An examination/study of the impact of the academic ...

Proceedings of 12th International Conference on Business Management http://ssrn.com/link/12th-ICBM-2015.html 7th and 8th December 2015 | Colombo, Sri Lanka

An examination/study of the impact of the academic background of Business Leaders on the development of knowledge economy in Sri Lanka. T.M.A.Tennakoon, ([email protected]) PhD Program in Management Studies K D Gunawardena, ([email protected]) Faculty of Graduate studies S P P Amarathunga, ([email protected]) University of Sri Jayewardenepura

Abstract Education is the most fundamental but an important enabler of knowledge economy. Knowledge economy is based on the production, dissemination and use of knowledge as the main driver of growth, wealth creation and employment. The purpose of this study is to examine the impact and contribution of the educational background of Sri Lankan business leaders and their second tier leaders towards the development of knowledge economy. By doing so, the paper aims to present an agenda for Sri Lankan Universities to bring into focus their attention on skills development systems in the perspective of knowledge economy. The research is based on a study of the educational background of 24 business leaders and 65 second tier leaders of 15 diversified public blue- chip companies in Sri Lanka. This is accomplished through the collection of each individual’s data and grouping them to identify the educational patterns among the business leadership and the contribution of local universities to their education. The main findings is that the Sri Lankan University Degree holders among the senior leaders of these companies are so inadequate that they are analogous to/with the foreign university degree holders and the senior leaders who have professional qualifications in finance, economics and management domains are of the right caliber to draw an analogy between the senior leaders who have University degrees. This research is focused on diversified public blue-chip companies, and therefore the generalization of results to other companies must be cautious. Further, the research is based on publicly available data through company annual reports and there are instances of 1 Faculty of Management Studies and Commerce University of Sri Jayewardenepura Gangodawilla, Nugegoda E-Mail: [email protected] WEB: www.icbmusjp.org, mgt.sjp.ac.lk


unavailability of relevant data. This is an attempt on one hand to identify whether the lack of local university education among the business leaders and second level leaders is a rationale for Sri Lanka to be still at an inferior level of development of knowledge economy and then on the other hand to see whether the configuration and course contents of Sri Lankan universities have been conducive to the development of knowledge economy. Keywords – Knowledge, Knowledge economy, University, Entrepreneurship, Research, Sri Lanka JEL Classification: O10

Introduction Knowledge is the basic input in the economic activities of a nation and is not a new concept and it has always been at the core of any country’s development process. Knowledge has become the key value creator in modern economies. Knowledge is an economic asset capable of sustainable growth and a decisive competitive advantage for businesses. It has become the key to competitiveness of a nation in place of the capital and land in the past. Understanding the nature of knowledge with reference to the part of philosophy (epistemology) that deals with knowledge is a pre-requisite for successfully utilizing it in a meaningful way (Neef, 1998). Though knowledge has always been an important factor in organizations, only in recent years it has been considered as the critical source of organizations’ long-term sustainability (Nonaka, 1991; Nonaka and Takeuchi, 1995; Wiig, 1997). Knowledge is the sum of collective outcome of experience, skills, competences that create value in the marketplace, which gives strategic advantage for the enterprise (CoIL,2001). Knowledge is changing the nature and practice of local and international economic development. National development strategies must adapt to these changes to compete global market (Kenan, 2001). In response to the winds of change world over as a result of advancement of science and technology and rapid enhancement in the speed of creation and dissemination of innovative knowledge, has proved it to be one of the most important ingredients of

economic

development.

2 Faculty of Management Studies and Commerce University of Sri Jayewardenepura Gangodawilla, Nugegoda E-Mail: [email protected] WEB: www.icbmusjp.org, mgt.sjp.ac.lk


