Parikalpana - KSOM · A Comparative Study Manish Kumar Yadav & Alok Kumar Rai Consumer Perception...

KIIT School of Management, KIIT UniversityBhubaneswar - India

KIIT Journal of Management

In this issue

- Editorial: Research Statistics

Variations in the Flue cured Virginia Tobacco export Performance of different regions of the world : An empirical studyDr. P. Hari Babu

Managing Talent for Sustainable Competitive Differentiation Nidhi Sharma

Shareholder ActivismK. Rajyalakshmi

Customer Perception on Performance of RRBs in OdishaJitendra Kumar Ram & Rabi N. Subudhi

Business Potential of Fish Parlours in Uttar Pradesh Dr R K Panda

Service Quality Gaps Banking Industry : A Comparative StudyManish Kumar Yadav & Alok Kumar Rai

Consumer Perception of Services for Retail Products: A Case Analysis of State Bank of IndiaHimani Sharma & Ruhi Chawla

Perceived Risk and Consumer Behavior TowardsOnline Shopping : An Empirical InvestigationAjitabh Dash

Measuring Effectiveness of Attendance Management Systems in Time OfficeProf CM Maran

Behaviour of Individuals in Everyday Financial Decisions: a study of Demographic VariablesSunita Mehla & Suman Ghalawat

Corporate restructuring:Causes, measurement methods and effectsRaju L Hyderabad

Climate Controlled Environment and Student Productivity: An Empirical AnalysisAkankshya Patnaik & Ratnakar Mishra

- Case Study Section

Noamundi Steel Plant Ltd (NSP)Saroj K Routray

ISSN 0974-2808

V o l u m e - 10 (I) Jan - Jun, 2014Parikalpana

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Parikalpana:KIIT Journal of Management

[ISSN – 0974-2808]

Board of AdvisorsProf. N.L. Mitra

Chancellor, KIIT UniversityProf. P.P. Mathur

Vice Chancellor, KIIT UniversityProf. Anil Bajpai

Director, KIIT School of Management, KIIT University

Members of Journal Committee, KSOM, KIIT University

Ashok K Sar Pooja Mohanty Biswajit Das Punyoslok Dhall Ipseeta Satpathy Surbhi Kapur

Editorial Board Artatrana Ratha, St Cloud State University, USA Ashish Dwivedi, Hull University Business School, Hull, UK B. K. Mohanty, Indian Institute of Management Lucknow, India Badar Alam Iqbal, Aligarh Muslim University, Aligarh, India Damodar Suar, Indian Institute of Technology Kharagpur – India Rajen K Gupta, M.D.I. Gurgaon, India Sailabala Debi, KIIT School of Management, KIIT University, Bhubaneswar, India Saswata Narayana Biswas, Institute of Rural Management (IRMA), Anand, India Sushanta Mallick, School of Bus. & Management, Queen Mary, University of London Wee Yu Ghee, University Malaysia Kelantan, Malaysia

EditorR. N. Subudhi

(Professor, KIIT School of Management, KIIT University)e-Mail: [email protected]

© KIIT School of Management, KIIT University, BhubaneswarPublished by Director, KIIT School of Management, KIIT University, Bhubaneswar.Printed at: Print-Tech O�set Pvt. Ltd.,

Disclaimer: The publisher and or editors cannot be held responsible for errors or any consequences arising out from the use of information contained in this journal. The views and opinions expressed do not necessarily re�ect those of the publisher and editors.

Parikalpana(KIIT Journal of Management)

Vol - 10 (I) 2014

CONTENTSEditorial Variations in the Flue cured Virginia Tobacco export 1-8

Performance of different regions of the world : An empirical studyP. Hari Babu

Managing Talent for Sustainable Competitive Differentiation 9-22Nidhi Sharma

Shareholder Activism 23-36K. Rajyalakshmi

Customer Perception on Performance of RRBs in Odisha 37-50Jitendra Kumar Ram & Rabi N. Subudhi

Business Potential of Fish Parlours in Uttar Pradesh 51-60Dr R K Panda

Service Quality Gaps Banking Industry : A Comparative Study 61-72Manish Kumar Yadav & Alok Kumar Rai

Consumer Perception of Services for Retail Products : 73-78A Case Analysis of State Bank of IndiaHimani Sharma & Ruhi Chawla

Perceived Risk and Consumer Behavior Towards 79-85Online Shopping : An Empirical InvestigationAjitabh Dash

Measuring Effectiveness of 86-94Attendance Management Systems in Time OfficeCM Maran

Behaviour of Individuals in Everyday Financial Decisions : 95-107a study of Demographic VariablesSunita Mehla & Suman Ghalawat

Corporate restructuring: 108-126Causes, measurement methods and effectsRaju L Hyderabad

Climate Controlled Environment and Student Productivity : 127-141An Empirical AnalysisAkankshya Patnaik & Ratnakar Mishra

- Case Study Section Noamundi Steel Plant Ltd. (NSP) 142-146

Saroj K Routray

Editorial

Research Statistics: Quantity also matters!!Rabinarayan Subudhi

Lot of academic debate takes place,almost regularly, on the quality of researchpapers and also their practical usefulnessand acceptability. The last editorial of ourjournal (Parikalpana, Vol.9.1) was alsodevoted on that. Despite skepticism andall those counter-arguments, research lives,because of its usefulness and academiccharm. Academicians are nowcategorically asked and expected to havepublications in standard journals, at leastrecorded (and cited) in respected globaljournal databases/ aggregators. One such‘good’ database is SCOPUS. ManyInstitutes now link their academic-incentiveplans to ‘Scopus-visibility’ of their scholarsand faculty members. This in turn speaksabout the ‘institute-aggregate’, how much,quantitatively, an organisation/ institute hascontributed to the academic researchworld.

Many academicians feel that,Scopus, as of date, has not given enoughcoverage on the research articles in theareas of ‘Management’ (particularly sincemany important Management journalshave not been included so far). But, surely,it is a very good (huge) data-base ofscientific research articles. The authorwanted to find the trend of researchpublication and searched Scopus-database for all statistics, (from user

access, on 16.01.14). It is really a verycommendable academic effort to store/aggregate extensively so many researcharticles, in such a very systematic way(ready for statistical analysis). Articles from1827, till date; from all most all fields;having now (as on 16.1.14) informationof over 35 lakh articles!! Huge, really!! Itis quite obvious that most of the listedarticles are of relatively recent past. As wefind, for the period from 1827-1950, thereare hardly 3000 articles found in the data-base. So, as we see the real trend, post1960s, contributors from USA (37.5%)and UK (11.5%) form almost half of thedata-base. India is of course in race,eleventh in the country list with acontribution of 3%.

As we are in the field of managementresearch, so our interest is on to find themanagement related research work. As wesee from the self explanatory tables andgraphs, given below, scopus database hasgot higher coverage/ concentration ofarticles from Medical Sciences (39%),Engineering- Computers (20%) and Pure-sciences (15.5%). The percentagecalculation has ignored the articles‘categorized’ as ‘un-defined’ and ‘multi-disciplinary’. As we club ‘management/business’ category with arts, humanities,social sciences, decision sciences, then all

together, they contribute only 12.5%. Andwhen we take only ‘Business,Management and Accounting’, the entireworld (of Scopus) contributes only 4%. Ifwe take that 4% of ‘our’ area, country-wise distribution is almost similar to thatof ‘all-areas’, as given in Figure-1. Again,when we search for ‘Indian’ contributionin that ‘Management-area’, total articlescount is only 2901 (as on 16.01.14), inScopus. Out of that it is worth noting, whoin India are the leading Institutes,contributing to this magical figure.

As the statistical figures tell the story,we all expect these numbers to grow muchfaster in the days to come, both by originalresearch contribution and of course byexpanding the data-base to cover moresources, where some useful researchpublications are recorded. One can searchand find many important research journalsmissing (yet to be covered) from this database. The story or experience wouldperhaps be similar, when we analyse otherreputed databases also.

Fig.-1: Research Contribution in all areas:Leading countries

Fig.-2: Year-wise publications of Scopus-listed all articles:

Table-1: Articles by Subject area:Medicine 1059232Engineering 411344Environmental Science 246894Computer Science 235404Social Sciences 186302Agricultural and Biological 176425SciencesBusiness, Management & 144108AccountingNursing 121754Earth and Planetary Sciences 100570Biochemistry, Genetics & 100081Molecular BiologyUndefined 96531Energy 56837Mathematics 56397Health Professions 56311Pharmacology, Toxicology & 56245PharmaceuticsDecision Sciences 55329Chemical Engineering 53047Economics, Econometrics & 40134FinanceMaterials Science 39695Psychology 35936Immunology & Microbiology 32897Physics and Astronomy 31415Neuroscience 26393Veterinary 22062Chemistry 20569Dentistry 18776Multidisciplinary 15386Arts & Humanities 13044Grand TOTAL= 3509118

Table-2 (Management & Soc. Sc.)Arts, Social Sciences & Management Area Social Sciences 186302Business, Management and 144108AccountingDecision Sciences 55329Economics, Econometrics and 40134FinanceArts and Humanities 13044TOTAL 438917Grand Total (all subjects) = 3509118Percentage to Grand Total = 12.51

Table-3 (Other areas)Engineering & Comp. Sc. Area Engineering 411344Computer Science 235404Chemical Engineering 53047TOTAL 699795Percentage to Grand Total = 19.94Medical Sciences Area Medicine 1059232Nursing 121754Health Professions 56311Pharmacology, Toxicology and 56245PharmaceuticsImmunology and Microbiology 32897Veterinary 22062Dentistry 18776TOTAL 1367277Percentage to Grand Total = 38.96Pure Sciences (excluding Math) Environmental Science 246894Earth and Planetary Sciences 100570Biochemistry, Genetics & 100081Mol. BiologyMaterials Science 39695Physics and Astronomy 31415Neuroscience 26393TOTAL 545048Percentage to Grand Total = 15.53

Table-4 Leading contributors ofManagement research articles fromIndiaIndian Institute of Technology, Delhi 202PSG College of Technology 83Indian Institute of Technology Roorkee 78Anna University 60Indian Institute of Technology, Madras 58Indian Institute of Technology, Bombay 57Institute of Management Technology, 54GhaziabadIndian Institute of Management 53BangaloreIndian Institute of Technology, 52KharagpurNational Institute of Technology 51TiruchirappalliIndian Institute of Management 51AhmedabadCentral Sericultural Research and 47Training InstituteIndian Institute of Science 46Indian Institute of Management 38CalcuttaInternational Business Machines (IBM) 36Birla Institute of Technology and 35Science PilaniAligarh Muslim University 34National Institute of Industrial 32Engineering IndiaUniversity of Delhi 30Indian Institute of Technology, Kanpur 29

Note: All data taken from SCOPUS data-base, usingour institutional user-access-id, on 16.01.2014.

Link/ source: http://www.scopus.com/term/analyzer.url;jsessionid=...PARM_EXPIRATION_DATE=1389861987876

1Parikalpana - KIIT Journal of Management, Vol - 10 (I), 2014

Variations in Flue Cured Virginia Tobacco ExportPerformance of Different Regions of World :

An Empirical Study

P. Hari BabuFaculty, Commerce and Business AdministrationAcharya Nagarjuna University Campus Ongole

Email: [email protected]

Abstract

Tobacco has been a prime source of livelihood for millions of people andthe tobacco industry is providing employment to 36 million peopleincluding 6 million farmers, engaged directly or indirectly in tobaccocultivation, processing, manufacturing grading, marketing and otherallied activities. Indian tobacco industry is in a prominent place over thepast six decades. India is world’s second largest exporter of Flue curedVirginia (FCV) tobacco. The sustainability of Indian tobacco industry,especially FCV tobacco, mainly depends on exports. India is now facingstiff competition from many developing countries. The global exports ofFCV tobacco fluctuated during the period under study. In the study period,India’s FCV exports has wide fluctuations over the years. Inunmanufactured tobacco exports the share of FCV tobacco constitutedabout 80 per cent. In the study period, there are wide fluctuations inIndia’s FCV tobacco exports to all regions and within the regions exceptSouth and South East Asia. This region has some growth in exports.

Key words : Flue cured Virginia; FCV

Introduction

Tobacco is one of the economicallyand commercially significant agriculturecrops in the world. FCV Tobacco wasintroduced in India by one of the peripateticteams that visited South America and India.When the Britishers settled in the VirginiaCoast in North America in early 17th

century, the type of tobacco was cultivatedby the natives of that area was Nicotianarustica. Nicotiana tabacum was broughtby them from the West Indies, which lateron came to be known as Virginia tobacco.By modification of cultivation practices andthrough selection process, the milder and

Parikalpana - KIIT Journal of Management2

smoother type of tobacco was developedby the settlers. It acquired a bright co lourand sweet aroma after the invention of flue-curing during 1860s. The flue-curedVirginia tobacco is now an essentialingredient of cigarettes all over the world.

Relevant studies

The effects in Tobacco consumption,in its different forms, have been welldocumented in scientific literature. Theinformation thus published have led to theadoption several smoking led to theadoption several smoking regulationsaround the world. Smoking is regulatedthrough different cost and non- costoriented measures, which have significanteffects on the production and consumptionof tobacco, which affect of the economyof a country. Although, these regulationshave significantly reduced health care costespecially in developed countries, theysignificantly improved the health andwelfare of consumers (Sntto-1998). Thesepositive affects one evident mainly evidentindustrialized economies. This effect alsosignificantly reduced world tobaccoconsumption, by 2.7 percent between1996 and 1999 and for the decline haveafter until 2002 (FAO: 2004).

Most of the literature on tobaccofocused mainly on the effectiveness pricemeasures especially in the form of taxes,in reducing tobacco consumption. It hasbeen clearly shown that increased excisetaxes considerably reduced cigarettesmoking around the world especiallyamong youth ( Evance and Farrely ;1998:

Sungetal;1994: Keelev etal: 1993) Mostof the studies, on the micro effects oftobacco consumption are concerned withconsumers economies, and very few onnet tobacco producing economies. Thefocus of this study is on the variations inthe tobacco production, that many havebeen effected by anti tobacco regulationsin different regions of the world.

Tobacco is crop that is relatively lesslabour intensive and cost intensive thatrequires much less fertile soils than otheradditional crops (Maraveanyika, 1998).In addition production cost of tobaccowhere land and labour are relativelyabundant, as available in developingcountries. This advantage of the developingcountries help them enjoys a comparativeadvantage in the production of tobacco.(Smith and Maccarthy 1998) quotedrecord to show that an economy enjoy acompetitive advantage in tobaccoproduction if it uses the available abundantfactors.

According Heckschers Ohlin theoryas cited by (yoffie and Gomes- casspres1994) relatively has abundant factors ofproduce tobacco at low cost. Howeverthis theory has been challenged byempirical findings which showed a bias,when dealing with outlines and alsobecause of the fact that inferences ofrelative factor abundance depend onstringent assumptions (Bolossa andBauweness, 1985). Because of theselimitations, estimation based on revealedcomparative advantage is considered morereliable (Matemba Edward 2005).

3Variations in the Flue cured Virginia Tobacco export Performance ...

India as a comparative in a tobaccoproduction, it exports, like many othertobacco producing countries, more than75% of its tobacco production mainlybecause of comparative advantage. Moreover its economy is still mainly agrarian andother crops are not as economically viableas tobacco, despite the facts that industrialstructure is rapidly growing.

Statement of the Problem

There have been several regulationsin different countries to come smoking.These regulations have caused thereduction tobacco production. This resultswelfare loses in tobacco exportingcountries, as a result of decrease tobaccoproduction. Welfare losses include adecrease foreign revenue, incaseunemployment unfavorable terms of tradeand loss of revenue to the Government. Inaddition, this situation increases povertylevels among most tobacco exportingcountries, and a reduction in social welfareservices, which may calls unrest amongthey people, it is therefore very necessaryto know the trends in the production oftobacco in different parts of the world thatcan help in understanding the kind ofimpact it will have and its social politicalconsequences, this study thereforeattempted to find out the trends in exportperformance of FCV tobacco differentregions of the world from 1989-90 to2008-09.

Objective

The main purpose of the study is tofind out whether they have been an increase

or decrease in the export of tobacco indifferent regions of the world. The secondpurpose is to inter possible causes forvariations in tobacco exports from 1989-90 to 2008-09.

Performance Evaluation

To analyse the Export performanceof Indian FCV tobacco has to collect thesecondary data from the Tobacco Board,Annual Reports from 1998-99 to 2008-09. In this section we consider thefollowing objectives:

To examine the region wise averagegrowth of the quantity of FCVtobacco,

To find out the region wise averagegrowth of the value of FCV tobacco,

To determine the functionalrelationship between the value andquantity of exports of FCV tobacco,

To study the relationship between;Time and quantity, Time and value,Quantity and value

Hypotheses

In view of the proposed objectives,the researcher has formulated the followinghypothesis for the study:

There is no variation in the exportperformance (Viz., Average Quantity andvalue) in different regions of the worldnamely, West Europe, East Europe,Middle East, South and South East Asia,Africa, North and South America,Australasia.


Research Methodology

In this study descriptive and analyticresearch design has been found to be mostsuitable type of research design. In this way,the trends in Export performance of FCVtobacco are described with the help ofstatistical tools.

The data used for present data isbased on secondary sources. Thesecondary data have been collected fromthe publications of Indian Tobacco BoardMinistry of Commerce Government ofIndia viz, Annual reports Brochures andannual reports.

Data Analysis Technique

Descriptive statistics and inferentialstatistics were used selectively for thetesting of hypotheses. Descriptive statisticslike frequency, mean, standard deviationfor all the study variables were computed.The researcher has used the statistical toolslike ordinary least squares (OLS)

Regression analysis to find out the regionwise growth notes, and worked out findthe behavior of the trade variables underthe study.

