new products quickly, skimming the market and moving on. So, a successful new product development plan is of prime importance for all the pharmaceutical companies.
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The sales team is primarily given the job of managing the marketing of the existing products. So, Deys Medical felt the need for a separate group of product managers. Since the sales team is also in close touch with the market and is hence a storehouse of rich market knowledge. The marketing team works in close coordination with the sales team. The primary responsibility of the product management group is the following: a. b. c. d. Environmental scanning Customer tracking (Doctors) Consumer tracking (Patient) Market size estimation
to work on is critical to the success. It is a strategic decision for the company and has an inherent element of associated risk. The process is de-risked by adopting the following methods: i. Output of this stage is captured in the comprehensive proposal format called the New Product Request format. This format has the details like competitive analysis, financial analysis, marketing justification and product brief for development. ii. The top management approval is required for the proposal to be accepted. This factors in the tremendous experience pool of the top management not only on the market, but also research and development and production aspect of the business.
Product development as per market and regulatory requirement
This is accomplished by essentially depending on data provided by market research agencies on the retail sales of different categories of medicines, the prescription data etc. Since the identification of growing segments is very critical, a team of specialists analyzes the data critically, project for the expected market size, and its profit impact. The choice of the molecule to focus on and the formulation
New product profile format Pre formulation study Formulation trial details
The Product development uncertainty is not really in terms of technological challenge, but more to do with the time to market, the effectiveness of the formulation and regulatory approval. The development time (from concept to
Production scale up Lab level scale up Stability study
Short-listed formulations Figure 3: R&D activities for product development
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launch) for the 25 new formulations launched by Deys Medical between 199903 has been in the range of 7 months to 37 months with average time of 13 months. The uncertainty is managed by: a. A multifunctional team coordinating the product development process. It has representatives from marketing, production, research laboratory, quality control, quality assurance, purchasing and costing departments. There are considerable parallel activities planned out so as to reduce the time of development. Each function in turn has detailed sequential processes in place. For example, the research and development team follows the sequence given in Figure 3. b. In case the technology is unavailable, outsourcing of research is also done. For example, for Ayurvedic (a traditional branch of medicine in India, which uses medicinal plants) formulations are developed in collaborative research with Indian Institute of Chemical Biology, Jadavpur. c. Suppliers may be involved from the early stages, for bridging the capacity and infrastructure gap of the company, for reducing cost of product and time to market. For example, the company uses outsourcing of production for eye drops. d. One of the directors of the company directly supervises the process, for providing necessary strategic focus as well as prioritizes resource allocation.
Management of uncertainty related to market acceptance
The market uncertainty essentially stems from three factors, the selection of the gap in market, managing the distribution network and the challenge of convincing the customers to prescribe. The market acceptance challenge is initially from the trade channels as the chemists are not ready to stock new products and bear the risk of investing in a failure product. They are normally managed with a combination of incentives like credit and margin. The challenge of doctors not prescribing a product is managed by educating the doctors through product literature, organizing training programs or seminars by eminent doctors in the field. It is conceptually similar to providing the doctors with a toolkit that helps them in using the product in the way they want. There are also instances of financial incentives being used for the same purpose. If we focus on the overall process of organization of the NPIP process of Deys Medical, the framework would look like Figure 4.
5.2 Implications of the study: Deys Medicals NPIP vis--vis proposed framework
There are the following differences from the proposed framework: a. The customer here is clearly differentiated into the doctor and
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Sales
Marketing
Top Management
Regulator
Consumer (patient)
Customer (Doctor / Chemist)
Product Development Cell
Product
Toolkit
R&D.
Supplier
Production Figure 4: Organization of NPIP at Deys Medical
chemist. The doctor determines medicine for the patient (end user) for prescription drugs. For OTC drugs, the chemist influences the choice of the patient. Hence we have to extend the concept of consumer to include not only users, but also the significant influencers, who can be collectively called the customers. b. There is a regulator (govt. body) that governs the new product launches in the Indian market, it has not been specifically built into the framework. However, that can be built into the concept of Business Imperative, which may be extended to include environmental factors like legal framework, competitive moves etc. c. The marketing and sales teams have very clear division of responsibility. The marketing gives the backup and analytical support while the sales function manages the customer
interface. This may not be the case in smaller organizations or even in organizations where the responsibilities of the two teams may overlap. In case of Deys Medical, segregating the overall marketing function into sales and marketing provides better results. Hence the marketing network may be extended as Sales and Marketing Network, which gives due recognition to the importance of sales function in an intensely competitive market. d. Extending the above logic the concept of research network can be extended to Research and Development Network and production network to Production and Supplier Network. e. Taking all the above into consideration, and distancing ourselves from the strict organizational structure and role definitions, we find that fundamentally five distinct
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Consumer and Customer Need
Business Imperatives Strategic Challenge

Existing Knowledge & new Developments

Commercial Challenge
Production Challenge
Production & Supplier Network manufacturing Figure 5: Integrated framework for NPIP
challenges are to be overcome for the new product introduction process. i. Strategic challenge: Where the business imperatives like growth and profitability objectives, competitive moves and environmental changes are factored into deciding on the new product proposals. The decisions taken are essentially the product, profit targets, time schedules, the resource allocations and the expected results and timeframes for achievements. ii. Development challenge: Involves the idea generation, alternative selection, technology testing and selection, prototype development and testing and finally leading to the final product specification. iii. Production challenge: The scaling up of prototype to real life conditions, capacity building in terms of
infrastructure and human resources and vendor development. iv. Commercial challenge: Test marketing and fine tuning the product offer, drawing up the final business plan with profitability and revenue targets and justify investment of organizational resources. v. Marketing challenge: Drawing up the marketing mix variables, launch of the product, implementing monitoring and feedback mechanism and finally integrating the product in the overall product portfolio of the organization. The obvious lacuna of the theoretical framework was the premise that a good process is able to reduce uncertainty in the NPIP. Which in hindsight looks to be partially true. Process does reduce (not remove) the uncertainty in the new product development. However, it does
Sales & Marketing Network
NPI Team
Marketing Challenge
Development Challenge
Research & Development Network
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not reduce the risk associated with the development time and market acceptance aspects. This risk needs to be factored in and choice/judgment exercised in the NPIP. This choice is brought in by the top management involvement in this case, which is factored in the Business Imperative part of the framework. Hence, the modified integrated framework of new product development can be conceptualized as:
VI. INSIGHT GENERATED BY THE CASE STUDY
medicine prescribed (by the doctor) to the patient and its consumption by the patient is also a manifestation on the trust the doctor enjoys in the minds of the consumer. e) All the above decision-making processes of the customers are complemented by the marketing mix variables like Brand Name, marketing communication etc., which is actually trying to impact the trust enjoyed. We can conclude:
Marketing inputs Consumer Trust on New Product Adoption of New Product
During the process of integrating the research finding, the researchers developed the understanding: Consumer trust in the product offer is vital for the acceptance of the new product in the market. In the pharmaceutical sector, the trust is built and communicated by the following factors: a) The regulatory approval process. b) The challenge of the medical representative is to gain the trust of the doctor, often achieved by quoting proven technical literature or talk by experts in the respective field. c) The stocking of the new product by the trade channel is also dependent on the trust that the new product would be a commercially viable product (which is handled commercially by offering initial lots in consignment basis). d) The choice of the doctor by the patient is not based on any rational / objective assessment but a mental shortcut like belief or trust. The consumption of
This above hypothesis is to be developed further, tested and if found useful, needs to be incorporated in the overall process of NPIP.
VII. LIMITATIONS OF STUDY AND SCOPE FOR FURTHER RESEARCH
The lack of adequate market information, fragmented nature of market, and idiosyncrasies of the specific market make the challenge of developing theoretical framework and validating them in actual market condition very challenging for the researcher (Kleinschmidt, 1994), but potentially valuable to practicing managers. The case study is a beginning towards understanding the new product development issues in the complex market like the pharmaceutical market in India and suggests a way to handle them.
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Our understanding of the process followed gives us insights in to: i. The new product development process, specific activities within the process and their interdependencies. ii. The way the process is organized
uncertainty of outcomes on the use of parallel or sequential steps in the new product development process.
REFERENCES
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iii. As a management of risk of market and the technological challenge of product development. iv. The process developed may not reduce the risk and uncertainty associated with the success of new product introduction. v. Importance of obtaining consumer trust in the successful NPIP Based on the insight about consumer trust generated in the case, a further search of literature was done. The researchers found various references in the area of consumer trust in the context of marketing on the internet, but not much work has been done in the area of conventional marketing. It needs to be researched further as the concept of trust is culture dependent and is an unexplored area in New Product Introduction. If the concept of consumer trust is found significant for the successful NPIP, then the challenge would be to incorporate that in the new product introduction process. There is also a scope to study the impact of top management involvement in the results of new product development. We need to check if the framework works in other contexts as well. Studies may be conducted also to ascertain the impact of
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Mahajan, V., Pratini, M. V., & Wind, J. (2000). The Invisible Global Market. Marketing Management. McDermott, C., & Handfield, R. (2000). Concurrent Development and Strategic Outsourcing: Do the Rules Change in Breakthrough Innovation? The Journal of High Technology Management Research, 11(1), 35-57. McDonough, E. F., & Barczak, G. (1999). How EPC Co. Revamped Its NPD Process. Research Technology Management. Moon, Y. (2004). Dont just do something, stand there! Harvard Business Review(March), 1617. Naude, P., Blackman, I., & Dengler, S. (1998). The Managerial Implications of Real-Time New Product Development in Financial Services. Creativity and Innovation Management, 7(2), 54-61. Nijssen, E. J., Biemans, W. G., & deKort, J. F. (2002). Involving purchasing in new product development. R&D Management, 32(4), 281-289. Olin, T., & Shani, A. B. (2003). NPD as a sustainable work process in a dynamic business environment. R & D Management, 33(1), 1-13. Pearson, A. E. (2002). Tough-Minded Ways to Get Innovation. Harvard Business Review, 80(8), p117,119p. Purnell, S. (2004). Too many cooks improve the broth. Brand Strategy, 8. Quinn, J. B. (1985). Managing innovation: controlled chaos. Harvard Business Review, 63(3), p.73, 12p. Quinn, J. B. (1999). Strategic Outsourcing: Leveraging Knowledge Capabilities. Sloan Management Review(Summer, 1999), pp9-21. Quinn, J. B. (2000). Outsourcing Innovation: The New Engine of Growth. Sloan Management Review, pp.1-24. Schrage, M. (2001). A new economics of innovation is transforming global. Strategy + Business, 3-10. Sethi, R., Smith, D. C., & Park, C. W. (2001). CrossFunctional Product Development Teams, Creativity, and the Innovativeness of New Consumer Products. Journal of Marketing Research, XXXVIII(February, 2001), 73-85.
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Sundstrom, P. (2002). Effectiveness in Innovation: A Study of Software Development Project. Swaddling, D. C., & Miller, C. (2003). Understanding Tomorrows Customers: Listen to Customers About your Next sale, not Your Last One. MM, 31-35. Thomas, P. S. (2003). Double Loop Process: The Next Innovation Paradigm. Vikalpa, 28(1), 83-89. Tidd, J. (2001). Innovation management in context: environment, organization and performance. International Journal of Management Reviews, 3(3), 169-183. Urban, G. L., & Hauser, J. R. (2004). Listening in to find and explore new combinations of
customer needs. Journal of Marketing, 68(April), 72-87. Wikstrom, S. (1996). The customer as co-producer. European Journal of Marketing, 30(4), 6-19. Wyner, G. A. (2003). Beyond customer understanding. Marketing Management. Yelkar, R., & Herbig, P. (1996). Global markets and the new product development process. Journal of product and brand management, 5(6), 38-47. Yelkur, R., & Herbig, P. (1996). Global Markets and the New Product Development. Journal of Product & Brand Management., 5(6), 38-47. Yin, R. K. (1984). Case study research - Design and Methods. Beverly Hills: Sage Publication.
APPENDIX - 1
INTERVIEW PROTOCOL
SL. 1 2 3 4 Question What is a new product for the organization? What are the KEY drivers of New Product Development in the industry? What are the drivers of New Product Development in your organization? What is the process of New Product Development followed in your organization? Can you draw a framework? In the process followed, what steps are definitely followed and what can be skipped. How is the NPD process monitored? Is there any collaboration with entities outside the organization What are the involvement of different departments What are the major challenges in the NPD process? How is success of NPD measured a product / idea How are the learnings of NPD retained in the organization How is the NPD initiative sustained in the organization Can we sum up the process by a typical framework that we use? Can you suggest an improvement? Related clarification which may be sought What about product modification? Why do you think so? Why is it different from the industry? Seek Examples Who decides the process, how is it reviewed? Any example Examples as well as discuss a success story. Does the organization have all the resources? If not what they do. How are the teams formed, how is the champion/leader chosen Discuss a major failure How do they decide how long to back
5 6 7 8 9 10 11 12 13
Which year was the best for innovation in the last five years and why? Visit of the departments and discussing if they feel there can be improvements
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Dynamics of Relationship Between Emerging Market and Developed Market: An Empirical Study in the Global Context*
N. P. Tripathy
Abstract
Globalization of world economies has ushered in a sea change in the financial architecture of nations. The presence of foreign institutional investors has strengthened the integration between the domestic and international capital markets. The International capital market has facilitated cross-country financial flows, which contribute to a more efficient allocation of resources. The analysis on international financial market has come to the fore since this is the most sensitive segment of the world economy and it is through this segment that the country's exposure to the outer world is most readily felt. Keeping this in view, the present study analyses the relationship between emerging markets and developed markets movement in the global context. The study also used single factor International Capital Asset Pricing Model to determine the returns of emerging and developed markets to test joint integration and asset pricing in terms of world index. It also highlights the significance of integration and segmentation of emerging and developed market with greater confidence and resource strength.
1
I. INTRODUCTION
The past twenty-five years have witnessed a process of accelerating change in the World's financial markets. Driven by an interacting process of liberalization and innovation, regulations have been removed and new products have emerged in the market. Developing countries have found new ways to mobilize domestic and international savings. The dynamics of globalization is now a major force in shaping development of nations. Capital formation plays an important role in the process of development. To overcome the
vicious circle of low capital formation and low growth, developing countries are seeking to look for help from external sources. Foreign capital fills the resource gap of developing countries. In recent years, there is a trend towards internationalization of financial markets. Financial integration leads to rapid flows of funds from 'less returns markets' to 'high returns markets' and in this process it brings about equality in returns. Financial integration depends upon the flow of funds from one market to another and one country to another. The increased flow of funds in the international financial
* Received August 31,2005. 1. Associate Professor, ICFAI Business School, Bhubaneswar , nalini_prava@yahoo.co
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market is due to techno-financial innovation. In April, 1992, Government permitted Indian companies to raise equity capital by issuing their products in the international financial markets. The emerging markets are an increasing part of today's investment opportunities. Emerging stock markets play an increasingly important role in developing countries. The developing economies have now become market oriented in approach. So integration of emerging markets with developed markets is of global interest.
Literature Review
Integration is a process by which segmented markets become open and unified so that participants enjoy the same unimpeded access to international trade and finance. Beginning with the work of Black (1974) and Stulz (1981), lots of empirical studies have been undertaken to analyze the effects of international capital market segmentation and integration. Stehle (1977) is the first researcher to test empirically the issue of segmentation versus integration. Using the Fama-Macbeth (1973) technique, his research could not reject the hypothesis of segmentation nor integration for the US market relative to the World market. Jornion and Schwartz (1986) examined the issue of integration versus segmentation of the Canadian stock market relative to a global North American Market. Using Capital Asset Pricing Model, they found evidence of segmentation in the pricing of Canadian stocks. An early test by Solnik
(1973) supported his version of ICAPM. Stehle (1976), like Jorion and Schwartz, examined whether US stocks were priced with reference to World market portfolio or domestic portfolio. Wheatley (1988) tested for international equity market integration using the international consumption-based asset-pricing model proposed by Stultz (1981). For the period of 1960-1985, his findings conclude that equity markets are internationally integrated. Harvey (1991) finds that cross sectional variance in industrial country returns can be explained by a single source of risk, while in Harvey (1995) emerging market returns do not follow a similar pattern. Other studies that jointly test integration and asset pricing are Stulz (1981), Bonsar-Neal, Brauer Neal and Wheatley (1986), Campbell and Hamao (1992), Chan, Karolyi and Stulz (1994) , Heston, Rouwenhorst and Wessels (1995), Bekaert (1995) and Bekaert and Harvey (1995).
II. OBJECTIVE OF THE STUDY
Financial innovations like emergence of new financial markets, institutions and new financial instruments have led to the financial integration according to literature. The national financial systems of various countries get increasingly integrated across the borders and have influence on each other national financial markets. The national financial markets of major industrial countries are fast integrating globally and there is considerable weakening of the distinction between emerging and developed
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markets. Hence, the present study has the objective of finding out the important features that distinguish between the emerging markets and developed markets. This paper also evaluates the performance and integration of emerging market and developed market in the framework of risk and return characteristics.
III. THE HYPOTHESES FOR TESTING
Morgan Stanley Capital International (MSCI) perspectives. MSCI excludes investment companies and foreign domiciled companies, to avoid double counting. All returns are computed on month-end values, assuming dividend reinvestment, and are denominated in US dollars. The returns are calculated in two ways: The continuously compounded return is measured as log (Pt/Pt-1) where Pt stands for the closing price of the stock on day t. This is referred to as the 'Price Series'. ii) The simple return in the log scale are constructed as log(Pt) log (Pt-1) log (Pt-1) Where Pt stands for the closing price of the stock on day t. This is referred to as the 'Return Series'. The single factor Capital Asset Pricing Model (CAPM) as proposed by Sharpe (1964), Lintner (1965) and Mossin (1965) applied in the international context. Emerging and Developed market return is explained in terms of a benchmark portfolio. Emerging and developed market equity is priced relative to the world index. The international CAPM assumes that assets in different markets are identically priced. ICAPM tests the joint test of the integration of world markets. It links the expected return on a risky asset to its risk in an efficient portfolio.
The study tests the following hypothesis in respect of integration, performance of the emerging and developed markets.
l
The developed markets are earning higher return than the emerging markets return in terms of risk. The volatility of developed market is higher than emerging market. The emerging market and developed market are inter-temporally stable. The emerging market and developed market are interrelated with each other. The movement of emerging markets and developed markets are in the same direction.
IV. METHODOLOGY
For the purpose of the study, the data for emerging market and developed market have been taken from July-2002 to July 2004. A total of sixteen emerging markets and twenty developed markets over the two-year period are selected. The required data have been collected from the Emerging market database of the International Finance Corporation and
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The estimable forms of ICAPM is RP = a + P Rm + eP a = constant return P = Beta eP = error term RP = Return of the fund Rm = Return of the market The statistical tools like mean, S.D., coefficient of variation, Skewness and Kurtosis have been used to determine the behaviour of emerging and developed market. Further, correlation has been determined to find the presence of higher explanatory power for emerging and developed market. Again to test the integration between emerging and developed market, single factor regression has been used. Moreover, 't' test and 'F test have been applied to examine the significance of the difference of variance in the emerging and developed markets. A statistical software SPSS is used for the purpose of testing.
V. EMPIRICAL ANALYSIS
emerging and developed markets, if foreign investors make investment decisions based on short-term gain. The table-1 presents return and risk of the emerging and developed markets. From the table it is evident that the returns of all emerging markets are much higher than developing markets. The mean of Malaysia is highest within the two-year period. Jordan and Pakistan is having negative return i.e.,-.38% and -.40%. The average return of emerging market is 3.5% against 1.44% for developed market. Out of sixteen emerging markets, nine emerging markets (56%) witnessed a sharp drop in mean return than average mean return. So it suggests that emerging market returns is time varying. In case of developed markets, the highest returns have been observed in Austria and New Zealand, at 3.32% and 2.8% respectively. Out of twenty developed markets eleven developed markets (45%) show higher return than the average return. So it is observed from the analysis that the emerging market return and developed market return are not identical during this period The table-1 also depicts that higher levels of volatility accompany higher return in emerging markets compared to developed markets. Average volatility for emerging markets is 14.23% as against 7.46% for developed market. Malaysia is having highest volatility among the emerging markets with standard deviation being 32.39%. The volatility for Venezuela, Turkey, Taiwan, Chile and
Volatility relates to the variability in the price of a security. In the context of international financial market, volatility of the market refers to the volatility of the indices of the securities within the international financial market. The most common measure of stock market volatility is the standard deviation. Standard deviation measures the deviation of the return on equity from its mean returns. International portfolio investment can increase volatility of
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Table 1 : Risk and Return of Emerging & Developed Market Emerging Market Mean (%) Std. Dev. Variance 22.67 11.12 24.53 7.53 8.31 5.41 8.39 7.46 12.46 32.39 8.83 8.38 13.32 18.46 22.21 16.21 14.23 514.07 123.70 601.63 56.64 69.17 29.24 70.55 55.62 147.57 1049.54 77.92 70.32 177.44 341.09 493.53 262.79 Developed Market Australia Austria Belgium Canada Denmark Finland France Germany Hongkong Italy Japan Netherland Newzealand Norway Singapore Spain Sweden Switzerland USA UK MSCI World Average Mean Std. Variance (%) Deviation 1.63 3.31 1.46 1.85 1.99 1.06 1.20 1.37 1.24 1.83 1.04 0.55 2.80 2.33 1.04 -1.23 2.45 1.17 0.87 0.91 1.01 1.44 3.75 7.58 6.91 4.02 7.33 11.62 6.88 9.27 10.23 10.75 5.51 6.67 3.59 10.92 4.83 18.22 8.22 4.11 4.65 4.73 5.02 7.46 14.09 57.46 47.74 16.17 53.71 135.15 40.74 86.01 104.77 115.62 30.44 44.45 12.92 119.23 23.30 331.98 67.71 16.96 21.64 22.33 25.25
Argentina 8.24 Brazil 6.95 Chile 6.88 India 2.62 Korea 0.64 Mexico 1.68 Thailand 3.04 Colombia 2.93 Jordan -0.38 Malaysia 9.67 Pakistan -0.40 Philippines -1.04 Indonesia 0.83 Taiwan 3.97 Turkey 3.52 Valenzuela 4.75 Average 3.50
Argentina are higher than average. These countries also show higher mean return. So it is apparent that higher return is noticed in these countries due to high volatility. Spain has the highest volatility among the developed markets with standard deviation being 18.22%. The volatility of Sweden, Norway, Italy, Hongkong, Germany, Finland and
Austria is higher than average. But it is observed that the volatility is more in Spain but shows negative return. So it is inferred from the analysis that volatility does not necessarily lead to get high return. The variance of Spain is much higher i.e. 331.98%. Similarly, the variance of Malaysia is highest i.e. 1049.54%. The
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mean return of all emerging market except Jordan and Pakistan is higher than the benchmark level. Similarly the mean return of all developed countries except UK, USA, Spain, Netherlands is higher than the benchmark level. The volatility of 75% in developed countries is higher than the benchmark level. Similarly, the volatility of all emerging countries is higher than the benchmark level. The time varying shifts of mean and volatility in both global and local is tested
through the normality of the return distribution. Skewness and Kurtosis is the simplest form of measurement to the normality of a distribution. If the distribution is normal, the co-efficient of skewness will be equal to 0 and that of Kurtosis 3. Some measures of normality deploy a combination of Skewness and Kurtosis also. In a symmetrical distribution the Skewness will be identitical where the mean=median=mode. The table-2
Table 2 : Co-efficient of Skew ness and Kurtosis for Emerging and Developed Markets Emerging Market Argentina Brazil Chile India Korea Mexico Thailand Colombia Jordan Malaysia Pakistan Philippines Indonesia Taiwan Turkey Valenzuela Average Co-efficient of Skew ness 4.15 -1.26 4.34 0-.36 -.08 -.22 1.49 0.22 -3.78 4.51 -1.11 0-.11 -1.81 1.98 -1.49 1.21 0.48 Co-efficient of Kurtosis 19.15 5.32 20.27 0.33 -1.09 1.25 4.25 0.55 16.45 21.29 2.91 0-.45 6.02 5.95 5.21 7.73 7.23 Developed Market Australia Austria Belgium Canada Denmark Finland France Germany Hongkong Italy Japan Netherland Newsland Norway Singapore Spain Sweden Switzerland USA UK MSCI World Average Co-efficient Co-efficient of Skew ness of Kurtosis 0-.08 0.81 0-.45 -1.14 0-.38 0-.19 0.02 0-.16 -.68 1.11 0.40 0-.52 0-.66 0.57 0-.45 -3.91 0.06 0.26 0-.38 0-.17 0-1.2 0-.29 0.33 5.40 1.99 1.92 1.29 0-.07 0.45 2.39 4.79 4.93 0-.73 1.39 -.143 1.47 0.74 7.42 0.64 0.11 1.04 0.61 2.12 1.85
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presents the co-efficient of Skewness and Kurtosis of emerging and developed markets. Most emerging and developed markets exhibit Skewness and Kurtosis values higher than the benchmark level. It is observed from the table that the coefficient of Skewness of nine emerging markets out of sixteen shows negative values and Kurtosis exhibit higher value in ten out of sixteen markets. When the mean>median, distribution is positively skewed and vice versa. Both the emerging and developed markets are negatively skewed because their median values are greater than mean values. So it may be necessary to run a more rigorous test of normality. Similarly, in case of developed market thirteen developed markets out of twenty exhibit negative Skewness and Kurtosis has increased in four out of twenty markets. So it is evident that the emerging and developed market returns are not normally distributed. Standard errors of Skewness and Kurtosis shows the degree to which the sample is reliable. It represents that the lesser standard error; the more is the reliability of the sample. The standard error of Skewness of emerging market and developed market is .472 and standard error of Kurtosis of both the market is .918. The correlation coefficient measures the degree of relationship among the various countries. It also identifies, how change in one variable affects the change in other variable. The table 3 exhibit the correlation coefficients of emerging market. It is
found from the table that Argentina exhibits a significant correlation of .71 with Thailand and .44 with India. Brazil's correlation with Mexico is .63. India is having a significant correlation i.e. .55 with Thailand. Korea exhibits a significant correlation of .69 and .43 with Mexico and Colombia. Mexico's correlation with Indonesia, Thailand and Jordan is .62, .44 and .47 respectively. Thailand is significant correlated with Turkey. Colombia exhibits significant correlation of .41, .45 and .58 with Jordan, Pakistan and Indonesia. Jordan is highly correlated with Malaysia, Pakistan, Indonesia and Taiwan. Malaysia is having negative significant correlation with Pakistan and Indonesia. But positively correlated with Taiwan Pakistan is positively correlated with Indonesia but negatively correlated with Taiwan & Turkey. Indonesia is positively correlated with Venezuela but negatively correlated with Taiwan. Taiwan exhibits significant correlation with Turkey. All these countries are having significant correlation at 5% and 1% level. Brazil, Korea, Mexico, Thailand, Taiwan is highly correlated with MSCI India. As some of the emerging markets are highly correlated with each other, the benefits from international diversification may not arise. There may not be ample scope for global investment. It is also inferred from the table that some of the emerging countries show no correlation at all. The table-4 shows the correlation between developed markets over a two-year
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Table 3 : Correlation of Emerging Market return

