CBS E Journal

CBS E-Journal, Biz n Bytes, Issue 4,June., 2010

http://www.cgc.edu.in/ ISSN 0976 – 0458

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Biz Section



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1.Strategies for Hotel Industry to Gain Competitive Advantage - Dr. Aarti Mahendru 2.Developing The Knowledge Strategy For Service Sector Industries - Ms. Alaka Samantaray 3.Harmonization Of International Accounting Standards In Emerging And Global Economies - Dr. Asha Sharma 4.Pharmacoeconomics in Health Care Services - Abhishek Dadhich, S.D Gupta, Anil Sharma 5.Management Education: Trends and Perspectives - Dr. Kalyan Kumar Sahoo 6.Human Behaviour at Work: A Globalization Perspective - Dr. Pradip Kumar Mallik and Dr. Pradyumna Kumar Tripathy 7.doption of Internet Banking By Indian Consumer: An Extension of the Technology Acceptance Model - Mr. Manoranjan Dash 8.Measuring Operational Efficiency In Private Banks : A Comparative Study Of Deposit Mobilization - Dr P.S. Vohra 9.Troubled Waters of IPL: A Case Study on Cricket-ainment – Mr. P.P.Singh

10.A Study on the changes brought by the FDI in the auto component sector - Satyendra Kumar Sharma, Dr. Vinod Joshi and Raghav Gupta

11.Impact of Global Financial Crisis on Indian Banking System - Dr. Devendra Singh, Dr. Gaurav Aggarwal and Dr. Amit Kumar Srivastava

12.A Panel Data Analysis on Indian Banks’ Intellectual Capital Efficiency - V. Murale 13.Marketing evaluation of travel and tourism websites: Lessons from the small and medium enterprises in Andaman Islands - Dr. S.Victor Anandkumar



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Strategies for Hotel Industry to Gain Competitive Advantage

Dr. Aarti Mahendru Assistant Professor

Chandigarh Business School, Landran Abstract: This paper analyses recent developments in the hotel industry that aid in the gaining of competitive advantage and creating value to investors and customers. One of the methods used to promote their business undertaking is through e-business through the use of the internet. The hotel industry has gained advantage through the development of internet website and this helps boost its market size. The business environment today has experienced continuous change, this change has been characterized by more complexity in the transactions and relationships, and the increased complexity has been as a result of increase information access and the increasing access to information due to the growing technology and the internet. A business is usually empowered by information and the resources they usually seek out to meet their wants and needs. Due to the increased complexity there is a need to acquire competitive strategies and skills to gain competitive advantage over business rivals. In the past the only skills that were required in the hotel industry was excellent guest services but now all this has changed and more competitive strategies have emerged over time. Introduction: Competitive advantage is the advantage of a firm over its rivals. This advantage allows the firm to generate higher sales and also retain more customers than its rivals. It may include any advantage due to the cost, products, distribution network and customer support provided. When a firm posses competitive advantage it is in a position to generate great value for its stake holders and that the more sustainable the competitive advantage the more it becomes difficult for rivals to neutralize these advantages. There has also been an emergence of new and unique needs of the consumers in the hotel industry. The needs of the consumers over time have moved from the brand to the price and finally the value. Consumers now are interested to try out new things for the purpose of fulfilling their distinct preferences and tastes. This has led to competitive firms to adapt to the changing business dynamics to gain competitive advantage. Labour is one of the important resources in any business. Hiring of highly talented workers will ensure conducive environment in the workplace and therefore, there is need for firms to nurture and also to retain these talents as a way of gaining competitive advantage. There must also be a



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focus on deriving value through this talent management strategy. This strategy focuses on building a talented workforce and a self motivated and committed labour force. Change management is also a key to the success in the hotel business. The business must adapt to change in the market. This involves the introduction of new processes, enhancing team work and increasing productivity and the profitability of the business undertaking. The hotel business must, therefore, be flexible and positive towards change and not resist change because such resistance may result in obstructions in moving towards a successful future. Employment of skilled labour is also an important factor to consider. These skilled employees are to perform such actions as budgeting, financial analysis and forecasting. This helps the business to analyze the root cause and the possible solutions to any problem being faced by the business. Skills required include sales skills and marketing skills and ability to formulate competitive business strategies by implementing the best strategies that succeed in the business undertaking, Charisma is also an important skill required by the hotel and it is an effective strategy that is required in order to differentiate the hotel services and facilities because this emphasizes benefits and features of the hotel in a way that creates value for the customers. E-business: Hotel sales and catering sales industry need to start thinking outside the box when it comes to web sites and search engines through virtual presentation of services. In today's competitive sales environment, time is money. Distribution and presentation of your sales material quickly and professionally - while providing personal attention to the client - can make the difference between the sale and lost business. Application of Internet in business is a recent major trend adopted by many industries. As a result the internet has become a very powerful and convenient medium for business communication, marketing and new opportunities. Small firms in the hotel industry are now able to compete with other larger firms by simply having better presentation on the internet through their websites. The internet allows the firm to offer competitive prices, advertise its products and also services all over the world. This communication provided by the internet between the service and product provider and customer enhances businesses opportunities by making transaction much easier and cheaper where consumers can buy the products and services over the internet. Through the internet the hotels offer competitive prices to consumers and also offer promotions to consumers. Through the aid of the internet the consumer is able to compare prices and also the product and services offered and as a result the hotels gain competitive advantage. The hotel industry has also initiated flexibility whereby they are currently able to offer more brands and also negotiable price cuts schedules. Hotels now offer more rooms at different prices that are very competitive. The ability of a hotel to be in a position to offer online purchase and delivery of products and services has also provided them with competitive advantage. Further, many hotels also offer services such as advance car hiring, air ticket and travel packages which are very attractive and convenient to consumers.



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The main challenge to the e-business practiced by the hotels is that some customers are afraid of giving away their personal information such as credit card information which is a security concern. The other disadvantage of the internet booking process is the speed of delivery of goods and services and also the reliability of these services. Booking and other processes require some time to process and also may be unreliable to consumers and therefore this might turn to be inconvenient to the customer and the business. The internet has resulted in a reduction in information asymmetry and this means that currently consumers can collect information easily regarding hotel products and services. This reduces the customers’ cost of searching for information. It has also reduced the transaction costs involved in the process and therefore the competitive hotels are using the internet to promote their services which are at very competitive prices due to low transaction costs. The occurrence of disintermediation in the hotel industry has also aided in gaining competitive advantage. Disintermediation involves giving directly to the consumers the required products and services. This means that consumers are directly connected to the producer, and as a result there has been a reduction in costs through the elimination of intermediaries and because the price is the determining factor in decision making this promotes hotel services providers who provide competitive prices. People productivity: Labour is one of the important resource in any business, the hiring and the recruitment activity is a major factor in the success of any business. The hiring of highly talented workers will ensure conducive environment in the workplace and therefore there is need for the firms to nurture and also to retain these talents as a way of gaining competitive advantage. The pressure of retaining people in today’s competitive environment, and the adjustments that this necessitates will, over a period, significantly change both the management structure and working environment in hotels in India. Managers will need to pay more attention to employee motivation and team-building efforts and see that these “ideas” are more regularly - and more effectively - put into practice. Age old policies and super structures, will, we believe, have to pave way to newer and faster career progression. HR concepts once alien to the Indian hospitality, like HRIS, OD intervention and Career Pathing, must now be taken very seriously by Indian hotel companies. The solution lies in the industry taking some important steps, both in terms of building a productive and positive work culture, where employees are actively encouraged to perform to their best capabilities, as well as making the necessary changes in compensation practices. Hotel owners need to share as much information as possible with management. Managers and team leaders, on their part, need to spend time with their team members, to discuss objectives, provide feedback, ask team members about their difficulties as well as to talk about what’s happening in the hotel. International hotel companies such as the Ritz Carlton Company, Four Seasons Hotels and Resorts and Marriott – leaders in this industry in guest satisfaction and business profitability – are companies that have made a dedicated effort to encourage teamwork, employee



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empowerment, and a sense of responsibility towards the organization’s well-being. Moreover, the organization has to define and create a clear path of movement for its employees. Quality of working life with international cross-functional exposure should become a key focus. Competitive advantaged hotels have focused on deriving value through this talent management strategy. This strategy focuses on building a talented workforce and a self motivated and committed labour force. These businesses offer monetary and compensational package that have offered extrinsic motivation to yield a result focused workforce. Team work has also been encouraged and this has been achieved through offering support and also dealing with the workers in a persuasive manner and in a polite manner. Change management: Success is also dependent on the adaptation of business to change in customer's needs, investors and also the market. Therefore, in order to increase business opportunities the businesses must harness all the creative energies from all stakeholders who include investors, owners, staff and customers. This strategy involves keeping the employees engaged in earning, the introduction of new processes, enhancing team work and increasing productivity and the profitability of the business undertaking. Therefore, the hotel business must be flexible and positive toward change and not resist change because such resistance may result to distractions toward a successful future. Adaptation of new technology is also an important factor in the determination of success, all this adds up to the development knowledge and better understanding of stake holders wants and needs Eco-practices: In hotel business, initiatives that are environment sustainable are becoming widespread. Environment friendly initiatives help hotels to save money and resources without compromising on quality. Environmentally friendly initiatives range from saving water and energy to hiring of hotel executives that will actively participate in implementing green programs. Due to more concern about the threats to our environment, more people are embracing a 'Green' lifestyle. Businesses are now realizing that they also need to make changes in order to adopt a more environment friendly operation. One business area that is beginning to recognize the need to be more 'green' is the hotel industry. Many hotels are responding to consumer demands for a healthier and greener lifestyle by making their businesses more environmentally friendly. The hotels would have to invest in environmentally friendly practices and look at long-term gains. There are many ways that hotels can make their business eco-friendly include: Implement a towel and linens reuse program and recycle stained tablecloth into napkins and aprons. You can also make cloth laundry bags from old sheets. Adopt a nonsmoking policy for the entire hotel. Provide guestroom recycle baskets and bins for newspaper, white paper, glass products, aluminum cans, cardboard, and plastics. Provide recycling bins in public areas. Use fluorescent lights instead of incandescent bulbs. Install devices that power down heating and cooling systems when guests leave the room. Adopt the use of nontoxic cleaners by housekeepers. Adopt other cleaning practices such as cleaning the windows with vinegar instead of chemicals. Dispense



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shampoo and soap from large containers instead of disposable plastic bottles. Offer guests walking maps and information on public transportation. Provide bicycles to guests for sight seeing excursions. Use electric or battery operated lawnmowers. Use a mulcher to chop up the garden clippings to make your own mulch. Ban the use of pesticides and chemical fertilizer. Use only organic products on the lawn and garden. Use 'gray' water from the showers and sinks for ponds and landscaping. Compost food waste and use it as fertilizer. etc. Being green means 'Green' hotels are adopting environment friendly practices and programmes that will reduce energy, water, and waste. Hotels use a tremendous amount of energy and water as well as collect a huge amount of waste. By doing their part to conserve, recycle, and reduce, they are protecting the planet as well as providing a great place for eco-friendly guests to stay. Conclusion: The hotels with sustainable competitive advantage have the opportunity to capture value that will benefit the customers through meeting their wants and needs and also stake holders. The value captured is important as that value they create and if hotels cannot capture the value today in the activities they undertake then they will still have difficulties in generating that value in the future activities they undertake. Businesses are usually empowered by information and the resources they seek out to meet the wants and needs of stake holders. Due to the increased complexity there is a need to acquire competitive strategies and skills to gain competitive advantage over business rivals. In the past the only skill that were required in the hotel industry was excellent guest services but now all this has changed and more competitive strategies have emerged over time. References: Singh, A. (2010), Environment Friendly solutions for hospitality. HVS international, May 21. Hogan, J. (2010). Keys to success: Hospitality conversations. Feb 10, e-hotilier.com Hourah, J. (2010). Building Better Businesses with Strategic Employee Reviews. HVS international, May 18. Cheria, T.(2008).Hospitality Industry facing Manpower crunch. Business Line, Jan 22,Tuesday Roth, B. (2009). Hotel Industry Embraces Green Revolution. Entrepreneur, May 22.



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DEVELOPING THE KNOWLEDGE STRATEGY

FOR SERVICE SECTOR INDUSTRIES

Ms. Alaka Samantaray Lecturer

Institute Of Business and computer studies Siksha ‘O’ Anusandhan University

Kalinga Nagar,Ghatikia Bhubaneswar – 751003

Orissa [email protected]

ABSTRACT

Today we are all living in the Knowledge Era, this Knowledge Era or the technology era has emerged as a challenge for all the sectors including the Service Sector in Particular the Financial sector. The financial services sector relies on the intelligence, adaptability, innovation and drive of its people to achieve and maintain competitive advantage. In this new environment, the individuals that thrive in the knowledge era workplace are the ones that can make informed decisions based on available information, and can relatively quickly provide meaningful solutions for a public or private entity in the marketplace.

In most developed countries, some two-thirds of the GNP is made up of services.The emergence of the Knowledge Age heralds the rise of new corporate structures. In the 21st century, knowledge will be a company's most important asset and competitive advantage. This paper gives focus on an alternative route in strategy formulation for knowledge-intensive organizations. The purpose of this study is to suggest an alternative route in strategy formulation for knowledge-intensive service sector industries.

Key words: The Knowledge-Intensive Organisations, strategy formulation .



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INTRODUCTION

The "service" emerges as an ongoing process of problem solving between the customers and teams of experts. They therefore have to treat their customers as individuals. Because the knowledge organisation cannot force its customers to adapt to it, it must perforce adapt to them. Strategy-making is usually portrayed in dichotomous terms: rational vs. incremental, or formulation vs. implementation. It may, however, be more valid to think of organizations as entities capable of developing resources and skills in multiple strategy-making process modes. Strategy implementation and performance in organizations are influenced by its market orientation.. The relationship between market orientation, strategy implementation, and performance is robust across environmental contexts. One key to success for leadership in a knowledge-intensive organization is to be able to balance the management of both the professionals and the organization strategy of the knowledge company. The Knowledge Organisation belongs to a subgroup within the service sector. The service sector is not a discrete phenomenon but rather a spectrum of company types ranging from those organisations totally adapted to their customers -- the knowledge organisations -- to organisations that have refined and packaged their output. The latter have more in common with manufacturing companies. The "production" of the Knowledge organisations is solving problems that are hard to solve in a standardised manner. The staff (key people) tend to be very competent; highly educated and/or with long experience in a profession often involved with information processing. The business logic depends on how the managers of the Knowledge Organisations regard their assets, their key people and their customers, how they attract them and how they match their capacity for problem solving with the needs of the customers. The service sector is not a discrete phenomenon but rather a spectrum of company types, ranging from those organizations totally adapted to their customers to organizations that have refined and packaged their output In the companies on the far right, service has become industry; the key to profitability lies in efficient, industrialized preprogrammed production aimed at a mass market The success comes from standardization and the economy of scale resulting from it. In fact, too much initiative might disrupt the fine-tuned system and make it less effective. The knowledge is in the hands of the organization. Image, manuals, routines, experience, control. The standardized service factory has a high structural capital. The "service" emerges as an ongoing problem-solving process between the customer and the producer. There is no standardized service package. The customer often does not know what he or she is asking for. The service provider is an expert and the customer wants the problem solved by the expertise of the expert. The knowledge industry therefore has to treat its customers as individuals. Their close relationship is sometimes even revealed in their language.

Literature review

Filley and Aldag (1978), Galbraith and Schendel (1983), and Miller and Friesen (1986) have all developed empirical taxonomies of firms based upon the content of the organization's strategy. Fewer attempts have been made to classify empirically firms according to their strategic processes. Extensive empirical work has been conducted on the Miles and Snow (1978) typology (see Zahra and Pearce, 1990), however, most of this work has focused on testing specific hypotheses with respect to the typology rather than the empirical validation of the classification system. While Mintzberg, Raisinghani, and Theoret's (1976), Hickson et al.'s (1986) and



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Shrivastava and Grant's (1985) work is also significant, each adopted the strategic decision as the unit of analysis. Development of an empirical taxonomy using the organization as the unit of analysis has been more limited. For example, Miller and Friesen (1977, 1978, 1984) used Q-type factor analysis to identify ten 'archetypes' of strategy-making. Eighty-one case studies were coded and clustered into the 10 types using measures of environment, structure, and strategy process. This work clearly broke new ground methodologically and offered a fresh approach to organizational classification. However, the resulting taxonomy was quite coarse-grained since it did not identify specific strategy process types distinct from structure or environment (Hambrick, 1984). Shrivastava and Nachman (1989) used a similar approach in their empirical classification of 27 business cases. However, the constructs used in the classification system in this study were limited to those relating to executive leadership and design processes. Organizations have long sought how to achieve a competitive advantage in dynamic environments. Some suggest that advantages are achieved by placing a renewed emphasis on delivering superior products and services to customers. Others feel that organizations should take a more pragmatic approach by implementing 'best practices' (Miles and Snow, 1978; Bourgeois, 1980; Snow and Hrebiniak, 1980; McKee, Varadarajan, and Pride, 1989; Venkatraman and Prescott, 1990). Finally, some have suggested a more cerebral or cultural approach which requires organizations to engender a market orientation (Kohli and Jaworski, 1990; Narver and Slater, 1990; Jaworski and Kohli, 1993; Day, 1994, 1998).

The Knowledge-Intensive Organisations The knowledge-intensive organization is an organization where the majority of the employees are highly educated, where the "production" does not consist of goods or services but complex non-standardized problem-solving. The problem-solving process involves a lot of information processing (not necessarily computerized) and the end result is normally a report or process delivered orally or as hard copy. The customers are treated individually and often called clients or patients. The companies are in the knowledge industries like management consulting, computer software, technical research, advertising, law, medicine, architecture, and so on. The sector is sometimes called professional services or business services but they have counterparts in the public sector, such as many of the highly specialized governmental bodies or specialized hospitals or research organizations. They also exist within big organizations as departments for R&D or laboratories. The successful application of the factory strategy gives a high volume in money terms and is very tempting for an entrepreneur, who can get very rich. But the strategy also almost certainly leads to a loss in professional knowledge, a reduced value added per employee, smaller job content, and opens up for price competition in the end.

Some of the most challenging problems that are facing the managers of today are closely linked to the choice of strategy. And they are people problems: disenchanted employees and intensified competition for the best recruits, who are becoming ever more demanding and requiring "free" professions anywhere except on the manufacturing industry shop floor. The successful companies in the knowledge-intensive industries have had to tackle the problems of managing "difficult", highly skilled employees wanting to do their own thing as well as demanding customers wanting tailor-made solutions every day. In fact, it is an integral part of the lives of their managers. The knowledge-intensive organization is an organization where the majority of the employees are highly educated, where the "production" does not consist of goods or services but complex non-standardized problem-solving. The problem-solving process involves a lot of



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information processing (not necessarily computerized) and the end result is normally a report or process delivered orally or as hard copy. The customers are treated individually.

The companies are in the knowledge industries like management consulting, computer software, technical research, advertising, law, medicine, architecture, and so on. The sector is sometimes called professional services or business services but they have counterparts in the public sector, such as many of the highly specialized governmental bodies or specialized hospitals or research organizations. They also exist within big organizations as departments for R&D or laboratories.

STRATEGY OF THE KNOWLEDGE COMPANY

The knowledge company:

• Solves complex non-standard problems demanding creativity

• Has a small flat organization

• Has a high number of professional employees ...

• Grows organically and through alliances rather than by acquisition

• Forms private partnerships rather than goes public

• Treats its clients individually

• Builds company strength through skilled individuals

• Develops the organization through developing the know-how of the employees

• Has managers who are formal as well as informal leaders

Factors for making Knowledge company strategy

Following are the factors which make the strategy successful: (International Review of Strategic Management. D. E. Hussey ed. John Wiley & Sons Ltd)

1. Niche Orientation

It is much easier to manage a narrowly focused knowledge company than a conglomerate. This is because (a) a leader from another profession will not have the automatic following from the professionals in the other; (b) it is more or less impossible for the conglomerates to achieve better quality than the focused companies.

2. Organic Growth

Acquisition of a knowledge company nothing more than recruiting a large bulk of new people - unseen. This normally creates disenchantment among the Professionals in both camps and quality, motivation and consequently productivity are affected negatively.

3. Quality Control

All professionals want to produce high quality. Clients want it too. The key is the follow-up of quality through rigid systematic client reviews.



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4. Developing the Core Know-how

The know-how is the most important asset and is regarded as a balance sheet item to preserve' improve, develop, acquire and guard. The Professionals are given ample resources for research into the core areas.

5. Keeping the Key People-Preserving the Know-how

Various creative measures are found in order to keep the key people who possess the critical know-how. The actions vary between beer on Friday afternoon and strict employment agreements and owner/partnership.

6. Small is Beautiful

There seems to be no economy of scale in production; on the contrary, creative people like small organizations better than big ones. Efficiency measured as value added per employee is the same or even slightly better in small companies as compared to larger organizations .

7. Economy of Scope

There are some scale economies in PR and marketing. Big know-how Companies get more attention and larger accounts from big clients. Accounting firms also maintain that they need a certain volume in order to be able to keep specialist knowledge which their clients ask for, Such as international tax.

8. Strong Culture - Little Need for Formal Control

The successful know-how companies see culture as a management tool and carefully maintain and develop it. This is because the stronger the culture, the lighter the formal control. If bright and knowledgeable people are well aware of what is allowed, how they are expected to behave and what ethics the company stands for, very little traditional top down management is needed.

9. Leaders Come from the Profession

If the leader is a professional or ex-professional of the same industry as the company, he/she will find it easier to (a) get the professionals’ following, (b) truly understand the business. Very often this is impossible, so the leadership is divided between two or even more people. The traditional managing director, as we find him in the manufacturing company, takes on a different position in a knowledge-intensive organization.

10. An overall Knowledge Focus

It is not only the Competence of the professionals, which is worth harnessing, also the other two intangible assets, the External Structure and the Internal Structure. An understanding of the whole, the knowledge flows and how to leverage them off each other is the tenth success factor. The manager of a knowledge company isno different from his/her industrial colleague. The knowledge company manager also manages the assets and tries to optimize their profitability. Only - the assets are the people.



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A Knowledge-Based Theory for Strategy Formulation The word Strategy is usually associated with activities and decisions concerning the long-term interaction of an organisation with its environment. A knowledge-based strategy formulation should thus start with the primary intangible resource: the competence of people. People are seen as the only true agents in business; all tangible physical products and assets as well as the intangible relations are results of human action, and depend ultimately on people for their continued existence. People are seen to be constantly extending themselves into their world by both tangible means, such as craft, houses, gardens and cars and intangible corporate associations, ideas, and relationships. People can use their competence to create value in two directions: by transferring and converting knowledge externally or internally to the organisation they belong to. When the managers of a manufacturer direct the efforts of their employees internally, they create tangible goods and intangible structures, such as better processes and new designs for products. When they direct their attention outwards, they will in addition to delivery of goods and money also create intangible structures, such as customer relationships, brand awareness, reputation and new experiences for the customers. A Knowledge Organisation normally has rather few tangible assets. Some computers perhaps, but even the office space is often on lease. Tangible assets are owned by the company and usually the only assets that the accountants are allowed to bring into the Balance sheet. The real assets of a Knowledge Organisation are mostly intangible. The value of intangible assets can not be displayed in normal market transactions, like physical goods. That there is a value everyone agrees.

Three Families of Intangible Resources in knowledge company are:

• The External structure • Internal Structure. • The Individual Competence

The External structure can be seen as a family of intangible relationships with customers and suppliers, which form the basis for the reputation (image) of the firm. Some of these relationships can be converted into legal property such as trademarks and brand names. The value of such intangible resources is primarily influenced by how well the company solves its customers’ problems, which involves an element of uncertainty. Reputations and relationships can be good or bad, and can change over time. They are partly independent of individuals. When people direct their actions internally they create an Internal Structure. The family of Internal Structure can be seen to hold patents, concepts, models, templates, computer systems and other administrative more or less explicit processes. These are created by the employees and are generally owned by the organisation. However, the organisation can legally own only a small part of the Internal Structure. The informal power play, the internal networks, the culture or the spirit can also be regarded as belonging to the internal structure. It is useful to include also the



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competence of individuals in the Internal structure family, such as support staff, accounting, IT, HR and management in the Internal Structure family, since it is not possible to separate the internal structure from it’s creators. Internal structure is thus partly dependent, partly independent of individuals. Even if the most valuable individuals leave a company that depends heavily on them, such as a consultancy firm, at least part of both the internal and the external structures (the brand name)?will probably remain intact and can serve as a platform for a new start, (Sveiby & Lloyd, 1987). The Individual Competence family consists of the competence of the professional/technical staff, the experts, the R&D people, the factory workers, sales and marketing.

The Firm from a Knowledge-based Perspective

(Source: By:Karl-Erik Sveiby, Journal of Intellectual Capital : Internet version ) Managing the Strategic Dilemma The knowledge organisation often finds itself pulled in two directions. One direction is pointing towards the paradigm of the industrialised Service Company. The other direction is pointing towards the "Knowledge Company".



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The forces that pull towards the industrialized Service Company tend to come from the managers in charge of the organization. They wish to guard the survival of the organisation, reduce uncertainty and work efficiently. They therefore:

� Replace staff with computer systems.

� Standardise service into packages that can be handled by less experienced and less costly personnel.

� Look for growth in volume rather than competence.

� Look for larger profits.

The forces that pull in the other direction usually come from the professionals. They there fore:

� Prefer to work in small units.

� Want non standardized challenging problems.

� Want to work together with colleagues of high competence.

� Prefer close relationships with demanding customers.