Problem statement and objective of the study The problem statement for this study is “Has there been an impact of Sri Lankan Business leaders’ academic backgrounds to the development of the knowledge economy in the country?” Objectives Objectives of the research are to find out; 1) Is Sri Lankan business leaders and their second tier leaders not having a local university degree, the reason for the knowledge economy of the country to be still at a lower level? 2) Do Sri Lankan business leaders possess the academic qualifications that will help to develop the knowledge economy in Sri Lanka? 3) Have the configuration and course contents of local Universities been contributing to the development of knowledge economy in Sri Lanka? Hence this study will serve as a wakeup call for universities to examine whether they are producing graduates with the right knowledge, skills and attitude required for the development of knowledge economy. Literature Review Knowledge Economy (KE) and a knowledge based society are the two major factors forming the developed and developing countries at present times. Sri Lanka’s neighbor India is one of the global leaders in the knowledge industry and the largest exporter of knowledge workers. Organization of Economic Corporation and Development (OECD) (1996a: 7) defined Knowledge Economy as “economies which are directly based on production, distribution and use of knowledge and information” and that “ utilizes knowledge as a key engine of economic growth”. However, Brinkly (2006) argues that every economy is a knowledge economy since there can be no economic activity without knowledge. Romer (1986, 1990), stresses that knowledge is the key driver of productivity and economic growth. Knowledge economy discussed in the present day literature refers to the development of knowledge resources, knowledge workers, building and strengthening an innovation system and a dynamic information technology infrastructure to facilitate optimal access and sharing knowledge resources. A knowledge-based society emerges through the development of a knowledge economy. Subject specialists say that knowledge-based societies emerge because of two reasons. First, is the tremendous growth in knowledge as a result of the development of science and technology and second, the people, moving away from their generations long 3 Faculty of Management Studies and Commerce University of Sri Jayewardenepura Gangodawilla, Nugegoda E-Mail: [email protected] WEB: www.icbmusjp.org, mgt.sjp.ac.lk


in pursuits of agriculture and industry based occupations to service based today’s industries where the success is dependent on their ability to deal with or dominate on information and knowledge. Of late, increasing importance has been given to knowledge economy as countries are looking at sustainable economic growth with globalization competition. Developed and developing countries are in search of ways to develop policy frameworks to support knowledge economy. In spite of knowledge economy is considered as an alternative to existing traditional industry or agriculture-based economies, there is no readymade formula to develop a framework to define an appropriate strategy for the policy makers especially, in the developing countries. There is substantial experience and expertise gained by developed countries, but due to various socio-economic and cultural differences, challenges and barriers, much of that experience is not applicable to developing countries (World Bank, 2004). The World Bank states that there are four pillars or critical requisites for a country to be able to fully participate in the knowledge economy: An educated and skilled population is needed to create, share and use knowledge. A dynamic information technology infrastructure ranging from the radio to the internet is required to facilitate effective communication, dissemination and processing of information. A regulatory and economic environment that enables the free flow of knowledge, supports investment in Information and Communications Technology (ICT), and encourages entrepreneurship which is central to the knowledge economy. A network of research and development centers, universities, think tanks, private enterprises and community groups is necessary to exploit into the growing stock of global knowledge, assimilate and adapt it to local needs, and create new knowledge. However, the World Bank has defined four pillars having derived from the experience of the developed countries such as Finland, Ireland, USA, South Korea and other countries. Hence, for developing countries such as Sri Lanka there could be other challenges and barriers for the development of her knowledge economy. Skills and Competency Development Education is the basic foundation for skills and competence development. It is one of the basic human rights a person is entitled to and should be provided by the government of any country. The education that one receives is for the benefit of the individual, society in which the individual lives and for his or her country and finally for the world at large. Education 4 Faculty of Management Studies and Commerce University of Sri Jayewardenepura Gangodawilla, Nugegoda E-Mail: [email protected] WEB: www.icbmusjp.org, mgt.sjp.ac.lk


