Process and Product Management

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Process and Product Management Economic and Environmental Aspects in Organization

Authors Magdalena Ankiel: Chapter 5, 6 Karolina Assman: Chapter 6 Anna Lewandowska: Chapter 5 Jerzy Łańcucki: Chapter 1 Anna Kozłowska: Chapter 4 Alina Matuszak-Flejszman: Chapter 2, 7 Agnieszka Szczepkowska-Flis: Chapter 4 Beata Szyszka: Chapter 7 Anna Zielińska-Chmielewska: Chapter 3, 8

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Edited by

Alina Matuszak-Flejszman

Process and Product Management Economic and Environmental Aspects in Organization

POZNAŃ 2016

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Managing editor: Mariusz Tichoniuk Proofreading by: Ewa Stąpyra Reviewed by: Maciej Urbaniak

Cover designed by: Izabela Jasiczak, Mariusz Tichoniuk

Publication supported by a grant from Iceland, Liechtenstein and Norway through the Norway Grants and co-financed by the Polish funds

Poznan University of Economics and Business bears sole responsibility for the contents of this publication

FREE PUBLICATION

Copyright by: Poznan University of Economics and Business Faculty of Commodity Science Al. Niepodległości 10, 61-875 Poznań ISBN 978-83-943304-3-9

Printed by: ESUS Tomasz Przybylak, 2015 ul. Południowa 54, 62-064 Plewiska 4

Table of Contents Foreword …………………………………………………………….. 1. Sustainable Production and Consumption and Good Quality of Life …………………………………………………………….. 1.1. Introduction ....…………………............................................... 1.2. Quality of Life …..…………………………………………… 1.3. Role of Sustainable Production and Consumption in the Sustainable Development Strategy ……………………. 1.4. Dilemmas of Sustainable Production and Consumption …….. 1.5. Summary ……………………………………………………... 1.6. Literature ……………………………………………………... 2. Process and System Approach in Managing an Organization ... 2.1. Introduction …………………………………………………... 2.2. Process Approach in Managing an Organization ...………….. 2.3. System Approach to Management in an Organization ………. 2.4. Role of the Deming Cycle in the System Approach to Management ...…………………………………………….. 2.5. Normalized Management Systems ...………………………… 2.5.1. Quality Management System in Accordance with the ISO 9001 Standard …………………………… 2.5.2. Environmental Management System in Accordance with the ISO 14001 Standard …………………...……... 2.5.3. Health and Safety Management Systems ……………... 2.6. Summary ……………………………………………………... 2.7. Literature ……………………………………………………... 3. Selected Macro- and Microeconomic Conditions of the Functioning of Enterprises on the Example of Poultry Processing Plant ……………………………………... 3.1. Introduction …………………………………………………... 3.2. Strategic Diagnosis of an Enterprise’s Surroundings ………... 3.2.1. Component Elements of an Enterprise’s Surroundings .. 3.2.2. Analysis of Selected Macrosurroundings Factors Affecting the Functioning of an Enterprise …………….

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15 16 16 19 21 25 26 29 29 29 38 40 46 49 54 60 63 63

67 67 69 70 71 5

3.3. Analysis of Selected Microsurroundings Factors Influencing an Enterprise’s Functioning ...………………………………... 3.3.1. Conception of the Economic Analysis of an Enterprise . 3.3.2. Financial Analysis of Selected Meat Processing Enterprises ……………………………………………... 3.3.3. Construction and Economic Interpretation of Selected Financial Ratios on the Example of Poultry Processing Plants …………………………………………………... 3.3.4. Analysis and Evaluation of the Realization of Selected Areas within the Financial Condition on the Example of Poultry Processing Plants …………………………… 3.4. Summary ……………………………………………………... 3.5. Literature ……………………………………………………... 4. Factors Determining the Innovation Activity of Enterprises – an Analysis on the Example of Polish Industrial Processing .. 4.1. Introduction ……………………………………………….….. 4.2. Result-oriented vs. Process Approach to Innovation and Innovation Activity of Enterprises ………………………. 4.3. Classification of Economic Conditions for Innovation Activity ………………………………………………………. 4.4. Meso-economic Determinant of the Innovation Activity of Enterprises – a Research Review …………………………. 4.5. Essential Content of Variables and the Stages of the Empirical Analysis ……………………………………………………… 4.6. Results of Empirical Analysis ……………………………….. 4.7. Summary ……………………………………………………... 4.8. Literature ……………………………………………………... 5. Marketing and Environmental Aspects of Product Design …… 5.1. Introduction …………………………………………………... 5.2. Environmental Aspect in Product Life Cycle – First Identify, Next Communicate …………………………………………... 5.3. Characteristics and Tools of Ecodesign ……………………… 5.4. Ecodesign – on the Way to Being Obligatory ……………….. 5.5. Marketing Conditions of the Product Design Process ……….. 5.6. Marketing Tools for Testing Prototypes of Products ………...

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74 75 76

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79 84 84

87 87 89 93 96 100 106 116 118 125 125 125 128 131 133 137

5.7. Summary ……………………………………………………... 5.8. Literature ……………………………………………………...

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6. Economic and Environmental Aspects of Product Management 6.1. Introduction …………………………………………………... 6.2. Economic Aspects of Product Management at the Stage of Life Cycle Growth ………………………………………… 6.3. Marketing Instruments Used at the Stage of Growth within the Product Life Cycle ………………………………... 6.4. Economic Aspects of Product Management at the Stage of Maturity within the Product Life Cycle …………………... 6.5. Marketing Strategies at the Stage of Maturity within the Product Life Cycle ………………………………... 6.6. Environmental Aspects of Product Management ……………. 6.7. Summary ……………………………………………………... 6.8. Literature ……………………………………………………...

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7. Environmental Performance of an Organization ……………… 7.1. Introduction …………………………………………………... 7.2. Efficiency and Effectiveness of Environmental Performance .. 7.3. Determinants of the Effectiveness of an Environmental Management System …………………………………………. 7.4. Environmental Performance …………………………………. 7.5. Summary ……………………………………………………... 7.6. Literature ……………………………………………………...

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8. The Evaluation of the Use of Selected Motivation Theories and Employee Engagement in the Work Process ……………... 8.1. Introduction …………………………………………………... 8.2. The Definition of Work ……………………………………… 8.2.1. Enterprise, Employer, Employee and Forms of Employment ………………………………………… 8.3. Analysis of Selected Motivation Theories and Defining the Level of Employee Engagement in the Work Process …... 8.4. Practical Use of Motivation Theories in Everyday Life ……... 8.4.1. Comparative Analysis of the Students’ Case Study …... 8.5. Summary ……………………………………………………...

150 154 157 158 166 166 167

176 178 185 186

191 191 193 193 195 201 201 204 7

8.6. Literature ……………………………………………………... 8.7. Appendix 1 ………………………………………………….... 8.8. Appendix 2 …………………………………………………… 8.9 Appendix 3 …………………………………………………….

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Foreword

Customer interest in consumption, competition growth, the development of new technologies, as well as the omnipresent globalization processes stimulate the search for and implementation of new or improved management methods. Nowadays the process approach is one of the most commonly applied ones. It amounts to the basis for the creation of a system approach to management in an organization in the aspects of quality, environment and safety. Efficient process management broadens an organization’s opportunities within the scope of forecasting changes on the market, managing them and reacting to them, as well as it maximizes the chances related to running economic activity. In order to maintain competitive leverage and meet customers’ and other interested parties’ expectations it is essential to keep the organization in a good shape thanks to proper process management. The present book touches upon the economic and environmental aspects of managing an organization in the system and process approaches. The publication consists of eight chapters. In the first chapter entitled Sustainable Production and Consumption and Good Quality of Life the author attempts to define the relationship between quality of life and sustainable production and consumption. The sustainable development policy is created by and intended for very different recipients, e.g. specific countries and regions, communities, institutions and organizations, industrial corporations, employees and consumers. Therefore, it is commonly believed that by making production and consumption more sustainable we affect the improvement of quality of life, for instance, through the more efficient use of natural resources, energy, 9

soil and water. The author has analyzed specific elements of quality of life and has confronted them with some aspects of sustainable production and consumption. In his considerations the author has concluded that under some circumstances and in some situations making effort in order to increase the sustainability of development does not function as a catalyst, but rather than a barrier to the improvement of quality of life in the case of specific social groups in both economic and social dimensions. The author of the next chapter, entitled Process and System Approach to Management in the Organization, depicts the role of using process and system approaches in managing an organization. In her considerations the author has embraced normalized management systems, which may be used as support tools for process and system approaches to managing an organization. The author has also presented basic principles of quality management and has indicated the important role of system and process approaches to management. According to the author the identification, understanding and management of interrelated processes as a system contribute to the increase of an organization’s efficiency and effectiveness in achieving the goals set by its leadership. Therefore, it is important that the PDCA model be used in the system approach to management. This model is a basic system tool, which supports continuous improvement of processes conducted in the organization. The following chapter entitled Selected Macro- and Microeconomic Conditions of the Functioning of Enterprises on the Example of Poultry Processing plants describes selected aspects of an organization’s operation on the example of poultry processing. Nowadays an entrepreneur runs economic their activity in a difficult, tumultuous and dynamically changing surroundings. The fast development of science and technology as well as growing competition make the knowledge and constant monitoring of the financial standing extremely significant factors of running and managing an enterprise. The financial standing provides important information about the future and present standing, the efficiency level, development opportunities and potential threats. However, the lack of proper understanding and the absence of fast reaction occurring as a result of micro- and macrosurroundings of an enterprise can lead to making bad or delayed decisions. Furthermore, the decisions may result in the worsening of the financial standing or even bankruptcy. Hence, the author has analyzed selected factors 10

of both macro- and micro-surroundings of an enterprise, which affect their operation. In consequence, the author has presented the conception of the economic analysis of an enterprise. In another chapter the authors have described the factors determining the innovation activity of enterprises on the example of Polish processing industry. They have assumed that the influence of specific factors on the innovation activity of enterprises is related to the type of activity (e.g. product/process innovation) and the level of the relevant industry’s technological advancement. According to the authors it is equally important or even crucial to identify the factors which stimulate innovation activity. It is so because both innovation barriers and stimulants amount to a set of conditions of innovation activity, and their primary source is the market along with processes occurring on it. The conditions of innovation activity of enterprises are analyzed from the perspective of economics, sociology, psychology, engineering and many other scientific disciplines. The authors have taken the meso-economic perspective and the selection of applied innovation activity indicators is based on the result-oriented approach. In the research the authors have taken account of economic factors exclusively, assuming that their impact on innovation activity of enterprises is correlated with the type of implemented innovation (product, process, organizational, marketing). The interpretation of the results of the econometric research are preceded by the description of basic terms within the scope of innovation activity of enterprises, the factors which it is determined by, as well as the applied research methodology. The title of the next chapter is Marketing and Environmental Aspects of Product Design. From an organization’s point of view the aim of undertaking environmental activity is to reduce the organization’s and its products’ environmental impact. On the other hand, the environmental performance communication aims at building a positive image of an organization and a product, as well as increasing sales. However, the communication should be preceded by the identification of environmental aspects. In this context the relationship between ecodesign and marketing is easily visible (“Green marketing begins with green design”). The former supports the design and development of products on the basis of the identification and evaluation of environmental aspects. On the other hand, the latter aims at stimulating and maintaining environmental behaviors and consumer 11

attitudes. The authors have presented the main features and tools of ecodesign. Moreover, they have taken notice of the increasing presence of this issue in legal regulations. They have also discussed the marketing aspects of product design and taking account of environmental aspects in creating the product’s image. Another chapter includes considerations related to the economic and environmental aspects of product management. The dynamic changes occurring in the macro- and micro-surroundings of enterprises determine the necessity of adjusting the product management strategy to the product’s specific phases within its market life cycle. This situation calls for defining different strategic objectives at the stage of introduction, maturity and decline. Moreover, under such circumstances enterprises must adjust marketing instruments, which aim to realize relevant goals. Consequently, it is affected by the conditions of strategic actions within the scope of product management at the life cycle stage of the product. Therefore, many various marketing instruments and strategies are applied in the economic and environmental aspects. In the chapter entitled Environmental Performance of an Organization authors have indicated areas within the scope of environmental performance evaluation in an organization. They have defined environmental efficiency and effectiveness and their importance from the point of view of managing an organization. The authors have also indicated the factors affecting the efficiency of an environmental management system: earlier experience with other management systems, a training system, cost reduction, proper planning, leadership engagement, flexibility of the organization, customer interest, positive influence of the system on the organization’s results, support from administration. Moreover, the authors have discussed the environmental performance indicators, which amount to a significant element of an environmental management system and can be used by organizations in order to conduct the environmental performance evaluation. The last chapter entitled The Evaluation of the Use of Selected Motivation Theories and Employee Engagement in the Work Processes considers human resource management as one of the crucial elements in the system and process approaches to management. The author has focused on discussing the ways of motivating employees and capturing their engagement in work in order to improve the functioning of processes and 12

products. The aim of the chapter is to identify and evaluate the use of selected motivation theories in order to increase the involvement growth of employees in performing tasks and duties in the workplace. The realization of this goal has called for the application of primary and secondary research materials. In this chapter the author has used analysis and conclusion methods, in particular the descriptive, comparative, deductive and synthetic analysis methods. The results of the analyses are based on the results of own researches, reports, expert opinions, as well as on domestic and foreign relevant publications.

Alina Matuszak-Flejszman

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1. Sustainable Production and Consumption and Good Quality of Life

1.1. Introduction The study attempts to evaluate the correlation between the implementation of the policy of sustainable production and consumption and the standard of living. This issue is relevant as the crisis spreading through the economies of many countries in 2008 made it evident that without a new development strategy it would be difficult not only to improve, but also to maintain the quality of life of people in many countries of the world. The crisis was accompanied by mounting problems, such as: negative effects of globalization, growing demand for limited resources and ageing. For this reason, all undertakings aimed at achieving the desired economic objectives that take into account social and environmental considerations deserve close attention. Among the three priorities that were included in the Europe 2020 strategy, adopted by the European Commission, one can find sustainable development, i.e. promoting a more resource-efficient, greener and more competitive economy. The aim of the strategy is improving the quality of life of the citizens through sustainable society that manages and uses the resources in an effective manner. Thus, the strategy focuses on improving the well-being of people. Based on the reports drafted by international organizations, such as Eurostat, Central Statistical Office of Poland (GUS) and the European Commission, the study attempts to assess the real impact of the development strategies on the welfare of citizens as well as to indicate the conditions

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and circumstances that are the determinants of effective strategy for sustainable development. There is a general belief that by making production and consumption more sustainable we contribute to the improvement of quality of life inter alia through more efficient use of natural resources, energy, soil and water. In general terms this statement seems to be true. However, after the analysis of specific characteristics of quality of life by dint of confronting them with some aspects of sustainable production and consumption, we may conclude that under certain circumstances and in some situations aiming at sustainable development is a barrier rather than a catalyst of quality of life improvement for specific social groups in the economic and social dimensions. It stems from the fact that the sustainable development policy is created and addressed to various recipients. Among the recipients we may come across countries and regions, communities, institutions and organizations, industrial corporations, employees and consumers. Each of these entities operates under different historical, geographical, political, economic and social circumstances. Consequently, the importance and direction of economic, environmental and social impact of the sustainable development policy on specific aspects of quality of life may take different forms. Therefore, it appears to be justified to define the character of relations between quality of life and sustainable production and consumption.

1.2. Quality of Life It is impossible to limit the definition of the term “quality of life” to a onesentence definition. Certainly it is broader term than “living conditions” or “living standard” as it has a multifaceted character. In the European Commission publication [Commission Staff Working Document 2013 p. 23] among the dimensions of quality of life the following are enumerated:  material living conditions (income, consumption level, material conditions, poverty level, living conditions),  productivity (employment and unemployment volume, underemployment and overemployment, quality of employment, lowest income, occupational health and safety, work-life, seasonal jobs, perceived quality of work),

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 health (average life expectancy, morbidity, health care access, behaviors harmful to life),  education,  leisure and social interactions,  economic and physical safety,  governance and basic rights,  natural and living environment,  overall life experience (life satisfaction, experiences). Central Statistical Office presents a similar approach to the conception of quality of life measurement in its research [GUS 2014, p. 5 and further]. According to this conception statistical quality of life measurement apart from overall objective living conditions includes experienced by individual people subjective quality of life, which is also called “subjective well-being”. Among characteristic features of quality of life according to GUS we may distinguish:  material living conditions (e.g. average monthly disposable income, extreme poverty indicator, food and non-alcoholic beverages in total spending, poor sanitary condition indicator),  main type of activity, occupation (e.g. unemployment level, permanent unemployment level, overall work satisfaction),  health (e.g. health condition self-evaluation indicator, overweight and obese people at the age of 15 and older, cancelling a doctor’s appointment due to long waiting time or lack of referral),  education (e.g. people at the age of 16-74 using computers and the Internet, foreign language users, people at the age of 25 and older with higher education),  leisure and social relations (e.g. leisure satisfaction, social isolation indicator, trust for other people),  economic and physical safety (e.g. lack of possibility to cover unexpected expenses/% of households, sense of security in the place of residence),  state and basic rights, citizens’ activity (e.g. trust for the political system, sense of discrimination, turnout at the Polish parliamentary elections),

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 quality of the environment at the place of residence or other environmental problems in the vicinity, recreational area satisfaction),  subjective well-being (e.g. overall life satisfaction, sense of meaning in life, complex wellbeing indicator). European quality of life research conducted periodically for many years (EQLS) amounts to a tool for multidimensional analysis of quality of life in the European Union [Anderson et al. 2012, p. 7]. The research takes account of the following issues: education, income, living conditions, family, employment, work-life balance, life satisfaction and perceived quality of society. In research the emphasis is put on both the analysis of relations between subjective and objective measures of attitudes and preferences as well as on the analysis of resources and living conditions. The research conducted in 2012 allowed for formulating several basic conclusions:  unemployment, especially if it lasts for a long time, has a large effect on subjective mood, it was the group of the unemployed for a long time in which the highest social exclusion level was observed,  higher quality of life is declared by respondents from countries located in the north and west of the European Union,  personal situation satisfaction is maintained at a relatively high level in all member countries,  family still fulfills the key role in all EU member countries as it amounts to the basis for social interactions and the main source of support in terms of satisfying every day or urgent needs,  trust for public institutions is decreasing, in particular in reference to governmental and parliamentary organs. It should be stressed that the research refers to people or households. The influence of economic entities (enterprises, concerns, industries), which (or more precisely – the policy and strategy of which) to a large extent are profit-oriented that visibly affects citizens’ quality of life in a negative way, is not embraced by the research, though. The quality of life improvement is inextricably connected with the policy of sustainable development.

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1.3. Role of Sustainable Production and in the Sustainable Development Strategy

Consumption

The world economic crisis, which in 2008 and 2009 also affected EU countries1, clearly highlighted the relation between the political situation and economic conditions. The crisis was a strong impulse to create the Europe 2020 strategy [Commission Communication 2010, p. 5]. This strategy includes the three interrelated priorities:  intelligent development; the development of the economy based on knowledge and innovation,  sustainable development2; supporting the resource-efficient, green and competitive economy,  the development that favors social inclusion; supporting the economy of a high level of employment, which assures social and territorial cohesion. On the basis of a few years’ experience of the realization of the Europe 2020 strategy we may claim that sustainable development plays a special role in realizing this strategy as in the future it probably will determine the scope, character and dynamics of the realization of the remaining priorities defined in the strategy. Among the seven leading projects, which are supposed to enable development within the abovementioned thematic priorities, two deserve particular attention as they directly refer to sustainable development. The first – Resource efficient Europe – is a project for making economic growth independent of resource use, transforming into low-emission economy, as well as for a bigger use of renewable energy sources, transportation modernization and promoting energetic efficiency. The second – An integrated industrial policy for the globalization era – is a project for improving business surroundings, in particular in reference

Only in 2009 GDP decreased by 4%, industrial production dropped to the level from 1990s’, and 23 million economically active people in the EU were unemployed. Communication from the Commission of 3 March 2010 - Europe 2020 A strategy for smart, sustainable and inclusive growth, Brussels, 5.3.2010, p. 8. 2 The strategy of sustainable development of the European Union was accepted in May 2001 and then renewed in 2006. 1

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to SMBs as well as for supporting the development of a strong sustainable industrial base prepared for competing on world markets. Specific conditions significantly affect the sustainable development of Poland. Among them we enumerate historical factors, geographical location, structure of existing companies as well as the change of Poland’s role in Europe and the world. Six key areas were claimed to be prioritized from the perspective of the sustainable development of the Polish economy. The areas include: social capital, human capital, infrastructure, natural resources, energy, and quality of state and institutions [PwC 2012, pp.12 and 15]. The two key basic terms – needs and limited opportunities – lie at the root of the idea of sustainable development. In Act on Environmental Protection Law [Act of 27 April 2001] sustainable development is defined as “socioeconomic development within the process of integrating political, economic and social actions with the preservation of natural balance and durability of natural processes occurring in order to guarantee opportunities to satisfy basic needs of contemporary specific communities and citizens as well as the future generations”. Hence, sustainable development refers to a process and consists not in making effort to obtain a stable balance, but assumed that changes are an indispensable characteristic of societies. Sustainable production and consumption are elements of sustainable development. The term “sustainable production” in the UNEP documents is defined as: the strategy of protecting the environment based on constant integrated preventive activity in reference to processes, products and services aiming at increasing the efficiency of production and services as well as reducing risk for human beings and natural environment. On the other hand, according to the Polish Agency for Enterprise Development sustainable production is creating products and services which [PARP 2011, p. 30]:  use green processes and systems (limiting environmental pollution),  save energy and resources,  are economically realistic,  are safe for human health,  socially and creatively profitable for all working people. In the documents of the U.S. Department of Commerce sustainable production is defined as creating products in the manufacturing process, in which we use economically sound processes minimizing negative 20

environmental impact, saving energy and natural resources, providing safety for employees, communities and consumers. Sustainable production defined as above should be analyzed in three dimensions [OECD 2011, p. 4]:  economic; growing innovation, sales and income, creating new jobs, investment in infrastructure, fight against bribery and corruption, supporting local economies, responsible tax-paying,  social; meeting legal requirements, respecting human rights, good social relations, good working conditions, fair treatment of suppliers,  environmental; minimizing the use of hazardous substances, efficient use of energy and resources, biodiversity protection, minimizing waste and emission, use of green raw materials and energy. Sustainable consumption is, in a way, the other side of the coin. It may be defined as optimal, conscious and responsible use of available natural resources, goods and services at the level of individuals, households and local communities, business environments, local authorities, state offices and international structures. It aims at satisfying needs and improving quality of life for all in the local and global dimensions along with following human and employee rights and taking account of the possibility of satisfying other people’s needs, including future generations in terms of preservation and recovery of the economic capital for them [Polish Ministry of Economy 2011, p. 2]. Making effort to achieve sustainable production and consumption means the increase of resource management efficiency, i.e. applying the rule “obtain more with the lesser use of resources”. This rule expresses the relation between the society’s needs related to nature and pressure on eco-systems and the obtained benefits in the form of production growth and quality of life experience [European Environment Agency 2015, p. 83].

1.4. Dilemmas of Sustainable Production and Consumption In the practical dimension the evaluation of the scale of the “total disconnection”, i.e. the situation in which resource use is decreasing while the economy is growing is difficult and calls for a multiple-aspect evaluation. With a view to conduct this process the natural resource productivity indicator is used. The indicator measures the relation between GDP and domestic material consumption (DMC). In 2002-2013 the GDP/DMC 21

index grew by 27% (from 1.34 PPS/kg of resources used in 2002 to 2.01 PPS/kg in 2013) in 28 EU countries [Eurostat 2015]. Due to the fact that this index is not flawless, e.g. it does not take account of big differences in access to resources, their value. Moreover, it limits the net import and export balance and does not embrace resources used to produce imported goods. Eurostat prepared for EU countries estimates related to raw material consumption (RMC) called “a material footprint”. This indicator illustrated the use of resources linked with consumption in EU countries through calculating import and export into “raw material equivalents”. According to Eurostat the use of resources decreased in 20002012, but the financial crisis of 2008 and later economic recessions in Europe contributed to this trend [European Environment Agency 2015, p. 89]. Despite the improved efficiency of resource use in the course of last dozen or so years it is not very likely that by 2050 the EU will have managed to realize its vision of the economy in which resource management, from raw materials to energy, water, air and soil, is sustainable. The problem is that decisions and actions, which lessen the pressure in one area, may cause feedback, which will increase problems in a different area. For example, an increase of efficiency may reduce production, and consequently increase consumers’ purchasing power. Finally, it all may lead to an increase in food consumption along with bigger waste of food. Production and consumption can fulfill different roles as well as many varied and potentially contrasting functions in their interactions [The Library of Environmental Monitoring 2014, p. 33]. The present situation in the context of environmental protection, or more precisely – within the scope of clean air protection, can serve as a good illustration of these relations. According to the report of European Environment Agency the eco-system stability index, which inter alia consists of biodiversity and greenhouse gas emission, worsened. Poland is in the group of the most polluted countries in the European Union. All of the most polluted cities in Europe are located in Poland and Bulgaria. The negative impact of air pollution on human health and environment [Polish Ministry of the Environment 2015, p. 7]. The poor condition of air in Poland is mainly caused by the phenomenon of the so-called low emission coming from the social and existential sector and transportation. Among the main sources responsible for exceeding the acceptable level of PM10 there are: 22

individual heating of buildings (88.21%) and traffic (4.09%). In 2014 in Poland there were 13.6 million households out of which 7.5 million used coal furnaces. According to GUS in Poland solid fuels were used in 48.70% of households. Fuels of a poor quality are often used and waste is incinerated in unadjusted heating appliances [Polish Ministry of the Environment 2015, p. 22]. Every year Poles buy 10 million tons of coal fuels to heat their houses, including 1 million tons of coal dust, i.e. waste resulting from sorting and flushing coal ore. Fifty percent of coal dust are ashes and sulfur compounds. Moreover, there have been no efficient legislation related to quality standards for coal sold by retailers or emission standard for furnaces yet1. Health problems caused by exposure to polluted air result in increased healthcare costs. Furthermore, these costs are ultimately covered by citizens, employers and the public sector [Polish Ministry of the Environment 2015, p. 6]. The transportation sector also contributes to the degradation of the natural environment, which negatively affects human health. Transportation amounts to a source of the emission of nitric oxides, carbon monoxides, aromatic carbohydrates, heavy metals. It is also the source of the primary and secondary emission of PM10 and PM2.5. In the structure of vehicles 78.0% are older than 10 years, including 20.3% of vehicles which fit in the scope between 16 and 20 years [Polish Ministry of the Environment 2015, p. 26]. The economic factor plays the essential role in the case of poor quality solid fuels and the use of old cars. Moreover, the choice of the former on the one hand is caused by strong pressure of mining and energy industries along with their fight for maintaining competitive leverage, jobs and the proper level of remuneration. On the other hand, individual buyers, who want to pay as little as it is possible for heating apartments and houses. In the case of the latter the most important factor is the mass desire to own a car including citizens with average and low income for whom the purchase of older vehicles is the only chance to have a car. These circumstances bring about the situation in which the actions within the realization of the sustainable development policy aiming at improving quality of life for the whole society are often perceived as the activity threatening specific groups and negatively influencing 1

So far the Minister of Economy has not published any regulations e.g. related to quality requirements for solid fuels.

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the maintenance of social cohesion in local communities. It all may have significant impact on the political choices made by members of these communities. The measurement of advances in achieving sustainable development is an integral part the European Union Sustainable Development Strategy. On the other hand, Eurostat is responsible for creating a monitoring report every two years on the basis of the European set of sustainable development indicators1. The aim of the reports, as it is clearly stated by their authors, is not to formulate an unequivocal answer if the EU is developing in a sustainable way. It is so because there is no accepted practical and scientific approach to what sustainability should be or to optimal levels of indicators presented in the report. The reports aim at evaluating the progress in achieving assumptions and objectives of the SDS. Hence, they present a general evaluation if the EU is developing in a proper direction established by these assumptions and objectives. Out of 100 indicators presented in the 2013 report [Eurostat 2013, p. 8 and further] 12 were distinguished as main indicators. They are as follows:  real GDP per capita,  resource productivity,  persons at-risk-of-poverty and social exclusion,  the employment indicator of older workers,  life expectancy at the moment of birth,  greenhouse gas emission,  share of renewable energy sources in the final gross energy consumption,  primary energy consumption,  energy consumption in transportation in relation to GDP,  common bird species, and  fish catches from stocks outside safe biological limits,  global partnership,  good governance. The analysis of these indicators as well as relevant conclusions are not a reason for excessive optimism. In the Report the following tendencies and phenomena are indicated: 1

Sustainable development in the European Union. 2013 monitoring report of the EU Sustainable development strategy, Eurostat 2013. 24

 lack of a clear tendency towards a more sustainable consumption structure,  increase of income poverty and worsening of living conditions,  lack of a clear tendency towards a more sustainable job market,  lack of improvement of the income of the retired,  lack of improvement in the area of public finances in the EU countries,  maintaining the level of health inequality,  lack of significant changes in the use of a specific type of transportation and mobility. The Report includes a comprehensive evaluation of main tendencies observed since 2000 and is concluded in the following way: „the circumstances outlined above make it hard to assess whether real progress towards sustainable development has been made in the EU over the past few years. However, keeping in mind that almost half of the headline indicators of the EU SDI set are moving in a moderately or clearly unfavorable direction, more efforts seem to be needed to put the European Union on the path to sustainable development”.

1.5. Summary In light of the information and opinions presented above the use of the sustainable development strategy in order to improve citizens’ quality of life may turn out to be a difficult task due to the relations between social, environmental, economic and political factors at domestic, regional and world levels. The abovementioned historical, geographical, economic and structural conditions make the realization of a coherent sustainable development policy a risky undertaking in the heterogeneous environment. We constantly observe the growing disparity between the member countries with the best and the worst results, growing differences between regions within member countries and outside them, as well growing inequality in sharing wealth and income [Communication from the Commission… 2014]. The interests of individual countries, societies, social and professional groups do not favor mutual effort towards the realization of the well-intentioned objectives of the sustainable development strategy. On the one hand, we have countries with a relatively large well-being of the majority of the society, modern and efficient economies with a relatively low energy consumption. 25

On the other hand, there are countries forced to catch up in these areas rapidly, which causes specific social tensions and mass protests to be taken into account by politicians, who perceive their countries from the point of view of maintaining or taking over authority. Nowadays, even with the goodwill of specific countries’ authorities and organizations such as the European Union, the real possibilities within the scope of actions for the common welfare seem to be limited. It is so, because these units are too weak to realize the sustainable development policy as the real authority is now in the hands of large international corporations with no democratic mandate.

1.6. Literature Act of 27 April 2001 r. Act on Environmental Protection Law (Ustawa z dnia 27 kwietnia 2001 r. Prawo ochrony środowiska. tekst jednolity), Dz. U. 22.10.2013 r., poz. 1232. Anderson R., Dubois H., Leoncikas T. Sándor E. 2012, Quality of Life in Europe: Impacts of the Crisis, Publications Office of the European Union, Luxemburg 2012. Commission Staff Working Document, 2013, Progress on GDP and Beyond Actions, Brussels, 2.8.2013, SWD/2013/3030 final. European Environment Agency 2015, SOER 2015 – The European Environment – State and Outlook 2015, Kopenhaga. Eurostat 2013, Sustainable Development in the European Union. 2013 Monitoring Report of the EU Sustainable Development Strategy. Eurostat 2015, Resource Productivity Statistics, March 2015. GUS 2014, Jakość życia, Główny Urząd Statystyczny, Warszawa. Communication from the Commission of 3 March 2010 – Europe 2020 A strategy for smart, sustainable and inclusive growth, Brussel [COM(2010) 2020 final] Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee of the Regions 2014 Taking Stock of the Europe 2020 Strategy for Smart, Sustainable and Inclusive Growth, Brussels, 05.03.2014, COM/2014/130 final. OECD 2011 Sustainable manufacturing toolkit. Seven Steps to Environmental Excellence, Organization for Economic Co-operation and Development. Polish Ministry of Economy 2011, Przez zrównoważoną konsumpcję do zrównoważonego rozwoju, Warszawa. 26

Polish Ministry of the Environment 2015, Krajowy program ochrony powietrza w Polsce (Projekt), Warszawa, 9 marca 2015. PwC 2012, Wizja zrównoważonego rozwoju dla polskiego biznesu 2050, http://www.pwc.pl/pl/publikacje.html [access: 01.10.2015]. PARP 2011, Wzorce zrównoważonej produkcji (WZP) w działalności przedsiębiorstw propozycja rozwiązań systemowych wspierających wdrożenie WZP w MSP. Raport z analizy danych, Polska Agencja Rozwoju Przedsiębiorczości, Warszawa. The Library of Environmental Monitoring 2014, Stan środowiska w Polsce. Raport 2014, Warszawa.

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2. Process and System an Organization

Approach

in

Managing

2.1. Introduction Steering an organization and acting in a successful way calls for systematic and transparent management and monitoring. Management, according to R.W. Griffin, is defined a resource-oriented (human, financial, tangibles and information) set of actions (including planning, decision-making, organizing, leading, i.e. managing people, and controlling) conducted with a view to achieve an organization’s objectives in an efficient and effective way [Griffin 2008, p. 38]. Reaching an organization’s goals in an efficient and effective way is a highly important benchmark of management.

2.2. Process Approach in Managing an Organization According to other authors [Koźmiński and Piotrowski 2005] management may be defined as creating the reality with the use of the elements available for a manager: ideas, human beings and relations between them, formal and legal institutions, tangible and financial resources, as well as rights to avail of them. In professional literature [see Griffin 2008, Certo 2000, Kostera 2001] we most frequently come across the definition of management consisting of four basic stages: planning and decision-making, organizing, controlling the work of employees, as well as efficient motivating employees and using all available resources in order to achieve an organization’s objectives. Individual stages of the management process are closely interconnected. Within planning and decision-making an organization sets objectives 29

for actions and defines the best possible way of realization through making proper decisions. On the other hand, the stage of organization aims at appropriate coordination of actions and resources which means the organization of human and other resources allowing for the realization of the previously created plan. Therefore, organizing consists in logical grouping of actions and resources. Another stage is the so-called leading aiming at proper management of people. Some researchers [Griffin 2008, p. 43] consider it one of the most important and simultaneously one of the most ambitious types of management activity. Leading amounts to a set of enhancement processes used so that the members of an organization cooperate with one another for the organization’s sake [Griffin 2008, p. 43]. The final stage of the management process is controlling consisting in observing and evaluating actions in order to evaluate progress within the scope of the realization of the previously set objectives (at the stage of planning). It should be emphasized that while an organization is making effort to achieve its objectives, its leadership must constantly observe the progress noted. The organization must make sure that the achieved results will allow for reaching the destination within the defined timespan. According to Peter F. Drucker [2002] management consists in several basic principles. The first of them is related with the task of management which is supposed to allow people to achieve objectives together. Moreover, management is deeply enrooted in our culture, and an enterprise must have simple, clear and unifying tasks. P. Drucker claims that management must provide the organization and each of its members the opportunity for growth and development taking account of the changing needs and possibilities. An enterprise must be founded on mutual agreements and individual responsibility. The last principle is linked with the market position, efficiency, human development, quality as well as financial results. These elements according to P. Drucker add up to the total evaluation of an organization’s achievements and survival ability. The increasingly consumption-oriented approach of customers, growth of competition, development and creating new technologies as well as omnipresent globalization processes indirectly force searching for and implementing new or improved management methods. Such actions are necessary due to the fact that an organization which does not act according to modern trends and does not apply the latest advancements in management 30

has a slim chance of survival. A radical answer to the deficits of classical management was the conception called Business Process Reengineering (BPR), which first took notice of and emphasized the central role of a process for managers [Chammer and Champy 1994, p. 46]. In accordance with the leading definition reengineering is a fundamental redefinition and radical redesigning of an organization’s processes which leads to a breakthrough improvement according to critical contemporary measures, achieved results, such as: cost, service, speed [Chammer and Champy 1994, p. 46]. Thus, Business Process Reengineering may be seen as a pioneer of the conception of process management. On the basis of its achievements and critical opinions of BPR the conception transformed into a more mature and rich form. At present process approach is one the most common ones. The present subchapter is devoted to the review of process approach in the aspects of system approach to management and continuous improvement of an organization’s actions. Process approach amounts to the basis for creating a quality management system grounded in the requirements of the abovementioned ISO 9001 standard. Furthermore, it is an essential part of efficient identification of environmental aspects required within building an environmental management system in compliance with the ISO 14001 standard. Process approach is also the basis for the realization of total quality management (TQM). In order to assure the efficiency of an organization’s actions the continuous improvement of the processes in an organization should be guaranteed. The enhancement of processes leads to the modification of the existing system and increases the effectiveness and efficiency of a given process. Enhancement is applied in order to rationalize a process within a small area of its functioning or it may refer only to selected elements of a process. Efficient process management broadens an organization’s abilities within the scope of predicting changes on the market, managing and reacting to them, and, moreover, it maximizes the opportunities linked with economic activity. Maintaining an organization in a good condition due to economic process management has become necessary to gain competitive leverage. However, creating a process management system may be difficult and timeconsuming, and it often leads only to the increase in a bigger workload for some employees [Biazzo and Bernardi 2003, pp. 149-169]. 31

In order to efficiently realize its undertakings, top leadership should follow 7 principles of quality management formulated in the ISO 9000 standard. They are as follows [ISO 9000:2015]:  customer focus,  leadership,  engagement of people,  process approach,  improvement,  evidence-based decision making,  relationship management. According to the first principle an organization should be focused on the customer, especially in the context of meeting their requirements, and make all efforts to go beyond their expectations. Organizations are dependent on their clients and, therefore, should understand their present and future needs in order to meet their requirements. With a view to be successful in this area an organization’s leadership should gain and maintain trust of customers and other interested parties. Hence, an organization should conduct market research and to be ahead with its actions in order to meet customer expectations. Through acting according to this principle an organization may achieve the following key benefits [ISO 9000:2015; p. 2.3.1.3]:  increased customer value,  increased customer satisfaction,  improved customer loyalty,  enhanced repeat business,  enhanced reputation of the organization,  expanded customer base,  increased revenue and market share. The following actions may be realized by an organization [ISO 9000:2015; p. 2.3.1.4]:  recognizing direct and indirect customers as those who receive value from the organization,  understanding customer’s current and future needs and expectations,  communicating customer needs and expectations throughout the organization, 32

 planning, designing, developing, producing, delivering and supporting products and services to meet customer needs and expectations,  measuring and monitoring customer satisfaction and taking appropriate expectations the can affect customer satisfaction, actively manage relationships with customers to achieve sustained success. The second principle relates to leadership. Leaders at all levels agree on the unity of an organization’s objectives and direction, as well as create conditions in which people are engaged in achieving an organization’s objectives. In order to do so they should create and properly maintain the internal environment and engage people so as to combine an organization’s strategy, policy, processes and resources necessary reach the previously set goals. The key benefits resulting from following these principles are [ISO 9000:2015, p. 2.3.2.3]:  increased effectiveness and efficiency in meeting the organization’s quality objectives,  better coordination of the organization’s processes,  improved communication between levels and functions of the organization,  development and improvement of the capability of the organization and its people to deliver desired results. Within this principle an organization may realize the following actions [ISO 9000:2015, p. 2.3.2.4]:  communicating the organizations mission, vision, policies and processes through the organization,  creating and sustain shared values, fairness and ethical models for behavior at all levels of the organization,  establishing a culture of trust and integrity,  encouraging an organization-wide commitment to quality,  ensuring that leaders at all levels are positive examples to people in the organization,  providing people with the required resources, training and authority to act with accountability,  inspiring, encouraging and recognizing the contribution of people.

