Quality Innovation Knowledge

Quality Innovation Knowledge A consortium of Australian and Malaysian Universities present

The Seventh International Research Conference on Quality, Innovation and Knowledge Management Sunway Lagoon Resort Hotel Kuala Lumpur, Malaysia

16 – 18 February 2005

CONFERENCE PROCEEDINGS Application and Synthesis in the Global Economy

Edited by Professor Amrik Sohal and Dr Richard Cooney http://www.monash.edu.au/cmo/qik05

Preface The conference aim is to provide the opportunity to share new ideas relating to quality, innovation and knowledge management and the associated challenges in a global economy. The rapid rate of change in operating environments is creating the need for convergence of prominent management paradigms. The quality of goods and services can no longer be assured by activity at an operational level alone, and is as much a function of the innovation processes and management of organisational knowledge. Knowledge itself is enhanced by the degree to which innovative practices are promoted. High quality outcomes are hard to sustain without effective transfer and cognition of knowledge. The interrelationships between Quality, Innovation and Knowledge are therefore both critical to organisational effectiveness, and at the same time, a fundamental problem for management. The theme of this conference focuses on the synthesis of these three issues, and on practical organisational applications. This publication brings together papers from educators, researchers, students and practitioners from all parts of the globe. Abstracts were reviewed and full papers refereed and selected for publication in the Conference Proceedings. Over 120 abstracts were received and over 60 full papers were doubleblind reviewed. The organising committee takes this opportunity to thank all reviewers for their timely support. On behalf of the organising committee, we thank you for your participation in the Seventh International Research Conference on Quality, Innovation and Knowledge Management held in Malaysia in February 2005.

Professor Amrik Sohal Dr Richard Cooney Conference Convenors

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Table of Contents Preface .................................................................................................................................................... i Keynote Address - Bird on the Wing: Knowledge Management, Innovation and Quality......... viii Professor Patrick Dawson ........................................................................................................viii Transferring Knowledge and Innovation Management Across Borders: Challenges for Australian Business ....................................................................................................................... 1 Quamrul Alam ............................................................................................................................. 1 Prema Krishnan .......................................................................................................................... 1 TQM in Higher Education: The Application of Stakeholder Management ....................................12 Mary G Anderson......................................................................................................................12 Firm Entrepreneurial Orientation and Performance of SMEs in Malaysia: The Impact of Environmental Munificence .........................................................................................................18 Amran Awang ...........................................................................................................................18 Zainal Ariffin Ahmad .................................................................................................................18 The Precursors and Impacts of Governance Mechanisms in Advanced Manufacturing Technology Implementation: A Conceptual Framework ..........................................................30 Azmawani Abd Rahman ...........................................................................................................30 David Bennett ...........................................................................................................................30 A Social Network Perspective on Knowledge Management...........................................................41 Marloes Bakker .........................................................................................................................41 Jan Kratzer................................................................................................................................41 Innovation and Commercialization of R&D by Business Networks...............................................51 Suku Bhaskaran........................................................................................................................51 Malaysia's K-Economy Plan: Are Malaysian Businesses 0n Track?.............................................61 Nicholas Beaumont...................................................................................................................61 Christina Costa .........................................................................................................................61 Amrik Sohal...............................................................................................................................61 Karthyeni Purushothaman ........................................................................................................61 The Taxonomy of Outsourcing Literature: A Research Agenda....................................................82 Nicholas Beaumont...................................................................................................................82 Zaffer Khan ...............................................................................................................................82 Facilitating a Knowledge Network of Start-ups: Some Lessons from Australia ........................105 Ron Beckett ............................................................................................................................105 Jessica Kennedy.....................................................................................................................105 Phil Bretherton ........................................................................................................................105 Paul Hyland.............................................................................................................................105 “Mobilising Minnows” – Creating Innovative New Value Chains for Small Firms in a Changing Global Environment ..................................................................................................115 Ronald C Beckett ....................................................................................................................115

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A Survey of Continuous Improvement Practices in the United Kingdom and Mexico ..............125 Luis A. J. Borges.....................................................................................................................125 Andrew Greasley ....................................................................................................................125 Towards a Road Map for Knowledge Management Implementation ...........................................131 Naguib Chowdhury .................................................................................................................131 Managerial Qualities and Knowledge Management in Australian Sports and Leisure Centres.........................................................................................................................................140 Gary Crilley and Rebecca Crilley............................................................................................140 Theoretical and Qualitative Exploration of Systems of Internal Innovation (SI2): Operational Adjuncts to Innovative Capacity ...............................................................................................149 Lisa Daniel ..............................................................................................................................149 Milé Terziovski ........................................................................................................................149 Virtual Benchmarking and Global Networking...............................................................................159 Korina Diamanti ......................................................................................................................159 Nancy Pouloudi.......................................................................................................................159 Achieving Excellence in the Globally Competitive Tertiary Education Sector through Innovative Approaches to Student Involvement in Course Evaluation ................................168 Ron Fisher ..............................................................................................................................168 Rod Gapp................................................................................................................................168 Organisational Learning Motivation of Construction Contractors in Malaysia: An Exploratory Study .......................................................................................................................175 Awie Hing-Wih Foong .............................................................................................................175 Kah-Hin Chai...........................................................................................................................175 Chee-Meng Yap......................................................................................................................175 Quality Management Practices, Industry Rivalry, Entry Barriers and Performance: An Investigation of Their Relationship...........................................................................................185 David Gadenne .......................................................................................................................185 Bishnu Sharma .......................................................................................................................185 A Climatic Approach to Managing the Transformational Requirements for Developing a Participative Excellence Model..................................................................................................196 Rod Gapp................................................................................................................................196 The System of Profound Knowledge a Method of Assessing the Management and Development of SMEs ................................................................................................................206 Rod Gapp................................................................................................................................206 Geoff Slatyer*..........................................................................................................................206 An Examination into the Role of Knowledge Management and Computer Security in Organisations ..............................................................................................................................215 Raj Gururajan..........................................................................................................................215 Vijaya Gururajan .....................................................................................................................215

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Using ICT Tools to Manage Knowledge: A Student Perspective in Determining the Quality of Education ................................................................................................................................227 Vijaya Gururajan .....................................................................................................................227 Raj Gururajan..........................................................................................................................227 Ee Kuan Low...........................................................................................................................227 Competence Management as Organizational Knowledge Transfer Process .............................242 Gustavo A.C. Guzmán............................................................................................................242 Allan Claudius Queiroz Barbosa.............................................................................................242 Marco Aurelio Rodrigues .......................................................................................................242 Marcelo Alvim Scianni ............................................................................................................242 International Strategic Alliances in Malaysia: An Examination on Learning Capacity and Knowledge Acquisition ..............................................................................................................251 Fariza Hashim.........................................................................................................................251 James H Love .........................................................................................................................251 Competitive Advantages in Ports: Knowledge Transfer from Strategic Alliances and Key Relationships...............................................................................................................................262 H. Haugstetter.........................................................................................................................262 D. Grewal ................................................................................................................................262 From Quality Management to Socially Responsible Organisations: The Case for CSR. .........270 Shirley-Ann Hazlett*................................................................................................................270 Rodney McAdam ....................................................................................................................270 Lisa Murray .............................................................................................................................270 The Social Process of Organizational Adaptation: Exploring the Gap between Managerial Intentions and Local Realization ...............................................................................................282 Andreas Hellström ..................................................................................................................282 Top Management Teams’ Conflict on New Product Development Process: A Cross-Cultural Perspective ..................................................................................................................................292 Tsun-Jui Hsieh ........................................................................................................................292 Hsien-Jui Chung .....................................................................................................................292 CI Tools and Techniques: Are There Any Differences Between Firms?.....................................302 Paul W. Hyland .......................................................................................................................302 Lee Di Milia .............................................................................................................................302 Hongyi Sun .............................................................................................................................302 A Customised Change Process for Improved Triple Bottom Line Performance .......................311 Raine Isaksson .......................................................................................................................311 Neil Taylor...............................................................................................................................311 Knowledge Management with a Process View ..............................................................................322 Raine Isaksson .......................................................................................................................322 Mikael Trönndal ......................................................................................................................322 The Impact of Culture on Knowledge Innovation: A Conceptual Model .....................................332 A. Rashid Kausar ....................................................................................................................332 Aqeel Ahmad ..........................................................................................................................332 David Paul...............................................................................................................................332

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An Examination of Learning Success in International Joint Ventures: The Malaysian Example .......................................................................................................................................338 Kharabsheh, Radwan A..........................................................................................................338 Professor Farrell, Mark A........................................................................................................338 Quality Management for International Industrial Competitiveness .............................................348 Stefan Lagrosen......................................................................................................................348 How Bank Branches Affect Customer Service Quality Perceptions ...........................................357 Alvin Lee Yiam Chuah ............................................................................................................357 Katherine Mizerski ..................................................................................................................357 Creativity, Innovation and Culture: the Role of the Individual in the Innovation Process ........367 David R Low* ..........................................................................................................................367 Ross L Chapman ....................................................................................................................367 Relationships between Market Orientation, Innovation and Firm Performance: the Role of Employee Attitudes and Beliefs ................................................................................................375 David R Low * .........................................................................................................................375 Ross L Chapman ....................................................................................................................375 A Conceptual Model to Evaluate Innovation Quality – Empirical Results from a Preliminary Investigation ................................................................................................................................384 JrJung Lyu ..............................................................................................................................384 Ming-Nan Chen.......................................................................................................................384 The Level and the Quality of Management in the Construction Industry - Causes and Consequences - ..........................................................................................................................392 Barbara Medanić.....................................................................................................................392 Examining Management Capabilities for Innovation: Creating the Capacity to Let Go ...........408 Dennis Mussig ........................................................................................................................408 Dr Lee Di Milia ........................................................................................................................408 Dr. Paul Hyland.......................................................................................................................408 Quality and the Current Student Experience .................................................................................416 Chenicheri Sid Nair.................................................................................................................416 Juliana Chan ...........................................................................................................................416 Investigating the Impact of the Underpinnings of Relationship Marketing on Customer Loyalty..........................................................................................................................................425 Nelson Oly Ndubisi .................................................................................................................425 Chan Kok Wah........................................................................................................................425 The Role of Family Typing on Joint Purchase Decisions on Three Products by Malaysian Spouses .......................................................................................................................................436 Nelson Oly Ndubisi .................................................................................................................436 Chan Kok Wah........................................................................................................................436 Jenny Koo ...............................................................................................................................436 Quality Engineering in Malaysian Automotive Suppliers – Survey Results and Analysis........447 Noviyarsi and Sha’ri Mohd Yusof............................................................................................447

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An Empirical Approach for Valuing Information Technology Startups ......................................457 Oh, K. B. .................................................................................................................................457 Bose, S. ..................................................................................................................................457 Wilkinson, D. ...........................................................................................................................457 Integration vs. Fragmentation of Knowledge Management, Organisational Learning and Innovation ....................................................................................................................................469 Liam F. Page...........................................................................................................................469 Jeffrey J. McLean ...................................................................................................................469 Christina Costa .......................................................................................................................469 Corporate Logs: An Interaction Framework for Knowledge Management .................................478 Natalie Lee-San Pang.............................................................................................................478 Kok Wei Khong .......................................................................................................................478 The Impact of Global and Local Competitive Factors on Small-to-Medium Enterprises in the Australian Baking Industry ........................................................................................................487 Marcia Perry............................................................................................................................487 Quamrul Alam .........................................................................................................................487 Six Sigma and IT Values: An Innovative Relationship ..................................................................495 Ammar Rashid ........................................................................................................................495 Work Climate and Group Processes in Innovative Organizations in India: An Empirical Study ............................................................................................................................................503 Santanu Roy ...........................................................................................................................503 Sunil K. Dhawan .....................................................................................................................503 Value-Chain Innovation: A New Zealand Example ........................................................................513 Jay Sankaran ..........................................................................................................................513 Customer Loyalty through Service Recovery: A Case Study of Six Sigma in the Hotel Industry ........................................................................................................................................522 C. Seow ..................................................................................................................................522 K.Y. Tiu ...................................................................................................................................522 Cultural Dissonance: A Factor Impeding the Spread of the Japanese Management System ..533 Wendy Smith...........................................................................................................................533 Ron Edwards ..........................................................................................................................533 Fiona Newton..........................................................................................................................533 Contextualizing a Knowledge Transfer Model: The Case of Japanese Multinationals Overseas ......................................................................................................................................544 Pavel Štrach............................................................................................................................544 André M. Everett * ..................................................................................................................544 Facilitating Employees with B2E Portal..........................................................................................553 Ly Fie Sugianto .......................................................................................................................553 Dewi Rooslani Tojib ................................................................................................................553 Leadership from the Middle: A Case Study of South East Water Limited’s HACCP Certification .................................................................................................................................562 Nishal Sukumaran...................................................................................................................562 Kevin Hutchings ......................................................................................................................562

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A Formula of Enhancement in Theoretical Descriptions..............................................................569 Göran Svensson .....................................................................................................................569 Service Quality: An Inherent Measurement Dilemma ...................................................................575 Göran Svensson .....................................................................................................................575 If You're Not Measuring You're Only Practising: The Contribution of Measurement to TQM Success........................................................................................................................................584 W A Taylor ..............................................................................................................................584 G H Wright ..............................................................................................................................584 The Quality Management Approach to Contemporary Issues of Maritime Safety .....................594 Vinh Thai.................................................................................................................................594 Devinder Grewal .....................................................................................................................594 Knowledge Management and its Links with Quality .....................................................................607 Dianne Waddell.......................................................................................................................607 Deb Stewart ............................................................................................................................607 System Dynamics Approach to Information Asymmetry for Product Quality: A Preliminary Structure with an Indian Case ...................................................................................................613 Lalit Wankhade .......................................................................................................................613 B. M. Dabade ..........................................................................................................................613 Integrating Craftsmanship Metric Data from the Automotive Supply Chain into the OEM to improve the New Product Introduction Process .....................................................................623 Mark A Williams ......................................................................................................................623 Charles Tennant .....................................................................................................................623 Amritpal Singh.........................................................................................................................623 Strategic HRD: Who Drives the Agenda and Why?.......................................................................634 Karen Windeknecht ................................................................................................................634 Bruce Acutt .............................................................................................................................634 Paul Hyland* ...........................................................................................................................634

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Keynote Address Bird on the Wing: Knowledge Management, Innovation and Quality Professor Patrick Dawson [email protected] Director Graduate Programmes University of Aberdeen Business School Kings College, College Bounds Aberdeen AB24 3UB, United Kingdom

Professor Dawson draws on over twenty years of organizational research in presenting a new and interesting lens from which to examine company change and continuity. The central themes of movement and context are used for a selective historical examination of knowledge management, innovation and quality. An overview of the field is combined with rich contextual stories with the aim of viewing well worn concepts in new and different ways, of opening up new areas of possible research interest, and to raising questions for further discussion and debate. Professor Patrick Dawson is Holder of the Salvesen Chair and Director of the Graduate School of Business at the University of Aberdeen. He has published over 50 articles in scholarly books and refereed journals. He has also published a number of research books including: Technology and Quality: Change in the Workplace, London: International Thomson Business Press, 1996; and Organizational Change: A Processual Approach, London: Paul Chapman Publishing, 1994. He coauthored with Gill Palmer the findings from an Australian Research Council programme on the uptake of TQM in organizations in Australia and New Zealand, entitled: Quality Management: The Theory and Practice of Implementing Change, Melbourne, Longman, 1995. In 2000, he co-edited a four volume series of books on Technology and Organisations: Critical Perspectives on Business Management, London: Routledge. His most recent books are: Understanding Organizational Change, London, Sage, 2003 and Reshaping Change, London, Routledge, 2003 and his new coauthored book on Creativity, Innovation and Change is due to be published by Pearson in 2005. Professor Dawson has been researching change in organizations in a number of different countries for over twenty years. He has held positions at Universities in Australia, Denmark, England and Scotland and has been a keynote speaker at international conferences. He has dual nationality (Australian and British) and he is a Research Fellow of the Australian and New Zealand Academy of Management. He is well known in the field of change management and his work is often cited in the academic literature. He also presents his work to leading companies and business organizations who are interested in developing their understanding of creativity, innovation and change.

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Transferring Knowledge and Innovation Management Across

Borders: Challenges for Australian Business Quamrul Alam [email protected]

Prema Krishnan Department of Management Monash University, Caulfield, Australia

Abstract This paper examines the knowledge and innovation management (KIM) practices of four Australian firms doing business in Malaysia and suggests that Australian businesses are reactive to global changes and have taken an ad hoc approach to transfer knowledge and innovation management practices to develop business links. They have clear strategic business objectives and have achieved progress in embracing knowledge and innovation management practices in their home location, but they all face barriers in transferring their KIM practices to their Malaysian businesses. Businesses in Malaysia are not in a financial position to commit adequate resources to support KIM practices. They emphasise technological knowledge development which is one element of a knowledge based economy. In the context of this approach, Australian businesses aspiring to expand business operations in Southeast Asia in general, and Malaysia in particular, need a more proactive and organic approach to understand the specific needs and take measures accordingly to transfer KIM practices to their overseas business operations.

Introduction In an era of the knowledge economy, the intensity of competition has increased permeability of boundaries and borders, mobility of capital and labour, and the need for faster transmission of ideas. This new international business environment has increased dependence on knowledge, innovation, technology, managerial ideas and practices. To succeed internationally, firms must possess some advantageous intangible knowledge-based assets (Buckley and Carter 2002). Martin and Solomon (2003) suggest that to actively engage internationally, businesses must identify how knowledge management (KM) and an innovation culture can be replicated throughout their operations in order to compete successfully in multi-country markets. International expansion of a business depends on its ability to create distinctive technological, managerial and marketing capabilities and build organisational connections across functional silos (Mohammad, Tankosky, and Murray, 2004, Dunning, 1993). Possession of knowledge-based advantages does not guarantee that a firm will be able to be successful in its overseas operations; it mainly depends on whether it can transfer its knowledge management practices and innovation capability to increase international competitiveness. Grant (1997; 2002; 1996) argues that as most of the knowledge relevant to production is tacit, the transfer of knowledge between businesses across national borders is a crucial task. Businesses thus require managing their knowledge successfully as they have to operate in multicentric, decentralized, and culturally sensitive business environments. To internationalise, businesses require a competitive knowledge and innovation management system that involves the creation, evolution and application of new ideas into marketable goods and services (Sterndale-Bennett, 2001) Success for Australian businesses in the Southeast Asian region is heavily determined by their ability to establish new business links, access the global supply chain, and manage diversity in business relationships. The key to gaining and expanding market share is to have organisational ability to mobilise, institutionalise, operationalise and transfer the collective intellectual capital created through knowledge management and an innovative culture. Constant improvements in science and technology have now created a setting where innovation has become the mainspring of new value which Australian businesses should aim for. Key issues in innovation include capabilities, abilities needed to respond to technological opportunities, incentive structures, and management of risk and uncertainty. Recent research (CEDA, 2004) suggests that research on innovation in Australia has focussed primarily on R & D expenditure (both Government and business) as the key indicator of knowledge creation and innovation, but ignores the firm’s capabilities in applying that knowledge.

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Australian businesses need to increase their specialised knowledge capability in order to identify new niche opportunities in the constantly changing global business (The Age, 24 July 2003). The primary thrust of this paper is to analyse the knowledge and innovation management (KIM) practices of four Australian businesses that have significant involvement in Malaysia. We examine how variables such as knowledge infrastructure and technology systems, quality and operational cultures, Information and Communications Technology (ICT) infrastructure, intra-country and interindustry cooperation, and human resource development policies influence a firm’s knowledge and innovation system, and how firms’ abilities to efficiently transfer knowledge affect international competitiveness of a business. The main questions pursued in this paper are: What do Australian businesses do to increase their knowledge management and innovation skills and ability and use that as a source of competitive advantage? How do they transfer their skills to their Malaysian businesses? What challenges do they face in transferring their knowledge and innovation practices?

Knowledge and Innovation Management (KIM) Knowledge management is the sustained, integrated enterprise-wide application and optimisation of intellectual capital to achieve organisational strategic goals (Frey, 2002:172). Knowledge management is a conscious decision on the part of a business to bring its knowledge together to help transform well structured information into an intellectual asset. It is about harnessing people’s intellectual capability to create knowledge and share it. An important dimension of innovation is that the application of knowledge always involves some adaptation, and in the process of adaptation, new knowledge is created (Denning, 2000). Frey (2002) thus argued that knowledge management is a dynamic combination of structured processes and automated tools multiplied by executive-level leadership and vision. It is argued that for effective knowledge management, businesses require departures from inward looking business strategies and hierarchical organisation structures (Dunning, 1997). To internationalise their operations, businesses need to acquire different resource-based competencies and develop unique capabilities to transfer those to offshore operations. Managerial talent, a knowledge infrastructure, an innovative culture, and sophisticated manufacturing equipment may become strategically important resources when their use is integrated effectively with overseas business operations. These resource based capabilities can be used to develop new business links and to determine appropriate entry modes (Barney, 1991, 1999; Hitt, Park and Tyler, 1995). Highlighting the importance of knowledge management Nonaka (1991, 1994) argued that an organisation could transform knowledge into innovation and competitiveness through developing relationships between tacit and explicit knowledge and between individuals and groups. The same analogy can be used to understand how this can be used to transfer knowledge from one business to another in a different cultural, economic and political environment. It is important that businesses develop knowledge capabilities to understand contextual differences of various business environments (Thompson and Walsham, 2004) and use that knowledge to increase global business competitiveness by creating new transferable competencies. Large corporations in Europe, Japan, and the United States have been successful in introducing and implementing knowledge management business processes and repeatable, structured methodologies in their overseas operations. The Asian model of industrial development consists of a trilateral relationship between firms, banks and the government (Wade, 1990; Stiglitz, 1996). However, there are organisational and managerial weaknesses which prevented many Asian companies from taking advantages of export opportunities in the post 1997 Asian crisis. Other than the lack of capital as a major constraint, many companies were unable to adapt to the new business environment, as they needed to be flexible in responding to market changes to compete successfully in international markets. Chadee and Kumar (2001) argue that the internal resources capability of Asian firms and their ability to leverage these resources became critical constraints of their performance in international markets. These internal resources included the firm’s state of technological and human resources, the knowledge infrastructure and organisational ability to be innovative. Businesses in Southeast Asia lack an effective knowledge management infrastructure which restricts them from deploying and organising corporate resources efficiently, flexibly and competitively. Comparative cost of production is a source of competitive advantage (Dunning, 1997: 273; Williamson, 1985), but management research suggests that non-cost price factors are also important determinants of international competitiveness. There is a wide range of non price intangible assets such as information, labour skills and experience, technology, organisational competence, knowledge

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capability, R&D capability, entrepreneurship and the ability to innovate (Chadee and Kumar, 2001; Dunning 1997). Porter (1990) and Clark and Guy (1998) argued that managerial and organisational capabilities to transfer knowledge and innovation could facilitate the formation of alliance mutually beneficial to participating businesses. The resource based theory (Barney, 1991; Wernerfelt, 1984) also advocated that the ability of firms to create competencies which were difficult to replicate and could be used to attract new strategic alliance partners to set up new business ventures increased the international competitiveness of many businesses. Grant (2002)?? suggested that knowledge management comprises a number of elements within a business (Figure 1). These elements need to be strategically applied in the context of the specific features of a market. Businesses thus should have a well-integrated organic system approach to transfer knowledge and innovation across national borders. Within a national environment, firms must be able to organise and manage their knowledge with efficiency, and transfer knowledge and innovation to their overseas operations. Firms need to select an appropriate entry mode, build an innovation culture, assess the absorptive capacity of the host country and deploy knowledge-based assets. Figure 1: Knowledge Management Elements within the Organisation

Knowledge Creation Knowledge Generation Exploration

Knowledge Acquisition

•Training •Recruitment •Intellectual property licensing •Benchmarking

Knowledge Integration

•New product development •Operations

Knowledge Sharing

•Strategic planning •Community practice

Knowledge Replication Knowledge Application Exploitation

Research

•Best practices transfer •On-the-job training

Knowledge Storage and Organisation

•Data bases •Standard operating practices

Knowledge Measurement

Intellectual capital accounting Competency modelling

Knowledge Identification

•Project reviews •Competency modelling

Grant, 2002, p. 179

Methodology Four Australian organisations (across several industries) with substantial involvement in Malaysia were selected to identify how these organisations used knowledge management as a strategic tool to gain competitive advantage in Malaysia. Some key informants familiar with knowledge management and innovative practices in those organisations provided valuable information. The published documents from these companies have been extensively used to extract critical information. The primary intent was to identify what these organisations were doing in terms of transferring knowledge and innovation management practices to their overseas operations, and the challenges they encounter in this process. This is an exploratory study. Pseudonyms have been used to maintain confidentiality. A detailed study of 15 Australian companies will be conducted to test and validate the findings of this study.

Case Studies Alpha is one of the world’s leading packaging businesses with global sales estimated at A$11 billion and operations in over 42 countries. This company today has operating businesses in all continents and has six main operating companies, four of which have their headquarters outside Australia. Each of its businesses is independent, with local management taking full responsibility for strategy and operational matters. The firm’s research and development and innovative management style play a critical role in positioning itself in the Southeast Asian region. With over A$100 million invested in product innovation and development in 2002, Alpha manages one of Australia’s biggest R&D

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programs. There is a definite focus on KM and innovation management, particularly in the area of technology, with a dedicated research and technology business unit. Alpha has three manufacturing plants in Malaysia. The Asian regional headquarters is in Singapore, which enjoys strategic and operational independence with minimal control from the ‘HQ’ in Australia. Knowledge and Innovation Management Practices Alpha has a multi-domestic structure, and each specialised business unit (SBU) has its own management approach and philosophy. The group has instituted a robust Product, Leadership and Innovation (PLI)) process to work with customers in all stages of the process, including understanding their needs, packaging their products and helping with idea commercialisation. The PLI process provides customers with a means to create product differentiation and respond to market needs. It provides a structured framework for taking ideas through all the stages: idea generation, investigation, development and trial, and launch, followed by review. The stage gates include criteria such as potential market size, fit with Business Unit strategy, competitiveness, Intellectual Property (IP) position, technical risk and value/rate of return. Progress on projects in the pipeline is continuously monitored through quarterly PLI reports compiled on a global basis and fed into a bulletin with similar information from Europe and the Americas. PLI leaders are designated in each SBU to facilitate innovation in all the businesses. A recent analysis of the PLI model revealed gaps in institutionalising external knowledge. Alpha responded by forming alliances with partners, such as key customers and suppliers. It has entered into some very effective R&T design partnerships to develop new packaging designs for dairy products to extend shelf-life. The IP implicit in the outcomes is protected through detailed confidentiality agreements. Share-point portals are being set up to facilitate exchange of knowledge and to encourage the development of communities of practice. Information and communications technology is actively deployed to facilitate knowledge sharing through electronic forums and intranets. Using a multi-domestic organisation structure Alpha has delegated responsibility to respective business units for stimulating knowledge management and innovation allowing each unit to develop its own reward systems and operational mechanisms for idea generation through to commercialisation. The organisation makes extensive use of knowledge mining software which has proven effective in ‘semantic searching’ - an intelligent support system to access web-based information and which is also useful in patent searching. An innovative culture is encouraged and achievements recognised through an annual ‘CEO Innovation Award’. Practices such as mentoring and coaching are employed to share and disseminate knowledge. A competency model is used to identify knowledge gaps. This competency model is also used by large corporations such as Dow in US. Another knowledge management tool applied is the TRIZ process, which is an engineering design process tool to assist in de-constructing products/processes into component parts and then exploring re-design/modification/improvement possibilities of each component. Alpha demonstrates its commitment to knowledge development in the broader corporate community by providing expert and intellectual power. Through its excellent research infrastructure, it allows external third parties to engage in innovation and design modification. There does not appear to be much innovation and knowledge management initiatives undertaken in the Asian operations Beta The company is a leading Australian chemical company. They are an exporter of a particular product to Malaysia, where they have an Agent to handle distribution in South East Asia. In this product market, Malaysia is a very competitive market, with main rivals including large players from Taiwan, UK and South Africa. However, Beta has a competitive advantage with a superior product, an excellent relationship with its agent, and competitive pricing. Knowledge and Innovation Management Practices Beta has fragmented dispersed knowledge management functions throughout the organisation. Lotus Notes databases are widely used for capturing and storing manufacturing and customer information derived from detailed quality reports and sales staff are required to record a specified number of sales

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intelligence reports over a specified period of time. The reports are accessible to all key commercial staff. Beta has a structured succession planning process that ensures that the firm retains its shares and disperses knowledge. Critical knowledge is always in minds of at least two people. Senior manager forums are held semi-annually to discuss strategic issues and significant industry development programs. Monthly brainstorming sessions championed by the CEO are held to exchange new ideas and improvements to the business (product, process, etc). Beta has a policy of organising informal knowledge management practices. Safety, health and environment (SHE) officers who play a critical role in this industry actively participate and share ‘Best Practice’ knowledge among themselves and with other counterparts in the industry. A significant amount of innovation and research occurs in collaboration with governmental research institutions such as CSIRO, where there are currently two new products in final commercialisation stage, following a lengthy development phase. Several New Product Development (NPD) projects also occur in collaboration with Universities and other research institutes. The organisation has leading-edge, state-of-the-art technology in relation to water treatment. Patents and copyrights protect their IP and enable them to obtain competitive advantage in global markets. The Australian Sales Director visits end customers in Asia directly every 6 months. This direct access is critical in relationship maintenance and updating customer knowledge, besides reducing reliance on the distributor. Gamma Gamma is a privately owned Australian organisation operating for over 38 years and is the country’s leading manufacturer of quality aluminium foil trays and oven-able paperboard and paper-based trays. It also markets high quality refrigerated, non-refrigerated and heated food display cabinets. The modern production facility is one of the global leaders in the industry. The company operates to HACCP and ISO standards, and has a policy of ensuring that all products are certified for Kosher and Halal applications. The company, which also manufactures its products in New Zealand, is an equal stakeholder in a joint venture in Malaysia operating for over 10 years. It manufactures and markets high-quality foil products in the Asian region using equipment made by its Australian parent. The entire Malaysian engineering staff were trained in Australia. Knowledge and Innovation Management Practices Gamma’s business strategy focuses on quality, excellence in customer service and value creation for customers. Its key objective is to constantly bring new products to the market and hence its core business has a clear focus on research and expansion into new packaging products and technologies in its domestic and offshore operations. The main thrust for innovation and R&D is in packaging materials. This company has developed collaborative relationships with the suppliers, principally with those firms who manufacture the foil, paper and board materials used in the firm’s operations. These relationships enable the exchange of expert knowledge and continuous improvement in product development, process improvement and satisfaction of customer needs. As with other businesses in the packaging industry, Gamma implements environmental policies to reduce excess packaging without compromising product quality and utilises renewable and recyclable packaging options. In its Australian operation an excellent harmonious management-employee relationship exists with open and free exchange of information and knowledge. Training is a high priority for all its employees, many of whom have been with the organisation for over 20 years. Training is also critical as new packaging materials are being constantly developed and the company needs to have the know-how to use these materials. Its knowledge base is managed by dispersing its operational knowledge amongst a wide group of employees in each category. The company has successful collaborative partnerships with its major customers, such as Qantas, Malaysian Airlines System, Sara Lee, who also contribute new ideas and concepts. However, as it does not have significant control over the day-to-day strategies and decision-making processes of the Malaysian business, transfer of these knowledge management and innovation practices to its Malaysian operations has been more difficult and less effective.

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Sigma Sigma has been operating in Australia since 1967 and manufactures and markets rigid plastic packaging, materials handling, plastic automotive trim and industrial products. In 2001, the Australian company became a wholly owned subsidiary of a UK based organisation. New product innovations are critical for survival in this industry. The company employs over 1,000 people in Australia, China, Malaysia, Indonesia, Thailand and New Zealand. Sales in 2000 stood at over A $150 million. The Malaysian operations were acquired and became a subsidiary of the Australian group in 1999. It was the first new business acquisition in Asia and the group has since diversified its business portfolio. The Asian businesses have significant access to group resources in terms of technological know-how, equipment and tools, proprietary and intellectual patents for a wide range of market applications. Knowledge and Innovation Management practices The group is committed to developing innovative solutions for a variety of industries and to achieve growth “through excellence in marketing and customer service”. Sigma’s efforts at KIM are concentrated on ways to better capture information and ideas in employees’ minds (i.e. tacit knowledge). They have developed an in-house new product development (NPD) system, ‘the Gateway process’ to effectively manage ideas and take it to commercialisation. Ideas are encouraged from all staff, but until now, the process has remained informal. They are currently in the process of institutionalising the system to give it better visibility and structure. Each product and process idea is divided into four categories: (a) existing markets - existing technology (least-risk, but only short-term potential); (b) new markets - existing technology; (c) existing markets - new technology; and (d) new markets - new technology (highest risk, but best long-term potential). There are currently several products in Sigma’s pipeline in the ‘Existing Markets / New Technology’ category (Category c), such as decorated packaging, applying new graphics and images. But it is the ‘New Markets / New Technology’ category (Category d) that determines the organisation’s long-term profitability. Hence, the more product ideas they have that fit this category, the better for sustainability. Product market development teams (PMDT) are formed, where members are the decision-makers with responsibility for prioritising, funding and resource allocation issues, and make the fundamental ‘go or no-go’ decision. Once they decide to ‘go’ with the idea, then a cross-functional project team is formed, which takes ownership of the project including the task of developing the idea through the ‘Gateway’ process. The project team meets fortnightly or more frequently if required. The process has over time been refined and made more systematic, structured and incorporates more robust risk analysis. Semiannual meetings of manufacturing managers of Asia and Australasia are held. Current projects include efforts to roll-out lean manufacturing practices (i.e. eliminating dead-time/non-value adding processes), and this is becoming more successful. A manufacturing-specific intranet website accessible via password is in operation for manufacturing staff. All their key performance indicators and projects are listed and there is a semblance of an open culture, albeit restricted to this department. On the technical side, covering innovation and NPD, staff meet annually and are in the process of developing a Lotus-Notes based website similar to the manufacturing model. Research on NPD for the Malaysian market, which is not substantial, is conducted in Malaysia. The Malaysian team is learning from the Australian technical team in an informal manner. The local technology manager is relatively innovative and capable. All technical specialists in the group meet annually in Melbourne to present and discuss projects in the pipeline and the progress to date. The three day meeting culminates in a brainstorming session, involving sales and marketing teams for new ideas for the future. Approximately 95% of NPD ideas are customer-driven with approximately 80% occurring in Australia. Monthly reports on project progress are circulated group-wide. The General Managers meet every 3 or 6 months with the venue being rotated. There is a high degree of informal sharing of knowledge and ideas across global business units, through phone calls, emails, etc. Management meets monthly to exchange ideas, developments, assess financial performance, and evaluate department manager updates. Departmental heads then transfer discussions to subordinates.

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Discussion What did the Sample Businesses do to increase their KIM skills as a source of competitive advantage? All the businesses we investigated acknowledged that effective management of knowledge and innovation practices was critical to their competitiveness and recognised the imperative for investing capital in developing KIM systems. They reveal that they have clear strategic objectives and have achieved progress in embracing KIM practices. However, there is a lack of appreciation of the potential value to the bottom-line of an organisation’s investment in knowledge and innovation initiatives. There is no accounting standard to measure the value of the knowledge and innovation assets of a business. Sharp (2003) supports the view that a model is required for quantifying or tangibilising the potential value of the intangible assets. New techniques need to be developed to measure this elusive value and express it in financial terms; clearly, an intellectual capital accounting system needs to be developed. With most of the sample organisations, the KIM practices appear to be, to varying extents, rather fragmented, with knowledge sharing practices adopted specifically by individual departments e.g. Manufacturing, Sales, Research & Technology but appear to lack an organisation-wide, holistic approach. More recently, all the organisations have taken initiatives in transplanting these practices across other departments. This reflects a growing recognition and acceptance that KIM must be an integral part of their organisational culture and incorporated in their strategic planning process. The study also revealed that the traditional ‘silo’ mentality of knowledge-hoarding is gradually disintegrating and conscious efforts are being made to stimulate more openness, trust, and greater frequency of open interaction amongst employees. A more knowledge-oriented organisational culture was beginning to emerge. Most of the participants encouraged the formation of communities of practice, through which knowledge was readily shared as an outcome of members’ voluntary participation based on mutual common interest. Further, employees are beginning to appreciate the value in developing networks of relationships both within the organisation and with external individuals. This has facilitated voluntary idea and knowledge sharing both inside and outside the organisation. Human resource policies and practices – in recruiting, selection, training, career development and succession planning – do not adequately support KIM cultures (e.g. sharing, creative, open mindset). Staff development programs do not appear to be reviewed and updated on a continuous basis. Nevertheless it is evident that several early steps are being taken in recent years to develop a learning and creative environment. There was little evidence of significant efforts to benchmark their organisations with their peers or other global organisations on KIM practices. Hence, a comparative evaluation of where they were positioned terms of KIM adoption was not possible. There was an acceptance in all four sample businesses that Information and Communication technology (ICT) systems played an important enabling role in institutionalising access, creating a culture of sharing, and adaptation of knowledge. The role of databases and the embracing of standard operating practices to enable systematic knowledge storage and organisation were acknowledged. Intranets were fairy well developed with department-specific databases acting as repositories of critical business, technical, process and customer information. However, there is limited adoption of broader ‘creative’ practices, such as internet searches on competitor activities, new technological advances globally, etc. Merely relying on ICT, however sophisticated, is unlikely to generate the necessary conditions in which employees willingly share knowledge (Hayes and Walsham, 2000) There was also significant involvement in collaborative partnerships with third parties (research institutes, customers, suppliers) in their KIM practices. There is evidence of a wider cooperation between industries – e.g. packaging and airlines, packaging and dairy industry, chemicals and agriculture – to develop new products and innovative solutions to problems. It did not appear that any structured mechanism of competency modelling existed. Such a system would enable the identification of critical knowledge and the development of appropriate criteria/standards to measure it. As well, such models will require to be frequently updated as different categories of knowledge become more relevant with the passage of time.

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Importantly, all four businesses under study had an obsession and total commitment to quality. A key strategic objective was to be regarded as a leader in their particular field/industry. This quality commitment was a key driver of their KIM philosophy. How do these businesses transfer their skills to their Malaysian businesses and what are the challenges they faced? While the organisations studied recognised the imperative to transfer their KIM practices to their global operations, efforts to achieve this objective seemed ad hoc and unstructured. They all encountered barriers, to a greater or lesser degree in transferring their KIM practices and values to their Malaysian businesses, though they had reasonably sound in-house KIM systems. New product development teams comprised mainly local members and did not include cross-border representation. In addition to assisting the transfer of best practice KIM practices, such representation could also have significantly enhanced the value of the outcomes accruing from the diversity. Communication across departments, divisions and with overseas offices is critical, however it appears to be not as frequent, spontaneous and interactive as would be desirable to successfully transfer management practices. The success of cross-border knowledge transfer depends on the host country’s capacity to absorb knowledge and innovation. The experience of the sample organisations indicates that their Malaysian counterparts may not be as knowledge and innovation ready as the Australian organisations. Organisations considering entry mode options for internationalising their operations need to consider the transferability of KIM practices to host country operations as an influencing variable. Empirical evidence indicates that wholly-owned subsidiary structures are more conducive to the transfer of tacit knowledge and innovation than alliances. Martin and Solomon (2003), also support this position in their study on joint ventures and licensing. Management executives are not adequately acculturalised to cross-cultural communication and increased interaction across departments and with overseas offices for best practices knowledge transfer to be implemented. Businesses require information concerning local cultural knowledge and learning behaviour in order to implement interactions between them and the host country executives. This business level capability building exercise and the ability to deploy knowledge resources is often considered the most critical task. It is not just technology and database systems that represent KIM, but the more intangible elements, such as workplace practices, cultures, employee attitudes and mindsets that determine the success or failure of transferring KIM practices across borders (Ronen and Shenkar, 1985). Aligning personal goals of employees with business and corporate priorities is a key challenge. Cultural attitudes played a role in effective knowledge transfer. The Australian workforce tended to be more open, less inclined towards knowledge-hoarding, were more comfortable with sharing of ideas and information with their peers, and easily formed networks of relationships. Culturally dependent issues were encountered in transferring these practices to their Malaysian operations which tended to develop mutual trust over time and were less inclined to idea-sharing. There was an inability of these regional businesses to appreciate the value and benefits to themselves and their organisations from global knowledge and innovation exchange. Participants opined that in contrast to the Australian firms’ commitment to quality, the Malaysian businesses tended to be more cost focussed. Creating a quality culture as a pre-requisite to knowledge and innovation transfer is a further challenge for Australian firms. There was a view that the national innovation system in Malaysia is not as sophisticated as Australia’s. The absence of a more receptive knowledge and innovation ready host environment is a critical challenge for Australian organisations seeking to develop global leverage and competitive advantage from their collective intellectual assets. The following diagram (Figure 2) demonstrates that a range of KIM practices could be embedded in the managerial practices. These include appropriate HR development strategies, a robust innovation system, an effective ICT infrastructure, and cooperative partnerships. The ability of organisations to

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develop global competitiveness also depends on the host nation’s absorptive capacity and their willingness to learn from parent country practices. A more receptive and knowledge and innovation ready host environment is a critical pre-requisite for Australian organisations seeking to develop global leverage and competitive advantage from their intellectual assets. A combination of these factors and effective use of an appropriate entry mode can increase international competitiveness. Figure 2: Relationship between Knowledge Management Practices and International Competitiveness.

Impact of Knowledge Transfer Capacity and Innovation Culture

Se le

HR development strategy Internal innovation system ICT infrastructure R&D and Quality culture Instituting continuous value creating practices Knowledge management policy Intra-country cooperation Intra-industry cooperation

n

of a

co un t

ry Building innovation culture

Ability to transfer

Entry Mode

o cti le e S

n

an of

EM

International Competitiveness

Absorptive capacity of host

Application with modification

Knowledge Management Practices

cti o

Deploying Knowledge Based Assets

Transferring knowledge and innovation practices across borders requires a national strategy. A recent OECD report (cited in APEC Economic Committee Report), also argued that sustainability and growth of businesses could occur if innovation and technological changes are pervasive in a country and if they are supported by an effective national innovation system. Ability of businesses to transfer knowledge also depends on high standard of education and training, widespread use of knowledge and an efficient ICT infrastructure, which allow businesses to readily and affordably access pertinent information from around the world. In Australia, State and market relationships have been ad hoc, and that has not created an entrepreneurial and innovative business culture (Mortimer, 1999, CEDA 2004). Businesses in Australia are struggling to define their competitive position in the world economy as the cost of trading with key trading partners remain a key barrier, and the ‘international orientation remains worryingly low’ with a mere 4% of Australian firms being regular exporters (CEDA, 2004).

Conclusion In the ‘new economy’ of today, the key to gaining and expanding market share is to develop capabilities to use knowledge – about customers, markets, products/services. No significant strategies exist to create firms’ capabilities to apply that knowledge. McKeon and Weir (2000) state that Southeast Asian countries are not in a financial position to commit adequate resources to support knowledge management practices. Malaysia emphasises technological knowledge development, which is one element of a knowledge- based economy. Binney (2001) identifies a range of different KIM elements such as intellectual property, work procedures, processes, procedures and methods, worker and organisational knowledge environment for cross disciplinary collaboration and innovation. In the context of this different level of knowledge creation and management capability, Australian businesses aspiring to expand business operations in Southeast Asia need a more proactive

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approach to understand local needs and take measures to transfer knowledge and innovation practices to their Malaysian operations. Australian businesses have mainly focused on R & D expenditure (both Government and business) as the key indicator of knowledge creation and innovation (AFR, September 13 2004). However, they are falling behind their OECD compatriots in their knowledge management practices (AFR, 13 September 2004). Successful and effective transfer of KIM practices requires the integration of organisational and national cultures, HR practices, and ICT infrastructure. However, ICT systems can only play a role of an enabler and facilitator to help the institutionalisation of these resources. Information alone cannot create knowledge and innovation. People and practices hold the key, and it is the joint responsibility of governments and businesses across national borders to facilitate a culture of knowledge creation and sharing to gain competitive advantage in the fast moving global marketplace.

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TQM in Higher Education: The Application of Stakeholder Management Mary G Anderson [email protected] Senior Lecturer, Department of Management Faculty of Business and Economics, Monash University

Abstract: Institutions of higher education now operate in a global environment and, as a result, compete for both students and research funds within an international market that is fast reaching maturity. Alongside this saturated market is the increasing emphasis placed on the adoption of total quality management processes and the subsequent recognition of the role of stakeholders. This changing socio-economic dynamic has placed increased pressures on the institution from various stakeholder groups. As a consequence, the need to identify the stakeholders within an institution of higher education becomes paramount as each set of stakeholders bring with them a different set of values. The aim of this paper is twofold: first, to discuss the concept of quality and its application within higher education; and, second to identify and examine stakeholder management and its implications for institutions of higher education. Keywords: higher education; total quality management; stakeholder theory

Introduction: This paper will provide a conceptual framework from the literature of quality within institutions of higher education. The paper then provides an overview of the concept of stakeholder management and its application to higher education. The paper begins with a background discussion on quality within higher education. The purpose of the background is to define the concept of quality within higher education which will provide the basis for the discussion of the recognition of stakeholders in the effective monitoring of quality in universities. The paper will conclude with identification of key areas for future research.

The Quality Concept: The principles of total quality management as espoused by Crosby (1984), Deming (1986) and Juran (1988) have played an integral part in the turnaround in production of quality products and services since the early 1980s. The application of these principles – fitness for use, conformance to requirements, innate excellence and value for the money spent - to name but a few are now being embraced by institutions of higher education. This adoption is seen as a reaction to the dramatic and significant changes in the external environments within which higher education institutions operate (Knight, 2001). For example, the expansion and rationalization of higher education, the changing role of governments and the influence of the market approach to higher education are all seen as having a powerful influence over higher education (Knight, 2001; Pearson & Chatterjee, 2004). Consequently, there has emerged a significant change in higher education at both the international and national levels. For example, in Australia, encouragement of universities to seek commercial opportunities and align themselves more closely with industry needs is paramount to their survival. In order to compete effectively in what has become a highly competitive international market, the providers of educational programs need to use some form of service quality assessment to maintain a level of competitive advantage. During the 1990s, quality in higher education moved to being the foremost concern in higher education alongside funding issues. Harvey (1999: 2) explains that national governments expect higher education to: “…be more relevant to social and economic needs; widen access; be more cost effective; ensure comparability of provision and procedures, within and between institutions, including international comparisons; and, be responsive to a range of stakeholders.” Consequently there has

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been a concerted effort for institutions of higher education to identify processes and developments that could lead to continuous improvement in the delivery of quality programs. Research into the application of quality processes across all functions of the institution is extremely healthy. Not only core processes such as teaching and learning but also administration, support services and research activities have all been thoroughly researched (Cruickshank, 2003; Harvey, 1998; Harvey & Green, 1993; Lomas, 2004; Owlia & Aspinwall, 1997). Given the importance placed on quality processes, the need to identify and clarify what is meant by quality arises as a major concern for all stakeholders. While quality was once perceived to be purely the domain of engineering, manufacturing and production engineering disciplines, quality processes have now expanded to include both the service and public sectors of the economy. Feigenbaum (1994: 84) believes that “quality of education” is the key factor in “invisible” competition between countries since the quality of products and services is determined by the way that “managers, teachers, workers, engineers and economists think, act and make decisions about quality.” The phrase “quality of education” is a difficult one to discuss in a concrete way, since it is almost always related to some specific goals (and can involve a related argument about whether such goals are legitimate or not). Quality is also a difficult word because it evokes a wide range of attributes, and the usual way of acknowledging the existence of quality is to appeal to observation and experience of a range of possibilities. The application of total quality management principles by institutions of higher education is a vexed one. Dawson and Palmer (1995) argue that there is some disagreement as to what constitutes quality and how best it can be achieved. For example, Garvin (1988) identifies five approaches to defining quality: transcendent (innate excellence); product-based (some attribute); user-based (needs); manufacturing-based (conformance to requirements); and, value-based (cost and prices). Garvin’s (1988) classification mainly applied to industry, and appears to have little relevance to tertiary education; however, it has been widely applied in this sector in the absence of a more suitable approach. Harvey & Green (1993:11) discuss the nature of quality in the context of a university and identify five discrete but interrelated ways of thinking about quality in higher education: exceptional (quality as something special); perfection or consistency (processing and setting specifications); fitness for purpose (relates quality to the purpose of product or service and its relationship to that purpose); value for money (you get what you pay for); and, transformation (issues of added value and empowering the participants). These approaches are more applicable for higher education having been designed specifically with this sector in mind. Defining what is meant by quality in higher education is somewhat different to that in industry and service production where the perception of quality is more homogenous. Since institutions of higher education have not previously seen the need to define quality, there is no specific definition that encompasses objectives within these institutions (Giertz, 2000). It is argued that there exist different perceptions on what defines quality in higher education. Firstly, quality has many aspects and is often based on values. Those values are shared by a group of stakeholders - academics, students, parents, future employers, the government, and funding bodies. Secondly, higher education in general has undergone significant change and there exists many different forms and as a result if quality is seen as “fitness for purpose” (Ball, 1985) then what counts for quality will be different (Giertz, 2000). While it may be difficult to assign one particular definition of quality for higher education, it has been suggested that trying to define quality in an educational context is a waste of time (Vroeijenstijn, 1992) as if it is assumed that it is stakeholder-driven concept then quality will mean different things to different stakeholders. Following a review of the extant literature, there appears to be a degree of difficulty in forming a consensus as to a globally acceptable definition. Regardless of how an institution sees its quality process, it does need to communicate that it is able to provide a level of service quality in order to attract more funds, more students and more recognition (Ibrahim, 1999). Slade, Harker and Harker (2000:1197) suggest that as institutions of higher education now play a major role in the services sector of most economies, then strategies to “. . . enhance their images by consistently meeting or

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exceeding customers’ service expectations” is needed for service differentiation. This is supported by Ham and Hayduk (2003) who suggest that the use of some form of service quality assessment is essential in order to maintain a level of competitive advantage. Along with this is the need for the institution to identify strategies that will meet or exceed stakeholders’ expectations. Wright and O’Neill (2002) identify the need for an appropriate measure of actual service performance. To this end, the identification of a ‘gap’ between expectations and actual service provided has been a significant part of research into the level of service quality within institutions of higher education. The need to implement appropriate evaluation processes of the level of service quality delivered has now become a key issue. As a result, the need to identify and recognize the claims of stakeholders has become an integral part of the management process in institutions of higher education (Macfarlane & Lomas, 1999). Without a clear indication of who are the players, the question of quality and its meaning becomes purely a reaction to the external government guidelines imposed on the institution.

Stakeholder management and higher education: One of the most dominant themes in management literature has been the identification and management of stakeholders. In his seminal work Strategic Management: A Stakeholder Approach, Freeman (1984) put forth the proposition that the identification of stakeholders and the firm’s response to them is critical to the firm’s overall success. Freeman (1984:25) defined the stakeholder concept as follows: “. . . The stakeholder concept is deceptively simple. It is “simple” because it is easy to identify those groups and individuals who can affect, or are affected by, the achievement of an organization’s purpose. It is “deceptive”, because once stakeholders are identified; the task of managing the relationships with them is enormous.” Since this publication, the concentration of stakeholder theory and stakeholder management has been a dominant theme in management literature (Carroll & Buchholtz, 1999; Jones & Wicks, 1999; Mitchell, Agle, & Wood, 1997). This research has produced divergent views on how stakeholder identification might be addressed. For example, Wheeler and Sillanpaa (1997) provided a dual classification of stakeholders as either primary (those who have a direct stake in the organization) or secondary (those who influence or affect, or are influenced or affected by the organization). Mitchell, et al (1997: 854) provided a typology of stakeholders based on three attributes: “. . . the stakeholder’s power to influence the firm; the legitimacy of the stakeholder’s relationship with the firm; and, the urgency of the stakeholder’s claim on the firm.” Further research by Jones and Wick (1999) outlined four basic premises behind the stakeholder management concept, namely: the acknowledgement that the organization has multiple relationships; the nature of this relationship in terms of both processes and outcomes; all stakeholder interests have intrinsic value; and, stakeholder management theory focuses on management decision making. While stakeholder research has concentrated primarily on individual stakeholder responses, Rowley (1997:906-907) suggests that “ . . . firms do not respond to each stakeholder individually, but instead must answer the simultaneous demands of multiple stakeholders”. Michael, Sower and Motwani (1997:104) state that “. . . quality is what the customer says it is, particularly in the case of higher education because the “product” generated by higher education is not a visible, tangible product that can be held, analysed and inspected for defects”. As a consequence the identification and knowledge of the customer is imperative in order to determine the institution’s level of success or failure in its commitment to quality. This, of course, raises the question of who are the stakeholders/customers of higher education and how do institutions identify their specific needs. In order to meet the corresponding needs of multiple stakeholders, Reavill (1998) developed a stakeholder model, based on Checkland’s (1981 cited in Reavill 1998:58) “soft systems methodology” approach using the UK higher education system. The model recognized 12 stakeholder categories, including: the student; the employer; the family and dependants of the student; universities and their employees; the suppliers of goods and services to universities; the secondary education sector; other universities; commerce and industry; the nation, the government; the taxpayer; and, professional bodies. It is argued that this model can be applied to institutions of higher education as it provides a logical framework from which to group stakeholders into interest groups as well as a holistic way of

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looking at multiple stakeholders. The application of a systems approach would assist the institution to consider all components when formulating its strategic plan (Reavill, 1998:59-60). A more recent application of stakeholder identification within higher education is that proposed by Srikanthan and Dalrymple (2003). Applying the five discrete but interrelated ways in viewing quality proposed by Harvey and Green (1993) above, Srikanthan and Dalrymple (2003) identified four main stakeholder groups within higher education. First, providers, that is the funding bodies and community at large. For this group, quality is seen as “value for money”. Second, the users of the products, that is both current and future students where quality is interpreted as “excellence” with the student body’s main concern is getting the best job they can on the completion of their studies. Third, the users of outputs are identified as the employers with the interpretation of quality seen as “fitness for purpose”. Finally, the employees of the sector, which include academics and administrators, who look for high levels of respect through remuneration and recognition. Here, the quality interpretation is one of “consistency”. However, Harvey and Green (1993) defined a fifth dimension in interpreting quality in higher education as one of “transformation”. This final dimension is considered as a meta-quality concept that subsumes the others. It is this view of quality as “transformation” of the participants that is potentially capable of addressing the concerns of all stakeholder groups (Harvey, 1998). In the delivery of a quality educational program, the issues of expectations and actual service delivery have become increasingly more important for institutions of higher education (Wright & O'Neill, 2002). Parasuraman, Zeithaml and Berry (1985) suggest that in measuring service quality, your customer’s expectations, as well as desire and perceived service quality levels should be evaluated for greater accuracy. The recognition of higher education as being a major participant and contributor to the services sector of the economy, would suggest that the measurement of service quality is not only deemed to be appropriate, but should be considered as a quality imperative. The four key stakeholders identified by Srikanthan and Dalrymple (2003) within the sector each have their own perception of quality and their own objectives and expectations. The measurement of these expectations would contribute to an institution’s understanding of customer satisfaction and service quality.

Conclusions: With the recognition of institutions of higher education as a major player within the services sector of the economy, the need to identify the stakeholders becomes paramount as each set of stakeholders bring with them different sets of values and objectives. It is vital to the success of any stakeholdermanagement relationship that institutions identify and establish relationships with their stakeholder cohort in order to provide a level of service quality that allows the institute to increase their organizational effectiveness and remain competitive. Along with this is the need for the institution to identify strategies that will meet or exceed customers’ expectations and give them, the institution, a competitive advantage in what has become a highly competitive marketplace. Given the preceding discussion, it appears that both the quality concept and stakeholder management have an integral role to play in the on-going success of institutions in higher education. The recognition of the institution’s key players, along with the identification of applicable quality processes provides the institution with an opportunity for service differentiation through meeting or exceeding their stakeholders’ expectations.

Future Research: The increasing competitiveness of the internationalized marketplace, within which higher education participates, provides a fertile landscape for future research. One of Australia’s largest universities delivers an extensive range of postgraduate business programs to an increasing number of students, both local and international. Research into the identification of the key stakeholders - students, employers, academics, administrators and government - and their expectations of service quality in the delivery of postgraduate business programs will be undertaken. The objective of this research is seen as an opportunity to shape and respond to those expectations and should provide the institution with a quality framework for future application.