provides the knowledge for any individual for survival and to face the realities of the world. Formal education develops problem solving and analytical thinking competences and positive attitudes of individual. Development of a nation is dependent on her intellectuals. As a country moves from the industrial to an information economy, its ability to produce and distribute or disseminate education will determine its economic competitiveness. Countries that possess population which has a high level of educational attainment are fertile ground for information-based technology (Romer, 1990). This means growth potential of a new information economy is dependent on the initial amassment of education of the country. Increases in a nation’s overall level of educational attainment causes corresponding increases in their overall rate of economic growth (Topel, 1998; Krueger and Lindahl, 1999), which means that there is a correlation between the nation’s stock of education and the economic growth. The focus on education is know-what and know-how part of the knowledge. The hierarchy of education – primary, secondary and tertiary education continually develop and raise the cognitive ability of the learner. Primary education lays the foundation for learning and enhances the capacity for learning while secondary education helps to develop problemsolving skills and creative thinking. Tertiary education helps to develop deep analytical thinking and Research and Development skills which is an important element of the knowledge economy. Education has no association with a particular job. However, it can be designed to be linked to set of jobs. Marginson and Rhodes, 2002 stated that higher education and knowledge are simultaneously global, national and local. Global refers to the world level or to space, systems, relations , elements and agents which constitute to make the world or a large part of the world. National dimension conforms to a nation with a separate geographical identity and local refers to a particular community or social milieu. Higher education should not only be considered as fostering economic development of a nation and thereby providing opportunities for the individuals but also promoting cultural diversity, political democracy and trade. Available literature confirms that education and research are foundational elements of knowledge . There is a positive correlation between higher educational enrolment and nations competitive performance. Higher education trains executives for the global business. 5 Faculty of Management Studies and Commerce University of Sri Jayewardenepura Gangodawilla, Nugegoda E-Mail: [email protected] WEB: www.icbmusjp.org, mgt.sjp.ac.lk


Entrepreneurship There is a significant impact of higher levels of education on entrepreneurship behavior though that impact is lower with primary education (Goedhuys and Sleuwaegen, 2010) . Davidsson (1995) and Davidsson and Honig (2003) state that effect of education level on entrepreneurship is not linear. Formal education increases learning skills of individuals while it also increases the entrepreneurial efficiency and organizational growth. Advanced business education increases the individual’s inclination towards entrepreneurship and advanced engineering education increases the individual’s inclination towards innovation and new product development. Influence of education on entrepreneurship behavior needs further research as some researchers claim that formal education lessens the entrepreneurial desire of an individual (ex. Shapero, 1980). Ronstadt(1984) claims that formal education leads to conformity and decreases the acceptance to work with ambiguity and hence lowers the students’ abilities in creative thinking. Role of the University To face the global competition many countries are now investing in knowledge economies. In this transformation universities need to act as new knowledge generators as well as a valued partners who can interact with the local industry and contribute to its innovation initiatives. Available literature suggests that there is a strong positive correlation between higher education enrolment ratio of a nation or region and its global competitive performance. Research Universities are key drivers of globalization and engaged in opening their nations to global environment. Prussian educational philosopher Wilhelm Von Humboldt who was the founding father of the University of Berlin in 1810 changed the university concept from being a mere training grounds for professionals to a mix of teaching and research functions. With the acceleration of industrialization, more and more universities were directly involved in the development of technology and subsequent commercialization. Today underdeveloped and developing countries face environmental degradation and social conflict unless they are able to mobilize science and technology to reconcile economic efficiency, social equity and environmental sustainability. Thus availability and access to scientific and technological resources is a pre requisite for economic and cultural survival. The university is the major institution that sought, created, analyzed, developed and 6 Faculty of Management Studies and Commerce University of Sri Jayewardenepura Gangodawilla, Nugegoda E-Mail: [email protected] WEB: www.icbmusjp.org, mgt.sjp.ac.lk