� Wish support from sufficient financial resources for own R&D

Summary

The emergence of the Knowledge Age heralds the rise of new corporate structures. In the 21st century, knowledge will be a company's most important asset and competitive advantage. The Knowledge Organisation belongs to a subgroup within the service sector. The service sector is not a discrete phenomenon but rather a spectrum of company types ranging from those organisations totally adapted to their customers -- the knowledge organisations -- to organisations that have refined and packaged their output. Organizations have long sought how to achieve a competitive advantage in dynamic environments. Some suggest that advantages are achieved by placing a renewed emphasis on delivering superior products and services to customers. Others feel that organizations should take a more pragmatic approach by implementing 'best practices'. The knowledge-intensive organization is an organization where the majority of the employees are highly educated, where the "production" does not consist of goods or services but complex non-standardized problem-solving. The problem-solving process involves a lot of information processing (not necessarily computerized) and the end result is normally a report or process delivered orally or as hard copy. A knowledge-based strategy formulation should thus start with the primary intangible resource: the competence of people. People are seen as the only true agents in business; all tangible physical products and assets as well as the intangible relations are results of human action, and depend ultimately on people for their continued existence. A knowledge-based strategy formulation should thus start with the primary intangible resource: the competence of people. People are seen as the only true agents in business; all tangible physical products and assets as well as the intangible relations are results of human action, and depend ultimately on people for their continued existence. People are seen to be constantly extending themselves into their world by both tangible means, such as craft, houses, gardens and cars and intangible corporate associations, ideas, and relationships.



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References Allen, T. J. (eds.), 1997, Managing The Flow of Technology, Cambridge Mass: MIT Press.

Amit, R. and P. J. H. Schoemaker, 1993, ‘Strategic Assets and Organizational Rents’, Strategic Management Journal 14, 33–46.

Ancona, D.G. and D.F. Caldwell, 1990, ‘Beyond Boundary Spanning: Managing External Dependence in Product Development Teams’, Journal of High Technology Management Research 1, 119–135.

Arora, A. and A. Gambardella, 1994, ‘The Changing Technology of Technological Change: General and Abstract Knowledge and The Division of Innovative Labour’, Research Policy 23, 523–532.

Baba, Y. and K. Nobeoka, 1998, ‘Toward Knowledge-Based Product Development: The 3-D CAD Model of KnowledgeCreation’, Research Policy 26, 643–

Blackler F. (1995): Knowledge, Knowledge work and organisations: an overview and interpretation. Organisation Studies vol 16 (6) 1021-46

Buckman R. (2001): Presentation in Sekunda, South Africa

Fambare A. (1989): The Trust Gap, Fortune, December 4

Ford C. & Gioia D. (ed. 1995): Creative Action in Organizations ? Ivory Tower Visions and Real World Voices. Sage USA.

Garvin (1993): Building a Leaming Organisation, Harvard Business Review, July-August 1993

Glasersfeld E. von (1988): The Constructon of Knowledge, Contributions to Conceptual Semantics. Intersystems Publications, Salinas California.

Hall (1992): The strategic analysis of intangible resources. Strategic Management Journal, vol 13 pp135-144.

Hamel G. & Prahalad C.K (1990): The Core Competence of the Organisation. HBR May-June1990.

Normann, R. (1983) Service Management. Liber, Malmo

Sveiby, K. E. (1989) The Invisible Balance Sheet. Ledarskap, Stockholm.

Sveiby, K.E. (1990): Kunskapsledning, (Knowledge Management) Ledarskap Stockholm

Sveiby, K. E. and Lloyd, T. (1987) Managing Know-how. Bloomsbury, London.

Sveiby, K.E. (1994): Towards a Knowledge Persective on Organization.

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Harmonization of International Accounting Standards in emerging and global economies

Dr. Asha Sharma Assistant Professor

Aravali Institute of Management Jodhpur

Introduction

Accounting is the art of recording transactions in the best manner possible, so as to enable the reader to arrive at judgments/come to conclusions, and in this regard it is utmost necessary that there are set guidelines. These guidelines are generally called accounting policies. The intricacies of accounting policies permitted Companies to alter their accounting principles for their benefit. This made it impossible to make comparisons. In order to avoid the above and to have a harmonised accounting principle, Standards needed to be set by recognised accounting bodies. This paved the way for Accounting Standards to come into existence. Accounting Standards Accounting standards are regarded as a major component in the accounting framework and reporting practices. Accounting standards improve the creditability and reliability of financial statements. Accounting Standards are written policy documents issued by experts accounting body or by govt. or by any other body covering the aspects of recognition, measurement, presentation & disclosure of accounting transaction in financial statement. Aim of Accounting Standards at improving the quality of financial reporting by promoting comparability, consistency & transparency. Accounting Standards are the policy documents issued by the recognized expert accounting body relating to various aspects of measurement, treatments and disclosure of accounting transaction and events. Accounting Standards contain the principles governing accounting practices and determine the appropriate treatment of financial transactions. International Accounting Standards With the activities and interests of investors, lenders and companies becoming increasingly global, the Commission is increasing its involvement in a number of forums to develop a globally accepted, high quality financial reporting framework. Our efforts, at both a domestic and international level, consistently have been based on the view that the only way to achieve fair, liquid and efficient capital markets worldwide is by providing investors with information that is comparable, transparent and reliable. That is why we have pursued a dual objective of upholding the quality of financial reporting domestically, while encouraging convergence



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towards a high quality global financial reporting framework internationally. In this release, we are seeking comment on the necessary elements of such a framework, as well as on ways to achieve this objective. One aspect of this is seeking input to determine under what conditions we should accept financial statements of foreign private issuers that are prepared using the standards promulgated by the International Accounting Standards Committee. Accounting Standards is to standarize the diverse accounting policies and practices with a view to eliminate to the extent possible the non-comparability of financial statements and the reliability to the financial statements. International accounting standards are a necessary part of the rapidly globalization economy. However it is important to outline the steps necessary to establish these standards. This paper explores the issues surrounding harmonization of accounting standards between nations. The Requirement of Harmonization of Accounting Standards

Globalization and growth of multinational companies The requirement of global economy is that accounting policy should be standardized among nations. This "harmonization" of accounting standards will help the world economy in the following ways: by facilitating international transactions and minimizing exchange costs by providing increasingly "perfect" information; by standardizing information to world-wide economic policy-makers; by improving financial markets information; and by improving government accountability. International investment decisions and financial-based management decisions are then made with less risk. Growth of International Market A harmonization of accounting policy would provide an important role globally. Regulators and auditors will be receiving the same information, facilitating the evaluation process. In the absence of free trade, international accounting standards will allow nations' tariffs, quotas and other trade restraint mechanisms to be more accurate and less risky for those engaged in trade. Investors and managers will be able to make more valuable decisions. World resources will be better managed and allocated. It is possible, due to their necessity, to have international accounting standards (IAS) harmonization. The following outlines the issues surrounding the development of these standards. Beneficial for national and international market Harmonization must begin with a standardization of the reporting requirements by national securities regulators. Participants in the globalized financial markets are demanding international accounting standards. The International Organization of Securities Commissions (IOSCO), of which the U.S. Securities Exchange Commission is a member, is taking the lead in the development of accounting policy for securities regulator's reporting requirements. IOSCO has a "built-in desire to reduce the number of acceptable alternatives" corporations can choose from when reporting the results of operations and net worth.



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Business process outsourcing In lesser-developed countries standardization has been promoted through the establishment of regional accounting associations and accountant education programs. The International Monetary Fund has aided in this effort by assisting governments with their financial management procedures. The industrialized nations' foreign assistance programs include training local accountants and professional development. Control over politicalization Efforts should be continued through IOSC to establish international corporate reporting requirements. A fundamental first step is to gain international agreement as to the definition of financial statement items. The catalyst should come through political pressure placed on securities regulators by international industry. Once international standards are set, the politicalization of domestic policies will cease. In the short term, an approach to internationalism is to find standards acceptable to each local regulator. Next, the amount of variance allowed from a single standard should be reduced until additional standards placed on industry locally by regulators is removed. The curriculum of business school accounting programs, in addition to practicing accountants, must quickly adopt these international standards. Assist with international economic and exchange rate Government financial reporting standards also need to be harmonized to assist with international economic and exchange rate coordination efforts, such as those of the Group of Seven nations, the Asian and African Development Banks, the Organization for Economic Coordination and Development (OECD), and the International Monetary Fund. Harmonization would assist in realizing the "level playing field" that the above efforts are attempting to achieve. Additionally, accounting standardization would allow better policies to be formulated and for more accurate comparative analysis by domestic economic planners. The International Federation of Accountants (IFAC), whose membership is the same as the private sector IASC, is responsible for standards concerning accounting for educational and public sector entities, and audits and ethics issues. Uniformity in reporting to interested groups Adoption of IAS by accounting bodies in developing countries would reduce the expense of creating domestic accounting standards. Countries with relatively high inflation might be able to reduce "indexing" and other poor polices such as periodic, government-mandated revaluation of long-term assets with the adoption of international accounting standards.



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The factor which are barriers in harmonization of Accounting Standards

Political Interference The major issues surrounding international accounting policy harmonization is political interference. The creation of accounting standards is a political process. While it could be argued that in the U.S. the accounting profession sets a standard for self-regulation, in actuality, FASB standards are the result of complicated political processes and negotiation. Those with political power have a vested interest in domestic standards. It is not recognized in all nations and national industrial sectors that free trade is good for a nation's, and the world's economy. Accounting policy processes are different in each country, making it difficult to reach a consensus on standards. The difficulty in establishing international economic cooperation has been proved with the recent breakdown of the General Agreement on Tariffs and Trade. Just as international and textile agreements have caused negotiation deadlocks, the process of setting accounting standards might be more the result of political than economic variables. A nation balances legal sovereignty with international cooperation. The trend has been toward bilateral and trade-block agreements. Hatches in foreign trade When encouraging harmonization, the International Organization of Securities Commissions (IOSCO) and the International Accounting Standards Committee (IASC) must not make U.S. economic hegemony an issue. The difficulty in enforcing international law due to extra-territoriality requires that national governments promote and enforce accounting harmonization. Contracts between nations are more enforceable than those between citizens of different nations. Difficulty in adoption An argument against international accounting standard harmonization is that the costs of creation and adoption of IAS standards would not be worth the benefits. Capital markets have already adjusted to the existence of a global market (without standardization) and investors and issuers have been able to make investment decisions. The argument follows that full harmonization is probably not practical nor valuable. Other obstacles (a) Different tax laws in different countries (b) Regulating Authorities are different (c) Differences in economic, social and political environment (d) Diverse Accounting Practices (e) Nationalism, egoism and pride (f) Superiority complex by developed countries



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Value Addition of Harmonization of Accounting Standards in Global Economy

Accounting standardization will aid in the economic conversion of the Central European countries, East Germany, China and the Commonwealth of Independent States (CIS). International standards can be adopted to efficiently evaluate businesses to be sold by governments to the private sector. Infant stock markets and banking institutions need sound accounting systems. International Economic Development The role of developing nations in global economic development cannot be ignored. As sources of comparative advantage in labor and raw material, it is necessary to harmonize international accounting standards to measure the value of these assets in the world market. Government accounting needs to be standardized to assist in the efforts of inter-governmental economic development cooperation. Additionally, tax law standardization is necessary to minimize tax avoidance and to help create the "level playing field." Capital Market Internationalization Technology is increasingly providing the tools necessary to make accounting standardization a reality in the short-term. Telecommunication and computer technology is making instant financial information a possibility. International accounting standard harmonization is necessary to provide this accurate information

Conclusion

Accounting is the language of business. It has served as a means of communication to various stake holder. Accounting standards are regarded as a major component in the accounting framework and reporting practices. Accounting standards improve the creditability and reliability of financial statements. In view of the globalization of the economy and internationalization accounting standards has become an imperative necessity. For this purpose harmonisation of accounting standards is the most current issue throughout the world. Harmonisation does not mean the replacement of existing GAAP with GFS. Rather, the principle is “convergence to a high quality standard” with consideration being given to definition, recognition, measurement, presentation and disclosure requirements.



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Most of the developed and developing countries have their Accounting standards and international Accounting standards are used as a basis for developing their own standards aim at reducing diversity in accounting and reporting practices in different countries. Harmonization of Accounting Standards does not seem to be easily achieved as there are many obstacles in the way. Achievement of the objectives of harmonisation will take time, commitment and willingness for standards setters to work together to remove differences. The most positive achievement over the past few years is that the important of harmonisation of accounting standards is felt by all the countries and they have started taking the issue seriously. References

Tulsian P.C.: Accountancy Gupta S.C.: Advanced Accounts, S. Chand & company Ltd. Arpan J.S. Radebaugh L.H.: International Accounting and Multinational Enterprises, Warren Gorham and Lamount, 1981. Briston, R.J.: The Evolution of Accounting in Developing countries , International Journal of Accounting (1978). Holman, David, L: Convergence, Hurdles Remains Accounting World, Dec. 2004, pg-47



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Pharmacoeconomics in Health Care Services

Abhishek Dadhich*1, S.D Gupta1, Anil Sharma2 1Indian Institute of Health Management & Research (IIHMR), Jaipur, Rajasthan

2Gyan Vihar School of Pharmacy, Suresh Gyan Vihar University, Jaipur, Rajasthan *E-mail: [email protected]

ABSTRACT

The principal of pharmacoeconomics science serve as a major tool in health economics that aims to evaluate and optimize the health economy with new evaluation techniques. The economic evaluation of the health care system provides standard guidelines which can be helpful in providing “Quality of heath care system at optimum price”. This concept focuses on both pharmaceutical sectors as well as general health care services. INTRODUCTION Pharmacoeconomics is defined as ‘a branch of health economics which particularly focuses upon the costs and benefits of drug therapy’1. The application of pharmacoeconomic principles serve as a major tool that aims to decrease health expenditures and optimize healthcare results. The bases of clinical epidemiology, economics, statistics and psychometrics contributing ideas and methods for the analysis in health care system. The present practice of pharmacoeconomics focuses more on the pharmaceutical drugs in compare to general health care services. For promoting the science of pharmacoeconomics in health care system as well as in research sectors in India, the Society of Pharmacoeconomics and Outcomes Research India (SPOR-INDIA) was organized to provide an environment for knowledge sharing among researchers, healthcare practitioners and decision-makers interested in pharmacoeconomics and outcomes research. This serve as a bridge in bringing together Indian researchers, healthcare practitioners, and decision-makers interested in pharmacoeconomics and members of pharmaceutical industry, health-related organizations, and academia. It also acts as a resource at a local level for individuals including students interested in pharmacoeconomics and outcomes research 2. PHARMACOECONOMICS CONCEPT

The Science of pharmacoeconomics analyses provide a basis for resource allocation and utilization, and are increasingly becoming important for health policy decision-making. It is important that this concept be understood not only by policy-makers, health administrators and health managers, but also by primary care providers in health care system. In the present scenario of India the field of pharmaceutical industries and primary health care providers grown in large number with various new formulations of drugs and health care services which make difficult for the physician as well as medical professionals to judiciously decide which drugs to be use or not to be use. Before prescribing any new drug therapy by the doctors, two questions must be answered (i) whether the new drug is equally or more efficacious in the said disease as compared to the standard treatment; and (ii) does the new drug have any economic advantage over the existing drugs 1. Thus, to resolve these problems (SPOR-INDIA) conducting meetings and



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seminars at national and international level to provide the knowledge about the pharmacoeconomics concept among the health care providers.

The SPOR-INDIA involved in making regulatory framework regarding

pharmacoeconomic evaluation in Indian health care system. These pharmacoeconomic evaluations based on the availability of published data from randomized controlled trials concerning efficacy, and computing all the relevant costs for the alternatives (from their perspective) to obtain a cost–effectiveness ratio. When no substantial or relevant information is available, a pharmacoeconomic evaluation can be performed within a hospital or health system using the pharmacoeconomic and efficacy literature 5. METHODOLOGY OF ECONOMIC EVALUATION IN HEALTH CARE

In the context of health care the inputs the production process includes labour (clinical staff, auxiliary staff, professions allied to health, managerial staff, and so on), equipment, buildings, and consumables such as drugs. These factors are combined and organized to provide certain levels of care which will lead to an improvement in the health status of the population for whom the programme has been designed which could be a single patient, or a segment of population or the total national population. The basic idea behind economic evaluation of health programmes is relatively simple as it seeks to identify measure and value their costs and outcomes simultaneously. The ultimate objective of economic evaluation is to provide a menu of choice for decision making regarding allocation of resources between different programmes 3. EVALUATION TECHNIQUES For the evaluation cost advantages and disadvantages the balance sheet is drawing up between them. These can also be measure in term of inputs and outputs, respectively. The ‘costs’ are always assigned a monetary unit, while the unit of measurement of benefits (advantages) varies with the type of analysis, and also determines the type of analysis. The cost is described as cost per unit outcome. There are 4 main approaches/techniques for economic evaluation in health care services which are as follows:

1. Cost-minimization analysis 2. Cost–effectiveness analysis 3. Cost–utility analysis 4. Cost–benefit analysis

VARIOUS COST ANALYSIS In the cost analysis the various types of cost are identified. These are of various types like: Healthcare costs: Financial costs which fall on the health services (e.g. drug acquisition costs, days in hospital). Healthcare costs are usually subdivided as follows: Variable costs: Costs which vary immediately according to the number of patients treated (e.g. drug acquisition costs, costs of other consumables such as needles and syringes)



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Fixed costs: Costs which do not vary with the number of patients treated, at least in the short term, usually one year (e.g. capital costs of building or equipment; staff salaries). Other financial costs: Financial costs which fall outside the health services (e.g. prescription charges or other treatment expenses incurred by the patient; cost of patient’s or carer’s travel to and from hospital, costs of providing social services, loss of productivity) Intangible costs: Costs which are difficult to value financially (e.g. pain, anxiety and loss of energy; time given up by voluntary carers). Direct and Indirect cost: Direct cost is the obvious cost, i.e. the cost of the health service. It includes physicians’ fees, cost of administering the medication, costs of treating an adverse drug reaction, etc. Indirect cost is the one borne by the patient and family like transportation/traveling cost etc. COST-MINIMIZATION ANALYSIS (CMA) This involves measuring only costs, usually only to the health service, and is applicable only where the outcomes are identical and need not be considered separately. An example would be prescribing a generic preparation instead of the brand leader (lower cost but same health outcomes)11. COST-EFFECTIVENESS ANALYSIS (CEA) The term cost effectiveness is often used loosely to refer to the whole of economic evaluation, but should properly refer to a particular type of evaluation, in which the health benefit can be defined and measured in natural units (eg years of life saved, ulcers healed) and the costs are measured in money. It therefore compares therapies with qualitatively similar outcomes in a particular therapeutic area. For instance, in severe reflux oesophagitis, we could consider the costs per patient relieved of symptoms using a proton pump inhibitor compared to those using H2 blockers. CEA is the most commonly applied form of economic analysis in the literature, and especially in drug therapy. It does not allow comparisons to be made between two totally different areas of medicine with different outcomes 4,6,7,8. COST-UTILITY ANALYSIS (CUA) CUA is a type of evaluation in which drugs/interventions with different outcomes can be compared. In CUA, outcomes are measured in ‘utility units’, i.e. QOL measure is incorporated into the outcomes. Quality-adjusted life-years (QALY) is the commonly used outcome measure (QALY = QOL × number of years gained). Thus QALY tells us about both the quantity and quality of life gained. Cost–utility is expressed as cost/QALY gained. CUA is not disease-specific. By using CUA, the cost/QALY value of various procedures can be calculated and compared. For example, coronary artery bypass graft and the use of erythropoietin in renal failure are totally different procedures; if limited resources need to be allotted to them, this can be done using CUA. .



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Arranging the cost/QALY values of various interventions in ascending or descending order is called the QALY league table. It helps in comparing the utility of different items at a glance. These are especially useful for resource allocation by policy-makers. However, these tables can be potentially misleading. Homogeneity of the studies included in the league table is essential. Ideally, the studies should have similar data collection techniques, time-frame settings and utility measures, i.e. QALY instruments used, cost analysis and geographic settings (i.e. country to country variations). Users of these tables should always compare their settings with those of the source studies included in the table. Thus, if league tables are to be meaningfully used, their proper construction and correct interpretation is a must 9.

COST-BENEFIT ANALYSIS (CBA) In this type of analysis the benefit is measured as the associated economic benefit of an intervention (eg monetary value of returning a worker to employment earlier), and hence both costs and benefits are expressed in money. CBA may ignore many intangible but very important benefits not measurable in money terms, e.g. relief of anxiety. CBA may also seem to discriminate against those in whom a return to productive employment is unlikely, eg the elderly, or the unemployed. However the virtue of this analysis is that it may allow comparisons to be made between very different areas, and not just medical, e.g. cost benefits of expanding university education (benefits of improved education and hence productivity) compared to establishing a back pain service (enhancing productivity by returning patients to work). This approach is not widely used in health economics, although many economists like it on theoretical grounds and because it removes some of the “sacred cow” protection which surrounds health care. They argue that health should be another commodity, and not necessarily valued more than other possible uses of the resources 10. CONCLUSION The branch of Pharmacoeconomics is a new bud in health care sciences which is continuously expanding with new methodologies and applications. It is also an important and helpful concept in economics evaluation in drug therapy. In the era of rising medical costs, the health science focuses on ‘value for money’. The various health professionals, clinicians and pharmacist should actively participate in establishing standard guidelines for the proper implementation of Pharmacoeconomics in developing countries.



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REFERENCES

1. Walley T, Haycox A. Pharmacoeconomics: Basic concepts and terminology. Br J Clin Pharmacol 1997;43:343–8.

2. Thomas SV, Abraham PA, Alexander M. Utilization of services for epilepsy and its economic burden in India: A multicenter study. Epilepsia 1999;40 (Suppl 2):198.

3. Stewart A, Schmier JK, Luce BR. Economics and cost effectiveness in evaluating the value of cardiovascular therapies: A survey of standards and guidelines for cost-effectiveness analysis in health care. Am Heart J 1999;137:S53–S61.

4. Berger ML, Hillman AL, Luce BR. Economic analysis of health care technology. A report of principles. Ann Intern Med 1995;123:61–70.

5. www.ispor.org accessed on 20/02/2009 6. Weinstein MC, Siegel JE, Gold MR, Kamlet MS, Russell LB. Recommendations of the

Panel on Cost-effectiveness in Health and Medicine. JAMA 1996;276:1253–8. 7. Siegel JE, Weinstein MC, Russel LB, Gold MR. Recommendations for reporting cost

effectiveness analyses. Panel on Cost–effectiveness in Health and Medicine. JAMA 1996;276:1339–41.

8. http://www.iuphar.org/pdf/hum_67.pdf 9. Mason J, Drummond M, Torrance G. Some guidelines on the use of cost–effectiveness

league tables. BMJ 1993;306:570–2. 10. http://pharmacoeconomics.adisonline.com accessed on 14/02/09. 11. Robinson R. Costs and cost-minimization analysis. BMJ 1993;307:726–8.



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Management Education: Trends and Perspectives

Dr. Kalyan Kumar Sahoo Email:[email protected]

Faculty member, FMS, Siksha O Anusandhan University, Bhubaneshwar

Abstract

The academic scenario has over the years undergone a tremendous change assuming reincarnation of vast modern perception of global realities as its components. With the advent of communication revolution, mass media information superhighway and the whole setup aspiration associated with these phenomenon changes, the morality has undergone a reincarnation in management education. There has also been gradual transference from the traditional morality based concept of management education to the development based utilitarian theory of management education. Globalization in India was generally taken to mean ‘integrating’ the economy of the country with world economy. This in term implies opening up economy to foreign direct investment by providing facilities to foreign companies to invest different field of economy activities and allowing Indian companies enter in to foreign collaboration and encouraging them to set up joint venture abroad. The increasing demand and the quality consciousness of the stakeholders had changed the working style of various B-Schools in the recent past. There has been radical shift from the traditional university set up to a modern private B-School. The model incorporates a series of steps: Mission of the Institute, B-School Ranking, Accreditation, Curriculum and Contents, Faculty programmes and Teacher’s Training, Examination, Teaching Methods and etc.

Introduction

The academic scenario has over the years undergone a tremendous change assuming reincarnation of vast modern perception of global realities as its components. With the advent of communication revolution, mass media information superhighway and the whole setup aspiration associated with these phenomenon changes, the morality has undergone a reincarnation in management education. There has also been gradual transference from the traditional morality based concept of management education to the development based utilitarian theory of management education. Globalization in India was generally taken to mean ‘integrating’ the economy of the country with world economy. This in term implies opening up economy to foreign direct investment by providing facilities to foreign companies to invest different field of economy activities and allowing Indian companies enter in to foreign collaboration and encouraging them to set up joint venture abroad. The increasing demand and the quality consciousness of the stakeholders had changed the working style of various B-Schools in the recent past. There has been radical shift from the traditional university set up to a modern private B-School. The model incorporates a series of steps:



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Mission of the Institute: The prime objective of learning needs and objectives of the Institute or mission of the Institute can be:

• Change the thinking horizons of management trainees in to international standard. • Develop the interpersonal potential by better management of cross- cultural diversities. • Grooming of attitudes, skill, Knowledge and sound philosophy of life. • Developing the entrepreneurial and entrepreneurial abilities.

B-School Ranking: Various management institutes participate in the B-school ranking survey done by the various leading magazines and agencies to get their institutes enlisted in the ‘BEST B-Schools’ or to gain the top rankings. This is a recent trend that boosts the business institutes brand image, in making the students knowledgeable and help in their final decision in the college (both domestic and international) to be joined on comparing the various parameters. These surveys are done and published by various leading publications every year like the Business World, Business Today, Business Week (Asian Edition), The Financial Times, AIMA and etc. Branding of B-Schools: Various initiatives are taken by the Business Institutes to be brand as Best B-School. It involves in the networking with the industry people, research wings, collaborates with various agencies and institutes to share their knowledge and resources; it undertakes various “Memorandum of Understanding” with various colleges domestic and abroad ensures to take steps to meet quality specifications of various quality boards to meet global quality standards and accreditation. Ex-National University of Singapore (NUS) had undertaken several measures to brand their business schools that adopt the best of the curriculum of world renowned Wharton School of the University of Pennsylvania to the needs and wants of Singapore. Some of its branding initiatives like the student development centre specially designed executive education programme and adopting the new teaching styles have made NUS enter an exciting phase of change and expansion brought about by competition and globalization. Accreditation: Accreditation is considered as an essential factor for a student when he decides to join a college and influences the industries to judge the quality of the B-School, its curriculum, teaching techniques and the programmes offered. Ex- National University of Singapore’s B-School is the first in the ASIAN Region and among the first Asia Pacific to be accredited by AACSB for meeting the highest standards of education and research among Business Schools worldwide. In India we have government bodies like the National Board of Accreditation (NBA) constituted by all AICTE and NAAC that is established by UGC. Some of the Accreditations that are being sought by the B-Schools are: AASCB, AMBA, ACBSP, EQUIS, IACBE, EFMD, SAQS Curriculum and Contents : The curriculum consists of two important characteristics. Learning is contextual: According to David Thornburg, just as bell and whistle control the flow of work on the factory floor, bell and scope and sequence mandates controlled the flow of information at school. Students were taught and then assessed to see what they had retained. A management educated student was seen as the successful product of the B-school, to be graduated at the end of the educational assembly line.