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References: Ball, C. J. E. (1985). Fitness for Purpose. In D. Urwin (Ed.), Essays in Higher Education. Guilford: SRHE & NFER/Nelson. Carroll, A. B., & Buchholtz, A. (1999). Business and society: ethics and stakeholder management (4th ed.). Cincinnatti: South-Western. Crosby, P. B. (1984). Quality without tears: the art of hassle-free management. New York: A Plum Book. Cruickshank, M. (2003). Total Quality Management in the higher education sector: a literature review from an international and Australian perspective. TQM & Business Excellence, 14(10), 1159-1167. Dawson, P., & Palmer, G. (1995). Quality Management: The Theory and Practice of Implementing Change. Melbourne: Longman. Deming, W. E. (1986). Out of the Crisis. Boston: MIT Center for Advanced Engineering. Feigenbaum, A. V. (1994). Quality education and America's competitiveness. Quality Progress, 27(9), 83-84. Freeman, R. E. (1984). Strategic management: A stakeholder approach. Boston: Pitman. Garvin, D. A. (1988). Managing Quality: The Strategic and Competitive Edge. New York: Collier Macmillan. Giertz, B. (2000, 9/2000). The Quality Concept in Higher Education. Retrieved January 11, 2002, from http://www.blweb.it/esoe/tqmhe2/23.PDF Ham, L., & Hayduk, S. (2003). Gaining Competitive Advantages in Higher Education: analysing the Gap between Expectations and Perceptions of Service Quality. International Journal of ValueBased Management, 16, 223-242. Harvey, L. (1998). An assessment of past and current approaches to quality in higher education. Australian Journal of Education, 42(i3), 237(231). Harvey, L. (1999). Quality in Higher Education. Paper presented at the Swedish Quality Conference, Goteborg. Harvey, L., & Green, D. (1993). Defining Quality. Assessment and Evaluation in Higher Education, 18(1), 9-26. Ibrahim, A. (1999). Current Issues in Engineering Education Quality. Global Journal of Engineering Education, 3(3), 301-305. Jones, T. M., & Wicks, A. C. (1999). Convergent Stakeholder Theory. The Academy of Management Review,, 24(2), 206-217. Juran, J. M. (1988). Juran on Planning for Quality. New York: The Free Press. Knight, J. (2001). Monitoring the Quality and Progress of Internationalization. Journal of Studies in International Education, 5(3), 228-243. Lomas, L. (2004). Embedding quality: the challenges for higher education. Quality Assurance in Higher Education, 12(4), 157-165. Macfarlane, B., & Lomas, L. (1999). Stakeholder conceptions of quality in single company management education. Quality Assurance in Higher Education, 7(2), 77-84. Michael, R. K., Sower, V. E., & Motwani, J. (1997). A comprehensive model for implementing total quality management in higher education. Benchmarking for Quality Management & Technology, 4(2), 104-120. Mitchell, R. K., Agle, B. R., & Wood, D. J. (1997). Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts. The Academy of Management Review,, 22(4), 853-886. Owlia, M. S., & Aspinwall, E. M. (1997). TQM in higher education - a review. International Journal of Quality & Reliability Management, 14(5), 527-543.

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Parasuraman, A., Zeithaml, V. A., & Berry, L. L. (1985). A Conceptual Model of Service Quality and Its Implications for Future Research. Journal of Marketing, 49(Fall), 41-50. Pearson, C. A. L., & Chatterjee, S. R. (2004). Expectations and Values of University Students in Transition: Evidence from an Australian Classroom. Journal of Management Education, 24(4), 427-446. Reavill, L. R. P. (1998). Quality assessment, total quality management and the stakeholders in the UK higher education system. Managing Service Quality, 8(1), 55-63. Rowley, T. J. (1997). Moving Beyond Dyadic Ties: A Network Theory of Stakeholder Influences. Academy of Management Review, 22(4), 887-910. Slade, P., Harker, M., & Harker, D. (2000). Why Do They Leave, Why Do They Stay? Perceptions of Service Quality at a New University. Paper presented at the ANZMAC2000 Visionary Marketing for the 21st Century: Facing the Challenge, Griffith University, Gold Coast, Australia. Srikanthan, G., & Dalrymple, J. (2003). Developing alternative perspectives for quality in higher education. The International Journal of Educational Management, 17(3), 126-136. Vroeijenstijn, A. I. (1992). External Quality Assessment, Servant of Two Masters? In A. Craft (Ed.), Quality Assurance in Higher Education (pp. 109-133). London: Falmer Press. Wheeler, D., & Sillanpaa, M. (1997). The stakeholder corporation: a blueprint for maximizing stakeholder value. London: Pitman Publishing. Wright, C., & O'Neill, M. (2002). Service Quality Evaluation in the Higher Education Sector: An Empirical Investigation of Students' Perceptions. Higher Education Research & Development, 21(1), 23-29.

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Firm Entrepreneurial Orientation and Performance of SMEs in Malaysia: The Impact of Environmental Munificence Amran Awang [email protected] Associate Professor UiTM Perlis Campus

Zainal Ariffin Ahmad [email protected] Associate Professor USM Penang

Abstract The study proposes entrepreneurial orientation as the determinant for objective performance among SMEs in Malaysia. However, some of the relationships were not direct since some perceived environmental factors were influential to certain extent. Furthermore, the study clarified discrepancies and inconsistent findings in relationships between EO and performance and moderators influence found in other studies. The study was conducted on a sample of 210 firms in northern region of Malaysia. The analysis utilized promax rotation in factor analysis to ascertained underlying factors and 4-steps multiple hierarchical regression analysis to test the hypothesis. Post-hoc probing of split sample plotted in multiple lines graph confirmed significant interaction effects. The result proved that innovativeness is positively related to performance and risk taking is related in curvilinear. Proactiveness related to performance in the presence of high environmental munificence.

Introduction In Malaysia, Bumiputera’s SMEs were the sector that was expected to generate significant economic growth of the country (Eight Malaysia Plan, 2001), where 35% of budgeted fund for business development was allocated to this sector in year 2003 (Economic Report, 2002). However, Bumiputera’s SMEs failed to achieve the expected level of participation and performance in commercial and industrial sectors of the economy (Eight Malaysia Plan, 2001). Among the reasons for the failure were firstly, due to weaknesses in Bumiputera’s SMEs strategic framework to harmonize firm’s entrepreneurship strategy and environment in determining the performance (Hashim, 2000, 2002) and secondly, due to limited knowledge and ineffective implementation of the entrepreneurial strategies (Abdullah, 1997; Chee, 1986; Hashim, 2000, 2002; Shari & Endut, 1989). This research explored Bumiputera SMEs firm’s entrepreneurial orientation (EO) as entrepreneurship strategy of firm’s competitive advantage in determining the performance (Hitt, Ireland & Hoskisson, 2003; Miller, 1983; Miller & Friesen, 1983; Wheelen & Hunger, 2002). The dimensions of EO in this study were innovativeness, proactiveness and risk taking adopted from Khandwalla, (1977), Miller and Friesen (1982), Miller (1983), Miller and Friesen, (1978, 1983), Covin and Slevin (1986, 1989, 1991), Stevenson and Jarillo (1990), Covin and Covin, (1990), Naman and Slevin (1993), Lumpkin and Dess (1996, 1997), Wilklund (1998), and Miles, Covin and Heeley, (2000). EO was represented by a firm’s risk-taking propensity, proactive manners, and reliance on frequent and extensive product and process innovation. Studies in EO began the early eighties, and the researchers consistently believe its significant and independent effect on firm performance (Brown, 1996; Covin & Slevin, 1991; Covin, Slevin & Covin, 1990; Dess, Lumpkin & Covin, 1997; Lumpkin & Dess, 1996; Merz, Weber & Laetz, 1994; Wilklund, 1998, 1999; Zahra & Covin, 1995). However, previous findings by Zahra (1991) and Covin and Slevin (1991) found that there was only slight empirical evidence in the relationship, however, Hitt et al (2003), Lumpkin and Dess (2001), Wilklund (1999, 1998) found strong and sustainable relationship. The study also explored the impact of human capital and information technology munificence environment in the relationship (Covin & Slevin, 1991) where these variables were believed to be influential moderators (Covin & Slevin, 1991; Pfeffer & Salancik, 1978; Romanelli, 1989). Past studies proved inconsistent results in the relationship, some studies found strong relationships (Covin & Slevin, 1989; Miles, Covin & Heeley, 2000; Miller, 1983; Miller & Friesen, 1983), some studies found

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weak relationships (Covin & Covin, 1990; Dess, Lumpkin & Covin, 1997; Kreiser, 2002a, 2002b; Lumpkin & Dess, 2001; Luo, 1999) and other studies found no relationship (Brown & Kirchoff, 1997; de Koning & Brown, 2001). The main theory associated with the study was the resource based view where EO dimensions were bundle of intangible resources forming distinctive competencies that ensure sustained competitive advantage and superior performance in appropriate environment (Andrew, 1980; Barney, 1991; Conner. 1991; Grant, 1999; Mathews, 2002; Penrose, 1959; Rumelt, 1984; Wenerfelt, 1984).

Research Questions This study investigated how each EO dimension of Bumiputera SMEs owners and managers related to the performance and how perceived environmental munificence affect the relationship. Three dimensions of EO, perceived environmental munificence, and objective performance constructs were investigated. Previous research in the area of entrepreneurship found that small firm growth and performance provide great importance to managers as well as the policy maker and society at large. There is lack of concrete findings on which entrepreneurial factors influence small firm performance and how they influence the performance. This leads us to specific research questions as follows: 1. How do each firm’s EO dimension related to performance? 2. How does perceived environmental munificence of resource availability and information technology affect the relationship between each of firm’s EO dimension and performance? Main Effect of EO and Performance Relationship Each EO dimension affected firm performance differently (Kreiser, Marino, & Weaver, 2002a; Lumpkin & Dess, 1996, 1997, 2001). High innovativeness showed positive relationship with sales growth, while proactiveness was positively related to sales level, sales growth, and gross profit (Kreiser et al., 2002b). On the other hand, risk-taking produced inverted “U-shaped” curvilinear relationship with sales level and sales growth (Begley & Boyd, 1997; Kreiser et al., 2002a, 2002b; Miller & Friesen, 1982), where risk taking showed positive effect on performance measure to a certain level and beyond that level the increase in risk taking started to show negative effect (Begley & Boyd, 1987). In other study, innovative and proactive action were found not equally critical in determining firms’ success (Kreiser et al., 2002a) where innovative behaviors were critical in pursuing coherent technology strategy (Zahra, 1996), on the other hand, proactiveness was more important for firstmover firms in gaining significant advantage over competitors (Lieberman & Montgomery, 1988) and Sim and Teoh (1997, 2001) claimed proactiveness as main determinant among Malaysian firms. Entrepreneurial firms may exhibit all or some of the entrepreneurial orientation’s dimensions but they may differ in strength and direction of relationship (Lumpkin & Dess, 2001; Lyon et al., 2000). Firms that exhibit high innovativeness and proactiveness represent entrepreneurial firms (Miller, 1983; Miller & Friesen, 1982; Khandwalla, 1977). However, entrepreneurial firms’ propensity to take risk is between low to moderate level (Begley & Boyd, 1987; McClelland, 1961) and Kreiser et al (2002) proved that risk taking relates to performance in curvilinear or U-shaped, therefore, we posit: H1: Entrepreneurial orientation is significantly related to performance H1a: Innovativeness is positively related to performance H1b: Proactiveness is positively related to performance H1c: Risk taking dimension shows curvilinear relationship with performance H2: Proactiveness is the main determinant of performance Moderating Impact of Environmental Munificence on Innovativeness-Performance Relation Munificence environment tends to encourage innovativeness. Zahra (1996) found that this favorable environment acted to encourage research and development spending within firms. However, only sales growth explained innovativeness in munificence environment whereas, sales level was not significant and gross profit was negatively related (Kreiser et al., 2002a). Lumpkin (1996) claimed that availability of resources allows sufficient expenses and expertise in technological development in establishing and marketing new product, therefore, we posit: H3a: Firm’s innovativeness will be strongly associated with high performance when human capital munificence is high. H3b: Firm’s innovativeness will be strongly associated with high performance when

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information technology munificence is high. Moderating Impact of Environmental Munificence on Proactiveness-Performance Relation Munificence environment only support proactive behavior in both sales level and sales growth performance but not gross profit (Kreiser et al., 2002a). Strategic opportunities are readily available in munificent environment where proactive firms will be able to capitalize these opportunities and create competitive advantage in the market (Lieberman & Montgomery, 1988), therefore, we posit: H4a: Firm’s proactiveness will be strongly associated with high performance when human capital munificence is high. H4b: Firm’s proactiveness will be strongly associated with high performance when information technology munificence is high. Moderating Impact of Environmental Munificence on Risk Taking-Performance relation Risk taking in munificence environment showed positive relationship when Lumpkin (1996) iterated that “it is an environment that invites new entry and supports development aimed at fulfilling unmet demand.” It is also likely that excessively hostile environments discouraged firm from taking unnecessary risks (Zahra & Garvis, 2000). Other argument was that even risk taking managers would be discouraged from taking large-scale risk in extremely uncertain environment (Smart & Vertinsky, 1984). A study proposed that firms operating in munificence environments were more inclined towards propensity to take risk with ready resources and favorable environment (Smart & Vertinsky, 1984), supported in Kreiser et al (2002) who found sales level and sales growth was positively explained by risk taking. However, Kreiser et al (2002) proved otherwise when gross profit was found not significant and negatively related. Risk taking in munificent environment offered higher payoffs (Lumpkin, 1996) due to such hospitable environment with sufficient resources to compensate failures (Lumpkin & Dess, 2001), therefore, we posit: H5a: Firm’s risk taking will be strongly associated with high performance when human capital munificence is high. H5b: Firm’s risk taking will be strongly associated with high performance when information technology munificence is high.

Methodology Sampling Frame and respondent The sampling technique used in this research was stratified random sampling when 1500 firms were selected proportionately according to each state's population. Ten percent were from Perlis, forty percent from Kedah and fifty percent Penang. Total of 610 firms were randomly selected. The owner or top management personnel represent the respondents were the most knowledgeable person in providing the information. The study used mail survey method in data collection procedure to overcome social desirability bias (Ones, Reiss, & Viswesvaran, 1996). The selected firms were contacted through mail where each firm was provided with three sets of questionnaires and a stamped envelope for returned questionnaires. Research Instrument The entrepreneurial orientation measures were adopted from Miller and Friesen (1982), Khandwalla (1976/77) and Covin and Covin (1990) with a total of 18-item seven-point scale ranging from 1 (Strongly Agree) to 7 (Strongly Disagree). Environmental munificence adopted from Schultz, Slevin and Covin (1995) four-item, seven-point scale. Demographic information of firm’s size and industry type were used as control variables and dummy coded in the analysis. Other information was used to describe the respondent and firm characteristics. Performance was measured by quantitative data obtained from the actual outcome in return on sales (ROS), return on assets (ROA), and return on investment (ROI). The performance was collected within 3-year period (2000 – 2002) to avoid short-term effect. Quantitative data was averaged to represent firm’s performance index (FPI).

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Hypothesis Testing The hypothesis testing level of acceptance or rejection were at p < .01, .05 and .10 in the equation and beta coefficient value produced by multiple hierarchical regression analysis (MHRA) (Cooper & Schindler, 2001; Hair et al., 1998, Miller & Friesen, 1982). In assumption of linearity, normality and homoscedasticity, each EO in relation to performance measure showed the point randomly distributed about the horizontal straight line in scatterplot and PP plot. No serious deviations from those assumptions were detected. The independence of error used the Durbin Watson (DW) analysis for dependent variable in this study was 1.8 within range of 1.5 to 2.7 suggesting the data is free from serious error. In detecting and removing influential cases and outliers, standardized residuals (ZRESID) and Cook’s distance (COOK D) were produced according to SPSS statistical data analysis procedure (Norusis, 1993). In the fifth stage of MHRA, 119 samples were useable after deletion of outliers with residuals of COOK D value more than .02030. Independent and moderator were first standardized to avoid high multicollinearity according to Cohen et al (2003). The result of multi-collinearity indicated that the values of tolerance and variance inflation factor (VIF) fall within acceptable range (tolerance 0.30 to 0.93 and VIF 1.10 to 3.30). Interaction of moderators was not determined through post hoc probing where split sample plotted on multiple line graphs were used to ascertain the acceptance or rejection of the hypothesis (Howell, Dorfman & Kerr, 1986; Saks, 1995; Sharma et al., 1981). Interaction post-hoc probing was operationalized as suggested by Aiken and West (1991) and Cohen et al (2003) to confirm the position of curve’s simple slope of each split moderators. Data analysis and Findings Response Rate and Non-Response Bias

There were 610 questionnaires sent through mail to firms in Perlis, Kedah and Penang and 232 were returned but only 210 were usable. The response rate is 38%. Eleven firms returned incomplete questionnaires and eleven firms have moved from registered addresses. The non-response bias test used independent sample t test to detect any significant different between early and late responses. The test showed negligible significant differences between the early and the late responses. Respondent and Firm Profile

The unit of analysis was firms represented by the owner and senior managers. Respondent’s level of education was represented by 2.3% in primary, 37.7% secondary, 36% diploma, 18.8% first degree, 5% masters degree, and .2% PhD. Respondents’ gender were 61.1% male and 38.9% female. The age profile was 1.7% below 20 years old, 38.7% between 20 to 29 years old, 30.8% between 30 to 39 years old, 21.2% between 40 to 49 years old, 6% between 50 to 60 years old and 1.7% more than 60 years old. Firm profile was described in industry categories represented by 55.9% in manufacturing, 24.2% in services, and 19.9% in mixed category. Business form was represented by 37.9 % sole proprietorship, 19.3% partnership, 40.4% private limited companies, and 2.5% limited companies. Number of employees was 88.2% of firms with less than 30 employees, 6.2% between 30 to 59 employees, 1.2% between 60 to 99 employees, 2.5% between 100 to 149 employees and 1.8% were firms with 150 and more employees. Goodness of Measures

Factor analysis and reliability are used to ascertain the goodness of measures of firm’s entrepreneurial orientation dimensions, and perceived environmental munificence in the study. Principal component analysis with promax rotation and Kaiser normalization was used. Anti-image measure of sampling adequacy (MSA) among all item selected are more than .50 with eigenvalue more than 1 and the total variance explained the loaded factors more than 50%. Firm’s Entrepreneurial Orientation

There were 18 items used to measure three EO dimensions, where 3 items were recoded. Nine items were retained with MSA anti-image value above .50 and 9 items were exclude to increased the Kaiser-Meyer-Olkin measures of sampling adequacy (KMO) to .65 with chi-square for Bartlett’s test of sphericity of 249.71 at 36 degree of freedom significant at .000. Three factors were extracted with eigenvalue of more than 1 and explained by 54.7% of the variance. Summated significant factor loadings for each dimension showed reliability of more than .50.

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Table 1 is about here Environmental Munificence

There were 10 items used to measure the dimensions of perceived environment. Nine items were retained after one of them failed to achieve more than .50 anti-image MSA. These 9 items were loaded in two factors of human capital munificence, and information technology munificence. The KMO was .80 with chi-square of Bartlett’s test of sphericity 678.89, degree of freedom 120 significant at .000. The variance was explained by 58.67% with extracted factors eigenvalue of more than 1. All three environmental condition dimensions showed reliability of more than .80. Table 2 is about here Firm Performance

Firm performance was represented by objective performance computed into return on sales (ROS), return on assets (ROA), and return on investment (ROI). These index were derived from calculation as follows: ROS = Net profit/Total sales; ROA = Net Profit/Total Assets; and ROI = Net Profit/Total Capital Invested. Correlation Between Variables

The correlation analysis elaborated mean, standard deviation, reliabilities and relationship between variables in the study. Pearson correlation was used to examine the correlation coefficient among the variables. Proactiveness in entrepreneurial orientation dimension showed positive relation to overall firm performance at p < .01. Environmental munificence of IT showed negative relation to performance at p < .05. Human capital correlate positively to proactiveness and risk taking at p < .01, and IT munificent also correlate positively to both EO dimensions at p < .05. Table 3 is about here Multiple Hierarchical Regression Analysis (MHRA)

Four-step analysis was used in MHRA, first step seen significant equation of control variables model in explaining performance at 6% of the variance showed by adjusted R2. Second step detected significant equation of main effect EO variables model in determining performance at 18% of the variance in adjusted R2. Third step scanned significant moderators’ model at 30% of the variance showed in adjusted R2. And fourth step determined significant effect of interactions of moderators on each EO-performance relations at 42% of the variance showed in adjusted R2. Table 4 is about here

Service and manufacturing industry showed significant positive beta coefficient at p < .01 in model 1, the main effect of innovativeness showed positive beta coefficient at p < .01 and risk taking showed negative beta coefficient at p < .05, both moderators showed beta coefficient significant at p < .01, human capital showed positive relation to performance and IT munificence showed negative relation. Interaction effect of both moderators on proactiveness-performance relation showed significant positive beta coefficient at p < .01. Curvilinear effect of risk taking-performance relation was ascertained when curve estimation analysis showed highest R2 explained by 13% of the variance in quadratic relation and 16% in cubic relation. Table 5 is about here Interaction Post Hoc Probing

The impact of human capital and information technology munificence on proactiveness-performance relationship was positive, post hoc probing proved that in high human capital and IT munificence environment, proactiveness was more related to higher performance.

Discussion and conclusion The study supported four hypotheses, H1a, H1c, H4a and H4b. The main effect hypotheses proved significant relation of innovativeness and risk taking and performance. Moderating impact showed

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significant interaction effect of human capital and information technology munificence on proactiveness-performance relationship. The finding strongly supported the resource-based view when the main effect of EO and moderating effect of environment showed significant changes in the relationship. Innovativeness and risk taking direct impact on performance supported studies in EO-performance relationship (Covin & Slevin, 1989; Begley & Boyd, 1987; Khandwalla, 1977; Kresier et al., 2002; Lumpkin & Dess, 1996, 1997, 2001; Miller & Friesen, 1982; Miller, 1983; Wilklund, 1998; Zahra, 1995). Innovativeness was positively related to performance strengthened previous studies that firms employing innovative behavior ensure higher firm performance. Similarly, risk taking that showed negative relation to performance was actually possessing “U”-shaped curvilinear relationship suggesting moderate level risk takers were outperformed by firms taking either very low or very high risk. Moderating impact of human capital and information technology munificence on EO-performance relationship were crucial for proactive firm in achieving superior performance. The finding supported Kreiser et al (2002) and redefined Brown and Kirchoff (1997) and de Koning and Brown (2001) that environmental munificence is conducive to EO or part of EO in predicting higher performance. Therefore, SMEs should invest in developing their human resources to capitalize on more firms’ proactive behavior. The study reconfirms that independent effect of each EO dimension on performance contributes more in-depth knowledge in the differential relationship of innovativeness, proactiveness and risk taking with objective performance. Thus, EO antecedents such as culture and mediator variables such as quick response need to be investigated further. Moderating effect is also crucial in neutralizing or enhancing independent effect of each EO dimension in predicting performance. Thus, other internal and external environmental factors shall be included into EO-Performance relationship studies. Finally, each EO dimension explains the performance differently, thus, entrepreneurs should develop more innovative behavior and take either very high or very low risk. Moreover, present environmental munificence in Malaysia justifies more proactive behavior as the best predictor of higher performance in Malaysian SMEs.

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Table 1 Factor Analysis of Firm’s EO

Component Items 1

2

3

Communalitie s

Our firm explore bravely and open minded to achieve .17 .26 .61 .78 goal Our firm lean highly on projects that require large .21 .03 .62 .74 amount of investment Our firm practice “wait and see” position to minimize .24 .07 .60 .60 risk ® Our firm is the first to introduce new product .14 .15 .55 .80 Our firm initiate actions to which competitors then .32 .25 .64 .73 respond Our firm always respond to unrelated opportunities .17 .18 .38 .56 Our firm ignores innovation in the business .14 .24 .57 .78 Our firm emphasizes on utilizing new technology .20 .09 .64 .76 The last 5 years our firm produce big change in its -.23 .43 .32 .65 product Eigenvalue 2.44 1.41 1.08 % of variance 27.10 15.66 11.99 Cum. % of variance 27.10 42.76 54.75 Kaiser-Meyer-Olkin Measure of Sampling Adequacy .65 Bartlett's Test of Sphericity Approx. Chi-Square 249.71 Df 36 Sig. .000 Extraction Method: Principal Component Analysis. Rotation Method: Promax with Kaiser Normalization, ® = Recoded item. Table 2 Factor Analysis of Environmental Munificence

Component 1 2 .43 .81 .27 .76 .33 .75 -.04 .71 .25 .70 .31 .63 .26 .93 .36 .90 3.56 1.43 44.53 17.87 44.53 62.41

Items

Communalities

Availability of expertise in core business .49 Availability of business opportunities .59 Availability of managerial talent .57 Availability of material supplies .57 Availability of local skilled labor .81 Availability of in-house training .87 Availability of information technology expertise .41 Availability of information technology equipment .68 Eigen value % of variance Cum. % of variance Kaiser-Meyer-Olkin Measure of Sampling adequacy .78 Bartlett's Test of Sphericity Approx. Chi-Square 604.51 Df 28 Sig. .000 Extraction Method: Principal Component Analysis. Rotation Method: Promax with Kaiser Normalization.

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Table 3 Correlation Analysis

1. Firm Performance 2. Service industrya 3. Manufacturingb 4. Firm sizec 5. Innovativeness 6. Proactiveness 7. Risk taking 8. Human capital 9. Information technology Mean Standard Deviation

1 nc .11 .10 .08 .36** .18 -.10

2

3

4

5

6

7

8

9

nc -.75** .21* .02 -.09 -.17

nc -.05 .10 .17 .15

nc .09 .05 .01

(0.55) .33** (0.57) .16 .46** (0.53)

.17

-.01

.07

.11

.32

.32**

.44**

(0.80 )

-.24*

.12

-.14

-.06

.14

.23*

.21*

.43**

(0.84)

nc nc

nc nc

nc nc

nc nc

5.66 .98

4.37 1.27

4.98 1.16

5.09 1.01

4.68 1.59

Cronbach alpha is on the diagonal in the parentheses. nc = alpha, mean and SD not computed for objective measure and dummy variables. * p < .05. **p < .01. adummy coded 1 = service, 0 = manufacturing, 0 = mixed. bdummy coded 1 = manufacturing, 0 = service, 0 = mixed. cdummy coded 1 = 50 employees or less, 0 = more than 50 employees. Table 4 Multiple Hierarchical Regression Analysis

Variables Control variables Service Manufacturing Firm Size Independent variables (Main effect) Innovativeness Proactiveness Risk Taking Moderator variables Human capital munificence Information technology munificence Interactions Human capital munificence Innovativeness Proactiveness Risk taking Information technology munificence Innovativeness Proactiveness Risk taking R2 Adjusted R2 Change in R2 F-value

Step 1 0.40*** 0.40*** 0.16

Step 2

Step 3

Step 4

0.30** 0.30** 0.00

0.31** 0.23* -0.06

-0.25* -0.20* -0.05

0.31*** 0.15 -0.21**

0.27*** 0.20** -0.26***

0.34*** 0.22*** -0.38***

0.29*** -0.40***

0.19* -0.27**

0.05 0.41*** -0.16

0.08 0.06 0.08 3.48**

0.22 0.18 0.14 6.48***

0.35 0.30 0.13 11.28***

-0.12 0.45*** -0.13 0.49 0.42 0.14 4.76***

Note. Coefficient was extracted from standardized Beta. *p < 0.10. ** p < 0.05. *** p < 0.01;

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Table 5 Curve Estimation Analysis on Risk Taking-Performance Relation

__________________________________________________________________ DV Mth R2 d.f. F Sig.f b0 b1 b2 b3 __________________________________________________________________ FPI LIN .039 125 5.12 .025 30.7476 -3.7907 FPI QUA .133 124 9.50 .000 26.3630 -3.7112 4.4469 FPI CUB .155 123 7.51 .000 27.5906 1.3469 3.2489 -1.8715 __________________________________________________________________ Note. Independent : Risk Taking. LIN = Linear relation. QUA= Quadratic relation. CUB = Cubic relation.

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The Precursors and Impacts of Governance Mechanisms in Advanced Manufacturing Technology Implementation: A Conceptual Framework Azmawani Abd Rahman [email protected] University Putra Malaysia, Malaysia

David Bennett [email protected] Aston Business School, Birmingham, UK

Abstract The study described in this paper is concerned with the implementation of Advanced Manufacturing Technology (AMT) and its impact on product quality, and also how the choice of governance arrangement in acquiring the AMT innovation impacts on the depth of supplier relations, which then impacts on the performance of a particular AMT. Two central questions underlying this research are whether the main factors considered in choosing the mode of governance in the transfer of AMT impact on the depth of supplier relations and whether the chosen mode of governance impacts on AMT performance, most specifically on product quality. The ongoing research investigation is being conducted in Malaysian manufacturing industries that are highly engineering intensive and focus on designing new products and processes. The data are being gathered from companies that have been involved in acquiring advanced manufacturing technology for at least the past 3 years. As well as bridging the gap in this area the study also aims to contribute to the literature on advanced manufacturing technology implementation and buyer-supplier relationships as well as extending previous research on quality performance. The study also seeks to provide a better understanding of how knowledge is enhanced through a strong relationship with the technology supplier, which leads to better AMT performance. The findings will provide insights into the inter-linkages between quality, innovation, and knowledge in the transfer of advanced manufacturing technology to a developing country.

Introduction Programmes such as total quality management (TQM), statistical process control (SPC), zero defects (ZD), “kaizen” and total productive maintenance (TPM), as well as the ISO 9000 series of standards, are among the methods used to improve quality. In fact, the issue of quality improvement continues to receive research attention and achieving the highest quality has become an important goal for most manufacturing companies. Advanced manufacturing technology (AMT) has been viewed as a powerful competitive weapon because this type of technology has the potential to improve product quality and manufacturing flexibility (Beaumont et al. 2002; Efstathiades et al. 1999). Consequently, firms that adopt AMT in their manufacturing operations have grown significantly during the past decade. Malaysian companies have also recognized quite well the importance of advanced manufacturing technologies in enhancing their competitiveness. However, despite the claims that attractive benefits, especially in terms of product quality and manufacturing flexibility, can accrue through the use of AMT in manufacturing firms, installation of AMT innovation does not guarantee that a firm will reap all the potential benefits (Chung 1996; Small and Yasin 1997a; Voss 1988) . In the context of developing countries, where the local technological capabilities are relatively low, the problems of not fully realising the benefits of AMT implementation are even more apparent. A closer relationship with technology suppliers can enhance implementation capabilities though knowledge sharing. Previous studies also indicate that such closer relationships lead to successful AMT implementation (Sohal and Singh 1992; Zairi 1992b) .

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Motivation for the Research The motivation for the research emerged from the fact that there have been very few studies on advanced manufacturing technology in Malaysia despite the wide use of this type of technological innovation in Malaysian manufacturing industry. A review of the literature in this area revealed that, despite the crucial role of technology suppliers in AMT implementation, little research has been specifically conducted in relation to this issue. Studies by Youssef and Zairi (1996) and Zairi (1992b) offer insightful, but limited, understandings about how firms with different levels of AMT complexity develop relationships with technology suppliers, and generally how closer relationships resulted in AMT better performance. To date, most of the empirical results on the effect of technology user and supplier relationships in AMT implementation have been supported by case studies (Sohal and Singh 1992; Zairi 1992a; Zairi 1992b; Zairi 1998) . However, its support from survey research is rather limited. The issue of governance mode and technology has also been researched, with the focus being on the supplier or developer perspectives rather than the buyer perspective, on outsourcing decisions, and on technology development issues (see Table 1). Even though the appropriate choice of corporate governance mechanisms for inter-organizational relationships is critical to firm performance (Masten 1993), no studies or model explain how the chosen governance structure impacts the performance of a particular technology. Also, despite the claim that internalized modes of governance lead to the transfer of a much broader range of information and skills than licensed transactions (Davies 1992), an unknown and unexplored area is the understanding of how buyer and supplier relationships affecting the transfer of information and skills which then impact on the performance, especially for advanced manufacturing. This paper examines the connection between AMT implementation, technical knowledge acquired from buyer and supplier relationships and their impact on performance. It also explores issues associated with the mechanism of governance in AMT implementation. Thus, the five important objectives of the research are: 1. To identify factors that influence the choice of governance mode in acquiring advanced manufacturing technology from a developed to developing country. 2. To understand how the chosen mode of governance affects the strength of technology user and supplier relationship. 3. To seek a link between technology user and supplier relationships and the level of technical knowledge acquired from the chosen governance mode. 4. To seek a link between level of technical knowledge acquired and AMT performance through the technology user and supplier relationship. 5. To provide a framework and make recommendations for Malaysian firms in structuring their governance choice when acquiring technology from a developed country.

Literature Review Advanced Manufacturing Technology (AMT) AMT is defined as a group of computer-based technologies, including computer-aided design (CAD), robotics, group technology (GT), flexible manufacturing systems (FMS), automated materials handling systems (AMHS), computer numerically controlled (CNC) machine tools, and bar-coding or other automated identification techniques (Zairi 1992a; Zammuto and O'Connor 1992). AMT has generated a great deal of interest and been widely researched from various aspects. Examples include research on addressing the factors determining success or failure in the acquisition and implementation of AMT (Sohal and Singh 1992; Voss 1988), on benefits associated with AMT (Beaumont et al. 2002; Efstathiades et al. 2002; Efstathiades et al. 1999; Kotha and Swamidass 2000), and on planning associated with its implementation (Efstathiades et al. 2002; Millen and Sohal 1998; Small and Yasin 1997b; Sohal 1997)

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Governance Structure Governance structure denotes the organizational form in which a transaction takes place (Phan and Sommer 1999). If the firm performs the task within its boundaries through bureaucratic control and coordination, the governance structure being used is a “hierarchy”. If the task is performed outside the firm through market coordination and outsourcing, the governance structure is the “market”. If the task is performed jointly by economic units within the boundaries of the firm and economic units outside it, the governance structure is a “hybrid” (Williamson 1991). Transaction cost theory (or economics), is one of the dominant theoretical frameworks employed in the literature to model variations in governance structure (Bello et al. 1997). Transaction cost theory relies on three key dimensions in describing the transaction; the condition of asset specificity required to support the transaction, the degree and type of uncertainty surrounding the transaction, and the frequency of the transaction. Asset specificity refers to the degree to which an asset can be redeployed to alternative uses and by alternative users without sacrificing productive value. The main relationship between these three attributes and the transaction cost is that as asset specificity, degree of uncertainty, and frequency of transaction increase, transaction cost also increases. All three dimensions have a heavy impact on the choice of governance structure (market, hybrid or hierarchy) (Williamson, 1975; 1991). When examining governance options, past studies have also used the single theoretical perspective of transaction cost (see Table 1). As we can see from the table (marked with bold italic font), only one identified study has focused from the recipient firm perspectives on the choice of governance in acquiring the technology. However, that study was conducted under an organizational learning perspective and its impact on performance was not investigated. Author

Issue

(Robertson and Gatignon 1998) (Pisano 1990)

Technology development Outsourcing Decision Acquiring technology Outsourcing decision

(Moon 1998) (Rasheed and Geiger 2001) (Steensma and Fairbank 1999) (Davies 1992)

Classification of governance structure under investigation

Sourcing technological know-how Choice of technology transfer

Unit of analysis

Market -

Hybrid Alliances

Contracting

-

-

Joint Venture

Hierarchy Internal R&D development Internal development Acquisition

External contractor

Intermediaries

-

Outsourcing firm

Licensing

Joint development

Acquisition

Outsourcing Firm

Licensing

Internalized

Theoretical perspective

Supplier firm

Transaction cost

Outsourcing firm Recipient firm

Transaction cost

Transferor Firm

Organizational learning Transaction cost and resourcebased view Behavioural and resource-based view Transaction cost

Table 1: Previous studies on choices of governance mode

Based on a compilation of past research Figure 1 shows the types of governance mode along the continuum of governance structure in transaction cost economic theory. In this study, governance structure is defined as the type of arrangement adopted by a firm in receiving the AMT innovation. Following the three governance alternatives by Williamson (1991), this study investigates governance choice across three discrete modes; namely market, hybrid, and hierarchies. According to Dyer (1997), as asset specificity increases a more complex governance structure is required. This means that more complex contracts are necessary to administer the transaction process. In this study, the governance form is regarded as being more complex as it moves towards the hierarchical form along the continuum.

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LESS COMPLEX

- Licensing - Unilateral market contracting

MORE COMPLEX

- Joint development - Contractual arrangement - Technology sharing agreement - Non-equity strategic alliance

- Acquisition - Equity alliance

Figure 1: Governance arrangement along ‘market-hierarchy’ continuum

The Relationship between Governance Structure and Buyer-supplier Relationship Transaction cost theory is also one of the most influential theories on managing supplier relationships (Ellegaard et al. 2003). From a review of the literature, it can be seen that many studies examine buyer and supplier relationships using the transaction cost economics lens (Dyer 1997). Indeed, many scholars also study the supplier and user relationship within a single governance structure such as inter-firm knowledge transfer in strategic alliances (Mowery et al. 1996) and understanding the costs and benefits under short-term market-based contracting (Nordberg et al. 1996). Dyer (1997) found that the competitive advantage achieved by Japanese firms is partly due to systematic differences in value chain governance. Japanese firms, which compared to U.S. firms rely more on hybrid forms of governance, achieve greater competitive advantage. He claims that such advantage is achieved through more close and trusting supplier relationships along the governance chain. This means that a different mode of governance creates different effects on the pattern of supplier relationship and these differences consequently impact on performance. Despite the close connection between the governance mode and supplier relationship, limited research has been done to improve the understanding of such relationships. Most research on governance mode choice has not investigated how the chosen mode of governance affects buyer and supplier relationship. Based on this observation, the current study seeks to understand how the chosen mode of governance impacts on the buyer and supplier relationship.

Development of Hypotheses and Testing Procedures Factors Affecting the Choice of Governance Mode In determining factors affecting the choice of governance structure in receiving the particular AMT innovation, this study utilizes the perspective of transaction cost theory to hypothesize how the level of asset specificity, level of uncertainty, and frequency of transaction influence the choice of governance mode. This perspective was chosen because it has provided a dominant explanation in research on governance mode choice (Masten 1993; Moon 1998). Level of asset specificity

Transaction cost economics theorists have long argued that governance structures are necessary due to the ‘opportunism’ problem when transactors make specialized investments (Klein et al. 1978). Transaction specific assets involve investments in human and physical capital that cannot be redeployed without losing productive value (Robertson and Gatignon 1998). In the context of AMT implementation, the more complex is the technology, the more tacit is the knowledge and specific expertise that will be required for the implementation process. The main relationship between transaction costs and asset specificity is that as asset specificity increases, transaction costs also increase, thus hybrid relational contracting becomes more optimal for transactions until high asset specificity results in internalization (Nordberg et al. 1996). The probability for individuals engaging in the transaction to behave opportunistically increases as investments in specific assets increase (Hill 1990). The party making significant investment in transactionspecific assets is placed at risk of exploitation by the other party as a consequence of the latter’s opportunistic behaviour. Accordingly, the transaction costs incurred in establishing safeguarding

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mechanisms for such market transactions can exceed the bureaucratic costs of internal organization, which then lead to a change in governance structure from market to hierarchy (Chiles and McMackin 1996). Thus, a hypothesis that can be developed to be tested in the Malaysian context is: H1:

The higher the level of asset specificity, the more likely that a firm will pursue a complex governance arrangement in acquiring the technology.

Level of uncertainty

Uncertainty in this study refers to any disturbance related to the transaction that is not definitely or precisely known. Studies by Klein et al. (1990) indicated a positive relationship between technological uncertainty and R&D alliances. They claim that alliances are viewed as a more flexible mechanism to adapt changes in technology and to facilitate the transfer of knowledge between firms. In the context of AMT implementation, the more complex the technology, the more is the perceived degree of uncertainty surrounding the transaction (for example, the uncertainty on whether the technology will work as expected, or will fit the current manufacturing outlay). Drawing from transaction cost reasoning, another hypothesis that can be developed to be tested in the Malaysian context is: H2a: The higher the level of technological uncertainty, the more likely that a firm will pursue a complex governance arrangement in receiving the technology. According to Robertson and Gatignon (1998), behavioural uncertainty is concerned with the difficulty of observing and measuring the adherence of the transacting parties to the contractual arrangements and the difficulty of measuring the performance of these parties. Firms with experience in technological alliances have learned the intricacies of dealing with partners in that context. Such learning decreases the uncertainties associated with managing an alliance and, therefore, increase the likelihood of using an alliance. In the context of AMT implementation, behavioural aspects of uncertainty will be accessed through the firm’s prior experience in implementing similar types of technological innovation and the complexity of the technology. The more complex the technology, and less experience firms have in handling similar type of technological innovation, the more uncertainty surrounding the transaction. Thus, a further hypothesis that can be developed to be tested in the Malaysian context is: H2b: The higher the level of behavioural uncertainty, the more likely that a firm will pursue a complex governance arrangement in receiving the technology. Transaction Frequency

Jones (1987) claims that transaction frequency refers to how often organization-client transactions occur. The more frequent the exchange between a client and an organization, the lower the uncertainty and cost of transactions. This is because when exchange is frequent, the parties become used to dealing with one another and rely on past experience (Williamson 1975). As a result, opportunism is unlikely to be a major concern. However, the more infrequent the exchange, the higher the level of transaction costs because clients’ demands are unpredictable and the costs of negotiating and policing are consequently high. Thus, the related hypothesis that can be developed to be tested in the Malaysian context is: H3:

The greater the transaction frequency, the more likely that a firm will pursue a complex governance arrangement in receiving the technology.

The Relationships between Governance Arrangement, User-supplier Relationship, and Knowledge acquired. Scholars like Davies (1992), Nordberg et al.(1996) and Mowery et al. (1996) have talked about the learning effect or knowledge transferred within a chosen mode of governance. Studies by Davies (1992) found that internalized transfer of technology was shown to involved different areas of expertise, to have different objectives and to provide different packages of assistance from licensing agreements. Indeed, the hybrid mode has advantages over conventional contracts or markets because hybrid modes, such as alliances, aid firms to harness the capabilities and the dynamism to do things that would otherwise be hard to do alone. Hagedoorn (1993) claims that firms engaging in alliances increase their ability to

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capture the partner’s knowledge of technology. Different degrees of knowledge acquisition between each governance mode suggest that each type has different degrees of interaction between the technology acquirer and supplier. Thus, two other hypotheses that can be developed to be tested in the Malaysian context are: H4:

A complex governance arrangement will generate stronger user-supplier relationship than a simple governance arrangement.

H5:

Governance arrangements that create stronger user and supplier relationships will generate greater technical knowledge than arrangements that create weak user and supplier relationships.

The Relationships between the Strength of User-supplier Relationship and AMT Performance Closer relationships enable buyers to depend on suppliers effectively meeting their needs. The key stages of help and support includes: the ability to help users to develop skills in relation to the innovation concerned; giving solutions to technical bottlenecks; facilitation of the implementation process; and postimplementation back up and continued support (Youssef and Zairi 1996). Previous studies also indicated that closer relationships with suppliers lead to successful AMT implementation (Chen and Small 1995; Sohal and Singh 1992); (Zairi 1992b). Furthermore, closer relationships can safeguard the transaction from bounded rationality and opportunism (Williamson, 1975; 1991). Thus it is reasonable to expect that a strong relationship with suppliers also increases the performance of the AMT itself. The related hypothesis that can be developed to be tested in the Malaysian context is: H6:

The strength of relationship between technology user and supplier is positively related to AMT performance.

The Relationships between level of Knowledge Acquired and AMT Performance In the context of international joint ventures, scholars like Hagedoorn and Schakenraad (1994) and Lyles and Salk (1996) have long studied the relationship between level of knowledge acquired and the level of firm performance. Lyles and Salk (1996) claim that knowledge transferred from the parent firms can be utilised to create and augment the competitive capability of the partner firms. They found that the greater the level of knowledge acquired, the higher the firms’ performance. In the context of AMT implementation, knowledge acquired can be viewed in terms of technical knowledge acquired from the supplier to the acquirer of the AMT innovation. Thus, the last hypotheses that can be developed to test the level of technical knowledge acquire and AMT performance in the Malaysian context is: H7:

The level of technical knowledge acquired is positively related to AMT performance.

To summarize the variables involved in the present study and demonstrate their connection with each other a framework has been developed to investigate the relationships between the variables (see Figure 2). The model envisages that the choice of governance mode made by firms is influenced by the level of asset specificity, level of uncertainty and frequency of interaction of the particular AMT innovation. The chosen mode of governance used by firms then impacts on the buyer and supplier relationship. Different patterns of buyer and supplier relationship result in different levels of technical knowledge acquired by the recipient firm. These differences then impact on the performance of a particular AMT innovation. The performance of the particular AMT innovation will be evaluated using firms’ self-assessments of changes in manufacturing performance since the adoption of AMT. This approach is chosen because in order to see whether the AMT is performing, improvement over the past performance can be viewed as an indicator. The performance measure, targeted at the heart of manufacturing operation, will include the improvement of quality performance

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Asset specificity

Level of uncertainty

Transaction Frequency

H1, H2, H3 Multiple Linear Regression Analysis CHOICE OF GOVERNANCE MODE (Market, Networked, Hierarchies) H4 Correlation Analysis Supplier Relationship Depth H5 Correlation Analysis H6 Correlation Analysis

Level of Technical Knowledge acquired H7 Correlation Analysis AMT PERFORMANCE - The achievement of technical success - Increased output - Increased efficiency - Increased flexibility - Increased quality

Figure 2: Framework to investigate relationships between variables (H = hypothesis)

In the empirical study the data analysis is as follows: Stage 1 - multiple linear regressions are being used to identify the relationship between factors affecting the choice of governance mode in AMT implementation. This is because the method has been widely used to identify the expected relationship of the dependent variables with the multiple independent variables; Stage 2 - Pearson correlation is being used to identify the relationship between variables under investigation and to test the hypotheses; Stage 3 - to seek a linkage between the levels of technical knowledge acquired and AMT performance through the technology user and supplier relationship, a test of the mediation effect is being conducted by using simple and multiple regression analysis; Stage 4 - also, wherever applicable, one-way analysis of variance (ANOVA) or t-test is being used to compare the differences between groups in the study (for example, between foreign and local companies or between complex or less complex technologies).

Data Collection Methodology A survey methodology has been developed to gather data and test the research hypotheses. The survey instrument was developed based on an extensive review of the literature. The review examined literature in the areas of advanced manufacturing technology, transaction cost economics theory, and buyer/supplier relationships. Based on the suggestions of some managers with experience in implementing AMT in their firm more proxy questions were added to each construct that was originally identified from the literature. These proxy questions were more specific to the AMT implementation issues. Preliminary drafts of the questionnaire were discussed with academic colleagues to identify any ambiguities and assess their content validity and reliability. A pre-test with five companies was executed to enhance the content validity prior to pilot testing. This pre-test was conducted by a self-administered survey and open-ended interview sessions with the managers in charge of the technology implementation. The population of the survey was the emerging and dynamic Malaysian manufacturing sectors that have acquired advanced manufacturing technology during the past five years. These sectors were selected because they are engineering intensive and focus on designing new products and processes. The sample

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was drawn from the Federation of Malaysian Manufacturers (FMM) directory of 2003. The directory is an official authoritative publication in Malaysia. Since not all companies listed in the FMM directory have made an investment in AMT, a total of 1823 companies were contacted by electronic mail or/and telephone to establish whether they have been involved in acquiring advanced manufacturing technology during the past 5 years. Of these 1823 companies, 528 claimed that they have made an investment in advanced manufacturing technology over the specified period. A pilot study was conducted using a representative sample of 100 companies from among the target group. The instrument was given to managers in these pilot companies who responsible for technology implementation. Telephone calls and direct visits to the companies were undertaken to speed up the process. Altogether 32 responses were obtained from the pilot study and were used to refine the instrument and verify its reliability and clarity as well as its construct and predictive validity. The instrument was refined by examining the corrected-item total correlations (CITC). Items with CICT of less than 0.5 were excluded. The item inter-correlation matrices provided by SPSS analysis were also use to exclude items if they did not strongly contribute to Cronbach’s alpha for the dimension under consideration. After making some minor modifications to the survey instrument, the final version of the questionnaire was mailed to a remaining 428 companies. Telephone calls and direct visits to the companies were made as a follow up procedure. The questionnaire developed for this study consisted of six sections. Section A included questions pertaining to the demographic data which were necessary to establish the credentials of the respondents. These data also served to check that the samples were representative. Section B consisted of questions seeking information on the production technology of the samples. Section C consisted of questions assessing the governance mode, which refers to the arrangement between the user firm and the provider firms in acquiring the technology. Section D consisted of questions measuring the transaction attributes of the firm, namely level of complexity, level of asset specificity, and level of uncertainty. Section E contained questions for measuring the technology user and the technology provider relationship, which included elements on the level of knowledge acquired. Finally, Section F measured AMT performance which consisted of manufacturing performance and implementation performance. At the time of writing this paper the data from the survey had started to be obtained and preliminary analyses were being carried out. The initial results from the survey will be reported later.

Contribution of the Research As noted before, a study on the choice of governance structure can be accomplished from various theoretical approaches. This study however, roots its reasoning based in transaction cost economics. Unlike most previous studies, which use the theory to explain paradigmatic ‘make-or-buy’ decisions, this research studies the interaction of technology suppliers and users under the chosen governance structure. Thus, one of the contributions of the research is to theoretically extend the use of transaction cost theory beyond its paradigmatic research questions and to provide empirical evidence in analyzing technology user and supplier relationships in AMT implementation. The contributions of this study are in terms of knowledge and developing theory regarding ways in which knowledge is acquired and how the strength of user and supplier relationship can affect the level of acquired knowledge. The result will also add to the literature on knowledge and performance since both issues are being studied. The rather limited literature, particularly on the governance mechanism in advanced manufacturing technology implementation, can be expanded from the findings of this research. As the study is being conducted in Malaysia, the results may be generalised to South East Asia or even the Asian region. Finally, apart from bridging the gap in this area, the study also contributes to the literature on advanced manufacturing technology transfer, buyer-supplier relationships, knowledge acquisition, and extending prior research on organisational performance.

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A Social Network Perspective on Knowledge Management Marloes Bakker [email protected]

Jan Kratzer University of Groningen School of Management and Organization

Abstract As previous research shows, knowledge creation is based on the distribution of knowledge within a social context. As we argue, the configuration of the individual social context affects the creation knowledge. The individual social context can be seen as the structure of the individual communication networks in terms of connections to whom, how, and how strong. The configuration of the individual social context, therefore, can be described by the communicational multiplexity of individual network relations, the multifunctionality of individual network relations (people with different backgrounds), the multiinstitutionality of individual network relations (people from different institutes), the individual embeddedness in the whole network, and by the strength of individual network connection. This leads to the following central research question: how do these different individual network configurations contribute to the creation of knowledge? A survey of 51 teams was carried out to investigate this question. As the results show, the communicational multiplexity had a positive contribution to knowledge creation. In addition, the results show that getting information from people with different backgrounds (multifunctionality) and from people of different institutions (multi-institutionality) had a positive effect on knowledge creation. Individual embeddedness seemed to have a positive contribution to knowledge creation as well; people had access to all information necessary. Finally, it appeared that moderate levels of interaction are most productive to team creativity, but at very low or very high levels of interaction the knowledge creation was impaired.

1. Introduction In this paper, we want to show the importance of social networks in knowledge creation and explore the influence of certain aspects of an individual’s social context on knowledge creation. Therefore, the central question in this paper is: how do aspects of social networks influence to the knowledge creation necessary for solving problems? The structure of the paper is as follows. Section 1 gives an introduction on the subject. A conceptual framework for knowledge creation in new product development is derived from the literature and is described in section 2. In the third section the individual’s social context is discussed. In section 4 we describe the empirical testing of our assumptions, using social network analysis. The last section concludes the paper and raises issues for future research. Nowadays, organizations are confronted with global competition, increasing complexity and rapid change (Cohen, Goh, & Gibson, 2003). In this environment that is global, intense, and dynamic, the development of new products and processes is increasingly a focal point of competition (Wheelwright & Clark, 1992). Getting to markets faster and more efficiently with products that are well matched to the needs and expectations of customers creates significant competitive leverage; doing new product development well has become a competitive advantage. At the same time, diverse trends, such as increasing product complexity, shortening product life cycles, and increasingly rapid competitive response, have made product development more complex (Wheelwright & Clark, 1992; Leenders, van Engelen, & Kratzer, 2003). Organizations face an increasing demand to compete on a global scale, but as they move into multinational markets, the process of developing new products is becoming progressively more complex (McDonough, Kahn, & Barczak, 2001). In addition, the development of most new products requires increasingly specialized and detailed knowledge. In comparison to only a few decades ago, even a moderate variation to an existing product

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requires a vast amount of in-depth knowledge and expertise, certainly given the pace at which knowledge becomes outdated and new knowledge is developed around the globe. Thus, in order to be competitive, product development cycles continuously need to become shorter and the failure rates need to decrease. Through the years, a great number of variables has been identified as determinants of new product development project performance. These variables can be found in, for instance, tools such as NewProd developed by Cooper (1979), DIPO (Cozijnsen, 1993), and the Genesis model (e.g. Hollander, 2002). Using these tools, complex information from various people about a new product development project is compared and reduced; based on this information a prediction is made about the outcome of a project in terms of success and failure. The first approaches to new product development emphasized that successful product development is the result of careful planning of a superior product for an attractive market and the execution of that plan by a competent and well-coordinated cross-functional team operating with the blessings of senior management (Brown & Eisenhardt, 1995). In more recent research it appears that the focus is shifting from a careful-planning perspective, to a perspective where new product development is rather seen as a balancing act between autonomous problem solving by the project team and the discipline of a heavyweight leader, strong top management and an overarching product vision. This stream of research envisions successful product development as disciplined problem solving. So, on the one hand it seems more flexible, but on the other it is more systematic. Regarding new product development as a process of continuous problem-solving is not new. Indeed, in the design literature this is quite often done (e.g. Pahl and Beitz, 1996). In this context, a problem is defined as a gap between what ‘is’ and what ‘should be’ (Muller, 1999). The term ‘problem’ is broadly defined; problem does not necessarily mean difficulty or crisis; it is rather seen as a question, a task, a new situation for which a ‘solution’ has to be found. Pahl and Beitz (1996) add a component to this definition of problem. In addition to an undesirable initial state and a desirable goal state, they describe obstacles that prevent a transformation from the undesirable initial state to desirable goal state at a particular point in time. Thus, Pahl and Beitz add a transformation process to the definition of ‘problem’. When people start working on a problem they do not already have the knowledge to get to the desirable state; they need new knowledge to close the gap. Therefore, knowledge creation can be seen as the transformation process where the gap is closed, and the undesirable state is transformed into the desirable state. Thus, when problem solving is seen as a process of continuous problem solving, knowledge creation is of crucial importance in this process.

2. Knowledge creation in new product development 2.1 Knowledge The definition of knowledge has been discussed since Plato and Socrates. In the encyclopedia of philosophy (Edwards, 1967) knowledge is defined as ‘justified true belief’. However, ‘true’ is a contradicting term to use. “In whose opinion is it true?” and “Is there an absolute truth?” are questions that can be posed. The current literature often makes the difference between data, information and knowledge. Diverse authors (e.g. Davenport & Prusak, 1998; Nonaka & Takeuchi, 1997) describe data as objective facts, like the temperature outside or someone’s age. When meaning is given to these objective facts, the data becomes information (for example the weather forecast or a management report). Knowledge can be derived from information. One of the mostly used definitions of knowledge is of Nonaka and Takeuchi (1997). In their work, knowledge is given the following characteristics: • • •

knowledge has to do with belief and the commitment to it; knowledge has a purpose (it has to do with practice); knowledge is, just like information, about meaning; it is context specific and relational.

As Jorna and van Heusden argue (1999), the individual itself is still seen as a ‘black box’. Jorna and van Heusden have a cognitive perspective on knowledge; they state that data becomes information with the help of the knowledge a person has and that this information can change into knowledge for the interpreting person. This is congruent with what Davenport and Prusak (1998) say. Davenport and Prusak (1998) state that knowledge originates and is applied in the minds of knowers and that information is meant to change the way the receiver perceives something, to have an impact on his judgment and

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behavior; it must inform. In their view knowledge is “a fluid mix of framed experience, values, contextual information, and expert insight that provides a framework for evaluating and incorporating new experiences and information. It originates and is applied in the minds of knowers” (Davenport & Prusak, 1998: 5). In this definition, knowledge is seen as the materialization of what people have in their cognition, and therefore knowledge can be located at individuals. In this paper we will use this definition of Davenport and Prusak (1998). 2.2 Knowledge creation Although knowledge is rooted in expertise and experience and is very individual, organizations cannot multiply the value of this expertise as long as knowledge cannot be shared (Choo, 1998). We do not want to go too deep into the process of knowledge creation, but in this research we focus on the influence the social context of an individual has on the knowledge creation. As previous research shows, knowledge creation in an organization is based on the distribution of knowledge within a social context. Nonaka and Takeuchi (1997), for example, discuss organizational knowledge creation as a spiral process that starts at individual level and is lifted to a higher level via expanding and interacting groups of persons. Product development requires both the generation of new knowledge and solutions and novel combinations of existing knowledge and solutions - processes most effectively supported by combing and integrating existing but varying pools of knowledge. Therefore, new product development is most often done in teams. Knowledge creation within new product development teams requires teams to combine and integrate input from multiple team members. However, this social context, where knowledge is created, has barely been taken into account in previous research. Although some authors pointed out that there has to be a context where sharing and creating knowledge is stimulated (e.g. von Krogh, Ichijo & Nonaka, 2000), this context has not been made concrete and described in terms of interactions between individuals.