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The third principle calls for the engagement of people. Competent and authorized employees at all levels are the essence of an organization and their full engagement allows for taking advantage of their ability to increase an organization’s capability of creating and provide values. The key benefits coming from the efficient realization of this principle include [ISO 9000:2015, p. 2.3.3.3]:  improved understanding of the organization’s quality objectives by people in the organization and interested motivation to achieve them,  enhanced involvement of people in improvement activity,  enhanced personal development, initiatives and creativity,  enhanced people satisfaction,  enhanced trust and collaboration throughout the organization,  increased attention to shared values and culture throughout the organization. Among possible actions linked with this principles we may find [ISO 9000:2015, p. 2.3.3.4]:  communicating with people to promote understanding if the importance of their individual contribution,  promoting collaboration throughout the organization,  facilitating collaboration throughout the organization,  empowering people to determine constraints to performance and to take initiatives without fear,  recognizing and acknowledging people’s contribution, learning and improvements,  enabling self-evaluation of performance against personal objectives,  conducting surveys assess people’s satisfaction, communicating the results and taking appropriate actions. The fourth principle covers process approach. According to the principle consistent and predictable results are achieved with higher efficiency and effectiveness if the actions are understood and managed as interrelated processes functioning as a coherent system. The benefits of following this principle are [ISO 9000:2015, p. 2.3.4.3]:  enhanced ability to focus effort on key processes and opportunities for improvement,

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 consistent and predictable outcomes through a system of aligned processes,  optimized performance through effective process management, efficient use of resources and reduced cross-functional barriers,  enabling the organization to provide confidence to interested parties related to its consistency, effectiveness and efficiency. Within the scope of process approach the possible actions include [ISO 9000:2015, p. 2.3.4.4]:  defining objectives of the system and processes necessary to achieve them,  establishing authority, responsibility and accountability for managing processes,  understanding the organization’s capabilities and determining resource constrains prior to action,  determining process interdependencies and analyzing the effect of modifications to individual processes on the system as a whole,  managing process and their interrelations as a system to achieve the organization’s quality objectives effectively and efficiently,  ensuring the necessary information is available to operate and improve the processes and monitor, analyze and evaluate the performance of the overall system,  managing risks which can affect outputs of the processes and overall outcomes of the management system. Improvement amounts to another principle of quality management. According to its principle a successful organization is constantly improvementoriented in order to maintain the current level of its performance, the ability to react to changes of external and internal conditions as well as to create new opportunities. Among the benefits from the realization of the improvement principle the following should be enumerated [ISO 9000:2015, p. 2.3.5.3]:  improved process performance, organizational capability and customer satisfaction,  enhanced focus on root cause investigation and determination, followed by prevention and corrective actions,  enhanced ability to anticipate and react to internal and external risks and opportunities, 35

 enhanced consideration of both incremental and breakthrough improvement,  improved use of learning for improvement,  enhanced drive for innovation.       

The realization of improvement allows to [ISO 9000:2015, p. 2.3.5.4]: promote establishment of improvement objectives at all levels of the organizations, educate and train people at all levels on how apply basic tools and methodologies to achieve improvement objectives, ensure people are competent to successfully promote and complete improvement projects, develop and deploy processes to implement improvement projects throughout the organization, track, review and audit the planning, implementation, completion and results of improvement projects, integrate improvement consideration into development of new or modified products and services and processes, recognize and acknowledge improvement.

The sixth principle relates to evidence-based decision making. In accordance with this principle effective decisions consist in data and information analysis, which makes them well-considered. As a result of the realization of this principle an organization’s ability to prove the effectiveness of its earlier decisions is increased, as the ability is founded on documented records. An organization’s ability to verify proposed and changed opinions and decisions. The key benefits linked with the realization of this principle are [ISO 9000:2015, p. 2.3.6.3]:  improved decision making processes,  improved assessment of process performance and ability to achieve objectives,  improved operational effectiveness and efficiency,  increased ability to review, challenge and change opinions and decisions,  increased ability to demonstrate the effectiveness of past decisions.

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     

Possible actions include [ISO 9000:2015, p. 2.3.6.4]: determining, measuring and monitoring key indicators to demonstrate the organization’s performance, making all data needed available to relevant people, ensuring that data and information are sufficiently accurate, reliable and secure, analyzing and evaluating data and information using suitable methods, ensuring people are competent to analyze and evaluate data as needed, making decisions and taking actions based on evidence, balanced with experience and intuition.

The last principle covers relationship management. Organizations should efficiently manage their relationships with interested parties, e.g. suppliers, because they influence an organization’s performance. The realization of this principle should have impact on the flexibility and speed of their reaction to changes occurring on the market or occurring as a result of customer needs and expectations. The benefits resulting from the realization of this principle are [9000:2015, p. 2.3.7.3]:  enhanced performance of the organization and its relevant interested parties through responding to the opportunities and constrains related to each interested party,  common understanding of objectives and values among interested parties,  increased capability to create value for interested parties by sharing resources and competence and managing quality related risks,  a well-managed supply chain that provides a stable flow of products and services. Possible actions within the scope of relationship management include [ISO 9000:2015, p. 2.3.7.4]:  determining relevant interested parties (such as providers, partners, customers, investors, employees or society as a whole) and their relationship with the organization,  determining and prioritizing party relationship that to be managed,  establishing relationship that balance short-term gains with long-term considerations,

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 gathering and sharing information, expertise and resources with relevant interested parties,  measuring performance and providing performance feedback to interested parties, as appropriate, to enhance improvement initiatives,  establishing collaborative development and improvement activities with providers, partners and other interested parties,  encouraging and recognizing improvements and achievement by providers and partners. The realization of the abovementioned principles may assure the efficiency of an organization’s actions. It should be remembered that taking into account applying PDCA (Plan, Do, Check, Act) in all aspects of operation to management in the aspect of continuous improvement.

2.3. System Approach to Management in an Organization Managing an organization and acting in an efficient way requires that an organization be managed and monitored in a systematic and transparent way. Effective management of an organization, which takes account of the functionality of the decisions made and their multidimensional consequences, should be based on a homogenous and consistent management system. In order to assure a system approach to management four stages of actions are applied, which is called PDCA. This approach, frequently called a system approach to management, was developed and promoted by one of the quality gurus – William Edward Deming. It is important to define what a system is. The definition proposed by Edward Deming states that a system is a set of functions or actions (subprocesses, stages – called “elements of a system”) in an organization which contribute to its objectives. In the ISO 9000 standard a system was defined as a set of interrelated or interacting elements [ISO 9000:2015, p. 3.5.1]. Consequently, a management system is a set of interrelated or interacting elements of an organization to establish policies and objectives, and processes to achieve those objectives [ISO 9000:2015, p. 3.5.2]. It should be stressed that a management system can address a single discipline or several disciplines, e.g. quality management, financial management or environmental management. On the other hand, the management system elements establish the organization’s structure, roles and responsibilities, 38

planning, operation, policies, practices, rules, beliefs, objectives and processes to achieve those objectives. The scope of a management system can include the whole of the organization, specific and identified functions of the organization, specific and identified sections of the organization, or one or more functions across a group of organizations. Therefore, it is important to assure a system approach to management in an organization. The identification, understanding and management of interrelated processes as a system contribute to the efficiency and effectiveness of an organization at achieving objectives. The key benefits related to the application of a system approach to management should include:  merging processes leading to reaching business goals,  the ability to focus on key processes,  building partners’ trust through consistency, efficiency and effectiveness of the organization.       

Assuring system approach to management implies: building the structure of a management system which will allow reaching business goals in the most efficient and effective way, understanding the relation between management system processes, a system approach to harmonize and bind processes, better understanding of roles and responsibilities necessary to reach business goals and reduce barriers between functional departments, understanding the organization’s potential and limitations linked with resources before undertaking new challenges, defining the rules of handling, continuous improvement of the management system on the basis of measurement, evaluation and result analysis.

In order to implement system solutions in an organization the following three conditions should be met:  an organization shall set an objective or objectives which we plan to realize during the implementation of a management system,  an organization shall plan actions (processes, subprocesses) which should be realized in accordance with the accepted rules along with the division of responsibilities and competence assigned to these actions,

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 an organization shall establish rules of cooperation and interrelations between processes and personnel. That is why it is important that an organization applies the PDCA model in the system approach to management. This model amounts to the basic system tool for continuous improvement of processes functioning in the organization. It is also a tool for solving problems as well as implementing the latest solutions. It includes the chronologically ordered actions within both technological processes and products, which is typical of the steering system with feedback [Hamrol and Mantura 2011]. In other words it is a cycle of actions aiming at introducing changes and innovation in an enterprise. The use of the approach proposed by Shewart and developed by Deming may as well occur [Konarzewska-Gubała 2003, p. 55]:  in the process of continuous improvement,  during breaks between project stages,  during the implementation of changes,  during the implementation of a new solution,  during the review of the improvement process,  in order to decrease total costs through constant elimination of minor mistakes within the accepted technical level.

2.4. Role of the Deming Cycle in the System Approach to Management The name of the PDCA cycle comes from the first letters of its four stages: P - Plan, D - Do, C - Check, A - Act. The Deming cycle may be presented with the use of the so-called Deming circle. The Deming cycle is based on the four repeated stages. On the other hand, within Six Sigma a five-stage improvement cycle: define - measure - analyze - improve - control (DMAIC) [Pande, Nauman and Cavanagn 2003, p. 36]. This requirement of constant repetition of the cycle is its biggest advantage. The cycle then becomes an element of an employee’s everyday duties, and the organization is able to efficiently meet the requirements specified by the customer on the basis on the acquired knowledge [Pande, Nauman and Cavanagn 2003, p. 36]. It should be emphasized that the use of the PDCA cycle is a collective action. According to Deming a team of people coming from different cells 40

of the organization should be created with the view to conduct mutual work for the sake of improving quality. Barriers between departments do not have a positive impact on the speed of the introduced changes. All employees should be taught about the collective method for problem-solving. These tools, such as the cycle, supported with the discussion among employees from different departments of the organization will allow an in-depth analysis of the problem and making constructive conclusions [Edge 2002, p. 616]. It should be noted that the leadership of any organization should set a good example for their employees. Among the tasks of the top leadership there are: showing the way to the continuous improvement of the management system, improving process with the management system (which results in the growth of the quality of the offered products and services), increasing productivity, reducing costs etc. The leadership should help and motivate subordinate employees as well as create such relations with employees so as to build a proper working climate in which people feel co-responsible for creating quality and enjoy increasing it. According to Deming it is incorrect of the leadership to think that physical workers should not be trusted too much. In such a case workers lose morale and do not get engaged in actions which might improve the processes realized by them. Moreover, Deming the view that it is wrong to put blame on employees for mistakes in the realization of processes. His estimates indicate that only 6% of the deviations occurring in processes are caused by mistakes made by the employees who realize them. Consequently, 94% of problems stem from the imperfection of the management system itself. [see more: Latzko, Deming and Saunders 1995]. Hence, it may be stated that it often happens that leadership blames employees for its own mistakes [Łuczak and MatuszakFlejszman 2007, p. 22]. Therefore, it is important to resign on such a management style – conducting the total transformation in order to conclude that the responsibility for creating and increasing quality burdens all employees, independently of the scope of their duties or their position in the organizational structure. The PDCA model should be applied in a team. According to Deming it is correct to delegate decision-making authority to the cells located at the bottom of the organizational structure so as to make them feel responsible for the organization they work for. The employees should be allowed to take action on their own in order to slightly improve their range of duties. Taking broader actions, which significantly change 41

the way processes are realized or call for considerable effort and resources, surely should be approved of by the leadership. Such an approach should be conducted along with intense educational activity, which will encourage employees to self-improvement. Despite the specific qualifications for the work they do, according to Deming employees should be encouraged to continuously develop their skills. The leadership of the organization should create proper conditions for their employees to broaden their knowledge and skills. The use of the Deming cycle also entails spending related to long-term projects. According to Edward Deming it is wrong to focus on short-term plans which provide the opportunity to gain considerably rapid results. He thinks it is more important to deeply explore customer needs, and then on this basis to develop permanent objectives in reference to improving quality. In order to understand the character of process approach in the aspect of continuous improvement on the basis of the PDCA model the actions within individual stages should be described. Stage 1 – Plan Within this stage the capability of changing (improving) a process should be noticed and planned. The information is identified and collected in the areas of an organization’s functioning where changes bring the biggest results. At the initial stage of the work the team must make a list of the component elements of a process, a product or a system which can be improved. The list of improvement opportunities should undergo a further analysis in order to define priorities – the elements from which the improvement process should begin. Then the requirements of the process, product or system being improved should be identified. The next step involves data collection – which indicators or measures characterize the process, product or system, which measurements will be conducted before, during and after the realization of the planned actions. Having identified the causes of imperfection the organization should move on to define possible solutions. It leads to the development of a detailed plan consisting of the main objective, detailed objectives, and ways as deadlines of their accomplishment, control points and responsible people. The plan should be presented to the team.

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Stage 2 – Do Within this stage solutions supported and understood by the top management ought to be implemented. The scheme of actions planned at the first stage should be executed. This stage aims at making changes in the process, product or system in order to increase its efficiency or eliminate the causes of problems. It is also possible to implement actions of a limited scale or to conduct tests for solutions which were developed at the previous stage of the cycle. Stage 3 – Check During the realization of this stage the obtained results should be measured and compared with the assumptions made at the first stage. This stage should be focused on conducting measurements according to the plan. The aim of this phase is to state if the implemented actions were efficient. As the result of checking we may also get the answer to the questions if the improvement actions implemented at the second stage were successful. The measures developed at the earlier stages should be used to evaluate the implemented actions. Moreover, the obtained results of measurements ought to be documented. The biggest possible amount of information should be collected as it will simplify the development of actions at each of the further stages of the cycle. In the case of stating a deviation from the plan the reasons for such a state of affairs ought to be defined. Stage 4 – Act If any deviations from the assumed plan had been observed, corrective actions ought to be implemented. We should remember that the Deming cycle has a form of a circle, therefore, it never comes to an end. The knowledge used at the last stage of the cycle should be used at the stage of planning the next cycle. Hence, it extremely important to implement the solutions, which had a positive impact on the process, and modify the ones that failed. If the developed plan had been unsuccessful, a new one ought to be created on the basis of the gained knowledge. If the conducted actions had been successful, in the next cycle the expected level should be higher. In the next PDCA cycle at its first stage relevant modifications should be made on the basis of the knowledge obtained during the fourth stage of the previous cycle. The clients’ opinion should be taken into account as their expectations could have undergone changes [Wawrzynek 2003, p. 54]. We should remember that all undertaken actions should be documented 43

in compliance with the accepted procedures. Furthermore, the information collected during the realization of all actions within the PDCA cycle ought to be transferred to employees engaged in the process of changing [Karaszewski 2005, p. 106]. The views on the question of a system approach to management in an organization promoted by Deming are appreciated by modern authorities in the area of management. Deming’s principles and the requirement of using the PDCA approach in the process of systemic management of an organization and continuous improvement were included in the most popular formalized management systems – standards issued by the International Organization for Standardization (ISO). The international standards developed in 2013 related to the application of a system approach to management are based on the High Level Structure (HLS), which is a standardized way of ISO management system standards. The first standard drafted in compliance with the HLS was ISO 55001 – Asset Management System. The latest edition of the quality management standard – ISO 9001:2015 – recommends the use of this approach in the continuous process of improving the quality management system. The environmental management system in compliance with the ISO 14001:2015 standard is also founded on the Deming’s model of continuous improvement. At present a standard on a system approach to occupational health and safety management (ISO/DIS 45001:2016) is being developed, and it also takes account of this approach. In order to picture the cycle a scheme from the ISO 9001:2015 standard was used. Figure 1. shows process approach applied to the ISO 9001 standard including the four phases of the Deming cycle. As it was mentioned before, the identical approach is applied in the remaining standards, e.g. ISO 14001 or ISO 45001, but the surroundings of an organization undergo changes. It should be emphasized that within the system approach to management the customer is the most important entity in an organization. As it may be seen in the figure, the customer fulfills two functions: at first they define their requirements in relation to the product, and then defines the level of customer satisfaction for the results of processes. On the basis of the requirements determined by the customer an organization designs the product, realizes it, as well as it conducts appropriate measurements and improvements. The transfer of information at the level of customer satisfaction in order to redesign the realization of the product may be described 44

as feedback. It occurs as a component element of the system approach to management. Feedback may be observed at various levels of an organization and it assures process improvement [Rączka 2000, p. 756].

Figure 1. Deming cycle in the process of quality management system improvement. Source: ISO 9001:2015

The question of the application of the PDCA cycle was presented in the context of the systemic management of an organization. However, the Deming cycle can be used to solve all kinds of dynamic problems which are not necessarily linked with the issue of quality management [Iwasiewicz 1999, p. 95]. It may be as well efficiently used in our everyday lives. It should be noted that an organization can use the extended Deming cycle which embraces distinguishing more detailed actions at the phase of planning and realization. Such an extension was developed by Kaoru Ishikawa [1998]. Within the extended elements related to planning and realization we ought to take notice of defining objectives and tasks, determining methods for achieving actions needed for planning. We also should educate and train the essential element, which assures the efficient implementation of a management system. 45

   

  

In practice meeting the conditions described above ought to lead to: formulating strategic and current objectives of the organization, process identification, determining and documenting rules of handling, applied practices and behaviors in reference to the identified processes, defining responsibilities, authority, competence and the scope of duties of people responsible for specific actions embraced by the management system, the identification of interrelations between processes, establishing rules of communication and communication tools, assuring necessary resources to realize the tasks within the system, including system maintenance [Miller 2011; Russell and Regel 2000; Zapłata 2009].

A system approach to management is realized in organizations through the implemented management systems based on the requirements of international standards. It should be emphasized that these standards are applicable to all organizations, independently of their character, size and type of activity. Thus, they may be used by small, medium-sized and large enterprises, both production- and service-oriented.

2.5. Normalized Management Systems The management of an organization includes inter alia the following areas: quality management, environmental management, occupational health and safety management. Entrepreneurs voluntarily started to implement management systems as early as 1970s’. The integration with the general management system of an enterprise is characteristic of these management systems. Furthermore, the integration aims at continuous improvement which allows a systemic manner of managing processes occurring in the organization along with the assurance of the high quality of products and services. Moreover, it all assures the minimized negative environmental impact and safe working conditions for the organization’s employees [Matuszak-Flejszman 2010]. A quality management system, an environmental management system and an occupational health and safety management system may create framework of continuous improvement in order to increase the possibility 46

of satisfying the clients, employees and other interested parties [Lee, Shiba, and Wood 1999]. It allows the organization and its clients to trust that it is capable of providing products or services which consistently meet requirements. However, process approach to management in an organization plays a very significant role in improving actions within a given area. The use of a system approach to management in an organization brings numerous benefits. Management systems can help organizations to increase the level of customer satisfaction, to improve working conditions for employees and rise the satisfaction of interested parties through presenting pro-ecological activity. Clients demand products and services of given characteristics which meet their needs and expectations. These needs and expectations are expressed in the specifications of the product/service and are collectively called customer requirements. Customer requirements can be specified by the client in a contract or may be defined by the organization itself. In both cases the clients ultimately decides about the possibility of accepting the product/service. Organizations aim to continuously improve their products/services and processes, as the customer needs and expectations are subjected to changes. Another factors in this context are competitive pressure and technical progress. Interested parties, such as the society, local authorities, governmental authorities, ecological groups, demand that an organization minimize its negative environmental impact and aim to reduce pollution. Interested parties also include clients who through their demands can add ecological requirements of the product or service. Requirements of the interested parties entail many significant environmental aspects, which have various environmental impacts which, unfortunately, to a lesser or greater extent, may be and often are a burden for them. On the other hand, the occupational health and safety system is necessary in an organization due to the fact that employees call for assuring safe and healthy working conditions, reducing hazards, as well as assuring proper preventing actions. The approach, which takes account of quality, environmental and occupational health and safety management systems, encourages organizations to analyze customer requirements, employee needs as well as the requirements of interested parties. Moreover, a management system calls for determining processes which contribute to achieving a product/service accepted by the client and keeping these processes monitored in compliance 47

with the requirements related to environmental protection and safe and healthy working conditions for employees. It should take account of continuous improvement of actions aiming at specific performance of the organization. Quality, environmental and occupational health and safety management systems can create the framework for continuous improvement in order to increase the probability of the growth of customer, employee and interested parties satisfaction [Lee, Shiba and Wood 1999]. It allows the organization and its customers to trust that it is able to provide products or services which consistently meet the requirements. Despite the fact that the quality management system and the environmental management system are the most popular in the world, it should be stressed that there are also the following management systems:  food safety management systems ISO 22000 and ISO 22004,  occupational health and safety management systems ISO 45001 or OHSAS 18001,  business continuity management systems ISO 22301 and ISO 22313,  security management system ISO 34001,  laboratory biorisk management system ISO 35001,  road traffic safety (RTS) management systems ISO 39001,  quality management for automotive industry ISO/TS 16949,  educational organization management systems ISO/NP 21001 or quality management systems in local government ISO 18091,  management of security printing processes ISO 14298,  quality management systems for Medical devices ISO 13485,  management systems for Sustainable development of communities ISO 37101,  innovation management system ISO/AWI 50501,  energy management systems ISO 50001 and ISO 50004,  event sustainability management systems ISO 20121,  water efficiency management systems ISO 24526,  information security management systems ISO 27001,  management systems assuring the accreditation of testing laboratories in compliance with ISO 17025,  eco-management and audit scheme (EMAS),

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 environmental programs, e.g. Cleaner Production or Responsible & Care related to environmental management. The implementation of various management systems in organizations without the process of their realization instead of making the operation easier very often makes it very difficult. That is why an organization’s leadership seeks to integrate separate management systems into one efficient management system. Moreover, ISO standards have been once again modified and now include the so-called high level structure developed to unify the structure. All standards should respect and share a common consistent core [ISO/IEC Directives, Part 1, Consolidated ISO Supplement, 2014]:  a common general structure (table of contents): identical chapters, article numbers, and chapter, article or clause titles, etc.,  introductory texts for identical articles,  identical wording for identical requirements,  common terms and core definitions. The characteristics and requirements specific to each standard are inserted into this structure in the appropriate chapters. This standardization aims to foster compatibility among various management system standards to facilitate their integration and implementation by certified organizations. The first standard drafted in compliance with the HLS was ISO 55001:2014 – Asset management – Management systems – Requirements.

2.5.1. Quality Management System in Accordance with the ISO 9001 Standard The quality management system, similarly to other management systems published after 2014, includes the high level structure in the following form:  Clause 1: Scope,  Clause 2: Normative references – includes documents specific for a particular area, e.g. quality, environment, safety,  Clause 3: Terms and definitions – includes common terms and definitions as well as terms and definitions specific for a given industry; the ordering of terms and definitions should be in compliance with the system of terminology of each standard, 49

 Clause 4: Context of the organization – includes requirements linked with understanding the organization and its context along with understanding the needs and expectations of interested parties as well as defining the scope of the management system,  Clause 5: Leadership – includes requirements related to leadership and engagement, policy and roles, responsibilities and improvement in the organization,  Clause 6: Planning – includes requirement within the scope of risk and opportunities as well as objectives and plans for achieving them,  Clause 7: Support – includes the issues linked with support, competence, awareness, communication and documented information along with their development, updating and monitoring,  Clause 8: Operation – includes questions related to planning, implementing and monitoring the processes needed to fulfill the standard’s requirements, as well as the implementation of planning, connected with risk, opportunities and the objectives set by the organization through defining criteria for processes, implementing monitoring of processes according to the criteria, and keeping documented information within the scope which allows gaining trust that the processes have been realized as planned,  Clause 9: Performance evaluation – includes requirements linked with monitoring, measurement, analysis and evaluation as well as the internal audit and management review,  Clause 10: Improvement – includes issues related to non-compliance and corrective actions as well as continuous improvement A quality management system should be implemented in a way that it takes account of individual requirements of the organization, product or service. It consists of actions through which the organization identifies its objectives as well as it defines processes and resources needed for achieving the desired results. Thanks to a quality management system the organization can manage interrelated processes and resources required to provide value and bring results for significant interested parties. It should also be stressed that a quality management system allows the top leadership to optimize the use of resources by taking account of long- and short-term consequences of their decisions, as well as the system assures resources to identify the actions 50

embracing the planned and unplanned consequences of providing products and services. A properly implemented quality management system has several significant characteristic features. It should be:  consistent – when it is able to react as a whole in a varied way to external stimuli,  efficient – defined with the level at which planned actions are realized and planned results achieved,  effective – when there is a relation between the achieved results and the relevant resources used,  synergetic – a quality management system as a whole is more than a set of individual component actions,  preventive – it means that systemic actions should mainly aim at preventing problems and eliminating their consequences. The basic reasons for implementing quality management systems are:  assuring that products and services meet requirement (legal, technical, clients’ and internal),  assuring customer satisfaction. A quality management system consists in process approach. The term “process approach” is treated only as slogan. Moreover, it is used as an argument for building a quality management system in a voluntary, and sometimes chaotic, way. It should be emphasized that “process approach” at present should be treated as a requirement allowing a thorough analysis of the organization’s activity, in particular in the aspects of quality, environmental protection as well as occupational health and safety. It also ought to be remembered that the use of process approach, assuring the stability of processes and then improving them to a large extent influence the efficiency of actions and the organization’s development. In professional literature the meaning of process approach as a phenomenon related to the efficiency of the organization’s activity is frequently emphasized, [see e.g. Mosslam and Ghoniem 2006; Krivokapic et al. 2007]. In order to assure the efficiency of the organization’s actions continuous improvement of realized processes ought to be ensured. The improvement of processes leads to the modification of the present state, as a result of which the effectiveness and efficiency of a process are increased. Improvement is applied to rationalize the process within a small area of its functioning or to change only selected elements of the process. The aim of process improvement is to enhance 51

the operation of existing processes in order to obtain at least one of the following effects [Łuczak 2008]:  ordering and improving the transparency of the process,  reducing the course of the process,  reducing the costs of the process’s realization,  improving the efficiency of the process,  sanctioning or eliminating unnecessary actions,  verifying and restoring compliance with the relevant legislation for all elements of the process. The efficient process management enlarges the organization’s abilities within the scope of predicting changes on the market, managing these changes and reacting to them. Moreover, it maximizes the opportunities related to economic activity. Proper process management may also reduce ineffectiveness and limit the number of mistakes coming from superfluous business information as well as actions taken on its basis. Maintaining the organization’s good condition through economic process management has become necessary to keep competitive leverage. However, creating a process management system can be difficult and time-consuming, while it frequently leads only to additional burdening of some employees [Łuczak 2008]. The international standard ISO 9001 is a popular tool which includes requirements within the scope of the system approach to quality management. The ISO 9001 standard is a document which is voluntarily applied, commonly available and accepted by a normalization accreditation unit. Organizations, which introduce the quality management system based on the requirements of the IS 9001, have different motivations. Inter alia, the basic reasons for implementing a quality management system in compliance with ISO 9001 in the organization are the possibility of entering a supply network for well-known manufacturers and assuring reliability of a manufacturer or a supplier. Organizations which take decision about implementing a quality management system are also interested in rationalizing specific elements of management and work organization as well as in the ability to limit loss stemming from the product/service non-conformity on the market and reducing the costs related to internal defects and warranty repairs. Furthermore, the willingness to increase competitiveness of a product/service on foreign markets is also a frequently considered factor. 52

The ISO 9001 standard distinguishes requirements linked with the quality management system through the fulfillment of which the organization should show its ability to consistent product provision in accordance with customer requirements and relevant legislation, including processes related to system continuous improvement and ensuring compliance with legal and monitoring regulations. The establishing, documenting, implementing and maintaining a quality management system in compliance with the ISO 9001 standard and continuous improvement of its efficiency should include the following actions [Łańcucki 2010]:  identifying necessary processes of the system and their application in the organization,  establishing the order and mutual impact of these processes,  defining the criteria and methods necessary to ensure that the processes are efficient and efficiently-managed,  assuring the availability of resources as well as the information necessary for supporting the processes and the monitoring of them,  monitoring, measurement and analysis of processes,  realizing actions essential for achieving the planned results and continuous improvement of these processes. Quality management systems based on the basis of the ISO 9001 requirements are the most popular systems in the worlds and in Poland. In the latest edition of the annual review of the International Organization for Standardization related to the number of ISO 9001 certificates in the world [ISO Survey 2015] a significant growth of the issued certificates confirming the compliance of the functioning quality management system with the requirements of the ISO 9001 standard was observed. It has been stated that at the end of 2014 there were 1,138,155 certificates issued which is about 9 thousand in comparison with 2012 (1,129,446). A growth of the number of countries in which the ISO 9001 certificates were issued was also observed – the survey from 2014 showed that in 188 countries quality management systems in compliance with ISO 9001 were successfully implemented and certified. The undeniable leader of the number of certificates confirming the compliance of the functioning quality management system with the ISO 9001 standard requirements is China, where 342,800 certificates were issued in year 2014. 53

The second place was taken by Italy, where by the end of 2014 almost 170,000 organizations had been certified. In Poland over 9,608 organizations have a certified quality management system which means a decrease in comparison with 2013 (10,527 certificates) [ISO Survey 2015].

2.5.2.

Environmental Management System in Accordance with the ISO 14001 Standard

Organizations make effort to realize the objectives set in the strategy through taking actions aiming at efficient system environmental management. To a large extent it caused the growth of needs to introduce a system approach to management in organizations in order to efficiently manage environmental activity, in particular to minimize the negative impact on the environment. Such management is defined as managing the processes of use, protection and shaping the environment integrated with a general quality management. The management includes the organizational structure, planning, procedures, processes and resources to implement and manage a unit in a way that takes account environmental problems [Kowałkowski and Janczy 2002]. The ISO 14001 standard, similarly to the ISO 9001 standard, is a document which is voluntarily applied, commonly available and accepted by a normalization accreditation unit. It embraces specifications within the scope of a system approach to environmental management, including requirements subjected to regular, systematical and objective audits for the purposes of certification and own declaration [Casadeusz, Marimon, Heras 2008]. The standard was developed in a way that allows for application under various geographical, cultural and social conditions. It should also be emphasized that the ISO 14001 does not establish the absolute requirements related to the environmental performance [Raines 2002]. It only includes requirements linked with the obligation (expressed in the environmental policy) that the organization will act in accordance with the relevant legislation related to specific environmental aspects. Moreover, the organization’s environmental policy should include a commitment to minimize the negative environmental impact, prevent pollution and continuously improve the environmental performance. Therefore, organizations of similar and different activity, shape, location and environmental performance can meet the requirements of the ISO 14001 54

international standard [Ammenberg and Hjelm 2002]. ISO 14001 may also be used for internal purposes mainly related to the efficient system approach to management as well as for external purposes linked with environmental performance concerning the organization which aims at meet the expectations of the interested parties. That is why the use an environmental management system in compliance with the ISO 14001 standard can amount to the organization’s reliable and documented actions to which the organization is obliged due to its environmental policy. The actions are realized through specific environmental objectives. For example, it may apply to the conformity evaluation of a supplier, e.g. by a client of the enterprise and the interested parties. It can also be related to the certification realized by an independent certification body. The ISO 14001 standard distinguishes basic elements to which the organization should pay attention during the implementation, maintenance and improvement of its environmental management system. The most important elements embrace:  commitment to continuous improvement defined as a repeated process of enhancing the environmental management system aiming at improving the general environmental performance in accordance with the environmental policy of the organization [ISO 14001:2015],  commitment to compliance with the relevant legislation linked with the environmental protection (acts, codes of conduct and internal regulations) of the environmental aspects present in the organization,  preventing pollution applied to all possible environmental elements, such as: emission to air, discharges of waste water, waste management, use of raw materials and natural resources, and other local environmental issues. Environmental management systems built on the basis of the requirements of the ISO 14001 standard are becoming more and more popular both worldwide and in Poland. Within the recent period we observed a significant growth in the number of certificates issued to confirm that the functioning environmental management system complies with the requirements of the ISO 14001 standard. It was stated that by the end of 2014 year 342,148 certificates had been issued. The 2014 survey showed that in 170 countries environmental management systems in compliance with the requirements of ISO 14001 were successfully implemented 55

and certified. The undeniable leader of the number of certificates confirming the compliance of the functioning quality management system with the ISO 14001 standard requirements is China, where in 2014 almost 118,000 certificates were issued. The second place was taken by Italy, where by the end of 2014 over 27,000 organizations had been certified. In Poland 2213 organizations have a certified environmental management system [ISO Survey 2015]. The implementation of an environmental management system brings numerous benefits for the organization, especially due to the fact that the system aims at achieving environmental performance. When we speak about environmental performance we should present the advantages obtained by the organization thanks to maintaining and improving the environmental management system. The maintenance and improvement of the environmental management system brings benefits not only to the organization itself, but also the interested parties. Actions aiming at preventing pollution, which amount to one of the most important commitments of the organization’s leadership stemming from the environmental policy, create mechanisms that lead to minimize the use of materials, raw materials and energy. However, it is difficult to identify the benefits caused directly by maintaining and improving the environmental management system or the ones which indirectly result from improving the system. In order to picture the effects achieved by the organization due to maintenance and improvement of the environmental management system, the benefits were grouped according to factors linked with the organization’s operation, ability to define tangible benefits, benefits with impact on the improvement of the environment and benefits directly related to the organization’s management. Many authors classify the benefits resulting from a system approach to environmental management. For example, Susan L.K. Briggs identifies the following benefits of the functioning of an environmental management system [Briggs 2007]:  enhanced environmental awareness/accountability at all levels of the organization,  improved regulatory compliance,  enhanced operational controls and procedures,  reduced environmental footprint in terms of environmental emissions, discharges and waste, 56

 improved internal communications and external partnerships,  continual system improvements resulting from EMS objectives, targets, programs, periodic audits and management reviews. Other authors, such as Turner and O’Neill [2007], identified a few potential benefits resulting from the certification of the environmental management system in the context of its compliance with the ISO 14001 standard. They took account of the organization’s ability to improve the profitability in relation to different factors. However, they pointed out that in this case the costs of certification and maintenance (costs of control audits) amount to an important barrier of the environmental management system. In their opinion the organization becomes competitive, has the opportunity to improve its image, improves its actions in the process of preventing environmental impact, meets legal requirements and others related to environmental protection, and has an efficient tool for environmental management. The knowledge of legal requirements within the scope of environmental protection plays a very significant role. Fulfilling legal requirements helps organizations to avoid potential fines and the negative image resulting from not meeting legal requirements in the area of environmental protection [Matuszak-Flejszman 2009]. The expertise in legal requirements and the development of proper corporate culture as well as pro-ecology awareness in the area of management and employees very often helps organizations to predict the consequences of the future legal requirements regarding environmental protection [Ruiz-Tagle 2008]. Consequently, it provides the organization with an opportunity for harmonize development plans in order to fulfill legal requirements. Another advantage stemming from previous benefits is gaining leverage over the competition which not always adjusts its actions to new requirements before they come into force [Whitelaw 2004]. The environmental benefits (effects) very often go with economic effects, mainly because of the developing environmental protection legal system in Poland. It is no longer cost-effective to pay fines and very high costs as well as leaving the unsolved problems of environmental protection by plants and other organizations. It should be stressed that more and more frequently environmental decisions of the leadership of the organization are influenced by the public opinion, and therefore, we can talk about sociological effects. Particularly in the plants located in small towns the implementation 57

of an environmental management system causes the impact on the inhabitants’ awareness as they are the main part of the organization’s personnel and the awareness shaped in the plant is transferred to family life. Naturally it is a long process, but, if supported on the large scale by the media and other stimuli, has a chance to succeed [Matuszak-Flejszman 2010]. In the ISO 14004 standard increasingly more attention is paid to continuous environmental improvement and achieving visible environmental performance. The standard includes the following potential benefits related to efficient environmental management [ISO 14004:2004]:  assuring clients of the undertaken commitment to the realization of environmental management,  maintaining good image of the organization and good relations with the community,  criteria sanctioning the investor and simplified access to capital,  favorable conditions for insurance,  improving the control of costs,  limiting the occurrence of incidents,  saving input materials and energy,  simplified access to necessary permits and authorization,  promoting environmental awareness among suppliers, contractors and employees,  fostering the development and sharing solutions of environmental problems,  improving the relation between industry and public administration. The organization interested in implementing, maintain and improve an environmental management system, after having conducted the evaluation of the present condition in relation to the environment should take measures to assure continuous improvement of its actions [Matuszak-Flejszman 2010]. These steps accord with the assumption of the Deming cycle. The first step – plan – embraces establishing the continuous process of planning which enables [ISO 14001:2004]:  the identification of environmental aspects and related environmental impacts,

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 the identification and monitoring of applicable legal regulations and others, to which the organization is committed and where establishing internal criteria for performance is used,  defining environmental objectives and tasks, as well as the development of program(s) for achieving them,  the development and use of performance indicators. The second step – implement – refers to the implementation and functioning of an environmental management system. Within this step the organization should:  create management structure, assign roles and responsibilities along with proper authorization,  assure proper resources necessary to implement, maintain and improve the environmental management system,  train people who work for the organization or on its behalf, and assure an appropriate level of their awareness and competence,  establish processes for internal and external communication,  develop and maintain the documentation of the environmental management system, as well as assure control of this documentation,  establish and maintain proper operational control,  assure readiness and reaction to emergencies. The third step – check – is related to the evaluation of the processes within the environmental management system. The evaluation stage can be realized by the organization through: conducting monitoring and measurement, evaluating the status of conformity with legal requirements and others, identifying non-conformity and taking corrective and preventive acting, record management and conducting regular internal audits. The last step – act – includes elements linked with reviewing and actions for the improvement of the environmental management system. Within this stage the top leadership should conduct the reviews of the environmental management system at proper intervals as well as identify areas for improvement.

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2.5.3. Health and Safety Management Systems Despite the fact that the International Organization for Standardization (ISO) has not developed an international standard related to occupational health and safety management systems, the organization is working on the relevant standard – ISO 45001. So far there have been some guidelines in this regard created by different international organizations. We may enumerate the following international standards associated with occupational health and safety management:  OHSAS 18001:2007 Occupational health and safety management systems - Requirements, developed by the BSI, London 2007,  ILO - OSH 2001 Guidelines on Occupational Safety and Health Management System. A document created by the International Labour Organization (ILO), Geneva 2001. The abovementioned positions are international documents which establish guidelines for implementing and improving occupational health and safety management systems. The ILO - OSH 2001 guidelines are intended for application at two levels – domestic and the organization (enterprise). It makes it very difficult from other standards related to occupational health and safety referring exclusively to the level of the organization. Guidelines at the state level treat about creating and functioning of domestic structures responsible for promoting a system approach to occupational health and safety management. The regulations include in particular:  appointing the domestic unit competent to formulate and realize the state policy related to implementing and promoting occupational health and safety management systems,  formulating a consistent state policy within the scope of occupational health and safety management systems,  establishing domestic and industry guidelines for the voluntary implementation of occupational health and safety management systems in enterprises.