To achieve the above objectives, thefollowing statistical techniques have beenused:

To determine the growth rates of thequantity of exports, value of exportsof FCV tobacco, with respect timefitted the following linear regressionmodel by using OLS (Ordinary LeastSquare) method.

a, Quantity = A+B (Year)

b, Value = á + â (year)

To establish the functionalrelationship value and quantity of theexports of FCV tobacco, here fitteda linear function = A+B (quantity andValue of FCV tobacco exports).asshown below table-1 and 2

TABLE -1Descriptive statistics of quantity and value of exports;

Time trend and estimates of growth ratesRegion Average Std. Parameter R Adjusted F P

Exporter Deviation of linear square R square Value value(Quantity in of Exports fit B valuetonnes) in Tonnes

West EuropeQ 29114.55 11971.23 1661.31 0.674 0.656 37.22 0.000V 27178.54 19672.53 2636.28 0.629 0.608 30.45 0.000East EuropeQ 23259.41 7042.34 523.91 0.194 0.149 4.32 0.052V 14914.37 6751.68 868.33 0.579 0.556 24.74 0.000Middle EastQ 2487.70 1840.76 169.52 0.297 0.258 7.59 0.013V 2059.53 1922.79 210.38 0.419 0.387 12.98 0.002


South & SouthEast AsiaQ 14982.35 11413.70 609.76 0.696 0.679 41.25 0.000V 12610.91 13888.11 821.31 0.602 0.580 27.21 0.000AfricaQ 6558.45 5112.42 679.49 0.618 0.597 29.15 0.000V 5474.15 5496.19 753.15 0.657 0.638 34.51 0.000North & SouthAmericaQ 1818.47 1361.42 65.70 0.74 0.019 1.35 0.260V 1480.40 1580.05 126.01 0.201 0.154 4.28 0.054AustraliasiaQ 897.30 928.55 134.07 0.730 0.715 48.59 0.000V 1131.83 1293.79 185.27 0.718 0.700 45.77 0.000

Source: computed from data on Region wise destinations of India FCV exports from 1989-90 to 2008-09.Note : Q = Quantity in tonnes, V= value in lakhsTo analyse the above data, descriptive statistical measures like Mean, Standard Deviation (SD) have been used.

Analysis of growth rates

In order to assess trend of the exportperformance of FCV tobacco has linearfunction growth rates by using OLSmethod for the period 1989-90 to 2008-09. Here presented descriptive statisticsfor the quantity exported and for the valueof exports in the study period.

In this regard here identify the linearfunction : Y = A + Bt + Ut

Where Y is the dependent variablewhich represents the value, t is theindependent variable it represents thequantity A and B are the parameters andUt is the error term with the usual classicalproperties. An overview of the datapresented that Western Europe is the majormarket for Indian tobacco followed by EastEurope, South East Asian region and Africa.

The linear growth of FCV tobaccoexports in terms of quantity and value inthe study period. It can be understood

that in quantity terms South and South EastAsia is having the highest growth rate thanother regions. As regards to value termsthis occupies second place. But in valueterms the highest growth rate is occupiedby West Europe when compared to otherregions. In quantity terms this regionsstands at second place. Growth rate ofAfrican Region stands third in terms ofquantity and value of exports. Whilegrowth rate of Middle East region occupiesthe least position in both quantity and valueterms. North and South America,Australasia regions even though growthrates are high at the same time, quantityand value of exports are insignificantcomparatively remaining regions.

Hypothesis Testing

The hypothesis that is there is novariation of Export Performance amongthe different regions of the world was testedusing Time Trend analysis and resultspresented as under.


As can be understood from the Timeand Trend growth rates table at pre page, itnoticed that there are significant variations ofExport Performance among different regionsof the world according to the averageexports in terms of Quantity and Value.Among the others, West Europe market(29114.55 tonnes) (27178.54 lakhs) hasshown high levels of variation of ExportPerformance followed by East Europe(23259.41 tonnes), (Rs.1419.37 lakhs)South and South East Asia (14982.35tonnes) (Rs.12610 lakhs) and Africa(6558.45 tonnes) (Rs.5474.15 lakhs)

It is surprising to note that the growthrates in the table appeared to be quiteinteresting because of the businessfluctuations modus operandi of thebusiness, geographical Conditions ofdifferent regions and other intangibleaspects. The detailed descriptions withregard to the variables “growth rateaccording to the linear function” arepresented as under.

As regards to quantity is concerned itis noticed that west Europe remained ashighest in quantity with (1661.31 tonnes)followed by Africa (679.49 tonnes), southand South East Asia (609.76 tonnes), EastEurope (523.91 tonnes), Middle East(169.52 tonnes), Australasia (134.07 tonnes)North and South America(65.70 tonnes).

As regards to the variable value iscons and the result appeared differently itis noticed that west Europe continued itstrend with higher value (Rs 2636.238lakhs) followed by East Europe (Rs868.33 lakhs) South and South. East Asia(821.31 lakhs), Africa (Rs 753.15 lakhs)Middle East (Rs 210.38 lakhs) Australasia(134.07 lakhs) North & South America(65.70) the reasons for such dissimilarities/ fluctuations / differences alreadyexplained in this chapter.

Since the researcher has foundvariations in export performance among thedifferent regions of the world. Hence, theproposed hypothesis H10 stands rejected.

TABLE-2 Correlation and regression analysis of the Relation between value and

quantity of exports to various regionsRegion R Value R square Adjusted b F-Value P-Value

R square (Beta value)West Europe 0.920 0.846 0.838 1.512 98.93 0.000East Europe 0.722 0.521 0.494 0.692 19.54 0.000Middle East 0.877 0.769 0.756 0.916 60.01 0.000South And 0.940 0.883 0.877 1.14 136.33 0.000South East AsiaAfrica 0.943 0.890 0.884 1.101 [145.15 0.0000North And 0.899 0.809 0.797 1.04 71.86 0.0000South AmericaAustralasia 0.987 0.974 0.972 1.37 664.69 0.0000

Source: Computed from data on Region wise destinations of India FCV exports from 19898-90 to 2008-09.Q= quantity in tonnes, V= value in lakhs


From the table-2, it can beunderstood that there is positive relationbetween the quantity of exports and valueof exports different regions. During thestudy period, Except East Europe regionall the regions in the study period quantityof exports are increased at the same timevalue of exports is also increased. Butthe East Europe region is not having asignificant relation between the quantityof exports and value of exports. In thisRegion is that these markets areextremely price sensitive and import lowcost-low-end tobaccos required by thesemarkets at to their prices become aproblem. So there is significant decline inexports both in supply high grades atmost competitive prices is able to capturethis market share as per informationprovided by trade.

Results and Discussion

Trading economies improve thequantity of trade through specialization,which contribute the welfare of the people.However the gains made for trade madebe reverse by exogenous Negativedemand shocks on small open economies.In addition, the relatively high demandelasticity cigarettes contributes negativelyto down turns in developing economiesthat depend mainly on tobacco production.On the other hand, increased productionof tobacco leads to the price of tobacco,and to the detoriation of terms of trade(Black, 2002) Decrease cigaretteconsumption, contributes to decreasedemand for tobacco and thus to a

decrease in the production of tobacco(Van Lient 2002) this has several negativeimpacts on the economies of tobaccoproducing countries which include highunemployment and unfavorable terms oftrade and loss of revenue to theGovernment (World Bank 1999: Mataset al 1999: Vanlient 2002.)

Conclusion

In many ways, the findings of thisstudy extend the knowledge gained fromearlier research. It extends knowledgeby demonstrating that, despite theuniversality of export determinantsbetween India and advanced countries,the relative importance of the factorsappears different. Although not studiedexplicitly, it seems that, contrary toobservations from advanced countries,various factors appear to play a largerrole in determining performance thanstrategy that is subject to managerialcontrol. Specifically, in advancedcountries the influence of environmentalfactors, such as infrastructure that is welldeveloped, is taken for granted. In Indiathese factors, among others, pose criticalbottlenecks to the export performance ofmany firms. It follows that exportperformance takes the environment forgranted (i.e., omits the environment), maybe misleading, because of under-specification of the causal factors. Hencesome of the following theoreticalunderpinnings need to be keeping in mindwhile evolving the strategy.


References

Balossa B and Bauwens L: 1985. “Comparative Advantage in ManufacturedGoods in a Multi-Country, Multi-Industryand Multi-Factor model.” World BankReprint series No.405

Balassa, B. 1986. “Intra-Industry Tradeamong Exporters Manufactured Goods”in Greenway David and Tharakan P.K.M.(ed.), “Imperfect Competition andInternational Trade: The Political aspectsof Intra - Industry Trade”, Wheat SheafPress, Brighton. Trade: The Politicalaspects of Intra - Industry Trade”,

Wheat Sheaf Press, Brighton.

Bhagawati, J.N. and Srinivasan, T.N.1983. “Lectures on International Trade”,MIT Press, Cambridge.

Bhagwati Jagdish, 1996. “The Demandsto Reduce Domestic Diversity amongTrading Nations” in Bhagwati Jagdish andHudic Robert, E. (ed.), “Fair Trade andHarmonization: The Pre-requisites for FreeTrade?”, MIT Press, Massachusetts.

Bhattacharya, B. and Mukhopadhyaya, S.2002. “Barricading trade through Non-Tariff Measure - Through the Indian Eyes”.In Dasgupta Amit and Debroy Bibek (ed.).“Salvaging WTO’s Future: Doha adBeyond”, Konark Publishers Pvt. Ltd.,New Delhi.

Black p, 2002. “ Immiserizing Trade: Atheoretical Note.” South African journalof economics, Vol. 70, No. 390

Chalapathi Rao, K.S. 1994. “India’sTrade Policy and the Export Performanceof Industry”, Sage Publications, NewDelhi.

FAO: 2004. Statistics on Agriculture [http:// faostat.fao.org/faostat/collections?subset= agriculture]

Maraveanyika, 1998. “Tobaccoproduction and the search for alternativesin Zimbabwe.” The Economics of tobaccocontrol: Towards an optimal policy mix.

Smith B and Maccarthy C, 1998.International economics ,2nd Edition,Butterworths south Africa, pp76-94

Van Lient G, 2002. “The World TobaccoIndustry: trends and prospects.”International Labour organisation paperno.179

World Bank, 1999: “Development inpractice. Curbing the Epidemic:Governments and the Economics ofTobacco control.” World Bankpublication.


Managing Talent for Sustainable CompetitiveDifferentiation

Nidhi SharmaAssistant Professor, Delhi University

AbstractEffective Talent Management is a matter of survival in today’s hyper competitiveworld. Organizations compete by differentiating their products and services, fromother organizations; and the approach to managing talent cannot be any different.This article explores why talent has come to be a strategic differentiator and howleading organizations have adopted a differentiated approach to attracting,developing and retaining talent.

The article delves into the interrelationship between talent management, leadershipability and emotional maturity and ends with a case study of how a leadingmultinational company has honed its differentiated approach to managing talent ina fiercely competitive business environment.

Introduction:

Talent – The Strategic Differentiator

It is now universally recognized thatPeople are the most critical resource thatan organization has. Whatever anorganization achieves is ultimately throughpeople. In the words of Herman Lay(founder of Frito Lay Inc.), “Like everyoneelse, I’ve got the same trucks. Likeeveryone else, I have the same potatoes.Like everyone else, I have the samemachinery. The only thing I can havedifferent is better people.”

What Herman Lay probably meantbut left unsaid was that it is possible tohave better trucks, better potatoes andbetter machinery if one had better peoplewho could better produce all these. Then

he could use all these better products toproduce better chips and sell them betterif he had better people who could then goand better communicate why you shouldbuy and eat Lay’s chips.

What we are really talking about iscompeting through differentiation. Sincedifferentiation originates at the level ofthought, and human beings are the onlyspecies endowed with this faculty, it is anatural corollary that people who candifferentiate through thought and action arethe ones who can help organizationssucceed.

Similar sentiments have beenexpressed by Conaty & Charan (2011)when they say - Create a new product and


it can easily be copied. Lower your pricesand competitors will follow. Go after a newmarket and someone will be right after you,being careful to avoid your initial mistakes.But talent is the differentiator betweenorganizations that grow and those thatdon’t- because replicating a high- quality,highly engaged workforce is nearlyimpossible.

The fact that there is a scramble forpeople with talent who can help tocompete better is not surprising. In 1997,McKinsey & Company released a reportsummarizing a one year study titled “TheWar for Talent”. The report stated that theultimate corporate resource for the nextfew decades would be “talent”, and that“battling for talent” would be more criticalfor an organization than managing capital,R&D initiatives, and corporate strategy(Axelrod et al., 2001). In 2001McKinsey consultants produced a bookby the same name which stated that talentis now a critical driver of corporateperformance and that a company’s abilityto attract, develop, and retain talent willbe a major source of competitiveadvantage into the future.

Defining Talent – An OrganizationalPerspective

People in the context of anorganization have been referred to indifferent terms over the years - personnel,human resource and now talent. There isno uniform definition of Talent either, andauthors provide their own shades andcolors when talking of talent.

According to Michaels, Jones &Axelrod (2001), talent is somecombination of a sharp strategic mind,leadership ability, emotional maturity,communication skills, ability to attract andinspire other talented people,entrepreneurial instincts, functional skills,and the ability to deliver results. Williams(2000) refers to talent as people whoregularly demonstrate exceptional abilityand achievement either over a range ofactivities and situations, or within aspecialized and narrow field of expertise;and consistently indicate high competence.Still others, define Talent as “a specialaptitude or faculty” or “a high mental ability”(Davis et al., 2007). According to them,talented people have the ability to deliversuperior results in any allocated role; handlechange, and consider change as a sourceof a new challenge. They also have theability to learn. Talented people areinherently curious and seek to expand theirknowledge and skill sets. They learnquickly and apply what they have learnedin an effective manner. They have highdegree of self- confidence, goodcommunication skills and focus. They areproblem- solvers rather than just problem-identifiers. They know how to bounceback from failures.

According to the differentiatedapproach (Stahl et al., 2012); talent refersto those employees who have more valueor potential than others. In other wordstalent in the organization is the high-potential employees. The other is theinclusive approach (Stahl et al., 2012);

11Managing Talent for Sustainable Competitive Differentiation

according to which all individualsemployed at all levels have the potentialto be considered talent and focus is onleveraging their value for the company’sbenefit.

So how would we like to think oftalent in the context of organizations thatstrive to differentiate and compete better- qualities that can help organizationssucceed and thrive? Successfulorganizations don’t just compete withothers, they compete with themselves.They are incessantly trying to out do theirprevious performance, and continuouslyinnovating to bring better products andservices to their customers. And it is peoplewho do that - people driven by passionand values (Stahl, 2012; Conaty & Charan,2011; Ready et al., 2008); people wholearn continuously, and people who are notafraid to develop other people (Martin &Schmidt, 2010; Ready et al., 2008;Cappelli, 2008; Kotter, 1990; Conaty &Charan, 2011).

From our purpose, therefore, if talentis to be the strategic differentiator forbusiness, we would like to look at talentas people who have the ability andpotential to drive differentiation. It cannotbe an inclusive definition as referred toby some. That is not to say, that peoplenot considered under our definition of talentdo not contribute; but given the magnitudeof the task of managing talent, adifferentiated approach to defining andidentifying talent is likely to be moreeffective.

The Importance of Managing Talent

Organizations have always knownthat they must have the best talent tosucceed. However, few understand theintricacies of managing talent. These arethe organizations that don’t know whereto start from when they need a replacement(Conaty & Charan, 2011). In times ofhurry they might end up putting people intowrong jobs, wasting both human andfinancial capital.

Talent that can help differentiate andcompete is critical in today’s increasinglycomplex global economy. Organizationscannot afford to assume that they willalways have talent they need to executebusiness strategy. Talent has become aresource that must be managed because itis the leading indicator of whether abusiness is headed up or down (Conaty& Charan, 2011) and it is becomingincreasingly scarce. In essence, the abilityto effectively hire, deploy, engage andretain talent (at all levels) is really the onlytrue competitive advantage an organizationhas.

Talent Management is one of thebuzzwords thrown about in HR fraternitytoday, but what does it really mean to theorganizations? There are varied definitionsof talent management. That is to beexpected, given that authors define talentdifferently. However, all refer in somesense, and in varying levels of detail, to acompany’s human resource supply chainmanagement (Axelrod, Jones & Welsh,2001). The various facets of the human


supply chain management could mean theidentification, nurture, progress, reward,and retention of key individuals who canaid the development of organizationalsustainability (Marchington & Wilkinson,2012) – the aim being to get the rightpeople in the right jobs so that theorganization as able to meet its objectives.

Depending on how competitive anorganization is in the market place, theimportance it places on talent managementstrategies may vary. Accordingly someorganizations manage talent that is anexclusive and elite batch of employees -the best and brightest, high potentials, topperformers, or “A” players. For othercompanies,” talent refers to all employeesof the company (Stahl et al., 2012). Thelatter is a more democratic vision as itassumes that every employee has talentand that all employees have the right todevelop their abilities. Organizations thatadopt a differentiated approach, honetheir talent management strategy to includeactivities and processes that involve thesystematic identification of key positions(Collings & Mellahi, 2009) whichdifferentially contribute to theorganization’s sustainable competitiveadvantage and the development ofdifferentiated human resource architectureto facilitate filling these positions withcompetent incumbents.

Whether organizations adopt aselective or a democratic approach tomanaging talent, all agree that managingtalent has assumed strategic significance.