disseminated scientific and technological knowledge in the developed world. This knowledge is disseminated via research publications in reputed journals, conferences, consulting and hence encourage academia to play an important role in experimenting economic development of the local community. Universities should use technology to create jobs and develop the sustainability of the local community when technology tends to cause layoffs and high unemployment. The university could act as an agent of technology transfer. Markman et al., (2005) stated that the role and importance of technology transfer has been included in the mission statements of many research universities. University technology transfer includes joint research projects, spin offs and licensing agreements. Many research have been done on patent /technology licensing including (Thursby and kemp, (2002); Shane, (2002); Carsson and Fridh, (2002); Chapple et al., (2005) and university spin offs including the work of (Shane and Stuart, (2002); Steffensen et al., (2000); Franklin et al., (2001); Lockett et al., (2003); Lockett et al., (2003); Lockett and Wright, (2005). Major research universities in the USA lead involving technology for commercialization activities. However, it is necessary to look at the technology transfer from universities to the business or communal sector in a much broader perspective as the success depends on the culture and the openness of the receiving organization as well the culture, incentives schemes and organization of the university. Traditionally, universities are seen as providers of human resources to business and the government. However, in many countries of the developed and developing world the model has changed. Industry-university collaborative relationships are strengthening through collaborative projects, promoting development and application of new technologies, R&D partnerships and entrepreneurship development. In today’s competitive world, firms follow the concept of “Innovation is the key to competition”. Hence they rapidly increase investments in innovation while increasing the number of competences. As a result firms that are able to access new knowledge and integrate them into existing processes are able to keep ahead of the competition. Outsourcing is part of innovation to increase firm’s efficiency and to secure technical know-how, large firms sign agreements with universities as research partners. As the production of goods and services globally have increasingly become knowledge intensive, universities play a crucial role in creating and transmitting knowledge via their participation in innovation systems. The role of universities as “Ivory Towers” are disappearing and their entrepreneurial role is 7 Faculty of Management Studies and Commerce University of Sri Jayewardenepura Gangodawilla, Nugegoda E-Mail: [email protected] WEB: www.icbmusjp.org, mgt.sjp.ac.lk


getting well established (Gibbons et al., (1994); Etzkowitz, (1998); Mowery and Samport, (2004). Universities can also add value in developing higher apprenticeship in collaboration with other professional bodies and the industry. By having a wide array of apprenticeship programs that paves the way to meet industry expectations as well as aspirations of learners which assist social mobility. Today, every industrialized country is moving to make university-industry link as the focal point of its innovation systems. They embrace technology as the key to development and economic growth. Countries such as United States, Japan, Europe and China are reducing their contributions to university budgets subjecting universities to supplement earnings through research by way of knowledge transfer, spin offs or partnership in startup companies. It is quite common now that universities set up incubators to nurture firms that could turn into new entities where the university becomes a partner. Firms in industrialized countries view universities as supporting entities to accelerate technological advancements to stay ahead of the competition.

Different aspects of University-Industry relationship Interactions between universities and the industry exist in many forms. Lester, (2005) stated that at least four separate kinds of interactions exist at the university-industry interface. First, is being the educator for the people and providing human resources to the industry which is the primary role of a university. Second, is the role of enhancing the inventory of explicit knowledge useful to the business with research activity. Third, is the role of problem solving to help business needs. Fourth, is the public space function which consists of the interaction between the academia and the business community. These include social interactions, meetings and conferences, acting as the center that promotes entrepreneurship and entrepreneurial activities and provision of internships. The relationships built through these spaces will feed back to first three roles. Smith (1991) argues if universities are to help industry meeting today’s challenges academics must understand the need of the industry and offer solutions which are practical and implementable. 8 Faculty of Management Studies and Commerce University of Sri Jayewardenepura Gangodawilla, Nugegoda E-Mail: [email protected] WEB: www.icbmusjp.org, mgt.sjp.ac.lk


Business Leaders’ education level and firm’s performance To manage large corporations which are highly skilled jobs, top managers or the leaders of the firm should have certain level of observable (educational back grounds and work experience) and unobservable (leadership and entrepreneurial skills) capabilities. Bhagat et al., (2010) argue that since identification and measurement of observable and unobservable capabilities are difficult and costly, educational qualifications which are observable and objective measures can be considered in hiring top managers. Gottesman and Morey (2006a) assert that educational qualifications may be a proof for intelligence where more intelligent managers perform better than their peers. At the same time it is a well-known fact that excellent managerial skills are not always attained from high level of educational qualifications. Bantel and Jackson (1989 ) and Wiersema and Bantel (1992) state that Chief Executive Officers (CEOs) with higher educational qualifications are more efficient and are good in information processing and are good in change management in the firm. CEOs with Degrees in technical fields encourage research and development in the firm and readily allocate more resources for research and development (Finkelstein and Hambrick, (1996); Barker and Mueller, (2002). Global companies consider CEOs having higher academic qualifications are important for growth and sustainability. Samsung’s workforce consists over 3000 PhD holders. Over 60 percent of the Board members of 100 largest companies in Germany have doctorates Gractz, (1997); Drees, (1995). In Germany having a doctorate is considered as one of the most important criteria for promotion to a Senior Manager (Heumann, (2000). World Bank’s 2012 KEI ranking shows that Germany moved from fifteenth position in 2000 to eighth position in 2012. Hambrick and Mason (1984) argue that observable characteristics are considered valid proxies for top managers cognitive orientation, values and knowledge base which in turn influence decision making and managerial behavior. Many research work such as Hambrick and Mason, (1984); Wiersema and Bantel, (1992); Datta and Rajagopalan, (1998); Wailderdsak and Suehiro, (2004); Barro and Lee, (2010) conclude that education level is often considered as a good proxy for human capital knowledge base or intellectual competence. Upper Echelons Theory state that top management team members’ characteristics including past experience, value and personalities affect how they make strategic and organizational decisions. 9 Faculty of Management Studies and Commerce University of Sri Jayewardenepura Gangodawilla, Nugegoda E-Mail: [email protected] WEB: www.icbmusjp.org, mgt.sjp.ac.lk