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Among the OHSAS 18000 international standard series we can enumerate:  OHSAS 18001:20071 – Occupational health and safety management systems Specification,  OHSAS 18002:2000 – Occupational health and safety management systems Guidelines for the implementation of OHSAS 18001. BS OHSAS 18001 sets out the minimum requirements for occupational health and safety management best practice. OHSAS 18001 is a framework for an occupational health and safety management system (OHSMS) and is a part of the OHSAS 18000. The OHSAS 18001 guidelines can be used in every organization which is willing to [OHSAS 18001:2007]:  implement occupational health and safety management systems in order to eliminate or minimize occupational risk related to put employees or other interested parties in danger connected with the organization’s activity;  implement, maintain and continuously improve the occupational health and safety management system;  confirm compliance of its actions with the accepted occupational health and safety policy;  demonstrate the compliance with the requirements of the OHSAS 18001 standard. In many countries the abovementioned documents have been translated into national languages or other national standards have been created on their basis. For example, in Poland the Central Institute for Labor Protection translated the ILO guidelines into Polish and published in the paper form as Guidelines on occupational safety and health management systems [www.ilo.org]. ISO 45001 is set to replace the popular OHSAS 18001 standard, with the overall purpose remaining the improvement of occupational health and safety performance. ISO 45001 is based on the common elements found in all of management systems standards, assuring a high level of compatibility 1

OHSAS 18001 was created in cooperation with the following organizations: National Standards Authority of Ireland, Standards Australia, South African Bureau of Standards, British Standards Institution, Bureau Veritas Quality International, Det Norske Veritas, Lloyds Register Quality Assurance, National Quality Assurance, SFS Certification, SGS Yarsley International Certification Services, Asociación Española de Normalización y Certificación, International Safety Management Organization Ltd, Standards and Industry Research Institute of Malaysia-Quality Assurance Services, International Certification Services.

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with the new versions of ISO 9001 and ISO 14001. ISO 45001 requires an organization to look beyond its immediate health and safety issues and take into account what the wider society expects of it. The ISO 45001 standard focuses on the following aspects:  reduce the risks to personnel and additional relevant parties,  create a focus of continual improvement so as to constantly seek to improve health and safety standards in the workplace,  ensuring that all activities are carried out, along with a company’s health and safety policy are in line with an internationally recognized standard. Among the benefits of implementing OHSMS we should enumerate:  creating the best possible working conditions across your organization,  identifying hazards and put in place controls to manage them,  reducing workplace accidents and illness to cut related costs and downtime,  engaging and motivating staff with better, safer working conditions,  demonstrating compliance to customers and suppliers. The ISO 45001 standard is intended to help organizations, regardless of size or industry, in designing systems to proactively prevent injury and ill health. All of its requirements are designed to be integrated into an organization’s management processes. ISO 45001 enables an organization, through its OH&S management system, to integrate other aspects of health and safety, such as worker wellness/wellbeing. The ISO 45001 standard calls for the organization's management and leadership to integrate responsibility for health and safety issues as part of the organization's overall plan rather than shift responsibility to, for example, a safety manager. It uses a simple Plan-Do-Check-Act (PDCA) model, which provides a framework for organizations to plan what they need to put in place in order to minimize the risk of harm. The measures should address concerns that can lead to long-term health issues and absence from work, as well as those that give rise to accidents [ISO/DIS 45001:2016].

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2.6. Summary The process and system approach to managing an organization provides the leadership with the opportunity for efficient management. The interrelation of elements aiming at meeting customers’ and other interested parties’ expectations taking account of the organization’s context enables the identification of areas which can be well managed by the leadership. Consequently, it will contribute to the organization’s success through meeting customer expectations, minimizing the negative environmental impact and caring for employees. The ability to manage an organization in the context of process and system approach will ensure its long-lasting success and the capability of improving actions in each area.

2.7. Literature Biazzo S., Bernardi G. 2003, Process Management Practices, Process Management Practies and Quality Systems Standards. Risks and Opportunities of the New ISO 9001 Certification, in: Business Process Management Journal, Vol. 9, No 2, pp. 149-169. Briggs S.L.K. 2007, ISO 14001 Hits 10-Year Mark, Quality Progress, Milwaukee, Vol. 40, No. 8, p. 67. Certo S. 2000, Modern management. Diversity, Quality, Ethics & the Global Environment, Prentice Hall. Chammer M., Champy J. 1994, Reengineering the Corporation. A Manifesto for Business Revolution, Harper Business, Inc, p. 46. Drucker P.F. 2002, Myśli przewodnie Druckera, Wydawnictwo MT Biznes, Warszawa. Edge J. 2002, Doskonałość jakości: nauki dla kierownictwa, w Lock D. (red.) Podręcznik zarządzania jakością, Wydawnictwo Naukowe PWN, Warszawa, p. 616. Flynn B.B., Schroeder R.G., Sakakibara S. 1994, A Framework of Quality Management Research and an Associated Measurement Instrument, Journal of Operations Managements, vol. 11, p. 339-366. Griffin R.W. 2008, Podstawy zarządzania organizacjami, Wydawnictwo Naukowe PWN, Warszawa. Ishikawa K. 1985, What is Total Quality Control? Englewood Cliffs, Prentice Hall Inc., 63

ISO Survey of Management System Standard Certifications, 2015 ISO/DIS 45001:2016, Survey of Management Systems Standards Certification ISO 9000:2015 Quality Management Systems – Fundamentals and Vocabulary ISO 9001:2015 Quality Management Systems – Requirements ISO 14001:2004 Environmental Management Systems – Requirements with Guidance for Use ISO 14001:2015 Environmental Management Systems – Requirements with Guidance for Use ISO 14004:2004 Environmental Management Systems – General Guidelines on Principles, Systems and Supporting Techniques Iwasiewicz A. 1999, Zarządzanie jakością, Wydawnictwo Naukowe PWN, Warszawa-Kraków, p. 95. Karaszewski R. 2005, Zarządzanie jakością. Koncepcje, metody i narzędzia stosowane przez liderów światowego biznesu, Wydawnictwo Dom Organizatora, Toruń, p.106. Konarzewska-Gubała E. (red.) 2003, Zarządzanie przez jakość. Koncepcje, metody, studia przypadków, Wrocław, p. 55. Kostera M. 2001, Podstawy organizacji i zarządzania, Wydawnictwo Wyższej Szkoły Przedsiębiorczości i Zarządzania im. Leona Koźmińskiego w Warszawie, Warszawa. Koźmiński A.K., Piotrowski W. 2005, Zarządzanie. Teoria i praktyka, Warszawa. Krivokapic Z., Perovic M.J., Jovanowic J., Vujowic A. 2007, QMS Concept on the Base of Process Approach, International Journal for Quality Research, vol. 1, no. 4, pp. 259-266. Latzko W.J., Deming W.E., Saunders D.M. 1995, Four Days with Dr. Deming: A Strategy for Modern Methods of Management, Addison-Wesley Publishing Company. Lee T.H., Shiba S., Wood R.Ch. 1999, Integrated Management Systems: A Practical Approach to Transforming Organizations, Hardcover. Łuczak J., Matuszak-Flejszman A. 2007, Metody i techniki Zarządzania Jakością, Wydawnictwo Quality Progress, Poznań, p. 22. Łuczak J. 2008, System zarządzania jakością dostawców w branży motoryzacyjnej – ocena istotności wymagań, Wydawnictwo Akademii Ekonomicznej w Poznaniu, Poznań, p. 153. Ludwig-Becker M. 1999, Quality Management Principles as Top Team Performance Practices ISO 9000 Criteria Re-interpreted, Team Performance Management, vol. 5, no. 7, pp. 207-211. 64

Matuszak-Flejszman A. (red.) 2009, Doskonalenie system zarządzania środowiskowego, Wydawnictwo PZITS, Poznań. Matuszak-Flejszman A. 2010, Determinanty doskonalenia system zarządzania środowiskowego zgodnego z wymaganiami normy ISO 14001, Wydawnictwo Uniwersytetu Ekonomicznego w Poznaniu, Poznań. Mosslam A.I., Ghoniem A.M. 2006, A Process Approach-based System for Management System Documentation, Housing and Building Research Center Journal, vol. 2, no 2, August 2006, pp. 98-108. OHSAS 18001:2007 Occupational Health and Safety Management Systems. Requirements. Pande P.S., Neuman R.P., Cavanagn R.R. 2003, Six Sigma, Wydawnictwo Liber, Warszawa, p. 36. Rączka M. 2000, Zarządzanie procesami w systemie jakości wg ISO 9000:2000, w Wawak T. (red.) Zmieniające się przedsiębiorstwo w zmieniającej się politycznie Europie, t. 3, Wydawnictwo Informacji Ekonomicznej, UJ, Kraków p. 756. Turner A., O’Neill C. 2007, Confronting the Inevitable: ISO Implementation and the Durban Automotive Cluster, South African Journal of Industrial Engineering, Vol. 18, No. 2. Wawrzynek J. 2003, Idee W.E. Deminga i ich znaczenie w kształtowaniu japońskiej orientacji na jakość, w E. Konarzewska-Gubała (red.), Zarządzanie przez jakość. Koncepcje, metody, studia przypadków, Wydawnictwo AE we Wrocławiu, Wrocław p. 54 Welford R. 1998, Corporate Environmental Management, Earthscan Publication, London

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3. Selected Macro- and Microeconomic Conditions of the Functioning of Enterprises on the Example of Poultry Processing Plants

3.1. Introduction The specificity of meat production, its economic conditions, and in particular the price fluctuation of resources as well as the market’s instability trigger entities on the meat market to seek optimal solutions enabling limiting the risk of their activities and stabilizing their income in a long run. Polish food market has a big potential and a high position among other areas of domestic economy. Entities on the meat market are exposed to many types of risk, including economic and productions risks. Rational management of meat plants requires conducting, inter alia, economic activity risk assessment in order to evaluate the effectiveness of their actions [Sierpińska and Jachna 1997; Ostaszewski 1994]. Nowadays entrepreneurs run their activities in an environment which is undeniably difficult, tumultuous and changeable. Fast scientific and technological progress as well as growing competition have made knowledge and constant monitoring of financial condition extremely important factors of running and managing an enterprise. The financial condition provides important information about the past and current financial situation, the level of effectiveness, development ability and potential threats. The lack of proper understanding and quick reactions to changes in the enterprise’s surrounding environment on the micro- and macro-scale

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may lead to making wrong or delayed decisions resulting in damaging the enterprise’s financial condition or even in bankruptcy. The aim of this chapter is to identify and evaluate the economic conditions of enterprises functioning in agribusiness, with the emphasis on meat processing entities in Poland between 20XA and 20XD. The realization of this aim has called for the use of primary and secondary research materials. In this paper analysis and deduction methods are used, in particular financial analysis (Official Journals of the Republic of Poland (B)), descriptive, contrastive, deductive and synthetic methods. The results of the analyses have been based on own research, reports, expert opinions as well as on domestic and foreign professional literature. Due to the subject of the analysis some frequently used terms need to be explained. Firstly, an entrepreneur1 is a natural person, a legal person or a non-corporate organizational unit with legal capacity under provisions of a separate Act, conducting economic activity on its own behalf. Secondly, economic activity is defined as profit-making activity related to manufacturing, construction, trading, provision of services and prospecting, identification and extraction of minerals, as well as professional activity conducted in an organized and continuous. Thirdly, the term economic activity does not apply to a) agricultural production activities, b) horticulture, c) vegetable production, d) forestry, e) fishery, f) the rental of rooms, sale of home-made meals, the provision of other services to tourists by farmers in agricultural holdings. Fourthly, an enterprise a basic organizational form in any economy. An enterprise may take various forms of ownership, legal regulations of functioning as well as conduct its activity on production scales and within varied scopes. The modern market economy is characterized by a large number of economic entities. In Poland the process of market transformation was combined with the privatization of state enterprises [13 July 1990, Journal of Laws, No. 51, item 298, as amended] and the development of private business.

1

The definitions come from the Act on Freedom of Business Activity of 2 July 2004 (Journal of Laws from the year 2004, No. 173, item 1807) 68

Fifthly, poultry processing plants are entities conducting their activity on the meat market which according to the Polish Classification of Activity [PKD 2007] deal with processing and preserving poultry meat (PKD 1012) and make products of meat, including poultry meat (PKD 1013). Sixthly, economic conditions of the functioning of enterprises are defined as economic factors which influence the functioning of an enterprise in its external and external environment. Seventhly, a financial situation of an enterprise is defined as a financial state of an economic entity which represents its solvency and profit-generating ability as well as the capability of increasing its financial and capital resources [Kowalak 2003, Kowalczyk and Kusak 2006, Michalski 2005, Wojciechowska 2001]. We may say that the financial situation of an enterprise results from its economic decisions along with the growth and development opportunities related to them [Siemińska 2002]. The financial situation reflects an enterprise’s financial position. Eighthly, a conservative strategy of an enterprise means it conducts economic activity in a way that does not amount to a threat, i.e. the achieved financial rates are similar to the referential rates for a given industry. On the other hand, an aggressive strategy of an enterprise means that its activity is confrontational, i.e. the financial rates achieved are different than the referential rates for a given industry.

3.2. Strategic Diagnosis of an Enterprise’s Surroundings An enterprise’s surroundings may be defined as all phenomena, processes and institutions which shape its interrelations, sales options and forms of activity as well as its development conditions [Penc 1997]. Each enterprise is an entity different from its surroundings in its legal, economic and organizational aspects. The environment enables the enterprise’s existence and development. However, some elements of the surroundings may amount to a threat to its functioning. Surroundings embrace a company’s environment and all elements which are not a part of the company, but are related to it, i.e. affect its condition or it affects them. The surroundings may be seen in three aspects:

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 general – political, economic and environmentally legal etc. conditions and factors,  industrial – by conducting the analysis of the sector in which the company functions, we may detect opportunities and threats,  competitive – all entities related to the company: suppliers, clients, competitors. In other words, an enterprise’s surroundings may be defined as everything which is external to it [Lynch 2006]. An enterprise’s surroundings, sensu largo, may include all phenomena, processes, entities which are external to it, but are linked with it by the process of mutual affecting [Urbanowska-Sojkin et al. 2004]. 3.2.1. Component Elements of an Enterprise’s Surroundings All entities on the market function in microsurroundings which influence them in a direct way. Microsurroundings consist of internal surroundings, which embrace the board, employees and the organizational culture, and external surroundings, which can be influenced and changed by the enterprise. Close surroundings include suppliers, clients, competitors and local community as well as newcomers on the market, substitute (replacement), transportation, services, trade, new technologies, information, communication, governmental regulations, foreign investments, job market, and banks. On the other hand, macrosurroundings have indirect influence on the enterprise and consists of external surroundings, i.e. all external elements which influence the enterprise including the so-called general surroundings in the economic, technical, political, international and lawmaking as well as the target surroundings consisting of groups and organizations, which exert influence over the enterprise, including owners, suppliers, clients, trade unions and rivals. Another type of surroundings is further surroundings which cannot be influenced or changed by the enterprise, but changes in further surroundings influence have impact on the enterprise. Further enterprise includes politics, economy, science and education, law, justice, media, society in general, economic relations, customs policy, environmental protection and medical care.

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The analysis of phenomena occurring in macrosurroundings has a significant effect on creating opportunities and threats in relation to economic activity. Further surroundings along with the enterprise develop incoherent conditions of functioning in the hardly predictable future. The shape of the economic reality causes an increase in risk associated with economic activity not only due to the intensity of the already-known phenomena but also because of new threats [Mączyńska 2008]. The abovementioned changes occur in all dimensions of macrosurroundings, i.e. economic, technological, political and social. 3.2.2. Analysis of Selected Macrosurroundings Factors Affecting the Functioning of an Enterprise Taking into account the present chapter’s subject matter the further part focuses on more detailed description of the most significant macroand microsurrounidngs factors which influence enterprises in agribusiness. It should be noted that macrosurroudnings factors have impact on the functioning of enterprises in two manners. Firstly, they affect the shaping of demand on the market. Secondly, they define the access to production factors, i.e. have influence on the market’s functioning. Macrosurroundings of enterprises are classified as natural, economic, social and demographic, institutional and legal, and technological. On the other hand, Crouch [2003] notes the necessity for distinguishing times spans of changes taking place in specific areas of surroundings. According to him the most stable elements of macrosurroundings are the natural, geographical, climate and ecologic surroundings. Crouch also remarks that demographic and sociocultural surroundings are less stable Moreover, he finds economic, political and technological surroundings the least stable. Food industry constitutes the foundation of the industrial structure of any country by allowing it proper functioning through satisfying food needs of all citizens. In the past Polish food industry was visibly transformed mainly after 1989 as Polish economy was subjected to the process of political system transformation related to liberalization, stabilization as well as deep economic reforms, commonly called “the Balcerowicz plan”, aiming at eliminating the central-planning system and the control of the economy [Czarny (ed.) 2005, p. 11]. The pivotal event for domestic agriculture and food industry 71

was the accession into the European Union which has crucial impact on the development of Polish food industry. From the domestic food industry’s perspective geographical, climate and ecologic macrosurroundings strongly influence raw material purchasing and essential factors for food production which, due to the stability of demand, must be supplied continuously in similar quantity as well must meet standards of the highest quality. On the other hand, geographical changes observed at local and regional levels, more rarely at the national level, may be related to modifications of the settlement network or of the way space is used. Despite the fact climate changes are increasingly often observed in the long run, during the analysis of production factors we should take account of local weather conditions in a country belonging to the moderate climate zone, e.g. Poland. Ecologic changes related to the quality of soils, water, air and landscape simultaneously pose a serious threat and constitute an opportunity for food enterprises. The changes may affect the demand and cause the intervention of administrative authorities correcting the occurred state of affairs. Variables describing the conditions of ecologic surroundings may be objective and subjective. Objective indicators are used in order to evaluate the quality of environment, weather conditions, and lands of unique natural and cultural characteristics. On the other hand, subjective variables are applied so as to assess the aesthetics of surroundings and the traffic level. The abovementioned factors are not sensu stricto subjects of research in the food market, however, the changes within this type of surroundings should be taken into account. Within shorter time spans the changes of demographic surroundings result from the phenomenon of migration: emigration and immigration. A more dynamic migration has impact on the size of labor resources, their quality, and the labor cost. Variables describing the conditions of sociocultural surroundings may be defined as beliefs resulting from the choice of profession, the field of economic activity, inclination for risk-taking, mobility linked with achieving education and jobs. The influence of sociocultural surroundings has a modifying effect on demographic conditions as it decides about the level 72

of education and professional aspirations. The analysis and evaluation of variable of demographic and sociocultural surroundings call for conducting long and thorough research in attitudes and opinions. In my opinion the meat market is affected by people’s religion and its beliefs regarding consuming specific types of food, in particular meat. Christians, in contrast to Muslims, do not limit meat consumption due to the fact that Christianity allows pork meat consumption. On the other hand, followers of Hinduism and Buddhism do not eat meat of an animal which suffered during slaughter. Moreover, followers of Judaism and Islam do not eat meat of animals which have not been slaughtered in compliance with their slaughter rituals. Economic macrosurroundings have a large impact on the conditions of an enterprise’s functioning as well as they directly affect the accessibility of production factors. The basic parameters which set general conditions of an enterprise’s functioning as well as of the economic situation of a country include the level and speed of gross domestic product (GDP), the inflation rate, the unemployment rate, currency rates, the level of the interest rate of the central bank, the level of taxes: income, property, indirect and labor, as well as grants and subsidies. The political factors of the macrosurroundings analysis are considerably difficult to measure and evaluate. The basic significance for the conditions an enterprise functions has the protective or liberal policy realized by the state. Mostly the policy entails the tendency to increase or decrease the extent to which the economy is regulated. The attitude to social solidarity principles is another important element. It may be realized by income redistribution which usually leads to increase in tax burden or to investments enhancing economic conditions which might be beneficial for enterprises, in particular in a long run. Moreover, the participation of a country in economic and political groups is also a specific element of political surroundings. Poland’s participation in the European Union is perceived as a guarantee of political and economic stability as well as of compliance with common standards. On the other hand, Poland’s participation in NATO assures political stability. Furthermore, Poland’s participation in World Trade Organization (WTO) and Organization for Economic Co-operation and Development (OECD) guarantees following specific rules of economic law. It strengthens investors’

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trust and may be a favorable factor for foreign investments as well as it decreases the costs of loans on international markets. On the one hand, institutional and legal macrosurroundings reflect the presently implemented political doctrines and axiological systems. On the other hand, this type of surroundings affects the shaping of conditions under which enterprises function. The most obvious influence is tax legislation, labor law, environmental protection regulations, regulations linked with investment processes, rules of starting an enterprise, and well as rules of capital, goods and human flow in the case of international exchange. These regulations may be in force within the whole country or just locally. Legal tools may be used as protectionism tools in order to provide protection for all domestic producers or selected industries. Such legal acts most frequently take the form of regulations increasing barriers to entry. A radical example of such solutions is granting licenses. Other solutions are tightening up capital and competence requirements towards new enterprises. Technological macrosurroundings are also very important for enterprises within the meat and poultry industry due to the fact that the development of new techniques and technologies of producing food has impact on the size and diversity of the stock. In food industry we may observe the digitalization of services in distribution channels as well as we may take notice of the decrease in labor demand caused by applying machines and devices. It should be emphasized that the influence of technological changes is easier to evaluate with hindsight, because violent changes in this field make it difficult to indicate possible development directions of new technologies.

3.3. Analysis of Selected Microsurroundings Influencing an Enterprise’s Functioning

Factors

In accordance with the considerations presented above it is difficult to talk about identical conditions of competitive surroundings in reference to all entities within a given area of activity because of the fact that they function in different segments of the market and have potentials of various magnitude. Therefore, it is even more difficult to unequivocally evaluate enterprises’ scope and way of competing. That is why the analysis of competitive surroundings should be accompanied by the conception of strategic groups, i.e. enterprises similar to one another in terms 74

of manufactured products, targeting the same groups of customers, using the same distribution systems, with the same level of vertical integration, with similar technologies, offering similar prices for their products as well as applying similar marketing strategies [Zielińska-Chmielewska 2009]. 3.3.1. Conception of the Economic Analysis of an Enterprise The economic analysis of an enterprise is a general term which embraces within its scope the entire functioning of an enterprise. It deals with the issues linked with the entire activity of an enterprise [Wędzki 2009]:  examining the financial result and, consequently, the solvency of the activity (the effectiveness of management),  analyzing the income from sales and the expenditure related to it,  analyzing the capital of an enterprise and the sources of its financing (financial status and reliability),  analyzing the growth and the financial position of an enterprise. On the basis of the analysis of professional literature, both domestic and foreign, within the scope of financial factor typology1, there has been introduced a division into five groups of indicators: a) liquidity ratios, b) debt ratios, leverage ratios, gearing ratios, c) profitability ratios, efficiency ratios, d) operating ratios, e) market value ratios. The financial analysis is a tool for evaluating the financial condition of an enterprise. It includes the following stages of evaluating the financial condition:  analyzing the ability to generate profit (profitability analysis and financial result causality analysis),  analyzing financial liquidity (solvency analysis),  analyzing the financial and capital state (balance analysis),  analyzing the financial independency (financial condition analysis). 1

In professional literature we may come across various typologies of indicators. For example, Fess, Warren distinguish only two groups’ solvency ratios and profitability ratios. On the other hand, Smith and Skousen distinguished four groups of ratios: liquidity, profitability, activity ratios, and capital structure ratios.

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A properly conducted financial analysis is used in the management process and in the evaluation of an economic entity’s reliability for various groups of interest through:  providing the top management of an enterprise with information allowing proper shaping of the financial and capital structure of the enterprise,  supporting rational shaping of financial settlements and flows,  allowing the evaluation of the current financial situation and the economic effectiveness of the activity,  enabling monitoring and control of costs, income and the financial result. 3.3.2. Financial Analysis of Selected Meat Processing Enterprises To conclude the results of analysis from the previous subchapter, we may say that the financial analysis is an essential part of the economic analysis which amounts to the core of the analysis of an enterprise’s activity. The financial analysis is supposed to provide information about the financial results and situation of an enterprise needed for the management process and used by the enterprise’s surroundings. In order to measure the financial situation of an enterprise financial ratios are used. They specifically express the result of comparing two or more measurable economic phenomena with one figure1 [Kosmaczewska 2011; Tyran 1992; Westwick 1998]. The research, constituting an attempt at evaluating the variety level of poultry processing plants in Poland, embraces six poultry processing plants: PPP no. 1, PPP no. 2, PPP no. 3, PPP no. 4, PPP no. 5, PPP no. 62. The selection of entities was purposeful and resulted from the necessity to gain credible and complete financial data of all entities available throughout the duration of the research. The selection criterion was: a) industrial processing 1

In professional literature in English the term financial ratio is used interchangeably with business ratio and management ratio. However, the essence of the described phenomena is so clear and understandable that the author of the present chapter decided to consider them synonymous. In the chapter the term financial ratio is used. 2 The boards and owners of the poultry processing plants did not consent to disclose the full proper names and the four years of analysis. Therefore, the poultry processing plants are described as the following entities: PPP no. 1, PPP no. 2, PPP no. 3, PPP no. 4, PPP no. 5, PPP no. 6, and the years of analysis are: 20XA, 20XB, 20XC, 20XD. 76

of the butcher raw material1, b) continuity of financial data throughout the analyzed period, c) consent to use the entities’ data in order to conduct the present research. 3.3.3. Construction and Economic Interpretation of Selected Financial Ratios on the Example of Poultry Processing Plants This subchapter includes the analysis of the financial condition of poultry processing plants with the use of the most significant, from the point of view of the analyzed entities, selected financial ratios. Below in table 1. there is a detailed list of financial liquidity, debt, profitability, and operating ratios. The first analyzed indicator is the current ratio which examines the dependence between the level of current assets and the value of short-term commitments. An economic entity is considered liquid and free from problems related to current financial commitments if the value of its current assets is twice as big as the short-term-commitments. If the liquidity ratio is lower than one, it means that an enterprise may have problems with paying off its current commitments, which may ultimately lead to bankruptcy. The value below one is particular dangerous in the case of production and trade enterprises with big reserves. The present research includes the comparative analysis of the selected poultry processing plants as well as they are compared to the value of the referential ratio for the meat and poultry industry. If the value of the referential ratio is at a much lower level than the average in an industry, the structure of current assets and short-term commitments of an enterprise should be examined more carefully. Most probably the enterprise may have problems with financial liquidity which is a warning sign for its managers (tab. 1). On the other hand, the construction of the quick ratio consists in calculating the most liquid capital of an enterprise. Therefore, the value of current assets is reduced by reserves and short-term interim settlements. They amount to relatively easy to negotiate components of current assets, which is particularly important while analyzing entities’ liquidity, e.g. in construction industry. The model value of this ratio is 1. The level higher 1

The classification of meat plants: small (up to 7,5 tons of raw material processed weekly), medium-sized (up to 20 tons) and large (over 20 tons), i.e. on an industrial scale.

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than 1.5 may testify to non-production accumulation of financial resources (excessive liquidity) or overlanding. The ratio level of below 0.8 may testify to payment difficulties and bigger problems with getting new loans (tab. 1). Table 1. Summary of selected financial condition ratios of the analyzed plants

Selected financial condition ratios

Poultry industry referential ratios

Liquidity ratios 1. 2.

Current ratio (CR) = current assets /short-term-commitments Quick ratio (QR) = current assets – reserves – short-term interim settlements / short-term commitments

1.20 0.80

Debt ratios 3.

Debt to equity ratio = total debt/ equity

1.34

Profitability ratios 4. 5.

Return on equity (ROE) = net profit /equity x 100% Return of assets (ROA) = net profit /assets in total x 100%

13.96% 14.45%

Operating ratios 6. 7.

Asset productivity = income from sales / assets in total Time of repayment = (payment balance / income from sales) x number of days of the settlement period

1.9 41.63 days

Source: own research on the basis of [Bień 2011; Bragg 2010; Gołębiowski and Tłaczała 2009].

The third analyzed ratio is the debt to equity ratio which depicts the level of debt contribution in financing an enterprise’s operations in relation to the level of the equity contribution. It is connected to the possibility of potential repayment from own capital resources. The value of the ratio should remain within the range of 1.03.0. Another indicator is called the return on equity ratio (ROE). It informs us about an entity’s ability to gain profits in relation to its equity. The higher it is, the better the financial condition of an entity is. The return on equity ratio is crucial, inter alia, for financial institution considering 78

granting a credit or analyzing the repayment ability of a potential individual or institutional borrower (tab. 1). The fifth indicator is called the return on assets ratio (ROA). It informs us about an entity’s ability to gain profits and the effectiveness of managing its capital. The higher its value is, the better the financial condition of an entity is. Similarly to the return on equity ratio, this indicator is important for financial institutions considering granting a credit or analyzing the repayment ability of a potential borrower (tab. 1). The sixth indicator is the asset productivity ratio whose increase in comparison with previous years of a plant’s activity means the desirable growth of production per a capital unit. The higher the value of the asset productivity ratio is, the better it depicts the way an enterprise is managed (tab. 1). The seventh indicator used in the present research is the time of repayment ratio whose construction consists in the relation between payment balance and income from sales multiplied by the number of days of the settlement period. A high value of this ratio indicates a threat to financial liquidity as the enterprise grants credits to its clients for an overly long period. On the other hand, a low value of this value increases the risk of unrecoverable payments (tab. 1). 3.3.4. Analysis and Evaluation of the Realization of Selected Areas within the Financial Condition on the Example of Poultry Processing Plants The level of the current ratio for the analyzed entities throughout the period between 20XA AND 20XD varied significantly. The current ratio in the poultry processing plant no. 1 oscillated between 0.86 (20XC) and 0.93 (20XA), in the poultry processing plant no. 2 between 0.89 (20XD) and 1.21 (20XB), in the poultry processing plant no. 3 between 0.69 (20XA) and 0.83 (20XD), in the poultry processing plant no. 4 between 1.40 (20XD) and 1.75 (20XA), in the poultry processing plant no. 5 between 0.88 (20XA) and 1.64 (20XD), and finally, in the poultry processing plant no. 6 between 1.32 (20XD) and 1.44 (20XB). It means that the majority of the poultry processing plants realized an aggressive strategy in relation to fulfill current commitments. All the poultry processing plants, except for PPP no. 4 and PPP no. 5, 79

had significant problems with paying off current commitments. In reference to PPP no. 4 and PPP no. 5 throughout the analyzed period we could observe the minimal ratio level higher than the referential level for the quick ratio in relation to each year. That is how both plants realized a conservative strategy characterized by maintaining the optimal level of liquidity which enables smooth fulfillment of current financial commitments. Table 2. Ratios of the selected poultry processing plants between 20XA and 20XD Years Quick liquidity Current liquidity Debt to equity Profitability ROE Profitability ROA Asset productivity Payment period Quick liquidity Current liquidity Debt to equity Profitability ROE Profitability ROA Asset productivity Payment period Quick liquidity Current liquidity Debt to equity Profitability ROE Profitability ROA Asset productivity Payment period

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20XA 20XB Poultry processing plant no. 1 0.93 0.89 0.71 0.53 2.50 2.03 19.78 16.66 5.65 5.32 3.28 3.43 20.08 29.38 Poultry processing plant no. 2 0.93 1.21 0.64 0.79 1.47 1.42 0.00 2.35 0.00 0.92 1.98 1.92 46.47 50.50 Poultry processing plant no. 3 0.69 0.81 0.25 0.46 0.52 0.46 |16.95| |2.26| |11.06| |1.54| 0.86 1.00 37.95 35.14

20XC

20XD

0.86 0.49 2.11 11.23 3.50 3.28 27.04

0.87 0.48 2.10 10.58 2.60 3.16 29.16

0.90 0.58 1.51 |7.74| |3.04| 2.41 45.03

0.89 0.52 1.49 |9.58| |4.05| 2.38 44.05

0.82 0.47 0.45 |30.04| |18.47| 0.70 58.75

0.83 0.50 0.44 |32.01| |20.01| 0.60 59.15

Quick liquidity Current liquidity Debt to equity Profitability ROE Profitability ROA Asset productivity Payment period Quick liquidity Current liquidity Debt to equity Profitability ROE Profitability ROA Asset productivity Payment period Quick liquidity Current liquidity Debt to equity Profitability ROE Profitability ROA Asset productivity Payment period

Poultry processing plant no. 4 1.75 1.69 1.06 1.25 0.28 0.27 |7.62| |1.93| |5.83| |1.50| 1.68 1.71 38.58 43.81 Poultry processing plant no. 5 0.88 1.10 0.55 0.69 1.88 2.20 8.77 6.62 2.95 2.04 2.40 2.60 18.73 32.90 Poultry processing plant no. 6 1.41 1.44 0.92 1.09 0.73 0.91 |15.27| 2.40 |8.55| 1.21 2.75 2.71 21.98 39.80

1.41 0.98 0.35 |1.95| |1.44| 1.71 48.16

1.40 0.97 0.39 |1.97| |1.35| 1.70 52.14

1.57 0.95 2.59 2.13 0.56 2.54 35.46

1.64 0.91 2.63 4.14 0.36 2.52 37.01

1.33 1.00 0.97 7.17 3.53 3.01 36.12

1.32 0.99 0.98 8.54 4.57 3.02 38.04

Source: own research on the basis of calculations from Official Journals of the Republic of Poland (B) and balances, profit and loss accounts as well as financial flows of the analyzed poultry processing plants between 20XA and 20XD

The quick ratio throughout the period between 20XA AND 20XD in the analyzed entities could be observed at a positive varied level. The quick ration in PPP no. 1 was included within the range of between 0.48 (20XD) and 0.71 (20XA), in PPP no. 2 between 0.52 (20XD) and 0.79 (20XB), in PPP no. 3 between 0.25 (20XA) and 0.50 (20XD), in PPP no. 4 between 0.97 (20XD) and 1.25 (20XB), in PPP no. 5 between 0.55 (20XA) and 0.95 (20XC), and finally in PPP no. 6 between 0.92 (20XA) and 1.09 (20XB). The first three out of the analyzed poultry processing plants realized 81

an aggressive strategy characterized by payment difficulties which may have resulted in greater payment backlogs and limitation in reference to potential credits. PPP no. 4 and PPP no. 6 where exceptions, as they realized a moderate strategy in this regard. In none plant throughout the analyzed period could we have observed non-production accumulation of financial resources (excessive liquidity) or overlanding (tab. 2). The debt to equity ratio for the analyzed entities throughout the period between 20XA and 20XD was observed at a stable positive level. In PPP no. 1 the debt to equity ratio oscillated between 2.03 (20XB) and 2.50 (20XA), in PPP no. 2 between 1.42 (20XB) and 1.51 (20XC), in PPP no. 3 between 0.44 (20XD) and 0.52 (20XA), in PPP no. 4 between 0.27 (20XB) and 0.39 (20XD), in PPP no. 5 between 1.88 (20XA) and 2.63 (20XD), and finally in PPP no. 6 between 0.73 (20XA) and 0.98 (20XD). Within the analyzed period the potential commitment appropriation ability from equity was the best in PPP no. 1, PPP no. 2 and PPP no. 5. On the other hand, the following plants had the biggest difficulty related to excessive debts in relation to equity: PPP no. 4, PPP no. 3, PPP no. 6 (tab. 2). The return on equity ratio for the analyzed entities throughout the period between 20XA and 20XD was observed at a varied positive or negative level. In PPP no. 1 the return on equity ratio took high positive values from 10.58% (20XD) up to 19.78% (20XA); on the other hand, in PPP no. 2 it was negative from |9.58|% in 20XD to 2.35% (20XB), in PPP no. 3 from |32.01|% to |2.26|, in PPP no. 4 at a low level from |7.62|% in 20XA to |1.93| in 20XB, in PPP no. 5 at a low, but positive level from 2.13 (20XC) to 8.77 (20XA), in PPP no. 6 from |15.27|% in 20XA to 8.54% in 20XD. The biggest positive return on equity throughout the analyzed four years was reached by PPP no. 1 (the biggest return – 19.78% – was observed in the first year of analysis) and also PPP no. 5 with the average return at the level of 7%. Throughout the analyzed period PPP no. 4, PPP no. 3 and PPP no. 2 were running an aggressive policy, while PPP no. 1 and PPP no. 5 were acting conservatively within the scope of profitability of equity, i.e. they reached higher return on equity (tab. 2). The return on assets ratio for the analyzed entities throughout the period between 20XA and 20XD was observed at both positive and negative levels. In PPP no. 1 the return on assets ratio oscillated between 2.60 (20XA) and 5.65 (20XA), in PPP no. 2 between 0.92% in 20XB and |4.05|% in 20DX, 82

in PPP no. 3 between |1.54|% in 20XB and |20.01|% in 20XD, in PPP no. 4 between |1.35|% in 20XD and |5.83|% in 20XA, in PPP no. 5 between 0.36% in 20XD and 2.95% in 20XA, and finally in PPP no. 6 between 1.21% in 20XB and |8.55|% in 20XA. Throughout the analyzed period PPP no. 2, PPP no. 3 and PPP no. 4 were realizing an aggressive strategy, whereas PPP no. 1, PPP no. 5 and PPP no. 6 were running a conservative policy in this regard (tab. 2). The ratio of assets’ productivity for the analyzed poultry processing plants throughout the period between 20XA and 20XD was observed at a stable positive level. In PPP no. 1 the values of the ratio of assets’ productivity were between 3.16 (20XD) and 3.43 (20XB), in PPP no. 2 between 1.92 (20XB) and 2.41 (20XC), in PPP no. 3 between 0.60 (20XD) and 1.00 (20XB), in PPP no. 4 between 1.68 (20XA) and 1.71 (20XB and 20XC), in PPP no. 5 between 2.40 (20XA) and 2.60 (20XB), and finally in PPP no. 6 between 2.71 (20XB) and 3.02 (20XD). Only in PPP no. 3 the value of this ratio was lower than the referential value (1.19) for the industry. In the remaining plants the value was higher than the referential one which means that the assets of the analyzed poultry processing plants were characterized by a higher than average profitability in comparison with the enterprises operating in this industry (tab. 2). The repayment ratio for the analyzed poultry processing plants throughout the period between 20XA and 20XD was observed at a varied positive level. In PPP no. 1 the repayment ratio oscillated between 20 days in 20XA and 29.38 days in 20XB, in PPP no. 2 between 44 days in 20XD and 50 days in 20XB, in PPP no. 3 between 35 days in 20XB and 59 days in 20XD, in PPP no. 4 between 38 days in 20XA and 52 days in 20XD, in PPP no. 5 between 18 days in 20XA and 37 days in 20XD, and in PPP no. 6 between 21 days in 20XA and 39 days in 20XB. Only in PPP no. 2 the value of the repayment ratio was higher than the average for the industry, i.e. over 41 days. On the other hand, in the remaining analyzed poultry processing plants the value of the repayment ratio was much lower than 41 days which means the realization of an aggressive policy in this regard (tab. 2).

