Knowledge Management and Organizational Performance Zuzana Papulová,
[email protected] Matej Mokroš,
[email protected] Comenius University, Slovak Republic
Abstract Changes in corporate environment should be reflected into the business management but their intensity and variability are hard to predict. Nowadays, we have entered “Knowledge Economy” where value of human resources and knowledge in the organizations have became more important than the traditional sources of economic power such capital, land and labor. Knowledge management is the discipline of capturing knowledge-based competencies and storing them for the benefit of the organization as a whole. Knowledge management is a systematic organized attempt to use knowledge in business within an organization to transform its ability to store and use it. It is valuable a tool how to improve individual performance of employees and performance of the whole organization. Increasing the value of human resources through knowledge management is a key to success in the challenging environment. The notion of knowledge management might seem old ground, but in transition economies like Slovakia it is still hot topic. In the article is described the level of knowledge management in Slovakia.
Introduction Rapid change is nothing new, there is a new discovery every day, turbulent environment and the change is the only constant. These almost “clichés” are used worldwide in describing today’s situation. Organization has to deal with this dynamic and uncertain environment. In order to succeed, the organization has to reflect this situation into their management. Organization ought to understand how these changes affect their position in competitive environment and response with appropriate changes in the business management. Fast growth of information leads to the importance of managing knowledge in organizations. Organizations should recognize the value of knowledge and experience of its individual employees, they should capture, organize and store knowledge within and organization and make it available for others in the organization. Knowledge management deals with the process how to make the best use of the knowledge in the organization.
Revolutions in Ages During the evolution of mankind there have been undeniable moments, which shifted the mankind dramatically ahead in its evolution (FIG.1).
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Knowledge Age Information Age Industrial Age
Agrarian Age Age of hunters an gathereres
2,2 mil. B.C. homo habilis
200,000 B.C. homo sapiens
10, 000 - 4,000 B.C. domestification
1990s 1989 fall of Berlin Wall 1770-1910 industrial revolution
FIG. 1: EVOLUTION OF MANKIND
Back in 200,000 B.C. people were mere gatherers and hunters. Primary aim was survival by acquiring enough food. This period lasted till 10,000-4,000 B.C. The Agrarian age started with domestication of animals and harvesting crops. Thus people became less depending on the twist of nature as they were able to store food. Afterwards the Industrial Age started. It was started with the first Industrial Revolution, spanning approximately from 1770s to 1860s, which brought the development of steam engine, locomotive, telegraph and cotton gin. Second Industrial Revolution, spanning from the 1870s to 1910s, brought another inventions such as telephone, electric light bulb, internal combustion engine, movies and radio. Vast increase in farm productivity freed lot of farmers to go into other occupations. The percentage of U.S. Workforce in agriculture dropped from 90% in 1700 down a mere 3% in 2000. More and more workforce was available for other industries. People changed from being self sufficient to being depended on each other. Next change started with a widespread of computers, the Internet, nanotechnology and bioengineering. Some called it the third Industrial Revolution, but a more accepted term is Information Revolution and thus Information Age. The approximate time is usually referred to the fall of Berlin wall. This change has affected the worldwide social evolution, which is characterized by transformation from industrial to information society. Information Age is a term applied to the period where information rapidly propagated and where information was a scarce resource and its capture and distribution generated competitive advantage. When information ceased being scarce, another era – “Knowledge Economy” commenced. This era started approximately in ninetieths. There are many names of the current era like: “New Economy”, “Digital Economy”, “Information Society” or “Experience Economy”. Modern economy is no longer driven by physical flows of material goods and products; there is a different way in which value is being created in this new economy. Some of the economists call this area “Intangible Economy”, because of the shift form tangible to intangible assets. “The new value drivers are intangible assets such as the knowledge of your people, computer systems and software, your work processes, the culture that allows you to innovate” (Norton, 2001). “On the demand side, we consume more and more content-based information and entertainment. On the supply side, intangible assets such as brand, human capital, intellectual property and knowledge have become major determinants of performance and value.” (Goldfinger, 2000) The intangible economy is structured around relationships between man and ideas and symbols. The source of economic value and wealth is no longer the production of material goods but the creation and manipulation of intangible content These moments, these massive changes in “ages” bring always large potential within, which is not foreseen and considered when the change starts. Demján described the apparent features of age change as: (Demján, 2006): • Approximately 50 times increase in performance
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A big wave of unemployment due to change in technology Necessary change of mental model, i.e. change in paradigms Looking back at these changes, the voyage of organization in the 20th century still looks like a smooth and quiet level of lake, where eight men (employees) are paddling the boat to move forward and one steersman (i.e. the manager) is steering the boat. This was mainly due to fact, there were more manually working employees managed by managers. However the 21st century is like going down a wild river, where pairs must coordinate themselves without a leader and make decisions at an instant. Managers are leading knowledge people, employees who must be able to learn quickly as new information is created every day. Every knowledge employee must behave as a leader, he must be able and willing to make decisions and feel responsible for own contribution to the organization (TABLE 1, Demján, 2006). TABLE 1: PARADIGM SHIFT BETWEEN AGES
20th century Industrial Age Increase in performance = do things right Management of • things (manufacturing plants) • industrial workers (mainly manually working) Performance was measured by • quantity • quality • cost
21st century Information/Knowledge Age Increase in effectiveness = do the right things right Management of • people – knowledge workers
Effectivity is measured by • results
At this point we can talk about a shift in paradigm from “industrial society” to “knowledge society” which is elicited by new system of wealth creation based on the knowledge where acquiring and applying knowledge will become key competitive factors. It brings the necessity to learn how to manage the knowledge and permanently increase the productivity of knowledge employees through relatively new approach – Knowledge management.
Knowledge Management and Performance Knowledge Management Basics
Information systems and information technology have become at the beginning of the 21st century the most important factors for functioning of economy in developed countries. However, there are not only the information systems and information technology but actually working with information itself which convey change of thinking and creation of value in modern approaches to business and management. These changes are reflected in current economy. The utilization of resource is being shifted from strategic resources as a capital to new strategic resources as an information, knowledge, creative thinking and innovation. Information is therefore one of the most valuable resource. For example, Peter F. Drucker already in early 1960s had mentioned the term “knowledge worker”. At the turn of millennium he pointed out: “Knowledge and information are today most meaningful resources. Traditional manufacturing resources – land, labor and capital have not disappeared, but have become second-handed. The main factor of wealth is information and knowledge.” Successful organizations are aware that they must shift their attention toward knowledge: its creation, transformation, and ways of storage, selection, processing, usage and evaluation of the expenses. It is a process of knowledge management. Knowledge management does not have a universal definition; the key component is to apply the already acquired knowledge to gain the new knowledge. Sharing and application of knowledge is the basics of commercial success in today world of information. No organization can underestimate their value.
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In the 21st century knowledge management is equivalent to information management. It is an umbrella term for making use of the human knowledge efficiently that it exists within an organization. Burke and Howard describe Knowledge management as “a systematic approach to facilitate the flow of data, information, and knowledge to the right people at the right time so they can act more efficiently and effectively” and divide the process into 3 stages (Burke and Howard, 2005): • Retrieve and understand the structured and unstructured data. • Convert data into useful information. • Share the knowledge. Angus, Patel and Harty see Knowledge management as a concept, a way of doing business rather than only technology (Angus, Patel and Harty, 2006). It can be summarized in a four stages process (TABLE 2) and is achieved through automation on one hand and human intervention on the other hand. TABLE 2: KNOWLEDGE MANAGEMENT PROCESS
Stage
Activities Data entry OCR and scanning Voice input Pulling information from various sources Searching for information to include Cataloging Indexing Filtering Linking Contextualizing Collaborating Compacting Projecting Mining Flow Sharing Alert Push
Gathering
Organizing
Refining
Disseminating
Knowledge guides humans in their use of information so that they can make better judgments, decisions and do their best work. Knowledge is considered now as an asset and it has to be managed just the same as the financial and physical assets. It is estimated that 70 to 80 percent of what our workers know is hidden, so the managers usually do not know what workers know and workers do not know who knows it. Value of tacit knowledge for the organization is enormous. The greatest wealth of knowledge is in the heads of employees, in tacit form. Gain and utilize that potential is not easy. Many organization and managers have tendency to disregard and underestimate it what has harmful consequence for the organization. Knowledge and Performance of Individuals
Knowledge is the primary driver of performance of individual, consequently the organization as a whole. Knowledge affects performance by making it possible for people to perform good and effective actions. Application of knowledge provides opportunities for higher performance. Although the term used widely is knowledge management, in fact the real value stems from creating and sharing knowledge not from just barely managing it. Over the past 15-20 years many heavy investments were made into “knowledge management systems” but the benefits have been limited, because they were made just for the sake of managing the knowledge rather than creating and sharing (Bryan and Joyce, 2005).
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This is the heart of the problem. The usage and creation of knowledge from the stored knowledge is the most crucial point of knowledge management, i.e. the ability to work with the knowledge to produce results. The knowledge had become important “manufacturing” factor, so the organization should put it in the “production” process. This means to apply the gathered knowledge. However, there are still some remnants from the Industrial Age. One of them is the rigid organizational structure, which is still causing nightmares for knowledge workers. The era of globalization created large multinational corporations with thousands of employees. An employee many times can spend the whole day just searching for the person who has the knowledge. This can be observed especially in cross-divisional, crossdepartmental not to mention cross country communication. Brief example is that the volume of global corporate e-mail has increased almost ten times from 1998 (1.8 billion a day) to 2004 (17 billion a day). There are certain factors, which should be changed in order to reduce the complexity of interaction and to create a more suitable environment for sharing of knowledge within organization (Bryan and Joyce, 2005): 1) Simplify the vertical orientation in organizational structure and narrowing the scope of the line manager’s role to the creation of current earnings. Like take important support functions that require focused management, out of the hands of line managers (who are at best gifted amateurs), so specialized professionals can run them as shared utility. 2) Deploy off-line teams of professional (who have the freedom “to wander in the woods”) to search and discover new wealth creation opportunities for organization such as launch of new products or building new business. Not many down-line managers who must bring daily results have time for such discovery process. 3) Develop knowledge and talent marketplaces and formal networks to stimulate the exchange and creation of knowledge. These overlays make it easier to exchange knowledge. People with common interest (e.g. same profession, same industry or same geography) naturally form social networks, but these have limited reach due to the nature of creation. On the other hand marketplace is artificial and managed – so organization has to create them. To boost the value of network the organization should invest and formalize its role within the organization 4) Rely on measurement of performance rather than supervision. Let the people direct themselves, guided by performance metrics. The workforce is increasingly consisting of self-directed professional (knowledge workers), thus inspiring leadership is more needed than intrusive management. It is more important to measure the performance to motivate certain behavior than providing just financial incentives to reward it. At first glance these ideas might look obvious and like nothing new, the hidden secret is that all four parts must be implemented at the same time or the organization need to make all four changes to be able to perform up to potential. For example, an organization can simplify the vertical organizational structure to increase efficiency. But if it not manages to help the knowledge workers to collaborate more easily the gain will be offset by decrease in its effectiveness. Tacit knowledge is the one with higher added value but by its nature it is the hardest to transform it into shareable form. Let us assume the organization had managed to form the “perfect” internal environment for employees to share and use knowledge. This generates inherent difficulty and creates paradox – the more freedom and availability for employees to share and use knowledge there is the less willing are they actually to share it. With the availability of storing and sharing the knowledge, the performance of individual increases, consequently increases the performance of organization. Once knowledge is stored, services of some employees might not be needed. Therefore, employees might feel threatened to become reluctant to share information because somebody younger with half the cost for the organization can replace them. On the other side, much of knowledge of the organization is in employees’ heads. If the knowledge is not stored and employee leaves, organization is losing his/her knowledge. Knowledge Performance Measures Historically, definition of strategy and objectives of the organization were a separate process from the measurement of performance of employees and organization. Organizations typically define and manage a process for reviewing individual performance on a quarterly, semiannual or even annual basis. Therefore it is difficult for this approach to
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be effective because information is often outdated. It is almost like trying to read a map based on where you have been, rather than where you are or where you are going. Organization have invested time and money into systems that measure and report financial and later also non-financial performance and the effectiveness and productivity of the manufacturing cycle, but these systems can not measure the performance of an individual employee (Yazdani, 2006). Because of lack of such measurement system, organization have little or no insight into performance of employees, which skills are they missing and what learning needs to be done within the organization. Vice versa organizations do not know how the performance of employees affects the performance and productivity of organization. Organizations start to focus at the performance of their people. Thus managers have a renewed focus on the production and performance of their employees. To achieve long-term results on a sustainable basis the organization needs to focus on people skills. However skills are rapidly becoming obsolete. Managers are challenged by the limits of the production of people. One of the factors that can constrain performance of organization is development of capabilities of employees, either as individual or groups. Employees often report that they do not understand their individual activities contribution to performance on the organization. Like everything in the business, also the knowledge must be measured, so it can be managed. Unless the impact of knowledge management is measured, value and results would be only are only theoretical. Once the measures are defined and publicized, employees will be encourage to be act as they can contribute to achieve knowledge management results. Measures can help to change employees' behavior change because of their focusing efforts on specific goals. People will manage their time and resources to hit defined goals, so it is necessary to set up right measure. The problem is to set up right measures and metrics. According to Wesley, there are two things organization has to keep in mind while they are identifying and creating metrics or performance measures. First, it is extremely difficult to create any measure of knowledge sharing that will show an absolute one-to-one correlation between a knowledge-sharing action and a business result. The measuring of the impact of knowledge sharing requires correlation and some assumption. It is always important to understand critical success factors for the business area that is being measured. Second, to truly understand the impact of knowledge sharing and reuse, the organization must first understand the baseline business or process performance before starting Knowledge management (Wesley, 2002). As Norton said, there is fundamental difference in this economy because there is not a direct one-to-one relationship between an intangible asset, like the knowledge of a worker, and a financial outcome (Norton, 2001). Manager cannot show that if the employee is sent to training programs for a month that sales will go up or costs will go down. Instead it can be assumed that training will improve something like quality, and if quality will improve, customer confidence will improve, and if customer confidence improves, then they will buy more. The mechanism by which knowledge affects performance is through people. It is not possible to isolate the value of a single intangible asset like knowledge. The creation of value is like a recipe. Several ingredients are needed to be put together. Training of employees is only one ingredient. They also need to have computer systems. Other ingredients are incentives and leadership. It’s impossible for a financial system to describe this process of value creation. Financial systems are always snapshots: they cannot describe a time-based logic of cause and effect (Norton, 2001). That’s why he and Kaplan created Balanced Scorecard, which allows organization to deal with nonfinancial indicators and to show how those are being tied to financial outcomes. Balanced Scorecard contains metrics in four perspectives, metrics for finance, for the area how your customers perceive organization, for the internal processes that are critical to success and the knowledge and resources needed to sustain organization business model. They together give the holistic view of the organization and they are linked to organization strategy.
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Knowledge a Performance in Slovakia Position of Knowledge Management in Slovak Organizations The area of knowledge management is more widespread in global world then in Slovakia, in transitive economy,
mainly with phase of implementation in praxis. However, the development in Slovakia indicates a trend to strengthen the role of knowledge management. Slovakia and other countries of Middle and Eastern Europe are in transitive period, trying to integrate with developed Western Europe, especially in the economic area. Requirements for knowledge and skills of employees are changing in the modern society. An employee should constantly widen and deepen his/her knowledge and skills. In Middle and Eastern Europe skilled employees after finishing university or other preparatory studies usually learn by praxis, i.e. by actually doing the work, solving problems and communicating with people. The current trend is connected to the reasons on which the education and development of employees is based in European Union: • Managerial praxis and theory is rapidly developing, knowledge acquired at college or university is becoming old and only personal experiences of individual are not enough to follow this development. Therefore it is necessary to follow also experience of other managers and organizations including experiences, which has been generalized into methodologies and new management theories • Majority of managers undergo more functions and their range of authority and responsibility is changing several times. Every help that shortens or make the preparation easier is welcomed; it is inspiring to keep in touch with other managers and share experience and with other leading workers / executive from other professions, countries and cultures. • It is more accepted that continuous education increases the quality and ability of action of the organization’s management team and thus organization gains important competitive advantage Global process of fundamental society changes leading to information society is more deeply affecting all areas of social activity. Changes, characterized by the fundamental influence of knowledge and information, on current and perspective development of civilization cannot avoid the educational system for the needs of development of organizations. Current status of education in organizations is still “stained” by the shift from central planning to market economy, whereas in centralized system the concept of customer, communication and human resource was missing. One of critical cause for this state is irrationally managed privatization. Capital and managerial function were taken over by “manager” without relevant skills and knowledge about management, what caused economical decay of many Slovak organizations. The possibilities of foreign investor with years of practice were not used at all. Expertise of particular employees and the forms of their management are still very individual and often depend on coincidence – how they obtain information. Systematic approach to acquire professional skills and learning new knowledge is missing. Lack of knowledge is especially by starting sole proprietors, who conduct a licensed trade, which is their only skill. They lack entrepreneurial thinking in the area of management, managerial skills, experiences from working in teams, financial literacy etc. Negative effects on praxis are low level of business ethics, lack of experience of employees with organizing creation of organizational culture, mastering strategic decision-making, communication with foreign partners. Many managers absent basic economical and legal knowledge and ability to predict economic phenomenon, acquire process and use needed information and knowledge. They underestimate the possibility of further education. According to research done by Economic University, in the area of further education in year 2003 worked approximately 2500 educational subjects. 4.8 % persons (of total population in the age of 25-65) took part in some sort of education. This is only half of European Union average (9.7 % of total population in the age of 25-65). The demand from employees and employer for further education is mainly in the area of information and communication technology (ICT), management of an organization, human resource and foreign languages (Vážna, 2004). It is important for the organization that the employees perform at their best – quality and quantity. To measure the performance of employee and find “gaps” or opportunities for improvement and growth, organization needs to perform evaluation of the performance. Evaluation of employees consists of:
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Assessing how the employee is carrying out the assigned work, tasks a requirements of the job position, what are the relationships to co-workers and customers • Communicating with the employee the results of evaluation • Searching ways to improve the employee’s performance The rate of employees taking part in formal evaluation regularly is increasing and generally about ¾ of employees are assessed regularly. The Slovak organizations are aware of the need to identify the weaknesses and strengths of employees, but are not trying to use for own advantage. The organization realized the importance of evaluation as a source of information to better recognize the educational needs and development potential of an employee, but seldom do they actually use this information. On average only half of the organizations use the gathered evaluation information to analyze the needs of education and development and only one third use it for career management (Vážna, 2004). As a result the evaluation procedure becomes only a formal process happening annually or semi-annually at best. Subjects and Methods in Area of Knowledge Management and Performance utilizing by Slovak organizations As the one of the definitions of knowledge management says “Knowledge management is the discipline of capturing knowledge-based competencies and storing them for the benefit of the organization as a whole”. The organizations in Slovakia mainly focus on capturing knowledge-based competencies. There are several ways how to increase abilities and knowledge of own employees. Majority of Slovak organization tends to rather use external lecturers than internal lectures. But the organization should first know, whether the external lectures are more suitable and skilled and offer the services that is relevant to organization’s needs. Only then can they bring better results. Also line managers should take part in this process as they are familiar with the organization and can help employees to apply the learned knowledge directly into their work. The need for education should be analyzed in organization as a whole, but also in department and teams. To recognize the need of the whole the organization needs to get down to a single individual. Tracking the needs of the individual in the organization will then help to find the needs of the whole organization. However, there is no such system designed for Slovakia (especially for managers who govern the organization), which would reflect current and future trends and at the same time the characteristics of particular regions stemming from their historical evolution, current state and geographical location. Based on the studied resources (Jasaňová, 2005) the educational process for managers in small and medium enterprises is not sufficiently or at all defined. The methodological area needs improvement in structure, length, form and lectors and in managerial areas it is mainly management of process, especially the customer process. Education activities should focus on greater entrepreneurial awareness of organization in the area of marketing, counseling, information systems, tax and legal laws, finance, comprehending new technologies, study of world languages (technical terminology), tourism, development of crafts, agriculture and production of food characteristic for Slovakia, protection of environment and customer. The choice of educational method plays an important role in the effectiveness of the educational process. In corporate education there is no single best or universal method, ideal method for every organization in every time and situation does not exist. Each of them has own strengths and weakness. Methods can be divided into two groups: on the job training and off the job training. First one is educational methods used on the work place, when performing regular tasks. Second group of methods is used in courses organized in educational facility or in the organization, but not directly at the work place. Following is summary of methods as used in Slovakia, which might slightly vary from other definition of these methods. On the job training methods are: • Instruction at the workplace is the simplest method usually used to train new or less experienced employee, where experienced employee or superior shows the work procedure and employee learns by observing. This is useful for simpler procedures, so in some cases more suitable method is coaching. • Coaching is time restricted partnership of employee and coach, which is created to achieve concrete goals. Qualified coach support the employee in the process of problem solving and personality development (Albert Einstein once noted that you can not solve a problem from the state in which it was created) by using precise questions and structured communication. As there are over one hundred different schools of
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• •
• • • •
• • • • •
•
•
coaching world-wide it might look confusing as to methodology, and also because there is no universal recipe or standard advice, but only stimulus for creative problem solving and help with search for tools so the employee can solve the problem alone. Counseling is mutual relationship and influence of the employee, who is being educated, and the counselor, which remove the one side relationship of regular teacher and student. It is more time consuming and can inflict with fulfilling regular working tasks. Assisting is traditional method of forming work abilities of an employee. Employee is assigned to experience employee and helps with fulfilling the tasks and is learning from him/her. Employee is doing more and more work by himself/herself until one can perform the work alone. Advantage is that the assisting is continuous, but one educated employee can pick up bad habit and reduce own creativity. Delegation is a next step from assisting. Educated employee is assigned with a task, has the competency and the work is controlled. This method leads to self decision making and creative problem solving, but the employee can “hurt” confidence if failure occurs. By rotation employee is gradually assigned different tasks for set time period. He/she can widen skills and knowledge and learns more complex work procedures. The employee might not succeed at every workplace and can gain lower self confidence. Work meeting are sometimes just informative meeting, but can also be used to form work abilities of an employee as he/she exchange experience also with other departments. When meeting are taken during the workday, they shorten the actual time need for carrying out the assigned tasks. Workshop is newer method, at least in Slovakia. The team looks for practical solution to problems a complex level. If offer different angles of views and is good tool for building team skills. However there are extensive prerequisites for preparation of the lecturer. Off the training methods are: Lecture is suitable everywhere, where a lot of theoretical information is needed. Lecturer is lecturing the speech and employees listen. Effectivity of this method is controversial. When attending seminar the employee based on the topic covered study some material before hand and prepares a short lecture for the studied topic, which he/she also delivers. It trains the employee to independent work with literature and ability to stand up and deliver a speech. Case studies are simulation of work tasks. A problem situation is simulated on fiction or non-fiction case, so the participating employees can learn step by step new skills and procedures, when solving the case. This knowledge is later used at concrete work. Syndicate method is a variation of case study method. The employees are divided into small group of 2-4 people, who solve the problem independently. A selected “spokesperson” from each group then presents the group’s solution. Role playing is a special type of situational methods, where the learning is not primarily based on the solution finding, but actually on rehearsing the right procedure as the actor rehearses in theater. Modern educational methods also have reach Slovakia and are gradually “oozing” into human resource practices of organizations. Outdoor trainings are more diverse and dynamic than regular schooling sessions in classrooms. Natural environment together with modeled situation foster soft skills – communication and leadership, teamwork and stress control. Nonstandard tasks reveal hidden potential of the employee and are good start further personal development. The demand for this type of training is at rise Assessment centers are based on simulation of managerial tasks, by which the aptitude of certain candidates for particular managerial position is tested. Participants solve case studies and simulated practical problems. This method is not only used for education or development of employees, but more for selection and evaluation of employees. Developing Assessment centre is called Development Centre (DC). There are basically two types of DC: first with immediate feedback when there is result available after each modeled situation, second with feedback after the end of the program where a written report is generated
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and possibly also “face to face” feedback. However, Assessment centers are not that widely used, almost ¾ of questioned organization is not using this method. • E-learing is considered technological approach to education. Its core are interactive multimedia course distribute to employees on CD-ROMs or via computer networks – such as internet or intranet. The education is tailored to needs of individual employee and he/she can choose own pace. The barriers could be lack of information infrastructure, large initial investment and old “methodology” of education. This will not halt the coming trend, just slow it down a little bit. • Distant learning methods are used more in small and medium enterprise. These are correspondent courses done via mail, the educated employee receives study material and during certain time he can consult them with the lecturer over the phone. The education has good professional; level and the cost is lower, but there is lack of immediate control and feedback between employee and the lecturer. Organizations use various methods for education. Each has certain advantages and some restrictions. For the organization to learn how to achieve long term performance it must not only rely on the formal schooling methods. It must take into account the motivation of the employee “to play”, to create and the need of moving forward. There is a thin line between learning/remembering and forgetting/using the learned knowledge. The employee can find opportunities for learning everywhere, anytime and anyhow. It is up to the organization to find out, how to best developed own “working capital” – knowledge worker. The part of knowledge management which deals with storing and reusing the capturing knowledge is less developed or organized. The most used tools for this are intranet, internal database or special public folders. Occurring Problems in the Area of Knowledge Management in Slovak Organizations Knowledge management is complex organization activity, which does not bring the results without target setting and particular plan. There are many organizations in Slovakia that are trying to implement the concept of managing knowledge and performance of its individual employees, but without desirable outcomes. Most of the time, the problem is nonsystematic approach to this concept, without uncertain goals or the financial burden/cost of implementation. Managers of the organizations mostly focus on two criteria – strictly bounded methodology and technology of implementation of knowledge management. They hire external consultancy organization to create project of knowledge management implementation. That could be a problem, because offered methodology by consulting organization can contradict the processes in the implementing organization. These offered methodologies are often just generalized “best practices” of consulting organization supported by suppliers of technology. On one hand technology vendors frequently affirm that with purchase of technology the organization also secures ongoing knowledge management. For knowledge management is more needed than just providing the equipment and its maintenance. Every organization should have own methodology that respects the particular organization needs. Consulting organizations on the other hand sometimes rely on good result achieved in similar situation and therefore they offer this solution to other customers. The problem usually shows up - incompatibility of that particular environment and “historical” situation derived from other environment. Organization can not expect that when it comes out from foreign environment, it can achieve identical good result. Another problem is excessive dependence on technology. Although technology is priceless helper in knowledge management (gathering, sorting, organizing and storing knowledge) but the sole processing of knowledge is not enough. The usage of knowledge depend mainly on the individual employees, thus the technology should not be put at the first place. Many organizations believe that there is one “universal” key or receipt, how to implement knowledge management but it is incorrect assumption. Organizations operate in different areas; they have different employees, different history, culture and goals. Creation of the structure of sharing and managing knowledge requires individual approach. However, there are still many organizations in Slovakia, which executive belies that knowledge management is something above standard, something not really necessary. They are not aware that competition is “not sleeping” and not staying still. Organization, which wants to grow/survive, cannot stop improving and it also cannot loose knowledge without out storing it when key employees leave. Unfortunately the days various
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employees spend in schooling are staggering - in the bad meaning. The managers spend only eight days per year in educational activities. Specialist and administration staff average on six days and blue collar worker spent a minimum - just two days, which mostly represents a bare minimum of education required by law. It is the skilled and knowledge employees who can help the organization to become and stay competitive. Slovak organization seemed not to have realized this fact yet. And even when education of employees occurs, only 2/3 of organization actually evaluates the efficiency of the education, whereas the evaluation carried out several months after schooling is even more underestimated – almost 2/5 of organization do not perform second postponed evaluation at all Searching, gathering and above all sharing and using knowledge is increasingly affecting the performance of individuals in the organization and evaluation of the organization as a whole. Employees are the main source of knowledge. They could be more efficient and could speed the decision-making process, because they have accurate information and they create new sources of income in case the organization finds the value in what it knows.