3. Social network perspective 3.1. Social networks How to describe the social context of an individual? The individual social context can be seen as the structure of the individual networks in terms of connections to whom, the content of these connections, and the strength of these connections. One can take a look at the formal structure of an organization, but that only represents the responsibilities of the individuals in an organization. It would be better to take a look at the informal structures, where one can observe where knowledge is transferred and shared, who is connected to whom, etc. This is possible by adopting a network perspective. Using a network perspective helps us to unravel the social determinants of teams. Knowledge networks can be drawn for different types of knowledge, but also other factors like trust can be included and shown in the network. As far as we know, no research has been conducted on how the aspects of this social context influence knowledge creation. But what is a social network? A social network consists of a fine set or sets of actors and the relation or relations defined on them (Wasserman & Faust, 1994). In this definition, the term ‘actors’ does not specifically refer to individuals, but it also refers to corporate or collective social units. The collection of ties of a specific kind among members of a group is called a relation (Wasserman & Faust, 1994). In taking a network perspective, we assume that individuals are interdependent instead of independent and the relations between individuals are channels for the transfer or flow of resources (material or nonmaterial). In this research the relations are channels for the transfer of information and knowledge. We will focus on individuals situated in new product development teams. Individuals in teams are interconnected and have to create knowledge together to develop new products. By interacting they exchange information and knowledge. The kind of interactions we focus on, is problem-solving communication. As mentioned before, new product development can be seen as a process of problem solving. Problem solving communication is determining for exchanging information, and therefore for the creation of knowledge. Thus the structure of the problem solving communication is expected to have an influence on the team’s potential for knowledge creation. 3.2 Aspects of the social network Three network aspects are expected to have an influence on the potential of knowledge creation. The first network aspect is the extent to which the network is centralized. In other words: are there certain

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members in the centre, while others are more or less isolated? A second aspect of a knowledge network is the intensity of the dispersion of knowledge and/or information, also called the cohesion of a network. The third network aspect that is expected to have an influence on knowledge creation is segmentation. Segmentation shows to what degree there is distance between members in a group and to what extent there is formation of subgroups. We will discuss these aspects further before stating our hypotheses. 3.2.1. Centralization

Central (dominant) actors are those that are extensively involved in relationships with other actors, in contrast to other actors who are more or less isolated. When certain members of a new product development team dominate the creative process, centralization is expected to have a negative effect on both the dominators and the dominees. Central actors dominating the discussions and the searches for new solutions are subject to information overload. New product development tasks are often complex and different bases of expertise are required. Especially in highly technological areas, a single team member cannot have enough knowledge to oversee all areas of expertise properly. So, the central team member is likely to be unable to handle the information streams and thereby impede the problem solving process. The negative effects on the non-central team members are twofold. First, the presence of highly central members reduces the autonomy of non-central individuals. Team members need sufficient autonomy and discretion for optimal knowledge creation (Amabile, 1983). Individuals with greater autonomy are provided with more freedom to challenge common knowledge, which makes them more creative and more able to solve problems. The second negative effect is that strong centralization of a social network reduces the motivation of non-central members and, hence, their commitment to the project. This reduction in motivation is expected to lower the team’s knowledge creation performance. From the above, we arrive at the following hypothesis: Hypothesis 1: The presence of central team members will negatively influence the team’s potential of knowledge creation. 3.2.2. Cohesion

As mentioned above, cohesion is about the intensity of the dispersion of knowledge and/or information. Intra-team interaction is essential to the timely availability of information required by the members from different functions and disciplines present in the team. But from the literature two categories of arguments can be found that argue against the positive effects of intra-team interactions on the team’s knowledge creation: team member distraction and creativity blocking. According to the distraction-conflict theory (Baron, 1986), the presence of others can serve as a distraction and either energize people or disrupt their performance. Distraction can lead to attentional conflict, which may cause attentional overload, which in turn leads to a restriction in cognitive focusing. As a consequence, high levels of interaction should decrease knowledge creation necessary for problem solving since members do not longer make full use of their cognitive ability to explore as many possible solutions before choosing the most novel and appropriate solution. Moreover, distracted team members are likely to start distracting other members and will therefore further decrease their knowledge creation. Theories of creativity blocking, the second category of arguments against the positive influence of interaction, argue that high levels of interaction may carry teams along by the momentum of their enthusiasm for an innovative idea, rather than by a clear understanding of its real value. This can have two effects. First, it could decrease the levels of critical thinking through which ideas are evaluated (e.g. Nicholas, 1994). Second, high frequency of interaction can push team members towards mutual beliefs and thereby reduce the number and quality of problem solutions generated by the team as a whole (e.g. Nyström, 1979). Taking the above into consideration, high levels of interaction are expected to have a negative influence on a team’s potential for knowledge creation. But a very low frequency of interaction seems damaging as well, because product development tasks require input from various functions and disciplines. It appears that moderate levels of interaction are most productive to knowledge creation. From the above we derive the second hypothesis:

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Hypothesis 2: The frequency of interaction will have an inversely U-shaped influence on the team’s potential of knowledge creation. 3.2.3. Segmentation

The existence of subgroups within a team refers to the situation in which frequent interaction occurs among limited sets (subgroups) of members of a team, while infrequent interaction occurs between members of different sets (subgroups). Members of subgroups tend to conform more to others within the same subgroup. Within these subgroups consensus is likely to arise, but not in the team as a whole. This may lead to members focussing their effort completely on solving their ‘own’ subtasks without considering the larger goals. In addition, the existence of subgroups often leads to groupthink within subgroups, which can lead to conflict between members of different subgroups. This may even result in the creation of intra-group language that is hardly understandable to those outside the subgroup (Dougherty, 1990; Allen, 1984). As a consequence, communication barriers occur as well as misunderstandings and the team’s potential for knowledge creation is expected to decline. From the above we can formulate the following hypothesis: Hypothesis 3: The presence of subgroups within a team will negatively influence the team’s potential of knowledge creation.

Empirical research 4.1. Study design, procedure and participants For testing the hypothesis, an empirical research was carried out. The data consist of 243 team members in 44 innovation teams. The data was gathered in eleven Dutch companies that are conducting innovation activities. All eleven companies are engaged in production and innovation of digital products. The data were collected using questionnaires that were distributed and filled out during team meetings. Due to this method the response rate was very high (95 percent). 4.2. Level of analysis In this research, we are interested in the influences of social network aspects on the potential for knowledge creation of new product development teams. In innovative settings, where the object of potential knowledge creation is complex and requires skills from multiple bases of expertise, it is difficult to separate individual- from team-level contributions. In this paper we follow the suggestions of Drazin et al. (1999) and assume individuals to act homogeneously within the teams as they engage in creative behaviour. In other words, it is assumed there is no need to incorporate individual level variables, such as gender, functional background, education, and tenure into our analysis of team level potential of knowledge creation. Therefore the analyses are limited to incorporating team level aggregates into our analysis. In order to statistically justify this aggregation, a one-way analysis of variance was conducted to determine if there was greater variability between teams than within teams on team potential of knowledge creation ratings. The analysis of variance supported the appropriateness of the aggregation. Prior to aggregating team members’ evaluations, inter-rater agreement on the team’s potential of knowledge creation was calculated by averaging the inter-rater reliability (IRR) score suggested by James et al. (1984). The IRR was .76, justifying the use of the arithmetic mean as a team score. In order to test the hypotheses multiple regression analyses are conducted. The suitability of the regression analyses was examined testing for multiconlinearity by checking the VIF (Variable inflation factor) and CI (Condition index) and for the distribution of residuals. These examinations did not reveal any violation for conducting a multiple regression. Due to small sample size (n=44), which limits the statistical power, effect mentioned in the text and tables, which are significant at .10 level, are referred to as ‘statistical significant’.

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4.3. Development of measures For the empirical study, existing and commonly used operationalizations were chosen whenever possible. The operationalizations that used for measuring cohesion, centralization, and segmentation are common in social network analysis (e.g. Scott, 1992; Wasserman and Faust, 1994). 4.3.1. Potential of knowledge creation

Measuring potential of knowledge creation is notoriously difficult. Since the task of a innovation team is complicated and multi-faceted, it is not clear what kind of standardized system could be used or what outputs can be rated to score the team’s potential of knowledge creation. There are only very few studies executed yet in an innovation context and none of them on the level of teams measuring the potential of knowledge creation. According to the underlying meaning of the variable ‘potential of knowledge creation’ and several pre-tests of the following and other operationalizations, we measured this variable by asking the team members to rate the teams’ creative accomplishment—in the sense of generating new ideas, methods, approaches, inventions, or applications—on a 7-point scale (from ‘not at all’ to ‘highly’). For all 44 teams, we collected these ratings and averaged the scores per team as the measure of potential of knowledge creation. The measure for potential of knowledge creation thus derives from the assessment by its members; in this sense, it is a quasi self-report measure. Self-report measures are often criticized, mainly through the argument that some people are unable to report their performance accurately, due to reasons of poor introspection (Locke et al., 1988). It was possible for us to test the quality of these self-reports since team manager data were available for 20 of the teams. For these teams we compared the manager ratings with those of the team members. The average team managers rating of the potential of knowledge creation of their teams was 4.82 on a 7-point scale (from ‘not at all’ to ‘highly’); slightly higher than the rating given by the team members (4.67). A paired-samples t-test of the difference between the two samples (team members versus team managers) showed no statistically significant difference between the two ratings (t=1.26, p=.22). In order to investigate whether there were certain teams in which the difference between manager and team member ratings was large, we calculated the absolute deviations between the scores of the team members and the team managers; the absolute deviations vary between 0 and 1.20, with a mean of .49. In sum, the rating by the team members themselves scarcely differs from the outsiders rating provided by the team managers. Therefore, the rating of potential of knowledge creation by the team members themselves appears a valid procedure in our sample. 4.3.2. Centralization

A centralization measure reflects the extent to which interactions are concentrated in one or a small number of team members rather than distributes equally among all members. Network centralization is analogous to the variance in network ties per group member. When the variance is high, some members have proportionately more ties and are therefore more central in the network than other members. As a measure, we thus used the variance of the number of others a team member has contacted, as proposed by Snijders (1981). 4.3.3. Cohesion

The cohesion of the social networks was measured by determining the density of the network. Density describes the overall level of interaction reported by the team members. It is analogous to the mean number of ties per team member and varies between 0 (no interaction in the team) and 1 (everyone interacts with everyone, at least once a week). 4.3.4. Segmentation

Subgroups in a team refer to subsets of team members who have interaction among each other but no (or rare) interaction with those members not part of the subgroup. Subgroups are also referred to as cliques. The concept of cliques was developed by Harary et al. (1965). A clique is defined as a group of at least 3 team members in which everyone interacts with everyone else at least once daily. The degree of subgroup formation increases with the number of such cliques.

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4.3.5. Control variables

There are numerous other characteristics of the team and its context that have been or may be shown to influence the potential of knowledge creation of innovation teams. While it is not possible to include all these variables in this study, for two variables is controlled that have been suggested to affect the potential of knowledge creation of teams. Team tenure. It is often argued that the potential of knowledge creation of teams decreases with their age. For instance, Lovelace (1986) contends that the potential of knowledge creation of research scientists decreases with the time they are part of a group. The main argument is that with team age, problem solving and cognitive processes become more established, reinforced, and habitual through uncertainty reduction by team members. Since it is not the age of the team per se, but the time its current members have been part of the team, team tenure was measured as the number of years that team members had been member of the team. Phase of innovation process. This variable is introduced to control for environmental factors that might be differently affecting the potential of knowledge creation, because innovation process itself implies distinguishable work-related situations. Generally, the innovation process captures a duality of ‘getting ideas’ followed by ‘getting ideas into action’ (Rickards, 1991). Accordingly, in the present study two main phases of innovation activities are distinguished: the conceptualization phase and the commercialization phase. This variable is included as dummy with conceptualization phase = 0 and commercialization phase = 1. Following the descriptive statistics about all variables included in this study. Variables Dependent variable Potential of knowledge creation

Minimum

Maximum

Mean

Std. Deviation

N

3.67

6.40

4.64

0,67

44

Communication Frequency Centralization Subgroup formation

0 0 0

0.90 10.00 10

0.29 0.20 1.18

0.25 0.25 1.86

44 44 44

Control variables Team tenure Phase of innovation process

1 0

5.43 1

1.94 0.39

1.10 0.49

44 44

Table 1: Descriptives

4.4. Empirical results Variables Potential of knowledge creation Frequency Centralization Subgroup formation Team tenure Phase of innovation process

1 -

2

3

4

5

6

-0.57* -0.42* -0.44* -0.47* -0.10

0.39* 0.37* 0.28* 0.10

0.29* 0.27* 0.11

0.15 0.13

0.11

-

Table 2: Bivariate correlations for potential of knowledge creation, communication, team tenure and phases of innovation process

The bivariate correlations for all variables are presented in table 2. As can be seen, all three networkaspects significantly correlate negative with knowledge creation, and so does team tenure.

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Variables Constant Team tenure Phase of innovation process Adjusted R2=0.23

B 5.65 -0.32 -0.29

SD 0.35 0.08 0.19

Sig, T 0.000* 0.000* 0.128

Table 3: Regression analysis for potential of knowledge creation: base model

In table 3 the results are presented of the regression analysis. The control variables were entered into a baseline model. From the regression analysis we can conclude that team tenure is negatively related to knowledge creation and the phase of the innovation process is not of importance in this. Variables Constant Frequency Centralization Subgroup formation Team tenure Phase of innovation process Adjusted R2=0.47

B 5.68 -0.97 -0.03 -0.08 -0.21 -0.13

SD 0.30 0.34 0.01 0.04 0.07 0.17

Sig, T 0.000* 0.007* 0.394 0.087* 0.006* 0.408

Table 4: Regression analysis for hypotheses 1, 2, and 3

Table 4 shows the results from the regression analysis. The hypotheses were tested and as hypothesized, the centralization of team interaction has a negative effect on team’s potential for knowledge creation. The more interaction is channelled through only one or few individuals, the lower the potential for knowledge creation of the team. Subgroup formation also appears to have a negative effect on the potential for knowledge creation. The more the team is divided into subgroups, the lower the team’s potential for knowledge creation. The frequency of interaction (density) appears to have an inversely U-shaped relationship with team knowledge creation. This suggests that both very low and very high levels of interaction frequency impede team knowledge creation. The performance of knowledge creation is the highest when the interaction frequency (density) is modest.

Conclusion 5.1. Conclusions Although previous research on knowledge management agrees on the fact that knowledge creation in an organization is based on the distribution of knowledge within a social context, this social context has not been made concrete and described in terms of interactions between individuals of teams. In this paper, we attempt to explore how certain network aspects influence a team’s potential for knowledge creation. As we showed, social networks do play a very important role in knowledge creation. From the results we can conclude that having a dominant person in the network, for example a strong leader, can impede the team’s potential for knowledge creation. Also segmentation, having cliques within a team, appeared to have a negative influence on the team’s potential for knowledge creation. For centralization we found that a very low as well as a very high level of interaction negatively influences knowledge creation, whereas a modest level of interaction seems to have a positive effect on a team’s potential for knowledge creation. As we found in our research, network structures can lead to more or less potential for knowledge creation. The network aspects influence how information and knowledge is dispersed and shared within a team. Knowing this, knowledge creation becomes manageable through work-related interdependencies between the members of a team. Interdependencies can be constructed strong or less strong, which

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leads to a higher or lower density of communication. The interdependencies can be more or less equal, leading to a higher or lower degree of centralization and on forehand the interdependencies can be build in such a way that subgroup formation is out of the question. 5.2. Limitations and directions for further research We want to mention a few limitations in our study. First, we want to note that we only tested the influence of four network aspects, while there might be some more aspects, for example structural holes or transitivity. In addition, we focused on intra-team interaction, while nowadays it is very common that teams work together with other teams all over the world. This study only includes Dutch companies innovating and producing digital products. This does imply a stable environment, where individuals don’t differ too much in for example culture. So it would be interesting to study teams that work together with teams all over the world, but that might imply that individual variables have to be included in the research. Also, it would be very interesting to see if certain team characteristics or other variables have correlation with the social network structure of a team, so these variables can be managed or changed to influence the network structure of the team and thereby change the team’s potential for knowledge creation. By these variables we mean for example the trust within a team or the communication means the team members have to their disposal. Future research might incorporate these aspects mentioned above, by for instance including other network aspects, conducting more international research, including companies from other industries or branches, and focusing on team variables that influence the team’s network structure.

References Allen, T.J., 1984, Managing the flow of technology: technology transfer and the dissemination of technological information within the R&D organization, MIT Press, Cambridge, MA. Amabile, T.M., 1983, The social psychology of creativity, Springer Verlag, New York. Baron, R.S., 1986, Distraction – conflict theory: progress and problems, Advances in Experimental Social Psychology, 19, 1-40. Brown, S.L. and Eisenhardt, K.M., 1995, Product development: past research, present findings, and future directions, Academy of Management Review, 20, 2, 43-378. Choo, C.W., 1998, The knowing organization: how organizations use information to construct meaning, create knowledge, and make decisions, Oxford University Press, New York. Cohen, S. G., Goh, K., Gibson, C. B., 2003, Putting the team back in virtual teams, speech for a conference for work and organization psychologists, USA. Cooper, R.G., 1979, The dimensions of industrial new product success and failure, Journal of Marketing, 43, 3, 93-103. Cozijnsen, A., 1993, Predicting innovation success with the DIPO-instrument, in Handbook of innovation management, A. Cozijnsen, W. Vrakking (Eds.), Blackwell, Oxford. Davenport, T.H., Prusak, L. (1998). Working knowledge: how organizations manage what they know, Harvard Business School Press, Boston. Dougherty, D., 1990, Understanding new markets for new products, Strategic Management Journal, 11, 59-78. Drazin, R., Glynn, M.A., and Kazanjian, R.K., 1999, Multilevel theorizing about creativity in organizations: a sensemaking perspective, Academy of Management Review, 24, 286-307. Edwards, P., 1967, The encyclopedia of philosophy, MacMillan Publish Co., New York. Harary, F., Norman, R.Z. and Cartwright, D., 1965, Structural models: an introduction to the theory of directed graphs, Wiley, New York.

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Hollander, J., 2002, Improving performance in business development: Genesis, a tool for product development teams, Universal Press, Veenendaal. James, L.R., Demaree, R.G. and Wolf, G., 1984, Estimating within-group interrater reliability with and without response bias, Journal of Applied Psychology, 69, 85-98. Jorna, R.J. and van Heusden, B., 1999, Cognitive dynamics: a framework to handle types of knowledge, in Knowledge management: the 7th ISMICK conference, 128-145, J. Schreinemakers (Ed.), Rotterdam University Press, Rotterdam. Leenders, R., Van Engelen, J. and Kratzer, J., 2003, Virtuality, communication, and new product team creativity: a social network perspective, Journal of Engineering and Technology Management, 20, 1-2, 69-92. Locke, E.A., Latham, G.P. and Erez, M., 1988, The determinants of goal commitment, Academy of Management Review, 13, 23-39. Lovelace, R.F., 1986, Stimulating creativity through managerial interventions, R&D Management, 16, 161-174. McDonough, E.F., Kahn, K.B. and Barczak, G., 2001, An investigation of the use of global, virtual and collocated new product development teams, Journal of Product Innovation Management, 18, 110-120. Muller, P., 1999, Team based conceptualization of new products; creating shared realities using information technological support, doctoral dissertation, University of Groningen. Nicholas, J.M., 1994, Concurrent engineering: overcoming obstacles to teamwork, Product and Inventory Management Journal, 35, 234-246. Nonaka, I. and Takeuchi, H., 1997, The knowledge creating company: how Japanese companies create the dynamics of innovation, Oxford University Press, New York. Nyström, H., 1979, Creativity and innovation, Wiley, New York. Pahl, G. and Beitz, W., 1996, Engineering design; a systematic approach, Springer, London. Rickards, T., 1991, Innovation and creativity: woods, trees and pathways, R&D Management, 21, 101112. Scott, J., 1992, Social network analysis: a handbook, Sage, Newbury Park, CA. Snijders, T., 1981, The degree of variance: an index of graph heterogeneity, Social Networks, 3, 163174. Von Krogh, G., Ichijo, K. and Nonaka, I., 2000, Enabling knowledge creation: how to unlock the mystery of tacit knowledge and release the power of innovation, Oxford University Press, New York. Wasserman, S. and Faust, K., 1994, Social network analysis; methods and applications, Cambridge University Press, Cambridge. Wheelwright, S.C. and Clark, K.B, 1992, Revolutionizing Product Development: Quantum leaps in speed, efficiency, and quality, Free Press, New York.

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Innovation and Commercialization of R&D by Business Networks Suku Bhaskaran [email protected] Food Marketing Research Unit Victoria University of Technology (Werribee Campus) Melbourne City, VIC 8001, Australia Phone: (03) 9216 8263 Facsimile: (03) 9216 8135

Abstract Networked collaborative operations are an innovative organisational form that is increasingly used by organizations to undertake research and development and to commercialise the outcomes of R&D activities. Increasing industry concentration, growth in the market power of multi-national corporations, globalization and market liberalization have substantially altered the business landscape and often the changed business landscape has made inter-organizational collaboration almost inescapable. Developing and operating networked organizations entail skills in leading and managing across independent organizations that could have great diversities in strategic missions, strategic orientations and organizational culture. A number of past studies (Miller, 2001; Solomon, 2001; Parkhe, 1991) contend that the management of business networks demand new skills, skills that are different to skills needed to manage large corporations or small-to-medium sized enterprises. Notwithstanding the recognition of the need for “new” management skills and aptitudes, past studies have not explored the issue of leadership and management of networked organizations in any great detail. Using a multiple case study methodology, this article reviews the idea generation, formation, development and operations of two commercially successful business networks. The findings of the study suggest that the lead-manager’s capability in adapting and customising structural relationships and management process with participants in the network is critical to successfully managing a networked operation.

Introduction Networks are collaborative arrangements between diverse actors and knowledge fields in research, development and commercialization activities (Pyka, 2002; Piercy and Cravens, 1995). Such collaborative arrangements involve collaborations between firms of different sizes, firms across the valuechain, research and development institutions, and government agencies at the Federal, State and Local levels. From about the mid 1990’s, as evidenced by the proliferation of government-supported projects (Fulop and Kelly, 1995a, 1995b; DPIE, 1997, 1998) Federal, State and Local governments in Australia actively encouraged the formation of business networks. It appears that project proponents and government officials believed that the formation of business networks would deliver scale-economies and increase the export capability of Australian companies particularly small-and-medium sized enterprises (SMEs). The idea that there is strength in inter-firm collaboration appears logical and rational especially so in an environment characterised by increasing industry concentration, growth in the market power of multinational corporations, globalization, and market liberalization. However, there was hardly any discussion in these reports of the scope and potential for innovation networks. The development of projects that encompass the entire spectrum extending from idea generation to research and development and finally to commercialisation appears to be a recent phenomenon in Australia and can be attributed to the initiatives of the managers of lead organizations in business networks. This article is based on research findings that indicate a high level of homogeneity in the idea generation, start-up, research and development, and commercialization programs of a number of recent network projects in Australia (Bhaskaran, 2002). The central thesis of the paper is that the management capabilities for successfully leading business networks are different to the capabilities needed to successfully manage individual firms. Networks involve collaboration between independent organizations

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of different sizes, orientations, and missions, and therefore the management skills to operate in this context requires skills in identifying opportunities, skills in operating in a non structured manner, and promoting the benefits of participating in the network. The leadership and management of networks entail accessing the strengths and complementarities of all organizations in the network. Network linkages would involve managing a variety of structural arrangements, organizational forms, and relationships with participants that could evolve over time (Johnsen and Johnsen, 1999; Piercy and Cravens, 1995). Two case studies are presented in this article to review the initial start-up, growth and the commercial development of networks, and demonstrate the characteristics, orientations and qualities for successfully managing networks.

Background Inter-organizational collaborations as a means of achieving common strategic objectives have been extensively discussed in marketing, management, and organizational behavior literature. In a rapidly globalizing market (characterized by converging consumer tastes, rapidly spreading technology, escalating costs of production, growing protectionism and worldwide excess production capacity), interorganizational collaborations are mandatory (Parkhe, 1991; Ohmae, 1989). Inter-organizational collaborations entail the pooling of physical and human resources by organizations of different ‘size’ (turnover, employee numbers, geographical spread, capitalization etc), organizational culture and strategic focus and, because of this, managers of partnering organizations have to be skilled in managing relational, cultural, social, political and structural environments across a galaxy of linked yet independent organizations within the country and in other countries. Generally, inter-organizational collaborations are pursued as a business development strategy, as a strategy to enter ‘new’ markets, access ‘new’ technology, and access management and technical expertise. The network concept extends beyond collaborations between firms. Networks enable organizations to focus on its core competencies or distinctive competencies and, therefore, make possible innovation and the achievement of product market objectives through collaborating with other organizations that also focus on core or distinctive competencies (Snehota, 1990; Awuah, 2001: Håkansson and Snehota, 1989). Some studies distinguish between core competencies and distinctive competencies (Dunphy, Turner, and Crawford, 1997; Webster, 1991). However, the prevalent view is that individual firm-level competencies are enhanced through linking the internal skills, resources and activities of a firm with the internal skills, resources and activities of a network of suppliers, manufacturers, partners, investors, policy makers, customers, and universities and research institutions (Prahalad and Ramaswamy, 2000; Sadler-Smith, Chaston, and Badger, 2000). However, notwithstanding the benefits that are canvassed, evidence from past studies indicate that networks have been substantially less successful than was envisaged by its proponents and that organizations have been slow to adopt the network paradigm. Recent studies (Miller, 2001; Solomon, 2001; Parkhe, 1991; Pyka, 2002) propose that ‘new age’ organizations will comprise of deconstructed organizations that are networked and that business and market models in a globalized business environment (an environment characterized by rapid technological changes and intense competition) will comprise of networked organizations. Management capabilities in this ‘new’ environment would involve adaptive changes in working with a galaxy of stakeholders that have different, and sometimes conflicting, strategic missions, strategic focus and organizational cultures (Johnsen and Johnsen, 1999; Heifetz and Laurie, 1997). However, the studies discussed above have not explored the management characteristics, orientations and qualities needed to initiate, develop and manage organisations in a network context. Some studies tacitly imply that entrepreneurship is an important attribute to successfully and profitably operating firms within a networked context. Entrepreneurship is characterized as being different to the behavior of managers in large corporations (Busenitz and Barney, 1998; Yap and Liang, 1997) and is described as incorporating a personalised management style based on the individuality of the owner-manager (management philosophy, attributes and methods because of the personality, beliefs, experience and skills of individual owner-managers and the stage in the development of individual enterprises) and includes behaviours such as informal and sometimes even haphazard decision-making (O’Donnell, Gilmore, Cummins, and Carson, 2001; Nicholls-Nixon, Cooper, and Woo, 2000; Carson, 1993; Carson,

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1990). Characterising entrepreneurship as an owner-manager and, therefore, a SME characteristic appears to assume that SMEs are a scaled down version of a large enterprise, a perspective that is now challenged in several studies (Stokes, 2000; Stewart, Watson, Carland, and Carland, 1999). Networks incorporate firms and organisations of different sizes, visions, and strategic orientations. The perspective that entrepreneurship and operational arrangements within a network paradigm can also be a feature of large-scale organizations has only been implicitly canvassed in extant studies. There is evidence that even in large organizations, decision-making is driven by a small cohort of individuals and that the decisions of these individuals are influenced by their behavioral leanings (Miller, Burke and Glick, 1998; Vandermerwe and Birley, 1997; Eisenhardt, 1989; Hambrick and Mason, 1984). It can be inferred that large organizations too have unique leader influenced “personalities” and that large organizations also adopt entrepreneurial management. In addition, although entrepreneurial activities are the outcome of collaborative activities within an enterprise, operationalising the activity is inevitably driven by the initiatives of a lead “entrepreneur” (Ensley, Carland and Carland, 2000; Duchesneau and Gartner, 1990). Even within the single firm, the context of many of the past studies, the qualities and skills of the “lead entrepreneur” are observed to be different to that of an entrepreneur of a firm. The literature review also indicates that entrepreneurship alone is insufficient to initiating, fostering, developing and managing networks. Studies on leadership (Fulmer, 2001; Martensen and Dahlgaard, 1999; Heifetz and Laurie, 1997), for example, suggest that leadership attributes including a bureaucratic leadership style (more characteristic of the management of large organizations) may be more appropriate than entrepreneurship in a network context. Managing a business network involves not only managing the nodes that make up the network but also the structures, links and relationships that comprise the network (Arias, 1995; Herbig, Golden, and Dunphy, 1994; Curran, Jarvis, Blackburn and Black, 1994). In sum, the characteristics, orientations and qualities of a ‘lead manager’ in network context would expectedly be different to that of the manager of entrepreneur or a corporate manager.

Methodology Two case studies of network organizations are presented in this paper. Both networks comprise alliances between small-to-medium scale family businesses; Federal, State and Local government agencies; providers of R&D services comprising of universities and consultants, and relatively large and overseas owned and managed corporations. The organisations have come together informally to purse different strategic objectives but the complementarity of their objectives have meant that they could work together from research and development right through to successful commercialisation of the project. The case studies were completed through a deductive approach. Research questions, based on in-depth literature review, were developed to explore conceptual and theoretical issues (Rowley, 2002; Simon and Sohal, 1996) on entrepreneurship and innovation. Analytical generalisation of results was attempted by using previously developed theory as a template and comparing the findings of the study with current theories and concepts (Perry, 1998). The study uses only two cases because it was not possible to obtain information on other firms operating in a similar context (new start-up small-to-medium scale enterprise operating in a large-scale and traditional sector) and also because the uniqueness of the study context suggested that the two cases would be useful in evaluating current theory in a “new” context. The use of two cases was motivated by the criticisms of using single case studies. Rowley (2002), for example, contends that when using case study methodology replication logic through analysis of multiple case studies is essential to establish external validity and rigor. However, as explained in the introductory section, this article analyses current concepts and theories on entrepreneurship and innovation (usually studied in the context of high technology industries or manufacturing industries or service industries e.g. retailing) in a “new” context. As such, the concepts and theories explored in this study have been tested and, therefore, it seems logical to conclude that replication logic and external validity are not serious concerns. The primarily research was completed through in-depth, face-to-face, open-ended, semi-structured interviews of key industry stakeholders (the entrepreneurs, executives of Ito En (Australia) Ltd and officials in government departments). The interviews were taped and interview transcripts were sent to survey participants for their comments. In some instances, where it seemed that there were discrepancies

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or gaps in the information, follow-up calls and second interviews were conducted. The second interviews were mostly conducted through telephone discussions lasting about 15 minutes. Additional information was obtained from documents such as government reports (cf Agriculture, Fisheries and Forestry – Australia, 2000a, 2000b, 2001a, 2001b), published academic literature and in-house records (Annual Reports, Consultants’ Reports etc). Interview notes and information from secondary sources were analysed to identify the match to entrepreneurial behaviour and attitudes espoused in extant literature and the contribution of entrepreneurial behaviour and attitudes to the success of the venture. The primary research used the techniques recommended by Miles and Huberman (1994) including intense contact with target groups in their natural environment, obtaining the perceptions and insights of respondents to various issues and focussing the questions to elucidate a holistic overview of the business operations rather than to operational details. Case Study 1: Myoga Network Myoga, a vegetable widely used in Japanese cuisine, is mainly grown in Japan especially in Gumma and Kanto prefectures. Almost 90 per cent of Japan’s myoga production is harvested between July and September. Production has continued to decrease for several years because of labor shortages and scarcity of farming land leading to demand substantially outstripping supply especially in the off-season. Agribusiness Australia Ltd, the family company of Peter Shelley, initiated the myoga project in Australia. Peter Shelley was the Managing Director of Tassal Limited, a large exporter of salmon to Japan. During one of Shelley’s many visits to Japan, a Japanese colleague who had visited Tasmania introduced him to the crop and suggested that it may be possible to grow the crop in Tasmania. On his return to Tasmania, Peter Shelley immediately initiated discussions with his contact networks on the potential to grow myoga in Tasmania. Although Peter Shelley was a senior manager of a large Australian company, his pursuit of the product market opportunity as a personal business seemed to be entirely based on “gut-feeling”. Peter invited a Tasmanian-based horticulturalist and friend, Richard Warner, to join him in the venture. Thereafter, because of his experience and expertise as a horticulturalist, Warner directed the project. Warner, attempted to trial cultivated various species of the crop in different areas of Tasmania. As his attempts at trial farming were not successful, he contacted Professor Robert Clark of the School of Agricultural Science at the University of Tasmania to help. The University of Tasmania trial cropped myoga under controlled conditions at its Sandy Bay Campus. Based on the success of initial trials, Robert Clark and Richard Warner applied to the Rural Industries Research and Development Corporation (an Australian government R&D funding agency) for a grant to assess the viability of introducing myoga as a commercial crop in Tasmania. The Rural Industries Research and Development Corporation funded a three-year joint R&D project by the University of Tasmania and Agrimark Tasmania Ltd, Richard Warner’s family company. Agribusiness Australia Ltd, Peter Shelley’s family company, collaborated in the project as an industry partner and provided seed funding for the project. Thus by this stage the project network had expanded from a personal initiative between Peter Shelley and his Japanese colleague to a collaborative initiative between Agribusiness Australia Ltd, Agrimark Tasmania Ltd, University of Tasmania, and the Rural Industries Research and Development Corporation. The network was very much only an innovation network in that it was collaboration aimed at trial cropping and assessing the viability of commercial scale farming of myoga in Tasmania. Other than the formal R&D contract with the Rural Industries Research and Development Corporation, the association between the network partners was an informal arrangement that was based on trust and commitment to the project. The University of Tasmania and Agrimark Tasmania Ltd had competency in R&D and Agribusiness Australia Ltd had contact networks in Japan both to access plant varieties and also to export the crop. Notwithstanding that commercial scale trials of myoga using plant varieties from Japan were unsuccessful, the research discovered that myoga was being trialed in New Zealand and that the New Zealand researchers had developed a plant line that yielded good results. Richard Warner and Robert Clark went on a study tour to New Zealand and returned convinced that there was potential to develop commercial scale farming of the crop in Tasmania. At this stage Richard Warner and Peter Shelley established a joint venture company, Agrilink Asia Pacific Pty Ltd, to manage the R&D and commercial farming of myoga. Agrilink Asia Pacific Pty Ltd successfully tendered to the Department of Agriculture,

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Fisheries and Forestry (a Federal government agency) for a grant to develop commercial farming of myoga. The project proceeded from an informal arrangement between individuals and organizations to a formal arrangement aimed at commercializing the project. The Rural Industries Research and Development Corporation regularly publicizes the outcomes of its R&D support. Peter Haertsch, a farmer based in New South Wales, learned about the R&D on myoga farming in a Rural Industries Research and Development Corporation. He contacted Richard Warner and negotiations between Richard Warner and Peter Haertsch led to a collaborative arrangement to contract farm myoga. Using propagation material and agronomic advice from Agrilink Asia Pacific Pty Ltd, Peter Haertsch established a pilot scale farming operation in his farm. Yields and the quality at this pilot scale farm were good. The success with this trial cropping led to a contract farming arrangement between Peter Haertsch and Agrilink Asia Pacific Pty Ltd. Peter Haertsch established the infrastructure and scaled-up the farming of myoga. Thus, the R&D network had now become a commercial network as a result of a commercialization grant from the Department of Agriculture, Fisheries and Forestry, information dissemination and up-take of farming by Peter Haertsch as a result of publicity by the Rural Industries Research and Development Corporation, and successful contract farming negotiations between Agrilink Asia Pacific Pty Ltd and Peter Haertsch. Case Study 2: Wasabi Network Wasabi, a crucifer, is used fresh or processed into a paste and used as a condiment in Japanese dishes such as raw seafood (sushi and sashimi) and buckwheat noodle (soba). Wasabi leaves and petioles are pickled fresh in sake brine or soy sauce, or powdered for use as wasabi flavoring in foods such as salad dressings, cheese and crackers. Wasabi and its bi-products are also beginning to because in a wide variety of non-traditional food products such as ice cream, wine, cheese, salad dressings, and crackers. There are two methods of cultivating wasabi, stream-cultivation and field-cultivation. Produce from stream cultivation is perceived to be a superior in quality and commands a substantial price premium. More than 4,000 tonnes of wasabi are harvested in Japan annually. However, there is a shortfall of more than 1,000 tonnes in Japanese production and the shortfall is met through imports of field-cultivated wasabi from Indonesia and China, and small quantities of stream-cultivated wasabi from the United States of America. Japan’s production is forecast to decrease because of diseconomies arising from rapid urbanization and consequent non availability of suitable agricultural land, falling yields of production because of pollution, difficulty in hiring farm labor and high labor costs because the younger generation are not interested in farm work. Trial farming of wasabi was started by Rubicon Mountain Pty Ltd, the family enterprise of Peter and Pauline Gilmore, in Victoria. Rubicon Mountain Pty Ltd’s entry into the business was unplanned. It resulted from the chanced discussion between Paul Gilmore and Daniel Nenishkis, the Managing Director of Ito En (Australia) Ltd, concerning import inquiries that his company had received. Ito En (Australia) Ltd is the wholly owned subsidiary of Ito En (Japan) Ltd, a large Japanese food and beverage processor, importer and marketer with assets exceeding US$5.5 billion, sales of more than US$9 billion annually, and staffing levels of more than 2,800 persons. In the last few years Ito En (Japan) Ltd through its Australian subsidiary had commenced R&D into farming Japanese green tea and was pursuing contract farming and processing of Japanese green tea in Victoria. Being among the first Japanese green tea farmers in Victoria, the Gilmores had established a trusting and committed relationship with Ito En’s senior executives in Australia and in Japan. On learning of the opportunity to introduce another new crop, the Gilmores investigated potential sites for introducing stream-cultivated wasabi. Ito En provided assistance in identifying potential areas. It seemed that the area close to the Snobbs Creek Fisheries Research Station had the micro-climate, terrain and other features that are suitable for wasabi farming. The Gilmores successfully negotiated a five-year lease with the Victorian State government’s Department of Natural Resources and the Environment. The proposal by the Gilmores canvassed that they would use the water discharged from fishery farms in the area and that this would help the water discharged by inland fishery farms prior to it entering the waterways. The Department of Natural Resources and the Environment identified this as major benefit as

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it could mean that the Department could overcome a major issue regarding the licensing inland fishery farms. Wasabi farming by the Gilmores started as an experiment. Trial farming was on very small scale. Initially two varieties of the crop sourced from Japan through Ito En (Australia) Ltd were planted and later another variety of the crop was also introduced. Ito En (Japan) Ltd and Ito En (Australia) Ltd provided cash and inkind support to trial the crop. When the project was ready for commercialization, the Gilmores worked with the Murrindindi Shire Local Council and obtained a grant from the Federal government through the Department of Agriculture, Fisheries and Forestry. The collaboration between Ito En (Australia) Ltd, Ito En (Japan) Ltd, and Rubicon Mountain Pty Ltd was non-contractual and essentially motivated by longer-term strategic goals. Ito En (Japan) Ltd and Ito En (Australia) Ltd have core and distinctrive competencies. Ito En (Australia) could provide research and agronomic R&D support, Ito En (Japan) had distribution infrastructure and access to markets in Japan, Rubicon Mountain Pty Ltd had local knowledge, contact networks in Australia and was resources to up-take trial farming. The Murrindindi Shire Local Council and the Department of Agriculture, Fisheries and Forestry could provide cash and in-kind support and, therefore, reduce the cost of introducing a new commercial crop. The collaboration between Ito En (Japan) Ltd, Ito En (Australia) Ltd and Rubicon Mountain Pty Ltd was non-contractual and bound by the trust, commitment and personal bonds between the Gilmores and the executives of Ito En (Australia) Ltd and Ito En (Japan) Ltd.

Discussions and Conclusions The idea generation, R&D activities, trial cropping, start-up and development of the myoga and wasabi industries were facilitated through a network paradigm extending through activities encompassing research and development, crop propagation, outsourced farming arrangements, processing and packaging arrangements, marketing arrangements in Japan and Australia. The formation and development of the two projects provides insights into the development and growth of networks and the qualities, attributes and orientations of the network leader. The start-up of the two networks and the initial development of the two networks were preeminently based on non-contractual arrangements that are the outcome of the vision, leadership, trust and commitment of the leaders of the lead organizations in the networks. The case studies indicate that the management characteristics, qualities and orientations of the network leaders are different to management capabilities and orientations normally associated with corporate managers or entrepreneurs. The idea generation in the wasabi and myoga projects was the outcome of personal contact networks of the CEO of the lead organization with potential customers. Customers are a source of a firm’s core and distinct competence and managers of networks must realize this important source of competitive advantage (Prahalad and Ramaswany, 2000) and be able to develop a business portfolio on the basis of this core or distinct competence. The project opportunities in the case studies were predicated on the basis of accessing large export market opportunities with potential customers in Japan. To access such large opportunities the R&D and production infrastructure in Australia had to be large, something beyond the competency of the two small Australian companies that initiated the projects. The managers of the lead organizations in Australia strategically developed the relationship with potential customers through establishing a trusting and committed relationship, and demonstrating the willingness to invest in the projects. Until, the project had advanced fairly substantially, there was no systematic assessment of product market opportunities, cost-benefit analysis or other financial evaluations of the project. The projects were pursued on the basis that there was a product market opportunity through accessing the core competencies of customers in Japan, the perception that early mover advantages were critical to the success of the project, and that issues of resource constraints of the firms could be corrected through the development of a wider network of suppliers, R&D partners and customers. It appears that there was tacit recognition by the lead managers of the two networks that they should demonstrate commitment to the project and that detailed project evaluation or contractual commitment was not needed at the early stage. Thus, the genesis of both projects was based on the lead managers taking up the opportunity quickly and committing resources to the project without pursuing any binding contractual obligations from their potential Japanese customers. The network at this level consisted of the only two lead organizations and

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therefore the relationship was essentially that between a potential supplier in Australia and its overseas customer. The key feature of the relationship was that it was non contractual, was based on sharing of knowledge, and was based on trust, commitment and a desire to commercialize the project speedily. As the projects progressed, the networks grew and incorporated a variety of contractual and noncontractual arrangements between the lead organizations and other organizations. The strategies used by the lead managers showcases the adaptation of organizational structures to maximize relationshipbased competitive strengths of the organizations and the unique capabilities of the of the network partners. It seems that in the case of both projects the lead organizations did not have the financial nor technical capabilities to commercialize the projects. Advancing the projects entailed widening the network. Other strategic options were available to the lead managers but these options may not have matched the ownership and control imperatives of the lead organizations. For example, internal development (increasing the resources and capabilities across various areas) or acquisitions (buying other companies with the established capabilities that they needed) might have been beyond the financial and management resources of the lead organizations. Value-chain mergers may not have been feasible because it would entail substantial financial commitment, and the loss of identity and control by the lead organizations. It also seems that, because of scale diseconomies and resource constraints, the lead organizations might not have been able to commit to research and development expenditure for which the returns might not be recouped in the short term. The inclusion of the research institutions in the project, and thus the development of a systematic research and development program, and grants from the Rural Industries Research and Development Corporation, and the Department of Agriculture, Fisheries and Forestry were critical to scaling-up and commercializing the project. Creating a network operation is not operationally easy. It is to be expected that the objectives of the participants in the network may not match. Some, (for example, contract growers) may want to use the network to gain market access and accelerate the pace of commercialization and entry to new markets. Others (for example, the investors) may see the network as an opportunity to pool and share research and development expenditure. Some (for example, distributors) may believe that the network offers an opportunity to pool and share marketing costs. Some (for example, government agencies) may see the network as an opportunity to develop a new industry, learn from the experiences of developing a new industry and transfer the new knowledge and skills for the greater public good. Therefore, the recognition that the strategic initiatives of the organizations in the network can be diametrically opposite to one another is critical in managing a network organization. Effective management in a network context appears to entail both leadership attributes characteristic of managing large corporations and also entrepreneurial orientation in being flexible and willing to operate under an unsystematic and trial and error learning environment. The projects in the case studies were characterized by the fostering and use of personal contact networks, application of good analytical and judgmental skills in decision making, creativity, informal and, sometimes, opportunistic decision-making – qualities that epitomise entrepreneurial orientation. The initial strategic experimentation with myoga, for example, was the outcome of relationship between the companies that took up the project and contact networks in universities and government departments. The R&D partnership with the University of Tasmania was the outcome of the relationship between Richard Warner and Robert Clark. As the project progressed, the two entrepreneurs demonstrated skills in using their personal contact networks, negotiating with and engaging a greater number of organisations including the Rural Industries Research and Development Corporation, the Department of Agriculture, Forestry and Fisheries, and distributors in Australia and Japan. Finally, the commercialisation of the crop can be attributed to the entrepreneurship of Peter Haertsch, the New South Wales farmer who decided to establish a pilot scale cropping area and later invested in expanding the cropping area. The manner in which the project grew from an unsystematic small project to systematic experimentation at the University of Tasmania, and then into a pilot commercial project, demonstrates that the lead managers focused on strategic experimentation and trial and error learning, rather than strategic planning.

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Malaysia's K-Economy Plan: Are Malaysian Businesses 0n Track? Nicholas Beaumont [email protected]

Christina Costa [email protected]

Amrik Sohal [email protected]

Department of Management, Monash University, PO Box 197 Caulfield East, Vic 3145,Australia.

Karthyeni Purushothaman [email protected]. School of Business and Information Technology, Monash University No. 2, Jalan Kolej, Bandar Sunway,46150 Petaling Jaya, Selangor, Malaysia 603-56360600 Ext 3310

Contact author: Nicholas Beaumont

Abstract Like many other countries, Malaysia has a strong socio-economic and political urge to embrace a knowledge-based economy. Various strategic thrust has been put in place thru the country’s initiatives to coax Malaysians to transform into an information society. Success or failure at these initiatives ultimately rest in the hands of the people, particularly the business community. The important question is, are these policy efforts getting transferred into practice amongst Malaysian businesses. This paper reports the results of a survey of the use of Information Technology (IT) in 111 Malaysian organisations. The study was conducted primarily to determine the use of IT as a strategic tool. IT in Malaysian organisations is not often exploited for strategic purposes. Malaysian managers, despite their government’s urgings, are not enthused by IT. There were significant differences in IT use between (a) small and large respondents and (b) manufacturing and Service. We suggest how Malaysian businesses might better exploit Information Technology in the context of the Malaysian government’s “Vision 2020” plan for an information society. Keywords: Information technology, Malaysia, Strategy, Implementation

1. Introduction The role of Information and Communication (ICT), particularly its benefit to economic growth and development has been a focus of discussion among economist and policy-makers for many decades. Generally, the literature on the relationship between ICT and economic performance can be categorized into two groups, that is, studies at country level (single or group of countries) and studies at firm levels (Nair, Davison, Kuppusamy,2004). Whilst country level studies play an important role in examining the impact of ICT on productivity and economic growth at the national and international arena, firm level studies is of significant importance to observe the relationship between ICT investment and output growth of big and small firms in various industries. In view of this need for firm level data, this study is of particular value in contributing empirical primary data in the analysis of causal effects of ICT investment for organisational level efficiency and effectiveness. Information Technology encompasses and is critically dependent on communication; it would be more logical to use the term Information and Communications Technology (ICT) but the acronym IT is embedded in the literature. Most research on IT and its effects on individuals, organisations and societies has been carried out in North American and European contexts. Given that studies of IT in other cultures and countries are

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comparatively rare, scholastic research such as this Malaysian study serves to modestly address the gap for empirical and primary data in this area. Scarcity of empirical evidence poses a serious challenge to scholars investigating the real performance of organisations/industries in developing economies. Some pertinent Malaysian exceptions are: research into the Malaysian telemarketing industry [Kassim and Bojei (2002)]; implementation of advanced manufacturing technology in Malaysia [Noori (1997)]; evaluation of Computer-aided Software Engineering Tools in Malaysia [Selamat and Rahim (1996)] and using IT to increase Malaysian firms’ agility [Zain et al. (2003)]. Further empirical research is required to understand how firms in developing countries are using IT; a need exacerbated by organisations demanding better justification of IT expenditure and better returns from IT investments. Information Technology (IT) plays a crucial role in the survival and growth of contemporary business organisations and, given the strategic impact of IT, its competent management is essential for corporate success, even survival [Byrd (2001)]. This paper elucidates the roles of IT and the IT department in strategy formulation and IT’s impact on organisational performance. This paper augments empirical evidence by reporting a study investigating the role, management, and importance of IT in Malaysian organisations. The primary objective was to determine whether Malaysian organisations perceive and/or use IT as a strategic tool. The research instrument was questionnaire designed to determine: • • • •

How well organisations aligned their IT investment plans with their strategic plans; How, and how well IT strategies were formulated; How well IT systems were implemented; the facilitators of and impediments to implementation and; Whether investments in IT were profitable.

We summarise our search of the literature for definitions of IT; relevant prior research on Malaysian IT use; the relationship between IT and strategy; the criteria used to evaluate IT investments; and the ways in which the IT function is organised. The research methodology and respondent profile are described; summaries and statistical analysis of the data are presented; conclusions and recommendations for business noted; and suggestions for further research given.

2. Literature Review Despite myriad definitions, Information Technology (IT) consensually refers to “equipment and attendant techniques, and is essentially activity based, supply oriented, and technology and delivery focused” [McOmber (1999); Willcocks et al. (1995, p 60)]. It encompasses the hardware, software, telecommunications (including voice, facsimile and email), as well as the personnel and resources dedicated to supporting IT [Sriram et al. (1997)]. Modern IT encompasses and is critically dependent on communication; it would be more logical to use the term Information and Communications Technology (ICT) but the acronym IT is embedded in the literature. Most businesses environments have become more demanding. Aspects of the environment (e.g. customers’ tastes, government policies, and technologies [Henderson (1992)]) change more rapidly and corporations must pay at least lip service to conservation, their employees' welfare and social responsibility. IT may help the organisation stay aligned with a changing environment [Morton (1992)] by providing more accurate and timely information. 2.1 The Malaysian Context: The IT Policy Impetus Malaysia is one of the fastest growing economies of South East Asia. In the 1980s, the Malaysian government started to focus on IT's role in industry and took several steps to formulate an explicit and supportive technology policy that would encourage the production and use of IT [Hussien (2000); Ramon and Yap (1996)]. Recognising that success in the modern world is dictated by environmental pressures, characterised by globalisation, technological advancements, greater market integration, heightened competition and shifts towards knowledge-based economies, the Malaysian government has consistently responded to these challenges by formulating national level policies geared at reengineering the country towards a knowledge based economy. Much of the impetus towards a new vision for the country was

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driven by the former Prime Minister, Mahathir Mohamad, in a national restructuring policy called 'Vision 2020". Access to IT may influence economic development and quality of life [Lu (2001)]. The Malaysian government has systematically identified IT as an issue of national importance and established new agencies and policy initiatives to accelerate its implementation and thereby transform Malaysia into a developed and industrialised country [Tipton (2002)]. As a result, IT infrastructure that facilitates connectivity in the knowledge based economy and critical investments, such as in intellectual capital, innovation and strategic alliances between the government and private sector enterprise, continues to enjoy strong government support and commitment in Malaysia. Various policy initiatives had been taken by the Malaysian government to transform itself from being a production based economy to a knowledge based economy since the mid 1980's. In 1991 Malaysia launched a national information infrastructure program entitled 'Vision 2020'. The objective is Malaysia becoming a fully developed and value-based society by 2020. The government views the application of IT across Malaysia as a means of achieving developed country status [Tipton (2002)]. Vision 2020 envisages a GDP growth rate of 7% pa implying an eight-fold expansion of the economy between 1990 and 2020. It also envisages an industry-government partnership for development; changes in education to make the nation IT literate [Siowck-Lee (1998)]; human resource development; and inculcation of ethical values in business. A changed business culture is implicit. The Ministry of Science, Technology and the Environment promoted newer technologies among local manufacturing companies [Noori (1997)]. The Communications and Multimedia Act, enacted in 1988, is the legal framework for the Multimedia Super Corridor Project. It governs three traditionally distinct industries (broadcasting, telecommunications and IT) that were formerly separately regulated [Hussien (2000)]. In addition government programs aim to: establish minimum interoperability standards for government information technology procurement; provide a sophisticated telecommunications infrastructure; and establish Malaysia as a major global centre and hub for communications and multimedia information and content services [Blanning et al. (1997); Hussien (2000); Tipton (2002)]. Other government driven efforts include the establishment of the Technology Park Malaysia (TPM) in 1988 with an aim to assist with the development of local technologies and commercialisation of R&D findings. The primary role of TPM was to support growth of ICT industrialisation and become the interface between industry, government, research institutes and universities in Malaysia. In 1992, the Malaysian Technology Development Corporation (MTDC) was established with a similar role. The National IT Council (NITC) was formed in 1996 as a forum for formulating strategic level IT policymaking for the country. In the same year NITC launched NITA - the National IT Agenda, which served as a framework for the systematic development of IT in Malaysia. The main outcome of this effort was The Multimedia Super Corridor (MSC) which was formed in 1996. MSC had ambitious goals such as to become an IT hub for the region, by providing a conducive environment for the development of creativity and innovation using IT, with an aim to facilitate faster technology transfer and quicker IT adoption in the country. Apart from these efforts, strategic Science and Technology policies were introduced in successive 5-Year Malaysia Plans. Funding for R&D activities is allotted through the Intensification of Research in Priority Areas (IRPA) fund introduced in 1987. There has been a substantial increase for funding allocation for IRPA in each successive Malaysia Plan. The current 8th Malaysia Plan allocated RM1billion. (Nair et.al, 2004). It was clear that strategically, the country needed to undertake the development of a knowledge-based economy for several reasons. Over the years, Malaysia's global competitiveness was eroding. Malaysia's ranking in the World Competitiveness Scoreboard (1994-2001) showed that Malaysia's ranking had slipped 18th to 29th in that time-period, while its neighbour Singapore managed to sustain 2nd ranking after the United States for the same period. Foreign competition was increasing, and hence the pressure to prospect for new products and services that will be competitive in the global market is increasingly felt. For this to happen, Malaysia needed to seek higher value-added, move into more profitable and wealthgenerating stages of production, seek new source of growth and meet the challenge of enhancing total factor productivity(Ministry of Finance Malaysia,2002). A key initiative of the Malaysian government to accelerate the move to a knowledge-based based economy was the launch of the Knowledge-based Economy Master Plan in 2002. This Master Plan

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presented a mission to revitalize viable production-based industries by infusing more wealth-generating knowledge into them. Secondly, it aimed to ensure the vigorous development of viable knowledge empowering and enabling industries as well as profitable and high value-added knowledge intensive industries. To this end the Master Plan proposed seven strategic thrust and six essentials to propel the transition of the Malaysia into a knowledge-based economy. Table1:Malaysia’s K-Economy Strategic Thrust and Essentials

7 Strategic Thrust Cultivate and secure the necessary human resources Establish the institutions necessary to champion, mobilize and drive the transition to a K-based economy Ensure the incentives, infrastructure and infostructure necessary to prosper the optimal and ever-increasing application of knowledge in all sectors of the economy and the flourishing of knowledge-enabling, knowledge empowering and knowledgeintensive industries. Dramatically increase capacity for the acquisition and application of science and technology (including ICT) in all areas. Ensure that the private-sector is the vanguard of the K-based economy’s development. Develop the public sector into a K-based civil-service. Bridge the knowledge and digital-divides. 6 Essentials A conducive external environment A conducive domestic environment Sustained competitiveness Productive partnership between the public sector, the private sector and the community. Private sector as the vanguard Good corporate governance Source: Knowledge-Based Economy Master Plan, Ministry of Finance, 2002 A study by Nair, Davison and Kuppusamy (2004) examines the competitiveness of 5 ASEAN countries including Malaysia in terms of development in the knowledge economy. Using a comprehensive model covering key indicators for analysis of competitiveness in information and communication technology of the ASEAN nations vis-à-vis other developed and developing economies, the authors note that the empirical analysis showed that in comparison to the developed economies, and a few developing economies from the Latin America, Malaysia and a few of its ASEAN neighbours, with the exception of Singapore have fallen behind in terms of the key indicators as well as in key productivity areas such as labour, service, manufacturing and overall productivity. Despite government’s subsidies, anecdotal evidence suggests that Malaysian Small and Medium Enterprises (SMEs) do not see value and benefit in IT [Karkoviata (2001)]. A small business operator stated: “…Malaysians are reluctant to buy on the Internet, they still want to see the real stuff…it might work well in the US, but Malaysians aren’t going to give out credit card numbers on the net.” [Karkoviata (2001, p75)]. Another Malaysian small business owner uses the Internet to promote her furniture imports from India and Indonesia, but customers have to go to a brick-and-mortar location to purchase them “The logistics are too difficult and people really want to examine the furniture before they hand over any money.” [Karkoviata (2001, p75)]. Recent research examining the use of IT/IS among Malaysian firms in providing information for management decision-making found that IT/IS has become critical to organisations’ success. Although Malaysian firms were particularly effective at using IT/IS for mastering change, leveraging resources, and cooperating with each other to compete; they were not yet adept at using IT to inform employees, relate to customers and/or provide better service [Zain et al. (2003)].