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3.4. Summary On the basis of the analysis of the selected macro- and microeconomic conditions in relation to poultry processing plants in Poland throughout the period between 20XA and 20XD we may unequivocally state that the analyzed factors have significant influence on the functioning and the level of economic activity of the analyzed group of entities. Poultry processing plants must take account of the objectives of state policy, in particular within the scope of natural, institutional and legal, economic, social and demographic as well as technological conditions under which they operate. On the other hand, the microeconomic analysis of the financial condition of the poultry processing plants showed that many of them realized an aggressive policy in the areas of financial liquidity, debt and profitability. The results of the analysis confirm the validity of conducting in-depth research in this field.

3.5. Literature Bień, W. 2011, Zarządzanie finansami przedsiębiorstwa, Difin, Warszawa. Bragg, S. 2010, Wskaźniki w analizie działalności przedsiębiorstwa, Wydawnictwo Oficyna a Wolters Kluwer business, Warszawa. Crouch, G. 2007, Modelling Destination Competitiveness. A Survey and Analysis of the Impact of Competitiveness Attributes. Copyright CRC for Sustainable Tourism, PtyLtd. Czarny, P., Wronkowska, S. (eds.) 2005, Trybunał konstytucyjny a wykładnia ustaw w zgodzie z Konstytucją [w]: Polska kultura prawna a proces integracji europejskiej, Kraków, p. 11. Fess, P., Warren F., Warren C. 1990, Accounting Principles: Study Guide, Wydawnictwo South-Western Co., Mason, United States. Gołębiowski, G., Tłaczała, A. 2009, Analiza finansowa w teorii i w praktyce, Wydawnictwo Difin, Warszawa. Kosmaczewska, J. 2011, Analiza efektywności gospodarowania gmin wiejskich w kontekście rozwoju funkcji turystycznej z wykorzystaniem metody DEA. Zeszyty Naukowe Szkoły Głównej Gospodarstwa Wiejskiego w Warszawie, Ekonomika i Organizacja Gospodarki Żywnościowej, Nr 90. Kowalak, R. 2003, Ocena kondycji finansowej przedsiębiorstwa, ODDK, Gdańsk.

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Kowalczyk, J., Kusak, A. 2006, Decyzje finansowe firmy. Metody analizy, Wydawnictwo C.H. Beck, Warszawa. Lynch, R. 2006, Corporate Strategy, FT prentice Hall Financial Times, s.78. Michalski, G. 2005, Płynność finansowa w małych i średnich przedsiębiorstwach, PWN, Warszawa. Mączyńska, E. 2008, Globalna niepewność a prognozowanie bytu i rozwoju przedsiębiorstw [w]: Herman A., Poznańska, K. (ed.), Przedsiębiorstwo wobec wyzwań globalnych, Tom I, SGH, Warszawa, pp.101–124. Monitory Polskie B w latach 2008-2015. Ostaszewski, A. 1994, Analiza finansowa w przedsiębiorstwie, PWE, Warszawa. Penc, J. 2007, Nowoczesne kierowanie ludźmi. Wywieranie wpływu i współdziałanie w organizacji, Difin, Warszawa. Rozporządzenie Rady Ministrów z dnia 24.12.2007 w sprawie Polskiej Klasyfikacji działalności (PKD), Dz. U. 251, poz. 1885. Siemińska, E. 2002, Metody pomiaru i oceny kondycji finansowej przedsiębiorstwa, Dom Organizatora, Toruń. Sierpińska, M., Jachna, T. 1997, Ocena przedsiębiorstwa według standardów światowych, Wydawnictwo PWN, Warszawa. Sektorowe wskaźniki finansowe opracowane przez Komisję ds. Analizy Finansowej Rady Naukowej SKwP we współpracy z Wywiadownią Gospodarczą InfoCredit, http://rachunkowosc.com.pl/c/Artykuly, Wskazniki_sektorowe [access: 01.02.2015]. Simons, H., Smith., J., Skousen, K. (eds.) 1986, Intermediate Accounting, Wydawnictwo Thomson South-Western Co., Mason, United States. Tyran, M. 1992, Business and Financial Ratios. Adapted by M. Ward. Woodhead- Faulkner, Hemel Hemstead. The Act on Freedom of Business Activity of 2 July 2004 (Journal of Laws from the year 2004, No. 173, item 1807). Urbanowska-Sojkin, E., Banaszyk, P., Witczak, H. 2004, Zarządzanie strategiczne przedsiębiorstwem, wydanie I, Wydawnictwo PWE, Warszawa. Westwick, C. 1998, How to Use Management Ratios. Second edition. Gower Publishing Company Limited, Aldershot. Wędzki, D. 2009, Wskaźniki finansowe. Charakterystyka wskaźników, systemów wskaźników i metod oceny, Wydawnictwo Oficyna Wolters Kluwer business, Kraków.

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Wojciechowska, U. 2001, Płynność finansowa polskich przedsiębiorstwa w okresie transformacji gospodarki. Aspekty mikroekonomiczne i makroekonomiczne, Wydawnictwo SGH, Warszawa. Zielińska-Chmielewska, A. 2010, Analiza strategiczna branży mięsnej w Wielkopolsce z wykorzystaniem metody SWOT, Acta Scientiarum Polonorum, Seria Oeconomica, 9 (1), pp. 131-137.

Internet Sources: www.analizafinansowa.pl/wiadomosci/jaki-poziom-powinien-miecwskaznik-produktywnosci-majatku-firmy [access 01.02.2015] www.sindicator.net/baza_wiedzy/wskazniki_finansowe [access 01.02.2015] www.stat.gov.pl [access 01.02.2015]

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4. Factors Determining the Innovation Activity of Enterprises – an Analysis on the Example of Polish Industrial Processing

4.1. Introduction The present chapter presents the results of the econometric research whose aim was to define the factors which determine the scale of innovation implemented in various lines of Polish processing industry within the time span of 2006-2014. Taking account of the highly unsatisfying level of innovation in reference to Polish economy, the research problem undertaken by authors is undeniably important and up-to-date. It proves to be crucial to refer to the latest Innovation Union Scoreboard 2015 report according to which Poland fits in the group of moderate innovators, however, the value of the SII index (0.313) estimated for our economy gives us only 24th place in the rating of EU countries (fig. 1)1. This fact is even more worrying 1

Summary Innovation Index (SII) is estimated on the basis of the set of 25 rates (Innovation Union Scoreboard) which reflect various aspects (dimensions) of innovation: human resources, the system of external financing of innovative projects, investment in innovation activity in the private sector, the cooperation between enterprises in the area of innovation activity, the protection of intellectual property, the scope of implementing innovation as well as the macro- and microeconomic effects of innovation activity [Innovation 2015, p. 7]. On the basis of SII countries may be divided into four groups: the group of innovation leaders includes Member States in which the innovation performance is well above that of the EU, i.e. more than 20% above the EU average; the group of innovation followers includes Member States with a performance close to that of the EU average i.e. less than 20% above or more than 90% of the EU average; the group of moderate innovators includes Member States where

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if we notice that within several last years the innovation performance of Poland has not visibly improved. In the previous editions as well in the latest research Poland is performing below the EU average for all dimensions, with relative weakness inter alia in the aspect of the size of the investment sector, i.e. the innovation base measured with the proportion of enterprises which implement product and/or process innovations [Innovation 2015, p. 65; Nowak 2012, p. 160]. Furthermore, the problems seems to be not the lesser size of the investment sectors, but its downward trend observed within the period of 2006-2014. This tendency, according to many authors, results from the occurrence of factors (barriers) in the economic area which limit the willingness of economic entities to implement innovation. However, reducing the causes of low innovation activity of enterprises to limiting factors exclusively appears to be insufficient as the reduction of the barrier levels does not guarantee the growth of the activity in this area. According to the authors of the present chapter it is important, and maybe even crucial, to identify the factors stimulating the innovation activity. It is so as both barriers and stimulants amount to a set of conditions for the innovation conditions. Furthermore, their original source is the market along with the processes occurring in it. In professional literature the conditions of innovation activity of enterprises are analyzed from the standpoint of economics, sociology, psychology, engineering and many other scientific fields [Brojak-Trzaskowska 2008, p. 172]. On the one hand, it shows the interdisciplinary character of this research area. On the other hand, it proves the complexity of both the innovative processes and the factors which shape them. From the point of view of research methodology these characteristics cause problems not only within the scope of defining innovation and innovation activity (result-oriented vs. process approach to innovation), but also in reference to the selection of indicators which reflect innovation (input measures vs. output measures) as well as to the selection of factors which determine innovative processes. the innovation performance is below that of the EU average at relative performance rates between 50% and 90% of the EU; the group of modest innovators includes Member States that show an innovation performance level well below that of the EU average, i.e. less than 50% of the EU average. [Innovation 2015, p. 10]

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SWEDEN DENMARK FINLAND GERMANY NETHERLANDS LUXEMBOURG UNITED… IRELAND BELGIUM FRANCE AUSTRIA EU28 SLOVENIA ESTONIA CZECH REP. CYPRUS ITALY PORTUGAL MALTA SPAIN HUNGARY GREECE SLOVAKIA CROATIA POLAND LITHUANIA LATVIA BULGARIA ROMANIA

SII

0,8 0,7 0,6 0,5 0,4 0,3 0,2 0,1 0

Innovation leaders

Innovation followers

Moderate innovators

Modest innovators

Figure 1. SII for the EU countries in 2014. Source: Based on Innovation Union Scoreboard 2015

In accordance with the formulated aim in the research the mesoeconomic perspective has been taken and the selection of the innovation activity indicators applied has been based on the result-oriented approach to innovation. The research takes account only of economic factors due to the assumption made that their influence on the innovation activity of enterprises is correlated with the type of implemented innovation (product, process, organizational, marketing). The interpretation of the econometric research results has been preceded by an overview of basic terms within the scope of innovation activity of enterprises, factors which determine innovation and the research method applied.

4.2. Result-oriented vs. Process Approach to Innovation and Innovation Activity of Enterprises The term “innovation” was introduced into the theory of economics over 100 years ago by an Austrian economist J.A. Schumpeter. According to Schumpeter, innovation is a change as a result of which a new way of combining production factors replaces the combinations applied so far

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and creates essential modifications in the existing system1. Such an approach to innovation may refer to various economic changes among which the most important are [Schumpeter 1960, p. 104]:  introduction of a new products,  introduction of a new production method,  opening a new market,  acquiring a new source of raw materials and semi-finished products,  realizing a new organization of an industry. It should be stressed that the Schumpeter approach innovation is static and correspond to the result (effect) of innovative processes [Turek, JonekKowalska and Ganszczyk 2011, p. 160], hence, distinguishing the terms “innovation” and “innovative process” is a key issue in this perspective2. The process understanding of innovation is much broader and embraces not only the result, but also the totality of actions leading to it: the idea, development and research works, designing, implementing and dissemination [Turek, Jonek-Kowalska and Ganszczyk 2011, p. 160; Szopik-Depczyńska 2009, p. 94]. Modern research in the innovation activity of enterprises is unquestionably dominated by process approach. For instance, according to the Oslo methodology, the research subject embraces the totality of innovation activity of economic entities and not only innovation itself. Furthermore, innovation, in accordance with the latest generation of innovation models, innovation results from interactions and encounters between individuals, organizations and the environment in which these individuals and organizations function. In other words, the scope of innovation activity goes beyond the pure research and development area. What is more, the core of the analysis is the so-called innovation dynamo, i.e. a complex system of factors shaping innovation at the level of an enterprise [Nowak 2012, p. 157]. 1

The modifications consist in changing production functions through eliminating the old and introducing the new total product curve. Consequently, the production cost curves also undergo changes. These processes disturb the functioning of decreasing income principle [Schumpeter 1939, p. 87-94]. The direct result of innovation is technological progress which may be illustrated with lowering production isoquants [Schumpeter 1939, p. 38-40]. 2 According to Schumpeter, the creation of an invention is not equal to innovation. It is not so because innovation consists in implementing the invention. As long as inventions are realized in practice they do not have any economic significance [Schumpeter 1939, p. 84-86; Schumpeter 1960, p. 141-143]. 90

According to definitions adopted in the Oslo Manual [2008, p. 20], innovation activities include all scientific (research), technical, organizational, financial and commercial actions whose aim is to develop and implement new or significantly improved (see Table 1):  products – product innovation,  processes – process innovation,  organizational methods – organizational innovation,  marketing methods – marketing innovation. These products, processes and methods must be amount to a novum at least from the point of view of the enterprise which introduces them, but they do not need to be novelties at the international or domestic level. The way of defining innovation and innovation activity determines the selection of indicators reflecting the analyzed processes. In professional literature two main categories of indicators are used. The categories characterize innovation activity: input and output measures [Hughes 2001; Acs and Audretsch 1991, p. 740]. In the result-oriented approach to innovation ex definitione the latter is used as quantity indicators prevail within it1. In the case of process approach to innovation the list of relevant measures of innovation activity is undeniably broader and also embraces input measures as well as quantitative and qualitative indicators which illustrate various aspects of innovation activity2. It should be emphasized that, independently of the way of understanding innovation, the application of an individual measure, either within the scope of inputs, or outputs, does not fully represent the level of the innovation activity realized [Acs and Audretsch 1990]. Therefore, in most research in innovation activity of enterprises, including

1

This group includes inter alia measures reflecting: protection of intellectual property (patent, utility model and trade mark statistics), the size of the innovation sector (the number and proportion of innovative enterprises), effects in relation to the product (the share of income from selling new or significantly improved products within total income) as well as the scale and structure of newly implemented innovation. Moreover, in spite of the measures enumerated above some authors apply qualitative indicators based on the results of survey research in which entrepreneurs evaluate e.g. the level of novelty of implemented innovation, the influence of innovation on the results of the enterprise’s functioning, as well as the level of achieving the planned aims of implementing the innovation. 2 This group embraces besides output measures the indicators reflecting: input related to innovation activity (including financial sources), the scope and scale of cooperation of enterprises with other entities and institutions, innovation barriers, motivation and aims behind undertaking innovation activity, as well as applied information sources.

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its determining factors, a combination of indicators illustrating various aspects/areas of innovation activity is applied. Table 1. Subject scope of innovation according to the type of introduced solutions Type of innovation

Subject scope and characteristics of innovation

Product innovation

A product or a service which are new or significantly improved within the scope of their characteristics or usage. This group of innovation includes significant improvements of technical specifications, components, materials, in-built software, simplicity in use, and other functional features.

Process innovation

A new or significantly improved production or delivery method. This category includes significant changes within the scope of technology, machinery and/or software. The aims of process innovation are: reducing production or delivery costs per unit, improving quality, production or delivery of new or significantly improved products.

Marketing innovation

A new marketing method entailing significant changes in the project/construction of a product, in packaging, distribution, promotion as well as the price strategy. The aims of marketing innovation are: better satisfaction of customer needs, opening new markets or new positioning of a company’s product on the market in order to increase sales.

A new organizational method in action principles adopted by the company, in workplace organization or relations with the surroundings. The aims of organizational innovation may be efficiency growth Organizational through the reduction of administrative or transactional costs, innovation increasing the level of work satisfaction (and consequently – work efficiency), gaining access to assets which are not the subject of trade (e.g. non-codified external knowledge), as well as lowering the costs of supplies. Source: own research on the basis of [Oslo 2008, pp. 50-54]

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4.3. Classification of Economic Conditions for Innovation Activity According to many economists, innovation results from the interaction of possibilities and stimuli related to the internal characteristics of an enterprises with external impulses created in its surroundings [Dosi 1990, p. 108; Pavitt, Robson and Townsend 1987, p. 298]. This view is commonly reflected in the widely-used classification of determinants of innovation activity of enterprises in which they are divided into external and internal factors. The former depend on the internal potential of an enterprise, whereas the latter stem from the surroundings (micro-, mesoand macro-) in which the enterprise functions and from whose resources it takes avail of [Szopik-Depczyńska 2009; Wziątek-Kubiak and Balcerowicz 2009]1. The following areas are included in the group of internal factors: financial resources, organizational and ownership structure (including intracorporate relations), the management system, the size of the enterprise, the level of the technology applied, as well as broadly understood intellectual resources (including human capital) which determine the enterprise’s ability to create and develop new knowledge [Bartle 2002, pp. 1-2; Audretsch 2004, p. 177; Kozioł 2009; Wziątek-Kubiak and Balcerowicz 2009]2. According to A. Wziątek-Kubiak and E. Balcerowicz [2009, p. 17], the so-called innovation resources, which directly condition the innovation activity of enterprises, are the key issues for in this area. They embrace human capital resources and accumulated knowledge resources (including objectified knowledge as well as commercial and organizational resources). In light of „the two faces of R&D” conception proposed by W.M. Cohen and D.A. Levinthal [1989, p. 569] among the abovementioned resources a particular role in innovative processes is played by the own research In professional literature the terms of endo- and exogenous factors are used [Kozioł 2009]. As long as the internal potential depends on the decisions made by the enterprise, the external situation usually remains beyond its control [Szopik-Depczyńska 2009]. 2 Within the area of the theory of economics the starting point for the analysis of internal conditions for the innovation activity of economic entities is the resource-oriented theory of an enterprise, according to which the long-term competitive advantage, equal to the ability to generate surplus profits, results from the specific exceptional resources (tangibles and intangibles) used by the company in order to plan and implement its strategies [Ujwary-Gil 2009]. 1

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and development activity and complementary in this regard human capital. On the one hand, they are the source of innovation. On the other hand, they increase the absorptive capacity of the enterprise, i.e. its ability to identify (discern the know-how existing on the market), assimilate and apply (commercialize) external knowledge1. In the case of the remaining internal factors, such as financial resources, debt and the size of the enterprise, their impact on the innovation activity is indirect and is conditioned by the ability to finance innovation, the readiness to take risk related to the development and implementation of innovation, as well as by financing possibilities for research and development in the long run [Wziątek-Kubiak and Balcerowicz 2009, p. 18.]. Therefore, it seems that innovation resources, which de facto are attached to the process of creating and realizing innovation, amount to a necessary condition for innovation activity of enterprises. On the other hand, internal factors, which indirectly influence the innovative process and are not seen as an element of the process, amount to the sufficient condition. It should be stressed that, whereas internal factors "mark the borderline of innovation capacity of an enterprise", the real scale, intensity and type of implemented innovation are to a great extent influenced by the enterprise's surroundings (external conditions). External conditions for innovation activity of enterprises are a function of general factors which shape the macro-surroundings of all economic entities as well as of the factors which affect the meso- and micro-surroundings. The latter are specific for particular industries and entities belonging to them. The first group of factors includes [Szopik-Depczyńska 2009; Wziątek-Kubiak and Balcerowicz 2009, p. 19]:  the broadly-understood institutional conditions which create the framework and define the principles for economic activity through legislation and inherited operating rules. Within this scope the innovation policy of the state and the strategy for the development of science and technology are the key issues, as they define the development It should be stressed that the term “absorptive capacity” refers not only the possibilities of a company within the scope of new processes or product innovation, but also to skills needed to take avail of indirect external knowledge (the results of basic research) as the starting point for own applied research [Cohen and Levinthal 1989, p. 569]. According to W.M. Cohen and D.A. Levinthal [1990], these skills are a function of the level of the knowledge accumulated by the company which implies a positive relation between the R&D activity and the enterprise’s ability to absorb and develop new scientific and technical ideas. 1

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directions and the size of the financial outlay in reference to R&D and the educational system;  the level of the socioeconomic and technological development of a country which influences the characteristics of the innovation system and its effectiveness, the extent to which the economy is dependent on the import of technical conceptions, the scientific and technical resources, and the research and development potential;  the current and forecast general economic situation in the country and abroad which affects the financial state of an enterprise, the economic balance and the risk level related to implementing new solutions, in particular of a technological character. Moreover, the economic situation determines not only the size of innovation activity outlay, but also is crucial in decision-making linked with implementing innovation entailed by the activity. Among external factors functioning at the meso-level the following may be enumerated [Szopik-Depczyńska 2009; Wziątek-Kubiak and Balcerowicz 2009, p. 19; Kozioł 2009]:  the characteristics of the industry in which the enterprise realizes its economic activity (the entity structure of the industry, including the market position of an enterprise, type and intensity of competition, the level of technological development);  the market and non-market interrelations between entities within the industry and at the multi-industry level, including industrial synergy affecting the type of implemented innovation;  the current and forecast economic situation in the industry as well as the pace of growth and perspectives for the market's development. The results of relevant research have indicated that the importance of specific factors within shaping innovation activity of enterprises is varied and to a great extent depends on the particular type of undertaken operations [GUS 2006]. This fact is particularly visible in reference to internal conditions and the factors at the level of the industry internal conditions and the factors at the level of the industry surrounding of an enterprise (the meso-level). It stems from the fact that specific fields of production differ in terms of the characteristics of production processes (e.g. capital intensity, labor intensity, high-tech knowledge share within the value added) as well

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as in the so-called success factors and competitive methods [Wziątek-Kubiak & Balcerowicz 2009, p. 26].

4.4. Meso-economic Determinant of the Innovation Activity of Enterprises – a Research Review In the research conducted at the industry level (meso-level) the questions of innovation activity of enterprises is analyzed mainly in the context of the size of the enterprise and the structure of the industry, the level of technological development of the industry, as well as the intensity and methods of competing in the industry. The first of the abovementioned areas stems directly from J.A. Schumpeter's works. The institutional changes of the first half of the 20th century in American economy, mainly the foundation of large corporate-like enterprises, caused the change of knowledge creation processes. According to Schumpeter they implied a positive relation between the size of an enterprise and the intensity of its innovation activity [Schumpeter 1995, p. 100-130]. This statement became the foundation of the so-called Schumpeter hypothesis formulated by J. K. Galbraith which assumes positive impact of monopolistic and oligopolistic structures on the intensity of innovation activity [Hospers 2005, p. 25]. The hypothesis proposed by J. K. Galbraith created a broader analytical perspective which took account of relations of two kinds: between innovation activity and the market structure, as well as between the intensity of research and development activity and the size of the enterprise. However, the empirical verification of the hypothesis mainly came down to examining the latter1. Empirical research generally has not provided an unequivocal confirmation of Schumpeter's hypothesis so far. Despite the fact that the results of empirical works within the second out the abovementioned research trends most often indicate the monotonous growth of the research and development activity in parallel to the size of the enterprise2, in the case of the relationship 1

In professional literature we may find numerous publications concerning the influence of the size of an enterprise on its innovation activity: [Rodriguez 1979, pp. 383-385; Aghion and Tirole 1994; Fisher and Temin 1973; Sung and Carlsson 2007; Mukhopadhyay 1985; Nelson 1990; Kohn and Scott 1982; Tsai and Wang 2004; Broadberry and Crafts 2001]. 2 See inter alia: [Aghion and Tirole 1994; Loeb 1983; Sung and Carlsson 2007; Benavente 2006; Mukhopadhyay 1985; Kohn and Scott 1982; Acs and Audretsch 1988]. 96

between the competitive intensity and R&D intensity coherent results have not been presented in the context of the direction of the analyzed categories1. Difficulty with explaining differing research results encouraged individual authors to further analyze processes seen from a wider perspective taking account of technological (technological potential, R&D type, distinction between the process of introducing innovation and the process of diffusing it etc.) and structural characteristics (input barrier, characteristics of demand etc.) [Symeonidis 1996; Pires-Alves and Rocha 2008; Smith and Madsen 2002]. Enriching the analysis with additional aspects contributed to the emergence of the thesis on the non-linear relationship between competition and the research and development activity. According to some authors this relation takes the form of a concave parabola which implies the phenomenon of limiting innovation activity after a specific level of competition intensity is reached and still growing [Amato and Amato 2004; Benavente 2006; Hashmi 2013]. The thesis has been confirmed by the research conducted for the processing industry in Canada [Baldwin, Hanel and Sabourin 2000], the USA and Great Britain [Hashmi 2013]. The conclusions of research testing the non-linear character of the relationship between the market structure and innovation activity also indicate that:  input barriers limit investment in the research and development activity [Smith and Madsen 2002],  competition has bigger importance for the process of diffusion than for introducing innovation [Baldwin, Hanel and Sabourin 2000];  the technological potential of specific industries is an important factor which influences the form of the analyzed relationship; the growth of technological potential contributes to the creation of non-linear relations between the two categories [Levin, Cohen & Mowery 1985, pp. 20-24]. The impact of the technological level on the relation between innovation activity and competitive intensity (measured with the intensity rate) was confirmed by the results of the research conducted for the Polish 1

The research results indicate the possibility of occuring both positive [Smith and Madsen, 2002; Pires-Alves and Rocha 2008; Adams and Dirlam 1967] and negative [Acs and Audretsch 1988; Broadberry and Crafts 2001] relations between competition and innovation activity observed in specific industries/sectors of the economy. There are also works suggesting a lack of statistically significant interrelations between these areas [Lee and Hwang 2003; Acs and Audretsch 1988].

97

processing industry for the period between 1997 and 2007 [Kozłowska, Szczepkowska-Flis, 2009]. The results of the econometric analysis depicted that in the low technology sector this relationship may be described with a linear function of a negative slope, whereas in the high technology sector – with a cubic polynomial. According to the authors of the present chapter this correlation may suggest that in the low technology sector the processes of innovation diffusion are more important for the technological development than the process of introducing innovation. It can also be confirmed by the fact that the majority of the research and development activity is realized in industries included in the high technology sector [Nauka i Technika 2004, p. 154]. On the other hand, low absorption of knowledge, a short life cycle of products and processes, growing need for highly qualified personnel, large outlay on the innovation activity may justify the complex relation between innovation activity and production intensity observed in these industries. A slightly different interpretation of the non-linear relation between competitive intensity and the scale of realized innovation under the conditions of a varied technological level of sectors (enterprises) may be found in the works by P. Aghion et al. [2005, 2009]. According to the conception proposed by the authors, the influence of competition on innovation results from two effects: escape competition effect and Schumpeterian appropriability effect. The former is dominant in a situation when the level of technological advancement of the entities functioning within a given industry is comparable, and the growing competitive pressure stimulates the innovation activity of the enterprises for which implementing innovation is a chance to gain leverage and escape rivals. On the other hand, the Schumpeterian appropriability effect prevails in a situation of a varied level of technological advancement of economic entities. Under such conditions the reaction of technologically underdeveloped enterprises (laggards) to the growth competition is limiting the innovation activity, because the probability of gaining rent related to the implemented innovation is inversely proportional to the technological distance to leaders [Adler 2010]. Different market conditions present in various industries may both define the scale of innovative processes and determine the structure of implemented innovation. In more technologically advanced industries the basis for competition is usually shaped by qualitative parameters of a product, 98

whereas the dominant strategy is differentiation. The pressure to improve quality triggers the situation in which the prerequisite for survival on the market is continuous research and development activity linked with the realization of product innovation which in many case call for implementing process innovations. A frequent implementation of novelties or improvements causes the cycle of life of products to shorten. Consequently, the effects of innovation activity are subjected to a fast moral obsolescence. Under such conditions innovation activity undertaken by economic entities on the one hand increases the level of competition on the market by stimulating the mechanisms of selection; on the other hand, it may treated as a peculiar protection from them. In industries in which economic activity is based on traditional production methods the basis for competition are usually the following three elements: price, quantity and costs. In such a situation the source of competitive leverage of entities are mainly process innovations which lower production costs or increase the efficiency of production processes. In light of the results of numerous researches the statement of the existence of interrelations between an industry's characteristics and the scale and specificity (structure) of the innovation activity realized within it does not raise any doubts. Moreover, some authors pay attention to the fact that each type of innovation (product, process, organizational and marketing) is under the influence of its specific set of factors1. In this context the change of research point of view and broadening the analysis with factors shaping particular types of innovation appear to be justified. Such an approach implies that characteristics of an industry define, indirectly through the structure of the realized innovation, a "basket" of macroand microeconomic factors determining the innovation activity typical of the given industry as well as the impact size of these factors.

For example, according to A. Wziątek-Kubiak and E. Balcerowicz [2009, p. 25] product innovation are subjected to strong influence of an enterprise’s market surroundings. Competitive pressure and demand conditions are particularly important in this respect. On the other hand, process innovation is highly vulnerable to external conditions of entities’ innovation activity, especially within the scope of workforce qualification and training input levels. Human resources are also significant for the remaining two types of innovation (marketing and organizational), in the case of which the share of intangible factors in innovative processes is substantial. 1

99

4.5. Essential Content of Variables of the Empirical Analysis

and

the

Stages

The aim of the undertaken research was to define the factors which determine the scale of innovation implemented in the Polish processing industry for the period between 2006 and 2014. The research objective formulated as above implied the meso-economic perspective of the conducted research, as well as the selection of innovation activity indicators in accordance with the result-oriented approach to innovation. The theoretical framework for modeling the analyzed relations was formed by the following research assumptions:  processes taking place in an industry (meso-surroundings) by changing the conditions for the innovation activity of enterprises trigger adjustment processes in reference to the new market situation,  changes of conditions in the meso-surroundings are perceived individually and defined by the entities as an opportunity or a barrier for achieving the planned objective,  each type of innovation (product, process, organizational and marketing) is subjected to the influence of its specific set of factors,  the accumulation of decisions made by economic entities in relation to the realized innovation determines their structure at the level of an industry. The accepted assumptions defined not only the direction of the analyzed relation, but also the type of indicators reflecting the innovation activity of enterprises along with the factors which determine it. Although the view of the existence of feedback between the external surroundings and the enterprise is commonly accepted, in the present chapter the analysis has been reduced to one-way relations within which the mesosurroundings' conditions (market conditions) determine the scale and type of realized innovation. The following qualitative indicators has been accepted as dependent variables which define:  product innovations – enterprises which introduced new or significantly improved products as the share of total enterprises of a given economic activity – variable IPW;

100

 process innovations – enterprises which introduced new or significantly improved processes as the share of total enterprises of a given economic activity – variable IPP,  organizational innovations – enterprises which introduced organizational innovations in % of total enterprises – variable IO,  marketing innovations – enterprises, which introduced marketing innovations in % of total enterprises – variable IM. As explaining variables we applied a group of qualitative indicators of economic trends coming from research conducted with the use of the economic trends test method (table 2). The economic trends test is a survey conducted among economic entities, in which respondents evaluate:  their past and present economic situation – diagnosis indicators,  expectations and plans of the analyzed entities – forecast indicators,  the economic situation from the present and predicted trends – climate indicators1,  the changes of the market position of the enterprise in relation to domestic and foreign competitors – market position indicators,  the level of demand and supply barriers – barriers indicators. Hence, the qualitative indicators reflect the subjective feeling of enterprises related to the present and future market conditions and tendencies in the economic activity realized by them. The indicators selected for the research concerned: the general economic and financial situation of enterprises, their market position and competition, trends of demand, production and prices, as well as the barriers related to inter alia access to qualified work force and production apparatus, and the supply of raw materials and materials. The diagnosis, forecast and market position indicators are calculated in percentage, weighted shares of enterprises, selecting a given variant of answer to the question formulated in the economic trends survey as well as in the form of weighted balance (the difference between the percentage of positive and negative answers for the situation of enterprises). They take the form of figures between –100 and +100. Growth of an indicator's value is interpreted as improvement, whereas its decrease is seen as the deterioration 1

Climate indicators are estimated as an arithmetic average of forecast and diagnosis indicators within the scope of a given economic category.

101

of the situation from the point view of the analyzed enterprises. On the other hand, the values of barriers indicators is estimated as a percentage of entities which select a given variant of answers among all respondents who in the economic trends survey perceived any type of barriers as significant for their own activity. In this case a growth of an indicator means growth of a given barrier. Table 2. Explaining variables used in the research Group of indicators

Details Symbol General economic situation DOS Current domestic and foreign order-books DP Diagnosis indicators Current production DPS Current stocks of finished products DZ Current financial situation of the enterprise DSF Expected economic situation POS Expected domestic and foreign order-books PP Forecast indicators Expected production PPS Expected financial situation of the enterprise PSF Expected selling prices of products PC General business tendency climate KOS Order-books climate KP Climate indicators Production climate KPS Climate of financial situation of the enterprise KSF Insufficient domestic demand BP Shortage of skilled labor BKL Shortage of raw materials, materials, and semiBSM finished products (not related to financial causes) Lack of appropriate equipment BPM Barriers and market Competitive imports BKI position indicators Company’s position in comparison to competitive BKK units on domestic market Company’s position in comparison to competitive BKUE units on the foreign markets inside the EU Company’s position in comparison to competitive BKS units on the foreign markets inside the EU

Source: own research

102

In the research source data published by GUS (General Statistical Office in Poland) for 22 branches of Polish processing industry1 for the period between 2006 and 2014 were used. The timespan covered by the research was dictated by the accessibility of comparable statistical data2. The evaluation of the influence of the meso-economic factors on specific types of innovation implemented in the Polish processing industry was conducted in two stages (Fig. 2).

Stage I

Diagnosis indicators

Forecast indicators

Climate indicators

Barriers and market position indicators

Stage II

Statistically significant indicators

Indicators included in the final models of the dependent variables: IPW, IPP, IO, IM

Figure 2. Scheme of the research procedure. Source: own research

1

Manufacturing NACE Rev. 2 divisions [PKD 2007]: manufacture of food products, beverages and tobacco products (PKD 10); manufacture of textiles (PKD 13); manufacture of wearing apparel (PKD 14); manufacture of leather and related products (PKD 15); manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials (PKD 16); manufacture of paper and paper products (PKD 17); printing and reproduction of recorded media (PKD 18); manufacture of coke and refined petroleum products (PKD 19); manufacture of chemicals and chemical products (PKD 20); manufacture of basic pharmaceutical products and pharmaceutical preparations (PKD 21); manufacture of rubber and plastic products (PKD 22); manufacture of other nonmetallic mineral products (PKD 23); manufacture of basic metals (PKD 24); manufacture of fabricated metal products, except machinery and equipment (PKD 25); manufacture of computer, electronic and optical products (PKD 26); manufacture of electrical equipment (PKD 27); manufacture of machinery and equipment n.e.c. (PKD 28); manufacture of motor vehicles, trailers and semi-trailers (PKD 29); manufacture of other transport equipment (PKD 30); manufacture of furniture (PKD 31); manufacture of other products (PKD 32); repair and installation of machinery and equipment (PKD 33). 2 The change of the classification of types of economic activity from PKD 2004 to PKD 2007 prevented, due to the lack of data comparability, the extension of the timespan of the analysis.

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At the first stage for each out the four distinguished groups of indicators (table 2) the procedure of selecting independent variables was applied. On the basis of the estimated equations of regression we conducted the evaluation of statistical feasibility in explaining the shaping of individual dependent variables: IPW, IPP, IO, IM. At the second stage of the research we only took account of categories within each group of indicators which had met the condition of statistical significance defined with the use of the tStudent test at the level α = 0.05. The second stage consisted in estimating the final equations of multiple regression which took into consideration the indicators from the first stage of the analysis. Due to the two-dimensional character of the acquired data at both stages panel analysis was used. In the research the backward stepwise regression with fixed effects was used [Rawlings, Pantula and Dickeys 1998, p. 161-178; Weiss 2005, 151152]. The effects took account of the variables omitted in the analysis which were different in separate sections, but constant in time [Davidson and MacKinnon 2004, p. 297-298; Baltagi 2005, p. 12-14]. Moreover, it was assumed that the values of the parameters' evaluations estimated for individual independent variable in relevant equations are identical for all units of the research (branches of the processing industry). Thus, the equations subjected to estimation took the following general form: 𝑦𝑖𝑡 = 𝛼 + 𝛽𝑥𝑖𝑡 + 𝛿𝑖 + 𝜀𝑖𝑡

where: α – general regression constant, β – regression index, δi – fixed effect for branch i, εit – residual. The estimated constant in the equation of panel regression should be interpreted as a general average of fixed effects estimated for individual branches, consequently, specific fixed effects for a given branch – as a deviation from this average [Hsiao 2003, p. 33]. In order to avoid the mistake in the specification of models for each of the estimated equations of regression a test of unnecessary fixed elements was conducted with the use of the F-Snedecor statistics [Greene 2003, p. 289]. 104

The heteroscedasticity of residuals of the estimated models, frequentlyoccurring in the case of panel regressions, encouraged the authors of the present chapter to estimate the equations of regression with the use of the Feasible Generalized Least Squares Estimator (FGLS) [Wooldridge 2002, p. 262-269], which assures acquiring unbiased and consistent estimators of parameters, as well as White's heteroscedasticity and auto-correlation consistent covariance estimation [Kennedy 1998, p. 121; Wooldridge 2001, p. 57; Greene 2003, p. 314-316]1. The evaluation of diagnostic feasibility of the estimated functions was conducted on the basis of the analysis of the R2 determination index which defines the level of a model's adjustment to the results of the observations. By analogy with the first stage the statistical significance of specific parameters was defined with the use of the t-Student test at the level of α = 0.05. The null hypothesis on the lack of autocorrelation of residuals was verified with the use of the Durbina-Watsona test (DW) [Maddala 1992, p. 230-232; Bhargava, Franzini and Narendranathan 1982]2. The normality of residuals was tested with the use of Jarque-Bera test [Kufel 2007, p. 58; Maddala 2006, p. 487]. All variables used in the research were subjected to panel-data stationarity tests [Baltagi 2005, p. 240-245; Davidson and MacKinnon 2004, p. 603-614; Kennedy 1998, p. 268-269, 283-286; Hsiao 2003, p. 298-301]. The results of the empirical analysis and their interpretation may be found in the next part of the present chapter. It should be stressed however, that the emphasis is put uniquely on the results which are significant from the point of view of the realization of the research objective.

1

In panel regression equations the reported standard errors of parameters are often underestimated [Wooldridge 2001, pp. 271-272]. 2

The value of Durbin-Watson statistics for bigger samples comes from [Savin & White 1977].