CEOs and the senior leadership oforganizations now spend considerableportion of their time in identifying andmanaging talent for their organizations(Martin & Schmidt, 2010; Stahl, 2012;Conaty & Charan, 2011). Theysystematically identify key positions whichdifferentially contribute to theorganization’s sustainable competitiveadvantage, engage in developing a talentpool of high potential and high performingincumbents to fill these roles, and ensuretheir continued commitment to theorganization (Collings & Mellahi, 2009).All this, because they believe that the keyfactor in determining the success of anyorganization is its ability to use humantalent- to discover it, develop it, deploy it,motivate and energize it. Talent, after all,is the combined capacity and will of peopleto achieve an organization’s goal (Cheeseet al., 2008).

Managing talent has assumed suchhuge importance that in the quest foridentifying, developing and retaining talent,several successful organizations haveembedded in their culture the habits ofobserving talent and making judgmentsabout it (Conaty & Charan, 2011). Theirrigorous, repetitive processes and intimacyconvert subjective judgment about aperson’s talent into an objective set ofobservations that are specific, verifiable,and just as concrete as the analysis of afinancial statement.

The importance of managing talentmeans that finding and nurturing talent is


now highest on the agenda of leaders insuccessful companies who believe thatholistic talent management is key todeveloping effective leaders. For thisreason it is considered critical enough forCEOs and other top leadership to earmarka considerable amount of their time findingand developing talent. They devise waysand means to provide identified talent withexperiential learning (Conaty & Charan,2011; Martin & Schmidt, 2010; Ready etal., 2008; Cappelli, 2008; Kotter, 1990)through challenging stretch assignmentsthat provide depth and breadth ofexperience and reveal the ones havingCEO potential. While good performanceand results are expected as a matter ofcourse, they focus on values and cultureas well (Stahl, 2012; Conaty & Charan,2011; Ready et al., 2008). The strategicsignificance of talent management (Collings& Mellahi, 2009) has led to the processbeing driven top down with leadersemphasizing values such as integrity,character, and self-awareness as essentialrequirements that will determine whethera person will rise in the organization or not(Conaty & Charan, 2011).

Since talent management hasassumed such importance due to talentbeing a strategic differentiator, weexplored what successful organizationsfocus on while developing talent. We foundthat the development of leadership abilitywas central to talent managementpractices. We also found that most theoristsand authors talk about emotional maturitywhen talking about leadership ability, but

not much direct reference to talentmanagement. Also, there is a fair diversityof views on both subjects. In the followingsections we have captured the diversity ofviews on leadership ability and emotionalmaturity.

Talent Management and LeadershipAbility

No two situations are the same. It ispossible that what works in one set ofcircumstances may fail miserably indifferent circumstances. The business andeconomic environment is dynamic, peoplecome with varying aspirations, skills andprejudices, and the competitiveenvironment is ever changing (Schneider,2002). The leader is surely to be calledupon to adopt different leadership stylesin different situations, with different peopleto achieve different objectives at differenttimes during the professional life cycle.There is, therefore, an increased need forleadership development to respond tochanging environmental conditions.

Goleman (2000) has articulated sixdifferent styles of leadership - coerciveleaders demand immediate compliance,authoritative leaders mobilize peopletowards a vision, affiliative leaders createemotional bonds and harmony, democraticleaders build consensus throughparticipation, pacesetting leaders expectexcellence and self- direction and coachingleaders develop people for the future.Studies have shown that the more styles aleader exhibits, the better. Leaders whohave mastered four or more- especially the


authoritative, democratic, affiliative, andcoaching styles- have the very best climateand business performance.

Talent management practices lay agreat deal of emphasis on developingleadership ability. To become a leader, oneneeds the potential and a strong desire(motivation) to be a leader (Avolio &Gibbons, 1988). Organizations, therefore,assess leadership qualities beforedeveloping mentoring programs for theiremployees (Stahl et al., 2012). This isnatural since good leaders can be expectedto keep the organization running effectivelyby finding, developing and keeping othergood leaders for the future. McKinsey &Company 2000 survey provides withvarious elements of a Successful TalentManagement Formula; one of them being“growing great leaders” (Axelrod, Jones& Welsh, 2001). Ready, Hill & Conger(2008) talk of leadership development asa cultural element that can influence talentretention. It is therefore important that weunderstand how authors and theorist viewleadership ability as a competency.

Kotter (1990) defines leadership as theability to cope with change, by moving peoplein the right direction through motivation andappealing to basic but often untapped humanneeds, values, and emotions. Katz & Kahn(1966) expresses similar sentiments bydefining it as influential increment over andabove mechanical compliance with routinedirection of the organization.

Senge (1990) looks at leaders asdesigners, teachers, and stewards. Hooper

(2006) refers to leadership as the activitiesof individuals and their relationships withparticular situations and contexts, which,when aligned, can help achieve businessobjectives and deliver improvedorganizational performance. Grint (2000)considers leadership to be a socialphenomenon, in which there cannot be aleader if there are no followers – the job ofthe leader is to construct an imaginarycommunity that followers can feel a part of.

There are others who feel thatleadership is about driving innovation(Adair, 2007), and those who emphasizethat leaders must be inspirational (Goffee& Jones, 2000). They assert thatinnovation entails an element of risk in eventhe best prepared and planned innovation.There is plenty of room for uncertainty andfear. Leaders of innovation need to showmoral courage, commitment andenthusiasm if they are to keep peoplemoving on the path of progress. Theyshould share their courage and concealtheir fear. Inspirational leaders share fourqualities - they selectively show theirweaknesses, they rely heavily on intuitionto gauge the appropriate timing and courseof their actions, they manage employeeswith tough empathy and they reveal theirdifferences (that is, they capitalize on whatis unique about themselves).

It is obvious that different authors andtheorists look at leadership from differentperspectives. While some focus on thequalities of the leader, others view theirstyles, and still others on what leaders do.In more recent times considerable interest


has been generated on the relationshipelement of leadership, as opposed to itspurely transactional nature (Burns, 1978).Transactional leadership takes place when“one person takes the initiative in makingcontact with others for the purpose of anexchange of valued things.” This type ofleadership is best described as the politicsof exchange. Transactional leadershipdescribes more of a “give and take”working relationship – rapport betweenleader and follower is established throughexchange, such as a rewards system formeeting particular objectives.

In contrast to the calculatedinstrumental nature of transactionalleadership, the other form of leadership –based on emotions - is referred to asTransformational leadership (Avolio &Gibbons, 1988; Carless, Wearing & Mann,2000; Bass, 1990; Bass, 1997; Bar-On,1997; Burns, 1978). “Charismaticleadership” (Conger & Kanungo, 1987;House, 1977; Shamir, 1991) is the mostfrequent name given to the emotionalbonds between followers and leaders.Transforming leadership also has a moraldimension. It may be said to occur when“one or more persons engage with eachother in such a way that leaders andfollowers raise one another to higher levelsof motivation and morality.” (Burns, 1978)The transforming leader is one who, thoughinitially impelled by the quest for individualrecognition, ultimately advances collectivepurpose by being attuned to the aspirationsof his or her followers. Transformationalleaders exhibit charisma and shared vision

with their followers, stimulating others toproduce exceptional work (Lai, 2011).

Pless (2006, 2007) & Maak (2006)have focused on the moral dimension oftransformational leadership and called itResponsible leadership. It is espoused asa ‘values-based and through ethicalprinciples’ driven relationship betweenleaders and stakeholders who areconnected through a shared sense ofmeaning and purpose through which theyraise one another to higher levels ofmotivation and commitment for achievingsustainable values creation and socialchange.

Talent Management and EmotionalMaturity

The link between talent managementand emotional maturity may not beapparent to start with. We will, therefore,first explore aspects of emotional maturityin isolation. Emotional maturity is referredto differently by different authors andtheorists. Terms like emotional intelligence,social intelligence and emotional maturityare often used interchangeably. Emotionalintelligence has turned out to be a veryemotive subject and theorists explain itdifferently. The fact that the same theoristshave refined their understanding of the termover subsequent years also indicates thatwe are still trying to come to terms withthe subject. However, the ultimate senseand import of all these definitions andexplanations is essentially the same – thesensitivity to respond to different situationsand people in a manner that creates


positive vibes and a desire among peopleto work happily together to deliver results.

Social intelligence comprisesinterpersonal and intrapersonalintelligences (Gardner, 1993 andThorndike, 1920). Interpersonalintelligence is the ability to understandother people: what motivates them, howthey work, how to work cooperativelywith them. Intrapersonal intelligence is thecapacity to form an accurate, authenticmodel of the self and to be able to use thatmodel to operate effectively in life. Sinceemotional intelligence also consists of thesetwo elements (Salovey & Mayer, 1990),it is possible to suggest that social andemotional intelligences are the same.Emotional intelligence encompasses self-awareness, self-management, socialawareness or empathy and social skills(Goleman, 2000), each of which compriseseveral competencies.

Salovey & Mayer (1990) wereamong the earliest to propose the name“emotional intelligence” to represent theability of people to deal with theiremotions. They defined it as “the subsetof social intelligence that involves the abilityto monitor one’s own and others’ feelingsand emotions, to discriminate among themand to use this information to guide one’sthinking and actions”. They conceptualizedemotional intelligence as composed of fourdistinct dimensions: appraisal andexpression of emotion in the self, appraisaland recognition of emotion in others,regulation of emotion in the self, and useof emotion to facilitate performance.

Goleman (1995) adopted Saloveyand Mayer’s definition, and proposed thatemotional intelligence involves abilities thatcan be categorized as self-awareness,managing emotions, motivating oneself,empathy, and handling relationships. Heincluded abilities such as being able tomotivate oneself and persist in the face offrustrations; to control impulse and delaygratification; to regulate one’s moods andkeep distress from swamping the abilityto think; to empathize and to hope. Hewent on to assert that emotionalintelligence is a set of traits that can help inunderstanding why one person thrives inlife while another, of equal intellect, dead-ends. It determines how well one can usewhatever other skills one has, including rawintellect.

Mayer & Salovey (1997) furtherrefined the definition of emotionalintelligence to include a set of interrelatedskills concerning the ability to perceiveaccurately, appraise, and expressemotion; the ability to access and/orgenerate feelings when they facilitatethought; the ability to understand emotionand emotional knowledge; the ability toregulate emotions to promote emotionaland intellectual growth. They asserted thatbefore people can regulate theiremotions, they should have a goodunderstanding of these emotions. Asmany of our emotional responses arestimulated by emotions of otherindividuals, our understanding of our ownemotions is related to our ability tounderstand the emotions of others.


Hughes & Terrell (2007) stated thatthe seven skills needed for emotional andsocial intelligence are: team identity,motivation, emotional awareness,communication, stress tolerance, conflictresolution, and positive mood. A leadercan use these to generate the fourcollaborative results- empathy, trust,loyalty, and better decisions.

Emotional intelligence accounts formore than 85% of exceptional achievement(Goleman, 1995). While technical skillsare necessary for productivity, these areinsufficient to explain the differencebetween high and mediocre performers.High performance individuals showemotional intelligence as task complexityincreases.

Authors agree that individuals withhigh emotional intelligence are motivated,self-disciplined, aspire to excellence, andcontinually seek re-skilling, learning andadding value (Goleman, 1995, 1998,2000; Ashforth & Humphrey, 1995; Gilad,1998 and Mayer & Salovey, 1997). Theirmental agility sustains long-term businessdevelopment and builds organizationalculture of high morale, which prevents theloss of talent.

Leadership Ability and EmotionalMaturity

So far we have looked at leadershipability and emotional maturity in isolation.We now explore what authors andtheorists say about emotional maturitywhen they talk about leadership ability.Zaccaro (1996 and 2001) emphasizes the

important role of social intelligence inorganizational leadership. He developeda model of organizational leadership thatidentified the various performancerequirements leaders needed to addressat ascending levels in the organization.According to him, such skills as flexibility,conflict management, persuasion and socialreasoning became more important asleaders advanced in the hierarchy.

Bass (1997) and Bar-On (1997)echoed similar sentiments when hesuggested that transformational leadersachieved higher levels of success in theworkplace than transactional leaders. Heattributed a transformational leaders’superior work performance to highemotional quotient scores.

Goleman, Boyatzis & McKee(2002) opine that all leaders need enoughintellect to handle the tasks and challengesat hand. However, intellect alone won’tmake a leader. Leaders execute a visionby motivating, guiding, inspiring, listening,persuading and creating resonance. As aresult, the manner in which leaders act is afundamental key to effective leadership.Resonance implies that there is commonshared vision, that leaders and futureleaders are aligned, and that leaders willpropagate their own kind. One wouldexpect that such a process would requirea certain kind of maturity to flourish andprompts us to explore whether leadershipability and emotional maturity from a talentmanagement perspective aren’t two sidesof the same coin. This idea has also beenpropounded by Goleman (2000) – the


leadership style exhibited will depend onthe competencies associated withemotional intelligence.

Case Study of Tesco HindustanService Center

The above narrative leads us to believethat if we were to test people for LeadershipAbility and Emotional Maturity, we shouldfind a strong correlation between the two,that is, Emotional Maturity is a necessarycondition for Leadership Ability, irrespectiveof diversity factors like culture, geographies,gender, etc. The literature reviewed isprimarily based on examples from the west.

We studied the talent managementpractices at Tesco Hindustan ServiceCenter (Tesco HSC) based in Bangaloreand found strong support for the viewsexpressed above. Tesco HSC is the grouptechnology and operations center of UKbased retail giant, Tesco Stores Ltd.

Tesco HSC – a brief background

Tesco HSC was established in theyear 2004 in Bangalore to providetechnology and operations support toTesco in UK. Since then Tesco HSC hasgrown to over 6000 employees supportingTesco operations in UK, Ireland, US andCentral & Eastern Europe. The supportareas include Information Technology,Finance, Commercial, Property, and avariety of Business Services includingPayroll and Pensions, Stores Helpdesk,Internet based operations, etc.

Tesco HSC is not about providingcost arbitrage, though that may be one of

the outcomes of having an operation inIndia. Each of the Functional Unitsmentioned above adds considerable valueby helping Tesco in other countries toimprove operational efficiencies, andreduce waste. Tesco maintains all elementsof operations that involve direct customerinterface with the stores. Only those rolesare transferred to HSC that do not involvedirect customer interface. That way Tescois able to respond effective to culturallydiverse global customer sensitive needs asit builds efficiencies through standardizationof non-customer interfacing tasks.

Talent Management practices atTesco

Tesco has a fairly evolved and maturetalent management process and investsheavily on developing people – both interms of functional and leadership skills.In the words of Sandeep Dhar, CEO, inthe magazine Human Capital, “An amazingtestimony that Tesco places on leadershipdevelopment is our Academy in Seoul,South Korea. At the Academy, the staff istrained, mentored and connected withcolleagues across the world. They greatlybenefit from use of smart technologies, e-learning, and tablet computers, whichenables them to download trainingmaterials, blog about courses, and shareexperiences, wherever they are in theworld.”

The processes for identifying anddeveloping talent are institutionalizedthrough a well-defined framework calledthe Leadership Framework. The


leadership framework revolves around theelements of Me, Us, and IT.

“Me” is all about me, the leader livingthe values. It involves one’s personalapproach, integrity, drive and commitment.Leadership starts with the individual, theirvision, mindset and role modeling. “Us”is about taking people along. It involvesworking through others, building teams,gaining commitment, building relationshipsand supporting individuals and teams toachieve their full potential. “It” is about thebusiness context. It involves customerfocus, maximizing contribution to business,decision making, change management andovercoming barriers.

Tesco has a People Matters Group(PMG) where Tesco’s leadership discussand deliberate all people matters ofsignificance – ensuring that its People Planreflects business priorities and that keyprocesses and policies reflect Groupprinciples and blueprints, governancearound business structures and headcount,and taking key decisions around Reward,Talent and Performance related data forsenior level colleagues.

The leadership actively engages inidentifying and developing talent through theyear through various programs. The ‘5-5-5’ program is designed for Directors. Eachof them invests in 5 days of training forthemselves, 5 days in training others andtakes on the responsibility of 5 mentees.

“Options” is Tesco’s flagshipprogram for developing future leaders.Every year, the leadership team gets

together to shortlist colleagues from amongthe high potential and high performingcolleagues identified through a talentspotting process. The shortlistedcandidates are put through a rigorousassessment process, and those who qualifythen go through a development programthat readies them to take up larger roles.Tesco has been gradually broadening thescope of the Options program to identifyleaders early in the pipeline.

Another program initiated by Tescois the Global Management Program(GMP) - a fast track program throughwhich it identifies bright youngsters acrossthe group with the potential to scale up tosenior leadership positions within a spanof five years. These colleagues go throughfast paced learning programs that involveclass room training, projects, andexperiential learning through assignmentsin a variety of business functions andgeographies.

Tesco understands that providingpromotional opportunities may have itslimitations. It has, therefore, devised aTalent Planning program through whichit explores both promotional and lateralopportunities to retain its highperforming, high potential talent. This isone way in which Tesco seeks toenhance the colleagues’ breadth ofexperience and prepare them to succeedin larger roles. The Academy runs regularscheduled programs for the masses aswell. These help colleagues buildfunctional expertise and leadershipcapabilities.


Focus on Values

Tesco has a strong focus on values.It takes precedence over all other criteriaof decision making, and it is expected thatall colleagues practice the Tesco values.These are – No one (else) tries harderfor customers; Treat people how we liketo be treated; and, We use our scale forgood. These values too reflect the ME,US and IT ethos. Tesco HSC’s modernand innovative Talent Managementpractices have helped it develop thecompetitive advantage through strategicdifferentiation and retain its leadershipposition in the market.

Conclusion

In a world that is getting fiercelycompetitive and resources are scarce, oneis forced to be thrifty and prioritize on howavailable resources are to be spent. Adifferentiated approach helps focus on theessentials by removing the clutter. It helpsall functions to align to the organizationscore purpose and synergizes their efforts.Managing Talent to attract, develop, andretain leaders with emotional maturity isimperative for organizations to innovateand drive strategic initiatives successfully.