Conclusion People are again “on stage”. After several years of IT dominance the organizations all over the world began focus on the biggest values – the knowledge of people. Sharing and application of knowledge is the basic of success of organization in current economy. Much of knowledge of the organization is in employees’ heads. If they want to balance out the fast changes in science, technology, economy and the character of work, they must learn continuously the whole life. If the organization wants to be successful, it needs to pay attention to the concept of knowledge management and learn how to create store, select, process, reuse and evaluate knowledge. Development and management of knowledge increase the performance of the employees. To identify whether the performance of organization or employees has decreased or increased, management must be able to measure the performance of individual. Annual reports are filled with financial information but offer little about employees beyond a simple expense item. Yet it is the talented knowledge workers who drive the creation of wealth. Technology is available for every organization to buy and the employees will make the difference in the performance of organization. The organization will lose the knowledge that has not been captured yet (e.g. employee leaving the organization). However if the organization manages only to capture the knowledge but fails to create the environment in which it can be further shared, organization will reduce the opportunity for performance improvement. Although there is not a direct casual relationship between knowledge and performance, organization still should find measures that can help change the employees’ behavior to increase the performance thus it also important to set the right measures. Although Slovak organizations are falling a little behind after current world trends, here we can talk about this topic as very actual and in the centre of attention. Organizations in Slovakia should be active in implementation of knowledge management and be interested in these newest trends. All who will work on solid knowledge and thought base can assure good position in the fast global development and also in future.
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Demján, Z. (2006). A journey for the leaders of the 21st century. Proceeding from 2nd International Coaching Conference. Personal growth - organizations riches source. 2006 [2nd International Coaching Conference ´06. Sielnica, Slovakia, 16.11 – 17.11. 2006.] Doyle, R. (2006). Not so revolutionary. Scientific American, December 2006, 42 Goldfinger, C. (2000, April 18) The new economy and the intangible economy. EIB. Retrieved April 4, 2007 from http://www.gefma.com/Present/EIB%20Seminar%20April%2018%202000_fichiers/frame.htm Hittmár, Š. (2006) Information and knowledge in management. [Slovak version] Symposium Management ´06. Proceedings from symposium. Žilina: The University of Žilina, 2006, 56 – 64. [Symposium Management ´06. Žilina, Slovakia, 20.4 – 21.4. 2006.] Mončeková, K. (2006) Future of management belongs to new trends – it just need to be chosen carefully. [Slovak version] Symposium Management ´06. Proceedings from symposium. Žilina: The University of Žilina, 2006. p. 296 – 301. [Symposium Management ´06. Žilina, 20.4 – 21.4. 2006.] Nonaka, I. (1994). A dynamic theory of organizational knowledge creation. Organization Science, Vol. 5 No.1, 14–37. Norton, D. (2001, July 18) Interview with David P. Norton: “Intangible assets and the balanced scorecard”, The new New Economy Analyst Report. Retrieved April 4, 2007 from http://www.juergendaum.com/news /07_18_2001.htm Wesley, V. (2002) Measuring knowledge management. APQC. American Productivity and Quality Center. Retrieved January 17, 2007 from http://www.providersedge.com/docs/km_articles/Measuring_KM.pdf Yazdani, B. (2006) Managing performance through learning. Chief Learning Officer, 12, 20-23. Jasaňová, K. et al. (2005) Educational level and qualification of entrepreneurs and usage of continuous education. Proceedings of research study. Economic University in Bratislava. Analysis of entrepreneurial environment and barriers of absorbing ability of regions [Slovak version] Retrieved May 15, 2007, from Technical University in Košice, Institute for Regional and Communal Development Web site: http://www.tuke.sk/IRKR/Anproba/?go=archiv Vážna, D. (2004) System of corporate education and it’s analysis in Slovak companies. Economic University in Bratislava. [in process of publishing]
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Knowledge Management in Compliance with Organization Strategy Ján Papula,
[email protected] Dagmar Weberová,
[email protected] Faculty of Management, Comenius University, Slovakia
Abstract Knowledge management, as a current concept in business management, is not a new term. A lot of organizations have already dealt with creating, keeping, sharing and multiplying their knowledge. Successful organizations, which established these knowledge management processes right into their organization cultures, are called “learning organizations”. But the current trends do not lead only to better and proper execution of these well-known knowledge management processes, but they also try to achieve the right knowledge management performance as part of the business performance. In this meaning organizations have to bring their knowledge management into line with corporate strategy and this way they can make sure that organizational goals will be achieved.
Management Strategy under the Influence of the Changing Environment The development of the management theory and the need of its further improvement is the objective consequence of constant pressure of the management practice. The pressure on improving management is produced by the effort of managers to achieve success of organizations in the demanding and constantly changing competitive environment. Problem solving of the articulation of abilities of the flexible reaction of management with the ability to prepare for the future in advance belongs to important problems of current management practice and nowadays there is space for the direction of the development of management theory. At the same time, the constantly changing environment, on one side, is increasing the level of difficulty of searching for ways of improving management, on the other side, it constantly creates new and unexpected scope for its improvement. Rivalry with competitors, the pursuit of competitiveness and getting comparative advantages is one of the important motives and driving forces for improvement of management of organizations. Successfulness of organizations in the constantly changing environment depends to a large degree on the ability of managers of organizations to adapt the exercised methods and techniques to changes being in progress in the environment. These days, hardly anybody doubts the importance of preparation for the future in advance, the importance of strategy and management strategy of organizations. The task of strategic management in the current turbulent environment is to ensure the ability of the organization to react to changes being in progress in the environment. Considering fast changes of the market environment, where products, markets and rules are changed in the short time horizon, the existing efficiency and time response of decisions ceases to be enough for the company management. Taking into consideration the regularities of development, it has been confirmed that if the pace of changes in an organization is lower than the pace of changes in the environment, the organization will come to an end [Papula, 2005]. Understanding the importance of preparation for the future and searching for possibilities of how better to prepare for the future than others is the fundamental motive for the development of strategic management of organizations. Preparation for the future means being prepared for the use of expected future opportunities and to prepare for fighting against future obstacles and threats. On the basis of this it can be said that the one who prepares for the future and prepares for changes, is in the frame to join the competition for the best positions. That’s the reason why many of important specialists in the field of management consider strategy to be one of the decisive critical factors of a company’s success [Papula, 2005]. The level of difficulty of management decision-making processes and the information ensurance of these processes are increasing particularly under the influence of uncertainty and vagueness of the environment. Management decision-making is getting more sophisticated and requires information of higher quality. That’s also the reason why changes related to the transition from functional to procedural approach belong to most important
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changes in theory and practice of current management; this together with informatization and building up a knowledge company creates better prerequisites for the ability to react to changes in the environment.
Knowledge as a Strategic Tool of Competitiveness of Organizations In the current era of globalization, which is characterized by high dynamics of constant changes, terms like competitiveness and productivity particularly resonate when evaluating successfulness of organizations. It is possible to measure competitiveness by comparing parameters of the own company to parameters of a competitive company in the same area. Productivity represents effectiveness of how inputs are changed into outputs. But it is necessary to understand these terms in a complex way and attention has also to be paid to managing a company’s processes and the company environment, which make it possible to achieve them. A competitive company has to maximize productivity of all its resources that are at its disposal. It is impossible to achieve a profit without a customer and therefore company management runs company’s processes in order to satisfy the customer and at the same time it creates the company environment that is favorable to all who achieve high productivity and participate in increasing of competitiveness. To sustain competitiveness it is inevitable to search constantly for ways of how to improve the use of all company’s resources – people, machines, materials, information and other inputs – by day-to-day running and managing of the company. To make the right decision it is necessary to have all the needed information and knowledge. People are the most important resource in the company and their level of know-how and skills is the fundamental category of sustainable growth. The ability of workers to make use of gained knowledge at every-day work enables them to react flexibly and quickly to arising situations and to find immediately solutions to them regarding company’s effectiveness. According to constant changes brought by the common era, it is vitally important to adapt knowledge and skills to current requirements. Knowledge is becoming the most valuable capital of the company. The growing globalization forces companies to penetrate into less-known areas what makes company management focus their attention not only to traditional developed resources, such as material resources, financial resources and workforce but also to an until now less appreciated and used resource – knowledge. Constant changes in the environment, in which the company is situated, force managers to re-consider their view on knowledge and know-how and their approach to them. In today’s quickly changing world it ceases to be important to teach someone that something is given because tomorrow this can mean that the learned fact is not true anymore. And that’s way the ability to find the right information at the right time is considered more important than anytime before. And here we have knowledge management to help companies react through their instrumentarium to processes taking place at the present time and decide upon future on the basis of knowing the past and the ability to analyze future development. In companies based on knowledge, managing human resources concentrates on increasing the so-called organization intelligence and developing potential of workers by means such as learning, participation, co-operation and initiative. To know is an advantage, to learn is necessity. This has always been acknowledged. But these attributes are gradually becoming the main comparative advantage in a knowledge company now and they are the basis for creating wealth. Knowledge management can be generally understood as an effort to make know-how available in an organization to those who need it, there where it is needed, at that time, when it is needed and in a form in which it is needed in order to increase human and organization performance. A problem can arise when nobody really knows what knowledge is and how to make use of it. Figure 1 points out the difference between information and knowledge. Know-how is an important source for manufacturing and it improves business performance. The current business environment of a today’s world places high requirements for interpreting information from the information systems considering the fact that future is predictable only to a certain degree of probability. On the basis of this it is necessary to combine, with the help of knowledge management, information and know-how and to develop such flexible strategies that are based on the real situation of the company. Knowledge management deals mainly with organizations’ adaptation to constant changes of the environment so that organizations are competitive in the long
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run. This includes organization processes that integrate data, information and know-how with the help of information technologies and link them with innovation and creativity of employees.
to understand when, how and for what purposes to use which part of knowledge
Knowledge Know-how
information and direction towards its use
Information
data transformed into a meaningful and for people useful form
Data
bare facts or findings of a useful form FIG. 1: PROCESS-DATA-INFORMATION-KNOW HOW-KNOWLEDGE
Commercially, knowledge is all about the need to know to be competitive. This need to know is ultimately necessary for our survival, and in particular, to enhance our decision-making processes. Although our successes will ultimately depend on worthy, on-time and on-line know how – knowledge [Davis]. But the effective use of knowledge management requires that know-how, which contributes to development of key processes and running of the company, is at a company’s disposal in time. Should knowledge management be a comparative advantage, it is necessary that it takes into consideration all aspects of the organization. While implementing knowledge management, it is essential to find out what organization culture is like and at which level knowledge assets of the organization are, including various information, communication and knowledge technologies. It is also essential that implementation of knowledge management leads to measurable results commonly monitored in an organization. Managing company knowledge could be effective if it does not only become a declared concept but also people – their work, habits and culture – will get an active role in it. The importance of knowledge management in company’s development lies mainly in maximal use of the entire intellectual property of the company in main firm’s value forming processes and its development for future needs. It should speed up and help the adaptative mechanism of the organization, adaptation to an internal and external change and react to these changes in an appropriate way. The main objectives of in this way composed knowledge management are [Mesároš, 2005]: a) Identifying knowledge (to make it visible) and showing the possible use of it in the company. b) Introducing knowledge culture in the company by supporting such activities and pursuits of employees that enable them mutual exchange and information supply. c) Building up a suitable infrastructure, a system of working knowledge management, by which we understand not only the technical side, but also it is necessary to create connections among people, techniques and working methods and support mutual co-operation. Organizations that meet these objectives are known as learning organizations. Peter Senge [Senge, 1994] describes learning organizations as a type of organization culture that has to be introduced in the company, and whose objective is progress not only of its individual workers but thanks to them it also means progress for the entire company. Such a company shows an increased capacity to learn, adapt and change via people who are learning. If we refer to the statement that a man is the primary holder of knowledge capital – knowledge, then it is
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just people who are the most important elements while working on the project of implementation and use of the knowledge management system.
Intellectual Capital as a Hidden Potential of an Organization Knowledge is becoming the most important form of capital of a modern company. This does not mean that capital or technical progress is not important at creating a product, but priorities have changed – knowledge is becoming a priority. Knowledge management is then a process that makes use of knowledge assets of a company. In connection with this, the term intellectual capital has been arising more and more intensively since the mid nineties, and experts have used it trying to explain striking differences between accounting value of a company and its actual market value, i.e. those differences which can be added to effects that are derived from a company’s knowledge management. Intellectual capital can be regarded as the hidden value of an organization [Davis]. These are differences, which are often justified as influence of factors such as: ‘trade name’, ‘know-how’, or ‘goodwill’. Due to the fact that these differences have arisen too often, mainly in connection with businesses operating in the area of information technologies, finance and business consulting, experts started to ask a question, what is it what is significantly increasing the market value of a company? One of the explanations for this is that it is the functioning intellectual capital, which essentially increases economic results of companies, and that it is intangible property hidden inside a company in a form of the ability of its employees to create not only a comparative advantage on the market but also an additional value of a firm. [Němec, 2003] An organization should achieve and maintain its comparative advantage by effective use of intellectual capital and knowledge within a company. Getting to the subject of evaluation and measuring of intellectual capital, it is necessary to recognize single components which intellectual capital consists of. Intellectual capital includes / consists of ideas, inventions, general know-how, computer programs, publications, etc. Distinguishing between different components of intellectual capital can help us enhance the understanding of the problem of intellectual capital and subsequently we can apply this concept at both the strategic and operative levels. To show the positions of intellectual capital and its influence on the market value of an organization, together with a detailed and structured description of the content of this quantity I will use the scheme of the Swedish company Skandia (see Figure 2), which was published in the second half of the nineties, but it has often been referred to by experts and authors of scientific publications.
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Market value
Financial capital
Intellectual capital
Human capital
Structural capital
Organization capital
Customer capital
Innovative capital
Intellectual property
Procedural capital
Intangible assets
FIG 2: SKANDIA MODEL-INFLUENCE OF INTELLECTUAL CAPITAL ON THE MARKET PRICE OF THE COMPANY
This model differentiates six parts of intellectual capital [Van Deventer, 2002]. • Human capital represents the part of intellectual capital concentrated on company managers, specialists and employees. We can describe it as a complex of intellectual property which can be transferred into a real value by a company. Human capital is the main driving force of creation, innovation and value of intellectual capital. • Structural capital is a complex of what remains in a company if we absorb it in our workers. Here we have company organization (organizational structure, company rules, regulations, procedures), processes, manuals, documentation, working procedures, customer database, technologies, software, brands, patents, and inventions. • Customer capital is a complex of what is characterized by the relationship of the company to its customers, e.g. market share, market segmentation, brand awareness, and customer satisfaction. • Organization capital describes the ability of a firm to create added value with the help of company processes and to innovate and improve the current methods of creating the added value, and other types of intangible capital. • Innovative capital describes the ability of a firm to innovate, create and improve the current methods of creating added value, products and services, manufacturing procedures, new patents, trademarks. Innovative capital is composed not only of its own innovations but also of innovation methods and procedures, their documentation, publication and use for other parts of intellectual capital. • Procedural capital is mainly determined by the proportion of documented and stabilized processes, the proportion of outstanding commitments and speed and quality of communication. Besides the right understanding of importance and role of intellectual capital, effective managing is also important for the company. To succeed in managing intellectual capital, it is necessary to measure it, i.e. to monitor measurable changes in all parts of intellectual capital. Recently, new and new procedures and methods have been arising in connection with the research of possibilities measuring intellectual capital. In short, we illustrate four fundamental groups [Nepolská, Hlínová, 2003]:
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•
Methods that directly measure intellectual capital. These methods result from a detailed structure of parts of intellectual capital and are followed by evaluation of each part. Summarizing evaluations we get the overall value of a company’s intellectual capital. • Methods based on market capitalization. The value of intellectual capital is set as a difference between the market capitalization of the company and its equities. • Methods based on measuring capital return. These methods result from different values of capital return in a branch, where the valuation of a company’s intellectual capital is derived from a reverse calculation of calculated increased effects. • Methods based on scorecard. Individual parts of intellectual capital are measured and evaluated in a form of indicators and indexes by these methods. The concept of managing intellectual capital is focused on complex assessment of how a company deals with the identification of individual parts of intellectual capital, how strictly a company measures it, how consistently it monitors development and changes, how it approaches benchmarking of key factors, which influence the given business segment, and how it plans its development. The organization has to implement management of intellectual capital, which was composed this way, into its corporate culture, processes and company strategy, because this is the only way to successfully put into effect needed measures at both the operative and management levels.
Balancing Knowledge Management with Processes of Strategic Management by using the Concept Balanced Scorecard The concept Balanced Scorecard (BSC) and its role in the area of implementing strategy arises out of the facts that objectives and indicators, by which successfulness of achieving them is evaluated, are a common denominator of a plan and strategy too. BSC is more a tactical rather than an operative system of indicators focused on measurement and managing performance of a company. Innovative companies use BSC as a strategic management system, that means they use it in order to manage their long-term strategy. These businesses use metrical attributes to implement critical management processes, which means for: 1 clarifying and translating vision and strategy into actual objectives that may help management identify the right strategy and create a model directed at implementation of strategy; 2 communicating and connecting strategic plans and indicators, by which strategy is given to other hierarchical levels and by this way strategy is further specified. Specific objectives in the given area and individual objectives are balancing, what makes sure that all participants understand and identify themselves with long-term objectives; 3 planning and setting objectives and balancing strategic initiatives where partial allocations of sources directed at a company strategy are carried out; 4 improving strategic feedback and learning process that is used for analysis and additional questions related to achieved results and possibilities of improvement. First users of this concept have already found out that by the right choice of objectives and indicators BSC clarifies the strategic direction of a business and at the same time it makes its measuring possible. Another important quality of BSC is the fact that by an appropriate choice of objectives behavior can be directed in compliance with strategy (because objectives influence behavior). So, the most important meaning of the original concept has significantly been changed: strategic objectives and their illustration are of a high interest rather than a structured list of indicators (see Figure 3).