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2.2 Corporate Strategic Issues Information technology now pervades most organisations. Management faces challenges in exploiting and managing IT. Computerising a business process implies that it will run more cheaply; be accelerated; have fewer errors; possibly improve the quality of working life by being quieter, cleaner and more predictable; and be applicable regardless of participants' geographic locations. IT improves decision making by providing more accurate, timely, relevant and conveniently organised information; and better analysis of options. The promise of increased competitive advantage has driven IT investment and the relationship between competitive advantage and IT has been analysed by many researchers and practitioners [Benjamin et al. (1984); Clemons (1986); King et al. (1989); Porter (2001)]. It was once thought that the competitive value of IT came from so-called Strategic Information Systems (SISs) [Reich and Benbasat (1990); Sabherwal and King (1995); Sabherwal and Tsoumpas (1993)]. SISs were defined as those enabling organisations to change their goals, operations, products, and/or environmental relationships to gain an at least temporary competitive advantage [Wiseman (1988)]. However, evidence suggests that individual applications like SISs are becoming increasingly difficult to keep proprietary [Mata et al. (1995)] and less certain sources of Sustainable Competitive Advantage (SCA). Neumann [(1994)] argued that SISs were but one element of the hard to reproduce and maintain mix of assets comprising an SCA. 2.3 Relationship between IT Investment and Profitability IT expenditure is often viewed as a necessary evil, part of the cost of doing business. It should be treated as an investment yielding tangible and intangible benefits. Tangible benefits are usually manifest in reductions in the cost of business processes. There are myriad possible intangible benefits of IT perhaps classifiable as: (a) simplification and/or acceleration of internal structures and processes (b) increased scope, i.e. being able to reach a greater number of potential customers and enlarge the pool of potential suppliers (c) collection and analysis of more data that is accurate and up-to-date and (d) incorporating IT in new products and Service s [Earl (1989); Evans and Wurster (2000)]. The problem of managing IT is exacerbated by rapid changes (exemplified by the emergence of the World Wide Web) in Information and Communications Technologies (ICT) that make forecasts of its potential effects hazardous [Kalakota and Robinson (2001)]. Proving that IT investment improves business performance is extremely difficult and a “productivity paradox” has been noted by Strassmann [(1997)]. IT investment benefits may be lagged, masked by extraneous events, enjoyed by customers or manifest in survival in very competitive markets [Brynjolfsson and Hitt (1996); Hu and Plant (2001); Mitra and Chaya (1996)]. Sriram & Krishnan [(2003)] found a positive association between investments in IT and market value and argued that the findings support the notion that investors perceive investments in IT as value-relevant [Sriram and Krishnan (2003)]. Brynjolfsson, Hitt and Lorin [(1998)] assert that the return on investments for IT capital is over 50% pa. Other researchers found that IT increased productivity and created substantial value for consumers but that such benefits did not result in supranormal business profitability [Brynjolfsson and Hitt (1996)]. Mitra & Chaya [(1996)] found that firms spending more on IT achieved lower cost of production, lower total operating cost and higher average overhead costs than their peers. However, they did not establish a causal relationship between investments in IT and the various cost factors investigated. It is notoriously difficult to measure the potential and/or actual returns from investment in IT at the level of the individual project, individual firm, industry segment or nation. The benefits of Amazon.com’s web pages are presumably substantial but difficult to quantify. Strassmann [(1997)] reports a low correlation between firms’ IT investments and subsequent profits. The benefits of IT investment may be intangible and/or long-term. Intense competition, exemplified by the WWW [Porter (2001)], may imply that most of the benefits flow to customers. There is an emerging tendency to evaluate IT in a strategic context and demand that IT investments support and contribute to corporate strategy. The critical question is: “Can IT help create a sustainable competitive advantage?”

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2.4 Process and Implementation issues A critical success factor for IT in organisations is how quickly and how well IT departments, in cooperation with other departments, can implement systems, i.e. can translate users’ or top management’s requirements into working systems. Factors that promote successful implementation of IT include: top management support; resource availability; prior experience with innovation [Edmondson (2003); Leonard-Barton and Deschamps (1988)] cultural attributes [Harper and Utley (2001)] and the ways in which relationships and work routines are disrupted by a new technology [Orlikowski (1993)].

3. Research methodology and respondent profile The questionnaire underlying this research was based on an earlier study of Australian organisations. In developing the Australian questionnaire, in-depth interviews were conducted with the Chief Information Officer (CIO) of a large manufacturing organisation and a large retailing organisation. These interviews generated some constructive ideas for the issues to be explored through the questionnaire survey. A draft questionnaire was then prepared and circulated to a number of IT professionals for comments that were used to modify the questionnaire. The sampling frame was selected from the Research Links database of the top 1000 business firms in Malaysia. The questionnaire, accompanied by a covering letter to explain briefly the purpose and aim of the survey and a reply-paid return envelope were mailed out in early August 2000. To improve the response rate, reminder letters were sent out in mid-September 2000. By late October, a total of 111 responses were received. The responses were analysed using the statistical package SPSS. Obtaining data on organisations by mailing out questionnaires is cheap and rapid. However: the views expressed in the questionnaire are a single individual’s (the informant); the informant may not be the addressee, may not know the answers to questions asked and omit or guess answers; organisations for which IT is an embarrassment are less likely to respond; and some organisations have a policy of not responding to questionnaires. Survey responses may mask subtleties and ambiguities.

4. Survey Results 4.1 Demographics Tables 2 through 6 give demographic data pertaining to the responding organisations. Most of the respondents were indigenous Malaysian organisations. The sample covers the public and private sectors. Tables 4 and 5 indicate that the sample contained a wide spread of organisational sizes as measured by revenues and number of employees. When analysing the responses to each question, we used χ-sq tests to determine whether there were significant differences between the responses of (a) manufacturers and non- manufacturers or (b) large (defined as having more than 500 employees) and small firms. Such significant differences are noted in discussion. Industry Sector Manufacturing Wholesaling Retailing Distribution Banking and Financial related Insurance & Unit Trust Stock Broking Service s Others

Percentage (%) 43 1 3 5 11 5 4 2 27

Table 1: Primary activity of respondents

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Organisation Status Public Listed Company Public Limited Company (non listed) Listed on 2nd Board KLSE Listed on Main Board KLSE Foreign Branch Office Operational Headquarters Private Limited Others

Percentage (%) 8 7 7 37 4 4 32 1

Table 2: Organisation type

Annual revenue Less than 150 million 150 - 300 million 300 - 500 million 500 – 1 billion 1 – 5 billion More than 5 billion

Percentage (%) 30 25 17 12 13 3

Table 3: Annual revenue (Malaysian Ringgit =$US 0.2632)

Number of employees Less than 200 201 - 300 301 - 400 401 - 500 501 - 1000 1001 - 2000 2001 - 5000 More than 5000

Percentage (%) 19 13 10 7 19 15 10 7

Table 4: Number of employees

IT Spend 0.01 – 2% 2.1% and 4%. 4.1% and 6% 6.1% and 8%, 8.1% and 10% More than 10%

Percentage (%) 68 17 6 3 2 3

Table 5: IT Spend as a Percentage of Turnover

4.2 Challenges Informants were asked to identify (from a list of 17) the challenges most relevant to their industry and, of these, the three most critical. As shown in Table 6, the most relevant issues that Malaysian businesses face are: “understanding the competitive situation” (48%), “developing new market responsive products” (48%), “rising labour cost” (45%), “product quality” (43%) and “workforce skills shortages” (41%). There

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was a slight indication (from factor analysis) that respondents classified challenges as internal or external to their organisations. Main Relevant Issues Understanding the competitive situation Developing new market responsive products Rising labour cost Product quality Workforce skills shortages Managerial productivity Keeping pace with advancements in IT Static/low growth in demand Value of the Malaysian Ringgit Overseas competition Labour productivity Keeping pace with new technology specific to your industry Management know-how Workforce training/re-training Interest rate fluctuations Deregulation of Malaysian Ringgit Long term high inflation Other

% of Respondents1 48 48 45 43 41 39 39 38 37 37 36 36 29 28 26 26 10 5

Table 6: Challenges facing Malaysian businesses

Significant differences between large and small; manufacturing and Service organisations are summarised in Table 7 and Table 9. Some differences in Table 7 might be attributed to imports competing with domestic manufacturers (most services have to be provided locally) and manufacturers’ emphasis on product quality. A large proportion of the nonmanufacturing respondents are involved in the financial sector (see Table 8) and are concerned with financial issues exemplified by currency deregulation and interest rate fluctuations. The differences may be attributable to large organisations having Information Systems that keep them better informed of issues listed in Table 9 and formal monitoring and improvement programs. Perhaps larger organisations are more frequently owned and/or managed by overseas interests with “Western” managerial styles. Challenge

p value of χ-sq test

Overseas competition Deregulation of the Malaysian Ringgit Interest rate fluctuations Product quality

0.007 0.012

% of respondents that considered it a challenge Manufacturing Service 53 28 15 37

0.003 0.002

13 62

39 31

Table 7 Challenges: manufacturing and service respondents compared

1

multiple responses allowed.

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Challenge Product quality Rising labour costs Managerial productivity

p value of χ-sq test .042 .016 .031

Small 35 35 30

% of respondents Large 55 58 50

Table 8 Challenges: Large and small respondents compared

4.3 Corporate Strategy and IT strategy Several survey questions pertained to corporate strategy and IT’s contribution to it (see Table 9). 77% of respondent organisations had a formal corporate business strategy, 48% had a 5-year strategic plan and 41% had a 1-year strategic plan. The overwhelming majority of respondents believe that IT is a vital part of strategy, and/or that it facilitates strategic formulation and implementation. 41% of respondent organisations considered IT as an enabling tool to the strategy, 24% considered IT as an integral component and 22% considered IT as a key resource in implementing the strategy. A small proportion (6%) of respondents thought IT irrelevant to corporate strategy development. Many of the competitive advantages attributed to IT seem to pertain to customer retention. Factor analysis of Table 9 suggests that IT can give competitive advantage by creating closer links with customers and suppliers; reduce opportunities for customers to switch; act as a product in its own right; and create barriers to entry. In this context, informants did not perceive differences between their own firms and competitors. Competitive advantage through IT Internet as a medium for advertising Closer link to customers (locking in) Closer link to suppliers (mutual advantage) Add value to product, lessen chance of customer switching Achieve product differentiation IT as a product itself Creation of barriers to entry for new players

Respondent’s organisation (%) Yes No 58 42 56 44 46 54 45 55

Yes 61 54 47 38.5

No 39 46 53 61.5

43 28 21

36 27 22

64 73 78

57 72 80

Competitors’ (%)

Table 9: Kinds of competitive advantage obtained through IT

Table 10 lists reasons why organisations have neither sought nor gained competitive advantage from IT. Not being seen as strategically important to the industry (32% of respondents) was the most common reason offered. This supports the hypothesis that organisational use of IT in Malaysia is still in its infancy and that, despite their government’s blandishments, Malaysian businesses do not see IT as important. Factor analysis suggests that, most importantly, there is a lack of understanding of and commitment to IT, especially by top management, but also by middle management; that the computer department does not understand business requirements; and management does not appreciate IT’s potential.

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Reasons For lack of competitive advantage IT is not seen as strategically important to industry Lack of understanding on the potential of IT by Senior Management IT is not seen as strategically important to organisation Lack of understanding of real business needs by IT department Unrealistic goals, not adequately researched and quantified Lack of commitment from operational level staff Lack of understanding on the potential of IT by Middle Management Lack of commitment from senior management Lack of commitment from middle management Other

% of respondents 32 26 23 15 14 14 11 9 9 5

Table 10: Reasons for lack of competitive advantage

The IT Department’s Involvement in Corporate Strategic Planning This role of IT has changed greatly. Formerly a back-office function, IT is now a source of competitive advantage [Porter (2001)] and driver of business process redesign [Venkatraman (1994)]. The evolution of IT implies that CIOs are increasingly expected to have broad managerial skills [O'Donnell et al. (2001)]. Earl [(1989)] asserts that today’s CIO participates in shaping the strategic direction of the company and requires technical competence, business acumen and leadership skills. Past research has identified the CIO’s crucial role in aligning IT strategy with corporate strategy. A major challenge is convincing senior management that the CIO can ensure that systems operate successfully across the entire enterprise [Lasker and Norton (1996)]. Other research asserts the importance of the relationship between the CIO and CEO. However it is difficult to get the support of a CEO who neither understands nor welcomes the implications that a new technology such as the Internet may have for the organisation's “7 S’s” (strategy, style, structure, systems, skills, staffing, and superordinate goals) [Kalakota and Robinson (2001); Waterman et al. (1980)].

IT Function’s Structure In responding organisations, the average IT department’s structure is relatively flat with 54% of organisations having zero or one (13%), two (23%), three (31%) or more (33%) levels between the programmer and the IT manager.

The IT Department’s Contribution to Strategy To determine the IT department’s contribution to strategy, two questions were asked. The first sought the extent to which the IT department contributed to strategic planning. Respondents were asked indicate whether they had partly or fully contributed to a number of strategic planning activities (see Table 12). Factor analysis suggests that the responses can be divided in to two groups. The first group, characterised by ascertaining organisational capabilities and goals, comprises the first two responses. The remaining elements pertained to identifying IT based opportunities. The second question sought the IT department’s participation in strategic tasks (see Table 12). IT departments partly or fully contributed to a number of strategic planning activities. These included ‘Sharing potential IT opportunities/capabilities with those responsible for planning’ and ‘Finding and evaluating IT potential opportunities’. Activities where IT departments can further improve their contribution include ‘Identifying organisational level capabilities’, and ‘defining organisational level goals’.

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There were significant difference between small and large companies in finding and evaluating potential IT opportunities (p = 0.005). This is probably attributable to large organisations having specialized resources and being more conscious of the potential of IT. Some larger companies may be influenced by “Western” management styles and/or ownership. Note that benchmarking was not widely practised (see Table 12). Organisational Strategic Planning Elements Match IT capabilities/innovations to potential organisational goals Find and evaluate IT potential opportunities Inform strategic planners about IT capabilities Share potential IT opportunities/capabilities with those responsible for planning Identify tangible benefits of a proposed strategy to organisational planners Identify organisational level capabilities Identify intangible benefits of a proposed strategy to organisational planners Define organisational level goals

None 25

Partly 40

Fully 31

22 21 17

43 44 51

31 30 27

32

39

23

31 34

41 41

22 18

39

37

16

Table 11: IT Department’s contribution to organisational strategic planning (% of respondents)

Strategic role Align with organisational strategies Identify its overall strategic role in the organisation Adjust internal IT strategies to promote organisational strategies Measure IT success against organisational strategies Benchmark other organisations

None 10 11

Partly 46 48

Fully 40 37

18

43

34

21

54

21

44

42

9

Table 12: Tasks of IT department (% of respondents)

IT Applications and Issues Table 14 indicates that most responding organisations have fully or partially computerised most basic business functions, especially financial functions whose reliability and accuracy are critical. It is significant that EDI/EFTPOS functions are less completely computerised. The manufacturing industry had fully implemented more systems than service businesses (Table 14). The differences are consistent with expectations: non-manufacturers have less need for the systems listed in Table 14.

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Accounting/Finance Human Resource / Payroll LAN / Intranet / Internet Inventory / Logistics Office automation Distribution / Wholesaling Order Processing Management Manufacturing CAD/CAM/CAE EDI / EFTPOS Other

Extent to which computerised Fully Partially None 73 23 0 68 26 0

Under consideration Yes No 0 0 1 1

61 47 41 34 34

32 28 44 18 26

1 8 5 17 10

2 6 2 5 6

0 1 0 10 8

20 17 8 0

28 27 18 3

14 18 9 0

5 4 28 3

14 15 17 0

Table 13: IT applications in use

Type of System CAD/CAM/CAE Distribution/Wholesaling Inventory/Logistics Manufacturing Order processing management

p value of χ-sq test 0.027 0.000 0.000 0.000 0.021

% fully computerised Manufacturing Service 21 6 37 12 40 17 28 5 35 13

Table 14: Comparison of manufacturing and service industries in systems development

Respondents were asked to indicate the extent to which they had carried out detailed analysis of various costs, benefits and risks of IT projects (see Table 15). Factor analysis suggests that assessment of potential IT investment is made primarily by considering the costs of system development, training and operations. Most analyses were financial, incorporating implementation, installation, and development costs; cost benefit analysis was stressed. Review of contribution to business strategy was given some weight. Little consideration was given to discounted cash flow/net present value, intangible benefits (perhaps because of the difficulty of estimating them), training costs and risk analysis.

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Stage of IT investment Analysis of implementation/installations costs Analysis of development costs Review of contribution to business strategy Cost benefit analysis Rigorous investigation of all potential benefits Analysis of operating costs Risk analysis Analysis of training costs Analysis of depreciation/maintenance costs Consideration of intangible benefits Discounted cash flow/net present value

None 7

Partly 37

Fully 51

13 17

41 35

42 42

14 9

41 49

41 39

11 30 19 19

51 40 51 56

35 26 25 21

26 43

51 38

17 14

Table 15: Extent of IT investment analysis (% of respondents)

Table 16 shows the extent to which various issues are addressed within the responding organisations’ IT strategies. The results indicate that, in many organisations, the IT strategy is driven by a specific expenditure budget (75% of the respondents), cost savings (72%) and improved customer service (71%) rather than by developing new products and markets (35%) or competitors’ actions (38%). In the context of IT strategy, capital expenditure budgets were significantly more important to the service sector (51%) than the manufacturing sector (31%) (p < .001). Issue % of respondents classifying the issues as Capital expenditure budget Cost savings Improved customer service Impact of IT on competitive advantage Benefits related to corporate strategy. Ongoing expense budget Future direction of new technology developments Prioritisation process Hardware suppliers Return on investment criteria Software suppliers Increased sales revenue Non-quantifiable benefits What competitors are doing with IT New products and market development.

% of respondents considering the issue Critical Relevant 46 75 52 72 58 71 47 66 39 64 14 51 27 51 31 48 10 46 25 43 5 41 28 41 19 40 11 38 21 35

Table 16 Issues addressed in formulating IT strategy

Table 17 shows the extent to which senior managers are involved in developing and implementing IT strategies. CIOs are primarily involved in managing/controlling projects (80%), developing IT strategy (73%), prioritisation of opportunities (61%) and realisation of benefits (60%). The CEO/MD (73%) and the Board (37%) were involved in major capital investment decisions. The CEO/MD (68%) and the Board

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(25%) were involved in reviewing and approving the IT strategy. Senior managers involved in the development and implementation of the IT strategy include: the CEO/MD (50% of respondents), Finance Director (38%), IT/MIS Manager (73%) and user department managers. Issue

Board

CEO/MD

Finance Director

IT/MIS Manage r 31

User Dept Manage r 7

Major capital investment decisions Review & approve Development of the IT strategy Prioritisation of opportunities Realisation of expected benefits Managing controlling the project

37

73

46

25 12 3 3 1

68 50 45 29 23

35 38 33 36 28

Othe r 3

30 73 61 60 80

13 41 29 44 31

3 3 4 3 3

Table 17: Senior management involvement in IT projects (% of respondents)

IT implementation issues Respondents were asked to indicate the extent to which a number of implementation issues were addressed in the IT strategy (Table 19). Aspect User training Implementation of project management Organisational impact of systems implementation Quality assurance and change control Benefit realisation Post implementation review process

Percentage of respondents None Little Somewha t 2 12 44 5 11 44

38 36

3

14

46

32

5

20

44

26

3 5

17 19

51 47

24 23

Extensive

Table 18: Implementation issues

Respondents were asked to identify the importance of several factors that they considered critical to the successful adoption of IT. The results, (Table 19) show that the most important success factors are: training of users (87%), quality of IT staff (81%), system planning (78%) and system implementation (78%). The answers to this question were not amenable to factor analysis except that a common, strong theme underlying responses was discipline: a disciplined approach and managerial involvement are prerequisites for success. Documentation of hardware and software was surprisingly important and a third important theme was human skill availability.

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Factor

Relevant Factors

Training of users Quality of IT staff System planning System implementation System testing Senior management awareness/support Software support Use of software package System design/analysis System development Hardware support Precision definition of requirements Middle management awareness/support Strict project control Software documentation Precise quantification of costs and benefits Equipment performance Quality control of specification process Use of high level steering committee Use of consultants Minimum change to specification during development Hardware documentation Other

87 81 78 78 69 69 66 65 63 63 60 57 54 53 51 48

Amongst Three Most Critical Factors 37 41 24 22 8 19 12 5 21 5 5 29 5 19 4 16

48 47 38 37 34

2 8 10 3 3

23 6

2 5

Table 19: Factors facilitating IT implementation projects

There were significant differences between the manufacturing and service sectors and between large and small respondents (Tables 21 and 22). Perhaps the service sector is more practiced in implementing systems or regards them as more important. Certainly, information systems are vital to industries such as stock broking, banking, and money market dealing. Large organizations probably have a more professional and systematic approach to systems development. Factor


System Planning System development System testing Software support

0.017 0.037

% that indicated relevance to successful IT implementation in Manufacturing Service s 33 48 25 40

0.025 0.042

28 28

43 42

Table 20 Implementation issues: manufacturing and service sectors compared

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Factor


System development Precision definition of requirements Minimum change to specification during development Strict Project Control Equipment performance Hardware Support Use of high level steering committee

0.041 0.023

% that indicated relevance to successful IT implementation organizations that were Small Large 26 39 23 37

0.016

11

25

0.010 0.000 0.039 0.007

20 15 25 12

36 35 38 27

Table 21 Implementation issues: Small and large respondents compared

Respondents were asked to indicate impediments to implementation (Table 22). The most commonly cited constraint was “economic factors” which includes external factors such as low rate of growth in demand and high interest rates. The second most important impediment was “difficulty to justify costs” indicating that top management may not appreciate the importance of IT despite their involvement in reviewing and approving major capital investment decisions (see Table 17). Insufficient middle management support and the need to integrate current hardware/systems also impeded implementation. Constraint Insufficient top management support Difficult to justify cost Economic factors Controversial benefits Unsuitable or immature equipment Insufficient middle management support Need to integrate current hardware/systems Negative staff reaction Restrictions imposed by parent organisation Fear of better technology tomorrow Difficult to see where to use IT Interdepartmental conflicts Other Trade union opposition

Not a Constraint 19

% of respondents Minor Moderate Constraint Constraint 32 23

Major Constraint 21

5 14 18 23 14

35 26 33 27 31

32 38 28 14 35

20 17 15 14 13

14

31

35

13

25 59

49 13

11 14

9 7

33 56 50 0 79

33 22 32 0 9

20 12 9 1 3

6 5 4 4 0

Table 22: Impediments to successful IT implementation

The responses to this question were not very amenable to factor analysis but the following themes emerge. The most important factor comprised human dimensions especially lack of managerial support and negative staff reactions. The second factor reflects conflict over and lack of conviction in the promised benefits. The third factor reflects technical difficulties pertaining e.g. to integration with existing systems.

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In addition to investigating the successful factors to implementation, respondents were also asked to indicate the importance of a number of factors facilitating successful adoption of strategic IT (Table 24). These included Leadership, user support, training, and CEO involvement. Organisational Strategic Planning Element Leadership User support User training CEO involvement Organisational communications Obtaining competitive advantage Obsolescence of IT capability Benchmarking Other

Percentage of respondents None Partly Fully 4 21 72 4 29 63 4 36 57 12 32 51 5 50 41 16

51

25

15 23 1

65 63 0

15 9 0

Table 23: Impact of factors on successful adoption of strategic IT

Assessment of benefits Post implementation reviews were not always used. 63% of responding organisations conducted a rigorous post implementation review to determine whether benefits were initially achieved. 60% conducted reviews to determine continuation benefits. 68% conducted subsequent evaluation to ensure that systems were still consistent with business objectives. Respondents were asked to indicate the extent to which IT benefits organisational objectives. The results (Table 25) indicate that organisations are achieving only minimal benefits from their IT investment and that IT has not been considered as a strategic tool aligned with business objectives in significant areas. IT had a positive impact on the following objectives: staff productivity; management productivity; product/service quality; and corporate image. Factor analysis suggests that IT’s contributions to corporate objectives can be classified as non-financial (most important) and financial. Important non-financial benefits include “Increase sales/market share” and “Develop new products/services”. The financial benefits are best exemplified by staff and inventory cost reduction and improving staff productivity.

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Objectives Improve corporate image Control inventory costs Improve staff productivity Improve management productivity Improve order cycle time Improve product/service quality Improve stock availability Improve labour productivity Increase responsiveness to market needs Control other capital costs Exploit advantage of new technology Improve product/service development time scales Control staff costs Develop new products/services Increase sales/market share Increase margin by adding value

Not applicable 5 17 3 3 23 13 26 14 14

Minimal

Good

Extensive

26 21 15 20 14 23 20 31 30

42 34 60 56 37 44 29 37 38

23 21 19 19 18 18 16 14 13

15 7 21

35 34 31

30 40 32

13 13 12

7 41 29 22

38 25 33 35

41 24 26 33

9 6 5 4

Table 24: IT benefits to business objectives

Respondents were asked the degree to which IT goals had been met (see Table 25). Almost all respondents indicated that their systems were being used by their intended users with few problems (96% fully or partly) and that users were satisfied (96% fully or partly). Factor analysis suggests that reasons for knowing that IT goals have been met can be classified as non-financial (most important) and financial. Non-financial reasons include “High quality IT services”, "User satisfaction" and "Efficiency". Financial reasons include "Bottom-line results." and "Intrinsic returns". Strategic Planning Role Systems are used by the intended users with few problems User's satisfaction Efficiency – operational High quality IT services Organisational communications Effectiveness – business Competitiveness – strategic The organisations successful performance is informally attributed to IT contributions Qualitative returns Financial bottom line returns Intrinsic returns

None 2

Partly 39

Fully 55

2 6 8 2 13 23 8

39 35 44 60 49 44 61

55 51 43 32 32 26 25

14 23 21

55 53 55

23 18 14

Table 25: Extent to which IT goals have been met

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Conclusions and recommendations This study reviewed the Malaysian government’s policies and strategies aimed at developing and promoting a knowledge based economy and compares it to the results of a research into IT’s role in influencing, developing and executing corporate strategies in Malaysian organisations. It also reports on aspects of managing the IT department and managing IT projects. The most important findings were: • •

•

•

Almost all respondents thought that IT was relevant to and involved in strategy formulation and/or implementation. Nevertheless, a significant minority of respondents doubted IT’s strategic relevance and the IT function’ contribution and relevance to corporate strategy. Although basic business systems, especially financial systems, have been implemented in most respondents' organisations, the take-up of emerging systems such as electronic data interchange (EDI) and EFTPOS is slow. The methodologies used to select, evaluate, and implement new IT systems are unsophisticated. We note that survey results may imperfectly reflect cultural differences in decision-making and management. There may be lengthy discussions amongst decision makers in which these factors are discussed. For example, a discussion of a new IT system might include its potential effects on customer retention but respondents might not recognise this discussion as risk analysis. IT enthusiasts, including the Malaysian government, have not succeeded in selling their ideas to management, a significant proportion of who remain unenthusiastic and unsupportive. Organisations obtained appreciable financial and non-financial benefits from new IT systems. IT implementation projects were generally successful when assessed in terms of meeting project objectives, but success in terms of contributing to business performance was less clear-cut. Some responses from the manufacturing and service sectors were significantly different because they face different challenges. Having sophisticated computer systems may be a prerequisite to operating in financial markets. Manufacturers are concerned with the threat posed by imports and product quality. In general, large organisations are somewhat more advanced in their thinking on IT (they are more conscious of its potential) and are somewhat better at incorporating IT into strategy, managing the IT function, and managing IT projects. Large organisations are probably better informed of developments in and the potential of IT, have more professional management, and can employee IT specialists. They may be influenced by “Western” culture and/or owned by foreign companies that impose corporate computer systems. Small organisations, relying on personal or family networks may not need computer systems. Malaysia’s rapid economic growth may mean that entrepreneurs are too busy meeting demand to worry about IT issues and their potential long-term benefits.

Recommendations Although Malaysia is positively placed in terms of institutional, legislative and regulatory framework for promoting IT, the research results indicate that Malaysian executives have not been persuaded of IT’s potential to transform organisations. An increasing number of organisations are using the Internet to transmit data such as orders and payments amongst organisations and consumers. The advantages are much lower business costs, the ability to respond more quickly and to do business unconstrained by geography. Malaysian businesses may be threatened by foreign organisations that use the Internet to compete with indigenous businesses. The Malaysian telecommunications infrastructure, reputedly satisfactory in major cities, is deficient in provincial and rural areas and this inequity needs to be addressed. Malaysian business should exploit the Malaysian government’s efforts to persuade Malaysian business to use IT (especially its subsidies), acquire the requisite expertise, and use IT to achieve strategic objectives. Investment in IT might be impeded by culture in which people prefer that decisions be reached only after thorough discussion and consensus. However, if consensus is reached, implementation may be much faster and the systems that is implemented may be better aligned with business objectives. A culture that places great weight on face-to-face meetings may not readily accept comparatively impersonal methods exemplified by e-mail.

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Suggested Further Research Further research is required to determine why Malaysian businesses are not especially interested in information technology. The seeming lack of interest might be attributable to many factors: the interviewees belonging to a generation unused to information technology; interviewees belonging to a web of mutually supportive businesses in which the aggressive adoption of IT might be perceived as unfriendly; or a business culture used to face-to-face meetings. Interviews and case studies are required to determine deeper reasons for Malaysian businesses adopting (or not adopting) IT and the adoption mechanism. The Internet is an increasingly cheap tool (many standard packages for common business processes are available) that can drastically reduce the cost of business processes, increase the organisation's scope and expose the organisation to international competition. Research determining how proprietors perceive the opportunity and threat that information technology, especially the Internet, represents and the efficacy of the Malaysian government’s promotion of IT in Malaysian organisations is warranted. The Malaysian government is encouraging firms to adopt IT; it would be useful to ascertain how effective its campaign has been.

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The Taxonomy of Outsourcing Literature: A Research Agenda Nicholas Beaumont [email protected] Department of Management Monash University, Australia PO Box 197, Caulfield East, Vic 3145, Australia 61 3 9903 2371 (ph) 61 3 9903 2508 (fax)

Zaffer Khan Monash University, Australia

Abstract This paper stresses the importance for researchers and practitioners of categorizing articles pertaining to a discipline and of identifying a discipline’s neglected research areas. It categorizes refereed papers on outsourcing published between 1986 and 2003. The importance of outsourcing is demonstrated by data on the global outsourcing market’s size and growth. 286 refereed journal articles pertaining to outsourcing were located in several bibliographic databases (monographs, reports and web pages were ignored) and classified. The first level classifications were: Applications of outsourcing; papers pertaining to particular industries; the management of outsourcing, especially relationships; theory underlying outsourcing; the impacts of outsourcing on organizations and people; and miscellaneous papers. Growth in the number of papers is noted. Some aspects of outsourcing have been neglected by researchers. Academic interest lags the commercial world’s use of and enthusiasm for outsourcing. Information and communications technologies, especially those manifest on the world-wide-web, have reduced or eliminated interorganizational barriers thereby making outsourcing competitive with internal operations. This has profound implications for industry structures, organizations, and employees. These implications, and comparatively less important issues such as “off-shoring” and the relationship between the parties to an outsourcing arrangement, have been neglected by researchers. A research agenda is proposed. Keywords: Outsourcing, taxonomy, make-buy decisions.

Introduction For research in a discipline to advance, there must be readily available knowledge of research already done. Research finding are traditionally promulgated as papers that are peer reviewed and published in learned journals. This article contributes to the outsourcing discipline by identifying and classifying peer reviewed research in outsourcing that was published between 1986 and 2003 and proposing a research agenda. It was not possible to comment on each of the 286 articles. The analysis is limited to classifying the articles and identifying neglected research areas. Outsourcing is defined as “Having work that was formerly done inside the organization performed by an external organization” (Beaumont and Sohal, 2004) (see below for variants of outsourcing). Lonsdale & Cox (2000, p 445-9) summarize the history of outsourcing, noting that it has supplanted once fashionable enthusiasms for conglomeration, horizontal integration, and vertical integration. The fundamental question is: Why do organisations choose to outsource some activities and retain others? Essentially, outsourcing can be viewed as an alternative to either vertical integration or reliance on market mechanisms. The former entails cumbersome hierarchies and bureaucratic procedures: Internal processes not exposed to competition may degenerate or resist change when the organization changes. The latter entails costs such as identifying appropriate vendors; verifying their competence; communicating changing requirements to them; providing feedback; and monitoring their performances. It also entails risks such as prices varying unpredictably; supply being rationed when demand is abnormally high; and vendors failing or being unable to meet specifications.

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Deciding whether to outsource entails comparing the long-term costs and risks of internal and external supply. A long-term outsourcing relationship with a trusted vendor may be preferable to securing supply by backward integration or developing an in-house capacity. An organization will always outsource some activities (the supply of water and electricity) but insource others such as employee assessment. Outsourcing, especially of Information Processing (IP) functions, has been facilitated by Web Based Technologies (WBTs) that eliminate temporal and geographic constraints and nearly eliminate the marginal cost of transmitting data. WBTs make it easy, quick, and cheap to transfer internal data (e.g. payroll data or delivery instructions) to a vendor, implying that a vendor is no longer necessarily at a disadvantage to an internal supplier. A vendor performing payroll services can analyse data and instantly transmit results to the client, employees’ banks, and the tax office. Some kinds of outsourcing can be performed in low wage countries and/or a centralized facility that provides economies of scale. This is exemplified by the Asian call centre and the payroll specialist whose volume (derived from many clients) allows exploitation of a high fixed-cost, low variable-cost technology and expensive expertise. These fundamental considerations are manifest in many different motivations for outsourcing (see Table XXVI and Table XXVII). The criteria used to evaluate outsourcing decisions may be multidimensional and intangible; besides difficult to ascertain cost savings the firm must consider possible effects on customer service and its own staff; the potential advantages of access to expertise; whether it might become the uncomfortably dependent on the service provider (Kern and Willcocks, 2000), or hamper adoption to a changing environment. Further references to the pros and cons of outsourcing are given in (Barthelemy, 2001; Barthelemy and Adsit, 2003; Beaumont and Costa, 2002; Beaumont and Sohal, 2004). Outsourcing is a now fashionable managerial tool. There are grounds for supposing that it has more substance than other managerial fads such as empowerment, Business Process Redesign and TQM (Shapiro (1995) is salutary). Outsourcing is normally (and illogically) understood to pertain only to the supply of services. It is conventionally understood to exclude “one-off” tasks or projects but the development of an information system by a vendor is usually said to exemplify outsourcing. In this paper, vendor means the person or organization supplying the outsourced services, the client is the recipient of those services. Reason Reduce processing costs Focus Access expertise Avoid cultural differences Financial and cost structures Benchmark internal operations Quality Resources Risk avoidance Ideological

Comment By accessing economies of scale or expertise Outsource non-core activities and concentrate on areas of competence. Quinn and Hilmer (1994) note that identifying core activities may not be straightforward. Especially in building new systems. The IT department has anomalous working conditions. Change from fixed to variable cost, sell assets or manipulate accounts. Possibly resulting in the elimination of an IT department that is hard to manage and/or unproductive. Improve the HR services provided To meet uneven demand and/or access resources or skills not available internally. Avoid financial uncertainty through a fixed cost per transaction. Avoid the risks inherent in managing a project. Negotiate prices and guaranteed supply for the contract’s duration. The current Australian government has an ideological commitment to outsourcing, opining that the private sector is intrinsically more efficient than the public sector. Table XXVI: Reasons for Adopting Outsourcing

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Dependence Confidentiality Intellectual property Lost competencies Loss of flexibility Personnel and change problems Information asymmetry

Becoming dependent on the vendor. Keep confidential data in-house. Do not give other parties access. Outsourcing may atrophy in-house skills. Contracts may impede adjustment to changes in the environment. Staff made redundant by outsourcing may have to be dismissed or redeployed. Hard for an inexperienced client to determine whether the prices paid are reasonable. Poor methodology, negotiation, and monitoring. The vendor is unable to perform agreed tasks.

Project risk Incompetence

Table XXVII Reasons for Not Adopting Outsourcing

Outsourcing has spawned variants including: Out-tasking: The vendor simply provides resources (computer time or labour) and does work precisely defined by and managed by the client (Strassmann, 1997). Insourcing: Formalisation of the supply relationship between two departments of the same organisation. Backsourcing or repatriation: Taking work that had been outsourced back in-house. Co-sourcing: Used to emphasise that the outsourcing arrangement is based on cooperation (or “partnering”) between the parties. Strategic outsourcing: Outsourcing considered in strategic context (Quinn and Hilmer, 1994). Offshoring: Having work done in a foreign country, usually to exploit lower labour costs. Business Process Outsourcing (BPO), emphasizes the delegation of a business processes to an external provider who is responsible for all aspects of the process.

The Outsourcing market The practical importance of outsourcing is manifest in the market's size and growth. These are difficult to estimate; practitioners have no intrinsic interest in providing accurate data and there are definitional problems. Is it really outsourcing if the IT department becomes a wholly owned subsidiary and a new system of transfer pricing is imposed? There are few publicly available authoritative sources (some consultants’ reports are available only at high prices). The following information suggests that global outsourcing is growing at about 10-20% pa, but growth rates may be volatile and differ amongst sectors and regions. “Worldwide spending on Business Process Outsourcing (BPO) services totaled approximately $405 billion in 2003, a growth of about 8% over 2002. According to a new report from IDC, this market (comprising 9 business functions of human resources, procurement, finance & accounting, customer care, logistics, engineering/R&D, sales & marketing, facilities operations & management, and training) will increase to $682.5 billion in 2008, with a compound annual growth rate (CAGR) of 11%.” (http://www.insourced.com/article/articleprint/1705/-1/1/ accessed 11 May 2004) "Offshore outsourcing is just one small part of a $US5 trillion global outsourcing market. This market is growing by more than 15% pa, and the offshore component is certainly among the fastest growing. We are at the earliest stages of a fundamental transformation from regional economies to a single, integrated global economy. Just as companies now compete globally, workers need to realize that they, too, are competing globally." (www.ecommercetimes.com/perl/story/32114.html, accessed 11 May 2004). Table XXVIII and give Gartner and IDC’s estimates and forecasts of the global Business Process Outsourcing (BPO) market (www.it-careernet.com/itc/OS/globalmarket.htm accessed 11 May 2004).

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Forecasts in $USbn Total Business Process Outsourcing Market Percentage Offshored to Countries Offshored BPO Market India ITES Exports

2001 127 5% 6.4 1.5

2005 234 15% 35.1 9.5

2008 310 20% 62.0 21

Table XXVIII Forecast growth of offshoring (Gartner)

Source Gartner

Actual US$B 2001 91

IDC

Forecasts $USB 2004 2005

109

157

181

CAGR 20002005 14.7

177

202

13.1

Notes Excludes logistics and manufacturing outsourcing. Includes transaction processing.

Table XXIX: Predicted Growth in the Global BPO Market (IDC)

Methodology Four bibliographic databases: Business Source Premier, ABI-Inform Global, ACM Digital Library and IEEE Explore were searched for refereed articles on outsourcing. All other kinds of documents: dissertations, unpublished papers, book reviews, conference transcripts, and reports by governments, consultants and others were ignored. All articles that had the word root "outsourc" in the title or a keyword were noted; the counts are given in column 2 of Table XXX. Column 3 gives the number of articles that were used in the analysis. Articles were dropped if: they appeared in journals that were not classified by Ulrich (http://www.ulrichsweb.com/ulrichsweb) as refereed; they dealt only peripherally with outsourcing; they appeared in ostensibly peer reviewed journals identified with professions or industries and had trivial research content; or they were not research papers but e.g. book reviews or editorials. When duplicates were eliminated, a total of 286 refereed articles on outsourcing remained. Source ABI-Inform Business Source Premier ACM Digital Library IEEE Total

Number of articles retrieved on searching for “outsourc” in title or keyword. 1024 1205

No of articles that were considered. 59 289

200

21

51 2480

14 286 after duplicates accounted for.

Table XXX Counts of articles found in bibliographic databases

Classification Table XXXI gives the scheme that was used to classify papers on outsourcing. The major headings are: Processes Outsourced; Studies Pertaining to an Industry; Managing Outsourcing; Theoretical Work; Impact of Outsourcing; and Miscellaneous. Papers were included in more than one category when they made a substantial contribution to each thus (Baldwin et al., 2001), set in the banking industry, illuminates motivations for outsourcing and is listed under Banking and Frameworks. The classification of theoretical articles is coarse. It is difficult to subdivide the topic “Frameworks” because subtopics such as evaluation, decision-making, and evaluation will commonly occur in one theoretical article.

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Information Technology is the application most commonly outsourced and that broad topic was subdivided. In particular, outsourcing the construction of new systems separated from running established systems. We note a trend to outsource Human Resource Management and training processes. Amongst the papers emphasizing particular industries’ use of outsourcing were several describing governmental outsourcing. Outsourcing governmental activities has, with corporatization and privatization, become fashionable, at least in Australia. The results have been mixed. Theoretical work in managing outsourcing is difficult to finely subdivide because most articles cover several closely related topics such as outsourcing’s strategic effects, analysis of costs and benefits and analytical models. An issue of current interest is the nature of the relationship between the vendor and client: should it be an arms-length, black letter, legal arrangement or should it be a “partnership” based on trust? Outsourcing can have myriad impacts on people (especially those displaced by it) and organisations. We note that few papers follow up implementations of outsourcing and determine whether the tangible and intangible savings anticipated were actually achieved. Papers whose main thrust was globalisation or offshoring, an emerging topic, are included here. Under Miscellaneous were included some papers whose primary virtue was a well conducted case study or survey. 1 Applications 1.1 Finance/Insurance (5) 1.2 Logistics (5)

(Barrar et al., 2002; Jennings, 1996; Prager, 1994; Takac, 1994; Willcocks and Lacity, 1999) (Fernie, 1999; Knemeyer et al., 2003; Laios and Moschuris, 1999; Rabinovich et al., 1999; Richmond et al., 1992), (Allerton, 1996; Cant and Jeynes, 1998; Drucker, 2002; Kessler and CoyleShapiro, 1999; Klaas et al., 1999; Klaas et al., 2001; Salopek, 1998; Siegel, 2000; Slaughter and Ang, 1996) (Alexander and Young, 1996; Chaudhury and Nam, 1995; Chen and Perry, 2003; Clark, 1998; Currie and Seltsikas, 2001; Currie and Willcocks, 1998; Earl, 1991; Ekanayaka et al., 2003; Finlay and King, 1999; Fowler and Jeffs, 1998; Fulcher, 1998; Gerston, 1997; Graham and Scarborough, 1997; Gupta and Gupta, 1992; Hancox and Hackney, 2000; Harris et al., 1998; Ho et al., 2003; Hu et al., 1997; Huber, 1993; Jonash, 1996; Jurison, 1995; Kern and Willcocks, 2000; Kern and Willcocks, 2002; Kern et al., 2002; Khalfan and Alshawaf, 2003; Khosrowpour and Subramanian, 1996; Kim and Chung, 2003; Kimzey and Kurokawa, 2002; King, 1994; Kini, 2000; Klepper, 1995; Lacity and Hirschheim, 1994; Lacity and Hirschheim, 1993; Lacity and Willcocks, 1996, 1998; Lacity and Willcocks, 2000; Lacity et al., 1995; Laribee and Michaels-Barr, 1994; Lee et al., 2003; Lee and Kim, 1999; Lee, 1996; Levina and Ross, 2003; Lewis, 1999; Loh and Venkatraman, 1992; Mamaghani, 2000; McLellan et al., 1995; Meadows, 1996; Michel, 1997; Michell and Fitzgerald, 1997; Nam and Rajagopalan, 1996; Ngwenyama and Bryson, 1999; Palvia, 1995; Paraskevas and Buhalis, 2002; Peled, 2000; Pinnington and Woolcock, 1997; Saarinen and Vepsalainen, 1994; Shepherd, 1999; Sherwood, 1997; Smith et al., 1998; Sobol and Apte, 1995; Steven and R, 1996; Teng et al., 1995; Turner et al., 2002; Willcocks and Fitzgerald, 1995; Willcocks and Lacity, 1995, 1999; Yang and Huang, 2000) (Benamati and Rajkumar, 2002; Buck-Lew, 1992; Choudhury and Sabherwal, 2003; Currie, 2000; D'Costa, 2002; Goldsmith, 1994; Richmond and Seidmann, 1993; Richmond et al., 1992; Sabherwal, 1999, 2003; Silva, 2002; Smith and Mitra, 1996; Sobol and Apte, 1995; Wang et al., 1997; Wholey et al., 2001)

1.3 Human Resource Management (9) 1.4 Information Technology (69)

1.4.1 Building Systems (15)

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1.4.2 Running Systems (15)

(Cross, 1995; Currie, 2003; Currie and Seltsikas, 2001; Domberger et al., 2000; Grover and Cheon, 1996; Grover and Teng, 1993; Karlsberg et al., 2003; Paraskevas and Buhalis, 2002; Peled, 2001; Preston and Brohman, 2002; Smith and Rupp, 2003; Takac, 1994; Tayntor, 2001; Venkatraman, 1997; Willcocks et al., 1995) (Arnett and Jones, 1994; Ashmore, 1995; Chaudhury and Nam, 1995; McIvor, 2000; Sherwood, 1997; Takac, 1994)

1.4.3 Networks and Telecommunication s (7) 1.4.4 Accountancy (1) 1.4.5 Application Service Providers (2) 1.5 Training (6)

(Antonucci and Lordi, 1998) (Ekanayaka et al., 2002; Smith and Rupp, 2003) (Adelsberg and Trolley, 1998; Allerton, 1996; DeRose and McLaughlin, 1995; Gainey and W. Klaas, 2003; Lafferty and Roan, 2000; Salopek, 1998) (Buck-Lew, 1992; Incognito, 2002; McFarlan, 1997; McLellan and Beamish, 1994; Quinn, 2000),

1.6 Other (5) 2 Industries 2.1 Banking (5)

(Alexander and Young, 1996; Ang and Cummings, 1997; Baldwin et al., 2001; Huber, 1993; Takac, 1994) (Campbell, 1995; Levery, 1998, 2002; Rothstein, 1998)

2.2 Engineering and Maintenance (4) 2.3 Government (20)

(Cant and Jeynes, 1998; Chen and Perry, 2003; Else, 2002; Ferris and Graddy, 1986; Graham and Scarborough, 1997; Hancox and Hackney, 2000; Kee and Robbins, 2003; Khalfan and Alshawaf, 2003; Kim and Chung, 2003; Lafferty and Roan, 2000; Lavelle and Krumwiede, 2000; Lewis, 1999; Peled, 2000, 2001; Prager, 1994; Rimmer, 1998; Robinson, 2001; Steven and R, 1996; Webster and Harding, 2001; Willcocks and Currie, 1997) (Allen et al., 2002; Lafferty and Roan, 2000),

2.4 Education (2) 2.5 Health Care and Pharmaceutical (7) 2.6 Automotive (2) 2.7 Manufacturing (7) 2.8 Real Estate (3) 2.9 Libraries (4) 2.10 Other (6)

(Bista et al., 2002; de Leeuw et al., 2003; Peisch et al., 1995; Perry and Devinney, 1997; Piachaud, 2002; Silva, 2002; Wholey et al., 2001) (Caputo and Zirpoli, 2002; Zirpoli and Caputo, 2002) (Brochner et al., 2002; Dekkers, 2000; Ehie, 2001; Fulcher, 1998; Kim, 2003; Quélin and Duhamel, 2003; Sislian and Satir, 2000) (Glagola, 2001; Lyons, 2001; Manning and Rodriguez, 1997), (Agada, 1996, 1997; Oder, 1997; Pryor, 1995) (Blumberg, 1998; Logan, 2000; Mikkola, 2003; Paraskevas and Buhalis, 2002; Rothstein, 1998)

3 Managing Outsourcing 3.1 Selecting applications (12)

(Ahmadi et al., 2001; Baden-Fuller et al., 2000; Cronk and Sharp, 1995; DeRose and McLaughlin, 1995; Earl, 1996; Goldsmith, 1994; Lacity and Willcocks, 1996; Levery, 1998; Schneier, 2002; Willcocks and Currie, 1997; Willcocks and Kern, 1998; Wilson and Zhang, 2002) (Barthelemy, 2001; Choy et al., 2003; Cross, 1995; Currie, 1998; DeRose and McLaughlin, 1995; Gerston, 1997; Grupe, 1997; Jones, 1994; Judenberg, 1994; Kannan and Tan, 2003; Mamaghani, 2000; Michell and Fitzgerald, 1997; Nam et al., 1995; Perry and Devinney, 1997; Qu and Brocklehurst, 2003; Schneier, 2002)

3.2 Selecting vendors (16)

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3.3 Negotiation, legal issues and contracts, control of outsourcing activities (44)

(Barthelemy, 2001; Behara and Gundersen, 1995; Chaudhury and Nam, 1995; Choudhury and Sabherwal, 2003; Domberger et al., 2000; Due, 1992; Earl, 1991; Fenn et al., 2002; Fernie, 1999; Ferris and Graddy, 1986; Graham and Scarborough, 1997; Harris et al., 1998; Judenberg, 1994; Juma'h and H. Wood, 2003; Kern and Willcocks, 2000; Kim, 2003; Kliem, 1999; Lacity and Hirschheim, 1993; Lacity and Willcocks, 1996, 1998; Lacity et al., 1995; Langfield-Smith and Smith, 2003; Lee, 1996; Leiblein et al., 2002; Levery, 2002; Logan, 2000; Mullin, 1996; Prager, 1994; Richmond and Seidmann, 1993; Richmond et al., 1992; Rimmer, 1998; Saunders and Gebelt, 1997; Smith et al., 1998; Steven and R, 1996; Tanenbaum, 2003; Thornton, 1997; Turner et al., 2002; Useem and Harder, 2000; Vining and Globerman, 1999; Willcocks et al., 1995; Willcocks and Currie, 1997; Willcocks and Kern, 1998; Willcocks and Lacity, 1995; Zhu et al., 2001) (Beaumont and Costa, 2002; Behara and Gundersen, 1995; Blois, 2002; Chen and Lin, 1998; Choudhury and Sabherwal, 2003; Cross, 1995; Currie and Seltsikas, 2001; Else, 2002; Foxman, 1994; Gainey and W. Klaas, 2003; Grover and Cheon, 1996; Gupta and Gupta, 1992; Incognito, 2002; Judenberg, 1994; Kern et al., 2002; Kim and Chung, 2003; Klepper, 1995; Knemeyer et al., 2003; Kobitzsch et al., 2001; Lacity and Hirschheim, 1993; Lacity and Hirschheim, 1996; Langfield-Smith and Smith, 2003; Lau and Hurley, 1997; Leavy, 2001; Lee, 2001; Lee et al., 2003; Lee and Kim, 1999; Levery, 2002; Levina and Ross, 2003; Logan, 2000; Martinsons, 1993; McFarlan and Nolan, 1995; Michell and Fitzgerald, 1997; Mikkola, 2003; Nam and Rajagopalan, 1996; Paraskevas and Buhalis, 2002; Peled, 2001; Pinnington and Woolcock, 1997; Sabherwal, 1999; Shepherd, 1999; Winder, 1994; Zhu et al., 2001; Zirpoli and Caputo, 2002) (Fenn et al., 2002; Salenger, 1997; Schneier, 2002; Sherwood, 1997)

3.4 Relationships: trust, partnering (43)

3.5 Security (4) 4 Theoretical Work 4.1 Frameworks: Models, Decision Making, Determinants, Evaluation, Process & Stages (90)

(Agada, 1997; Ahmadi et al., 2001; Alguire et al., 1994; Apte et al., 1997; Baldwin et al., 2001; Behara and Gundersen, 1995; Benamati and Rajkumar, 2002; Benko, 1993; Bettis et al., 1992; Bista et al., 2002; Blumberg, 1998; Buck-Lew, 1992; Cachon and Harker, 2002; Campbell, 1995; Canez et al., 2000; Chaudhury and Nam, 1995; Chen and Lin, 1998; Chen and Perry, 2003; Cheon et al., 1995; Clark, 1998; Clark et al., 1995; Costa, 2001; Cronk and Sharp, 1995; Currie, 2003; Currie and Willcocks, 1998; De Looff, 1995; Dekkers, 2000; Ekanayaka et al., 2003; Elitzur, 1999; Ferris and Graddy, 1986; Fill and Visser, 2000; Finlay and King, 1999; Fowler and Jeffs, 1998; Franceschini et al., 2003; Freytag and Kirk, 2003; Glagola, 2001; Graham and Scarborough, 1997; Grover and Teng, 1993; Grupe, 1997; Gupta and Zhender, 1994; Hancox and Hackney, 2000; Insinga, 2000; Jones, 1994; Jurison, 1995; Karlsberg et al., 2003; Kern and Willcocks, 2002; King, 1994; Kini, 2000; Klaas et al., 2001; Kobitzsch et al., 2001; Laios and Moschuris, 1999; Lankford and Parsa, 1999; Lavelle and Krumwiede, 2000; Lee, 2001; Lee and Kim, 1999; Leiblein et al., 2002; Levery, 1998; Loh and Venkatraman, 1992; Martinsons, 1993; McFarlan and Nolan, 1995; Meadows, 1996; Meyer, 1994; Moody, 2001; Ngwenyama and Bryson, 1999; Ono, 2003; Peled, 2000; Preston and Brohman, 2002; Qu and Brocklehurst, 2003; Quinn and Hilmer, 1994; Saarinen and Vepsalainen, 1994; Siegel, 2000; Sislian and Satir, 2000; Slaughter and Ang, 1996; Smith and Rupp, 2003; Smith and Mitra, 1996; Sobol and Apte, 1995; Tayles and Drury, 2001; Teng et al., 1995; Vining and Globerman, 1999; Wang and Barron, 1995; Wang et al., 1997; Wholey et al., 2001; Willcocks and Fitzgerald, 1995; Willcocks and Lacity, 1995; Wilson and Zhang, 2002; Yang and Huang, 2000; Zhao, 2001; Zhu et al., 2001)

th


4.2 Costs, Benefits and Risks of outsourcing: Pros and cons of outsourcing (90)

(Altinkemer et al., 1994; Apte et al., 1997; Barrar et al., 2002; Barthelemy and Geyer, 2001; Beaumont and Costa, 2002; Bista et al., 2002; Blois, 2002; Bryce and Useem, 1998; Cachon and Harker, 2002; Campbell, 1995; Cant and Jeynes, 1998; Chen and Lin, 1998; Clark, 1998; Clark et al., 1995; Costa, 2001; Currie, 1998, 2003; Deavers, 1997; Dedene and De Vreese, 1995; DiRomualdo and Gurbaxani, 1998; Domberger, 2002; Due, 1992; Earl, 1991; Earl, 1996; Finlay and King, 1999; Fowler and Jeffs, 1998; Franceschini et al., 2003; Glagola, 2001; Goldsmith, 1994; Grover and Teng, 1993; Grupe, 1997; Gupta and Zhender, 1994; Gupta and Gupta, 1992; Hirscheim and Lacity, 2000; Hu et al., 1997; Huber, 1993; Insinga, 2000; Judenberg, 1994; Jurison, 1995; Kee and Robbins, 2003; Khalfan and Alshawaf, 2003; Khosrowpour and Subramanian, 1996; Kim and Chung, 2003; King, 1994; Kini, 2000; Klaas et al., 1999; Kliem, 1999; Kobitzsch et al., 2001; Lacity and Hirschheim, 1994; Lacity and Hirschheim, 1993; Lankford and Parsa, 1999; Leavy, 2001; Lee et al., 2003; Lee and Kim, 1999; Levery, 2002; Levina and Ross, 2003; Lewis, 1999; Loh and Venkatraman, 1992; Manning and Rodriguez, 1997; McGee and Bonnici, 2002; McLaughlin, 2003; McLellan et al., 1995; Meyer, 1994; Pagnoncelli, 1993; Palvia, 1995; Paraskevas and Buhalis, 2002),, (Collins and Millen, 1995; Peisch et al., 1995; Perry and Devinney, 1997; Quinn, 1999; Quinn and Hilmer, 1994; Ramarapu and Parzinger, 1997; Richmond et al., 1992; Smith et al., 1998; Sommer, 2003; Tayntor, 2001; Thornton, 1997; Vining and Globerman, 1999; Wang, 2002; Wang et al., 1997; Webster and Harding, 2001; Welch and Ranganathan Nayak, 1992; Widener and Selto, 1999; Willcocks et al., 1995; Willcocks and Lacity, 1999; Winder, 1994) (Barthelemy, 2001; Barthelemy and Adsit, 2003; Due, 1992; Earl, 1996; Fenn et al., 2002; Kliem, 1999; Lacity and Hirschheim, 1994; Zsidisin, 2003)

4.2.2 Emphasis on Costs and Risks (8) 4.3 Service Level Agreements and measuring user satisfaction (2) 4.4 Different kinds of outsourcing : insourcing, backsourcing, outtasking. Internal and external outsourcing (11) 4.5 Strategic and competitive effects (43)

(Judenberg, 1994; Sengupta and Zviran, 1997)

(Currie and Willcocks, 1998; De Looff, 1995; Fernie, 1999; Gerston, 1997; Grupe, 1997; Gupta and Zhender, 1994; Jennings, 1996; Karlsberg et al., 2003; Maltz and Sautter, 1995; Willcocks and Lacity, 1995) (Adelsberg and Trolley, 1998; Alexander and Young, 1996; Ang and Cummings, 1997; Baden-Fuller et al., 2000; Caputo and Zirpoli, 2002; Cross, 1995; Deavers, 1997; DiRomualdo and Gurbaxani, 1998; Elfring and Baven, 1994; Elmuti and Kathawala, 2000; Else, 2002; Franceschini et al., 2003; Freytag and Kirk, 2003; Gilley and Rasheed, 2000; Heeks et al., 2001; Hohhof, 1998; Insinga, 2000; Jennings, 1996; Jonash, 1996; Juma'h and H. Wood, 2003; Kiely, 1997; Kimzey and Kurokawa, 2002; Kini, 2000; Lacity and Hirschheim, 1993; Lankford and Parsa, 1999; Lau and Hurley, 1997; Leavy, 1996, 2001; Linder et al., 2002; Love and Roper, 2001; Martinsons, 1993; McFarlan and Nolan, 1995; Nam and Rajagopalan, 1996; Nellore and Soderquist, 2000; Ngwenyama and Bryson, 1999; Pinnington and Woolcock, 1995; Quélin and Duhamel, 2003; Quinn, 1999; Quinn and Hilmer, 1994; Roberts, 2003; Tayles and Drury, 2001; Teng et al., 1995; Venkatraman, 1997; Welch and Ranganathan Nayak, 1992; Willcocks and Fitzgerald, 1995)

5 Impacts 5.1 General (8)

(Agada, 1996; Behara and Gundersen, 1995; D'Costa, 2002; Kessler and Coyle-Shapiro, 1999; Perry and Devinney, 1997; Rothstein, 1998; Teng et al., 1995; Wilson and Zhang, 2002)

th


5.2 People (17)

(Allen et al., 2002; Allerton, 1996; Anderton and Brenton, 1999; Chalos and Sung, 1998; Corbett, 1994; Drucker, 2002; Elmuti and Kathawala, 2000; Feenstra and Hanson, 1996; Glass and Saggi, 2001; Ho et al., 2003; Kessler and Coyle-Shapiro, 1999; Khosrowpour and Subramanian, 1996; Lafferty and Roan, 2000; Laribee and Michaels-Barr, 1994; Rothstein, 1998; Slaughter and Ang, 1996; Tayntor, 2001)

5.3 Performance (tangible and intangible measures) (9) 5.4 Change (4)

(Altinkemer et al., 1994; Arnett and Jones, 1994; Barrar et al., 2002; Benson and Ieronimo, 1996; Dekkers, 2000; Gilley and Rasheed, 2000; Gupta and Zhender, 1994; Kannan and Tan, 2003; Lau and Hurley, 1997) (Bartell, 1998; Feenstra and Hanson, 1996; Kern and Willcocks, 2002; Linder et al., 2002), (Alguire et al., 1994; Currie and Seltsikas, 2001; Heeks et al., 2001; Lee et al., 2003; Love and Roper, 2001; Meadows, 1996; Qu and Brocklehurst, 2003; Sobol and Apte, 1995; Zhao, 2001)

5.5 Globalization (9) 6. Miscellaneous 6.1 Field studies (3) 6.2 Case studies (3) 6.3 Literature reviews (2) 6.4 Growth and History of Outsourcing (1)

(Barthelemy and Geyer, 2001; Downing et al., 2003; Ehie, 2001) (Fowler and Jeffs, 1998; Loebbecke and Jelassi, 1999; Peisch et al., 1995), (Bartell, 1998; Costa, 2001) (Lonsdale and Cox, 2000)

Table XXXI: A classification of outsourcing literature

The 286 refereed articles are distributed over a large number of journals. Outsourcing articles pertaining to a discipline tend to be published in that discipline’s journals and IT is the activity most often outsourced. There are commercial magazines such as Corporate Outsourcing published in Australia and commercial web based journals exemplified by Everest Group’s Outsourcing Journal and Michael F. Corbett & Associate’s Outsourcing Insights. There is no academic journal devoted to outsourcing and there is perhaps a case for such a journal. A few well known authors have authored or co-authored more than 6 articles on outsourcing between 1986 and 2003. Table XXXII demonstrates the increasing academic interest in outsourcing, there was a sudden, unexplained increase in articles appearing in 1994, and a steady increase (5% pa) since. Year

86

Total Number of Papers

1

8790 0

91

92

93

94

95

96

97

98

99

00

01

02

03

Total

1

7

8

22

30

21

28

23

22

29

28

32

34

286

Table XXXII Number of refereed articles by year

Conclusion and Recommendations for Further Research Outsourcing is an increasingly popular way of solving real or imagined organsational problems and of increasing organization efficiency and effectiveness. Outsourcing has a sounder conceptual basis than enthusiasms such as Total Quality Management, Business Process Redesign, and Empowerment and there is ample anecdotal evidence of its usefulness. That outsourcing is advantageous can be inferred from the relatively well verified growth in the outsourcing industry and the enthusiasm of industry participants.

th


However, a review of peer reviewed research suggests some gaps in academic research. Modern technology has made the marginal cost of transmitting data between organizations nearly zero. The transfer is almost instantaneous and the time and cost are independent of distance. This implies that functions within the organization no longer have a natural monopoly. An external supplier, advantaged by economies of scale, expertise, and/or the lower costs derived from processing in low-wage countries will often be able to undercut an internal supplier. This trend is already exemplified by data entry, printing, delivery, human resource management, software production and payroll operations. As expounded by Evans and Wurster (2000), organizations will outsource common business functions and become smaller through focusing on exploiting their unique competitive advantages (usually derived from expertise). This has profound implications for researchers studying organizations, their structures, and their strategies. The relationships between organizations will change; time and cost pressures will force organizations to trust their suppliers more and to devolve increasingly complex and critical functions (such as product design) onto them. Managers of functions will become relationship managers, succeeding by persuading suppliers rather than instructing subordinates. Research will focus on networks of mutually dependent organizations instead of hierarchies. The formal boundaries of organizations will become less visible and less important. Two employees sharing an office may cooperate on one task one being employed by the vendor, the other by the client. It is possible that new legal forms that reflect an intention to cooperate will be recognized. There is now a conflict between the legal expression of a relationship and clear intention to co-operate. Although there is some statistic evidence of the benefits of outsourcing (some surveys rely on respondents’ opinions and recollections that may not be wholly reliable), there is comparatively little longitudinal research demonstrating that implementations of outsourcing decisions yielded the benefits envisaged. Part of the “savings” clients experience may be attributable to executives and employees working unpaid overtime during to transfer of business processes to the vendor. Some of the costs, such as the time executives spend in meetings and disruption experienced by customers may not be recorded. More case studies are probably required. Conversations with executives suggest that the success of an outsourcing project depends critically on the nature of the relationship (legalistic or co-operative) between the two parties and that the cost and difficulty of negotiating and implementing outsourcing arrangements has been underestimated and neglected by researchers. The relationship may change as the parties move from negotiation through implementation to operation. Typically, the euphoria experienced when protracted negotiation climaxes in the contract being signed turns to despair when different interpretations and motivations emerge. The nature of the client/vendor relationship and its correlation with the kind of activities being outsourced merit more research. Offshoring may give access to significantly lower labour costs and other benefits (we note its political impact in e.g. the USA). Although offshoring has been subject to some research, this research does not seem to reflect the potentially enormous social, economic and political effects of offshoring. We have become inured to manufacturing jobs being exported to low-wage countries. Offshoring facilitates the export of clerical and some skilled jobs (e.g. programming, financial and marketing analysis and product design). Multidisciplinary research into offshoring is necessary. Outsourcing is a valuable business technique that is a kind of compromise between a bureaucratic command economy and an unpredictable free market. It is not new (few organizations supply their own water, electricity or telecommunications). Web based technologies have greatly reduced the transaction and communications costs of outsourcing, enabling vendors to exploit expertise and economies of scale to compete with internal providers. Offshoring allows access to low cost labour. Further research with the ultimate goal of ascertaining all relevant tangible and intangible costs of internal and external processing is appropriate.

th


It would be possible to repeat this exercise for books and reports. There is an increasing flow of articles on outsourcing that are spread over many journals. Given the importance of the topic, it might be appropriate to launch an academic journal specializing in outsourcing.