MSCI MSCI Arg. Brazil Chile India Korea Mexico Thailand Colombia Jordan Malaysia Pakistan 1.00 .235 .490* .343 .166 1.00 .245 .045 .446* 1.00 .206 .144 .288 1.00 .247 .393 .208 .133 .051 -.011 -.133 .225 .168 .051 .198 1.00 .402 .205 .559** .312 .214 -.113 .204 .390 .307 .055 .129 1.00 .691** .280 .436* .219 -.088 .222 .155 .343 .390 .222 1.00 .445* .325 .470* -.264 .245 275 .624** .082 .120 1.00 .093 .031 .115 .036 .226 .229 .294 .432* 1.00 .418* -.347 .457* 1.00 -.895** 1.0 1.00 .375 .698** -.700** 1.00 1.00 1.00 1.00 Arg. Brazil Chile India Korea Mexico Thail and Colom Jordan Malay bia sia Paki stan Philip Indo Tai pines nesia wan Turkey Venez uela
.758** .089
.721** .322 .631** .290 .542** .717** .357 .184 -.023 .158 -.089 .217 .082 .009 .045 .278 .193 .078 .224 .024 -.086 .027 .389 -.015 -.120
Philippines -.049 Indonesia .253 Taiwan Turkey
.345 .324 -.304 .254 .584** .809** -.743** .437* -.159 .068 .664** .705** .434* .317 .332 -.305
.583** -.010 .377 .344
-.191 -.436* 1.00 -.009 -.014 .432*
* Significant at the 0.05 level (2-tailed) ** Significant at the 0.01 level (2-tailed)
Table 4 : Correlation of Developed Market Return

MSCI CI Australia Austria Belgium Canada Denmark Finland France Germany Hongkong Italy Japan Nether lands Newsland Norway Singapore Spain Sweden USA UK 1.00 .474** 171 1.00 .150 1.00 1.00 1.00 1.00 .355 1.00 .451* Aust ralia Aust Belg ria ium Can ada Den Fin mark land Fra Ger Hong Italy nce many kong Ja pan Nether News land Land Nor way Singa pore Spain Swe den Swiz USA erland UK
.631** .667** .353 .501* .462*
.734** .746** .304 .556** .542** .375 .419*
.605** .277 .705** .543**
.793** .712** 276 .899** .673** .601** .496* 1.00 .796** .663** .204 .840** .551** .502* .454* -.935** 1.00 .003 .331 .262 -.034 -.138 -.155 .396 .318 153 .334 .278 .093 -.016 .232* .430* -.043 .157 -.091 -.192 .163 .124 .304 .460 .054 .043 -.100 .116 1.00 -.114 1.00 .132 .200 1.00 .185 .151 -.054 .344 .237 .240 .315 249 .143 1.00 .431* .568* .660** .438* .905** .848** .957** 1.00 .075 .397 .277 .381 .412 .409 1.00 .354 .222 .404 .515* .498* 1.00 .292 .540** .518* .615** .628** 1.00 .447* .367 .343 .383 1.00 .812** .930** .824** 1.00 .777** 1.00 .853** .880* 1.00
815** .718** .279 .880** .681** .637** .478* .967** .921** -140 .368 .400 .422* .365 .535** .344 .370 .205 .486* .629** .228 .513* .413* .322 .404 .062 .352 .412 .354 -.171 .147 .040 .014 .011 .196 .259 .336
.152 .619** .127 .634
.749** .205 .570** .542** .331 .616** .642** .191 .476* .427*
.547** .542** .145 .563**
.876** .704** .235 .766** .672** .468* .505* .896** .859** -.020 .415* .524* .548** .370 .869** .823** -.065 .191 .891** .786** .238 .733** .741** .604** .484* .917** .871** -094 .355 .705 .760** .233 .893** .648** .681** .515 .926** .866** -.055 .352
Switzerland .693** .614** .320 .899**
.912** .414* .609**
* Significant at the 5%level (2-tailed) ** Significant at the 1% level (2-tailed)
111
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period. Australia is highly correlated with USA. It exhibits a correlation of .66 with Belgium, .74 with Canada, .60 with Denmark, .54 with Finland, .71 with France .66 with Germany, .71 with Netherlands, .53 with New Zealand, .54 with Singapore, .70 with Sweden, .61 with Switzerland, .78 with USA and .76 with UK. Belgium is also significantly correlated with Canada, Denmark, Finland, France, Germany, Netherlands, and New Zealand, Norway, Singapore, Sweden, Switzerland, USA and UK. Canada's correlation with Denmark, Finland, France, Germany, Japan, Netherlands, New Zealand, Singapore, Spain, Sweden, Switzerland, USA and UK is .54, .45, .45, .67, .55, .43, .68, .62, .51, .41, .67, .52, .74 and .64 respectively. Denmark exhibits highest correlation of .74 with Norway. Similarly Finland is highly correlated with UK. But the developing countries Hongkong, Italy and Japan shows no correlation at all with other countries. It is observed from the analysis that some of the European markets have higher correlation with one another. Hence, from the results, it can be generalised that developed markets are strongly integrated and there is less arbitrage opportunities among them. Most of these countries are significantly correlated at 5% and 1% level. The table-5 depicts the correlation of emerging markets with developed markets. It is inferred from the table that Korea and Mexico are highly correlated with all developed markets except Austria, Canada, Denmark, Germany and
New Zealand. Brazil is highly correlated with Australia, Belgium, Denmark, France, Germany, Netherlands, UK, USA, Switzerland, Sweden and Singapore. Brazil is negatively correlated with Honkong. India is correlated with Honkong and New Zealand. Thailand is correlated with Australia, Austria, Belgium, Canada, Finland, France, Japan, Netherlands, Norway, Sweden, Switzerland, USA and UK. Indonesia is also significantly correlated with some of the developed countries. So it is observed from the analysis that international diversification of portfolio investment would be less effective in these countries. Malaysia and Pakistan exhibited very low and negative correlation with developed countries. So it is well documented that benefits from international diversification arises out of the low correlation that markets exhibit with one another. From the above analysis, it is evident that emerging markets and developed markets are not integrated with each other and also they are not moving in same direction. The emerging markets of Korea and Mexico are correlated with developed countries, the diversification benefit is expected to have decreased considerably. So these countries may remain closed for foreign investment. As most of the emerging and developed markets are not interrelated, it clearly brings out the scope for risk reduction in a portfolio of developed market by including emerging market. From the correlation analysis, it is apparent that the behaviour of correlation between is mixed both in case
Table 5 : Correlation between Developed and Emerging Market

Aust ralia Argentina Brazil Chile India Korea Mexico Thailand Colombia Jordan Malaysia Pakistan Philippines Indonesia Taiwan Turkey Venezuela .475* .518* .549** .331 .599** .686** .642** .149 .126 .072 -.064 .142 .336 .273 .353 .174 Aust ria .204 .151 .111 .010 .145 .096 .142 .226 .162 -.005 -.087 .283 .107 -.094 .118 .101 Belg ium .298 .657** .306 .178 Can ada .294 .328 .397 .373 Den mark .165 .487* .317 .116 .400 .728** .406* .231 .297 -.133 .135 .229 .446* .053 .675 .120 Fin land .028 .264 .268 .078 .530 .620** .056 .152 .274 -.157 .091 -.258 .379 .164 .132 .050 Fran ce .307 .665* .377 .193 .687** .853** .524** .263 .329 -.110 .033 .070 .495 .173 .307 .109 Ger many .212 .403 .173 .699** .852** .450* .292 .284 -.062 .030 .109 .472 .186 .190 .073 Hong Italy kong -.036 .189 .189 .028 .328 .312 Ja pan .229 -.099 .172 .601** .502* .054 .324 .333 .209 -.190 .302 .329 .224 .073 .215 .328 Nether land .299 .683** .350 .271 .732** .876** .560** .261 .386 -.168 .115 .132 .514* .197 .165 .143 News Land .388 .293 .036 .370 .259 .332 .440* .177 .111 .163 -.205 .011 .256 .166 .200 .198 Nor way .085 .357 .348 .204 .460* .301 .441* .194 -.118 133 .256 .384 .101 .119 .067 Singa Spain Swe Swiz USA pore den erland .184 .532** .333 .441* .560* .481* .381 .458* -.161 217 .038 .536** .036 .125 .445* .234 .150 .363 .394 .378* .339 .328 .255 .219 .200 UK .348
.725** -.587** .268
.152 .586* .477* .639** .602** .382 .450* .270 .228
.581** .625** .861** .552** .450* .538** .391 .432* -.158 .074 .328 .589** .046 .185 .131 .094 .097 .092 -.091 .626 .260 .332 .391 .285
.106 .447* -.103 .451* .104 .213 .119 -.057 -.050 .116 -.074 -.046 .113 -.080 -.018 .458* .038 .214 .163 .110
.482* .754** .655** .736** .610** .321 .839** .865** .827** .875** .217 .536** .501* .611** .532** .108 .245 .518* .230 .355 -.011 .247 .443* .283 .501* .068 -.099 -.246 .130 -.325 -.301 018 .001 .166 .328 .118 .148 .349 .341 .119 .248 .264 .076 .214 .123 .091 .097 .120 .236
.618** .572**
.150 .476* .584** .481* .693** .290 -.015
.578** .111 .273 -.162
.240 .216
.241 .209
* Significant at the 5%level (2-tailed) ** Significant at the 1% level (2-tailed)
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of developed and emerging market. Most of the emerging markets and developed markets are not correlated with each other. The test of integration and asset pricing of emerging and developed market is determined by using ICAPM framework. The table-6 presents the single-factor regression of emerging market. The observed `F' value is higher than the theoretical `F' at 5% level of significance only in Korea and Mexico. So MSCI is not a significantly explanatory factor of the variation in emerging market return except in Korea and Mexico. The adjusted R2 value is very low and negative in case
of India, Colombia, Jordan, Malaysia, Pakistan, Philippines, and Venezuela. Both intercept and beta coefficients are presented with `t' value. The `t' value is significant statistically at 5% level only in Korea and Mexico. So it is apparent from the analysis that if the risk and return attributes are time varying, it is difficult to test asset pricing. Table -7 depicts the summary results of single factor regression of developed markets. The observed `F' value is higher than the theoretical `F' at 5% level of significance in case of Australia, Belgium, Canada, France, Germany, Netherlands, Sweden, Switzerland, USA and UK. The
Table 6 : Single-factor Regression Statistics for Emerging Market with MSCI World Index Emerging Market Argentina Brazil Chile India Korea Mexico Thailand Colombia Jordan Malaysia Pakistan Philippines Indonesia Taiwan Turkey Valenzuela R2 .055 .240 .117 .028 .574 .519 .293 .034 .001 .025 .008 .002 .064 .340 .142 .029 Ad R2 Observed F .012 1.287 .204 6.646 .077 2.928 .-.017 .625 .555 29.672* .496 22.673* .261 9.134 -.010 .773 -.045 .012 -.019 .566 -.037 .176 -.043 .053 .022 1.507 .310 11.349 .103 3.637 -.016 .649 Intercept .583 -.539 .529 .721 .715 -.672 -.248 .647 1.009 .775 .992 1.043 .932 .382 .712 .763 Beta Coefficient t value .235 1.134 .490 2.578 .343 1.711 .166 .791 .758 5.447* .721 4.762* .542 3.022 .184 .879 -.023 -.108 .158 .753 -.084 -.420 -.049 -.229 .253 1.227 .583 3.369 .377 1.907 .169 .805
* Significant at 1% level.
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Table 7 : Single-factor Regression Statistics for Developed Market With MSCI World Index Emerging Market Australia Austria Belgium Canada Denmark Finland France Germany Honkong Italy Japan Netherlands News land Norway Singapore Spain Sweden Switzerland USA UK R2 .559 .030 .398 .539 .251 .214 .628 .634 .003 .109 .069 .665 .160 .178 .299 .133 .767 .481 .793 .497 Ad R2 Observed F .539 -.014 .371 .518 .216 .178 .611 .618 -.045 .069 .026 .649 .120 .141 .268 .094 .756 .456 .784 .474 27.938* .684 14.539* 25.716 7.355 5.985 37.153 38.157* .001 2.702 1.621 43.577* 4.001 4.764 9.403 3.375 72.24* 19.436* 84.497* 21.738* Intercept -.623 .631 .343 -.684 .326 .800 .262 .422 1.014 .729 .765 .672 -747 .559 .420 1.137 -.297 -8.098 .172 .329 Beta Coefficient t value .748 .174 .631 .734 .501 .462 .793 .796 -.003 .331 .262 .815 .400 .422 .547 .365 .876 .693 .891 .705 5.286* .527 3.813* 5.071* 2.712 2.446 6.095* 6.177* -.013 1.644 1.273 6.601* 2.000 2.183 3.066 1.837 8.499* 4.409* 9.192* 4.662*
* Significant at 1% level.
regression is significant for these countries. So for the ten countries MSCI world is an explanatory variance of developed market returns. The adjusted R2 is indicative weakness of the attempted regression in only 10 countries. For this market, MSCL does not explain returns. In case of only ten countries the beta coefficient is statistically significant. The `t' value for these countries is significant at 5% level of significance. It is inferred from the analysis that MSCI world is poor explanatory variable for emerging and
developed market returns. So it concludes that several emerging markets have faced destabilizing effects in terms of having investment from the developed countries in these markets. Further multi-factor model may better explain asset pricing in both the markets.
VI. CONCLUSION
This paper has examined the distinguished characteristics of emerging markets and developed markets in terms of risk, return, volatility, normality of
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distribution and correlation. The empirical results reported here do not lend support to the hypothesis taken in the study. The study concludes that the return and volatility of emerging markets are higher than developed markets. There is a lack of normality of distribution both in emerging and developed market. The emerging markets and developed markets are not correlated with each other. They are not moving in the same direction. MSCI world is extremely poor explanatory variable of emerging market return than developed market returns. So it concludes that international capital market is not completely integrated. So there is an arbitrage opportunities among them and international diversification would be more efficient in these markets.
REFERENCES
Bekaert, Geert,(1995) "Market Integration and Investment Barriers in Emerging Equity Market", World Bank Economic Review, 9,75-107 Bekaert, Greert and campbeii R. Harvey, (1995) "Time Varying world market integration" Journal of Finance 50'403-444 Campbell,John Y., and Yasushi Hamao, (1992) Predictable bond and stock returns in the United States and Japan: A Study of long term capital market integration, Journal of Finance 47, 43-70 Chan, K.C., G. Andrew Karolyi and Rene Stulz,(1994)"Global Financial Market and the Risk Premium on U.S. Equity", Journal of Financial Economics, 32,137-168 Divecha, Arjun; Jaime Drach and Dan Stefek, (1992) "Emerging Market : A Quantitative Perspective", Journal of Portfolio Management, 19, 41-56 Erb,Claude, Campbell R. Harvey and Tadas Viskanta, 1995a), " Country risk and global equity
selection"Journal of Portfilio Management, 21, winter, 74-83 Errunza, Vihang R. and Etienne Losq,( 1989) "Capital Controls, International Asset Pricing and Investor's Welfare : A Multi-country Framework", Journal of Finance, 44,1025-1037. Errunza, Vihang R., (1983) "Emerging Markets: New Opportunity for Improving Global Portfolio Performance", Financial Analysis Journal,39,51-58 Errunza, Vihang, R., and P. Padmanabhan,(1988) "Further Evidence on the benefits of Portfolio Investment in Emerging Market", Financial Analysts Journal44,76-78. Eun, Cheal S., and S. Janakramanan,(1986) "A Model of International asset Pricing with a Constrain on the Foreign Equity Ownership", Journal of Finance, 41,897-914 Glodstein, M. and Michael Mussa,(1993) "The Integration of World capital Markets", IMF Working paper, WP.93/95, Dec. Harvey, Campbell R.(1995) "Predictable Risk and Returns in Emerging Markets", Review of Financial Studies, 8, 773-816 Harvey, Campbell R., (1991), "The World Price of Covariance risk" Journal of Finance 46, 111-570 Harvey, Campbell R., (1995) "Predictable Risk and Returns in Emerging Markets", Review of Financial Studies, 8, 773-816. Harvey, Campbell, R., (1995)."The Risk Exposure of Emerging Markets", World Bank Economic Review, 9,19-50. Ravellion, M., "Testing Market Integration", American Journal of Agricultural Economics, 68,1, pp.102-109, 1986. Solnik, Bruno, (1977)"Testing International Asset Pricing : Some Pessimistic Views", Journal of Finance,32 503-511. Stulz, Rene,(1981) "A Model of International Asset Pricing", Journal of Financial Economics, 9,383-406 Shashikant, Uma and Kamla Suri,(1997) "Global Portfolio Investment in Emerging Markets and India", UTI Institute of Capital Markets, Navi Mumbai
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Self-knowledge of Executives An Assessment*

M G Jomon1 and Jacob D Vakkayil2
Abstract
The perception of Indian executives regarding their knowledge of own self relative to their knowledge of others closest them, can be an important variable in their decision making in organizational situations. This area is however relatively researched. Therefore, to understand this relative knowledge, a survey was conducted with 240 executives over two years (2003-05) and it was consistently found that approximately 35% of the executives were of the opinion that their self-knowledge was lower in comparison to the knowledge that they had about the persons who were closest to them. In other words, approximately 35% of the executives thought that they knew more about their nearest person than about themselves. When the same survey was conducted during mid 2005 with a batch of 44 executives from different organizations the results were quite unique. Fifty six percent of the participants felt that their selfknowledge was lower in comparison to the knowledge of the persons who were closest to them. These two surveys sufficiently indicate that self-knowledge is generally lower and therefore there exist a case for improving self-knowledge through intervention by way training programmes. Several other suggestions have also been made in the paper to improve self-knowledge.
I. THE STATE OF SELF-KNOWLEDGE
The famous statement of Socrates, the unexamined life is not worth living does not seem to have any relevance in our fast moving world. We live in a world of frenetic activity. From our childhood, most of us are brought up to be persons of action and the processes of socialization are oriented thus. In the corporate world, action is of supreme importance. Delayed decision by an executive is seen as a weakness. It does not matter if the decision is right or wrong
* 1 2
but the decision has to be taken quickly. CEOs and managers want quick answers and solutions for all questions and problems and quicker actions to follow through. Concepts like self-reflection, listening, inquiring and raising questions that lead to enhanced self-knowledge seem to have no relevance in a fast moving activity-trapped world. While the authors agree that work loss due to delay is no excuse, it may be worth examining whether activity alone can bring in competitive advantage without
Received September 2, 2005. Associate Professor, Xavier Institute of Management, Bhubaneswar, joe@ximb.ac.in Research Fellow, Xavier Institute of Management, Bhubaneswar, jacobdvakkayil@yahoo.com
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taking care of the processes behind actions. Can constant action substitute the process of reflection, listening and raising meaningful questions? Knowing self and mastering self in relation to others are some of the themes that have been discussed from the earliest times of human history, as is illustrated by this quotation of Lao Tzu (480 - 390 B.C): Knowing others is wisdom; knowing self is enlightenment. Mastering others requires force; mastering the self needs strength. Modern philosophical thought affirms the place of the self as the basis of knowledge and existence. This is aptly captured by Rene Descartes assertion: Cogito, ergo sum (I think, therefore I am). The Renaissance and the growth of scientific knowledge diminished the importance of political and religious authorities to whom the idea of self was subordinated for long. Cheng (2000) identified knowledge of the self as the highest level in a four-level hierarchy of knowledge and knowing. The four levels are as follows:
l
All the above levels are inter-related and the representation of the self as an isolated entity would not do justice to the self itself. Very often we identify ourselves in terms of interpersonal relationships. Most names consist of a given name and a surname. The surname gives the identity of belonging to a particular family, group or community. Moreover research has shown that we easily recognize in ourselves, traits that are characteristic of the groups that we belong to (Smith et al, 1999). Even our own understanding of other peoples mental states is through a process of projection. This is why we can feel how others must be feeling and make inferences about their mental states from observed behavior. The assumption here is that if others observed behavior mirrors our own behavior, then, their inner experience would mostly likely be the same as our own. This could be questioned, as we do not have direct access to their mental process and states. Thus our projections often speak more of ourselves than of others. Traditionally, self-knowledge had been considered to be special because of the following reasons:
l
Knowledge in the form of information that reflect facts and events Knowledge that refers to an objective state of the world as exemplified by scientific truths Knowledge of other human beings Knowledge of the self
l l
Epistemic security: This could be interpreted in different ways. One interpretation of this as general reliability involving infallibility can easily be questioned. A more sturdy interpretation is epistemic security as
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certainty of self-knowledge. This can withstand the criticism that many of our beliefs are false and that we may not be aware of many of our mental states.
l
Uniqueness of Method: This claim asserts that the method of knowing self i.e., introspection is unique as it gains direct access to the object of knowledge. First person authority: This is based on the argument that each of us is the primary authority on our own mental states. (Gertler, 2003)
Because of these reasons, it could be argued that the knowledge one has about oneself is special and strong. In agreement with this view, only 44% of the respondents in our second study perceived that they know more about themselves than about others.
II. IMPEDIMENTS TO SELF KNOWLEDGE
Repression is a defense mechanism whereby people keep away thoughts, feelings, or memories outside awareness before it reaches consciousness. Suppression is a process by which people attempt to remove thoughts, feelings, or memories from awareness or prevent from expressing themselves through thoughts or behaviors. While suppression is a conscious activity, repression is not. When repression fails, suppression is the next option. However, the results of the two are the same. In both the cases, there is an attempt to keep the matter out of the awareness level, though these continue to influence individuals thoughts, feelings and behavior. The matter, though out of awareness, is also potentially recoverable in the future. Intentional forgetting is the process whereby people succeed in removing the matter from active memory. However, this does not completely erase matter from memory and can be recovered in some circumstances. In complete forgetting people succeed in removing the matter from memory completely. No traces remain and recovery would be impossible. Self-knowledge also may fail when the person is inaccessible to consciousness through the processes of perception, motor learning and development of personality, attitudes and self-esteem. Many philosophers question any special status attributed to self-knowledge. Ryle
Wilson and Dunn (2004) raise a number of issues relating to self-knowledge. According to them, because of personal motives and the architecture of the mind, it may be difficult for a person to know himself or herself. People tend to keep some thoughts and feelings outside awareness level because these are unpleasant or provoke anxiety. This is a motivated attempt to avoid unwanted thoughts and feelings through repressions, suppressions, intentional forgetting and complete forgetting.
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(1949) argues that self-knowledge is merely richer because, we are always with ourselves as observers. However, self-observation as a reliable process has also been questioned. One objection is the concern that the process of observation unavoidably alters the observed. Another problem seems to be the contention that mental states and world views are theories and observations where the subject and object are the same. Thus these are especially unreliable as unbiased observations. Humans are notorious for their capability for selfdeception. In our survey, 56% of the respondents subscribe to the viewpoint that self-knowledge is more suspect than knowledge of others. Thus we see that it is tempting to assume that real knowledge self is impossible. The survey showed no significant difference between the perceptions of executives regarding their capacity for self-knowledge and for knowing others. The mean self-knowledge score is 49% while the mean score for knowledge of others is 50%. Both the groups have comparable variances. Thus both the groups perceived that they could only know approximately 50% regarding persons whether self or others.
III. IMPLEMENTING SELFKNOWLEDGE PROGRAMMES
the best method of self-knowledge may not obtain access to the mental process fully. Yet another effective way by which one can increase self-knowledge is through feedback i.e., looking at self through the eyes of others. In this too, hurdles may be many as soliciting and giving feedback is not an easy process to cope up with. Besides, process orientation, the required competency level and willingness for effective feedback implementation etc. are not easy to come by. However, the following practices and programs may give some ideas for the effective implementation of the selfknowledge. Reflective Practice: According to Joseph .A. Raelin (2002) reflective practice is a process whereby a person periodically steps back to ponder the meaning of what has been recently transpired between him and others in his immediate environment. Reflective practice illuminates what the self and the others have experienced and will provide a basis for future action. It not only facilitates a process of continuous inquiry but also enables a person to understand the experiences that he may have overlooked while in action. Reflective practice also has a public form, associated with learning dialogues. It can also bring to surface the social, political and emotional data that arise from direct experiences with other human beings. It creates mutual and caring relationships. Reflective practice seeks to inquire into
The survey and the subsequent discussion make it quite obvious that selfknowledge is not an easy process. Introspection, though often suggested as
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the fundamental assumptions and premises of various activities and practices one might do individually or in a group. Reflective practice goes beyond individual reflections and opens up to public sphere the individual interpretations and evaluations of plans and actions. As a result individuals disclose more about themselves and the groups learn more about its members. Personal Balanced Score card: For Rampersad (2003), Personal Balanced Score card (PBSC) is a tool that enables a person to distance himself / herself from established mindsets and allows him or her to listen effectively to the inner voice. It can bring about behavioral modifications in the person concerned. Self-scrutinizing can improve learning ability. Formulation of personal ambition is a process of realizing ones identity. Understanding ones identity is the key to action. Secondly, congruence of vision, mission and behavior can result in inner peace and high levels of energy. As a result, one can receive proper guidance according to the inner voice. This is what leads to personal charisma. The stable basis of the personality will be the critical factor for credibility. Such a person will earn loyalty, motivation and dedication from people around him/her. Thirdly, in the organizational context, PBSC will create a win-win situation
between personal interests and organizational goals. Finally, it is a tool that creates essential conditions for sustainable improvement and change. The measurement dimensions for PBSC are the same as in the Organizational Balanced Score card (OBSC). The four dimensions are: Financial perspective, Customer perspective, Knowledge and learning perspective and Internal process perspective. Intuitive Intelligence: The basis for Intuitive intelligence is self-knowledge. Intuitions arise from a deep listening to the self, irrespective of social or cultural environment. This can be described as an extraordinary state of consciousness for wisdom, power and direction. According to Tesolin (2000), geniuses, shamans, mystics and visionaries have extraordinary skills, as they are capable of using intuitive intelligence In the changed socio-economic scenario, we need quantum leaps of thought, inventions, breakthrough ideas and bursts of creative power. Intuitive intelligence may be the answer for this. It is an information era and development heavily leans on information and knowledge. Information has very short life cycle today and is available at a low cost especially when it is re-produced. Hence, information based knowledge has its own limitations. In the new age, new mind skills are required to make things happen. A logical approach does not
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always work, as it is one-dimensional and proceeds step by step. However, intuitions are multifaceted and can operate at multidimensional fronts. Logic-based thinking and working brings in stress and strain while intuitive intelligence work models are capable of maintaining balance and will reduce anxiety. According to Tesolin (2000), people can be more productive, creative and happier when they relax and let their intuitions flow. Intuitive intelligence is a deeper level of selfknowledge that creates an energy reservoir capable of producing a desired outcome almost instantly by directing ones desire and intentions. The power of human beings can really be unleashed when she/he learns to work with intuitions. Self as an open system: Schell, Klein and Babey (1996) combined unitary and multiple views of self-knowledge and came out with a tested hierarchical model of self-knowledge. Historically, in the first view (unitary view) self was regarded as a unitary mental structure, stable and independent of the changing contexts in a persons life. In the second view (multiple view) self is multiple, context specific and represents its impressions in different situations. According to Schell, Klein and Babey (1996), these two views are not opposed to each other since self consists of both general self-concept and a set of contextspecific selves of arbitration. At the top of the hierarchy is the general
representation of the self. The second level subsets represent the self in concrete situations. These capture context-specific aspects of the self, including ones behavior in different settings. One may also have to remove all the buffers seen in the defense mechanisms and other blocks so as to link closely to the environment with responsiveness and adaptability. Hence, yet another answer to the question of self-knowledge may be a self that is open and receptive.
IV. SELF-KNOWLEDGE AND EXECUTIVE IMPERATIVES
In the domain of Management, references to self-knowledge are found in discussions on topics, such as, career plan and development, succession plan and development and leadership development. A certain degree of knowledge about ones aptitudes and interests are necessary to choose ones area of work where one can make an impact. In order to facilitate this process of subordinate development senior managers too would require a more sophisticated framework to help their executives to understand themselves in terms of their strengths and areas for improvement for good performance in their jobs. The theory of multiple intelligences propounded by Howard Gardener identifies eight types of intelligences. (Gardner, 1984) Two of these are of special relevance to our discussion. The first is the
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interpersonal intelligence that enables persons to form meaningful relationships. The second is intra-personal intelligence that enables persons to be more self-aware. The use of MI in the workplace to increase creativity and productivity by enabling workers to use their strengths have been explored in various studies (Kerka, 2000) Golemans (1995) emotional intelligence and Lessem and Baruchs (1999) spectral management theory focus on ones ability to know self and others and use self-knowledge effectively. The concept of emotional intelligence in particular focuses on understanding self, goals, intentions, responses, behavior etc. as well as understanding others and their feelings. Many theories of leadership view it in terms of ones capacity for knowing self and others and to achieve a match in mutual expectations. It may be worth examining whether it is always desirable for an executive to improve self-knowledge? Armor and Taylor (1998) in their study concluded that optimism enables a person to achieve better results. Optimism however, is an inflated understanding of the self and the situation. Correlation between optimistic time and actual time in achieving a goal is reported in Buchler et. al (1994). Holding high expectations of future was positively associated with successful goal attainment, whereas engaging in positive fantasies was negatively associated with goal achievement (Oettingen & Wadden, 1991).
Optimism, inflated understanding, high expectation etc. are not accurate selfknowledge. While optimism certainly helps, over emphasis on negative aspects or weaknesses of the self may not help action even though these may be true. This is contrary to the commonly held view that correct self-knowledge always brings in best results. Wilson and Dunn (2004) while acknowledging the benefits of positive illusion, suggest that accurate selfknowledge can further improve quality and build more of optimism and high goal orientation. They are not contradictory but rather are complementary in nature. The study of Brunstein et.al. (1998) revealed that there is a co-relation between wellbeing and self-knowledge i.e., people are happier when their conscious and non-conscious goals correspond than when they do not. The studies of Bosson (2003) and Robinson (2003) indicate that failure of self-knowledge may have important consequences for inter-personal relationship, social perception and health. This will no doubt reflect at the work life of an executive as well.
V. CONCLUSION
Self-knowledge could include knowledge of ones emotional states, talents, aptitudes, strengths and areas for improvement. Knowledge is an internal state; reflection and self-examination are ways to achieve self-knowledge. However, after such reflection one might
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discover that one does not really know (Cheng, 2000). In this sense, by realizing ones own ignorance one is gaining new knowledge. The knowledge of ones ignorance is understood to be a higherorder self-knowledge of the self. Various studies have shown that selfknowledge can have important consequences on effectivness in interpersonal relationship, in job and in social interactions. In view of this importance, in the present study executives level of self knowledge was measured. It is evident that large number of executives are found to have selfknowledge which was lower than their knowledge of others. Hence, this area needs intervention through trainning etc.
VI. LIMITATION AND SCOPE FOR FURTHER STUDIES
l l
I know myself through introspection I can predict how I would behave; difficult to predict others behavior I spend the most amount of time with myself It is impossible to know the hidden feelings of others I am with me and am there for me, always I love myself more than anybody else
On the other hand, reasons cited for affirming the primacy of knowledge of others in comparison to self (56%) were as follows:
l
I spent more time thinking about the other person than about myself Self-knowledge is perception; Knowledge of others is fact It is easier to listen to the other person than to yourself I can predict others behavior better I can analyze others actions more easily Watching others is easier than watching oneself I can judge others behavior without bias
The claims of knowledge or admission of ignorance are made based on some criteria and it is reasonable to assume that respondents in our survey could have used varied criteria for evaluating their self-knowledge. To explore this further we asked the respondents in our survey to identify the rationale for their answers. Common reasons for supporting the superiority of self-knowledge (44%) were as follows:
l
l l
I know my state of mind and inner thoughts I direct myself, my thoughts and actions
These reasons reflect many of the arguments for and against selfknowledge as discussed earlier. However, many might not be aware that their assumptions are open to criticism
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and that past debates on this issue have not yielded consensual solution to the problem. It is possible that by using a different set of criteria, individual responses could have been vastly different. How do individuals form and select their criteria or rationale? Is it possible or desirable to bring about uniformity in these criteria? A closer examination of these problems would be an exciting way to carry the present study forward.
REFERENCES
1. Armor, D.A., Taylor, S.E. (1998). Situated optimism: Specific outcome expectancies and self-regulation in Zanna, M.P., Advances in Experimental Social Psychology, San Diego: Academic. 2. Bosson, J. K. (2003). Discrepant explicit and implicit self-esteem: Relations to self and friendratings of personality and physical health. Unpublished Manuscript, Austin: University of Texas. 3. Brunstein, J.C., Schultheiss, O.C., Grassmann, R. (1998). Personal goals and emotional well-being: the moderating role of motive dispositions. Journal of Personal and Social Psychology. 75, 494-505 4. Buehler, R., Griffin D and Ross M. (1994). Exploring the planning fallacy: why people underestimate their task completion time. Journal of Personal and Social Psychology, 67, 366-81 5. Cheng, Chung-ying (2000) OntoEpistemology of Sudden Enlightenment in Chan Buddhism. Chung-Hwa Buddhist Journal, 13(2), 585-611.
6. Gertler, B. (2003). Self-knowledge. In Stanford Encyclopedia of Philosophy Retrieved, July 25,2005 from http://plato.stanford.edu/ entries/self-knowledge 7. Goleman, D. P. (1995). Emotional Intelligence: Why It Can Matter More Than IQ for Character, Health and Lifelong Achievement. New York: Bantam. 8. Harvey.J.B. (1998). The Abliene Paradox and other Meditations on Management. San Francisco : Jossey Bass. 9. Issacs,W.D. (1999). The Art of Thinking Together, New York: Doubleday. 10. Kaplan R.S. and Nortan, D.P. (2000). The strategy focused Organization: How balanced scorecard companies thrive in the New Business Environment. Boston: Harvard Business School Press. 11. Kaplan.R.S and Norton,D.P.(1996) The Balanced Scorecard : Translating Strategy into Action. Boston:Harvard Business School Press 12. Kerka, S. (2000) Multiple Intelligences and Adult Education Trends and Issues Alert No. 17 retrieved, August 20, 2005 from http:// w w w . c e t e . o r g / a c v e / docgen.asp?tbl=tia&ID=139 13. Lessem, R., and Baruch, Y.(1999). Colour Your Managerial Type, Colour Your Organization. Career Development International 4,(1), 11-18 14. Oettingen, G., & Wadden, T. A. (1991). Expectation, fantasy, and weight loss: Is the impact of positive thinking always positive? Cognitive Therapy and Research, 15, 167-175. 15. Raelin,J.A. (2002) I dont have time to think versus the Art of Reflective Practice. Reflections, 4.(1).
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16. Rampersad, H.K. (2001) A visionary Management Model. TQM Journal. 5 September, 2001. 17. Rampersad, H.K. (2003). Linking selfknowledge with business ethics and strategy development. Business Ethics: A European Review, 12(3): 246-257 18. Robinson M.D., Gargas, P.T., Crawford, E.G. (2003). Putting process into personality, appraisal and emotion: evaluative processing as a missing link. In Musch, J. and Klauer, K.C. The Psychology of Evaluation: Affective Processes in Cognition and Emotion, pp. 275-306. Mahwah: Erlbaum
19. Ryle, G. (1949).The Concept of Mind, Harmondsworth, Penguin. 20. Schell,T. L., Klein, S. B. and Babey, S. H.(1996) Testing a hierarchical Model of SelfKnowledge. Psychological Science, 7, 170173. 21. Tesolin, A. L. (2000). How to Develop the Habit of Intuition. Training and Development, March 2000. 22. Wilson,T. D. and Dunn, E. W. (2004). Self knowledge: Its Limits, value and potential for Improvement Annual Review of Psychology.55: 493-518
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Organisational Issues in Implementing Self Service Technologies (SSTs)*