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Vision Mission
Strategy
Critical Success Factors
Key Performance Indicators Finance
Customers
Internal processes
Learning and growth
FIG: 3 BALANCING INDICATORS OF PERFORMANCE WITH STRATEGY
It could be said that the concept Balanced Scorecard includes an integrated process of managing in which strategies of a company and company units are consistently operationalized, communicated in a top-down direction within the entire company and divided into projects of different priority. Strategic objectives stem from vision and strategy, and this way they become objectives of strategic importance determining a company’s success. If it is possible to plan and follow their achievement, it is necessary to add to these objectives relevant financial and non-financial indicators as well as objective and real values of these indicators. Strategic actions, which match single objectives, should enable the company to achieve objectives. Each strategic action is given a deadline, budget and responsible person. On the basis of the strict logic of the concept introducing vision and strategy into strategic actions Kaplan and Norton extended BSC methodology by a subheading “Translating Strategy into Action“. In practice companies often face problems of setting actual objectives arisen from strategic thinking. Strategies are, that is to say, not clearly defined, they are composed of many single opinions, isolated concepts, huge analyses, loudly sounding visions, etc. BSC process forces companies to concretization of objectives on the basis of the ‘fundamental strategy’ so that this fundamental strategy is confronted with questions of perspectives (see Figure 4). Strategy operationalization is running in a way that strategic objectives and defined relevant indicators are drawn for each perspective. Objective values are determined and concrete measures are developed to execute strategy and achieve objectives for every single indicator. Introducing BSC means that objectives, indicators and strategic actions are matched to a concrete frame of reference, to the so-called perspectives. Matching perspectives should prevent companies from one-sided thinking while stemming and following objectives. Thinking in a frame of perspectives and their connecting document main associations important for strategy implementation. The authors of BSC suggest on the basis of the empirical experience mainly four fundamental perspectives: financial, customers, internal processes and (learning and growth) potential. Of course, perspectives can be modified to specific conditions of the field and company. A balanced consideration of perspectives at setting strategic objectives leads to a balanced system of objectives – Balanced scorecard.
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Finance
Internal processes
Vision Strategy
Customers
Learning and growth FIG: 4 FUNDAMENTAL PERSPECTIVES OF BALANCED SCORECARD
Perspectives of Balanced scorecard are the fundamental building blocks for creating a working model. The four fundamental perspectives of BSC enable companies to set balance between long-term and short-term objectives, between needed outputs and driving forces of these outputs and between hard indicators and more subjective (soft) indicators of performance. The BSC concept innovatively combines lots of known elements of company management (e.g. objectives, indicators, plans and actions) with new approaches to strategy illustration, thinking in perspectives and differentiating strategic and operative objectives. Strategic objectives as well as their indicators and strategic actions are not mutually separated, on the contrary, they are closely linked by cause-and-effect relationships. Implementation of one strategic objective helps to achieve other objectives, which are part of the complete balanced system of objectives. Identifying and illustrating significant strategic relations is an important BSC output. Only the mutual connection of objectives describes strategy in full. Besides illustrating strategy a clear illustration of apparent links and dependency among strategic objectives is a further contribution of this procedural way. Reciprocal effects at achieving objectives will be cleared by this documentation. Knowing the links and meaning of single objectives requires common understanding of strategy, which means that co-operation among managers is being improved. By developing links we are returning to systems of objectives again. In a general view of links, some of the objectives will lose their importance whereas others will strengthen it or they will get a new meaning. But the system of BSC objectives is not based on algorithmic relations. Objectives and also indicators are linked together on the basis of logical, but not strictly mathematical connections. However, this does not decrease the quality and contribution of this concept in the process of strategy implementation at all. The influence of introducing knowledge management on company performance is most visible in the area of innovations due to improved processes, products, and services or because of developing new more effective ways of manufacturing. The degree of success of knowledge management is to be seen in company’s outputs based on innovations resulting from knowledge management strategy and practice in a company. Processes and objectives of knowledge management are in BSC shown by a learning and growth perspective which creates the innovative potential of a company. This is possible thanks to the existence of three groups of sources: employees, information systems and company procedures. To achieve high performance requires considerable investments in people, systems and procedures, which create company’s abilities. The effort to do quality work and the feeling of responsibility, i.e. increasing abilities of employees, their satisfaction, development and career, the relationship with the company,
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development of the working environment, improving access to strategic information, linking rewarding to employees’ performance: • company strategy – determines fundamental starting points of all activities carried out in a company; • organizational structure – precisely shows authority and responsibilities, enables employees to co-operate and communicate effectively among departments; • company culture – favors mutual co-operation, formal and informal communication channels in a way that new knowledge can be generated; • motivated workers – represent a critical factor. They are the only holders of hidden, tacit knowledge; • company processes – workers in companies know why the do certain activity, how they should do it, regardless of the fact whether they work in production or marketing. They benefit from knowing the best procedures in the branch and try to use them in their own company environment; • information and communications technologies – represent technological infrastructure, which supports and makes processing and flowing of data, information and knowledge easier.
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DAVIS, M. The value of knowledge management in :http://www.knowledgepoint.com.au/intellectual_capital/Articles/IC_MD001a.html KAPLAN, R. S., NORTON, D. P.: The Balanced Scorecard: Translating Strategy into Action, Harvard Business School Press, 1996 MESÁROŠ, P. - SUDZINA, F.: Manažment znalostí z pohľadu slovenských podnikov. (Knowledge management from the point of view of Slovak companies) In: Podniková ekonomika a Manažment, (Company economics and Management) r. 2005, č. 3, str. 3-7 NEPOLSKÁ, K. - HLÍNOVÁ, M.: Lidský kapitál jako ukazatel úspěšnosti firmy Lidský kapitál a investice do vzdělání, Sborník z konference, Praha 2003 (Human capital as an indicator of company’s successfulness. Human capital and investment in education) NĚMEC, O.: Intelektuální kapitál – těžiště transformace personálních funkcí v organizaci, Lidský kapitál a investice do vzdělání, Sborník z konference, Praha 2003 (Intellectual capital – centre of transfering personal functions in an organization) PAPULA, J.: Vývoj teórie strategického manažmentu pod vplyvom zmien v prostredí. Bratislava: Kartprint 2005 (Development of theory of strategic management under the influence of changes in the environment) SENGE P.: The Fifth Discipline: The Art and Practice of Learning Organizations. Currency/Doubleday, október 1994 VAN DEVENTER, M. J.: Introducing intellectual capital management in an information support services envirnonment, University of Pretoria, South Africa, 2002
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Knowledge Management in Guadalajara Firms Jose Sanchez-Gutierrez,
[email protected] Aurora Abigail Aguila-Zendejas,
[email protected] Sandra Alvarez-Alvarez,
[email protected] Karla Garcia-Delgado,
[email protected] Universidad de Guadalajara, Mexico
Abstract Knowledge Management (KM) refers to a range of practices used by organizations to identify, create, represent, and distribute knowledge for reuse, awareness and learning across the organization. And it can also apply to the ways organizations gather, manage, and use the knowledge that they acquire. Current studies show that knowledge management leaders look forward to utilizing initiatives oriented to a better way of sharing their knowledge, communication and decision making to all levels, bringing up a research culture about new knowledge. The present research, applies the e-knowledge center methodology adapted to the Mexican culture environment in 60 Guadalajara companies, where directives, supervisors and operatives were surveyed. Based on the obtained results from the surveys that reveal the differences between the companies, the present research tries to show a model that identifies what they are doing, in order to propose a model that can improve it.
Introduction In 1991 Argyris commented “Any company that aspires to succeed in the tougher business environment of the 1990s must first resolve a basic dilemma: success in the marketplace increasingly depends on learning, yet most people don’t know how to learn. What’s more, those members of the organization that many assume to be the best at learning are, in fact, not very good at it.” A learning organization is an organization skilled at creating, acquiring, and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights (Garvin, 93). As an organization learned, knowledge is created, and the task is now how to share and developed it. Nonaka (1994) developed a model for the knowledge that represents how the tacit and explicit knowledge interacts to create knowledge in an organization. This was the frame of reference for an organization that learns (identifying four processes or patterns of conversion of the knowledge: the socialization (tacit to Tacit); the externalization (of Tacit to explicit); the combination (explicit to explicit) and the internalization (of explicit to Tacit). This model implies that the KM activities are within these four phases, whereas the business’ intelligence can directly affect the combination, but is indirectly smaller to the socialization, externalization and internalization. As today, we can say that knowledge management was introduced into the business world to help the companies to create efficiently, to share and to use the knowledge (Davenport, 2000). According to Gottschalk and Khandelwal (2003) the Knowledge management can be classified in four categories or stages. The first stage is general support in the Information Technologies for the workers of the knowledge. This includes data processing, spreadsheets and electronic mail. The second stage is information on knowledge’s sources. An information system keeps information about who knows what is inside and outside the company but the system does not keep what they know tangibly. The third stage is information representing knowledge. The fourth and last stage is the processing of information. An information system uses information to evaluate situations. The most important processes of a business are frequently found in the value’s configuration of a company. A value configuration shows how the most important processes of a businesses work to create value for the clients. The most known configuration of value is the chain of value (Gottschalk, 2003). The value not only can be created through chains. The value also can be created in two alternating configurations: The establishment of value and the linking of value. The value establishment is a company that creates value when solving unique problems for its consumers and clients. The knowledge is the most important resource and the reputation is critical for the success of
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the company. Often, these companies are called companies of professional services. The linking of value is a company that creates value when connecting clients and consumers who are, or want to be, dependants between them. The knowledge component will be found mainly in the services of a linking of value, in the shape of information systems provided to the costumers to interchange relevant information (Stabell, 1998). The society of the knowledge is a structural change for the long term in the economy; the production, dissemination and use of the knowledge will play a prominent role like source of creation and operation of wealth. The learning is critical for such society in terms of comfort, assimilation and transformation, slope of subjects, contexts and conditions, and for the individuals, organizations and nations in terms of formation of new abilities to be able to produce new knowledge (Lindley, 2003).
Literature Overview A definition of KM It is the process to collect the knowledge in where this it exists - data bases, in paper, the hands of the people - and to distribute this where it can help to produce the best result (Hibbard, 1997). This concept is arising again as an interdisciplinary model leading with all the aspects of the knowledge within the organization, including: creation of knowledge, codification, to share it and to know as those activities promote the learning and the innovation. For Taft (1999), it consists of the classification, dissemination and categorization of information and thoughts of the people in an organization. Knowledge management is a discipline that promotes an integrated approach to identifying, managing, and sharing all of an organization’s knowledge assets, including unarticulated expertise and experience resident in individual workers. Knowledge management involves the identification and analysis of available and required knowledge, and the subsequent planning and control of actions to develop knowledge assets so as to fulfill organizational objectives (Kim, 2000). Knowledge management is defined as the process that creates or locates knowledge and manages the dissemination and use of knowledge within and between organizations (Darroch, 2003). Knowledge can come from a variety of different sources and relate to a broad spectrum of issues facing a firm (Darroch, 2003). Knowledge management is not a technology; however, technology is fundamental to the knowledge management process. Knowledge is the new organizational wealth. It underpins an organization’s worth, fuels profitable growth, and drives stakeholder value. The term “knowledge assets” denotes core competencies, processes and human potential that together create value for a company. Perhaps the biggest barrier to the widespread implementation of knowledge management practices is the demand placed on organizational resources by other priorities (Duffy, 2000). The systems of knowledge management are based on information technologies developed to support and to improve the organizational processes of creation, storage/recovery, transference and application of knowledge (Alavi, 2001). It is of conventional understanding that a system of KM must fit with the culture, norms and schemes of existing incentives in the organization; when lacking such components, the result will be highly uncertain (Gallivan, 1997). The “process” is highly associated with concepts like “explicit knowledge”, “routine” and “codification” whereas the “practice” is highly associated with the “tacit knowledge”, “heuristic” and the “noncodifications”. Explicit knowledge is rule-based knowledge that is used to match actions to situations by invoking appropriate rules (Kim, 2000). Explicit knowledge is used in the design of routines, standard operation procedures, and the structure of data records. A business practice is frequently looked like a repeated act, a habit or custom made at level known abilities. Often described like a decoded “know-how” product of the human experience, the improvisation and innovation. One of the benefits attributed to the management of the knowledge has been the ability to share better practices in great organizations. Eight basic functions exist that include/understand the administrative system of process of businesses (Lee, 2005): 1. Process of discovery: to discover since the things are produced. 2. Design process: to mold, to simulate and to redesign a process. 3. Unfolding process: to distribute the process to all the participants. 4. Execution process: to assure that all carry out the process.
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5. Maintenance process: to solve exceptions and adaptations. 6. Interaction process: to allow the human interaction with the process. 7. Optimization process: improvement of the process. 8. Analysis process: to measure the operation and to devise improvement strategies. The driver for the use of a management process in businesses comes from the desire of the organizations to participate in Inter-companies collaborations, creating therefore the demand of a common way to implement intercompany business processes independent as well of the technology used for nourishment (Lee, 2005). The knowledge has been recognized like corporative assets key and the only source of sustainable competitive advantage. The organizational knowledge is due to apply, to administer and to use of effective way to maintain a competitive advantage. The advances in the technology of e-commerce and Internet provide to the companies not only of new ways to create knowledge, also opportunities to improve their ability in the management and use of the knowledge, (Siau, 2000). In order to reach the goal of the KM, a systematic approach is needed to identify and to capture information and knowledge on the processes, products, services, markets, clients and competitors of the company, and to share them to reach an objective greater of well-being and operation (Bushko, 1998). The intellectual capital exists in all the companies and includes rights of author, investigations, databases that improve the practice, loyalty to the marks and the ability of the management (Dzinkowski, 1999). It is the combination of the physicist (buildings, equipment) and the intangible property that the capital of all company (Nasseri, 1996). How to obtain within companies the transformations that contribute to this Knowledge Society? The answer to this question is knowledge management. For Probst, Raub and Romhardt (2001) recommends the following: your company, your department and yourself against the I. Review pillars of knowledge management. II. Knowledge is the prime material of the future. Try to understand it better and to use it for your own intentions. III. Observe things from the knowledge view point and see your company through different eyes. IV. Re orientate yourself in your personal atmosphere of knowledge. V. Maintain your own competency folder. VI. Look for people with your same mentality in and outside the company. VII. Use the existing knowledge systems and information infrastructures VIII. Develop a language to speak about knowledge. IX. Knowledge management needs knowledge managers. Assign somebody. Fui-Hoon Nah, Siau & Tian. (2005) comment that knowledge has been recognized as a key corporate asset and the only source of sustainable competitive advantage. One must effectively apply, manage, and utilize organizational knowledge to sustain competitive advantage, and explain it in their research model FIG. 1.
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Knowledge acquisition
Knowledge dissemination
Internet-Based customer knowledge management
Knowledge sharing
FIG.1: RESEARCH MODEL Source: Fui-Hoon Nah, F., Siau, K., Tian, Y. (2005). Knowledge Management Mechanism of Financial Service Sites
Knowledge management significantly affects short-term stock market returns; moreover the integrated governance framework indicates that an integration of process compliance, performance, measurement, and knowledge management throughout an organization is necessary for future firms gaining success. It views accountability toward the stakeholders in three perspectives- compliance, performance, and knowledge with a integrated governance framework (Sabherwal and Sabherwal 2005), presenting a model that link the three perspectives (FIG. 2).
FIG.2: THE INTEGRATED GOVERNANCE FRAMEWORK.
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Source: Sabherwal, R., Sabherwal, S. (2005). Knowledge Management using information technology: determinants of short-term impact on firm value. Decision Sciences.
Methodology For this work the methodology proposed by the eKnowledge Center (2000) was used. This is an organization specialized in knowledge management. This organization proposes and designs a survey as a tool to measure the knowledge management in several dimension and purposes dealing with KM such as: - Events, activities, facts and goals, with the idea to be sure that the project or program of KM has a positive impact in the measuring process. - Players, activities, times, objectives, innovations, feelings, goals and metrics, with the idea of determinate the organization’s primary knowledge sources, and the methods used to acquired it. - The entire dimension, with the idea of developed a good image of the future in the knowledge’s environment, and to present the needed goals needed to be reached. A survey was applied to 60 small enterprises oriented to the retailing industry, all them from Guadalajara, the capital city of Jalisco, second largest city in Mexico population. The questionnaire was apply to directives, supervisors and operatives from each enterprise, in order to perceive if there were homogeneous in their comments related to the way of how the KM is realized and what elements they consider necessaries. The questions used in this study were adapted with the structure proposed by the eKnowledge Center.
Results The Figures and their interpretation of the questions in the survey applied to the directives, supervisors and operatives in the companies are presented. The organizational culture to develop show that the support and cooperation are the most important activities considered, and second are the high communications level. Personal development accounts by only the 18% followed by autonomy by areas (FIG. 3). Organizational Culture to Develop
Support and Cooperation
18%
24%
Autonomy by areas
6% 40%
High communictions level Personal Development
12% Customer Oriented
FIG. 3: ORGANIZATIONAL CULTURE
Training was most important for the people surveyed (FIG. 4), and was almost tied with the sharing of the information with the employees.
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Activities for Knowledge Management
6%
Continuity in the learning
18%
Trainning
29% Comunication process
35%
12%
To share inf ormation w ith the employees others
FIG. 4: KNOWLEDGE MANAGEMENT ACTIVITIES The most important source of generating of KM (FIG. 5) was the objective’s accomplishments, the total involvement of the individuals was considered on second place (27%), the aligned objectives were third important issue.
Generation of Knowledge Management goals by the Team Work
Aligned objectives 18% 46%
9%
Others Total Involvement of the individuals
27%
Objective´s Accomplishment
FIG. 5: GENERATION OF KM GOALS BY TEAM WORK The metrics of the KM goals were the profits and sales (43%) are the most important source for, and they considered important the resulting vision (FIG. 6).
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Metrics of the Knowledge Management Goals
19%
13% others Resulting Vision 25%
Prof its and Sales Previous statistics
43%
FIG. 6: METRIC OF KM GOALS
Other important characteristic was the performance of the personnel on KM. They gave more importance to the empowerment of the employees. They comment that the KM must be reinforced by knowledge sharing, and with this get performance improvement and organizational reinforcement. The opinion about the effects to share the knowledge is the compromise and motivation that could generate in the work environment. Related to innovation roll, they considered necessary the continuous update in knowledge and methods and to hold in vanguard about the company and the competence. The structure shown for FIG. 7, shows that small and medium enterprises in Guadalajara focuses also on reaching results and income, but their culture in the starting point of the KM process is oriented to support and cooperation. The training process is helped with the sharing of information and the companies learning, all these to achieve their objectives, with the involvement of the individuals.
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FIG. 7: KM MODEL FOR SMALL RETAIL COMPANIES FROM GUADALAJARA, MEXICO.
Conclusion The present research shows KM theories and concepts from several authors such as Nonaka, Davenport, Prusak, Kim, Duffy, Pollard, Fui-Hoon, Sabherwal, who have developed KM application processes in several studies. Surveys were applied on directives, supervisors and operatives from 60 small retail enterprises, from Guadalajara’s metropolitan area in Mexico. It is
perceived that they have little notion of what KM implies, with a primary approach on developing customer oriented cultures, but only in theory, because their processes do not stimulate or motivate employees to focus on the customer. KM must lead to involve the individuals, and also contributes to the sharing of the information. The people surveyed consider that the manager and the employees must act different regarding KM processes does enhance the need to encourage superior levels of responsibility, as well as, individual and team empowerment. KM goal metrics do not focus on all aspects knowledge search, as well as their processes, they solely aim to revenue metrics. Regarding the use of technology in KM just computers and computer systems are well known, but there is a complete ignorance regarding technologies and methodologies for the systemic development of KM, in the people surveyed. The results show that KM technology is practically non existing, given the fact that they do not know how to generate, process, implement, communicate, and develop new knowledge in a systemic manner, which requires training reinforcement in that aspect, to foment a KM culture towards each and every member of the organization. The people surveyed has general opinions in the generation of KM, due the ideas commented about empowerment development, total participation, high performance teamwork, and with this strategy have a
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differentiation of competition and continuous improvement and feedback, it may be attributed to the changing and development of a city that was focused in the commerce in past years, and now is turning its orientation to the services and industrial activities.
References [1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13] [14] [15]
Alavi, M., Leidner, D.E. (2001). Knowledge management and knowledge management systems: conceptual foundations and research issues. MIS Quarterly, 25, 107-136. Argyris, C. (1991, May-June). Teaching Smart People How to Learn every company faces a learning dilemma: the smartest people find it the hardest to learn. Harvard Business Review, 69 (3), 99-109. Bushko, D., Raynor, M. (1998). Knowledge management: new directions for IT (and other) consultants. Journal of Management Consulting, 10, 67-68. Davenport, T.H., Prusak, L. (2000). Working Knowledge. Harvard Business School Press, Boston, MA. Darroch, J. (2003). Developing a measure of knowledge management behaviors and practices. Journal of Knowledge Management, 7, 41-54. Dzinkowski, R. (1999,october). Managing the brain trust. CMA Management, 8, 14-18. eKnowledge Center (2006). Worksheets. [Electronic version] http://www.eknowledgecenter.com/ Gallivan, M.J. (1997). The influence of organizational culture on information technology implementation: a success story. Failure and Lessons Learned in IT Management, 4, 243-257. Garvin, D.A. (1993, July-August). Building a Learning Organization beyond high philosophy and grand themes lie the gritty details of practice. Harvard Business Review, 71(4), 78-91. Gottschalk, P., Khandelwal, V.K. (2003). Determinants of knowledge management technology projects in Australian law firms. Journal of Knowledge Management, 7, 92-105 Kim, S. (2000). The roles of knowledge professionals for knowledge management. INSPEL, 34, 1-8. Lee, L.L. (2005). Balancing business process with business practice for organizational advantage. Journal of Knowledge Management, 9, 29-41. Nonaka, I. (1994). A dynamic theory of organizational knowledge creation. Organization Science, 5(1), 1437. Siau, K. (2000). Knowledge discovery as an aid to organizational creativity. Journal of Creative Behaviour, 34, 248-258. Taft, W. (1999, January 28). Anthropological Perspectives on Cultural Knowledge and its management. KM ANSI/ISO Standards Committee Meetings, Conquering the KM Tower of Babel: Knowledge management as a multidisciplinary science and applied science, KM, Inc., Silver Spring.
Contact the authors for full list of references
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Knowledge Management Initiative at Bharti Airtel Limited: A Case Study Ashish B,
[email protected] Ashish Singh,
[email protected] Neeta Baporikar,
[email protected] International Institute of Information Technology, Pune, India
Abstract The unprecedented growth in mobile market is, perhaps, the most vivid facet of India's economic transformation since 1990s. As a pioneer, Bharti Airtel Ltd (BAL) has been instrumental in leading and ushering the mobile revolution in India. The case intends to present “Knowledge Management (KM) Initiative at BAL”. The research methodology adopted, is case study, which helps in building analytic bridges between theory and practice (Case Method: Cases in Management, 2005). The focus, in our research has been to recount as objectively and meticulously as possible—real events and problems in adopting KM as a strategy, so that it opens doors for further research. This case study would help in understanding not only what KM means for BAL, but also throw light on what KM strategy can do for organizations’ excellence. The findings reflect how this initiative of BAL has been a strategic move to achieve its vision of becoming a benchmark for the global telecom industry.