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How

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Chaudhury, A. and Nam, K., 1995, Management of information systems outsourcing: A bidding perspective., Journal of Management Information Systems, 12,2, 131-159. Chen, Q. and Lin, B., 1998, Global outsourcing and its managerial implications., Human Systems Management, 17,2, 109-114. Chen, Y.-C. and Perry, J., 2003, Outsourcing for E-Government, Public Performance & Management Review, 26,4, 404-421. Cheon, M. J., Grover, V. and Teng, J. T. C., 1995, Theoretical perspectives on the outsourcing of information systems., Journal of Information Technology, 10,4, 209-219. Choudhury, V. and Sabherwal, R., 2003, Portfolios of Control in Outsourced Software Development Projects., Information Systems Research, 14,3, 291-314. Choy, K. L., Lee, W. B. and Lo, V., 2003, An intelligent supplier relationship management system for selecting and benchmarking suppliers., International Journal of Technology Management, 26,7, 717740. Clark, J., 1998, Outsourcing IT, Manufacturing Systems, 16,9, 22. Clark, T. D. J., Zmud, R. W. and McCray, G. E., 1995, The outsourcing of information services: transforming the nature of business in the information industry., Journal of Information Technology, 10,4, 221-237. Collins, J. S. and Millen, R. A., 1995, Information Systems Outsourcing by Large American Industrial Firms: Choices and Impacts, Information Resources Management Journal, 8,1, 5-13. Corbett, M. F., 1994, Outsourcing and the new IT executive., Information Systems Management, 11,4, 19-22. Costa, C., 2001, Information technology outsourcing in Australia: Management & Computer Security, 9,5, 213-224.

A literature review, Information

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Fill, C. and Visser, E., 2000, The outsourcing dilemma: A composite approach to the make or buy decision, Management Decision, 38,1/2, 43-50. Finlay, P. N. and King, R. M., 1999, IT sourcing: A research framework, International Journal of Technology Management, 17,1,2, 109-128. Fowler, A. and Jeffs, B., 1998, Examining information systems outsourcing: a case study from the United Kingdom., Journal of Information Technology, 13,2, 111-126. Foxman, N., 1994, Succeeding in outsourcing., Information Systems Management, 11,1, 77-80. Franceschini, F., Galetto, M., Pignatelli, A. and Varetto, M., 2003, Outsourcing: guidelines for a structured approach., Benchmarking: An International Journal, 10,3, 246-261. Freytag, P. V. and Kirk, L., 2003, Continuous strategic sourcing., Journal of Purchasing & Supply Management, 9,3, 135-150. Fulcher, J., 1998, Have it your way, Manufacturing Systems., A30-A42. Gainey, T. and W. Klaas, B. S., 2003, The Outsourcing of Training and Development: Factors Impacting Client Satisfaction., Journal of Management, 29,2, 207-229. Gerston, J., 1997, Outsourcing in client/server environments., Information Systems Management, 14,2, 74-81. Gilley, K. M. and Rasheed, A., 2000, Making More by Doing Less: An Analysis of Outsourcing and its Effects on Firm Performance., Journal of Management, 26,4, 763-790. Glagola, J. R., 2001, Outsourcing: Opportunities and challenges for corporate competitiveness -- Part 2., Journal of Corporate Real Estate, 3,3, 260-269. Glass, A. J. and Saggi, K., 2001, Innovation and wage effects of international outsourcing., European Economic Review, 45,1, 67-86. Goldsmith, R. F., 1994, Confidently outsourcing software development., Journal of Systems Management, 45,4, 12-17. Graham, M. and Scarborough, H., 1997, Information technology outsourcing by state governments in Australia., Australian Journal of Public Administration, 56,3, 30-39. Grover, V. and Cheon, M. J., 1996, The effect of service quality and partnership on the outsourcing of information systems functions., Journal of Management Information Systems, 12,4, 89-116. Grover, V. and Teng, J. T. C., 1993, The decision to outsource information systems functions., Journal of Systems Management, 44,11, 34-38. Grupe, F. H., 1997, Outsourcing the help desk function., Information Systems Management, 14,2, 1522. Gupta, M. and Zhender, D., 1994, Outsourcing and its impact on operations strategy., Production & Inventory Management Journal, 35,3, 70-76. Gupta, U. G. and Gupta, A., 1992, Outsourcing the IS function., Information Systems Management, 9,3, 44-50. Hancox, M. and Hackney, R., 2000, IT outsourcing: frameworks for conceptualizing practice and perception., Information Systems Journal, 10,3, 217-237. Harris, A., Giunipero, L. C. and Hult, G. T. M., 1998, Impact of organizational and contract flexibility on outsourcing contracts., Industrial Marketing Management, 27,5, 373-384. Heeks, R., Krishna, S., Nicholsen, B. and Sahay, S., 2001, Synching or sinking: global software outsourcing relationships, Software, IEEE, 18,2, 54-60. Hirscheim, R. and Lacity, M., 2000, The myths and realities of Information Technology outsourcing, Communications of the ACM, 43,2, 99-107.

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Ensuring survival with strategic global partners, Journal of

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Facilitating a Knowledge Network of Start-ups: Some Lessons from Australia Ron Beckett [email protected] The Reinvention Network

Jessica Kennedy Phil Bretherton Paul Hyland [email protected] Central Queensland University

Abstract For start-up firms or small firms seeking to grow rapidly the benefits of collaboration and mentoring can far exceed the risk. In a collaboration where less experienced businesses can access advice, guidance and in some cases investment capital from experienced entrepreneurs the benefits of these transactions can be substantial. This paper describes a study conducted in Queensland, Australia of a program, facilitated by the State Government that has developed several knowledge networks. These networks bring together businessmen and women who share their knowledge and experiences in an open and altruistic way. This study describes some of the knowledge exchanges and transactions that have occurred and attempts to explain why this network continues to survive and flourish.

Introduction There is a widely held view in Australia that more value can be drawn from the innovative nature of the people. In 1999/2000 the Commonwealth Government held a National Innovation Summit to consider various drivers of innovation, and subsequently launched a number intervention initiatives under the banner “Backing Australia’s Ability”. The Australian Science and Technology community believes it has lot of great ideas, but that there is a breakdown in the commercialisation process. A joint Commonwealth/Queensland Government initiative called the Australian Institute for Commercialisation was established to help address that issue. But there are also innovative ideas that arise outside the S&T community, and a number of State Governments have established initiatives to help start-up firms and support SME growth. Some particular issues for start-ups or SMEs that are pursuing radical innovation are whether they have the breadth and depth of expertise on their own to pursue their ambitions, whether they have an adequate knowledge of the business processes involved, and how they can establish credibility to both raise capital and enter the market in commercialising their idea. There is a demonstrable case for small firms in particular to enhance their competitive position through networking and collaboration with other firms or institutions. Such collaboration can provide a market pathway or access to special facilities or skills with minimal capital investment. For start-up firms or small firms seeking to grow rapidly the benefits of collaboration and mentoring can far exceed the risk of becoming dependent on others to some extent. In a collaboration where less experienced businesses can access advice, guidance and in some cases investment capital from experienced entrepreneurs the benefits of these transactions can substantial. This paper describes a study conducted in Queensland, Australia of a small business growth program, facilitated by the State Government, which has developed several knowledge networks. These networks bring together businessmen and women who share their knowledge and experiences in an open and altruistic way. This study describes some of the knowledge exchanges and transactions that have occurred and attempts to explain why this network continues to survive and flourish.

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Stimulating Small Business Growth The Queensland Venture Capital Unit (VCU) According to the VCU (2003) the Venture Capital Unit is dedicated to helping more start-ups get off the ground and survive their first tenuous years in business. In addition, the Venture Capital Unit assists establishing manufacturing companies to expand and export. The unit is made up of a team of highly qualified professionals from a broad investment-related background. They have worked in Silicon Valley or operated businesses in the United States and Africa, and in Australia they have also worked for the CSIRO and the legal profession. They draw on their local and international experience with innovation to assist start-up companies and individuals commercialise their intellectual property. The pipeline programs comprise: • • • • •

Investment education seminars and workshops which help entrepreneurs prepare an investment plan and pitch to investors Business Angel Groups, including: Enterprise angels investor and mentoring groups throughout Queensland Gold Coast and Brisbane Founders Forum group of private investors FT BallPark Queensland Entrepreneurs Association which supports aspiring entrepreneurs by providing mentoring and access to high level business networks Mentoring for Growth – business mentoring for regional businesses

Activities of the VCU are implemented through regional groups, some of whom are more advanced than others. The table below provides a summary of VCU operations using an activity theory framework (Vygotsky, 1978 and Engestrom, 1987- it is argued that the way a particular activity is undertaken will depend on a number of environmental factors. Activity Theory Element Object (the motive stimulating the activity) Subject (the individual or team directly pursuing the objective) Community (The groups supporting the object and the subject)

Tools (Tools and instruments available to the subject)

Rules (within the team and within the community)

VCU Project Instance - The motivation is business growth to enhance community wealth through effective engagement of people with ideas for new business opportunities and people who can access funds and other resources to help realise these opportunities - A Venture Capital Unit (VCU) operating within the Queensland Government Department of State Development Department facilitates interactions with various resource providers, allowing clients with ideas to develop those ideas and grow their business - Clients may be individuals with an idea for a new product or existing small businesses undergoing significant change to take new products to (generally new) market(s). - The VCU and its regional business development associates in regions throughout Queensland - Other Government Departments offering assistance and funding grants - Individuals, firms and associations in the community that volunteer special knowledge related to the commercialization of new ideas and the growth of small businesses - Commercial investment / funding groups - Events organised to bring community groups together and to facilitate knowledge diffusion between individual clients and mentors - A website that provides information on the VCE, the business development model it uses, and linkages to other relevant websites. Some case examples of successful Queensland growth companies are also presented. - A variety of business planning templates and training courses are provided for clients

- The VCU has identified a process, called the venture capital pipeline that guides individual firms through some evolutionary steps in launching and growing their ideas - The responsibility for decision-making and action rests with the client,

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and various documents relating to waivers and confidentiality must be signed by both client and advisor participants - Mentors must volunteer their time and conform to some behaviour expectations

Division of Labour (within a team and within a community)

- Clients are responsible for all work and funding of idea development. The VCU does not provide any monetary assistance - The VCU central office is responsible for venture capital pipeline process development, policy and facilitating linkages with relevant groups or firms - The VCU regional operations are responsible for facilitating events and organising mentors - Other Government services provide market or technology intelligence inputs and grant funding within the framework of their existing industry programs - Mentors and investors provide resources free of charge to the VCU process, but separately provide resources or funding on negotiated terms with individual clients, as makes business sense to both parties Table 1: A Case Study Characterisation

VCU documents describe two different evolutionary models, one with three stages and one with five stages. These are shown in the diagram below. We feel that they represent two different views, one from the perspective of client learning needs and the other from the perspective of progressing an individual idea. In either case the models help identify where a particular client may be in their progression, and what needs to be considered next. CLIENT DEVELOPMENT VIEW

EDUCATION

CONCE PT/ IDEA

INV ESTMENT & MENTORING

INVESTMENT READY

INITIAL CAPITAL RAISING

EXPANSION & EXPORT

EXPANSION GRANTS

GO ING G LOBAL

INNOVATION DEVELOPEMENT VIEW Figure 1: Representing the “Venture Capital Pipeline”

The VCU does not provide any funds to its clients. This is done through a network of private investors that may be facilitated by mentors. The VCU role is to establish this network and to prepare the clients so they are “investment ready”. From an investor point of view, the VCU program gives more potential deals to choose from, and can reduce their risk as clients are better prepared, better supported, and an investment in a particular client may be shared with others. There is currently thought to be about 50 business angels supporting the program. According to the VCU brochure (circa 2003), “In its first three years of operation, the highly motivated team of this Unit helped attract $29 million worth of private investment for 48 high growth start-ups companies”. At later stages of client development, access to financial institutions is facilitated. There are regular regional meetings of potential and current VCU clients and mentors that are very well attended. Clients do not pay any fees for the VCU services provided, allowing an easy engagement path, but do go through a formal screening process before being admitted into the program. They engage with a panel of mentors rather than one individual, and see that the mentoring process helps to access and

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absorb new knowledge faster, assist in the selection of right advice from a number of suggestions, and enable them to observe different advisors in action. Clients may choose to work with individual advisors or engage a mentor to provide transitional management during growth of the business. The mentor panel practice “takes the stars out of their eyes, replaces subjectivity with objectivity”. VCU clients are often not well networked, may be naive and uninitiated in business. The mentor panel practice mediates financial risk (some clients withdraw before they have expended significant resources on a bad idea) and supports early problem spotting. Potential mentors are identified through independently established mentor groups, through the personal networks of VCU staff and through the personal networks of mentors already associated with the program. There are thought to be about 120 mentors in total associated with the VCU program. Discussion with some mentors suggests that they learn something from participation too. Meeting mentees in conjunction with others exposes ideas one would not think of in isolation, and learning how others from different backgrounds think about an issue helps to take a more balanced view in the future. They feel the experience enhances their personal capabilities in the art of mentoring, allows testing and validation of ones ideas in a friendly environment, identifies people with complementary expertise that may be useful contacts in the future, and who may find pathways to the resolution of particular mentee problems. Engagement with the program may also provide mentors with an opportunity for future personal investment and may lead to beneficial business associations outside the mentoring forum. Mentors report that engagement with the VCU program “provides a buzz” and note that the streamlined process helps the mentors contribute without taking excessive time. A supportive government and business culture focussed on self-help seems to work better than one based on client subsidies and grants that are common elsewhere. Client efforts are focussed on progressing their idea and are not on making submissions for funding, whilst VCU staff focuses on outcomes, not on administering funds. In some of the regional groups, successful returning expatriates bring both knowledge and wealth, the process improves capital availability where new investment areas being sought and helps develop a critical mass in specialist resources to support entrepreneurs. Social capital in the region is enhanced, not only in terms of improved networking linkages, but in sustaining an attitude of giving something back to the community. Several examples of business that had grown with help from the VCU re-entering the process as a mentor were observed. (Examples - Malcolm Gore from MOX and Paul Rixon from Rigid Steel Framing)

Methodology The aim of the study was to identify the factors that sustained a venture capital pipeline and the mechanisms that actors in the process used to engage one another. To this end, the information gathering stage can be viewed as a preliminary investigation, identified by Emory and Cooper (1991) as a core method of conducting such research. Although it is common for exploratory research to rely on expert opinions and focus groups at the initial stages, this was not done in the present case. The justification for the adoption of the exploratory approach for this particular study lies in the nature of the subject area, and the set of interacting variables that influence innovation. Given that the research question is focused essentially on what drives innovation, it is congruent with Yin's (1994) argument that such research, when requiring no control over behavioural events, should be carried out with a case study. This study used purposive sampling. Purposive or theoretical sampling was used as it offers researchers a degree of control rather than being at the mercy of any selection bias inherent in preexisting groups (Mays and Pope, 1995). This was then followed by a cross-site analysis. The cross-site analysis consisted of the analysis of each single question such that the results obtained from the interviews of each of the organisations can be compared and contrasted. By adopting this method, a general level of congruency or dissent toward each of the learning behaviours was established. Three networks were selected and interviewed and the coordinating entity was interviewed and also made documentary evidence available. In the VCU all senior staff were interviewed and in each network key actors involved in mentoring and service delivery were also interviewed. In the three networks a sample of participants who had been involved in mentoring, education programs or capital raising were also interviewed.

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Establishing Knowledge Networks It is argued here that the process of mentoring can facilitate the deciphering knowledge and managing it to achieve new and creative outcomes for an individual or for an organisation. Mentoring practices are evident in a variety of community programs, and in large and small enterprises. A search through the Internet highlights the variety of mentoring practices that are in current use; some aimed at personal development, particularly of disadvantaged groups; some aimed at career development within organisations, and some aimed at an aspect of business development. A summary of these practices is shown in the table below. Some of the transactions taking place enhance the social position and capabilities of the mentees, some support the acquisition of knowledge about informal or formal business and community practices, and some support the enhancement of domain knowledge related to a particular topic. Most of the programs described in other references relate to one-on-one mentee/mentor engagement, and some report difficulties in matching the two. In business programs, some firms provide training to both mentees and mentors about the mentoring process, which helps improve outcomes. In professional development programs, mentees may require access to different mentors as they develop. In the VCU case study example, mentees work with a panel of mentors. Mentors are invited to express interest in participating in panels, and a brief description of the opportunity under consideration and the kind of help being sought at a particular meeting is circulated in advance. This helps overcome two typical matching problems reported in the literature: matching mentee / mentor calendars and the provision of advice relevant to that point in mentee development. DRIVER ENVIRONMENT COMMUNITY

ENTERPRISE

PERSONAL Directly engage disadvantaged or minority groups Utilise the experience of a pool of retirees

BUSINESS Enhance small business success rate Stimulate economic growth for general community benefit Support young entrepreneurs and entrepreneurial attitudes

Formal process for supporting equal opportunity Job enrichment opportunity for mentors Alternative or complementary to succession planning Early identification of exceptional talent Peer support from outside the business (Professional or other) Supports staff retention and being an employer of choice.

Peer group support for CEO/Change Agents Management team and multiskilling development process Promotion of cross-department communication and of a variety of organisation perspectives Support for significant transitions in concert with people outside of the business

Table 2 Some Common Outcomes Sought from Different Mentoring Programs

In the VCU case, we see most elements of in Table 1 in action, supported by social, knowledge and economic transactions and we see a variety of knowledge transfer mechanisms at work. These observations are summarised in Table 2 using the SECI model (Nonaka and Takuechi, 1995) as a framework.

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Type of Transfer Tacit / Tacit

Transfer Process Socialisation

Tacit / Explicit

Externalisation

Explicit / Explicit

Combination

Explicit / Tacit

Internalisation

VCU Case Example Mentees improve communication skills and life balance, expand personal networks Mentors enunciate advice sharply focussed on mentee needs. Additional links and information posted on the VCU web site Mentors learn from other mentors in different professional fields Mentees learn from formal training programs and from formal mentor panel meetings. The website and associated links also offer learning opportunities

Table 3: Knowledge Transfer Processes in the Case

Some Case Observations The VCU sees its practices in capturing the evolutionary nature of idea commercialisation as a “Pipeline”, establishing training and establishing linkages with existing initiatives as key aspects of the process. We see this as establishing a good vehicle, but we see that the engine and transmission supporting action are provided by the community. We see that the nature of the community that has been engaged as the key to success. Some people enter the pipeline and seem to leave it prematurely. This was a concern for some VCU staff. Interviews with some that had exited showed they had derived benefit from participation, but learned they needed to work on their personal development, or their idea or their business operations to progress further. Some had decided to focus immediately on an export market. The process seems well suited to the bottom end of the market, but does not cater so well for entry of businesses that are well advanced, but ready to grow further. New-to-market products and services seem to be the focus as compared with expansion of existing products or services. The VCU and its clients both seem to operate with a structure having combined real and virtual enterprise aspects. The VCU is real as a government department, but with links via website connections and via individuals in the community. It has a focus on providing venture capital, but has no funds to directly provide to its clients. The clients frequently have limited resources of their own, but via introductions through the VCU and mentors, can access people who would not normally consider engagement with them, thus behaving like a larger enterprise. Venkatraman and Henderson‘s (1998) explanation that “A virtual organisation is not a distinct structure; rather it is a strategy for revolutionising customer interaction, asset configuration and knowledge dissemination.” can be used to in part explain the success of the pipeline. The VC Pipeline operates with a significant number of dispersed assets, a widely distributed and varied customer base and is central to the dissemination of knowledge on business development and capital raising to these clients. One group that is central to the VCU Pipeline are the “social entrepreneurs”. Social entrepreneurs are described as having the qualities and behaviours of business entrepreneurs, that is creating something new or innovating, but they are more concerned with caring and helping or adding value to society than creating wealth for themselves (Thompson, 2002). In the VCU pipeline they include people who have been successful business entrepreneurs or business leaders who wish to ‘put something back’ into society. While Rahman and Bhattachryya (2002) argue that one purpose of a virtual organisation is to exist as a network, in order to achieve set goals, and the organisation is dissolved when these are achieved this does not preclude a virtual organisation such as the VC Pipeline from existing for a lengthy period of time. If a virtual organisation achieves all its goals then it is a simple matter to dissolve the organisation. We would suggest this outcome is unlikely, as government participation brings with it a feeling of impartial facilitation, which helps in the early formation of trust.

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A lack of personal contact may be a negative aspect of virtual organisations as it can be difficult to form trust and a relationship with stakeholders, employees, customers and free-lancers that are never seen. Consequently the VCU organisation of regional networks makes sense. People can make contact easily, it can be observed whether they can and do what they say what they will do, and if they act in the interests of others. This feedback is important in rapidly building trust. The VCU sees itself as successful in that access to significant funding has been facilitated, and it is considered that the failure rate of its start-up clients is much lower than in the community at large. Forcing clients to go through some formal business planning processes to access capital may be something that those start-ups that can access their own capital might miss out on. There are a number of regional VCU groups, and we see the dynamics of each group being different, depending on how they choose to measure success.

General Discussion Governments in a number of countries support Start-Up businesses through help from retired business people. The idea is to reduce the failure rate and to stimulate business growth and employment. A program of this sort (called SCORE) has been running in the USA for several decades. It now has more than 11,000 volunteer members and is supported by the U.S. Small Business Administration. A similar program, but on a smaller scale has been running in Ireland since 1988. The web sites for both these programs have a number of interesting case study success stories. In Canada, mentoring help is available by telephone and fax. From the viewpoint of an individual firm participating in collaboration, it can be argued that the transactions taking place, determine the perceived value of the collaboration. If no transactions take place, the collaboration is of no value. If only housekeeping transactions take place, the collaboration may be seen as having a negative value, as time and resources are consumed with no apparent outcome. If value-adding transactions take place, the collaboration will be valued (Beckett; Hyland and Sloan, 2003). But value can be viewed differently by each participant, who may value transactions that build social capital, or build knowledge capital or build economic capital. Biggiero and Sammarra (2001) point out that sustainable inter-organisation networks are not only driven by current economic motivations, but by some socio-psychological factors that may lead to future cooperative relationships. Social transactions might enhance an organisation’s power base, expand personal networks, reduce perceived inter-organisational risk by better understanding the motives of participants, enhance business environment understanding, or provide an opportunity to test ideas in a friendly environment. We see all of these factors in the VCU case. Knowledge transactions might provide market intelligence, technology intelligence, and operational intelligence, reduce decision-making risk by seeing where new concepts have been successful, and exercise organisational learning competencies that help sustain capacity for change in a dynamic environment. Some transactions may provide benefits now, and at some time in the future. These three classes of transactions (economic, social, knowledge) and some characteristic sub-tier transaction classes mentioned above have been combined in a form of map, illustrated in Figure 2. Someone needs to be responsible for transaction stimulation and management. Who might be responsible for transactions seems to depend on the nature of the collaboration structure. In a hub and spoke type arrangement with a large company at the hub, that company assumes this responsibility. A peer network seems to require an independent person or entity to assume this role. Management in this circumstance can be a difficult role, as the manager has no direct control over the resources he or she is using, and is employed by the clients being managed. This is similar to the VCU situation, and the facilitators need to be respected as process champions in their respective regions.

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ENHANCED CAPAB ENHANCED CAPAC CURRENT MARKET ACCESS PRODUCT BUNDLIN MARKET PATHWAYS

ADJASCENT MARKE

REVENUE ENHANCEMENT

MARKET DYNAMICS MARKET INTELLIGENCE COMPETITOR DYNAMICS

INTER-FIRM TRADING NEW REGIONS FUTURE MARKET ACCESS NEW SECTORS

PERFORMANCE BENCHMARKS PRODUCT TECHNOLOGY

INTERNAL PRODUCT COSTS

TECHNOLOGY INTELLIGENCE PROCESS TECHNOLOGY SYSTEMS TECHNOLOGY

INTERNAL SERVICE COSTS COST REDUCTION EXTERNAL PRODUCT COSTS

STIMULATING KNOWLEDGE TRANSACTIONS

PEOPLE

EXTERNAL SERVICE COSTS

ORGANISATION OPERATIONAL INTELLIGENCE

PHYSICAL CAPITAL

BUSINESS PROCESSES BETTER DECISIONS RISK REDUCTION MORE OPTIONS DISCOVER EXERCISE ORGANISATIONAL LEARNING CHOOSE COMPETENCIES ACT

INTELLECTUAL CAPITAL ASSET OPTIMISATION OPERATING INFRASTRUCTURE SUPPORT INFRASTRUCTURE

THE VALUE OF COLLABORATION

STIMULATING BUSINESS PRODUCT DEVELOPMENT TRANSACTIONS LEAD-TIME REDUCTION SUPPLY CHAIN

6/05/2002 - v4

PRODUCT QUALITY

POLITICAL MARKET

PROCESS QUALITY RELIABILITY ENHANCEMENT SCHEDULE

POWER BASE ENHANCEMENT

SUPPORT

PERSONNEL DEVELOPMENT

ASSET UTILISATION

FUTURE OPTIONSPERSONAL NETWORK EXPANSION

FINANCIAL CUSTOMER EXPOSURE

MULTIPLE FEEDBACK PATHWAYS

SHARED ENTRY COSTS

COMMON VISION

STIMULATING SOCIAL COMMON LANGUAGE INTERORGANISATIONAL RISK REDUCTION TRANSACTIONS SHARED VIEWS OF RISKS DEVELOPMENT OF TRUST

TECHNICAL

COMPLEMENTARY COMPETENCIES ENHANCED EXPERIENCE BASE

RISK REDUCTION

LEAD CUSTOMER

MARKET ACCESS LOCAL KNOWLEDGE

SOCIAL CHANGE UNDERSTANDING BUSINESS ENVIRONMENT POTENTIAL DISRUPTIONS

PRIVELEDGED POSITION

COMMUNITY EXPECTATIONS

REPUTATION

CRITICAL QUESTIONING TESTING IDEAS COMPARABLE EXPERIENCES

WORKSCOPE DELIVERY

Figure 2: Beneficial Transaction Map

Mentoring is an increasingly popular practice. A search on the internet using the words mentor or mentoring will yield several million hits. Sorting this group to add the word “business” reduces this to about 1.5 million hits. Sorting this sub-group using the term Panel of Mentors reduces the number to a few hundred hits, and inspection shows some of these still relate to a one-on-one mentor drawn from a panel. The practice of having mentors act like an advisory board is relatively uncommon. The notion of advisory boards is widely used by many companies, but combining this with the implication of personal responsibility using the term mentor seemed to create different attitudes in the VCU case. Mentoring is personal, and whilst it was noted earlier that personal needs or business needs may drive a mentoring program, and the program may be based in a community environment or in a particular enterprise there are some global themes that are also observed in the VCU case: • • • • • •

Whilst nearly anyone with relevant experience can become a mentor, formalisation of the process and training can greatly enhance the outcomes Mentors don’t provide solutions, they facilitate transformational learning and improve peoples capabilities to manage themselves Another outcome is better balanced decisions to enhance personal or business success, and an additional mechanism for passing on “Corporate Memory” Experience suggests that managing the mentor – mentee relationship is just as important as the kind of help obtained, and it must be voluntary on both sides. With no personal “chemistry”, there is likely to be only limited benefit. Selective mentoring gives the best leverage; selecting fast-growth people, selecting opinion drivers or role models in community programs, or picking winners in business programs. Both mentees and mentors learn something from the relationship

The VCU case predominantly draws, in a very cost-effective way, on implicit knowledge held within the community. A variety of knowledge transfer mechanisms are utilized to assist clients, but it is observed that the knowledge base of mentors is also enhanced in the process, and mentor get ideas from each others different perspective. For them, the problems of the client provide an opportunity for growth in their knowledge base.

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Concluding Remarks In the knowledge network case example, The Queensland Venture Capital Unit, social capital, knowledge capital and economic capital were all enhanced. Regional economic enhancement was the objective, and knowledge transfer was a facilitation process. As much of the knowledge to be transferred was tacitly held within the community, socialisation and personal networking were important facilitating practices, formally structured as a mentoring program. The program involved groups of “social entrepreneurs”people who want to give something back to their community. Achieving critical mass of these kinds of people is seen as important in accessing adequate diversity and depth of knowledge to support innovation and growth. Since this study commenced the VCU has been renamed the Venture Capital & Commercialisation Unit (VCCU) as much of the activity of the unit is in the area of commercialisation. It is suggested here that the strength of the mentoring approach is in supporting transformational learning that changes the person or the organisation involved (as compared with learning to make current practices more efficient). Some aspects focus on acquiring generic transformational competencies, whilst others focus on acquiring particular technical, people or conceptual competencies. Another strength is in helping to make better-balanced decisions, from improvement in evaluation and reasoning/reflection competencies, and from the broader world-view available. It is noted that managing the relationship is as important as the kind of help provided (no chemistry, no result), and that any particular relationship has a limited life as the mentee / protégé person or organisation develops new needs. In the case example these issues are dealt with by having a panel of mentors simultaneously interacting with the mentee. This practice also facilitates higher levels of mentor learning. There are some clear mentoring functions that facilitate knowledge transfer and transformational learning: • Deciphering and interpreting new knowledge can help individuals and organisations more rapidly adopt new practices • Supporting evaluation of, and reflection on opportunities for significant change can enhance decision-making in relation to these opportunities • Passing on important domain knowledge, either directly drawing on personal experience, or indirectly by drawing on a network of contacts, that can stimulate innovation In the case example knowledge network there are aspects of common goals, agreed processes, trust and transactions that deliver value that are also observed in many long-standing networks Note

The research reported in this paper was carried out by staff from the Institute for Sustainable Regional Development at CQU and the study was funded by the Queensland Government through the Department of State Development and Innovation. The VCCU (Venture Capital & Commercialisation Unit) is a part of the Department of State Development and Innovation.

References Beckett, R.C; Hyland, P and Sloan, T. 2003, Mapping Collaborative Transactions in Networks that Yield Business Benefits, Proc 19th Annual IMP Conference, University of Lugano, Switzerland, 4-6 September (ISBN 82-7042-576-1) Biggiero, L. and Sammarra, A., 2001, Similarity and complementarity in inter-organisational networks, APROS (Asia-Pacific Researcher in Organisation Studies), Hong Kong Baptist University, 3-5 December Emory, C.W., Cooper, D.R., 1991, Business Research Methods, Irwin, Homewood, Engestrom, Y., 1987, Learning by expanding: an activity-theoretical approach to developmental research, Helsinki: Orienta-Konsultant I. Nonaka & H. Takeuchi. 1995 “The Knowledge Creating Company” Oxford University Press. Mays N., and Pope, C (1995)”Observational Methods in Health Care Settings” British Medical Journal (Int Edition) London July 15 1995 Vol 311 Issue 6998 p182

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Thompson, J (2002) “The World of the Social Entrepreneur” International Journal of Public Sector Management Vol 15 No 5 pp 412-431 Venkatraman, N and Henderson, John C (1998) “Real Strategies for Virtual Organisations” Sloan Management Review Fall 1998 Vol 40 Issue 1 p33 Vygotsky, L.S., 1978, Mind and Society, Harvard University Press Yin, R., 1994, Case Study Research,, Sage, London

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“Mobilising Minnows” – Creating Innovative New Value Chains for Small Firms in a Changing Global Environment Ronald C Beckett [email protected] Managing Director, The Reinvention Network Professorial Fellow, University of Wollongong, Australia 20 Ramsay Rd, Rossmore, NSW, 2171, Australia Telephone: 61-412264573

Abstract This paper considers the changing relationships between large and small businesses, and some possible actions that can be taken by small businesses to compete in a globalised environment by collaborating on a large scale. Two case studies are presented, where the participant SME organizations have sought to position themselves favourably in larger markets than they could access on their own by establishing a virtual enterprise. In the two cases, there was significant in-kind support in connection to government initiatives that helped get the virtual enterprises established relatively quickly. Two ideas are used to characterise and compare the case study enterprises. One is based on activity theory, which suggests that how activities are undertaken to achieve an objective is influenced by a number of environmental factors, such as the tools available. The second idea draws on a parallel with the workings of an orchestra, and both have been found useful in discussing the cases in this paper and with industry colleagues seeking to develop such collaborations.

Introduction Some researchers, such as Bryan, Fraser, Oppenheim and Rall (1999) see that successful enterprises in the 21st century will own and leverage superior intangible assets such as talent, knowledge, brands, relationships and reputation, and that globalisation means pace and timing – knowing what to do and when to do it will be all important. They see cooperative specialisation as a key strategy – “Twenty years from now, some $50 trillion of globally integrated economic activity will permit an extraordinary degree of specialisation. An economy of this size could easily be disaggregated into 5000 global business arenas, each representing $10 billion of production. Or perhaps, 50,000 global micro-business arenas, each of which would represent $1 billion of production. Or, more likely still, 5,000,000 tightly defined global Nan structures representing $10 million of production each” (p208). Find a niche and dominate it fast is the message. This implies a blending of two forms of structure – strong specialisation and networking capabilities. Naisbit (1998) notes “there are views that the global economy will be dominated by huge multi-national companies --- but there is a new kind of bigness – that’s big networks --- and big companies are restyling themselves as networks of entrepreneurs”. An Australian automotive industry example would be Holden Innovation (part of GM that operates with a degree of independence), who seeks to be a low-cost, fast-track developer of niche market vehicles. Some larger companies are pursuing agile enterprise concepts. At a recent conference on innovation, a Vice-President from the Nokia Company (Kosonen, 2002) explained that by adopting the same business systems in all of its branches around the world, the Company had been able to change its organisation structure, with its supporting computer systems being reconfigured over a weekend. The new organisation was functionally the same as the old one, but it had been reconfigured to serve markets better. Here the change in market engagement was supported by stability in some aspects of the organisation. Nokia has pursued a series of three-year organisation development projects, first getting best-of-breed internal management processes and adopting them universally, and then creating a governance structure where there is corporate responsibility for developing these processes and business unit responsibility for strategy, business models and operational models. Nokia saw the issues going forward as: •

How to organise networks of companies to ensure end to end process and business performance

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• • • •

How to operationally manage these networks, aligning targets, synchronising processes and decision-making, sharing risks and profits How to utilise the full innovation potential and development potential of these networks in new capability creation without creating chaos Understanding where the limits of an extended enterprise might be, as the true power of shared vision, culture and business infrastructure decreases with distance Understanding if the limits are the same for all kinds of activities

Nokia sees itself as moving from a critical mass in the core with strategic partners towards a strategic core with a critical mass of partners. This kind of large Company strategy may also provide opportunities for specialist groups of small companies that can rapidly re-cluster in concert with the client as the market changes. The Nokia Vice-President called the target practice organisational “orchestration” (also see Gossling, 2002), which conjures up some interesting analogies – who is the conductor, who provides the score, and how are appropriately skilled musicians selected. In many parts of the world, a few large businesses are central to regional economies. As large companies move their activities to other places in search of competitive advantage, or seek to do business with fewer suppliers to reduce their internal costs, the traditional small business connections begin to fail and there may be some community disruption. On the other hand continued growth in the rate of formation of small businesses can result if people displaced from the reengineering of large firms start their own enterprises, so an increasing proportion of a regional skill base may lie within small companies. These two things are illustrated in one of the case studies (Nepean IT) presented here. We see these circumstances as introducing both threats and opportunities for small businesses, but suggest that to access the opportunities, small businesses must form multi-partner collaborations that can dynamically change, which for many of them is unfamiliar territory. The objective of such collaborations is to draw on the niche specialisations and inherent flexibilities of the small companies. Two successfully implemented examples are explored as a prelude to the design of a large-scale initiative currently under way. The paper extends the use of activity theory as an aid to the characterisation of virtual enterprises (Beckett, 2004a), and discusses an orchestration metaphor to be utilised with industry participants in support of the new initiative. The Case study material was gathered through interviews, published material and enterprise websites.

Two Cases In this paper we are concerned with networks of small firms and their changing relationships with larger clients. But the perception of what is small varies with context. In a local community a small firm might have less than five or ten employees. In a national context a small firm might have less than 50 or so employees. In an international context a small firm might have less than 500 or so employees. In the two cases selected below we consider one virtual enterprise operating in a local context, and another operating in a global context. In one case, about 10 companies with less than 10 employees each established a virtual enterprise to support a large Telco in providing improved regional services to small business using people with local knowledge. The other involved about 100 relatively small manufacturing and technology services companies marketing themselves in unison via a virtual enterprise to offer a comprehensive range of inputs to large-scale overseas mining projects under a strategically developed national brand name. Nepean IT The idea of forming Nepean IT arose from the identification of an unfilled need in the Western Sydney region of Australia. A large telecommunications company (Telstra) had enquiries from small business clients for a range of combined information and communication technology services they did not provide, although they could provide some components. This was discussed at a regional business development (PVEDC1) IT task group meeting, leading to the idea of forming a business network. Initially, 21 firms 1

The Penrith Valley Economic Development Corporation (PVEDC) is a not-for-profit organisation owned by the members and funded via a levy on ratepayers in the Penrith City Council local government region

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were interested, and discussions were held regarding ways to form a network, what might be expected of participants etc. It was decided to form a virtual company, Nepean IT, and a participant code of behaviour was agreed. The project Champion in the formative stages was Jane Holdsworth, CEO of the PVEDC. There were 10 companies interested proceeding with the idea, but one of those, a larger firm, dropped out as the pricing arrangements agreed on did not fit with their business requirements. The nine remaining firms became shareholders of Nepean IT, which has a board of 5 members. CEO’s of three of the nine firms are assuming responsibility for different aspects of ongoing organisational development. Nepean IT went from an idea to an operational business in less than 12 months. There is a mixture of similarity and complementarity within the participating firms. Nepean IT covers three separate areas of expertise and there are three firms within each area. These three firms do not see themselves as competitors however as they work in different parts of the region, and have different approaches to their specialisation (eg web design). The network partners have jointly developed formal procedures for a variety on business process. The PVEDC IT task group that stimulated the network idea is concerned with the issue of “how the 1st generation Internet, (sometimes referred to as the “information superhighway”), has largely remained unchanged for some time despite the worldwide web product itself moving ahead in leaps and bounds. This has been largely limited by three things; an inadequate telecommunications infrastructure; a wide range of telecommunications protocols inhibiting seamless online dialogue; and limited address capacity”. The local government is actively supporting infrastructure improvement. The PVEDC IT task group considers that “The 2nd generation Internet includes telecommunications strategies such as the PVEDC’s strategy, being developed by governments and communities to help create new levels of understanding of the significant value of having adequate telecommunications infrastructure. For example, the introduction of Internet Protocol 6 (IP6) will, over the next 4 years, allow every single energy powered and telephone device in the world to be connected to the Internet, permitting all sorts of new communication and service opportunities and hence economic, social and cultural opportunities “. These views reflect concerns relating to the impact of global changes on a particular region. Nepean IT was formed to provide the following benefits to its clients: 1. One-stop-shop services in telecommunications/IT for companies based in Outer Western Sydney. 2. An affordable IT package approach for SMEs that cannot support their own full-time IT staff. 3. An integrated range of managed IT services to support the business that adopts a telecommunications/IT system approach to business efficiency improvement. 4. Allows local companies to adopt the operating systems that effectively exploit the new communications and data facilities now being made available. Client contracting is with Nepean IT (who sends out the invoices), and projects are assigned to individual firms on a rotating basis, dependent on client needs. Where a client has multiple needs, one firm will take the lead, and coordinate the others. This practice eliminated competition between the firms for Nepean IT work. Some separate inter-firm trading in respect of other work has commenced where an individual partner has a client whose needs could be best satisfied by a team effort. An agreement has been signed with Telstra to provide services to its clients as required, and Nepean IT has become an approved provider of Telstra products. The network partners have decided to promote the Nepean IT brand in preference to their separate company brands as they feel it will develop more credibility in the market place. A website (www.nepeanit.com.au) has been established to promote the brand name. The group has decided it needs to develop a more comprehensive marketing strategy. Austmine Austmine is a virtual enterprise comprised of around 80 member companies that manufacture equipment or provide systems used in mines, or provide services to the mining industry. These companies are all small by international standards, typically ranging in size from around ten employees to a few hundred. The enterprise has been in operation for more than ten years, starting with about 40 participating firms. Around the time of formation, the Australian Government began encouraging small firms as well as large ones to export. Membership peaked at more than 100 firms, but partly as a result of industry mergers and

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acquisitions, had reduced to around 80 firms in 2004. It is understood that export earnings of around $A1.8Bn p.a. have been achieved, and the Austmine website (www.austmine.com.au) indicates the members have a target of $A3Bn p.a. in mind. Work is directly contracted between the member companies and the client, who determines where the work will be placed. Austmine itself has only one part-time employee, the CEO, but substantial in-kind resources are available from a number of sources. It is understood that in the formative years, the Australian Government export support agency, Austrade, provided significant in-kind support, which progressively diminished as Austmine became an established, viable operation. Austrade was represented on the Company Board, helped organise a presence at international trade shows, and provided in-kind support in terms of office space and some administration functions. Austmine provides an umbrella brand for its members, which has been promoted by marketing through international trade shows, and direct marketing to builders or operators of large new mines around the world. The reputation established is based on global excellence. Australia has an internationally competitive mining industry, and the Austmine members supporting it must be similarly competitive at home. The Austmine members however are still small compared with their international counterparts. On one large project (a new mine in Indonesia), the Board funded a project manager who was located with the client team to identify opportunities and manage specific enquiries to individual member firms. Some member firms use the Austmine logo in all of their advertising, as it is now a recognised brand throughout the world. Austmine is a registered not-for-profit company, and has a Board that discusses marketing initiatives and opportunities. Opportunities are posted in a members-only section of the Austmine website. An Austmine overview and member directory document is produced annually, and a marketing video has been developed to introduce Austmine to potential new clients. Some members get together in regional meetings from time-to- time to discuss opportunities and the market environment, mainly in Western Australia and Queensland. Modest membership fees cover CEO and housekeeping costs, and members provide resources as needed for specific projects or marketing initiatives. In 2001 the Australian Government initiated a mining technical services industry (MTSI) action agenda study (DITR, 2001) that has targeted annual export earnings of $6B p.a. by 2010. Austmine was an enthusiastic participant and helped frame the industry vision. The Austmine Chairman, Allan Broome, is now also chairman of the MTSI Action Agenda Implementation Committee. Another industry group MESCA (operated as part of the AIG group) has also actively supported the Action Agenda. This group is centred in Queensland, and the Queensland Government supported its formation. A number of Cooperative Research Centres (eg Parker Hydrometallurgy) are also supporting the Action Agenda. The CEO noted that individual firms have different reasons for supporting Austmine. Some see it as a source of market intelligence, transmitted through a newsletter and the website. Some see it as helping with access to and influence on government. Some see it as facilitating market access. Austmine also runs special focus workshops on technical and market themes. For example, a seminar on e-commerce and another on specific opportunities in particular countries have been recently held.

Characterising the Cases Using an Activity Theory Framework A number of recurring features can be seen in these cases – groups of direct participant actors, but also other stakeholders, and the development of rules for the game. Activity Theory (Vygotsky, 1978, Engestrom, 1987) is used below to provide a framework for characterising the interplay of behaviours and tools associated with the operations of successful multi-partner collaborations and comparing them. Collaborations are formed to do something as a collective activity that is achieved through the efforts of individual organisations and people. Activity Theory derives from studies of how people think in the context of undertaking an activity, and it is argued that their environment influences the way they think and act. In undertaking broad activities driven by some motivation [Object], people decide to take an action [Subject] to achieve a goal requiring operations [Community] to be implemented through a series of tasks. How this is enacted is influenced by [Tools], [Rules] and the [Division of Labour]. Such a socially distributed activity system is illustrated in Figure 1. Originally associated with education, Activity Theory is

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now being used to help study a wide range of circumstances where social and technological tools and rules are important (Hasan, H; Gould, E; Larkin, P and Vrazalic, L, 2001; Beckett, R.C, 2004a). TO OLS

SUBJECT

RULES

OBJE CT

COMMUNITY

OUTCOME

DIVISION OF LABOUR

A MODEL OF W ORK ACTIVITY

Figure 1:A Socially Distributed Activity system (after Engestrom, 1987)

Activities undertaken in the two case study virtual enterprises have been subjectively mapped against each component of the system presented in Figure 1 to provide a holistic view of the cases. This is shown in Table 1 and helps show the similarities and differences between them.

Discussion The focus of the paper is on mobilising significant numbers of smaller companies to create new value chains, and the two examples given have some similarities and differences. The activity theory framework used to characterise them prompted active discussion in collecting the case descriptions. Case similarities are: a focus on Brand development, and in having some level of government with an interest as a stakeholder that has provided in-kind support during the development stages of the virtual enterprise. Both cases are formally constituted as not-for-profit companies with formal Boards responsible for organisational development. Both have work done directly by individual members. Both have some formal code of conduct or conditions of membership. Both have forged relationships with large organisations that would be difficult for each member firm on their own. In both cases, the tools used were simple compared with some virtual enterprises we have studied, and this is considered a feature of the way work is contracted. In other case examples (e.g. GLOBEMEN, 2002) several members will work together on a particular project, and more sophisticated ICT tools seem to be needed to exchange project management and technical data. In both cases trust has been built by doing something together – developing a code of behaviour and procedures in the Nepean IT case, and actively promoting the collective brand together at international trade shows in the Austmine case.

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Activity Theory Element

NEPEAN IT Case

AUSTMINE Case

Object (the motive stimulating the activity)

- The motivation is to provide small regional business enterprises with distributed Information and Communications Technology (ICT) support covering a number of areas of expertise - Action is through one or more network partners, depending on client needs. Client enquiries are through Nepean IT, who also bills clients, then pays the partner who did the work. - There are a number of stakeholders – the local community as represented by the Penrith Valley Economic Development Centre (PVEDC), a national telecommunications company (Telstra) and 9 small firms that are the shareholders of Nepean IT.

- The motivation is growth in existing businesses through effective engagement in export markets by establishing and maintaining an internationally recognised and respected brand - Marketing action is through international trade shows. Individual members pursue specific sales opportunities directly with clients - There are more than 80 individual firms currently members of Austmine, and these firms cover a wide range of different products and services. A relatively small number of participants are competitors. - Members meet on a regional basis to share common interests - The Australian Government, though its Austrade Department and Industry Action Agenda studies has strong linkages with Austmine - An annual member directory, industry video and a website support marketing efforts. The website also has a members-only section where current business opportunities are posted. - Regional and National events are organised to discuss emerging market and technology issues

Subject (the individual or team directly pursuing the objective) Community (The groups supporting the object and the subject)

Tool (Tools and instruments available to the subject)

Rules (within the team and within the community) Division of Labour (within a team and within a community)

- There is a weekly network partner meeting to track performance and network development activities. - PVEDC provides a virtual office and some administration services to Nepean IT - Nepean IT have developed a web site to help market themselves, and have signed a formal agreement with Telstra to provide services and utilise Telstra products - Nepean IT participants have agreed a code of conduct and have developed a number of business procedures. Operating as a legal entity, the Company has a Board of (5) directors who develop strategic directions and formally manage financial reporting. - Tasks are assigned to a network partner by Nepean IT on a rotating priority basis, depending on the region where the client is located and the nature of the services required. Network partners also submit some of their client enquiries to Nepean IT, if for example they do not have the capacity or expertise to handle the work as well as others could

- There are some participant requirements identified in conditions of membership documents, and these include acting in the national interest (some members are owned by multi-national firms) - The Board and the CEO have responsibility for market and Brand development and government interfacing. - Contracting arrangements are between individual firms and the client

Table 1 Comparison of Cases using an Activity Theory Framework

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There are differences in market focus, one being on a regional ICT market, and the other being on a global mining market. Nepean IT is a sales front for the participants, whereas Austmine members are responsible for securing sales directly with clients. There are also differences in scale, Nepean IT finishing up with 9 participants (of 21 that initially expressed interest) and Austmine having about 80 participants. Nepean IT is a new venture in a relatively new industry sector, whereas Austmine is well established in a mature industry. Nepean IT deals with inter-company management issues by operating more in the style of a franchise operation, with the collective brand and agreed practices being the focus. Austmine members use the brand to gain market recognition, but generally do not work together on common projects. These practices avoid some potential inter-company issues. In both cases there was some alignment with local or national government imperatives, even though both case example enterprises were market driven, and we see: • The identification of local leaders that will buy in to the collaboration model has been an important influence factor (see Table 3) • The possible involvement of some regional coordinating body (e.g. PVEDC or Austrade) in the formative stages seems helpful, providing, a degree of impartial independence from a particular firm, where management is by consultation, and where the time horizon focus is weeks/months, (i.e., things still happen reasonably fast). • The individual collaborating firms are not the only stakeholders. Local or national governments may see these collaborations as supporting their objectives too.

•

The provision of some external resources, particularly in the formative stages seems helpful, due to the relatively small size of all of the companies involved.