K. R. Jayasimha1, R. Nargundkar2
Abstract
Firms across different industries including public utility service providers are racing to introduce variety of self service technologies (SSTs). However successfully implementing and managing SSTs is easier said than done. Surprisingly, the issue of change in the internal organizational configuration brought about by SSTs, challenges in successful implementation and management of self service technologies have received very little attention from researchers. This paper puts the research issues on this subject in perspective and proposes a few hypotheses, which can be tested through a multi-pronged multifunctional empirical research.
I. INTRODUCTION
In a short span of time, self service technologies like ATMs, bill payment kiosks, information kiosk etc., have become popular with select sections of the society- The inherent advantages of SSTs over conventional modes of service delivery like accessibility, convenience, time saving, 24 x 7 service etc., have contributed to the popularity of SSTs. Implications and impact of technology on service delivery has received fair amount of academic research interest. Issues like customer trial, adoption, developing SST user and non-user profiles, satisfaction with SSTs etc., have been extensively studied.
However, successfully implementing a SST initiative is not a childs play. Delivering a service via SST mode would require re-organization of many internal configurations, and re-engineering of many back end processes. Like many other initiatives, there would be usual resistance from employees to introduction of SSTs as it would change the work process, might result in de-skilling, might change Job designs and might even impact power equation. When a service is delivered in a remote location using SSTs, the service recovery mechanisms have to better. Hence delivering services using SSTs pose serious managerial challenges.
* Received August 2, 2005 1. Assistant Professor, PES Institute of management, Bangalore, jai_acharya@yahoo.com 2. Director, PES Institute of Management, Bangalore, rnargundkar@yahoo.com
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However, in the services marketing realm, very few studies have addressed the organizational issues in implementing SSTs. Issues relating to customer trial, adoption and satisfaction with SSTs outnumber studies addressing managerial challenges in design and successful implementation of SSTs. This paper addresses the critical issue of challenges in successful implementation of SSTs. Based on a critical review of literature, new ideas are proposed for further research.
II. REASONS FOR IMPLEMENTING SSTS
Another reason frequently attributed to the introduction of SSTs is to reach new customer segments. As SSTs enable a firm to provide service in remote locations, previously un-served segments can be serviced using SSTs. SSTs also represent a new channel for service delivery which might address the needs of some segments. Bitner et al (2002) also attribute reasons like enabling direct transactions, to increase customer satisfaction and loyalty, alternative channel in case of service failure etc., for firms implementing SSTs Quinn, Doorley and Paquette (1990) have listed the following advantages of service technologies for manufacturing firms - (a) As 65-75 percent of manufacturing firms costs are overheads, substantial savings can be attained by outsourcing service overheads like payroll handling, tax filing, maintaining personnel records etc., (b) service technologies provide flexibility, efficiency and specialization potential. Closely related to the present study is the literature on motivations to use interactive technologies in marketing. Gaur & Waheed (2003) have listed following interactive technologies and their potential application m their study: (a) Telephony, the way it is used in call centers (b) Internet, potential applications being interactive websites (c) Digital technologies like multimedia kiosks, ATMs etc., Gaur & Waheed (2003) have pointed out that different interactive technologies
The primary question that researchers have tried to answer is-why are firms implementing SSTs and what benefits firms derive by delivering services using SSTs? The primary reason in many cases seems to be cost reduction. (Bitner etal, 2002). The role that customer plays as partial employees in creation and consumption of service is well documented (Mills & Morris, 1986). One way of reducing the cost of service delivered is by getting more work done by the customer. SSTs enable customers to self-create a service thus resulting in improved profitability to the firm (Lovelock & Young, 1979). Howard & Worboys (2003) have suggested that self service provides faster, easier access at a reduced cost per contact by eliminating human interface. Keltner (1995) has cited introduction of ATM and back office technology as one of the biggest sources of cost reduction in the banking industry.
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have been studied separately, but there were no study making attempt to understand the motivation for usage of all adopted interactive technologies together in any organization. The primary focus of studies on motivation is to understand why organizations implement interactive technologies and not how which is the primary focus of the present study.
III. SELF SERVICE IN DIFFERENT INDUSTRIES
There are quite a few sectoral studies that have investigated self service introduction in specific industries like retailing. Self service in gasoline retailing, meat retailing, retailing of soft goods, banking etc., have been studied in detail by various researchers. The cases of gasoline retailing and retailing in Banking and Financial Services are given below:
3.1 Gasoline Retailing
States like Oregon, New Jersey and many others banned gasoline retailing in self service format as it was perceived to be unsafe. It was feared that wrong handling by inexperienced persons could lead to service station fires. In a subsequent study, Grundstad (1982) investigated how safe or unsafe self service gasoline outlets were. Delaney and Fenili (1981) captured the mood of the public when many states put to vote the issue of lifting ban on self service gasoline outlets. With the advent of hose nozzle valves, emergency shut-off switches near the pumps etc., many states lifted the ban. However, Oregon and New Jersey continued to ban dispensing gasoline in self service format. Johnson & Romeo (2000) studied the impact of self service ban on the retail outlet characteristics and the impact on retail margins. They concluded that ban on self service is a case in which regulation provided only minor benefits to a narrow interest group, while imposing large but diffused cost on consumers. Globerman (1978) who studied diffusion of self service in gasoline concluded that (a) large oil companies are more likely to adopt cost reducing innovation than small companies, (b) the degree of retail price competition is positively related to intra firm rates of diffusion (c) sufficient competition exists in retail gasoline market to significantly affect the innovation-adoption behavior among market participants.
Self service in gasoline retailing was first introduced in 1930s. However this format of gasoline retailing became predominant only around 1980 (Johnson & Romeo, 2000). Self service eliminated pump operators and required the purchaser to pump gas himself. However a remote pay teller was stationed to assist in case of any difficulties. Globerman (1978) cites self service in gasoline retailing as a major cost saving initiative. Initially it was large fuel stations that implemented self service format. Hence the impact of self service in gasoline retailing on smaller stations attracted a lot of attention.
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It appears that the ban on self dispensing of gasoline and the situation arising out of this ban has hijacked the research agenda. It is unlikely that gasoline retailers would have migrated to self service format with old pump configurations. It is surprising that the issue of design of new pump configuration for self service format has received no attention. The literature is not clear in terms of whether self service and full service option was provided at the same oudet with the customer given a choice to select the one he wanted-The literature is also not dear about the kind of technology used. In the absence of details of the technology, it is not possible to further classify them as trivial technology or advanced SST using present day yardstick. The literature is also not clear about the implicit or explicit training provided initially to the customers in self dispensing of gasoline.
3.2 Bankings
technology and its impact on worker out comes. Introduction of technology on earnings seem to have attracted fair amount of attention. Hunter et al (2001) have examined the strategic and technological trends that have Ied to changes in frontline banking jobs. As cited by Hunter et al (2001), researchers seem to reinforce the following ideas (a) technology is significantly contributing to growing wage inequality (b) technology can upskill, de-skill or render Jobs obsolete. Looking at the nature of issues addressed, it appears that research in this area is partly influenced by the previous studies on the impact of computerization of the workplace. As cited by Burris (1998) sociological research on computerization of workplace has studied three analytically divergent issues viz. (a) Organizational restructuring (b) changes in worker skill and (c) power and authority relationships. Burris (1998) has cited many works that have investigated the above three dimensions. However as observed by Thomas (1994) many have given up the search for a general theory on impact of technological change on organizations. Increasingly the study is getting contextualized. The authors have come across very few studies on the impact of SST introduction in BFS industry addressing adequately the issues of organizational restructuring and power and authority relationships.
As an industry, Banking and Financial Service Industry (BFSI) has invested and continues to invest heavily in technology. Internet banking, telephone banking, ATM etc., have revolutionized the creation and delivery of banking services. With huge influx of several technologies in the 1980s and 1990s subsequent studies have tried to address issues like (a) role of technology in work place restructuring (b) implementation of technology on job tides, job design, job content, earnings etc., (c) differences in implementation of
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In comparison to studies on self service gasoline retailing, diverse organizationl issues have been addressed in studies on banking and financial services. However, some of the very important issues have been overlooked and not properly addressed by the research community. There is an overemphasis on impact of computerization on work place. It is not clear what kind of an impact, implementation of different types of SSTs viz., kiosk based SSTs like ATM, Internet Banking, Interactive Voice Recording Systems (IVRS) etc., will have on the workplace. Will different types of technologies have the same impact is something that needs to be investigated. Most studies have investigated postimplementation phenomenon ignoring the challenges faced by the firms while implementing a technological initiative. In a survey of successful implementation of service technologies, Quinn & Paquette (1990) found that major success came from defining and developing replicable units within an organization and developing micro measures. In a study, Keltner and Finegold (1996) found that with introduction of ATM and telephone banking, banks had directed transaction based approaches toward customers with low profit potential. In the same study they also found that banks continued to practice relationship banking strategies with customers with high profit potential.
Quinn, Doorley & Paquette (1990) have argued that service technologies would decrease internal bureaucracy and improve competitive responsiveness.
IV. CONCEPTUAL MODEL IMPLEMENTING SSTS FOR
It is quite evident from the above discussion that there are gaps in the literature on implementation of SSTs. Further studies should concentrate on issues like re-engineering the internal processes, relationship with co-service providers who might share SST platform, managing preimplementation, implementation and post-implementation issues.
V. INTERNAL ORGANIZATIONAL CONFIGURATION RE-
The impact of computerization is listed in the earlier part of this paper. Some of them like elimination of few tasks, reduction in number of levels, change in work process, changes in skill required etc., might be relevant parameters accounting for internal organizational re-configuration in SST context. In our view implementing a radically different SST will have the same impact as a BPR Business Process Reengineering exercise, which will bring about a sociotechnical change in an organization, affecting both people and technical elements. Some of the sociotechnical factors that might contribute to organizational reconfiguration in case of SSTs are briefly discussed here.
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5.1 Process Re-engineering
The popular saying new generation technology cannot be implemented for an old generation process holds true in case of SSTs as well. In many cases implementing new generation technology without improving business processes might not yield the desired result. Hence re-engineering of the business process becomes vital to the success of any SST. One of the fundamental principles of BPR is to optimize processes so that it brings maximum value to internal and external customers. In doing so, IT plays the role of both enabler and implementer of the new process (Tissari & Heikkila, 2001) Literature on successful re-engineering offers multiple ideas on carrying out reengineering process. Lowenthal (1994) has proposed a four stage model consisting of preparing for change, outlining the change, design of the change and evaluation of the change. Similarly, Petrozzo and Stepper (1994), Moosbroker & Loftin (1998) have proposed similar four stage models. It is not very apparent what approach organizations that have implemented different types of SSTs in different kinds of businesses have taken.
5.2 Change Management
Scott (1998) have listed elements like strong leadership, employee participation, communication, project management, enablement etc., as key factors influencing the successful implementation process re-engineering. The authors have not come across any study that has addressed this issue in SST implementation context. We strongly argue that future studies should address these issues.
5.3 Re-engineering in case of multiple partners
Among other things, the complexity of reengineering process would be influenced by whether the SST would be used by a single organization or subsequently multiple firms would use the same system. For example many decades after ATMs where first introduced, there is an organized effort to integrate all ATMs so that customers can carryout banking transaction at any ATM. This is an effort aimed at making ATMs bank independent. Now the biggest challenge is to synchronize hardware and software of all banks. The complexity is also influenced by whether firms in the same industry would used the SST platform or firms belonging to industries outside of the service provider who implemented the SST would also use the SST. In case of same platform being shared by multiple service providers, theoretically firms have to exercise one of the following options.
It is apparent that a major intervention that would bring about a major change in an organization can be successfully implemented without change management. Past studies like Lanning (1996), Lowenthal (1994), Tulloch (1993),Jaffe &
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a. Benchmark process design and delivery for relevant processes with the first mover service provider b. If it is decided well in advance which service provider will use SST application, co-ordinate right from the stage of conceptualization b. If the requirements of the front-end system is known, other service providers participating can independently re-design the back-end processes Depending on the alternative chosen, additional elements like mechanisms to coordinate, design, implement, control etc., would get determined.
5.4 Strategic Tie-ups and Other Service Providers
integrator would play in different stages of SST cycle viz., pre implementation, while implementing and postimplementation is another key issue. Depending on the nature of service, the type of technology used, extent of adoption etc., an SST implemented by one service provider can be used by multiple service providers. For example an information kiosk set up at airport can be potentially used by any service provider interested in disseminating information that is of interest to travelers. Right from a hotelier to a florist any one can use this SST platform. Similarly in case of bill payment kiosks, there is significant commonality in terms of bill generation and bill payment processes of public utility services like telephone, electricity, water etc., hence the bill payment kiosks can be used by all the three public utilities. In other words, the same technological platform can be shared by multiple public utilities. Theoretically sharing an SST platform sounds good but making it happen is a daunting task. More so if using the same platform by multiple service providers is an after thought. This would require following common standards. Theoretically the service providers have the following options to ensure compatibility of their systems. a. Benchmark system standards with the host service provider
Service firms implementing the SST will have to broadly address the issue of two kinds of tie-ups of strategic importance viz., system integrator and co-service provider (other service providers using the same platform). For example, a SST like kiosk based bill payment system is unlikely to be available off the shelf. Hence a system integrator is required who would understand the needs of service provider and intelligently integrate various hardware and software components. In this case, the system integrator needs to take a consultative selling approach and offer a total solution. Identifying a competent system integrator itself is one of the major issues in the whole process. The role that the system
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b. Have a common vendor with a mandate to implement uniform systems across the service providers using the SST platform. But the larger issues are: a. extent of sharing of capital expenditure between different service providers sharing the SST platform b. modus operandi for upkeep and maintenance of SST intervention post implementation
VI. DISCUSSION & PROPOSING HYPOTHESIS FOR TESTING
implementation in single organization as well as multi-organisation SST implementation. Though the primary focus is on issues while implementing SSTs, adequate attention has been paid to pre-implementation and postimplementation issues. Some propositions worthy of researchers attention in the context of figure 01 are presented below; PI: The chance of successful SST implementation is significantly higher if a BPR exercise precedes SST implementation. As discussed earlier, in most of the cases it is desirable to radically change the business process to suite the requirements of the front-end SST system.
Figure 01 presents a conceptual framework for implementing different types of self service technologies. The conceptual model has factored in SST
Implementing SSTs Internal Configuration External Tie-ups
Process Reengineering System Integrator Change Management Other Service Providers

Figure-1: Implementing Self-Service Technology
Internal Processes
Compatibility with partners processes
(In case of other service providers using the same platform)
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P2: BPR championed by a cross functional team has significantly higher chance of success than single function team. Cross functional team will have the ability to bring in diverse perspectives which in turn will positively influence the outcome of implementation. Cross functional team has also greater chance of acceptance internally. P3: BPR exercise involving independent consultant(s) will be significantly more effective than the one not involving external consultants Having addressed similar or related issues in different firms both within and outside the industry, cumulative learning of consultants(s) is likely more than that of an organization. Hence involvement of a consultant might significantly influence the outcomes in a positive direction. P4: Public utility service providers will find it more difficult than private sector organizations to implement SSTs. There are issues such as motivation, labor laws, stage of evolution and the degree of autonomy which may have an impact. P5: Implementation is not equally successful in cases of single organization and multiple organization SSTs. Coordination between organizations or a game of one-upmanship may hamper multiple party SST initiatives. P6: Even in single organization SSTs, implementation would depend on level of mutual trust between workers and management, the extent to which the
organization is tech-savvy and its control mechanisms and feedback mechanism. Successful implementation of SSTs is also influenced by factors like retrenchment fears, ability of the company to handle a tech-savvy service, service levels (including downtime) etc., The above list of propositions is not exhaustive, but indicative of the large gaps in the current state of knowledge regarding issues impacting on SST implementation in private public sector organization.
REFERENCES
Bitner Jo Mary, Amy Ostrom and Mathew Meuter (2002), Implementing Successful Self Service Technologies, Academy of Management Executive, Vol 18, No 4, PP 96-109 Burris Beverly (1998), Computerization of the Workplace, Annual Review of Sociology, 24, pp 141-157 Delaney, James B and Robers Fenili (1981) The State of Competition in Gasoline Marketing, U.S Department of Energy, Washington D.C Gaur Sanjay & Waheed Abdul (2003), Motivations to use Interactive Technologies in Marketing; A Study in Indian Service Businesses, Journal of Services Research, Vol 3, No 1, pp 45-60 Grundstad, Robers (1982), Self Service Gasoline Stations, OR Research Monograph, 82:107, Legislative Research Globerman Steve (1978), Self Service Gasoline Stations: A Case Study of Competitive Innovation, Journal of Retailing, Vol 54, No 1, pp 75-86 Howard Melanie & Worboys Caroline (2003) Self Service - A Contradiction in Terms or
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Customer led Choice?, Journal of Consumer Behaviour, vol 2, No 4, PP 382-392. Hunter W Larry, Annette Bemhardt, Katherine Hughes and Eva Skuratowicz (2001), Its Not Just The ATSs: Technology, Firm Strategies, Jobs and Earnings in Retail Banking, Industrial and Labor Relations Review, Vol 54, No 2A, pp 402-424 Jaffe DT & Scott CD (1998), Reengineering in Practice. Where are the People? Where is the Learning? Journal of Applied Behavioral Science, 34 (3), PP 250-276 Johnson N Ronald and Romeo J Charles (2000), The Impact of Self Service Bans in the Retail Gasoline Market, The Review of Economics and Statistics, 82 (4), pp 625-633 Keltner Brent (1995), Relationship Banking and Competitive Advantage: Evidence from US and Germany, California Management Review, Vio 37, No 4, pp 45-72 Keltner Brent & Finegold David (1996), Adding Value in Banking Human Resource Innovations for Service Firms, Sloan Management Review Vo, 37, No 3, PP 45-72 Lanning H (1996), Carrying out Organization Change, Turku, Nordmanin Kirjapaino Lowenthal JNM (1994), Reengineering the Organization: A Step by step Approach to Corporate Revitalization, Milwaukee, ASQC Quality Press
Lovelock Christopher & Young Robert (1979) Look to Consumers to Increase Productivity, Harvard Business Review, May-June Mills P & Morris J (1986),Clients as Partial Employees of Service Organizations: Role Development in Client Participation, Academy of Management Review, vol 2, No 4 Moosbroker & Loftin 91998), Business Process Redesign and Organisational Development:Enhancing Success by Removing the Barriers, Journal of Applied Behavioral Science, 34(3), PP 286-304 Petrozzo P & Stepper (1994), Successfully Reengineering, NY, Van Nostrand Raynhold Quinn James, Doorley Thomas & Penny Paquette (1990) Technology in Services: Rethinking Strategic Focus, Sloan Management Review, PP 79-87 Quinn James & Paquette Penny (1990), Technology in Services: Creating Organisational Revolutions, Sloan Management Review, PP 6778 Thomas RJ (1994), What Machines Cant Do, Berkeley: University California Press Tissari Tiina & Heikkila (2001), Successful Reengineering Learning by Doing, International Journal of Logistics: Research and Applications, Vol 4, No 3, PP 229-344 Tulloch A (1993), The Strategic Management of Change, Management Decision, 31 (3), PP 62-65
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Creating Spiral of Knowledge on Interpersonal Competencies in Development Organisations : A Case Study*