Introduction Every day new products are introduced in the market but only few survive. Why does the new product even with good features fail? Also, some products that make a good beginning, loose their market at a later stage, example pagers. What causes the product or business to fail? Going into fundamentals, business does not exist in vacuum but in an environment - customers, suppliers, competitors, and government. It scans the environment for changes and finds new opportunity, which is a continuous process for a business and when it stops, it is out of the race. When business interacts with environment it starts acquiring knowledge by learning, perceiving, communicating and associating. This acquired knowledge facilitates the business to find new opportunities for growth and survival in the market. According to Webster’s Dictionary, knowledge is the fact or condition of knowing something with familiarity gained through experience or association. Knowledge may also be described as a set of models that describe various properties and behaviour within a domain. Knowledge may be recorded in an individual brain or stored in organizational processes, products, facilities, systems and documents. In reality, though, there exist many possible equally plausible definitions of knowledge for the purpose of this paper the focus will be on this definition: “The ideas or understandings, which an entity possesses that are used to take effective action to achieve the entity’s goal(s). This knowledge hence is specific to the entity, which created it”.
Stages of Indian Economy India has started economic reforms from 1991 due to the winds of change in the international economic scenario. The need for a policy shift had become evident earlier, as many countries in East Asia achieved high growth and poverty reduction through policies, which emphasized greater export orientation and encouragement of the private sector. India had taken some steps in this direction in the 1980s, but it was only in 1991 that the paradigm shift occurred. Policies signaled a more open economy with greater reliance on market forces, a larger role for the private sector, including foreign investment. On the face of it, the figures are compelling. India's real GDP grew by 9.2% in the year (2006) to last (2005) September. Over the past four years it has clocked up an average annual pace of more than 8%, compared with around 6% in the 1980s and 1990s—and a meager 3.5% during last three decades. India seems to be reaping
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the rewards of reforms that were made in the early 1990s. These lowered barriers to trade and liberalized capital markets. As a result, total trade in goods and services has leapt to 45% of GDP, from 17% in 1990.
Overview of Indian Telecom Industry The Indian Telecommunications network with 110.01 million connections is the fifth largest in the world and the second largest among the emerging economies of Asia. Today, it is the fastest growing market in the world and represents unique opportunities for U.S. and other foreign companies in the stagnant global scenario. The total subscriber base, which has grown by 40% in 2005, is expected to reach 250 million in 2007. According to Broadband Policy 2004, Government of India aims at 9 million broadband connections and 18 million Internet connections by 2007. The wireless subscriber base has jumped from 33.69 million in 2004 to 62.57 million in 2004 to 2005. In the last 3 years, two out of every three new telephone subscribers were wireless subscribers. Consequently, wireless now accounts for 54.6% of the total telephone subscriber base, as compared to only 40% in 2003. Wireless subscriber growth is expected to surpass 2.5 million new subscribers per month by 2007. The wireless technologies currently in use are Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA). There are primarily 9 GSM and 5 CDMA operators providing mobile services in 19 telecom circles and 4 metro cities, covering 2000 towns across the country.
Early Bird – Bharti Airtel Ltd (BAL) Sunil Bharti Mittal, the founder-chairman of Bharti Enterprises (which owns Airtel), is today, the most celebrated face of the telecom sector in India. He symbolizes the adage that success comes to those who dream big and then work assiduously. Sunil Bharti Mittal began his entrepreneurial career manufacturing bicycle spare parts in the late 1970s. His strong entrepreneurial instincts gave him a unique flair for sensing new business opportunities. In the early years, BAL established itself as a supplier of basic telecom equipments. His true calling came in the mid 1990s when the Government opened up the telecom sector.
Genesis of BAL Bharti Enterprises accepted every opportunity provided by the 1991 new economic policy to evolve into India's largest telecommunications company and one of India's most respected brands. Airtel was launched in 1995 in Delhi. In the ensuing years, as the Airtel network expanded to several parts of India, the brand came to symbolize the very essence of mobile services. Since its inception BAL has achieved many firsts and unique records: it was the first to launch nationwide roaming operations, it was the first to cross the one million and the five million customer marks. It was also the first to launch oversea services. There are other 'firsts' credited to BAL - many of them in the area of innovative products and services. Today, BAL innovates in almost everything that it presents to the market. An excellent example is Easy Charge - India's first paperless electronic recharging facility for prepaid customers. The numerous awards, conferred upon it, reflect the evidence of BAL’s fine record. It won the prestigious Techies Award for 'being the best cellular services provider' for four consecutive years between 1997 and 2000 – an unbeaten record. In 2003, it received the Voice & Data Award for being 'India's largest cellular service provider'. BAL’s strategic objective is “to capitalize on the growth opportunities available in the telecommunications market and to consolidate its position in being the leader for integrated telecommunications services provider, with a focus on providing mobile services.”
Business Model at BAL BAL started information technology as its central function to support various functional processes. During that time the focus of the company was on systems automation and cost efficiency. The IT functions mainly focused on
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development of technology and maintenance of the system through in-house resources. In due course of time, it realized that technology couldn’t be at the core of its central function, because it is the customer who forms the core. Having realized that the customer is the focal point, BAL went for transformational business innovations through outsourcing as reflected in Table 1. Table 1 is a proof of BAL’s realization that its strength is not technology but customer relations which led to transformational business innovations through outsourcing network maintenance and information technology services. This has made it India’s largest telecom service provider with a huge customer base. This is also the period when BAL gained knowledge about the telecom industry and its customers. This knowledge gained is its core strength and if lost to competitors, would mean threat to the business. Hence, managing this knowledge-both internal and external, has become an important corporate agenda for BAL. Thus – “Knowledge Management” initiative undertaken is a pioneering case worth studying Indian corporate sector. TABLE 1: BAL’S OUTSOURCING MODEL
Business Innovations Through Outsourcing Outsourcing Deals Network outsourcing and Maintenance
Information Technology(IT)
Call Center
Vendors ERRICSSON® NOKIA®
IBM®
IBM Daksh®, Mphasis®, Hinduja TMT®, Tele Tech®, Nortel®
Features/Advantage - Pricing linked to capacity as US$ per erlang - Payment linked to usage and network quality - Ease in network planning - Scalability, sustainability and accountability - Pricing and payment as a % of revenue - S1 Outsourcing, which provide end to end IT including hardware, software and services - Service Delivery Platform which enables delivery of content to end user mobiles and personal computers - Service level agreements for quality and deployment - Scalability, sustainability and accountability -Enhanced and consistent customer experience - Common platform across the group - Scalable business model to meet business needs Source: Bharti Airtel Ltd.
Challenges Encountered by BAL The growth story of BAL is encountered with various challenges. In its early days BAL faced challenges to establish itself as prominent telecom service provider. Later it faced challenges to sustain its growth and be the leader in Indian telecom space. To increase its presence and customer base BAL adopted both inorganic growth models by acquisitions and organic growth model by rolling out new circles. Due to this increased geographical spread BAL encountered with some of the key challenges. They are, •Inadequate-trained manpower for telecom services in India •Local and regional variations in service and products to meet specific needs of customers •Ever changing Indian telecom regulatory environment •Significant upsurge in number of subscribers lead to increased usage of resources and maintenance cost •Increase in geographies serve lead to meeting diversified customer’s needs The bottom line of the above challenges faced by BAL is even with its increased geographical spread and customer base it wanted to provide consistent customer experience across all locations covering all lines of business. BAL’s outsourcing model shown in Table 1 would address only few of the above issues. But after a detailed study of these challenges by BAL team, Knowledge Management was identified as a strategy to address these issues.
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KM – Overview In the corporate world where uncertainty is the order of the day, the only source of lasting competitive advantage is knowledge. When markets shift, technologies proliferate, competitors multiply, and products become obsolete overnight, successful companies are those that constantly create new knowledge, disseminate it widely throughout the organization, and quickly embody it in new technologies and products. Companies, which indulge in these activities, are defined as knowledge creators, and their businesses tend to focus and revolve around innovation. Therefore, KM is a means to an end and not an end in itself. But what does KM mean? Managing knowledge or is it much more than that? "Knowledge is the right information put into use in the right way at the right time, whereas information is merely the amalgamation of various data sets within a specific context." - Darwin Magazine, July 2001 Consider, if someone says that sales started at $100,000 per quarter and have been rising 20% per quarter for the last four quarters, we are somewhat confident that sales are now about $207,000 per quarter. We are confident because we know what "rising 20% per quarter" means and one can always calculate. Yet, if someone asks what the likely sales are in the next quarter, we would have to say, "It depends!" we would have to say this because although we have data and information, we have no knowledge. This is a trap that many fall into, because they don't understand that data doesn't predict trends of data. What predicts trends of data is the activity that is responsible for the data. To be able to estimate the sales for next quarter, we would need information about the competition, market size, extent of market saturation, current backlog, customer satisfaction levels associated with current product delivery, current production capacity, the extent of capacity utilization, and a whole host of other things. When we are able to amass sufficient data and information to form a complete pattern that we understand, we would have knowledge, and would then be somewhat comfortable estimating the sales for next quarter. Anything less would be just a guess! In this example what need to be managed to create value is the data that defines past results, the data and information associated with the organization, market, customers, competition, and the patterns, which relate all these items to enable a reliable level of predictability of the future. Research has already indicated that value of data and information deplete with passage of time since data and information tend to be time-related (Fig.1). But the value of knowledge increases as one keeps on applying the learning. Knowledge when applied not only enlarges but also encompasses more and more, thereby taking a dynamic characteristic. The reason is, data and information can be transferred by well designed databases, software applications and documentations, but it may often be out of date with respect to evolving strategic needs, whereas knowledge gets transferred when information is shared, interpreted among and by people. During the information sharing process, dynamic transformation takes place as it gets updated according to time. "Successful knowledge transfer involves neither computers nor documents but rather interactions between people." - Davenport, T.H. "Think Tank: The Future of Knowledge Management," CIO, December 15, 1995 What we would refer to, as KM would be the capture, retention, and reuse of the foundation for imparting an understanding of how all these pieces fit together and how to convey them meaningfully to some other person. KM is an audit of "intellectual assets" that highlight unique sources, critical functions and potential bottlenecks, which hinder knowledge flows to the point of use. It protects intellectual assets from decay, seeks opportunities to enhance decisions, services and products through adding intelligence, increasing value and providing flexibility. KM should complement and enhance other organizational initiatives such as Total Quality Management (TQM), Business Process Re-engineering (BPR) and Organizational Development and Learning (ODL), providing a new and urgent focus to sustain competitive position. KM in organizations can be considered from three perspectives namely: Business Perspective: focusing on why, where, and to what extent the organization must invest in or exploit knowledge. Strategies, products and services, alliances, acquisitions, or divestments should be considered from knowledge-related viewpoint.
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Management Perspective: focusing on determining, organizing, directing, facilitating, and monitoring knowledge-related practices and activities required to achieve the desired business strategies and objectives. Hands-On Operational Perspective: focusing on applying the expertise to conduct explicit knowledge-related work and tasks.
FIG.1: DATA, INFORMATION AND KNOWLEDGE VALUE GRAPH (ROBERT B. POJASEK, JOHN GARN AND NICK PAPADOPOULOS, 2001)
KM from Telecom Perspective KM for the Telecommunication is relatively new term as in the case with other industries. It is used to describe a number of loosely related approaches and tools. KM is the name of a concept in which an enterprise consciously and
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comprehensively gathers, organizes shares and analyzes its knowledge in terms of resources, document, and people skills. In early 1998, it was believed that few enterprises actually had a comprehensive KM practice in operation. Advancement in technology and the way we access and share information has changed that and many enterprises now have some kind of KM framework in place. From this theoretical perspective, we could actually consider telecommunication business intelligence, telecommunication data warehousing and telecommunication data mining to be subsets of the broader telecommunication KM. However, in day-to-day operational term, we use the term telecommunications KM, to identify all of those solutions that have to do with the storage, management, retrieval and analysis of non-data based information.
KM Process In one Information Week article, Jeff Angus and Jeetu Patel described the four major functions of KM, and the processes involved in accomplishing them. These functions include: •Gathering of information to bring the data into the system. • Organizing it into a usable form through the process of associating items to subjects and giving them context. •Refining what is being stored for accessibility and utility through the process of adding value by discovering relationships, abstracting, synthesis and sharing. • Disseminating it to the people who can use it.
Telecommunications KM Tools By far the single most popular and highly utilized telecommunication knowledge management "tool" is a company’s website. Both the internet and intranet provide most telecom companies with a huge backlog of opportunities to gather, organize, refine and disseminate the information critical to telecommunications company executives, employees, business partners, stakeholders and customers at an exceedingly low cost. In addition to this packaged solutions are also available which include "knowledge engines", "knowledge portals", "text mining" and a variety of other systems.
Need for KM at BAL “Learn and labor before you grow old, for learning is better than silver and gold, Silver and gold may vanish away, but knowledge acquired if managed well will never decay” -Anonymous One of the key challenges faced of BAL discussed earlier in the case is inadequate trained manpower in telecom services space. Due to shortage in human resource competitors poach knowledge workers with decades of experience who can easily migrate to any other location or organization. People with adaptive minds can park their knowledge anywhere and become mobile. In many ways, BAL can lose their vital intangible assets overnight if employee leaves. Organizations without a KM initiative become vulnerable to the turnover of knowledge workers and become victim to high-cost operations. The following are some of the key findings by BAL when knowledge workers leave their organization: • When they leave, 70% of their knowledge leaves with them. • They spend 30% to 40% of their time looking for information. • Redeveloping information that already exists costs approximately $5,500 annually per employee and the average document is copied nine to eleven times. To overcome the above listed issues of knowledge worker leaving the organization, BAL has initiated KM as Corporate IT agenda. KM initiates knowledge convergence and management of common knowledge that are
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essential to accelerate learning and innovation, improve time-to-market and maximize service quality. Corporate IT leads this initiative in the organization as it has the overview of the organization and hence in better position to identify opportunities for knowledge sharing. It also understands and has capabilities to deploy IT tools to make knowledge sharing happen. KM for BAL is a strategy to achieve business objectives faster and better - through an integrated set of initiatives, systems and behavioral interventions to promote smooth flow and sharing of knowledge relevant to the business and eliminate re-invention. Mr. Manoj Kholi, President, Bharti Airtel Ltd. says, “I believe that within our circle and functions, there exist pockets that are truly global benchmarks. There is substantial opportunity for us to transfer these best practices across all our circles and functions and make 2007 the year of “Made in Airtel”. We must share and replicate to be best- in-class as One Airtel. The circle or unit which has already become best of Bharti can target becoming best of globe so that we achieve our vision of becoming a benchmark across the telekcom world”
Good to Great “Knowing is not enough: we must apply. Willing is not enough; we must do” is what Goethe rightly said. World over KM has become embedded in policy and strategy and successful implementation of KM will help in making organizations good and to a large extent successful. But for BAL, KM initiative was not seen as a mere strategy but as a differentiator in helping it to become from ‘good to great’ (Collins, 2001). The most successful business enterprise distinguishes itself from its peers is by making a leap from “good to great”. BAL also did the same by taking care of the following points: 1. Focusing solely on what it can potentially do better then any other organization and outsourcing non-core functions. 2. Thoughtless reliance on technology is a liability (Malhotra, 2005). When used right with a clear vision it accelerates growth, at BAL KM ranks number five out of the company’s top ten strategies identified to achieve the company’s business objectives. 3. The good-to-great companies never began with technology-push model (Malhotra, 2005) but with strategy-pull model, which facilitates organic sense making (Malhotra, 2001b) as in the case of BAL. This “good to great” journey has made BAL to win “Most Admired Knowledge Enterprises (MAKE)” award in 2006 and MIS Asia IT Excellence Award at the MIS Asia IT Summit 2006 for Best Knowledge Management company, a milestone which no other telecom service provider to have ever won.
Four pillars of KM at Bharti Airtel Ltd
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FIG.2: KM PILLARS Knowledge Resources
Knowledge resources are the source where knowledge could be identified. Employees are the major source for knowledge for BAL as they are the real knowledge contributors and knowledge users. Another major source of knowledge is telecom circles. The best performing circles share, while others replicate the best performing circle, which acts as knowledge resources can be replicated in new or emerging circle. To create additional knowledge sources KM initiatives is around the following parameters: creating internal and external benchmarking, identification and sharing of best practices, replication of best practices, creation of communities of experts, measurement of results and variation across circles. Most importantly the knowledge identified through knowledge resources should address at least any one of the following strategic imperatives. • Increase customer satisfaction, which leads to customer delight. • Share holders value maximization through increased productivity and efficiency. • Revenue enhancement. Culture
The overlapping portfolios of customers and suppliers have made it possible for the group to derive maximum value out of KM. Recognizing this potential of KM in giving Bharti Airtel Ltd. an edge over the competition, a formal KM process was embarked. This was started by conducting a survey amongst the senior executives in the organization to understand their expectations from KM, which led to the launch of a KM site called “ Insight@Airtel” on the intranet. However, realizing the importance of KM being a people centric process, the focus was shifted on emphasizing formal / informal interaction amongst people from various functions organizations. A significant amount of success has been achieved in R&D and quality functions through wellestablished KM process. This ranges from sharing information and knowledge on products, projects and processes to formation of informal groups known as the Eureka Club, and communities facilitating KM. Sharing of information, expertise and even facilities have started yielding results. With the usage of KM technologies group companies also began participating in KM movement. The knowledge from these companies is being made 'shareable' for the benefit of the g roup.
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FIG.3: SNAP SHOT OF KNOWLEDGE PORTAL INSIGHTS@AIRTEL
To make employees create, share and replicate knowledge BAL has created following initiatives towards KM culture. • Sharing and replications of knowledge is part of employee Key Resultant Areas (KRAs) • Knowledge competency of the employee is taken as one of the behavioral indicators • Greater focus on replications as it allows people to spend time on true innovation • “K-Dollars” reward scheme for employees sharing and replication knowledge. But, the KM movement will reach the high success levels once it spreads to every individual of the organization and becomes an organizational culture. Technology
KM entails processes of capturing, distributing and using knowledge effectively. KM is not about servers, software and database, although a set of sophisticated tools is the backbone of a reliable KM system. Thus KM should never be equated to information technology. One such tool used in BAL for KM is Airtel world – it is Airtel’ intranet site which is every employee’s prime interface with the organization and also the organization’s key interface with the employee as seen in F i g . 4 . This is the hub of communication and information; and is accessible by all Airtel employees. A dedicated corporate communication group updates the intranet regularly. Airtel world contains top stories, corporate event, group home pages and helpdesk application for each of the functions. It has a direct link to KM web Airtel knowledge portal Insights@Airtel, acts as a primary vehicle for information and knowledge sharing. The portal contains KM tools enables employees all location log in to complete all knowledge related task as seen in F i g . 3 .
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FIG.4: SNAP SHOT OF AIRTEL WORLD Knowledge Process
At BAL the various processes performed are defined and standardized which are followed the same way across various circle. To have a systematic and standard KM process, knowledge processes are formally defined as shown in Fig.5.
FIG.5: KNOWLEDGE PROCESS
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Key Enablers for KM at BAL Strategic Focus
The biggest enabler is the focus and seriousness of top management and high expectations from KM. KM ranks number five out of the company’s top ten strategies identified to achieve the company’s business objectives over the next three to five year time horizon. KM and its results form part of monthly business reviews, and of all important management communications. Performance appraisals at all levels include KM-specific measures. Alignment with business objectives
KM and its results form a permanent agenda item on the President’s business reviews with CEOs of each business productivity / value maximization. A set of top priority business measures has been defined. It is ensured that each top priority measure maps with at least one of the President’s three strategic imperatives (discussed in Knowledge Resource section) otherwise, it wouldn’t be on the top priority list. All KM initiatives including knowledge repositories, sharing, replication and communities of experts, are structured around each of these top priority business measures. KM organization and roles
BAL has dedicated KM coordinators centrally and at each business unit. These people act as catalysts in the KM process. They are change agents who bring in and spread the culture of knowledge sharing across the organization. They influence other employees and facilitate the process of sharing and replicating knowledge and measuring the results. Standard KM processes
They have defined and are institutionalizing standardized, close-looped processes for knowledge-sharing, replication and measurement of results. They believe that knowledge-sharing and replication that could help improve performance on critical business measures will no longer be a matter of chance or choice, but a mandatory activity like any other business process. Culture and people engagement
For creating an organization-wide culture of knowledge sharing and replication, and to institutionalize KM, it is critical for all employees to engage in KM activities, and not just a fraction of the employee base. To track of this they are putting in place a measurement of “employee engagement in KM”. Each month, the percentage of employees in every business unit and in every critical business process who have been part of at least one knowledge submission to the company knowledge base, or a knowledge replication initiative or a knowledge sharing session, will be measured and reported. This will be included in regular business reviews. BAL has “knowledge-dollar (K$)” scheme under which employees earn points or K$’s every time they share new knowledge in the company knowledge base or every time they replicate or apply knowledge shared by others. The K$ is redeemed in exchange for gifts listed in KM portal. This and similar reward and recognition schemes have been institutionalized at the level of individual employees, functional heads and business units. Quality of content in knowledge repositories
Quality of content is ensured in two steps. First, all content submitted is scanned by a member of the KM team to ensure relevance to the business, quality of documentation and adherence to standard KM formats. The content then goes to the knowledge champion and community of experts who own the concerned knowledge repository. They finally review and approve content for publishing, or edit or reject it if required. Having standard documentation formats for knowledge sharing, replication and knowledge-sharing sessions helps to maintain quality and objectivity of content. These standards are also part of the KM orientation training, which a majority of the employees have gone through. Technology enablement
Knowledge portal “Gyan Bharti” on the corporate Intranet is a common virtual platform for all employees to share knowledge and replication at BAL. It contains repositories of re-usable organizational knowledge structured around critical business processes. The KM portal has automated workflows for knowledge submission, approval and publishing. It also automatically allots K$ to employees, and lets them check their K$ balance and transactions.
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KM Gear Wheel The knowledge value graph in fig.1 reflects that value of knowledge increases with time but our study, observation while doing the project at BAL and subsequent analysis in the area of KM brings out, that value of knowledge, if unutilized and unshared also deplete, due to passage of time. Technology is only an enabler, Strassmann (1997) emphasized, that it is not computers but what people do with them that matters.
FIG.6: KM GEAR WHEEL (SOURCE: AUTHORS) Similarly, we have identified four gears, which form the KM wheel. To ensure that the KM wheel operates smoothly, one needs to understand the inter linkage of these four gears. They are: People, Culture, Rewards and recognition, Strategy. These gears are independent and interdependent and a fine alignment among these only will ensure that KM is a not a myth and it becomes a reality. Knowledge acquisition wheel is moved by people and not through technology. Knowledge sharing wheel is moved by organizational culture characterized by high level of commitment and motivation. Knowledge utilization wheel used to share knowledge and increase the value of knowledge, is moved by rewards and recognition program as K$ in the case of BAL. Strategy is the fourth gear which will make KM the differentiator and help other organizations to benchmark against and unless seen as the most important gear will not enable the organizations to higher plane of success. Thus, KM gear wheel helps us to understand that, KM is all about people, culture, rewards and recognition and strategy - development of strategy, based on knowledge and how of it, which in turn helps to achieve organizational objectives, goals, mission and vision.