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23

Shareholder Activism

K. RajyalakshmiAssistant Professor, IBS HyderabadE-mail: [email protected]

AbstractShareholders are interested in how the company is being managed. In case ofdissatisfaction about the functionality or performance of the company; they take thereins and monitor the management to ensure that it is managed in the best interestsof the company. Shareholders influencing the corporate behavior by exercising theirrights as owners are termed as shareholder activism.

Shareholder activism has earned its place in the financial press in the recent times.Internet helps in coordination between different groups and reduces asymmetries ofinformation. Shareholders whose interests are diverse, aided by proxy advisory firmsare flexing their muscles in varied ways like proxy requisitions, request for shareholdermeetings, proxy fights to influence the behavior of the management. Presence ofmedia acts as a catalyst to activism. The author cites, as examples a number of winsscored by activists in India and abroad. The challenge before corporate is to dealwith activism without compromising the fiduciary duty of acting in the best interestsof the company but not to specific activist shareholders.

Key words : Shareholder activism, institutional investors, retail investors. Proxyadvisory firms, regulations

Introduction:

Shareholder activism has become anincreasingly important force in the handsof the investor to create pressure oncorporate management to satisfy the dualinterests of wealth creation and socialjustice .This has received much attentionin the financial press in the recent times.Shareholder activism that has long beenthe privy of the United States has nowbecame popular in Europe, Australia andother parts of the world including India.Regulatory reforms aiming at increasing therights of investors, greater disclosure norms

to reduce the asymmetry of information,internet based technology providing accessto information and connectivity, increasedparticipation of institutional investors likehedge funds and augmented concernsabout good corporate governancepractices led to an upsurge in shareholderactivism in the recent past around theglobe. Shareholder voices which areunheard of previously in the generalmeetings are heard more loudly andregularly. Shareholder proposals,shareholder requisitions for meetings and

Parikalpana - KIIT Journal of Management, Vol - 10 (I), 2014


proxy battles became more frequent withthe activist investors scoring some wins aresending shivers down the spine of theerring management of companies. Forinstance, shareholders revolted to theextreme extent in the annual generalmeeting leading to the removal of the chiefexecutive and the entire board in case ofEuro tunnel. Under the pressure of foreignshareholders, Deutshe Borse dumped theproposal to purchase London StockExchange.

Shareholders being owners of theshares and residual claimants of the firm’sincome are endowed with a bundle ofrights by law with which they can safeguardtheir interests. For a long period time theywere content with the economic benefitsthey receive like dividend or capitalappreciation at the time of exit. Earliershareholders settled to the role of beingsilent spectators of the AGM or praisingthe chairman, applauding the company,enjoying the lunch or day out provided bythe company and requesting for higherdividend. But this is all history and nowwith activism taking its stride, the generalmeetings are action packed. Shareholderswho earlier showed interest only ineconomic issues are now turning theirattention to non-economic issues liketransparency, good performance and socialjustice. Apart from seeking more dividendsand ROI ,they are flexing their muscles topursue the goals like changes in corporateboards like removing underperformingmanagement, seeking boardrepresentation, changes in corporate

strategies including merger and acquisitionstrategies, share buy backs, restrictingexecutive packages, better corporatesocial responsibility and sustainability etc.to name a few.

Shareholder activism is not a newconcept. It dates back to 1622 .DutchEast India Company witnessed publicbattles between the shareholders andmanagement due to agency problems. In1888, an activist shareholder ofMetropolitan District railway lamented inhis letter to the editor in Financial Timesdated February 13, 1888, at thedepressing character of the 6 monthlyfinancial reports and called for ashareholder meeting to oppose thereappointment of chairman and demandedthe resignation of the board. Investopediaexplains shareholder activism as ‘a way inwhich shareholders can influence acorporation’s behavior by exercising theirrights as owners’. A shareholderdisappointed with the performance of themanagement company has three optionsin hand. One, to sell off the shares andexit the company, two, to be loyal to thecompany, be complacent and let themanagement manage and third to show thedissatisfaction by way of activism.Shareholders who finance risk capital andappoint board of directors to manage theaffairs of the company, owing to agencyproblem, sluggish economy, increasedcorporate scandals, market volatility, rollercoaster equity prices, poor corporategovernance practices followed by theorganizations felt the need to opt for the

25Shareholder Activism

third option of taking the reins to monitorthe management to act in the best interestsof the company is the root cause ofshareholder activism. Greater disclosurenorms and more information on internet inthe recent years enabled the shareholdersmore knowledgeable about the companiesin which they invested to judge how theyare performing and are raising their voiceagainst underperforming management byfollowing the recourse of activism.

Hence, it is not out of place to referto Calpers (The California PublicEmployees’ Retirement System) which hasrightly used the term shareowners insteadof shareholders recognizing theimportance of actively exercising theownership rights than passively holding theshares. They are ascertaining their rightsby putting tougher questions tomanagement and exercising their franchiseto exert pressure on management toinfluence its behavior in order to ensurebetter management, less frauds, superiorperformance and improved corporategovernance. It creates an environment inwhich management becomes moreaccountable to shareholders. Shareholdersactivism turned boring shareholdermeetings to action packed.

Fairly small stake in the company likeholding a single share is sufficient to launchactivism .A large variety of shareholderslike individual retail investor, institutionalinvestors like hedge funds, pension funds,mutual funds, strategic investors, not forprofit groups and the like are becoming

shareholder activists and management wasnoticed like never before. Religiousinvestors entered the fray and led theshareholder activism movement in 1970sstarting with the disinvestment campaignin apartheid South Africa. Nowadayslabor unions are shredding their passiverole and are becoming active shareholders.In addition to these categories there arecorporate gadflies who hold few shares indifferent companies file multipleshareholder proposals. Evelyn Y. Davisand the team of Lewis D. and John J.Gilbert N are prominent in this cadre whosay they represent the interests of smallshareholders in the professional sense.Shareholder activist Jack Tilburn 86 yearold, a former school teacher, attended 500AGMs and made his voice heard to upholdshareholder democracy. Dan Loeb, anactivist shareholder is responsible forputting pressure and on the board of Yahooto dismiss Scott Thomson CEO, thereason being a CEO is lying on his resume.

It is said the activist target companieswhich are under performing measured byearnings, having executive compensationissues, for carrying excess cash in the


balance sheet, and those that are poorlygoverned and there is consistent failure onthe part of the management to deliver asper the expectations of the shareholders.Out of these poor earnings are often citedas a principal motivation underlying proxycontest (De Angelo, 1988.). Someinvestors like Warren Buffet purchaseblock of shares in companies with anintention to profit in the future by improvingtheir performance. They seek betterfinancial and environmental performanceby the companies. LENS Funds followedthe strategy of ‘investing in a handful ofpoor performers and then relentlesslypestering their managers to adapt a betterstrategy” (Economist, 1997).

Shareholder activism is intended toimprove private and social gains. Privategains augment the shareholder wealth.They can insist on improving performanceof the company, negotiate with themanagement regarding the managerialcompensation and also the distribution ofthe surplus to the shareholders therebyincreasing the shareholder wealth. It isrealized that executive compensation isunfairly enriched the executives and eatingthe corporate earnings hence ‘say on pay’resolutions became a norm mostly in casesif disconnect between pay andperformance. Nearly 55% of theshareholders of Citigroup voted against theboard approved pay pack of $ 14.1 millionin 2011 as against $1 million awarded theprevious year to CEO Vikram Pandit. Incontrast to private gains, social gainsimprove the welfare of the society as a

whole. All private gains are not social gainsand all social gains are not private gains.For example shareholders may put weightto stop spending on sponsorships forpublic welfare; it can be a private gain butnot social gain. Shareholder activism servesthe interests of not only the shareholdersbut also other stakeholders like workers,consumers, environment, society andfuture generations as a whole. Investorcapitalism based on the model ofresponsible ownership developed to focuson environmental, social and governance(ESG) issues. A record number ofresolutions were filed and numerousshareholder campaigns are focusing onenvironmental and social issues. Forinstance, NGOs operating for the benefitof cancer patients grilled LIC for investingRs 3500 Crores in tobacco companies.High shareholder activism may force bettercorporate governance.

27Shareholder Activism

Forms of activism

Activism can be shown in many formslike privately discussing the pertinent issueswith the management with an intention toresolve them, increased attendance atgeneral meetings, putting tough questionsto the management regarding the companypolicies in the meetings, letter writingcampaigns, members requisition formeetings, filing shareholder resolutions,voting proxies, sending out press releases,public campaign, and proxy fight and thelike. Institutional investors by virtue of theirlarge shareholdings have direct access tomanagement, hold meetings with themanagement of companies to discusspolicy issues. Shareholders adopt astrategic approach in adopting the formsof activism. They prefer followingconfrontational techniques in the firstinstance and shift towards adopting morehostile techniques only in case the firstmentioned techniques fail to give desiredresults .For instance, initially they make aformal demand to seek a representationin the board and if this demand fails theymay go for a proxy statement or a proxyfight .Takeover attempts and legal battlesare also adopted as the last option. Legalrecourse can be taken only when themanagement takes an illegal course ofaction.

Role of Media

Media plays an important role inpromoting shareholder activism.Management tries to avoid media whereas activist shareholders have an affinity for

media. If the issues go to public domain, itmay consume managerial time and canresult in entrenched positions, hencemanagement shuns public glare overshareholder rebellion in the AGM. On theother hand, activists choose to use publicdomain as a medium to kick off thechanges they require. This facilitates theactivists attend the meeting with back upmaterial to toss the AGMs out of gear ifthe management is not fully prepared toface the situation. According to New YorkTimes activists are turning to social mediato solicit support of small shareholders,prospective allies and organize proxyvotes. They can frame a debate using socialmedia tools like twitter or Face book inno time without any cost.

Diffused interests of shareholderactivists

As the shareholders perceiveshareholder value in different ways,sometimes be inconsistent with each other,it can be said that shareholder interests arediffused .Hence activist agendas are notthe same for all the activist groups asdifferent activists. In addition, the timehorizon of investments of all theshareholders is not the same. Hedge funds,which are relatively free from regulatorycontrols, have short term interests. Theiractivism is based on value extraction andexit, hence induce the management tounder invest. According to the studyconducted by Prof Wei Jiang of ColombiaBusiness School,’ Although it is too earlyin the cycle to predict the fate of hedge


fund activism with any certainty, if activismcan be viewed as another form of arbitrage,then it is likely that the returns associatedwith it will decline, or even disappear, asthe more funds chase after fewer attractivetargets’. Hedge funds mostly target moreprofitable firms than other types ofactivists. They mostly stress upon highdividend payout, buy back of shares andcut in CEO pay.

On the other hand, insurancecompanies and other long term investorslook for the long term interests of thecompany in contrast to hedge funds.They cannot exit the companies easilyas they hold large stocks in differentcompanies and if they attempt to selltheir stock it may affect the stock pricesin the market. Hence they can give moretime to the management to implementgood corporate strategies to enhance theshareholders wealth as well as get thefruits of good governance. Pension fundson the other hand due of their fiduciaryresponsibility towards their investorshave to concentrate more on privategains .Social activists concentrate onenvironmental issues Labor unionspursue goals related to managementsensitive topics and labor related issuesrather than shareholder return. It iscriticized on the grounds that laborunions are utilizing shareholder activismas a capitalist tool in the class struggle.They are in an advantageous positiondue to their inside information about thecompany’s management.

Criticism to shareholder activism

Despite of the virtues shareholderactivism is also criticized on multiplegrounds. Activism acquired a negativeconnotation due to aggressive tactics likehostile takeover attempts and ‘just voteno’ campaigns adopted by a few prominentshareholders. Many of the shareholderproposals like the social responsibility wereconsidered as frivolous and received verylittle support. Activists are said to have allrights and no duties. Activist sometimesdisrupted the shareholders meeting, as ithappened in case of GE shareholdermeeting, 99% spring activists marchedexterior Detroit’s Renaissance Center tocomplaint unfair pension and livingallowance measures. Thousands ofactivists turned out to protest Bank ofAmerica’s shareholder meeting in 2012which resulted in a number of arrests.AGM of Tesoro ended in a record time of12 minutes as the activists rattled themeeting.

It is also said that short term investorsshow myopic behavior seeking instantgratification may influence the managementto change to promote the short term gainslike declaration of high dividend, reduceresearch and development expenditureand capital expenditure which could bedetrimental to the company in a long term.Moody’s report in 2007 raised theeyebrows of one and all by concluding thatincrease in shareholder activism inAmerican companies increased the creditrisk to the detriment of bondholders and

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long term shareholders .Activistshareholders with their power to nominateboard are damaging the credit quality ofthe company. Moreover under performingcompanies which are activist targets, findit difficult to raise further funds from thepublic for future needs.

It is further debated that the activistslack the proficiency to advise theprofessional management of the companyand are interfering in the way in whichbusiness is conducted making it difficult forthe management to perform their job. Itleads to close monitoring of themanagement which may shrink themanagerial discretion which in turn can beexpensive as managerial discretions comewith certain benefits. It is said to slowdown the business and disrupt theeconomy. Activism is said to havesometimes led to the release of sensitiveinformation to the public. Though there aremerits in these arguments, these are nottotally true. Shareholder activism does notmean shifting of power and authorities frommanaging to shareholders in order tomicromanage the companies in which theyinvest. It means shareholders have thepower to review the management and insituations where the management fails toperform and deliver, shareholders step inand use their voting power to change thepeople and policies. Some investors likefor e.g. like institutional investors with theirrich experience and expertise may givebetter insights, regarding whichmanagement may deliberate upon.Activists can play the role of ‘fire alarm’

to direct the management attentiontowards critical issues.

Shareholder activism does not comefree of cost. It is costly to the shareholdersand management of the company as well.Shareholders have to bear the costs ofnegotiating with the management, proxyadvisory firms, for coordinating withvarious shareholders, hiring legal corporategovernance experts, advertising firms andinvestment bankers. On the other handmanagement has to incur costs in dealingthe shareholders in terms of money as wellas valuable time of the management. Thereis a call that those shareholders should notabuse their rights as general meetings arecalled using shareholders money only.

Indian scenario

The ownership structure of Indiancompanies is different from that of U.Scompanies. Promoters hold majorityshares in Indian companies including somelisted companies. Except institutionalinvestors, outside individual shareholdershold a few shares each and have a widespread geographical base. Hence in theannual general meetings the powerequation favors the promoters’ asinstitutional shareholders remain passiveobservers for their own reasons andindividual shareholders have only a nominalsay hence they only seek the economicbenefits like dividend and capitalappreciation at the time of exit they getfrom the shares.

Now in the recent times, there is achange in trend. The shareholder activism



which was unheard of in India three yearsback is showing its sparkling presence asthe shareholders are assertive of their rights.Institutional investors and FIIs are leadingthe show. Even minority shareholdersstared putting tough questions to the errantmanagement. U.K based children’sinvestment fund which held only onepercent stake in Coal India has questionedthe management for succumbing to thedemand of the Indian government on coalpricing ignoring the fiduciary responsibilitytowards its shareholders .It took a stepfurther and threatened to sue themanagement. An equity research arm ofMacquarie an Australian bank hadexpressed its doubts about the accountingpolicies followed by HDFC. Shareholdersof Vedanta Inc. faced protests fromshareholders including minorityshareholders when it announcedrestructuring decision. Minorityshareholders of Crompton greaves forcedthe company to give a commitment to sellthe loss making jet. Investor activistsquestioned the transfer of tax liability worththousands of Crores from Essar Oil toEssar House and the reversal of the dealfollowed by supreme courts decision.Infosys faced shareholder activism. VeritasInvestment research of Canada made asensational report on RelianceCommunications, India Bulls, King FisherAirlines and DLF for which the stockmarket reacted sharply. Cases were filedin courts of law against this report. Thesewere only glimpses of what happened inthe recent past in India. But compared to

other countries, it can be said thatshareholder activism is still in its infant statein India but is striding forward taking babysteps.

Shareholder activism is encouragedby the recent changes in the regulation.When the class action suit was filed againstSatyam by overseas investors, Indianinvestors who had no recourse under thelaw watched powerlessly. Now,Companies Amendment bill 2012 allowsclass action suits to be filed, if the affairsof the company are conducted in a mannerthat is prejudicial to the interests of thecompany or its shareholders. These suitscan be filed when minimum 100shareholders come together. Now,financial assistance is provided for classaction suits by SEBI from investorprotection and education fund establishedin India following the provisionsCompanies Act, 1956 for promotion ofinvestors’ awareness and protection of theinterests of investors to the approvedinvestor associations, if they can prove thatat least 1000 shareholders are affected byfraudulent practices. The changes in thetakeover code allow the minority investorsto buy up to 24.99% without an open offerobligation which can enable them to havemore say in the affairs of the company. Butlegal protection alone may not ensureinvestor protection unless the shareholdersrecognize their ownership rights

Small investors who invest in mutualfunds delegate the decision making powerregarding where the investment is to make

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and do not have a right to vote on theshares held on behalf of them. Mutualfunds have a fiduciary duty to act in thebest interests of the fund holders. Mutualfunds despite of having economic power,played a passive and did not accomplishas active participants in the meetings of thecompanies in which investments weremade with fund holders money and pursuethe companies to follow good corporategovernance practices and act in the bestinterests of the shareholders. According tothe report from Ingovern out of 23,482resolutions passed by the companies inwhich investments were made only 326are voted against by mutual funds in thefinancial year 2011-12. SEBI ‘s mutualfund advisory committee felt that mutualfunds should play an active role in thegovernance of listed companies issuedguidelines that AMCs should disclose theirgeneral policies and procedures regardingthe exercise of voting rights with respectto the shares held by them. As per thedirectives of SEBI, it became obligatoryon the part of asset managementcompanies to disclose the actual exerciseof proxy votes in the annual andextraordinary general meetings on theirwebsites and annual reports. It furtherprescribed the areas where they are toexercise due diligence. The direction fromSEBI is a welcome move but until andunless the mandate of SEBI followed inthe true spirit of the words, it can only be“shareholder engagement¸”rather thanshareholder activism.