S. Peppin1
Abstract
The process of identifying, generating, developing and utilizing knowledge has its roots in the traditional wisdom and practices, held so closely as life sustaining values, by the hunters, pastoralists, fishermen, farmers and the artisans since time immemorial. However, with the advent of modern science and technology, the industrial and business organizations have embraced such practices and have given a new label called knowledge management (KM). Today, KM is increasingly used as the most potent tool for creating a culture of learning leading to innovations in product development and thus enhancing business growth. This paper attempts to address three issues. First of all, it argues that the modern organizations continue to use the tools and methods used in the traditional knowledge systems for knowledge generation. Secondly, it contends that the process of KM has the potential to identify interpersonal competencies and not just the technical competencies alone. However, this potential is not fully exploited as the practitioners of KM have always been focusing on the technical competencies. This limitation arises out of how knowledge has been interpreted since time immemorial. Finally, it explains that that using simple tools such as knowledge web, it is possible to create a spiral of knowledge on interpersonal competencies for development organisations. One of the key functions of KM is knowledge generation. This article is based on the authors experiment with mapping the interpersonal competencies in a development organization in India by following the process suggested by Nonaka for creating patterns and spiral of knowledge, which is the central function of KM. Based on this experiment, the author concludes that the process of KM has the potential to map the interpersonal competencies and recognition of such competencies should form an integral part of organizational strategy for KM.
I. DEFINING KNOWLEDGE: TECHNICAL (PRODUCT) VS. INTERPERSONAL DOMAINS (PEOPLE)
With the advent of KM, there has been a relentless pursuit of knowledge in business and development organizations. Knowledge has occupied a central place
in the life of organizations and those who are recognized as knowledge workers are given increased attention and recognition. There appears to be a race among the organizations to be called knowledge creating companies or learning organizations. However, it can be argued that the new found interest in
* Received September 12, 2005 1. Associate Professor, Xavier Institute of Management, Bhubaneswar, peppin@ximb.ac.in
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knowledge appears to be undermining the interpersonal competencies among the people in the organizations as it tends to deify the technical domains of knowledge. The fixation with the technical domains of knowledge results from the insatiable desire to produce different kinds of products they want to launch in the market. In www.dictionary.com, (2002), knowledge is defined as familiarity, awareness, or understanding gained through experience or study. The sum or range of what has been perceived, discovered, or learned. This definition highlights what has been learned rather than what is necessary to learn. Even the inserted diagram that presents the formation and hierarchy of knowledge is silent on the interpersonal qualities essential for knowledge generation. Knight and Howes explain the essence of knowledge as perceived by the western and eastern societies. They argue that, for the western societies the essence of knowledge is justified true belief, which is mostly a mental activity used to create an object or product and thus manifesting the creative or the technical qualities. This is because of the influence of Greek tradition (the teaching methods of Socrates and Plato) on the western societies. On the contrary, the eastern societies, particularly the Japanese, hold a holistic view on knowledge as they believe that knowledge is the function of the mind, body and soul of a person. (Knight and Howes, 2003). The eastern view tends to include, to some extent the
interpersonal dimension of knowledge as it provides space for the soul in the entire scope of knowledge. The overwhelming importance attached to the technical domain of knowledge can be found both in the traditional and modern knowledge systems.
KNOWLEDGE HIERARCHY
Wisdom Knowledge Information
Knowledge with insight
Information with meaning
Data with context
Data
Facts, observations, data point
Source: Skyrme and Amidon (1977) and modified by Knight and Howes (2003)
Traditional Knowledge
In the traditional knowledge systems, as often explained in ancient mythologies, the heroes of knowledge are known for their technical skills and acumen and not so much for their interpersonal qualities. A review of some the important literature on traditional knowledge tends to highlight the following. It is often related to the knowledge, innovations and practices of indigenous and local communities. It is experience based, highly adaptable, transmitted orally from generation to generation, preserved and shared in the form of stories, songs, metaphors, folklore, proverbs, cultural values, beliefs, rituals, community laws, local language, and agricultural practices, including the development of plant
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species and animal breeds.(www.biodiv.org,). Among all these methods, storytelling is popularly used in the business organizations to generate knowledge today. (Denning, 2000). The various dimensions of traditional knowledge that we have identified again convey the message that knowledge is mostly related to the skills or technology. This view finds more expression if we analyse the ownership of traditional knowledge. There are diverse views on the ownership of this knowledge. While some argue that it is collectively owned, the others view that only a small section of the society has access to such knowledge. Also, it is argued that traditional knowledge was used to perpetuate the discriminatory caste system and some of the occupational skills were passed on from one generation to another through strict monopolistic control based on heredity and caste hierarchy. (Acharya, 2003). Thus we find that the skill or the technology orientation of knowledge is also used as a means for exercising power and control over the powerless. Traditional knowledge is also known for its values and uses. Traditional knowledge is widely used in the field of agricultural production, food security, livelihood promotion, health and medicine and even for planning, monitoring and evaluation of development projects. (Hill, 2004 and www.icsu.org, 2002). Despite the rapid expansion of modern knowledge, the
significance of traditional knowledge has increasingly been recognized and such recognition has gained momentum in the wake of globalization, particularly in the form of patent rights and preserving biodiversity. (www.icsu.org, 2002). The indispensability of traditional knowledge, however, is not because of those who possess it, but because of its commercial and scientific values.
Modern Knowledge
The dominant view that science and technology is central to knowledge finds more support in the context of modern knowledge. Industrial revolution is said to be the turning point for the emergence of modern knowledge. According to Clark, the modern system of knowledge began when the spread of knowledge began to break the socio-cultural boundaries. This happened, when the German goldsmith Johannes Gutenberg made separate pieces of metal type for each character to be printed in 1440. From Gutenberg to Davenport and Prusak in 19981, the evolution of modern knowledge has undergone a revolutionary change. (Clark, 2004). With the advent of internet the mobility of knowledge has even broken the boundaries set by space and time. Rapid advancements in science and technology and their application in the field of agriculture, medicine, genetics, nuclear energy etc generated a new brand of knowledge which seems far superior to the traditional knowledge. Though the superiority of modern knowledge is challenged by the protagonists of traditional knowledge, its contribution to
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the growth and development of humanity is phenomenal. One of the important features of modern knowledge is its contribution to the development of traditional knowledge systems. For instance, the traditional fishermen are able to increase the efficiency of the fishing crafts by fitting outboard motors. Similarly, the farmers and other artisans are able to continuously improve their traditional technologies by learning and applying the principles of modern science and technology 2. As a result, modern knowledge system is no more seen as a competitor, but as a collaborator in the process of knowledge building. However, despite the use of information technology to generate, use and disseminate modern knowledge, its ownership is still confined to those who have access to education and information technology and often used as a tool to control traditional and developing societies and nations. Thus, knowledge is conquered by technical skills.
II. KNOWLEDGE MANAGEMENT: GENESIS AND MEANING
(www.icsu.org, 2002).Therefore, let us look at some of the salient features of traditional knowledge and the methods and tools used by the tradotional communities to create their KM systems. Since modern knowledge has its roots in the traditional knowledge and because it tends to rely heavily on technology, such trends have been strongly embedded in the vernacular of KM and thus upholding the hegemony of technology. Knight and Howes, trace the roots of KM to the speculations of ancient Greeks. According to them, the practice of sitting alongside experts to learn their craft-from playwrights to carpenters-is as old as civilization itself and this form of apprenticeship-a noble and ancient method of transmitting knowledge, which became prominent in the mediaeval period, between 1200 and 1500 is the turning point in the evolution of KM. They also further explain, how during this time the keepers of knowledge (monks in the monasteries, merchant classes and artisans and craftsmen) were very secretive (Knight and Howes, 2003). However, it can be argued that the focus of equating knowledge solely to technology or what is known shifted to who knows in the early sixties. The reasons for this shift are the writings of Peter Drucker and Nanaka, Ikujiro and Takeuchi, Hirotaka. In 1966, Peter Drucker introduced the concept the knowledge worker and in 1969, he wrote that knowledge is the central capital, the cost centre and the crucial resources of the economy 3. The book titled, The
KM has evolved out of the processes that led to the development of traditional and modern knowledge systems. The argument that the ancient and traditional societies have evolved sound KM systems and how such systems have laid the foundation for the evolution of KM in the business organisations cannot be contested. This is because, traditional knowledge has often played a role in the development of modern science and will continue to do so in the future
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knowledge Creating Company authored by, Nonaka, Ikujiro and Takeuchi, Hirotaka in 1995 aroused great interest among the leading business organizations to use KM as a strategy for growth. In this path breaking book they list some of the beliefs and key activities undertaken by the knowledge creating companies (See box 1.). The list of activities suggested by them tends to focus more on the role of the leaders of the company and their coworkers in the process of knowledge generation. The belief systems and the activities mentioned by Nanaka and Takeuchi are mentioned here as it helps us to support our argument that the modern organizations continue to use the same tools and methods, such as story telling and use of metaphors, to generate knowledge. The knowledge creating companies, according to Nonaka & Tekeuchi (1995) believe that: l Organisation is not just a machine for information processing l Creating new knowledge depends on tapping the tacit and often highly subjective insights, intuitions, and ideals of employees. The key to this process is personal commitment, the employees sense of identity with the enterprise and its mission l The essence of innovation is to recreate the world according to a particular vision or ideal l To recreate new knowledge means to recreate the company and everyone in it in a nonstop process of personal and organisational self-renewal
In the knowledge-creating company, inventing new knowledge is not a specialised activity-the province of the R&D department or marketing or strategic planning It is a way of behaving, indeed a way of being, in which everyone is a knowledge worker-that is to say, an entrepreneur They tell stories. They use metaphors and symbols. They create spiral of knowledge
What then is KM? Like knowledge, the concept of KM is also subjected to different interpretations. However, the numerous interpretations are broadly classified into two categories: KM as an end product, and KM as the process. The former view arises out of the need for using information technology to store, access and retrieve knowledge once it is identified. In other words, knowledge so generated should result in creation of a new product or service. The latter view is the result of the people processes that are conducive to generation, sharing, accessing and using knowledge (Balaji). Even those who stress that KM is a peopleand-process issue and should not be viewed as an expansion of the IT function, also acknowledge the significant contribution of technology. (www.ariadne.ac.uk/). However, what is largely witnessed in the process of KM is the undue importance attached to the technology and thus undermining the role of interpersonal competencies that form the foundation for KM in any organization.
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Though the definition of KM is elusive, we may still consider the following definition. Knowledge management then is an internal intervention in the organisational knowledge base that governs the generation, acquisition, dissemination and utilization of knowledge with a view to achieving an organisations objectives. Knowledge must thus prove itself in its practical application. (Intercooperation, 2002).
III. KNOWLEDGE PATTERNS AND SPIRAL OF KNOWLEDGE
As we have seen in the definition of KM given above, the important element of KM is knowledge generation. Generation of knowledge largely depends on the type of knowledge an organization wants to generate. Therefore, it is important to know the types of knowledge. Knowledge is broadly divided into three
Table 1. Patterns of Knowledge Generation Sl.
1. 2.
categories. They are embodied, represented and embedded knowledge. Embodied knowledge is the tacit knowledge or the knowledge that is known intrinsically only to the knower. Represented knowledge is the explicit knowledge that is contained with documents, databases and records. The embedded knowledge is the one which is actually put to use and it is found in the form of evidenced processes, products, rules and procedures (Gamble and Blackwell, 2001). Based on the types of knowledge, Nonaka (1998) has identified the following patterns of generating knowledge, which forms the foundation for KM. The patterns are presented in table-1. According to Nonaka, if the process of knowledge generation uses all the four patterns, it tends to create a spiral of knowledge as shown in figure 2.
Pattern
Tacit Tacit Tacit Explicit Explicit Tacit
Process
Socialisation Externalisation
When it happens
When an apprentice learns from a master craftsman When the apprentice shares with his/her team what he/she has learnt from the master craftsman When the members of the organization begin to enrich their own tacit knowledge base and appreciate the value of it When the entire team in an organization comes with a new product based on what they have captured and documented from the apprentice
Methods used
Story telling, observation and practice Articulation, capturing and documenting) Continuous learning and applying
3.
Internalisation
4.
Explicit Combination Explicit or Integration (Embedded knowledge)
Innovation and reuse
Source: Adapted from The Knowledge Creating Company by Nonaka, Ikujiro in Knowledge Management, HBR, 1998
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Tacit
Tacit Socialization Teamwork Meetings Gossip Internalization Learning Applying
Explicit Externalization Capturing Publishing Integration/ Combination Reuse Innovation
These devices are popularly known as ADITI (Affordable Drip Irrigation Technology Intervention). These systems are used in the semi-arid areas. IDE-I is able to promote these simple, affordable, appropriate and environmentally sustainable technologies to small and marginal farm families through private marketing channels. Currently IDE-I has operations in selected districts of 10 states nearly 85,000 small and marginal farmers have been benefited by these irrigation systems. Moving beyond technology IDE-I has adopted the approach of market as an institution for development of the rural poor through its programme called IPMAS (Integrating Poor into Market Systems). The other programmes of IDE-I are the Business Development Programme and Crop Post Harvest Programme. IDE-I has created a chain of partners for production and sale of treadle pumps (manufacturer of various parts, assembler, or mistires, village-based distributors, dealers, government sales depot and even NGOs). For ADITI kits, IDE-I has identified manufacturers who will supply components of our indigenously designed kits, adhering to the quality norms / STPs laid down by its R&D. By creating a chain of partners, IDE-I is also able to create employment opportunities for the unemployed youth, including women. The key actors of IDE-I who are involved in strengthening and sustaining this link are the Area Managers (AMs) who are
Explicit
Fig 2: Knowledge Spiral IV. SPIRAL OF KNOWLEDGE AND INTERPERSONAL COMPETENCIES
Using the knowledge patterns and the knowledge spiral framework described by Nanaka, an attempt was made to map the interpersonal competencies of International Development EnterprisesIndia (IDE-I), an Indian not -for- profit enterprise committed to providing longterm solutions to poverty, hunger and malnutrition (The sentences in quotes in this section are taken from www.ideindia.org). IDE-I has developed unique micro irrigation systems which are highly accepted by the small and marginal farmers. They are very cost effective and are known for using minimum and optimum water for irrigation. They are simple to operate with human energy and thus do not depend on electricity. One of the popular devices developed by IDE-I is the treadle pump (also known pedal pump), which is widely used in the eastern India for manually lifting water in the areas with shallow water table. The other devices are the bucket kit, drum kit, micro-sprinkler kit, over head sprinkler kit, easy drip and customized systems which are used by farmers for growing both horticulture crops and cash crops.
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reporting to the Senior Executive, Operations. The ensuing part of this article attempts to explain how using a simple tool such as Knowledge Web, the spiral of knowledge can be created for identifying the interpersonal competencies in IDE-I. However, the first two patterns, viz. tacit-tacit and tacitexplicit are explained in detail as the other two patterns are currently being developed at the organisational level, though the process began during the authors interaction with the AMs. (The author also used the tools such as Core Competencies for Managers: An Assessment Tool and Elements of Knowledge Management Tool 4. The findings derived out of these tools are not included due to paucity of space and the authors intention of highlighting the use of simple KM tools). Interpersonal competencies: We have described interpersonal competencies as underlying characteristics of a person which enable him/her to relate with others in order to deliver superior performance in a given job, role or situation. The performance is often determined by the nature and the degree of interpersonal relationship that is established. The factors or the characteristics that lead to establishment of interpersonal relationship are both internal (personal beliefs and values) and external (institutional and societal norms, systems and procedures). As we have discussed earlier, when we attempt to complete the cycle of knowledge patterns, the process of
creating a spiral of knowledge begins. It must be remembered at this point that this process was initiated at IDE-I, not for generating knowledge for creating a new product, but for identifying the interpersonal competencies of AMs and thus enabling the organization to have a knowledge base on the interpersonal competencies of its key actors such as the AMs. IDE-I believes that strengthening interpersonal competencies is fundamental for addressing the well being of small and marginal farmers.
Interpersonal 1. 2. Technical 1. 2. Fig 3: Knowledge web card
Tacit - Tacit: The tool used at this stage of knowledge generation is knowledge web. This is a simple tool which is used to identify the common and unique competencies among each member in a team and thus mapping the same at the organisational level as well. The procedures (steps) for using this tool are explained below. Each member in a team is given a circular/oval card. The card is divided into two parts, as shown in the figure 3. In the first part (top), each member is asked to identify and write two interpersonal competencies which only
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he/she has in the team. Similarly, each member is asked to identify and write two technical competencies in the second part of the card. (The technical competencies are not explained here as the focus is on the behavioural ones). After completion of writing, all the members of the team are asked to come together and place their cards on a chart paper and they are asked to identify any similar or identical
1. Keen observer 2. Learning from mistakes
competencies among them. The similar or the identical ones are to be joined together by drawing a line and thus creating a web, as shown in fig.4. Using similar process, this tool was used by the AMs of IDE-I. Figure 4 presents a sample web of knowledge indicating the uniqueness and similarity of interpersonal competencies among six AMs working as a team in a particular region of IDE-I.
1. Cooperative 2. Honest
1. Kind person 2. Honest
1. Quick adopter 2. Bold
1. Good organizer 2. Good leader
1. Simple& hardworking 2. Honest
Fig 4: Knowledge web of six AMs
This tool enabled the participants to know the competencies that are not only unique but also common and thus they were enabled to get a message of how to create a synergy for team building by using the common competencies and exploiting the unique competencies for creating a competitive advantage. Tacit - Explicit: In order to convert the tacit knowledge to explicit knowledge, the following table was created using the information obtained from all the teams/ regions. The table 2 presents the summary
of interpersonal competencies identified for all the AMs. From this table it is clear that the unique competencies are more than the common ones and in the case of one region, there is no common competency. While this table presents the region wise competencies, it also provides the competencies that are unique and common across the regions. Now the organization is able to capture the interpersonal competencies and document them for internal use initially.
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Table 2: Common and Unique Competencies of AMs working in different Regions Region* A Common competencies Hardworking ,Friendly, Patience and Optimistic Openness in dealings and Analysisng and anticipating Honest Unique competencies Straight forward, Respects everyone, Good at negotiation, Sense of humour, Observer and Committed Good listener, Good observer, Punctual, Helping, Team player, Sincere, Caring and Pure at heart Keen observer, Good organizer, Good leader Simple& hardworking, Learning from mistakes Cooperative, Quick adopter, Bold and Kind person Not egoistic, Friendly, Goal oriented (aggressive), Believes in proper planning, implementation and results, Proper utilization of resources and Time management Learning from mistakes, Ability to listen Enjoys every moment of life, Sincerity Moral values, Mapping competencies and Building on strengths
Nil
Confident Positive attitude Patience in adverse situations
*IDE-I works in five regions. The names of regions are not mentioned in order to maintain the secrecy of the AMs working in each region.
Explicit - Tacit : Each member of the team was enabled to identify what message he/ she has received from the explicit knowledge. Here the members expressed what they have learnt and internalized from the explicit knowledge. Some of the crucial learning points are mentioned here. The uniqueness of the competencies can help us to perform our roles differently, though all of us are assigned similar roles and functions. By capitalizing on the uniqueness, we can create comparative advantage and infuse a great degree of
competition among us. Competencies, which are unique will also help us build a strong team. If all of them in a team have similar competencies, then many are not needed in a team and it encourages free riders in the organization. The technique of knowledge web can be used frequently to identify the unique competencies and also to encourage each team to acquire those competencies required, but not present at the moment5. Explicit - Explicit: The process of generating explicit knowledge took place
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at two levels. They are at team and organisational levels. At team level, what was made explicit to one team was shared with other teams and thus created an explicit knowledge at the organisational level. However, the function of creating a new product or creating an innovative service delivery mechanism did not take place at the time of authors interaction with the organization.
V. CONCLUSION
Traditional knowledge systems have evolved sound practices of KM and they continue to influence the KM practices found in the development and business organizations. In the name of KM, knowledge has occupied a central place in the life of organizations. This new found interest has unleashed the ravenous desire to seek new technologies and products to meet the market demands. It has failed to recognize and the importance of interpersonal competencies, which form the basis for generating knowledge in any organizations. The process of creating a spiral of knowledge is central to KM process and the success of this process is largely determined by the degree of interaction among the people (knowledge workers) in the organization. In order to promote high degree of interaction, we need to identify and strengthen the interpersonal competencies. This is important, particularly for the development organizations as they also actively promote interactions between the organizations and the community. The
knowledge generation process for such organizations often goes beyond the organisational boundaries and it is largely determined by the ability of the organizations to learn from the communities. We can use the same process of creating the spiral of knowledge to map the interpersonal competencies, while identifying the technical competencies. Creating a knowledge base on interpersonal competencies must form an integral part of organisational strategy. People, not only the product, must occupy a centre stage in the process of knowledge management in development organizations.
NOTES
1. For a detailed account of the evolution of modern knowledge, see knowledge History Graph in www.hcrc.edu.ac.uk. Here we will find that knowledge history is explained within the framework of knowledge structure, Technology, Theme and Paradigm. 2. In the name of Co-evolutionary Potential, the traditional fishermen are encouraged to adopt and fit out-board motors on their traditional fishing graft for speed. For more details, see Kurien J., Traditional verses Modern and Co-evolutionary Potential: The Case of Marine Fisheries in India, Social Action, Jan-March, 1991 3. The writings of Peter Drucker on Knowledge and Knowledge Worker in the sixties forced the organizations to shift the attention from the product to the people who invented the product. Also his concept of Knowledge Worker began to include an army of workers that are starting to make a living with information, rather than materials.
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4. Elements of Knowledge Management Tool, given in Gamble and Blackwell is an useful tool to assess the culture of KM in terms of awareness, strategy, culture, external focus, incentives, information technology, maintenance and protection, ongoing assessment, organization and using and applying knowledge. 5. For more details refer authors report on Knowledge Management: An Approach to Human and Institutional Development for International Development Enterprises India, submitted to IDE-I in 2003
Era Organisations, Available: http:// www.stevedenning.com. 6. Gamble R.P., Blackwell J., (2001), Knowledge Management: A State of the Art Guide, Kogan Page, London 7. Hill W.F., Parting on Traditional Knowledge, Available: http:// www.ed.psu.ed 8. Intercooperation., Capitalisation of Experiences in Livestock Production and Dairying, Technical Report 5., Switzerland, 2002 9. Knight T., Howes T., (2003), Knowledge Management-A Blueprint for Delivery: A programme for Mobilising Knowledge and building the Learning organization, Butterworth-Heinemann, Oxford,. 10. Nonaka I., (1998), The Knowledge-Creating Company, in Harvard Business Review on Knowledge Management, Harvard Business School Press, USA. 11. Nonaka I., Takeuchi H., (1995), The Knowledge Creating Company. How Japanese Companies Create the Dynamics of Innovation, OUP, New York. 12. www.ariadne.ac.uk 13. www.biodiv.org 14. www.icsu.org 15. www.ide-india.org
REFERENCES
1. Acharya J., (2003), Traditional Knowledge Systems in a Knowledge Society, Available: http: //www.totalkm.com. 2. Balaji C., Knowledge Management: Fast Forwarding the Learning Organisation, HRDF Facilitation, Academy of HRD 3. Clark D., (2004), Knowledge, Available: http://www.newlink.com. 4. Davenport H.T., Prusak L., (1998) Working Knowledge: How Organisations Manage What They Know, Harvard Business School Press, Boston MA,. 5. Deming S., (2004) The Spring Board: How Story Telling Ignites Action in Knowledge-
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Training Need in SSI Sector and Labour Productivity: A study of manufacturing SSI units in Orissa.*
P.Mishra1
Abstract
Small Scale Industries (SSI) play a major role in contributing to the state domestic product and also in generating employment. Several studies have been made on the performance of these industries on these parameters. The present study is a sample study of SSI manufacturing units in five industrial clusters in Orissa. It focuses on the extent of contribution of the SSI sector to the state domestic product in Orissa, generation of employment and the characteristic of the human resource while highlighting the labour productivity using a production function. The findings suggest that although there has been a substantial employment generation in the SSI sector, the skilled labor employed in the said sector is relatively low. The elasticity associated with wages is relatively low suggesting low labor productivity. Higher wage elasticity was observed in industrial clusters where there is relatively more skilled labor. This pointed at the training need of the personnel in the SSI sector. A few areas have been identified as the thrust areas in which such training could be conducted for the personnel in the said sector.
I. INTRODUCTION
Studies on small-scale industries in Orissa are relatively few. These studies have been in the area of growth and performances of the SSI sector in the state of Orissa (Mohanty,1986 Vyasulu & Kumar,1997,Mishra,2001). These studies relate to the scale of operation and market
linkages of the SSI units, trends and structure of industrialization in Orissa etc. Assessment of training need in the SSI sector is relatively a neglected area of research, which could be due to several factors. A few studies have been made (Mishra,1988, Pampiglione,1997, Gupta,1999,Jain,2001) which relate to the
Received September 14, 2005 The study is based on a research project undertaken by the author while he was the Coordinator of the SIMAP Cell ( SIDBI sponsored) at XIMB. The Project was to assess the training need of the entrepreneurs and the employees in the SSI units in the five industrial clusters in Orissa.The author wishes to thank Mr B.K.Nayak,Mr S.P.Nanda,Mr S.Sethi and Mr Tapan Senapati for data collection and Ms Sangeeta Agasty for her help in data analysis.
1. Professor, Xavier Institute of Management,Bhubaneswar. Email: pmishra@ximb.ac.in
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training needs in several fields. Mishras study assessed the training need for paramedical manpower in Orissa. Pampigliones study was related to the training needs of the cotton farmers in Andhra Pradesh. SP Gupta Study Team constituted in May,1999 by the Planning Commission, studied the SSI sector and recommended a large number of measures including training needs for the development of the small enterprises. Such training included inputs like general training, skill upgradation and adoption of new management practices. Jains study was related to the training need of the SSI sector in NCT of Delhi. It may further be mentioned here that the Small Industries Development Bank of India (SDBI) had identified a few institutes of national repute to impart training to the people associated with the SSI sector as per the recommendations of the SP Gupta Study Groups report. In this study, we have tried to examine the labour productivity and human resource in the manufacturing SSI units in Orissa along with the training need . The study is a sample study of five industrial clusters in Orissa. The present paper containing the study is organized in the following sequence- a brief profile of the state, the contribution of the SSI sector to the state domestic product,methodology of the study finding and discussion on labour productivity and training need and concluding remarks
II A BRIEF PROFILE OF THE STATE OF ORISSA AND THE SSI SECTOR. 2.1 Net State Domestic Product (NSDP) and Gap in Per Capita Income
The State of Orissa is situated in the Eastern Region of the Indian Peninsula along the coast of the Bay of Bengal. The geographical area of the state is 1,55,707 sq.kms, comprising 4.74% of Indias landmass and presently inhabited by nearly 3.67 crores of people. Nearly 85% of its population live in rural areas depending mostly on agriculture for their livelihood. The state has good resources of minerals. It has also abundant water resources. The total cultivable land of the state is nearly 65.59 lakhs hectares of which only 25.43 lakh hectares (about 38 %) were irrigated ( by the end of 2001 02). Planned exploitation and optimum utilization of rich minerals, land, water and other resources including human resources holds the key to rapid economic development of the state. In spite of high potential for development, the state it is one of the least developed states in the country. As per the latest estimates of the Planning Commission 48.01 per cent of the people in the rural area and 42.83 per cent of the people in the urban area were below poverty line in 99-2000. Table No 2.1 gives a comparative picture of the per capita income of the state and that of the country as whole. The economic backwardness of the state can be observed from the gradual widening of the gap between the per capita figures in constant prices.
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Table No 2.1
Per capita NSDP of Orissa and Per Capita Income of India: a comparative picture. PCI of India in Current Price (Rs) 2 254 248 350 489 720 1136 1741 2932 5365 10149 11564 12706 14395 15562 16563.5 17947.1 PCI of India Rs in 93-94 Prices (Rs) 3 3687 4020 4429 4458 5001 5167 5352 6081 7320 8489 9007 9241 9647 10067 10306 10774.2 PCI of Orissa in current prices (Rs) 4 154 195 226 341 513 779 1352 2238 3166 6806 6548 7973 8766 9486 9273 10234 PCI of Orissa (Rs in 93-94 prices 5 2235 3151 2858 3105 3562 3541 4156 4642 4320 5653 5100 5798 5875 6136 5759 6105 Gap in PCI In constant prices (Rs) 3-5 1452 869 1571 1354 1440 1626 1196 1440 3001 2796 3907 3443 3772 3931 4485 4669
Years
1 50-51 55-56 60-61 65-66 70-71 75-76 80-81 85-86 90-91 95-96 96-97 97-98 98-99 99-00 00-01 01-02
Source: Economic Survey, India (2001-02) & Directorate of Economics and Statistics, Orissa. Note:The Per Capita NSDP for Orissa has been smoothed as per the new series for the PCI of India.
2.2 The Sectoral Contribution Table No. 2.2 Sectoral Contribution to NSDP of Orissa and to GDP in India (in percentages) Orissa Sl no 1 2 3 Sector Primary Secondary Tertiary Total 1980-81 55.33 15.45 29.22 100 1990-91 43.32 19.10 37.58 100 2001-02 41.80 18.43 39.77 100 1980-81 41.80 21.60 36.60 100 India 1990-91 34.9 24.5 40.60 100 2001-02 26.09 24.50 49.41 100
Source: Directorate of Economics and Statistics, Orissa.
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A comparative picture of the contribution of different sectors to the GDP in India and similarly in Orissa has been presented in Table No 2.2. It may be observed from the said table that while the percentage contribution of the primary sector in the state of Orissa, which includes agriculture, animal husbandry, forestry, fishing and mining, etc, to NSDP, has declined from 55 % in 1980-81 to 42% in 2001-02. The share of the secondary sector marginally increased from 15% in 80-81 to 19 % in 90-91 and again declined to 18% in 2001-02. The tertiary sector registers a growth from 29 % in 80-81 to 39% in 200102. It is observed that the contribution of the secondary sector, which includes the industrial sector, has marginally increased overtime This insignificant growth in the share of the secondary sector in the state domestic product may indicate a weak industrial sector in the state during the late eighties and the nineties. The period witnessed the closure of many medium and large public and private sector industrial units such as textile mills and ceramic pottery in Jharsuguda,, Orient Paper Mills in Brajrajnagar , Indian Aluminium Company at Hirakud, sugar factory in Bargarh and Orissa Textile Mills at Chaudwar in Cuttack, besides closure of many small scale units in different parts of the state. This has happened despite consistent efforts by the Government of Orissa to promote the industrial sector in the state through favourable and creation of infrastructure for the growth of industry.
2.3 Small Scale Industries in Orissa With the availability of abundant raw materials, manpower and other infrastructure, the state of Orissa has the potential for rapid industrialization. Some progress has been made in this sector during different plan periods by setting up some large, medium and smallscale industries. A brief summary relating to the small scale industries and their contribution to the volume of employment, output and investment has been given in Table 2.3 . Needless to mention that the basic objectives of small scale industries are to provide employment opportunities and to meet a substantial part of the increased demand for consumer goods and producers goods to facilitate mobilization of capital and manpower.In recognition of the importance of small scale industries for the creation of employment opportunity and to meet the demand for consumer goods, the 8th plan laid adequate emphasis on their development and efforts have been made to provide infrastructure and financial support in addition to various incentives and concessions for promoting this sector. For the purpose of such initiatives, which include tax exemption, subsidies, infrastructure and technological and other facilities (Industrial Policy,Orissa, 1996) the state of Orissa has been divided in to three zones.The District Industries Centres are operating as nodal agencies for development of small-scale industries
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Table No 2. 3 : Number of SSI Units, Investment & Employment in Orissa Year By the end of 7th plan 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-2001 2001-2002 No.of SSI Units set-up 35867 2249 2233 2117 2311 2327 2507 3098 3186 3184 3473 3676 3919 Investment Rs in Crore 437.26 61.0 52.03 55.0 56.21 68.08 74.82 104.53 134.09 190.06 162.94 153.17 165.23 Employment generation number of persons 265332 15657 15545 13344 13807 13096 13019 15629 16716 16776 18608 18115 16582
Source: Economic Survey , 1995-96,1999-2000&2002-03,Govt. of Orissa
and for recommending various incentives for the newly created districts. The district collectors have also been delegated with power to allocate land up to 5 acres with all the facilities through coordination with different other governmental agencies. For the promotion of ancillary and auxiliary industries government have decided to set up an Ancillary Promotion Board with government participation for providing firm linkage between large unit and ancillaries. The Government of Orissa (GoO) have also established new growth centres at Khurda, Rayagada and Jharsuguda to facilitate growth of SSI units. During the year 2001-02, total
number of 3919 units were set up in the state with an investment of Rs. 165.23 crore and employment of 16582 persons were employed in these units. Table 2.3 summarizes information on number of units set up, investment and employment generated till 2001-02 in Orissa. It may be observed that in the post economic reform period (90-91 to 2001-02) the rate of growth of the SSI units in number has registered a positive growth along with positive growth in investment and employment generation. Keeping the above in mind and the growth of employment in the SSI units an attempt has been made to highlight the
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characteristics of the human resource and the labor productivity in the following sections.
III. METHODOLOGY 3.1 Selecting the five industrial clusters
development of the SSI units in and around Rourkela. The Hirakud Multipurpose River Dam Project came up during the early fifties near Sambalpur, the centre of Western Orissa. Gradually, the area saw some development in the industrial sector with coming up of a few medium scale industries like the Aluminium Plant, Cement Factory etc. in and around the Sambalpur city. Moreover, due to this big public sector investment, the area got a push, which led to the establishment of a number of SSI units. It is again during the last two decades that the Ib Valley Coal Fields (later renamed as The Mahanadi Coal Fields LTD) came up and this facilitated the establishment of a thermal power plant in the area. This growth has led to increase in the demand for consumer durables and non-durables in the area, which in turn has led to the establishment of a number of SSI units. Similarly, the population in Cuttack and Bhubaneswar have grown tremendously in the last two decades. Cuttack the centre of commercial activities in the eastern part of the state has expanded its activities particularly in trade and commerce. The city of Cuttack is surrounded with a number of medium scale industrial undertakings like the Choudwar Cotton Mill, Ferroy Alloys, Choudwar Paper Mill and a few others. The Paradeep Port and public and private sector fertilizer plants are about 60kms from Cuttack. NALCO is about 50 kms from the city of Cuttack.
The economy of Orissa has hardly seen establishment of any new big private sector industrial units except a few paper and textile mills, most of which are now almost non-functional. A few public sector undertakings (PSUs) were, however, set up in iron and steel,multipurpose dam project and port during the early period of planned development (Steel Plant in Rourkela, Hirakud Multipurpose Dam Projects, Paradeep Port). The establishment of these undertakings obviously had positive effects in the growth of the economy. In particular, five large industrial clusters have emerged around Rourkela,Sambalpur,Cuttack, Bhubaneswar and Berhampur.The steel plat led to setting up many small scale units in Rourkela. After an initial struggling period some of these units started supplying parts, components, and mechanical spares to the steel plant. With the help of State Government and Directorate of Industries, these industries gradually captured a large market in the steel plant area. Rourkela Steel Plant also gradually developed trust with these small-scale units. Besides, bakery, printing press and service units also came up to cater to the demand of the growing population. Thus, one can see the gradual
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Berhampur, like Cuttack is the commercial centre of Southern Orissa. Gopalpur Port is about 20 kms from the city of Berhampur.The city is characterized with large number of small scale industries catering to the need of the growing population of the city and the district. Bhubaneswar, the capital of Orissa was established during the early fifties and since then the population has increased many fold due to the establishment of many private and public establishments. The demand of various commodities by these establishments are met by these SSI units, which are in and around Bhubaneswar. The five cities, mentioned above, could be considered as the five nuclei of the industrial, trading and commercial activities in Orissa. The growth of these five clusters summarily can be attributed to (i ) interdependence amongst themselves, (ii) linkage with the big/ medium public sector undertakings (specifically Rourkela/SambalpurJharsuguda and Cuttack) and ( iii ) linkages with the local markets.
3.2 Selecting the sample units
After listing the existing registered SSI units it was decided to take a sample of 50 units from each cluster from different manufacturing categories keeping their existing proportion in the cluster in view. Thus a proportionate random sampling was used to select the sample units. However, eventually a sample size of 212 could be possible due to lack of proper response or inadequate information from the respondents.
3.3 The instrument of data collection
As mentioned earlier, the purpose of the study was to assess the training need of the personnel associated with the SSI sector along with estimating the labour productivity. Therefore, a questionnaire was designed accordingly. More thrust was given to the information on human resources and the value of final product along with the value of input used. The questionnaire was pretested taking a few units in each cluster and on the basis of the feedback it was revised. The revised questionnaire was used with the help of the investigators during March and April,2002. The financial data related to the year 2001-02.
3.4. The statistical tools used
The list of SSI manufacturing units in each industrial cluster was collected from the Directorate of Industries, Orissa. As on 31.3.99, there were 1113,2649,986,1428 and 1374 units in Bhubaneswar,Cuttack, Sambalpur,Rourkela and Berhampur respectively.
The Cobb-Douglas production Function of the following form has been used to estimate the labour productivity and the scale of production of the SSI units in the five clusters... Q = A K1 R2 W3 E4 Where :
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Q is the output measured in money term in current prices, K is money value of fixed capital used, R is the money value of raw materials used, W is the total wages and salaries paid to the employees and E is the money value of other recurring expenses. It may be mentioned that the coefficients give the estimate of the productivities associated to each of the inputs and the sum of them gives the scale of operation. Tables and percentages were used for presentation of the information on per capita gap, share of different sector in the net state domestic product, the number of units in the SSI sector in Orissa and generation of employments over the years,the human resource profile in the sample and the training needs.
IV. FINDINGS ON LABOUR PRODUCTIVITY AND TRAINING NEED
Table 4.1 Number Of Ssi (Manufacturing) Units Surveyed In Five Clusters Name of the Place Bhubaneswar Cuttack Sambalpur Rourkela Berhampur Total Source : Sample Survey No. of Units Surveyed 47 37 44 41 43 212
As mentioned earlier a total number of 212 SSI units from the five industrial clusters have been included in the study. A distribution of the sample units is presented in Table 4.1. Initially we had fixed up a sample size of 50 taking different categories of manufacturing units and their number in a particular cluster into consideration. Some units were not included due to reasons mentioned earlier.
From table 4.2 on the funding pattern of the sample SSI units, it is observed that about 50 per cent of the entrepreneurs have availed loan from the banks to start their units. The findings presented vide table 4.3 suggest that most of the entrepreneurs are highly educated. It may be observed that around 80 per cent of the entrepreneurs are either graduates or post graduates with the only exception in Berhampur where only 61 per cent are in this category. However, the technically qualified entrepreneurs are about 5 per cent in all the places. One may relate the findings of the above mentioned two tables with respect to awareness of the entrepreneurs about the different incentives while availing a loan to set up a unit.Table4.4 and 4.5 give the information on employees profile with respect to category of employees and their educational background. It is observed that there are relatively more skilled employees in the units in Bhubaneswar and Cuttack. The educational distribution presented in Table 4.5 corroborates this finding.
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Table 4.2 Funding Patterns of SSIs (Percentage Distribution) Sources of Funding Bank Own Others Total Bhubaneswar 56 26 18 100 Cuttack 51 32 17 100 Sambalpur 45 30 25 100 Rourkela 56 22 22 100 Berhampur 52 24 22 100
Source : Sample Survey
Table 4.3 Proprietors Education Profile (% of Entrepreneurs) Education Level Undergraduate Graduate Post-Graduate Technical Graduates/ Diploma Others Total Bhubaneswar 22 54 08 Cuttack 18 52 15 Sambalpur 18 56 22 Rourkela 15 55 25 Berhampur 39 48 08
04 12 100
12 18 100
02 12 100
05 00 100
05 00 100
Table 4.4 Employees Profile (% of Employees) Education Bhubaneswar Level Managerial / 19 Supervisory Skilled Unskilled Total 42 39 100 Cuttack 14 43 43 100 Sambalpur 12 34 54 100 Rourkela 14 35 51 100 Berhampur 16 29 55 100
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Table 4.5 Educational Profile of Personnel (Percentage of Employees) Education Level Technical Graduate/ Diploma Graduate Under Graduate ITI & others Total Bhubaneswar 11 Cuttack 08 Sambalpur 00 Rourkela 05 Berhampur 00
37 45 17 100
32 48 10 100
28 42 20 100
31 41 23 100
30 38 32 100
Table 4.6 summarizes the information on the trained personnel in the units. We have tried to find out whether any formal training (in the areas of production or management) was received by the employees working in the units .It is surprising to find that only about 10 percent of the employees have received formal training in all the places except Berhampur. Two questions about the usefulness of the formal training for the employees, which may help increase production and the area of training need
for the employees, were asked during the data collection. Tables 4.7.and 4.8 summarize the findings which suggest that the entrepreneurs are more inclined towards training their employees in the area of management which include finance and accounting, marketing and sales management.About 45-50 per cent of the respondents agree that these training will increase the efficiency of the employees. Is may also be noted that about 40-45 per cent of the entrepreneurs are in favour of giving technical training to their employees in
Table 4.6 Percentage Of Employees Receiving Formal Training In The Area Of Production And/Or Management Training Received Yes No Total
Bhubaneswar
Cuttack
Sambalpur
Rourkela
Berhampur
9.5 90.5 100
9.00 91.00 100
8.50 91.5 100
7.00 97.5 100
3.00 100 100
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Table 4.7 Training Needs For The Employees In Ssi Units (% Distribution) Education Level Technical Management Total Bhubaneswar 36 64 100 Cuttack 46 54 100 Sambalpur 41 59 100 Rourkela 25 75 100 Berhampur 35 65 100
Technical Area a) Product Management b) Production Process c) Supply Chain Management d) Quality Control e) Software & Computer
Management Area a) Financial Management for Small Scale Business b) Finance and Accounting c) Marketing & Sales Management d) Human Resource Management
Table 4.8 Percentage Distribution Of Entrepreneurs Relating To Training & Increment In Production Name of the Place Bhubaneswar Cuttack Sambalpur Rourkela Berhampur Total
Yes 45 48 52 41 38 100
No 25 21 27 40 39 100
Not Sure 30 31 21 19 23 100
Cuttack and Sambalpur whereas in Bhubaneswar and Berhampur this percentage is about 35. In Rourkela this percentage is 25 which is the lowest. As mentioned earlier there has been large employment generation in the SSI sector as presented in Table 2.3 and the human resource profile in our sample we have examined the labor productivity in the SSI
units. A Cobb-Douglas Production function has been used to estimate the input elasticities . The results of the estimated equation may be seen in Table 4.9.It is observed that the total input elasticities of the units in Bhubaneswar and Cuttack are a little over one suggesting that these units are operating under increasing return to scale.In the other three places the total input
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elasticities add up to 0.98 in Sambalpur, 0.98 in Rourkela and 0.92 in Berhampur which suggest that they are operating just below constant return. The explanatory power of the equations are quite high in all the equations. One of the most significant features is that raw material has the highest elascities in all the places suggesting that all the units are raw
material driven.The coefficients are also statistically significant at 1% level. The elasticities associated with wages ( which is a proxy variable for labor productivity) are statistically significant at about 5-10 % level of significance. It is observed that the said elasticities are relatively more in Cuttack and Bhubaneswar as compared with the other places.
TABLE 4.9 Cobb-Doughlas Production Function for the SSI Units in Five Clusters Coefficient of Independent Variables Sl. No. Name of the Place Constant Fixed Capital 1 0.71 0.83 0.43 1.22 0.45 0.13 0.14 -0.02 0.12 0.18 Raw Wages Material 2 3 0.43 (0.08) 0.45 (0.12) 0.56 (0.73) 0.70 (0.19) 0.52 (0.01) 0.33 (0.008) 0.31 (0.000) 0.25 (0.000) 0.14 (0.000) 0.13 (0.000) Other Adjusted Return to Scale Expenses R2 4 0.22 0.33 0.18 (0.06) 0.17 (0.000) 0.02 (0.47) 0.10 (0.43) 0.82 (0.03) 0.87 (0.09) 0.92 (0.16) 0.81 (0.37) 0.72 (0.25) 1.11 (0.25) 1.08 0.96 0.98 0.93
1. Bhubaneswar 2. Cuttack 3. Sambalpur 4. Rourkela 5. Berhampur
Coefficients and the significance levels (figures in the parentheses) have been presented in the respective columns for the independent variables.
V. CONCLUSION
On the basis of our findings the following conclusions emerge. There has been a consistent growth in the number of small-scale industries in Orissa. It has been observed that up to the 7th Plan period the total number of units
established in the state were about 35867 with a total investment of Rs 437 crores employing 2.65 lakh persons. Further, in another decade (from 90-91to 2001-02) 34280 SSI units were established with a total investment of 1276 crores of rupees which employed another 1.87 lakhs of people. Looking at these figures
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particularly with respect to investment and employment generation, the role of the SSI units appears to be very important. However, when the contribution of the secondary sector to the state domestic product is considered it seems that these units are not having a major role. This can be corroborated with our findings relating to the scale of production. Almost all the units are operating under constant return and all are raw material driven. It is argued that raw material driven SSIs are not sustainable (Krugman,1994) in terms of incremental addition to the domestic product. The share of the secondary sector in the state domestic product corroborates such a phenomenon over the last two decades. The other reason for the declining share of the secondary sector could be the growing number of sick / closed down SSI units. In a recent survey conducted at the government level the incidence of closure/sickness is very high (about 45%). Although there has been large employment generation in the SSI sector the input elasticities for wages( a proxy variable for labor productivity) are very low suggesting that production is not sensitive to this factor of production. In this context the characteristics of the human resource employed in the SSI units may be examined. It was found in the present study that low elasticities are associated with the units in which there are more unskilled labor. It may suggest that the production is more sensitive to technically skilled personnel. Coming to
the type of training, a majority of the entrepreneurs opted for areas like finance,accounting ,marketing and sales management. A few opted for areas like production process and quality control. Hence,while designing training programmes, these areas should be given their due consideration.
REFERENCES
1. Banerjee, A (1975) Capital and Productivity in Indian Industry, Macmillan, Delhi. 2. Bhattacharya ,S.N. Development of Small Scale and Cottage Industries, the Indian experience, Metropolitan Book Co., New Delhi. 3. Dholakia B.H. and R.H. Dholakia (1994) Total Factor Productivity Growth in Indian Manufacturing Economic and Political Weekly December 31. Government of Orissa, Economic Survey ,1990-91,95-96,2002-03. 4. Gupta, S.P. (2001) Report of the Study Group on Development of Small Scale Sector Planning Commission,Government of India 5. Jain, S.K. (2001) : A Study of Training Need Assessment of the SSI Sector in the NCT of Delhi, sponsored by SIDBI, Department of Management Studies, IIT, Delhi. 6. Industrial Policy Resolutions 7. Mishra, Madhu S (1988) : Profile and Training Needs of Nursing and Paramedical Manpower in Orissa, in the book Proceeding of Regional Workshop on Population Training Institutes Management for South Central and East Asia, Niport, Dhaka, Bangladesh. 8. Mishra, P. (2001) : Performance of Small Scale Industries and Linkage Effects A Sample Study in Orissa, A Research Project sponsored by SIDBI and conducted by Xavier Institute of Management, Bhubaneswar
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9. Mohanty,Bedabati: (1986), Economics of Small Scale Industries,Ashish Publishing House,Punjabi Bag,New Delhi. 10. Orissa Development Report, (2002). Planning Commission,Government of India. 11. Pampiglione, Guglieolmo (1997) : Indian Cotton Farming Study identifies Training Needs of Farmers at Imperial College, Andhra Pradesh, India in Internet : http:// www.pan-uk.org/pestnews/pn45/ pn45p12.htm. 12. Pradhan, G. & K.Barik (1998) Fluctuating Total Factor Productivity in India : Evidence from Selected Polluting Industries Economic & Political Weekly, February 28.
13. (1999) Total Factor Productivity Growth in Developing Economies, A Study of Selected Industries in India, Economic & Political Weekly July 31st. 14. Steeten, P. (1963) Balanced Vrs. Unbalanced Growth, The Economic Weekly April 20,1963. 15. Vyasulu Vinod& Kumar AVA: Industrialisation in Orissa-Trends and Structure;Economic and Political Weekly Vol XXXII-22,1997 16. State Level Workshop on Orissa Indutrial Policy Resolution 2001-Vision Strategy and Action Plan,9 th and 10 th ,May 2001, Bhubaneswar,Orissa
Perspective
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Teaching Business Ethics: The New Imperative on Business Schools*