105

4.6. Results of Empirical Analysis The introductory comparative analysis of data illustrating the innovation of enterprises in the Polish processing industry in the first and last periods of research depicted the decrease in the proportion of entities which implemented innovation (Fig. 3-6). This correlation related to all types of innovation. It was the most visible for marketing and organizational innovation, though. PKD 10 PKD 33 60 PKD 13 PKD 32 PKD 14 50 PKD 31 PKD 15 40 30 PKD 30 PKD 16 20 10 PKD 29 PKD 17 0 PKD 28 PKD 18 PKD 27

2006-2008 2012-2014

PKD 19

PKD 26 PKD 25 PKD 24

PKD 20 PKD 21 PKD 22 PKD 23

Figure 3. Values of the IPW indicator for the branches of the Polish processing industry. Source: Based on data from Central Statistical Office of Poland (GUS)

Lower innovation activity of enterprises is usually interpreted in the context of obstacles and barriers which, on the one hand, reduce the scale of outlay on innovation activity; on the other hand, have negative impact on the decisions of the entities to implement new solutions. However, taking account of the results of research concerning innovation activity and conducted by GUS in which respondents (economic entities) evaluate the importance of various factors classified as "reasons for not implementing innovation" and "innovation barriers" [GUS 2015, p. 119], such an interpretation is far from being satisfactory. The research results in this area for 2008-2010 and 2012-2014 show that the role of these factors in shaping the broadly understood innovation activity of entities was decreasing (Fig. 7). Therefore, it seems to be necessary to change the understanding of innovation barriers 106

and obstacles so far understood as external in reference to the market "brakes" of innovation activity. PKD 10 PKD 33 50 PKD 13 PKD 32 PKD 14 40 PKD 31 PKD 15 30 PKD 30 PKD 16 20 10

PKD 29

PKD 17

0 PKD 28

PKD 18

PKD 27

2006-2008 2012-2014

PKD 19

PKD 26

PKD 20

PKD 25 PKD 24

PKD 21 PKD 22 PKD 23

Figure 4. Values of the IPP indicator for the branches of the Polish processing industry. Source: Based on data from Central Statistical Office of Poland (GUS)

PKD 10 PKD 33 35 PKD 13 PKD 32 PKD 14 30 25 PKD 31 PKD 15 20 PKD 30 PKD 16 15 10 PKD 29 PKD 17 5 0 PKD 28 PKD 18 PKD 27

2006-2008 2012-2014

PKD 19

PKD 26

PKD 20

PKD 25 PKD 24

PKD 21 PKD 22 PKD 23

Figure 5. Values of the IPO indicator for the branches of the Polish processing industry. Source: Based on data from Central Statistical Office of Poland (GUS)

107

PKD 10 PKD 33 40 PKD 13 PKD 32 PKD 14 35 30 PKD 31 PKD 15 25 20 PKD 30 PKD 16 15 10 PKD 29 PKD 17 5 0 PKD 28 PKD 18 PKD 27

2006-2008 2012-2014

PKD 19

PKD 26

PKD 20

PKD 25 PKD 24

PKD 21 PKD 22 PKD 23

Figure 6. Values of the IM indicator for the branches of the Polish processing industry. Source: Based on data from Central Statistical Office of Poland (GUS)

low demand for innovations on the… no need to innovate due to previous… uncertain market demand for ideas too much competition on the market lack of partners for collaboration

2008-2010

lack of skilled personnel

2012-2014

lack of external finance lack of internal finance

0

5

10

15

20

25

30

35

enterprises which marked “high” degree of importance relevant factor as % of total enterprises

Figure 7. Reasons for not implementing innovation and innovation barriers in the Polish processing industry. Source: Based on data from Central Statistical Office of Poland (GUS)

108

Table 3. Summary of the results of the first research stage Dependent variables Details

IPW Independent variables DOS

IPP

General economic situation x x Current domestic and foreign orderDP books Current production DPS x Current stocks of finished products DZ x Current financial situation of the DSF x enterprise Expected general economic POS x situation Expected domestic and foreign PP x order-books Expected production PPS Expected financial situation of the PSF x x enterprise Expected selling prices of products PC x x General business tendency climate KOS x x Order-books climate KP Volume of sold production climate KPS x x Climate of financial situation of the KSF x x enterprise Insufficient domestic demand BP Shortage of skilled labor BKL x Shortage of raw materials, materials and semi-finished BSM products (not rlated to financial causes) Lack of appropriate equipment BPM x Competitive imports BKI x x Company’s position in comparison to competitive units on domestic BKK x market Company’s position in comparison to competitive units on the foreign BKUE x markets inside the EU Company’s position in comparison to competitive units on the foreign BKS x markets outside the EU Explanation: “x” indicates statistically significant independent variables.

IO

IM

x

x x

x

x

x

x

Source: own research

109

According to the authors of the present chapter, it is the market (and the processes which takes place in it) is the primary source of both discouraging signals (barriers) and stimulants to economic activity, including innovation. It should be stressed that in the analyses of conditions for innovation activity only the role of hindering factors has been stressed so far. Taking market conditions as the central part of our considerations broadens the analyses with innovative process stimulants which de facto may solve the problem of interpreting the decrease in implemented innovations under the conditions of low sense of barriers and obstacle for innovation. The results of the analyses conducted within the first stage appear to confirm the validity taken by the authors of the research. It is so, because the results of the estimation of equations of regression indicate that the majority of the analyzed independent variables (diagnosis, forecast, climate, and barriers and market position indicators) are characterized by a considerable usefulness in explaining the variability of indicators reflecting the scale of innovation implemented in the branches of the Polish processing industry (Table 3). Table 4. Values of the correlation coefficients for IPW, IPP, IO and IM IPW

IPP

IO

IM

IPW

1

0,88

0,81

0,82

IPP

0,88

1

0,82

0,73

IO

0,81

0,82

1

0,71

IM

0,82

0,73

0,71

1

Source: own research

The results of the final equations of regressions estimated at the second research stage for individual innovation indicators have been presented in tables 5-8. The high level of determination coefficients testifies to a very good adjustment of models to empirical observations. It implies that market factors amounted to significant scale determinants of the innovation implemented in the Polish processing industry. This correlation was noted for all types of innovation, nevertheless, from the point of view of the number of significant independent variables, organizational and marketing innovation appears 110

to relate to the market situation to a lesser extent as proved by the conclusion drawn on the basis of the results of the first research stage. Table 5. Results of the estimation of the equation of panel regression for the dependent variable IM Method: Panel FGLS (Cross-section weights) Total panel observations: 154 Linear estimation after one-step weighting matrix White cross-section standard errors and covariance (d.f. corrected) Variable

Coefficient

Standard Error

t-Statistic

Probability

C

-3.76

3.03

-1.24

0.22

BKI

0.59

0.13

4.70

0.00

R^2 = 0.78; adjusted R^2 = 0.74; F-statistic = 20.46 p = 0.00; DW-statistic = 2.67 [dL = 1.72 dU = 1.75]; redundant fixed effects test: cross-section F-statistic = 20.55 p = 0.00; Jarque-Bera normality test = 3.15 p = 0.21 Source: Own calculations

Table 6. Results of the estimation of the equation of panel regression for the dependent variable IO. Source: Own calculations Method: Panel FGLS (Cross-section weights) Total panel observations: 154 Linear estimation after one-step weighting matrix White cross-section standard errors and covariance (d.f. corrected) Variable

Coefficient

Standard Error

t-Statistic

Probability

C

3.22

1.84

1.76

0.08

BKL

0.11

0.04

2.59

0.01

BKI

0.29

0.07

4.15

0.00

R^2 = 0.91; adjusted R^2 = 0.9; F-statistic = 60.16 p = 0.00; DW-statistic = 2.69 [dL = 1.71 dU = 1.76]; redundant fixed effects test: cross-section F-statistic = 61.02 p = 0.00; Jarque-Bera normality test = 3.43 p = 0.18 Source: Own calculations

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The detailed analysis of the final models of multiple regression for the IO and IM variables (tables 5 and 6) shows that among market factors selected for the research competitive imports (BKI barrier) have a significant impact on the percentage of enterprises implementing organizational and marketing innovation. In both models the regression coefficient for the BKI variable was positive, thus, the pressure created by competitive imports should be perceived as an innovation stimulant rather than a barrier. It is so because it appears to be a factor forcing actions aiming at protecting the level of the market share (market position). The significance of the BKL barrier in the regression model for the IO dependent level confirms the importance of human capital for the realization of organizational innovation stressed by many authors. The positive value of a parameter according to this variable indicates a positive direction between these categories: growth of problems linked with the access to qualified labor force intensified the activity of enterprises in the area of organizational innovation. The explanation of this seemingly surprising result may be found in the work of Adam Smith published in 1776. In the context of his considerations organizational innovation is undertaken under the conditions of in-sufficient human capital which should be seen as a way of improving the efficiency of work and increasing the effectiveness of the use of production factors. In other words, in many cases it is the insufficiency of human capital rather than its abundance which amounts to a stimulant for implementing organizational innovation. The results of the estimation of equations of regression for dependent variables IPW and IPP (tables 7 and 8) also lead us to interesting conclusions. The starting point for the interpretation of the received results may be the classification of technological progress (normal and exceptional) proposed by G. Dosi [1990, p. 129]. Normal technological process does not depend on market factors and is mainly linked with technical requirements stemming from specific standards for the technology applied. On the other hand, exceptional technological progress is stimulated by market factors. Searching for new products, production methods, technical and organizational solutions in this case results from endogenous processes linked with the level of competition intensity on the market. The comparison of the "sets" of factors in both estimated models indicates that the decisions about implementing product innovation to a greater extent are stimulated by the market situation 112

than in the case of process innovation. This conclusion implies that for industries in which process innovation is dominant exceptional technological progress is typical, whereas in industries with a big role of process innovation – normal technological progress. The verification of the thesis formulated by the authors of the present chapter unquestionably needs broader research. Moreover, further research in this directions is also stimulated by the conclusions from the thorough analysis of equations of regression estimated for the dependent variables IPW and IPP. Table 7. Results of equations of panel regression for the dependent variable IPW Method: Panel FGLS (Cross-section weights) Total panel observations: 154 Linear estimation after one-step weighting matrix White cross-section standard errors and covariance (d.f. corrected) Variable

Coefficient

Standard Error

t-Statistic

Probability

C

10.31

1.28

8.07

0.00

DOS

-0.42

0.16

-2.71

0.01

DPS

0.47

0.14

3.43

0.00

DSF

-0.12

0.06

-2.03

0.04

PSF

-0.34

0.09

-3.81

0.00

KOS

0.89

0.27

3.26

0.00

KPS

-0.49

0.20

-2.47

0.02

BKL

0.13

0.04

3.41

0.00

BKI

0.17

0.06

2.67

0.01

BKK

-0.29

0.04

-7.40

0.00

BKUE

0.28

0.09

3.22

0.00

R^2 = 0.98; adjusted R^2 = 0.97; F-statistic = 156.33 p = 0.00; DW-statistic = 2.34 [dL = 1.6 dU = 1.88]; redundant fixed effects test: cross-section F-statistic = 126.67 p = 0.00; Jarque-Bera normality test = 3.66 p = 0.16 Source: Own calculations

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Table 8. Results of equations of panel regression for the dependent variable IPP Method: Panel EGLS (Cross-section weights) Total panel observations: 154 Linear estimation after one-step weighting matrix White cross-section standard errors and covariance (d.f. corrected) Variable

Coefficient

Standard Error

t-Statistic

Probability

C

14.98

0.46

32.58

0.00

DZ

0.25

0.06

3.85

0.00

POS

0.34

0.04

9.62

0.00

PSF

- 0.29

0.07

- 4.22

0.00

BPM

0.17

0.03

5.10

0.00

R^2 = 0.97; adjusted R^2 = 0.96; F-statistic = 161.8 p = 0.00; DW-statistic = 2.25 [dL = 1.68 dU = 1.79]; redundant fixed effects test: cross-section F-statistic = 135.77 p = 0.00; Jarque-Bera normality test = 1.14 p = 0.57 Source: Own calculations

On the basis of the results of the research conducted for the dependent value IPW we may state that the scale of product innovation implemented in the Polish processing industry was conditioned by:  a general economic situation of an enterprise – a positive value of the regression coefficient for the climate indicator implies that the positive evaluation of the overall standing of the enterprise, based not only on the current situation but also on the forecast relating to its future, was a stimulating factor for an enterprise in the context of innovation activity within the scope of products. The current and forecast general situations affect the financial standing of the enterprise, its economic balance and the risk level linked with implementing new solutions. Furthermore, a negative relation between the IPW and DOS variables testifies to the fact that worsening of the current standing of a company was a factor for implementing product innovation. In this context product innovation may be perceived as an element of a defensive strategy which enables the enterprise's survival on the market in a short run,  production volume – a positive regression parameter for the DPS variable means that growth of current production stimulated enterprises to implement product innovation. This result is coherent with the results 114

of research conducted by other authors, according to which innovation activity of entities increased in a period of economic recovery, whereas periods of recession and stagnation were characterized by a decrease in activity within this area [Świadek 2012]. On the other hand, a negative value of the evaluation of the KPS variable implies that the positive evaluation of the changes in current production supported by positive expectations in reference to future periods decreased the enterprises' motivation for implementing product innovation,  the financial situation of an enterprise – negative regression coefficients for the DSF and PSF variables show that worsening of the current and forecast financial situation of economic entities stimulated the implementation of product innovation. This regularity suggests that the weakening of financial standing not always is a barrier for innovation activity, as it may even be a stimulating factor,  barriers linked with competitive import and shortage of qualified employees affecting product innovation in a similar way as it was reported for organizational and marketing innovation,  the competitive position of the enterprise on the domestic and foreign markets – the evaluation of regression parameters for the BKK and BKUE variables indicate that the stimulating factors for innovation activity of entities were worsening of the competitive position on the domestic market and its improvement on EU markets. Assuming that domestic enterprises are characterized by a relatively lower differentiation of the technological level than in the European Union, the observed relations may be explained by referring to the abovementioned effects: escape competition effect and Schumpeterian appropriability effect. The former explains the domestic market entities' reaction as in the face of increasing competition they implement innovation, because it is seen as an opportunity to gain advantage and escape competition. On the hand, the latter refers to the behavior of enterprises which under the conditions of growing pressure created by their competition on EU markets deploy the strategy of withdrawal from the fight based on implementing new products. The results of the research for the IPW variable undeniably confirm the high sensitivity of product innovation to external factors coming from the market. On the other hand, the results of the estimation of the equation of regression 115

for the IPP dependent variable imply the sensitivity of process innovation to internal factors only indirectly linked with the market situation. Consequently, the group of factors which significantly shaped the scale of process innovation in the Polish processing industry included: current stocks of finished products (DZ), lack of appropriate equipment (BPM) as well as expected general economic situation (POS) and expected general financial situation (PSF). As expected the regression coefficients for the DZ, POS and BPM variables took positive values. On the other hand, the negative value of the parameter for the PSF variable confirms the conclusions from the estimated model for product innovation. According to the authors of the present chapter, it should be emphasized that in none of the sets of market factors which significantly influence the analyzed types of innovation there were indicators reflecting the predictions of an enterprise linked with changes in market demand (domestic and foreign). The lack of connection between the order book and innovation activity is curious, especially in light of the significant influence of other categories which reflect the intensity of competitive processes on the market: competitive import barriers and the competitive position of an enterprise on the domestic and EU markets. The competitive position on the foreign markets outside the EU cannot be seen as a determinant of the innovation activity for the Polish processing industry. The geographical scope of international activity dominant among Polish enterprises, which is focused on the EU markets, on the one hand justifies the obtained result. On the other hand, it causes the situation in which the realization of innovative processes aims at the European pattern and not the world technological borderline

4.7. Summary The aim of the research presented in this chapter was to define market factors determining the scale of innovation implemented in the Polish processing industry within the period between 2006 and 2014. In the research the mesoeconomic perspective was applied along with the result-oriented approach to innovation activity. The following two assumption were essential for the analyzed relations:

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 the primary source of stimulants and impulses hindering the entities' willingness to implement innovation are processes occurring on the market,  each type of implemented innovation is subjected to the impact of its set of factors specific. As market stimuli are perceived individual and defined by entities as an opportunity or a threat in achieving the planned goal, the market dynamics indicators reflecting the feeling of an enterprise within the scope of shaping the current and future situation on the market were used as explaining variables. The four qualitative indicators were applied as effect measures illustrating the proportion of enterprises which realized product, process, organizational and marketing innovation within the analyzed timespan. The results of the research confirmed the appropriateness of the assumptions made by the authors of the present chapter. The econometric analyses particularly depicted that:  market factors were significant determinants of the scale of implemented research in the Polish processing industry,  product and process innovation may be seen as most vulnerable for market factors; moreover, in the case of product innovation the influence of market factors can be defined as direct, whereas process innovation seems to be more susceptible to external stimuli indirectly linked with the market,  organizational and marketing innovation was related to the market situation to a lesser extent, however, taking account of their high positive correlation with other types of innovation it cannot be excluded that they also are affected by market factors. The results of the research justify the formulation of general conclusions. The specificity of surroundings in which an enterprise functions as well as the characteristics and intensity of changes occurring on the market cause the situation in which the innovation activity of individual entities is focused on various areas. Consequently, it is subjected to the influence of different factors both in relation to their character and relevant timespan (prognosis – diagnosis). Furthermore, market factors, commonly defined as barriers, do not need to limit the innovation activity of enterprise as they may be its driving force, because market competition functions as both "black117

mailer" and "executor" of the improvement of effectiveness based on implementing innovation. The conducted research undeniably does not exhaust the undertaken research problem. For example, according to the authors of the present chapter the question of the interrelation between the structure of implemented innovation in the industry and the type of the realized technical progress. The solution of this problem calls for additional research, including e.g. the level of technological advancement of an industry, the type of the technical progress realized within the industry, as well as the distance to the world and European technological borderline. It should also be beneficial to broaden the research with a wider set of measures of the innovation activity of entities, which belongs to a trend of research based on process approach to innovation.

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Audretsch, D.B. 2004, Sustaining Innovation and Growth: Public Policy Support for Entrepreneurship, Industry and Innovation, vol. XI, no. 3, pp. 167-191. Baldwin, J., Hanel, P., Sabourin, D. 2000, Determinants of Innovative Activity in Canadian Manufacturing Firms: The Role of Intellectual Property Rights, Analytical Studies Branch Research Paper Series No. 2000122e, [online] http://www.statcan.gc.ca/pub/11f0019m/11f0019m2000122-eng. pdf [access: 15.09.2008]. Baltagi, B.H. 2005, Econometric Analysis of Panel Data, John Wiley & Sons, Chichester. Bartle, D. 2002, Insights of NZ Innovation Experience from Evaluations of Technology-Grant Programs and Other Empirical Studies, Foundation for Research Science and Technology, Wellington, [online], http://nzae.org.nz/files/%2323-BARTLE.pdf, [access: 12.12.2007]. Benavente, J.M. 2006, The Role of Research and Innovation in Promoting Productivity in Chile, Economics of Innovation and New Technology, vol. 15, no. 4-5, pp. 301-315. Bhargava, A., Franzini, L., Narendranathan, W. 1982, Serial Correlation and the Fixed Effects Model, The Review of Economic Studies, vol. 49, no. 4, pp. 533-549. Broadberry, S., Crafts, N. 2001, Competition and Innovation in 1950s Britain, Business History, vol. 43, no. 1, pp. 97-118. Brojak-Trzaskowska M. 2008, Społeczno-kulturowe determinanty aktywności innowacyjnej przedsiębiorstw, in: Okoń-Horodyńska, E., ZachorowskaMazurkiewicz, A., (eds.), Tendencje innowacyjnego rozwoju polskich przedsiębiorstw, Instytut Wiedzy i Innowacji, Warszawa, pp. 169-184. Cohen, W.M., Levinthal, D.A. 1989, Innovation and Learning: The Two Faces of R&D, The Economic Journal, vol. 99, no. 397, pp. 569596. Cohen, W.M., Levinthal, D.A. 1990, Absorptive Capacity: A New Perspective on Learning and Innovation, Administrative Science Quarterly, vol. 35, no. 1, Special Issue: Technology, Organizations, and Innovation, pp. 128-152. Davidson, R., MacKinnon, J.G. 2004, Econometric Theory and Methods, Oxford University Press, New York. Dosi, G. 1990, Sources, Procedures, and Microeconomic Effects of Innovation, in: Freeman, Ch., (ed.), The Economics of Innovation, Edward Elgar Publishing, Aldershot, pp. 107-158.

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Fisher, F.M., Temin, P. 1973, Returns to Scale in Research and Development: What Does the Schumpeterian Hypothesis Imply? The Journal of Political Economy, vol. 81, no. 1, pp. 56-70. Greene, W.H. 2003, Econometric Analysis, Prentice, Upper Saddle River. GUS 2006, Innovation Activities of Polish Industrial Enterprises in the Years 2002-2004, Główny Urząd Statystyczny (Central Statistical Office of Poland), Departament Statystyki Gospodarczej, Warszawa, [online], http://www.stat.gov.pl/cps/rde/xbcr/gus/dzialalnosc_innowacyjna_przedsi eb_przem_2002_2004.pdf [access: 16.02.2016]. GUS 2015, Innovation Activities of Polish Industrial Enterprises in the Years 2012-2014, Główny Urząd Statystyczny (Central Statistical Office of Poland), Departament Statystyki Gospodarczej, Warszawa, [online], http://stat.gov.pl/obszary-tematyczne/nauka-i-technika-spoleczenstwoinformacyjne/nauka-i-technika/dzialalnosc-inno-wacyjna-przedsiebiorstww-latach-2012-2014,2,13.html [access: 17.02.2016]. Hashmi, A.R. 2013, Competition and Innovation: The Inverted-U Relationship Revisited, Review of Economics and Statistics, vol. 95, no. 5, pp. 1653 – 1668. Hospers, G.-J. 2005, Joseph Schumpeter and His Legacy in Innovation Studies, Knowledge, Technology and Policy, vol. 18, no. 3, pp. 20-37. Hsiao, C. 2003, Analysis of Panel Data, Cambridge University Press, New York. Hughes, A. 2001, Innovation and Business Performance: Small Entrepreneurial Firms in the UK and the EU, New Economy, vol. 8, no. 3, pp. 157-163. Innovation Union Scoreboard, EU 2015, [online], http://ec.europa.eu/growth/ industry/innovation/facts-figures/scoreboards/index_en.htm [access: 25.02.2016]. Kennedy, P. 1998, A Guide to Econometrics, MIT Press, Cambridge. Kohn, M., Scott, J.T. 1982, Scale Economies in Research and Development: The Schumpeterian Hypothesis, The Journal of Industrial Economics, vol. XXX, no. 3, pp. 239-249. Kozioł, K. 2009, Wybrane uwarunkowania innowacyjności przedsiębiorstw (na przykładzie regionu zachodniopomorskiego), Przedsiębiorstwo i Region, no. 1/2009, Konkurencyjność a innowacyjność, pp. 48-60. Kozłowska, A., Szczepkowska-Flis, A. 2009, Weryfikacja hipotezy Schumpeterowskiej na przykładzie polskiego przemysłu przetwórczego, Prace Naukowe Uniwersytetu Ekonomicznego we Wrocławiu, no. 39,

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Problemy ekonomii, polityki ekonomicznej i finansów publicznych, vol. 1, p. 680-691. Kufel, T. 2007, Ekonometria. Rozwiązywanie problemów z wykorzystaniem programu GRETL, Wydawnictwo Naukowe PWN, Warszawa. Lee, M.-H., Hwang, I.J. 2003, Determinants of Corporate R&D Investment: An Empirical Study Comparing Korea’s IT Industry with Its Non-IT Industry, ETRI Journal, vol. 25, no. 4, pp. 258-265. Levin, R.C., Cohen, W.M., Mowery, D.C. 1985, R&D Appropriability, Opportunity, and Market Structure: New Evidence on Some Schumpeterian Hypotheses, AEA Papers and Proceedings, vol. 75, no. 2, pp. 20-24. Loeb, P.D. 1983, Further Evidence of the Determinants of Industrial Research and Development Using Single and Simultaneous Equation Models, Empirical Economics, vol. 8, no. 3, pp. 203-214. Maddala, G.S. 1992, Introduction to Econometrics, Macmillan, New York. Maddala, G.S. 2006, Ekonometria, Wydawnictwo Naukowe PWN, Warszawa. Mukhopadhyay, A.K. 1985, Returns to Scale in B&D and the Schumpeterian Hypothesis: A Comment, The Journal of Industrial Economics, vol. XXXIII, no. 3, pp. 359-361. Nauka i Technika w 2002 roku, 2004, GUS, Warszawa. Nelson, R.A. 1990, Productivity Growth, Scale Economies and the Schumpeterian Hypothesis, Southern Economic Journal, vol. 57, no. 2, pp. 521-527. Nowak, P. 2012, Poziom innowacyjności polskiej gospodarki na tle krajów UE, Prace Komisji Geografii Przemysłu Polskiego Towarzystwa Geograficznego, No. 19, Warszawa, Kraków, pp. 142-152. Pavitt, K., Robson, M., Townsend, J. 1987, The Size Distribution of Innovating Firms in the UK: 1945-1983, The Journal of Industrial Economics, vol. XXXV, no.3, pp. 297-316. Pires-Alves C., Rocha F. 2008, Testing the Schumpeterian Hypotheses for the Brazilian Manufacturing Industry, Brazilian Association of Graduate Programs in Economics, Working Paper No. 200807091629490, [online], http://www.anpec.org.br/encontro2008/ artigos/200807091629490-.pdf, [access: 12.02.2016]. Podręcznik Oslo. Zasady gromadzenia i interpretacji danych dotyczących innowacji, 2008, OECD, Eurostat, wyd. 3, Warszawa, [online], http://www.rpo.lodzkie.pl/images/konkurs_2.3.1_cop_28122015/Podreczn ik_OSLO.pdf, [access: 25.02.2016]. Rawlings, J.O., Pantula, S.G., Dickeys, D.A. 1998, Applied Regression Analysis: A Research Tool, 2nd Ed., Springer, New York.

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Rodriguez, C.A. 1979, A Comment on Fisher and Temin on the Schumpeterian Hypothesis, Journal of Political Economy, vol. 87, no. 21, pp. 383-385. Savin, N.E., White, K.J. 1977, The Durbin-Watson Test for Serial Correlation with Extreme Sample Sizes or Many Regressors, Econometrica, vol. 45, no. 8, pp. 1989-1996. Schumpeter, J.A. 1939, Business Cycles. A Theoretical, Historical, and Statistical Analysis of the Capitalist Process, McGraw-Hill, New York, London. Schumpeter, J.A. 1960, Teoria rozwoju gospodarczego, PWN, Warszawa. Schumpeter, J.A. 1995, Kapitalizm, socjalizm, demokracja, Wydawnictwo Naukowe PWN, Warszawa. Smith, V., Madsen, E.S. 2002, Do R&D Investments Affect Export Performance? CIE Discussion Paper No. 2002-09, [online], http://www.econ.ku.dk/CIE/Discussion%20Papers/2002/Abstracts/200209.htm [access: 12.11.2008]. Sung, T-K., Carlsson, B. 2007, Network Effects, Technological Opportunity, and Innovation: Evidence from the Korean Manufacturing Firms, Asian Journal of Technology Innovation, vol. 15, no. 1, pp. 91 – 108. Symeonidis, G. 1996, Innovation, Firm Size and Market Structure: Schumpeterian Hypotheses and Some New Themes, OECD Economic Department Working Paper nr 161, OECD Publishing [online], http://www.oecd-ilibrary.org/economics/innovation-firm-size-and-marketstructure_603802238336, [access: 16.11.2007]. Szopik-Depczyńska, K. 2009, Klasyfikacja czynników aktywności innowacyjnej przedsiębiorstw, in: Juchniewicz, M. (ed.), Nierówności społeczne a wzrost gospodarczy. Uwarunkowania instytucjonalne, Zeszyt Naukowy Uniwersytetu Rzeszowskiego, Katedra Teorii Ekonomii i Stosunków Międzynarodowych, No. 15, Rzeszów, pp. 94 – 104. Świadek, A. 2012, Determinanty aktywności innowacyjnej przemysłu spożywczego w Polsce, Zeszyty Naukowe Szkoły Głównej Gospodarstwa Wiejskiego w Warszawie, vol. 12, no. 2, Problemy Rolnictwa Światowego, Warszawa, pp. 123-131, [online], http://yadda.icm.edu.pl/ agro/element/bwmeta1.element.agro-6dee8178-80ce-47a6-b52ace1804b38e2b/c/123-131.pdf, [access: 12.01.2016]. Tsai, K.-H., Wang, J.-C. 2004, The R&D Performance in Taiwan’s Electronic Industry: A Longitudinal Examination, R&D Management, vol. 34, no. 2, pp. 179-189. Turek M., Jonek-Kowalska I., Ganszczyk Z. 2011, Determinanty innowacyjności w przedsiębiorstwach górniczych, Zeszyty Naukowe. 122

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5. Marketing and Environmental Aspects of Product Design

5.1. Introduction Nowadays environmental problems begin to be directly experienced by individual members of the society. They cease to be “general” and “anonymous” climate changes or photochemical smog. There are periodical problems with exceeding the acceptable air pollution levels in specific cities (e.g. increase level of PM10 and PM2.5 in the air in Cracow in January 2016), or local water pollution (e.g. eutrophication of many Polish lakes). The above mentioned are visible and tangible results of human activity. Environmental problems bring economic and social consequences. Treating respiratory disorders of big city dwellers or cleaning lakes in order to continue the tourist and recreational activity are expensive. Furthermore, it amounts to the sign of dealing with the results, and not with the cause, i.e. the high intensity and complexity of realized production and consumption processes.

5.2. Environmental Aspect in Product Life Cycle – First Identify, Next Communicate All products and services created in the economy have their physical life cycles including a number of stages, from raw material extraction (the so-called cradle) to the final management of the used product (or waste created in the course of realizing a service). Each stage consists of a set of individual technological and organizational processes which as a whole create 125

the so-called “product system” [ISO 14040:2006]. The realization of the sustainable production and consumption principles is based on the assumption that the reduction of global negative environmental is possible through the decisions of individual producers and consumers, but made on the global scale. The improvement of production and consumption patterns entails accepting the life cycle thinking and taking responsibilities for environmental impact at the stages of product and service life cycle going beyond the organizational borderlines of the producer or the physical borders of the consumer’s surroundings. It also means that introducing products and services designed so that they are characterized by reduced environmental impact at the environmental hot spots is the point of view for balancing the production and consumption patterns. The identification and evaluation of environmental impact in product and service life cycles is the basis for the design for environment) also called ecodesign [Wimmer et al. 2004]. By dint of the impact evaluation in the life cycle it is possible to improve the already exiting or design new products and services. Consequently, the information obtained during ecodesign amounts to reliable, quantitative and complex basis for formulating marketing communications and building the product’s/organization’s pro-ecological image (Fig. 1) [Zarebska and Lewandowska 2010, Lewandowska and Witczak 2012]. In the recent years there have been more and more publications within the scope of using the results of analyzing life cycle in marketing communication [Molina-Murillo and Smith 2009, Dahlbo et al. 2013, Iraldo et al. 2013, Lemke and Luzio 2014] which suggest that green marketing begins with green design [Bhat 1993]. Jacquelyn Ottman in her book The New Rules of Green Marketing: Strategies, Tools, and Inspiration for Sustainable Branding [Ottman 2011] among the proposed five principle of green marketing mentions „promot[ing] responsible consumption throughout the life cycle”. Moreover, she indicates the significant role of ecodesign as a source of reliable environmental information to be used in marketing communication [Ottman 2011].

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Figure 1. Ecodesign as a source of environmental information used in green marketing claims. Source: Own research

5.3. Characteristics and Tools of Ecodesign Ecodesign functions under different names, such as: ecological design, DfE (design for environment, green design, sustainable product design, life cycle design [Lewis et al. 2001]. In general, it means including environmental aspects to design and development of products and services [ISO TR 14062:2002, Lewandowska and Kurczewski 2010]. There are four levels of ecodesign differing in the time of implementation and eco-efficiency (the level of the environmental impact reduction) (Fig. 2) [Lee and Park 2005]:  Level 1 is to improve environmental performance of a product. Increase in environmental efficiency = 2x, solution valid for max 5 years (e.g. change of packaging material, elimination of oversizing);  Level 2 is to redesign existing products (new product is designed on the basis of the existing one). Increase in environmental efficiency = 5x, solution valid for max 10 years (e.g. propelling pencil vs. graphite pencil, regular detergents vs. compact detergents or tablet detergents);  Level 3 is to develop new products to fulfill function based on new concepts. Increase in environmental efficiency = 10x, solution valid for max 20 years (e.g. new generation of mobiles with new functionality, contact lenses vs. glasses, multifunctional office products);  Level 4 is to design a product/service by finding innovative solution based on product/service system. Increase in environmental efficiency = 20x, solution valid for max 50 years (pendrives vs. CD vs. floppy; conventional vs. online shopping, conventional vs. online banking). The following characteristics are typical of ecodesign [Lee 2002]:  early integration,  life cycle thinking,  function oriented,  multi-criteria concept. Early integration consists in reducing environmental impact as early in the life cycle as it is possible. Products’ environmental burden accumulates and follows them into next stages of the life cycle. The further preventive actions are taken in the life cycle, the bigger the accumulated environmental burden is. The task of ecodesign is to flatten and lower the curve presented in figure 3. From this perspective we may economize the most (in the environmental, financial and social contexts) through reduction at early

conceptual stages. The biggest impact is assigned to the final management, because to the impact of this stage alone we should add the cumulative impact from the product’s whole life cycle up to this point [Kurczewski and Lewandowska 2008].

Figure 2: Four levels of ecodesign. Source: [Lee and Park 2005]

Figure 3. Conceptual representation of environmental 'lock-in' over a product's development stage. Source: [Lewis et al. 2001, Lee & Park, 2005]

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Within ecodesign the following tools are applied: LCA, LCC, LCWE, control cards based on life cycle, life cycle matrices (e.g. MECO, ERPA), environmental benchmarking (taking account of characteristic features of products at different life cycle stages). Taking into consideration the life cycle perspective prevents transfer of environmental impact to the participants at other life cycle stages. For example, the producer may be interested in using materials of high suitability for recycling or in reducing the time of dismantling by supporting it with the argument that these issues are important from the point of view of the final management, and not the production. This mindset is in contrast with the DfE conception and the idea of the manufacturer’s extended responsibility for the product. Similarly, the so-called planned obsolescence which depends on an intentional shortening of product life-times by integrating predetermined weak points by the manufacturer is also in contrast with the ecodesign principles [Prakash et al. 2014]. The product’s function plays an important role in ecodesign which is in accordance with the conception maximizing the practicality (functionality) of products with simultaneous minimizing environmental impact. Ecodesigners search for the way the product fulfills its function which entails the smallest possible negative environmental impact. When it is not feasible to introduce significant changes in the product’s construction, i.e. to modify the way its function is fulfilled, the only choice is to maximize practicality for users’ exploitation [Kurczewski and Lewandowska 2008]. Increasing practicality may be conducted through creating multifunctional products, prolonging products’ life-times (increasing durability) or by dint of introducing dematerialization, e.g. in order to use a given product by multiple users. An example of using ecodesign may be the more and more modern generations of washing detergents introduced by producers onto the market. In 1980s’ washing powders packed in excessively large packaging dominated in stores. Despite overpackaging, there was a problem with overdosing the product which resulted in excessive and unnecessary (not contributing to the effectiveness of washing) washing powder use and the amount of pollution in the sewage system. The next generation (first half of 1990s’) was compact detergents (e.g. Compact Ariel Ultra, Persil Compact) which had a compact structure. The problem of overpackaging was dealt with, but the risk of overdosing still remained present. A similar effect was reached through introducing liquid detergents in concentrated form (increasing “practicability” 130

with the same use of materials for packaging). In order prevent it next improvement caused the introduction of detergents in a tablet form (late 1990s’ and early 2000s’) and capsules (e.g. Ariel Future, Persil Cabs). However, the problem of energy consumption (the use of electrical energy by a washing machine) was not solved. This issue in the LCA analyses conducted by producers (e.g. P&G, Henkel) was identified as the main environmental critical point in detergents’ life cycles. Consequently, as the next generation of products detergents able to realize their functions (eliminating stains and dirt) in low temperatures, even 30 degrees (e.g. Ariel a froid) were developed. In this case the practicability of the product may be increased (e.g. through antibacterial additives) or at least remain at an unchanged level despite modified conditions of the same function. Lowering the washing temperature results in lesser electrical energy consumption of the washing machine, which leads to a significant environmental (as the main critical point in life cycle) and economic (lower electricity bills) with the maintained level of consumer satisfaction.

5.4. Ecodesign – on the Way to Being Obligatory Several decades have passed since first documented ecodesign actions were launched (e.g. Coca Cola – 1969, Procter & Gamble 1990, Hitachi – 1992, Eco-Balance of Plastic in Europe – 1995) with the use of life cycle thinking. So far ecodesign has functioned as voluntary activity of mostly large organizations with advanced research and development area [Frankl and Rubik 2000]. However, it seems now that the situation is steadily changing. We may enumerate at least three important international initiatives which should directly or indirectly motivate companies to start ecodesign activity:  For the last several years new legal acts are systematically introduced to the EU legislation as Directive of the European Parliament and of the Council 2009/125/EC of 21 October 2009 establishing a framework for the setting of ecodesign requirements for energy-related products. They include a big group of energy-powered products, e.g. washing machines, vacuum cleaners, tumble driers, lamps and related equipment, computers and servers, water heaters and many others. In this directive concrete ecodesign requirements obligatory for producers are formulated. Environmental (LCA) and cost (LCC) life 131

cycle analyses were among pillars of the procedure for defining [Kurczewski and Lewandowska 2014]. These analyses indicated environmental critical points in life cycles of individual products and allowed cost assessment for the introduction of specific improvements. A relevant example is vacuum cleaners for which the requirements are included in Commission Regulation (EE) No 666/2013. These requirements are related to: annual electrical energy consumption, input rated power, indicator of dust cleaned from a carpet, indicator of dust cleaned from a hard floor, dust reemission, acoustic power, hose and engine life-time [Commission Regulation (EU) No 666/2013]. For the abovementioned parameters there have been established concrete values that must be obligatorily met by the products introduced onto the market in specific years. For example, vacuum cleaners introduced from 1 September 2014 must have input power of 1600W, while form 1 September 2017 it will be only 900W. Hence, at present it is a challenge for the construction and design departments of vacuum cleaner producers to redesign devices so as they are in compliance with this function (vacuum cleaning effectiveness) at an unchanged level with a significantly lower power of the appliance.  In 2015 an updated version of the ISO 14001 standard was published. Important changes in comparison with the previous version are linked with inter alia increasing the role of ecodesign as a tool for developing actions within the scope of the organization’s environmental performance. The introduction of ecodesign as a normative element of an environmental management system should contribute to the modification of the former approach to the EMS through [Lewandowska and Matuszak-Flejszman 2014]: (1) taking account of life cycle thinking as well as environmental aspects in reference to both upstream and downstream processes in the value chain; (2) including indirect environmental aspects related to products out of the organizations direct control in the ecodesign process; (3) increasing the role of the identifycation and evaluation of environmental aspects in reference to products; (4) increasing the engagement of design and research and development departments which are mainly responsible for fulfilling the ecodesign obligation (the selection and use of measures and ecodesign tools in order to reduce negative environmental impact relate to products’ life 132

cycles) [Lewandowska & Matuszak-Flejszman 2014]. Despite the fact that creating and maintaining environmental management systems is a voluntary activity, if we take into account the large number of enterprises with implemented environmental management system we may expect that the update of the ISO 14001:2015 standard will contribute to the increase of interest in the area of ecodesign.  In 2010 the European Commission began actions for creating a coherent market of green products. The main task of this initiative is the development of common methods for environmental performance measurement in products’ life cycles as well as for informing about the performance [Commission Recommendation (EU) (2013/179/EU)]. Product environmental footprints (PEFs) and organization environmental footprints (OEFs) are methodically based on environ-mental life cycle assessment (LCA) and they incorporate the life cycle thinking. In the future they will probably be the standard, at least a recommended one, for defining and communication product and organization environmental performance. At present the pilot phase is in progress, within which proposals of product environmental footprint category rules (PEFCRs) and organization environmental footprint sectoral rules (OEFSRs) are being. If, in accordance with the assumptions of the whole initiative, calculating environmental footprints becomes common in economic practice, it will be equivalent to the popularization of ecodesign and life cycle thinking on an unprecedented scale [Lewandowska 2015].