SEBI took a further step forward,mandated 500 top class companies toprovide for e voting facilities to enablewider participation of the shareholders inimportant decisions of the companieswithout being physically present at thegeneral meeting. Clause 35A of the listingagreement provides that e voting ismandatory in case of all resolutions whichare transacted using postal ballots. Postalballots are currently obligatory undersection 192A of the Companies Act andin other regulations like ICDRRegulations, Takeover Code, etc. In astatement SEBI said, “In line with thebudget proposal of Finance Minister, tomake it mandatory for top listedcompanies to provide for electronicvoting facilities, it has been decided toimplement the said proposal by makingelectronic voting mandatory for all listedcompanies in respect of those businessesto be transacted through postal ballot.The same would be implemented in aphased manner,’’ NSDL and CDSLVentures Limited are already providinge-voting platform. This change providesa win -win solution to the shareholdersas well as the company. This conversionenables the shareholders to give theirassent or dissent to the resolutionsproposed in any number of companies inwhich they hold shares within minutes inthe comfort of their home or office .It alsoreduces the administrative costsassociated with postal ballot to thecompany.



Role of Institutional investors

Individual investors, holding fewshares in the company have negligiblevoting rights and hence they may not beable to influence the policies of thecompany. Evidence proves that mostproposals put by small shareholders wereincapable to get majority vote. They haveonly an advisory role to play. There wereinstances where boards disregarded theirproposals. Small shareholders with theirminimal holding do not have any incentivesto indulge in activism until and unless theycome together and take a collectivedecision. Some individual investors, nowa days are placing proxies and coordinatingwith other investor groups to exercise theirfranchise but these instances are rare. Sinceshareholders are dispersed over widegeographical regions with differentlanguages and cultures, investments madewith different objectives in mind face theproblem of coordination to take a unitedaction to discipline the inefficientmanagement. Small non-controlling andnon-monitoring shareholders who are lesssophisticated look forward only foreconomic benefits and if dissatisfied,following The Wall Street rule have to sellhis stock and exit rather than try to changethe company’s policies ignoring theirownership rights leave the company to themercy of the management. Sale and exitbecomes easy if the market is liquid.Institutional investors, as they are holdinglarge stocks in the companies cannot walkout without affecting the market, henceneed to hold the shares for a longer period

of time. Researches Edamns and Manso(2011) proved that exit is also a form ofactivism, as it can affect the share pricethough for a short time if the managers havedirect utility with shore term stock prices.This can have an impact on the behaviorof the top management of the firm. Ingeneral ,shareholders decision to hold aparticular stock depend on a number offactors like a stock price, level ofsystematic risk, the percentage of stockowned in a firm, market characteristicsand advantages that can be gained withthe inside information. Exercising opting-out option works against effectivecorporate governance. If they are indexedinvestors, the only option left to them toimprove the client’s holdings is to monitorthe management of the companies andensure that they are managed better toenhance the shareholder value.

Active engagement of institutionalinvestors who hold large equity position intheir portfolio of companies in which theyinvest can resolve this problem. Mostinstitutional investors manage the pooledsavings of small investors it becomes theirultimate responsibility to protect theinterests of the small investors. They havethe required resources at their perusal,ability to monitor the management andincentive to develop specialized expertiseto monitor the management of thecompanies in which they invest.Company’s managements will also bemore careful that they are monitored bylarge shareholders. Large shareholders arelikely to be more efficient than small and

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dispersed shareholders in monitoring thecompany management since they havesubstantial investments at stake as well assignificant voting power to protect theseinvestments (Berle and Means, 1932;Jenson and Meckling, 1976; Shleifer &Vishny, 1986). Large institutionalshareholdings in a firm deter managersfrom pursuing opportunistic earningsmanagement through discretionary accrualchoices (Chung et al 2002).

Institutional investors of U.S holdmajority shares in most large U.Scorporations. Owing to the size of theirholdings they had access to the board andexecutives which enabled them tounderstand the business. In earlier days,they preferred working behind the scenesby discussing work the boards to resolvethe issues. Now they have become morevocal in the shareholders meetings andhave shown signs of growing activism tomonitor the management company in thebest interest of the shareholders. The highprofile activism showed by The CaliforniaPublic Employees’ Retirement System(CalPERS) needs appreciation in thisregard. It has chased reforms at Focus Listfirms and is involved in bringing out thereforms that would increase shareholderrights and create billions in shareholdervalue. But most institutional investors areyet to follow this path. Institutionalinvestors, despite their substantialaggregate holdings, do not sit on corporateboards and have virtually no real influenceon management’s behavior because theyinvest nearly all their assets in index funds

rather than directly in companies (Porter,1997).

Activism by institutional investors isdependent on the financial, legal and socialfactors that are not homogeneous for allfunds .Institutional investors like pensionfunds, mutual funds and insurancecompanies operate under different legaland regulatory environments. They are alsoconstrained by the factors like liquidity oftheir portfolio, fiduciary responsibilities theyowe. Certain institutional investors likebanks and insurance companies haveexisting or future possible future businessrelationship with the company which mayinhibit them from exercising the franchiseagainst the management of the company.Sometimes the pressure tactics adoptedby the management has an influence onthem. Fund managers have differentmotives. These institutional investors arenot just shareholders who are trying toenhance the value of their clients but alsocompetitors’ among themselves .As theirperformance is compared with theircompetitors, they tend to beat thebenchmarks rather than increasing theshareholder value in absolute terms. Theyconcentrate on constructing their portfolioof stocks so as to eliminate firm specificrisks and increase the returns.

They may not have the expertise andtalent to advise the management of thecompany to improve the performance oftheir companies. The other reason couldbe they are unwilling to sacrifice theliquidity of their investment to monitor the



management of the company. In the duecourse of activism they may have accessto inside information, and there is apotential liability for insider trading.

Proxy advisory firms

Shareholder activism does not comefree of cost. Activist shareholders have tobear all the costs of activism and as thebenefits are to be shared with all theshareholders of the company. There is aclassic free rider problem. Asymmetricpattern of costs and benefits discouragesactivism. In financial terms, Institutionalinvestors conduct a cost benefit analysisand undertake activism in their portfoliocompanies only when the benefitsoutweigh the costs. The free rider problemis reduced to a considerable extent as theholding of the institutional investors haverisen considerably in the recent years.

Apart from these costs, theknowledge about the firm and theenvironment in which it operates which isa prerequisite for activism is difficult toobtain. Governance and proxy advisoryfirms entered the fray to fill in this gap byplaying a vital role in advising institutionaland other investors in exercising thecorporate franchise and are giving a boostto shareholder activism. Glass, Lewis&Co, Institutional Shareholder Services,Egan-jones proxy services, Proxy Tell areglobally reputed proxy advisory services.These proxy advisory firms professionallymanned do corporate governance andallied research like valuation of mergersand acquisitions, compensation analysis,

give vote recommendations toshareholders on payment basis. Thisenables the shareholders to be equippedwith information with which they can casttheir corporate vote more diligently. Theyalso provide the service like casting proxystatement votes on behalf of shareholders.In India Proxy advisory firms like InvestorAdvisory Services launched by Singhviand InGovern Research Servicespromoted by Shriram Subramanyamcatalyzed shareholder activism in India.

Empirical evidence suggests that theinfluence of proxy advisors on the votingpattern is phenomenal. Institutionalinvestors, though they have the ultimateresponsibility for the votes that they cast,are increasingly employing the services ofproxy advisory services. Facing theshareholder spring, companies are nowaggressively attacking the proxy advisoryfirms for influencing the market raisingdoubts about the veracity of the analysisdone by the proxy advisory firms basingon which voting recommendations weregiven. There is a hue cry round the worldthat proxy advisory firms should be subjectto regulations which require them todisclose the source of information,assumptions made and methodologyadopted to prepare the research reportsbasing on which they give votingrecommendations to the investingcommunity. Companies on their part canof course take the initiative to directlyinteract with the proxy advisory firms anddivulge the accurate information neededfor voting recommendations.

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Measuring the effect of shareholdersactivism on governance and the impact ofgovernance on corporate performance isdifficult task. Empirical evidence wasmixed and show the impact of activism onfirm’s performance. Apart from activism anumber of other factors also play a vitalrole on governance of which go unnoticedlike for example , behind the scenenegotiations with the management thoughthey have an effect enhancing the firmvalue, if the management by accepting theproposal from of active shareholders toenhance the governance of the firm. Thereis very little empirical research done thisarea

Conclusion

Shareholder activism per se has thepotential to enhance the value of the firmand corporate governance practices forwhich the activism should be meaningful.Purchasing one share in the company andcribbing at environmental disaster in anenergy company or put a shareholderresolution for the postponement of AGMjust because you cannot attend on that dateis not called activism.

The companies should be preparedas shareholder activism is here to stay andif they ignore activists they have to do it attheir risk. Not all the shareholders of thecompany are active. Only a smallproportion of the total shareholders areactive, In order to avoid controversy withactive shareholders, companies are takingproactive steps like knowing theirshareholder base, identifying the activist

shareholders and having dialogue withthem to address their concerns. But in thiscontext the management should be veryconscious as it is the responsibility of theboard is to act in the best interests of thecompany but not in the best interests ofactive shareholders who apply pressure onthe management whose interests may bedifferent from the interests of othershareholders and the company. Coca Colaand Motarola are directly networked withinstitutional investors like pension funds andmutual funds. More and more U.Scompanies have become watchful ofshareholder activism and are hiringshareholder surveillance companies toknow the concerns of their shareholdersfrom time to time. CEOs are now moreaccessible to money managers”. It isdefinitely a good initiative on the part ofthe company to meet the activistshareholders often and discuss the issuesand diffuse the situation than letting it goto public. Hewlett-Packard Co. has hiredGoldman Sachs to help frame a strategyto be better equipped to deal with activeshareholders. Executives of the companieschoose to engage in a dialogue with theactivists to and address their concerns toavoid negative publicity.

Management should always be fullyprepared to defend the corporatedecisions. An open, transparent and honestcommunication with the shareholders canreduce the chances of being the targetcompany for activism and hence is to beincluded in the communication strategy ofthe company. Companies can strategically



put the information in the public domain toensure full disclosure and transparency toenable the shareholders understand thesituation as it is done in case of easy Jetwhich went to press to explain theremuneration policy. Shareholder activismshould also be included in the riskmanagement strategy of the company. Anintegrated approach should be adopted indealing with activism. Companies shouldconstitute a response team preferablyconsisting of key managerial personalincluding company secretary, publicrelations personnel and legal advisors tofacilitate discussions with activists.

The challenge before corporate is todeal with activism without compromisingthe fiduciary duty of acting in the bestinterests of the company but not to specificactivist shareholders.

References

Jonathan R Macey (1997), ‘InstitutionalInvestors and Corporate Monitoring; ADemand Side Perspective’, Managerialand Decision Economics, Vol .18;No 7/8pp. 601—610

Marcia Millon Cornett, Alan J. Marcus,Anthony Saunders, Hassan Tehranian(2007), ‘the impact of institutionalownership on corporate operatingperformance, Journal of Banking &Finance: 31(2007) 1771-1794

O’Rourke, Anastasia (2013), ‘A newpolitics of engagement: shareholderactivism for corporate socialresponsibility’, Business Strategy and theEnvironment; Jul/Aug 2003; 12, 4; ABI/INFORM Complete PAGE 227

Pascal Frantz (2007), ‘Socially andprivately optimal shareholder activism’, JManage Governance (2007) 11:23-43DOI 10.1007/s10997-007-9013-x

Rehbein, Kathleen; Wad dock, Sandra;Graves, Samuel B(2004),‘UnderstandingShareholder Activism: WhichCorporations Are Targeted?’, Businessand Society; Sep 2004; 43, 3; ABI/INFORM Complete pg. 239.

Thomas H.Noe (2002),”Investor activismand financial market structure’’, TheReview of Financial Studies, Vol 15 ,No1 (Spring,2002),pp 289 -318


Customer Perception on Performance ofRRBs in Odisha

Jitendra Kumar Ram & Rabi N. SubudhiSchool of Management,

KIIT University, Bhubaneswar, India

AbstractRegional Rural Banks (RRBs), now spread all over India, play an important role inthe all round rural development of the nation, and also for the financial-inclusionmission. To strengthen the functioning of these RRBs further, many committees havegiven suggestions, for major reforms, including amalgamation. As considerable timeand effort have been given on this reforms-measure, time has come to check whether‘amalgamation’ of RRBs has helped improving service-quality?

The present paper reviews the growth of Indian banking sector and, particularly theRegional Rural Banks (RRBs) of Odisha. The paper uses both secondary and primarydata to study and check, whether there has been any significant improvement infunctioning of RRBs, in the state of Odisha.

Introduction:

The importance of banking-system,in the socio-economic development of anation, has been a well researched topic.But, as compared to other commercialbanks, the performance of Regional RuralBanks (RRBs) has been a worry-somecase for the Government, at least untilrecently. In the recent past, more focus wasbeen given on how to improve both theefficiency as well as the very credibility ofsuch RRBs, which were established (by aspecial RRB Act, in 1976) to boost therural economy of India.

Since the establishment of RegionalRural Banks, various groups/ committeeshave been set up by the Reserve Bank ofIndia and Government of India to review

their performances. The committees hadspecific suggestions, to bring aboutrequisite amendments in the working ofthese banks so that the scope of theirfunctioning can be improved bothqualitatively and quantitatively. Thesuggested reform-measures includedamalgamation (of RRBs), which wasimplemented throughout India, includingOdisha, in phases.

The present paper aims at studyingthe performance of RRBs of Odisha andtheir service quality, as perceived by thecustomers, post amalgamation.

First, we briefly summarize thedevelopment in banking industry, reformsmeasures adopted after liberalization and


then discuss about the parameters formeasuring operational efficiency as well asconsumer perception. Operationalefficiency is proposed to be analysedthrough secondary data, while the‘customer perception’ is to be analysedby a sample survey of some existingcustomers of RRBs in Odisha.

Indian Banking & Financial System

The Indian financial system can becategorized into two distinct sectors: formalfinancial system and informal financialsystem. The formal financial system isregulated by Government of India, ReserveBank of India, Securities Exchange Boardof India, and other regulatory bodies,whereas the informal financial systemconsists of indigenous money lenders,landlords, traders, chit-funds, etc.

In the last two decades, there hasbeen a considerable expansion of theIndian financial system, both in terms ofgrowth in infrastructure and businessvolume. The role played by the financialinstitutions, particularly the banking sector,in the development and growth of anation’s economy has been widelyacknowledged by the various researchers.To make the banks more efficient,delivering better results, committees haveprescribed various measures like the endof control on loans, deregulation of interestrates, reduction in reserve ratios like CRRand SLR, implementation of prudentialnorms (Narasimham,1991). Thosereforms were set up with the mainobjective of improving efficiency in

financial resources mobilization andallowance.

According to the recent policyguidelines, the second phase ofamalgamation of the RRBs working in astate sponsored by different commercialbanks are being amalgamated so that eachproposed RRB will have minimum 350-400 branches working in a contiguous areaand each State would have one or twoRRBs. This process has already beeninitiated from the 1st October, 2012. Sothis is the most opportune moment to studythe effect of first phase of restructuring(2005) on the efficiency of the RRBsworking in India to assess whetheramalgamation has really improved theperformance of the Regional Rural Banksworking in the State of Odisha.

Need for the research

The performance measurement is aprocess which helps in evaluating how wellor how efficiently an organization isperforming. It helps the management, toassess whether the organisation is movingin the right or desired direction. It alsomotivates the people in the organizationand out of the organization who are directlyor indirectly involved in managing it bymaking them conscious of theachievements made by the organization.Last but not the least reviewingperformance provides necessary feedbackto make either any midway correction, ifwarranted, to improve the overallperformance of the organization or to planfor the future.

39Customer Perception on Performance of RRBs in Odisha

Objectives of research

The main objectives of the research are: to study whether amalgamation has

made any impact on the performanceof RRBs of Odisha,

to study whether the CustomerServices provided by the RRBs ofOdisha are satisfactory,

to analyze the demographic profile ofthe customers of RRBs and theirpossible impact on service-quality.


In the present research bothqualitative and quantitative methods havebeen used. The present research studycovers data for the period from 2000-01to 2011-12.

As the process of amalgamation ofRRBs started in September, 2005 andconcluded in 2009-10, 5 years prior to2005-06 and the subsequent (5-year)period up to which latest data are available(that is, 2011-12) have been selected forstudy.

The present research is based on bothprimary and secondary data. The primarydata have been obtained through surveymethod. Descriptive methodology hasbeen used for the study. Both primary andsecondary data have been used. Thecustomers of the ten branches of OdishaGramya Bank have been surveyed.

Progress of RRBs in India

The Regional Rural Banks which came intoexistence on 2 October, 1975, gotexpanded very fast and became popularas ‘small man’s bank’. The period during,1975-1990, the first fifteen years, was theperiod of ‘inception and expansion’, whenit found all round spatial expansion andgrowth in its business. This periodwitnessed large scale increase in thenumber of banks, branches and districtscovered. Figure –1 shows the expansionof RRBs from 1975 to 1990. The numberof Regional Rural Banks operating in Indiain 1975 was only five but at the end offifteen years, in 1990, it grew to 196.