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The curriculum of commerce and management education needs to be revised in the changed socio-cultural-economic scenario. Consideration for region, sectoral requirements and specialization are totally ignored in our curriculum. Much like their industrial counterparts, Teachers only worked on one aspect of a student’s learning at a time, dividing then up either by Subject or by age. Unlike the guild-based model of management education, in which, each apprentice must learn the limited skills necessary for a particular career, today’s knowledge-value teachers must learn a variety of skills in order to shift seamlessly from one career to another throughout Working years.” Our curriculum must relate to realities and focus on the context. Learning as a process not a place: “Learning is a continuous, lifelong process. Schooling models based on building, that are open only several hours a day, for a number of months / a year. This is a mismatch,” David Thornburg (2002). A teacher has to prepare his students for learning 24 hours, even when he is not nearly. Students could be taught to treat all of life as a process of learning. Students could be taught to keep his senses alive. Students could be taught to teach him. Then, we would be extending the classroom beyond the few hours. Making a career today no longer means progressing upward within an established hierarchy. Rather; it now involves progressing upward through a series of assignments that provide continual opportunities to learn. In many situations, this represents a return to a craft mentality where Progress is not measured by position, but by growing mastery. Comfort with ambiguity follows naturally from the changing nature of the work contract. The uncertainty with the rapidity of knowledge-base change virtually in all professions, and it’s no wonder that those who are uncomfortable with ambiguity tend to be highly stressed. A lifelong learner: Most of the students graduating from traditional colleges, today, are left to meet their future learning needs on their own. Two driving forces make lifelong learning as an essential character of successful people: the short self life of much existing information, and the exponential rate at which new information develops. The objective of any management

A B-School faculty has to

prepare his her students for

24hours learning even when the

student is not ready. Faculty

must extend the class room

beyond the 9 to 5.



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education should not be to produce students having MBA, PhD, M.Com, but emphasis should be to produce entrepreneurs to assist entrepreneurs and to solve the problem of entrepreneurs. In the light of expectations of industry and requirements, it is suggested: Use innovative ways of industrial linkage Inputs of business programme must be as: 1. HRD and entrepreneurship must be made compulsory. 2. Course on foreign language must be introduced. 3. In addition to analytical skills, course has to strengthen with problem solving skill, skills in planning and operations, presentation skill, stress management skills. 4. Focus must be given on integrative courses such as corporate strategy, strategic management and business environment.

The designing of curriculum should be done by the academicians on local, national and international basis and those who are taking the product of business schools like industries, agencies etc.

Education imparting process should be strengthened by providing the best competitive offers which helps in developing the differences in offer and competitor’s offer. Need of hour: For a more efficient and supple education system, the rapid changing business environment is the need of the hour. The national educational system as compared to the system abroad is totally reverse. It is more firm and planned, with management being taught with less scope for artistic quality and creative thoughts. Rather than spooning the students with same techniques they should be trained and prepared for new challenging environment and should be encouraged to bring out their originality with their thoughts and innovative methods. The leaders of tomorrow cannot depend on some old theoretical beliefs; rather they should spread their wings and cross every boundary. Tata Nano has been an illustration for many automobile companies who want to design their cars on the similar lines. Now the crucial point is, learning nothing at B-School will matter more than what you learn about the B-School. The outlook which one develop in those two years course at B-School will determine one’s thinking capacity, knowledge, networking ability, analytical skills and practical approach towards a problem which will make big divergence in his career. Dimensions of I-I-I: The relevance of institute-industry interface has been discussed umpteen times in numerous seminars, conferences, forums and workshops. This subject has caught the attention of innumerable writers too. The four dimensions of industry-interface are: knowledge development, faculty development, student development, and infrastructure development. Faculty programmes and Teacher’s Training: The management educators and training instructors can play a critical role in executing the task developing the right perspective and needed skills among the management students by redesigning business education programmes and modify the necessary. A continuous change based faculty development programme must design. In order to meet the demand of technologically skilled, communicative, lifelong learner teacher, we will be requiring a new way of teachers’ training. Regular and updated on-job training will only be method suitable in case of world of mass knowledge and technological



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advancement. Life skills, linkage knowledge, logical approach, system thinking, experimentation, abstraction and collaboration will be get importance in the future teacher’s training than subject knowledge and educational theories. Examination: Apart from semester and final examinations, to test the learning ability of the students, internal test, surprise test and open book examination needs to be planned and executed. Many management thinkers feel like doing away with examination system. I strongly feel, examination really makes student work hard systematically and understand the subject in a very structured way. Once the student understands the subject well and conceptualizes it, then it becomes easy to face the challenges in real life. However, the pattern of examination and types of question may differ from institution to institution. There need not be any direct question from the book rather all the questions need to be application-oriented to test the understanding and conceptualization of the subjects. Teaching Methods: Now it is widely accepted and proven that case method of teaching is very productive and hence many video case/movies have also come into place. Student at PG level can always study what is there in the book, so there is no need to emphasize on that. Rather, the teacher should bring fresh knowledge in the class, internet based questions, practical concept application exercises, group mentoring to find out whether student have really understood the topic or not are a few methods that can lead to effective learning. Teacher need to start a chapter with a case and some real life example and then proceed and end with another case to judge the understanding level of the students at the end of the chapter. Collaborative/participative learning must be encouraged in the class. Audio/ Video teaching aids need to be in place. Value added programs: Value added programs include sessions on soft skill development, how to face interview, group discussions and personality enhancement classes in order to give exposure and imbibe confidence among students. These classes help students enhance their competencies. Project Work: Four-six weeks of project in the area of specialization at final semester will help the students implement their classroom learning in the industry and get the facts of the industry requirements. Along with it some mini project should be assigned during this program. Business Simulation Lab: The realism of businesses, with simulation technologies and the web. In this case students, faculty and industry champions collaborate to impart practical business education to students thereby create a growing body of knowledge within the school.

B-School faculties need to start a

chapter with a case and some real life

example and then proceed and end

with another case to judge the

understanding level of the students at

the end of the chapter.



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Incubator/ED Cells: Management institutions should have incubator/Executive Development (ED cells so that students can take up some real-time project and come up with some innovation. This facility will help students to build an entrepreneurial mindset. By these process institution will able to produce good students with higher academic achievement and overall personality development Management teachers need to think on how to develop areas like self esteem, character among the students and come out with some strategies. Apart from these the institutions should maintain strong academic –industry interface and strong network among themselves. According to individual profiling of each student Teaching pedagogy will undergo continuous change. Consultancy Services: Faculties need to participate in providing consultancy services to the industry. This will help the faculties to be in touch with the industry and current business practices. Ultimately it helps to bring practical knowledge and business trends in the classroom. Student Development: As part of their development, students should have adequate exposure to management practices and process through frequent industry visits, summer projects and internship programmes besides their classroom learning of theories and principles. Companies could engage students in in-house exercises, funding of research or case studies involving students, encouraging students to visit their factories or offices so that they get first-hand information on the production/office process., sponsoring management fests and other events, seminars and the like organized by students. The burning issue is to introduce the corporate culture through various functions of management, like Marketing, HRM, Finance, Communication, Cultural club etc. Let the students must handle the real exposure of corporate interface.

Class Presentation: In order to encourage students improve their communication skills and make them participate in the class, presentation should be assigned to them. The topic of presentation may be academic as well as non academic, so as to make the students aware of the practical aspects of the business/corporate environment. It also helps in enhancing the knowledge base and develops their all-round personality. Quiz Session: Quiz sessions should be held at the discretion of the respective faculty members in order to enrich the students with subject and general knowledge. It provides a platform for students to compete with each other and in the process improve their existing knowledge. It includes different aspects like logo identification, brand identification as well as subject and general questions. Role Play: Role play helps students provide their prospective on a topic. This helps them become more confident and shed their stage fright. It also helps them improve their communication skills and develop better understanding of a topic. Management Games: This is another very effective method of teaching. Various management games on perception, leadership qualities, team work etc. will definitely benefit the students. It helps one to think out of the box.



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Mentoring and Counseling Session on a Regular Basis: Regular counseling and mentoring needs to be done for all students so as to make them more attentive, interactive and serious towards studies. Special attention should be given to weak and problematic students to ensure that they develop and improve before they go out of the college. It also helps to bridge the gap between faculty members and students. Extra/ special classes are to be conducted for weak students. Conclusion The coming world will be full of challenges and risks. The purpose of management educationist is to prepare students for facing these challenges and taking risks. The whole society has to come up in this great task of preparation of the future citizens. One has to come out from the traditional way of learning, and adapt themselves with the new technologies and techniques. The role of administrators will be to train the future management teachers for the coming years. We should also redesign our modern trends of management education system, so to adjust with the global effect of the new era. Managing Education could become a diagnostic tool for all problems of the globalize world. To end with the story about a great engineer and scientist Nikola Tesla, who developed the alternating current generator? One day, Test was called to a power generating plant where the generator was running at very-low speed. He saw that the flywheel was out of alignment, so he took a hammer and as the wheel rotated to the right position, tapped it slightly to spring it back into place. The generator quickly came to full speed, and the problem was solved. “How much do I owe you?” the plant manger asked. “Five dollars and fifty cents” Tesla replied. “Five fifty for hitting a wheel with a hammer!” “No sir,” said Test. “For hitting the wheel, the charge is fifty cents. The five dollars were for knowing where to hit it.”

We may not know what type of management institutes, students, economy, technology is there in the coming years, but we can be certain that they will all involve knowing where to hit the wheel.”



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References

1. M.Khaja Peer, 2001, The Teachers Education in 21st Century in India –Challenges Ahead,

Vol.39, No.8, University News, and Baroda, India. 2. David Thornburg, 2002, The New Basics: Education and The Future of Work in the

Telematic Age, Alexandra, Virginia, USA. 3. Santosh Gupta, University News, 41(20), May19-25, 2003, Modern Trends in Management

Education. 4. J.P.Joshi, M.S.University of Baroda, University News,41(20),May19-25,2003, Globalization:

A need for change in Educational Management System 5. Dr.Kalyan Kumar Sahoo, D.Mallick, Emerging Trends in Management education, MBA

Review, April, 2008, The ICFAI University Press. 6. www.b-school.com 7. The Hindu Business online 8. www.icfaipress.org 9. Reincarnation of learning by Dharni Sinha, Economic Times



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Human Behaviour at Work: A Globalization Perspective

Dr. Pradip Kumar Mallik Reader

Department of Business Administration Centre for Management Studies

Burdwan University Golapbag

Burdwan – 713104 Mobile: 09831958233

Email: [email protected]

&

Dr. Pradyumna Kumar Tripathy Senior Lecturer

Department of Business Administration Centre for Management Studies

Burdwan University Golapbag

Burdwan – 713104 Mobile: 09434177815

Email: [email protected]

Abstract An organization is an open system that transforms the inputs (materials, technology, capital, human resources, etc.) obtained from the environment into finished goods or services as outputs. Maximum advantages can be obtained from other resources only through sustained human effort. Human beings are the prime mover of an organization’s functions and operations. Human behaviour is an integral part of an organization, whether traditional or modern. Globalization has induced sweeping changes in the business environment, be it external or internal. Globalization is an irreversible phenomenon. The impact of globalization is so enormous that it pervades the social infrastructure, cultural milieu, legal framework and technological innovation to invite all round modification and transformation in business organizations. The present article makes an endeavour to delineate the impacts of globalization on business organizations. Furthermore, the article tries to analyse the effect of globalization on human behaviour in present day organizations vis-à-vis the traditional ones. Human Behaviour at Work: A Globalization Perspective Globalization is an ever-changing phenomenon. Its impact is so pervasive to spearhead radical changes in all spheres – individual, organization, society, environment, etc. No other force can deter the onslaught of globalization. It is a reality. It is irresistible. Indeed, its halo transcends across nations, catapulting metamorphic changes in knowledge, social norms, values, culture, etc. across the globe.



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Globalization has invoked a far reaching effect in business environment. In fact, its impulse has triggered a compelling change in traditional business organizations. Organizations are the key players in the business environment. Organizations interact with multitude of segments in different ways. Customers, employees, governments, intermediaries, competitors, investors, general public, etc. in various forms and capacities interact with organizations or are, being interacted to generate reciprocal utilities and benefits for both. Similarly organization to organization interdependence and interaction is a feature of business environment. The following figure illustrates the key participants in the business environment.

Figure 1: Key participants in business environment

Business environment, by its very nature, is dynamic. It is highly susceptible to change as

external and internal forces of environment vary in contents and contexts over time horizons. Internal forces such as organization’s workforce, management, trade unions, etc. create an inner drive with varying propensities to distort the equilibrium within it, whereas external forces such as economic situations, technology, legal and socio-cultural environment, etc. act upon the organization to enforce contingent change. So the cross-currents of internal and external couples render an organization highly turbulent. Globalization has added another stumble amid constant preoccupation of an organization to play down the vagaries of internal and external environmental threats. Globalization has been defined as a huge thrust, especially from the economic perspective that rattles the business landscape on such gigantic proportion that its vastness pervades the social infrastructure, cultural milieu, legal framework, and technological innovations to invite all round modifications and transformations in light of its trajectories. The present article embraces the upheavals of globalization and its impact on business organization. Furthermore, the article tries to delineate the effect of globalization on human behaviour that is supposed to be the prime mover of organizations’ functions and operations. Human behaviour is an integral part of an organization. An organization, whether traditional or modern cannot escape from the involvement of human behaviour. It is the basic driver of an organization at work.

Government

Organization

Suppliers

Customers

Competitors

Investors

Employees



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Human Behaviour in Traditional Organizations: An Overview Since the advent of industrial revolution, organizations came into existence and urged the need for human resources within it. Human resources, in fact, was the propelling force of the organization because starting from decision making, execution of decision, evaluation and controlling the work operations to reaching the end users with the organization’s products and / or services, human resource became an imperative. At the same time changes were on with the organizational functions, structures, systems, operations with the transaction of business environment characterized by accelerating demands of customers, soaring competition, entry of more organizations in the business arena, intervention of regulatory authorities, etc. Traditional organizations are typified by narrow span of control, rigid organization structure with thrust on hierarchy, centralized decision making, less empowerment, one-way communication, etc. Moreover, different units or divisions used to function independently having no cross- functional interface. This resulted in lack of cohesion and unity. Hierarchical organization structure was the framework of traditional business units to facilitate the flow of decision taken at the top management level to the bottom through mid-level tiers. This prevented the information sharing, joint participation and interactive environment within the organization and thus led rise to a mechanistic work climate very akin to water tight compartment. Figure-2 has made an attempt to depict the organizational climate that prevailed in traditional organizations.

In traditional organizations, employees were tailored to follow the dictums of the authority without getting an opportunity to show their ingenuity and skills. Carrot and Stick policy was the thumb rule of the organization to manage and control the workforce. Traditional organizations seldom lent any ground for workers’ participation. The organization’s core philosophy was profit centric and benefits for the share holders.

Figure 2: Traditional Organization: A Water tight C ompartment

Top Management

Work force

Command

Control

Decision

Accountability

Promise of

perform

ance

Effort



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Another feature of these type of organizations was that one department used to perform its task according to its own goal, paying no attention to the other departments’ goal, resulting in high degree of compartmentalization. These organizations indulged in a system-process-structure combination where interdependence and interrelationship were hardly conceived of. Traditional organizations were once on the right course of business transactions till a sweeping change took place across the globe. This pushed these organizations to confront business realities of the day that forced them to withdraw the compartmentalized approach and adopt a flexible organization structure breaking down the rigor of centralized decision making and lopsided authority and control. Globalization: A Challenge to Traditional Organizations The sweeping change of economic order coupled with deregulation of economy in many a nations put forward a mounting challenge to traditional organizations. Old organizations, preoccupied with stereotyped managerial functions encompassing decision making at the helm of organizational affairs and compelling subordinates to obey, suddenly confronted a situation that appeared to be quite in contradiction with their cherished corporate culture and mission. In fact, globalization was a shockwave to these organizations. Now the pertinent question is how the thunder of globalization impacted the so-called orthodox business firms on the eve of radical economic transformation. The impacts are listed below: a) Transformation of local market to global market paradigm: Organizations so far were

inclined to operate under local market conditions embracing domestic customer base, weak competition, limited innovation, adherence to legal norms of a nation etc. Here the local market implies domestic market or regional market or national market with no urge to cross the border for business expansion. Few organizations used to restrict the international business operation within the periphery of ‘export-import’. In contrast, global market means perceiving the entire global as a market place, influencing the local market players to transcend their business boundaries on the other side of the border; i.e., business across borders without any barrier.

b) The Competitive Threats - An aftermath of Globalization: Accelerating competition among national and global business firms is a byproduct of globalization. A journey from lenient competitive surroundings to a supra-competitive global environment has been an uphill task for the pre-globalized business firms and many such firms have nipped in the bud not withstanding new competitive scenario.

c) New Socio-cultural Environment: Post-globalization era witnesses a dramatic shift in socio-cultural milieu worldwide. As business firms find no geographical barriers, and are able to reach divergent customer groups irrespective of nationality by the grace of global advertising, web-based marketing on one side and establishing new subsidiary units aboard or collaborating with national firms on joint venture basis or some other strategic alliances like merger, acquisition etc. abroad. A business firm finds some commonality in socio-cultural perspectives among nations. Socio-cultural transitions in organizations are reflected in organizational values, norms, shared beliefs, relationships etc. Luthans (1989) studied characteristics like observed behavioural regularities, norms, dominant values, philosophy etc. to typify the organizational culture. But other social conditions and cultural contexts like taboos, customs, values, etc. are unique to a nation. Robbins and Sanghi (2006) opined that employees’ perception of organizational culture is the moot point of organization-employee compatibility where an employee’s liking or disliking of organizational culture is not so



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important. A company, at the same time, ought to look into developing an organizational culture that doesn’t hurt the personal and social value systems of employees contrastingly.

d) Workforce diversity: A firm in a global environmental set up faces challenges to contain with workforce diversity problems. By workforce diversity, we mean a company’s workforce belong to multicultural, multi social, multilingual, multiracial backgrounds and managing them under one roof needs some creative HRM skills and innovative HR practices. This is evident when a company goes for multinational or global business ventures and absorbs work force from a nation where it operates.

e) Organizational behaviour at crossroads: The organizational behaviour, under new globalized scenario, demands time bound changes in the face of innovative changes in technology, manpower etc. In fact globalization entails radical change in structure, process, technology, system and behavior that are strikingly different from traditional organizations. For example, new concepts and practices like virtual organizations, lean management process, nano-technology, organizational delayering, management information system etc. have made redefining of organizational behaviour. Dessler (2000) configured the concept of boundary-less organization that decompartmentalized the walls of functional units in the organization with the abolition of unitary work culture within a single unit and emergence of holistic organizational culture that incites dejobbing on a large extent.

Therefore the effect of globalization is all-pervasive. It has a moderating effect on traditional organizations to accept the inevitable changes of the business force and take steps to turn around keeping in tune with present business imperatives. Traditional to Modern Organizations: A Journey of Continuous Change Traditional organizations in the wake of economic liberalizations, a synonymous semantics of the term ‘globalization’ got the wake up call to rise to the occasion and started to rediscover their locus not in the orbit of national business landscape but in the backdrop of global business environment. This meant, a firm needs to think of its periphery of operations not circumscribing itself within the domestic boundary but aggrandizing its length and breadth of operations on global platforms. Definitely it was a reality shock to national firms who so far had a cake walk on business rails to garner huge quantum of profits staying unchallenged and competitively insulated. But that legacy fell apart as soon as the globalization wave stormed into their safe heavens and shook the very genesis of their business. Aswathappa (2007) tracked down the structural, organizational and cultural shifts from traditional to modern organizations where family based organization, laid back style of management, autocratic management style and orthodox business climate have given way to flexible, team based structure, dispersed ownership and transparent work culture. In fact, many firms could not resist such typhoons and perished prematurely. A handful of business firms, having depth of resourcefulness and courage to combat such typhoons have posed stiff competition to the multinational firms. The success of Videocon, BPL, Maruti-Suzuki, Tata Steel, Tata Motors, Mahindra and Mahindra, Godrej, Marico Industries etc. speak volume of their resilience and tacts amidst fearful competitive clout. Even changes in financial sector are paramount. Krishna (2005) recounted that deluge of capitals from abroad have flooded the Indian Stock markets and as investments in industrial sectors to revamp Indian economy significantly. Service sector too has been poised to take a quantum jump. As a matter of fact, service firms have risen to the occasion to explore Indian markets immaculately. Jauhari (2003-04) reported that Nirulas, the first food chain of India has been



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expanding its operations from a chain of hotels to family size restaurants, ice cream parlours etc. has resuscitated its organizational structure to manage its diversified units successfully. The journey of change was not easy, particularly retrograding within turbulent business scene. Changes in structures, systems, process and operations, culture, ethos, behaviour internally within the organization has been the basic premise to circumvent the uneven battle between national and global business players. In fact, epoch making changes have been the cry of the business houses. A shift from hierarchical to flat organization structure through delayering, vertical to virtual organization, joining hands with foreign firms through collaborative mechanisms, resort to Business Process Outsourcing (BPO), franchising, etc. are some of the notable structural turn around, quite in line with present business contexts. A system wide changes via various management support systems (e.g., Decision Support System), Automations, Supply Chain Management (SCM), Enterprise Resource Planning (ERP) etc. have made radical transformation of operations and management function of business firms. Invoking these within the so called traditional framework is like driving an earthmover with bullocks. Therefore, the crux of the issue is that an organization in the present context should mould and redesign itself in a way that can accommodate the changes successfully. Change in the basic philosophy of the organization is not the issue. The issues are transformation of organizational missions and visions. Say an organization’s core philosophy is societal benefits at a profit for long term sustenance. This may remain unchanged. But the perspective at present is different from the past. Now an organization has to broaden its operations across the globe in order to meet global competition and fulfill commitments to customer, distributors, suppliers, franchisees, investors, agents etc. within and outside the nation. Therefore, the mission of the new age organization is more broad and all-encompassing. The vision is a dynamic entity. The organization should have the foresight to feel the pulses of future business such as radical technological change, cultural transformations, legal amendments in near and distant future. Otherwise the prospect of the organization will be bleak. Another noticeable change that has shaken up the organization is behavioural dynamics. Behaviour of an organization is the combination of behaviour of individual and behaviour of groups. How employees behave in isolation and in group can be better understood how they receive information, process the information, analyze the information and act or behave on the processed information. By behaviour dynamics we mean how employees moderate their behaviour with time depending on the situation or circumstances they confront. Traditional organizations were run customarily by employers’ or top level managers’ instructions and compliance of employees in humility without getting much scope in venting their voices or opinions in operations. Employees were just treated as order servers. They didn’t assume any role in operational planning of policy formulation, not to say in strategic planning. Therefore, in true sense, behavioural dynamics was an utopia in traditional firms because of the rigidity and absence of freedom for grass root level employees to share their views and contribute their worth that are probable in a flexible business environment. Therefore, employees were always at the receiving end and employers took an upper hand to force employees to adapt in such water tight set up. Globalization has now turned the tables on this one sided approach. Its gigantic force has made inroads into orthodox organization to destabilize the long cherished and hackneyed culture and values which favoured only the employers. In fact, it has stirred the organization from top to bottom to forsake all the anti-employee decisions with profit maximization drive as the sole prerogative.



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Organizational behaviour has come to a turning point at present. The way employers behaved and employees complied has come to a point of turnaround. The forces of change being manifested in forms of technological upgradation, cultural transition, social networking, legal norms and standards etc. that cause a drastic change in organizational structure, process, system and behaviour. Structurally an organization moves from taller to flatter configuration, thus indulging in more delegation of authority and empowerment. Even an organization assumes virtual form by lessening its gravity of operations in its core unit and spreading its wings by empowering various other business firms to share the whole work operations. Indeed, BPO, multi-tasking, licensing, franchising, collaborating etc. are nothing but mechanism of uprooting the traditional hierarchical structure in totality and giving birth to boundary less organization that can’t be straight jacketed in structural regularities. Similarly system and process changes are reflected in earnest acceptance of modern techniques like TQM (Total Quality Mgt.), Six sigma approach (Stringent quality control), BPR (Business Process Reengineering), CRM (Customer Relationship Management) etc. Behavioural changes are the order of the present day organizations. Behaviour in organizations has taken a turn around because of intervention of machines in modern firms. Information and communication Technology (ICT) has heavily impacted human behaviour at work. ICT networks employees, not employees network among themselves. As computers increasingly pervade all spheres of business, it has far reaching implications for work flows in organizations, work arrangements, and organizational systems and processes (Schermerhorn, et al., 2006). In the internet age, it has become a practice for the employer to contract for work anywhere in the globe where talent exists by offering the lowest price. This has resulted in organizational transformation, as organizations are engaged in job-cutting exercises and streamlining in the search for operational efficiencies. They are becoming more virtual and technology-driven. Such transformations are the reality of the new-age organizations. Having said that, its true that truly progressive organizations are doing much more than simply downsizing their employees, becoming tech-savvy, and joining the global economic order. They are in fact redefining the way things get done, the work settings and the value delivered to customers and clients. They are in fact the high-performance organizations (HPOs). A high performance organization is designed and operates in a way that brings out the best in people and achieve sustainable high-performance results while creating high quality-of-work-life environments (Schermerhorn et al., 2006). HPOs use empowerment as an effective tool to let people, both at individual level and group level to use their talents and expertise to make decisions that affect their work. Ethical behaviour at the workplace and social-responsibility of business are closely related. They do affect human behaviour in organizations. Organizations should behave in moral and ethical ways as constituents of the society. In the wake of major scandals involving the likes of Enron, World Com, Satyam etc., there is renewed emphasis on corporate governance. Transparency in financial operations, business decisions, reporting by board of directors, hiring and firing of employees, assessing business strategies, environment protection, compensation of CEOs etc. have come under the purview of corporate governance. Now the essence of corporate governance transcends not only among the top level managers but also among the employees down the line. It has become a major cause of concern among various stakeholders of the firm. It is because of the realization of the fact that they can either sink or survive and prosper with the organizations as their destinies are intertwined.