Hambrick and Mason, (1984) assert that according to upper echelon theory a higher education level is associated with open-mindedness, ability for information processing and tolerance to changes. Supporting this argument , Bantel and Jackson (1989) suggest that highly educated top managers are prone to be more proactive in developing technical innovativeness. Subsequent work by Tyuler and Steensma (1998) found that top management with technical education would prefer to pay higher attention on benefits derived out of technical alliances. Barker & Muller (2002) studied the impact of CEO’s academic background and firm’s R&D spending and found evidence that there was no relationship between those two. But, there was a positive relationship between CEOs with technical and scientific postgraduate degrees and firm’s R&D spending. Current status of Sri Lankan knowledge economy In developed and developing countries there is an increasing share of services in output and employment, and declining roles of manufacturing and agriculture. In the context of Sri Lanka the growth in agriculture and industry is marginal whereas the growth in services is substantive (Ref Appendix I). Service-based industries are dependent on the information and knowledge which means that Sri Lankan society too is becoming knowledge based and knowledge-based skills are playing a dominant role in all walks of life. Sri Lanka emerged as the first country in South Asia to open its economy in 1977. With that, Foreign Direct Investments (FDI) in the country increased and the manufacturing sector improved in the areas of low level value addition such as apparel industry where the local value addition is only around 15 percent. However, Sri Lanka was not successful in improving high value added high tech industries. 2009 World Bank report states that out of Sri Lankan’s manufactured exports, high tech exports form only 1.5 percent compared with Singapore (57 percent), Malaysia (55 percent) and Thailand (27 percent). Even though the Sri Lankan Government declared the year 2012 as the year of English and IT, the progress in moving towards a knowledge society has been quite poor against comparison with countries such as Malaysia, Thailand, Indonesia and the Philippines. Sri Lankan knowledge industry consists of Information Technology (IT) which is Software product engineering and software outsourcing, Business Process Management (BPM) earlier known as Business Process Outsourcing (BPO) which is basically computerized back office operation, Knowledge Process Outsourcing (KPO) which refers to 10 Faculty of Management Studies and Commerce University of Sri Jayewardenepura Gangodawilla, Nugegoda E-Mail: [email protected] WEB: www.icbmusjp.org, mgt.sjp.ac.lk


carrying out outsourced work for knowledge intensive areas such as legal, accounting, financial reporting, consultancy and education , design industries for electronic circuitry and architectural services where all sorts of design work takes place. The basic ingredients in all these industries are the human intellectual power and the computer. Software Development industry in Sri Lanka emerged in mid-eighties while BPM, KPO and design industries are still at the infant or child stage. Though from time to time there have been talks at Sri Lankan higher echelons to develop the IT/BPM industry. But nothing much has been done to date while neighboring India has made their brand known world over. In the year 2013, Sri Lankan IT/BPM exports were mere 720 Million US Dollars (Central Bank Annual report 2014) while India’s software exports alone was expecting 13 – 15 percent growth with estimated revenue of $99 Billion in 2014/2015 financial year from US$ 82 Billion in 2013. Indian BPM industry with US$ 21 Billion export revenue 2013 is forecasting it to reach US$ 50 Billion mark by 2020 (Source: National Association of Software and Services Companies in India- NASSCOM). Sri Lankan IT/BPM industry has a goal to raise its exports to US$ 5 Billion by the year 2022. In the period 2007 – 2013 it grew from US$ 213 – 720 Million which is a 238 percent increase. Even if the same growth rate continues from 2013 to 2022 Sri Lanka’s IT/BPM exports will only reach little over US$ 2 Billion unless a well-focused accelerated development program is launched to increase output and exports. Knowledge Economy Index (KEI) is based on a simple average of World Bank defined four sub-indexes of Economic Incentives and Institutional Regime, Education and Training, Innovation, Research and Development and ICT Infrastructure. KEI exhibits the overall preparedness of a country towards the knowledge economy.