During the same period, the numberof RRB branches increased from 17 to14,443 (in the year 1990). The branchesof the Regional Rural Banks which wereopened mostly in the remote rural andunbanked areas gave an opportunity to thehitherto neglected rural mass to experiencebenefits of banking services.

Deposit Mobilization

The two important functions of anybank are deposit mobilization and creditdisbursal. The idle savings in the hands ofthe people are mobilized as deposits bythe banks and the same is deployed inproductive use through the borrowers ofthe bank. The deposit grew from meageramount of Rs. 0.2 crores in 1975 toRs.4151 crore in 1990. The annual growthrate of deposits during period 1979 to1990 was as high as 68 per cent in 1981and as low as 5.16 per cent in the year1989. The average annual growth rate ofdeposits during the period 1979-1990 was40 percent. The compounded annualgrowth rate (CAGR) of deposit for thisperiod was 39.88 %.

Credit Amount

The Regional Rural Banks werespecifically set up to cater to the needs ofthe rural people. Their prime task was tomeet the credit needs of the small andmarginal farmers, rural artisans, smallbusinessmen and other borrowers underthe target group. The credit outstandinggrew steadily during the period 1975 to1990. The banks which started functioningin 1975 could reach credit outstanding

level of Rs. 3554 crores in a short span of15 years. The average annual growth rateof credit in the same period was 33 %.

Credit-Deposit Ratios

Credit-deposit (CD) ratio of a bankreflects the utilization of deposits mobilizedby a bank in the economic development ofthe locality or region by deployment of creditin the region. Ideally the CD Ratio of a bankshould be more than 60 percent. CD Ratiois found to be much above the stipulated rateof 60 per cent. It shows that RRBs had allalong used the mobilized resources in thedevelopment of the local region.

Productivity per Bank

Productivity per bank andproductivity per branch are standardmeasures used to assess the performanceof any bank. It is measured by dividingthe total business mix of deposits andadvances by the number of banks. Itincreased from Rs. 0.6 crore in the year1975 to 39.31 crores in the 1990.

RRBs of Odisha

The study of the development andworking of commercial banks in Odishaduring the post nationalization period(1970-1979) deserves a special mention.Firstly, the period succeeds implementationof Lead Bank Scheme on therecommendations of the National CreditCouncil set up by the Government of Indiain the year 1968. Under the scheme theLead Banks were required to concentrateon the banking business and resourcedevelopment in the districts assigned to

41

them in collaboration with otherdevelopmental agencies. Secondly, theperiod also witnessed nationalization ofcommercial banks on 19th July, 1969.Here, an attempt is made to study theworking of banks in Odisha during thedecade after nationalization of banks.

The Government of India initiated theprocess of amalgamation of the RegionalRural Banks in Odisha in February, 2006,which was ended in August, 2007.

Performance of RRBs in Odisha

There were five regional Rural Banksworking in Odisha as on 31.03.2012.They were operating through 875branches spread in 30 districts of the State.The Key indicators like number ofbranches, deposits and advancesoutstanding and Credit-deposit ratios from1996 to 2012 have been provided in thefollowing table (Table-1).

Table-1: Growth of RRBs in Odisha: Key IndicatorsYear No. of No. of Amount of deposits Amount of advances Credit-Deposit

RRB branches (in Rs crore) (in Rs crore) Ratio (%)1996 9 819 816 364 44.611997 9 816 768 421 54.821998 9 823 958 462 48.251999 9 838 1194 578 48.412000 9 839 1429 716 50.102001 9 834 1770 859 48.532002 9 832 2155 1124 52.162003 9 836 2455 1331 54.212004 9 832 2891 1616 55.902005 9 834 3196 1999 62.552006 7 835 3594 2328 64.772007 5 849 4151 2699 65.022008 5 857 5298 3080 58.132009 5 871 6557 3372 51.422010 5 875 7887 3913 49.612011 5 875 8823 4689 53.142012 5 885 9648 5645 58.55

Customer Perception on Performance of RRBs in Odisha


Credit Operation

One of the objectives ofnationalization was to ensure adequatecredit flow to genuine productive sectors.To fulfill the plan priorities, banks went onextensive credit operation afternationalization. This was made possible bythe enlarged resource base of banks duringthe period. Annual targets were laid down

for lending to priority sectors as a wholewith sub targets for weaker sections of thesociety. It was also stipulated that a majorportion of the deposits mobilized in ruraland semi-urban areas should be deployedin respective areas.

The credit operations of banksduring the period are summarized below(Table-2).

Table-2: Advances Before Nationalisation [Rs in Crore]Year Bank Credit Priority Sector Out of Priority Sector

Agriculture SSI OPS1969 3729 659 258 347 54Percent 17.67 39.15 52.66 8.191980 25371 8501 3584 3229 1688Percent 33.51 42.16 37.98 19.861991 125592 45425 18157 18150 9198Percent 36.17 39.97 39.96 20.07

Source: Bank Quest Dec. – 2002

Bank credit increased seven foldbetween 1969 and 1980 and by five timesbetween 1980 -91. Within the prioritygroup the share of agriculture was 39percent in 1969, 42 percent in 1980 and

it remained at that in 1991 by 40 percent.The share of SSI sector in total bank creditwas 52.66 percent in 1969 showed arelative decline to 38 percent in 1980 and40 percent in 1991.

Fig. 3: Classification of Priority Sector Advances: 1969-1980

43

Hypothesis Testing

We have taken here Net interestmargin (NIM) ratio, to study whether thereis any significant improvement, post-amalgamation. A bank earns interest on itsloans and investment. At the same time itpays interest on the deposits mobilized byit and on the funds borrowed from otherinstitutions. Net interest margin is thedifference between the total interestincome earned by a bank and totalexpenditure made in the interest head bythe bank. It reflects the capacity of themanagement in generating surplus.

Net Interest Margin Ratio = (Interestincome – Interest expenditure)/ Assets x100

Null Hypothesis (H0): There is nosignificant difference in Net interest marginratio of pre- and post amalgamated periodof Kalinga Gramya Bank.

Alternative Hypothesis (H1): Thereis significant improvement in Net interestmargin ratio of Kalinga Gramya Bank,after amalgamation.

Table – 4: Net Interest Margin Ratios of Kalinga Gramya Bank, OdishaPre-amalgamation NIM Ratio Post- amalgamation NIM Ratio2000-01 0.00 2005-06 0.0102001-02 0.01 2006-07 0.0502002-03 0.00 2007-08 0.0622003-04 0.03 2008-09 0.0982004-05 0.06 2009-10 0.413

Mean 0.02 2010-11 0.527Std. Deviation 0.02 2011-12 0.812

Mean 0.282Std. Deviation 0.308

t-Test: Two-Sample Assuming Unequal Variances

Pre-amalgamation Post- amalgamationMean 0.02068 0.2816Variance 0.0005 0.0945Observations 5 7df 6 t Stat -2.23 P(T<=t) one-tail 0.03 t Critical one-tail 1.943 P(T<=t) two-tail 0.066



The mean score and standarddeviation for post-amalgamation periodwere M= 0.282, SD= 0.308, while thesame for the preamalgamated periodwere M= 0.021, SD= 0.02, respectively.From the result of t-test above, it is seenthat the p-value is 0.06, which is more than0.05. It implies that the difference betweenthe mean value of post and preamalgamated period is not significant at 5%level. But at higher level (6-10%), we canconclude that, there is some improvementin NIM.

Customer Survey on Service Quality

To understand, whether there is anyremarkable change/ improvement inconsumer perception, on how bank isoperating (governed), a structuredquestionnaire was canvassed at 10branches of RRBs of Odisha, where a totalof 516 bank-customers have responded.Here we present only the summary ofresults, particularly on the available facilitiesand customer expectations.

Following graph shows the briefdemographic profile of the customerssurveyed.

Fig.-4: Occupation and Income of the Customers of RRBs (from a sample of 500)

Almost 66 per cent of the customerssurveyed have income of below Rs. 5000/-per month .It reflects the economic conditionof the rural poor. People having monthlyincome of Rs. 5,001 to 10,000 constitute17 per cent of the respondents. Only 7 percent of the people among the respondentshave monthly income above Rs. 20,000/-.

Facilities and amenities

During the survey, the respondentswere asked to rank sixteen facilities and

amenities that they expect to be madeavailable at the branches according theirimportance in their perception. At thesame time they were also asked rankthose facilities as available in the branchesaccording their perception. The findingshave been tabulated below in descendingorder according to the rank given by therespondents. The rank is based on theweighted average of the ranks accordedby the individual respondents.

45

Respondents rank requirement ofATM followed by air-conditionedenvironment, name board, parking

facilities, etc. Need of putting identificationboards at counters has been ranked lowestby the respondents.

Table - 5Sl. Amenities Expected Weighted

- (Importance measured in 4-point rating scale) Average Score1 ATM facility at the branch (Importance) 1.392 Air-condition comfort (Importance) 1.443 Name board and other information about working hours etc. 1.794 Parking facilities (Importance) 1.885 Drinking water facility (Importance) 1.916 Convenient location of the bank (Importance) 1.957 Sitting arrangement (Importance) 2.058 May I Help You counter (Importance) 2.179 Dust bins (Importance) 2.2910 Lighting (Importance) 2.3011 Electronic token number display and audio announcement system 2.4612 Complaints and suggestion boxes (Importance) 2.5413 Flooring (Importance) 2.6514 Availability of personal assistance/guidance (Importance) 2.7115 Display of products and services information (Importance) 2.8516 Display of identification boards at counters (Importance) 3.18

Respondents rank convenient location ofbranches followed by proper lighting,flooring in the branches as first, second and

third respectively. Availability of ATM andair-condition have been ranked lowest bythe respondents.

Table - 6Sl. Amenities Available Weighted

(Importance, as felt by customers) Average Score1 Convenient location of the bank (Importance) 2.142 Lighting (Importance) 2.533 Flooring (Importance) 2.754 Dust bins (Importance) 3.105 Name board and other information about working hours etc. 3.196 Drinking water facility (Importance) 3.247 Complaints and suggestion boxes (Importance) 3.41



8 Sitting arrangement (Importance) 3.459 Parking facilities (Importance) 3.6110 Availability of personal assistance/guidance (Importance) 3.6311 Display of identification boards at counters (Importance) 3.9512 Display of products and services information (Importance) 3.9813 May I Help You counter (Importance) 4.1214 Electronic token number display & audio announcement system 4.6815 Air-condition comfort (Importance) 4.7316 ATM facility at the branch (Importance) 5.86

Figure - 5

It shows that maximum number ofrespondents that is about 45 percentdepends on agriculture for theirlivelihood. The second highestpercentage of respondents (35 percent)are business men. The composition trulyreflects the rural profile of the customersof the bank.

Factors influencing the choice of abank by the customers:

A person’s decision to choose aparticular bank is influenced by variousfactors like advertising, quick and qualityservice, etc. The respondents were givenchoices of eight such factors and wereasked to rank them from 1 to 8 in order ofpriority according to their perception, 1-being most influential in their choice ofthe bank.

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Table-7: Factors influencing choice of a bank(1 being most influential, 8 being least influential)

Sl. No Factors influencing choice of a bank Rank1 Employee behavior 1.72 Quick and quality service 2.13 Branch location convenient to me 3.54 Value-added services 4.85 Recommendation of others 4.96 Service charges or fees 5.57 Convenient business hours 5.58 Advertising 7.9

Mean = 4.5

In the present era of globalization andprivatization where great emphasis is puton marketing for success of any productor service, it is the general perception thatpeople’s choice of bank is greatlyinfluenced by advertising. But the findingsof the survey, contrary to the generalperception, have shown that most influentialfactor influencing the choice of a person forchoosing a bank is the employee behaviorand it is followed by quality of service. Ithas again brought in to focus the contributionof the human touch in the success of aservice industry in particular the banking

sector. It is the behavior of the employeeswho deal with the customers that matter inretaining in customers and in bringing in newcustomers. Advertising is the factor whichis found to be the least influential among theeight factors listed for ranking by therespondents influencing choice of a bankby them. So to improve the customer base,attract new customers and retain the existingcustomers the top management of the banksshould give emphasis on enhancing thequality of the employees and CustomerRelationship Management rather than onadvertising.

Fig.-6: Factors influencing choice of a bank



The top four factors influencing thechoice of a bank by the respondents areemployee behavior, quick and qualityservice, branch location and value addedservice provided by a bank. Similarly, thebottom four factors influencing the choiceof a bank by the respondents areadvertising, convenient business hours,service charges and recommendations ofthe friends.

Conclusion

As per the findings of the research,secondary data analysis shows mixedresult. All policies, reforms andGovernment initiatives, (aimed atgovernance-reform), have so far resultedin some positive impact, like improvementin liquidity, interest-income, reduction inoperational expenditure. But there is noclear evidence of improvement inachieving the assigned social commitments(like attention to priority sector). In thecustomer-survey analysis, thoughamalgamation has helped in increasing theconfidence level of existing customers (onthe very Banking system of RRBs),expectations on service-quality front is stillvery high and mostly not available, as ofnow, when the customers tend to comparewith the standards of other commercialbanks.

[Note: This article is part of thedoctoral research work done by Mr. JRam, under the supervision of Prof. RNSubudhi, at KIIT UniversityBhubaneswar.]

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Business Potential of Fish Parlours inUttar Pradesh

Dr R K PandaSenior Research Officer,

Bankers Institute of Rural Development, Lucknow-226012

AbstractThe state of Uttar Pradesh is having vast water resources of flowing water andconfined water. Uttar Pradesh accounts for about 15% of the country’s river length,around 5 percent of reservoir area of the country. The present study evaluates theinland fishery resources and long term trend of fish production in Uttar Pradesh. Itprovides the business potential of fish galaxies by analyzing the mean changes inconsumption pattern of the buyers in fish galaxies over traditional fish markets.

Background:

The contribution of fisheries sector tothe GDP has gone up from 0.46 per centin 1950-51 to 1.47 per cent in 2000-01(at current prices). The share of fisheriesin agricultural GDP (AgGDP) hasimpressively increased during this periodfrom a mere 0.84 per cent in 1950-51 to4.01 per cent in 2000-01 at all India level.The role of fisheries in agricultural economyof almost all the states has also beenincreasing as its enhancing share in theagricultural state gross domestic productover years. Interestingly, this share hasincreased more prominently in the non-traditional fisheries states like Bihar,Haryana, Punjab, Madhya Pradesh, UttarPradesh, etc (NCAP and World FishCenter, 2004). Fish production perhectare of water bodies in Uttar Pradeshcalculated at 0.75 tonne per hectare in2008 is higher than the national averageof 0.57 tonne per hectare (Central Water

Commission, 2010). Despite encouragingsigns of fish production in Uttar Pradesh,per capita fish consumption in the state hasremained on the lower side.

To provide a vital forward linkage tofisheries, the Government of Uttar Pradeshhas embarked upon a plan to open fishparlours under public-private partnership(PPP) all over the state. The scheme isaimed at integrating fish production to thesupply chain to benefit the producers andsmall fisherman. It is planned to open suchparlors in every district of the state. Underthe scheme, land is provided by the privateparties and venture capital is arranged bythe State Government with necessary banklinkage. At present, these parlours arefunctioning in cities like Lucknow, Meerut,Faizabad, Ghaziabad, Jhansi, Gorakhpur,Varanasi and Moradabad. Afterintroducing mobile fish parlours in variouscities, the fisheries Department has nowshifted its emphasis to Fish Galaxies which


are fixed parlors, in strategic locations. Onesuch parlour very recently in January 2013has come up at Barabirua location inLucknow. Previously, there was acongested unhygienic market yard forselling inland fish. Around 50-60 sellerswere engaged in selling very limitedvarieties of inland fish only. Now, oneobserves that the number of varieties offish being sold in that market has gone upand the customers are getting quality fishin a clean environment. In this backdrop,present study with the aid of primary dataobtained from buyers attempts at assessingthe business potentials of such parlours instrengthening the supply chain of fishing.

After setting the backdrop of the study,the subsequent section of the study evaluatesthe inland fishery resources and long termtrend of fish production in Uttar Pradesh.Section-3 provides the business potential offish galaxies by analyzing the mean changesin consumption pattern of the buyers in fishgalaxies over traditional fish markets.

Objectives of the Study

To evaluate the inland fisheryresources in Uttar Pradesh.

To study the impact of fish galaxieson the buyers’ consumptionPattern and to examine thebusiness potential of the fishgalaxies over the traditional fishmarketing places.

MATERIALS AND METHODS

In order to examine the studyobjectives, secondary data obtained from

different published sources and primarydata obtained from buyers are analyzed.Primary data are obtained under twomarket clusters which are Barabirua FishGalaxy (Experimental Group) andAlambagh, Power House Chouratraditional fish markets, Bangla BazarSunday Fish Market (Control Group).Business potential of the fish galaxies areexamined by analyzing the changes in fishconsumption behavior of the buyers of thegalaxy fish market with that of the traditionalnearby fish markets. Buyers are interactedat market points after the completion oftheir fish purchase. For obtaining relevantinformation, 100 buyers from each marketare interacted with the aid of a fullystructured format.

TREND OF FISH PRODUCTIONIN UTTAR PRADESH

Inland Fishery Potentials of the state

The state of Uttar Pradesh is havingvast water resources of flowing water andconfined water. Presence of a great lengthof rivers, canals, natural lakes, and pondsprovides adequate potentiality for bestpossible inland fishing in the state. UttarPradesh accounts for about 15% of thecountry’s river length, around 5 percent ofreservoir area of the country. Added to it,the state is having 7% of the country’s tanksand ponds; around 17% of flood plain lakesand derelict water. Besides the land areaunder water bodies of the state standing at4.32 lakh hectares accounts around 6percent of the land area under water bodiesavailable in the country (See Table-1).