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Epilogue In this globalized era, although premium is placed on high-end technology to surge ahead beating cut-throat competition, the fact remains that human resources are indispensable for an organization. Maximum advantages can be realized from other resources of organizations only through sustained human efforts. Under the new economic system, i.e., knowledge economy, the mind of an employee rather than his physical abilities become crucial for the organization. The collective expertise, experience, competencies, ingenuity and commitment of an organization’s workforce become the intellectual capital of the organization. Talent management has become the key to success of an organization. Human behaviour is a complex issue because of its different manifestations at different levels, i.e., at individual and group levels. Again it is different depending on whether behaviour takes place in a formal or an informal group setting. It is also true that an individual’s behaviour may not be in tune with that of the group behaviour unless and until there is pressure on him / her to conform to group norms. In modern organizations, we find different types of employees, i.e., in addition to permanent full-time employees we have contractual as well temporary, part-time employees. The orientations and engagement level of these employees are different and so also their sense of belonging and loyalty towards the organization. Outsourcing of jobs has become commonplace across the globe. This has resulted in domestic jobs being replaced with employees hired in countries where cost per employee is low as compared to the parent country from where jobs are being outsourced. As the business environment is changing at a very fast pace, so also the business plans, strategies, etc. This has also affected the system-structure-process set-up of the organization. Human behaviour at work has also been reshaped and remoulded keeping in tune with the changes in the environment. In fact, human behaviour has always been in a state of flux and continuous reengineering is probably the best way to describe it. References:

Aswathappa, K., Essentials of Business Environment. Himalaya Publishing House, Mumbai, Hyderabad (2007).

Dessler, G., Human Resource Managenent. PHI, New Delhi (2000).

Jauhari, V., Growth Opportunities in an Emerging Sector-The Case of Nirulas, Journal of Services Research, Vol3, No.2., 125-148, (2003-04).

Krishna, C.V., The Importance of External Commercial Borrowings & Indian Experience. Synergy, Vol.3, No.1, 16-31, (2005).

Luthans, F., Organizational Behavior, McGraw-Hill International Editions, New York, Toronto, (1989).

Robbins, P.S. and Sanghi, S., Organizational Behavior. Pearson, New Delhi (2006).

Schermerhorn, Jr., J.R., Hunt, J.G. and Osborn, R.N., Organizational Behavior. Wiley India, New Delhi (2006).

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Adoption of Internet Banking By Indian Consumer: An Extension of the Technology Acceptance Model

Mr. Manoranjan Dash Lecturer, Institute of Business & Computer Studies,

Faculty of Management Studies, Siksha O Anusandhan University, Kalinga Nagar, Ghatikia, Bhubaneswar

Mail: [email protected]

ABSTRACT: The emergence of Internet is largely thought to have brought a major change in the retail and financial sectors by enabling consumers to make purchases and carry out financial transactions over the Internet. The increasing volatility in the global environment, competition, co-operation, change as well as changing consumer preferences have forced the retail bank to adopt new strategies to attract and retain customers. The internet provides a channel or platform linking consumers and banks. Now the banks are using electronic delivery channels such as internet, telephone and mobile .The emergence of the internet has had a significant on the diffusion of internet banking. Technology has introduced new ways of delivering banking to the customer, such as ATMs and Internet Banking. Hence, banks have found themselves at the forefront of technology adoption for the past three decades. The objective of this research is to identify the factors affecting the adoption of Internet banking by customers in India in the context of the technology acceptance model (TAM).The findings of the study indicate that the security about Internet banking and its benefits have significant effects on the perceived usefulness (PU) and perceived ease of use (PEOU) of Internet banking acceptance. Overall, the results of this study are vital to both researchers and practitioners and it allowed us to understand TAMs validity in technology acceptance research. Keywords: Internet banking, technology acceptance model (TAM) 1.0 INTRODUCTION

Rapid innovation is changing the array of financial services and payment options available to customers. Technology diffusion is an indispensable process through which technological potential of innovative activities can be actually turned into productivity. Various characteristics of the economic environment in which diffusion takes place may affect the pace of diffusion, while the diffusion itself may also have feedbacks on the environment. Economists are most curious about the following: who are the early adopters of technological innovations, what factors determine the various diffusion rates across adopter groups and geographic regions, and what feedbacks, if any, the diffusion may have on the economic environment. Technology has introduced new ways of delivering banking to the customer, such as ATMs and Internet Banking. Hence, banks have found themselves at the forefront of technology adoption for the past three decades. Banks began to look at I-banking as a means to replace some of their traditional branch functions. I-banking products/services like ATM and electronic funds transfer were a source of differentiation for banks that utilized them. When an innovation emerges, diffusion unfolds which entails communicating or spreading of the news of the innovation to the group for which it is intended (Rogers, 1995). Adoption however is the commitment to and continued use of the



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innovation. The diffusion of innovations theory provide explanations for when and how a new idea, practice or newly introduced information and communication medium is adopted or rejected over time in a given society (Rogers, 1995). Diffusion of innovations theory postulate that diffusion of innovation occur as potential users become aware of the innovation, judge its relative value and make a decision based on their judgment, implement or reject the innovation, and seek confirmation of the adoption or rejection decision (Roger, 1995). These processes take place through a channel over a period of time among users within a social system. Diffusion of innovation recognizes individual as well as social factors that can influence the decision to adopt or reject a given innovation. Rogers concludes that diffusion of innovation could be affected by psychological and behavioral as well as external and environmental factors. He identifies factors like perceived characteristics of the innovation and the type of individual decision involved in the adoption process, size of the organization and socio economic status of the users of the innovation. Barras (1986) identified three main factors affecting the rate of realizing the potentials of a new technology. The first factor is opportunity, defined as the suitability of the activities carried out within the user sector for applications of the new technology. This of course affects the rate at which the technology is initially adopted within an industry, but more important in the longer term, it affects the rate at which process and product innovations can be generated once the technology has been introduced. The second factor Barras (1986) discussed is the usability of the technology. Usability is defined to cover both the availability and quality of software, which provides the direct embodiment of the service sector applications of the technology, and the user friendliness of the system’s basic operating procedures. The final factor identified affecting the realization of the potential of a technology is the adaptability of the organization installing the equipment: this includes workforce or managerial resistance to the introduction of new technology: the extent to which working procedures can be adjusted; and the rate at which the workforce can be trained in the necessary skills to use the technology. 2.0 THEORETICAL FOUNDATIONS

This study was based in the Technology Acceptance Model (TAM) which focused on variables that influence the intention to adopt Internet banking toward bank’s customers in India. The technology acceptance model (TAM), developed by Davis et al. (1989), is one of the most widely used and influential models in the field of information systems, technology and services. It has been fully validated to be powerful as a framework to predict user acceptance of new technology. TAM extended the theory of reasoned action (TRA) (Fishbein and Ajzen, 1980) by introducing two belief factors, perceived usefulness and perceived ease of use, which substitute for many of TRA’s attitude measure. These two factors are postulated to determine an individual's intention to use a technology-based system with intention to use playing the role of mediator of actual system use. Perceived ease of use is also posited to have a direct impact on perceived usefulness. TAM model was including perceived usefulness, perceived ease of use, and attitude toward using the Internet banking (Davis et al., 1989). Correspondently, the characteristic of perceived innovative attributes consisted of trailability, relative advantage, complexity, and compatibility (Rogers, 1995). The TAM tends to predict user adoption of new technologies in positive perspective. However, customers will reduce their usage or even refuse to use a technology if they subjectively expect that an injury or a loss likely occurs while using the technology. The degrees of risk that consumers perceive and their risk tolerance are attitudinal factors that affect their usage (Chan et al., 2004). Perceived risk has multi-dimensions, including financial, performance, physical, psychological, social and time risks (Jacoby and



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Kaplan, 1972; Havlena and DeSarbo, 1990; Murray and Schlacter, 1990; Stone and Gronhaug, 1993). The model consists of two attitudinal dimensions: Perceived Usefulness (PU) and Perceived Ease of Use (PEOU). PU is defined as “the degree to which a person believes that using a particular system would enhance his or her job performance” (Davis, 1989, p. 320). PEOU in turn is defined by user's subjective evaluations on how much cognitive work she or he must expend when using the system. Davis et al. also claim that PU is directly linked to intentions of use. Perceived usefulness refers to consumers’ perceptions that using the internet as banking medium enhances the outcome of their banking experience (Venkatesh, 2000; Moutinho & Smith, 2000). Suganthi and Suganthi (2001) carried out research in Malaysia when Internet banking in that country was only six months old. They found Perceived Usefulness is the former part of accessibility, which is part of features of web site. On the word of Davis, Bagozzi, and Warshaw (1992), perceived usefulness refer to consumers’ perceptions regarding the outcome of the experience. Perceived usefulness is defined as the individual’s perception that using the new technology will enhance or improve her/his performance (Davis, 1993). Perceived usefulness denoted to the prospective user’s subjective likelihood that the use of a certain application would increase his or her performance (Al-Gahtani, 2001). Similarly, Mathwick, Rigdon, and Malhotra (2001), defined perceived usefulness as the extent to which a person deems that a particular system will boost his or her job recital. In the same way, perceived usefulness is defined as consumers’ perceptions of functional and utilitarian dimensions (Menon & Kahn, 2002; Childers, Carr, Peck, & Carson, 2001). Bhattacherjee (2002), in his empirical study, found that one’s willingness to transact with an electronic firm is considered as perceived usefulness. He also added that the perceived usefulness might not be derived only from prior familiarity with the firm, but also from calculative, institutional and identification about the firm. TAM (Davis, 1989; Davis et al., 1989) posits perceived ease of use as the extent to which a person believes that using a particular system will be free of effort. Daniel (1999) pointed out the perceived ease of use as one’s experience how conveniently uses a technology. Venkatesh (2000) stated that with increasing direct experience with the target system, individuals adjust their system-specific ease of use to reflect their interaction with the system. He added that in the case of electronic banking, savings of time, money, and convenience have been quoted as perceived ease of use. The degree to which an innovation is ease to understand or TAM suggests that attitude is based on the salient beliefs that a person has about the consequences of a given behavior and his or her evaluation of those consequences. Davis (1993) put forward that consumers’ attitude toward electronic banking first associated with the direct possessions of relevant electronic banking features. Electronic banking features can be consumers’ attitudes of functional and utilitarian dimensions, like ease of use and usefulness (Menon & Kahn, 2002; Childers et al., 2001; Mathwick et al., 2001). More specifically, (Polatoglu & Ekin, 2001) suggested that customer attitude is composed of one’s attribute beliefs about the object and perceived importance (weight) of having that attribute in making the decision to adopt. In the electronic banking context, consumers attitude is assorted in terms of perceptions regarding product information, form of payment, delivery terms, service offered, risk involved, privacy, security, personalization, visual appeal, navigation, entertainment and enjoyment (Burke, 2002). As whispered by Consult (2002), the attitudes of growth in electronic banking were the combination of convenience provided to those with easy internet access, the availability of secure, high standard electronic banking functionality, cost savings and the necessity of banking services. According to Howcroft, Hamilton, and Hewer (2002), attitude of users and non-users towards electronic banking is the reflection of a number of factors such as technology, security,



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convenience, prior computer/new technology experience, prior personal banking experience and possession of a credit/debit card and a WAP/CDMA. On the contrary, an attitude has been defined as a psychological tendency that is expressed by Liao and Cheung (2002). However, factors affecting the adaptation of a new information technology are likely to vary with the technology, target users, and context (Moon & Kim, 2001). As whispered by Sohail and Shanmugham (2003), customer adaptation describes beliefs about having necessary resources and opportunities for an individual’s intention to perform. These are facilitating conditions, which refer to the availability of resources, i.e. the technological resources and infrastructure needed to engage in the adaptation (Triandis, 1979). Lee and Allaway (2002) suggested that the adaptation of electronic banking depends on the service firm’s resource management by lowering delivery costs and by releasing service personnel to provide better and more varied service. The current trend reflects a decrease in the number of branch transactions and an increase in the number of electronic transactions (Mukherjee & Nath, 2003). Some banks are segmenting their markets by developing lower cost delivery systems in order to increase customer adaptation. Cost savings have been the compelling reason for outsourcing by many banks (Bradley & Stewart, 2003). Adaptation of thus, according to TAM, a user’s acceptance of an information system is dependent on two factors: perceived usefulness and perceived ease of use. Together, these factors determine the attitude toward using the technology. This in turn affects the behavioral intentions of use, which then leads to actual use. Security and reliability of transactions over the internet is a burning issue and it is an important factor that customers consider before adopting Internet banking. Some customers avoid internet banking as they perceive it as being easily susceptible to fraud. This perception can damage consumers’ confidence of the online system as a whole.

3.0 PURPOSE OF THE STUDY:

The purpose of the study is simply to present and test a model that identifies the relationship between perceived usefulness, perceived ease of use, perceived security, customer attitude, and customer adaptation of internet banking within the context of public and private sectors banks in India. 4.0 RESEARCH METHODOLOGY

We conducted a survey study for hypothesis testing using the framework of the original

TAM as the foundation to determine the predictors of customers’ intention to use internet banking in India. To collect data, we designed a questionnaire by adapting the instrument and scales developed for TAM. We augmented TAM by adding the construct Perceived Web Security developed by Salisbury et al. (2001) and adapting their instrument and scale to measure this construct in our questionnaire. We collected data from bank customers in India who use internet banking and collected 295 usable responses The questionnaire developed for TAM by Davis (1989) – adapting the scales for Perceived Usefulness and Perceived Ease of Use and the questionnaire developed by Salisbury et al. (2001) – adapting the scale for Perceived Web Security. We tested the structural model by means of Confirmatory Factor Analysis (CFA). An exploratory factor analysis using SPSS was conducted on the survey data. A seven-point likert scale ranging from (1) ’strongly disagree’ to (7)’strongly agree’ were used to assess responses.



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H1: Perceived Web Security will positively influence the perceived ease of use of Internet banking. H2: Customer’s perceived ease of use has a significant impact on his/her perceived usefulness of Internet banking. H3: Customer’s perceived usefulness has a positive impact on his/her attitude towards using Internet banking. H4: Customer’s perceived ease of use has a positive impact on his/her attitude towards using Internet banking. H5: Customer’s attitude towards using Internet banking has a significant impact on his/her intention to use it.

( Modified Conceptual Framework of Technology Acceptance Model (TAM ) and Web Security )

Structural equation modeling (SEM) was used to test the model and analyse the factors that affect customers attitude towards Internet banking acceptance. Moreover, this approach was chosen because of its ability to test causal relationships between constructs with multiple measurement items (Jöreskog and Sörbom,1993). All reliability measures were well above the recommended level of 0.70 as an indicator for adequate internal consistency (Hair et al, 1995; Nunnally, 1978). Measurement model analysis Both, the R² and the path coefficients indicate how well the model is performing. R² shows the predictive power of the model, and the values should be interpreted in the same way as R² in a regression analysis. Results for the Research Path Tests Research Path R2 Path coefficient (β) P-Value SE PEOU 0.316 0.590 0.000*** PEOU PU 0.598 0.789 0.000*** PU ATT 0.694 0.797 0.000*** PEOU ATT 0.589 0.782 0.000*** ATT AI 0.669 0.896 0.000*** *** p< 0.0001

Perceived Usefulness

Perceived Ease of Use

Attitude Towards Use

Behavioral Intention to Use

Internet Banking Usage

Security

H1

H2

H3

H4

H5



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(Results of Structural Equation Model) Good of Fitness for the Hypothetical Model & Hypothesis Test Result Analysis

Chi-Square 391.09 Tucker-Lewis Index 0.918 CFI (Comparative fit Index) 0.977 RMSEA 0.069 (< .08) NFI (Named Fit Index) 0.973 RMS Error 0.39 GFI 0.85 Degrees of Freedom 147 It was found that awareness of Internet banking services and its benefits explains 63% of the variance in perceived usefulness (PU). The paths had positive effect, with path coefficient of 0.797. Meaning, hypotheses 3 was supported. Perceived Web Security have significant effects on Perceived Ease of Use (PEOU) and together explain 67% of the variance .These two factors had positive path coefficients that hypotheses 4 and 5 were also supported. Perceived ease of use (PEOU) and perceived usefulness (PU) influenced customer attitudes towards using Internet banking, supporting hypotheses 3 and 4. Theses factors had positive path coefficients Attitudes towards (ATT) use explain 73% of the variance in adoption intention (AI) with path coefficients of 0.896. As a result, hypothesis 5 was also supported. 5.0 MANAGERIAL IMPLICATIONS:

Over 80% of customers expressed concerns on Web security and real benefits when considering internet banking, which are the highest among other factors such as difficulty in use and no internet access. Our research based on TAM suggests that perceived usefulness has the greatest influence on customer intention to adopt internet banking. Perceived ease of use, however, does not have a direct impact on intention to use, although it affects the perceived usefulness of customers, which in turn leads to acceptance of internet banking. Perceived usefulness is more influential than perceived ease of use in explaining technology acceptance of internet banking. On the marketing side, bankers should emphasize the full functionality of their systems to cater for the different banking needs of the users efficiently. We suggest bankers

Security (SE)

Perceived Ease of

Use (PEOU)

Perceived Usefulness

(PU)

Attitude towards

Use (ATT)

Adoption Intention

(AI)

Internet Banking Usage

0.590

0.789

0.782

0.797 0.896



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improve the security features of their systems and stress their system security and the precaution functions they have implemented. With these functions, they could reassure their customers that internet banking is a safe mode to perform transactions. Banks should also consider how to shift the perceptions of their customers by emphasizing the positive safety features in any marketing campaign. They should pass an effective message to customers that the Web security facility now available will eliminate any third-party intrusions into their internet banking account in order to turn around the negative perceptions of their customers, thereby enabling customers to feel secure and comfortable in using internet banking services. In this regard, proper training of customers on the safe use of internet banking could help improve security and enhance their overall confidence in long-term. 6.0 CONCLUSIONS: The results support the view that Perceived Ease of Use and Perceived Web Security are predicting variables, affecting Perceived Usefulness and Attitude as intervening variables, and Intention to Use internet banking as the dependent variable. Perceived Usefulness and Perceived Web Security has a direct effect on Intention, while Perceived Ease of Use has only an indirect impact. The results of hypotheses testing provide satisfactory support for the extended TAM through the SEM analysis. References: 1. Byrne, B.M., 2001. Structural Equation Modeling with AMOS, Basic Concepts, Applications,

and Programming, Multivariate Applications Series. Lawrence Erlbaum Associates, Hillsdale, New Jersey.

2. Chan, S.C. and Lu, M. T., 2004. Understanding internet banking adoption and use behavior: a Hong Kong perspective. Journal of Global Information Management, 12, 21-43.

3. Chau, P. Y. K., 1997. Reexamining a model for evaluating information center success using a structural equation modeling approach. Decision Sciences, 28, 309-335.

4. Chin, W.W. and Todd, P.A., 1995. On the use, usefulness, and ease of use of structural equation modeling in MIS research: a note of caution. MIS Quarterly, 19, 237-246.

5. Cohen, J., 1988. Statistical Power Analysis for the Behavioral Sciences, 2nd Edition, Lawrence Erlbaum Associates, Hillsdale, New Jersey.

6. Cornwell, T.B., Roy, D.P. and Steinard II, E.A., 2001. Exploring managers’ perceptions of the impact of sponsorship on brand equity. Journal of Advertising, 30, 41-51.

7. Davis F.D., Bagozzi R.P. and Warshaw P.R., 1989. User acceptance of computer technology a comparison of two theoretical models. Management Science, 35, 982-1003.

8. Davis, F. D., 1989. Perceived usefulness, perceived ease of use, and user acceptance of information technology. MIS Quarterly, 13, 319-336. 23

9. Fishbein, M.A. and Ajzen, I., 1975. Belief, Intention and Behavior: An introduction to Theory and Research. Addison-Wesley, Reading, Massachusetts.

10. Gefen, D., Karahanna, E. and Straub, D. W., 2003. Trust and TAM in online shopping: an integrated model. MIS Quarterly, 27, 51-90.

11. Hair, J., R. Anderson, Tatham, R. and Black, W., 1998. Multivariate Data Analysis. Prentice Hall, New Jersey.

12. Hendrickson, A.R., Massey, P.D. and Cronan, T.P., 1993. On the test-retest reliability of perceived usefulness and perceived ease of use scales. MIS Quarterly, 17, 227-230.

13. Jarvenpaa, S.L. and Todd, P.A., 1997. Consumer reactions to electronic shopping on the World Wide Web. International Journal of Electronic Commerce, 1, 59-88.



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Appendix-1

Table-1 Age of Respondents

Frequenc

y Percent Valid

Percent Cumulative

Percent 24-35 134 45.4 45.4 45.4 36-45 91 30.8 30.8 76.3 46-55 51 17.3 17.3 93.6 56-65 19 6.4 6.4 100.0

Valid

Total 295 100.0 100.0

Table-2 Gender of Respondents

Frequenc

y Percent Valid

Percent Cumulative

Percent Male 253 85.8 85.8 85.8 Female

42 14.2 14.2 100.0

Valid

Total 295 100.0 100.0

Table-3 Occupation of Respondents

Frequenc

y Percent Valid

Percent Cumulative

Percent Valid Bank Executives 40 13.6 13.6 13.6 IT Professionals 67 22.7 22.7 36.3 Medical 35 11.9 11.9 48.1 Senior

Management 22 7.5 7.5 55.6

Legal 30 10.2 10.2 65.8 Unemployed 23 7.8 7.8 73.6 General

Administration 26 8.8 8.8 82.4

Businessman 7 2.4 2.4 84.7 Customer services 31 10.5 10.5 95.3 Academicians 14 4.7 4.7 100.0 Total 295 100.0 100.0



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Table-4 Use of Internet

Frequenc

y Percent Valid

Percent Cumulative

Percent Valid Occasional

ly 29 9.8 9.8 9.8

Fortnightly 25 8.5 8.5 18.3 Weekly 39 13.2 13.2 31.5 Daily 202 68.5 68.5 100.0 Total 295 100.0 100.0

Table-5 Use of Internet Banking

Frequenc

y Percent Valid

Percent Cumulative

Percent Valid Occasional

ly 26 8.8 8.8 8.8

Fortnightly 38 12.9 12.9 21.7 Weekly 105 35.6 35.6 57.3 Daily 126 42.7 42.7 100.0 Total 295 100.0 100.0

Table-6 Use of Internet Banking Services

Frequenc

y Percent Valid

Percent Cumulative

Percent Valid Balance Enquiry 99 33.6 33.6 33.6 Statement 56 19.0 19.0 52.5 Bill Payment 34 11.5 11.5 64.1 Funds Transfer 48 16.3 16.3 80.3 Cheque Book

requests 6 2.0 2.0 82.4

Other 52 17.6 17.6 100.0 Total 295 100.0 100.0



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Table-7 Reason of Using Internet Banking

Frequenc

y Percent Valid

Percent Cumulative

Percent Valid Convenience 80 27.1 27.1 27.1 24/7 60 20.3 20.3 47.5 Inexpensive 53 18.0 18.0 65.4 From

anywhere 46 15.6 15.6 81.0

Saves Time 23 7.8 7.8 88.8 Other 33 11.2 11.2 100.0 Total 295 100.0 100.0

Table-8 Reason for not using Internet Banking

Frequenc

y Percent Valid

Percent Cumulative

Percent Awareness

47 15.9 46.1 46.1

Need Internet

21 7.1 20.6 66.7

Computer Skill

24 8.1 23.5 90.2

Other 10 3.4 9.8 100.0

Valid

Total 102 34.6 100.0 Missing System 193 65.4 Total 295 100.0



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Table-9

Constructs Items Loading Composite Reliability

Cronbach’s alpha

Average Variance extracted

PS1 0.956 PS2 0.934 PS3 0.912

Perceived Security(PS)

PS4 0.671

0.867

0.756

0.665

PU1 0.809 PU2 0.903 PU3 0.879

Perceived usefulness(PU)

PU4 0.912

0.875 0.713 0.698

PEOU1 0.893 PEOU2 0.817 PEOU3 0.891

Perceived Ease of use(PEOU)

PEOU4 0.912

0.804 0.731 0.721

ATT1 0.867 ATT2 0.642 ATT3 0.781

Attitude towards

Use(ATT) ATT4 0.831

0.854 0.784 0.631

INT1 0.956 INT2 0.912

Intention to use

(INT) INT3 0.867 0.892 0.815 0.793

Table-10 Model Summary

Model R R Square Adjusted R Square

Std. Error of the

Estimate 1 2

.686(a) .727 (b)

.316

.467 .387 .506

.32978

.31456 a. Predictors: (Constant), PS

b. Predictors: (Constant), PS, PEOU



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MEASURING OPERATIONAL EFFICIENCY IN PRIVATE BANKS - A COMPARATIVE STUDY OF DEPOSIT MOBILIZATION

Dr P.S. Vohra Assistant Professor

Chandigarh Business School Contact 09779910672

E mail – [email protected] ABSTRACT Operational Efficiency is - what occurs when the right combination of people, process, and technology come together to enhance the productivity and value of any business operation, while driving down the cost of routine operations to a desired level. The end result is that resources previously needed to manage operational tasks can be redirected to new, high value initiatives that bring additional capabilities to the organization. In relation to operations of a business, the term Operational efficiency means different things to different people. Success or failure of a business in the economic sense is judged in relation to expectations, return on invested capital and objectives of the business concern. In a Private industry the extent of profit indicates its efficiency. Private investment is only held justifiable on business principles if the foreseeable future there is reasonable prospects of a fair rate of return on capital invested therein. Public investment on the other hand, while not shunning profits would move to whatever the social benefits Social cost ratio justified it. Banks are among the main participants of the financial system in India. Banking offers several facilities & Opportunities. This attempt provides comprehensive and updated information, guidance and assistance for deposit performance areas of selected private banking in India. Key Words: - Operational efficiency, private investment, public investment, private banking Introduction Companies need to find the best way to do what they do. Every business is determined in their efforts to ensure the best people create the best processes, which leverage the best and most relevant technology. People and the relevant experience they bring are critical to this effort. The right people have designed similar processes before. They have skills to lead an implementation and the ingenuity to find the most effective solution to challenges they face. Process is a key to drive down costs for any activities that are repeatable. If faced with a new complex challenge, it’s important to draw upon actual experience, best practices, and industry standards to design and execute any process.