B.P.Patra1
I. BUSINESS ETHICS IS NECESSARY FOR DOING BUSINESS:
The recent scandals of Enron, WorldCom, Tyco, Adelphia, Rite Aid, Health South, Arthur Andersen, Earnest & Young, J.P Morgan, Merrill Lynch, Morgan Stanley, Xerox, and Boeing Corporation clearly illustrate the perilous consequences of corporate misconduct. The insatiable greed and lust for power not only ruined these organizations but also wounded the society at large. They have done irreparable damages to creditors, employees, competitors and the shareholders (particularly the small investors). The two major scams (Harshad Meheta and Ketan Parekh) in the Indian stock market and major brokerage houses like Smith-Barney and Merrill-Lynch in USA have betrayed small investors with inflated stock recommendations. This clearly gives an idea about the indifferent attitude of the stock brokers towards the small investors. The root cause of the entire crisis is ethical break-down (or moral failure) not market failure.
With the growing number of corporate scandals coming into light, business schools all over the world are becoming conscious of the fact that traditional value free management education is to be blamed for the disgrace. Even the public of the entire world recognized that corporate misconduct and criminality is caused due to the lack of training in business ethics. Many National Accreditation Boards acknowledged that the amoral culture of business schools is one of the key factors leading to this disastrous consequence. The personal values students imbibed from their family get stifled by the value free education they get in business schools. In fact business schools kill their potential of becoming ethical leaders. Koehn Daryl (2003) in his presidential address to Society of Business Ethics said, Business schools instill wrong values or ignore issues critical to developing integrity (Business Instructions: Post Enron, Seattle). Business schools contribute a lot to the break-down in ethical decision making.
* Received September 14, 2005 1. Associate Professor, Xavier Institute of Management, Bhubaneswar, bibhu@ximb.ac.in
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Many of the corporate crooks are B-school graduates. For example, Jeffry Skilling, Enron CEO, an MBA from Harvard, Andrew Fastow the CFO of Enron an MBA from North Western Keneth Lay former Enron chair, graduated from Oklahoma State University with business degrees. After taking the usual value free course work in economics, finance, marketing, and behavioral skill they tend to develop an amoral myopic vision and fail to understand the significance of ethics that ensures stability and sustainability to both business and society.
II. END OF THE MYTH
so that a reasonable balance is maintained between doing well in business and giving better goods and services to the society and generally value its reputation (T.De George, 1990; Solomon, 1999). The scandals, scams, irregularities and violations committed by the organizations are highly perplexing for the society. Society is straight away reacting to any such deviant business practices. Investors are now publicly challenging the irregularities that occur at any level (board level or managerial level) of business operations. Of course, it is necessary to make profit or get return on investment in order to take the business forward but it is not sufficient for flourishing in business. It has been observed that many profit making organizations vanished from the market not because of market failure but because they fail to address certain macro and micro level issues like dealing with employees, customers, suppliers, community , natural environment , free and openness in transactions(transparency), integrity and responsiveness to complaint and criticism (accountability). Organizations in order to be stable and sustainable in business have to take into account the above mentioned factors.
III. SHAPING THE FUTURE LEADERS
The perception of business as jungle, a dog eat dog world, market force is everything, profit is everything, business is amoral (i.e. business has nothing to do with ethics), and business and ethics are incongruous is a myth. In fact, business constitutes a very important part of the society. Business is something which provides goods and services that society needs. It is not separate from society or imposed upon society, rather it is an integral part of society and its activities. As an integral part of the society, business organizations have certain duties, responsibilities and obligations towards the society which provides them with opportunity to conduct business. The executives and employees of the corporations who carry out business activities must act in a responsible way
Belatedly, B-schools are realizing that managerial decision making requires a strong training in ethics and value .Thus more and more B-schools are now
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integrating business ethics as a compulsory course into their curriculum. In order to prevent the risk associated with moral failure students need to develop a clear perceptive of the ethical issues. The main aim of the course is to sensitize the students to different ethical issues entailed in contemporary business. Ethics education immensely helps students to resolve moral dilemmas they face in their personal and professional life. In order to recognize and resolve the ethical problems conceptual knowledge of moral theories with relevant case studies are introduced to augment students understanding of ethical problems. B-schools all over the world are trying their best to prepare their students to face the various moral problems involved in business and find ethical analysis less wearisome in their work place. There is a conscious effort to motivate students to act ethically and rationally in business decision-making as well as other areas of life. Of course, the objective of the ethics education is neither character building, nor providing any specific solution to wipe out unethical business behaviour. Rather, the primary purpose of ethics education is to prepare the students to prevent unethical activities that affect business (both in macro and micro level). Acting ethically pays and it protects the interest of society and ones company. Fulfilling self interest and interest of the community is complementary to each
other. There is therefore, every reason to act ethically. Business Ethics course is devoted to explore the ethical truth in the professions through critical and logical analysis. Conceptual clarity of some basic moral conduct concepts like; right, wrong, good, bad, just, unjust, obligation, responsibility, duty, virtue, vice and lucid exposition of moral theories provide them the support to take effective decision . Thus, business ethics course acts as a practical tool (like other functional areas) to help the students to take-up responsibility by using sound moral judgment, create value (for stake holders), which are morally rich, put together doing right things and doing right things for business, and meet the situation of scandal and fraud with moral courage. Students realize that the old excuse the business of business is business is no more a sound principle for doing business.
IV. UNDERSTANDING MORAL PROBLEMS
Besides this, social audit managers also encounter moral problems while taking decisions. Most of them wrongly believe that they know how to choose between right and wrong, good and bad, just and unjust, and recognize duties and obligations etc. They think ethics is something that we learn at our early childhood i.e. at the kindergarten stage. But on many occasions they find it difficult to decide between two conflicting but equally
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important duties. Managers often find it difficult to decide right from right and between less and more wrong. In the absence of a proper ethical orientation and a theoretical backing it becomes very difficult for them to resolve these issues. In many cases they take decisions which are immature, self-indulgent and hasty (Badaracco1997). In many cases business provides an arena where managers are weaned from their consciences. They learn to function by the operational code. Thus, in organizational life many managers experience various forms of uncertainty, duality and moral ambiguity (Punch, 1996). This is because by and large managers are not exposed to critical thinking. Thus, teaching ethical theories at MBA level expose them to critical thinking. They will be able to reflect on what one is doing and can his/her action in principle be applied as a rule for some other actions like that. Kohlberg (1976) calls this the universal ethical principle stage. At this stage the individual thoroughly examines the rational ground on which his/her action is based. He or she understands in details of his or her moral capacities or virtues through the internalization of the moral standards prevalent in their communities. It also reveals how one becomes increasingly sophisticated and critical in understanding of the moral standards. Hence, there is a need to expose MBAs to clear logical and philosophical thinking. Business ethics as a branch of applied
ethics act as useful tool to guide managers in resolving the dilemmas and give the philosophical backbone to explain their action. Ethical theories like scientific theories explain human actions and endow managers with the skill to justify their action and understand actions of others in a better way.
V. ARE MBA PROGRAMMES RESPONSIBLE FOR ETHICAL FAILURE?
Jeffrey Garten, Dean of Yell School of Management, suggested that business school education requires careful reexamination. He contended that broad social dimensions, of business operations, such as environmental protection, globalization, and public policy and management integrity need far better coverage and integration into existing business school curricula. Business school education effectively addresses the factors required for success at the firm level but do not deal with questions of what society requires of its business leaders. MBA education, mainly preoccupied with financial imperatives, puts emphasis on share holders value. But Aspen Institute Survey of 2,700 MBA students at 13 major business schools, including Wharton, Darden Berkeley and Colombia indicated that if they were to face an ethical conflict due to disagreement with extent corporate value and policies they would leave their company rather than fight for change. One wonders if such managerial capitulation is the sort the business
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leadership that an MBA education ought to instill. MBA Programmes are partially responsible for ethical failure because they give narrow short-sighted specific financial target oriented training to their students. Such training, restricted to economic utilitarianism with cost-benefit analysis, orients students not to think beyond bottom-line. (Laczriak and Murphy, 2005). The root problem of decaying business ethics lies in what business schools are currently teaching. The sort of competitive strategy frameworks taught as part of the MBA curriculum impart values that are in opposition to good business ethics. (Ghoshal ,2003) The accrediting standards pay little attention to ethics teaching. Some universities and institutes where ethics is taught do not have trained teachers. The general misconception again is that any one can teach ethics regardless of training. Given the value free economics on business school cultures, many professors have a hostile attitude towards ethics. This sends the message that ethics does not matter, which translate into denying their future social responsibility as future business leaders. (Swanson and Fredrick, 2005)
VI. BUSINESS ETHICS IS VITAL FOR LEADERSHIP
Lack of in-depth analysis leads business schools to impart business education which only satisfies the operational aspect of business. In this framework profit and growth direction supersedes other values. Issues related to individual, community, and societal wellbeing, respect for the intrinsic worth of stakeholders, nature and future generation are often ignored. Business ethics is critically important for leadership. Without it the effectiveness and efficiency of the economic system are literally at risk. Ethics education instills reflections that put emphasis on cultivating others and drive out the narrow ego driven needs. The future managers (Leaders) discover themselves, and clearly understand the underlying principles that govern their action (behaviour). Like other theories of science and mathematics particularly application of ethical theories helps them to provide better reason and justification of their action. Ethics training equips the leaders to deal with ethical issues effectively in the work place. Willber (1996) has developed an integral prospective to develop ethical managers. Integral approach to business education according to him requires proper understanding of the system. He says integration of (i) I, we, and it/its; (ii) individual (self), culture, and world ;( iii) the beautiful, the good, and the true ;( iv) art, moral and science would transform the managers to visionary leaders. Following corporate leaders have demonstated holistic approach to doing
Business schools only teach their students the operational aspect (narrow short term goal) of business. They constantly ignore the adaptive aspect (long term stability and sustainability) of the organization.
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business. They have demonstrated that business and community are two sides of the same coin. Henry Ford, Edward Cadbury, J.R.D. Tata, H.P. Parekh, Narayan Murthy, Azim Premji, never give emphasis to the narrow financial gain and transformed their organization into great human institutions. Henry Ford a self-made entrepreneur contends that the purpose of business was to make thing (in his case cars), which were of real service to the community. The very basic purpose of business get defeated when business thrust the product on the people and think that people will buy what we have to sell. This is criminal. Edward Cadbury a very successful business leader condemns the low standard of life of the workers. He emphasized physical decency and comfort of the labours. All the distinctive human qualities like, hopefulness, freedom, self respect and social ambitions are national assets. Employers who do not pay proper wages to their employees are parasites on the present and future of the nation (Wetzel, 2002 pp 4-5). J.R.D. Tata became the fourth Chairman of the Tata group in 1938 at the age of 34. He created a history by his contribution to business and society. For him, to be a leader is to lead human beings with affection. His core interest was the benefit of people - a philosophy with which he guided the destiny of the largest
business house. JRDs values contradict Milton Friedmans dictum that responsibility of managers is only to produce money for the shareholders. His greatness lay in maintaining two goals in sight- the goal of business and the broader goal of society (Maira, 2004). Narayan Murthy, the Chief mentor of Infosys, holds that the essence of leadership lies in having a value system that creates the environment for self esteem, belief in fundamental values like honesty, integrity and trustworthiness for long term benefits of the stakeholders. A survey conducted in 2002 among business schools including three Indian Institutes of Management applauded Murthy as Indias most admired business leader. Majority of respondent (MBA students) admire him for his ethics. The survey was carried out by a Banglore based communication consultancy Brand com. (Rediff.com. Dec 9, 2002) Azim Premji, chairman of Wipro Ltd., one of the leading software service exporters of India, has reputation for holding high ethical standards. His father M.H. Hasham Premji founded the company in 1945 to make vegetable oil. The elder Premjis value system was based on his sense of right way to do things, which was certainly not based on careful calculation of business cost benefit analysis. Azim Premji maintained the legacy of his father and insists on honesty even when it is contrary to financial interest. His regards for the core values enhance the companys reputation in the market place (Paine, 2003)
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H.T. Parekh when first envisioned Housing Development Financial Corporation Limited (HDFC) thought that the company would be guided by the professional integrity. Parekshs standing advice to HDFC employees was to make decisions they would stand by forever and to do nothing they would find embarrassing if it became public. Because of its guiding principles integrity, transparency, sharing, customer service, civic responsibility and genuineness of purpose, HDFC, is now regarded as Indias best managed companies. (Paine, 2003, pp.25-27) These businessmen cared for the stakeholders. They thought further than profit. For them their own perception and genuineness of purpose (i.e. providing goods and services) was the guiding force. They are true philosophers of their own kind. They pursue their goals with hope and trust.
VII.CONCLUSION
good batting average. Wrong. You need a good average to keep playing and get into the first team. We need to clean up our logic (Handy, 1995, p. 59). In case of business education also we need to clean up our logic. What is the basic purpose of business education? Is it to teach students only the specialized, quantitative oriented courses that meet the narrow economic gain? Or how to make profit? But profit is only a means to some end; it is not an end in itself. So MBA education must prepare students to recognize the right end and think beyond the bottom line. The short sightedness and stubbornness that dominate the BSchool education constantly hampers both the individual and social development. A good business school not only develops the skill but also the virtue of its students. A proper exposition of individual value, organizational value and value of business community (as integral part of the society) in business curricula will inculcate a better and broader understanding of business management amongst the MBA Students.
REFERENCES
Badaracco, Joseph L,(1997) Defining Moments, Harvard Business School Press. Boatwright, John R.,(1995) Cases in Ethics and the conduct of Business , Prentice hall, Englewood Cliff, New Jersey . Buchholz, Rogene, A.(1989) Fundamental Concepts and problems in Business Ethics, Prentice Hall, Eaglewood Cliffs, New Jersey. Donaldson, Thomson & Werhane Patrica, H.,(1993) Ethical Issues in Business : A
In the end, I would like to point out that the basic purpose of teaching business ethics is not to moralize, rather to analyze the basic purpose of doing business i.e. the forgotten fact that corporations are created by society to fulfill societys need. The principal purpose of business is not to make profit. Profit is the engine that takes the business forward but it is not the destination of business. As Charles Handy raises the question, profit is the principal yardstick.. but a yardstick for what? And how can a yardstick be a purpose? It is like saying that you play cricket to get
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philosophical Approach, (Fourth Edition) Prentice Hall Englewood Cliff, New Jersey. Frederick, William and Swanson, Diane L.,(2005) Denial and Leadership in Business Education, in M. Robert, A. Peterson and O.C. Ferrell (ed) Business Ethics; New Challenges for Business Schools and Corporate Leaders, Prentice Hall of India, New Delhi, 2005 pp. 222-240. Frankena, William K.,(1973) Ethics, (Second Edition) Prentice Hall of India, New Delhi. Gell-Mann, M. (1994) The quark and the Jaguar: Adventures in the Simple and the Complex, London, Abacus. George, Richard T.De.(1990) Business ethics, (Third Edition) Macmillan Publishing Company New York. Ghoshal, Sumantra (2003) Business Schools Share the Balance for Enron, Financial Times, July 18. Griffin, Douglas (2002) The Emergence of Leadership: Linking self-organization and Ethics, Routledge, London. Handy, Charles (1995), The Age of Paradox, Harvard Business School Press. Kohlberg, Lawrence (1976), Moral Stages and Moralization: The Cognitive Approach to Socialization. In Moral Development and Behavior: Theory Research, and Social Issues, ed. Thomas Lickona. New York: Holt, Rinehart and Winston, pp31-53.
Laczniak, Gene R. and Murphy, Patrick E. , (2005)Ethical Leadership for Improved Corporate Governance, and Better Business Education, in M. Robert, A. Peterson and O.C. Ferrell (ed) Business Ethics; New Challenges for Business Schools and Corporate Leaders, Prentice Hall of India, New Delhi, 2005 ,pp 175 195. Maira ,Arun, (2004) Remaking India one country one Destiny, Response Books, New Delhi Paine, Sharp Lynn (2003), Value Shift, Tata McGraw-Hill, New Delhi. Punch, M (1996), Dirty Business, Sage Publications, London. Sen., A. Ethics and Economics, Oxford University press, 1987. Shaw, William H. Business Ethics, (2002) (4th edition), Thomson /Wordsworth. Solomon, Robert C. (1999) The Better Way to Think About Business: How personal Integrity Leads to Corporate Success, Oxford University Press, New York. Sternberg, Elaine (1994), Just Business: Business Ethics in Action, Warner Books, London Velasquez, Manuel G. (2004) Business Ethics; Concepts and Cases, (5th edition) Pearson Education. Wilber, Ken (1996) A Brief History of Everything, Boston: Shambala . Witzel, Morgen, (2002), The emergence of Business Ethics. http://www.theomos.com, Thomas, continuum, the history of ideas. (pp 18)
Perspective
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Business Ethics : Contemporary Perspectives and Practices*