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Table-1: Fishery Resources in Uttar Pradesh as a proportion to All IndiaSl No Resources UP India % share of

UP in India1 Rivers and Canals (kms) 28500 195210 14.62 Reservoirs (lakh Ha.) 1.38 29.07 4.73 Tanks and Ponds (lakh Ha.) 1.61 24.14 6.74 Flood Plain Lakes and derelict bodies (lakh Ha.) 1.33 7.98 6.75 Total Water Bodies (lakh Ha.) 4.32 73.59 5.9

Source: Dept. of Animal Husbandry, Dairying and Fisheries (2011-12): Annual Report

River resources:

The extensive network of rivers constitutesone of the major fishery resources of thestate. The drainage pattern is dominatedand controlled by river Ganga systemrecognized as the master stream in thestate. The most important tributaries areYamuna on the right side and Ram Ganga,Gomti and Ghagra on the left side. Yamunais 1376 Sq. km long basin, covering anarea of 320 lakh Sq. km of which 61750Sq. Km. lies in U.P. The importanttributaries of Yamuna are Chambal, Sind,Betwa, Dhasan, Baghin and Ken. Theserivers contribute 79 billion cubic m of waterevery year into the main stream.

Reservoir, wetland and pondresources:

Out of the 62 reservoirs spread over 17districts in the state, the four largereservoirs viz., Rihand, Matatila,Kalagarh and Sardasagar occupy 71, 196hectares. Sonebhadra district with 52,000 hectare has the largest area underreservoirs. Apart from reservoirs, UttarPradesh is one of the prominent zones ofwetland resources of the country. Thedistribution of major reservoirs in thestate is presented in table-2.

Table-2: Distribution of reservoirs in Uttar Pradesh (by districts)Sl No Districts No of reservoirs Area (Ha.) % share1 Varanasi 5 5522 4.032 Sonebhadra 4 52002 37.953 Mirjapur 11 14544 10.614 Jhansi 8 11051 8.065 Hamirpur 8 4307 3.146 Banda 5 7228 5.277 Lalitpur 1 10360 7.568 Allahabad 2 374 0.279 Bijnaur 2 8631 6.30

Business Potential of Fish Parlours in Uttar Pradesh


10 Agra 1 259 0.1911 Eta 1 518 0.3812 pillibhit 2 10969 8.0013 Bahraich 2 232 0.1714 Gonda 6 2494 1.8216 Siddharthnagar 2 381 0.2817 Basti 2 200 0.15Total 62 137034 100

Source: Central Water Commission (2010)

Trend of the production of fish

Due to vast potential of inland fisheryresources prevailing in the state, there hasbeen a steady increase in the productionof fish in the state from 58, 000 tonnes in1990-91 to 417, 000 in 2010-11registering a CAGR of 9.85 percent.During the corresponding period at allIndia level, fish production has increasedfrom 3836, 000 tonnes to 8295, 000tonnes with lower CAGR of only 3.74percent. Similarly looking at the fishproduction index calculated in table-3, itmight be said that during the last 21 years,

fish production is merely doubled at allIndia level as against 7 fold increases inthe state of Uttar Pradesh. Due to steadyincrease in the volume of fish production,the percentage share of Uttar Pradesh inall India fish production has steadilyincreased from 1.51 percent in 1990-91to 5.01 percent in 2010-11. On the basisof CAGR and fish production index, andsteady increase in the percentage shareof UP in all India fish production, UttarPradesh occupies a prominent positionwith regard to inland fish production inthe country.

Table-3: Fish Production in Uttar PradeshSl Year Fish Fish % share of Fish Fish ProductionNo Production in Production in UP in all Production Index at All

Uttar Pradesh India India fish Index of UP India level(000 tonnes) (000 tonnes) Production (Base Year = (Base Year=

1990-91 = 100) 1990-91 = 100)1 1990-91 58 3836 1.51 100.00 100.002 1991-92 76 4157 1.83 131.03 108.373 1992-93 130 4365 2.98 224.14 113.794 1993-94 140 4644 3.01 241.38 121.065 1994-95 152 4789 3.17 262.07 124.846 1995-96 145 4949 2.93 250.00 129.017 1996-97 152 5348 2.84 262.07 139.42

55

8 1997-98 160 5388 2.97 275.86 140.469 1998-99 183 5298 3.45 315.52 138.1110 1999-00 193 5675 3.40 332.76 147.9411 2000-01 208 5656 3.68 358.62 147.4512 2001-02 225 5956 3.78 387.93 155.2713 2002-03 250 6200 4.03 431.03 161.6314 2003-04 267 6399 4.17 460.34 166.8115 2004-05 278 6305 4.41 479.31 164.3616 2005-06 290 6572 4.41 500.00 171.3217 2006-07 307 6869 4.47 529.31 179.0718 2007-08 326 7127 4.57 562.07 185.7919 2008-09 349 7616 4.58 601.72 198.5420 2009-10 393 7852 5.01 677.59 204.6921 2010-11 417 8295 5.03 718.97 216.24

Source: Compiled from Handbook on Fisheries Statistics, Dept. of Animal Husbandry,Dairying and Fisheries, Ministry of Agriculture, Govt. of India.



Pattern of Fish Consumption in UttarPradesh

Notwithstanding the achievementswith respect to production, fishconsumption in the state has remainedvery much on the lower side. The patternof fish consumption in Uttar Pradesh inrelation to All India level is provided intable-4. From this table it is found thatMPC of fish and NFCH for both ruraland urban areas were lower in UP incomparison to All India figure in the year1996. In the year 2008 also, the positionof Uttar Pradesh stands lower with

respect to MPC and NFCH incomparison to All India pattern. Howeverlooking at the percentage variation in2008 over 1996, it is revealed that thevariation in MPC of urban householdsand NFCH of both rural and urbanhouseholds in Uttar Pradesh is more thanall India figures. From this discussion, itleads us to believe that the demand forfish in Uttar Pradesh could be furtherpromoted by adopting suitable forwardlinkages. Fish parlors and Fish Galaxiesare expected to provide such suitableforward linkage.

Table-4 : Monthly per capita consumption of fish (KG) and number of fish consuming Households(per 1000 Households) in Uttar Pradesh in comparison to All India

Year UTTAR PRADESH ALL INDIAMPC- MPC- NFCH- NFCH- MPC- MPC- NFCH- NFCH-Rural Urban Rural Urban Rural Urban Rural Urban

1996 0.04 0.02 109 52 0.15 0.17 282 2622008 0.05 0.03 163 69 0.2 0.21 342 278% Variation 25.00 50.00 49.54 32.69 33.33 23.53 21.28 6.11

Note.: MPC stands for Monthly per capita consumption of fish (in KG) and NFCH stands fornumber of fish consuming Households (per 1000 Households)Source: Hand book on fisheries statistics 1996 and 2008, Govt. of India

BUSINESS POTENTIAL OF FISHGALAXIES

Business potential of the fish galaxiesare examined with the following set of nullhypotheses

H01 = The mean distances covered bythe customers to reach at the Galaxyfish market and traditional fish marketare not significantly different.

H02 = There is no significantdifference in the consumption patternof fish in both markets in terms of meanquantity of fish consumption and meannumber of times per month fishconsumption.

H03 = Fish Galaxy has the potentialityto offer more choices to the consumersacross occupations.

57

Distance to the fish Market

Occupation category wise the meandistance covered by the consumers toreach at galaxy fish market and non galaxyfish market is provided in Table-5. It isfound that the mean distance covered bythe consumers for galaxy market and non-galaxy market are 2.67 and 1.44 kmsrespectively. Even across all occupationcategories, the consumers prefer to go tofish galaxy though distantly located. The

differences in the mean distances coveredby the consumers in both the market isstatistically significant for which the H0

1

is rejected for the alternative hypothesis(H1

1) that there is significant difference inthe mean distance covered by theconsumers in both the market conditionsas the critical value of ‘P’ is less than thetabulated ‘P’ value. This implies thatbuyers from distant places also prefer togalaxy market.

Table -5 : Occupation wise distribution of Buyers and average distance theycover to reach at fish Market in both the marketsOccupation Category Galaxy Market Non Galaxy Market

Number of Mean distance Number of Mean distancerespondents to fish Market respondents to fish Market

(in Km.) (In km)Govt. Employee 21 2.26 17 1.58Private Sector Employee 21 2.57 12 1.95Business 11 2.18 19 2.34Professionals 4 3.62 25 0.56Skilled Labour 20 2.92 14 1.28Casual Labour 22 2.98 13 1.35Total 99 2.67 100 1.44‘P’ Value with ‘t’ Test *0.009

* Statistically significant at 5 percent level

Consumer spending behavior on fish

The consumers, spending behavior onfish is examined by analyzing occupationcategory wise average quantity consumedper visit, average number of times visitedto the fish market, average expenditure pervisit incurred by them, and ratio of non-fish(other non -veg item) consumption tofish consumption in number of days for boththe galaxy market and non galaxy market.

Occupation category wise mean quantityconsumption and mean number of times visitfor both the type of fish markets is shownin table-6. From this table, it is revealed thatoverall mean consumption and meannumber of times visit in a month issignificantly higher in galaxy market than thenon galaxy market. Thus H0

2 is also rejectedin favour of mean consumption pattern ofthe buyers are better in Galaxy market.



Table-6 : Occupation Category wise Mean quantity of fish purchased in grams pervisit and averages number of times visit per month in both the market conditionsSl Occupation GALAXY MARKET NON GALAXY MARKETNo. Category Mean Mean no. Mean Mean no.

consumption of times consumption of times / visit visit / month / visit visit / month

1 Govt. Employee 981 4.71 895 6.562 Private Sector Employee 919 6.08 756 2.393 Business 968 10.09 864 5.564 Professionals 1175 4.81 653 3.865 Skilled Labour 925 8.06 562 6.866 Casual Labour 880 5.86 798 6.83

Mean across all occupations 940.48 6.53 752.7 5.27‘P’ value with ‘t’ Test for *0.001mean consumption per visit‘P’ value with ‘t’ Test mean *0.108No. of times visit per month


As per table-7, it is also found thatthe average expenditure per visit in galaxymarket calculated at Rs.142/- is higherthan the non galaxy market. It is alsorevealed that people spending moreamounts on fish prefer to galaxy marketthan non galaxy market because all the non

galaxy market consumer are found withless than Rs.300/- spending per visit asagainst around 6 percent of the consumersspend more than Rs.300/- per visit to thegalaxy market. This might be due to theavailability of costly varieties of fish in thegalaxy market.

Table-7: Mean expenditure on fish in Galaxy Market and Non galaxy MarketSl. Expenditure (Rs.) No. of Consumers No. of Consumers inNo. in the galaxy Market the Non-galaxy Market1 0-100 35 532 100-200 47 363 200-300 12 114 300-400 3 05 400-500 3 0Total 100 100Average Expenditure 142 108‘P’ value with ‘t’ Test mean expenditure 0.5per month


59

Analyzing consumers’ preferencesfor fish over other non vegetable food itemsin terms of the ratio of non fish to fish , it isfound that 11 percent in the galaxy marketand 20 percent in the non galaxy marketare exclusively consume fish only as thecorresponding ratio for this group standat ‘0’. If the value of this ration happensto be between ‘0’ and ‘1’, it implies that

they have more preference for fish and lesspreference for non fish. It is found that 56percent of the galaxy consumers and 41percent of the non galaxy consumers’ fallunder this category. Combined ‘0’ and ‘0-1’ (preference to fish than non fish)indicates that 67 percent of the fish loversgo to the galaxy market as against 61percent of the non galaxy market.

Table-8: Distribution of respondents on the basis of the ratio of Monthly PerHousehold Consumption (MPHC) of Non-fish to fish (number of days)Sl Ratio of non-fish Consumption Number of respondents Number of respondents inNo to fish consumption in the Galaxy Market the non galaxy market1 0 11 202 0-1 56 413 > 1 33 39

Total 100 100

Extent of Choice to Consumers

The extent of choice to consumerson the basis varieties of fishes available inboth the market condition is presented inTable 9. On the basis of sample data it isfound that the consumers of galaxy marketare reported to have their consumption of16 varieties of fishes as against only 5varieties of fish in the non galaxy market.

Besides these 16 varieties many othervarieties of marine and inland fish includingdry fish are available in the galaxy market.Except professional category ofconsumers, all other consumers haveuniform choice pattern along all categoriesof fish and sample professional peopleprefer to only two varieties of fish like Rehuand Baden.

Table-9 : Varieties of Fish available in both the Market Condition andOccupation Category wise preferences on the basis of sample dataSl No Fish Varieties in the Galaxy Market Fish Varieties in the Non-Galaxy Market1 Rehu Rehu2 Seul China Rehu3 Bagi Mangur4 Mangur Bachua5 Bachua Tengan6 Tengan7 Pabda8 China Rehu



Conclusion

On the basis of CAGR and fishproduction index, and steady increase in thepercentage share of UP in all India fishproduction, Uttar Pradesh occupies aprominent position with regard to inland fishproduction in the country. During last 21years, fish production is merely doubled atall India level as against 7 fold increases inthe state of Uttar Pradesh. MPC of fish andNFCH for both rural and urban areas werelower in UP in comparison to All India figurein the year 1996. In the year 2008 also, theposition of Uttar Pradesh stands lower withrespect to MPC and NFCH in comparisonto All India pattern. However looking at thepercentage variation in 2008 over 1996, itis revealed that the variation in MPC ofurban households and NFCH of both ruraland urban households in Uttar Pradesh ismore than all India figures. The studyempirically finds that across all occupationcategories, the consumers prefer to go tofish galaxy though distantly located. Overallmean consumption and mean number oftimes visit in a month is higher in galaxymarket than the non galaxy market. Theaverage expenditure per visit in galaxymarket is higher than the non galaxy market.It is also revealed that people spending

more amounts on fish prefer to galaxymarket than non galaxy market. Fish lovershave the tendency to go to the galaxy marketthan the non galaxy market. This is becauseof the more choices available to them. Fromthis analysis it could be said that fish galaxyhas the potentiality to better cater theconsumers’ needs.

References:

Annual Report, Department of AnimalHusbandry, Dairying and Fisheries (2011-12): Ministry of Agriculture, Govt. of India,New Delhi.

Central Water Commission (2010):“Water and Related Statistics”, WaterPlanning and Project Wing, Govt. of India.

Lakra W S (2010): “Fish Biodiversity ofUttar Pradesh: Issues and LivelihoodSecurity, Threats and Conservation”,National Conference on Biodiversity,Development and Poverty alleviation, 22nd

May 2010, Uttar Pradesh StateBiodiversity Board.

NCAP and World Fish Center (2004):“Strategies and Options for Increasing andSustaining Fisheries and AquacultureProduction to benefit Poor Households inIndia”, ICAR-ICLARM Project.

9 Baiki10 Tuna11 Padhen12 Baden13 Gaichi14 Suhiya15 Pamphlet16 Grass corp


Service Quality Gaps Banking Industry:A Comparative Study

Manish Kumar YadavResearch Scholar, Faculty of Management Studies

Banaras Hindu University, Varanasi – [email protected]

Alok Kumar RaiAssociate Professor, Faculty of Management Studies

Banaras Hindu University, Varanasi – [email protected]

AbstractFinancial services generally undifferentiated products, it becomes imperative forservice organization to strive for improved service quality if they want to distinguishthemselves from the competition (Stafford, 1994). Several researches show that servicequality is a significant issue which is used in positioning and marketing oforganization. In banking also, Service Quality has been one of the concerns. Thishas been necessitated by the unbending rivalry in the banking industry. Banks arego-getting hard to offer quality services and products in a proffer to maintain existingcustomers and woo new ones as well.

Keywords: Service Quality, Service Environment, Interaction Quality, Empathy,Reliability

Introduction

The services sector has been a majorand vital force steadily driving growth inthe world economy as well as Indianeconomy for more than a decade, whichcontributes to over 60 per cent to India’seconomy (Economic survey 2012). TheEconomic Survey 2011-12 pointed outthat the Services Sector grew by 9.4% in2011-12 as compared to 9.3% in the2010-11. Banking Industry also increasedits share from 5.2% to 5.8% from 2006-07 to 2010-11. Indian banking sector

emerged as one of the strongest drivers ofIndia’s economic growth. Positive changeswitnessed in the last two decades haveimpacted every aspect of banking, rangingfrom regulatory standards to customermanagement. The landscape of bankingsector in India has changed significantly.There had been ‘cut throat competition’with the entry of new private banks andexpansion of foreign banks. In thecompetitive market, non-price factors likecustomer service become more important(Kotler, 2003). Thus, it became desirable


for banks to develop a customer-centricapproach for future survival and growth.

Banking Industry

The phenomenon of globalization,liberalization and privatization coupled withother significant changes as technology andpolicy pertaining to the banking sector hasfundamentally changed the bankingscenario of the country. Technologicaladvances redefined distance, time andlocation and liberalization and globalizationhave led to reduced entry barriers, shorterstrategy and product cycles,commoditization of products andincreased competition. These factors haveimpacted banking sector considerably.

The banking sector reforms over thepast decade coupled with the impact ofthe above mentioned forces have resultedin a greater integration of the bankingsector with the global markets. As a result,the culture specific banking sectorparticipants have also sought a newframework that has emerged across theglobe that successfully addressed the needsof the highly competitive and rapidlychanged environment.

The nature of the banks also changedfrom a depositing and lending institutionsto a one stop superstore of all financialneeds. This new banking model provideda clutch of services from retail andcorporate banking to industrial lending,invest banking to insurance. Modern bankshave grown tentacles that went beyondmere brick and mortar structures.