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Concept of Operational efficiency The term “operational efficiency” is a composite one. The meaning of efficiency is relating to operations which implies the performance of some functions involving practical application of principles or process. The term “operation” is generally used in military or naval action mission including its planning and action. In management science the term operation is used in order to convey the same sense. It is defined as an action to be implemented in a planned manner with a view to achieving the pre-determined objectives of the concern. In brief, efficiency is the state or the equity of being efficient or competence in performance or ability to accomplish a job with the minimum expenditure of time and energy or functioning in the best possible manner. Productivity Productivity is also defined as improvement, which may be in terms of higher efficiency, increased effectiveness, higher quality of output or lower cost of input etc. The concept of important implies that it is a relation concept and not an absolute concept, as it means achieving something more than what it was earlier. Further this improvement, to be acceptable, should be beneficial to the society. Efficiency and Productivity The concept of Efficiency is generally considered as synonymous with productivity. But both are quite different with each other. It has been pointed out that the word” Efficiency” does not embrace the idea of productivity, but goes beyond it in the sense that it express an aptitude or capacity or the quality of the input, the productivity of which is under consideration, which productivity introduces the idea of Relationship between output and input factors. It has also been observed in this connection that efficiency should be measured by the output of goods or services to be obtained in relation to the corresponding total input or resources used in their production. The term “Operational efficiency” thus, refers to efficiency pertaining to operation both organization and management of a business concern. Therefore any discussion of organization and administration created the general question of operational efficiency of the in dustiest and demands that performance and management of various operational or functional aspects of the industry should be so organized that they may achieve the desired objectives.

Measurement of Operational Efficiency The following approaches are to be used for evaluation of an operational efficiency of an enterprise.

1. Profit and Loss Account approach. 2. Balance Sheet approach. 3. Fiscal approach. 4. Employment approach. 5. Productivity approach. 6. Cost accounting approach. 7. Development and Stability approach.



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Private Banking Industry in India India is one of the most preferred private banking destinations as its economy is not only growing at 8 per cent annually, but is also going through a transformation to the next level of maturity. This enables double digit returns on most asset classes which are not the case in a majority of countries. Offering a perspective on the private banking scenario in India, it can be said that, ``robust and liquid financial markets enable exits on a timely basis to be able to realize gains. This makes India a good resource deployment avenue. In addition, an emerging trend in India is a high savings rate given increased earning levels. This has resulted in a robust private banking capital raising avenue. Indian private banking capital will soon fund deployments to a significant part of our capital needs. Now level of activity is likely to persist as it also found that over 90 per cent of private banks believe that there are good growth prospects for the industry over the next three years and 89 per cent are either actively seeking acquisition targets or would consider acquiring if the right opportunity arose. It can also be stated about private banking industry that, the explosion of corporate activity in private banking is the result of a perfect storm of contributing factors. There has been an explosion of personal wealth, particularly in India, continuing growth in private banking revenues and regulatory pressures benefiting economies of scale. Private Banks have tended to react in two ways. The favorable market has allowed plenty to grow organically, but nearly a third of private banks reported acquisitions over the past three years. These acquiring banks have not rested on their laurels, they tend to be serial dealmakers, completing on average almost a deal every year. The high levels of activity will only increase if the seventy percent of non-acquisitive banks join the M&A market. Private sector Banks have pioneered internet banking, phone banking, anywhere banking, mobile banking, debit cards, Automatic Teller Machines (ATM).

Role of Deposits in Banking Industry

Bank purchases deposits to produce and sell loans. In other words, deposits are the basic source for financing. Every bank tries to produce and sell more to gain economies of scale in operations. Deposit mobilization has greater significance because of the confinement of credit policies and tough competition for deposits among banks, between banks and non-banking companies. Deposits play a significant role in running a banking industry. A bank purchases deposits in order to produce and sell the loans and advances, therefore, purchases of deposits is an important activity of bank marketing. Survival and development of the banks are mainly influenced by their ability to attract deposits from different segments of the community rather than by the volumes of their capital resources. Thus, it can be concluded that deposits are the life blood of the banking industry and are the mainstay of bank funds. Since the nationalization of the major Private banks, the lending policies have been diversified to meet the needs of the priority sector of economy and neglected sections of society, viz, agriculture, small-scale industries, weaker sections, self-employed persons etc. At the same time, a greater volume of financial resources is required for a higher economic development.



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Types of Deposit Banks deposits can be divided on the basis of two factors:

• The Time Factor - Bank deposits are mainly divided into five categories on the basis of time. 1. Fixed Deposits. 2. Saving Bank Deposits. 3. Current Deposits. 4. Recurring Deposits 5. Money at short call and short notices.

• Customer Factor - Bank Deposits can be divided into the following categories on the basis of Customer segmentation:

1. Individual. 2. Societies. 3. Primary Banks. 4. Partnership Firms. 5. Joint Accounts. 6. Social Organization. 7. Cash Credit Account. 8. Staff Security (For Bank staff, society managers, loan supervisor) etc.

The Level of Deposit Banks nationalization was expected to give a greater fillip to deposit mobilization due to geographical, functional and structural diversification, increased economic activity, the incentives offered to depositors, qualitative customers service several measures to attract and mobilize deposits particularly after 1969, round the fundamental principles of mobility, flexibility, convenient to customers, automatic facilities and reeducation of cash drain. In the banking system the level of deposit depends primarily on the amount of credit extended by banks in the forms of loans and investments. If Banks did not engage themselves in lending and investing, they would have deposits equal to amount of currency left with them by depositors. Apart banking habit as wells with steady rise in the deposit base. In India deposits of bank have shown a great change in scale and scope of development. Deposit Mobilization The strategy of mobilizing of deposits has been through the information and implementation of various deposit schemes of the banks. They are almost identical even though the schemes have been different names. These schemes can be broadly divided into five categories, viz. fixed deposits, current deposit, saving deposit, recurring deposit, and other deposits. Strengthening the ability of banks to mobilize deposit requires the formulation of new schemes of different nature and suitability to the different classes of investors in both rural and urban Centers. Problems in Deposit Mobilization Deposit the growth in deposit mobilization efforts by the banks has not been adequate made in order to meet the need of present economic environment. Yet there is a vast scope for deposit



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mobilizing from different sections of society, particularly those of the rural areas, which will be the main beneficiaries of the economic and industrial policies. The Strategy for mobilizing deposits has been through the formulation and implementation of various deposit schemes of the banks. They are all identical even through the schemes have been given different names, all as “old wine in new bottles”. The formulation of new schemes of a different t nature in order to make them suitable for the different classes of investors. Most deposit mobilization schemes are now tailored to the convenience and preference of urban depositors, neglecting the potential rural depositors. The banks have to tailor the schemes to match in nature, convenience and preference, the need of the rural depositors to be able to exploit the untapped rural saving. Besides this in a vast country like ours, the requirement and preferences of various community groups in different areas underage periodic changes. Deposit mobilization should be backed by adequate publicity most of the banks have harnessed the media, which are popular only in urban area .they have been using the same publicity in rural area as well as. Deposit mobilization also demands a proper marketing strategy. The time has, therefore come when the choice of right media and marketing strategy for the rural area has to be made. The bank should be educated in these schemes, because often the by bank staff at various levels is not adequately aware of these schemes .the result is that whenever a customer’s approaches them, he does not get enough guidance and consequently his doubts in the efficiently of these schemes remain un cleared. The bank staff with an urban and little knowledge about rural area is unable to deal correctly with the customer. The banks in their recruitment policies should give preference to orientation and knowledge. The success of the banks depends largely on the ranges and quality of the services offered to their customers yet complaints of poor customer service are common in the banks. Banks should strengthen their organizational structure and build up their efficiency in management to hasten deposit mobilization. Performance in Deposit Mobilization The volume of deposits collected by a private bank in relation to deposit potential of its area is considered to be a reliable index of the performance of the bank in this respect. The trend analysis and ratio analysis techniques are used for evaluation of the performance of the private banks under study in deposit mobilization. The following important indicators can be used to evaluate the performance of the private banks in deposit mobilization:

1. Structure and trend ratio of total deposits. 2. Sources wise deposits. 3. Deposit – credit ratio. 4. Deposit to total resource ratio.



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Deposit Performance Table of Selected Indian Private Banks During 2001 – 02 to 2006 – 07

Table no. 1 (Rs. in lacks)

Detail 2001-02 Percentage 2006-07 Percentage

ICICI Bank 3208511.11 48.80 23051018.63 60.32

HDFC Bank 1765381 27 6829794 18

Axis Bank 1228721 19 5878560.11 15.38

Centurion Bank of Punjab

353499 5.38 1486372 3.89

Kotak Bank 17651.40 .27 966097.22 2.53

Average 1314752.7 100 7642368.39 100

(Source – Annual Reports) Table no 1 shows the deposit performance of Indian private banking industry, during to period of 2002 to 2007. In the year 2002, the total amount of deposit was Rs. 6573763.51 lacks, which reached on Rs. 38211841.96 lacks in the year 2007. It was a great achievement for Indian private banking industry. In industry deposit was registered an increase of about 5 times during the six year of study. It showing its significant growth and indicates the high level of operational efficiency. In the case of ICICI bank in the year 2002, the amount was Rs. 3208511.11 lacks. It was 49% of total deposits of selected private in 2002 year. It was also great success for ICICI bank, because in among the banks under study ICICI bank was occupied about 50% amount of total deposits. In the end of 2007, the deposit of ICICI Bank reached on Rs. 23051018.63 lacks. It was increased by 618.43% in 6 year, from 2002 to 2007. In 2007 year, ICICI Bank was occupied 60% of total deposit of selected private banks. It can be concluded that the bank has got 7.2 times in study period and about 10% share occupied from the industry. In the case of HDFC Bank, the amount was Rs. 1765381 in the end of year 2002. It was 26.85% of total deposits of selected private banks in year 2002. But in the end of year 2007, it reached on Rs. 6829794 lacks. It was an increase of 287% in 6 year of study period from 2002 to 2007. Infect in the year 2007 the deposit of HDFC Bank was 17.87% of Total Deposit of selected private banks. It means bank enclose his deposits in term of equity but its total share in industry was reduced. In the case of Axis Bank, the amount of deposit was Rs. 1228721 lacks in the end of year 2002. At that time it was 19% of total amount of deposit of selected private banks of India. In the end



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of year 2007, this amount reached on Rs. 5878560.11 lacks. It was an increase of 378.43% in 6 year of study period from 2002 to 2007. Infect in year 2007, Axis Bank was having 15.38% in total amount of deposits of selected private banks. The figure of deposits shows that absolute figure registered of banks has increased but in relative term its size was decreased during the period of study. In case centurion bank the deposit was 5.38% share. The absolute amount of the deposit was increased by .32% during the six years of study period but its size was reduced in the form of percentage of industry by 1.49%. in the end of the study period its share was 3.89% in the total deposits of banks under study. On the other hand the Kotak bank was holding the minor share i.e. .27% in the year 2002 of total deposit of the banks under study, which increased to 2.53%. The growth rate of deposits was more than five thousand times in absolute figure shows its commendable growth and performance.

Conclusion and Suggestion

In this section, the Operational efficiency of the management of the Private Banks under study in respect of the deposit mobilization is evaluated. It is the primary responsibility of the management of the banks to make an endeavor for deposit mobilization. This endeavor can be made in the following way:

1. To identify the potential centers and open the branches at such centers. 2. Involve an appropriate strategy for attracting the deposit, any strategy for deposit

mobilization involves 3. Introducing the new deposit accounts and banking service. 4. Publishing for deposits. 5. Motivating the saving community to deposit with the bank and also the bank staff for

securing deposits in large measure. 6. Organizing special drive for the purpose.

References: -

1. Agarwal, M.D, Efficiency of Public Enterprises in India. Jaipur: Prateeksha Publication,

1987 2. Agarwal, N.P, Analysis of Financial statements, New Delhi: National Publishing House,

1982. 3. Bhole L.M, Financial Markets and Institutions, Second Edition, TMH Publication, 1991. 4. Annual Reports of ICICI Bank From 2002 – 2007 5. Annual Reports of UTI Bank From 2002 - 2007 6. Annual Reports of HDFC Bank From 2002 - 2007 7. Annual Reports of Centurion Bank of Punjab from 2002 – 2007 8. Annual Reports of Kotank Bank from 2002 – 2007



62

Troubled Waters of IPL: A Case Study on Cricket-ainment

P.P.Singh Dy. Director,

Punjab College of Technical Education Baddowal, Ludhiana

[email protected], [email protected] Mobile: 09914551155

Centuries ago kings used to listen to music in the evenings or go for hunting in the forests. Common man enjoyed his time in nukkad nautankis or fairs. As the time passed on, new modes of entertainment came into picture like in 19th century radio was there and then cinema enthralled the spectators in early twentieth century. The games like chess, polo and wrestling were other sources of entertainment in eighteenth and nineteenth centuries. Then came hockey, soccer and test cricket in twentieth century to entertain the people. All these traditional formats of entertainment were to relieve the stress factor, to make people happy and enjoyable. Today entertainment is present in different formats like pubs, parties, discos, videogames, game shows like KBC, reality shows, Multiplexes and Sports. In sports, the latest version T20 cricket has got tremendous interest of the people. India is a country where cricket is given the status of religion and cricketer like Sachin Tendulkar is the God of cricket. It is quite obvious that any format of cricket hits a large audience as a result the game gets maximum sponsorship & TRP than other game or mode of entertainment. BCCI is the richest cricket board in the world because of popularity of cricket in India. For cricketers, selectors, sponsors cricket has become a business to earn revenues. For example a good cricketer or selector becomes the brand ambassador of business group or a party. But the way Indian Premier League (IPL) has generated the business is amazing. Started by Lalit Modi as a rival of Indian cricket League (ICL) in 2007 & was backed by BCCI, big business houses, politicians. The main objective of IPL was to bring young talented cricketers to the world of cricket. But today IPL is synonym with a good business model. It has been proving as a money minting machine for last three editions. IPL has enthralled the spectators in every edition. Every time revenues & glamour touches it climax. IPL becomes a complete business model for any organizational to generate maximum rate of returns. Each & every aspect of getting publicity & to get attention is used. No stone is left unturned to advertise the IPL fever. The ads are shown on every channel irrespective of whether they belong to the TV channel group having the broadcast rights or not. Local feeling is added to the advertisements by training foreign players speaking in Hindi. Controversies have proved publicity stunt for IPL. Beginning from the controversy involving the inclusion of Pakistan players, allowing the Australian players to play on the Indian soil, the Telangana issue ruling out Hyderabad as a spot for the tournament, Telangana supporters asking last year’s champions Deccan chargers to pull out of the tournament, the tournament was in news due to these issues. Who cares what is wrong or right, IPL gets a lot of publicity because of this. Politics on IPL also contributed to it becoming most popular event in the country. It began with Shahrukh Khan’s comments about including Pakistani players and the outcry over the same by Shiv Sena. Then



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Shiv Sainiks threatened Aussie players not to come for IPL, then retreating their statement after Sharad Pawar met their chief. Mega film stars like Shah Rukh Khan, Preity Zinta, Shilpa Shetty as the owners of IPL teams and stars like Katrina Kaif, Deepika Padukone as brand ambassadors of teams make this tournament most exciting. Big corporate houses like Ambanis, United Breweries (Kingfisher) see huge profits in the money minting machine and as a result they involve themselves in this tournament. IPL has been selling like a hot product for last three years. Franchisors buy the players and teams at such whopping sums which makes International players to think whether they play for their own national teams in other tournaments during IPL. The marketers of IPL have brought every concept of marketing to attract mammoth audience. Cheer leaders, music & dance programmess, drum performances, bhangara beats and stage shows during and before IPL matches make the spectators out of the world. Today the IPL is the second name of glamour. IPL is no more related to a sport but to mega stars, late night parties. IPL three gets its publicity not only because of cricket but because of late night parties and the controversies. No doubt controversies make IPL most happening event but the involvement of politics in cricket has made a negative impression on the mind of people. The controversy between Lalit Modi & Shashi Tharoor and later on involvement of other politicians shows how much is the influence of politics on cricket. Further in spite of taking rest players enjoy themselves in late night parties dancing with stars & cheer leaders. Everyday stories are in air about these parties, cheer girls, players which some how has made the people think about objective behind IPL. Is the objective of IPL is to mint money or enjoyment of players or at some extent enjoyment for spectators? Recently, Indian Cricket Team has been thrashed out of the T20 world cup in West Indies due to its dismal performance. Whole country is shocked on this performance. Indian Skipper M S Dhoni along with CEO of BCCI have accepted that the performance of Indian Team could have been better if the players would have not attended late night parties during IPL. Indirectly both have have made it clear that IPL is responsible for this shameful performance of Indian Cricket Team at international front. No doubt IPL has given Indian cricket & India an extraordinary platform at international front in such a way that every Indian should be proud of it. Today IPL has become a symbol of entertainment & excitement. It follows the perfect business model of maximum returns, perfect model of marketing strategies, and perfect model of entertaining the audience. But the BIG question is “Has IPL become a perfect model for its ULTIMATE OBJECTIVE i.e. improving the performance of Indian Cricket team & bringing new talented cricketers to the world of cricket?” Today IPL three has become the hub of controversies due bad performance of Indian cricket team & political turmoil in it. These issues put a question mark in everybody’s mind that whether IPL is a reality or hype because in reality Indian cricket team is missing its objective to become number one cricket team in T20 cricket. If IPL is affecting the performance of Indian cricket team then the feasibility & success of IPL four becomes an issue under consideration. The organizers of IPL should concentrate on raising the level of Indian cricket rather becoming itself as the troubling waters. Very soon different governing bodies have to decide how to tackle these troubled waters of IPL.



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Food For Thought

1. Which stage do you think IPL has reached in its Product Life Cycle & Why?

2. Is IPL responsible for dismal performance of Indian Cricket team? If yes, then how?

3. Explain different business strategies which have been used in IPL?

4. What improvements or changes should be made in the current format of IPL? Why do you think these improvements or changes are necessary?

5. Should IPL fourth edition be played next year? Give your opinions with explanation.



65

A Study on the changes brought by the FDI

in the auto component sector

Satyendra Kumar Sharma Lecturer, Management Group, BITS – Pilani

Dr. Vinod Joshi

Asst. Prof., Rajasthan University

Raghav Gupta B.E Hons.(Mech.), BITS – Pilani

Abstract “India has finally arrived” is what everyone believes .Indian industries are performing better than ever and stories like Corus, Land Rover, and Taro etc. have become common phenomena. However, one industry that has outperformed others is the auto component industry. The industry has registered staggering growth rate post liberalization era, as India is quickly becoming the favored destination for auto component production. Post 1991 the industry has grown at a scorching rate of over 20 %.With the entry of foreign players and technology the industry has become globally competitive. The Indian manufacturers are fast becoming the favored suppliers for the global automobile companies. Companies like TELCO, Bharat Forge, TVS, Rane Brake Limited, Sundaram Fasteners etc have made a mark for themselves on a global scale by winning supplier awards from the global auto giants as GM, Honda etc. Increased competition due to the entry of the foreign suppliers such as Delphi, Visteon etc has led to an enormous increase in the domestic investments. The growth has had a favorable impact on the quality, production of the companies. Words like TQM, Kaizen, Lean manufacturing etc have become very common among the Indian manufacturers now. With more and more companies, adopting Japanese methods of manufacturing the productivity and quality levels have increased immensely. Due to the increased labor productivity, the increase in the no. of jobs is not in proportion with the increase in revenues. Tierisation and vendor rationalization are increasingly becoming more popular. The opening of the economy has thus been a blessing for the industry specially the auto component industry. Keywords: FDI , Tierization ,Kaizen, LCA (Low Cost Automation),WOS (Wholly Owned Subsidary),ROCE ,Value chain, Capacity utilisation,Vendor rationalization



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Introduction Before 1990’s, only a handful of companies were present in India. In 1991, India produced just about 209,000 cars. In the early 60’s and 70’s the Ambassadors and the Padmini Fiats dominated the automobile market. But both of them were toppled by the Maruti Suzuki as it went on to capture 70% of passenger car sales by the early 1990s.The Suzuki-Maruti plant, located outside Delhi, developed a network of suppliers during the early 1990s. Some of these were joint ventures, in which Suzuki-Maruti held a substantial stake, while others were independent domestic firm. In both cases, Suzuki-Maruti worked with suppliers to establish international best practice, and to achieve high levels of productivity and quality. The 1990s were major breakthrough years for the Indian Automobile and Auto component industry .This was the era of major reforms that had a positive effect on these industries. Realizing the market size, many automobile majors entered India in a hope to make huge profits. From the early ’90s onwards, a wave of multinational firms entered India .Most of these entrants were required to achieve a high level of domestic content within a specified period (typically, 70% within 3 years). For at least some of the new entrants, this was seen as an unreasonable target, as domestic suppliers could not meet the price and quality requirements of the carmakers. Achieving the 70% target required the carmakers to switch rapidly from a reliance on imported components to sourcing from local vendors; and this in turn gave the carmakers a strong incentive to work closely with (first-tier) suppliers, to ensure that quality standards were met, within an acceptable price. By the end of the decade, car production had increased by a factor of two and a half in India (from 209 thousand units in 1991 to 564 thousand in 2001), and by a factor of almost nine in China (from 81 thousand in 1991 to over 703 thousand in 2001). Over the same period, the supply chain had undergone a major transformation. The new generation of multinationals worked closely with local suppliers to achieve high standards of productivity and quality. Meanwhile, domestic carmakers in both countries faced intense competition for market share, and their response was to upgrade productivity and quality levels in their own plants, and to look for higher quality levels from their (first-tier) suppliers. Purpose and data collection.: The report intends to find the effects that the FDi has had on the auto component industry.A lot of foreign players have made inroads into the indian auto component sector by Joint Ventures or by wholly owned subsidaries.We intend to review how the coming of the foreign money has effected the productivity,quality, jobs, domestic investments. The study is based on interview from the industry experts mostly from the companies in the NCR cluster.The report is mostly based on the secondary data which has been primarily sourced from the websites. Report After the reforms in 1990’s India has attracted huge foreign investments in almost all the sectors. The FDI has increased from 2 billion $ to a mammoth 19 billion $ in a span of 3 yrs. The investments in the years 2006 were 15 billion $ up from 5.5 billion $ the previous year. Due to the lower costs, the multinationals have been shifting their manufacturing and most importantly, their R&D centers to India. The effect of the FDI can also be seen on the Indian economy, which



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has grown, by the rate of approx 8 % during the 10th 5-year plan. The auto components industry has attracted investments, to the tune of US$ 5.4 billion, in 2006-07 alone. The investments have increased by a CAGR of 21.7 % for the period of 2002-07 and are expected to touch 20 billion $ by 2015-16. The bulk of these investments have been made by Indian companies, which have expanded their manufacturing capacities and invested on technologies. India expects to attract US$ 5 billion in foreign direct investment (FDI), over the next five years in the sector.

FDI in the Indian Economy

0.165

2.1332.9

4.23.1

2.6

5.5

15.7

19

0

2

4

6

8

10

12

14

16

18

20

1990-91

1995-96

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

FdI (in Billion$)

Figure 1 :- Source ACMA

The various effects of FDI are discussed below:

1. Increase in Production and overall investments

The Indian Auto component industry has finally come of age .The “Made in India “brand has made a quality statement in the world. Indian Majors are acquiring companies abroad and the industry is growing at a double digit CAGR. However, this has been largely possible due to the reforms that have proved to be the life savior of the industry. The opening of the economy was the most crucial step in the growth saga of the auto and the auto component industry. Due to the growing domestic demand and the cost effectiveness, the auto component industry witnessed a boom with increased investments, production, and exports. The overall passenger vehicle production has increased by a whopping 17.6 CAGR between 2001-2007. The overall production of the four wheelers approximately doubled in a span of 4 years increasing from 669,000



68

vehicles in 2001-02 to 1,210,000 in 2004-05. The cars have increased by a greater margin than the MUV’s. Due to the low labor costs, the Indian markets are around 30% cost effective to the American and the European manufacturers. Due to this major auto, component suppliers are flocking to the sub-continent. The Indian auto components industry is one of the fastest growing manufacturing sectors which is both forward and backward integrated with other engineering and manufacturing divisions in the country.

Production of the passenger vehicles

1773000

564000608000

842000

10280001113000

1323000

1528000

105000 114000 146000 182000 196000 222000245000

669000722000

988000

12100001309000

1545000

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

2000000

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Cars

MUV's

Overall

Figure 2 :- Source ACMA

The revenue of the industry has been on a huge upswing. The turnover of the industry has grown at a brisk pace with the turnovers increasing from 1.9 billion $ in 1995-96 to a huge 18 billion $ in 2007-08.The turnover of the industry has grown by a huge 27.2 CAGR over the period of 2002-07. The turnover has crossed the mark of 18 billion $ in 2007-08 and the turnover is expected to reach 40 billion$ by 2015. The threefold increase in the turnover in a span of 5 years indicates the scorching pace with which the industry has grown.