Results of KM
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As emphasized earlier, for BAL, KM is what it does for business results. It measures the results of KM in terms of its impact on critical business measures. The impact of each knowledge replication on a business measure is captured and documented. It has a simple standard format for documenting replications. The format includes the quantified impact of the replication on a business measure. Till date (2006) more than 14000 knowledge submissions by employees were published on the KM portal. Each one of these was from an internal or external source, and screened for relevance to at least one critical business process before publishing. During this period, nearly 69% of these submissions were applied or replicated by at least one other business unit within the group. The data below highlights the benefits BAL has gained through its KM initiative. TABLE 2: KM BUSINESS RESULTS
Particulars Savings (from Replications) −Mobility (2005-06) −ABTS & Others (2005-06) No. of Submissions on Portal −Oct 2004 to Dec 2006 −Replication rate Employee Engagement −Penetration (Usage): −Engagement (Contribution):
Business Results ~ Rs. 320 Million (23 circles) ~ Rs. 30 Million (7 circles) 14000+ 69% 65% 35% SOURCE: BHARTI AIRTEL LTD TABLE 3: KM BENEFITS
Particulars Reduction in Bills Not Received Complaints Billing by eBilling by e-mail Reduction in faults on new installation within 30 days per 100 new installations Reduction in Hard and Soft Fault rate (from Aug’’03 to Feb’’04) Reduction in Tariff Plan Migration Complaints Savings in Power Cost
Benefits From 4.2% to 0.74% 2-5 days of dispatch time saved From 4.4 to 1 From 4.4 to 1 From 5.1% to 3% Savings of Rs.1.90 Mnas against the target of Rs.1.19 Mn (budgeted). SOURCE: BHARTI AIRTEL LTD
Factors Responsible for Institutionalization of KM at Bharti While many enablers have been discussed above, and Fig.7 reflects the KM Journey, the biggest factors responsible for results, institutionalization to date, and future sustenance are:
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FIG.7: KM JOURNEY
• High expectations and seriousness of top management. The alignment of performance appraisal systems at all levels to include KM-specific measures and including KM performance as a regular agenda item on business reviews reflect this seriousness. At Bharti, KM is not a fad, but is a serious tool for business excellence. • Constant focus on hard business results, without losing sight of the culture angle. • Standardized close-loop processes for knowledge sharing, replication and measurement of results. This is just a snapshot of application of KM. Knowledge has always been managed, at least implicitly. However, effective and active knowledge management requires new perspectives and techniques and touches almost all facets of an organization. The organizations need to develop a new discipline and prepare a cadre of knowledge professionals with a blend of expertise that no one has, previously. The impact on business of use of KM is measurable. Knowledge is an asset that transcends time, individuals and geographies (Neeta Baporikar, 2004).
Conclusion KM is the process of capturing and making use of a firm’s collective expertise anywhere in the business on paper, in documents in databases or in people’s heads. It is not intended to favor expert systems of the early processes. The goal is to present a balanced view of how computer technology captures, distributes and shares knowledge in the organization by linking human expertise and documentation in an integrated KM system. This is what exactly the KM initiative at BAL aimed at and succeeded to a large extent. In some ways, KM was all about survival in a new business world of telecom - a world of competition that increased in complexity and uncertainty each day. The mobile technology belongs to a world that challenges the traditional way of doing things. The focus is not only on finding the right answers, but also on asking the right questions. What worked yesterday may or may not work tomorrow. The focus is on ‘doing the right things’ rather than “doing things right” so that core competencies do not become core rigidities in the future (Malhotra, 2000). KM is fuel or raw material for innovation and the only competitive advantage that can sustain a company is an unpredictable business environment, hence organizations need to keep outward eye and focus on unseen opportunities for growth. This research paper aims at opening new vistas in the field of knowledge management. Questions, which need to be addressed in the coming years for organizations to excel, in spite of good strategies and knowledge base, would be: • How to convert data, information into knowledge powerhouse? • How knowledge management leads to organizational learning and development?
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• •
How to evolve successful strategies of merger, acquisition or diversification by using KM for crafting global organizations? How such strategies can be replicated?
References [1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12]
[13] [14] [15]
Amrit Tiwana(2002), The Knowledge Management Toolkit, 5,59-611. Ansoff, H.Igor. (1965). Corporate Strategy: An Analytical Approach to Business Policy for Growth and Expansion. New York: McGraw Hill. Argyris, C. “Organizational Learning and Management” B. Rathan Reddy, Knowledge Management, Himalaya Publishing House, 2007. Bennis, W.&Nanus, B.Leaders: The strategies for Taking Charge, New York, NY, Haper & Row, 1985 Bharti Airtel ltd. corporate website www.airtel.in Collins, J., 2001, Good to Great: Why Some Companies Make the Leap and Others Don't, HarperBusiness, New York, NY. David J. Skyrme, Knowledge Networking Creating the Collaborative enterprise 73,173. Ganesh Natrajan, Sandhya Shekhar, Knolwledge Management Enabling Business Growth Annexure 6.1, 155. Jeff Angus, Jeetu Patel (March, 1998), Knowledge-Management Cosmology, Retrieved on December 20, 2006, from http://www.informationweek.com/673/73olkn2.htm Madanmohan Rao, Leading with Knowledge” KM Chronicles: Travelogue 1, 465-501. Malhotra, Y., 2005, “ Integrating knowledge management technologies in organizational business processes: getting real time enterprises to deliver real business performance”, Journal of Knowledge Management, Volume 9 Number 1 2005 pp. 7-28 Neeta Baporikar, “Knowledge Management” in GITAM Journal of Management Vol.2 No.1 pp 125132, Jan-Jun 2004. (ISSN 0972-740X) Neeta Baporikar, “Case Method: Cases in Management”, Himalaya Publishing House, 2005. Robert B. Pojasek , John Garn and Nick Papadopoulos.,2001, “Knowledge Management and Visual Context”, Environmental Quality Management, Volume 11, Issue 1, Pages 77 - 87
Contact authors for full list of references.
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Financial Leverage Changes Following Mergers of Australian Firms Subhrendu Rath,
[email protected] Curtin University of Technology, Australia
Abstract This study analyzes the changes in financial leverage for the firms involved in merger and acquisitions in Australia during the period 1996 to 2004 and attempts to identify the reasons for changes in leverage. Consistent with previous studies, the present study also finds that the target firms’ shareholders gain the highest in takeovers and that the combined firms financial leverage tend to increase after the merger. Further, the present study finds support for the argument that it is increased debt capacity that influences increased financial leverage.
Introduction Firms may engage in mergers and acquisitions for several reasons: to realize synergies between the merging entities, to achieve market power by forming monopolies or oligopolies (Andrade, Mitchell and Stafford, 2001), to take advantage of the market valuation errors of the acquisition candidates, and to utilize the unused debt capacity of the acquired firms. All these are in turn expected to lead to an increase in the market value of the combined firm. Mergers and acquisitions have several implications for investors, managers and other stakeholders. For instance, investors of both merging and merged entity may experience wealth redistribution that may or may not be fair and often face a new set of risk return characteristics1. Similarly managers may have to deal with several people related issues besides a modified agency structure that they may have to adapt to. Other stakeholders including the government and lenders may have implications: governments may be concerned about concentration of market power where as lenders may be concerned with possible increases in debt levels. Lewellen (1971), Shrieves and Pashley (1987), Trifts (1991) and Ghosh and Jain (2000) provide support to the argument that financial leverage of the combined firm tend to increase for the following reasons: increase in debt capacity2, motives of wealth transfer from bondholder to shareholders and ex ante unused debt capacity. Increase in debt capacity may be due to lower probability of default of the merged entity compared to the erstwhile individual entities on account of increase in the size of the merged entity. As literature on credit risk explains size is an important factor and has positive influence on debt capacity. However, the increase in financial leverage has mixed implications in that it may lead to tax savings on one hand and increasing the bankruptcy cost on the other hand. Thus the firm may have incentives to use up increased debt capacity up to a point where the increased bankruptcy costs are just offset by the tax benefits3. Shrieves and Pashley (1984) and Ghosh and Jain (2000) find that the increase in financial leverage after merger is caused by the increase in debt capacity. Another argument relates to unused debt capacity in the past in one of the individual firms thereby implying that an increase in leverage would enable the merged firm to attain its optimal capital structure and thereby deriving the benefits of increased market value. Melicher and Rush (1974) find evidence of conglomerate firms taking advantage of unused debt capacity to finance acquisitions. However, Shrieves and Pashley (1984) and Ghosh and Jain (2000) find weak evidence of unused debt capacity resulting in increased financial leverage. Similarly firms either individually or through mergers and acquisitions may engage in acts that tend to increase the financial leverage when there is a possibility of expropriation of lenders by shareholders (Jensen and Meckling, (1976)). Increased debt implies that the claims of bondholders are diluted thereby reducing the value of bonds. Increased debt may also enable the firm to undertake risky projects which when they actually pay off would provide increased returns to shareholders after meeting the fixed claims of bondholders. Galai and Masulis (1976) argue that there may be a possibility of expropriation of wealth by bondholders of shareholders or new bondholders after mergers. This would be the case if bondholders have same seniority of claims as they have more protection now either due to increased size of the firm or due to new investments financed through issue of subordinated debt.
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Most of the previous studies analyzing the relationship between financial leverage and mergers and acquisitions are confined to the US despite an increase in merger and acquisition activity in Australia in the last few decades4. Hence the present study focuses on the firms listed on Australian Stock Exchange (ASX). Given the similarities between the Australian corporate law and securities regulation and that of the US system5, it would be interesting to study the Australian markets to see whether the leverage changes after mergers and acquisitions are similar. Similarly the present study also analyzes the reasons for changes in leverage in the post mergers and acquisitions period.
Theoretical Framework and Hypotheses Tested Financial Leverage in the Post Merger Period
Given that coinsurance benefits are derived entirely by bondholders thereby reducing the value of equity (Galai and Masulis, 1976), firms may increase financial leverage so as to expropriate wealth from bondholders to shareholders. Similarly presence of unused debt capacity in the pre-merger period may lead to increased leverage in the post merger period as firms may want to take advantage of tax deductibility of interest payments. Kim and McConnel (1977) and Ghosh and Jain (2000) show that financial leverage of the combined firm increases in the post merger period compared to the aggregate leverage of the acquiring and target firms in the premerger period. We therefore hypothesize that financial leverage of the combined firm increases in the post merger period. Financial Leverage and Return to Shareholders
The gains from mergers are shared between target and acquirer shareholders (Israel, 1991). Since the shareholders of target firm lose control of the firm, they expect a premium to be paid. Therefore it may be hypothesized that shareholders of target firm experience higher returns compared to that of the shareholders of acquiring firm. Method of Payment and Shareholder Return
Similarly, the method of payment in takeovers and acquisitions also influences the returns of shareholders. Trifts (1991) and Datta and Iskandar-Datta (1995) show that cash transactions tend to be financed by debt, increasing the leverage of combined firm, where as stock financed transactions tend to decrease leverage, reducing leverage. Therefore we hypothesize that shareholders gain more when the transaction is financed by stock rather when cash is used to finance the transaction. Increased Debt Capacity as a Reason for Increased Leverage
Lewellen (1977) finds that the default risk of merged firms decline in most mergers because of the correlation between cash flows of acquiring and target firms is less than one. Only in the extreme case, where the earnings are perfectly positively correlated, the default risk stays the same. The reduced probability of default implies that the merged firms derive the diversification benefits and these benefits accrue to the bondholders as coinsurance. Thus coinsurance leads to expropriation of wealth by bondholders of shareholders. This prompts the shareholders to require increased leverage as the investors have better pay off compared to bond holders. Therefore it is hypothesized that increase in financial leverage is on account of increased debt capacity. Past Unused Debt Capacity as a Reason for Increased Leverage
Another possible reason for the increase in financial leverage could be because of the underutilization of the past unused debt capacity of the target and / or the acquiring firm in the pre-merger years. The merged firm tends to gain from such increase in leverage in the post merger period. Hence it is hypothesized that increased financial leverage is on account of unused debt capacity. Desire of Shareholders to Expropriate the Wealth of Bondholders as Reason for Increased Leverage
Yet another reason why firms may increase leverage is the desire of shareholders to expropriate the wealth of bondholders. Expropriation is possible by either increasing the variability of firm cash flows or by diluting the claims of investors. The latter – dilution of earnings claims of bondholders – would occur when fresh debt is issued with similar seniority to the existing debt. Given that bondholders anticipate expropriation; their concerns may have been reflected in the covenants, particularly in countries like Australia. Therefore it is hypothesized that financial leverage increase may not be on account of desires of shareholders to expropriate wealth from bondholders. Permanence of Increase in Financial Leverage
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Choudhry and Nanda (1993) argue that the increase in financial leverage surrounding mergers and acquisitions is short term in nature and that firms use leverage strategically. Hence it is proposed to study the permanence of increase in financial leverage following mergers and acquisitions. We hypothesize that increase in financial leverage tend to be short run as leverage is only used strategically.
Data and Methodology Sample Selection and Data Sources
Information relating to announcement date, actual takeover date, industry category, and method of payment for the firms engaged in mergers and acquisitions are obtained from the Securities Data Company (SDC) merger and acquisition database. The initial sample consists of companies that fulfill the following requirements: (i) companies involved in merger and acquisition activity in Australia from 1996 to 2004, and have financial statement for a period of five year prior to and after the takeover for either the target or the acquirer firm; (ii) listed and traded in the Australian Stock exchange (ASX); (iii) firms whose primary business is not in financial businesses - banking, insurance, investment and financial services industry; and (iv) the merger and acquisition activity listed in the Financial Analysis publication “Takeovers in Australia”6. These criteria result in a final sample consisting of a set of 104 mergers or acquisitions. Distribution of these firms on the basis of method of payment shows that a majority of these are cash offers (63), followed by stock offers (34) and the remaining transactions are financed using combination of cash and stock (Table 1). The mergers and acquisitions are distributed evenly throughout the sample period except for 1998 where there are only 2 cases. TABLE 1: YEAR-WISE DISTRIBUTION AND THE METHOD OF PAYMENT OF MERGERS AND ACQUISITIONS
By Method of Payment
1996
1997
1998
1999
2000
2001
2002
2003
2004 Total
Cash Tender Offer Stock Swaps
1 1
9 2
7 1
2 5
10 2
6 5
5 6
11 9
12 3
63 34
Combined
0
1
2
1
0
1
0
1
1
7
Total 2 12 10 8 12 12 11 21 16 104 % 1.9% 11.5% 9.6% 7.7% 11.5% 11.5% 10.6% 20.2% 15.4% 100% Year-wise distribution and the method of financing are based on 104 target and acquirer firms from 1996 to 2004. These firms must be listed on the ASX at the time of merger. At least one of the firms involved in the merger must have financial statements available for 5 years before and 5 years after the merger and acquisition.
A 5-year time frame is used to see the changes of financial leverage overtime. The announcement date is used as the event or reference year instead of the effective takeover date because it is more reflective of the expectations of investors of acquiring and target companies. Another important reason as pointed out by Asquith and Kim (1982) is that a time lag between the announcement and the merger date tend to be different between different mergers and if the merger date is used as the reference period, the statistical tests may not be able to detect any systematic movement in share prices due to the noise that the variable time lag may create. The financial statements of the target and acquirer firms are obtained from DataDisc CD-ROM, company Analysis database and Datastream database. Similarly, the closing share price information is obtained from the Datastream database. Market capitalization for each firm is calculated by multiplying the number of shares outstanding at the end of each financial year with the share price at the end of that financial year.
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Description of Methodology
Market adjusted returns are calculated to capture the returns gained by the target and acquirer firms shareholders. All Ordinaries Price Index return is used as a proxy for the market return. The market adjusted return is calculated as the difference between daily return of each firm and the market index return. The market adjusted return is defined as the difference between the daily return of each firm and the daily market return. Cumulative abnormal returns (CAR) are calculated relative to the announcement date. The market adjusted return for the acquirer firms’ are separated and grouped according to the method of payment – cash, stock and combination of cash and stock – to analyze the influence of method of payment on the gains to the shareholders. To analyze the increased debt capacity hypothesis, firms in the final sample are compared with a matched sample. The matched firms are selected on the basis of the market value of equity of the combined firm i.e., the combined market value of the target and acquirers one year prior to merger.
Discussion of Results Results show that the shareholders of the target firms on average tend to gain substantially more than the shareholders of the acquirer firms around the merger announcement period (Table 2). The shareholders of the target firms tend to gain highest for the period of -20 to +1, whereas at the same time, the shareholders of the acquirer firms have a negative gain (-3.12%). However, the shareholders’ of the target and acquirer firms in the US appear to earn substantially more than the Australian shareholders of acquiring and target firms around the merger announcement7. Another striking aspect is that the acquirers on average lose where as the target companies gain on a market-adjusted basis in mergers and acquisitions in Australia. TABLE 2: MARKET ADJUSTED RETURNS AROUND THE MERGER ANNOUNCEMENT DATE
Market Adjusted Returns Days relative to the Announcement Date
Acquirers (%)
Target (%)
Weighted average (Acquirers + Targets) (%)
-1 0 -1 to 0 -1 to +1 -5 to +1 -10 to +1 -10 to +5 -20 to +1 -119 to -7
0.71% -0.92% -0.21% -0.33% -0.40% -1.83% -3.38% -3.12% -4.21%
0.56% 4.24% 4.80% 9.24% 10.09% 10.74% 10.95% 12.79% 2.87%
1.2585% -0.6129% 0.5839% 2.3053% 2.1729% 1.1201% 1.6452% 1.5307% 2.2649%
Consistent with Israel (1991), shareholders of the target firm benefit more from the merger (Table 3). However, the target firms’ shareholders tend to benefit more if the transaction is financed using cash rather than stock. On the other hand, around the announcement period (1 day prior to the announcement), the acquirer’ shareholders tend to gain more if they use stock as a method of payment. However, although the market adjusted return of the acquirer appear to be negative, the acquirer shareholders are better off when they use cash as method of financing rather than stock as the market adjusted returns is negative albeit low.
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TABLE 3: MARKET ADJUSTED RETURNS AROUND THE MERGER ANNOUNCEMENT DATE BY METHOD OF PAYMENT
Days relative to the Announcement Date
Market Adjusted Returns Acquirers (%)
Targets (%)
Weighted average (Acquirers + Targets) (%)
Panel A: Cash as a Method of Payment -1 -0.0497% 0 -0.3978% -1 to 0 -0.4475% -1 to +1 -0.0705% -5 to +1 0.1367% -10 to +1 -0.8086% -10 to +5 -1.5294% -20 to +1 -3.0754% -119 to -7 -6.4937%
0.1658% 7.4800% 7.6458% 11.5209% 11.9812% 11.2851% 11.7756% 16.1021% 4.6201%
-0.4080% -0.4206% -0.8286% 1.6438% 1.7350% -0.2849% -0.5798% 0.2010% 1.6782%
Panel B: Stock as a Method of Payment -1 1.4956% 0 -2.0990% -1 to 0 -0.6034% -1 to +1 -1.3996% -5 to +1 -2.2287% -10 to +1 -5.2178% -10 to +5 -7.8305% -20 to +1 -7.2982% -119 to -7 -1.6969%
1.5976% -1.0425% 0.5551% 6.6373% 8.0626% 11.6766% 10.5927% 7.8201% -2.7461%
2.5467% -1.3297% 0.9849% 2.6512% 1.6957% 0.8417% 2.5324% -0.6281% 1.2311%
Analysis of the changes in financial leverage of the combined firms shows an increase in financial leverage in the post-merger and acquisition period compared to the pre-merger years (Table 4 and 5). The weighted average financial leverage for combined companies increases from 19.91% (year -3 to -1) to 22.11% (year +1 to -3). Similarly the weighted average financial leverage increases from 18.52% during the period -2 to –1 to a level of 21.10% during the period +1 to +2. This is consistent with earlier studies.
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TABLE 4: FINANCIAL LEVERAGE AROUND MERGERS FOR THE COMBINED FIRMS
Year
No of Firms
Min (%)
Max (%)
Panel A: Year-wise analysis of financial leverage around mergers -5 10 25.87% 25.49% -4 10 27.82% 25.49% -3 15 25.11% 25.45% -2 27 19.47% 18.51% -1 29 17.63% 10.40% 1 60 20.30% 19.52% 2 56 21.96% 21.39% 3 56 24.21% 24.55% 4 53 23.85% 22.68% 5 41 23.54% 21.87%
4.00% 1.95% 0 0 0 0 0 0 0 0
48.18% 61.00% 62.29% 55.32% 88.13% 62.10% 99.72% 99.26% 96.54% 99.07%
Panel B: 3-year Average before and after Merger Weighted Average for Period 19.91% 3 to -1
16.56%
0.00%
70.19
Weighted Average for Period +1 to +3
22.11%
21.77%
0.00%
86.45%
2.20%
5.21%
0.00%
16.25%
Increase
Mean (%)
Median (%)
Panel C: 2-year Average before and after Merger Average for Period -2 to -1
18.52%
14.31%
0.00%
72.31%
Average for Period +1 to +2
21.10%
20.42%
0.00%
80.26%
2.59%
6.11%
0.00%
7.95%
Increase
From table 5, the increase in financial leverage can be seen more clearly. Instead of the combined firms’ financial leverage, individual firms’ financial leverage has been examined. Financial leverage increases from 19.55% for the acquiring firms in t-1 and 17.71% for the target firms in t-1 to 20.30% for the merged firm in year t+1. The 3 years and 2 years weighted average of the individual firms’ financial leverage also show increase during the post merger period. Hence, consistent with the findings of Kim and McConnel (1997) and Ghosh and Jain (2000) for the American firms, the financial leverage tends to increase after the acquisition for the Australian firms. Further, the increase in leverage appears to be permanent rather than a short-run phenomenon and therefore the findings of this study appear to contradict the findings of Chowdry and Nanda (1993). Chowdry and Nanda point out that the acquirers use financial leverage to finance the bidding wars to acquire the target firms at a bargain price. Therefore they expect the financial leverage to decline over a period of time. The financial leverage in the case of Australian firms appears to be stable even for five year after the merger. Hence, it may be concluded that the increase in financial leverage appears to be permanent.
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Analysis of reasons for an increase in financial leverage shows that increased debt capacity could be a possible explanation (Table 6). The weighted average of the difference in financial leverage for the period of year -3 to -1 compared with the difference in financial leverage for the period of year +1 to +3 shows an increase of 0.14%. Where as the weighted average of the difference in financial leverage for the period -2 to -1 compared with the difference for the period +1 to +2 shows an increase of 3.04%. This could possibly on account of increased debt capacity. Hence, the findings of the present study are consistent with Shrieves and Pashley (1984) and Ghosh and Jain (2000).