5.5. Marketing Conditions of the Product Design Process The design and development of new products is an important process for the whole consumer product market which, under the conditions of market economy, is extremely customer-oriented. Due to rapid changes in the area of consumer desires and need as well as changes in enterprises’ surroundings efficient creation of new products calls for knowledge and information from different fields. The increasing competition on the market, growing consumer requirements and changing trends pose very strict requirements from producers [Sojkin 2012, p. 67]. At present the questions of innovation is becoming more and more important which is caused by the fast scientific 133

and technological progress, the globalization of economy as well as quick and unlimited access to information which creates the knowledge-based society. It demands from companies’ high innovation activity which ought to be introduced in all areas of its operation [Zienkowski, 2003, p. 122]. The reasons for the growing role of new products in enterprises’ activity are as follows [Zielińska, Jaroś-Kresło 2000, p. 29; Sojkin 2012, p. 30]:  acceleration of the development of science and technology,  increase of social welfare,  dynamic development of international exchange (which significantly favors generating new ideas or disseminating innovation in the territorial approach),  development of consumer needs/requirements,  need to be competitive,  necessity to replace product eliminated from the offer,  willingness to use excessive production capability (the main reason for extending product lines in new forms/variants/types of a given category type),  need to reduce risk,  willingness to use new opportunities through creating new consumer needs. The process of designing new products is complex and dependent on numerous factors among which we may see not economic and legal conditions, but also technological and marketing ones. While analyzing in detail from enterprises’ point of view the process of design and commerciallization of product innovation should include the following conditions:  technological (technical and technological capability, need to invest in machinery, ability to use the existing technological lines, access to and cost of raw materials, time and cost of upgrading production lines etc.),  legal (conformity of the innovation with legal acts, legal restraints within the scope of marketing action related to the new product’s category),  financial (production cost per unit, estimated sales volume and profitability of the new product),

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 market (level of market development. competition level in the sector, barrier and costs of entering the market, the market position of the entity). Taking into account the fact that the new product is mainly supposed to satisfy the needs and desires of the target consumers, in the design process it is important to consider marketing factors. Hence, we should assume that a correctly realized process of product innovation design and development must be inextricably connected to the consumer. From the marketing point of view the role of the consumer in the process of product innovation design and development is clearly visible in three basic areas: initiation of the product’s development process, test sequences for the new product as well as the strategy of commercialization, i.e. the marketization of the new product. The consumer can be active or static within the abovementioned scopes. The static function consists in using the enterprises which design and introduce products with a large knowledge of consumer behaviors on the market (in particular it is related to needs and desires, behavioral trends, consumer attitudes). On the other hand, the active function is linked with engaging consumers in the abovementioned processes (generating ideas, practical tests of prototypes). It should be clearly stated, though, within the marketing conditions of designing new products enterprises should monitor micro-surroundings, in particular demographic and sociocultural factors related to consumers, in order to diagnose the present behavioral trends which may create the opportunity for the entity’s development. The present behavioral trends which amount to the reason for the process of designing consumer products are presented in table 1. Despite the analysis of behavioral consumer trends, within the marketing conditions of the process of designing new products we should identify consumers’ visible and hidden needs as well as desires (in the practical, cultural, social, sensory and aesthetic dimensions) in order to generate ideas for a new product, and then to evaluate them objectively.

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Table 1. Present behavioral trends of consumers Trend consumption hedonism

deterioration of authorities escape to privacy modern traditionalism searching for authenticity in products triumph of the local searching for healthy food

children in the center of interest development of senior consumer segment Polish women on the offensive

Characteristics                               

upgrading leisure time popularity of sports activities for adults care for body (spa, wellness) eating out celebrities-idols replace authorities replacing traditional family authorities with Internet specialists the new generation are specialists in products based on the technological revolution tiredness of constant being online privacy once again becomes one of the most important values in life conservatism, but without giving up on the modern return to tradition among the young reversal from consumer modernism searching for genuine products which are enrooted in tradition new design trends (e.g. folk trends) searching for traditional products tiredness of global concerns and products searching for the alternative for global brands growing popularity of regional food products, local chain restaurants and local trade networks searching for tasty and home-made products interest in food offered by local, small producers fashionable rustic and green products 2+1 family model investment in children (education, extracurricular activities, healthy food) professionalization of child recognition (a child as a shopping decision-maker) investment in children without raising them seniors’ care for their own needs (education, health, pleasure) being active in retirement development of products and services dedicated to senior consumers taking over men’s dominant role in the society women’s financial independence, boldness in relationships, resourcefulness and independence women as shopping decision-makers of typical men’s products

Source: [Olejniczuk-Merta 2011]

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5.6. Marketing Tools for Testing Prototypes of Products As mentioned before, the marketing conditions of designing a product are centered on the consumer’s role in the analyzed process. Despite the identification of consumer needs and behavioral trends, which is necessary to gene-rate ideas for a new product, the sequences of consumer test and analyses are crucial as they will allow for examining the characteristics accordance of the new product with consumers’ standards, patterns and expectations. They will also enable the diagnosis of success rate of the commercialization process of the product innovation. A prototype is an experimental pattern, which thoroughly reflects the designed product in accordance with the technical documentation. A prototype, which fully copies the product’s characteristics, amounts to the basis for the verification of correctness of the conceptual preparation of a given product. Prototypes take various forms, from very simple ones (the so-called low-fidelity prototypes) to full versions including all characteristics (practical, functional), i.e. the so-called high-fidelity prototypes. According to their form we may distinguish the following types of prototypes:  computer design (a virtual model)  a physical model,  a full version of the product (a material variant of the product) [Otto and Wood 2001]. The process of creating a prototype, or more precisely – the choice of its form, is determined by numerous factors, among which we may come across:  the category of product innovation and its scope (breakthrough vs. incremental innovation; modification, imitation),  the category of the product (a medicine vs. a car),  production costs per unit (on the basis of the economic and financial analysis of the conception),  the financial standing of the enterprise,  the scope of prototype testing (laboratory tests, practical tests),  deadlines (the process of creating a material prototype, depending on the category of the product, may last even several years).

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Creating prototypes takes place in the case of investment products (machines) and consumer durables (cars, electronic devices, and household appliances). In the case of other consumer goods the so-called trial series are prepared [Sojkin 2003, p. 279]. The basic aim of prototype testing is to verify if the product is safe, if it fulfills its functions, if its features and characteristics are in accordance with relevant requirements. The testing also enables obtaining the answer to the question if the abovementioned characteristics, having been positively evaluated at the stage of conception, in the material (physical or virtual) form will conform to the requirements and expectations of potential users. The types of prototype test are presented in figure 4.

Figure 4. Classification of prototype tests for new products. Source: Own research

Laboratory tests, also called technical test, are the first stage in the whole prototype testing process. The abovementioned statement confirms the fact that a prototype cannot be subjected to the evaluation of potential users 138

(in practical tests) without the verification of its suitability, broadly understood safety, compliance with product standards and many other guidelines included in the technical specification. Laboratory prototype testing, also called α testing is the first step of prototype testing. It takes place in the laboratory of the enterprise which introduces a new product onto the market, or in external research and development laboratories. The choice of the location of testing is mainly conditioned by the type of the tested product, the technical level of the enterprise, testing costs as well as the already set objectives for the technical tests (the evaluation of compliance with standards or obtaining product certificates). The scope of laboratory tests may include:  virtual prototyping,  rapid prototyping,  laboratory tests of the material prototype of the product,  expert tests of the material prototype of the product. The course of the research, or more precisely – the choice of the specific scope of testing, is mainly conditioned by the type of product, product-related technical and market risk as well as the costs of the prototyping procedure. In the case of technically complex products of a high level of innovation enterprises conduct both virtual and laboratory prototyping of the material product (the abovementioned mainly refers to such good as: cars, planes, electronic devices, household appliances, IT products). In the case of many durables, in particular cars, machines, appliances etc. the alternative laboratory tests are virtual tests. Virtual prototyping consists in computer simulations of the newly designed product and regard the behavior of the prototype under actual and extreme exploitation conditions [Szatkowski 2008, p. 8]. On the other hand, rapid prototyping is a commonly accepted set of methods for fast, precise and repeatable production of the elements of the additive technology, i.e. a technology consisting in building the product layer after layer of a given material. In other words, rapid prototyping is about creating a realistic design (most often of a machine, appliance, and technological process) and then conducting multi-variant numeric simulations of the design’s behavior under different conditions. The aim of rapid prototyping is the achievement of the optimal solution from the perspective of a given function [Pater, Tofil 2004]. The ultimate goal is the rapid obtainment of a thoroughly examined design which will enable immediate production. Rapid prototyping can be applied in all industries, but it is most 139

frequently used by the automotive industry, electronic industry, aerospace industry, robotics, telecommunication, orthopedics, foundry industry, oil industry, toys and plastics industry. On the other hand, expert tests are a specific research method for products the evaluation of which calls for knowledge and experience of the evaluator-expert, a specialist in evaluating selected features or characteristics of the product, who often have authorization granted by relevant governmental institutions or organizations. An example of experts are sommelier who professionally deal with assessing taste, looks, smell of dishes and beverages, in particular alcoholic beverages. A positive result of a laboratory prototype test allows for the realization of the next stage in the testing process, i.e. a consumer test also called a user test or β testing. The basic aim of practical tests is to establish if and to what extent the features, characteristics, attributes of the new product’s prototype will satisfy the familiarized and hidden needs as well as desires of potential users [Sojkin 2003, p. 279]. Practical tests of the prototype should be conducted according to a specifically defined sequence [Koppelmann 1989, pp. 341-342]: 1. Familiarization of a potential user with the product, or more precisely – with its features, characteristics and attributes. 2. The use of the prototype under similar or identical with natural conditions for the appliance of the product. 3. The comparison of the prototype from the perspective of needs, desires and expectation of the tester. 4. The evaluation of the prototype in relation to the requirements on the basis of understandable and acceptable criteria for the tester. Practical tests of a prototype may be linked with its total evaluation by potential users. It can also relate to giving opinions about selected features and characteristics of the product which were modified in comparison with the previous version of the product or about the elements of the product’s completion, such as packaging or labels. The procedure of conducting practical tests is conditioned by numerous factors among which there are mainly the product’s character, conditions and frequency of the product’s use, its consumption level, the scope of tested features and characteristics, the innovation level of the prototype. Consequently, in the case of many consumption products (e.g. beverages, cigarettes, perfumes, sweets) 140

and durables one test is enough, because the potential user after one use is able to assess if the product reflects their needs, image and desires. Such tests can be carried out at the location of the product’s use (a house) or in different places (shopping centers, workplace). On the other hand, the prototype of products which call for a relatively longer time of use, need longer tests conducted under the natural conditions for the product’s use. This way of testing called a trial refers to such products as cosmetics, household chemistry, footwear, household appliances, and mobile phones. Participants of prototype practical tests should not have expert knowledge and technical preparation – ordinary, average users are the best to be selected. On the other hand, in the case of testing industrial products the tests should be attended mainly by contractors, while investors may be passive participants who not only appreciate the practical advantages of the prototype, but also its simplicity in terms of installment, assembly, service [Mazurek-Łopacińska 2005, p. 340]. Practical tests of prototypes should be professionally designed due to the fact that potential users conduct the examination on their own. Therefore, a detailed instructions including all conditions to be met during the test ought to be prepared. Moreover, all actions a tester must take in order to make the results of the test credible should be defined [Sojkin 2003, p. 286]. The trial use of the prototype of the product should follow the following research procedure [Sojkin 2003, p. 286]: 1. Defining the characteristic features of the prototype which will be subjected to users’ assessment (characteristic features are most often prepared with the use of the Delphi method by a panel of experts – specialists in evaluating a give type of products). 2. Creating a spreadsheet for the prototype’s assessment (the analyzed characteristics are assigned an evaluation scale). 3. Preparing a detailed instruction for tester (information about the research conditions, order and way of performing specific tasks). 4. Completing the assessment spreadsheet by the person testing the prototype. 5. Collecting and processing the research results. 6. Preparing a research report including the results of the assessment of the prototype’s novelty by potential users.

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Practical tests of prototypes are often comparative tests (in contrast to monadic tests). Within these tests potential users evaluate several (at least two) prototypes of products of close substitutability. The research consists in obtaining opinions about specific characteristic features of the prototype in relation to:  other versions of the prototype,  the previous version of the product (when the prototype is a modification of the existing product),  substitution products offered by the competition and is based on the list of preferences. In order to eliminate the impact of factors, which can disturb the course of the comparative research through exerting influence over the tester, the so-called blind tests or partial identification tests are used. In the case of blind tests the tester receives anonymous samples of the prototype, without the identification of the producer’s name, brand, and price or – as far as it is possible packaging in which the product is going to be introduced onto the market. Comparative blind tests are conducted in the case of the evaluation of cosmetics, beverages, detergents, sweets, cigarettes, medicines (which are compared in reference to the so-called placebo1). The prototypes of products whose qualitative advantages are perceived in a particular way with the consumers’ senses, e.g. food products, perfumes, fabrics, drugs, are subjected to consumer organoleptic assessment. The specificity of this research is related to the fact that the measurement apparatus are senses (smell, taste, sight, touch) providing information about experienced impressions of the tester. The consumer organoleptic assessment of the prototype conducted among randomly selected potential consumers (up to hundreds of participants) leads to gaining information about: [Sojkin 2003, p. 289]:  product acceptance,  the level of product desirability, i.e. the extent to which the product or its features are desired by the tester,  preferences, i.e. preferring specific products or their features over others.

Placebo – a neutral substance which does not have any influence on the tester’s health, administered s a therapy. The look, smell, taste and consistency of placebo, despite treatment qualities, are the same as in the real therapy. 1

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The choice of the prototype testing method among potential users is conditioned, as mentioned before, by numerous factors related to both the product and the market situation of the entity introducing the innovative product or to the characteristics of the target segment of the market etc. Testing entities usually use the compilation of several practical tests in order to adjust the applied research method in an optimal way to the concrete case. The result of testing a prototype decides about continuing or ceasing further actions in order to commercialize the new product. It is obvious that in the case of positive laboratory and practical tests the prototype moves on to the next stage in the waterfall of the new product’s development, i.e. to the marketing testing of the market. However, if the prototype’s tests turn out to be negative, the entity which introduces the new product faces many dilemmas linked with the further activity. The most important problem is establishing at which stage of the new product development the entity has made a mistake. In other words, it should verify if the idea for the new product was incorrect, or if the target segment of buyers was wrongly defined, or if the prototype was improperly prepared. The abovementioned considerations amount to the most important determinant which influences the decision about discontinuing the activity related to the development of the new product or about modifying the tested prototype. The direction of works also depends on financial input spent on the novelty, the time of which the entity can avail as well as on the actions taken by the market competition. In the situation when the laboratory tests of the prototype are completed with a negative result, in particular when the product turned out to be dangerous, does not fulfill it functions properly – if it is possible for the entity – the prototype can be modified and subjected to retesting. On the other hand, the negative result of external/practical tests is the basis for the actions in the following directions:  the verification of the correctness of assumptions from the first stage of the new product’s development, i.e. from creating the idea; especially the abovementioned relates to the subsequent analysis of the innovation type, its scope, the product’s/brand’s positioning, defining the target segment on the market. If the reason for the “mishap” has been diagnosed, specific changes shall be introduced and the prototype shall be tested again.

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 the verification of the correctness of the preparation of the prototype, its features, characteristics, attributes and elements of its completion (packaging, labels). Vulnerable elements which were poorly evaluated by potential users are changed and the prototype enters the testing phase again.  the verification of the choice of methods and techniques which were used for the consumer evaluation of the prototypes, as well as checking the correctness of research sample selection. In the case when it turns out that there was a mistake in the research procedure, it should be modified and the prototype should be retested.

5.7. Summary Environmental problems, in particular climate changes and water shortages, are perceived as one of the main global challenges calling for being solved in the upcoming years. Expert of the World Economic Forum Davos 2016 attributed to the issues of environmental pollution similar importance as the migration crisis, threats of terrorism, social differences and new technologies. Pro-ecological activity has ceased to be the domain of “the biggest polluters” and at present amounts to an element of decisionmaking processes in many companies of different profile and size. However, we should remember that the reduction of negative environmental impact is a challenge for both sides of the market, not only the supply. The EU sustainable development strategy, updated in 2006, assumes adopting sustainable patterns both in production and consumption. The efficient “sustainability” of both sides of the market needs mutual engagement, reliability and trust, though. It is postulated that the problem of today’s environmental marketing is the lack of consumers’ trust for the environmental information communicated by the company. From the organization’s point of view the aim of undertaking pro-ecological activity is to reduce the organization’s environmental impact. On the other hand, the aim of communicating achievements in this area is to build the organization and product’s positive image as well as to increase sales. However, communication should be preceded by the identification of environmental aspects. In this light we may observe the relationship between ecodesign and marketing (“Green marketing begins with green design”). The former favors design and development of products on the basis of the identification 144

and evaluation of environmental aspects. The latter aims at stimulating and maintaining consumers’ pro-ecological behaviors and attitudes. The present chapter shows the main characteristics and tools of ecodesign. Furthermore, the emphasis has been put on taking account of this issue in obligatory legal regulations. The marketing aspects of designing a product have also been discussed along with taking into consideration environmental aspects in building the product’s image.

5.8. Literature Bhat V.B. 1993, Green Marketing Begins with Green Design, Journal of Business & Industrial Marketing, (8) 4, pp. 26-31. Dahlbo H., Koskela S., Pihkola H., Nors M., Federley M., Seppälä J. 2013, Comparison of Different Normalized LCIA Results and Their Feasibility in Communication, International Journal of Life Cycle Assessment, 18, pp. 850-860. Commission Recommendation (EU) (2013/179/EU) of 9 April 2013 on the Use of Common Methods to Measure and Communicate the Life Cycle Environmental Performance of Products and Organizations. Commission Regulation (EU) No 666/2013 of 8 July 2013 Implementing Directive 2009/125/EC of the European Parliament and of the Council with Regard to Ecodesign Requirements for Vacuum Cleaners. EN ISO 14040, 2006, Environmental Management – Life Cycle Assessment – Principles and Framework, European Committee for Standardization, Brussels. EN ISO 14044, 2006, Environmental Management – Life Cycle Assessment – Principles and Framework European Committee for Standardization, Brussels. Frankl P, Rubik F. 2000, Life Cycle Assessment in Industry and Business: Adoption Patterns, Applications and Implications, Springer, Berlin ISBN 3-540-66469-6. Graedel, T. E., and Allenby, B. R. 1995, Industrial Ecology, Prentice Hall, ISBN-13: 978-0131252387. Iraldo F., Testa F.,Bartolozzi I. 2013, An Application of Life Cycle Assessment (LCA) as a Green Marketing Tool for Agricultural Products: the Case of Extra-virgin Olive Oil in Val di Cornia, Italy, Journal of Environmental Planning And Management, 57 (1), pp. 78-103.

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ISO TR 14062 2002, Environmental Management. Integrating Environmental Aspects into Product Design and Development, European Committee for Standardization, Brussels. Koppelmann U., Produktmarketing – Entscheidungsgrundlage für Produktmanager, Verlag Kohlhammer, Stuttgart 1989, s. 341-342. Kurczewski P., Lewandowska A. (eds.) 2008, Ecodesign Principles for Managing the Technical Objects Life Cycle; KMB Druk; Poznan; Poland pp. 45-47 ISBN 978-83-61352-20-4 (in Polish). Lee K. M. 2002, Integrating Environmental Aspects into Product Design and Development, ISO Management Systems, November-December, pp. 13-16. Lee K.M, Park P.J. 2005, Ecodesign Best Practice of ISO/TR 14062, Ministry of Commerce, Industry and Energy Republic of Korea, Committee on Trade and Investment. Lemke F. & Luzio J.P. 2014, Exploring Green Consumers’ Mind-Set toward Green Product Design and Life Cycle Assessment. The Case of Skeptical Brazilian and Portuguese Green Consumers, Journal of Industrial Ecology, 18 (5), pp. 619-630. Lewandowska A. 2015, Environmental Life Cycle Assessment (LCA) of Products – Closer than Ever Before, Logistyka Odzysku, X-XII.2015, pp. 28-31 (in Polish). Lewandowska A., Kurczewski P. 2010, ISO 14062 in Theory and Practice Ecodesign Procedure Part 1: Structure and Theory, The International Journal of Life Cycle Assessment, Vol. 15, Issue 8, pp. 769-776. Lewandowska A., Matuszak-Flejszman A. 2014, Eco-design as a Normative Element of Environmental Management Systems - the Context of the Revised ISO 14001:2015, The International Journal of Life cycle Assessment 19, pp. 1794-1798. Lewandowska A., Witczak J. 2012, LCA in advertising, Ecomanager, Issue 5, pp. 44-45 (in Polish). Lewis H., Gertsakis J., Grant T., Morelli N., Sweatman A. 2001, Design and Environment. A global guide to designing greener goods; Greenleaf Publishing ISBN-13: 978-1874719434. Mazurek-Łopacińska K. 2005, Badania marketingowe. Teoria i praktyka, PWN, Warszawa. Merta-Olejniczuk A., Nowacki S. 2011, Jak zachowują się dziś polscy konsumenci? PTBRiO.

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Molina-Murillo S.A. & Smith T.M. 2009, Exploring the Use and Impact of LCA-based Information in Corporate Communications INT J LIFE CYCLE ASSESS 14, pp. 184-194. Ottman J.A. 2011, The New Rules of Green Marketing: Strategies, Tools, and Inspiration for Sustainable Branding, Greenleaf Publishing, ISBN 9781-906093-44-0. Otto K., Wood K. 2001, Product Design, Techniques in Reverse Engineering and New Product Development, Prentice Hall, New Jersey. Pater Z., Tofil A. 2004, Wirtualne prototypowanie w budowanie maszyn, III Konferencja Entuzjastów Informatyki, Chełm. Prakash S., Dehoust G., Gsell M., Schleicher T., 2014, Einfluss der Nutzungsdauer von Produkten auf ihre Umweltwirkung: Schaffung einer Informationsgrundlage und Entwicklung von Strategien gegen „Obsoleszenz“, Umwelt Bundesamt, 10/2014, ISSN 1862-4804. Sojkin B. (red.) 2012, Komercjalizacja produktów żywnościowych, PWE, Warszawa. Sojkin B. (red.) 2003, Zarządzanie produktem, PWE Warszawa, p. 279. Szatkowski K. 2008, Przygotowanie produkcji, Wyd. PWN, Warszawa, p. 85. Wimmer W, Zust R, Lee K.M. 2004, Ecodesign Implementation. A Systematic Guidance on Integrating Environmental Considerations into Product Development, Springer, ISBN-13: 978-1402030703. Zarebska J, Lewandowska A., 2010, Life Cycle Assessment (LCA) as a Tool for Creating a Proecological Image of the Companies MANAGEMENT, 14 (1), pp. 306-318; ISSN 1429-9321. Zielińska Z., Janoś-Kresło M. 2000, Rola nowego produktu w zaspokajaniu i kreowaniu potrzeb konsumentów, Handel Wewnętrzny 4/2000. Zienkowski L. 2003, Wiedza a wzrost gospodarczy, Wydawnictwo Naukowe Scholar, Warszawa.

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6. Economic and Environmental Aspects of Product Management

6.1. Introduction Dynamic changes occurring in the macro- and micro-surroundings of an enterprise (in particular in competitive and economic surroundings as well as in consumers’ behavior) determine the necessity to adjust the product management strategy to individual stages of the product’s market life cycle. Each phase of a product’s market life cycle has a different characteristics important from the point of view of an enterprise’s need to take specific actions [Urbanowska-Sojkin and Banaszyk 2004, p. 237]:  size, structure, intensity as well as the dynamics of demand and supply growth,  number and type of clients who purchase the product, frequency/size of purchases, consumer sensitivity to enterprises’ marketing activity,  number of rivals and the intensity of competition,  costs related to product development, distribution management, promotion actions. It forces the need to define different strategic objectives of the enterprise at the stage of introduction, growth, maturity and decline as well as while adjusting marketing instruments to realize the planned objectives [Lambin 2001, p. 256]. Enterprises whose products are at the stage of growth (mainly) and maturity have relatively the biggest ability to make changes within the scope of the accepted strategic option. Therefore, the correctness of the decisions made at that time can decide about the duration of these stages and the success or failure of a given product on the market. 149

6.2. Economic Aspects of Product Management at the Stage of Life Cycle Growth The introduction of a product to the stage of growth results from the approval of product innovation from the growing number of buyers. The economic consequence of it is the gradual growth of sales volume and generating profits by a market entity. It is mainly caused by the decrease in the costs of manufacturing per a unit (due to the sales growth) and by limiting marketing spending, especially related to promotion. The growth of the sales dynamics of a product is mainly determined by the fact that consumers-innovators repeat the purchase, whereas the consumers within the group of early adopters begin to like the characteristics and attributes of the new products and with time become regular buyers. It ought to be stressed that the bigger availability of a product at the stage of growth resulting from intensifying distribution, in particular from broadening distribution channels. From the point of view of marketing decisions, which are key elements to product management at the stage of growth, it is important that there are a lot of entities appearing which offer products of a relatively close substitution (table 1). In other words, at the stage of introduction a market entity (innovator) was (in general) the only tenderer of the innovative product. On the other hand, at the stage of growth there are numerous adopters who are motivated by the desire to achieve high profitability of sales with considerable reduction of financial input by dint of reduced costs related to development strategy and introducing an innovative product onto the market (adopters’ costs are 1/3 lower than the ones of a leader/innovator) [Sojkin 2003, p. 327]. Hence, the key aspect of product management at the stage of growth is growing competition (both in the entity, tangibles and spatial approaches. The size of competition for products implies different marketing strategies of entities depending on if they are market leaders (pioneers, innovators) or typical adopters or pretenders. As mentioned before, the strategies of enterprises’ actions – innovators (pioneers) and late-entering enterprises at stage of growth within the product’s life cycle are essentially dissimilar. It results from differently defined strategic objectives.

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Table 1. Conditions of strategic actions within the scope product management at the stage of growth Conditions of strategic actions 

fast growth of the product’s sales volume,



profit growth of a pioneer/innovator,



growth of awareness of the product/brand among buyers,



growth of interest in the product among buyers (in particular from the segment of early adopters),



intensification of distribution actions,



intensification of competition in the product, tangibles and spatial approaches,



growth of price competition.

Source: own research on the basis: [Sojkin 2003, pp. 330-333]

The strategic objective of a market innovator/leader is to maintain the dominant position on the market. Innovators takes actions to:  increase the dynamics of sales and the market share or,  achieve bigger profitability than the present one with a smaller sales volume. It is obvious that the abovementioned actions are related to a strong competitive position. In the case of the strategic option based on the maximization of the market share innovators take actions in accordance with the strategy of market penetration. This strategy consists in increasing or maintaining the sales of products on the market at present. It may occur through implementing actions in the following areas: the development of total demand or increasing the market share, defending the market position or acquiring markets [Lambin 2001, p. 345]. The basis for an enterprise’s actions related to the realization of market penetration is conducting the segmentation of buyers on a given market by dividing them into:  current buyers of a company’s products,  potential buyers of a given category of products,  buyers of a given category of products manufactured by the competition (rival brands’ buyers) and using different operational tools devoted to all segments.

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Actions in accordance with the realization of the penetration strategy aim at building a clear image of the product/brand, intensification of distribution (broadening distribution channels, building partner ties in the channel), price manipulation (price reduction and using various tools for adjusting prices to market conditions), using communication tools with a view to remind about the product/brand and encourage to buy the product. It is obvious that the realization of the planned strategic objective related to increasing the market share of the innovator at the stage of growth often calls for taking actions linked with product management sensu stricto. It is mainly about introducing product modification, in particular in the context of the differentiation strategy. The aim of the strategy in general is creating a product of unique characteristics, which are important for buyers. Moreover, the strategy embraces creating something considered to be unique [Porter 1996, p. 51]. The differentiation of a product gives an enterprise-innovator the opportunity to gain and maintain a permanent competitive position. In the case when a pioneer’s objective at the stage of growth is to realize a high current profit (with a smaller sales volume), it focuses mainly on building the brand’s image, creating loyalty to the brand as well as distinguishing the product through giving it unique and exceptional features. Innovators also pay attention to the quality of products both in the technical and consumer aspects. Different strategic objectives at the stage of growth are formulated by enterprises which just enter a given industry (the so-called late adopters). These enterprises are normally included in the segment of adopters and pretenders. An adopter is an enterprise which in general does not attack the leader, but implement the policy of peaceful co-existence most frequently through using the same attributes as the market leader. On the other hand, pretenders are enterprises aiming at becoming the leader and undertaking open competitive fight [Lambin 2001, p. 345]. In general adopters compete with the leader/innovator in two ways:  they try to avoid direct confrontation with the innovator through looking for a market niche (or several niches); these actions may be conducted as a defensive strategy allowing for acquiring and maintaining a relatively stable competitive position, or as an offensive strategy – a market niche is just a starting point to conquer next market segments of large purchasing power; 152

 they make effort to directly confront the innovator and try to locate the offer next to the pioneer’s offer. The strategy of a market niche consists in the selection of a narrow market segment consisting of individual buyers with specific unique needs, which have not been satisfied by companies on the mass market. An ideal market niche should have ample size and purchasing power in order to be profitable. While addressing a specified offer to the market niche late adopters can defend from big opponents’ attacks (attracted by the company’s success and perspectives for profits above average) thanks to good reputation among clients. It allows the company’s development and achieving a higher level of sales, however, there are significant limitations linked with achieving the share on the whole market. Moreover, the precise knowledge of buyers should be correlated with the specialization of production, distribution and promotion, as it allows cost-effectiveness and higher profitability [Rokita 2005]. It should be clearly stated that the strategy of a market niche is generally realized by small enterprises of an insignificant potential. By launching an open fight and trying to locate their offer next to the innovator’s the late adopters enterprises have two strategies to choose from [Sojkin 2003, p. 329]:  making an attempt to create “the second standard”, i.e. introduction of a product which is supposed to compete with “the first standard”, i.e. the innovator’s product at the stage of growth,  adopting “the first standard” and trying to indirectly compete which calls for large financial input both for production and marketing activity. The abovementioned strategic solutions are realized by two big concerns of a significant market position as well as considerable technological, financial and marketing resources. It should be stressed that a relatively late entering to an industry is a well-considered decision – some enterprises hesitate to introduce a product onto the market early as in total the benefits of late entering outweigh being the pioneer. It connected with the minimization of the innovation’s failure risk, the ability to modify the product when it turns out that the product introduced by the pioneer has imperfections, the lack of need for educating buyers (adopters usually enters the pre-educated market). The abovementioned considerations are in accordance with the “second but better” rule.

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Enterprises which enter an industry late must invest in the research and development area to attach features, characteristics and attributes to the product, which is supposed to directly compete with the market leader, which will make it highly probable that the leader’s position will be taken over by the pretender.

6.3. Marketing Instruments Used at the Stage of Growth within the Product Life Cycle The realization of strategic objectives of enterprises within the groups of innovators and adopters at the stage of growth in the market life cycle of a product often calls for applying proper instrumental strategies, i.e. proper operation of marketing mix instruments. Despite different objectives, innovators and late-comers to an industry use similar solutions within the scope of the marketing mix instruments. At the stage of growth enterprises introduce modifications (mainly improvements) of a product in order to differentiate it from the rival offer through attributing exceptionality and uniqueness to it. The primary models of a product are often enriched with new features, qualities, or are replaced with new versions [Przybyłowski, Hartvej et al. 1998, p. 295]. As it was mentioned above, these actions are in compliance with the determinants of the differentiation strategy. This strategy can be realized with the use of various tools, directly or indirectly linked with the product offered by the enterprise. The following are considered typical [Szymczak, AnkielHoma 2007, p. 38]:  creating a unique pattern of the product,  creating a unique image of the brand,  attributing specific practical and functional features (which often includes health and environmental benefits of the product),  introducing the innovative production technology,  offering a wide range of post-sale services. The intensification of sales through inter alia getting access to new market segments is also realized with the use of the complementary offer – next variants or types of the innovative product, extending the brand line (vertical and horizontal), which is especially visible on the market of frequently bought consumption products (e.g. new flavors of chocolate, 154

differentiating unit packing according to size and construction form, new fragrance options for perfumes). Increasing of a product’s value at the stage of growth should be conducted with maximal creativity, which allows taking notice of the elements or features of the product which can be modified, replaced, eliminated in a way that the customer satisfaction is increased without the need for proportional growth of production costs [Gorchels 2007, p. 163]. The price of the introduced/ at the stage of growth product generally is not subjected to changes aiming at adjusting the price to the market conditions (mainly to the intensity of competition). The price of the product offered by the innovator should amount to a significant barrier to entering a sector or an industry. In the case of enterprises seeking maximal current profit at the expense of sales volume, it seems to be correct to maintain a high price level for a relatively long time (certainly when the product’s features, qualities or attributes as well as the brand image are exceptional and different than the competition). The realization of the strategic option related to the sales and market share growth usually calls for reducing the price of the innovative product or using the instruments for price differentiation (e.g. according the buyers’ characteristics or time and region of sales, discounts. The abovementioned actions stimulate demand and may bring positive results in the form of broadening the market and growing the sales volume. Moreover, it is very important that these actions efficiently discourage adopters from entering the market. In general, the price strategy at the stage of growth depends on the price flexibility indicator of demand, therefore, it should be the main factor in the area of decision-making. It is obvious that proper product management at all stages of product life cycle is not reduced to mere activity in direct reference to the product, but consists in assuring its maximal availability on the market for potential consumers [Czubała 2001, p. 9]. At the stage of growth the paramount objective of enterprises in the area of distribution is its intensification, in particular through broadening the distribution channels which will allow for bigger market share and growth of sales volume. Consumer awareness within the scope of the product (at the stage of growth) is sufficient for the enterprise to focus on distribution actions enabling the efficient penetration of the market [Sosnowska 2003, p. 73]. The general goal for decision made within the distribution strategy should be, as mentioned 155

above, assuring the maximal availability of the product on the market. The following are typical distribution actions taken at the stage of growth within the area increasing market penetration [Olejniczak 2007, p. 63]:  increasing the number of intermediaries at specific levels of the distribution channel,  building own channels of distribution or broadening the existing ones,  seeking new types of intermediaries,  redefinition of tasks performed by intermediaries, in particular increasing the role of the manufacturer within the area of merchandising,  tightening ties with intermediaries mainly through introducing new instruments for motivating trade intermediaries in the distribution channel,  increasing the tasks within physical distribution; frequently applied outsourcing,  monitoring of interrelations between the participants of the distribution channel in order to search for new organizational solutions. The abovementioned actions are supposed to assure the efficiency of the distribution system as an important determinant of the efficiency of product management strategic actions at the stage of growth. Marketing communication at the stage of growth aims at reminding the customer about the product and encourage them to purchase it (the consumer is aware enough of the product’s existence and advantages, so informing and educating is unnecessary). Enterprises modify advertisements from aware-ness-building to preference-shaping messages to the product’s consumers [Kotler 1999, p. 339]. The modifications conducted in order to attribute unique features call for the use of the communication tools which will present the brand’s uniqueness and allow for indicating at the brand’s attributes giving it leverage over the rival offer. Despite caring for the brand image enterprises should use communication tools for building consumer loyalty to the product (e.g. loyalty programs). Marketing communication based on the relation with the client allows for establishing a dialog with the client, obtaining their opinion as well as building the sense of community [Olsztyńska 2007, p. 52]. The abovementioned actions should mainly contribute to repeated purchases by clients within the sector of innovators and early adopters.

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6.4. Economic Aspects of Product Management at the Stage of Maturity within the Product Life Cycle Due to the limited capacity of the market it is obvious that the speed of selling a product (getting increased at the stage of growth) at some point will begin to slow down/stabilize. The sales slowdown is a clear signal of the product’s entering the stage of maturity. Product management during this phase is a much bigger challenge for marketing directors, because of the need for its maximal prolongation in order to assure the ability to gain considerable benefits for the enterprise (at the stage of maturity products are “milk cows” – the profit generated by their sales allows investment in development as well as introducing new innovative projects onto the market). The maturity stage is characterized by strong market competition; the weakest competitors start to lose the market (mainly as a result of gradual price reduction and the tools for sales promotion); the market begins to be increasingly concentrated [Lambin 2001, p. 259]. Among the most important factors affecting the speed of product maturity the following should be enumerated [Ratajczyk 2007, p. 25]:  time and spatial competition aggregation,  economic and natural thresholds of satisfying consumer needs,  apparent differentiation of products and apparent offering new products,  fuller and faster client’s access to the market information,  decreasing number of regional and domestic markets/products,  aggregation of several products or functions within one product,  lower durability of the product,  globalization process. At the stage of maturity within the product life cycle markets are stabilized, saturated and strongly segmented. Enterprises intensely look for market niches, broaden distribution channels and conduct product modifications. Products are bought by early and late majority, whereas innovators and adopters choose a new product. Sales of the product at the stage of maturity generates decreasing profits which is determined by the following factors (according to E.M. Rogersa) [Sojkin 2003, p. 331]:  the loss of the product’s uniqueness (features, qualities and attributes which made the product special at the stage of growth become a standard offer for buyers, and the distinguishing parameters belong now to innovative products), 157

 competition becomes much more dynamic which is seen inter alia in superfluous broadening of the product (“overproduction”, i.e. the introduction of the increasingly varied product offer onto the market). The abovementioned speeds up the process of sector maturing and market saturation. The over varied offer within the product line makes it difficult for consumers to choose the appropriate product, and consequently, they often purchase goods from the rival offer:  market leaders are under strong pressure from pretenders and adopters which results in price manipulation (discounts, price reductions) and the use sales promotion instruments to stimulate demand,  research and development works in order to modify products (with a view to improve them, increase quality, attribute exceptional features and qualities) call for engaging the enterprise’s relatively big financial resources,  distribution intermediaries show a significantly lower interest in products whose sales is dropping which forces enterprises to use costly motivation methods for intermediaries in the channel as well as cooperation with mass channels (large stores) of a considerable bargaining power which impose less favorable financial conditions. In the context of our considerations included in the present subchapter it should be firmly stressed that the product at the stage of maturity within the market life cycle is a product which, with the use of proper marketing strategies and actions, may be subjected to revitalization in order to enable the maximal prolongation of its existence at the analyzed phase [Sheth and Morrison 1984, pp. 17-28].