In the introduction to this paper we noted some questions raised by Nokia’s experience in seeking to develop extended supplier networks. Table 2 presents some observations from the two cases in relation to these questions that suggest some issues have been avoided by the nature of the collaboration design, but there is still considerable scope for Nepean IT and Austmine to expand the nature of their activities. Question framed by Kosenen (2002) How to organise networks of companies to ensure end to end process and business performance How to operationally manage these networks, aligning targets, synchronising processes and decision-making, sharing risks and profits How to utilise the full innovation potential and development potential of these networks in new capability creation without creating chaos Understanding where the limits of an extended enterprise might be, as the true power of shared vision, culture and business infrastructure decreases with distance Understanding if the limits are the same for all kinds of activities

Nepean IT Individual projects assigned only to one member firm Introduce agreed business processes Yet to be addressed Not currently on the agenda, regional focus only Not tested

Austmine Not required, clients contract individual firms Brand alignment by voluntary members Not currently planned, but may arise from the Action Agenda Bounded by national boundary Not tested

Table 2 Some Questions of evolution The notion of extended enterprise “orchestration” was also raised in the introduction. In this context, we explore some other attributes of the cases, as illustrated in Table 3. Previous work by the author (Beckett, 2004b) and others (Biggiero and Sammarra, 2001) has suggested that a blend of participant similarity

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and complementarity is necessary for enduring networks, otherwise competition or lack of focus will compromise operations, and this is a feature of the two cases presented. Orchestra analogue Conductor

Nepean IT The PVEDC CEO, Jane Holdsworth has been the “champion” during the establishment phase.

Score

Brand, a code of behaviour and agreed business process provide alignment

Specialist musicians

A blend of similarity and complementarity is evident, and the participant firms are led by experienced people

Austmine Successive Austmine Chairpersons have been the enterprise “champion”, and the current CEO, Allan Broome is also leading another national industry initiative Brand and a common (although individual) focus on large overseas projects aligns member activity Complementarity with some similarity and competition between participant firms regarded as world-class in their specialisation.

Table 3. Exploring an “Orchestration” analogue The questions discussed in Tables 2 and 3 had arisen in the context of a large firm (Nokia) working with a network of suppliers. However these questions seem equally applicable to small firms. In discussion with aspiring industry collaborators, the orchestra analogue has proven helpful in emphasising the need for alignment, agreed practices and competent players (otherwise “bad music” will result. The case studies take the perspective of a smaller firm seeking improved market positioning, with economic transactions being the objective. But as observed in other studies (Beckett, Hyland and Sloan, 2003), knowledge transactions (e.g. market intelligence in Austmine) and social transactions (e.g. interface with government in Austmine) are also valued in enduring collaborations. Other researchers (e.g. Fulop and Kelly 1997) have observed a need for housekeeping transactions associated with managing relationships, associated with managing tasks and associated with maintaining communication at work. Zhou (2001) describes three generic operational roles: a coordinator function to manage the enterprise identity, capabilities, capacity and performance (enacted by the Boards in the cases presented here); a collaborator function that facilitates knowledge and information exchange; and a communicator function that facilitates face-toface or virtual meetings and keeps all participants aware of the status of the collaboration. Lipnack and Stamps (2000) have noted six leadership roles that address a range of needs in technology enabled virtual teams: coordinator, designer, disseminator, Tech-net manager, Socio-net manager and executive champion. We see some of these roles in the two cases (e.g. Executive Champion), however the exploration of such generic roles in the context of the activity theory framework (Figure 1) is the subject of future research

Concluding Remarks The case study SME organisations have sought to position themselves favourably in larger markets than they could access on their own by establishing a virtual enterprise. Both virtual enterprises placed an emphasis on market engagement and brand development. By comparison, Marceau (1999) noted that networks emphasising the establishment of operational arrangements without achieving market engagement did not survive. Potential issues of intercompany management, governance and contracting were simplified by establishing not-for-profit virtual enterprise companies and placing full responsibility with individual participant firms for producing client deliverables. This is in contrast to some other virtual enterprises where a significant number of participants must work together to produce client deliverables. In the two cases, there was significant in-kind support in connection to government initiatives that helped get the virtual enterprises established relatively quickly. Benefits have flowed both directly to the participants and to the broader community. In one case (the most mature one) that support has progressively diminished as the virtual enterprise became self-sustaining.

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As has been observed elsewhere (Beckett, Hyland and Sloan, 2003) three kinds of transactions that are valued by the participants in enduring collaborations: economic transactions, knowledge transactions, and social transactions are identified in the cases, and it is noted that each participant may value each of them differently. Two ideas were used to characterise and compare the case study enterprises. One was based on activity theory, which suggests that how activities are undertaken to achieve an objective is influenced by a number of environmental factors, such as the tools available. The second idea draws on the idea of the network of partners being “orchestrated” to pursue a particular opportunity, and on the parallel with the workings of an orchestra (Gossling, 2001). This work is a precursor to a project to design and implement some large-scale networks. In this new project an adaptation of the activity theory tabulation (without the academic jargon) is being used to characterise “the deal” - who is involved, and what tools and rules are appropriate. It has been observed that industry finds metaphors helpful and the notion of an orchestra of specialists (the business network) being selectively used to play a particular piece (a project) with a conductor (lead firm or consortium) providing coordination and leadership is being well received. It is also observed however that these two ideas (activity theory and orchestration) do not provide a complete picture, and other tools are being used to assess the current status of evolution and the potential sustainability of the large business networks being developed.

References Beckett, R.C; Hyland, P and Sloan, T. 2003, Mapping Collaborative Transactions in Networks that Yield Business Benefits, Proc 19th Annual IMP Conference, University of Lugano, Switzerland, 4-6 September (ISBN 82-7042-576-1) Beckett, R.C., 2004b, Exploring Sustainable Virtual Enterprises, 5th IFIP Working Conference on Virtual Enterprises, Toulouse, France, 23-26 August Beckett, R.C, 2004a “Exploring Virtual Enterprises using Activity Theory”. Australian Journal of Information Systems, Vol 12, No 1, pp103 - 110 Biggiero, L. and Sammarra, A., 2001, Similarity and complementarity in inter-organisational networks, APROS (Asia-Pacific Researcher in Organisation Studies), Hong Kong Baptist University, 3-5 December Bryan, L; Fraser, J; Oppenheim, J and Rall, W (1999) “Race for the World: Strategies to Build a Great Global Firm” Harvard Business School Press, Boston, Massachusetts Engestrom, Y., 1987, Learning by expanding: an activity-theoretical approach to developmental research, Helsinki: Orienta-Konsultant DITR, 2001 Mining Technology Services Action Agenda – Background paper on issues affecting the sector, Department of Industry, Tourism and Resources, Australia. (ISBN 0 642 72173 4) Fulop, L and Kelly, J., 1997, A Study of Business Networks in Australia, Sydney: Australian Business Chamber GLOBEMEN, 2002, http://globemen.vtt.fi

Global

manufacturing

and

engineering

in

enterprise

networks,

Gossling, T, 2001, The Orchestra as an organisation: a metaphor, in “Collaborative Strategies and Multi-organisational Partnerships” Tharsi Taillieu (Ed) Garant Publishers, Belgium, pp 165-170 Hasan, H; Gould, E; Larkin, P and Vrazalic, L (Eds) (2001) “Information Systems and Activity Theory: Volume 2 Theory and Practice” University of Wollongong Press, Australia (ISBN 0-86418-6967) Kosonen, M (2002) “Renewal Capability – the Key to Survival and Success in the Global Marketplace” Plenary keynote speech at CINet 2002 “Continuous Innovation in Business Processes and Networks”, Helsinki, September 15-18

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Lipnack, J., and Stamps, J., 2000, Virtual teams: people working across boundaries with technology John Wiley & Sons, New York Marceau, J., 1999, Networks of innovation, networks of production and networks of marketing: collaboration and competition in the biomedical and toolmaking industries in Australia, Creativity and Innovation Management, Vol 8, No 1, March, pp20-27 Naisbit, J, 1998, From Nation States to Networks, in Gibson, R "Rethinking the future" Nichols Brealey Publishing Limited, London Vygotsky, L.S., 1978, Mind and Society, Harvard University Press Zhou, M, 2001, The architecture of an internet-based Virtual Industrial Community, in Mo J.P.T and Nemes, L (Eds) “Global Engineering, Manufacturing and Enterprise Networks”, Kluwer Academic Publishers, The Netherlands, pp61-65

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A Survey of Continuous Improvement Practices in the United Kingdom and Mexico Luis A. J. Borges [email protected] Medaille College 18 Agassiz Circele, Buffalo, NY 14214-2601, USA Phone: 1+ (716) 884-3281; Fax: 1+ (716) 884-0291

Andrew Greasley [email protected] Aston Business School Aston University Birmingham, B4 7ET, United Kingdom Phone: +44 (0)121 359 3611; Fax: +44 (0)121 359 5271

Abstract With the advent of globalisation companies all around the world must improve their performance in order to survive. The threats are coming from everywhere, and in different ways, such as low cost products, high quality products, new technologies, and new products. Different companies in different countries are using various techniques and using quality criteria items to strive for excellence. Continuous improvement techniques are used to enable companies to improve their operations. Therefore, companies are using techniques such as TQM, Kaizen, Six-Sigma, Lean Manufacturing, and quality award criteria items such as Customer Focus, Human Resources, Information & Analysis, and Process Management. The purpose of this paper is to compare the use of these techniques and criteria items in two countries, Mexico and the United Kingdom, which differ in culture and industrial structure. In terms of the use of continuous improvement tools and techniques, Mexico formally started to deal with continuous improvement by creating its National Quality Award soon after the Americans began the Malcolm Baldrige National Quality Award. The United Kingdom formally started by using the European Quality Award (EQA), modified and renamed as the EFQM Excellence Model. The methodology used in this study was to undertake a literature review of the subject matter and to study some general applications around the world. A questionnaire survey was then designed and a survey undertaken based on the same scale, about the same sample size, and the about the same industrial sector within the two countries. The survey presents a brief definition of each of the constructs to facilitate understanding of the questions. The analysis of the data was then conducted with the assistance of a statistical software package. The survey results indicate both similarities and differences in the strengths and weaknesses of the companies in the two countries. One outcome of the analysis is that it enables the companies to use the results to benchmark themselves and thus act to reinforce their strengths and to reduce their weaknesses.

Introduction The purpose of this paper is to compare the use of these techniques and criteria items in two countries, Mexico and the United Kingdom, which differ in culture and industrial structure. In terms of the use of continuous improvement tools and techniques, Mexico formally started to deal with continuous improvement by creating its National Quality Award soon after the Americans began the Malcolm Baldrige National Quality Award. The United Kingdom formally started by using the European Quality Award (EQA), modified and renamed as the EFQM Excellence Model. The EFQM model is based on the idea that the outcomes of quality management are achieved through 5 ‘enablers’, while 4 ‘results’ are concerned with what the company has achieved and is achieving.

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According to Womack (2002), president and founder of LEI – Lean Enterprise Institute, Inc., there is no "right sequence" to follow in tackling lean and continuous improvement problems. However, the authors respect any feasible sequence choice, but suggest a historical sequence starting from total quality management culture concepts, and tools. Then, follow the kaizen, lean concepts, and the six-sigma approach. Simultaneously, in each step consider some gradual dosage of empowerment. All of these might lead to self-organization. Based on the above-mentioned sequence, the researchers in Mexico started research on continuous improvement applications in organizations in the Mexico City area, emphasizing the metal-mechanic sector. The choice of this sector was made because it is a very well represented sector with a range of possibilities of being a general picture of Mexican industry as a whole. During the survey, a scale was used that was created by one of the authors, which was specifically designed for continuous improvement applications. The findings of the Mexican study, that were presented at the joint conference of EuromaPOMS (Borges & Muñoz, 2003), has now been extended to include the United Kingdom, a country that is estimated to be quite different in terms of industrial tradition, labour legislations, and other factors. Companies are using many tools and techniques to improve their performance. This work provides a parameter of continuous improvement in organizations in Mexico as well as in the United Kingdom. Using the results of this work, management can reflect on its own performance. Managers can also use the scale employed in the survey to have a self-evaluation leading to the identification of strengths, and opportunities for improvement; and to analyze the unsuccessful endeavours from the past. When verifying the results of one technique, and the stress given to it, it is possible to compare this with the allocation of resources to get its results. Companies can use it in the preparation of their strategic planning in order to have a clear picture of the current situation. Furthermore, they can make projections for the future. After that, they can keep their current records to compare with the data they will collect the following year when they are reviewing the plan. A set of many years can give them information enough to create a dynamic time series. Consultant professionals will benefit from the analysis of the survey results, or by using the scale in another survey. Therefore, the consultants can establish priorities for their customers.

Continuous Improvement Tools The tools examined as continuous improvement applications were total quality management, seven quality control tools, statistical process control, design of experiments, kaizen workshops, lean concepts, six-sigma approach, and empowerment. These tools are outlined in Greasley (1999) and briefly described below. Total Quality Management – TQM Quality philosophies (Deming, 1982, 1986; Juran, 1964, 1988, 1989; Ishikawa, 1986, 1990; Feigenbaum, 1951; Crosby, 1979) are based on a customer focus. The total quality management process was based on Deming’s principle, Juran’s approach to quality improvement, and Feigenbaum’s company-wide approach to quality control (Stephanou & Spiegel, 1992). Ishikawa (1986, 1990) added some contributions in Japan such as the cause-and-effect diagram and quality control circles. Crosby (1979) introduced the “zero defect” concept. Howe et al. (1995) state that, despite some successes, TQM has shown that 60-70% of the programs fails to achieve their stated objectives. Seven Quality Control Tools According to Ishikawa (1986, 1990), the tools are Check sheets, Pareto Diagram, Cause-and-Effect Diagram, Histogram, Scatter Diagram, Run Charts, and Flow charts. These tools are very well known and were used even before the quality movement. Some of them were used before in different areas, such as Pareto Diagram, which was used in the ABC purchasing policy. Statistical Process Control (SPC) The main areas of application of statistical process control (SPC) are for control, for analysis, for adjustment, for inspection (Ishikawa, 1990), and for a useful graphical representation of the data. Periodic samples of the output of a production process are taken, and then compared with the control limits to see whether the process is in control or out of control.

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Design of Experiments (DOE) Design of experiments consists of all efforts to use analysis of variation, in many cases applying experimental designs and Taguchi techniques. According to Montgomery (1997), the application of experimental design techniques early in process development can result in (a) improved process yields, (b) reduced variability and closer conformance to nominal or target requirements, (c) reduced development time, and in (d) reduced overall costs. Moreover, it can be used to evaluate and compare basic design configurations and material alternatives. The National Quality Award criteria Mexico formally started to deal with continuous improvement by creating its National Quality Award one year after the Americans started the Malcolm Baldrige National Quality Award in 1988. The awards include the criteria of customer focus, human resource focus, strategic planning, information and analysis and process management. These criteria are incorporated in the survey questionnaire. The United Kingdom formally started by using the European Quality Award (EQA), modified and renamed as the EFQM Excellence Model. The EFQM model is based on the idea that the outcomes of quality management are achieved through 5 ‘enablers’ while 4 ‘results’ are concerned with what the company has achieved and is achieving. The 5 enablers are leadership and constancy of purpose, policy and strategy, how the organization develops its people, partnerships and resources and the way it organises its processes. The 4 results are based on the outcomes of quality management in terms of ‘people results’, ‘customer results’, ‘society results’ and ‘key performance results’. Kaizen A Kaizen workshop deals with ongoing improvement involving everyone, from top management to middle manager, from supervisors to workers (Imai, 1986). Kaizen looks for active participation of all department members involved in a process within a non-blame company culture. It is a problem solving process approach used to obtain gradual improvements. Immediate actions are carried out and some follow-up meetings are scheduled for the more time-consuming suggestions. Lean Concepts The proponents of lean production emphasize five elements (Jones, 1992) of plant organization in the lean system: (1) the delegation of responsibilities to front-line workers; (2) their organization into work teams; (3) employee involvement in continuous improvement; (4) the use of visual factory controls; and (5) the use of just-in-time to eliminate in-process buffers and eliminate waste. Six-Sigma Approach Based on statistical theory, the six-sigma approach was launched by Motorola and popularized by Jack Welsch, GE’s C.E.O. It consists of the application of DMAIC – Design, Measure, Analyze, Implement, and Control – projects supported by a consistent training basis and applications aimed at reducing defects and improving process productivity (Pande et al., 2000). Empowerment Empowerment consists in giving responsibility and participation in the decision-making process. Rayner (1994) states that many U.S. corporations are trying to increase the level of workforce participation and involvement in the decision-making process. Employee empowerment aims at the development of the capability of the workforce. In doing so, the organization can be more flexible and ready to adapt to change.

Survey Methodology The methodologies during the research varied between the studies of the two countries. The Mexican study was based on the following steps. First, the authors got a random directory from trade associations, and other mailing list sources were contacted. The idea is to gather the most representative responses from the groups. Then, 400 questionnaires were sent to the respondents, which were directors, manager, and engineers. 102 answers were received in a period of 45 days, 17 questionnaires were rejected because they did not attended the research requirements, such as incomplete answers, and repetitions. The British study was performed by means of a random mail survey of 1000 organisations in the public and private sector. A questionnaire was posted to the managing director of each organisation.

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The data for both data sets were compiled and analysed using Minitab statistical software. Results There were 84 companies from manufacturing sectors, and 32 from service companies. Owing to the random nature of the survey but with a slight focus on the metal-mechanic sector, this sector represented 26%. From the Mexican study (Borges & Muñoz, 2003) a total of 56% were large companies (more than 250 employees), 18% were medium sized (101-250), 22% were small sized (11-100), and the remaining 4% were micro companies (0-10 employees). One can assume that there is a tendency that managers of big companies are more inclined to respond to technical questionnaires. 57% of the companies were international companies, and 43% were Mexicans. Although the international companies have almost the same value as the big companies, it is not valid to say that all big companies are international because some international companies have a small or medium subsidiary in Mexico. The British survey was answered by 60% of manufacturing companies and 40% of service companies, 13 % large companies, 22 % medium sized, 51 % small sized, and 14 % micro companies. 58% of the British companies act on an international market. The survey results are presented in Table 1 and you can infer that the TQM, SPC, QC Tools and the Malcolm Baldridge award criteria of Customer Focus and Process Management were considered successful for the majority of the companies in Mexico (more than 50%). The most success in the UK was a score of 41% for successful TQM implementation. To get more than 50%, British companies need the responses 1 & 2 combined. On the other hand, in QC Tools and the Malcolm Baldridge award criteria of Strategic Planning and Information & Analysis. British companies answered that there in no failure in the implementation compared to Mexican companies that answered some failures of 16%, 19%, and 20% respectively. Evaluation Country TQM SPC QC Tools DOE CustomerFocus HR Strategic Plan Information Process Kaizen Lean Mfg 6-Sigma Empowerment

1 UK 41 23 23 14 32 23 32 27 14 14 5 9 18

Mex 55 54 51 33 59 38 46 45 55 25 33 20 44

2 UK 14 9 14 5 14 18 27 18 14 0 9 5 23

Mex 25 26 21 16 28 34 33 31 23 27 25 24 27

3 UK 9 9 27 9 18 27 14 32 36 27 9 23 9

Mex 25 26 21 16 28 34 33 31 23 27 25 24 27

4 UK 9 9 0 9 5 14 0 0 5 5 9 5 5

Mex 8 19 16 28 10 23 19 20 14 24 21 26 22

5 UK 27 45 32 55 27 14 23 23 27 45 59 50 36

Mex 12 5 7 15 2 1 3 3 5 21 17 27 6

Table 1. Survey results in %

Evaluation Key: 1. Successful; 2. Implemented, waiting results; 3. To implement in the future; 4. Not Successful; 5. Not interested in implementing at this time.

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If we group the answers to the survey in three main categories, answers 1-2 (implemented in one stage or another), answers 3 (will probably be implemented), and 4-5 (not successful or not interested), we get the following results: •

• • •

Between 44% and 87% of the Mexican companies answer that they are in a stage where they have implemented the different tools. The British figures vary between 14% (Kaizen, Lean, and 6sigma) and 59% (Human Resources). These results also differ from the results of a survey in Sweden were the figures vary between 10 % (6-Sigma) and 81 % (Human Resources) (Borges & Winroth, 2004). The countries show differences in almost all items, with many more Mexican companies implementing the techniques. The Mexican companies show higher values of implementation regarding Customer Focus, Statistical Quality Control and TQM. The Mexican companies show significantly higher values regarding the use of Process Management criteria, Lean concepts, and Kaizen.

The authors ran the data in the MINITAB software and the following main results were noticed: Chi-Square Test – United Kingdom and Mexico. It was considered the sum of the answers 1, and 2 (successful, and implemented waiting results). All p-values were lower than 0.05. TQM and Strategic Planning were 0.02, and the others were 0. Therefore, it seems that there are evidence of the differences between the application of continuous improvement techniques and tools in the two countries. The reason why we get these differences between the surveys in the two countries is unclear. It could of course be due to a real higher implementation rate and higher interest for these issues at the Mexican companies. The closeness to the US and being suppliers to American companies, that demand higher performance, are probably important factors. Another explanation could perhaps be found in differences in culture.

Conclusion The research shows that there are significant differences in the interest and implementation of tools related to continuous improvement and TQM aspects between companies in Mexico and the United Kingdom. Some of the differences could however be more related to culture and how companies believe that the researchers would like them to answer. According to Hill (2005), there are several determinants of the culture, such as social structure, language, education, political philosophy, economic philosophy, and religion. Kras (1995) states that anglo-saxons and latinos have some differences in behaviour, mainly because anglos are more direct than latinos. If they are different in doing business, it seems that they can approach continuous improvement techniques, and answering questionnaires in different ways. It would be very interesting to do a series of deeper interviews at a number of companies to determine if there are differences and how these differences show in the operations of the companies. This series of interviews could also be extended to other related areas, such as discussing how the companies work with their operations strategies, as well as studying relation between what the companies want to achieve and how this is shown in the design of their production and service delivery systems.

References Borges, L. A. J. & Muñoz S., M. M., 2003, Continuous Improvement in Metal-Mechanic Sector: A Mexican Example, Proceedings of the Euroma-POMS conference: One World? One View of OM? The challenges of Integrating Research & Practice, SGEditoriali, 531-537. Borges, L. A. J. & Winroth, M., 2004, How different is Sweden from Mexico? A continuous improvement survey comparison, 2nd World POM conference proceedings, Cancun, Mexico. Crosby, P. B., 1979, Quality is Free: the art of making quality, McGraw-Hill, New York.

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Deming, W.E., 1982, Quality, Productivity, and competitive position, Massachusetts Institute of Technology Center for Advanced Engineering Studies, Cambridge, MA. Deming, W.E., 1986, Out of the Crisis, Massachusetts Institute of Technology Center for Advanced Engineering Studies, Cambridge, MA. Feigenbaum, A.V., 1951, Quality Control, McGraw-Hill, New York. Greasley, A., 1999, Operations Management in Business, Nelson Thornes Ltd, Cheltenham. Hill, C. W. L., 2005, International Business: competing in the global marketplace, 5th.ed, McGraw-Hill, New York. Howe, R. J., Gaeddert, D. & Howe, M. A., 1995, Quality on Trail: bringing bottom-line accountability to the quality effort, McGraw-Hill, New York. Imai, M., 1986, Kaizen: the key to Japan’s competitive success, McGraw-Hill, New York. Ishikawa, K., 1986, Guide to Quality Control, ASQC Quality Press, Milwaukee. Ishikawa, K., 1990, Introduction to Quality Control, 3A Corporation, Tokyo. Jones, D., 1992, Beyond the Toyota Production System: the era of lean Production Voss, C., Manufacturing Strategy: process and content, Chapman & Hall, London, 189-210. Juran, J. .M., 1964, Managerial Breakthroughs: a new concept of the manager’s job, McGraw-Hill, New York. Juran, J. .M., 1988, Juran on Planning for Quality, The Free, Press, New York. Juran, J. .M., 1989, Juran on Quality by Design, The Free, Press, New York. Kras, E. (1995), Management in two cultures: bridging the gap between United States and Mexico managers, Intercultural Press, Yarmouth, Maine. Montgomery, D. C., 1997, Design and Analysis of Experiments, Wiley, New York. Pande, P.S., Neuman, R. P., & Cavanagh, R.R., 2000, The Six Sigma Way: how GE, Motorola, and other top companies are honing their performance, McGraw-Hill, New York. Rayner, S. R., 1994, “Making Employee Empowerment to Work”, in Wallace, T.F. & Bennett, S. J., World Class Manufacturing, Oliver Wight Publications, Essex Junction, VT, 153-61. Stephanou, S. E. & Spiegel, F., 1992, The Manufacturing Challenge: from concept to production, Van Nostrand Reinhold, New York. Winroth, M., 2004, On Manufacturing Strategies – Competing Through Inter-Organizational Collaboration, Doctoral dissertation No. 860, Linköping Studies in Science and Technology, Linköping, Sweden. Womack, J., 2002, Lean Enterprise, Inc. Newsletter, http://www. lean.org.

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Towards a Road Map for Knowledge Management Implementation Naguib Chowdhury [email protected] Department of Information System International Islamic University Malaysia H/P: (6)019-3084950

Abstract The successful implementation of knowledge management depends on several factors, which include efficient management of people as well as IT infrastructure. Recent strategies explored some critical success factors for KM implementation, which involve leadership, organization structure, culture, technology and measurement of KM performance. Few knowledge management strategies are presented taken from theoretical and empirical studies done by various groups and individuals in this paper. KM strategies can be context sensitive and depend on the type of the organization and on the industry it plays. This paper suggests a 6-step knowledge management Implementation Road map, which would assist an organization to initiate KM activities regardless of its types. Keywords: Knowledge management, Critical success factors, KM strategies, KM Implementation

1. Introduction In today’s current global business scenario, ideas such as change management, learning and unlearning, adaptation, agility and flexibility have been popular over the past few years. Changes in the business world are radically discontinuous. This has put a premium on thinking beyond benchmarking and best practices, and developing innovative business models [1]. Economic power and competitive advantages of today’s modern organization lie in its intellectual capabilities instead of its fixed assets [2]. There is a going recognition among executives now-a-day that intellectual capital is the sum of a firm’s skills, knowledge and experience and is critical to sustain competitiveness and shareholder’s value. There are three elements of intellectual capital, which are, Human capital, Social capital and Structural capital. Human capital is the knowledge, skills and experiences of individual employee. It comprises conceptual and tacit knowledge such as how to negotiate a sale, create a budget and so on. Structural capital is the explicit rule based knowledge embedded in the organization’s work processes and systems, which includes written policies, training documents, copyrights and so on. Social capital on the other hand, is the ability of groups to collaborate and work together and is a function of mutual trust [3]. Knowledge management (KM) describes management’s efforts to ensure that these intellectual assets are continually in motion, being enhanced, shared or used and they generate superior business results. In other way, knowledge management can be thought of as the deliberate design of processes, tools, structures, which help to increase, renew, share and improve the use of knowledge of intellectual capital [3]. Developing an effective knowledge management (KM) implementation strategy is important as it helps to increase awareness and understanding of knowledge management in the organization, gain top management support, to assess the current knowledge needs and communicate good KM practices. This paper presents the knowledge management definition, the critical success factors that affect the effective implementation of knowledge management and some KM strategies by various researchers. A 6 step-KM implementation road map has been proposed considering all the factors at the end of this paper.

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2. What is knowledge management? There are many definitions of knowledge management (KM). Karl Wiig defines it as a conceptual framework that encompasses all activities and perspectives required to gain an overview of, deal with and benefit from the corporation’s knowledge assets and their condition [4]. Sveiby says, knowledge management is the art of creating value from an organization’s intangible assets [5]. Bhatt refers to knowledge management as a process of knowledge creation, validation, presentation, distribution and application [6]. Researchers like Zuo have claimed that there are several schools of thought about the definitions of knowledge management, i.e. Technology school, Behavior school and Synthesis school. According to the technology school, knowledge management is the highest stage of information management i.e. MIS technology, AI technology, the groupware technology and so on. The behavior school says that knowledge management is mainly the management of human resources. The synthesis school perceives it from the perspective of system and synthesis [7]. According to Delphi Consulting Group knowledge management is "the leveraging of collective wisdom to increase responsiveness and innovation"[8]. Gartner Group defined knowledge management as a discipline that promotes an integrated approach to identifying, capturing, evaluating, retrieving and sharing all of an enterprise’s information assets [9]. Organizations need to identify the knowledge needs first. After the identification of the need, they tend to capture it. Evaluation of the content comes next. When the knowledge has been evaluated, retrieving it in the system is important for future use and share. Employees are encouraged to give feedback and identify new needs if necessary.

Identify

Share

Capture Knowledge Manageme nt

Retrieve

Evaluate

Figure 1: Knowledge management process

No universal framework or strategy has been developed for effective implementation of knowledge management in the organizations. KM strategies depend on the type of businesses a company is involved with. In a recently organized workshop held at George Washington University, participants concluded that the knowledge management framework need to be contextually driven, but the basic content structure can work for all types of organizations like government, commercial, non-government organizations and academia [10]. Karl Wiig (1993) suggested a knowledge management framework, which involves 3 pillars and a foundation. Wiig said that the foundation of knowledge management is comprised of the way knowledge is created, used (in decision making and problem solving) and manifested cognitively as well as in

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culture, technology and procedures of the organization. In his 3-pillar KM model, Wiig discussed about the exploration, value assessment and active management of knowledge [4]. The first stage, Exploration includes three activities, which involves i) survey & categorization of knowledge, ii) analysis of knowledge and iii) drawing, codification and organization of knowledge. In the second stage, appraisal and evaluation of the value of knowledge takes place. The third stage deals with the management of knowledge, which is synchronization, handle, use and control of knowledge. Leveraging and distribution of knowledge also take place in this stage [4]. APQC (American Productivity & Quality Center) and Authur Anderson developed a model, which describes the KM processes and its enablers. According to them any knowledge management processes consists of seven steps. These are: Identification, Collection, Adaptation, Organization, Application, Sharing & Creation of knowledge. This model also identifies four knowledge management enablers, which includes leadership, culture, technology & measurement [11].

3. Why knowledge management? Fortune 500 companies lose at least $31.5 billion a year by failing to share knowledge, according to International Data Corp. (IDC), a Framingham, Mass.-based market intelligence and advisory firm in the IT and telecommunications industries [12]. Organizations adopt knowledge management as they consider it as an enabler to achieve competitiveness. Knowledge management enables an organization to create, store, filter and distribute structured and unstructured data that provides the highest value of the data/information of an organization. It also helps organization to search and retrieve the right information or documents in the most effective way. As knowledge management inspires knowledge sharing, employees can learn and create from previous failures, best practices across the organization and increase their productivity, reduce learning curve for the new employees and promote career growth. A knowledge management system can retain the talents and expertise of the departing employees by capturing their knowledge/experiences in the system. In addition, KM can improve customer satisfaction by focusing and creating customer-database and share the customer needs across the organization at the right time. Not only this, by establishing benchmarks and database for internal and external Best Practices organizations can achieve knowledge superiority over their competitors.

4. Knowledge management: Success Factors The successful implementation of knowledge management is highly dependent on some critical success factors. Researchers like Stankosky [13], Bixler [14], Hasanali [15] have identified several factors required for successful knowledge management in the organization, which include: • Leadership • Organizational structure • Culture • IT infrastructure • Critical measurement of KM Leadership: The implementation of knowledge management requires higher level of employee participation. People are the heart and soul of knowledge management. Technology works as a vehicle to deliver the information people need to make decisions. Proper guidance, organizational changes, inspirations and so on demand the support from the top management. To enhance knowledge sharing, which is a crucial driver of knowledge management, top management needs to create an organizational environment, which supports openness and sharing of individual knowledge [14]. Several best-practice organizations have shown their commitment to knowledge management. The President of the World Bank himself led employees to create an infrastructure to promote Communities of

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Practice (CoPs) across the organization. The CEO of Chevron, Kenneth T. Derr encourages his employees to participate in the “Upward Feedback” sharing program [15]. Organizational Structure: Organizational structure and processes are important for successful implementation of knowledge management. Too bureaucratic or centralized organizational structure may hamper knowledge sharing and dissemination in the organization. It is essential to align the knowledge management strategies with the business objective of the organization [17]. The strategies usually differ with the nature of the businesses an organization performs. Some organizations automate knowledge management others rely on their people to share knowledge through more traditional person to person approach [16]. Corporate Culture: Corporate culture is the shared values, beliefs and practices of the people in the organization. An organization with a knowledge sharing culture can easily implement a KM system as people see sharing ideas, insights and experiences as natural, day-to-day activities. To promote a knowledge sharing culture, organizations need to build a social network, which encompasses mutual trust, allows free flow of information, promotes collective learning, and provides incentives for sharing [17]. Companies like Hewlett Packard (HP), Xerox arranges the office space in such a way that encourages knowledge and idea sharing. In HP, offices are built either without partitions or partitions at eye level [18]. Information Technology Infrastructure: It is hard to realize an effective knowledge management system without building a solid IT infrastructure. To facilitate knowledge acquiring, storing, retrieving and distribution, a user friendly, modern IT platform should be developed. The platform may include sharing technologies like Internet, Intranet, Groupware, Electronic Data Interchange, Electronic Document Management System, Video-Conferencing, Distributed Database, Web-based instruction system, Data Mining, Expert System and so on. Hasanali suggested that before developing the IT tools and platform, organizations should consider a few things, which includes: -

Simplicity of technology: Complex technology requires training and can frustrate the users. A Common platform: A standard organization wide architecture ensures sustainability and scalability of knowledge management. Cost effectiveness of the system: Focus should be given less on developing sophisticated IT infrastructure and more on training & educating employees to motivate in sharing knowledge. [15].

Critical measurement of knowledge management: Measuring the benefits of knowledge management is important to keep people motivated for sharing. Critical measurement analysis is needed as knowledge management does not always bring tangible benefits, in terms of Return of Investment (ROI), but it can achieve many intangible returns. An effective knowledge management system increases the productivity of employees, which in later stages can bring positive ROI values. It can also ensure higher growth in terms of revenue, market share, shareholder’s value etc. [19]. So, defining the various types of benefits of KM is important and measuring it carefully is a pre-requisite for effective knowledge management implementation. According to Mecune (1999), Knowledge management project may fail if employees are not satisfied with the type or format of the information they receive. Obstacles to effective implementation of KM project include employees’ unwillingness to share knowledge, the difficulty in selecting the best way to store information, and the language differences in computer networks. Therefore, timely and appropriate employee training is one of the important factors for KM implementation [20]. Creating a learning community is necessary for any KM initiatives. Enterprises must recognize that people operate and communicate through learning, which includes the social processes of collaboration, sharing of knowledge and building on each other’s ideas. That is why approaches such as increasing internal communications, promoting cross-functional teams are necessary [17].

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5. Implementing Knowledge management: Strategies suggested by researchers KM strategies vary with the types and nature of the organization. The following are some knowledge management strategies suggested by KM researchers: Hansen, Nohria & Tierney (1999) had done a study on several companies, which include Ernst & Young, McKinsey, Memorial Sloan-Kettering Cancer Center (N.Y), Dell, Hewlett-Packard and suggested two types of knowledge management strategies. The strategies are: Codification strategy & Personalization strategy [16]. They say that there is no universal knowledge management strategy for an organization to follow. What strategy a company should follow depends on the industry it plays, the way it serves its clients, the economics of its business and the people it hires. There is a relation between organizational design and knowledge management strategy. Hansen, Nohria and Tierney reports, “In some companies, the strategy centers on the computer. Knowledge is carefully codified and stored in the databases, where it can be accessed and used easily by anyone in the company. This is called codification strategy. In other companies, knowledge is closely tied to the person who developed it and is shared mainly through direct person-to-person contacts. The chief purpose of computers at such companies is to help people communicate knowledge, not to store it and it is called personalization strategy” [16]. Knowledge management should always constitute a good mixture of strategies applied in the organization form and it’s ICT. Emphasizing the wrong strategy or trying to pursue both at the same time can quickly undermine a business. Companies that use knowledge effectively pursue one strategy predominantly and use the second strategy to support the first. “We think of this as an 80-20 split: 80% of their knowledge sharing follows one strategy, 20% the other.” Trying to excel at both strategies at a time can lead to failure. Management consulting firms have run into serious trouble when they failed to stick with one approach. Different IT infrastructures are required for the two KM strategies. For the codification model, heavy IT supports are critical. “For the personalization strategy, a system has to be developed that allows people to find other people to share knowledge [16]. Jansen and Jager (2000) mention that organizations in the market can be classified based on their degree of complexity and variability. There are four classifications of organizations. Knowledge management strategies for the different types of organization are different [21]. i.

Low complexity and low variability situation - This implies that the organization is in a situation that is neither complex nor dynamic. A formal, central info-system (e.g. Electronic Knowledge Map, Intranet) should be developed in that context, which will focus on knowledge compilation and retrieval.

ii.

High complexity and low variability situation - Companies in this situation should develop decentralized Info-systems (e.g. Newsgroups, bulletin boards, list servers), which will focus on info-exchange bearing on knowledge domains. Utilization of the organization’s knowledge is more important than the creation of new knowledge.

iii. Low complexity and high variability situation - In a situation of low complexity and high variability, decentralized (per unit) info-system focused on exploitation of market knowledge will be appropriate. Companies should create client information database as well to remain competitive in the market. iv. High complexity and high variability situation - As both the environments are extreme, companies should take a number of initiatives to perform knowledge creation and sharing. Knowledge can be created by: Idea-generation support system, creativity enhancement system etc. Spreading of the knowledge can be done through e-mails, Internet, Intranet, discussion databases etc. [21].

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American Productivity and Quality Center’s (APQC) [11] International Bench-marking Clearinghouse has performed a study on the KM strategies among 11 organizations that have evolved Knowledge Management. Companies such as Arthur Andersen, Chevron Corp., Dow Chemical, PriceWaterhouse were chosen for the study. APOC found that strategic efforts to manage and transfer knowledge effectively are paying off the firms in financial terms. Chevron saved $150 million for sharing best practices associated with energy-use management. Dow saved $40 million as a result of its initial projects in Intellectual Asset Management. Companies are also embedding knowledge in their products, services and internal operations in an effort to strengthen their relationship with customers. The APQC report explored several emerging knowledge management strategies among benchmarking partner companies, which include: i.

ii. iii. iv.

v. vi.

Knowledge Management as a Business Strategy- Firms who pursue knowledge management as a business strategy recognize it as vital to their long-term growth and ability to compete. They have a formal ‘Knowledge Champion’ and embed significant resources in all areas of the business to ensure that knowledge is accessible to and through their people, processes and products. Transfer of Knowledge and Best Practices- The most widespread strategy among the companies in the study was the transfer of knowledge and best practices. This includes systems and practices to obtain, organize, restructure, warehouse and distribute knowledge. Customer-Focused Knowledge is directed toward capturing, developing and transferring knowledge and understanding customers’ needs, preferences, and businesses. Personal Responsibility for Knowledge- Companies recognize that individuals must be supported and accountable for identifying, maintaining, and expanding their own knowledge as well as renewing and sharing their knowledge assets. Some firms, however, are building incentives into their appraisal system and offering other motivators to encourage the development of a knowledge-intensive culture. Intellectual Asset Management- mainly deals with leveraging assets such as patents, technologies, operational and management practices, customer relations, organizational arrangements, and other structural knowledge assets. Innovation and knowledge creation strategy: This strategy emphasizes the creation of new knowledge through basic and applied research and development [11].

6. Knowledge management implementation in stages Developing a knowledge management implementation strategy is an uphill task for an organization. KM implementation strategies differ from one organization to another depending on its businesses. To strategize, design, develop and implement a KM initiative, this paper is suggesting a KM implementation road map based on the empirical and theoretical studies done by researchers on various knowledge management aspects. This 6-step road map is appropriate for small & medium size organizations as implementation strategy for the large organizations are complex and needs to analyze various aspects of managerial issues, which include infrastructure evaluation, system design, ROI & performance evaluation, human resource management and so on. This KM implementation road map firstly deals with educating the employees about knowledge management and identifying the knowledge needs of the organization as initial tasks. A KM team should be formed to carry out all the initial tasks. The team can consist of people from various operational & administrative backgrounds, e.g. human resources, IT, planning and so on. Followings are the stages with explanations: Stage One: Educate the employees Stage Two: Identify the knowledge needs Stage Three: Develop KM strategy for Pilot projects Stage Four: Launch KM initiatives Stage Five: Institutionalize KM Stage Six: Monitor and Measure the effectiveness of the KM initiatives.

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1 2 3 4 5 6

Educate the employees

Identify the knowledge needs

Develop KM strategy for Pilot projects Launch KM initiatives

Institutionalize KM

Monitor and Measure the effectiveness

Figure 2: Proposed KM Implementation Road Map

•

Stage One: Educate the employees

Stage one of the Road Map emphasizes on educating the employees on knowledge management and its various positive impacts on the organization. The KM team in the organization should define what KM is all about and should share stories of how KM has helped other companies to succeed. It is also necessary to make the concepts of KM real for people in the organization. By creating a clear and tangible picture of the benefits of KM, organizations can make employees feel that knowledge management can bring positive values in their day-to-day activities. •

Stage Two: Identify the knowledge needs

After educating employees about the benefits of knowledge management, it is important to identify and categorize the different types of knowledge that organization needs to perform business. KM strategy has to be developed based on the knowledge needs of the organization so that it will help solving the business goals of the employees and the organization at large. Once the KM system helps employees to perform their daily work efficiently, they will be more motivated to contribute and share knowledge. •

Stage Three: Develop KM strategy for Pilot projects

In stage three, several activities should take place. Proper planning is needed before initiating any KM strategy. The KM team should identify opportunities for pilot projects and set the standards for methods to be used across all initiatives. The pilot projects should be able to address important issues to the business, and show demonstrable, relevant results [11]. One of the main tasks of the KM team is to find out the skilled staff to facilitate the KM initiatives. Other than the staff, IT tools have to be supportive to carry out the projects. The future of knowledge management initiatives depends on the success of the pilot projects. Team can start with one unit or department in the organization or develop one or two IT mechanism to share knowledge.

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•

Stage Four: Launch KM initiatives

In this stage, KM team conducts successful pilot projects to provide the evidence of KM's business value. Organizations can encourage people to give feedback about the outcome of KM pilot projects, form communities of practice to participate in knowledge sharing activities, develop Intranet based knowledge portals, establish a process for screening, filtering and validating shared knowledge before publishing in the portals. To publicize KM initiatives, the team can incorporate KM training into new-hire orientation; training managers and quality coordinators; can hold open house knowledge fair or regular meetings; or advertising on the intranet or through brochures and pamphlets [11]. A clearly written policy should be developed for KM activities and for that a steering committee or unit could be formed other than the KM team to guide, force and reallocate organizational resources for knowledge sharing. •

Stage Five: Institutionalize KM

To earn the potential benefit of KM system, organizations should institutionalize knowledge management. Top management recognition of KM as the driving force for value creation is crucial for effective KM implementation. Knowledge management can be placed as one of the core/shared values; it can be included in management models, or assessment process. Organization ought to reorganize budget and departmental responsibilities to accommodate the wide deployment of KM as a business strategy. Organization with the assistant of KM team should introduce public recognition and rewards for knowledge sharing. Since performance appraisals are the basis for promotion and pay, including KM standards with reviews, it sends a dramatic message about its role [11]. •

Stage Six: Monitor and Measure the effectiveness of the KM initiatives

For a sustainable knowledge management journey, KM team should monitor the KM activities. Measuring the benefits of KM is important to keep people motivated for sharing. Continuous training and education are needed to promote new knowledge based business and innovations. Following up the KM initiatives, reviewing the progress, updating the best practices, identifying role models and committed leadership, are necessary to sustain the KM venture.

7. Conclusion Knowledge management is still a new concept in the business world. It is a hybrid discipline, which involves the management of both human and technology. Initiating a successful knowledge management strategy may involve many things, such as, adjustment in the style of human resource management, leadership, organizational learning approach and capacity, IT facilities and so forth. Motivating people to share their expertise is the biggest challenge of knowledge management implementation. Keeping people motivated to share and contribute to a KM system requires well defined planning. A KM implementation road map can help organization to implement a successful and sustainable KM program. This paper suggested a road map, which firstly deals with educating the employees on various aspects of knowledge management and its value added features for the organization. Emphasis is given on institutionalization of knowledge management, as it gives the feeling to the employees that KM is a management interest and everyone should be responsible for sharing and creating knowledge. The paper also depicts the fact that measurement of the benefits of KM is still an area of sophisticated research, and organizations should come up with techniques to quantify the performance of knowledge management activities.

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References [1] Y. Malhotra, Y. 2003, Is knowledge the ultimate competitive advantage? - Interview with Business Management Asia, Available at: http://www.kmnetwork.com/BMA.html. [2] J.B. Quinn, J.B, 1992 Intelligent Enterprise: A Knowledge and Service Based Paradigm for Industry, New York: The Free Press. [3] Seemann, P., Long, D.D , Stucky,S., Guthrie, E., 2000, Building intangible assets : A Strategic framework for investing in intellectual capital, In. D. Morey, M. Maybury and B. Thuraisingham, B.,(edit) Knowledge Management : Classic and Contemporary Works, England: The MIT Press. [4] Wiig, K., 1993 “Knowledge Management Foundations: Thinking about Thinking – How People and Organizations Create, Represent, and Use Knowledge,” Knowledge Management Series 1, Arlington, TX: Schema Press. [5] Sveiby, K., 2001, What is Knowledge Management?” Available at: http://www.sveiby.com.au/ (Accessed on 01/03/2004). [6] Bhatt, G. D., 2001, “Knowledge management in organizations: examining the interaction between technologies, techniques and people,” Journal of Knowledge Management 5, 1, pp.68-75. [7] Jinxi, W and Jisheng, L, 2004 Knowledge Chain Management: Emerging Models and Practices from the Field, http://www.mmd.eng.cam.ac.uk/cim/imnet/symposium2001/papers2001/wu.pdf [8] Frappaolo, C., 2004, Defining Knowledge Management, Comments: destination.com, 2002. Available at: http://www.destinationkm.com/articles/ [9] Gartner Group: 1996, Available at: http://www.gartner.com [10] Stankosky, M.A, 2004, “Tackling a unified KM framework. Content, Document and Knowledge Management”, KMWorld 13, no.1. [11] American Productivity & Quality Center (APQC). 2002. USA at http://www.apqc.org [12] P. Babcock: “Shedding light on knowledge management”, HR Magazine, Vol. 49, No. 5, Virginia: SHRM, Available at: http://www.shrm.org/hrmagazine/articles/0504/0504covstory.asp. [13] Stankosky, M.A., 2004, A Theoretical Framework, 2000, KM World, Special Millennium Issue, 2000, Available at: http://www.kmworld.com. [14] Bixler, C. H., 2001, Applying the four pillars of knowledge management, KMWorld 11, no. 1(2001), Available at: http://www.kmworld.com [15] Hasanali, F., 2004, Critical Success Factors of Knowledge Management, Available at: http://www.apqc.org/free/articles. [16] Hansen, M.T., Nohria, N., and Tierney, T., 1999, What’s your strategy for managing knowledge?, Harvard Business Review 77, no.2, pp. 106-16. [17] McDermott, R., and O’Dell, C., 2001, Overcoming cultural barriers to sharing knowledge, Journal of Knowledge Management 5, no.1, pp: 76-85. [18] Gamble, P. R., and Blackwell, J., 2001, Knowledge Management: A State of the art guide, USA: Kogan Page US. [19] Clark, J. and Soliman, F., 1999, A graphical method for assessing knowledge-based investments, Journal of Logistics and Information Management 12, no.1, pp : 63-77. [20] Choi, S. Y., 2000, An empirical study of factors affecting successful implementation of knowledge management, PhD Dissertation, University of Nebraska, US. [21] Jansen, G.C.A., Steenbakkers and Jägers, H.P.M., 2000, Knowledge Management and Organization Design, In. Y. Malhotra (Ed.): Knowledge Management and Virtual Organizations, Hershey, USA: Idea Group Publishing.

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Managerial Qualities and Knowledge Management in Australian Sports and Leisure Centres Gary Crilley and Rebecca Crilley [email protected] Gary Crilley University of South Australia Mawson Lakes Campus, Australia

Abstract Empirical research has shown the need for managerial qualities (MQs) to be considered contingent upon task, organisational environment, and the individual (Avkiran & Turner 1997). A major void in current research however, is the identification of an appropriate suite of MQs necessary for the effective performance of Australian sports and leisure centres (SLC) (Bell 1993; Crilley 2003; Hanlon, Tait & Rhodes 1994; Taylor & Jonson 1996). In a complementary manner to understanding MQs, knowledge management (KM) has support as a key function in the success of businesses. The better KM within an organisation the better the business will perform. Based on these arguments, is it relevant to ask how prevalent is KM in Australian SLC? Furthermore, should KM be included in the suite of MQs necessary for the successful performance of Australian local government SLC? This paper reports on the awareness and application of KM practices in Australian SLC, and proposes a relationship between KM and the specific MQs needed for SLCs. This paper presents the results of two exploratory studies involving national surveys of managers at Australian SLCs. Results support a proposed relationship between KM and MQs, and hence the need for inclusion of KM as implicit within the suite of MQs required for Australian local government SLC.

Introduction The first comprehensive survey of Australian sports grounds and facilities identified that local government owned the majority of SLC (ABS 1997). Although these centres vary considerably in the size of their financial turnover and their management type, the managers usually see themselves as managing supervisors as defined by McCloud and Siniakis (1995). In relation to the majority of literature on managers, these managers equate to those of small businesses, that is, of organisations of less than 50 employees; or of front-line managers, those who are often directly responsible for leadership of a team. In response to the long, so called ‘shopping list’ of qualities against which managers are assessed, Wallace and Hunt (1996 p. 45) suggested there was a need to respond to the call for a ‘…detailed exploration of various differences according to specific industry sectors…’

Aims and Methods of the Two Studies Study 1 was to examine the applicability of Crilley’s (1999) eight-factor model of MQs for managers of Australian local government SLC. The target population was managers in the position of centre manager for a minimum of 12 months, or in the case of seasonal pools, one full season. Nominated peers, employed away from the manager’s centre, and up to three staff employed at the centre for at least three months, were also included in the study. The timeframe chosen for the national survey was from June 1999 to July 2000. Data was collected through a questionnaire developed to incorporate the eight-factors of the model, administered on-site to managers and staff. The questionnaire was based on the work of Wallace and Hunt (1996). Respondents were asked to nominate on a five-point interval scale, the frequency with which the manager should display each of the eight MQs to be effective as a manager of the centre. The

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scale consisted of 1 = almost never, to 5 = almost always. For each of the statements requesting a rating of the MQs, two examples of individual behaviour or outcomes associated with the MQs were provided. These examples were from an original list of 68 items from which the eight MQs were derived through factor analyses (Crilley 1999). The limitations inherent in self-assessment were minimised by the use of a 360-degree feedback approach. Ratings from peers working off site as well as those from staff were used, and there was no direct request for an assessment of the strength of MQs possessed by the manager; rather, the question was how frequent should the manager display such MQs? Each manager was contacted directly to arrange administration of the questionnaire. This contact was through a letter of introduction and a fax reply form, and a project schedule. The respondent was then followed-up by a direct telephone call from the researcher. Once meetings with managers were set for a particular geographical area, attempts were made to involve similar centre managers. This was identified through the snowball technique of asking participating managers if they new of other eligible managers to be invited to participate in the research (Patton 2002, p. 243). All centre managers identified as willing and eligible to be involved were included in the survey. No potential respondent was excluded because of his or her location, or the resource limitations of the researcher. Eight eligible centre managers are known to have declined to participate in the research. The precise number of managers who received the mail survey is unknown because of the lack of a population database, and therefore no definitive respondent response rate could be calculated. The best estimate of the response rate for managers of individual centres in Study 1 was 51 per cent. The aim of Study 2 was to address the comprehension and application of KM practices in Australian local government SLC. Bailey and Clarke (2000) argue that the starting point for developing insights about KM should be in understanding managerial perceptions about knowledge. The understanding of knowledge and innovation are central to effective KM. The method for Study 2 was a mail out questionnaire addressed to the managers, with questions designed to probe their understanding of KM principles and gain an insight into current practice involving KM. The study was to build on the myriad of conceptual and case-specific studies, being in contrast a sub-sector industry study. Most questions employed a seven point ‘Likert scale’, in the ‘Importance of’ scale 1= Not important 7= Very important. Similarly, the selfassessment and KM problems were rated as follows, 1= Very poor, 7= Excellent. Study 2 was guided by the work of Martin (2000) who surveyed Australian local government. Martin (2000) achieved a response rate of slightly over 21 per cent for this survey. The aims of Study 2 were quite similar to that of Martins as it was directed at identifying the use and understanding of KM. However, Martin’s questionnaire required significant modifications to fit the SLC sector. The questionnaire retained some aspects to remain similar to that of Martins to enable meaningful comparisons to be made between Study 2 and Martin’s (2000). However, some questions viewed as incongruent, or unrelated to Study 2 were deleted while others of interest were included. The overall appearance and format of the questionnaire was amended to improve the response rate, this was done by making it more attractive, shorter and more user-friendly than the original. A response rate of just over 32 per cent was achieved. The questionnaire for Study 2 was piloted at four centres in the Adelaide metropolitan area. Each participant was contacted by phone, an appointment made, and the researcher was available for any clarification during completion of the questionnaire. The presence of the researcher was useful to determine how long respondents took to complete the questionnaire and to gauge how straightforward or complicated questions were interpreted to be. This also provided the opportunity to identify which questions, if any, respondents seemed reluctant to answer. This observation was invaluable. An informal unstructured interview was conducted after administering the questionnaire to discuss design issues such as the length of the questionnaire. It gave the respondent an opportunity to express any concerns or opinions, and to clarify if required, any particular questions. Discussions on the intent of the questionnaire followed, providing further opportunity to gather information from the managers. The pilot study confirmed and tested content validity. This was invaluable to understand the questionnaires line of reasoning, and help refine any ambiguous questions. Changes were made due to the input received from these managers. The final sample of respondents included those at centres under management contract by local government. For example, several centres were contract managed by the YMCA. A perceived

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limitation of Study 2 was that the managers were not likely to appreciate questions on the value of KM. However, use of specialist terminology was minimised in the questionnaire and the managers’ response rate indicated that the questionnaire was regarded as meaningful.

Results Data from Study 1 and Study 2 were entered and analysed using the program SPSS 10.0 on a Power Macintosh 7200 series computer. Table 1 provides a summary profile of the respondents from Study 1. Although the number of male respondents was only slightly greater than that of female respondents (258 to 225), managers were predominately male (77 %).

Gender male female Totals

Staff levels manager peer 108 50 41.9 19.4 76.6 75.8 33 16 14.7 7.1 23.4 24.2 141 66 29.2 13.7

Count % within Gender % within levels Count % within Gender % within levels Count % of Total

Totals staff 100 38.8 36.2 176 78.2 63.8 276 57.1

258 100 53.4 225 100 46.6 483 100

Table 1: Study 1, Gender of respondents

Fifty seven centre manager respondents identified their centre as being in the less than $400, 000 p.a. financial turnover category; 34 in the $400,000 to $1 million p.a.; and 37 in the more than $1 million p.a. category. Of the 141 centre manager respondents, 44 identified their centre as a not for profit management type, 34 were private management types, and 61 were local government management types. Facility configurations of the centres included 33 dry sports centres (that is, with no aquatic facilities), 42 outdoor pools, and 64 all indoor centres (with both aquatic and dry sports facilities). As recommended by Hair, Anderson, Tatham and Black (1995), and Coakes and Steed (2001), missing values were deleted pair wise from the analysis. Cronbach alpha (reliability) analysis was used to test for scale reliability. Results of 0.5 to 0.7 are acceptable for new scales in exploratory social research (Hair, Anderson, Tatum & Black, p. 641) and the overall Cronbach alpha for the eight qualities the manager should display, with 477 cases, was 0.784. The alpha figures should individual questions be removed, the standard error of the mean (SE) and overall mean for MQs that should be display are provided in Table 2. Managerial quality Professional leadership Future orientation Communication & influence Problem-solving & decision-making Persuading & conflict resolution Leadership & team building Administration & operational management Facility & program management

Alpha if the item was deleted 0.608 0.775 0.725 0.628 0.760 0.721 0.817 0.921

SE 0.028 0.035 0.033 0.029 0.035 0.033 0.037 0.042

Overall mean 4.6 4.1 4.5 4.6 4.4 4.5 4.2 4.2

Table 2: Study 1, Cronbach alphas, standard error (SE), and overall mean for MQs the manager should display

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Analysis of variance (ANOVA) tests were conducted for Study 1 data according to the level of the respondent, financial turnover of the centre, management type, and facility type. Results of F tests and post-hoc tests are provided if they were significant at the p=0.05 level. All post hoc test results are from the Tukey HSD post-hoc test unless the assumption of homogeneity of variance of the data was violated as determined by the Levene’s test. If the assumption of homogeneity of variance of the data was violated, results of any significant difference between the variances for groups are reported by the Dunnett’s T3 post hoc test (Coakes & Steed 2001, p. 81). There was a considerable level of variation in the rating of two MQs that should be displayed across the three characteristics of centres. This finding was in contrast to the relatively consistent rating of MQs by each respondent level. Five of the eight MQs recorded significantly different means according to financial turnover, management type, and facility type. Specific MQs for the remainder of the paper will be in bold to assist the reader’s comprehension. Two of the MQs, future orientation, and facility and program management were rated significantly different across all three categories of centres. Future orientation was rated significantly higher by respondents from centres with a larger financial turnover compared to centres with a smaller turnover. This higher rating was replicated with local government and not for profit management types compared to respondents from centres with a private management type. Similarly, all indoor leisure centres rated the need for the MQ future orientation higher when compared to respondents from outdoor pools. Contrastingly, the MQ facility and program management, was rated significantly lower by respondents from centres with a smaller financial turnover, but significantly higher for those with private management compared to those of a not for profit management type, and significantly higher for those from outdoor pools compared to dry sports centres, and all indoor leisure centres. In Study 2, managers were provided with a brief working definition of KM, that is, of getting the right information to the right person, at the right time. While KM advocacy is a relatively new school of thought, SLC managers proved to be well aware of the principles. The SLC managers appear to be practicing KM and experiencing less of the problems associated with the KM than other council staff according to Martin’s (2000) study. One contributor to this result might be the significantly smaller nature of the organisational units, ‘People working in small groups develop very rich knowledge in practice’ (Brown & Duguid 2000, p. 79). This applies to the SLC, where the average employee base is 14 (ABS 1997). In Table 3, there is a particularly high mean in the area of ‘knowledge sharing by staff’ and a low occurrence of mismanagement symptoms such as ‘potentially useful knowledge is ignored when making decisions’. These results suggest that the centres are generally possessive of healthy KM practice than their counterparts, in larger organisational units, making them resistant to the usual pathologies associated with KM. Table 3 indicates very few SLC are consciously engaging in KM activities, few centres are exhibiting any of the problems typically associated with the mismanagement of knowledge. It is likely that this is due to the size and decentralised nature of SLCs. However, knowledge loss was acknowledged as a problem with high levels of staff turnover. This indicates the tacit knowledge associated with working in a service industry. There are two main categories of knowledge, tacit and explicit (Polanyi 1966; Nonaka 1991; Bhatt 2001). Explicit knowledge is that which can be easily articulated and codified, while tacit knowledge on the other hand, distinguishes itself by being far more elusive. Tacit knowledge is harder to identify and capture, yet it also contains causal ambiguity, protecting the competency from replication.