Figure 1. Knowledge Indexes

50,000 Ireland

GNI per capita (2006 current US$)

45,000

Regression of KEI 2006 and GNI per capita 2006

40,000 35,000

R

2

USA Finland

UK Germany

= 0.9782

30,000 25,000 20,000 Slovenia Korea

15,000 10,000

Poland

South Africa

5,000

Indonesia Jordan Ethiopia

Ghana

India

Sri Lanka China

0 0

2

4

Russia Brazil Thailand

6

8

10

Knowledge Economy Index 2006

Figure 2: A strong correlation between KEI and growth

Source: World Bank 2005a



Data proves that there is a strong correlation between Knowledge Economy Index and economic growth of a country Methodology This paper examines the educational levels of some of Sri Lanka’s top business leaders and their next level of leaders; 1) To find out the existing local University contribution towards the development business leaders in Sri Lanka and 2) To find out if their educational backgrounds had an impact to the development of knowledge economy in Sri Lanka. Methodology was a secondary data analysis for which the data were obtained from published annual reports of companies. For the study sample, 15 diversified blue-chip listed companies were selected. Current business activities of these companies are as follows. Company 1: Transportation, leisure, consumer foods and retail, financial services, plantation, strategic investments, property development and Information Technology Company 2: Oil palm plantations, beverages, real estate, hotels, airlines, investment holdings and financial services and management services. Company 3: Banking, Trading, agricultural and automotive equipment, office automation, consumer electronics, hardware, power generation, pharmaceuticals, travel, leisure, business solutions and home appliances. Company 4: Paints, fertilizer, agrochemicals, industrial chemicals, health care products, plastics, consumer business, packing and agriculture Company 5: Rubber and coconut products exports, import of sugar, welding equipment, marine paints, consumer goods, tours & travels, trading, manufacturing and services Company 6: Manufacturing, agriculture and agri-business, transportation, infrastructure, consumer products, leisure and business process management (BPM)



Company 7: Blending & packaging tea for export, insurance brokering, air lines, industrial agro-chemical marketing, plantations, environmental services, cold storage, chemical packaging and storage Company 8: Import & export, distribution, freight forwarding, trading in chemicals, hotels and plantation management, manufacture of consumer disposables, solar power lighting and rural electrification Company 9: Retail, plantation, tire manufacturing, plastics, rubber, financial services, stock brokering, margin trading, logistics and pharmaceuticals Company 10: Civil engineering, power generation, investments and services, building construction, piling, heavy engineering, road & highways, shipping and marine Company 11: Retail services, engineering, logistics, hospitality, agriculture, financial services & environmental services. Company 12: Financial services, commercial leasing, micro-credit, insurance, factoring and securities Company 13: Financial services, commercial leasing, hire purchase, loans, advances and mobilization of deposits Company 14: FMCG, healthcare, leisure, transportation, power generation, garments and property development Company 15: Manufacturing, travel & tourism, shipping, printing, agriculture, cargo and logistics, plantation. Summary of educational qualifications of Business Leaders and the second tier leaders of these companies are shown in the tables to follow.