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Year Turnover ( in Billion $) 1995-96 1.9 1996-97 2.4 1997-98 2.51 1998-99 2.71

1999-2000 3.41 2002-03 5.4 2003-04 6.7 2004-05 8.7 2005-06 12 2006-07 15 2007-08 18

2015-16 40 After the reforms in 1990’s India has attracted huge foreign investments in almost all the sectors. The FDI has increased from 2 billion $ to a mammoth 19 billion $ in a span of 3 yrs. The investments in the years 2006 were 15 billion $ up from 5.5 billion $ the previous year. Due to the lower costs, the multinationals have been shifting their manufacturing and most importantly, their R&D centers to India. The effect of the FDI can also be seen on the Indian economy, which has grown, by the rate of approx 8 % during the 10th 5-year plan. The auto components industry has attracted investments, to the tune of US$ 5.4 billion, in 2006-07 alone. The investments have increased by a CAGR of 21.7 % for the period of 2002-07 and are expected to touch 20 billion $ by 2015-16. The bulk of these investments have been made by Indian companies, which have expanded their manufacturing capacities and invested on technologies. India expects to attract US$ 5 billion in foreign direct investment (FDI), over the next five years in the sector. Source:- ACMA

Investments (in billion $)

2.7 3.13.8 4.4

5.4

7.2

10.1

0

2

4

6

8

10

12

14

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2009-10



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Most of these firms that entered India were well equipped with high-end technology, huge investment capabilities, and diverse product portfolio. The Auto Component firms i.e. the first tier suppliers had the same characteristics. To counter these new entrants the industry has adopted a three pronged strategy of product portfolio enhancement, market expansion and efficiency improvement to achieve this status. Enhanced capacities and higher capacity utilization have contributed significantly to this growth. This has been possible due to an increased domestic investment. In Tamil Nadu, for example, the suppliers who are doing very well are those who have been able to continually upgrade their technical capacity through joint ventures or technical tie-ups with overseas partners much before the recent arrival of multinational auto assemblers. These suppliers, like the TVS and Rane groups have also made strategic use of government policies and are now quite well positioned in the field of global suppliers.

2. Quality

The quality of the Indian Manufacturers has improved immensly over the last few years. Due to the entrance of the Foreign suppliers in the country the firms knew that they had to improve the overall quality and their systems or get shunned out of business.The other key factors that contributed to the improved quality standards are the long term contracts given by the 1st tier suppliers to the sub-suppliers and the belief in the growth story of the Auto Component industry.In desperation the companies improved the quality of the products which can be easily seen from the reduction in the amount of rejections per million for the various companies . The in-plant rejections came down to 1.07 per cent from 2.5 per cent. The customer line rejection which was 15,937 parts per million (ppm) in 1999 went down to 864 ppm this fiscal. Another thing to note is the No. of quality awards that the Indian companies have. One interesting thing to notice is that out of the total 558 members of the ACMA 551 are ISO 9000 certified. In a very short span of time, 11 Indian Auto component manufacturers have bagged the prestigious Deming Award, of which 9 have been won after 2003 i.e. in a span of 5 years .This is the largest number of firms across all industries from any country other than Japan to win Deming award. Most of the manufacturers are following modern shop floor practices such as 5-S, 7-W, Kaizen, lean manufacturing etc. that have led to better overall quality and productivity.

Quality Standard No. of Winners

ISO 9000 551 TS 16949 382

QS- 9000 56

ISO 14001 180 OHSAS 18001 59 Deming Award 11 TPM Award 4

Source :- ACMA The Other indicator of the improved quality of the Indian manufacturers is the data for the problems per 100 vehicles which is shown below. The exhibit shows a drastic reduction of the



71

problems from the year 1997 to 2006. The problems reported per 100 vehicles in 2006(208) have been approximately reduced to 1/3rd of the problems reported in 1997( 572). The other indicator of the improved quality of the Indian manufactures is the increase in the export of the auto components, as most of the products that are exported are of good quality. What further establishes the fact of increased quality is the markets to which the auto components are exported .Most of the Indian exports are to the European and American markets, which are high quality markets with very stringent quality measures. In 2006-07, exports to US and Europe accounted for 62 per cent of total exports. On the other hand, share of exports to Asian markets have reduced to 16 per cent in 2006-07 as compared to 26 percent in 2003-04. Source :- IBEF Besides the decline in end-of-the-line rejection rates, customer level rejection rates have also come down significantly for Indian automotive component manufacturers. International companies maintain their customer rejection rate at an average 200 PPM. In the recent past, certain Indian companies have attained a customer rejection rate of up to 500 PPM, with a few attaining even a zero customer level rejection rates.



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3. Increase in productivity

The Indian auto component industry has witnessed a sharp increase not only in quality but also in productivity in the past few years. Revenues have risen by a compounded annual growth rate of 25%, outstripping the growth in employment, which is at 5%. Consequently, productivity, as measured by revenue per employee, has increased from $22,500 in 2002-03 to $30,923 in 2005-06, according to data compiled by the Automotive Components Manufacturers Association (Acma). Lean manufacturing, Kaizen, total factor productivity - terms once confined to management textbooks - have suddenly become part of the discourse among the industry players, small and big players alike. This sharp increase in productivity is linked to increasing use of technology along with the best in class management techniques, per employee turnover in Bharat Forge has risen from Rs 17 lakh in the fiscal 2002 to Rs 42.5 lakh in 2004-05.

One of the key reasons for the increase in productivity is that manufacturing has moved from process-orientation to product-orientation. Other factors that have equally contributed to the rise in productivity include the gain in skills of workers and more balanced production lines (i.e. elimination of bottlenecks and so on).However, India still lags behind the productivity of a country like Japan, where sales per worker is estimated at $50,000, nearly 70% more than that of India. The increase in our productivity has not come from a huge increase in capital investment. Employees are still working the same number of hours. It is that we are using our capital assets better. One of the major impacts of the FDI was the introduction of the world class manufacturing techniques in the Indian auto component industry .The companies started automating and now almost all companies in the organised sector have some sort of automation in the plants. Technologies were sourced either by the Joint ventures with the foreign firms or by the inorganic means of mergers and aquisitions.Today almost all of the major firms use the modern shopfloor practices like 5-S , 7-W, TQM ,Kaizen ,TPM etc. The need to increase productivity and to manage as few vendors as possible has made the auto component majors help the SME’s to also adopt these modern shopfloor practices which has led to a trememdous increase in the productivty and cost cutting. Indian labor productivity in the manufacturing sector is on an increase with the application of production management techniques and many companies have doubled their productivity in last five years. Now more and more emphasis is being laid on both product and process improvement to reduce the cycle time and to increase the first pass percentage. The Indian Industry has adapted LCA (low cost automation) very well which has helped the companies to increase the production without significant investments.

There has been a significant improvement in the ROCE of both the Indian companies as well the foreign counterparts in India. The ROCE for some companies has increased to as much as 40%.The above exhibit clearly suggests an increase in the ROCE for the firms. The ROCE for some companies like lumax and Sona Koyo have increased from less than 10% to over 25% in a span of 5 yrs. What the above clearly suggests is an increase in the productivity of the firms, i.e. more efficient use of the resources including increase in the labor productivity. This is attributed to the modern shop floor practices such as TQM, Kaizen etc. The companies are laying more and more importance on waste reduction as well as its management. Another reason for the increased productivity has been increased technical investments. Due to long term orders and massive



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growth opportunities the companies are spending more and more on newer technologies as well as R&D.But the SME’s generally prefer used machinery from the failed plants and companies. It is not just the increased expenditure on the technology but also R&D that is helping the companies increase productivity. The companies have not just adopted best practices but have also vertically extended such practices to their sub-suppliers.

Source :- IMaCS Analysis

The effects of FDI can easily be seen from the above exhibit which clearly indicates an increase in the capacity utilisation.For companies like MICO the capacity utilised has almost quadrupled from around 25% to 100%. Another very important thing to notice is that almost all the companies in the exhibit are now utilising 80% of their capacities. This has been made possible by the increased use of the modern shopfloor practices and discipline at the shop floor.One of the reasons can also be that the companies increased their capacities around 2001-02 and the increased business is now increasing their capacity utilisation.The other exhibit confirms both the views .Companies like MICO and Setco Automobiles have not increased their capacities but even then their capacity utilisation has increased .This clearly indicates an increase in the productivity of the firm due to automation and usage of modern shopfloor practices which has led to reduced cycle time for the product.

4. Climbing up the value chain The Indian automotive component industry has made a sustained shift to the global Tier 1 market for their products. In the 1990s, most of the Indian auto components were sold in the aftermarket, with only 35 per cent of exports being sourced by Tier 1 OEMs. In 2006, it is a very different



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story. Today, Indian automobile component manufacturers supply 75 per cent of their exports to Tier 1 OEMs and only 25 per cent to the aftermarket. Companies like Bharat Forge are now one of the largest in their kind and are the major suppliers to the tier 1 suppliers and OEM’s. This increased supply to the OEM’s and export is also an indicator of the improved performance and working of the Indian Auto component industry.

Indian component suppliers have displayed a growing capability to cater to the engineering and production needs of the some of the world's biggest auto companies. This is largely due to:

• Proficiency in understanding technical drawings and being well conversant in all global

automotive standards: American, Japanese, Korean and European • Appropriate automation has led to economically attractive production costs • Flexibility in small batch production • Growing IT capability for design, development and simulation

5. Jobs Due to the increase in the domestic demand as well as exports, the Indian Auto Component companies have responded by increasing their capacities. Due to the increased capacities, the jobs have increased. Along with this has come the increased wages for the workers and better working conditions .The workplaces are more safe and worker friendly as depicted by the increased no. OHSAS 18001 awards for the companies. However, many companies, which post reforms did not adapt to the changing environment of the Auto component industry, faced closure due to which many workers lost their jobs. Moreover, increased automation in the industry has also led to firing of the workers. Due to the above reasons, the net effect has been a loss of jobs or we can say the increment in the no. of jobs is not in proportion with the increment in the capacity. Revenues have risen by a compounded annual growth rate of 25%, outstripping the growth in employment, which is at 5%.



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However, due to the entry of foreign suppliers and increased packages that they offer the auto component industry is facing an attrition problem. Attrition, a problem that was earlier confined to the mid-level of management in automotive component manufacturing industry — has now started affecting operators. Attrition at the lower level of the workforce is turning out to be a major problem for maufacturers. There have been instances of the workers of smaller companies failing to turn up at the workplace as they have been hired by bigger companies. The attrition rate is around 5 per cent overall. One of the reasons is that most OEMs find it prudent to hire people from smaller companies instead of spending time and resources on training newcomers. Conclusion With the liberalization of the Indian economy in 1991 and coming of many foreign automobile manufacturers like Hyundai, Daewoo etc., the auto ancillary industry witnessed huge capacity expansions and modernization initiatives in this period. This also led to a tough competitive scenario, which saw a lot of consolidation, technological collaborations, and equity partnerships within the industry and with leading global players abroad. One of the key effects of increased competition and pressure from OEM’s has been tierisation and Consolidation in the top tiers of the industry. This can be seen from the increased merger and acquisitions. A tighter tiering of suppliers that has high lightened the concept of a small group of design-capable and global first tier suppliers, while segmenting the rest into contract manufacturers and lower-tier subcontractors. Though currently 558 members comprise the organised structure ,but there are as large as 6000 players in the unorganised structure.But the organised players controll over 75% of the market and are the main suppliers to the OEM’s ,while on the other hand the Unorganised players are mainly limited to the replacemant market or fprm the ¾ tier of the industry. The after-market is a highly competitive market as there is a high price elasticity of demand and a tolerance of lower quality standards .Though both, organized sector and unorganized sector supply to the replacement market ,the unorganized sector dominates the replacement market because the fiscal liabilities (in terms of excise duties) are not accounted for by this sector. Due to which the unorganized companies are able to supply the replacement market with significantly lower-priced though usually lower-quality parts as compared to those produced by the organized sector. A tighter tiering of suppliers that has heightened the importance of a small group of design-capable and global first tier suppliers, while segmented the rest into contract manufacturers and lower-tier subcontractors has radically transformed customer and supplier relations, as well as employer and employee relations.

Value added

77

23Organised

Unorganised



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Another thing that can be seen is the formation of clusters .Before 1990 the concept of clustering was no so evident as we see it now. There are four major manufacturing clusters in India. Most of the manufacturing is confines to NCR cluster, Maharashtra cluster, Tamil Nadu cluster and the Eastern cluster. Nowdays more and more plants are being set up in the state of Uttaranchal. Most of the unorganized players are the suppliers to the organized companies. However, slowly the best practices have penetrated down to some of these players. With increased exposure and opportunities, these small enterprises are slowly entering the big market. One of the major advantages that these small enterprises enjoy is the ability of batch production. Though the industry is fragmented, the fragmentation is fast decreasing with concepts such as tierisation & vendor rationalization coming in vogue under pressure from the OEM’s to cut costs.

References:

1. Business outlook survey 220-2003 available at ACMA website www.acmainfo.com 2. Foreign Direct Invetsment & Auto Component Sector available at IBEF www.ibef.in Last update 2010. 3. Assessment of Auto Industry available at www.autoblogs.in 4. SME Insight available at http://www.dnb.co.in/SMEs/smesinsights.asp 5. Auto Focus Asia Available at www.autofocusasia.com 6. Meenu Tiwari (2008) Engaging the New Global Interlocutors: Foreign Direct Investment and

the Transformation of Tamilnadu’s Automotive Supply Base. Journal of International Trade and Economic Development, Vol 5 pp152-164

7. Uwe Achterholt (2007) Domestic Growth and Global Aspiraions. KPMG’s India Automotive Study .

8. The Indian Auto Ancillary Industry (2006) available at http://www.fadaweb.com/ancillaries_indu.htm

9. Nitin Gupta (2006) Logistics Management in Auto component Industry, ICFAI Jouranl Of Supply Chain Management, Vol.32, PP 52-64

10. Draft Automotive Mission Plan 2006-2016 ,Ministry of Heavy Industries and Public Enterprises , Govt. of India

11. Iyer A., Saranga H.& Seshadri S. (2006) Productivity and Technical changes in the Indian Auto Component Industry, Conference aon Global Manufacturing Competitveness at ISB, Hyderabad.



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Impact of Global Financial Crisis on Indian Banking System

Dr. Devendra Singh, Professor, Accurate Institute of Management Technology, Gr. Noida

Dr. Gaurav Aggarwal Associate Professor, Accurate Institute of Management Technology, Gr. Noida

Dr. Amit Kumar Srivastava Associate Professor, Accurate Institute of Management Technology, Gr. Noida

ABSTRACT

The financial crisis has been erupted in a comprehensive manner on Wall Street; there was some premature triumphalism among Indian policymakers and media persons. It has been argued that India would be relatively immune to this crisis, because of the "strong fundamentals" of the economy and the supposedly well-regulated banking system. These effects have been most marked among those developing countries where the foreign ownership of banks has been already well advanced, and when US-style financial sectors with the merging of banking and investment functions have been created. The crash in the Sensex at that time was not simply an indicator of the impact of international contagion. There have been warning signals and signs of fragility in Indian finance for some time now, and these are likely to be compounded by trends in the real economy. So far the global financial crisis has had three major impacts on the Indian economy: (i) Economic Downturn (ii) Exposure of banks (iii) Domestic policy. ECONOMIC DOWNTURN:- After a long spell of growth, the Indian economy was experiencing a downturn. Industrial growth has been faltering, inflation remains at double-digit levels, the current account deficit is widening, foreign exchange reserves are depleting and the rupee is depreciating. The last two features can also be directly related to the international crisis. The most immediate effect of that crisis on India has been an outflow of foreign institutional investment from the equity market. Foreign institutional investors, who need to retrench assets in order to cover losses in their home countries and were seeking havens of safety in an uncertain environment, have become major sellers in Indian markets. In 2007-08, net FII inflows into India amounted to $20.3 billion. As compared with this, they pulled out $11.1 billion during the first nine-and-a-half months of calendar year 2008, of which $8.3 billion occurred over the first six-and-a-half months of financial year 2008-09 (April 1 to October 16). This has had two effects: in the stock market and in the currency market.



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Given the importance of FII investment in driving Indian stock markets and the fact that cumulative investments by FIIs stood at $66.5 billion at the beginning of year 2009, the pullout triggered a collapse in stock prices. As a result, the Sensex fell from its closing peak of 20,873 on January 8, 2008, to less than 10,000 by October 17, 2008 (Chart 1). Falling rupee

In addition, this withdrawal by the FIIs led to a sharp depreciation of the rupee. Between January 1 and October 16, 2008, the RBI reference rate for the rupee fell by nearly 25 per cent, even relative to a weak currency like the dollar, from Rs 39.20 to the dollar to Rs 48.86 (Chart 2). This was despite the sale of dollars by the RBI, which was reflected in a decline of $25.8 billion in its foreign currency assets between the end of March 2008 and October 3, 2008.



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It could be argued that the $275 billion the RBI still has in its kitty is adequate to stall and reverse any further depreciation if needed. But given the sudden exit by the FIIs, the RBI is clearly not keen to deplete its reserves too fast and risk a foreign exchange crisis. The result has been the observed sharp depreciation of the rupee. While this depreciation may be good for India's exports that are adversely affected by the slowdown in global markets, it is not so good for those who have accumulated foreign exchange payment commitments. Nor does it assist the Government's effort to rein in inflation. THE CHANGING PARADIGM OF BANKING Change is the only constant factor in this dynamic world and banking is not an exception. The changes staring in the face of bankers relates to the fundamental way of banking-which is undergoing rapid transformation in the world of today, in response to the forces of completion productivity and efficiency of operations, reduced operating margins better asset/liability management, risk management, any time and any where banking. The major challenge faced by banks today is to protect the falling margins due to the impact of competition. Another significant impact of banks today is the technology issue. There is an imperative need for not mere technology up gradation but also its integration with the general way of functioning of banks to give them an edge in respect of services provided to optimizing the use of funds and building up MIS for decision making and better management of assets and liabilities and risk assumed which in turns have a direct impact on the balance sheet of banks as a whole. Word over, technology has demonstrated potential to change methods of selling marketing, advertising, designing, pricing and distributing financial products of an electronic, self-service product delivery channel. All these changes call for a new, more dynamic, aggressive and challenging work culture to meet the demands of customer relationships, product differentiation, brand values, reputation, corporate governance and regulatory prescriptions. EXPOSURE OF BANKS: A second route through which the global financial crisis could affect India is through the exposure of Indian banks or banks operating in India to the impaired assets resulting from the sub-prime crisis. Unfortunately, there were no clear estimates of the extent of that exposure, giving room for rumour in determining market trends. Thus, ICICI Bank was found to be the victim of a run for a short period because of rumours that sub-prime exposure had badly damaged its balance sheet, although these rumours have been strongly denied by the bank. So far the RBI has claimed that the exposure of Indian banks to assets impaired by the financial crisis was small. According to reports, the RBI had estimated that as a result of exposure to collateralized debt obligations and credit default swaps, the combined mark-to-market losses of Indian banks at the end of July 2009, was around $450 million. Given the aggressive strategies adopted by the private sector banks, the MTM losses incurred by public sector banks were estimated at $90 million, while that for private banks was around $360



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million. As yet these losses are on paper, but the RBI believes that even if they are to be provided for, these banks are well capitalized and can easily take the hit. Such assurances have neither reduced fears of those exposed to these banks or to investors holding shares in these banks. These fears were compounded by those of the minority in metropolitan areas dealing with foreign banks that have expanded their presence in India, whose global exposure to toxic assets must be substantial. A third indirect fallout of the global crisis and its ripples in India is in the form of the losses sustained by non-bank financial institutions (especially mutual funds) and corporate, as a result of their exposure to domestic stock and currency markets. Such losses were expected to be large, as signaled by the decision of the RBI to allow banks to provide loans to mutual funds against certificates of deposit (CDs) or buyback their own CDs before maturity. These losses are bound to render some institutions fragile, with implications that would become clear only in the coming months A fourth effect is that, in this uncertain environment, banks and financial institutions concerned about their balance sheets, have been cutting back on credit, especially the huge volume of housing, automobile and retail credit provided to individuals. According to RBI figures, the rate of growth of auto loans fell from close to 30 per cent over the year ending June 30, 2008, to as low as 1.2 per cent at year ending June 2009. Loans to finance consumer durables purchases fell from around Rs 6,000 crore in the year to June 2007, to a little over Rs 4,000 crore up to June 2009. Direct housing loans, which had increased by 25 per cent during 2006-07, decelerated to 11 per cent growth in 2007-08 and 12 per cent over the year ending June 2008. It is only in an area like credit-card receivables, where banks are unable to control the growth of credit that expansion was, at 43 per cent, quite high over the year ending June 2008, even though it was lower than the 50 per cent recorded over the previous year. It is known that credit-financed housing investment and credit-financed consumption have been important drivers of growth in recent years, and underpin the 9 per cent growth trajectory India has been experiencing. The reticence of lenders to increase their exposure in markets to which they are already overexposed and the fears of increasing payment commitments in an uncertain economic environment on the part of potential borrowers are bound to curtail debt-financed consumption and investment. This could slow growth significantly. Finally, the recession generated by the financial crisis in the advanced economies as a group and the US in particular, will adversely affect India's exports, especially its exports of software and IT-enabled services, more than 60 per cent of which are directed to the US.



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International banks and financial institutions in the US and EU are important sources of demand for such services, and the difficulties they face will result in some curtailment of their demand. Further, the nationalisation of many of these banks is likely to increase the pressure to reduce outsourcing in order to keep jobs in the developed countries. And the slowing of growth outside of the financial sector too will have implications for both merchandise and services exports. The net result would be a smaller export stimulus and a widening trade deficit. CHALLENGES FACING INDIAN BANKING The main challenges facing by Indian banking are the role of financial instrumentation in different phases of the business cycle, the emerging compulsions of the new prudential norms and benchmarking the Indian financial system against international standards and best practices. The need for introduction of new technology in the banking and the importance of skill building and intellectual capital formation in the banking industry are also equal important. DOMESTIC POLICY: While these trends are still in process, their effects were already being felt. They were not the only causes for the downturn the economy has been experiencing, but they were found to be important contributory factors. Yet, this does not justify the argument that India's difficulties are all imported. They have been induced by domestic policy as well. The extent of imported difficulties would have been far less if the Government had not increased the vulnerability of the country to external shocks by drastically opening up the real and financial sectors. It is disconcerting; therefore, that when faced with this crisis the Government is not rethinking its own liberalization strategy, despite the backlash against neo-liberalism worldwide. By deciding to relax conditions that apply to FII investments in the vain hope of attracting them back and by focusing on pumping liquidity into the system rather than using public expenditure and investment to stall a recession, it is indicating that it hopes that more of what created the problem would help solve it. INDIA: CONFRONTING THE GLOBAL FINANCIAL CRISIS: Recent events in the global financial system have been nothing short of seismic. Hundreds of billions, if not trillions of dollars in capital value have been lost in stock markets. Inter-bank credit has almost frozen up. Actual costs of borrowing have gone up (even with falling central bank interest rates), unemployment has been rising in the major world economies, and home foreclosures and bankruptcies are on the rise. This crisis is sought to be addressed by a variety of policy initiatives, the most important aspects of which are the injection of vast amounts of public funds into financial institutions and the provision of sovereign guarantees on bank accounts.



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But the ability to do so is limited. The budget deficit for 2008 in the US has trebled as compared to its forecasted value and the ratio of public plus private debt to GDP is well over 300 percent. The huge injection of funds to stabilize the financial system will need to be financed. So far the global financial crisis has had three major impacts on the Indian economy: (i) the quantum of liquidity available during the first half of FY 2008-09 is about a third lower than during the first half of FY 2007-08; (ii) with slackening external demand, export growth is expected to slow; and (iii) Foreign Institutional Investors have withdrawn from Indian stock markets leading to sharp falls in key indices. Indian banks have strong balance sheets, are well-capitalized and well regulated. The capital adequacy ratio of every Indian bank is well above Basel norms and those stipulated by the RBI. Not one Indian bank has had to be rescued in the aftermath of the crisis. India has a long history of working with public sector banks and in engineering bank rescues. India's growth rate will slow in 2008-09. Growth during the quarter ending June 2008 was 7.9 percent. Principal reasons for this modest drop in economic growth include (i) a large and diversified consumption base for the Indian economy; (ii) India's trade to GDP ratio is much smaller than that of, say, China; and (iii) Indian financial markets are still relatively insulated from global financial markets. India has a healthy external balance, with high foreign exchange reserves, low ratio of short term external debt to GDP and less than complete capital account convertibility. Nevertheless, that will be a significant slowdown compared to recent experience, but it will still be robust growth. The slower growth will be accompanied by reduced employment growth and slower poverty reduction. Indian policymakers have responded with measures to enhance liquidity – primarily by reducing the cash reserve ratio and the repo rate – and enhancing confidence. Bank guarantees, beyond those that already exist, have been deemed unnecessary. INDIA: TURNING CRISIS INTO OPPORTUNITY:- India's economic managers, and particularly the Reserve Bank of India (RBI) take considerable pride in having protected India from Asia's financial crisis in 1997-98. Although India did experience a period of slow growth in the years that followed that crisis, the basic financial machinery of the country remained relatively robust, providing a solid foundation for the much more rapid growth that has taken place this decade. In common with its East Asian neighbours, India is grappling once again with many of the same challenges that the region faced a decade ago, creating difficult choices for economic and financial policy. In charting its course, the Government is juggling multiple considerations: the state of the domestic business cycle; ensuring financing for the balance of payments deficit; the sharp shift in the availability of global risk capital for financing Indian investment; and the slowdown in growth in the world's rich economies.