C. P. Bhatta1
Abstract
Performance and competencies, without ethics and values lead to inauthentic excellence. Undoubtedly Goals are important. But it is Ethics and Values that sustain and give meaning to the efforts. One can compromise and negotiate on goals, but cannot negotiate values. Performance based on ethics and values can alone be considered as authentic excellence (Moid Siddiqui, 2001). The author argues that with the paradigm shift in ethics, drivers of business success would take to consider such other factors as reputation for ethical behaviour, commitment to employees, customer loyalty and community needs.
I. INTRODUCTION
Though profit continues to be an integral part of business; it is certainly not the primary purpose. Neither business can shun moral values, nor can it ignore its functional compulsions. There is a real need for some focus of accountability on the part of the business that is not confined to the shareholders alone but from the broader perspective of what is best for the society at large. If a company can improve the quality of life of customers and help to solve their problems, then the operations, activities and relationships of the company will automatically grow. Also then, there is every possibility of an integration of private and public good simultaneously. It is in the goal of serving
society that the personal interest of company and the interest of society meet. Corporate world is gradually realizing its responsibility to all their stakeholders going beyond investors and returns on investments. There is wider acknowledgement today that caring for environmental issues also makes direct business sense besides playing a significant role in shaping reputations and building brand equity. This paper examines the issue of business ethics from this perspective and provides a few authentic examples of best practices from India and abroad in this regard.
II. DEFINITION OF BUSINESS ETHICS
The word Ethics called ethicus in Latin and ethikos in Greek means character or
* Received June 15, 2005 1. Professor, Indian Institute of Management, Calcutta, cpbhatta@iimcal.ac.in
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manners. Ethics is thus said to be the science of morals, a treatise on moral principles, and recognised rules of conduct (Guttorm Floistad, 1995). Ethics is about right and wrong, good and bad. It is more than a set of rules of conduct. Ethics basically comprises the conduct of a person or group in relation to others in support of crucial collective goals such as social stability, well being and progress (Sharma, I.C.1962.). In the public mind, ethics in business is mainly identified with financial integrity. Important as that is, the real meaning of ethics goes beyond that. The dictionary defines it as the science of morals in human conduct, a moral principle or code. It encompasses the entire spectrum of human conduct. Business ethics lays down appropriate standard of conduct to be followed by workers, shareholders, customers, the community, the government, the environment and even the nation at large. Ethics is a very practical approach towards attaining goals in an environment that involves other people. In the words of Emanuel Levinas, ethics is an awareness of other people, such that a person is individuated by responsibility for the other (Dipankar Gupta, 2004). Business ethics is the appropriate conduct to be followed by the employers and workers at the workplace. Business ethics does not differ from generally accepted norms of good or bad practices. Peter
Drucker says, There neither is a separate ethics of business, nor is one needed. If dishonesty is considered to be unethical and immoral in the society, then any businessman who is dishonest with his or her employees, customers, shareholders or competitors is an unethical and immoral person. If protecting others from any harm is considered to be ethical, then a company, which recalls a defective or harmful product from the market, is an ethical company. To be considered ethical, businessmen must draw their ideas about what is desirable behaviour from the same sources as anybody else would draw. Businessmen should not try to evolve their own principles to justify what is right and what is wrong. People who are in business are bound by the same ethical principles that apply to others. Mirror test metaphor helps people in developing a desirable image. This is better understood through the story of a German Ambassador in London in the early years of the twentieth century. This diplomat was clearly destined for higher things, at least to become his countrys Foreign Minister, if not German Federal Chancellor. Yet, in 1906, he abruptly resigned. King Edward VII had then been on the British throne for five years, and the diplomatic corps was going to give him a big dinner. The German ambassador, being the dean of the diplomatic corps-he had been in London for close to fifteen years-was to be the
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chairman of that dinner. King Edward VII was a notorious womanizer and made it clear what kind of dinner he wanted-at the end, after the desert had been served, a huge cake was going to appear, and out of it would jump a dozen or more naked prostitutes as the lights were dimmed. And the German ambassador resigned rather than preside over this dinner. He said, I refuse to see a pimp in the mirror in the morning when I shave. This is the mirror test. What ethics requires is to ask oneself: What kind of person do I want to see when I shave myself in the morning, or put on my lipstick in the morning? Ethics in other words, are a clear value system (Peter Drucker, 2003). Azim Premji, Chairman and Managing Director of Wipro would tell the employees to undergo a paper test which says, Dont do anything that youre unwilling to have published in tomorrows newspaper with your photograph next to it.
III. PRACTISING VISION AND MISSION
commitment and effort from the employees. The purpose needs to be inspiring or challenging, seen as worthwhile, as serving society in some higher way than the material interests of the stakeholders. The statement of vision, mission and policies, however numerous, well-crafted and articulate, are futile if the organizations actions and behaviour are inconsistent with these statements. There are only very few organizations that live up to their mission statements irrespective of the cost involved in it. Companies like Enron did have grand vision/mission statements and a wellpublicised code of ethics but the scandals happened despite them. When the company culture turns a blind eye or even abets and rewards improper conduct, no code of ethics can prevent a business disaster (Padma, 2003). After the very public denouncement of high profile companies like Arthur Anderson, Enron and World Com, organizations are scrambling now to show their compliance to a code of conduct and making sure that all employees are exposed to it. The management should clearly communicate to the employees their responsibilities and behaviours that reflect their values and policies. We review here a few select companies from India and abroad which are noted not only for raising workable vision and mission statements but also translated them into action.
The mission statement of corporations is intended to serve leaders as an expression of their vision and sense of stewardship. It attempts to encompass, in one brief sentence, the core values of the organizations; it creates a context that gives meaning, direction, and coherence to everything else. A statement of purpose that is about meeting the needs of all the stakeholders is unlikely to call forth exceptional
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Levi Strauss & Co has been recognized worldwide for its firm commitment to core values and for a mission that specifically references the companys responsibilities to the larger society. In addition to formal mission and vision statements, the company has an Aspiration Statement that addresses such issues as trust, teamwork, ethics, diversity and empowerment. Each of the companys statements serves as part of a roadmap, guiding managers and employees in their day-to-day business operations and long-term planning. As part of the companys corporate culture, values are considered a living element and the foundation of all business decisions. The company regularly involves employees in values exploration processes in which people assess what they personally feel is important and examine ways to integrate those values into business decisions (Philip Sadler, 2004). An outstanding example of a leader translating values into action is the case cited by Ciulla (1999), of P Roy Vagelos, one-time CEO of Merck. In 1979, when he was director of the companys research laboratories, he was approached by a researcher who has developed a theory that an anti-parasite drug called Invermectin might prove to be an effective treatment for river blindness, a disease leading to loss of eyesight in the developing countries. He
asked for permission to pursue the research. Despite the fact that the market for this drug would be confined to the worlds poorest countries and was, therefore, commercially unattractive, Vagelos gave his assent. The research led to the production of a drug called Mectizan, which was approved for use in 1987, by which time Vagelos had moved to be CEO of the company. He employed Dr. Henry Kissinger to try to raise funding for the drugs distribution from sources such as the World Health Organisation; but this was unsuccessful. The company was left facing the prospect of having a drug that the intended beneficiaries would not be able to afford to buy. Vagelos consulted his directors and then announced that Merck would give the drug free of cost. By 1996 Mectizan had reached 19 million people, at a cost to Merck of US $200 million people. This decision was in line with Mercks core value that Medicine is for the patients, not for profit (Philip Sadler, 2004). Ratan N Tata, Chairman and Managing Director of Tata Sons Ltd pronounced a set of values with a small explanatory notes on them which should guide all his companies. We reproduce the same below: Integrity: We must conduct our business fairly, with honesty and transparency. Everything, we do must stand the test of public scrutiny. Understanding: We must be caring, show respect, compassion and humanity for our
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colleagues and customers around the world and always work for the benefit of India. Excellence: We must constantly strive to achieve the highest possible standards in our day-to-day work and in the quality of the goods and services we provide. Unity: We must work cohesively with our colleagues across the group and with our customers and partners around the world, building strong relationships based on tolerance, understanding and mutual cooperation. Responsibility: We must continue to be responsible, sensitive to the countries, communities and environments in which we work, always ensuring that what comes from the people goes back to the people many times over (Lala, R.M, 2004). The founder Chairman of the Infosys, Narayana Murthy when asked in an interview about his greatest achievement said that his greatest achievement is sustaining a value system in the company over the last twenty years (Lala, R.M, 2001). He summed it up with the phrase the softest pillow is a clear conscience. And he would like to be remembered as a fair person who prefers public good over private good (Chary, S.N, 2002). His framework of beliefs on which Infosys has based corporate governance practices could be summarised as follows:
l
Progress is predicated on trust, confidence and optimism in public institutes, and these should not be violated at any cost. A firm must ensure fairness and the highest level of disclosure and transparency in all its transactions. For long-term success of a corporation, a sound value system is essential. It should be the fundamental pillar of corporate governance practices.
Polyhydron Pvt. Ltd., located on the outskirts of Belgaum in Karnataka state has attracted much attention for its unique management style (Kalburgi M Srinivas, 2003). The companys declared management philosophy is: To recognize our responsibility as industrialists and devote ourselves to further development of healthy industrial culture; to accept the fact that our business are no longer our private affairs, but are public enterprises entrusted to us, to promote the general welfare of society. The mission statement prepared in 1996 states: We will nurture an ethically managed organization; we will not exploit our customers, employees, suppliers, government, society, and nature. The company takes pride in its honest and diligent payment of all statutory levies such as income tax, sales tax, excise and the like. The company has been awarded a certificate as a diligent taxpayer by the
Putting public good ahead of private good will eventually lead to private good.
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income tax department. The company is quite serious in its commitment to principles. One sees a caption sign in large letters at the entrance: Temple of Ethics. The company believes in participating in the social causes in its immediate surroundings. It has contributed to needy educational institutions, to city improvement programmes and support of local athletes when chosen for national and international competitions. Annually it earmarks one percent of its earnings before tax for such societal causes. In addition, since 1995-96 the employees also contribute one percent of their earnings to similar causes, paying into a societal welfare fund. South African Breweries (SAB plc) is an international company which sets out its values in eight statements: 1. We conduct our business with integrity, respecting all applicable laws. 2. We are straightforward and honest in the commitments we make, seeking mutually beneficial and enduring relationships; and being open and accurate in our communication. 3. We respect the rights and dignity of individuals. We value cultural diversity and promote inclusivity through employee participation and empowerment. 4. We optimize the creation of wealth to provide fair reward, and recognition,
for the contributions of all our stakeholders. 5. We create and sustain a safe and healthy working environment that, in addition, provides job satisfaction and the development of each employees potential. 6. We provide products and services of uncompromising quality to meet the needs of our customers. 7. We are a responsible corporate citizen and fulfill our responsibilities as an integral member of society. In our business decisions, while asserting our right to trade freely, we give appropriate consideration to social and environmental impacts. 8. We expect these company values to be upheld by all employees and by the third parties we engage to act on our behalf, such as our suppliers, contractors and other agents. In joint ventures, we seek to ensure that our business partners apply these values. Bovis Lend Lease is a UK company that has set out its core values very clearly and published them on its Web site. The values include:
l
Integrity: Maintaining the highest ethical standards and upholding the reputation of the company. Respect for people and cultures: Embracing diversity and providing an environment that allows employees to achieve the right work and life balance.
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Client satisfaction: Focusing on building sustained relationships, and on meeting and exceeding expectations. Teamwork: Creating value through partnerships. Corporate citizenship: Taking responsibility for the environments in which the company operates, focusing on safety and corporate responsibility in all areas of operations. Safety: Being committed to providing employees, stakeholders and the surrounding community with the safest possible working environment.
materials, unnecessary wastage, inappropriate disposal of effluents and waste, and pollution are only the tip of the iceberg. The corporate world has a critical role to play in terms of its approach to these concerns and needs to act with a sense of heightened responsibility. Businesses can ensure environmental sustainability in many ways, starting with their own products and facilities. These include ensuring that their suppliers and channel partners adhere to environmental norms, implementing sound environmental management systems, and targeting resource efficiency in areas like transport, energy and waste management. Initiatives such as using renewable sources of energy and recycling can play a key role in environmental responsibility. Implementing internal programmes such as rainwater harvesting, water recycling at the plants, effluent treatment and pollution control are essential. On another level, measures such as industry certification, environmental practices benchmarking, aesthetic considerations, greening initiatives, and awareness programmes for employees and public also contribute to environmental responsibility (Ravi Uppal, 2004). J.R.D Tatas observation in this regard is worth quoting here: I believe that the social responsibilities of our industrial enterprises should now extend, even beyond serving people, to the environment. This need
The core values have to be prioritized in order of importance. The sequence of core values should be such that only after the first principle is observed the next gets active and so forth down the line. Prioritizing means that latter order values are articulated and operationalised in terms of those that precede them. For example the core values of Disneys theme parks are, in order of importance, safety, courtesy, the show, and last of all, efficiency (Blanchard 1998:33). As safety comes before all else, parents know that no matter how gravity defying the rides may appear, their children are safe in a Disney park (Dipanker Gupta, 2004).
IV. BEYOND HUMAN ETHICS
An increasingly aware and environmentally conscious public is demanding higher environmental accountability from the corporate world. Indiscriminate extraction of raw
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is now fairly well organized but there is still considerable scope for most industrial ventures to extend their support not only to human beings but also to the land, to the forest, to the waters and to the creatures that inhabit them. I hope that such need will be increasingly recognized by all industries and their managements because of the neglect from which they have suffered for so long and the physical damage that the growth of industry has inflicted, and still inflicts on them (Lala, R.M, 2004). For Jamsetji Tata and JRD Tata, establishment of their industrial empire was more of a social duty than for private earnings. Tatas efforts for the advancement of the township of Jamshedpur are well-known. To put JRDs ideas into action, the Articles of Association of leading Tata companies were amended and social obligations beyond the welfare of employees was accepted as part of the groups objectives (Lala, R.M, 2004). In a speech in Madras in1969 he called on the managements of industries located in rural or semi-urban areas to think of their less fortunate neighbours in the surrounding regions. Let industry established in the countryside `adopt the villages in its neighbourhood; let some of the time of its managers, its engineers, doctors and skilled specialists be spared to help and advise the people of the villages and to supervise new
developments undertaken by cooperative effort between them and the company.