6.5. Marketing Strategies at the Stage of Maturity within the Product Life Cycle The strategic objective of the enterprises whose products are at the stage of maturity is to protect and, if possible, to increase the already achieved market share along with the maximization of the realized current profit as well as achieving competitive leverage in the sector [Lambin 2001, p. 260]. Among the phenomena and processes to which we should pay particular attention at the stage of maturity, and which are the key elements 158

to the realization of strategic and operational objectives, we may enumerate [Sojkin 2007, p. 9]:  the absolute and relative level of the product’s sales (compared with the competition and market forecasts),  the relative level of other (similar) products’ sales in the product portfolio which allows to define the level of product cannibalism,  the product’s or category’s share of the market,  complaints, buyers’ and distributor’s applications and remarks,  the level of the awareness of the product’s existence,  the order level,  the number of points of sale,  the effectiveness of actions within the scope of marketing communication. In the face of growing difficulty related to the specificity of the maturity stage, enterprises in general take actions in order to [Lee, In-Ku Lee and Ulgado 1993, pp. 56-68]:  distinguish the product through the improvement of quality and style (introducing changes not only in the physical product, its features, qualities and attributes, e.g. nutritional or health value, but also in introducing changes in packaging or product-related services; moreover, the modifications within the scope of creating or repositioning the brand’s image),  enter new market segments or niches (searching for niches or creating them),  gain long-term competitive leverage through the use of marketing mix elements, which are not related to the product itself (decrease or increase in the price level of the product, the modification of distribution channels or communication actions). The selection of actions aiming to realize the strategic objectives of enterprises whose products are at the stage of maturity is conditioned by various factors linked with the enterprise’s resources, competitive position as well as many external factors. The factors presented in table 2. belong to the most important determinants affecting the choice of instruments for defending or increasing market share as well as for strengthening competitive leverage. 159

Table 2. Determinants of product management at the stage of maturity Factor groups

Component elements



product-related

     

type of a product, role of the product in the portfolio, features, qualities, attributes of the product, packaging of the product, product-related services, market potential of the product



brand-related

   

brand image, brand attributes, option for brand positioning, role of the brand in the portfolio



enterprise-related



financial, tangible, technological resources of the enterprise, competitive position of the enterprise, the enterprise’s image on the market, distribution channels, communication actions

    

surroundings-related

  

competition (in the entity, tangibles and spatial approaches), buyers (target segments, identified market niches) macro-surroundings trends (legal, technological, social and demographic, economic)

Source: Own research on the basis of professional literature

In general the strategy of enterprises with a product at the stage of maturity may be attack-oriented (i.e. the offensive strategy) or defending the achieved position and avoiding competition fight with rivals (i.e. the defensive strategy). The offensive strategy is used by enterprises which have gained competitive leverage or have particular advantages (new technologies, organizational resources, intellectual resources, attractive service etc.). Furthermore, these enterprises create the innovative climate – they constantly search for better solutions (product modernization and modification, lower prices, change of packaging, modern communication 160

tools) [Penc-Pietrzak 2000]. Within the realization of this strategy enterprises, as mentioned before, look for new unexplored market segments. On the other hand, the defensive strategy consists in defending the current position and strengthening it or in withdrawing from the market with the use of all market opportunities still present in a given sector (the enterprise tries to minimize failure and avoids risk). At the stage of maturity enterprises realize the defensive strategy through the implementation of the following actions [Sojkin 2003, s. 336]:  strengthening the management of big orders (maintaining relations between the seller and the buyer at many levels in order to avoid negotiation leverage),  improving the system of customer service (and introducing additional services in the producer’s offer),  improving the product with new features, qualities or attributes in order to avoid price competition,  seasonal price reduction and using tools for adjusting the price to market conditions (in order to eliminate weaker rivals). On the other hand, Ph. Kotler defines all actions of an enterprise related to product management at the stage of maturity as “modifications”. Modifications are linked with the following areas: market and the elements of marketing mix (in the classical approach, i.e. product, price, distribution and communication). A market modification relates to the increase of the number of the product’s buyers or/and the increase of the product’s purchasing frequency [Sojkin 2003]. The ways of realizing the abovementioned objectives are presented in table 3. The modification of marketing mix instruments in particular refer to the product (in fact in this area enterprises’ possibilities are infinite), as well as price, distribution and marketing communication tools.

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Table 3. The ways of the increase of the number of the product’s buyers or/and the increase of the product’s purchasing frequency Increasing the number of the product’s buyers Ways of realization

Exemplary actions



reaching clients who have not bought the product yet



reaching the segment of senior consumers and children by mobile network carriers



entering new segments of the already controlled market



positioning still water as intended for the consumption of infants and small children



winning competition’s clients



constant competitive fight between products/brands which are positioned in a similar way, have the same price level and availability in points of sales (washing powder Dosia and Bonux , Ariel and Persil)

Increasing the frequency of the product’s purchasing Ways of realization

Exemplary actions



increasing the frequency of the product’s use





increasing the amount of the product  used for a single use



new application of the alreadyknown product



the Danone concern recommends drinking Actimel every day for 14 days; the Calgonit preparation should be used during each wash; the Listerine mouthwash should be applied several times a day introducing beer in 0.66l bottles or mineral water in 2l bottles the Ace bleach as a preparation for cleaning sanitary devices; natural yoghurt as a soup thickener and dip base

Source: Own research on the basis of professional literature

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The modification of the product may be conducted in many areas. The most important of them are:  the modification of features, qualities and attributes of the product, e.g. physicochemical characteristics or functional characteristics (enriching yoghurt with probiotics, prebiotics; enriching juice with vitamins; developing a mobile phone’s functions; addition of bleaching and aromatic compounds to washing powders),  the modification of the product’s packaging, e.g. construction form, material, graphic design, information put the packaging (the change of the Redd’s beer can’s graphic design, the change of the Lech Premium beer can’s shape from the Euro type to the Gold type, modern sleevetype labels on packaging of beverages, drinkable yoghurts),  the modification of product-related services (prolonged warranty period, maintenance services),  the modification of the brand’s attributes/image, e.g. the brand’s logo, positioning option (the change of Bols logotype; repositioning of the Żubr beer brand). The consequence of the choice of product-related modification actions (aiming at sales recovery, market share increase and the enterprise’s profit growth) are inter alia better care for technical quality and the so-called congruent quality of products1. It is mainly related to increasing the product’s worth from the point of view a consumer through increasing usefulness, ergonomics, emotional experiences, as well as through introducing changes within the product’s packaging. The modifications in the area of price consist in periodical price reduction and increase as well as in applying tools for adjusting prices to market conditions in order to stimulate demand and strengthen the competitive position. Adjusting prices to market conditions is presented in table 4.

Congruent quality – overlapping dimensions of the product’s technical quality and the perceived/emotional quality (the so-called consumer quality). 1

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Table 4. Tools for adjusting prices to market conditions PRICE DIFFERENTIATION (establishing product prices at different levels for different buyers)     

on the basis of the sales’ region, depending on the time of purchase, taking account of the buyers’ characteristics (age, income situation), on the basis of the location of purchase, others (client’s negotiation position, frequency of purchasing, sales and payment conditions) PRICE REDUCTIONS (optional reduction of the current price)

 

discount, quantitative price reduction, value price reduction, functional price reduction, seasonal price reduction SPECIAL PRICES (temporary price reduction)

 

special prices for the final buyers (special offers, installments, warranty and service contracts, psychological price reduction), special prices for intermediaries

Source: Own research on the basis of professional literature

Price reduction is typical of enterprises using the low cost strategy which is reflected in low prices [Porter 2001, p. 51]. The abovementioned action ought to be used rather carefully in order to avoid typical traps resulting from making hasty decisions in this area. The problem is the so-called “low quality trap” - buyers can perceive the product of lower price as the one of inferior quality than the rival offer. On the other hand, increasing prices is efficient in the case of companies with the product’s/brand’s exceptional feature and attributes.

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The product’s entering the maturity stage causes the intensification of distribution in order to reach the segment of buyers who purchase in different format of stores (a corner shop, a supermarket, a discount store, Internet etc.). Moreover, the intensification brings about creating competition among distributors and their becoming independent of one another. The decisions made within the distribution strategy at the stage of maturity are as follows [Olejniczak 2007, p. 63]:  broadening possible variants of distribution channels (selection and building relations with new partners),  changing the density of the distribution network (increasing the number of points of sale, increase of the intensity of distribution at specific levels),  enhancing the functioning of distribution channels (developing a motivational system for trade intermediaries),  intensifying actions within merchandising,  monitoring the results of distribution channel management in order to eliminate ineffective partners. The aim of actions within the area of communication at the stage of a product’s maturity is reminding and encouraging consumers to purchase goods. In advertisements strictly informational aspects are omitted at the expense of the emotional ones. The sales promotion instruments aiming at periodical stimulation of demand for the product (especially, bonus packages, bonuses, coupons and contests) are intensively used. Sales promotion is an instrument which clearly activates demand, however, it should be stressed that an enterprise refrain from frequent use of it, even if competitors overuse it. Otherwise, the special offer loses its exceptionality and becomes a standard one. The selection of proper actions within the scope of instrumental strategies may assure the realization of the enterprise’s key objectives at the stage of maturity (mainly defense/increase of its market share) and prolongation, as far as it is possible, of the product on the market.

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6.6. Environmental Aspects of Product Management Environmental aspects of product management refer to any product, not only e.g. an eco-product, and the care for environmental aspects of managing an enterprise and a product is one of the pivotal categories which decides about the competitiveness of the product under the conditions of market economy. Mass production and consumption lead to the growing negative environmental impact. This phenomenon also begins to attract consumers’ attention. Consequently, consumers’ environmental awareness encourages them to buy products manufactured on the basis of pro-ecological principles. The critical moment of product management is the designing which takes account of and reconcile many aspects: acquiring raw materials, conducting the production process, duration of the product’s use, environmental impact in the whole life cycle, current costs of use, repair/maintenance option, the possibility of final management, material recycling and dismantling etc. By using proper tools it is possible to combine environmental and economic success. A relevant example may be the reduction of environmental burden related to waste, which can bring the enterprise cost reduction thanks to limiting the environmental costs within the total cost share [Wojnarowska 2012]. Consumers who are sensitive to environmental problems choose products and processes which are safe for the environment. It is an undeniable fact that the information transferred to the market about products may mislead the consumer. Products designed with proper care for the environment achieve market success if they satisfy actual needs and desires of consumers. Moreover, they must be at least of comparable or equal quality to rival products [Peattie 1995, p. 191].

6.7. Summary The implementation of the environmental product policy in an enterprise contributes to the realization of the conception of sustainable development. Hence, it brings benefits to the economic area (e.g. through reducing material and energy consumption), the environmental area (less significant environmental impact of products in the whole life cycle), as well as the social area (improvement of the company’s image in consumers’ perception). By dint of manufacturing products and creating services which 166

are environment-friendly enterprises become increasingly competitive on the market [Wojnarowska 2012].

6.8. Literature Czubała A. 2001, Dystrybucja produktów, PWE Warszawa. Gorchels L. 2007, Zarządzanie produktem, Od badań i rozwoju do budżetowania reklamy. Helion, Gliwice. Kotler Ph. 1999, Marketing. Analiza, planowanie, wdrażanie i kontrola. Wyd. Felberg SJA. Lambin J.J. 2001, Strategiczne zarządzanie marketingowe, PWN Warszawa. Lee M., Lee In-Ku, Ulgado F.M. 1993, Marketing Strategies for Mature Products in a Rapidly Developing Country: A Contingency Approach, International Marketing Review, December, pp. 56-68. Olejniczak T. 2007, Obszary zmian strategii dystrybucji produktu w fazie wzrostu i dojrzałości, w: B. Sojkin (red.), Produkt w fazie wzrostu i dojrzałości, Zeszyty Naukowe AE Poznań, Wyd. AE Poznań. Olsztyńska A. 2007, Istota i znaczenie lojalności klienta w fazie wzrostu i dojrzałości produktu w: B. Sojkin (red.), Produkt w fazie wzrostu i dojrzałości, Zeszyty Naukowe AE Poznań, Wyd. AE Poznań. Peattie K. 1995, Environmental Marketing Management, Pitman Publishing, London. Penc-Pietrzak I. 2000, Strategie biznesu i marketingu, Wyd. Profesjonalnej Szkoły Biznesu, Kraków. Porter M E. 1996, Strategia konkurencji. Metody analizy sektorów i konkurentów. PWE, Warszawa. Przybyłowski K., Hartley S.W., Kerin R.A.,Rudelius W. 1998, Marketing, Dom Wydawniczy ABC, Warszawa. Ratajczyk P. 2007, Współpraca działów B+R i marketingu w procesie zarządzania produktem dojrzałym w: B. Sojkin (red.), Produkt w fazie wzrostu i dojrzałości, Zeszyty Naukowe AE Poznań, Wyd. AE Poznań. Rokita J. 2005, Zarządzanie strategiczne. Tworzenie i utrzymanie przewagi konkurencyjnej, PWE, Warszawa. Sheth J., Morrison G. 1984, Winning Again in the Marketplace: Nine Strategies for Revitalizing Mature Products, Journal of Consumer Marketing, vol. 1, issue 4. Sojkin B. (red.) 2003, Zarządzanie produktem, PWE, Warszawa.

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Sojkin B. 2007 Udział w rynku jako metryka produktu w fazie wzrostu w dojrzałości w: Sojkin B. (red.), Produkt w fazie wzrostu i dojrzałości, Zeszyty Naukowe AE Poznań, Wyd. AE Poznań. Sosnowska A. (red.) 2003, Zarządzanie nowym produktem, Oficyna Wydawnicza SGH, Warszawa. Szymczak J., Ankiel-Homa M. 2007, Opakowanie w działaniach marketingowych przedsiębiorstw, Wyd. AE Poznań. Urbanowska-Sojkin E, Banaszyk P., Witczak H. 2004 Zarządzanie strategiczne przedsiębiorstwem, PWE Warszawa. Wojnarowska M. 2012, Znaczenie Zintegrowanej Polityki Produktowej w kształtowaniu wiedzy o jakości wyrobów, Journal of Management and Finance, vol. 3, issue 2.

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7. Environmental Performance of an Organization

7.1. Introduction The aim of the present chapter is to indicate the areas within the scope of the evaluation of environmental performance of an organization. It has been defined what environmental efficiency and effectiveness are and how important it is from the point of view of managing an organization. Moreover, it has been indicated which factors influence the effectiveness of an environmental management system taking account of the requirements of the ISO standards and Eco Management and Audit Scheme (EMAS). This chapter also embraces considerations on the measures of environmental performance which may be applied by organizations in order to evaluate their environmental performance.

7.2. Efficiency and Performance

Effectiveness

of

Environmental

The assurance of efficient and effective accomplishment of the organization’s objectives through the prism of which it is evaluated is a significant determinant of management and successful operation of an organization. In most cases, the evaluation of an organization and the fulfilment of its tasks relate to its effectiveness, which, in turn, is determined by the effectiveness of its managerial staff [Łańcucki 2004]. The concept of operation efficiency is understood as a positive result of the evaluation of the compliance of the result of the activity with its objective, the ability to choose relevant objectives, relevant things to do, i.e. what the organization needs and desires 169

for its proper functioning and development [Penc 1997]. The efficiency of operation is a function of both the properties of the system that performs a task and the specificity of the task itself. Thus, the efficiency of an environmental management system may be perceived in the light of compliance of the result of activity with the environmental objectives pursued and skillfully selected by an organization, as well as in the light of compliance with the requirements imposed on it [Matuszak-Flejszman 2016]. Words „effectiveness”, „efficiency”, „performance”, „capability” in colloquial language are interchangeable and incorrectly are often used as synonyms, which in consequence causes the ambiguity of these terms' meanings. The differences between these expressions are crucially meaningful. In managing an organization efficiency may be understood differently according to the approach [Gryffin 2001]:  a system and resource approach – an efficient organization is able to provide for its necessary resources;  an objective approach – the level of achieving assumed objectives is a measure of efficiency;  a process approach – efficiency is realized through expeditious operation and integration of an organization;  a strategic electorate approach – achieving efficiency is realized through concentrating on stakeholders of an organization. The ISO 9000 standard presents an objective approach – according to the definition efficiency is the extent to which the planned actions are realized and the planned results are achieved [ISO 9000:2015, p. 3.2.14]. In the case of the evaluation of efficiency costs or side-effects are not significant [Kirejczyk 2008]. The evaluation of efficiency consists in obtaining answers if actions brought expected results, if the intended objectives and consequences are at least equal to the planned level. Capability is an ability of an organization, a system or a process related to the realization of a product which complies with its defined requirements [ISO 9000:2015, p. 3.1.5]. Efficiency and capability have one common objective – by contrast to effectiveness – as they refer to operations or achieving goals, taking no account of necessary input. The relation of the effects (achieved results) to input (used resources) defined effectiveness [ISO 9000:2015, p. 3.2.15]. The input may be the money spent, the effort made, 170

the time consumed etc. An effective action calls for the situation in which its benefits were positive and maximally large [Żylicz 2006]. Effectiveness is a very complex phenomenon as it may refer to both the economic and financial area as well as the environmental, social, cultural, organizational, moral spheres [Skrzypek 2013]. We may distinguish various types of effectiveness. According to Skrzypek they are: financial effectiveness, communication effectiveness, economic effectiveness, operational effectiveness, market effectiveness, management effectiveness, organizational effectiveness, development effectiveness, leading effectiveness, action effectiveness, process effectiveness, tangibles effectiveness, social effectiveness, economic and technical effectiveness, social and economic effectiveness, technical effectiveness. Thus, to unequivocally define the concept of effectiveness one has to take into consideration not only the technical and economic approach but also the organizational and bureaucratic one, or even the praxeological and humanistic approach [Matuszak-Flejszman 2016].

Figure 1. Relations between efficiency and effectiveness of process realization. Source: based on the ISO 9000:2005 standard – Quality Management Systems. Normative Reference, Terms and Definitions

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In professional literature the following definitions of effectiveness are popular:  financial effectiveness – it is a measure of profitability from the point of view of an investor; a project is financially effective, if financial benefits for the investor outweighs the input investment costs [Molo 2008; Graczyk 2011]. This term may be associated with costeffectiveness and rationality of the use of resources [Skrzypek 2013].  economic effectiveness – it is a measure of profitability from the social point of view, it cannot be associated with financial profit exclusively. An economically effective project leads to the growth of the community's well-being embraced by its results (including broadly understood quality of life as well as social, moral and spiritual values) [Molo 2008; Graczyk 2011]. Economic effectiveness is expressed as "the relation of received results' effects to the input of the factors used to achieve them” [Skrzypek 2013, quoted after: Czarnek 2010].  cost effectiveness – the compromise between efficiency and effectiveness – the calculation is based on accumulating processes with a similar effect, ordering processes according to their costs, and proving that the accepted method of achieving the goal is the most cost-effective and not necessarily is founded on the premise that the benefits should outweigh the costs [Żylicz 2006, 2008]. From the point of view of environmental management it is significant to consider the term of effectiveness in the relevant approach (eco-effectiveness) which means [WBCSD 2000; Adamczyk and Nitkiewicz 2007; Kulczycka 2011; Szyszka and Matuszak-Flejszman 2013b, quoted after: European Competitiveness report 2002, European Commission 2002]:  the efficiency of using up natural resources, minimization of creating waste and pollution at each stage of production (with the proper quality of products and services assured),  the relation between economic performance and the environmental pressure related to producing this performance,  the relation between the environmental goal set by an organization and the costs of achieving the environmental performance. In detailed approaches the term of "effectiveness" is sometimes used as: energy-effectiveness, water-effectiveness, waste-effectiveness [Kulczycka 2011 quoted after: Janikowski]. 172

Taking account of the cost-effectiveness principle, effectiveness can be perceived in two aspects: achieving the best effect possible with a given level of input or using up the smallest input possible in order to achieve a given objective [Skrzypek 2013]. Environmental effectiveness is related to the objectives which one wants to achieve within the area of environmental protection. According to Kryk in this case the level of realizing objectives and tasks is paramount, whereas the input needed for an objective is of a secondary importance (which does not mean wasting financial resources) [Graczyk 2011 quoted after: Kryk 2003]. Due to the differences in effectiveness and efficiency of management, organizations may gain completely different economic and ecological results when using the same resources and operating under the same economic conditions. That is the reason why managers have to act both effectively and efficiently. As regards the evaluation of an environmental management system, it is difficult to unambiguously separate the efficiency of the functioning of the management system from its effectiveness [MatuszakFlejszman 2011]. Effectiveness may be seen from different perspectives. Consequently, effective actions from one point of view may be ineffective from the other. However, there is no universal measure of effectiveness – the way of measuring that should take account of interests of various entities [Skrzypek 2013 quoted after: Bielski 2004]. A significant role in considering effectiveness is played by rationality (rationality of setting objectives as well as rationality of resource selection and the ways of achieving goals) [Skrzypek 2013]. Effectiveness may undergo changes depending on the time factor, hence, we distinguish [Holstein-Beck 1997]:  ex ante effectiveness – the relation between an objective and predicted necessary input for realizing this objective,  ex post effectiveness – the relation between the received results and the actual input. The necessity of measuring efficiency and effectiveness has contributed to the development of managerial control tools aiming at simplifying managerial decision-making, ordering tasks according to priorities as well as locating resources in order to take maximal advantage of them. One of such tools is the KPI (Key Performance Indicators) program which embraces financial and non-financial measures used in measurement processes 173

in relation to the results of the current activity of an organization and the level of achieving its objectives [Sheppard 1998; Skrzypek 2013].

Figure 2. Key efficiency measures. Source: Sheppard A., 1998, Mastering Performance Measurement, Mastering Business Planning & Strategy, p. 134

The implementation of the KPI program in an organization entails the necessity of meeting certain requirements. First and foremost, as an enhancement tool, the KPI program should be adjusted to the specificity of an organization. The correctly defined indicators should refer to organizational objectives as well as the mission, vision and values of a given organization. The indicators should be in compliance with the SMART method (objectives expressed in figures should be defined – they should be realistic, but also encouraging to continuous improvement; they also ought to be specific, measurable, reachable, significant and defined in time). Proper KPI monitoring calls for fulfilling several conditions [Grycuk 2010; Szyszka and Matuszak-Flejszman 2013a quoted after: IRIS]: 174

 the formula for calculating KPI, the measurement unit, the reporting period, the form of presentation, the aim for a given reporting period should be defined;  indicators for which data are available should be used, the data sources should be indicated in order to guarantee the comparability of results between reporting periods;  the indicators should be simple and precisely formulated in order to exclude the possibility of manipulating data;  the indicators should be reflected in meeting customer expectations and the growth of customer satisfaction;  the indicators selected should be selected in a way that they are influenced by employees who understand and know the calculation method, the KPI program should be correlated with the remuneration system in the organization ;  the owner of KPI should be defined – a person responsible for the results and a person responsible for collecting data;  the indicators obtained as a result of the analysis must be subjected to interpretation. KPI should be focused on the factors of key importance for the strategic development of the organization. Another tool which allows monitoring the broadly understood efficiency of an organization and organizational objectives is BSC (Balanced Scorecard) – a method developed by Kaplan and Norton [Brutu 2010; Figge et al. 2002]. The BSC approach is founded on four perspectives: the financial perspective, the customer perspective, the internal processes perspective as wel as the science and development perspective [Szyszka and Matuszak-Flejszman 2015b quoted after: Figge et al. 2002; Sharma 2009; Monteiro 2011]. This method enables monitoring the aspects of an organization's activity which have influence on the future success. It also allows us to define objectives which go beyond the area of financial planning [Skrzypek 2013]. Both KPI and BSC may be used as tools for evaluating an organization's efficiency and effectiveness in the context of environmental management. The integration of environmental aspects with the remaining BSC perspectives (financial, customer, internal processes, science and development) usually consists in three most frequent integration scenarios: 1) including environmental aspects into the four basic BSC perspectives, 2) adding a fifth perspective to the remaining four, and 3) creating 175

an independent environmental scoreboard (Eco-BSC in the case of including environmental aspects or Sustainable-SBC in the case of including environmental and social aspects) [Figge et al. 2002; Jones 2011; Monteiro 2011]. Each of the perspectives of the balanced scoreboard calls for establishing objectives, measures and indicators which usually is not easy and may be time-consuming [Bieker 2002, 2008; Epstein and Wisner 2001; Clausen, Keil and Jungwirth 2002].

7.3. Determinants of the Effectiveness of an Environmental Management System Since the publication of the ISO 14001 standard in 1996 and earlier, in 1993 of the EMAS regulation, environmental management systems have become a prevailing topic in numerous researches, publications and conferences. In professional literature the questions linked with the benefits, incentives, determinants, motivation and barriers of both implementing and functioning of an environmental management system are widely described [del Brio et al. 2001; Matuszak-Flejszman 2001; Bracke, Verbeke, Dejonckheere 2008; Sambasivan 2008; Gavronski, Ferrer, Paiva 2008; Aravind and Christmann 2008; Kehbila, Ertel, Brent 2009; Nee 2011; Mavi et al. 2012; Szyszka and Matuszak-Flejszman 2014; Daddi et al. 2014; Mariotti, Kadasah, Abdulghaffar 2014; Martin-Pena, Diaz-Garrido, Sanchez-Lopez 2014]. Among success factors which condition the efficient implementation of an environmental management system the following may be enumerated [del Brio et al. 2001]: earlier experience with other management systems, a training system, cost reduction, proper planning, leadership engagement, organizational flexibility, customer interest, positive impact on an organizations' results, support from the administration. According to Vries, Bayramoglu and Wiele [2012] there are six main factors which have the biggest influence on the implementation of an environmental management system: strong internal motivation, top leadership engagement, communication with interested parties, stakeholder engagement, well-defined responsibilities within an environmental management system, educational and training programs. Individual factors are mentioned in numerous researches in various orders and configurations. A classification of these factors was created by Mavi, Golsefid-Alavi, Madan Shekaf, Hessami and Soleimani-Nezhad 176

[2012]. The authors divided them into five main groups: management approach, technical aspects, social and external aspects, as well as costs.

Figure 3. Factors affecting the efficiency of an environmental management system. Source: own work on the basis of [Łańcucki (ed.) 2004, Matuszak-Flejszman 2010, Mavi et al. 2012]

The factors affecting the efficiency of implementing and the efficiency of maintaining an environmental management system differ slightly. Leadership engagement, personnel awareness, communication and the way 177

documentation is handled are of a large importance independently of the stage of a management systems functioning. At the initial stage the role of market pressure and customer requirements is visible as the accepted strategy of an enterprise's development, the willingness to enter new markets, to increase the market share and to gain new clients is one of the most significant incentives and motivation for implementing an environmental management system [Matuszak-Flejszman 2001]. At a later stage of a management system's functioning factors related to proper monitoring of the management system (e.g. the way internal audits are conducted, the way of controlling non-conformities, and conducting corrective and preventive actions) become more important.

7.4. Environmental Performance Environmental performance is an important element of an environmental management system. By dint of the analysis and evaluation of environmental performance an organization is able to obtain measurable information related to the results of their environmental activity and the evaluation of actions linked with environmental aspects. As early as 1999 the ISO/TC 207 standard dealing with the questions of environmental activity embraced the evaluation of environmental performance and developed standards wholly devoted to this area1. The definition of environmental performance is given in international standards and states that environmental performance is a measurable result of an organization's environmental aspect management [ISO 14031:2013, p. 2.7]. An environmental policy, an environmental objective and an environmental objective may be the objective according to which the performance is measured. Environmental performance is subjected to the evaluation process (EPE – environmental performance evaluation). The evaluation of environmental performance is a process that facilitates making decisions in the field of management of environmental performance of an organization by means of selection of indicators, gathering and analyzing data, and assessment of information with regard to the criteria of environmental performance, reporting and communication as well as review and improvement ISO 14031:2013 – Environmental management – Environmental performance evaluation – Guidelines ; ISO/TR 14032:1999 – Environmental management – Examples of environmental performance evaluation (EPE) – retracted standard; ISO/TS 14033:2012 – Environmental management – Quantitative environmental information – Guidelines and examples 1

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of the process on a periodic basis. The indicators of environmental performance of an organization may be KPI (Key Performance Indicators) for processes related to operational control, and therefore, they should meet all requirements in reference to KPI. Apart from that, they should also comply with the SMART principle, i.e. they should be Specific, Measurable, Achievable, Results-focused and Time-bound. To be able to properly monitor KPI (and consequently also environmental performance indicators), several conditions have to be met, including [Matuszak-Flejszman 2016]:  definition of the calculation formula of KPI,  definition of the measurement unit,  definition of the reporting period and form of result presentation,  definition of the objective for a given reporting period, and  definition of data sources. Furthermore, a person responsible for collecting data has to be selected. The very analysis of data does not suffice. The indicators obtained as a result of the analysis have to be subjected to interpretation. In the ISO 14031 standard the environmental performance indicators are divided into groups (see figure 4) and individual groups provide organizations with various information [ISO 14031:2013]:  environmental condition indicators (ECI) – provide information about the local, regional, national or global condition of the environment;  environmental performance indicators (EPI) – provide information about an organization’s environmental performance, including: • management performance indicators (MPI) – provide information about the management activities to influence an organization’s environmental performance • operational performance indicators (OPI) – provide information about the environmental performance of an organization’s operational process. Environmental performance indicators are connected with the direct impact of an organization’s activity on the environment through environmental management and operational control. The application of operational performance indicators may help organizations to establish environmental objectives and tasks. Apart from that, the indicators also allow for proper control of processes, in particular the ones connected with significant environmental aspects. If one gains information on an ongoing basis, they may 179

follow trends and correct the process when required [Matuszak-Flejszman 2016]. Exemplary indicators applicable within specific groups have been presented in table 1. The application of relevant indicators should help organizations to define and measure progress in the accomplishment of their objectives, inter alia in the scope of reduction of the quantity of waste and consumption of resources, reduction in emissions, design and manufacture of products of minimized environmental impact (both at the time of production and operation as well as at the time of consequent liquidation), minimization of all adverse environmental impacts and promotion of environmental awareness amongst employees and the society [Matuszak-Flejszman 2016]. The ISO/TR 14032 standard (Environmental Management – Examples of Environmental Performance Evaluation) was published in 1999 as an additional element of the ISO 14031 standard in order to provide enterprises and organizations with the possibility to apply environmental performance evaluation. The ISO/TR 14032 standard's present status is "withdrawn" and it included descriptions of the examples of environmental performance evaluation in 17 organizations of different activity profiles and sizes (case studies).

Figure 4. Indicators of environmental performance according to ISO 14031. Source: ISO 14031:2013 Environmental Management. Evaluation of Environmental Performance. Guidelines

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Table 1. Exemplary environmental performance indicators EPI ECI  change of the groundwater level  time of resource recovery  quantity of coli bacteria for a liter of water  level of soil erosion  statement of pollution in plant tissues  level of lead in the blood of local population  pollution intensity in the air from emission of motor vehicles  quality of air in the region  temperature of oceans  ozone layer degradation  transparency level of air from the windward and downwind sides of an organization  average level of noise  smells/odors  pollution intensity in the topsoil  pave and wasteland on a paved terrain  crops from surrounding fields at a given time  occurrence of illnesses among the population on the basis of epidemiological research on the local and regional scales  level of intactness of the surface of historic buildings within a given local area

MPI

OPI

 number of implemented initiatives related to preventing pollution  number of trained peoples in relation the number of people that should be trained  number of hours of environmental training per 1 employee  number of products for which dismantling, recycling or reuse is predicted  level of conformity with legal regulations  costs related to fines  savings obtained through the reduction of resource use  pro-environmental investment share (e.g. regarding cleaner technologies or process improvements) in the total investment funds  number of people trained among contractors  number of environmental improvements proposed by employees  number of suppliers and contractors with the implemented environmental management system  reaction time in reference to environmental incidents  number of emergency drills conducted  number of conducted audits to the number of planned audits

 amount of chemicals used per a kilogram of textiles used  amount of materials used per 1 piece of the product  electrical energy consumption per 1 piece of the product  water consumption per 1 employee/1 piece of the product  amount of water reused in the production process  fuel consumption by a vehicle per 1 kilometer  amount of hazardous waste per 1 piece of the product  amount of waste transferred to recycling  amount of heating oil used per 1 man-hour  weight of packaging per 1 piece of the product  weight of the packaging devoted to multiple use and recycling (e.g. pallets) in relation to the total weight of packing  amount of sewage  intensity of pollution in sewage  amount of raw materials reused in the production process  number of emergencies annually  amount of the defined emission per 1 piece of the product  noise and heat emission

Source: own work on the basis of [Matuszak-Flejszman 2010, 2016, Szyszka and Matuszak-Flejszman 2013a,]

The present ISO/TS 14033 standard (Environmental Management – Quantitative Environmental Information – Guidelines and Examples) supports the application of standards and reports related to environmental management. It includes guidelines linked with obtaining quantitative information and data about the environment (e.g. data regarding running businesses, organizations, facilities, technologies or products). The guidelines embrace the issues connected with defining, collecting, processing, interpreting and presenting quantitative information about the environment. The technical specification is dedicated to be applied mainly by technical personnel dealing with environmental recording and reporting. The guidelines of the specification may be used for the purposes of life cycle evaluation and environmental performance evaluation. They were created on the assumption that much quantitative information about the environment is dedicated to qualitative comparisons with previous years and to benchmarking. The technical specification indicates eight main principles related to processing quantitative information about the environment [ISO/TS 14033]:  relevance,  credibility,  consistency,  comparability,  transparency,  completeness,  accuracy,  appropriateness. The application of international standards dedicated to the issues of environmental performance evaluation is not obligatory and they are not binding, even for the organizations which have implemented the environmental management system in compliance with ISO 14001 or EMAS. These standards are not tool standards and amount to a set of good practices and guidelines for organizations. In the Eco Management and Audit Scheme, which is supposed to be a next step in improving an environmental management system, the issue of environmental performance evaluation was treated with a greater attention than in the ISO 14001 standard. In EMAS the indicators which must be obligatorily monitored by the organizations registered in the Eco Management and Audit Scheme were defined.

The indicators are described in appendix. IV to the regulation. The indicators are linked with certain requirements [1221/2009, appendix IV]:  give an accurate appraisal of the organization’s environmental performance;  be understandable and unambiguous;  allow for a year on year comparison to assess the development of the environmental performance of the organization;  allow for comparison with sector, national or regional benchmarks as appropriate;  allow for comparison with regulatory requirement as appropriate. In appendix IV core indicators (obligatory for monitoring and reporting by organizations) have been enumerated. EMAS calls for monitoring indicators in at least six areas [1221/2009, appendix IV]:  energy efficiency;  material efficiency;  water;  waste;  biodiversity;  emissions. When an organization concludes that one or more core indicators are not relevant to its significant direct environmental aspects that organization may not report on those core indicators. EMAS indicates the algorithm of calculating individual indicators. Each algorithm consists of figures A, B and R (the results of division A/B) (see figure 5). It should be noted that in the Polish translation of the EMAS regulation the term "environmental performance indicator” was incorrectly translated as "wskaźnik efektywności środowiskowej” ("environmental effectiveness indicator"). Meanwhile, the indicators present in EMAS to no extent refer to effectiveness (do not take account of costs/input), while they are linked with efficiency (the level of the realization of an assumed environmental objective).

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Figure 5. Core indicators in EMAS. Source: Own work based on Regulation (EC) No 1221/2009 of the European Parliament and of the Council of 25 November 2009 on the voluntary participation by organizations in a Community eco-management and audit scheme (EMAS), repealing Regulation (EC) No 761/2001 and Commission Decisions 2001/681/EC and 2006/193/EC, Appendix IV.

Organizations registered in EMAS during the environmental performance evaluation must (apart from the EMAS regulation) refer to sectoral reference documents if such documents have been developed. The sectoral reference documents embrace the so-called BREF (Best Available Techniques Reference Documents) and BEMP (Reference Document on Best Environmental Management Practice). BREF is a document describing "the best available techniques" (BAT), i.e. the most effective methods of operation and the basics of establishing accepted sizes of emission and other environmental permits in order to prevent and reduce negative impact on the environment [http://eippcb.jrc.ec.europa.eu/reference]. BEMP are documents describing the best practice in environmental management. BEMP may be technical or technological (e.g. improving the energetic effectiveness of a given process) or concern managerial issues of an organization (e.g. conducting trainings for employees, environmental requirements for suppliers) [Schoenberger et al. 2014]. The priority sectors are: wholesale and retail trade, tourism, construction, public administration, agriculture – plant and animal production, electrical and electronic device production, automotive industry, ready-made metal product manufacturing excluding machines and devices, food and alcohol-free beverages, waste

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management and telecommunication of 8th December 2011].

[Commission

Communication

EMAS, by contrast to requirements included in the ISO 14001 standard, does not provide organizations with the chance to select the way of communicating the information on environmental performance. The abovementioned six indicators are obligatory and their results must be revealed in the environ-mental declaration. Requirements in reference to the environmental declaration have been defined in appendix IV of the EMAS regulation. However, the organizations which care for gaining maximal benefits from external environmental communication may avail of the ISO 14063 standard (Environmental Management – Guidelines and Examples). The ISO 14063 standard defines a set of assumptions and principles according to which an organization should act during conducting environmental dialog and communication. Moreover, it describes the strategy for environmental communication, its objectives, interested parties, tools as well as criteria for efficiency evaluation.

7.5. Summary It should be emphasized that environmental performance and environmental performance indicators cannot be understood as environmental effectiveness. The calculation of environmental performance refers to a larger extent to efficiency (the level of achieving an environmental objective). In most accepted and recommended indicators input and necessary resources to achieve an objective are not taken into account. As it stems from relevant research, only a small portion of organizations run the environmental cost and benefit balance [Szyszka and Matuszak-Flejszman, 2013] It should also be heeded that the European Parliament plans a change in regulations related to accounting and including annual reports prepared by large enterprises covering social and environmental issues. New regulations assume broadening reporting obligations of organizations employing over 500 people [Commission Press Communication of 16th April 2013]. The changes aim at increasing the transparency of actions related to social and environmental issues realized by large enterprises which, in consequence, should also encourage organizations to manage these issues in a systematic way [Tomaszewski 2014]. The broadening of financial reporting with questions 185

linked with corporate social responsibility (CSR) proves that financial success of an organization to a large extent depends on maintaining positive relations with its surroundings [Fijałkowska and Sobczyk 2012; Dyląg and Puchalska 2014].