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After three years of buoyant, investment-led growth, the Indian economy started to slow late last year (2007). This growth slowdown was initially welcomed by the RBI, which had been gradually tightening monetary policy (since 2004) in a fight against inflation. Taking economic and political pressures together, it is perhaps not surprising that, for many Indians the present moment is compared less with 1997 than with 1990-91. That was the year when India suffered a major external payments crisis and was obliged to apply to the IMF for assistance. Thanks, however, to inspired political and economic leadership at that time, that payments crisis was turned into an opportunity for major structural reform from which India continues to benefit till this day. The interesting question is whether a similar opportunity can be created again. Policy until late August operated on a business-as-usual basis. Even though the financial crisis had been underway for almost a year, policy action was based on the assumption that India could remain largely unscathed. Over the course of October 2009, the RBI has sharply reversed course on the two key instruments at its disposal: the cash-reserve ratio (that is, reserve requirements) that banks are required to hold in their accounts with the RBI; and the overnight secured lending rate at which the RBI lends to banks. India's policymakers have both the experience and the tools to ride out the present storm. They will be helped by India's lower integration with world trade and finance, and by a variety of institutional features. Yet by itself this is not enough: the larger challenge will be, as in 1991, to use this crisis also to resume the momentum of reforms that have largely stalled. Of this there is as yet little sign. CONCLUSION The Indian economy has globalized rapidly during the past few years. The ratio of exports plus imports to GDP increased by more than 50 per cent between 1997–98 and 2007–08 (from 21.2 per cent to 34.7). The growth of financial integration has been even more rapid. Three different channels of the GFC's impact on India can be identified: i) The financial channel, i.e., the growing integration of India's financial markets with global financial markets; ii) The growing trade links between India and the rest of the world indicate that exports would decline quite sharply, and; iii) A final avenue is the confidence channel. The tightened global liquidity situation following from the failure of Lehman brothers in September 2008 increased the risk-aversion of several banks and other lending institutions. There is a slowdown in India's growth performance — but not a collapse. The short-run outlook for the Indian economy is unclear. Real GDP growth and major sectors have shown strong signs of slipping. But, the stimulus packages announced by the government and the RBI have had their desired effect. The Indian banking industry is facing newer challenges in terms of narrowing spreads, new banking products and players and mergers and acquisitions. Adoption of risk management tools and new information technology is now no more a choice but a business compulsion. Technology product innovation, sophisticated risk management systems, generation of new income streams, Building business volumes and cost efficiency will be the key to success of the banks in the new era. In the present



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environment where change is invisible, it is not enough if bank change with the change, but they have to change before the change. They should perceive what customer want and accordingly structure their product and services REFERENCE: “Banking Sector in global perspective”- Inaugural address by Dr. Y V Reddy, Governor RBI, at Banker Conference, New Delhi, 10 Nov. 2004. Banerjee, Abhhijit. V. and Esther Dufflo, 2003 Bank Fiancé India, MIMEO, MIT. Banerjee, Abhijit. V., Shawn Cole and Esther Duflo, 2004, Banking Reforms in India MIMEO, MIT. Koeva, Petya, 2003, The Performance of India Banks during Financial Liberalization. IMF Working Paper No.03/150. Tapolova, Petia, 2004, Overview of the Indian Corporate Sector: 1989-2002 IMF working Paper No. 04/64. Miniappan G.P: 2002, "The NPA Overhang Magnitude, solutions, legal reforms", Address at CII Banking Summit 2002, Mumbai, April 2002. Ministry of Finance (993b), Public Sector Commercial Banks and Financial Sector Reforms: Rebuilding for a Better future, New Delhi, Government of India. Ministry of Fiancé (1991).Economics' Reforms two years after and the task Ahead, New Delhi, Government of India. Ministry of Fiancé (1991), Report of the Committee on the financial system (Narasimham Committee), New Delhi, Government of India. Reddy, Y.V., (2005) special Speech in Hindu, Banking Sector Reforms in India. Overview. Rakesh Mohan, "Financial Sector Reforms in India", Chartered Accountant Feb 2005. IRCA (2004): The Indian Banking Industry. New Delhi. Indian Banking 2010: Towards a high performing sector”, Mac Kinsey & Co. 2004 Mien M. Brownlee, Economics of Public Finance, Hall of India Pvt. Ltd., New Delhi, 1998 Rustagi, R.P., Investment Management – Theory & Practice, Sultan Chand & Sons, 2005



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A Panel Data Analysis on Indian Banks’ Intellectual Capital Efficiency

V. Murale

Asst Professor IBS-Hyderabad (Icfai Business School) Survey No. 156/157, Dontanapally Village Shankerpally Mandal, RR District, 501504

Ph: 09666496756 E-mail: [email protected]

Abstract The human resource research is replete with studies that have contributed to understand human resource management issues and the importance of human capital (Huselid, 1995; Bae and Lawler, 2000; Inchniowaki,1997; Boxall and Steenevald,1999) several problems still exists. as most of these studies were conducted under different geographic ,economic, and cultural conditions outside india.Thus for broadening and reinforcing the literature requires expanding the research with more diverse examples. Indian firms had underwent through several transformations during the last two decades and service sector is being emerged a s a major progressive contributor to Indian as well as world economy, hence they present a unique opportunity for broadening the literature and expanding the understanding of strategic role that human capital plays in the success of an organization The purpose of this paper was to examine empirically how certain human capital elements affect a firm’s value creating efficiency. The human capital of the firms were measured using a new accounting tool proposed by Ante Pulic named Value Added Intellectual Coefficient (VAIC). As mentioned earlier VAIC comprises of structural capital efficiency, human capital efficiency and financial capital efficiency. The impact of the human capital on firm’s performance is measured by Market Value to Book Value (MB) . The study deals with Impact of Intellectual capital on Indian Banking Sector. Introduction The concept of human capital” subsumes and goes beyond the conventional concept of human resources. While training and development of employee's skills, motivation, and involvement of employees in decision making, are common to both; the focus of human capital is sharper, broader, and deeper. This focus is on ensuring and sustaining the competitiveness of the enterprise. It wouldn’t be wrong to contend that the society has turned out to be an information society in which the main economic resource is information. In this new information society and in its economy, information and skilled workers– in other words intellectual capital will determine the competitive edge of the firms .For the purposes of this study the concept of a firm’s human capital is incorporated as a part of intellectual capital. (V.Murale.R.Jayaraj,A.AshrafAli 2010). In a rapidly changing environment on a globalised arena competition has become a nomenclature for most of the organization. To have a sustainable performance they should continually improve their performance by reducing costs, and by the way of innovation of new products process and



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productivity and speed of market. Pfeffer (1998),for example, argues that success in today’s markets depend lesson advantages associated with economies of scale, technology, patents and access to capital and more on innovation sped and adaptability, Pfeffer argues that these latter sources of competitive advantages are largely derived out of firms’ human resources. In response to the longstanding and repeated criticisms that HR does not add value to organization, the post 90 period has been seen a burgeoning of research attempt that progressive HR practices result in higher organizational performance. An Australian study, (Royal, 2000, 2001, 2002) and separate studies by American researchers(Kalleberg, Marsden and Spaeth, 1996) found that people-centered management practices which emphasize long term relationships with their employees, and which encourage organizational membership, perform better with regard to innovation, product development, attracting and retaining good staff, and financial performance. Another Australian study (Stace and Dunphy, 2001) found that organizations performed better when they were strategically well positioned within a changing environment and pushed the pace of internal organizational change at a rate appropriate to the external environment. They particularly stress the importance of leading edge HR practices. There is an important link between retaining key knowledge workers, and retaining critical intellectual capital within the firm

The following examples serve to bring out the consequences of the missing focus of human and intellectual capital. In each of these cases, serious strategic and cognitive failures occurred despite the presence of highly trained, competent, and experienced managers and employees:

• Ford, General Motors, and Chrysler failed to see the impending threat of the Japanese competition before the Japanese auto firms had captured a large market share.

• The rich, powerful, and well-established retail firm, of Sears failed to see the impending threat of Wal-Mart, and understand the implications of the latter's new business design and logic of competition.

• IBM was not only very late in entering in the PC market, but also gave away the huge new wealth to be generated from the PC software market.

• Encyclopedia Britannica came to the brink of disaster owing to its failure to appreciate the implications of printing its product on CD-ROM.

• Xerox missed out the PC revolution even when they had invested so much in their pioneering Altos machine. A then insignificant firm — Apple — capitalized on the Xerox's R&D.

• In the early days of Xerox, IBM turned down the opportunity to acquire it very cheaply. According to IBM's management, the demand for photocopiers was in-sufficient to justify investment. Later, IBM entered the photocopier market, but had to withdraw after sustained losses in the face of Xerox's entrenched position.

• Compaq missed the opportunity of Just-in-Time assembly of PCs which was exploited by Dell with outstanding success.

Similar examples can be multiplied. High level of human resource management and development practices, and highly qualified and competent managers were present in all these organizations. Their top managements believed that they knew all the answers. These were no



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‘new voices’ ‘new conversations’, or ‘democratization’ in strategic decisions Organization-wide conversations about strategic issues and problems are vital for providing reality checks on managerial think is, they do not have any appreciating intellectual capital Well-developed human resources however, serve to provide the foundation on which an edifice of intellectual capital may be built.

Literature

Roos etal. (1998) argue that employees generate intellectual capital through their competence, their attitude and their intellectual agility. According to Bontis et al. (2001), quite simply ,Human capital represents the individual knowledge stock of an organization as represented by its employees. Edvinsson (1997) defines intellectual capital as the possession of knowledge, applied experience, organizational technology, customer relationships and professional skills’. Recent social scientist account Human capital as One component of intellectual capital. Ulrich (1996, ) argues that intellectual capital exists when skilled employees are committed to business goals. That is, IC equals competence times commitment. Others view this asset as functioning at the collective level and regard it as a meta-competence. Rastogi (2002), for instance, views IC as a firm’s holistic capacity or meta-capacity to meet the challenges and exploit opportunities in its continual support of and search for value creation. The term “intellectual Capital (IC),”was first introduced by Kenneth Galbraith in 1969 (Bontis, 1998) who believed that there was more to the definition of corporate intelligence than dry skills—that it also requires intellectual action. IC, as he introduced it, is the move from “having” knowledge and skills to “using” the knowledge and skills that are scripted, often circuitously, in literature. The active use of knowledge is the transformation of information known to the individual into a product or service that is of value to a firm and its stakeholders. In short intellectual capital is defined “A dynamic nexus of a company’s human capital , social capital and knowledge management” (Rastogi, 2003).Edvinsson (2000) views IC as the future earning potential derived from the combination of human capital and the potential of workers within an organization. The Resource-Based View (hereinafter quoted as (RBV) links a firms internal capability (what it does best) to its external Industry environment (what market demands and what competitors offer).Capabilities have proven more difficult to delineate and are often termed as intangible assts (Hall, 1992) or intermediate goods (Amit and Schoemaker, 1993). Essentially capabilities refer to the firm’s capacity to deploy resources, usually in combination using the skills of individuals or group as well as organizational routines and interactions to affect a desired end. Academicians and practicing managers alike, however, were not aware of the argument, regarding the resource-based view until recently. Resource-based view gained attention of strategic thinkers only after the contribution by prominent authors such as Barney (1986), Wernerfelt (1984) and Dierick & Cool (1989). Dierick & Cool’s paper is a fundamentally important literature in the theory of Resource-based view, because it clearly explains the kind of resources and capabilities that are of central concern.



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In 1991, Barney, in his seminal study “Firm Resources and Competitive Advantage”, expanded Werner felt’s 1984 model with concepts from organizational economics and strategic management literature to demonstrate that firms can gain and maintain competitive advantage. Barney coined the phrase “Resource-Based View of the firm” to describe this new model. He argued that firms’ sustained competitive advantage derives from resources and capabilities that are rare valuable, imperfectly imitable, and not substitutable. Moreover in the context of the firm, these resources and capabilities are viewed as bundles of tangible and intangible assets that include management skills, organisational processes and routines, and information and Knowledge. A number of scholars had expressed the concern that much of the strategy literature was narrowly focused on product market position as a basis for competitive advantage and above normal return, This approach has created an analytical problem: if a product market position is achieved or otherwise protected by the deployment of scarce assets, it is necessary to account for the opportunity cost of those assets. The measured returns of the products market activities under normal circumstances will be inflated if the opportunity cost is not properly appropriated. Dierick & Cool (1989) offered a unique perspective on the topic of limits to imitation of valuable, but non tradable asset stocks. They suggested that the degree to which an asset is imitable depends upon the characteristics of the process used to accumulate the particular asset. Time compression diseconomies, asset mass efficiencies, interconnectedness of asset stocks, asset erosion and causal ambiguity are the dimensions associated with the value of an imitable asset. Value creation” is the process by which we accumulate value. The concept of value has went a radical redefinition in a knowledge economy, Shaikh (2004) views IC as knowledge that can be converted into value, or intellectual material (knowledge, information, intellectual property and experience) that can be used to create wealth. Value based on knowledge is not based on tangible “quantity,” rather it is based on the perception that potential clients have. It is “value creation” and not the “production of prices” that serves principal actors in the new economy. “Quantity” is now substituted with “value.” Whereas in the old economy, wealth was equal to an increase in the quantities produced of a product, with the measurement of quantities captured by models based on cost/I income ratios, in the knowledge economy, the attention has been switched from quantity to value and hence the topic need a study in detail. India’s liberalization have had two major implications for the corporate world, creation of hyper-competitive environment by lowering barriers to entry and opening up of opportunities for growth through the removal of regulations. Lahiri, Somnath; Kedia, Ben L. (2009) in their study on business process outsourcing focus on the resources and capabilities that are utilized by the providers in fulfilling their clients' sourcing needs. Using resource-based view and social exchange as theoretical foundations, they argue that providers' human capital, organizational capital, management capability, and partnership quality are crucial assets that are deemed valuable by the clients and are utilized by the providers in attaining higher performance.



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However, very little work in general has been done on the Human capital of Indian corporates after the liberalization process and practically a few on how they are bracing competition through human capital in adding value . In the west and other developed nations aligning and adopting strategy for competitive advantage is common and there had been many approaches and studies done on measuring and valuing the intangible capital and their impact on firm performance and value, However most of the studies in Indian context had used a subjective approach in studying the impact of human capital on firm value ,In the light of the progress made by India's reforms and the growing worldwide interest in India, this article tries to bridge this gap with an analysis of intellectual capital in thirty firms in service sector and how they helped in improving value. In today’s global marketplace, hardly anybody would dispute the decisive role of information and skilled workers in producing goods and services effectively and efficiently. Consistently increasing progress of information has taken the knowledge-based workforce into a superior position. Modern companies base their operations upon information and relevant technologies. Therefore, so as to evaluate performances of them, new valuation techniques are continued to be sought. It is commonly agreed that there is a lack of appropriate method of valuation, particularly in monitoring and managing intangible assets. Though there are many methods in measuring human capital efficiency, VAIC method of Ante Pulic (1998) is considered as a robust approach in recent studies in the field of Human capital accounting. However there has been a very few studies in India which had deployed VAIC method in determining the human capital efficiency of a firm, Hence there exists a gap in the application of these modern concept of human capital measurement in Indian service context Though we have a developing conceptual literature as well as a conventional wisdom among Professionals that a efficient utilization of intellectual capital will lead to better firm performance, the problematic nature of such a relationship cannot be ignored studies (Legge 1989; Noon 1992; Storey 1995). Kanfer (1994) acknowledges this phenomenon and suggests that the distance between practices and firm performance is too large to perform good reliable research. Research frame work The primary objective of this study was to ascertain the relationship between human capital of a firm and indices of organizational performance at the organizational level; The human capital indices considered for this study is addressed by the Value added Intelligent coefficient(VAIC) VAHC and the outcomes are measured by Market Value to Book Value (MB ) Data and Methodology The data used for the study comprises of Sixteen banks representing Bankex in BSE. The data obtained from Prowess Data base provides detailed information on each company. This includes a normalized database of the financials covering 1,500 data items and ratios per company. The data used for the study are for the period 2003 to 2009..The firms were selected from the Information Technology service sector which plays a crucial role in the economy of India, its



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innovation in products and services, and driving factor for competition is mainly accounted for by intellectual capital. The VAIC Method™

Researchers, such as Edvinsson, Malon Sveiby and Stewart maintain that traditional accounting is inapplicable to modern companies for it cannot appropriately measure and indicate their natural dynamics. However, only using intellectual brainpower intensely in the production process can now increase the value of commodities. To accomplish this, a company should and may rely on its skilled workers. Conventional companies’ objective was to increase production, and everything was contingent upon production. Modern companies’ objective is, however, to produce commodities by using more information as much as possible. Today, business success rests upon the ability and efficiency of companies to utilize information. The value-based management approach pushes the managers so as to maximize the economic value of the assets by using them efficiently. This empirical study applies a new accounting tool of VAIC(TM) or the Value Added Intellectual Coefficient, developed by Ante Pulic (1998) as his trade mark- and his colleagues at the Austrian IC Research Centre (Pulic 2000; Borhemann 1999) which is designed to help managers leverage their company's potential. The key contribution of VAIC is to provide a standardized and consistent measure that can be used to conduct comparative analyses across various sectors locally and internationally. This potential of VAIC is motivated by growing evidence in the literature, much of the research stemming from the work of Pulic (1998). Bornemann (1999) found a correlation between intelligent potential and economic performance. The method of Value Added Intellectual Coefficient (VAICTM) was first made public by Pulic (1998) and further developed by Manfred Boremann (1999). It gives a new insight to measures of value creation and monitors the value creation efficiency in companies using basic accounting figures. VAIC is designed to effectively monitor and evaluate the 'efficiency' in adding value (VA) to a firm's total resources and each major resource component, focusing on value addition in an organization and not on cost control (Pulic 2000, Boremann 1999). VAIC TM method assumes that company is a dynamic and ever-changing system, and a company’s workers are viewed as the primary asset for success. VAICTM method is based upon physical, financial and intellectual capital. This method measures the performance of both physical and intellectual capital in value-adding process. The coefficient of VAICTM is the efficiency of all resources and exhibits the value-adding ability of a company or an economy. The larger the coefficient, the more efficiently used physical, financial and intellectual capital turn out to be. VAIC TM numerically shows that total efficiency of physical, financial and intellectual capitals in value-adding process. Pulic’s methodology focuses on value-adding, value-adders, and value-adding procedures. VAICTM considers the entire company as a dynamic system.



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The enterprise thus yields less output to the economic environment than the input it uses as resources. In this case it could be stated that it does not create wealth (value), but rather wastes it. The value created (and also value added) indicator acknowledges that the use of any sort of capital implies the existence of costs that have to be paid. Irrespective of the origin of capital and of the form in which it is supplied, it can never be used for free. The earnings that add value to a company can be recorded only after all costs have been covered.(Gigare 2009) VA=OUT-INP Where: VA= Value Added OUT= Output INP= Input The value added indicator is measured in monetary units (units of value): Money earned by an enterprise is what provides this enterprise with value. The indicator is simple, and intellectual Capital is one of its central contributing factors. Each and every employee takes part in the process of value creation, as well as company stockholders, suppliers and clients In a later research from Firer and William (2003), they define VAIC as a composite sum of three separate indicators (1) Capital employed efficiency (CEE): indicator of VA efficiency of capital employed. (2) Human capital efficiency (HCE): indicator of VA efficiency of human capital. (3) Structural capital efficiency (SCE): indicator of VA efficiency of structural capital. Human Capital: As the Human Capital is not only one of the most important components of intellectual capital, it is also the ability source of intellectual capital. Stewart suggests that the workers in a company from bottom to top must be seen not as assets, but investment. Human capital can be defined as health, knowledge, motivation and skills, the attainment of which is regarded as an end in itself (irrespective of their income potential) because they yield fulfillment and satisfaction to the possessor. It is also referred to the employee competence in creating both tangible and intangible assets by contributing in the continuous generation of knowledge and ideas. Unlike structural capital, human capital is always owned by the individuals who have it, unless it is recorded in a tangible form or is incorporated in the organization’s procedures and structures (businessdictionary.com). In essence, continuous strengthening of intellectual resources and capabilities must be made to create a larger pool of talents and high caliber professionals in the banking and finance industry (Zeti, 2005). Financial sector in particular, needs a new generation of professional executives who are more customer-centric, technology-savvy, more highly qualified, flexible and agile with skill sets that are now more comprehensive than previously. In the context of globalization, high class human capital today has become a necessity and not merely opulence. Structural Capital : Structural capital encompasses the enabling structures that allow the organization to exploit the intellectual capital. The structures ranges from tangible items offered by an organization such as patents, trademarks and databases, to complete intangible success such as culture, transparency and trust among employees (Seetharaman, Low, and Saravanan, 2004). This capital is resulted from the products or systems that firm has created over time and



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will stay remains with the enterprise when people leave (Nik Muhammad and Aida, 2007). Thus, organizations that possess strong structural capital will have a supportive culture that permits their employees to try new things, to learn and to practice them (Bontis et al., 2000). Capital Employed: Capital employed refers to physical capital employed for attaining business goals The equation to assess each resource that helps to create or produce VA. VAIC(TM) = VACA+ VAHC +STVA ----------------------- -------------------------1 where VAIC, the Value Added Intelligent Coefficient, indicates corporate value creation efficiency. VACA indicates capital employed efficiency, VAHC human capital efficiency and STVA denotes structural capital efficiency While withstanding a highly competitive environment, an increasing number of firms have recognized that intangible assets rather than tangible ones are vital to achieving competitive advantages. Intellectual capital has replaced physical capital as the primary basis of value creation. Although the importance of intellectual capital in ensuring superior competitive advantages is well accepted, exactly how these two constructs are related has seldom been investigated, particularly for the high-technology industry. Many studies have conferred upon the importance and content of intellectual capital. Van Buren (1999) further discusses how to transform intellectual capital into competitive advantage but from a more conceptual aspect. Research on intellectual capital management from an empirical perspective still seems to be insufficient. How to leverage intellectual capital effectively has seldom been investigated empirically and is still subject to further study. To achieve the above research objectives, this study selected the Information Technology industry as an empirical research target. Unlike other companies, Software companies rely little on physical capital investment. Rather, the intellectual capital possessed by Information technology firms is what determines their survival. Based on the resource-based view, firms gain competitive advantage and superior performance through acquiring, holding and subsequently using strategic assets (namely, both tangible and intangible assets) that are vital to developing competitive advantage and achieving strong financial performance(Wernerfelt, 1984), we would like to propose the following hypothesis: H1: Firms with higher intellectual capital (VAICTM) yields a higher firm value(market/Book

value ) in banking sector H2: Firms With Higher component of Intellectual Capital Yields a Higher firm

Value.(Market/Book Value) In Banking Sector



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Independent Variables As mentioned beforehand, in this study, the VAIC method as modified by Firer and Williams (2003) was used and the measure of independent variables as follows: VAICi = CEEi HCEi SCEi where VAICi = VA intellectual coefficient for firm i; CEEi = VAi / CEi; VA capital employed coefficient for firm i; HCEi = VAi / HCl; human capital coefficient for firm i; and SCEi = SCi /VAi; structural capital VA for firm i; VAi = Ii (sum of interest expenses) DPi (depreciation expenses) Di (dividends) Ti (corporate taxes) Ri (profits retains for the year) CEi = book value of the net assets for firm i; HCi = total investment salary and wages for firm i; SCi = VAi - HCi; structural capital for firm I; Dependent Variables

To conduct the analysis, t dependent variable of Market value to book value was used as measure for and market valuation , VAIC is applied as it indicates efficiency in creating corporate value or the extent of corporate intellectual ability.

The Analysis

This evaluation of the hypothesized model is carried out by using correlation and linear multiple regression to analyze the data. Before proceeding with regression analysis the assumption of regression analysis have to be fulfilled .None of the multivariate analysis may yield reliable results if the assumption are not satisfied, For testing the linearity of variables initial test was through correlation analysis that is being discussed in the forth coming section of the paper. (Table -1).The data was normalized by converting it to natural logarithm. Thus the above discussion provided a plausibility of hypothetical assertions about potential interrelationships among construct as well as the measures assessing them. Analytical procedures and tools for testing the model was also presented, both independent and dependent variables have been were operationalised. With these we will extent the study by presenting the results of analysis.



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Table-1 Correlation among VAIC and MVBV

MVBV_1 EPS_1 VAIC1 MVBV_1 Pearson Correlation

Sig. (2-tailed) N

1 .

126

.5225** .000 126

.363** .046 126

EPS_1 Pearson Correlation Sig. (2-tailed) N

.5225** .000 126

1 .

126

.234* .013 126

VAIC_1 Pearson Correlation Sig. (2-tailed) N

.363** .046 126

.234* .013 126

1 .

126 Dependent Variable: MVBV **. Correlation is significant at the 0.01 level (2-tailed) *. Correlation is significant at the 0.05 level (2-tailed). The table 1 shows that there exists a correlation between market value to book value and the VAIC at 95 percentage confidence level. The dependent variables were tested against independent variable and the significance of linearity test was small -- less than 0.05. It indicates that the linear relationship exists and was ensured. Table – 2 Impact of VAIC on Market value to book value

Unstandardized Coefficients

Standardized Coefficients

Model 1 B Std. Error Beta

T Sig

Constant 4.42 .110 .763 .000 VAIC .917 .123

.783 7.456 .000

R .783

RSquare .614

Adj. R Square .603

Impact of VAIC’s Components on Market value to book value



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Table-3 Model summary

Model R R Square

Adjusted R Square

Std. Error of the Estimate

1 0.734 0.553 0.547 0.719 2 0.824 0.695 0.688 0.592 3 0.860 0.736 0.726 0.610

Table-4 ANOVA Model

Sum of squares

df Mean Square

F Sig

Regression 44.935 1 44.935

Residual 54.590 83 .658

1

Total 99.525 84

68.320 .000 a

Regression 61.685 2 30.842 Residual 37.841 82 .461

2

Total 99.525 84

66.835

000 b

Regression 64.375 3 21.458 Residual 35.151 81 .434

3

Total 99.525 84

49.448 000 c

a. Predictors: (Constant), CEE b. Predictors: (Constant), CEE, SCE c. Predictors: (Constant), CEE, SCE, HCE

Table-5 Coefficients

Unstandardized Coefficients Standardized Coefficients

Model B Std. Error Beta

Sig

(Constant) 3.000 0.127469 .000 1 LOGCEE 0.603 0.107371 0.734 .000 (Constant) 3.198 0.185794 .000 LOGCEE .513 0.093052 0.824 .000

2

LOGSCE 0.153 0.136657 0.42445 .000 (Constant) 3.01149 0.314844 .000 LOGCEE 1.050759 0.091463 0.860 .000 LOGSCE 0.46768 0.191497 0.247013 .000

3

LOGHCE 0.5171 0.208676 0.248735 .000



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Discussion It can be inferred from the table -2 The total variation in Market value to book value can be explained (explanatory power) by the 60 percentage variation in the Value Added Intellectual Capital Coefficient. The VAIC has a positive impact on Market value to Book value. The Influence of VAIC on Market value to Book Value is significant at 0.05 Level, Hence the statement of hypothesis that firms with Higher Value added Intellectual Coefficient will have higher rate market value to book value is supported The table three represents the model generated using regression analysis. Three models were generated with model 1 being the best one variable model , Model 2 being the best two variable model and model three is a single multiple regression with three variables. The R square ranges between 0.54 and 0.726 According to Table-3 54 %, 69% and 72% of the variation in Market value to book value on shares can be explained (explanatory power) by the variation in the Value Added Intellectual Capital Coefficient components such as physical capital, structural capital efficiency and human capital efficiency respectively. Table-4 shows the significant result (P value < 0.05) of the Global test, which suggests that at least one independent variable such as human capital, structural capital and physical capital has a positive correlation with market value to book value Table 5 shows the coefficients of the linear regression in the respect of independent variables. All the three components of VAIC shows a significant positive relationship with market value to book value and thus the second hypothesis is also proved to be valid. Implications of the study This investigation has shown potency of corporate intellectual capital in order to generate capital gain on shares and as a result attract investors in the market. Thus a firm can formulate their business strategies to increase the efficiency of its resources and achieve competitive advantages over its rivals. Similarly investors should also carry out analysis on firms Intellectual capital along with other parameters to have a sustainable return. Conclusion Intellectual capital is recognized as a major corporate asset capable of generating sustainable competitive advantages and superior financial performance (Barney, 1991). An empirical evidence of this research suggests that there is a significant positive relationship between Market value to book value and corporate intellectual capital. In addition, this study indirectly proves the positive relationship between market value to book value and corporate financial performance since existing research has shown a positive relationship between VAIC and corporate financial performance (eg. Barney, 1991; Pulic, 2000b).