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General ratings of knowledge management

Alpha if the item was deleted

SE

Overall mean

Self assessment of awareness of KM by staff Self assessment of KM practice by staff Self assessment of knowledge sharing by staff Self assessment of ability of staff to learn from experience Staff re-invent the wheel Knowledge & expertise is lost when people leave Hoarding knowledge: staff regard knowledge as personal power Staff regard knowledge as their job security Potentially useful knowledge is ignored when making decisions Staff apply old rules to new situations

0.500 0.510 0.547 0.547

0.12 0.11 0.10 0.09

4.0 4.2 4.9 5.4

0.394 0.349 0.342

0.13 0.14 0.14

3.2 4.4 3.6

0.322 0.466

0.15 0.14

3.6 3.0

0.448

0.13

4.1

Table 3: Study 2, Cronbach alphas, standard error (SE), and overall means for ratings of awareness (overall alpha for the 10 items was 0.482, n=111)

Some knowledge cannot be codified; a case succinctly made by Polanyi (1966, p. 4) with the elegant phrase, ‘we know more than we can tell’. Tacit knowledge is deeply rooted in actions, and an individual’s commitment to a specific context- for example, the activities of a work group or team (Nonaka 1991). In contrast to explicit knowledge, it is subjective, situational and consists of mental models, beliefs, and perspectives. For these reasons, tacit knowledge is tied intimately to the ‘owner’ through experience (Chau & Polytechnic 2001). While encompassing a wide variety of knowledge, such as learning from experience, tacit knowledge is often unidentified and subconscious. Hunches, insights, and intuition are all tacit based forms of knowledge (Chau & Polytechnic 2001). As experience is cumulative and able to be refined through practice (Reed & DeFillippi 1990), it may be concluded that knowledge can be directed, nurtured, and fostered, toward one’s own end. Knowing is thus theoretical and practical (Polanyi 1966). Many companies have elements of tacit knowledge embedded within their KM processes, systems, structure, routines, and products. Though at times difficult to identify, these elements are often a source of competitive advantage (Teece 1998). Tacit knowledge plays a part in all KM, with varying degrees of personal elements (Polanyi 1966, p. 20). Results in Table 3 suggest managers do realise the intertwined importance of KM based activities in operating their centres. Here they are all identifying the type of skills and qualities required in the sector, where relationship skills faired the most important. These results suggest that these respondents appreciate the all-encompassing nature of KM. Importance of knowledge management Importance of process/methods knowledge Importance of planning/strategic/developmental knowledge Importance of organisational knowledge Importance of external knowledge Importance of innovation/change Importance of relationship skills

Alpha if the item was deleted 0.781 0.740

0.10 0.11

Overall mean 5.9 5.4

0.750 0.783 0.770 0.763

0.09 0.10 0.09 0.08

5.8 5.8 5.7 6.4

SE

Table 3: Study 2, Cronbach alphas, standard error (SE), and overall means for ratings of importance (overall alpha for the 6 items was 0.796, n=129)

Analysis of variance (ANOVA) tests were conducted on Study 2 data according to the respondent’s level of education, the number of full time equivalent staffs at the centre, and the respondent’s tenure. Results of F tests and post-hoc tests are provided if they were significant at the p=0.05 level. All post hoc test

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results as with those reported from the Study 1 data, are from the Tukey HSD post-hoc test unless the assumption of homogeneity of variance was violated (Coakes & Steed 2001, p.81). Three of the 10 ratings for general awareness of KM recorded significantly different means. Specific items are reported in bold to assist comprehension. One difference was according to level of education where staff regard knowledge as their job security for respondents with a trade or certificate qualification, recorded a mean of 4.2 compared to a mean of 3.7 for respondents with a tertiary qualification (F=1.853, df 4,126, p = 0.025). For a second item, the self awareness of the value of KM, respondents who had been with the centre for more than five years rated their awareness significantly higher than those who had been with the centre for two years and one month to five years (a mean of 4.6 compared to 3.6; F=3.41, df 3,114, p = 0.024). A third item, of the awareness of practice of KM by staff , respondents who had been with the centre for more than five years rated their practice of KM significantly higher than those who had been with the centre for less than one year (a mean of 4.7 compared to 3.7; F=3.227, df 3,123, p = 0.026)

Discussion and Conclusions One tentative conclusion of the results reported for Study 1 is that there is support for the proposition that for managers to be effective at Australian local government SLC should display all eight of the MQs. A second conclusion is that the importance of individual MQs appears to vary between SLC according to their financial turnover, their management type, and the facility type. According to financial turnover and the facility type, some of the MQs are also needed at varying levels. The MQ future orientation, and communicate and influence for example, are both more important for larger financial operations. The MQ facility and program management is perceived to be more important for managers of outdoor pools. Results from staff and manager ratings in Study 1 support previous research findings that organisations with major differences in financial turnover are more likely to require managers with a different emphasis on particular qualities. Bass, Burger, Doktor and Barrett (1979), Boyatzis (1982) and Mintzberg (1994) all argued to consider managers within a sector or organizational context. Bass et al. (1979) and Boyatzis (1982) considered context as a major aspect in defining the role and qualities of the manager. In a different approach, but with similar outcomes, Mintzberg (1994) and Quinn (1988) argued the need to study the managers with contextual considerations, and both supported the theory development that managers’ competence was not generic, but context specific. Recent research has reinforced these theories and their findings to assess MQs in an organisational or sector context, and by operant levels (DeSensi, Kelley, Blanton & Baitel 1990; Smale & Frisby 1992; Dainty & Anderson 1996). Although competency-based training has been introduced widely throughout the SLC sector in Australian at the entry level, Study 1 provides a rationale for a more specific, modified approach to be considered for developing effective managers in this sector. Study 1 results suggest it may be inappropriate to accept generic abilities (Boyatzis 1995) or generic competencies model for the training and development of managers for Australian SLC (Wallace & Hunt 1996). This current study also supports the need to assess MQs in their professional framework and regard them as context specific. These findings are supportive of the research by Avkiran and Turner (1997); Hearn, Close and Smith (1997); Robertson and Iles (1988) and Thompson, Stuart and Lindsey (1996). Study 2 identified that SLCs are conducive to applied KM, because of their organisational structure, size, and culture. The informality of the operations was evident throughout the responses in the questionnaires. Open-door policies speed up knowledge flow. Although tacit methods were rated considerably higher for the method used predominantly for sharing knowledge, the use of technology was evident through written examples on mechanisms for sharing knowledge and information with diverse groups. The application of e-mail, intranet bulletin boards, and newsgroups, assists in the debating, discussing, and interpretation of information through multiple perspectives (Bhatt 2001). Mentoring for example, is one option for the SLC sector as an appropriate development option for the development of the MQ leadership and team building. Such an approach might increase and expedite the transfer of tacit knowledge within the centres, a view widely shared by KM proponents as being vital to the growth of such organisations. The sharing of tacit knowledge through individual interaction, builds organisational knowledge, which in turn can then be leveraged by the centres. An increase in mentoring might facilitate this increase, thereby adding value to the organisation, and ultimately the sector. The adoption of effective KM strategies is

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required if the sector is to benefit from such increases. This demands investment in the appropriate mechanisms and policies necessary to facilitate effective KM practices. Study 2 suggested the cultural practices of the organisations but did not take into account the respondent’s competitive environment. One complication considered at the outset, was that many of the staff in these organisations are employed part-time, and it is not entirely known how this factor affects KM problems and practices. This is an area for future research. Another area that might be beneficial to compare is those organisations with a higher mean rate for the MQ future orientation and the KM item of knowledge & expertise is lost when people leave. In addition to these conclusions, the results support previous research that a full range of contributions to operational performance of centres needs to be identified and understood. This includes the reality that managers and staff by definition are engaged in interactive and coordinating dynamics (Bandura 1997). This interaction creates or diminishes the sum of the individual attributes, namely collective organisational efficacy and knowledge. This process of developing organisational efficacy and organisational know how takes time and often has a major time lag depending on the environmental pressures on the organisation. The relationship between MQs and KM practices may therefore benefit from a greater consideration of the relevance of the manager’s role in influencing both individual self-efficacy and collective organisational efficacy, and their need for effective KM to influence the overall performance of an organisation. Tacit knowledge is important, as the need to be inventive in changing and unpredictable conditions during the servicing of SLCs. Employee behaviour is often improvised to adapt to the external factors encountered while performing their job. Using customers’ knowledge as a resource would be useful (Prahalad & Ramaswamy 2000). Tacit knowledge and MQs which emphasise interpersonal relationships are identified as being critically important in the sector. The results from Study 2 show that tacit knowledge is an integral part of SLC operations. The organisational culture of the respondent SLCs seems fertile ground for the implementation of KM initiatives. The informal structures, networks, and decentralised natures inherent to the SLC sector in Australia demands a better level of understanding of the relationships between MQ and KM in this sector.

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Theoretical and Qualitative Exploration of Systems of Internal Innovation (SI2): Operational Adjuncts to Innovative Capacity Lisa Daniel Technology and Innovation Management Centre UQ Business School The University of Qld, St. Lucia 4072, Qld. Australia

Milé Terziovski [email protected] EACC Centre for Global Innovation Management The University of Melbourne Faculty of Economics and Commerce Level 4 Babel Building, Parkville 3010, VIC. Australia

Abstract Despite the increasing emphasis on innovation for organizations as a means of achieving economic outcomes, efficiency benchmarks and market success, there appears to be a gap in the literature on systems of innovation internal to the organization itself. Current literature reveals secondary systems of innovation (national, regional, industrial) as well as individual creative endeavours provide an opportunity to understand organizational innovation. Based on an extensive literature review, we propose a system of internal innovation (SI2) which can be recognised as a system of management that considers coordination and interaction between the organizations structure, culture and operations as fundamental to achieving successful access to internal innovative potential. Three propositions are articulated from the emergent theory which cover the organisation’s structure, culture, and operations. The propositions are explored using qualitative data based on multiple-cross case analysis of five ‘best practice’ case studies. We conclude that internal systems of innovation are significant in providing a functional approach to recognising, refining and harnessing internal innovative potential through simultaneously addressing strategy, structure, culture, people, systems, and technology issues. The major implication for senior managers and policy makers is that a platform supporting systems of internal innovation is imperative to increase the innovative capacity of organizations which ultimately contributes to the development of national innovation capacity (Gans and Stern, 2003). Keywords: systems, internal innovation, innovation capacity

Introduction This paper explores innovation from the ‘inside in’. Previously innovation has been considered an internal asset or capability, which can be cultivated or harnessed to increase the efficiency of organizational operations and outcomes i.e. innovation from inside to outcomes. This papers offers a new research approach that aims to extend theory by considering pertinent aspects of organizational theory, strategic management and complexity, as significant influences in the innovation process (Bartholomew 1997; Brown and Eisenhardt 1997; Dooley and Van de Ven 1999; Rycroft and Kash 1999). Using these foundations, together with theories of knowledge management and social systems (Stacey 1995; Tsoukas 1996; Smith and Stacey 1997; Morel and Ramanujam 1999) we create a theoretical platform supporting systems of internal innovation as the primary locus of the organization’s innovative potential. Innovative potential can be thought of as is the latent capacity of the organization to achieve innovation outcomes. This capacity resides in both human and production resources and can be achieved through their unique combination and operational insight, expertise, experience and knowledge to affect innovative capacity. Internal innovation systems theory contributes to the innovation management literature by acknowledging an alternative perspective to the innovation ‘outcomes’ approaches of resource based

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models. Further, elucidating organizational systems of internal innovation can provide practical adjuncts to innovative capacity. In this paper we develop several propositions from literature supporting this approach and test these using qualitative data obtained from the multiple cross-case analysis of five Australian manufacturing companies. The following section introduces some recent theoretical perspectives on organizational innovation research, characteristics of innovative organizations and the innovative process. A principle characteristic of most of these perspectives is the outcome focus of their approaches to understanding organizational innovation. When considering the breadth of the currently espoused relative environments to macro and organizational innovation systems through these literatures, such an outcome focus can be seen as an attempt to reconcile both external and internal influences on organizational innovation. These theoretical perspectives can be consolidated using a metatheoretical approach (Lewis and Grimes 1999) to provide a robust theoretical foundation supporting the relevance and priority of internal innovation systems as adjuncts for accessing organizational innovative potential. Such an approach provides a useful interpretive paradigm for examining such complex phenomena. Finally, in that section we look at internal innovation systems as an opportunity to contribute to literature on organizational innovation and innovation management by providing a pragmatic approach to considering internal innovation systems. Here we acknowledge that internal innovation systems as an emergent theory that can provide an operational adjunct to the goal of innovative capacity building at the organizational level. Three propositions are articulated from the emergent theory and are explored using qualitative data from the five case studies. The paper concludes with a discussion of the benefits of this perspective and its potential applications and the limitations and constraints of (SI2) theory to theory and practice. The subsequent section discusses the methodological implications of undertaking a holistic analysis of organisational activities. Empirical evidence is presented from multiple cross-case analysis. This evidence is reviewed to reveal several key factors in internal innovation systems that can be seen as contributing to the organizations internal innovative potential. Discussion in the penultimate section of the paper provides an opportunity for reflection on the emergent theoretical framework with reference to the propositions developed from the literature review. Contributions to theory and practice are discussed and opportunities for future research revealed. The paper concludes with a summary of the main contributions of research into internal innovation systems for organizations and in consideration of macro-level innovation systems. Key points from the literature and empirical work are integrated to establish a substantive framework for future research.

Literature Review Organizational Innovation Research The study of innovation is well established; key research into organizational, individual and environmental conditions and characteristics has been available since the 1970’s (Slevin 1971; Baldridge and Burnham 1975; Downs and Mohr 1976; Tushman 1977; Scott and Bruce 1994). Subsequently exploration into the concept of innovation in organizations became widely examined in literature about research commercialisation (Louis, Blumenthal et al. 1989; Dorf and Worthington 1990; Gascoigne and Metcalfe 1999), entrepreneurship (Louis, Blumenthal et al. 1989; Beckert 1999), technology management (Howells 1996; Krawetz 1999; Miller 1999; Hagedoorn and Duysters 2002; Steenhuis and De Bruijn 2002) and organizational change (Edwards 2000; Greve and Taylor 2000). Extensive studies of innovation as a strategic capability have been conducted. Some authors consider learning a significant factor (Cohel and Levinthal 1989; Cohel and Levinthal 1990; Seely Brown and Duguid 1991; Holman, Epitropaki et al. 2000) in organizational innovation. There is also significant emphasis on the role of tacit knowledge (Howells 1996; (Senker and Faulkner 1996; Baumard 1999) and creativity (Blau and McKinley 1979; Amabile 1988; Hattori and Wycoff 2002) in the development of organizational innovation. Clearly the role of management support and decision making in organizational innovation is paramount (Salaman and Storey 2002) in enabling internal potential to be refined and maximized for optimal innovative capability. Further organizational innovation is acknowledged as being composed

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of highly disparate elements in a process that is uncertain, and complex (Van de Ven and Rogers 1988; Harrisson and Laberge 2002). This history confirms innovation in the organization is a system of internal dynamics that are fundamentally directed and operationally enacted attempts to elicit innovation competencies from latent innovative potential.

Proposition 1 An organization’s internal innovation system is a result of its explicit functional integration strategies and the unique manifestations of its management structure, organisational culture and operational flexibility. Characteristics of Innovative Organizations Innovative organizations embrace innovation by constantly introducing change. Not change for the sake of change, and not change simply to follow the pack, but reinventing the way work gets done. Such innovations include new work structures – teams, networks, outsourcing and creating value webs; new work procedures – advanced technology, new manufacturing methods, information technology, quality management and process cycle time; human resource management strategies to ensure strategic fit with the business goals and inject flexibility – constant training, recruiting the best talent and rewarding employees; and creating a work environment to spur innovation – encourage risk-taking behaviours and valuing experimentation. We define the above dimensions as ‘internal innovative potential’ Innovation is strongly linked to professional networking and social interactions (Senker and Faulkner 1996; Steward and Conway 1996; Hage and Hollingsworth 2000; Anonymous 2002; Deroïan 2002; Harrisson and Laberge 2002). In the workplace this system of associations and peer support is seen as establishing the climate for innovative behaviour (Scott and Bruce 1994). Rycroft and Kash (1999:17) claim that technological and economic success requires the “…recognition that the process of coevoluation between technologies and self-organizing networks is an essential ingredient …”. The first step to establishing this coevolution is to understand the organizations innovation process.

Proposition 2 Innovative organizations adopt a management position which enables continually review of work procedures by considering the latest advanced technologies; exploring new manufacturing approaches; accessing information technology; and recognising and pursuing a central focus on quality management and cycle time. Innovation Process Many literatures have made frequent references to the “innovative process” (Laage-Hellman 1987; Rothwell 1994; Coombs, Richards et al. 1996; Van de Ven, Polley et al. 1999; Edwards 2000; Jones, Edwards et al. 2000). Frequently these ‘process’ explorations are constrained to identifying and understanding systems of commercial innovation development, rather than the development process of the innovation ‘per se’. The process of innovation is the manifest by interactions at the primary decision-making level where the intersection of professional norms, creative activity, motivational direction and positive engagement establish a pervasive climate in the organization. A positive primary operational environment has been shown to be implicitly linked to a positive innovative climate in the organization (Scott and Bruce 1994). Manufacturing organizations are often recognised as the most innovative firms, not only redesigning work process to take advantage of advanced technology, but also adopting new manufacturing methods such as just-in-time, value-added management, manufacturing cells and World Class Manufacturing (Gilmour 1991; Lawler et al 1992; Osterman 1994). We propose of ‘internal innovative potential’ as similar to ‘absorptive capacity’ (Cohel and Levinthal 1990) approach which recognises the organizations ability to recognise, value and assimilate new knowledge. However potential unlike capability is not always maximised or accessible.

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Proposition 3 Internal innovative potential resides in the relational dynamics, operational frameworks and organizational context of the organizations functional system of action, interactions and intent. Internal Innovation Theory Recent theory establishes innovation as a means for strategic competitive advantage in organizations (Merrifield 2000) and a distinct organizational capacity that can be established through efficient resource management and effective knowledge systems (Walker, Kogut et al. 1997; Hagedoorn and Duysters 2002). This perspective is implicitly acknowledged in a comprehensive range of academic literatures examining innovation systems and organizational processes relative to operational efficiency and economic competitiveness. For example, Michael Porter in Gans and Stern (1993, p.1) stated: “…establishing Australia as a firsttier innovator…..individual companies are the ultimate engine for innovation..” Innovation internal to organizations tends to be a process of either random or unplanned creativity events, scripted efficiencies, or serendipitous and opportunistic local collaborations. This contrasts with the assiduous planning by organizations with respect to their external strategic alliances and value chain relations, as well as their conscientious sourcing of knowledge, expertise and resource inputs. The organizations’ innovative potential has to be readily accessible to support competitive agendas and as such have been implicitly integrated into sophisticated models of innovation leverage such as (Rothwell 1994). Operational adjuncts are needed to facilitate the process of developing innovative capability. Recognising innovative potential where it resides in the organization can provide managers with a supply room of expertise for developing strategic innovative capabilities provided accessibility avenues are available. In sum, innovative organizations continually improve their business performance and ongoing viability by integrating the latest approaches to managing the flow of work. This includes the adoption of advanced technologies, new work methods and redesigning commercial relations with information technology. Such organizations focus on quality and cycle time and reap the rewards with increased market-share and financial performance. Indeed the role of the individual is consistently revealed to be strongly tied to the success of the innovative process (Howell and Higgins 1990; Deroïan 2002; Harrisson and Laberge 2002). This has itself lead to a large area of research examining the relevance of networks and networking to innovation at the social, professional, inter-organizational and strategic levels (Robertson and Langlois 1995; Coombs, Richards et al. 1996; Senker and Faulkner 1996; Steward and Conway 1996; Rycroft and Kash 1999; Anonymous 2002; Deroïan 2002; Harrisson and Laberge 2002). It is significant that investigation into the process of innovation internal to the organization as a system of concomitant influence has not yet been addressed. Therefore, our second proposition is based on the notion that innovative organizations reinvent themselves by adopting several concepts and principles simultaneously.

Methodology Case studies The article draws on qualitative information from case studies developed by Terziovski, and Samson (1995) on five Australian manufacturing companies that were funded under the Australian Best Practice Demonstration Program. Written analysis of multiple case studies may take three well-known forms as outlined by Balan (1994): • • •

Narrative of each case study to describe and analyse the information. Narrative form with multiple cross-case analysis. The entire discussion consists of the cross-case analysis.

The narrative form with multiple cross-case analysis was adopted in this study. The preparation of a case study requires clearly stated goals and a theoretical base, a protocol for information gathering (eg. interview guidelines and structure), carefully selected research sites, and the trust and cooperation of those companies that are being studied (Yin, 1989).

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Unit of Analysis The overriding consideration in selecting the unit of analysis was that the unit of analysis logically bounds the phenomena that produce the association between input (innovation practice) and output (innovation performance). The unit of analysis in this study is defined as the "plant.” An organization can have any number of plants that implement their own versions of innovation practice. Case Study Protocol The field research was guided by a case study protocol specifically designed for the face to face interviews. The interviews were held on a one-to-one basis or in focus groups. Shop floor personnel were more comfortable to discuss their involvement in the change process in group fashion rather than on a one-to-one basis. In all cases the interviews were recorded on an audio tape after permission was sought from the interviewees. Face-to-face interviews were conducted with a diverse group of personnel from each organization. The interviews typically ran for up to one hour, and in some cases longer. The following people were interviewed in each organization: • • • • • • • • •

The Best Practice Coordinator The Chief Executive Officer. Employee Representatives. Consultants employed by the organization. A team leader, where teams exist. Members of the project monitoring team. The Employee Relations Manager. A middle manager Suppliers and customers.

Secondary Data Additional material was sought from the respondent organization during the field interviews such as organizational charts, annual reports, business and operating performance outcomes, survey results, occupational health and safety results etc.

Qualitative Data Analysis Multiple Cross-case Analysis Based on a content analysis of each case study company, we found that each of the companies used a particular methodology which was uniquely suited to their organizational framework to develop their internal innovative potential. As part of this methodology, companies generally created an "awareness" at all levels of the organization and then later modified their approach to suit the organization's specific requirements. The public display of commitment from senior management was critical in developing internal innovative potential. This was the case at South Pacific Tyres where the CEO played an active role in the implementation process; and at Smorgon ARC where the new CEO was the "Change Champion.” Another key feature of internal innovative potential was the simplicity of the change initiatives. For example, at Smorgon ARC, the subject of Total Quality Management was simplified to a level where all employees could understand the key principles, tools, and techniques and how to apply them in solving process related problems. The simplest and most relevant problem-solving tools were selected and taught to employees in a straightforward manner. In a number of cases initial attempts did not fully satisfy the expectations of management and employees because the training concepts being implemented were off-the-shelf packages which did not contain business specific information. These programs were strong on training but weak on facilitating change, which ignored the cultural and attitudinal issues of the organization. Another example is the Smorgon change program which addressed one specific part of the organization, customer service. When the new Chief Executive Officer (CEO) arrived at Smorgan, the first thing he did was to introduce TQM based on the Crosby quality management philosophy. This encompassed companywide practices. Organizational culture issues such as involvement and participation of employees in teams to address problems and issues that relate to the job specific environment, were key factors in the implementation process. The companies spent a considerable amount of time and effort putting

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together a system where individuals and teams could be recognised and rewarded for their achievements. In particular, non-financial rewards were found to be as effective as financial incentives. The results of the multiple case studies as well as research into other manufacturing improvement initiatives in Australian organizations show that the employee involvement and participation was critical to the successful development of internal innovative potential. The human resource and cultural issues within an organization require careful attention. Consultation, training, involvement, reward systems and recognition were vital elements of a successful people management strategy. These were emphasised in the five case studies. Critical Success Factors for Developing Internal Innovation Potential Several factors were recognised as critical to the successful development of internal innovative potential. 1. Leadership Commitment A commitment to change was present throughout the organization, driven by the full and public support of the CEO where management encouraged trust and involvement. Leadership throughout the organization consistently pursued continuous innovation in accordance with a shared vision which aimed for world class performance in quality, productivity, timeliness, innovation and cost. 2. Formal Structure for Controlling, Monitoring, and Reporting Improvement Support groups or mentors were typically put in place by the more successful companies. These mentors ensured that appropriate training was being conducted at the right time and adequate resources were made available to the teams to carry out their work. In most of the five organizations teams provided healthy competitive spirit for continuous improvements. The provision of appropriate rewards and recognition was evident in all five case studies. 3. Formal Quality Assurance Systems, Competitive Benchmarking and Performance Measurement Systems This helped to establish a transparent expectation of achievement within the organization and improved communication. It also provided a sense of accomplishment and confidence. Certification to a formal quality system was seen as only one element of an overall Total Quality Management (TQM) philosophy and not as an end in itself. The six companies studied pursued the practice of benchmarking and had implemented a performance measurement system based on key performance indicators (KPIs). Firms attempted international benchmarking but later realised that the value for the resources invested did not compare favourably with domestic benchmarking. The five companies applied benchmarking as part of the planning and vision setting phase as part of the development of internal innovative potential. 4. Identification of the Strategic Potential of the Organization. Adequate consultation with employees and their acceptance of the mission statement and policies were seen as vital in obtaining co-operation and commitment to identify potential barriers and aid development of internal innovative potential. Strategic agenda must be detailed enough so that employees can understand the various steps and monitor themselves on the progress being made. 5. Determination of Internal and External Customer Expectations Understanding and measuring customer perceptions was vital for the development of internal innovative potential on a continuous basis. This information must be communicated throughout the organization, particularly to those employees who produce the goods or deliver the service. Staying close to the customer was a major objective of each of the six organizations in the analysis. Managers were making a concerted effort to develop closer ties to their customers. These ties, in most cases, increased the likelihood of rapid response to shifts in the market. Companies were able to pick up more differentiated signals from the market and thus to respond to different customer demands. 6. Strategic Alliances with Suppliers Coordination with external firms was found to be crucial in cutting inventories (hence costs), in speeding up the flow of products, and in reducing defects. This was seen as a significant contributor to internal innovation potential.

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7. Innovative Human Resource Practices The pursuit of a quality-based organization and a commitment to occupational health and safety (OH&S) was evident in all six organizations studied. There was a departure from conventional job classifications, career paths, training and compensation to improvements in quality and flexibility. 8. The Pursuit of New Technology and Manufacturing Approaches A trait common to all five organizations was the openness to change in the technological infrastructure by management and operations staff. The process of technology transfer into production and the marketplace and the integration of technology strategy was a fundamental part of the planning phase.

Discussion These results reveal a significant parallel exists between the critical success factors of organizations that strive to achieve competitive advantage through their competency building strategies and the factors that contribute to their internal innovative potential. Synergies between these internal areas of the organization and the mechanisms established to utilise and refine them can be seen as a strategic intangible resource that can be explicitly and implicitly combined to develop the organisations internal innovation system. Systems of internal innovation in organisation can be seen as being derived from positively supportive management structures and practices. The role of leadership commitment and the presence of formal structures and systems as revealed with critical success factors 1, 2, and 3 support proposition 1: ‘An organization’s internal innovation system is a result of its explicit functional integration strategies and the unique manifestations of its management structure, organisational culture and operational flexibility’. Previous innovation research has recognised these disparate factors in evaluating innovation outcomes and strategic management approaches. Recognition of the interplay between these organizational factors and the implicit internal directive confirm a systems approach as an appropriate perspective for advancing understanding in organizational innovation research. We further conclude that developing internal innovation potential is not a ‘once off event’ but rather is a continual reinvention of organizational systems and procedures by continuous review of work procedures; considering the latest advanced technologies; exploring new manufacturing approaches; accessing information technology; and recognising and pursuing a central focus on quality management and cycle time as proposition 2 suggests. Critical success factors 4, 5, and 6 confirm the importance of the re-invention process in developing and recognizing organizational characteristics and functional associations that can be used to leverage internal competencies and further internal innovative potential for substantial outcome merit and organizational gain. Flexibility, encouragement and tolerance for change were seen to support innovation particularly where there was a demonstrable commitment from senior management to supporting innovative human resource practices and flexible and open consideration of technological and manufacturing advances; critical success factors 7 and 8. The third proposition, that internal innovative potential resides in the relational dynamics, operational frameworks and organizational context of the organizations functional system of action, interactions and intent can be seen to be supported by these critical success factors. The significance of overt support by management in developing and pursuing an innovation agenda through a flexible and open approach to operational advances, in both expertise and technology, confirms a latent potential within the organizational framework exists for innovative advancement. The confirmation of these propositions reveals the need for a consolidated and holistic approach to assessing internal systems of innovation in organizations from a functional integrated perspective. The research undertaken here and presented in this paper is but a small step toward developing such an integrated model. There is much scope for advancement of internal innovation systems research particularly in developing models that can accommodate discontinuous change in the operational framework while representing important relationships between transient, potential and extant critical success factors. A systems approach can be seen as a suitable methodology and there appears to be significant scope for the integration of complexity theory to aid the interrogation and explanation of such a system. The internal environment of organizations has frequently been the subject of extensive research from unique and differential perspectives. Examining systems of internal

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innovation with a holistic and functional perspective aims to address that fragmentation and provide sound tools for organizations and managers and a robust platform for theoretical and empirical advancement.

Conclusion and Implications for Managers The major conclusions presented here is that a platform supporting systems of internal innovation is imperative to increase the innovative capacity of organizations which ultimately contributes to the development of national innovation capacity (Gans and Stern, 2003). Based on the qualitative results of this study we conclude that internal systems of innovation are significant in providing a functional approach to recognising, refining and harnessing internal innovative potential through simultaneously addressing strategy, structure, culture, people, systems, and technology issues.

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Virtual Benchmarking and Global Networking Korina Diamanti [email protected]

Nancy Pouloudi [email protected]

ELTRUN: The e-Business Center Department of Management Science & Technology Athens University of Economics & Business, Athens, Greece.

Abstract This paper aims at investigating the effect that the use of Information and Communication Technologies (ICT) has on the implementation of benchmarking. Increasing global competition among the states along with technological developments has led to complex organizational operating environments. Benchmarking is a strategic tool that captures the demands of the changing external environment and allows proactive internal improvements from this combination of needs (internal capabilities-external competition). In addition, it provides the mechanism for the cross-border transfer of knowledge on best practices. Recent advances in benchmarking include the creation of networks such as the Global Benchmarking Network and International Clearing House to assist in the dissemination of information and implementation of the technique. An important aspect that is addressed by these organizations concerns the fact that they act as intermediaries in finding a benchmarking partner. By examining the process of benchmarking, it is observed that the only step that requires physical presence and has not been addressed as yet is that of collecting the data through on-site visits to the benchmarking partner. Geographical boundaries hinder the implementation of this step, since it requires further resources and time for members of the benchmarking team to travel to the country of the benchmarking partner in order to visit the premises. However, current advances in Information and Communication Technologies provide relevant solutions. By using multimedia, and in particular synchronous videoconferencing, this step of on-site visits can be done virtually; not requiring thus the physical presence of the benchmarking teams to the site of their partners. Virtual benchmarking is a promising strategic tool for the transnational transfer of best practice. Its use can lead to increased competition between continents through the direct and faster spread of national innovations to the global market. For this opportunity to realize, we first need to consider the effects that virtual ‘on-site visits’ have on the process of benchmarking.

Introduction Developments in information and communications technology, such as networking and multimedia, have transformed the ability of both individuals and organizations to augment their intelligence by accelerated learning (Pemberton et al 2001). Benefits from their use include the know-how obtained through discussion with others on the Internet, the benchmarking of competitor’s performance, the creation of new business opportunities, and savings in time and money when accessing information (Caloghirou et al 2004). The Internet and other advances in information technology have spurred a shift from a production-based economy to a global economy largely based on information and symbolic exchange (Slowinski et al 1999). Effective cross-border transfer of organizational knowledge becomes more critical as competition among multinational and global organizations intensifies (Bhagat et al 2002; Frost et al 2002). Firms are increasingly relying on knowledge acquired from other firms to facilitate the development of their own capabilities (Lane and Lubatkin 1998). These advances in information technology along with knowledge management applications & tools will affect benchmarking in terms of increasing best

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practice transfer (Jarrar and Zairi 2000). Global integration is leading to the promotion of international best practice through the sharing of knowledge and experience (Kidger 2002). On the other hand, accelerating advances in information and communications technology (ICT) can soon make established norms redundant in a relatively short period of time, with more innovative organizations eclipsing established companies in respect of best practice; In turn, the existing models of benchmarking may become outdated and therefore not provide the most suitable template upon which to generate meaningful comparisons (Pemberton et al 2001). Examining how networking and the use of ICT affect benchmarking is therefore essential.

Benchmarking Practice and Networking Benchmarking is the process of systematically identifying, analyzing, understanding and adapting outstanding practices from organizations anywhere in the world to improve an organization’s performance (Ottenhouse 1994; Boxwell 1994). Benchmarking involves industrial and/or market research on new developments – ideas and practices – as well as information gathering (Tyndall 1990; Balm 1992; BBC 1995; Zack 1996; Smith 1997; Slack et al 1995) to assist proactive management. American Productivity & Quality Center (APQC 2003) describes benchmarking as the process of identifying, sharing, and using knowledge and best practices. Chevron defines best practice as any practice, knowledge, know-how, or experience that has proven to be valuable or effective within one organization that may have applicability to other organizations (O’Dell and Grayson 1998). A practice is further defined as routine use of knowledge, containing tacit components such as individual skills & collaborative social arrangements (Szulanski 1996). Benchmarking gathers both explicit and tacit knowledge (know-how, judgments, and enablers). It is the intersection between tacit knowledge and explicit knowledge that creates learning (Nonaka 1994). The notion of benchmarking entails learning from others how to improve an activity. Learning how, or better the transfer of know-how, is evident in many definitions (see for instance: Boxwell 1994; O’Dell 1993; Ford’s definition (‘80s), Karlof 1995; Thompson 1995; Bramham 1997; Smith 1997; Arn et al 1996; BBC 1995; Pemberton et al 2001). Sharing and transferring are tangible evidence of a learning organization – one that can analyze, reflect, learn and change based on experience (O’Dell and Grayson 1998a). The enhanced learning and knowledge accrued in the benchmarking process results in improved products, processes, and ultimately, performance (Pemberton et al 2001). Benchmarking can enhance efficiency and add value to an organization, since it results to various benefits in process improvement, financial performance, and organizational culture, by targeting cycle times, productivity, customer service, quality and production costs (Ramzi et al 2000, Furey 1987, Schmidt 1992, Dahle 1996). This practice has also been used as a driver to help organizations manage more effectively in changing business environments, since it assists in shifting the culture of a company to be more customer-oriented and results-focused (Mittelstaedt 1992, Dahle 1996). A benchmarking project, if backed by adequate research, can therefore be a vital strategic planning tool since it can reveal a company's and its rival’s advantages and disadvantages, providing thus a clear competitive edge in directing organizational change (Furey 1987, Schmidt 1992, Jennings and Westfall 1992). Benchmarking can be categorized by target partner into internal and external. Internal benchmarking involves the evaluation and comparison of similar processes between different units of the same organization, though external benchmarking refers to benchmarking comparisons made outside the organization. External benchmarking studies are divided into competitive studies (competitive benchmarking) and noncompetitive studies which may be either functional or generic (Watson 1993). The term ‘cooperative benchmarking’ refers to the noncompetitive forms (Hurmelinna et al 2002; Boxwell 1994). The term ‘collaborative benchmarking’ has emerged recently, standing for internal benchmarking studies. For convenience, we will use the terms collaborative (internal), competitive and cooperative (external) benchmarking. Additional categorizations involve the geographical scope of the project (international or global, national, and regional) and what is benchmarked (strategic, operational / tactical). The successful implementation of benchmarking relies upon teamwork, involving collaboration amongst different disciplines within an organization and networking between peers in different

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organizations (Jones 2002). Benchmarking is essentially an application of the concept of mentoring to the interorganizational level, implying a bias for action that is fundamental to a learning organization (Watson 1993). Excellent networking and staff development are described by Hart (2001) as ‘side effects’ of benchmarking, since participants may gain benefits through improved practices (Jones 2002). Benchmarking facilitates learning because it involves networking3 (Watson 1993; APQC 1993; Jones 2002); either between partners belonging to the same country or across national borders (Edler et al 2002). Networking supports the movement towards an international approach since the globalizing companies are concerned to achieve high performance through the application of best practice or world class standards (Kidger 2002). The desire to collaborate with a foreign partner is dictated by the need to acquire technical or market expertise which is not equally available domestically (Edler et al 2002). Information and Communication Technology (ICT) is an enabler for networking. We should examine both to identify whether their use has affected benchmarking practice.

Current Virtual Benchmarking Practices Bosch-Sijtsema (2002) indicates that advances in information and communication technologies (ICT) allow organizations to become more virtual: “The virtual aspect can be found in geographically dispersed workforces and intensive use of information and communication technology for communication and coordination. Cooperative organizational structures have a degree of virtualness (implying a certain amount of dispersion of the workforce and use of ICT for communication and coordination)”. Information and communication technology (ICT) has already affected benchmarking. The creation of benchmarking networks, internal or external, that assist in the dissemination of information and implementation of the technique, acts as a catalyst in identifying benchmarking partners. Multinationals, upon benchmarking maturity, have created centers of excellence to internally disseminate knowledge gained by benchmarking to their strategic business units (e.g. Xerox, Texas Instruments). Without stable networks of practitioners and centers of excellence in technical and functional fields, companies are not able to bring people together in a virtual organization or community of practice so that expertise can be shared (O’Dell and Grayson 1998a). Best practice transfer networks have been shown to directly contribute to the creation of value within firms (Büchel and Raub 2002). External networks, such as Global Benchmarking Network and the International Benchmarking Clearinghouse – that is bound by the Benchmarking Code of Conduct of APQC4 (1997) not to provide contact lists or other contact information for purposes other than benchmarking and networking – act as intermediaries to facilitate benchmarking studies. Best practice networks are essentially institutionalized forms of knowledge sharing and are characterized by multi-directionality (Büchel and Raub 2002). Internal search for best practices and networks is supported by a combination of information technology tools such as e-mails, best-practice databases, internal directories, and groupware that support employees seeking knowledge and collaboration across the organization (O’Dell and Grayson 1998a). Already many organizations have their own intranets, and e-mail is becoming a standard means of communication (Jarrar and Zairi 2000). The process of communication is essential for successful benchmarking, as the mix between formal and informal patterns of communication has significance for knowledge acquisition and learning (Holloway et al 1999). ICT and knowledge management systems can play an important role in knowledge-intensive processes and flows (Carlsson 2003). The means and channels used for communicating internal best practices – in a sample of 227 organizations – have been documented by Jarrar and Zairi (2000) as follows: Verbally at team meetings 23%; Departmental Meeting 21%; Written instructions 17%; Ad hoc verbally 16%; Intranet 9%; Newsletters-magazines 9%; and Video 5%. Moreover, face-to-face contacts at management meetings or through visits are intermingled with electronic communication in the internal global networks (Kidger 2002). Best-practice teams usually meet at least quarterly face to face to share practices and issues, and they continue to communicate via e-mail and electronic conferences to provide ongoing coaching and advice in order to support the identification, transfer and implementation of best practices (O’Dell and 3 4

Defined as a connection among peers APQC has updated the Benchmarking Code of Conduct as at 13/07/2004.

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Grayson 1998a). Therefore, best practice teams usually operate as virtual teams. More specifically, in the case of internal and international benchmarking, best practice teams share the characteristics of global virtual teams. They are groups that: (a) are identified by their organization(s) and members as a team; (b) are responsible for making and/or implementing decisions important to the organization’s global strategy; (c) use technology-supported communication more than face-to-face communication; and (d) work and live in different countries (Maznevski and Chudoba 2000). The increased ICT and networking observed in current practices indicate some degree of virtualness in benchmarking. Internal best practice transfer (national and international) has been the focus of researchers lately and that is where the most evidence is found (f.i. Frost et al 2002; Jarrar and Zairi 2000; Zairi and Whymark 2000a; Zairi and Whymark 2000b; Zander and Kogut 1995; O’Dell and Grayson 1998a&b; Szulanski 1996; Gupta and Govindarajan 2000). Internal benchmarking may be conducted virtually if custom methodology does not require site-visits. Best practice teams may assist remotely to the implementation phase for the international transfer of best practice. What are the advances in external benchmarking (competitive and cooperative)? Competitive benchmarking appears to have a high degree of virtualness, since its implementation entails the use of: the Intranet and specifically internal networks containing best-practice databases; external networks & clubs, providing information and assistance for implementing the study; and networking through the Internet, to conduct industry and market research for identifying possible benchmarking partners or benchmarks. Through the planning, data collection and analysis phase organizations may use, apart from internal sources, third parties such as external benchmarking networks or consultants for identifying best practice. Regarding the implementation phase, bestpractice teams usually do operate as virtual teams by providing verbal or written instructions over the phone or e-mail. These teams also play the role of internal consultants. Common sense suggests that cooperative or collaborative benchmarking forms would be initially implemented virtually. However, it is observed that the competitive form of benchmarking is already conducted virtually; probably because this type of benchmarking does not entail site-visits and the data collection phase is done remotely. Another important aspect is that the findings of a competitive benchmarking study require urgent implementation, for the organization to remain competitive, and therefore instructions and directions are usually given over the phone. The other forms of benchmarking (functional and generic), though cooperative, are not yet conducted virtually; as is the case for competitive and may be for collaborative (internal) benchmarking. By examining the benchmarking methodology, it is observed that the only step that requires physical presence and has not yet been addressed is that of collecting the data through on-site visits to the benchmarking partner (internal or external). By addressing this step, all the forms of benchmarking will be able to be conducted virtually, if needed.

Advancing Virtual Benchmarking The ever growing literature on benchmarking indicates a wide spread of benchmarking applications across geographical and sectoral borders (Jarrar and Zairi 2000). Geographical boundaries particularly hinder international benchmarking with respect to the exchange of site visits; since further resources and time are needed for traveling to the premises of the benchmarking partner. Current advances in Information and Communication Technologies provide relevant solutions and offer the capability of crossing the boundaries of time & place. Electronic communication, entailing e-mail, voice mail & especially video conferencing (synchronous or asynchronous) provide enough scope for the swift creation of contact in which the personal dimension can also be addressed (Jägers et al 1998). By using ICT, and in particular synchronous videoconferencing, the step of on-site visits can be done remotely. Synchronous (real-time) videoconferencing is more suitable for assisting to the high interaction and interdependence of the benchmarking teams, as suggested by virtual organizations literature (Büchel and Raub 2002; Maznevski and Chudoba 2000). Virtual ‘on-site’ visits should include the premises that would be seen when physically visiting the company (i.e. building, entrance) as well as the activity agreed to be benchmarked.

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Virtual benchmarking, i.e. conducting benchmarking through ICT5 (Internet or Mobile technology), is a near future possibility that looks promising since it will enable cross-continent comparisons, as well as quicker and more direct transfer of best practices regarding global innovations. Considering the effects that virtual ‘on-site’ visits have on the process of benchmarking as well as the impact of the use of electronic media6 on the transfer of best practices are emerging research themes. Exploring the Effects of Virtual Benchmarking on International Studies Virtual benchmarking may particularly assist international benchmarking studies. Many concerns are raised when considering its implementation though. Primarily, the use of technology as an enabler for benchmarking also suggests dealing with the problems it may entail: such as security of the real-time data transferred, different levels of bandwidth capabilities among countries, as well as trust in terms of perceived reliability of the data exchanged. Moreover, literature regarding the current implementation of international benchmarking suggests that there is not common legal regime to measure legal risk (Boulter 2003) and that the practice is at a premature level. In order to develop and advance international benchmarking, any future project should aim at exploring general issues to identify problems, both technical and more fundamental, and develop methods for tackling them (Helgason 1997). The issue of comparative data can be addressed through the selection of the comparable partner and adjustments to the data gathered. Generally, the major advantage for the benchmarking partner (who has the superior practice) entails high control on the contents to be transferred. The main disadvantage relates to the fact that the partner has to ensure the security of the data transferred in real-time. The advantages of virtual benchmarking for the initiator include: low-cost international benchmarking, increased speed of the benchmarking study; faster dissemination and acquisition of transnational innovations. Accordingly, the disadvantages may entail a slower pace of knowledge acquisition as indicated in virtual organizations literature. More specifically research conducted by Bosch-Sijtsema (2002) indicates that although initially it was assumed that organizations with a high degree of virtualness have more difficulty in transferring and memorizing knowledge (explicit and tacit), empirical studies revealed that knowledge (both explicit and some elements of tacit) was transferred within the organizations. A rising issue concerns the fact that real-time videoconference records may be saved. On the one hand, this will allow the initiator to re-examine in detail and observe more aspects of the best practice pursued; on the other, the confidentiality of such records must be ensured, so as to protect the benchmarking partner. Legal contracts may provide a suitable solution, but there is high risk due to different national laws. However, it should be mentioned that benchmarking is based on the law of reciprocity (Watson 1993) and partners are bind by the Benchmarking Code of Conduct (European or International). Current practice suggests that both benchmarking partners hold data exchanged, in other forms than videotapes. Moreover, the openness of the source has been identified as one of the factors affecting best practice transfer. This factor may be further affected by the use of ICT. More specifically, in the case of cooperative benchmarking there might be a need for intermediaries, such as external benchmarking networks. The purpose being to ensure upon enquiry the reliability of the data transferred between the benchmarking partners as well as the ethical conduction of benchmarking. In summary, international cooperative benchmarking is at a premature level and entails many risks to be conducted virtually. The growing interest in international benchmarking reflects growing globalization and international interdependency, but there are many issues that need to be further explored and developed (Helgason 1997). Further research is needed to address the issues raised above, for this practice to mature. As far as it concerns international collaborative benchmarking, most of the issues discussed above do not affect a virtual benchmarking study, since benchmarking partners belong to the same organization. Regarding the information and communication systems used, multinationals can ascertain the security of their networks and usually operate in high bandwidth. Moreover, the 5

Implying the acceptable quality of the media used The impact of communication mechanisms including the use of electronic media is an obvious topic for future research (Gupta and Govindarajan 2000). 6

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confidentiality issue raised above does not apply in this case, since the exchange is done internally, from a division to another. Future research should address the effect virtual site visits have on the internal transfer of best practices. The use of ICT (Internet or Mobile technologies) may enable the implementation of international benchmarking. However, the implementation of virtual benchmarking is initially suggested for the internal needs of global organizations, and in particular multinationals. At this point in time, it would be wise first to examine the effectiveness of virtual benchmarking to the internal and cross-border transfer of best practices. Also, it is very important to identify and deal with the concerns raised above regarding the applicability of virtual site-visits in cooperative international benchmarking.

Conclusion and Future Research Current benchmarking practice reveals that it has been affected by the use of ICT and networking. Competitive benchmarking is already conducted virtually and collaborative benchmarking has a high degree of virtualness, with best practice teams operating remotely. Virtual benchmarking already exists. However, functional and generic benchmarking, though cooperative forms, are not yet conducted virtually, because they usually require site-visits. By examining the benchmarking methodology, we suggested that if the step of site visits was conducted through the use of synchronous videoconferencing, it would enable all the forms of benchmarking to be conducted virtually. This would particularly enable international benchmarking studies. By exploring the effects of virtual benchmarking, it is suggested for implementation only to internal international benchmarking studies, as there are other issues in external international benchmarking practice pending. Further research is needed since the transfer of tacit elements of knowledge on best practice requires social interaction. Drew (1997) found that process and strategic benchmarking may be particularly affected by the presence of a strong tacit element in the practices being studies. O’Dell and Grayson (1998b) state that tacit knowledge is best shared through people; explicit knowledge can be shared through machines; tacit know-how, meanwhile, is often best transferred via people or ‘help desks’. Therefore, virtual benchmarking should be recommended in the case where the practice does not entail large elements of tacit knowledge relatively to explicit. What are the effects of synchronous videoconferencing? Does it enable for the transfer of tacit elements of knowledge, since it offers high interaction between the teams? The use of other support mechanisms, such as networks and Communities of Practice, should be explored. Project teams and Communities of practice (CoP) – that pop up in knowledge-managing organizations – are the vehicles by which the rich, tacit knowledge gets shared among people who feel an obligation to help each other (O’Dell and Grayson 1998b). Communities of practice are groups of people informally bound together by shared expertise and passion for a joint enterprise (Wenger and Snyder 2000). Within communities of practice, the privileged knowledge is essentially the knowhow (Brown and Duguid 1991), which is tacit and socially localized. Their purpose is to develop members’ capabilities and to build and exchange knowledge; a CoP is an ideal forum for sharing and spreading best practices across a company (Wenger and Snyder 2000). Communities of practice were found to provide the best vehicle and context for facilitated best practice transfer, expertise location and many other knowledge management activities (APQC 2004). Teams and Communities of Practice appear to enable for the transfer of the tacit components of knowledge on best practices. Virtual benchmarking is an upcoming strategic tool assisting to the transnational transfer of best practice. Its use can lead to increased competition between continents through the direct and faster spread of national innovations to the global market. Further research is needed in order to examine its effectiveness depending on the type of knowledge sought on best practice, (i.e. on what we want to transfer).

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Achieving Excellence in the Globally Competitive Tertiary Education Sector through Innovative Approaches to Student Involvement in Course Evaluation Ron Fisher [email protected] Department of Management Griffith Business School Griffith University Gold Coast Campus PMB 50, GCMC Qld 9726 Australia Ph: +617 55529022 Fax: +617 55529206 (Author for correspondence)

Rod Gapp [email protected] Department of Management Griffith Business School Griffith University Gold Coast Campus PMB 50, GCMC Qld 9726 Australia Ph: +617 55528767 Fax: +617 55529206

Abstract Within the modern university context, increasing fees, competition to attract students, and a desire to develop a reputation for both research and teaching excellence have placed a greater focus and importance on improving student learning. At the lower end of the student learning continuum the focus is on student retention. At the higher end it translates to the active involvement of the student by the engagement and management of knowledge through its acquisition and development. In order to enhance the progression towards the higher end of the continuum, a course evaluation methodology based on action research, with a focus on student contribution and involvement, has been developed and implemented at both the undergraduate and postgraduate level. This approach allows the evaluation to probe beyond the traditional shallow observations of the commonly used student course evaluation questionnaire, enabling the student to provide valid and relevant information that is directly applicable to those who are responsible for the design of the course. The evaluation process therefore addresses the major relevant issues as seen from a student learning and knowledge management perspective. It also provides an innovative platform for the design and delivery of courses. The focus on action research then embeds the desire to innovate and improve the learning outcomes by combining the evaluation and course design processes. This has been shown to be a far more effective process than the narrow measurement process of the student course evaluation questionnaire, often seen by many as a test of popularity rather than an effective way of identifying aspects of course improvement and more appropriate management and delivery of knowledge. This study presents the findings from a case study of the process within a core management and human resource management undergraduate course and provides an overview of the evaluation methodology, its implementation, and outcomes in terms of innovation through a complete action research cycle.

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Introduction Since the mid nineteen eighties there has been increasing political pressure to implement curriculum interventions in the form of course evaluations at the delivery end of the spectrum rather than at the departmental, faculty or university levels of the tertiary education process. While there can be an argument that this is about improving the delivery of education, the political emphasis and broad nature of such interventions can represent nothing more than a simplistic audit based on very shallow questions rather than understanding the learning process in terms of pedagogy. Some academics genuinely wish to develop courses that extend students and provide the skills and knowledge not only to understand relevant theory but to be able to internalise theory and then put such theories into application or practice. Academics of this persuasion see the current evaluation processes as nothing more than a popularity contest, a process designed more to win votes rather than to improve tertiary education. The focus on winning votes can be aligned to the concept of evaluation put forward by Kohn (1992) where there is a close connection between surveillance and evaluation, with evaluation having the purpose of “watching over the shoulder” to see the nature of the job done. This surveillance approach in relation to students’ expectations leads to outcomes that are not always educationally sound. Kohn (1992) goes further to talk of such approaches as providing “accountability” where “accountability” is a buzzword rather than a process and where it is usually not supported with a methodology and method that ensures any validity or reliability. Within this setting people are pushed to excel (in outcomes not necessary related to improvement) where in reality the emphasis of this type of evaluation is more closely aligned to strategies of extrinsic rather than intrinsic motivation, thus providing little individual ownership and producing little commitment. This orientation towards extrinsic motivation aligns with the Model 1 theories proposed by Argyris (1985, p.88), where the emphasis is on “uncertainty, avoidance, mistrust, conformity, face saving, intergroup rivalry, invalid information for important and valid information for unimportant problems, misperceptions, miscommunication, and parochial interests.” By natural progression there develops an attitude to the delivery of the course based on managing the perceived evaluations in line with a Model 1 organisation. This then is reflected in the attitudes and perception of those taking the course, as participants attempt to minimise the pressures of internalising knowledge and pushing an emphasis on a “cookbook” of superficial understanding of the material through developing defensive routines to new material and summarising the old. This sees students happy to absorb an offering of simple information, which is then regurgitated back in some manner. The academic presenting material in such a way is loathed to change the process for fear of negative evaluations, causing both student and academic to cycle through the Model 1 perspective. This approach is expressed by Fromm (1976) in terms of ‘having’ modes rather than ‘being’ modes, where having limits or reduces knowledge and being leads to a desire for knowledge to be used to create wisdom. If not carefully managed the attitude towards course evaluation can create a single-loop approach to learning where, “we learn to maintain the field of constancy by learning to design actions that satisfy existing governing values” (Argyris and Schon 1974, p.19). Therefore learning becomes short-term and confirmatory rather then expansive and developmental. These arguments add weight to the statements of frustration faced by those academics who are attempting to move beyond a popularity contest to a level of interaction that is of a genuinely higher level. This is best described by Ryan and Stiller (1991, p.117) who stated that “Externally imposed evaluation, goals, rewards, and pressures seem to create a style of teaching and learning that is antithetical to quality learning outcomes .... that is (quality learning) learning characterised by durability, depth, and integration.” If we see the course evaluation as a method of controlling the quality of education through tight monitoring, as is the political message presented by many governments and readily adopted by increasing more managerial driven subservient Universities, then Deci’s (1985, p.52) summary of the impact on education is most appropriate, “Initiatives that establish stronger controls in education will result in poorer education.” The challenge now becomes how to develop a system to improve learning outcomes through gaining relevant and useful input from participants, which leaves all involved feeling empowered within the process.