7.6. Literature Adamczyk J., Nitkiewicz T. 2007, Programowanie zrównoważonego rozwoju przedsiębiorstw, Polskie Wydawnictwo Ekonomiczne, Warszawa. Aravind D. Christmann P. 2008, Institutional and Resource-based Determinants of Substantive Implementation of ISO 14001, Academy of Management Annual Meeting Proceedings, pp. 1-6. Bieker T. 2002, Managing Corporate Sustainability with the Balanced Scorecard: Developing a Balanced Scorecard for Integrity Management, Oikos PhD summer academy, Sustainability, Corporations and Institutional Arrangements. Bieker T. 2008, Sustainability Management with the Balanced Scorecard, International Summer Academy on Technology Studies – Corporate Sustainability. Bracke R., Verbeke T., Dejonckheere V. 2008, What Determines the Decision to Implement EMAS? A European Firm Level Study, Environmental and Resource Economics, vol. 41, iss. 4, pp. 499-518. del Brio J.A., Fernandez E., Janquera B., Vazques C.J. 2001, Motivations for Adopting the ISO 14001 Standard: A Study of Spanish Industrial Companies, Environmental Quality Management, vol. 10, iss. 4, pp. 13-28. Brutu M. 2010, A Short Analysis of the Balanced Scorecard’s Concept, Agricultural Management / Lucrari Stintifice Seria I, Management Agricol, April 2010, vol. 12, iss. 2, pp. 1-6. Clausen J., Keil M., Jungwirth M. 2002, The State of EMAS in the EU. Eco-Management as a Tool for Sustainable Development. Literature study, European Conference: „The EU Eco-Management and Audit Scheme – Benefits and Challenges of EMAS II”, Brussels – 26/27 June 2002. Commision Decision of 4 March 2013 establishing the user’s guide setting out the steps needed to participate in EMAS, under Regulation (EC) No 1221/2009 of the European Parliament and of the Council on the voluntary participation by organizations in a Community eco-management and audit scheme (EMAS) Communication from the Commission No 2011/C 358/02 - Establishment of the working plan setting out an indicative list of sectors for the adoption 186

of sectoral and cross-sectoral reference documents, under Regulation (EC) No 1221/2009 on the voluntary participation by organisations in a Community eco-management and audit scheme (EMAS) Daddi T., Testa F., Iraldo F., Frey M. 2014, Removing and Simplifying Administrative Costs and Burdens for EMAS and ISO 14001 Certified Organizations: Evidences from Italy, Environmental Engineering and Management Journal, vol. 13, iss. 3, pp. 689-698. Dyląg R., Puchalska E. 2014, Raportowanie zagadnień środowiskowych i społecznych, Zeszyty Teoretyczne Rachunkowości, tom 75 (131), SKwP, Warszawa. Epstein M.J., Wisner P.S. 2001, Using Balanced Scorecard to Implement Sustainability, Environmental Quality Management, pp. 1-10. European Competitiveness Report 2002. European Commission, 2012, 3x3 Good Reasons for EMAS, European Commission, Publications Office of the European Union, Luxembourg. European Commission Press Release on 16 April 2013, Commission Moves to Enhance Business Transparency on Social and Environmental Matters, Brussels. Figge F., Hahn T., Schaltegger S., Wagner M. 2002, The Sustainability Balanced Scorecard – Theory and Application of a Tool for Value-Based Sustainability Management, Centre for Sustainability Management, Greening of Industry Network Conference „Corporate Social Responsibility – Governance for Sustainability”, Gothenburg 2002. Fijałkowska J., Sobczyk M. 2012, Sprawozdawczość działań w ramach społecznej odpowiedzialności wyzwaniem dla polskich przedsiębiorstw, Zarzadzanie i Finanse, nr 1/3, Wydział Zarządzania Uniwersytetu Gdańskiego, Gdańsk, pp. 141-151. Gavronski I., Ferrer G., Paiva E.L. 2008, ISO 14001 Certification in Brazil: Motivations and Benefits, Journal of Cleaner Production, vol. 16, iss. 1, pp. 87-94. Graczyk A. 2011, Uwzględnienie efektów w dziedzinie poprawy jakości środowiska, Barometr Regionalny, No 4. Grycuk A. 2010, Kluczowe wskaźniki efektywności (KPI) jako narzędzie doskonalenia efektywności firm produkcyjnych zorientowanych na Lean, Przegląd Organizacji, No 2, pp. 28-31. Gryffin R.W. 2001, Podstawy zarządzania organizacjami, Wydawnictwo Naukowe PWN, Warszawa. Holstein-Beck M. 1997, Być albo nie być menedżerem, Wydawnictwo Infor, Warszawa. 187

http://eippcb.jrc.ec.europa.eu/reference IRIS – International Industry Standard KPI Guideline 1, 2011, Wydawnictwo UNIFE, p. 5. ISO 14005:2010 Environmental Management Systems – Guidelines for the Phased Implementation of an Environmental Management System, Including the Use of Environmental Performance Evaluation. ISO 14031:2013 Environmental Management – Environmental Performance Evaluation – Guidelines. ISO 14063:2006 Environmental Management – Environmental Communication – Guidelines and Examples. ISO 9000:2005 Quality Management Systems – Fundamentals and Vocabulary. ISO/TS 14033:2012 Environmental Management – Quantitative Environmental Information – Guidelines and examples. Jones P. 2011, Designing an Effective Environmental Balanced Scorecard: Avoiding Mistakes that Undermine Sustainable Thinking. Incorporating your Environmental and Social Strategy into your Balanced Scorecard so you Embed it in your Organisation, Excitant Ltd. Kehbila A.G., Ertel J., Brent A. 2009, Strategic Corporate Environmental Management within the South African Automotive Industry: Motivations, Benefits, Hurdles, Corporate Social Responsibility & Environmental Management, vol. 16, iss. 6, pp. 310-323. Kirejczyk E. 2008, Zrozumieć zarządzanie, Wydawnictwo Naukowe PWN, Warszawa Kulczycka J. 2011, Ekoefektywność projektów inwestycyjnych z wykorzystaniem koncepcji cyklu życia produktu, Wydawnictwo Instytutu Gospodarki Surowcami Mineralnymi i Energią Polska Akademia Nauk, Kraków. Łańcucki J. (red.) 2004, Efektywność systemów zarządzania, Wydawnictwo Polskie Zrzeszenie Inżynierów i Techników Sanitarnych, Poznań. Mariotti F., Kadasah N., Abdulghaffar N. 2014, Motivations and Barriers Affecting the Implementation of ISO 14001 in Saudi Arabia: an Empirical Investigation, Total Quality Management & Business Excellence, vol. 25, iss. 11/12, pp. 1352-1364. Martín-Peña M.L., Díaz-Garrido E., Sánchez-López J.M. 2014, Analysis of Benefits and Difficulties Associated with Firms' Environmental Management Systems: the Case of the Spanish Automotive Industry, Journal of Cleaner Production, vol. 70, pp. 220-230.

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Matuszak-Flejszman A. 2001, Jak skutecznie wdrożyć system zarządzania środowiskowego wg normy ISO 14001, Wydawnictwo: Polskie Zrzeszenie Inżynierów i Techników Sanitarnych, Poznań. Matuszak-Flejszman A. 2010, Determinanty doskonalenia systemu zarządzania środowiskowego zgodnego z wymaganiami normy ISO 14001, Wydawnictwo Uniwersytetu Ekonomicznego w Poznaniu, Poznań. Matuszak-Flejszman A. 2011, Skuteczność i efektywność systemów zarządzania środowiskowego, w: Łańcucki J. (red.) Rola znormalizowanych systemów zarządzania w zrównoważonym rozwoju, Wydawnictwo Uniwersytetu Ekonomicznego w Poznaniu, Poznań. Matuszak-Flejszman A. 2016, Ecological Conditions on the Functioning and Development of an Enterprise, in Kochalski C. (ed.), Green Controlling and Finance Theoretical Framework, Wydawnictwo C.H.Beck, Warszawa. Mavi R.K., Golsefid-Alavi M., Madan Shekaf S., Hessami H.Z., SoleimaniNezhad N., 2012, Evaluation and Ranking of Success Factors and Benefits of ISO 14001- Based EMS Implementation Using the TOPSIS Method, Journal of Applied Environmental and Biological Sciences, vol. 2, issue 8, pp. 419-427. Molo M. 2008, Ekspertyza dotycząca zasad oceny efektywności ekonomicznej realizowanych przedsięwzięć. Monteiro S.S. 2011, The Balanced Scorecard as a Tool for Environmental Management: Approaching the Business Context to the Public Sector, XVIII Congresso Brasileiro de Custos – Rio de Janeiro - RJ, Brasil, 07-09 November 2011. Nee G.Y., 2011, Determining Factors for ISO 14001 EMS Implementation among SMEs in Malaysia: A Resource Based View, International Journal of Social, Human Science and Engineering, vol. 5, no. 11, pp. 41-46. Regulation (Ec) No 1221/2009 of the European Parliament and of the Council of 25 November 2009 on the voluntary participation by organisations in a Community eco-management and audit scheme (EMAS), repealing Regulation (EC) No 761/2001 and Commission Decisions 2001/681/EC and 2006/193/EC Sambasivan M. 2008, Evaluation of Critical Success Factors of Implementation of ISO 14001 Using Analytic Hierarchy Process (AHP): a Case Study from Malaysia, Journal of Cleaner Production, vol. 16, issue 13, pp. 1424-1433. Schoenberger H., Canfora P., Dri M., Galvez-Martos J.L., Styles D., Antonopoulos I.S. 2014, JRC Scientific and Policy Reports. Development of the EMAS Sectorial Reference Documents on Best Environmental Management Practice. Learning from frontrunners. Promoting Best 189

Practices, European Commission, Joint Research Centre, Institute for Prospective Technological Studies. Sharma A. 2009, Implementing Balance Scorecard for Performance Measurement, ICFAI Journal of Business Strategy. Mar2009, vol. 6 issue 1, pp. 7-16. Sheppard A. 1998, Mastering Performance Measurement, Mastering Business Planning & Strategy, p. 134. Skrzypek E. (red.) 2013, Dojrzałość jakościowa a wyniki przedsiębiorstw zorientowanych projakościowo, Difin, Warszawa. Szyszka B., Matuszak-Flejszman A. 2013a, Efekty działalności środowiskowej organizacji posiadających wdrożony system ekozarządzania i audytu EMAS. Szyszka, B., Matuszak-Flejszman, A. 2013b, Economic Aspects of Environmental Management, w: Matuszak-Flejszman A., Kaźmierczak M. (red.), Current Trends in Commodity Science: System Approach to Management Organisations, Uniwersytet Ekonomiczny w Poznaniu, Wydzial Towaroznawstwa, Poznan. Szyszka B., Matuszak-Flejszman A. 2014, Bariery oraz niespełnione oczekiwania związane z wdrożeniem EMAS, w: Skrzypek E. (red.), Jakość jako czynnik sukcesu w nowej gospodarce, Wydawca Uniwersytet Marii Curie Skłodowskiej (UMSC) w Lublinie, Lublin. Szyszka, B., Matuszak-Flejszman, A. 2015b, Eco-balanced Scorecard as a Supporting Tool in EMAS System, w: Matuszak-Flejszman A., Kazmierczak M. (red.), Uniwersytet Ekonomiczny w Poznaniu, Poznań. Tomaszewski K. 2014, Duże firmy będą musiały podawać więcej informacji pozafinansowych, Dziennik Gazeta Prawna z dn. 28.04.2014. WBCSD 2000, Measuring Eco-efficiency – a Guide to Reporting Company Performance, World Business Council for Sustainable Development, Conches-Geneva, Switzerland. Żylicz T. 2008, Efektywność kosztowa, Aura, sierpień 2008, Warszawski Ośrodek Ekonomii Ekologicznej, Uniwersytet Warszawski.

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8. The Evaluation of the Use of Selected Motivation Theories and Employee Engagement in the Work Process

8.1. Introduction Human attitude towards work underwent various changes throughout centuries which was greatly influenced by religion. Initially work was despised and considered unbecoming of upper classes. Nowadays, work is valued and respected. In ancient Greece and Rome physical work was carried out by slaves. Such attitude towards work was adopted by Judo-Christianity and continued in the Middle Ages. It is worth mentioning that the Protestants had a very positive attitude towards work (Ora et labora) and their diligence, highly developed work ethics and culture significantly contributed to the economic growth of the Protestant European states, and then Northern America and Australia. In Poland people who lived in comfort and prosperity thanks to their work were accepted but it was inherited wealth and social class that were more valued. However, with the continued development and strengthening of the market economy the number of blue-collar workers increases, as well as the number of hired hands and work started to determine social class and economic prosperity. It is undeniable that present workplaces call for quick reaction and immediate execution of tasks and duties. It is linked with the fact that enterprises must be highly flexible as they operate in difficult, tumultuous and dynamically changing surroundings. The rapid development of science 191

and technology, as well as growing competition cause the situation in which knowledge, monitoring and increase of motivation along with engaging employees in the work process have become the fundamental factors for running and managing a company. Employee motivation is the action towards the realization of tasks and achieving results which bring an individual direct and indirect benefits in the work process. The aim of the chapter is to identify and evaluate the use of selected motivation theories in order to increase the involvement growth of employees in performing tasks and duties in the workplace. The realization of this goal called for the application of primary and secondary research materials. In the present chapter we used analysis and conclusion methods, in particular the descriptive, comparative, deductive and synthetic analysis methods. The results of the analyses were based on the results of own researches, reports, expert opinions, as well as on domestic and foreign relevant publications. Due to the subject of analysis several terms used in the text need to be explained. Firstly, work is an intentional and deliberate activity characteristic to human beings, which creates goods and value and is intended to satisfy various human needs while at the same time having certain social significance. Secondly, an employee shall be a person employed on the basis of a contract of employment, on appointment, an election, a nomination or a co-operative contract of employment [Article 2 of the Polish Labour Code]. Thirdly, an employer is an organizational unit which employs employees [Article 3 of the Polish Labour Code]. Fourthly, an entrepreneur 1 is a legal person and an organizational unit which is not a legal person, which on their own behalf and risk runs an economic activity. Fifthly, an enterprise is a basic organizational form in each economy. An enterprise can take various ownership forms, legal and organizational rules of functioning, as well as it may perform a varied production scale and scope of activity. Modern market economy is characterized by a plurality of economic entities. In Poland the process of market transformation was combined with the privatization of state-treasure enterprises – began under the Act on Privatization of State-Treasure enterprises [13.07.1990, Dz.U. 51, 1

Definitions come from Act on Freedom of Economic Activity of 2 July 2004.

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poz. 298 with further changes] and the development of private entrepreneurship. Sixthly, motivation is human activity towards the realization of tasks and achieving results which bring an individual direct and indirect benefits. Seventhly, motivating is the proper activity of supervisors whose aim is to affect employees so as to increase the amount and quality of the work done by them. Eighthly, employee motivation theories is an ordered set of theories explaining the reasons, course and consequences of motivation thanks to which it is possible to analyze and improve the motivation system.

8.2. The Definition of Work Work is an intentional and deliberate activity characteristic to human beings, which creates goods and value and is intended to satisfy various human needs while at the same time having certain social significance. There exist various definitions of work and their authors point to different aspects and aims of work [Król and Ludwiczyński 2007, p. 19]:  an activity characteristic only of humans,  a source of new values and a mean of satisfying human material and nonmaterial needs and the need of self-improvement,  a means to learn about the environment and to shape it,  autotelic purpose (work as an aim in itself),  the deliberateness of effort makes it work,  a way to improve oneself and the environment. 8.2.1. Enterprise, Employer, Employee and Forms of Employment An enterprise is a specific form of human organization and activity. The form of the activity depends on the following factors: a) the organization’s resources and motivation, including mainly the economic profit it makes, b) sources of authority over the organization, mainly with regard to how it functions and develops, c) relations between the groups which make up the social structure of the organization, 193

d) independence of the organization from its environment, authorities and institutions (e.g. labor law).     

Characteristics of an enterprise, which need to be considered: running business intended to satisfy the needs of the clients on behalf and at the cost of the owner, motivation for business coming from economic profit which is the main drive behind and the main condition for the existence of the enterprise, within the law – self-sufficient and independent management of human resources, egocentrism of the owner – meaning the priority of the owner’s/ entrepreneur’s interest over the interest of other entities, running the business sensibly – by saving and being efficient.

Employment relationship denotes a legal relationship established between an employer and an employee. As a result, the employee shall: a) perform work of a specific kind, b) for the employer, c) under his/her supervision, whereas the employer shall employ the employee, d) for remuneration [Article 22, section 1 of the Polish Labor Code]. Apart from employment contract there are extra-contractual employment forms: a) on the basis of appointment [Article 68-72 of the Polish Labor Code], b) on the basis of election [Article 73-75 of the Polish Labor Code], c) on the basis of nomination [Article 76 of the Polish Labor Code], d) on the basis of co-operative contract of employment [Article 77 of the Polish Labor Code and Act on Co-operative Law]. Ad. a) The act of appointment is a legal activity of an authorized entity and is made in writing. The appointment may (and in case of managers of stateowned enterprises has to) be preceded by a competition. The appointed person is given the position. Appointment may cease due to dismissal, the time for appointment being over, or termination. Ad. b) Elections are organized to choose persons for managerial positions (full-time) and positions in social organizations or collective agencies. The candidates agree to take position because they applied for it or accepted 194

having their candidature being proposed by somebody else. Their office is over once their mandate expires which usually happens due to: the term of the office being over, dismissal or relinquishing the position, as well as death of the employee. Ad. c) The act of nomination is an administrative decision. By way of nomination are appointed administrative workers and local government officers, as well as employees in some organizations (higher education institutions, courts, public prosecutor’s office, railways, telecom companies). Nomination refers only to persons who fulfil specific criteria: Polish citizenship, capacity to enter into legal transactions, enjoying fully civic rights. An employee who was chosen in such a way is subordinate to the employer in a special way. The nomination may end by way of: dismissal (administrative decision), initiative of the employee (notice or upon request), agreement of the parties or disciplinary decision, as well as other special reasons (loss of Polish citizenship etc.). Ad. d) Co-operative contract of employment is made only between co-operatives and their members. Labor co-operative by-laws may permit employing persons under contract of employment, contract of mandate, and contract for home based work. If such contract is not concluded by fault of the co-operative, its member may take legal action to the have the contract made and seek damages. If the member of the co-operative refuses to conclude the contract it is a violation of member duties which may lead to being expelled from the co-operative. The contract ends when it: expires, or becomes terminated, as well as the person ceases to be a member of the co-operative (expelled, crossed out, membership termination).

8.3. Analysis of Selected Motivation Theories and Defining the Level of Employee Engagement in the Work Process Motivation is human activity towards the realization of tasks and achieving results which bring an individual direct and indirect benefits. The direct benefits create internal motivation, the indirect ones – external motivation [Reykowski 1979, p.129]. In professional literature two types of motivation are distinguished: internal and external.

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Internal motivation, also called autotelic motivation, is based on the involuntary internal stimuli causing a specific way a person behaves. Internal motivation means performing work by the employee as a result of their personal interests, willingness to self-improve and take advantage of their predispositions. External motivation is needed in order to realize the objectives related to indirect practicability. External motivation may be a raise, a promotion, a distinction, a gift, recognition, changing the workplace, as well as punishments, e.g. salary reduction (suspension), criticism, degradation, but also personal liking, support, informal “friendly” contact [PietrońPyszczek 2015]. In conclusion, motivation amounts to all driving force of an individual stimulating them to make a choice, take actions, but also to maintain readiness to act. Motivation is equal to factors which at a given moment exert influence over the direction, strength and durability of activity [Michoń 1991, p. 211]. Moreover, we distinguish positive and negative motivation. Positive motivation consists in activating positive motivational stimuli and leads to an employee’s engagement (internal motivation) in work. The efficiency of the motivation applied to an employee depends on the probability of keeping the supervisor’s word as well on encouraging the employee that the actions taken by them lead to a success. Positive motivation supports subordinates’ willingness to achieve success reflected in high remuneration. Negative motivation consists in creating conditions which threaten an employee’s achievements through the use of negative motivational stimuli [Pietroń-Pyszczek 2015, pp. 9-28]. Negative motivation occurs when a supervisor threatens an employee that if they do not perform a given task correctly, they will lose the right to remuneration. In internal and external, as well as positive and negative motivation a supervisor controls an employee’s motivation with the use of needs. A need is a physiological urge of any human being whose satisfaction reduces the discomfort of the temporariness of the satisfaction. A phenomenon of a need causes that a subordinate is more sensitive to the influence of their manager. Motivating is conscious and deliberate affecting human beings’ behavior through creating conditions and possibilities to realize their value systems 196

and desires to achieve the motivator’s goals. Motivating is reciprocal, which means that the motivated in the form of feedback influences the decisions of the motivator (most frequently – a supervisor) [Borkowska 1985, p. 11]. The aim of motivating is to obtain subordinates’ behavior in accordance with the manager’s will, i.e. fulfilling duties as a result of the realization of the division of organizational roles. In each workplace establishing a motivation system is paramount. It is a system, which in agreement with employees, is based on regular work evaluation, determining awards and punishments, planning next actions of employees as well as the further development of the enterprise. In the table below there is a description of chosen motivation theories divided into: stage theories, theories of needs and theories related to motivating people to work. Table 1. Description of three types of chosen motivation theories Stage theories Skinner’s theory of modification (OB-Mod) (Skinner 1971)

On the basis of differentiation between unconditioned and conditioned reactions, Skinner proves that conditioned reactions – through frequent repetition – may become natural (unconditioned, e.g. smoking cigarettes, chewing gum etc.). Hence, behaviors can be changed by means of reinforcing desired behavior (reinforcement theory) and not teaching undesired behavior. Reinforcement is widely applied in human resources management. This in turn led to modification theory (OB–Mod) becoming applied in e.g. psychotherapy. The theory lists the following actions which lead to the change of behavior: 1. Identification of problematic behavior, which needs to be changed. 2. Measuring (examining) the frequency of the behavior, which helps to develop a reference point that will be used for comparisons (the so called standard). 3. Analysis of determinants of the behavior and their results. 4. Changing of conditions, which increase (reinforce) the possibility of desired behavior taking place and reducing the possibility of undesired behavior. 5. Evaluation by means of regular observation and measuring results. 197

Drive reduction theory (Hull 1951)

The theory explains mechanical behavior of people (and animals) exclusively in the categories of physical variables. It does not take into account cognitive factors of processes. According to Hull behavior is determined by two factors: habits and drive force. If one of them is absent, a behavior does not take place. Drive “pushes” people to undertake an action and habit is a motivator, which determined the way in which a need is satisfied. Later Hull introduced the notion of incentive. Evaluation of the behavior’s result reinforces it and may gradually lead to a change of behavior. Incentive does not “push”, but “pulls” people towards certain behavior. By means of addition of an incentive the mechanistic theory of drive reduction becomes linked to cognitive theories. However, it is rather closer to the theory of needs.

Social learning theory (Bandura, 1977)

In so far as Hull was pointing to the possibility of mechanical reinforcing through learning (habits) which refers to biological needs, Badura suggested that man, as a social creature, observes behavior of other people (“models”) and effects which they have. This becomes a form of reinforcement. The effects of other people’s behavior become a motivation for learning, self-control of one’s behaviors, according to observed examples (e.g. as seen on TV). The observer evaluates his/her possibilities and selfefficacy, i.e. the ability to commit and efficacy necessary to achieve desired result. This theory can be placed between reinforcement and cognitive theory.

Social learning theory – theory of external and internal control (Rotter 1975)

Drawing on experience and learning process man takes into an account general expectations and expectations related to the effect a behavior will produce which depends on internal and external variables (internal-external control). Internal variables (internal locus) are on one extreme of the scale, whereas external variables are on the other. If the force of internal locus is strong, then man thinks that his actions and their effects are determined by external factors (changeable situations, such as e.g. fate). Internal locus is correlated with leadership style and greater satisfaction from one’s actions etc.

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External motivation theory (cognitive evaluation) (Deci 1975, Deci and Ryan 1985)

Internal motivators are the ones about which man decides alone when he feels to be a complete individual capable of making decisions. Between external motivators (beyond man’s control) and internal motivators there is a feedback. Result of the behavior depends on both types of motivators and feedback between them. It also serves as information carrier and control factor with regard to behaviors. Regular use of external motivators reduces the role of internal motivators. Man who acts on internal motivators derives greater satisfaction from his behavior and this type of motivation is stronger than external motivation. Regardless of the weaknesses of this theory, there are some implications valuable for people responsible for management: People with strong internal motivation require little leadership or coordination from their superior (this, however, does not mean their remuneration or other external motivators can be reduced). Internal motivation needs to be taken into account and given chance to develop so that people’s commitment can become stronger. Ignoring it or suppressing by external motivation may sometimes result in weakening of independent thinking, creativity or other desired behaviors. Theories of needs

Abraham Maslow's Hierarchy of Needs motivational model

Each of us is motivated by needs. Our most basic needs are inborn, having evolved thousands years ago. Abraham Maslow's Hierarchy of Needs helps to explain how these needs motivate us all. Maslow's pyramid of needs consists of five kinds of needs. Each need must be fulfilled in turn, starting with the first, which deals with the most obvious needs for survival itself. Only when the lower order needs of physical and emotional wellbeing are satisfied are we concerned with the higher order needs of influence and personal development. Conversely, if the things that satisfy our lower order needs are swept away, we are no longer concerned about the maintenance of our higher order needs.

ERG theory (Alderfer 1972)

Unlike Maslow, he organizes needs into three hierarchy groups: existence needs, relatedness needs (belonging to a group, friendship, relations with people) and growth needs. First letters of the three key words make up the abbreviation ERG (existence, relatedness, growth). Alderfer suggests that man’s behavior may 199

be simultaneously influenced by different categories of needs. He also questions the rule which emphasizes increasing importance of needs of higher category once needs of lower category are satisfied; he suggests that as a result of needs of higher category not being satisfied, frustration and regression may appear and man goes back to satisfying needs of lower category. Herzberg’s two factor theory (Herzberg 1966, Herzberg 1976)

The theory isolates two types of factors, which influence employee satisfaction or dissatisfaction. These are motivation factors directed towards satisfying needs of higher category, such as appreciation, content of work, achievements, promotions, development, responsibility; they are related to internal motivation. Second type encompasses means which in themselves are not the aim or autotelic value, but make it possible to achieve final goal(s). They have instrumental character. Herzberg called them hygiene factors (working conditions, interpersonal relationships, benefits, security, company management, management styles). In general, motivating people by means of first group of factors results in greater employee satisfaction than with the other group.

Achievement theory, also known as theory of three needs (McClelland, 1961)

The theory describes three types of human needs which play elusive role in organizations: Need of achievement – need to achieve a goal or perform a task in a more efficient way than in the past. Need of affiliation – need of human contact and receiving acceptance from people. Need of power – the desire to influence others and control one’s environment The theory, especially in its original shape influenced by J.W. Atkinson, emphasizes the need of achievements in the realization of goals.

Theories related to motivating people to work (shaping motivation) McGregor’s Differentiates between two attitudes of people towards work represented by theory X and theory Y. According to the first X and Y theory (1960) theory, people treat work as a coercion, they do not like it and try to avoid it; they also avoid responsibility and show no ambition. Employees want to receive clear instructions. The manager makes them work, controls them and threatens with punishments to achieve goals. Employees value mostly 200

security. They are dominated by needs of lower hierarchy. Theory Y assumes that work is perceived as a natural thing, just like leisure and play. Man wants to work, gets involved in realization of tasks (goals), and controls himself and his actions. Man cannot only learn to be responsible for oneself but even strive for it. People are capable of making decisions are creative, thus dominated by the needs of higher category. Source: based on [Borkowska 2007, pp. 319-321].

8.4. Practical Use of Motivation Theories in Everyday Life To conclude the results of the analysis of the previous subchapter we may say that there is a need to confront the content and conclusions of the selected employee motivation theories in the context of a case study. Below there is a description of a case study related to the obligatory 30-hour semester lecture on human resources within extramural studies at one of Poznań’s private higher education schools. The results embrace four years of analysis from 2010 and 2014. Every semester every year there were 30 students attending the lecture. The students were divided into 5-person working teams. Each year all 12 teams obtained 48 results in the analyzed period. In this chapter we posed the hypothesis that general conclusions of the selected motivation theories not always explain employees’ attitudes and behaviors. The aim of the subchapter is the identification and evaluation of the correctness of motivation theories in comparison with the results of the case study of working teams within the analyzed period. 8.4.1. Comparative Analysis of the Students’ Case Study On the basis of professional literature and results realized in the research chapter we may conclude that in a long run managers should care about creating employees’ internal motivation as the main driving force of their actions. Moreover, we can state that rewarding employees for desirable behaviors brings better results than punishing them for undesirable actions. Throughout the whole analysis period team members claimed that renumeration is the most expected by employees. However, for most of the teams the variety and selectiveness of individual rewarding according to competence, 201

quality of working and effectiveness of the rewarded employee were significant. In the teams’ opinion the supervisor should apply both external and internal motivation. They should make effort to create internal motivation, which is a better work basis than external motivation (see appendix 1). The task of the supervisor is to look after and support motivation in various ways. It should be noted that for externally-driven employees (external motivation) it is more effective to apply financial rewards and punishment for mistakes. On the other hand, for internally-driven or self-driven people apart from remuneration the following motivational methods are used: recognition, increasing autonomy and independence, creating professional development perspectives and self-fulfillment paths, delegating responsibility for a given fragment of activity. It is equally important that the supervisor build the objectives and visions of the enterprise together with employees. The key element to this aspect is the proper assignment of employees’ skills to a given workplace or a team (see appendix 2). Moreover, along with the acquired experience in a given trade professional aspirations undergo changes. The change of workplace, which occurs more frequently than in the past, causes the situation in which employees take different working types at different workplaces and posts: they become the type X of an employee, than – type Y, and then next month – type Z. The research results and the analysis conducted in the present chapter show that the application of external rewards disturbs and lowers the power of internal stimuli. It is also not recommended to broaden internal motivation of the ones who like working as for them work is an autotelic reward. In such cases we should improve the working conditions and tools for employees as well as introduce the type of activity which they are attached to in order to make them appreciate their work even more. In all analyzed years team members claimed that even the most engaged and passionate employees will not make effort to increase the work engagement and efficiency, if it is not accompanied with remuneration (see appendix 2). In the last case study working teams defined the hierarchy of need on the example of Maslow’s pyramid of needs (see appendix 3). In all analyzed years students emphasized the fact that an employee’s aspirations grow with their experience. Therefore, employees’ tasks and duties should be adjusted 202

to the acquired skills and knowledge. Moreover, they should granted some freedom of action. An employee ought to have a real chance to achieve good results. Tasks beyond their abilities should not be recommended as they cause tension and irritation. Many working team members indicated that they sometimes do not identify with their workplace and that they lack words of recognition for a well-done work. Consequently, it demotivates them and hinders engagement growth. While rewarding an employee we should remember that material rewards do not suffice. The sense of being noticed and appreciated is also significant. For example, an award ceremony may begin with people of lower structures of the company by putting their names at the top of the award list instead of employees of higher ranks. This psychological effect will stimulate the employee’s energy and willingness to do their best at work. In the process of management and motivating we should collect information about the satisfaction level related to the granted reward, as well as about their understanding of the objectivity of relevant punishment. In order to transfer the information efficiently the form of communication with top leadership should be determined, i.e. the way employees may inform leadership about issues which are important for the personnel and the enterprise. Students stressed that contact with the supervisor is important. They appreciated when the supervisor knew their names and surnames. Personal contact of an employee with the representative of a higher rank in the enterprise is also recommended. It is worthwhile to organize meetings for employees of different levels of the organizational structures. However, not all employees are willing to attend the meetings as they prefer to spend their free time with relatives. Within the period between 2010 and 2014 after having realized the first case study (see appendix 1) working teams indicated that in order to reply to the results and conclusions of the analyzed relation theories, in particular the employee motivation theories X and Y by McGregor we should take account of the following arguments:  The division of employees (and employers) into type X and type Y does not reflect all possible working types as apart from types X and Y there is type Z. This type is a combination of the two remaining ones, which means that we may observe the combination of types X and Y in the case of every employee (employer). 203





We should build and maintain relations between employees and supervisors, as well as relations between employees, in particular in the case of new employees and supervisors. We should acquaint employees with the organization’s objectives in order to possibly make them become employees’ objectives. Employees should be involved in the process of defining the organization’s objectives, tasks and strategy of their realization. Moreover, they should be informed about the process and the decisions made.

Within the period between 2010 and 2014 after having realized the second and third case studies (see appendices 2 and 3) working teams indicated that in order to reply to the results and conclusions of the analyzed bridging theories and needs the following arguments should also be taken into consideration:  Not all employees care about higher remuneration. It is necessary to explore employees’ personal needs in order to properly adjust rewards.  External rewards, bonuses, distinctions and promotions should be selectively applied. It is important to free employees’ individual aspirations and ambitions as they are as significant as the enterprise’s development and modernization.  Aspirations cause the so-called motivational tension necessary for all rewards and punishments to be efficient. All punishments and rewards should be introduced immediately (if it is possible) and adjusted to the conditions and situation in the enterprise.  Values accepted by the majority of employees should be promoted.

8.5. Summary On the basis of the conducted analysis of the selected employee motivation and work engagement growth theories we may unequivocally state that supervisors should apply a wide variety of external motivational stimuli along with the development of employees’ internal motivation. Such an influence of supervisors increase employees’ effectiveness. However, it entails the necessity to carry out a well-considered motivating system on the one hand, it must indicate the benefits from working in the enterprise. On the other hand, it must meet employees’ expectations within the nonmaterial sphere. 204

A supervisor must get engaged in creating their own image and building positive interpersonal relations within the enterprise. 8.6. Literature Act of Polish Labor Code of 1974 along with its changes. Act on Freedom of Economic Activity of 2 July 2004, (Ustawa o swobodzie działalności gospodarczej, Dz. U. z 2004 r., nr 173, poz. 1807, art. 104-110, Dz. U. z 2004 r., nr 173, poz. 1807). Armstrong, M., 2009, Zarządzanie wynagrodzeniami, Wolters Kluwer, Warszawa. Borkowska, S. 2007, Wynagradzanie, in: Król, M., Ludwiczyński, A. (red.), Zarządzanie zasobami ludzkimi. Tworzenie kapitału ludzkiego, Wydawnictwo Naukowe PWN, Warszawa. Borkowska, S. 1985, System motywowania w przedsiębiorstwie, Wydawnictwo Naukowe PWN, Warszawa. Kożusznik, M. 2002, Zachowania człowieka w organizacji, PWE, Warszawa. Król, H., Ludwiczyński, A. 2007, Zarządzanie zasobami ludzkimi. Tworzenie kapitału ludzkiego organizacji, Wydawnictwo Naukowe PWN, Warszawa– Kraków. Mc Gregor, D. 1960, The Human Side of Enterprise, New York. Michoń, F. (ed.) 1991, Ekonomika pracy: zarys problematyki i metod, Wydawnictwo Naukowe, PWN, Warszawa. Pietroń-Pyszczek, A., 2015, Motywowanie pracowników. Wskazówki dla menedżerów, Wydawnictwo Marina, Wrocław. Reykowski, J., 1979, Teoria motywacji a zarządzanie, Wydawnictwo Naukowe PWE, Warszawa, p. 51.

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8.7. Appendix 1 Below there are descriptions of everyday situation of fictive characters whose behavior and actions may be explained with the use of the motivation theories described in the present chapters. Determine which of the examples can be interpreted with the presented theories (some descriptions can be explained with multiple theories). 1. Engineer Malinowski, a member of senior management, lost his job as a result of company bankruptcy. It happened at the beginning of 1990s’ when many companies went bankrupt as a result of economic transformation. It was the first time in the post-war period that unemployment became a widespread phenomenon in Poland. Malinowski was 46 years old at that time and lived in a big city where unemployment rate was much higher than the average rate in the country. Despite his efforts, he could not find a job that would fit his qualifications. He felt rejected, unneeded and mentally depressed. He could not provide means of subsistence to his family or come to terms with the situation. He committed suicide. 2. At the same time Mr. Kowalski, aged 47, director general with Ph.D. in economics, lost his job as well as result of ownership transformation. He has a family. He is not the sole bread-winner of the family, but his wife, who is a doctor, did not make much money at that time. Mr. Kowalski refused to give up. He took up a job as a shop assistant in a small shop. At the same time he never stopped looking for a job that would fit his qualifications better. After a few years he finally found it. He became branch manager in a big company which is leader in a particular type of business activity. 3. Anna, a full-time student is a talented person. She intensely learned English and was preparing her Master’s thesis. Despite some difficulties in finding a company that would be willing to accept her as a student for a training period, she managed – after some time – to find one and was accepted for training by a consulting company. During that time she became assigned to a team which was to implement human resource management project under commission of company X. Anna used her experience from the training and project realization in her Master’s thesis. Unfortunately, there were some weak point to the thesis. The project was not finished or completely implemented during Anna’s training period. As a result, she could not perform a full analysis or evaluation, nor form convincing conclusions. She concluded that her thesis 206

required more information and she decided to keep in touch with the company where she had received her training. After defending her well-researched, excellent thesis Anna was offered to remain at the university and begin Ph.D. studies which guaranteed decent scholarship for 4 years. She was happy. Soon after that the project of consulting company was evaluated and the representative of company X offered Anna a job. After talking to her supervising professor Anna decided to prepare her Ph.D. thesis independently and accept middle management position at company X, which was in line with her interests and guaranteed better remuneration than her supervising professor was receiving after many years of work. The company offered her a company car and was willing to fund her Ph.D. studies or MBA. 4. Beata, a very smart student, was preparing her Master’s thesis in the same student group as Anna. On a daily basis she lived away from the campus, in a small town where her boyfriend lived. He was neither a student, nor had higher education. Beata had no chance for professional training in her town, but she also gave up on receiving training elsewhere because she would have to commute and her boyfriend was against it. For the same reason she ceased to learn English. She defended her Master’s thesis on time and received very good notes since her thesis was based on thorough literature research and Internet resources. She decided not to pursue Ph.D. studies. In the town where she lived she struggled to find a job. Eventually, she was employed in a state institution with a salary higher only by 35% than the minimum salary.

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8.8. Appendix 2 D. McGregor believed on management style in organizations are Such assumptions can and theory Y.

that beliefs of managers have a dominant influence and that assumptions concerning human behavior of key importance from this point of view. be classified into two main categories – theory X

1. The aim of the exercise is to identify the students’ assumptions concerning human behavior in organizations. 2. The exercise is to read the sentences below and decide which sentence (A or B) better illustrates each student's beliefs. 3. The result of the exercise is to define which theory (X or Y) dominates in a human behavior on a daily basis. Pick up the sentences below: A B 1

It is part of human nature that people, if only it is possible, try to avoid work.

If people avoid work, then it is usually because they cannot see its sense.

2

If subordinates have access to every information, they are more responsible and work better.

If subordinates have access to the majority of information than they need for their immediate tasks, they cannot make use of it.

3

Asking subordinates about their opinion is somewhat of a problem because they lack the skills and the broad perspective of looking at the organization so that their suggestions could have any practical value.

Asking subordinates about their opinions can broaden their horizons and have practical benefits.

4

Practice shows that people rarely refer to their creativity or imagination at work; this means that probably only few people have such characteristics.

Most people have imagination and creativity but they do not reveal it due to limitation of the management or the character of their work.

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5

People work much better when they are responsible for their behavior and can correct their own mistakes.

People work worse if they are not punished for their bad behavior or mistakes.

6

It is better to give all information to employees because they want to know the whole truth, regardless of how unpleasant or difficult it is.

It is better not to reveal all information to employees because some of it may cause too much confusion and create problems for the employees themselves.

7

Due to the special character of manager’s job, telling the subordinate that he/she is right may lower the prestige of the manager.

Due to the fact that every work requires specific effort, admitting that the subordinate is right increases prestige of the manager.

8

If an employee is given more money, he/she won’t care about such intangible things as responsibility or acknowledgement.

If people have interesting job they are less likely to complain about earnings or additional benefits.

9

If people can define their own goals and standards of work, they define them on higher level than their manager would.

If people can define their own goals and standards of work, they define them on lower level than their manager would.

10 Due to the fact that greater knowledge of an employee is related to greater tendency towards independence, then the more knowledge and independence the employee has, the more control he/she needs to remain disciplined.

The more knowledge and independence an employee has, the less control he/she needs to remain disciplined.

Source: based on [Mc Gregor 1960, pp. 33– 48 and Kożusznik 2002, p. 41].

Key: Theory X: sum of 1A, 2B, 3A, 4A, 5B, 6B, 7A, 8A, 9B, 10A. Theory Y: sum of 1B, 2A, 3B, 4B, 5A, 6A, 7B, 8B, 9A, 10B.

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8.9. Appendix 3 Hierarchy of goals and individual values. 1. On three different pieces of paper write down three material items which for different reasons, e.g. due to material, emotional, sentimental or prestige-related value, are most valuable to you. 2. Take four more pieces of paper and write down names of four people who are most important to you and try to think why they are so important and what made you choose their names to write them down. 3. Take four more pieces of paper and write down events from your life which depended on other people or coincidence where you had actually no control over them, but which influenced your life, had important consequences (rather positive), and for which you could be grateful to others. 4. On the last four bits of paper write the best moments from your life, successes which you owe mostly to yourself, your commitment and effort, passion, time and the amount of work which you put into them. Instructions: 1. Construct a pyramid with the pieces of paper. Put 1 paper on the first level of the pyramid, two papers on 2nd, 3 papers on 3rd, four papers on 4th, and five papers on 5th. 2. Can you see the difference between declared and realized values? 3. Is there anything that facilitates or inhibits realization of those values?

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