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TABLE 5: ACTUAL FINANCIAL LEVERAGE (DEBT TO MARKET VALUE) AROUND MERGERS
Actual Financial Leverage N -5 -4 -3 -2 -1
Mean 21 27 41 54 60
34.66% 24.57% 22.31% 20.66% 19.55%
hted Average for d -3 to -1 20.66% d -2 to -1 20.07% +1 +2 +3 +4 +5
Acquiring Firms Median Min
Max
30.58% 24.84% 21.48% 19.06% 18.11%
0.14% 0.00% 0.00% 0.00% 0.00%
99.28% 51.39% 75.10% 75.10% 99.52%
19.34% 18.56%
0.00% 0.00%
84.55% 87.95%
N 38 46 52 62 51
Mean
Target Firms Median Min
Max
28.01% 28.74% 28.48% 19.61% 17.71%
24.86% 22.36% 18.37% 8.99% 8.81%
0.00% 0.00% 0.00% 0.00% 0.00%
90.87% 93.29% 92.65% 91.04% 97.89%
20.24% 18.75%
11.89% 8.91%
0.00% 0.00%
93.67% 94.13%
N
60 56 56 53 41
hted Average for d -1 to -3 d +1to +2
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Mean
Combined Firms Median Min
Max
20.30% 21.96% 24.21% 23.85% 23.54%
19.52% 21.39% 24.55% 22.68% 21.87%
0.00% 0.00% 0.00% 0.00% 0.00%
62 99 99 96 99
22.11% 21.10%
21.77% 20.42%
0.00% 0.00%
86 80
TABLE 6: FINANCIAL LEVERAGE AROUND MERGERS FOR THE COMBINED FIRMS AND THE MATCHED FIRMS
Year No of Firms
Mean (%) Median (%) Min (%) Max (%)
Panel A: Year-wise analysis of financial leverage around mergers 6 3.13% -5.55% -5 -4 7 8.29% 6.31% -3 11 0.46% 1.17% -2 22 -7.20% -0.45% -1 27 -4.68% -0.16% 1 24 -5.62% -3.40% 2 24 0.07% -0.39% 3 25 -7.89% -1.58% 4 22 -5.69% -0.04% 5 18 -3.61% -4.44%
-11.58% -22.19% -50.14% -82.21% -86.70% -41.56% -35.95% -67.75% -82.25% -76.18%
26.36% 42.84% 58.86% 54.55% 68.95% 29.90% 43.20% 44.87% 35.59% 39.26%
Panel B: 3-year Average before and after Merger Weighted Average for Period -3 to -1 -4.66%
-0.02% -78.35% 61.82%
Weighted Average for Period +1 to +3
-4.53%
-1.78% -48.69% 39.40%
0.14%
-1.77% 29.67% -22.42%
Increase
Panel C: 2-year Average before and after Merger Average for Period -2 to -1
-5.81%
-0.29% -84.69% 62.48%
Average for Period +1 to +2
-2.78%
-1.89% -38.76% 36.55%
3.04%
-1.60% 45.93% -25.93%
Increase
Summary and Conclusion This study analyzes the changes in financial leverage following mergers and acquisitions of Australian firms and attempts to explain the reasons for changes in financial leverage. An analysis of firms engaged in mergers and acquisitions during the period 1996 to 2004 shows that the target firms’ shareholders tends to gain more than the acquirers’ shareholders around the merger announcement. This result is consistent with several earlier studies. The study also finds that the target shareholders tend to gain more if the acquirers use cash rather than stock as a method of financing the acquisition. It appears that this gain is higher when the debt level of target firms is higher while the financial leverage of the acquiring firms is lower. The study also finds that financial leverage tends to increase after the merger and that the potential reason for the increase in leverage is the increased debt capacity. These findings are consistent with Ghosh and Jain (2000) and that the firms in Australia appear to show similar behavior compared to that of the American firms.
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References [1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11]
[12] [13] [14] [15]
Agrawal, A., J.F. Jaffe, and G.N. Mandelker (1992), The Post-Merger performance of Acquiring Firms: A Re-examination of an Anomaly, Journal of Finance, 47, 1605 – 1621. Allens Arthur Robinson News Release, 21 January 2002, Australia defies Asia Pacific Merger & Acquisition Slowdown, Http://www.aar.com.au/news/pressrelease/prjan02.htm. Andrade, G., M. Mitchell, and E. Stanfford (2001), “New Evidence and perspective on Merger”, Journal of Economics Perspective, Harvard Business School working Paper Asquith, P. and E.H. Kim (1982), The Impact of Merger Bids on the Participating firm’s Security Holders, Journal of Finance, 37, 1209-1228. Auerbach, A.J. and D. Reishus, The Effects of Taxation on the Merger decision, in Auerbach, A. (ed), Corporate Takeover: Causes and Consequences, University of Chicago Press, Chicago, 1998. Billett, M.T. (1996), Targeting Capital Structure: The Relationship Between Risky Dept and The firm’s Likelihood of Being Acquired, Journal of Business, 69, 173 - 192. Brealy, A.R., S.C. Myers, Principles of Corporate Finance, 4th edn, McGraw Hill Inc, USA, 1991. Chowdry, B. and V. Nanda (1993), The Strategic Role of Debt in Takeover Contest, Journal of Finance, 58, 731 - 745. Copeland, T.E., and J.F. Weston, Financial Theory and Corporate Policy, 3rd edn., Addison-Wesley Publishing Company, Canada, 1988. Datta, S., M.E. Iskandar-Datta (1995), Corporate Partial Acquisition, Total Firm Valuation and The Effect of Financing Method, Journal of Banking and Finance, 19, 97 - 115. De Mott, D.A. (1998), Comparative Dimensions of Takeover Regulation, in J.C. Coffee Jr., I. Lowenstein, and S. Rose-Ackerman (eds), Knight, Raiders and Target: The Impact of the Hostile Takeover, Oxford University Press, USA, 1998. Franks, J., R. Harris, S. Titman (1991), The Post-Merger Share Price Performance of Firm, Journal of Financial Economics, 29, 81 – 93. Galai, D., and R. Masulis (1976), The Option Pricing Model and the Risk Factor of Stock, Journal of Financial Economics, 3, 53 – 81. Ghosh, A., and P.C. Jain (2000), Financial Leverage Changes Associated With Corporate Merger, Journal of Corporate Finance, 6, 337 - 402. Harris, M., and A. Raviv (1990), Capital Structure and the Information Role of Debt, Journal of Finance, 45, 321 - 349.
End Notes 1
Several studies offer support for the view that the wealth gained by the acquired firm’s shareholders is greater than that of the acquiring firms’ shareholders. 2 Stapleton (1982) define debt capacity as the amount of debt that can be raised at a give rate of interest. 3 Copeland and Weston (1988) shows that the value of the common stocks increase as the firm uses the increase in debt capacity after the merger on account of tax savings on interest payments. 4 According to Thomson Financial figures, Australia has the highest merger announcements amounting to US $ 36 billion in 2001 followed by US $ 18.6 billion in South Korea. Source: www.aar.com.au. 5 De Mott (1988) compares the corporate law and securities regulations in the US and Australia among other countries. 6 This is necessary since SDC provide a list of merger and acquisition announcements including those that are unsuccessful. 7 See Ghosh and Jain (2000) Table 2, pp.384. Ghosh and Jain (2000) report that the target shareholders earn 28% for the period of -20 to +1 and around 24% for the period -10 to +1 and -10 to +5.
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Managing Cultural Differences: Values and Work Goals in Culture and Personality Contexts Vesa Routamaa,
[email protected] Tiina M. Hautala,
[email protected] University of Vaasa, Finland Maria Moshin,
[email protected]
Abstract International business, expatriates´ work and any international cooperation require understanding of cultural differences. Along with globalization, the knowledge of cultural differences and their association with people's values, attitudes and behavior have become more and more important. It is not enough to know the values but it is also important to recognize that each individual personality has its own ranking of values. Knowing the relationship between personality, values and cultures can assist the expatriates in better understanding the intercultural differences within regions. Hofstede´s cultural dimensions (masculinity-feminism, collectivism-individualism, power distance and uncertainty avoidance) serve well to explain the differences of values of different countries. In this paper, the value differences of different personality preferences in two cultural contexts will be compared.
Introduction International business, foreign direct investments, expatriates´ work and any international cooperation require understanding of differences between cultures. For example business negotiations, expatriate managers and professionals, management of foreign personnel, and cross-cultural teams presuppose good knowledge of cultural differences (see e.g. Boyanova, Routamaa & Hautala 2006). Studies abound with recommendations on how to increase expatriate success mostly with lists of “suitable” personality characteristics and behaviors to succeed in a new culture. However, research on expatriates indicates that failed expatriate assignments are still costly and numerous. Kale and Barnes (1995:271-280) recommend for international salespeople training in a combination of Hofstede’s national cultural dimensions, Reynold’s typology for organizational culture and the MBTI as a method of understanding personality. Studies abound with recommendations on how to increase expatriate success mostly with lists of “suitable” personality characteristics and behaviors to succeed in a new culture. Black, Mendenhall and Oddou (1991) introduced three main skill areas that expatriates need to focus on to survive in a new culture: skills related to maintenance of self, skills relating to fostering relationships with host nationals and skills that promote a correct perception of the host environment and its social systems. Strategies for coping with this adjustment process introduced by Berry, Kim and Boski (1988:63) were three. Expatriates could psychologically adjust by adjusting their behavior to the environment, or they can adjust by changing the environment, or they can move to a more congenial environment. Recently more emphasis has been placed on cross-cultural training but research shows this to be sporadic and culture-based. Some personal characteristics needed for a successful assignment are technical ability, stress tolerance, flexibility, communication skills, and cultural empathy (Hiltrop & Jassens 1995:358-365). For example, Routamaa & Rautiainen (2002) found that the psychological type has an association with the expatriate adjustment in a new culture. Along with globalization, value types and values from a cross-cultural perspective have awakened great interest in recent years (e.g. Abramson & Inglehart 1995; Hofstede 1980, 1982, 1991; Markus & Kitayama 1991; Schwartz 1992, 1994, 1997; Schwartz & Bardi 1997; Schwartz & Ros 1995; Smith & Schwartz 1997; Inglehart 1997; Triandis 1990, 1995; etc.). In different cultural contexts, the values have different weights but mostly the relationship structure between personality types and values is similar (cf. analogical results, Routamaa & Pollari 1998).
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Tylor (1871) defined culture as 'that complex whole that includes knowledge, beliefs, art, laws, custom, and any other capabilities and habits acquired by man as a member of society'. Fundamental webs of culture constitute patterned ways of thinking, acting, feeling, and interpreting (see e.g. Kluckhohn 1951: 86; Ting-Toomey 1985: 75). As Hofstede (1984: 21) defines it, culture is 'the collective programming of the mind that distinguishes the members of one human group from another'. Ronen (1986: 18) sees culture as 'the frame of reference' of individuals, and Harris and Moran (1987: 102) discuss 'mental frameworks' which groups, organizations and nations develop. The more individuals conform to each other in terms of background variables such as nationality, education and sex, the more probably they perceive their social environment similarly and in that way share the same subjective culture (Hofstede 1976). Dealing with values here, the subjective culture is of special interest instead of the objective culture, which is composed of the more concrete infrastructure (cf. Routamaa & Pollari 1998). Hofstede's definition referring to the collective programming is a good frame of reference in analyzing values in a cultural context. Studying work-related values at the societal level, Hofstede (1984) identified four dimensions: 1) Power distance, 2) Individualism, 3), Uncertainty avoidance, and 4) Masculinity. Power distance can be defined as the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally. Individualism-collectivism pertains to societies in which the ties between individuals are loose: everyone is expected to look after himself or herself and his or her immediate family. Collectivism as its opposite pertains to societies in which people from birth onwards are integrated into strong, cohesive in groups, which throughout people's lifetime continue to protect them in exchange for unquestioning loyalty. Uncertainty avoidance is defined as the extent to which the members of a culture feel threatened by uncertain or unknown situations. This feeling is expressed e.g. through nervous stress and in a need for predictability: a need for written and unwritten rules. Masculinity pertains to societies in which social gender roles are clearly distinct, and femininity pertains to societies in which social gender roles overlap. (Hofstede 1991:23-158) Also a fifth dimension, long-term versus short-term orientation, has later been identified in a survey with the Chinese Value Survey instrument carried out by M. H. Bond (Hofstede 1993), which could be of great use if some comparative data across countries were employed. In spite of the criticism (see e.g. Spector, Cooper & Sparks 2001; Hofstede 2002; Spector & Cooper 2002), Hofstede´s studies and cultural dimensions serve well the understanding of cultural differences. Different cultural contexts may also explain the differences of values of different countries. Culture, ‘software of the mind’ or ‘collective programming’, as Hofstede puts it, may affect our values. However, as found by Routamaa and Pollari (1998), the mutual relationships between values and personality types may be fairly similar in each culture. They found that the cultural background affects leadership style. In the masculine culture, the average manager may favor more dedicated, benevolent autocrat behavior. Correspondingly, the feminine culture with its negotiating and compromising practices refers to integrated, even related styles. However, the leadership style differences between personality types were similar in both cultures except that they were more task oriented in the masculine culture. Accordingly, a similar relationship between culture, values and personality preferences may be assumed. 'Software of the mind' functions as a filter when people interpret what kind of values they emphasize. Do the values differ significantly because of the cultural differences when the personality type is controlled? Controlling the type may be an answer to the question of the effect of the culture. In this paper, the relationships between personality preferences and values in Pakistani and Finnish contexts will be compared. In fact, the countries are not as important as the cultures represented by them that are high vs. low power distance, high vs. low uncertainty avoidance, collectivism vs. individualism, and masculinity vs. feminism. Next, Pakistan and Finland that represent the cultures concerned here will be compared to each other in relation to Hofstede's cultural dimensions and based on Hofstede's (1984) results, and the differences will be characterized to the extent they are relevant to potential value differences.
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Culture Differences of Pakistan and Finland Comparing Pakistan and Finland with regard to power distance and masculinity dimensions, both are higher in Pakistan. Finland is characterized by small-power distance, and a less masculine cluster. Finland is feminine and a small-power distance country compared to Pakistan. In the individualism-collectivism dimension, Finland is in the individualism cluster whereas individualism is lower in Pakistan. Uncertainty avoidance is higher in Pakistan (See Table 1). In feminine cultures, the preference for resolving conflicts is compromise and negotiation. In masculine cultures, there is a feeling that conflicts should be resolved by a good fight: Let the best man win (Hofstede 1991: 92). In feminine cultures a humanized job gives more opportunities for mutual help and social contacts. The masculine leadership culture is assertive, decisive, 'aggressive', and a decision-maker is looking for facts rather more than a group-discussion leader. The management in a feminine culture is less visible, more intuitive than decisive and more consensus seeking than the counterpart in a masculine culture (Hofstede 1991:94). In weak uncertainty avoidance, masculine cluster, achievement and esteem are typical whereas security and belongingness are typical of strong uncertainty avoidance, feminine cluster (Hofstede 1991:125). On the power distance and uncertainty avoidance dimension, Finland is in the cluster of small-power distance and strong uncertainty-avoidance cluster, whereas Pakistan is in the cluster of larger-power distance and a little stronger uncertainty avoidance. Countries with strong uncertainty avoidance but small power distance have organizations on the well-oiled machine model, the activities structured without concentrating the authority. In the large-power distance, weak-uncertainty-avoidance countries, a family organization with an omnipotent ownermanager is characteristic; concentration of authority without structuring of activities (Hofstede 1991: 142-143). TABLE 1: COMPARISON OF HOFSTEDE'S CULTURAL DIMENSIONS IN THE CASE OF PAKISTAN AND FINLAND Cultural dimensions Pakistan Finland Power distance Higher power distance Small power distance Masculinity Highly masculine Feminine Individualism-collectivism High collectivism Quite high individualism Uncertainty avoidance Higher uncertainty avoidance Lower uncertainty avoidance
Values and Work Goals In accordance with Hofstede's 'social programming', values are also seen as 'abstract social cognitions' that help people's adaptation to the environment (Claxton & McIntyre 1996). According to Comte, value consensus is usually defined as concurrence among members of a society concerning their values (Comte, cited in Partridge 1971; see Schwartz & Sagie 2000) Theoretically, the values, i.e. the types of values used here are based on Schwartz's (1992) and Schwartz and Boehnke's (2004) definitions (TABLE 2). The comparison of work goals is based on Vunderink and Hofstede's (1998) list of items (see Appendix 1) that measure their importance in one's ideal work. The work goals indicate values on work.
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TABLE 2: TYPES OF VALUES AND SUB-VALUES OF THE STUDY Achievement - Implies personal success through demonstrating capabilities respecting the social standards that the individual has to respect. The associated values include ambition, influence, capability, success, intelligence and self-respect Benevolence - Is associated with the values of being helpful, responsible, forgiving, honest, loyal, capability for mature love and true friendship Conformity - The restraint on action, inclination and impulses that are likely to upset or harm other individuals or groups and violate social norms or expectations are the relevant goals here. The associated values include obedience, self-discipline, politeness and honoring of parents and elders Hedonism - Pleasure and the sensuous gratification of oneself are the defining goals here, leading to pursuit of pleasure and enjoyment of life Power - The attainment of social status and prestige and control or dominance over others and resources define this motivational type. Values associated with this include social power, wealth, authority, preserving public image and social recognition Security - Safety, harmony and the stability of society, of relationships and of self-preservation are the defining goals of this value type. The relevant values include national security, reciprocation of favors, family security, a sense of belonging, social order, health and clean living Self-direction - Independent thought and action in choosing, creating, exploring (creativity, freedom, choosing one’s own goals, curiosity and independence) Spirituality - Implies meaning and inner peace through the transcendence of everyday life. The associated values associated include a spiritual life, meaning in life, inner harmony and detachment Stimulation - Values derive from the assumed need of individuals and groups for variety and stimulation in order to maintain an ideal level of activity, motivating an exciting life, a varied life, and a daring outlook Tradition - It springs from commitment to, and acceptance of, the customs and ideals that are imposed by an individual’s culture or religion. The associated values are tradition, devotion, acceptance of one’s ‘lot in life’, humbleness and moderation Universalism - This motivational type is defined by understanding, appreciation, tolerance and protection for the welfare of all other people and of nature. The associated values include equality, unity with nature, wisdom, a world of beauty, social justice, broad-mindedness, protecting the environment and a world at peace.
Personality Preferences There are several ways to conceptualize and assess personality. In this study, the Myers-Briggs Type Indicator (MBTI) was used. It is based on Carl Jung’s theory of psychological types and it reports personality preferences on four scales: Jungian Extraversion – Introversion, Sensing – iNtuition, Thinking – Feeling, and the Judging – Perceiving preference added by Briggs and Myers (Myers 1990). According to Myers (1990) ’the MBTI is primarily concerned with the valuable differences in people that result from where they like to focus their attention, the way they like to take information, the way they like to decide, and the way they like to adopt’. Usually one pole dominates over another. The eight preferences are identified in sixteen types, each representing a certain preference order (Myers & McCaulley 1985). Briefly illustrated the preferences or dimensions are (Myers 1990): Extraversion (E) Interested in people and things in the world around them. Introversion (I) Interested in the ideas in their minds that explain the world. Sensing (S) Interested in what is real and can be seen, heard and touched. Intuition (N) Interested in what can be imagined and seen with ’the mind’s eye’. Thinking (T) Interested in what is logical and works by cause and effect. Feeling (F) Interested in knowing what is important and valuable. Judging (J) Interested in acting by organizing, planning, deciding. Perceiving (P) Interested in acting by watching, trying out, adapting. As stated by Myers & McCaulley (1985), ”according to theory, each of the 16 types results from a preference for one pole of each of the four preferences over the opposite pole. A preference of any dimension is designed to be psychometrically independent of the preferences of the other three dichotomies, so that the preferences on the four dichotomies yield sixteen possible combinations called types, denoted by the four letters identifying the poles preferred (e.g., ESTJ, INFP). The theory postulates specific dynamic relationships between the
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preferences. For each type, one process is the leading or dominant process and a second process serves as an auxiliary. Each type has its own pattern of dominant and auxiliary processes and the attitudes (E or I) in which these are habitually used. Determining these dynamic relationships is enabled by the J-P dichotomy of the MBTI. The characteristics of each type follow from the dynamic interplay of these processes and attitudes”. Next, the personality preferences will be briefly illustrated (obtained from Hautala 2005). Extraversion (E) – introversion (I). Extraverted people direct energy mainly toward the outer world of people and objects. They are energized by interaction and activity. At work, extraverted people try to reach understanding through interaction and discussion. They are willing to engage and involve others and are energetic and prone to take action. Extraverted types seek and give feedback. Introverted people direct energy mainly toward the inner world of experiences and ideas. They are energized by reflection and solitude. At work introverted types experience people who "stop by" as interruptions and they prefer physical space, which allows for privacy and concentration. They seem less engaged, even when around others (Demarest 1997; Myers et al. 1998). Extraverted people can be seen easily as too overwhelming with their energy and enthusiasm. Too many extraverts in groups or teams can result in confusion because they interrupt each other to express their views (Bradley & Hebert 1997; Demarest 1997). On the contrary, introverted people may be seen as too quiet, stable, thoughtful, deep, and sometimes as disinterested, less active than others and not naturally sharing much information (Demarest 1997). Sensing (S) – intuition (N). Sensing people focus mainly on what can be perceived by the five senses. They are naturally interested in concrete and verifiable information about what is or what has been. Sensing people prefer to work at a steady pace, and complete instructions indicating both the end result and the specifics about how to get there. They like to work with one thing at a time. In teams, they tend to want clear purposes and goals. Intuitive people focus mainly on perceiving patterns and interrelationships. They tend to be naturally interested in flashes of insight, abstractions, theory, and notions of what could be. Intuitive people prefer to work in bursts and wait for inspiration. They prefer general instructions and may work on several things at the same time. In groups and teams they want to have an engaging vision and mission (Demarest 1997; Myers et al. 1998). Sensing types may be experienced as too much down-to-earth, meticulous, reminding others of what is practical and realistic, and sometimes not giving much attention to the long-range view, paying too much attention to details and not wanting to try something new. Whereas intuitives may be experienced as too full of ideas, rising to a challenge, looking to the future, seeing connections among seemingly unrelated things, and sometimes as overlooking the facts and making proposals that seem impossible to carry out (Demarest 1997). Thinking (T) – feeling (F). Thinking people tend to base their conclusions on logical analysis with a focus on objectivity and detachment. They prefer to focus on the work at hand, and do not spend much time on getting to know others and building relationships. They have interaction that is often brief and to the point. They are also often critical of ideas and proposals, and often make suggestions for "how to improve" things. Feeling people tend to base their conclusions on personal or social values with a focus on understanding and harmony. At work they often want to spend time getting to know others. They have interactions that encompass both work and non-work matters. They are naturally appreciative of people's contributions (Demarest 1997; Myers et al. 1998). Thinking types may be experienced as independent thinkers, task-oriented, skeptical, analytical and sometimes as making suggestions for improvements that are experienced as criticism by others. On the contrary, others may see feeling types as too people-oriented, affirming, and sometimes as not making the "hard" decisions, giving too much attention to relationships, taking things personally when they were not intended to be and not being logical (Demarest 1997). According to Kroeger and Thuesen (1992) the difference between thinkers and feelers can cause major problems in organizations, because thinking types are mostly concerned with accomplishing the task, while feeling types are concerned with how well people work together. Judging (J) – perceiving (P). Judging people prefer decisiveness and closure. They like to live in an orderly and structured fashion. As a working style, judging types tend to be methodical and systematic, and often develop routine approaches to work. They like to finish things, bring a structure to the work at hand and see work and play as distinct aspects of life. Perceiving (P) people prefer flexibility and spontaneity. They like to live with options open as long as possible in an unstructured way. Perceiving people tend to be adaptable and often device flexible and have innovative approaches to work. They like to start things, but motivation and interest may decline when it is time to finish. They see work and play as combined aspects of life, and want work to be both productive and
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enjoyable (Demarest 1997; Myers et al. 1998). Judging types may be experienced as dependable, deliberate, conclusive, focused, and sometimes as taking things too seriously, deciding too quickly, demanding, and being so focused on goals they have set that they miss out on other things. However, perceiving people may be experienced as too spontaneous, open to new experiences, fun loving, and sometimes as having difficulty deciding, tentative and less organized than others (Demarest 1997).