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References Abdolmohammadi, M.J., Greenlay, L. and Poole, D.V. (1999): Accounting methods for measuring intellectual capital. Abdullah Yalama, Metin Coskun (2007) Intellectual capital performance of quoted banks on the Istanbul stock exchange market, Publisher: Emerald Group Publishing Limited Acemoglu, D. (1998) 'Why do new technologies complement skills? Directed technical change and wage inequality', Quarterly Journal of Economics, November, 1055-1089. Adams, J. D. (1990) 'Fundamental stocks of knowledge and production growth', Journal of Political Economy, 98, 673-702. Ahonen G. (2000): Henkilöstötilinpäätös - yrityksen ikkuna menestykselliseen tulevaisuuteen. Kauppakaari, Helsinki 1998 Amidon Debra (1996): Knowledge Management gains Momentum in Industry, Research-Technology Management 39 May/June 1996 Andersen R. & McLean R. (2000): Accounting for the Creation of Value. Ongoing research project sponsored by the Canadian Institute of Chartered Accountants Andriessen (2005): Implementing the KPMG Value Explorer: Critical success factors for applying IC measurement tools. Journal of Intellectual Capital Vol6:4. Arrow, K. J. (1962) Economic Welfare and the Allocation of Resources for Invention, University of Minnesota, The Rate and Direction of Inventive Activity: Economic and Social Factors, Princeton University Press. Arthur, W. B. (1996). Increasing returns and the new world of business. Harvard business Review, Jul–Aug, 100–109. Azad, M. A. K. (2000). Lending Strategy, Policy and procedure in Financing Small Scale Industry: A Case Study of Bank of small Industries and Commerce Bangladesh Limited. Journal of Business Studies. 11(2), 163-182. Barney, J. B. (1991). Firm resources and sustainable competitive advantage. Journal of Management, 17(1), 99-120. Barney, J.B. (1991), “Firm resources and sustainable competitive advantage”, Journal of Management, Vol. 17 No. 1, 99- 120. Bart, C., Bontis, Nick and S. Taggar. (2001). “A model of mission statements and firm performance”, Management Decision, 39, 1, 19-35.



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Bart, C.K. and Bontis, Nick. (2003). "Distinguishing Between the Board and Management in Company Mission: Implications for Corporate Governance, Journal of Intellectual Capital, 4, 3, 361-381. Bornemann, M., (1999) Potential of Value Systems According to the VAICTM Method. International Journal Technology Management,18(5/6/78): 463-475. Bontis, N., (1999), “Managing organizational knowledge by diagnosing intellectual capital: framing and advancing the state of the field”, International Journal of Technology Management, Vol. 18 Nos 5/6/7/8, pp. 433-462. Branstetter, L. and Sakakibara, M. (1998) Journal of Industrial Economics, XLVI, 207-233. Breschi, S., Malerba, F. and Orsenigo, L. (2000) 'Technological Regimes and Schumpeterian Patterns of Innovation', Economic Journal, 110, 388-410. Brooking, A. (1996): Intellectual Capital: Core Assets for the Third Millennium Enterprise, Thomson Business Press, London, United Kingdom. Brummet, R. L., Flamholtz, E. G., & Pyle, W. C. (1968). Human Resource Measurement: A Challenge for Accountants. The Accounting Review, April, 217-224. Donaldson, T., and Preston, L.E., (1995). The Stakeholder theory of the corporation: concepts, evidence and implication. Academy of Management Review, Vol. 20 No. 1, pp. 65-91. Edvinsson, L., and Malone, M.S., (1997). Intellectual Capital: Realizing Your Company’s True Value by Finding Its Hidden Brainpower, Harper Business, New York, NY. Edvinssion, L, (1997). Developing intellectual capital at Skandia, Long Range Panning, 30 (June); 366-373.Firer, S. and Williams S. M., (2003), Intellectual Capital and Traditional Measures of Corporate Performance, Journal of Intellectual Capital, 4(3): 348- 360. V. Murale, R. Jayaraj, Ashraf Ali(2010) “Impact of Intellectual Capital on Firm Performance: A Resource Based View Using VAIC Approach” International Journal of Business Management, Economics and Information Technology, Vol.2.No.2, July-December 2010: pp. 283-292



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Marketing evaluation of travel and tourism websites: Lessons from the small and medium enterprises in Andaman Islands

Dr. S.Victor Anandkumar

School of Management, Pondicherry University, India E-mail: [email protected]

Abstract: Tourism and Internet are ideal partners, according to a World Tourism Organization (WTO) report. Tourism is an information-intensive industry and the Internet, with its inherent wealth of information and interactivity empowers customers to locate information quickly and precisely on the web-fronts of Tourism enterprises. It is understood that the Tourism industry is dominated by private sector, comprising largely of small to medium Tourism enterprises. For these enterprises, Internet offers a level playing field. According to a UN report, it is not the cost of being there on the online market place that must be reckoned with, but the cost of not being there. Thus one of the most important characteristics of Internet marketing is the opportunity and the promise it holds for Tourism enterprises (particularly the small and medium-sized) to extend their marketing capabilities and grow. As small and medium Tourism enterprises come up with well-developed and innovative Internet-enabled marketing strategies, important consideration must be given to the design and implementation of their web-fronts where the service encounter happens. It involves an evaluation of their websites from a marketing perspective. Since the website represents the enterprise–customer interface, it certainly affects the quality of service encounters. Because of the Internet, “face-to-face” encounters common in the traditional retail environment have been widely replaced by “screen-to-face” interactions. This paper studies the websites of select small and medium Tourism enterprises in Andaman Islands from the marketing perspective and draws generalizations about the enterprise–customer interface design, using the 7-C framework as suggested by Rayport and Jaworski (2002). Keywords: e-Tourism, website evaluation, small and medium tourism enterprises Introduction : Some of the services that people use require active contact with the organization. Tourism and hospitality services fall in this category. In the off-line service marketplace, a notion of a spectrum of customer contact with the service organization is possible with the extremes of high-contact and low-contact service encounters. With the advent of Internet and e-commerce, this notion is changing. In the online service market space, every encounter is a real-time encounter with a self-service equipment (e.g. website) and a virtual encounter with service personnel (e.g. virtual assistant). When the competition is just a click away and when the customer can leave at the click of a mouse, the design and implementation of the enterprise-customer interfaces are of paramount importance.



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The paper briefly discusses the healthy marriage between tourism and Internet. The concept of Internet marketing of tourism services is presented as the context and rationale for the paper. The 7-C framework of enterprise-customer interface in Internet marketing as propounded by Rayport and Jaworski (2002) is evaluated and its application in the case of select small and medium tourism enterprises in Andaman islands is studied. In the Internet marketing of tourism and hospitality services, e-Service encounters represent the Moments of Truth (Carlzon, 1987). The paper identifies the 7-C framework to manage these moments of truth and transform them into moments of magic, lest they become moments of misery, if not mediocrity. Tourism and Internet: Internet is revolutionizing Marketing. Tourism marketing is no exception. According to the WTO (2001), an increasing proportion of Internet users are buying online and tourism will gain a larger and larger share of the online commerce market. Marketing is the field where websites have been used the most, regardless of the type of tourism business. As a result E-Marketing has emerged as a marketing option for Tourism enterprises. Internet Technologies have had an enormous influence of communications and product promotion and distribution for the Tourism industry worldwide (Buhalis, 1998). The growth of the number of Internet users has been skyrocketing. According to a Datamonitor report, the global Internet population will reach 300 million by 2005 (Cyberatlas, 2000). A Comscore Network research finding suggests that the number of unique visitors who surfed the eTourism websites worldwide reached 93.4 million Internet users in 2002, which represents 30% of the global Internet user population (Carton, 2002). Tourism and Internet are ideal partners (WTO, 2001). The study of e-commerce in the Tourism industry has emerged as a ‘frontier area’ for information technology. Organization for Economic Cooperation and Development (OECD, 2000) revealed that the advent of Internet-based electronic commerce offered considerable opportunities for firms to expand their customer base, enter new product markets and rationalize their businesses. As information is the life blood of the travel and tourism industry, effective use of Information Technologies (ITs) is pivotal. Hence a whole system of ITs is being rapidly diffused throughout the tourism industry and no player will escape its impacts (Poon, 1993). Unlike durable goods, intangible tourism services cannot be physically displayed or inspected at the point of sale before purchasing. They are bought before the time of their use and away from the place of consumption (Buhalis, 1998). Hence they depend exclusively upon the quality and quantity of information provided by the travel trade. The information representations and descriptions (e.g. brochure ware) are used to influence the consumer decision making. Timely and accurate information, relevant to consumers’ needs, is often the key to satisfaction of tourist demand. Internet and related technologies can provide the information backbone that facilitates tourism. The growth and popularity of Internet marketing of services is overwhelming. They can be attributed to three major benefits that customers perceive, viz., convenience (i.e., anytime 24*7*365), information (that is recent, reliable and researchable) and fewer hassles (as there are no die-hard salespeople nor long lines) (Janal, 1998). However, Internet marketing is not for every company nor for every product (Kotler, 1999). The Internet is useful for products and services where the customer seeks greater ordering convenience or lower cost or more



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information about features and value differences. Tourism products and services match these requirements for Internet Marketing. For example, consider airline tickets, hotel reservation, car rental, facility booking and so on. Background: A service encounter is a period of time during which customers interact directly with a service (Shostack, 1985). From the customer’s point of view, the most vivid impression of service occurs in the service encounter, when the customer interacts with the service firm. It is in these encounters that customers receive a snapshot of the firm’s service quality, and each encounter contributes to the customer’s overall satisfaction and willingness to do business with the firm again. From the firm’s point of view, each encounter thus presents an opportunity to prove its potential as a quality service provider and to increase customer loyalty. Mistakes or problems that occur in the early service encounters are particularly critical because a failure at one point results in greater risk for dissatisfaction at each ensuing encounter. In this context, eService encounters happening at the enterprise-customer interfaces (i.e. the websites) assume special importance. They appear at a time and space and in an environment defined as per the customer’s convenience. Table 1 summarizes the benefits and challenges in eService encounters (Zeithaml and Bitner, 2003).

Table 1. eService encounters – benefits and challenges

Benefits Challenges Consistent delivery for standardized services

Customers are active, not passive

Low cost (per interaction) Lack of control of the electronic environment

Customer convenience Price competition Global distribution and bigger reach

Lack of consistency due to customer involvement

Customer choice and ability to customize

Requires changes in consumer behaviour

Quick customer feedback Security concerns Parallel processing Customers want to interact, not peep

Research Methodology:

This is a descriptive research aimed at studying the websites of the small and medium Tourism enterprises in Andaman Islands from a marketing perspective. Apart from general industry information collected as secondary data, this research relies heavily on passive primary data collected through observation method. Observation means that the situation of interest is checked and a person or some mechanical device records the relevant facts, actions, or behaviours. Accurate data about the situation of interest (in this case, the eService encounter at the website) is provided by observation. Observation does not tell why it happened. Observational studies can provide rich data and insights into the nature of the phenomena observed (Sekaran, 2003).



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The data obtained through observation of events as they normally occur are generally more reliable and free from respondent bias.

The research study was carried out during the period December 2004 - June 2005. This time period accounts for all types of seasonal variations and thus accounts for all types of business promotions and periodic site content changes. Through a random sampling from the sampling frame provided by the Destination Marketing Organization (http://tourism.andaman.nic.in), 20 websites of small and medium Tourism enterprises were identified. The definition of what constitutes the small and medium Tourism enterprises varies widely. This research defines them as enterprises that have 50 or fewer employees or annual sales in the range of US$ 10000–100000 and operating in the sectors like travel services, leisure, hospitality and so on. These sectors represent the 4 As of tourism – Access, Accommodation, Attraction and Ancillary services. Table 2 gives the list of small and medium Tourism enterprises whose websites were chosen as the sample for research. The sample profile is shown in Figure 1.

Table 2. Websites chosen for observation (passive primary data collection)

Category of business Websites chosen

ACCOMMODATION

� www.hotelsentinelandamans.com � www.wildorchidandaman.com � www.sinclairshotels.com � www.hotelabhishekh.com � www.andamanresidency.com

ACCESS

� www.andamanisland.com � www.andamanthrukathay.com � www.andamanconnections.com � www.barefootindia.com � www.beachresortsindia.com

ATTRACTIONS

� www.diveindia.com � www.andamandiveclub.com � www.diveandaman.com � www.andamansearally.com � www.scubaindia.com

ANCILLARY

� www.palmgroove.com � http://tourism.andaman.nic.in � www.emeraldislands.com � http://andaman.co.in



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Figure 1. Sample profile

From these websites, primary data was collected through a structured observation method. The 7-C framework for Customer interface provided the structure for observation. Table 3 explains the seven Cs (design dimensions of enterprise–customer interface) and their indicators.

7 Cs Framework for marketing evaluation of websites: From a marketing viewpoint, traditional marketing mix elements involve product, price, promotion and place (McCarthy, 1981). In the case of Service marketing, physical surroundings, participants and processes are added to the marketing mix (Booms and Bitner, 1981). These however do not fit into the Internet Marketing paradigm. Because of the Internet, “face-to-face” encounters common in the traditional retail environment have been widely replaced by “screen-to-face” interactions (Rafi, et al. 2002). Seven design elements of customer interface have been suggested, including content, customization, community, commerce, context, communication and connection (Rayport and Jaworski, 2002).

� Content is defined as all digital subject matter on the website. It may include the itineraries/tour/product information, maps, pictures, security/privacy/quality statement, price information and so on.

� Customization means the website’s ability to tailor itself to different users or to allow users to personalize the site. Service that allows customers to design personal itineraries by themselves is a good example of customization. Websites offering multiple language support and search (on the basis of a personal query) facility may be credited for this design element.

� Community is defined as the interaction that happens between and among the website users. User-to-user communication can occur between two users (e.g. emails) or involving many (e.g. chat rooms). It serves to organize favourable customers and to increase their loyalty. Furthermore it is expected that they play a critical role as opinion leaders for general customers through word-of-mouse, which is the online equivalent for word-of-mouth. Customer postings, guestbook comments are certain instances of community-building, though not in a dynamic sense.



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Table 3. 7Cs and their indicators for Website observation

Dimension Indicators Content � Essential information

� Itineraries/tour/product info � Maps � Security/privacy statement � Click-through content � Quality assurance � Price information

Community � Customer postings � User-to-user interaction

Customization � Multi-language service � Personalized service � Loading specifications � Search function

Communication � FAQs � Email form � Online registration � Call center � Offline Contact details

Connection � Useful links � Affiliate links

Commerce � Online reservation � Online payment � Online cancellation � Cross-selling

Context � Sitemap � Main menu � Multimedia contents � Cookies placement � Search Engine optimized � Resident software required � Look and feel � Transactional utility � Alias

� Commerce means the website’s capability to enable commercial transactions. Online

reservation, payment and cancellation features indicate a highly commerce-oriented website. Cross-selling commerce is gaining popularity in an increasingly ‘connected’ world.

� Context involves the website’s layout and design. It has both aesthetic (colours, visuals) and functional (simple, easy-to-navigate) design elements to communicate the site’s main benefits. Some websites are search engine optimized to rank high on search results and therefore stand a better chance of getting noticed and then visited by the browsing customer.



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� Communications refer to the dialogue that unfolds between the website and its users. This communication can be of three types: site-to-user communication (e.g. email notification), user-to-site (e.g. customer service request) or two-way communication (e.g. instant messaging). On many tourism sites, this function enables the user to talk directly with the contact person while using the site.

� Connection is defined as the number of formal linkages between the website and other websites. It involves a program that supplies affiliated sites with banner advertisements to link visitors from other sites to a particular site.

Findings: Tables 4 and 5 consolidate the website (i.e. enterprise–customer interface) evaluation of the sample of 20 small and medium tourism enterprises. Overall, they are well-constructed in terms of communication and context. In particular, sites which resemble portals (with extensive menus and links and diverse services) excelled in communication and context. Most of the sites were found to need improved functions of community, customization and commerce. Although the sites were found to be doing well in terms of context, most of them were not offering sitemaps that make site navigation easy and convenient for the customers. Multimedia contents mostly comprised of Flash animation which add to the site aesthetics and hi-tech looks, but at the cost of slow download time. It is surprising to note that not many sites had even thumbnail picture/video gallery. Apart from the cognitive appeal generated by the site, such visuals immensely improve the emotive appeal. After all, seeing is believing! For these small and medium Tourism enterprises, commerce is the most important function. Therefore, they have to make this function available and secure as possible. Online, real-time reservation (with a real-time email or a call center) is a step to begin with, followed by online payments. Community is an important function in the sense that it facilitates information exchange among customers, word-of-mouth (or word-of-mouse!) advertising and repeat purchasing. The power of community needs to be harnessed and therefore the community services must be enhanced on the websites. Tourism and travel-related websites should consider implementing one-stop services like portal sites given the fact that customers want not only simple, fragmented information about products, but also other necessary information on tourism destinations such as ‘places to see’, ‘things to do’ and ‘guidelines for the visitors’. Conclusion: Tourism is an information-intensive industry. In a typical eService encounter at the enterprise-customer interface, it is not just the information which is shared, but also equally critical is the manner in which it is shared. The seven Cs, viz., content, customization, community, commerce, context, communication and connection, outlined here make the encounter between the customer and the marketer, a mutually rewarding experience. The examples from among the small and medium Tourism enterprises in Andaman islands drive home this point. As in any scientific research, this research also has certain limitations. All the observations made by the researchers were using Microsoft Explorer (ver.5.0) browser. The consistency of the customer interface



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across browsers (for example, Netscape Navigator) was not studied. The study covers the Tsunami and post-Tsunami periods. In the post-Tsunami recovery, lot of content on the websites was to build confidence and to dispel apprehensions. Such contents are temporal in scope and not part of the usual website content. Tsunami did wipe away a few small and medium tourism enterprises out of business and hence their online presence also got wiped off. Moreover, the website mortality rate seems to be high. The convenience and the low cost of setting up a website attracts many small and medium enterprises. But the effort and the expenditure in maintaining it puts off certain small and medium enterprises. As a result, they pull off their websites. But these limitations in no way undermine the conclusion about the importance of a good enterprise–customer interface to facilitate eService encounters.

The extent to which an enterprise–customer interface is successful depends on how well all of the seven Cs work together to support the value proposition and business model. Two concepts are particularly helpful in understanding the synergy among the seven Cs: fit and reinforcement. Further research may be carried out to find out how the seven Cs individually support the business model fit and how collectively and consistently they reinforce each other.

In an increasingly globalized world, technology is fast emerging as the chief homogenizing agent. As tourism services marketing makes use of the eCommerce technology, care must be taken to design and implement rewarding enterprise-customer interfaces facilitating eService encounters. References: Booms, B.H., and Bitner, M.J., Marketing Strategies and Organizational Structures for Service Firms, in Marketing of Services, ed. J.H.Donnelly and W.R.George, Chicago: American Marketing Association (1981) Buhalis, D., Strategic use of Information Technologies in the Tourism industry, Tourism Management, Vol.19, No.5 (1998) Carlzon, J., Moments of Truth, Cambridge, MA: Ballinger Publishing Co. (1987) Carton, L., e-Metrics, E-Tourism Newsletter, Issue 2 (2002) Cyberatlas, at URL: http://cyberatlas.internet.com/big_picture/demographics/article/0,1323,5901_150061,00.html (2000) Janal, D., Online Marketing Handbook: How to promote, advertise and sell your products and services on the Internet, New York: John Wiley (1998) Kotler, P., Marketing Management: The millennium edition, New Jersey: Prentice-Hall Inc. (1999)



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McCarthy, J., Basic Marketing: A Managerial Approach, Homewood, IL: Richard D.Irwin (1981) Organization for Economic Cooperation and Development (OECD), Realizing the potential of electronic commerce for SMEs in the global economy, Conference for Ministers responsible for SMEs and Industry Ministers, Bologna, Italy (2000) Poon, A., Tourism, Technology and Competitive Strategies, CAB International, Oxford (1993) Rafi A. Mohammed, Robert J.Fisher, Bernard J. Jaworski and Aileen M. Cahill, Internet Marketing: building advantage in a networked economy, McGraw-Hill/Irwin (2002) Rayport, J. and Jaworski, B., Introduction to e-commerce, New York: McGraw-Hill (2002) Sekaran, U., Research methods for Business: A skill building approach (4e), John Wiley & Sons, Inc. (2003) Sheldon, P., Tourism Information Technology, CAB International, Oxford (1997) Shostack, L., “Planning the service encounter” in The Service Encounter, ed. J.A.Czepiel, M.R.Solomon, and C.F.Surprenant, Lexington, MA: Lexington Books, 1985, pp. 243-254 (1985) World Tourism Organization, Mrketing Tourism Destinations Online (1999) World Tourism Organization (WTO), E-business for Tourism, Practical Guidelines for Tourism Destinations and Businesses (2001) Zeithaml, Valarie. A. and Mary Jo Bitner, Services Marketing: Integrating customer focus across the firm (3e), Tata McGraw-Hill (2003)



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Table 4. Enterprise-Customer interface: Website evaluation

(Note: A-E – Accommodation; F-K – Access; L-P – Attractions; Q-T – Ancillary businesses; Y – available; N – not

available)

Dimension Indicators A B C D E F G H I J K L M N O P Q R S T

Content Essential information Y Y Y Y Y Y N Y Y Y Y Y Y Y Y N Y Y N Y

Itineraries/tour/product info Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y

Maps N Y N Y N Y N Y N N N Y Y N N N N Y N N

Security/privacy statement N N N N N N Y N Y N N N N N N Y N N Y Y

Click-through content Y N N N N Y Y N Y N N N N N N Y N N Y N

Quality assurance N N N N N N N N N N N Y Y Y N N N N N N

Price information N Y Y Y Y Y Y N Y N N Y Y Y N Y Y Y Y N

Community Customer postings N Y Y N N Y N Y Y N N N N N Y N N N N N

User-to-user interaction N N Y N N Y N N N N N N N N N N N N N N

Customi- zation

Multi-language service N N N N N N N N N N N N N N N N N N N N

Personalized service N N N N N N N N N N N N Y N N N N N N Y

Loading specifications N Y N Y N Y Y N N N N N N N N Y N N Y N

Search function N N N N N Y Y N Y N N N N N N Y N N Y Y

Communi-cation

FAQs N N N N N Y N N N N N Y Y N N N N N N N

Email form Y Y Y N N N Y N N N Y Y Y N N Y N N Y N

Online registration N N N N N N N N Y N N N Y N N N N N N N

Call center/Online sup N N N N N N N N N N N N N N N N N N N Y

Offline Contact details Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y

Connection Useful links N N N N N Y Y Y Y N N N N N N Y N Y Y N

Affiliate links N Y Y N N Y Y N Y N N Y N N N Y N N Y Y

Commerce Online reservation Y Y Y N N Y Y Y Y Y Y Y Y N Y Y N Y Y N

Online payment N N N N N N N N N N N N N N N N N N N N

Online cancellation N Y Y N N Y Y Y Y Y Y Y Y N Y Y N Y Y N

Cross-selling Y Y Y Y Y N Y Y Y Y N Y Y N N Y Y N Y Y

Context Sitemap N Y N N N Y N N N N N N N N N N N N N N

Main menu Y Y Y Y Y Y N Y Y Y N Y Y Y Y N Y Y N Y

Multimedia contents N Y N N N Y Y N Y Y N N N N N N N Y Y N

Cookies placement N N N N N N N N N N N N N N N N N N N N

Search Engine optimized N N N N N Y N N Y Y Y Y Y N Y N N Y N Y

Resident software required N Y N N N N Y N Y Y N N N N N N N Y Y N

Look and feel Y Y Y Y Y Y N Y Y Y N Y Y Y Y N Y Y N Y

Transactional utility N N N N N N N N Y N N N N N N N N N N N

Alias Y N N N N Y Y N N N N N N N N Y N N Y N



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Table 5. Enterprise-Customer interface: Website evaluation cumulative score

Dimension Accommodation Access Attractions Ancillary activities

Content

17 21 20 14

Community

3 4 1 0

Customization

2 5 3 4

Communication

8 10 11 6

Connection

2 7 3 4

Commerce

10 16 11 7

Context

14 23 12 13

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