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Action Research - A method for moving from espoused models to in-use models of learning Action research is seen in many forms, from the classic Revans (1982) approach of plan, act, observe, reflect, which moves forward through a spiralling process or as Deming (1994) presented it as the knowledge development process of plan, do, study, act. These models endeavour to allow innovation or improvement to occur through active involvement and refinement within the decisionmaking process. Such approaches engender empowerment through involvement, and improve output by demanding a search for information that will enhance the concept under investigation. Frequently such information evolves as the understanding of the issues evolves, often creating processes that show relevance of material that is often overlooked but which through clarity becomes essential to creating the optimum outcome. Management education and development has seen action research including action learning and process management, as important developmental skills that require a greater focusing of attention (Peters and Waterman, 1982; Limerick and Cunnington, 1987). Incorporating action research within business education at the tertiary level provides a practical link between concept and application. This approach allows for the effective development of creative, critical thinking through “learning by doing” or “learning by discovery”. Revans (1982) explains such learning through the equation L = P + Q where: L is concerned of the traditional academy; Q is the field of action learning…. Programmed knowledge, P, already set out in books or known to expert authorities, is quite insufficient for keeping on top of the world like ours today ranked by change of every kind. Programmed knowledge must not only be expanded: it must be supplemented by questioning insight, the capacity to identify useful and fresh lines of inquiry. This we may denote as Q, so that learning means not only supplementing P but developing Q as well. It is arguable which is more important; the evidence is that a surfeit of P inhibits Q, and that experts, loaded with P, present the greatest menace to the achievement of change by questioning, Q. (Revans, 1984, p.16) Therefore, by its nature, action research and the associated process of action learning often requires the reorganisation of existing knowledge through improved understanding. Zuber-Skerritt (1990) indicates four basic assumptions required for people to create knowledge as: 1. On the basis of the concrete experience 2. Through observing and reflecting on the experience 3. Performing abstract concepts and generalisations and 4. The testing implications of these concepts and new situations. Building on this approach, action research is a very effective alternative to traditional social science research methods in that it is: practical, participative and collaborative, emancipatory, interpretive and critical. Therefore the process of action research is very useful in identifying creative solutions. Bawden (1990, p.21) states, “action research is a particular way of critically learning about events in this world in order to change them. It combines theory with practice into critical process.”

The constructive and creative involvement of students in evaluation through the Student Involvement Inventory As clearly indicated in the literature there is a growing emphasis on the need for creativity in the work place (Miller, 1987; Miller, 2000; Robinson and Stern, 1997) and organisations are looking for this creativity to be developed as a focal point within students tertiary studies and learning (Driver, 2001). It is the formation of creativity that provides a platform for developing a course evaluation process that is based on the knowledge creation within an action research or action learning process. Bringing about a creative environment entails an expressive and collaborative environment, one that is not just a cornerstone for the development of an effective evaluation program in the eyes of the students enrolled in the course but also in the eyes of those responsible for the delivery of the course.

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The requirements for such an environment match those presented by De Souza Fleith (2000) for fostering creativity behaviours in the classroom: 1. Allowing time for creative thinking; 2. Rewarding creative ideas and products; 3. Encouraging sensible risks; 4. Allowing mistakes; 5. Imagining other viewpoints; 6. Encouraging exploration of the environment; 7. Questioning assumptions; 8. Reframing from evaluating/judging; 9. Fostering cooperation rather than competition; 10. Offering free rather restricted choice; 11. Encouraging dissent and diversity; 12. Setting students up for success rather than failure and 13. Requiring little if any rote learning. In order for the environment to become truly cooperative and creative it is first the responsibility of those who are in charge of the supervision, development and management of the staff responsible for facilitating the learning to first commit to this process. Secondly and more importantly, is the role of the management team in actually leading the implementation process. In order to achieve a creative supportive setting for staff involved in this research (those responsible for teaching and learning) the key staff supervising the process (the Chair of the Teaching and Learning Committee and the Head of Department) provided workshops on the use of action research principles as a method of course evaluation. These workshops focused on the departmental leader’s experience in action learning based course improvement methods. An essential part of this process was the inclusion and discussion of unsuccessful attempts and the lessons learned as part of the learning cycle. Further involvement and inclusion was achieved by fostering creative ideas from individuals, regardless of their position, in order to address the issues raised. This provided a level playing field for all involved and clearly indicated that the leader’s attitude was focused on learning through actions and that all inputs were valued for their level of contribution. This approach not only provided, but also demonstrated how to foster, a collaborative creative environment amongst peers before having to extend this to the classroom. This also allowed management to lead the process by showing that the above thirteen points are accepted behaviours within the department, thus shifting the focus of the evaluation from the individuals to the department and recognising the individuals as contributors to a teaching team. The tools and inventories development were seen as data collection devices that would not be successful if the correct environment was not fostered first. In other words, course evaluation is about the development of knowledge creating values and the associated behaviours that stimulate cultural change rather than questionnaire and data collection. In this setting qualitative research is seen as the most appropriate approach as it is concerned with understanding an individual’s perceptions and gaining insight within a real world setting (Bell, 1989). Demonstrations of its importance have been provided by the classic work of Maslow (1970) on motivation in the workplace and Mintzberg’s (1979) work on strategy and decision-making. These individuals provide practical perspectives that support the belief that qualitative research provides information that is rich, full, holistic, and usually matches the complexity of the matter that is under investigation (Miles, 1979). The inventory and process used in this example is explained in more detail in the case study section. In summary, the first and most critical aspect of the process was the establishment of a safe and trusting environment for both staff and students. This environment places emphasis on the development of an effective learning environment as important to all parties. No system or method is perfect, and innovation and improvement are part of a normal creative improvement process. An essential extension of the process included compulsory reporting at the departmental level by all staff on all courses. These reports had to include a detailed methodology, including the number of respondents and an analysis of the information and suggested improvement plan for the course delivery for the next offering of the course. These evaluation reports were included in the next offering of the course through suggested changes in the course as well as having the evaluation attached to the course outline submission. To support the process a number of workshops were held

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that dealt with this matter and were lead again by management who demonstrated how the evaluation was to be used in their own course development.

Case Study The objectives of the course were to provide students with an introduction to a synthesis of ideas about relevant theories, methods and issues involved in understanding workplace behaviour. The goals of the course were to gain an understanding of the principles and theories of workplace behaviour to enable students to understand a variety of organisational issues; to explore a variety of techniques and approaches with the aim of understanding individual and group behaviour; and to apply workplace problem-solving techniques to a variety of organisational situations using principles and theories of organisational behaviour. In the final week of the course students were asked to complete a course feedback and evaluation sheet consisting of three sections. The evaluations were voluntary and anonymous. The first section of the evaluations asked students what were the three best aspects of the course, that is what made the course positive, interesting or thought provoking. The second section asked students to provide three ideas, strategies or approaches that could improve the course. The final section asked students to rate the degree to which the course had met stated generic skills. The number of student responses was 229 out of a total student enrolment of 259. Student evaluations were analysed by examining individual responses and noting the categories chosen by students. A frequency distribution of responses was then constructed. Analysis of student responses to the first section of the evaluation showed that the best aspects of the course, in order of frequency, were: interesting self tests giving insight to oneself and others, relation of ideas to work life, lecture material and content and appropriate assessment. These responses were particularly pleasing as they indicated that broadly speaking the course had achieved its aims and objectives. Students reported that the self-tests, which were an integral part of the course, had enabled them to gain valuable insight into themselves. The major item of assessment was an essay that required students to apply insights to university and work situations. The essay proved to be a challenging and rewarding experience for most students. Many students also commented that the course material was clear and interesting. Also, that the course was well structured and that lecture and tutorial material was well presented. The text-book also drew generally positive comments from students. In the second section of the evaluation students were asked to provide feedback about how the course could be improved. Six items were identified as areas where improvement could be made. In order of frequency from the highest to the lowest these were: more detailed assessment criteria; no multiple choice questions in mid-semester examinations; greater use of videos in lectures; more, smaller tests; maintaining the same lecturer throughout the course (team teaching had been used); and greater use of real-life examples. Following analysis of the feedback and evaluation sheets, students were invited to take part in a focus group to discuss the areas identified as offering opportunities for improvement. Five students agreed to participate in the focus group, which was organised by an experienced focus group facilitator who was not connected with the course. The six items identified as areas where improvements could be made were used as discussion topics for the focus group. The proceedings were tape recorded and later transcribed. The main area of concern expressed by focus group participants was the essay, the main item of assessment worth 35% of the total marks. The view of participants was that information about the content of the essay was inadequate, and should be clearly stated in the course outline along with the marking criteria. The need to link between the self-tests with theory, in particular correlation between tests, was also raised as an area where greater clarity was required. Some students believed that tutorials contained too much material. Self-tests, which had been conducted in lectures, would be more suited to tutorials. The required format for the essay, together with the marking criteria, should be discussed in tutorials early in the course.

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Where the mid-semester examination was concerned, multiple choice questions should either be specially written, that is not taken from the test bank accompanying the text-book, or should not be used. Mid-semester examination results should be posted within a few days of the examination. Concerns about the mid-semester examination were qualified by the comment that overall students believed that assessment for the course was appropriate. The final item of discussion for the focus group was the use of videos in lectures. Participants believed that a greater use of videos, particularly those with an Australian content, would improve the course. Using more real-life examples, perhaps by sourcing recent articles from newspapers, would also enhance the course.

Conclusion The case study presented, although only from one course, is typical and provides insight into the wealth of information that can be gained and the direct relevance it has in relation to understanding the education process. The multiple approaches used provided not only greater insight but also confirmatory data and analysis. This places those responsible for the delivery and design of the course closer to the receivers of the material and provides a level of communication that is usually not present in most evaluations. In larger courses it also allows for the development of improvement plans for the sessional and tutorial staff and provides a mechanism for the cross-fertilisation of ideas amongst this group, creating a sense of involvement of an often forgotten group within the education process. This approach proved to be highly successful at a departmental level. The first indication was the total, genuine participation of all staff; many submitted draft evaluations and attended workshops as a way of making real changes and improvements to the courses being taught. All departmental staff sought feedback in one form or another from the Teaching and Learning Chair or Head of Department. Students believed that the process was more inclusive than previous survey driven approaches and also believed that their inputs would lead to change. The department saw a change in focus with teaching being a “knowledge based activity” that had value in its own right and this led to a supportive environment that encouraged the exploration of educational activities as a genuine research area. This approach, because of its focus on cultural change and the immersion of staff in a process that was supportive and developmental, shows that creativity and innovation can form a platform for course evaluation and improvement. The success of such an approach challenges the traditional survey approach, which from a departmental perspective would be seen as one narrow perspective of evaluating and improving courses. The team building nature of the action research and action learning approaches, across both staff and student groups, provide a valuable platform for course evaluation that leads to the development of a university-wide learning environment.

References Argyris, C. (1985). Strategy, Change and Defensive Routines. Cambridge, MA: Ballenger Publishing. Argyris, C., & Schon, D. A. (1974). Theory in Practice: Increasing Professional Effectiveness. San Francisco: Jossey-Bass Publishers. Bawden, R. (1990). Towards Action Research Systems. In O. Zuber-Skerrit (Ed.), Action Research for Change and Development (pp. 21-52). Brisbane: Centre for the Advancement of learning and Teaching, Griffith University. Bell, J. (1989). Doing Your Research Project. Milton Keyes: Open Learning Press. De Souza Fleith, D. (2000). Teacher and Student Perceptions of Creativity in the Classroom Environment. Roeper Review, 22(2), 148-158. Deci, E. (1985). The Well Tempered Classroom. Psychology Today, March, 52-53. Deming, W. E. (1994). The New Economics. Cambridge, MA: MIT Press.

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Driver, M. (2001). Fostering Creativity in Business Education: Developing Creative Classroom Environments to Provide Students with Critical Workplace Competencies. Journal of Education for Business, 77(1), 28-33. Fromm, E. (1976). To Have or To Be. New York: Harper & Row. Kohn, A. (1993). Punished by Rewards. Boston: Houghton Mifflin Company. Limerick, D., & Cunnington, B. (1987). Management Development: The Fourth Blueprint. Journal of Management Development, 6(1), 54-67. Maslow, A. (1970). Motivation and Personality. New York: Harper & Row. Miles, M. B. (1979). Qualitative Data as an Attractive Nuisance: The Problem of Analysis. Administrative Science Quarterly, 24, 599-601. Miller, M. (2000). Six Elements of Corporate Creativity. Credit Union Magazine, 66(4), 20-23. Miller, W. C. (1987). The Creative Edge: Fostering Innovation Where You Work. New York: Addition-Wesley. Mintzberg, H. (1979). The Emerging Strategy of "Direct" Research. Administrative Science Quarterly, 24, 582 -- 585 589. Peters, T., & Waterman, R. (1982). In Search of Excellence. New York: Harper & Row. Revans, R. W. (1982). The Origins and Growth of Action learning. Bromley: Chartwell-Bratt Lty. Revans, R. W. (1984). The Sequence of Managerial Achievement. Bradford: MCB University Press. Robinson, A. G., & Stern, S. (1997). Corporate Creativity: How Innovation and Improvement Actually Happen. San Francisco: Berrett-Koehler. Ryan, R. M., & Stiller, J. (1991). The Social Context of Internalization: Parent and Teacher Influences on Autonomy, Motivation, and Learning. Advancements in Motivation and Achievement, 7, 115-149. Zuber-Skerrit, O. (Ed.). (1990). Action Research for Change and Development. Brisbane: Centre for the Advancement of Teaching and Learning Griffith University.

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Organisational Learning Motivation of Construction Contractors in Malaysia: An Exploratory Study Awie Hing-Wih Foong [email protected]

Kah-Hin Chai [email protected]

Chee-Meng Yap [email protected] Department of Industrial & Systems Engineering National University of Singapore Singapore

Abstract This paper presents the findings of an exploratory study on the learning motivation of construction contractors in Malaysia. Construction companies are gradually shifting their focuses from productbased production competition to knowledge-based service competition. Consequently, organizational learning activities are becoming increasingly critical with the emerging role of knowledge workers as the dominant workforce. The generation and transfer of tacit knowledge, among others, are crucial organizational processes that need to be well motivated and managed. Our findings show that individual learning is a motivated behavior that is driven by both internal and external sources of motivation. Drawing from Bandura’s social cognitive theory and Kehr’s compensatory model of work motivation and volition, we propose a framework for further investigating the learning motivation of construction contractors. Keywords: organizational learning; organizational learning motivation; construction industry

1. Introduction In its broadest sense, the study of organizational learning encompasses every aspect of organizational processes, involves every levels of organizational system, and is crucial to every organization member. The most fundamental questions being asked are concerned with the what, where, why, when, who, and how of organizational learning. Organization needs to know what they should learn, where to acquire the knowledge, when they need it, who knows what, how to learn and transfer effectively, and why they are doing so. Our study is an attempt to address the why element of organizational learning. We are tempted to understand why and why don’t the individual members engage in organizational learning activities. Our review of the prior studies in both organizational learning and employee motivation shows that the tie between these two fields is amazingly weak.

2. Research Backgrounds Nearly all business activities in the construction industry are project-based (Edum-Fotwe & McCaffer, 2000). Nonetheless the construction companies are gradually shifting their focuses from productbased production competition to knowledge-based service competition (Federle & Chase, 1993). Study by Kamara & Augenbroe (2002) suggests that a proactive strategy of knowledge management integrating people-based strategies and ICT systems is required in order to fully capitalize on the intellectual assets of the organizations. The changes in market competition are accompanied by the need to adapt to the new situation. The needs for new skills and capabilities call for more effective organizational learning and knowledge management in the construction companies. Especially, the roles of project manager and key project members have become more comprehensive than before. The role of a construction project manager in this knowledge economy subsumes that of a technological innovator, an entrepreneur, a manager, and a production engineer (see Fig. 1) (EdumFotwe & McCaffer, 2000). The process of organizational learning (knowledge generation and transfer) among key project members thus becomes increasingly critical to construction companies that, in order to achieve high level or organizational learning, these project members need to be well motivated and managed (Osterloh and Frey, 2000; Gray and Meister, 2004).

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Strategist/Entrepreneur (external focus) • Customer focus • Product innovation • Analytical ability • Risk Management • Business

PROJECT INTEGRATOR

Technological innovator • Process efficiency • Product effectiveness • Technical innovation

Production engineer • Technical design • Technical supervision • Material allocation & scheduling • Quality assurance

Manager (internal focus) • People • Resources • Change • Communication • Organizational relationships • Team builder, coordinator, leader

Figure 1: The evolving role of the project manager (Source: Edum-Fotwe & McCaffer, 2000)

3. Theoretical Insights Organizational Learning Theories Huber (1991) presented organizational learning from an information processing conception. Organizational learning is the integration of the following four processes: (1) the process of knowledge acquisition (including creation); (2) information distribution (i.e. sharing and transfer); (3) information interpretation (learning by the recipients); and (4) organizational memory (i.e. retaining and retrieving of knowledge). Huber’s process-based approach is suitable for this study as it presents not only the processes at the individual level, but also at the collective level. However, it is essentially set out to address the “know-how” of organizational learning, that is, to understand how organizational learning takes place. The motives or purpose of organizational learning was not explicitly defined. For the purpose of this study, while retaining the process-based conception of organizational learning, we added the motivation dimension in order to address the purpose of organizational learning. Hence, we define organizational learning as the complete process of knowledge generation (creation and acquisition), and transfer (sharing, and retention) acted by the individuals for the benefit of the organization. And the term “organizational learning” should be interpreted as a metaphor, as asserted by Argyris and Schon (1978). Organizational learning carries a broader meaning of the term “learning”. It involves not only the normative meaning of learning, but also knowledge sharing, transfer, and retention. That follows, knowledge is viewed as the product of the complete learning process that is continuously being reviewed and revised. This process-based conception of organizational learning enables us to analyze the involvement of individuals in the organizational learning activities in two distinctive stages: i.e. the individual learning stage (at the individual level), and the knowledge transfer stage (at the collective level). The relationship between individual learning and organizational learning, as Kim (1993:37) explained, is “at once obvious and subtle – obvious because all organizations are composed of individuals; subtle because organizations can learn independent of any specific individual but not independent of all individuals.” Similarly, Argyris and Schon (1978) suggest that individual learning is a “necessary, but not sufficient condition for organizational learning”. Hence, the progression of organizational learning depends on how much the individual members are committed to the organization. Individual members create and acquire knowledge through intuition and interpretation; organization does not posses these abilities, but it does have cognitive and memory systems (Hedberg, 1981) that facilitates organizational learning on the one hand, and provide the social system for individuals to share their knowledge, on the other hand. As noted by Daft and Weick (1984:285): “Individuals come and go, but organizations preserve knowledge, behaviors, mental maps, norms, and values over time. The distinctive feature of organizational level information activity is sharing. A piece of data, a perception, and a cognitive map is shared among managers who constitute the interpretation system.” We argue that, since individuals play the most central role in organizational learning, understanding why and why don’t individuals generate and transfer knowledge for the benefit of the organization is thus a critical management issue. While such learning motivation may seem straightforward at the organization and extra-organization level, it is far more complicated at the sub-organization and individual level. In fact, learning motivation has always been a major research area in the field of educational learning. However, the significance of such motivational factors does not seem to get sufficient attention in the studies of organizational learning (Maier, Prange, and von Rosentiel, 2001). Without knowing why organizational learning would take place, the processes involved would always

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remain as black-boxes. Consequently, it is not a surprise that organizational learning interventions are seldom successful (Galbraith, 1990; Garvin, 1993; Gupta and Govindarajan, 2000). Motivation Theories The motivation theories that underlie the course of this study are largely built on Bandura’s social cognitive theory (Bandura, 1982, 1986, 1989; Wood and Bandura, 1989) and the compensatory model of work motivation and volition by Kehr (2004). The works by Bandura and Kehr complement each other and together they present the fundamental theorization of motivation theories. In the social cognitive theory, the relationships among the personal factors, the behavior of individual, and the external environment are conceptualized as triadic relationships with reciprocal causation (see Figure 2). Bandura posits that individual is both the product and producer of the external environment. Cognitive, Affective & Personal Factors

Behavior

External Environmental

Fig 2: Schematization of the relations among behavior, cognitive & other personal factors, and the external environment (Bandura, 1986)

One shortcoming of the social cognitive theory is that it overemphasizes the cognitive aspect of the personal factors and neglected the affective preferences of individual in explaining human behavior, especially the conflicts between cognitive and affective preferences. Bandura’s (1989) discussion on the affective dimension of social cognitive theory is focused primarily on the emotional consequences such as stress and depression, as a result of the self perceived efficacy, rather than the affective preferences as motivational mechanisms. We draw on the compensatory model of work motivation and volition by Kehr (2004) in order to broaden the scope of internal motivation due to both individual’s cognitive (explicit) and affective preferences (implicit). The three components of Kehr’s compensatory model of motivation are: implicit motives, explicit motives, and perceived abilities. Implicit motives correspond to the affective preferences of the individual, whereas explicit motives correspond to the individual’s cognitive preferences. The perceived abilities construct is similar to the self-efficacy construct proposed by Bandura (1986), defined as the amount of control one can exert over the environment (Kehr, 2004). The congruence among implicit motives and explicit motives is necessary to arouse individual’s intrinsic motivation, while the congruence among all three constructs would produce the “flow” experience whereby individual experiences “ undivided attention to the task; impaired sense of time; and absence of intra-personal conflict, self-referential, or other distracting thoughts” (Csikszentmihalyi, 1988 in Kehr, 2004:489). Flow experience is the case whereby the individual truly love what he/she is doing, is good at what he is doing, and is doing it for the inherent satisfaction of the task rather than factors external to the task. However, the utilization of Kehr’s compensatory model is more beneficial in explaining the incongruence among the three structural components of internal motivation. Two strategies are proposed for resolving the incongruence: The first scenario is that when incongruence between implicit and explicit motives occurs, volitional regulation is required to support the cognitive preferences against insufficient or competing implicit motives. Kehr (2004:486) contends that: “Volitional regulation has twofold function. Volition is needed to support explicit action tendencies (activated explicit motives) discrepant with affective preferences (aroused implicit motives) and to suppress implicit behavioral impulses (aroused implicit motives) discrepant with cognitive preferences (activated explicit motives)”. For instance, incongruence will occur when a senior engineer is ordered by his superior to transfer his knowledge to a novice engineer. Incongruence occurs when, knowing that he should satisfy the boss’s order (explicit motive), the senior is unwilling to share his knowledge with others (implicit motive). Volitional regulation would be necessary in order to suppress the unwanted implicit motive in order for the transfer process to proceed. However, volitional regulation may not be always effective. It depends on the individual’s volitional strength, i.e. the individual’s proficiency in using volitional strategies. The second scenario is that when the perceived abilities are low, problem solving is required. Problem solving is defined as the “conscious processes used to

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overcome environmental difficulties when no behavioral routines exist” (Kehr, 2004:487). Individual would have a low level of perceived abilities when he/she is faced with a situation where there is inadequate, less developed, or nonexistent behavioral routines. Table 1 summarized the complementary nature of Bandura’s social cognitive theory and Kehr’s compensatory model. Internal Motivation

External Motivation

Cognitive

Affective

1. Social Cognitive Theory (Bandura, 1986)

Cognized goals & Self-efficacy

-----

External environment

2. Compensatory Model of Work Motivation & Volition (Kehr, 2004)

Explicit motives & Perceived abilities

Implicit motives

-----

Table 1: Comparing the social cognitive theory and the compensatory model of work motivation and volition (Source: Bandura, 1986; Kehr, 2004)

According to Bandura (1989), people’s self-motivation is affected by their self-efficacy, the cognized goals by forethought, and their expectancy on action outcomes. While Kehr (2004) posits that motivation is enhance when the implicit motives, the explicit motives, and the perceived abilities are congruent to one another. The utilization of these theories allows us to investigate if organizational learning is a motivated process, and what are the dominant motivational factors to organizational learning to project team members.

4. Exploratory Studies Background of study This exploratory study is carried out as a pilot study of an ongoing research project. The main objective of the pilot study is to justify the research questions of the larger project, as follow: 1. Why do individuals engage in organizational learning activities? 2. Why don’t individuals engage in organizational learning activities? The purpose of the pilot study is, therefore, to understand if indeed the practitioners also view our research questions as serious as we do. Since the focus of our study is at the individual level, as we have argues in Section 3, the pilot study only involves interviews conducted at the individual level. Five semi-structured, face-to-face interviews have been conducted. Primarily, we asked the respondents if they think that motivation is a critical factor to organizational learning activities, and what are the factors affecting individual’s decision to engage in acquiring, creating, sharing, and retaining knowledge in their work organization. All the participants share the following similarities: (1) they all work in the construction industry in Malaysia. The number of interviewees involved in this pilot study, with reference to the industrial structure of the construction industry (see Figure 3) is as follow: one each in a developer, consultancy, and sub-contractor companies, and two in the main-contractor category. This distribution provides a fairly good representation of the construction industry.7 (2) They have all worked for around eight years in this industry, and are currently the middle level managers/project managers for their respective companies. (3) All the five interviewees are university graduates, with bachelor degree in either mechanical or civil engineering. (4) All participants are Malaysia-born citizens and have lived and worked in Malaysia for most part of their lives. These facts should provide sound contextual ground for the study that can be distinguished from the population at large.

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Nevertheless, it should be noted that the objective of this exploratory study is not to seek outcomes that can be generalized to the entire population. Rather, we hope to gain insights that will in turn improve the theoretical validity of our research propositions.

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Owner Representative (Consultant)

Sub-Contractor

Sub-Contractor

Project Owner (Developer) Main Contractor

Sub-Contractor

…..

…..

Fig 3: Typical industrial structure of the construction industry

Findings and discussion The participants were asked to describe their experience in organizational learning activities, including individual learning, knowledge sharing, and knowledge retention. The questions are open-ended in order to avoid dictating the participants’ responses. The interview findings reveal much evidence on individual learning. All the respondents are highly self-motivated to engage in individual learning. They perceive self initiative and commitment as the main driver to organizational learning. There is a shared perception among the participants that individual learning will lead to improvement in both individual performance and future career prospect, and consequently, improve the monetary reward, social status, and self-satisfaction. It seems that all the respondents possess internal locus of control, in which they have attributed the success in their career so far to their own efforts in continuous learning and improving themselves, as well as a high level of self-efficacy. The main motivators for individual learning are: (1) To improve own ability to perform, so that individual performance can be improved, and consequently, the individual will be rewarded accordingly; (2) to improve one’s competitive advantage, so that the individual’s future career prospect can be improved. Even though some of these cognized goals are not yet attained, the strong belief in them has maintained the respondents’ persistence in pursuing new knowledge that may lead them to the rewards. Some examples are as follow: “I want to be a better engineer; but more importantly, I want to excel in what I'm doing. Then the social status and rewards will follow. I think most people are like that. Knowledge belongs to you and nobody can take away from you.” – (Alfa, Sub-contractor) “In order to update and improve myself. I think learning would help me to gain better career prospect in the future, whether it is to set up my own business, or to perform better at work so that I can obtain more rewards from the company.” – (Charlie, Developer) “The more one learns, the fewer mistakes he'll make, and consequently, the better the work performance would be. Basically I learn because I want to be more successful in my career.” – (Etta, Main contractor) These findings correspond to the cognized goal by forethought construct suggested by Bandura (1989) or the explicit motives construct by Kehr (2004). On the other hand, knowledge sharing is largely seen as a social practice. It is motivated by both implicit as well as explicit motives, as illustrated by some of the participants: “I also see sharing of knowledge with others as a type of social service (to help friends).” – (Alfa, Sub-contractor) “There is a sense of self satisfaction when "educating" others. You feel that you are being respected. (Also) Sometimes I share with others just to help them as a friend.” – (Delta, Main contractor)

5. Research Propositions These preliminary findings substantiates our claim that learning is motivated by certain forces that may vary from one individual to the other. Also, individual can be motivated to learn by factors external to the learning activities, such as the prospect of gaining rewards, promotion, and future career advancement. This adds a new dimension to the claim by Osterloh and Frey (2000) that the

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generation of tacit knowledge is largely relying on intrinsic motivation. Evidently, both intrinsic and extrinsic motivations are important to individual learning. Considering the findings from the above discussion, we propose a causal model in order to investigate the motivational factors for individuals to engage in organizational learning activities. Specifically, we set out to address the following research questions: (1) Why and why don’t individual employees engage in knowledge generation and transfer; (2) What are the moderating factors that would affect individual/s engagement in organizational learning activities? In other words, we hope to determine the sources of motivation that are most significantly related to organizational learning activities. Our propositions are outlined as follow:

Psychological Safety Team Level Individual Learning Motivation

(+/-) Internal Individual Level

1. Implicit motives (Intrinsic); 2. Explicit motives (Goalsetting, Selfconcept: internal, Commitment: internal); 3. Perceived abilities (Self-

External Team / Org Level

1. External regulation; 2. Introjected regulation; 3. Self-concept based: External; 4. Commitment: External

Individual’s Propensity to engage in OL Individual Level

Psychological Contract Organization Level

1. Generate (Create/Acquire) Knowledge; 2. Share Knowledge;

1. Obligation to conform 2. Obligation to contribute

Construction Industry Project Team

Fig 4: Research Propositions, Levels of Analysis, and Boundary Contexts

Proposition 1: Organizational learning is a motivated process. The individual’s propensity to engage in organizational learning activities is directly affected by their perceived level of learning motivation. Proposition 2: The effect of learning motivation on the individual’s propensity to engage in organizational learning activities is moderated by the perceived job security and psychological safety within the working environment.

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These constructs are briefly discussed as follow: Antecedent: Individual learning motivation In this study, motivation is defined as the forces that initiate, direct, and sustain behaviors (Kleinginna & Kleinginna, 1981) towards goals attainment. In order to explain the learning behavior of the same individual across different situations, and of different individuals within the same set of situations, the construct of motivation must be broad enough. Furthermore, motivation forces do not always act independently, but they interact with one another. For instance, external reward was found to undermine, instead of complement, intrinsically motivated behavior (Deci, 1971; Frey & OberholzerGee, 1997). Hence, motivational program can be more complex than simply adding up the various types of motivation that can be made available. Prescribing only one of any of the motivational model may not present the motivation construct completely. We sought to combine previously well researched motivation constructs into our research framework. Such meta-framework will include the following: intrinsic motivation (Deci, 1975), expectancy-instrumentality-value (Vroom, 1964), equity (Adams, 1963), goal setting (Locke and Latham, 1990), self-efficacy (Bandura, 1982, 1986), selfconcept based (Leonard, Beauvais and Scholl, 1999), and commitment (Scholl, 1981). These constructs are categorized according to their source of initiation, i.e. internal motivation refers to the motivation initiated by the inner-self, and external motivation refers to those from external sources (see Fig. 4). We shall not elaborate on these constructs due to space limitation. Outcome: Individual’s propensity to engage in organizational learning activities The propensity to learn and transfer knowledge for the organizational work team stems from the notion that organization will not learn unless its individuals learn on its behalf. The willingness of the individuals shall determine how much and how far the organizational learning progress may be. Rather than measuring the actual changes in individuals’ cognitions and behaviors, we choose to ask the individual members their willingness to engage in organizational learning activities as a result of their perceived level of motivation to learn, transfer, and retain knowledge for the benefit of their work team. Individual’s perception of the organization and its environment affect his evaluation of the situations, and consequently, his decision for action (Porter, Lawler III & Hackman, 1975:48). Moderating Factors: Psychological safety and Psychological Contract a. Psychological Safety There are two moderating factors to be considered in this study. Psychological safety was found to have positive effect on the intensity of team learning (Edmondson, 1999). Psychological safety is defined as “the perception that one’s work environment is safe for inter-personal risk-taking, such that proximal others will not reject or embarrass those who make mistakes or speak up about difficult issues” (Edmondson and Woolley, 2003:189). Empirical study by Edmondson found that individual learning behavior is affected by the perceived psychological safety within the team. Team members who perceive low psychological safety in the team may believe that they are placing themselves at risk by initiating learning behavior such as asking for help, admitting mistakes made or experimenting. Team context support and team leader coaching are the two antecedent conditions of psychological safety in this study. Findings by Edmonson may explain the observations by Argyris (1977) that organization member tend to act in ways that inhibit learning when they face the potential for threat or embarrassment. Nevertheless, psychological safety alone is not sufficient to explain learning behavior of team members across all situations, or when individual differences are significant. b. Psychological Contract The second moderating factor is the perceived psychological contract by the employees. Psychological contract refers to the perceived obligations to each other held by the two parties in the employment relationship (Herriot, Manning and Kidd, 1997:151). Such obligations, categorized by Flood and colleagues (Flood, Turner, Ramamoorthy, and Pearson, 2001) as the obligation to conform and the obligation to contribute, may affect individuals’ propensity and intensity in participating or performing an organizational task. From the employees’ perspective, the perceived job security and the level of trust in their employers are the main determinants of the strength of psychological contract.

6. Implication and Conclusion This paper presents the development of a framework for investigating the motivational factors that act as the antecedents to organizational learning activities. Each stage of the organizational learning

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process requires certain motivational forces to either initial, direct, or sustain the organizational learning behavior. The main research gap that we have discovered is indeed the void that scholars and students of organizational learning choose to avoid. However, if organizational learning is said to becoming increasingly important, then we are compelled to investigate why and why don’t individuals generate, transfer, and retain knowledge that will benefit an organization. The potential implication of this research is twofold. Firstly, it shall extend our theoretical understanding of organizational learning, specifically on the involvement of individuals in organizational learning process, and if such individual behaviors can be more predictable through motivational interventions. Secondly, we think that the practical implication could be more compelling. Since motivation to learn is very much different from motivation to work, managers would need an alternative management framework in order to manage the process of organizational learning more effectively. We hope that our work could contribute to the development of such management framework through the course of this research. Nevertheless, this research is still at a rather early stage. Further development of this framework will allow us to come up with more specific variables and subsequently the testable hypotheses. However, at this stage of research, it is essential to solicit comments and feedbacks from the research community in order to refine and improve this framework. We hope that the feedback on this publication, together with the results from our field study, will provide useful inputs to the hypotheses development, and subsequently, the hypotheses testing and theory building at the later stage.

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Flood, P.C., Turner, T., Ramamoorthy, N. & Pearson, J., 2001 Causes and consequences of psychological contracts among knowledge workers in the high technology and financial services industries, International Journal of Human Resource Management, vol.12, pp. 1152-1165. Frey, B.S. & Oberfolzer-Gee, F., 1997, The cost of price incentives: An empirical analysis of motivation crowding-out,” American Economy Review, 87, 746-755. Galbraith, C.S., 1990, Transferring core manufacturing technologies in high-technology firms, California Management Review, Summer, 56-70. Garvin, D.A., 1993, Building a learning organization, Harvard Business Review, July-August, 7891. Gray, P.H. & Meister, D.B., 2004, Knowledge sourcing effectiveness, Management Science, 50, 6, 821-834. Gupta, A.K. & Govindarajan, V., 2000, Knowledge flows within multinational corporations, Strategic Management Review, 21, 473-496. Hedberg, B., 1981, How organization learn and unlearn, in Handbook of organizational design, 127, Nystrom, P. & Starbuck, W. (eds.), New York: Oxford University Press. Herriot, P., Manning, W.E.G., and Kidd, J.M., 1997, The Content of the Psychological Contract, British Journal of Management, 8, 151-162. Huber, G.P., 1991, Organizational learning: The contributing processes and the literatures, Organization Science, 2, 88-115. Kamara & Augenbroe, 2002, Knowledge Management in the architecture, engineering, and construction industry, Construction Innovation, 2, 53-67. Kehr, H.M., 2004, Integrating implicit motives, explicit motives, and perceived abilities: The compensatory model of work motivation and volition, Academy of Management Review, 29, 3, 479-499. Kim, D.H., 1993, The link between individual and organizational learning, Sloan Management Review, Fall, 37-50. Kleinginna, P., Jr., & Kleinginna, A., 1981, A categorised list of motivation definitions, with suggestions for a consensual definition, Motivation and Emotion, 5, 263-291. Kolb, D.A., 1976, Management and the Learning Practice, California Management Review, 18, 3, 21-31. Kululanga, G.K., McCaffer, R., Price, A.D.F., Edum-Fotwe, F., 1999, Learning Mechanisms Employed by Construction Contractors, Journal of Construction Engineering and Management, 125, 4, 215-223. Leonard, N.H., Beauvais, L.L. & Scholl, R.W., 1999, Work motivation: The incorporation of selfconcept-based processes, Human Relations, 52, 969-998. Locke, E.A. & Latham, G.P., 1990, Work motivation and satisfaction: Light at the end of the tunnel, Psychological Science, 1, 240-246. Maier, G.W., Prange, C & von Rosentiel, L., 2001, Psychological perspectives of organizational learning, in Handbook of Organizational Learning and Knowledge, 14-34, Dierkes, M, Antal, A.B., Child, J, and Nonaka, I. (Eds), Oxford, UK: Oxford University Press. McGrath, J.E. & Argote, L., 2001, Group processes in organizational contexts, in Blackwell Handbook of Social Psychology: Group Process (Vol.3), 603-627, Hogg & Tindale (Eds.), Oxford, UK: Blackwell. Osterloh, M & Frey, B.S., 2000, Motivation, knowledge transfer, and organizational forms, Organization Science, 11, 538-550. Porter, L.W., Lawler III, E.E. & Hackman, J.R., 1975, Behavior in Organizations, USA: McGrawHill. Scholl, R.W., 1981, Differentiating organizational commitment from expectancy as a motivating force, Academy of Management Review, 6, 589-599.

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Vroom, V.H., 1964, Work and motivation, New York: Wiley. Walsh, J.P. & Ungson, G.R., 1991, Organizational memory, Academy of Management Review, 16, 57-91. Wood, R. & Bandura, A., 1989, Social cognitive theory of organizational management, Academy of Management Review, 14, 3, 361-384.

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Quality Management Practices, Industry Rivalry, Entry Barriers and Performance: An Investigation of Their Relationship David Gadenne [email protected] Professor of Accounting & Finance Faculty of Business and Law Central Queensland University North Rockhampton 4702 Ph 61 7 4930 9873 Fax 61 7 4930 9700

Bishnu Sharma [email protected] Senior Lecturer in Management Faculty of Business University of the Sunshine Coast Maroochydore DC QLD 4558 Ph 61 7 5430 2854 Fax 61 7 5430 1210

Abstract This study investigates the impact of quality management practices on performance and the extent to which industry rivalry and entry barriers in Queensland businesses moderate the relationship between the implementation of quality management practices and quality management performance. The results show that firms with high levels of executive commitment to quality management tend to improve their competitive position, view quality as positive for the organisation, and improve overall performance. The findings suggest that the higher the degree of quality management implementation, the less likely that firms are encountering entry barriers (in terms of economies of scale) or rivalry problems arising from lagging behind in innovation, research and development. It was also found that firms were more likely to experience higher levels of organisational performance as a result of (1) a higher level of entry barriers due to their relative protection against new competitors, and (2) a higher level of innovation, research and development, due to the pressure of maintaining a competitive edge.

Introduction Business Excellence Awards and the importance of quality The strategy literature suggests that the survival and growth of a business is largely linked with the customers’ perception of value that a firm is providing to its customers through its products and services (Hill et al., 2004:111). In meeting the challenge of maximising value of the firm’s products and services and sustaining its competitive advantage, firms use different strategic initiatives such as adoption of Total Quality Management or Business Process Engineering or Continuous Improvement or Value Adding Management, to name a few. To facilitate this process, firms in different countries use different practices including the ‘Business Excellence Framework’ which appears to be the most popular as it is applicable to all organisations, small or large, private or public, or whether in the manufacturing or service sector. For example, in Australia, Australian Business Excellence Framework has been in use for over 15 years. To incorporate the latest management thinking, a panel of management experts review and update the framework annually. The Business Excellence Foundation has also been used in New Zealand and Singapore for some time now. The European Quality Award used in Europe is Europe’s most prestigious Award for business excellence and concentrates mostly on satisfaction. This Award is given to organisations that excel in one or more of the eight fundamental concepts of excellence. In the United States, one of the most prominent quality awards is the Malcolm Baldridge National Quality Award which basically concentrates on customers and the human resource aspect. In Japan, the Deming Award is given to individuals or organisations who excel in aspects of quality. A review of the business excellence frameworks used in different countries suggests that there are some differences in the way weights are allocated to different criteria. However, in terms of criteria, a majority of these frameworks include leadership, people, customers, innovation, quality, results and planning. The adoption of one or the other kind of framework which assists organisations in measuring their performance and building a road map for

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long term success in different countries worldwide is recognition of the importance of quality in what the organisations do. What is quality? Hoyer and Hoyer (2001) analysed the definitions of quality from the writings of the following eight quality gurus: Philip B Crosby, W. E. Deming, Armand V. Feigenbaum, Kaoru Ishikawa, Joseph M. Juran, Robert M. Pirsig, Walter A. Shewart, and Genichi Taguchi. Based on their analysis, the definitions of quality fall into two categories: Level one quality is a simple matter of producing products or delivering services whose measurable characteristics satisfy a fixed set of specifications that are usually numerically defined. Independent of any of their measurable characteristics, level two quality products and services are simply those that satisfy customer expectations for their use or consumption. Thus, the main focus of quality is on meeting a set of specifications and satisfying the customer (Hoyer and Hoyer, 2001). Garvin (1984) identified five approaches to defining quality and offered some examples based on the work of various quality writers. The five approaches are (1) the transcendent approach of philosophy, (2) the product-based approach of economics, (3) the userbased approach of economics, marketing and operations management, (4) the manufacturing-based approach and (5) value-based approach of operations management. Then Garvin (1984) offered a framework of eight dimensions for thinking about product quality comprising performance, features, reliability, conformance, durability, serviceability, aesthetics, and perceived quality. He also discussed the implications of quality on marketing and financial performance as it relates to price, advertising, market share, costs and profitability. Quality management Quality management has been very popular in the last two decades and has consequently attracted much interest among researchers/academics as evidenced by a large number of articles and research papers that have appeared in the literature (Rahman, 2002). Even in practice, a large number of organisations in the developed countries such as the United States, Australia, Japan, and Singapore have adopted Total Quality Management (TQM) or some kind of quality management (Davis and Fisher, 1994). For example, in the United States, over 90% of the 500 largest firms adopted TQM in one form or another (Powell, 1995). A successful TQM aims at improving a business as a whole and it involves every person in every part of an organisation working to remove error and prevent waste (Bricknell, 1996). The literature also emphasises that one of the fundamental principles of TQM is to get things right first time by taking multiple approaches such as continuous improvement, statistical measurement and having a mentality of zero-defects. Deming (1986), Juran (1986, 1992), Crosby (1979), Flynn et al. (1994 and 1995), Saraph, et al. (1989) and Powell (1995) are the leading contributors of quality management frameworks. As noted by Powell (1995) from the work of Walton (1986), Deming came up with 14 points for the improvement of quality and productivity. Some of them are constancy of purpose, adopting the philosophy, driving out fear, eliminating barriers, constant improvement, leadership and training. Juran’s trilogy (1986) consists of quality planning, quality control and quality improvement. Crosby’s 14 steps of quality include management commitment, quality measurement, quality awareness, cost of quality evaluation and corrective action. Flynn et al. (1994 and 1995) identified seven dimensions of quality management as top management support, quality information, process management, product design, workforce management, supplier involvement and customer involvement. Saraph et al (1989) identified eight factors of quality management comprising the role of divisional top management and quality policy, the role of the quality department, training, product/service design, supplier quality management, process management/operating procedures, quality data and reporting, and employee relations. Powell (1995) suggested that complete quality management programs (TQM) tend to share 12 factors which were measured using 47 items. The factors are committed leadership or executive commitment, adoption and communication of TQM or adopting the philosophy, closer customer relationships, closer supplier relationships, benchmarking, training, open organisation, employee empowerment, zero-defects mentality, process improvement, flexible manufacturing and measurement. Based on a review of different perspectives, it is noted that quality management is

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driven by the constant attainment of customer satisfaction through the continuous improvement of all organisational processes (Robbins et al., 2004:17; Brah and Tee, 2002, Brah et al., 2000). Quality management practices and business performance – their relationship The successful implementation of TQM is expected to lead to a number of benefits such as lower costs, better product quality, greater efficiencies, improved market share, better reputation, increased motivation and satisfaction (Bricknell, 1996). This view is consistent with the findings of Powell (1995) in which he suggested that certain features of TQM such as open culture, employee empowerment and executive commitment are associated with business performance. However, the TQM elements such as quality training, process improvement and benchmarking did not indicate significant correlations with performance. These findings are, however, difficult to generalise due to the small sample size (the sample size of all firms was 54 of which only 39 were TQM firms). Anderson and Sohal (1999) investigated the relationship between quality management practices and performance using data from 62 small and medium size businesses in Australia. Their research found a number of significant relationships between quality management practices and subjective measures of organisational performance. A survey of manufacturing firms in the United States (n=290) found that the relationship between quality management practices and performance (customer satisfaction, marketing and financial) is contingent on the degree of international competition present in the business environment (Das et al., 2000). Sterman et al. (1997) found that programs like TQM can present firms with a trade-off between short and long run effects. In the long run, TQM can lead to quality and productivity improvement. However, in the short term it can interfere with prevailing organisational processes such as accounting and management practices. Such interference may create operational and financial tension which might lead to loss of management commitment to TQM practices (Sterman et al., 1997; Brah et al., 2000). Therefore, in spite of the popularity of TQM, some studies reveal that some organisations are struggling with the problems of implementation and have mixed success (Samson and Terziovski, 1999; Terziovski and Samson, 2000; Preston and Hingorani, 1998). Limited success of TQM over a period of time can be attributed to several factors including a lack of attention to the human aspect arising from inconsistent senior management support and a lack of involvement of supervisors and middle managers in the planning process (Edwards and Sohal, 2003). Although TQM has become a part of business thinking and a popular strategy in many organisations in the developed countries (Powell, 1995), a number of empirical studies that examined the relationship between quality management practices and performance have focused on larger organisations (Anderson and Sohal, 1999). However, the literature suggests that TQM should not be branded as a competitive strategy only for large firms; even small firms can and do implement TQM elements as effectively as large firms, and in turn, achieve high product/service quality (Ahire and Golhar, 1996). It is also argued that implementation of TQM in a small firm may be easier than in a large firm because of less complexities in the process (Haksever, 1996). It is also interesting to note that TQM is mostly implemented in the manufacturing/operations function with little progress in other functional areas (Sohal and Terziovski, 2000). Porter (1980:3 proposes that the five main forces that drive industry competition (threat of new entrants, industry rivalry, bargaining power of buyers and suppliers, and the threat of substitutes) determine the ultimate profit potential in the firm’s industry. However, not many studies have considered these forces in quality management research, and thus it may be considered appropriate to investigate the mediating effect of some of these forces in the relationship between quality management practices and performance. Threat of new entrants The new entrants to an industry bring new capacity with a possibility of creating excess capacity which might result in price reduction leading to reduced profitability (Porter, 1980:7). However, the threat of new entrants depends on the level of barriers to entry. Economies of scale, brand image/identity, level of capital requirements, switching costs, and absolute cost advantages are some of the entry barriers. Industry rivalry ‘Rivalry among existing competitors takes the familiar form of jockeying for position – using tactics like price competition, advertising battles, product introductions, and increased customer service or warranties’ (Porter, 1980:17). Industry rivalry becomes intense if there are numerous or equally

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balanced competitors, industry growth is slow, fixed costs are high, there is a lack of differentiation and the switching costs are not too high, and the exit barriers are high. Organisational performance Organisational performance can be measured using subjective measures of performance that tap into managements' perceptions of the effects of quality management on overall performance, the firm’s competitive position and the nature of the impact of quality management on the organisation.

Research focus As discussed in the earlier sections, quality management is mostly focused in large organisations and not many studies in the past have investigated the mediating effect of entry barriers and industry rivalry in the relationship between quality management practices and organisational performance. Therefore, this investigation aims to use data from Queensland businesses where a majority of businesses are small. Theoretical framework This study is based on the framework developed by Powell (1995) which included quality management factors or dimensions such as executive commitment, adopting the philosophy, closer to customers, closer to suppliers, benchmarking, training, open organisation, employee empowerment, zero-defects mentality, flexible manufacturing, process improvement, and measurement. These dimensions were based on 47 items measuring various aspects of quality management practices. However, for the purposes of the current study the flexible manufacturing dimension has been excluded as the proposed sample frame includes many small and micro businesses in which flexible manufacturing is not applicable even in manufacturing units. As there were 7 items used for measuring flexible manufacturing, this left a total of 40 items to be used as a basis for developing the underlying dimensions of quality management. Hypotheses As indicated earlier, the literature shows that there are inconsistent results regarding the relationship between the implementation of quality management systems and organisational performance. In some cases a positive relationship was found between the use of quality management practices and organisational performance (eg Powell 1995; Anderson and Sohal 1999; Huarng and Chen 2002; Sharma and Gadenne 2002; Sohail 2003), but in other cases there was very little evidence of any association between quality management practices and performance (eg Preston and Hingorani, 1998; Samson and Terziovski, 1999; Terziovski and Samson, 2000). While many plausible arguments have been put forward as to the reasons for these discrepancies (such as cultural and behavioural factors (Montes et al., 2003), buyer-supplier relationships (Fynes and Voss 2002), degree of international competition (Das et el 2000), short term versus long term focus (Sterman et al., 1997; Brah et al., 2000), and lack of attention to the human aspect (Edwards and Sohal, 2003)), very few (if any) studies have considered the relationship between quality management implementation and 8 performance within the context of Porter’s (1980) competitive forces model , particularly in relation to entry barriers and intensity of rivalry. It could be argued that one of the most critical barriers to entry is concerned with economies of scale, and this is particularly relevant where smaller firms are involved. Furthermore, following Powell (1995, p 25) it is expected that the correlation between quality management and entry barriers would be negative. Therefore, as this study will focus on smaller firms the following hypothesis would seem to be appropriate: H1: The higher the degree of quality management implementation, the less likely that firms are encountering entry barriers in terms of economies of scale. In relation to rivalry, it has long been recognised that firms with higher levels of quality management implementation are more likely to engage in innovative behaviour (eg Sim 2001; Young et al 2001; Knights and McCabe 2002; Hamson. and Holder 2002;, Bayo-Moriones and Merino-Diaz de Cerio, 2003) and consequently experience fewer perceived problems in innovation, research and 8

Although Powell (1995) considered some of Porter’s competitive forces, this was within the context of an overall industry specific effect; not in terms of their mediating effects as in the current study.

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development compared to their rivals. Again, following Powell (1995, p 26) it is expected that the correlation between quality management and rivalry would be negative. This suggests the following hypothesis: H2: The higher the degree of quality management implementation, the less likely that firms are encountering rivalry problems arising from lagging behind in innovation, research and development. The two mediating variables of entry barriers and rivalry intensity are then expected to influence organisational performance. The higher level of entry barriers is predicted to have a positive association with organisational performance due to the fact that the higher the level of entry barriers, the more difficult for new entrants to enter the industry and therefore the more protection afforded to existing firms in the industry. Similarly, the more intense the rivalry in innovation, research and development; the more firms are likely to strive to maintain a competitive edge. Once again following Powell (1995, pp. 25-26), each of the mediating variables- entry barriers and rivalry intensity - is expected to be positively associated with organisational performance, thus suggesting the following hypotheses: H3: The higher the level of entry barriers, the more likely that firms are to experience higher organisational performance due to their relative protection against new competitors. H4: The higher the level of innovation, research and development, the more likely that firms are to experience higher organisational performance due to the pressure of maintaining a competitive edge. Furthermore, as indicated earlier many studies have shown a direct link between the level of quality management implementation and performance, the final hypothesis suggested is: H5: The higher the degree of quality management implementation, the more likely that firms are to experience higher organisational performance. These hypothesised relationships are reproduced in Figure I which contains the hypothesised path model predicting Organisational Performance from Quality Management Factors with the mediating variables of Entry Barriers and Rivalry.

Method For data collection, Powell’s (1995) 47-item survey instrument was used with the omission of 7 questions or items related to the flexible manufacturing component. Based on preliminary interviews with quality management consultants and business managers on the Sunshine Coast, few modifications were made in the Powell’s survey instrument but the forty items of quality management practices and the scales used for entry barrier, industry rivalry, and quality management performance remained unchanged. Some of the items for overall performance were changed. The items in the questionnaire were put in a random order to ensure internal validity of the respondents’ answers. Major modifications were made in the company demographics. Information was also sought for subjective measures of performance including managements' perceptions of Quality Management program performance in terms of overall performance, improvements to competitive position and whether the quality program had been a positive development for the organisation. These were measured using a 5 - point scale (1 = strongly disagree, 2 = tend to disagree, 3 = neither agree nor disagree, 4 = tend to agree, 5 = strongly agree). In the industry category, food, beverage, textile, wood and paper, printing / publishing, petroleum / chemical / rubber / plastic, metal product, machinery and equipment, retail, banking and insurance, hotel, tourism, hospital, law firm, repair shops and other category were included. However, because of the small sample size, these industry types were reclassified into three categories for analysis: manufacturing, service, and construction. In determining the type of quality management program used, the respondents were provided with the following options: TQM, ISO9000, TQM and ISO9000, and other. The categorical variables such as industry category, type of quality program used were measured using a nominal scale. The degree of implementation of quality variables was measured using a six-point scale (0 = do not intend to implement, 1 = have not begun implementation but intend to, 2 = have just begun implementation, 3 = have made some progress, 4 = have made substantial progress and 5 = highly advanced in implementation) as used by Powell (1995).

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The sample (approximately 1100) was selected from businesses in Queensland employing more than 16 people using the Dun & Bradstreet database. The survey was addressed to the chief executive officers (CEOs) of the company as they have a good knowledge of the firm’s plans / strategies including quality management practices. As a means of checking for information accuracy, validating the outcome of the analysis and getting a feel of quality management practices used in a business, face to face interviews were carried out with some of the senior managers or the CEOs of businesses on the Sunshine Coast. The first 100 questionnaires that were received without any follow-up were considered as early respondents and the remaining 40 as late respondents. To check for non-response-bias, early respondents were compared with the late respondents (using a 2-tailed t-test) in relation to demographic information, and measures of quality management, entry barriers, rivalry and organisational performance. No significant difference was noted in these attributes between the early and late respondents. Similarly, a Chi-square test was carried out to see whether there is a difference in the proportion of early and late respondents in terms of firm size (small, medium and large), industry category and the type of quality management program used (TQM, ISO9000, TQM and ISO9000 and other). The analysis revealed no significant difference in these attributes between the early and late respondents. These results do not suggest any evidence of non-response bias.

Results and Discussion Confirmatory Factor Analysis As discussed earlier, forty items from Powell’s original survey instrument were used to measure the degree to which Quality Management practices had been implemented in the organisation. To achieve parsimony the responses to these items were then factor analysed through principal components analysis using varimax rotation. The use of the scree test with a cut off point of 3 for eigen values, and recognising factor loadings greater than 45 percent resulted in the following four 9 principal components or major factors being extracted : 1. Top Management Philosophy- comprising a top executive decision to commit fully to a quality program, top executives actively championing quality programs, measurement of quality performance in all areas, executives actively communicating a quality commitment to employees, management training in quality principles, quality principles included in the mission statement, and employee training in quality principles 2. Measurement and Open Organisation – comprising the use of statistical methods to measure and monitor quality, an active competitive benchmarking program, use of charts and graphs to measure and monitor quality, employee training in statistical methods for measuring quality, use of empowered (responsible) teams, and an announced goal of zero defects 3. Process Improvement – comprising a program for continuous reduction in defects, a program to find wasted time and cost in all internal processes, a plan to reduce rework drastically, and less bureaucracy 4. Closeness to Customers – comprising involvement of customers in product or service design, increasing the firm’s direct personal contacts with customers, increased employee interactions with customers and suppliers, and actively seeking customer inputs to determine their requirements. Alpha reliability coefficients using Cronbach’s Alpha computed for the TQM factors revealed the following values –Top Management Philosophy (0.89); Measurement and Open Organisation (0.85); Process Improvement (0.72); and Closeness to Customers (0.77) . According to Robinson et al. (1991), an alpha value of 0.80 or higher is considered as exemplary; values between 0.70 and 0.79 are considered as extensive; values between 0.60 and 0.69 as moderate, and values less than 0.60 as minimal. Based on these categories, strong evidence of reliability is noted in the constructs of the four TQM factors. This is also consistent with the contentions of Hair et al. (1998).

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While the full principal component analysis revealed a total of nine factors, the additional five factors are not reported here as they either had significantly lower eigen values than the first four factors or had insufficient numbers of items loading on the relevant factor. Given that the purpose of this study was to identify the main path coefficients between quality management and performance (with entry barriers and rivalry as mediating variables) the remaining weaker five factors have been omitted from the analysis

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Hypothesis testing using Path Analysis –Structural Equation Modelling The path analysis technique known as structural equation modelling was performed to examine the influence of quality management practices, as mediated by entry barriers and rivalry, on organisational performance. The resulting path model (as shown in figure 1) was found to fit the data particularly well with χ2 (25, N= 140) = 35.65, p >.05 and a Chi square/df ratio of 1.43 which is acceptably well below the threshold of 2.0 as prescribed by Wheaton et al (1977). The goodness-of-fit summary for the full model also shows that all of the fit indices are acceptable with the normed fit index (NFI) equal to 0.85; the incremental fit index (IFI) equal to 0.95; the Tucker-Lewis Index (TLI) equal to 0.93; and the comparative fit index (CFI) equal to 0.95. These relative fit indices indicate that the model provided a relatively good fit compared to the null or baseline model. Furthermore, the root mean square error of approximation (RMSEA) of 0.055 is also well below the 0.1 upper bound for acceptable model fit as specified by Fogerty et al (2000). As illustrated in Figure 2, most of the estimated path coefficients exceed the minimum t cut off value of 1.96 (p