Proceedings of 12th International Conference on Business Management http://ssrn.com/link/12th-ICBM-2015.html 7th and 8th December 2015 | Colombo, Sri Lanka Table 1. Summary of academic qualifications Business Leaders No of companies No of Business Leaders No of 2nd Tier Leaders Acadamic Diploma Bachelors Masters * Doctoral Professional only qualifications Experience Total

15 24 65 Sri % Foreign Lanka 1 3 12 7 4 1 9 3 12 6 24 22

% 4 29 17 4 37 91

* Masters’ holders had Bachelors’ or professional qualifications

Analysis Out of the 24 Business Leaders who are holding Chairman, Deputy Chairman or Managing Director positions only 03 persons or 12 percent of the population have had a basic Degree from a Sri Lankan University whereas 01 had a foreign diploma and 03 had no recognized academic or professional qualifications what-so- ever to their credit while 37 percent of the population had no university based education but had management, economics and/or finance related professional qualifications. 29 percent have obtained their Bachelors’ Degrees from foreign universities and 17 percent of the business leaders had their masters’ degrees from foreign universities. Out of the 24 leaders only 2 had engineering degrees but one was leading an investment company with no links to knowledge industry. This data highlights some important findings and questions; - Sri Lankan business is mainly led by foreign educated or leaders with financial and management qualifications. - Sri Lankan University graduates seem to be finding difficulties in reaching the top most corporate positions - Or is it that Sri Lankan universities are not producing the right caliber personnel who could progress steadily through the corporate hierarchy to reach the top? 15 Faculty of Management Studies and Commerce University of Sri Jayewardenepura Gangodawilla, Nugegoda E-Mail: [email protected] WEB: www.icbmusjp.org, mgt.sjp.ac.lk


- Where is the majority of Sri Lankan university graduates employed then? - Do the Sri Lankan university graduates prefer to be employed in more secure and less challenging government services against the more challenging and the rewarding private sector? A business leader needs to possess seven skills and traits to be successful. Identified as C-suite they include leadership, strategic thinking and execution, technical and technology skills, team and relationship building, communication and presentation, change management and integrity (HBR, March 2014). Now let us draw our attention to the second tier or next level of corporate hierarchy. For this study, academic qualifications of 65 second tier leaders of the initial 15 diversified public blue-chip companies were collected and summarized the same way as of the top level leaders (Table 2). Table 2. Summary of academic qualifications 2nd Tier Leaders No of companies 15 No Business Leaders

24

No of 2nd Tier Leaders

65

Academic

Sri Lanka

%

Diploma

Foreign

%

4

6

Bachelors

10

15

10

15

Masters

11

17

17

26

2

3

32

49

65

99

Doctoral Sri Lankan Masters with Professional Qualifications

5

8

Sri Lankan Masters with foreign Bachelors

1

2

Professional only qualifications Experience

4

6

Total

25

38



Analysis 15 percent of the second tier leaders had bachelors’ degrees from Sri Lankan Universities and a similar number had their bachelors’ degrees from foreign universities. 17 percent of the population had masters’ degrees from Sri Lankan universities whereas a much higher 26 percent had obtained masters’ degrees from foreign universities. Here the situation is more alarming for the local universities because, nearly half of the population or 49 percent had only finance, economic, and/or management related professional qualifications than university degrees. A very noticeable feature is that out of the entire 65 of the second tier leaders only one had an engineering bachelors’ degree. Important highlights and further questions arising out of this situation are as follows: - Even in the near future, the majority of Sri Lankan large corporate sector will be led by foreign educated or professionals with finance, economic and/or management qualifications than the graduates from Sri Lankan universities. Qualified engineers reaching the top corporate positions will be extremely low. - Where are the graduates passing out from Sri Lankan universities employed? -

Are the Sri Lankan universities not producing the correct caliber of people who could be tomorrow’s business leaders?

- Or are we facing a severe brain drain and losing our best graduates to foreign countries for more lucrative careers and better quality of life? - Why are our engineering graduates not capable in climbing up in the corporate ladder? Sri Lankan University system has a rich history of well over 70 years. Universities of Colombo and Peradeniya were established in 1942 and Universities of Kelaniya and Sri Jayewardenepura were established in 1959 followed by the University of Moratuwa in 1972 and subsequent universities were established in different parts of the country at different times and it is totaling to 15 universities as of today. These universities produced a substantial number of graduates annually as per the table 4 at the bottom of the page. It is interesting to note that since 1980 Sri Lankan government universities had an annual bachelor level graduate output of well over 3200. The important question is 17 Faculty of Management Studies and Commerce University of Sri Jayewardenepura Gangodawilla, Nugegoda E-Mail: [email protected] WEB: www.icbmusjp.org, mgt.sjp.ac.lk