V. BEYOND PROFIT
Japanese Businessmen like Yukichi Fukuzawa (1835-1901) and Eiichi Shibusawa (1840-1931) strove to demonstrate that profit is only a good thing if it is made in the process of striving for higher goals, such as benefitting society and the world at large. Shibusawa asserted: Profit should not be the primary motivation for business activities, but it will come in due course to those who take a long-range view of business planning, those who treat their employees justly and recognize them as the real strength of any enterprise, those who deal with their customers honestly, and those who tie the progress of their commercial endeavours to the progress of their country (Jack Steward and Howard Van Zandt, 1985). Konusuke Matsushita said: Profit Making is important, but this does not mean that profit-making should be the supreme objective of corporate activities; it should be considered as a means for realizing more important values, to achieve greater, more worthwhile objectives. In other words, profit-making must go hand in hand with business ethics. Unethical pursuit of profits cannot be justified (Konusuke Matsushita, 1989)
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Dave Packard has clearly articulated the purpose of a companys existence in the following statement; I want to discuss why a company exists in the first place I think many people assume, wrongly, that a company exists simply to make money. While this is an important result of a companys existence, we have to go deeper and find the real reasons for our being we inevitably come to the conclusion that a group of people get together and exist as an institution that we call a company so that they are able to accomplish something collectively that they could not accomplish separately-they make a contribution to society (Philip Sadler, 2004).
VI. CONCLUSION
market share, brand strength and growth potential, but also such factors as reputation for ethical behaviour, employee commitment, customer loyalty, and community involvement.
REFERENCES
Blachard, Ken, (1987), Managing By Values, in Ken Shelton (Ed), Integrity at Work (Utah: Executive Excellence Publications. Chary, S.N, (2002), Business Gurus Speak, Mac Millan, New Delhi. Ciulla, J.B, (1999), The importance of leadership in shaping business values, Long Range Planning, 32 (2), pp. 166-172. Drucker, Peter F, (2003), Management Challenges st for the 21 Century, Butterworth Heinemann, New Delhi. Employment News, September 27- October 3, 03, New Delhi. Floistad, Guttorm, (1995). Community Culture, Ethics, Professional and Human Values: A Gupta, Dipankar, (2000). Ethics Incorporated: Top Priority and Bottom Line, Harper Collins Publishers India, New Delhi. Lala, R.M, (2002). A Touch of Greatness: Encounters with the Eminent, Penguin Books, New Delhi. (2003). The Creation of Wealth, Penguin Viking, 2004. (2004), The Hindu, July 29. M Srinivas, Kalburgi, (2003). Polyhydron (Pvt.) Ltd. Belgaum, Karnataka. This Case Study is to appear in a forthcoming book. th Matsushita, Konusuke, (1989) As I see It, 5 edition, PHP Institute Inc, Kyoto. Padma, 2003. A Matter of Values, The Hindu, Wednesday, July 9, 2003.
In conclusion it may be said that the ethical values are essential for the existence and for the progress of any society and have to be preserved and practiced if human civilization has to progress. To argue that the practice of values in Business will depend on the exigencies of business is untenable as the members of business community belong to the elite in society and must shoulder greater responsibilities. For the long term success of any enterprise it is absolutely necessary that profit-making must go hand in hand with business ethics. The drivers of business success will include not only such traditionally accepted factors as a companys financial strength,
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S, Ramachander ,(2002). Ascending the Value Spiral: From Insight to Innovation, Response Books, New Delhi. Sadler, Philip, (2004). Building Tomorrows Company: A Guide to Sustainable Business Success, Kogan Page, New Delhi. Sharma I.C. (1962). Ethical Philosophies of India, George Allen & Unwin Ltd., London.
Siddique, Moid, (2001). Honk: Learn from Animal Kingdom and Inspire, Prism Books, Bangalore. Steward, Jack, and Van Zandt, Howard, (1985). Japan: The Hungry Guest, Lotus Press Ltd, Tokyo. Uppal, Ravi, (2004). Corporate Environmental Responsibility, Business Today, October 24. View from Norway, Journal of Human Values, Vol.1.1, Sage Publication, New Delhi.
Case Study
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Insider Trading: The Hll Case*

B. P. Patra1
Abstract
The Securities and Exchange Board of India (SEBI) charged Hindustan Lever Ltd. (HLL) for indulging in insider trading in the purchase of 8 Lakh shares of Brooke Bond Lipton India Ltd. (BBLIL) from Unit Trust of India (UTI). In a landmark verdict the SEBI accused HLL guilty of insider trading and ordered the prosecution of its five directors in March 1998. The Appellate Authority rejected SEBIs order on July 14 1998, on the ground that SEBIs ruling suffered procedural lapses and it used power beyond its jurisdiction. Subsequently, SEBI filed a case in the court of metropolitan magistrate of Mumbai, against the order of the appellate authority. The case poses several ethical issues.
I. THE BACKGROUND
The HLL -BBLIL merger announcement was made on April 19 1996. But the two stocks especially that of BBLIL, started seeing heightened activity from February itself. The BBLIL stock was quoting at Rs. 242.00 in end January, with average daily volumes of around 16,000 shares. By the end of February, the stock had shot up to Rs. 341.00 and 45,250 shares were traded on the last trading day of that month; the average price and trading volumes that month were Rs. 304 and 30,315 shares respectively. The story was the same in March, with the average price increasing to Rs. 349.00, but the trading volumes dipped to 10,000 shares. By the time the merger announcement was made in April, the stock had reached stratosphere. When the merger was announced on April 19, 1996 the Bombay
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Stock Exchange had a trading holiday and the market had to wait till Monday before reacting. But even a couple of days before that, on April 18 1996, the price dropped marginally to Rs. 402.00 and the trading volume was 88,150 shares. And here comes the crucial part: When the market opened on April 22, after the formal announcement, the stock dropped sharply to Rs. 368.00, and, more important, volumes halved at 35,650 shares, displaying a clear waning of interest in stock. By the end of May 1996, the BBLIL stock had gone out of favour, with the average daily price for that month dropping to Rs. 338.00 and the trading volumes a mere 8,129 shares. Trading in the HLL stock too exhibited a similar pattern.. The stock closed in January with an average price of Rs. 628.00 and average volumes of 9,291
Received June 18,2005. This is the first case, since the formulation of SEBI regulations to protect the interests of investors in the securities market Act no 15of 1992[4 April 1992]. 1. Associate Professor, Xaiver Institute of Management, bibhu@ximb.ac.in
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shares. By the next month, interest had heightened and the stock closed in February with an average price of Rs. 696.00 and trading volumes of 25,085. March witnessed lower volumes at 12,458 but the price increased marginally to Rs. 698.00. As in the case of BBLIL, the HLL stock gathered momentum in April. a couple of days before the announcement, the stock price shot up to Rs. 795.00 and nothing less than one lakh shares were traded on that day, compared to the average trading volumes of just around 15,000 till then. On April 18, the stock had declined to Rs. 780.00 while the volumes dropped steeply to 14,950 shares, possibly anticipating the formal announcement the next day. And once trading resumed after the merger announcement, on April 22, 1996 the stock dropped to Rs. 755.00 and the trading volume to just 9,400 shares.
II. SEBIS ORDER
relating to the allegations that HLL as an insider purchased eight lakh shares of BBLIL from UTI on the basis of unpublished price-sensitive information was decided by SEBI today. HLL is the Indian subsidiary of Unilever with 51 per cent holding of the latter. Unilever also held 50.2 per cent equity of BBLIL. Both these companies were the subsidiaries of the common parent company, i.e. Unilever. With the announcement of the merger of BBLIL with HLL to the stock exchanges on April 19, 1996, there were allegations in the market regarding the leakage of information and insider trading. When these came to the notice of SEBI, it decided to investigate therein. After detailed investigations, which included the recording of the statements of some of the directors of HLL, BBLIL and an officer of UTI, the findings of the investigation were communicated to HLL and its directors. According to these findings, prima facie, it appeared that HLL was an insider as it purchased eight lakh shares of BBLIL prior to the announcement of the merger of BBLIL with HLL on April 19, 1996 on the basis of unpublished price-sensitive information, and HLL had violated the regulations prohibiting insider trading. Subsequently, a personal hearing was given to HLL and its directors. Their written submissions were received. On careful consideration of the investigation report, facts on record and submissions made, SEBI has decided that HLL was an insider as it purchased eight lakh shares
In the first-ever case of insider trading, SEBI has ordered HLL to compensate UTI by paying Rs. 3.04 crores and launched criminal prosecution proceedings against HLL and five of its directors, Mr. S.M. Datta, Mr. K.B Dadiseth, Mr. R. Gopalakrishnan, Mr. A. Lahiri and Mr. M.K. Sharma. The action will become effective only after 30 days from the date of communication of the order to HLL and its five directors, to enable the accused to prefer and appeal before the appellate authority i.e., the central government. A SEBI press release detailing the run-up to the two orders issued said that the case
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of BBLIL from UTI on the basis of unpublished price-sensitive information and as such violated sub-regulation (1) of regulation 3 of the SEBI (insider trading) regulations, 1992.
In view of this, SEBI had passed the order.
The central release adds; the above mentioned amount of Rs. 3.04 crores is calculated on the basis of the difference between the market prices of the shares of BBLIL sold by UTI to HLL after the announcement of the merger and prior to the announcement of the merger (excluding premiums). Excluding a premium of around 10 per cent for jumbo deals in shares, the pre-merger market price was Rs. 318.00 plus 10 per cent premium and the post-merger price taken into calculation by SEBI was Rs. 356.00 plus 10 per cent as on December 1996, SEBI officials explained. The order regarding prosecution is based on section 24 read with section 27 of the SEBI act. While the initial findings were communicated to 12 directors of HLL who had participated in the meeting where the decision on the acquisition of shares was taken, the prosecution has been ordered only against those five directors who were present at the meeting of the board of HLL wherein the decision to purchase the shares was taken and who were also members of the core team of HLL and BBLIL. The representative of Unilever had informed the core team on January 17, 1996 regarding the in-principle approval of Unilever for the merger of BBLIL with HLL and such price sensitive information was available to these five
directors. The same knowledge about the merger before the announcement was not ascribable to the other seven directors, the press release stated. According to SEBI officials, the case of Mr. Gopalakrishnan has been investigated but a decision is yet to be taken. SEBI is also looking at four other cases of insider trading. The appellate authority in the union finance ministry had set aside the order of prosecution initiated by SEBI against directors of HLL for their involvement in insider trading, prior to the merger of Brook Bond Lipton India Ltd. (BBLIL) with HLL in April 1996. After having deliberated on whether the market regulator (SEBI) could move against the appellate authority in the union finance ministry - lawyers were also consulted the SEBI took the decision to move the court. The then SEBI chairman, Mr. D.R. Mehta, while commenting on the issue said I would not like to discuss individual cases. But he clarified that the SEBI was in a position to move the court against the appellate authority, contrary to perceptions of some experts. The appellate authoritys judgment had come in for criticism from many quarters, especially on its perception of market knowledge of the merger between BBLIL and HLL. Being the first major case of insider trading after the regulations on insider trading were notified, the SEBI is now seeking to vindicate its stand. The market regulator had initiated a series of investigations on the HLL-BBLIL merger after it detected that the purchase of BBLIL shares by HLL was made prior to
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the official announcement of the merger and was done at a 10 per cent premium over the existing market price. On completion of its investigations, the market regulator found that HLL had violated the SEBI (insider trading) regulations, 1992. On March 11, 1998, the market regulator, in its order, had said that HLL, as an insider, had purchased 8 lakh shares of BBLIL from the Unit Trust of India at the rate of Rs.318.00 on the basis of unpublished price-sensitive information, thereby violating the provisions of the SEBI (insider trading) regulations, 1992, and the SEBI act of 1992. SEBI asked HLL to pay UTI Rs. 3.04 crores as compensation and initiated criminal prosecution against five HLL directors as well. Later, UTI filed an appeal with the appellate authority, claiming a higher compensation of Rs. 7.52 crores. It pleaded that it had to incur a notional loss, as it was not aware that a merger of the two Unilever group companies was on the cards.
III. CHRONOLOGY OF EVENTS
April 14, 1996 - Independent valuers make available to HLL, BBLIL their reports recommending the swap ratio. April 19, 1996 - HLL, BBLIL announce board meetings to consider the scheme of amalgamation on April 22. April 22, 1996 - HLL, BBLIL announce the swap ratio of 9 shares of HLL for every 20 shares of BBLIL. April 25, 1996 - SEBI embarks on a date gathering exercise from stock exchanges following media reports. June 26, 1996 - BBLIL shareholders approve the merger with HLL its extra ordinary general meeting held in Calcutta. August 1, 1997 - HLL shareholders approve the merger with BBLIL at its extra ordinary general meeting in Mumbai. August 4, 1997 - SEBI issues letter of communication of findings to HLLs chairman, Mr. Keki Dadiseth, all executive directors, company secretary and previous chairman of HLL, Mr. S.M. Datta to explain their position in the alleged insider trading in BBLIL prior to its merger with HLL. SEBI charges that HLL had purchased these shares so as to enable Unilever to maintain its stake at 51 percent in the merged equity. September 9, 1997 - HLL replies to SEBIs preliminary report arising from the investigation into allegation of insider trading. HLL says that it cannot be an insider on itself. It further states that all the shares bought from UTI were canceled. March 11, 1998 - SEBI issues order on HLL indicating that the company
The events, which took place, are given in a chronological order. March 6, 1996 - The board of Hindustan Lever Ltd. (HLL) authorized it to buy 8 lakh shares of Broke Bond Lipton India Ltd. (BBLIL). March 9, 1996 - HLL buys 8 lakh shares of BBLIL from Unit Trust of India (UTI) at the rate of Rs. 350.35 per share, around 10 per cent premium to the then ruling market price of Rs. 320/-
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indulged in insider trading by violating sub-regulation (1) of regulation 3 of SEBI (insider trading) Regulations, 1992.
IV. THE SEBI CHARGES
merger, Unilever had a 51 percent stake in HLL, but only 50.27 percent BBLIL. Thus, the HLL management feels that the SEBI should not consider that it had any additional information.
VI. THE SEBI CHARGE
According to section 2 (e) of the SEBI (Insider Trading) Regulations An insider means any person who is, or was, connected with the company, and who is reasonably expected to have access, by virtue of such connection to unpublished price - sensitive information. The SEBI has argued that these conditions were met when HLL bought the BBLIL shares from the UTI. HLL and BBLIL had a common parentage as subsidiaries of the London based Unilever and were then under a common management headed by chairman, S.M. Datta. Thus, HLL and its directors had prior knowledge of the merger.
V. THE HLL DEFENCE
HLL dealt in, or purchased the shares in BBLIL on the basis of unpublished price sensitive information. Section 3 of the Regulations prohibits dealing in the securities of a company on any stock exchange on the basis of unpublished, price-sensitive information, section 2 (K) (V) states that unpublished, price sensitive relation to the following matters (amalgamations, mergers and takeovers), or is of concern to a company and is not generally known or published by such company.... According to the SEBI, there can be no dispute that information of the overall of the merger falls under this definition.
VII. THE HLL DEFENCE
No company can be an insider to itself. The companys knowledge of the merger was because it was a Primary party to the process, and not because BBLIL was an associated company. To buttress this point, HLL maintains that if it had purchased shares of Tata Oil Mills Co. (TOMCO) before the two merged in April 1994. SEBI would not consider it a case of insider trading. Its because HLL wasnt associated with the TATA which owned TOMCO. HLL contends that it purchased the BBLIL shares so that its parent company, Unilever could maintain a 51 percent stake in the merged equity. Before the
Only the information about the swap ratio is deemed to be price sensitive. And HLL or its directors did not know that ratio when the BBLIL shares were purchased in March 1996. The two audit firms, S.S. Baltimorean & Co., and M.N. Raja & Co., recommended the ratio to the HLL board only in Mid-April, 1996. Moreover, HLL argues that the news of the merger was not price sensitive as the media before the companies announcement had announced it. HLL also points out that it was a case of a merger between two companies in the group. This had a common pool of management and similar
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distribution systems. Therefore, the merger information in itself had little relevance; the only thing which was price sensitive was swap ratio, which was not known to the company at the time of merger.
VIII. THE SEBI CHARGES
Unilever have gone up. So, no exclusive benefits or avoidance of loss has accrued to HLL or Unilever.
X. THE SEBI CHARGES
HLL should have followed the route of issuing preferential shares to allow Unilevers stake to rise to 51 percent in HLL. Such a step would have involved various compliance/clearances and required Unilever to bring in substantial funds in foreign exchange. Instead, HLL depleted its reserves thus ensuring that Unilever didnt have to bring in additional funds.
IX. THE HLL DEFENCE
SEBI alleged that HLL failed in its fiduciary duty to UTI, by not sharing the information on the merger when transaction was made in March25 1996.
XI. APPELLATE AUTHORITY REJECTS THE CASE
Issuing of preferential would have, indeed, been a cheaper option to ensure that Unilever had a 51 percent stake in the merged equity. Had HLL followed this route, it would have had to pay rest 282.35 instead of Rs. 350.35 per share. In other words, it would have made a profit of Rs. 5.41 crores by doing so. While the preferential route would have been beneficial for itself, it would have been dilatory for other shareholders since it would have resulted in an expanded capital base, leading to lower earnings per share. HLL maintains that this is perfectly legal. In addition, shareholders of both HLL and BBLIL approved of the cancellation of shares as part of the merger scheme. By the process of this cancellation, which normally happens in every amalgamation the voting rights of
The Appellate Authority in the Finance Ministry set aside the order of prosecution initiated by the SEBI against HLL and the five common directors in both HLL and BBLIL. The two member Authority, consisting of the Finance secretary. Mr. Montek Singh Ahluwallia and the special secretary (Banking) Mr. C.H. Vasudev, in its judgment on July 14, 1998 said the SEBI was not justified in ordering prosecution against HLL and five of its directors. The Authority, in its judgment, also said that under Regulation IIB, SEBI was not capable of initiating investigations and then takes recourse to powers under the Act for awarding compensation without passing an order under the abovementioned regulation. The Authority has also pointed out that SEBI has not chosen to use 15 G of the insider trading regulations for imposing a penalty but instead decided to use omnibus powers under section11 and 11B of the Act to adjudicate for awarding compensation. Use of omnibus powers for imposing a pecuniary burden cannot be the intent of laws.
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Therefore, it felt that the order of SEBI to award compensation to the UTI suffers from procedural deficiencies as well as locks in jurisdiction. Also, they expressed surprise to the fact that the UTI did not chose to approach SEBI in the first instance soon after it felt that the HLL, because of insider trading, had gained an unfair price advantage in the purchase of BBLIL shares from the UTI. Thus, the decision of the UTI to file an appeal on the quantum of compensation after SEBI has so motto accorded compensation to it, appears to be an afterthought. So, given their finding with regard to jurisdictional competence of SEBI to award compensation, they didnt consider it necessary to pass any separate order on the appeal filed by UTI. Further, the order said that there is persuasive evidence, which points towards market knowledge and undesired speculation about the possibility of the merger before the purchase of shares, in question by HLL from UTI. What weakens a crucial aspect the charge of insider trading that the information involved should not be generally known? On the issue of price sensitivity, the authority has said that section 2 (K) of the Regulations could have been better drafted to remove ambiguity on the issue. On the information about the merger, the Authority has said that there was a case of merger of two healthy profit making companies, having a similar management culture. The Appellate Authority, however, ruled that SEBI could consider invoking the
adjudication mechanism prescribed under 15G read with 15 I & 15 J of the Insider Trading Regulations after following the prescribed procedure for the purpose of determining the desirability and legality of imposing a penalty on HLL. The Appellate Authority orders neither contest the fact that HLL is an insider nor that the mergers information was price sensitive. HLL has been free from the charge of insider trading on the basis that merger of HLL and BBLIL was published in number of press reports. The appellate authority substantiated its order by giving a list of publications, which carried the news during that period. The authority was of opinion that on basis of press report and market speculation UTI could have acted more carefully. They were of the opinion that UTI was not marketsavvy. The appellate authority does not rule out the option of SEBI initiating adjudication under section 15 G read with section 15 -1 & 15-J of the SEBI act for determining the desirability and legality of imposing a penalty. But the SEBI officials are of the view that under the adjudication mechanism they can only impose a fine of Rs. 5 lakhs and hence will not be exercising this option.
XII.SEBI MOVED THE COURT AGAINST ORDER
SEBI moved to the court against the order of Appellate Authority on the HLL case. The case was pending in the metropolitan
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magistrates court for three years. Finally, SEBI approached Mumbai High Court complaining inordinate delay in September 2002.It requested the High Court to take cognizance of the case that continues to be adjourned for last three years. The Mumbai High Court directed the metropolitan magistrate to proceed on the case without delay. HLL defended its position by quoting the July 1998 order of Appellate Authority. We hold that SEBI was most unjustified in ordering prosecution of the appellants (HLL). HLL made an application to magistrate, that summon should not be issued before the company is heard. But Mumbai High Court quashed this application on the ground that the company could not be heard before the summon is issued. The case is still pending in the court. Winning and loosing the case is not significant in the whole incident. This case is important because it generated a detailed discussion on the legal and moral nature of insider trading and deep issues of corporate governance.
APPENDIX The Securities And Exchange Board Of India Act, 1992 (Act No. 15 of 1992)
corporate listed on any stock exchange on the basis of any unpublished price sensitive information ; or ii. communicates any unpublished price sensitive information to any person, with or without his request for such information except as required in the ordinary course of business or under any law; or iii. counsels, or procures for any other person to deal in any securities of any body corporate on the basis of unpublished price sensitive information, shall be liable to a penalty not exceeding five lakh rupees.
2. PENALTY FOR NON-DISCLOSURE OF ACQUISITION OF SHARES AND TAKEOVERS
If any person, who is required under this Act or any rules or regulations made there under, fails toi. disclose the aggregate of his shareholding in the body corporate before he acquires any shares of that body corporate; or ii. make a public announcement to acquire shares at a minimum price; he shall liable to a penalty not exceeding five lakh rupees.
3. POWER TO ADJUDICATE
Chaper VI A Penalties and Adjudication