Sample and Method The sample consisted of 390 Finnish people and 98 Pakistani people who completed the Myers-Briggs Type Indicator (MBTI) and the value questionnaires. In case of the value questionnaire (Schwartz), a 7-degree scale was provided for respondents to indicate how important the values presented are. Because of the cultural differences, the rankings of the sub-values will be reported. The factors, that are the value dimensions obtained of US or Finnish data, do not correspond to the factors obtained from the Pakistani data, perhaps due to the cultural differences and different conceptual and language surroundings. In order to measure work goals, a 5-degree questionnaire presented by Vunderink and Hofstede (1998) was administered. 22 items indicate how important it would be to a respondent to have the goals presented in an ideal job. The ranking orders of each personality preference and total samples will be compared. Because of the limited number of different personality types, the analysis was based on personality preferences E, I, S, N, T, F, J and P (see TABLE 3). Actually, concerning values, the preferences play an important role in differentiating people. The comparison of values and work values will be presented in the form of ranking orders in the whole sample of each culture and of ranking orders of each personality preference. In TABLES 4 and 5, Pakistani data is normal text, Finnish italic, and the Common Values or work goals of each preference of the sample are Bolded. The rankings of each preference will not be analyzed in detail but the purpose is to show the variation of value and work goal rankings between preferences, in addition between cultures. Even though men and women are not compared here, it may be mentioned that the differences between male and female respondents were insignificant in feminine culture and individual culture. Instead, in collective and masculine culture the rankings of values differed more; the status of women is different. In this connection, however, the means of total sample will be analyzed. TABLE 3: THE DISTRIBUTION OF THE PREFERENCES Sample
Pakistani Sample
Finnish
Sample
Total Freq.
%
Freq.
%
Freq.
%
323
66,2
46
46,9
277
71,0
165 321 167 265 223 260 228 488
33,8 65,8 34,2 54,3 45,7 53,3 46,7 100,0
52 64 34 61 37 55 43 98
53,1 65,3 34,7 62,2 37,8 56,1 43,9 100,0
113 257 133 204 186 205 185 390
29,0 65,9 34,1 52,3 47,7 52,6 47,4 100,0
Preference E
Results
I S N T F J P Total
Values
Concerning the personality preferences and values, there were many differences. As could be concluded, based on the mean of the whole sample and the means of most preferences, the most preferred value in Pakistan was self-
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respect. That is, achievement in terms of self-respect is honored in masculine, collective environment. Honoring parents and elders was second, on the average, and at least among the three top values of all preferences. That is, conformity seems to be important in a collective culture. On the average, family security was the third in Pakistani culture even though there were variations from second to sixth place in the ranking lists of the preferences. This means that security, especially family security, is very important in a collective and in a high- uncertainty-avoidance culture. Averagely, the meaning of life (spirituality) was fourth in the ranking list, varying from second to tenth place depending on preference. True friendship (benevolence) was on the fifth place but the variation was large. Family security, meaning of life (spirituality), true friendship (benevolence), health (security), inner harmony (spirituality), capability (achievement), freedom (self-direction), and loyalty (benevolence) were the next of the top ten. TABLE 4A: A COMPARISON OF THE RANKINGS OF THE MEANS OF THE VALUES OF PAKISTANI (1P-10P) AND FINNISH (1F-10F) PREFERENCES (FINNISH ITALIC, COMMON VALUES FOR BOTH COUNTRIES BOLD) Total Sample (n=P98/F410) 1P. Self-respect
Extraversion (n=46/277) 1P. Self-respect
Introversion (n=52/113) 1P. Self-respect
1F. Health 2P. Honoring of parents and elders 2F. Family security 3P. Family security
1F. Health 2P. Honoring of parents and elders 2F. Family security 3P. Meaning in life
1F. Family security 2P. Family security
3F. True friendship 4P. Meaning in life
3F.True friendship 4P. Family security
4F. Self-respect 5P. True friendship 5F.Freedom 6P. Healthy 6F. Honest 7P. Inner harmony 7F. Inner harmony 8P. Capability 8F. Enjoying life 9P. Freedom 9F. Loyal 10P. Loyal 10F. Responsibility
Sensing (n=64/257) 1P. Honoring of parents and elders 1F. Family security 2P. Self-respect
iNtuition (n=34/133) 1P. Self-respect
3F. True friendship 4P. Meaning in life
4F. Self-respect 5P. Cleanity
2F. Healthy 3P. Honoring of parents and elders 3F. Freedom 4P. True friendship 4F. Inner harmony 5P. Inner harmony
1F. Health 2P. True friendship 2F. Family security 3P. Honoring of parents and elders 3F. True friendship 4P. Meaning in life
4F. Self-respect 5P. Loyalty
4F. Freedom 5P. Freedom
5F. Freedom 6P. Successful 6F. Honesty 7P. Equality 7F. Enjoying life 8P. Healthy 8F. Loyalty 9P. Responsibility 9F. Inner harmonity 10P. Honest 10F. Mature love
5F. Honesty 6P. Health 6F. Self-respect 7P. Meaning in life 7F. True friendship 8P. Capability 8F. Responsibility 9P. Freedom 9F. Loyalty 10P. Loyalty 10F. Enjoying life
5F. Freedom 6P. Health 6F. Honesty 7P. Honesty 7F. Inner harmonity 8P. Inner harmony 8F. Loyalty 9P. True friendship 9F. Enjoying life 10P. Capability 10F. Responsibility
5F. Self-respect 6P. Family security 6F. Honesty 7P. Successful 7F. Enjoying life 8P. Broad-minded 8F. Inner harmony 9P. Inner harmony 9F. Mature love 10P. Capability 10F. Equality
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2F. Healthy 3P. Family security
TABLE 4B: A COMPARISON OF THE RANKINGS OF THE MEANS OF THE VALUES OF PAKISTANI (1P-10P) AND FINNISH (1F-10F) PREFERENCES (FINNISH ITALIC, COMMON VALUES FOR BOTH COUNTRIES BOLD) Feeling (n=37/187) 1P. Honoring of parents and elders 1F. Healthy 2P. Self-respect 2F. Family security 3P. Inner harmony 3F. True friendship 4P. Sense on belonging 4F. Self-respect 5P. True friendship 5F. Honesty 6P. Family security 6F. Inner harmony 7P. Cleanity 7F. Enjoying life 8P. Freedom 8F. Freedom 9P. Loyalty 9F. Mature love 10P. Meaning in life 10F. Loyalty
Thinking (n=61/204) 1P. Self-respect 1F. Healthy 2P. Meaning in life 2F. Family security 3P. Honoring of parents and elders 3F. True friendship 4P. Family security 4F.Freedom 5P. Healthy 5F. Self-respect 6P. Capability 6F. Honesty 7P. Successful 7F. Enjoying life 8P. True friendship 8F. Responsibility 9P. Social justice 9F. Loyalty 10P. Honest/ Responsible 10F. Inner harmony
Perceiving (n=43/185) 1P. Honoring of parents and elders 1F. Healthy 2P. Self-respect 2F. Family security 3P. Inner harmony
Judging (n=55/205) 1P. Self-respect
3F. True friendship 4P. Family security
1F. Family security 2P. Meaning in life 2F. Healthy 3P. Honoring of parents and elders 3F. True friendship 4P. Family security
4F. Freedom 5P. True friendship 5F. Enjoying life 6P. Meaning in life 6F. Self-respect 7P. Healthy 7F. Honesty 8P. Freedom 8F. Inner harmony 9P. Capbility 9F. Mature love 10P. Honest
4F.Self-respect 5P. Healthy 5F. Honesty 6P. Loyalty 6F. Loyalty 7P. Cleanity 7F. Inner harmony 8P. Capability 8F. Responsibility 9P. Honesty 9F. Freedom 10P. Successful
10F. Loyalty
10F. Mature love
Honoring of parents and elders (conformity), meaning of life (spirituality), and capability (achievement) differed from the Finnish top ten. As could be assumed, it seems that in the collective culture conformity (honoring of parents and elders) is valued more explicitly than in the individual culture. The importance of meaning of life (spirituality) may also arise from the collective Asian religious culture which is different from individual Lutheran culture. On the other hand, the top place of self-respect and the placement of capability (both typical of achievement) in the top ten may be derived of the masculine culture where power and effectiveness are honored. In an individual culture, personal health and freedom (self-direction) seem to be more important than in a collective culture. True friendship (benevolence) and family security (security) seem to be of great importance in both cultures, maybe due to both collectivism and feminism. Looking at the personality preferences, because of the collective and masculine cultures, especially, selfrespect (achievement) and honoring of parents and elders (conformity) were nearly independent of preferences. Also family security (security) was generally valued. Typical culture based value in feminine and individual culture was security in terms of health, family security, and also inner harmony. Enjoying life (hedonism) was quite valued in individual culture but not ranked in masculine culture. Also responsibility was ranked only in feminine, small-power distance culture, mainly by Es, Is, Ts and Js. That is, the culture standardizes certain values. In feminine culture, extraverted (E), intuitive (N) and spontaneous (P) valued mature love that was not on the top ten of any preference of masculine culture. Clean, referring to security, was mentioned by extraverted (E), feeling types (F) and judging (J) types maybe due to higher uncertainty avoidance. Single preferences had some typical values for their nature, for example Pakistani intuitive (N) broad-minded, and Finnish feelers (F) sense of belonging (for details, see TABLES 4A and 4B).
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Work Goals
Looking at the work goals (TABLES 5a and 5b), fully using skills and abilities on the job was most valued by Pakistani respondents, except feeling (F) preference that valued most having sufficient time left for personal life, and secondly having a good working relationship with the supervisor. That is typical of feelers who prefer nice atmosphere and company. Fully using skills and abilities was in correspondence with masculine, achievementvaluing culture. TABLE 5A: A COMPARISON OF THE RANKINGS OF THE MEANS OF THE WORK GOALS OF PAKISTANI (1P-5P) AND FINNISH (1F-5F) PREFERENCES (FINNISH ITALIC, COMMON VALUES FOR BOTH COUNTRIES BOLD) Total Sample Extraversion Introversion Sensing iNtuition (n=P98/F390) (n=46/277) (n=52/114) (n=64/258) (n=34/133) 1P. Fully using 1P. Fully using 1P. Fully using 1P. Fully using 1P. Fully using skills and abilities skills and abilities skills and abilities skills and abilities skills and abilities on the job on the job on the job on the job on the job 1F. Have 1F. Have sufficient 1F. Have sufficient 1F. Have sufficient 1F. Have time left for challenging sufficient time left time left for time left for personal life personal life tasks to do for personal life personal life 2P. Make a real 2P. Make a real 2P. Get the deserved 2P. Get the 2P. Get the contribution to the contribution to the recognition when deserved deserved recognition when success of the recognition when success of the doing a good job company company doing a good job doing a good job 2F. Fully using 2F. Fully using 2F. Live in a 2F. Fully using 2F. Fully using desirable area skills and abilities skills and abilities skills and abilities skills and abilities on the job on the job on the job on the job 3P. Make a real 3P. Get the 3P. Work in a 3P. Have an 3P. Have an contribution to the deserved prestigious, opportunity for opportunity for success of the recognition when successful company advancement to advancement to company doing a good job higher jobs higher jobs 3F. Have 3F. Have 3F. Have a good 3F. Have an element 3F. Have a good challenging tasks challenging tasks of variety and working working to do to do relationship with adventure inthe job relationship with supervisor supervisor 4P. Have an 4P. Have an 4P. Have an 4P. Get the 4P. Have sufficient opportunity for opportunity for opportunity for high deserved time left for advancement to advancement to earnings recognition when personal life higher jobs higher jobs doing a good job 4F. Have a good 4F. Have a good 4F. Have 4F. Live in a 4F. Have sufficient working challenging tasks to desirable area working time left for relationship with do relationship with personal life supervisor supervisor 5P. Have a good 5P. Have sufficient 5P. Have training 5P. Have a good 5P. Make a real opportunities/ Have contribution to the working working time left for success of the relationship with relationship with personal life a good working company/ Have good supervisor/ Have supervisor relationship with fringe benefits sufficient time left supervisor for personal life 5F. Work with 5F. Work with 5F. Work with 5F. Work with 5F. Have a good people who people who people who people who working relationship with cooperate well cooperate well cooperate well cooperate well supervisor/Work with people who cooperate well
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TABLE 5B: A COMPARISON OF THE RANKINGS OF THE MEANS OF THE WORK GOALS OF PAKISTANI (1P-5P) AND FINNISH (1F-5F) PREFERENCES (FINNISH ITALIC, COMMON VALUES FOR BOTH COUNTRIES BOLD) Feeling Thinking Perceiving Judging (37/186) (61/204) (43/185) (55/203) 1P. Fully using skills and 1P. Fully using skills and 1P. Have sufficient time 1P. Fully using skills left for personal life and abilities on the job abilities on the job abilities on the job 1F. Have sufficient time 1F. Have challenging 1F. Have sufficient time 1F. Have sufficient time tasks to do left for personal life left for personal life left for personal life 2P. Get the deserved 2P. Have an opportu-nity 2P. Get the deserved 2P. Have a good working recognition when doing a for advancement to higher recognition when doing a relation-ship with good job jobs good job supervisor 2F. Fully using skills and 2F. Fully using skills 2F. Fully using skills and 2F. Have challenging tasks to do abilities on the job and abilities on the job abilities on the job 3P. Make a real 3P. Make a real 3P. Have an oppor-tunity 3P. Get the deserved contribution to the success contribution to the success for advance-ment to recognition when doing a of the company of the company higher jobs good job 3F. Work with people who 3F. Have sufficient time 3F. Work with people who 3F. Fully using skills and abilities on the job cooperate well left for personal life cooperate well 4P. Have a good working 4P. Live in a desirable 4P. Make a real 4P. Make a real contribution to the contribution to the success relationship with area success of the company of the company supervisor 4F. Live in a desirable 4F. Have a good working 4F. Have an element of 4F. Have an element of variety and adventure variety and adventure area relationship with inthe job inthe job supervisor 5P. Have training 5P. Have an opportunity 5P. Work in a 5P. Have sufficient time opportunities for high earnings / Fully prestigious, successful left for personal life company using skills and abilities on the job 5F. Work with people who 5F. Have a good working 5F. Have a good working 5F. Have challenging cooperate well relationship with tasks to do relationship with supervisor supervisor
To get the deserved recognition when doing a good job and to make a real contribution to the success of the company were also at the top of valued work goals suiting well in the masculine, achievement culture. Along the same lines was also having an opportunity for advancement to higher jobs that could also be typical of an individual culture but it was not, maybe due to the feminine dimension. In the individual and feministic culture, to have sufficient time left for personal life was the most important work goal. Also to have challenging tasks to do was felt as valuable. To work with people who cooperate well was also emphasized in the feministic culture. The common work goals for both cultures concerned were fully using skills and abilities on the job and having a good working relationship with the supervisor but the feminine, individual culture emphasized strongly sufficient time left for personal life instead of only the job. The top fives of work goals were quite different in each culture except feelers (F) who had four common work goals of five. Typical of feelers were to have sufficient time left for personal life, of course, to live in a desirable area, to have a good working relationship with the supervisor, and fully using skills and abilities on the job. Also other preferences had typical work goals for their traits but not common in both cultures. To mention some examples, Pakistani sensing (S) respondents want to work in a prestigious, successful company and have training opportunities. Introverts (I), sensors (S), and feelers (F) want also to live in a desirable area in the individual culture. Typical of intuitive (N) and spontaneous (P) people and also thinkers (T) in individual culture, they want to have an element of variety and adventure in the job. In all, except the feelers (F), work values differed quite much between the cultures concerned.
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Conclusions What are the lessons to be learned based on the analysis above? Firstly, the study confirmed the earliest studies that there are culture-based stresses in the values that must be taken into consideration in international business. Secondly, the study revealed that there is a certain amount of conformity among members of a society concerning their values. That is there may be some shared values over the individual values. Thirdly, the study uncovered that there are values and work goals typical of certain personalities. Fourthly, the study confirmed that certain personalities have common values or work goals over cultures. Most typical values for high power distance, high uncertainty avoidance, collectivism and masculinity culture were particularly achievement and conformity but also spirituality, security, benevolence and self-direction to some extent. Hedonism, benevolence, security, self-direction, and partly spirituality in terms of inner harmony were valued in the opposite culture. It may be noted that, for example, power, tradition, and universalism were not on the top of rankings. Inside cultures, personalities have their value and especially work goal differences. Each individual personality has its own ranking of values. In global business, the business person or traveler should recognize the intercultural differences within regions in order to succeed in business or leisure relationships. As was noted, for example, true friendship, to have a good working relationship with the supervisor and to work with people who cooperate well were high values in both cultures. That is personal relationships are a sensitive area where insulting of values may lead to bad effects. The great number of unsuccessful expatriate recruitments is a serious example of scarce understanding of cultural and personality differences of values and work goals. To succeed as manager work in foreign culture needs training and coaching in self-knowledge and cultural differences in terms of values and work goals. For example, a manager in masculine, collective, high-power distance, and high-uncertainty-avoidance culture has to take into account achievement and security which demand quite task-oriented leadership behavior while benevolence and self-direction require a certain degree of human orientation. Also honoring spiritual values may be hard to manage for a western manager. A manager from an individual and feminine culture may also have difficulties to apply task oriented and collective leadership style when used to working in work communities colored by hedonism and benevolence. Correspondingly an expatriate coming from high-power distance, high uncertainty avoidance, collectivism and masculinity culture to the opposite culture may feel insecure and inactive in an un-collective milieu of hedonism. Additionally come personality differences, which, at best improve effectiveness and organizational climate but, at worst will be misunderstood and wasted. In a global world, business communities are more and more multicultural, despite the country where they are. That is why knowledge of the relationships between cultural dimensions, values, work goal and personalities is a big challenge for management.
References [1] [2] [3] [4] [5] [6]
Boyanova, D., Routamaa, V. & Hautala, T. (2006). Type and Values - A Comparison between Bulgarian and Finnish Business Students. East and West Conference, Honolulu Jan 6-8, 2006. Electronic Proceedings Demarest, L. (1997). Looking at Type in the Workplace. Gainesville, FL: Center for Applications of Psychological Type Hautala, T. M. (2005). Personality and transformational leadership. Perspectives of subordinates and leaders. Acta Wasaensia, 145. Hiltrop, J. & Jassens, M. (1995). Expatriation: challenges and recommendations. In: Cross-Cultural Management, 355-367. Ed. Terence Jackson. Oxford: Butterworth-Heinemann Ltd. Hofstede, G. (1980). Culture’s consequences: International differences in work-related values. Beverly Hills, CA: Sage. Hofstede, G. (1984). Culture's Consequences: International Differences in Work Related Values. Sage, Beverly Hills CA.
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Hofstede, G. (2002). The pitfalls of cross-national survey research: A reply to the article by Spector et al. on the Psychometric Properties of the Hofstede Values Survey Module 1994. Applied Psychology: An International Review. 51 (1), 170–173 Kale, S. & Barnes, J. W (1995). International Negotiations. In: Cross-Cultural Management, 259-292. Ed. Terence Jackson. Oxford:Butterworth-Heinemann Ltd. Myers, I. B. (1990). Gifts Differing. Palo Alto, CA: Consulting Psychologists Press Myers, I. & McCauley, M.H. (1985), Manual: A Guide to the Development and Use of the Myers Briggs Type Indicator. Palo Alto, CA: Consulting Psychologists Press Myers, I. B., McCaulley, M., Quenk, N. & Hammer, A. (1998). MBTI Manual. A Guide to the Development and Use of the Myers-Briggs Type Indicator. Paolo Alto, CA: Consulting Psychologists Press, Inc. Routamaa, V. & Pollari, A-M. (1998). Leadership Styles in the Cultural Context - A Comparison of Finnish and South African Managers. Proceedings of the Psychological Type and Culture–East and West: Third Multicultural Research Symposium, January 9-11, 1998, Waikiki, Hawaii. Routamaa, V. & Rautiainen, L. (2002). Type and Expatriate Adjustment in a New Culture. Proceedings of the Conference Working Creatively with Type and Temperament 19 - 22 September 2002, Sydney Schwartz, S. H. (1992). Universals in the content and structure of values: Theory and empirical tests in 20 countries. In M. Zanna (Ed.), Advances in experimental social psychology 25, 1-65. New York: Academic Press. Schwartz, S.H. and Boehnke, K (2004). Evaluating the structure of human values with confirmatory factor analysis. Journal of Research in Personality, 38, 230-255.
Contact author for the full list of references.
Appendix APPENDIX 1: WORK GOALS QUESTIONNAIRE ITEMS (VUNDERINK & HOFSTEDE, 1998).
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1.have sufficient time left for your personal or family life 2. have challenging tasks to do, from which you can get a personal sense of achievement 3. have little tension and stress on the job 4. have good physical working conditions (good ventilation and lighting, adequate work space, etc.) 5. have a good working relationship with your direct supervisor 6. have security of employment 7. have considerable freedom to adopt your own approach to the job 8. work with people who cooperate well with one another 9. be consulted by your direct superior in his/her decisions 10. make a real contribution to the success of your company or organization 11. have an opportunity for high earnings 12. serve your country 13. live in an area desirable to you and your family 14. have an opportunity for advancement to higher level jobs 15. have an element of variety and adventure in the job 16. work in a prestigious, successful company or organization 17. have an opportunity for helping other people 18. work in a well-defined job situation where the requirements are clear 19. have training opportunities (to improve your skills or learn new skills) 20. have good fringe benefits (material advantages other than cash salary) 21. get the recognition you deserve when you do a good job 22. fully use your skills and abilities on the job 1.have sufficient time left for your personal or family life 2. have challenging tasks to do, from which you can get a personal sense of achievement 3. have little tension and stress on the job 4. have good physical working conditions (good ventilation and lighting, adequate work space, etc.) 5. have a good working relationship with your direct supervisor 6. have security of employment 7. have considerable freedom to adopt your own approach to the job 8. work with people who cooperate well with one another 9. be consulted by your direct superior in his/her decisions 10. make a real contribution to the success of your company or organization 11. have an opportunity for high earnings
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12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.
serve your country live in an area desirable to you and your family have an opportunity for advancement to higher level jobs have an element of variety and adventure in the job work in a prestigious, successful company or organization have an opportunity for helping other people work in a well-defined job situation where the requirements are clear have training opportunities (to improve your skills or learn new skills) have good fringe benefits (material advantages other than cash salary) get the recognition you deserve when you do a good job fully use your skills and abilities on the job
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Cross Cultural Management: Understanding the Implications of Malaysian Work Culture Che Su binti Mustaffa,
[email protected] Maznah Abu Hassan,
[email protected] Faizah Ahmad,
[email protected] University Utara Malaysia Wan Rafaei Abdul Rahman,
[email protected] International Islamic University
Abstract This study investigated the influence of work culture on organizational effectiveness in Malaysia. Based on The Twelve Pillars, a structured questionnaire was developed and self-administered to two uniformed organizations in Malaysia. The Twelve Pillars specified twelve fundamental values that should guide the conduct of all Malaysian civil servants, namely valuing time, perseverance, pleasure of working, dignity of simplicity, character, kindness, influence of examples, obligation of duty, wisdom of economy, patience, improvement of talent, and innovativeness. The results showed that there was an association between work culture and organizational effectiveness. The findings also identified dimensions of work culture that influence organizational effectiveness. This means that certain type of work culture could facilitate commitment and satisfaction among workers in uniformed organization. The implications of this research were also discussed.