where all these graduates are being employed? Since UGC data does not provide the stream or specialty wise break down, making reasonable guesses or assumptions are rather too difficult. The majority of Sri Lankan large corporate entities are not engaged in the knowledge industry. Out of the 15 companies examined only one company has been very successfully engaged in software development sector employing hundreds of engineers and analysts over many years. Recently one more company has engaged in the business process management. But none of the companies are involved in high tech manufacturing whereas almost all are involved in some kind of trading and lower end of services. When a company is led by a finance or business professional, more attention would be paid to short term profits and cost optimizing than investing in research and development leading to innovation of new products or processes. Source: University Grant Commission This is proved by the smaller number of patents that Sri Lanka is holding to date against some of the leaders in knowledge economy. Patents issued by USPTO (Table 3) are one of the key indicators of the world bank defined Research and Development pillar of the knowledge economy. Table . -Patent count of selected countries from 1790 to date.

Country

Patents issued

Sri Lanka Philippines Thailand Ireland Singapore India Finland Germany Japan

- 142 - 942 - 1528 - 6973 - 12300 - 22731 - 24177 - 374000 - 1051785

Source: USPTO



Conclusion Studies focusing on the relationship between top management’s academic background and the development of knowledge economy are very scarce in the literature. This study may be the first of its kind in Sri Lanka. This paper highlights a number of important issues needing attention of the Government, business leaders and local universities with regard to the development of knowledge economy. Out of the business leaders only 8 percent have technical degrees and out of the 65 second tier leaders only one had an engineering degree. As a result, it strengthens Barker & Muller (2002) findings, as research and development spending on these 15 organizations could be low, thus, it is lowering the contribution to the development of country’s knowledge economy. Further, lower research and development spending is a hindrance to innovation which is proved by the low count of patents obtained by Sri Lanka as a country. The majority of the Business Leaders and their second tier leaders are with finance economics or business backgrounds and these professionals could be more concerned with higher ROA, faster pay back periods and short term profit maximization with risk adverse attitude. They may fail to recognize the importance of investment in high tech research and development as a necessary ill. The results of the study suggests that except one, the rest of the companies are engaged in very traditional trading and services industries, but have not made any strategic investments in high tech manufacturing, IT/BPM or design industries, while global companies consider having academic qualifications are important for growth and sustainability. Out of seven C-suite skills, technical and technology skills and strategic thinking and execution are very much inclined to the academic background. The study is also a Table 4. Sri Lankan University Graduate Output

Graduate Output (No.) YEAR 1980 1990

2000

2005

2010

2011

2012

First Deg.

3,296

4,476

9,374

12,545

21,248

22,404

11613

Postgrad.

430

307

2,169

4,589

6,330

5231

7,887 19

Faculty of Management Studies and Commerce University of Sri Jayewardenepura Gangodawilla, Nugegoda E-Mail: [email protected] WEB: www.icbmusjp.org, mgt.sjp.ac.lk


good eye opener for Sri Lankan universities to further investigate the reasons for their graduates not been able to rise in the corporate ladder. In this regard universities need to objectively look at the content and context of their degree programs.

Limitations and future research The current study is subject to certain limitations. It focused on listed blue- chip companies and hence generalization to the wider corporate world must be cautious. Secondly, data is collected from annual reports of only 15 companies and hence future studies must expand to a much larger sample and further techniques such as questionnaire should be employed to collect data while statistical analyses could be employed to investigate relationships further. Thirdly, the findings can only be used in the Sri Lankan context and for further generalization, data from multiple countries and countries with different stages of economies, such as developed and developing need to be used. Fourthly, for the study only academic qualifications or background which is related to one out of 12 indicators of the KEI was considered. Fifthly, in the perspectives of universities, the paper only looked at the final outcome or the product but not the internal processes or the issues faced by the universities to produce graduates to match with the need of the industry.

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APPENDIX I

Figure 3: GDP by sector, Source: CBSL 2014