PENALTY FOR INSIDER TRADING
If any insider who, i. either on his own behalf of any other person deals in securities of a body
i. For the purpose of adjudging under sections 15A, 15B, 15C, 15D, 15E, 15F, 15G and 15H, the board shall appoint any of its officer not below the rank of a Division Chief to be an adjudicating officer for holding an inquiry in the
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prescribed manner after giving any person concerned a reasonable opportunity of being heard for the purpose of imposing any penalty. ii. While holding an inquiry the adjudicating officer shall have power to summon and enforce the attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document which in the opinion of the adjudicating officer, is satisfied that the person has failed to comply with the provisions of any of the sections specified in sub-section (1), he may impose such penalty as he thinks fit in accordance with the provisions of any of those sections.
4. FACTORS TO BE TAKEN INTO ACCOUNT BY THE ADJUDICATING OFFICER
company or its agents and which is not specific in nature is unpublished information. Perhaps, more forthright is the explanation according to which speculative reports in print or electronic media shall not be considered as published information. How does the amended provision contrast with that in original insider trading regulations, 1992? It was provided therein that unpublished price-sensitive information would me an any information that related to any one or more of the subjects mentioned, such as, financial results, intended dividend declaration, rights/bonus issue etc., and the same was not generally known or was not published by the company concerned for general information, but which if published or known is likely to materially affect the price of s securities of that company in the market
REFERENCES
Business Line Business Line Business Line 12 March 1998 13 July 1998. 15 July, 1998
While adjudging quantum of penalty under section 15j, the adjudicating officer shall have due regard to the following factors, namely: i. the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; ii. the amount of loss caused to an investor or group of investors as a result of the default; iii. the repetitive nature of the default.
AMENDED INSIDER TRADING REGULATIONS 2002:
Chakradeo, Anil, Will SEBI see success this time? Economy & Business, August 18, 2003. Court summons to HLL for insider trading and HLLs response to SEBIs charge, domain-b.com Dabke, K.B. Amend insider trading rules, Indian Express, 9.7.1998. Dalal Sucheta, Is SEBI being selective? financial Express, Jan 26 2004 The
As per the amended provision, information which is not published by a
Deasi, Nitesh M. & Allavaru Krishna A. Insider Trading: A Comparative Study. http/ www.mindspring.com /nishith.
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Kapoor, Pragati, UTI wants more compensation in HLL insider trading case, The Economic Times July 2nd, 2002. Law, Vivek, Hearing HLL, insider-trading case postponed, Financial Express, sat, July 3 1999. Puliani, Ravi, & Puliani, Mahesh, (ed), Bharts Manual of SEBI, Acts, Rules, Regulations, Guidelines, guide lines, circular etc. 2004.
Sridhar, V. Setback to market regulator, Front Line Vol. 15: No.16 August 1998. The Economic Times The Economic Times The Indian Express www.indianexpress.com. The Hindu, 11 March 1998 12 March, 1998 14 March, 1998. 19 September, 2002.
Book Review
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Hegel III, John & Brown, John Seely,(2005), The Only Sustainable Edge, Harvard Business School Press, pp.218, Price U$25/-* Reviewer : B. Mohanty1
Creating and maintaining sustainable edge in business has been the prime concern of strategists in maintaining strong competitive position in industry. Corporate failures and successes have also been attributed to failure or sucess in maintaining the sustainable edge. In view of this importance, this book by Hegel and Brown with the identical title appears to be a welcome addition to the existing books in the area of business strategy. During the last fifty years dozens of books have been written in the area of strategy and many new theories and concepts have developed around this key word. Around 1950 and 60s, when strategy as a concept was developed, it was defined as a design, a formal plan or a position that a company could take with regard to its product. Strategy in this sense was an articulation of what the businesses wanted to be. This involved somewhat a planning approach. This was followed by the process approach, in which the word was defined variously, such as, entrepreneurial or visionary process, cognitive or mental process, learning or emergent process, power or negotiation process, cultural or collective process, and environmental or reactive process. During the last two decades, strategy is being defined as a process of configuration or transformation. In this approach strategy seeks to integrate the benefits of the previous approaches. Along with the emergence of various approaches and groups of thoughts other keywords have also come into beingnotable among them being strategic vision, strategic intent, core competence, leveraging resources etc. The book by Hegel and Brown similarly proposes two innovative concepts - productive friction and dynamic specialization - to explain the concept of strategy and more importantly to explain the forces that enable a company to have a sustainable edge in the industry or over competition. The authors have started with the need to maintain sustainable edge in a highly competitive environment, particularly in the USA context, where average profit of the non-financial corporate sector has declined from 18% to 6% of the GDP, and average time that a company spent on Standard and Poors 500 list has dropped
* Received September 1, 2005 1. Professor, Xavier Institute of Management, Bhubaneswar, brajaraj@ximb.ac.in.
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from 75 years in 1930 to 15 years in 2000. In many cases departure of companies have been sudden and severe with irreversible financial distress. Squeezing cost, adoption of enterprise applications, mergers and unbundlings to tide over the financial distress have hardly helped. The authors contend that corporates can create sustainable edge not by the above methods but primarily by building capability, which involves integrating core competence approach and leveraging resources approach. Capability building becomes possible through several mechanisms, namely process outsourcing and offshoring, dynamic specialization, loose coupling of extended business processes and productive friction. The authors have very strongly advocated for outsourcing or offshoring on grounds of accessing distinctive skill (chips from Taiwan and Mainland China), cultural benefits (call centres to Philippines because of their culture of hospitality and service), cost and productivity (software to India - wage of software engineer being in the ratio of 12:1 between USA and India), and, in general, of efficiency and quality. Besides, offshoring has also helped in hiring more people, lowering management-staff ratio, compressing work cycles using time zone differences and fostering team level competitions. The strongest argument against offshoring that it may create loss of job is forcefully countered by the authors by arguing that offshoring can lead to cost saving and therefore generate surplus
which can then be reinvested to create new jobs. So temporary job loss in the short period could ultimately be beneficial to the country by creation of many new jobs on long-term basis. A significant suggestion in the authors proposal, vis--vis the prevailing ideas of total capability is the concept of dynamic specialization, which they define as the commitment to eliminate resources that no longer differentiate the firm and to concentrate on accelerating growth from the capabilities that truly distinguish the firm in the market place. In essence, the authors are of the view that corporates should concentrate on those activities, which others cannot perform, and thus create value. They should give attention to the trajectory of capability building and position themselves to generate and capture economic value as the trajectories play out. They foresee (which is a borne out by facts to some extent) that original design manufactures (ODMs) are likely to be more profitable than original equipment manufactures (OEMs) following the logic of dynamic specialization. Loose coupling or extended business processes enable value creation through creative rebundling of specialized firms in flexible process networks that help participants work more effectively and get better faster. Supported by a sense of urgency, which exist far more in developing countries than in developed countries, such flexible process networks can help in substantial value creation. Hardwired business processes stifle
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friction by excessive specification and by narrowing solution space. Loose coupling overcomes such constraint and helps creative talents to grow and flourish thus help in dynamic specialization. Productive friction has been defined by the authors as disagreements, arguments etc. which eventually lead to resolution and learning. It is an essential requirement for innovation and thus for capability building. Productive friction, in turn, depends on four Ps, namely, performance metrics, people, prototypes and pattern recognition. These four Ps are together termed as performance fabric. Performance metrics lay down the objectives in specific quantitative terms, thus providing direction to the executives. Attention to people factor with loose coupling enables them to work without any constraints of narrow solution space. Such freedom leads to creativity. Prototypes help in conceptualisation through modelling the design. Finally, pattern recognitions helps in learning from principles of working of other systems elsewhere as well as inside the organisation. While providing many examples on productive friction, the authors have particularly mentioned about the Chinese motorcycle industry, which has flourished due to productive friction. Companies like Zongshen, Longxin and Dachangjiang in the city of Chongquing in China have grown since 1990s following Japanese designs, but through enabling sufficient productive friction and loose coupling in
the matter of detailed design and team building. Entry of cheap motorcycles from China has led to drop of Hondas motorcycle share in other markets from 90% to 30%. In the case of pattern recognition, example has been given by the authors, from the case of Japan on flat panel displays (FPDs), which was made possible for notebook market but soon the same pattern was repeated for the TV product. Soon FPDs in TVs became also quite popular, and commercially successful. The authors new approach to developing strategy basically argues against the strategy formulation in a static situation as done in a positioning exercise and favours a dynamic model as the reality anywhere is dynamic. In the same vein, they argued that efforts to plan complex adaptive system will probably fail. Instead, order could be expected to emerge from a large number of distributed efforts, through a process of co-evolution. Such a system also would favour bottom up emergent orders against the top down imposed order. To sum up, the authors have made certain significant points. The arguments that corporates should concentrate on capabilities that truly distinguished them, should allow freedom through loose coupling, should create trust, should enable productive friction and should emulate parallels from other systems make enormous sense. The arguments are sufficiently compelling for any one to take notice.
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The weakness of the book becomes visible when the reader goes for a second reading and also goes back to other writings. He faces a challenge in making a choice as he finds that the arguments made by other authors on strategy as a leverage, or strategy essentially as an exercise in harnessing core competence or a strong intent also make equally strong or even stronger sense. In the face of such challenge, the authors claim to have provided a new integrative approach seems to dim. The feeling that the book
creates a few more jargons for the readers to grapple with also becomes evident. On the whole, even though the authors have brought out certain compelling new arguments, their claim to a superior theory, which will provide the only sustainable edge (as the name of the book and the arguments inside imply) to corporates, seems to be a gross overstatement. It appears that professionals and practitioners will accept their theory, at best as another way of looking at strategy or just as another viewpoint.
Book Review
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Bush,Tony; Bell,Les; Ray,Bolam; Glatter,Ron and Ribbins,Peter (ed) (1999), Educational Management: Redefining Theory, Policy and Practice, Paul Chapman Publications Ltd., London, pp. 245, Price 18.99 Reviewer : Shabana Mazhar1
Education is the bedrock upon which lies the future of a nation. It is a binding force, which can convert this bipolar world into a single nation. This major responsibility of building a nation has been thrust upon the educational institutes and this is entirely dependent on how efficiently and effectively these institutes are managed. This book highlights various aspects of educational management which are significant for the purpose of redefinition in light of changing scenario and is one of the major outcomes of the seminar series funded by Economic and Social Research Council (ESRC) from 1997 to 1999. The purpose of this book is to review the academic discipline of educational management taking into account the developments in policy, practice, theory and research in the field in United Kingdom during the 1980s and 1990s. Educational Management as a field of study and practice was derived from management principles applied to industry and commerce. This has now moved on to become an established discipline with its own theories and the debate still continues as to what extent can education benefit from management practices of business and industry. This volume on educational management is the result of contribution of academic papers from experts and leading thinkers in the field of educational management. It has seventeen chapters categorised into four sections based upon four key questions raised in the seminar series, namely whether self management of schools and colleges are successful, what should be the nature of professional development for teachers, how the theory in educational management is to be validated and what should be the role of research in improving classroom education. Section I edited by Ron Glatter reflects on schools and self-management within the national framework.. Chapter 1 of this volume edited by Tony Bush gives the genesis of this book and traces the origin and growth of Educational Management as an academic discipline in United Kingdom in the 1960s. Chapter 2 discusses the two approaches of managing the schools, the Rational Technicist Model based on the Scientific Management of Taylor which emphasises on the efficient management of the organisation in such a manner that the objectives are met (Cerebral aspect) and the second approach
1. Assistant Professor, College of Business studies, Allahabad Agricultural Institute Deemed University, Allahabad
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stresses on creating an organisational culture within which people are motivated to work effectively (Insightful aspect). The evidence from case studies show that headmasters of schools are generally following the Rational Technicist model depending upon the environment they face. This chapter focuses on how school leaders can blend the cerebral approach and the insightful approach in responding to external pressures to manage schools rationally. In Chapter 3 Peter Karstanje discusses the educational reforms that has been carried out in various countries of Europe in context of decentralisation and deregulation. He presents a model for school autonomy, drawing on the degree of decentralisation and deregulation at three level; (i) A centralised and regulated situation, (ii) A moderate level of centralisation (iii) A high degree of decentralisation and deregulation, and the areas where autonomy has to be given. Geoff southworth in chapter 4 presents the views of headteachers of primary schools on the changing scenario of education system since the Education Reform Act 1988 had been passed and the challenge they faced in managing those changes, specially on three aspects; the introduction of a national curriculum, local management of schools and increased responsibilities of school governors. The validity of competition in the educational market place has been analysed in chapter 5 by Les Bell by considering the ways in which headteachers of primary school have responded to an educational policy based on the educational market place. The heads of primary schools have rejected the idea of marketing the schools, as it is not part of ethos of heads of primary school. Section 2 edited by Ray Bolam dwells upon issues relating to Professional Development
of educational leaders. In Chapter 6 Peter Ribbins discusses the importance of developing educational leaders specially the head teachers and he substantiates the voice of Canadian Scholar Benjamin Levin in three basic themes; (i) Criteria of a good leader, (ii) Curriculum for developing and sustaining good leaders and parameters for assessment, (iii) Impact of such a training on schools and ultimately the pupil achievement. He proposes a natural history approach to meet the developmental needs of teachers and headteachers. Dick weindling in chapter 7 analyses the stages of headship transition. He says that headship transition is an ongoing process of socialisation, which has two dimensions; professional socialisation and organisational socialisation. He presents a seven-stage model to explain the stages of headship transition. This model is offered as a means of helping head teachers and prospective heads to understand the likely phases they will experience during headship. Promoting Continuing Professional Development (CPD) for teachers is the main concern to raise the educational standards. In chapter 8 Agnes McMahon questions the success of CPD in view of centrally imposed innovations as contents of CPD programme is imposed by the government and shortage of resources continues to exist in the schools to support teacher professional development. In chapter 9 Micheal Eraut explores the nature of headteachers knowledge which includes professional knowledge as a teacher, management knowledge and knowledge acquired outside school context but relevant to them. He also analyses the practice, mode of cognition, job priorities and leadership role of heads and concludes that training for head teachers should be based on nine
197
aspects including situational analysis of the organisation, effective leadership of the senior management team and strategic management of the school. Section 3 edited by Peter Ribbins addresses important theoretical issues relating to educational management. Chapter 10 by Mike Wallace questions the validity of relying on a single theory of managing educational institutes and advocates combining of two commonly employed perspective, cultural and political to overcome limitations of using either alone to explain and evaluate interaction in organisation. Chris James in chapter 11 discusses the psycodynamic theory and social systems theory that is particularly relevant in educational management and is instrumental in institutional transformation. Emotion in one of the underlying links between the various themes in the institutional transformation perspective and the most significant emotion is anxiety which can be an imperative for change. The author says that improvement in teaching and learning can be made by breaking down inappropriate defenses against anxiety.In chapter 12 Valerie Hall takes into account the gender perspective in an attempt to redefine educational management. The paper aims at throwing down the gender gauntlet in order to contribute to the foundations of a modern version of educational leadership. She advocates for equity in gender, race and cast in process of redefining educational management. Janet Ouston questions the validity of a movement called SESI (School Effectiveness and school Improvement) and In chapter 13 She points that every school has a culture of its own and transporting theories from one context to another will have an adverse
effect. She criticises two publication on school improvement i.e.TES article by Myers (1998) and Setting targets for Pupil achievement (DfEE, 1997f ) alleging that they have conceptual hole as they do not answer three basic question of what? How? And why to improve? She questions the validity of the examination driven system as a parameter to judge the effectiveness of schools. Continuing with school effectiveness Philip Haling and Ronald Heck in Chapter 14 questions the role of leaders in enhancing school effectiveness. They present a critical perspective on quality of educational leaders and school effectiveness. Leadership is contextual and puts a constraint on leadership behaviour. This statement is explained in light of the socio-economic and cultural context. Though they agree that school leaders can enhance school effectiveness but they alone do not make effective schools. It is the development of a shared culture, which motivates employees in the institutes to learn and solve problem with a greater degree of cooperation, which can make a school effective or ineffective. Educational management is relatively a new field and therefore research is vital to establish a theoretical base. The final section of this book edited by Les Bell emphasises on research in the field of educational management. In Chapter 15 Ray Bolam presents a conceptual map of educational administration and emphasises the need for research in redefining educational management.He proposes a framework for research agenda focussing exclusively on educational leadership and management in primary and secondary schools and, more specifically on the pedagogy. He advocates that research should be both reactive and
198
proactive in order to develop policies for the purpose of redefining educational management. Mike Wallace and Dick Weindling in chapter 16 present an overview of a group of Research projects with relevance to school management. They have summarised 15 ESRC funded projects that are categorised into six management task areas. Three categories investigated aspects of the curriculum and its assessment and three examined the issues connected with educational needs of particular groups of pupils. They have summed up that most of the research relates to the aspect of educational reforms rather than being concerned with the task of management. They found striking diversity both in approaches to adoption and explanatory framework of the projects and have identified four heuristic categories of conceptualisation occurring before and after data collection and suggest patterns with implication for theory development and testing in the field of educational management. In chapter 16 Phillipa Cordingley empasises the Teacher Training Agencys focus on pedagogy and pedagogical research. She advocates strongly for quality educational research with pedagogy as the starting point for improving learning and teaching. Research can not only acquaint the teachers and leaders with new knowledge, ideas and approaches but also help them to recognise and objectively evaluate their existing practice. The final chapter of this book by Helen Gunter reflects on the development of field of educational management in England and Wales by interviewing 16 professionals involved in the field of educational management and with the support of formal documents provided by the British Educational Management and
Administration Society.The author is of the view that unless we know and understand our origin we will have difficulty in presenting our work as distinct and based on robust knowledge claims, she raises issues in researching and constructing histories of the field of educational management. Educational management is in its transitory phase in which lots of studies are required on every aspect of it. Various authors who have contributed to this book have raised critical issues that need attention for redefining the field of educational management. The initial part of the book argues in favour of self management of school. Leaders are in a better position to decide on policies as the central authority, but not on operating details as they are situated at some distance from the educational institutes and are not capable of taking stock of specific situations. The authors advocate professional development of teachers and headteachers on the basis of relevant curriculum. Though educational management derives its principles from the management practice of industry, the development of a specifical theory requires a distinctive body of theory steeped in educational practice. For this the authors advocate research in all types of school and colleges. This book scrutinises various aspects of educational management and presents an excellent piece of research work in this area. Though this book is presented in context of European countries specially England and Wales, the concept has universal applicability in different parts of the world. The book presents comprehensive references at the end of each paper that will be useful for academicians and researchers in the field of educational management.
Announcement
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XIMB launches Post Graduate Certificate In Business Management (PGCBM)

XIMB in association with Reliance Web World has launched a unique programme Postgraduate Certificate Programme in Business Management (PGCBM) via virtual classroom. Across the world, management education via Video Conferencing (VC) mode is one of the most sought after educational systems. It not only helps a working executive to simultaneously work and study but it also takes high quality education to a large number of students spread across the country. XIMB has found an ideal partner in Reliance Webworld for providing the VC platform and the VC classrooms spread across India. This PGCBM Programme provides a live and interactive classroom environment using the power of cutting edge Video conferencing technology. This VC Technology facilitates multipoint interaction between the Professor and the students, as seen in a conventional classroom. Reliance Webworld, the technology leaders in Video conferencing, are providing this cutting edge VC technology as well as the virtual classrooms. Thus, this two-way video VC technology of XIMB overcomes the limitations of one-way video seen otherwise, in various existing programmes running across India. The program will be available simultaneously across 24 cities in India: Ahmedabad, Bangalore, Bhopal, Bhubaneswar, Chandigarh, Chennai, Cochin, Coimbatore, Cuttack, Delhi, Gurgaon, Hyderabad, Indore, Kolkata, Jaipur, Jamshedpur, Lucknow, Mumbai, Noida, Patna, Pune, Ranchi, Trivandrum and Vishakhapatnam. The Programme consists of 12 courses:
l l l l
l l l l l l l l
Cost & Management Accounting Basic Economics for Managers Organisational Behaviour Quantitative methods for Business Decisions Financial Management Human Resource Management Production & Operations Management Marketing Management Information Technology for Managers Ethical & Legal Environment of Business Strategic Issues in Management Emerging Business Paradigms
Academic Calendar : The entire programme consists one year duration, having 240 hours of live video conferencing and 60 hours of rigorous on-campus classes at XIMB, spread over one week duration. Certification : The Institute awards the Post Graduate Certificate Programme in Business Management to students who have successfully completed the entire course work and have successfully completed all academic requirements as mentioned in the Manual of Policies. The Manual of Policies would be provided to those students who are admitted to the programme. On campus stay at XIMB : The PGCBM programme includes a seven-day on-campus stay at XIMB. During this one-week, the students would be exposed to 60 hours of rigorous real-time classroom interaction by the renowned XIMB faculty. A number of skill development programmes, which require intense group activities. The students would have access to world-class facilities of XIMB.
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Forthcoming Management Development Programmes

Sl. Programme No. 1. 2. 3. 4. 5. 6. 7. No. of Days 3 2 3 6 5 3 3 Dates 24-26 Oct.05 21-22 Nov.05 21-23 Nov. 05 21-26 Nov. 05 05-09 Dec.05 14-16 Dec.05 09-11 Jan. 06 Prog. Director Dr. M. Venkateshwarlu Prof. M.N. Tripathi Dr. M. Venkateshwarlu Dr. S. Peppin Fr. (Dr.) E. abraham, SJ. Fr. E.H. McGrath, SH. Dr. I. Kumar Dr. G.K. Nayak Prof. K.M. Rajesh Prof. Snigdha Patnaik Prog. Fees Res. Non-res. 9000 7500 9000 18000 15000 9000 9000 7500 6000 7500 15000 12000 7500 7500
Xavier Institute of Management, Bhubaneswar
Finance for Non Finance Executives Customers Service Management Cost Management Hospital Management Basic Leadership Skills Corporate and Dining Etiquette Negotiation and Competitive Decision Making Womens Work : Release the Potential within Negotiations Skills Project Implementation and Monitoring Towards a Logic of Global Dynamics Effective Communication and Presentation Skills Rural Marketing
8.
15-17 Jan. 06
9000
7500
9. 10. 11. 12. 13.
3 5 5 3 3
16-18 Jan. 06 16-20 Jan. 06 16-20 Jan. 06 18-20 Jan. 06 07-09 Feb. 06
Prof. M.N. Tripathy Dr. W. S. William Prof. Indranil Chakrabarti Prof. S.R. Chakrabarti Dr. I. Kumar Prof M.N. Tripathi Prof. Niraj Kumar Prof. S. Mohanty Dr. G. K. Nayak Dr. W.S. William Prof. Niraj Kumar
9000 15000 15000 9000 9000 7500 9000 12000
7500 12000 12000 7500 7500 6000 7500 10000
14. Time Management 2 11-12 Feb. 06 as a Resource 15. Business Process 4 16-20 Feb. 06 Integration Through ERP 16. Millennium 4 21-24 Feb. 06 Development goal and Forestry in India : Challenges and Opportunities 17. Self-management 2 06-07 April 06 for Proficient Communication 18. Strategic Extension : 4 11-14 April 06 An Effective Tools of Influencing Rural Customers
Dr. I. Kumar
7500
6000
Prof. Niraj Kumar
12000
10000
ILAKSHAN
XIMB JOURNAL OF MANAGEMENT
Volume II Issue No. 2 September, 2005
Xavier Institute of Management

Bhubaneswar - 751 013
September, 2005
THE CREST OF THE XIMB The lamp on the book stands for the spread of knowledge, the chimney for industrial development, the two plants for rural development and the IHS logo for the Jesuit Society which manages the institute.
ISSN 0973-1954
Publisher Fr. E. Abraham, s.j., Director, Xavier Institute of Management, Bhubaneswar
Published by Xavier Institute of Management, Xavier Square, Bhubaneswar - 751013
Subscription Vilakshan is published twice a year. annual subscription : Rs.300/-
Vilakshan Vilakshan is a Sanskrit word meaning unique or distinct from all others. It is expected that in due course the journal will occupy a unique position among management publications.
Printed by Capital Business Service & Consultancy B-51, Sahid Nagar, Bhubaneswar - 751004 Telephone : (0674) 2545484
Copyright with Xavier Institute of Management. No part of the publication may be reproduced in any form without prior permission of Director, Xavier Institute of Management, Bhubaneswar. However, the views expressed in the papers are those of the authors and not of the Editoral Board.
Contents
ARTICLES 1. Impact of Microfinance through SHGBank Linkage in India: A Micro Study 2. Assessment of IT Acquisition Process: A Metrics Based Measurement Approach 3. A Review of Data Mining Tasks and Techniques 4. A Model for Corporate Development A Holistic Approach 5. Managing New Product Innovation Process: A Case-based Study 6. Dynamics of Relationship Between Emerging Market and Developed Market: An Empirical Study in the Global Context 7. Self-knowledge of ExecutivesAn Assessment 8. Organisational Issues in Implementing Self Service Technologies (SSTs) 9. Creating Spiral of Knowledge on Interpersonal Competencies in Development Organisations : A Case Study 10. Training Need in SSI Sector and Labour Productivity : A study of manufacturing SSI units in Orissa PERSPECTIVES 11. Teaching Business Ethics: The New Imperative on Business Schools 12. Business Ethics : Contemporary Perspectives and Practices B.P.Patra 163 B. Kumar H. K. Misra M. Satpathy B. Mohanty G. K. Nayak 01 23
55
Subhash Sharma J. Mukherjee, S. Dey K. K. Guin, G. Sinha N. P. Tripathy
71 79 103
M G Jomon Jacob D Vakkayil K. R. Jayasimha R. Nargundkar S. Peppin
117
127
137
P.Mishra
149
C. P. Bhatta
171
CASE STUDY 13. Insider Trading: The HLL Case BOOK REVIEWS 14. John Hegel III & John Seely Brown The Only Sustainable Edge, Harvard Business School Press, 2005 15. Tony Bush, Bell Les, Bolam Ray, Ron Glatter and Peter Ribbins (ed), Educational Management: Redefining Theory, Policy and Practice, Paul Chapman Publications Ltd. London,1999 B. Mohanty 191 B. P. Patra 181
Shabana Mazhar
195
ISSN 0973 -1954 Volume II
XIMB JOURNAL OF MANAGEMENT

Issue No. 2 September, 2005
Articles
Impact of Microfinance through SHG-Bank Linkage in India: A Micro Study B. Kumar
ILAKSHAN
Assessment of IT Acquisition Process: A Metrics Based Measurement Approach H. K. Misra, M. Satpathy, B. Mohanty A Review of Data Mining Tasks and Techniques G. K. Nayak A Model for Corporate Development - A Holistic Approach Subhash Sharma Managing New Product Innovation Process: A Case-based Study J. Mukherjee, S. Dey, K. K. Guin and G. Sinha Dynamics of Relationship Between Emerging Market and Developed Market: An Empirical Study in the Global Context N. P. Tripathy Self-knowledge of Executives An Assessment M G Jomon and Jacob D Vakkayil Organisational Issues in Implementing Self Service Technologies (SSTs) K. R. Jayasimha, R. Nargundkar Creating Spiral of Knowledge on Interpersonal Competencies in Development Organisations : A Case Study S. Peppin Training Need in SSI Sector and Labour Productivity: A study of manufacturing SSI units in Orissa P.Mishra Perspectives Teaching Business Ethics: The New Imperative on Business Schools B.P. Patra Business Ethics : Contemporary Perspectives and Practices C. P. Bhatta
Case Study Insider Trading: The HLL Case B. P. Patra Book Reviews John Hegel III & John Seely Brown, The Only Sustainable Edge B. Mohanty Tony Bush, et.al., Educational Management: Redefining Theory, Policy and Practice Shabana Mazhar
Xavier Institute of Management

Bhubaneswar - 751 013
EDITORIAL BOARD
Editor
Brajaraj Mohanty Professor, Xavier Institute of Management Bhubaneswar.
Members
John C.Camillus, Donald R.Beall Professor of Strategic Management, University of Pittsburgh, Pittsburgh,U.S.A. Keith DSouza, Director (Organizational Effectiveness), Pfizer Limited, Mumbai Ranjan Ghosh, Professor, Indian Institute of Management, Calcutta M.G. Jomon, Associate Professor, Xavier Institute of Management, Bhubaneswar Jerome Joseph, Professor, Indian Institute of Management, Ahmedabad Oswald A. Mascarenhas, s.j., Kellstadt Professor of Marketing, University of Detroit-Mercy, Detroit Sasi Misra, Distinguished Fellow, Entrepreneurship Development Institute of India, Ahmedabad Amar KJR Nayak, Assistant Professor, Xavier Institute of Management, Bhubaneswar Gopal Krishna Nayak, Professor, Xavier Institute of Management, Bhubaneswar H.K. Pradhan, Professor, XLRI, Jamshedpur V.Ranganathan, Professor, Indian Institute of Management, Bangalore Latha Ravindran, Professor, Xavier Institute of Manavement, Bhubaneswar. Subhash Sharma, Director, Indian Institute of Plantation Management, Bangalore W.S. William, Professor & Dean, Xavier Institute of Management, Bhubaneswar
Assistant Editor
Sasmit Patra Executive Officer (Academic & Administration) Xavier Institute of Management, Bhubaneswar
For inquiries and contribution, please write to Editor,

ILAKSHAN Xavier Institute of Management, Xavier Square, Bhubaneswar - 751 013, India Ph. : 91 674 2300007 (20 lines), Fax : 91 674 2300995 E-mail : vilakshan@ximb.ac.in, brajaraj@ximb.ac.in sasmit@ximb.ac.in
GUIDELINES FOR CONTRIBUTORS

ILAKSHAN is a bi-annual journal. The papers published in the journal are generally peerreviewed. It publishes original research-based articles, communications, view points, cases on topics of current concern and book reviews in all areas of Management. A general guideline for contributors is listed below. 1. Manuscripts should be of approximately 10,000 words (20 to 40 A-4 size pages, typed in double space). Manuscripts should be submitted along with a soft copy or by e-mail with the cover page bearing only the title of the paper and authors names, designations, official address, e-mail and phone/fax numbers. 2. Article should accompany an abstract of about 150 words. 3. Tables and Figures : Their location in the text should be indicated as follows : Table-I about here If the tables and figures are imported into the text from Excel, Powerpoint etc., the original files from those software should also be attached. 4. Endnotes : All notes should be indicated by serial numbers in the text and literature cited should be detailed under reference in alphabetical order of the surnames followed by year of publications at the end of the authors name. 5. References :The list should mention only those sources actually cited in the text or notes. Authors name should be the same as in the original source. a) In the text, the references should appear as follows : Dayal (2002) has shown.... or Recent studies (Ramnarayan 2002; Murthy, 2001) indicate... b) Journal references should be listed as follows: Khandwalla, P. N., (2001). Creative Restructuring, Vikalpa, 26(4), 3-18. c) Books should be referred to as follows : Sugandhi, R. K., (2002). Business to Business Marketing, New Delhi : New Age International. d) References from Internet should be referred to as follows : Hesterbrink, C., E-Business and ERP : Bringing two paradigms together, October 1999; Pricewaterhouse Coopers., www.pwc.com. For more than one publication by the same author, list them in chronological order, with the older item first. For more than one publication in one year by the same author, use small (lower case) letters to distinguish them (e.g., 1980a, 1980b). 6. Follow British spellings throughout (Programme, not program) 7. Use of numerals: One to twelve in words, thirteen and above in figures, unless the reference is to percentages (5 percent), distance (5 km), or age (10 years old). Use 1990s and 19th century. 8. No stops after abbreviations (UK, MBA). Use stops after initials (K. S. Singh). 9. Use double quotes throughout. The use of single quotes to be restricted for use within doubles quotes, e.g., In the words of Szell, the economic question is today.... Quotations in excess of 45 words should be separated from the text with a line space above and below and indented on the left. Quotes should be cited accurately from the original source, should not be edited, and should give the page numbers of the original publication. 10.Capitalisation should be kept to the minimum and should be consistent. 11.An author will receive free of cost 10 offprints and a copy of the issue in which his/her paper appears and in addition, one copy each of the three subsequent issues. 12.Manuscripts which do not conform to these guidelines will not be considered for publication. 13.Manuscripts not considered for publication will not be sent back. Those submitting papers should also certify that the paper has not been published or submitted for publication elsewhere. 14.Manuscripts and all correspondence should be addressed to : Editor, Vilakshan, Xavier Institute of Management, Xavier Square, Bhubaneswar - 751013, India, Ph.: 91 674 2300007 (20 lines) Extn. 233, Fax : 91 674 2300995, E-mail : vilakshan@ximb.ac.in/brajaraj@ximb.ac.in/ Sasmit@ximb.ac.in

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Vilakshan, XIMB Journal of Management

Impact of Microfinance through SHG-Bank Linkage in India: A Micro Study*

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SHGs formed and Nil financed by banks

SHGs formed by banks using NGOs or intermediate Structures

* Adopted from Harper (2002) with revised official data

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V. THE PRESENT STUDY 5.1 The Trigger for the Study

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3.2 SHGs without bank linkage Total (3.1) +(3.2)

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Bank linkage Without bank linkage Total

19/100 8/40 27/140

VI. DISCUSSIONS AND FINDINGS

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6.2 Impact assessment

The study analyses the following impacts and shows as follows:

Vilakshan, XIMB Journal of Management

Subject C: Health and Sanitation

Subject D: Family planning

Subject E: Income generating activities

Subject F: common properties management

Chi-square is 35.2037; Chi-square at 15 df with 0.05 level of significance is 26.296

Vilakshan, XIMB Journal of Management

Rs.970 Rs.540 Rs1, 510 28%

Rs1, 180 Rs.780 Rs.1, 960 32%

Rs.1320 Rs.1040 Rs.2360 43%

Vilakshan, XIMB Journal of Management

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M.S University of www.prism.gatech.edu)

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Bank Linkage Programme-An Impact NABARD, (see www.nabard.org)

Vilakshan, XIMB Journal of Management

Assessment of IT Acquisition Process: A Metrics Based Measurement Approach*

Vilakshan, XIMB Journal of Management

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Information System Identified, prioritised

Information System Infrastructure

Information Technology Infrastructure

Vendors/ IT Service Providers Figure 1: IT Acquisition Process

Vilakshan, XIMB Journal of Management

Figure 2: Stages of IT Acquisition Process Stage-I : Conceptualisation

Vilakshan, XIMB Journal of Management

and has shifted from usual process improvement or production efficiency

IT Acquisition Demand Generation

Possible input(s) Figure-3: Conceptualisation Stage Stage-II: Requirement Determination

Alternatives and Priorities; Systems Planning

Figure 4: Requirement Determination Stage

Vilakshan, XIMB Journal of Management

Stage-III: Organizing Acquisition

Project Identification Figure 5: Acquisition Stage

Note: p < 0.05; Measurement Equation Structural Equation