Introduction The idea of organization or corporate culture has been identified as an important aspect of organizational behavior and as a concept that is useful in helping to understand how organizations function, (Kristof, 1996). In addition, culture helps determine how well a person “organization cultures” within a particular organization because the “organization culture” includes feeling comfortable with the culture (O' Reilly, 1989). Research has indicated that the degree of organization culture between a person and the organization is related to both productivity and employee turnover (Rousseau and Parks, 1992; Ryan and Schmit, 1996). While the study of these concepts has been primarily limited to Western and in particular American organizations, there has been some research in other cultures. Hofstede et al. (1993) studied organizational culture in several national cultures and found that individuals' values and organizational practices need to be integrated and that demographic variables, such as age and gender, have an impact the degree of organization culture. Elizur et al. (1991) examined the relative importance of work value items and organizational structure in eight different countries. While some cultural differences in value ratings were found, these differences were actually relatively small in the context of organizational structure differences. Calori and Sarnin (1991) examined the relationship between organization cultural traits and economic performance and between strength of corporate culture and economic performance in France and concluded that economic performance of the organization is directly tied to the strength of the corporate culture particularly the work-related values of employees and the cultural traits. The related concepts of work culture and organizational effectiveness are important to organizational success. However, there has been little attention paid to the interaction of work culture with such concepts as job satisfaction and organizational commitment and the application of this concept in non-western cultures. Douglas (1988, 389) notes that: “The western model may provide an ideal for organizational development, and its classical use may help less developed countries (L.D.C.s) achieve goals they have set for themselves, but the model rests on certain normative assumptions about society, man, motivation and time not found in non-western societies…” Douglas (1988, 375) further observes that: “Each country has a unique value system which is relevant to it alone; this places a premium on administrators who understand and accept the indigenous value system... It is nearly impossible to transfer cultural values without provoking inconsistencies in the environment into which they are introduced…”
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The research in Malaysia on work culture and organizational effectiveness is also limited. In all aspects of Malaysian life attempts are made to identify indigenous values which are cherished by the people. These values are then elaborated, particularly through the speeches of national leaders in all types of leadership roles. When crucial and necessary, these various values are articulated as policies, for instance, Malaysia Incorporated and Privatization Policies, the Look East Policy or the policy of a Caring Civil Society. In Malaysian context, among the management concepts which are receiving wide and popular usage are the following: consultation (musyuawarah), collaboration (cooperativeness), excellence (al falah), personal refinements (adab), accountability (amanah), etc.. Many of the concepts being explored are indigenous concepts but Islamic in origin. This is because Malay culture is essentially Islamic and the Malay language itself has a large number of “loan words” from the Arabic language in matters pertaining to history, philosophy and spirituality. Likewise, in the domain of the sciences and technology, the Malay language expands its terminology by incorporating “loan words” from the English language or from Greek and Latin roots. The Islamic worldview is fostered primarily by three principles. These principles are, tawhid (unity), khalifah (vicegerent) and al ‘Adl (justice). Universal values held by Islam and considered to be applicable in all situations and in all societies include the following: • every act should be accompanied by intention (niyat); • conscientiousness and knowledgeable in all endeavors (itqan); • proficiency and efficiency (ihsan); • sincerity (ikhlas); • passion for excellence (al falah); • continuous self-examination; • forever mindful of the almighty - piety (taqwa); • Justice (‘Adl); truthfulness (amanah); • patience (sabar); • moderation; • promise keeping; • accountability; • dedication; • gratefulness; • cleanliness; • consistency; • discipline; and • co-operation. An example of a collaborative indigenous effort to identify the sets of relevant values to be upheld by civil servants and Malaysians as a society is what is known as the “Twelve Pillars”. Seminar participants and experts and other knowledge and opinion leaders have come together and identified values worth knowing and disseminating. After a series of seminars and discussions the Twelve Pillars were accepted and widely distributed nationally to encourage individuals to emulate such values so that the organizations they serve in will be productive and uphold high ideals. The Twelve Pillars are: • the value of time; • the success of perseverance; • the pleasure/joy of working; • the dignity of simplicity; • the importance/worth of character; • the power of kindness; • the influence of positive examples; • the obligation of duty; • the wisdom of economy; • the virtue of patience;
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• •
the improvement of talent; and the joy of creativity/invention/origination. Each of these ideas was explained clearly with examples in the public service sector. The intention of disseminating these ideas together with such other notions as “zero defect” was to ensure that managers at all levels share a collective managerial memory to achieve the goals of providing services that are excellent and of world-class quality. In the formulation of these ideas, generic concepts are drawn from the literature and from examples elsewhere but are then adapted and made relevant to the Malaysian situation. Thus, the objectives of this paper are to discuss the relationship between Malaysia work culture, organizational commitment and job satisfaction. Work culture refers to the current practices by the Malaysian employees who work in uniformed organizations. Whereas, organizational commitment is a work attitude that is directly related to employee participation and intention to remain with the organization and is clearly linked to job performance (Mathieu and Zajac, 1990). Organizational commitment includes the three components of affective (desire to remain), continuance (perceived cost of leaving) and normative (perceived obligation to remain) (Meyer and Allen, 1991). A study of Japanese employees found that organizational commitment could be viewed as a multidimensional construct that applied in Japan and that the organizational commitment questionnaire (OCQ) is an effective cross-cultural tool for measuring organizational commitment (White et al., 1995). Job satisfaction is a general attitude that the employee has towards their job and is directly related to individual needs including challenging work, equitable rewards and a supportive work environment and colleagues (Ostroff, 1992). It is also related to personality-job organization culture, one of the components of the Organization culture (Kristof, 1996). Job satisfaction has also been linked to productivity (Katzell et al., 1992). Greater productivity implies that many non-material costs will remain the same while output and proorganization cultures should increase (Stiles et al., 1997).
Work Culture and Organizational Effectiveness In a case study of the China Steel Company, Chao (1990) discussed the Confucian tradition and ethos and their implications for management and worker performance in Asian societies and found that the management philosophy and corporate culture were rooted in and guided by Confucianism in the Chinese character and approach to work. Another study in Taiwan investigated organizational structure and managerial assumptions, values, and other sociodemographical features of senior managers (Jou and Sung, 1993). The results indicated that four different managerial patterns exist in Taiwanese organizations. Two of these, labeled mainlander and grass roots, were said to represent an approach characteristic of traditional Chinese value orientations. A third type of managerial pattern was labeled the specialist type and this was said to assimilate the Western logic of rationalism as its basic value. The fourth type of managerial pattern, transition, was considered a hybrid of the traditional Chinese values, Japanese management style and Western rationalism. An individual learns to perform in an organization through socialization (Schein, 1980). Individuals come to appreciate the values, the expected behaviors, and social knowledge that are essential for effective organizational behavior. Since work culture serves many purposes including establishing the norms for employees behavior, it has a direct impact on the Organization culture. In trying to improve effectiveness, companies look to engaging the employees more in the organization and the goal of this research was to explore issues relating to the influence of Organization culture and culture on organizational commitment and job satisfaction. Culture consists of some combination of artifacts (also called practices, expressive symbols or forms), values and beliefs and underlying assumptions that organizational members share about appropriate behavior (Gordon and DiTomaso, 1992; Schein, 1992; Schwartz and Davis, 1981). Although there are many definitions of culture, work culture has been viewed as holistic, historically determined, and socially constructed. Culture involves beliefs and behavior, exists at a various levels, and manifests itself in a wide range of features of organizational life (Hofstede et al., 1990). As such, work culture refers to a set of shared values, belief, assumptions, and practices that shape and guide members’ attitudes and behavior in the organization (Davis, 1984; Denison, 1990; Kotter and Heskett, 1992; O'Reilly and Chatman, 1996; Wilson, 2001).
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From past research, studies on corporate culture focused on its relationship with performance (Denison, 1990; Denison and Mishra, 1995; Gordon, 1985; Kotter and Heskett, 1992; Peters and Waterman, 1982; Ouchi, 1981), cultural change (Harrison and Carrol, 1991; Ogbonna and Harris, 1998; Sathe, 1983; Silvester and Anderson, 1999), strategy (Choe, 1993; Schwartz and Davis, 1981) and the relationship between work culture and industry characteristics (Christensen and Gordon, 1999; Gordon, 1991; Hofstede et al., 1990; Spender, 1989;). Despande and Farley (1999) studied the relationship between corporate culture and market orientation in Indian and Japanese firms. They found that the most successful Indian firms had entrepreneurial culture, while the Japanese firms had entrepreneurial and competitive culture. Work culture has also been recognized to have an important role in assuring efforts in organizational change (Ahmed, 1998; DeLisi, 1990; Lorenzo, 1998; Schneider and Brief, 1996; Silvester and Anderson, 1999; Pool, 2000). Herguner and Reeves (2000) investigated Turkish work culture change in higher education. Between 1991-1994, the Turkish culture was more consultative, but by 1998, it was more toward participative. This means that over a period of time, there was a change in the work culture. Since work culture also described the part of the organization's internal environment (organizational climate and culture), which incorporates a set of assumptions, beliefs, and values that organizational members share and use to guide their functions (Kilmann et al., 1985; Schein, 1992), therefore it could be expected that these assumptions, belief, and values might guide and shape people's attitudes toward organizational change.
Method This study employs a quantitative method that applies cross-sectional exploratory mode utilizing questionnaire survey. This method has been chosen due to its strengths from the perspective of cost and it is able to gather enormous data within a limited time frame.
Measures A questionnaire was designed to address the research questions of this study. A questionnaire booklet was assembled consisting several scales. Questionnaire items included demographic questions relating to gender, age, ethnicity, and academic qualification. The Malay Work Values scale was developed based on items in The Twelve Pillars and was adapted by the researchers based on dimensions introduced by Deal and Kennedy (1982) and O’Reilly, Chatman and Caldwell (1991). The instrument was designed using the method of interater reliability. A total of 3 coders were involved. Each coder was required to categorize the characteristics found in Twelve Pillars based on organizational cultural dimensions founded by Deal and Kennedy (1982) i.e. strictness, meticulousness, results orientation, comfortable working environment, stability, innovation, humanistic orientation, aggressiveness, emphasis on reward, group orientation, and working as part of good deed. The dimensions introduced by the researchers were cooperativeness (working cooperatively), dignity, hierarchy/courtesy, and religious values. . A five-point Likert-type scale ranging from 1 = Strongly Disagree; 2 = Disagree; 3 = Seldom; 4 = Agree; and 5 = Strongly Agree. This scaling is similar to that recommended by Nunnally (1978). From the aspect of reliability, Table 1 shows the alpha value for the whole instrument on Malay Work Culture developed by the researchers based on the main values in The Twelve Pillars (Table 1). The whole alpha value for the instrument on Malay work culture instrument is 0.79. Each dimension in the instrument shows a satisfactory alpha value. It can be concluded that the instrument used is reliable and acceptable. Organizational commitment was measured using instrument developed by Meyer and Allen (1990) Organizational Commitment Questionnaire (OCQ). This questionnaire is composed of twenty four items. A five point scale ranging from 1 (strongly disagree) to 5 (strongly agree) was employed. Job satisfaction was measured using 24 items adopted from the Minnesota Satisfaction Questionnaire (MSQ) developed by Weiss et al (1971). A five point scale ranging from 1 (strongly disagree) to 5 (strongly agree) was employed. All of the scales were translated from English into Malay using the double translation method unless
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already available in Malay Language. The instruments have been validated for use in the US and the reliability and validity for Malay Language use were established using the sample from the pilot study. TABLE 1: ANALYSIS OF RELIABILITY ON THE INSTRUMENTS Dimension
Alpha Value .79 .71 .70 .71 .71 .71 .71 .72 .70 .71 .72 .72 .70 .71 .72 .71
Work culture Strictness Meticulousness Results orientation Comfortable working environment Stability Innovation Humanistic orientation Aggressiveness Emphasis on reward Group orientation Working as part of deed Cooperativeness/Cooperativeness Observing one’s dignity Courtesy Religious values
.76
Organizational Commitment
.81 .77 .79
Affective Normative Continuance
.79
Job Satisfaction
.82 .90
Intrinsic Extrinsic
Analysis Data were analyzed using the Statistical Package for Social Sciences (SPSS) version 10.0 for Windows software. Descriptive statistics, which include frequencies and percentages, were utilized to present the main characteristics of the sample and the profile of work culture and organization effectiveness. Participants
The population for this study consisted of workers in uniformed organizations. A total of 2,264 respondents were randomly selected from the population. A total of 59.65% of the respondents were male and 40.35% female. Regarding marital status, 87.66% of respondents were married, 9.91% single, and 2.43% divorcee/Widow. The majority of the respondents were Malays (86.40%), Chinese (7.54%), Indian (5.30%) and other races (0.6%). The majority of the respondents were aged between 30-49 (71.8%) In terms of academic qualification, duration of service and income. From the total, 53.18% of the respondents had Malaysian School Certificate or lower, 23.86% Malaysia High School Certificate or equivalent, 7.48% diploma, 10.28% bachelor’s degree, and 3.34% other qualifications. On the total of respondents based on duration of service, 63.39% had served more than 15 years, 8.69% 3-6 years, 8.99% 3 years or less, 4.45 % 7-9 years, 8.39% 10-12 years and 4.95% 13-15 years. A total of 19.00% of the
1118
respondents earned a monthly income of RM1001-RM1500, 5.96% RM1000 or less, 29.32% RM1501-RM2000, 16.99% RM 2001-2501 and 13.75% earned more than RM2501-RM3000. A total of 82.00%respondentts were from the support staff and the remaining (412.74%) were from the professional groups.
Findings Descriptions Analysis of Work Culture Practices among Staff in the Prison and Custom Department Based On Dimension
The following part is the descriptive analysis of the Work culture practices which is divided into two parts, Work Culture 1 and Work Culture 2. Variables of work culture 1 consists of fifteen dimensions. The dimensions are strictness, dimension meticulousness, results orientation, comfortable working environment, stability, innovation, humanistic orientation, aggressiveness, emphasis on reward, group orientation, working as part of deed, dimension cooperativeness, observing one’s dignity, hierarchy and religious values. Work Culture 2 on the other hand, consists of 8 dimensions. They are innovation, strictness, aggressiveness, cooperation, meticulousness, encouragement, result orientation and emphasis on reward. The two work culture were analysed using mean and standard deviation value. Strictness
Table 2 indicate mean and standard deviation value for dimension strictness. Item punctuality shows the highest mean followed by sympethasie to other’s difficulty and problems and quality cannot be sacrifice. TABLE 2: DIMENSION STRICTNESS Item Punctuality
n
Mean
2262
3.38
SD .58
Symphatise with other’s difficulty and problems
2261
3.20
.55
Quality can be sacrifice
2260
2.20
.83
Lacicadaisikal
2263
1.74
.88
Total participants
2254* * Exclusive of non-respondentts
Meticulousness
The highest mean value is following work manual. This is followed by Hardwork and emphasis on result compatible to effort as indicated in Table 3. TABLE 3: METICULOUSNESS Item Following work manual
n
Mean
2259
3.34
SD .57
Hard work
2260
3.25
.72
Emphasis on reward
2263
2.79
.83
Priority
2258
2.05
.72
Total participants
2249* * Exclusive of non-respondentts
Results Orientation
The Table 4 shows the highest mean value for the Result Orientation Dimension. The highest is Hardwork followed by Feeling Happy to Give Suggestions and Work and Punctuality.
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TABLE 4: RESULTS ORIENTATION Item Hard Work
n
Mean
SD
2262
3.39
.55
Feeling happy to give idea and suggestion
2262
3.25
.60
Punctuality
2261
2.93
.77
Total participants
2257*
•
Exclusive of non-respondent
Comfortable Working Environment
The highest mean value is the Work Equally Shared By All followed by Friendliness, and Able To Leave The Office On Personal Matters. TABLE 5: COMFORTABLE WORKING ENVIRONMENT Item Work equally shared by all
n
Mean
SD
2260
3.42
.58
Friendliness
2264
3.35
.55
Able to leave office on personal matters
2259
2.29
.85
Total participants
2255*
•
Exclusive of non-respondent
Stability
In the dimension of stability, Work For Allah/God shows the highest mean value followed by Clear Work Procedures At The Workplace and Opposing Others Opinion Without Giving Constructive Suggestions. TABLE 6: STABILITY Item Opposing Others Opinion Without Giving Constructive Suggestion
n
Mean
SD
2261
3.55
.59
Work For Allah/God
2260
3.02
.69
Clear Work Procedures
2258
2.00
.84
Total participants
2252*
•
Exclusive of non-respondent
Innovativeness
Table 6 indicates Emphasis on reward if one is creative in his work as the highest mean value. This is followed by to inform through a third party and praiseworthy job. TABLE 7: INNOVATIVENESS Item Emphasis On Reward If One Is Creative In His Work
n
Mean
SD
2256
2.58
.82
Inform Through A Third Party
2261
2.27
.85
2262
1.74
.71
Praiseworthy Job. Total participants
2251*
•
Exclusive of non-respondent
1120
Humanistic Orientation
Cooperation shows a high mean value of 3.24 followed by teamwork and vague instructions (Table 8). TABLE 8: HUMANISTIC ORIENTATION Item Cooperation
n
Mean
SD
2263
3.24
.61
Work As Group Member/Teamwork
2261
3.17
.74
Vague Instructions
2258
2.26
.75
Total participants
2254*
•
Exclusive of non-respondent
Aggressiveness
Table 9 shows the aggresiveness dimension. The highest mean value is God’s Will, followed by Work Punctuality and Temperamental. TABLE 9: AGGRESSIVENESS Item God’s Will
n
Mean
SD
2259
3.11
.83
Work Punctuality
2262
3.10
.68
Temperamental
2262
2.03
.88
Jealousy
2258
1.79
.92
Dislike People’s Success
2264
1.74
.75
Total participants
2249* * Exclusive of non-respondent
Emphasis On Reward
Table 10 shows the following items which record the highest mean value. The are work for Promotional Reward, Failures To Recognize People’s Success, and Procastination. Procastination is a negative item. TABLE 10: EMPHASIS ON REWARD Item Work For Promotional Reward
n
Mean
SD
2258
2.53
.86
Failure To Recognize People’s Success
2261
2.26
.81
Procastination
2264
1.85
.82
Total participants
2256* * Exclusive of non-respondent
Group Orientation
Table 11 indicates the mean values and standard deviation for group orientation dimension. The highest mean value is cooperation and respectful of others. This is followed by It’s Okay Attitude If Being Late which is a negative item.
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TABLE 11: GROUP ORIENTATION Item Cooperation And Respectful Of Others
n
Mean
SD
2259
3.37
.63
It’s Okay Attitude
2260
2.04
.78
Total participants
2255* * Exclusive of non-respondent
Working As Part Of Deed
Table 12 shows the mean values for the items in Working As Part Of Deed dimension. The highest mean value is Work Must Have Aims. This is followed by Work Quality and Follow Instructions. TABLE 12: WORKING AS PART OF DEED Item Work Must Have Aims
n
Mean
SD
2260
3.45
.84
Work Quality
2263
3.21
.74
Follow Instructions
2262
3.01
.80
Total participants
2257* * Exclusive of non-respondent
Cooperativeness
This dimension has five items. The highest mean value is Work Completion Priority, followed by Happy Working and Working Alone Is Better. TABLE 13: COOPERATIVENESS Item Work Completion Priority
n
Mean
SD
2260
3.38
.54
Happy Working
2263
3.07
.77
Prefer To Work Alone
2255
2.06
.74
Busybody
2260
1.73
.88
Snobbish
2261
1.64
.89
Total participants
2245* * Exclusive of non-respondent
Observing One’s Dignity
Table 14 indicates Observing One’s Dignity Dimension. The highest mean value is Like Helping Others followed by Conducive Work Place and then Difficult To Make A Suitable Decision. TABLE 14: OBSERVING ONE’S DIGNITY Item Helping Others
n
Mean
SD
2264
3.28
.55
Condusive Workplace
2261
3.12
.76
Dificult To Make Suitable Decision
2262
2.25
.78
Total participants
2259* *Exclusive of non-respondent
1122
Courtesy
Table 15 indicates the mean value and standard deviation for courtesy dimension. Working as part of deed show the highest mean value among the items. This is followed by Meticulousness and the Vague Procedures For Work Promotions. TABLE 15: COURTESY Item Work as part of deed
n
Mean
SD
2264
3.50
.58
Meticulousness
2262
3.24
.63
Vague procedure for work promotions
2261
2.60
.84
Total participants
2259* *Exclusive of non-respondent
Religious Values
Table 16 shows that Hardwork has the highest value, followed by New Innovations and Bragging About One Self . TABLE 16: DIMENSION VALUE RELIGIOUS VALUES Item Hardwork
n
Mean
SD
2264
3.38
.57
Encouragement for new innovation
2260
3.05
.65
Bragging about oneself
2264
1.81
1.00
Total participants
2260* *Exclusive of non-respondent
Correlation Between Work Culture and Job Satisfaction
There is a significant correation between work culture 1 and work culture 2 and overall job satisfaction. The dimensions for work culture which have highest correlations with job satisfaction are result orientation, observing one’s dignity and comfortable working environment. The dimensions which have low correlations with job satisfaction on the other hand, are Innovativeness, Emphasis On Reward and Agrresiveness. Eventhough work culture 1 has a significant relationship with job satisfaction, there are dimensions which show negative correlations such as innovativeness, and emphasis on reward. This indicates that greater emphasis on reward and innovativeness will result lower level of job satisfaction. As for work culture 2, the dimensions which show high correlations with job satisfaction are encouragement, strictness, emphasis on reward and value. Dimensions which have low correlation with job satisfaction are aggresiveness, meticulousness and innovativeness. Therefore, these findings support the hypotheses designed. In term of the relationship between Work culture and job satisfaction, research findings indicate that there is a significance and positive correlation and positive between both variables (p