Profile of the Banks under Study: Thestudy has selected two largest banks fromthe public and private banking space ofthe country viz. State Bank of India andICICI Bank.

SBI also has the following non-bankingsubsidiaries:1. SBI Capital Markets Ltd2. SBI Funds Management Pvt Ltd3. SBI Factors & Commercial Services

Pvt Ltd4. SBI Cards & Payments Services Pvt.

Ltd. (SBICPSL)5. SBI DFHI Ltd6. SBI Life Insurance Company Ltd.7. SBI General Insurance

ICICI Bank: ICICI Bank Ltd. is anIndian diversified financial servicescompany having its headquarter inMumbai, Maharashtra. It is the secondlargest bank in India with respect to itsassets and third largest by marketcapitalization. ICICI Bank is India’ssecond-largest bank with total assets ofRs. 4,062.34 billion (US$ 91 billion) atMarch 31, 2011 and profit after tax Rs.51.51 billion (US$ 1,155 million) for theyear ended March 31, 2011. The Bankhas a network of 2,630 branches and8,003 ATMs in India, and has a presencein 19 countries, including India. (ICICIBank Annual Report 2011-12)

ICICI Bank is the largest privatesector bank in India. ICICI Bank has beenone of the pioneers in the starting superiorcustomer experience in the Indian banking

63Service Quality Gaps Banking Industry : A Comparative Study

space and is also credited with many of thecustomer service innovations. Tremendousamount of Service Quality innovations hasbeen initiated by ICICI Bank. This is onesuch bank in the private banking space thathas done private banking as public sectorbanks and reached out to customers withthe aggressive reach of public sector banksand superior service experience of privatesector banks. ICICI Bank offers a widerange of banking products and financialservices to corporate and retail customersthrough a variety of delivery channels andthrough its specialized subsidiaries andaffiliates in the areas of investment banking,life and non-life insurance, venture capital,asset management and informationtechnology. ICICI Bank’s equity shares arelisted in India on stock exchanges atChennai, Delhi, Kolkata and Vadodara,Mumbai and the National Stock Exchangeof India Limited and its AmericanDepositary Receipts (ADRs) are listed onthe New York Stock Exchange (NYSE).

Subsidiaries of ICICI Bank

The ICICI Bank includes a networkof eight domestic subsidiaries and threeinternational subsidiaries. Through theestablishments, it offers various servicesincluding merchant banking services, fundmanagement, factoring services, primarydealership in government securities, creditcards and insurance.

Domestic ICICI Lombard ICICI Prudential Life Insurance

Company Limited

ICICI Securities Limited ICICI Prudential Asset

Management Company Limited ICICI Venture ICICI Home Finance ICICI direct.com ICICI Foundation

International ICICI Bank UK PLC ICICI Bank Canada ICICI Bank Eurasia LLC

Review of Literature

Modern customers are awarecustomers and they willingly participate inthe market processes, numerous servicesprocesses and affect the result significantlyin terms of quality and value addition.Service Quality enables businesses torealize, recognize and respond to totalsatisfaction internal as well as externalcustomers. Edvardsson (1998) in his studystated that “a company does not sellservices, but opportunities for services”.

There are two important componentof Service Quality which neededexplanation in comprehension of ServiceQuality.

Researchers generally agree thatService Quality is not a bi-dimensionalconstruct that reflects whether a firm’scustomer service is excellent or poor.Instead Service Quality represents acomposite of factors that determinecustomers’ perceptions about the offering.Service Quality is not objectively


measured according to some technicalstandards but is subjectively felt bycustomers and measured relative tocustomer-determined standards(Kwortnik, 2005). The most populardefinition of Service Quality has been thecustomer’s perception of serviceexcellence (Parasuraman et al., 1990;1998) and relative superiority ofperformance (Bitner and Hubbert, 1994;Gronroos, 1982).

Parasuraman et al. (1985) stated thatService Quality is a degree and direction ofdiscrepancy between customers’ serviceperceptions and expectations. Reeves andBednar (1994) in his study explainedService Quality as excellence, value,conformance to specifications and meetingor exceeding customers’ expectations.Bitner and Hubbert (1994) defined ServiceQuality as the customers’ overall impressionof the relative inferiority or superiority ofthe organization and its services. Thedefinition of Service Quality also includedattitude (Parasuraman et al., 1988, Croninand Taylor, 1992). DeMoranville andBienstock (2003) identified Service Qualityas a measure to assess serviceperformance, diagnose service problems,manage service delivery, and as a basis foremployee and corporate rewards.

Service Quality

Different researches have beenconducted on different aspects of ServiceQuality and its dimensions, few prominentof which with their conclusions arepresented below:

Berry et al.’s (1985) believed that theinstrument could be used to assess qualityin a wide range of service firms. They foundthat the model’s five dimensions wereinsufficient to cover quality in a retailingsetting. Siu and Cheung (2001) found thatthe dimension physical appearance andpolicy have the greatest impact on theoverall Service Quality & the futureshopping behavior. In their study they alsofound that Personal interaction was ratedthe weakest dimension and customerswere mainly dissatisfied with the physicalappearance & promises. Khan et al.,(2009) found that the two dimensions, vizprivacy /security and fulfillment are notcontributing significantly towards theoverall Service Quality. Munhurrun et al.,(2010) found that Customer rated theimportance of attributes as reliability,assurance, responsiveness, Tangibles andempathy respectively and also found thatthe largest gap was observed for reliabilityand responsiveness. Truclien (2010) foundthat not all the factors of Service Qualityhave positive effect on perceived ServiceQuality. There are two factors reliability andresponsiveness doesn’t have positive effecton perceived Service Quality. Conveniencehas been identified as the most effectivefactor to perceived Service Quality.

Service Quality in Banks

In the present competitive bankingcontext, characterized by rapid change andincreasingly sophisticated customers, it hasbecome very important that banksdetermine the service quality factors, whichare pertinent to the customers’ selection

65

process. With the advent of innovations atthe marketplace, the customers havegreater options to select from and this isposing great difficulty among the marketersof banks. To gain and sustain competitiveadvantages in the fast changing retailbanking industry in India, it has becomecrucial for banks to have a deeperunderstanding of customer’s perception ofkey dimensions of service quality and itsimpact on the identified dimensions. In thisview Mehta (2005) found that publicsector banks enjoy a better qualityperception among their customers as forpublic sector banks, three out of fivedimensions have scored higher thanaverage, however, in case of private banks,only two dimensions have had higher thanaverage values. Awasthi and Dogra (2005)found that customers regard reliability asthe most important dimension of servicesin banks. Singh and Tripathi (2007)suggested in his comparative study thatprivate banks should improveresponsiveness, competence, productrange and security features in their services.Seema (2008) found that the perceivedperformance of Prime Bank (one of thebank) is relatively close to expectations incomparison to other two banks and studiedthe variations in service quality acrossdemographic variables and income ofcustomers. Mohanty (2008) Observedthat there are wide gaps exist between theexpectations and views of customers andalso the products and service delivery bybanks. Rai Alok K (2010) Identified thatthe perceptual gap in service quality exists

for both public and private sector banksand this gap is on all the dimensions. Rai,Pareek, Yadav (2012) Identified that offersand delivery are the two most significantservice quality dimensions wheremaximum gap exists for rural customers.

Measuring Service Quality in Banks

Quality is sought across sectors andindustries. But measuring Service Qualitywith the same scale might not suffice asdifferent industries have different specificissues to address. Even the scaledeveloped in one environment might notbe equally significant when is used inanother environment as different countrieshave different peculiarities and even in thesame country, may issues and relevancemay be differ from tier 1 city to tier 2 ortier 3 cities and may also vary from urbanto rural markets.

This questioned the universalapplicability of most widely used scale i.e.SERVQUAL developed by Parasuramanet.al. (1988). Addressing this issue,Karatepe et al., (2000) developedBanking Service Quality Scale (BSQ), ascale developed exclusively for bankingindustry and duly tested for its validity andreliability for the measurement of perceivedService Quality in banking services.

In the banking Industry, perceivedService Quality results from the differencebetween customers’ perception of thecomplete offering experience by the bankand their expectations from the bank. Thefour dimensions presented in the BSQscale included:

Service Quality Gaps Banking Industry : A Comparative Study


1. Service Environment,2. Interaction Quality,3. Empathy and4. Reliability

Research Methods

Based on discussion of aboveliterature it is evident that four factors(Service Environment, Interaction Quality,Empathy and Reliability) are assumed toinfluence overall Service Quality. Thesurvey instrument is composed ofquestions on the basis of these dimensions.

Research Objective

The study has following objectives toaddress:

1. To investigate the Service Quality ofthe Banks.

2. To establish the relationship betweenService Quality and its dimensions inbanking industry.

3. To compare Service Qualityperformance between public andprivate sector Banks.

4. To find the most prominent ServiceQuality dimension and comparetherein between private and publicsector banks.

Research Design

The Research design of the study isdescriptive.

Data Collection

This paper investigates the ServiceQuality of Indian banks. A multi-item scale

developed by (M. Karatepe et al., 2000)to operationalize the Service Qualityconstruct in manufacturing has been usedin entirety in this study. In this study,Service Quality was measured using“Perception –only approach. Specifically,Service Quality items were transformed into likert type scales and the respondentswere asked to indicate their perceptionsof the bank on each item using a five pointscale ranging from “5= strongly agree” to“1=strongly disagree’. The survey includedone single item- item measures relating toover all Service Quality. Responses tooverall Service Quality item were elicitedon a five point scale ranging from “5= verygood” to “1= very poor”. The study wasconducted on select public and privatebanks.

Data Analysis

The study has used various statisticalresults and techniques as Mean, StandardDeviation, Factor Analysis, MultipleRegression and discriminant analysis onSPSS 16.0 for objectivity in the findingand categorical inferences.

Sampling

Universe: Current & Savings a/c holdersof SBI and ICICI bank of Varanasi

Sampling Unit: Individual customer

Sample size: 200

Sampling: Convenience sampling

Results: The findings and the subsequentapplication of tests provides followingresults:

67

Service Quality of Public Bank:Service Quality Dimension’s Mean Score Gap scores % GapService Environment 3.28 -1.22 24.4Interaction Quality 3.55 -1.45 29Empathy 3.10 -1.90 38Reliability 3.42 -1.58 31.6

Service Quality of Private Bank:Service Quality Dimension’s Mean Score Gap scores % GapService Environment 3.59 -1.41 28.2Interaction Quality 3.47 -1.53 30.6Empathy 3.24 -1.76 35.2Reliability 3.64 -1.36 27.2

From the above graph Customer’sresponse that there is 24.4% gap exists inService Environment dimension, 29% in

Interaction Quality, 38% in Empathy and31.60% in Reliability of public Banks whichis the function of overall Service Quality.

Customer’s responses that there is28.2% gap exist in Service Environmentdimension, 30.6% in interaction Quality,

35.2% in Empathy and 27.2% in Reliabilityof Private Banks.



Service Quality of Indian Banking Industry:Service Quality Dimension’s Mean Score Gap scores % GapService Environment 3.43 -1.57 31.4Interaction Quality 3.51 -1.49 29.8Empathy 3.17 -1.83 36.6Reliability 3.53 -1.47 29.4

Customer’s Reponses that there is31.4% gap exist in service Environmentdimension, 29.8% in interaction Quality,36.6% in Empathy and 29.4% in Reliabilityin Indian Banks.

Mathematical formulation of OverallService Quality:

The combined prediction powers ofService Environment (SE), InteractionQuality (IQ), Empathy (E) and Reliability(R) on the overall Service Quality was alsoidentified by applying multiple linearregressions and a functional relationshipwas established in the form of mathematicalequation.

The functional relationship in the formof equations can be expressed as:

Overall Service Quality = f (SE, IQ,E, R)

The regression equation in the formof dependent and independent relationshipcan be expressed as:

Overall Service Quality = Constant(intercept) + a*SE + b*IQ + c*E + d*R

Where,

SE= Service Environment

IQ= Interaction Quality

E= Empathy

R= Reliability

a, b, c and d are all coefficients of allvariables under study.

The regression result presents followingequation among the above selectedvariables. From the regression analysis weget the values of each factor in theregression equation.

69

Y= 1.289+.434 Empathy + .334Reliability

With the help of step wise regressionanalysis, coefficient of multiple correlationvalue (.614) shows 61.4% relationshipbetween the observed Service Quality andpredicted Service Quality score by themodel. The strength of above mentionedmodel is also tested through the value ofAdjusted R2. Which in the abovementioned case is Adjusted R2 (0.365).This shows that 36.5% of the variation inthe overall Service Quality can beexplained by the model. The result foundexistence of a moderate model betweenthem. Further, Discriminant analysis wasconducted to predict which of the servicequality dimensions of Public and privatewas responsible to discriminate these twosectors and also found the discriminatingfunction. Predictor variable were ServiceEnvironment, Interaction Quality, Empathyand Reliability. Significant mean differenceswere observed for all the predictors onthe dependent variable. While the logdeterminants were quite similar, Box’s Mindicated that the assumption of equalityof co- variances matrices was violated asthe discriminant function revealed asignificant association between groups andall predictors, accounting for 29.9 % ofvariation in the grouping variable. Thediscriminant function obtained is

D = (1.101* Service Environment)+ (-1.473*Interaction Quality) +(.734*Empathy) + (.245* Reliability)- 1.804

The discriminate function coefficientsindicate the partial contribution of eachvariable to the discriminate function controllingfor all other variables in the equation.

Conclusion:

The analysis of public bank ServiceQuality dimension we see that reliabilityand interaction quality have greater scorefrom other dimensions. Empathy andinteraction quality have the lower value arebig contributing towards the lower ServiceQuality of the public bank. The privatesector banks clearly identify ServiceEnvironment and reliability dimension havegreater perception mean score among allthe dimensions. Empathy has scored theminimum value in the private bank, whichcertainly is a big factor contributingtowards the lower Service Quality of theprivate sector banks. When we talk aboutthe overall banking industry ServiceQuality, dimension Empathy contributingtowards lower Service Quality.Comparison of individual scores with theaverage mean value also confirms theabove average perceptions in public sector& private sector banks.

From the regression analysis onlydimensions Empathy and reliability loadedsatisfactorily into multiple regression models.Other remaining dimensions such as serviceEnvironment and Interaction Quality wasnot considered enough to be included. Thisindicates that overall Service Quality isdependent of dimension Empathy andreliability. Its value can be predicted by thevalues in both dimensions. The above



equation shows that empathy was the mostpowerful predictor of overall ServiceQuality. The value of adjusted R2 (.365)was very low and this indicate that this isvery weak model. So, we cannot generalize.

In Discriminant function, closeranalysis of the structure matrix revealedonly two significant predictors, namelyService Environment (1.101) andInteraction Quality (-1.473) with Empathyand Reliability poor predictors.

Implication: Competition can be wellmanaged by differentiating through ServiceQuality. This study helps the managers ofthe banks to identify the large amountrequired area where they need quickactions furthermore satisfy their customers.This study exposed that how managerswork on service quality dimension so theycan easily plan customer satisfaction withthe overall service quality. The ServiceQuality of public and private banks canbe compare. Further, this study helps inidentify the dimensions which discriminateto each other in order to take competitiveadvantage over each other.

Scope of the Study: The study is limitedto the Scheduled commercial banks ofVaranasi city. The present study focuseson the retail banking operations ofnationalized and private commercial banksof selected district Varanasi.

Limitation: Homogeneity of respondentmay be vary due to smaller sample sizewith only two banks and restrictedgeographical location is one of theimportant limitations of the study.

References:Bahia, K., & Nantel, J. (2000). A reliableand valid measurement scale for theperceived Service Quality of banks.International Journal of BankMarketing, Vol. 18, No.2, pp. 84-91.Bedi and Monica (2010). An Integratedframework for Service Quality, Customersatisfaction and Behavioral responses inIndian Banking Industry-A Comparison ofPublic and Private sector banks. Journalof Services Research, Vol. 10 No. 1, pp.157-172.Bitner, M.J. and Hubbert, A.R. (1994).Encounter satisfaction versus overallsatisfaction versus Service Quality: theconsumer’s voice”, in Rust, R.T. and Oliver,R.L. (Eds), Service Quality: NewDirections in Theory and Practice, SagePublications, Thousand Oaks, CA.Brown, S.W. and Swartz, T.A. (1989).Agap analysis of professional Service Quality.Journal of Marketing, Vol. 53 (April), pp.92-98.Dabholkar, P.A., Thorpe, D.I. & Rentz, J.O.(1996). A measure of Service Quality forretail stores: scale development andvalidation. Journal of the Academy ofMarketing Science, Vol. 24, No.1, pp. 3-16.Edvardsson, D., Sandman, PO. &Rasmussen, B. (2005). Sensing anatmosphere of ease – a tentative theory ofsupportive care settings. ScandinavianJournal of Caring Sciences 19(4), pp. 344-353.Huynh Thi Truclien (2010). AnUnderstanding the impact of service quality

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on Guest satisfaction and guest behavioralintension in Vietnam hotel Industry.Juran, M.J., (1980). Books on UpperManagement and Quality. New York.Khan , Mahapatra and Sreekumar (2009).Service Quality evaluation in internetbanking: An empirical study in India.International journal of Indian cultureand business Management, Volume 2.No.1.Mohanty, R.K. (2008).Hunting CustomerSatisfaction in Banks. Gurukul BusinessReview, Vol.4, pp.47-52.Munhurrun, Bhiwajee and Perunjodi(2010).International Journal ofManagement and Marketing Research,Volume 3 No.1.Noel,Y.M., Jeff, Tak-Hing, Cheung. (2001).A measure of retail service quality.Marketing Intelligence & Planning, Vol.19 Iss: 2, pp.88 - 96.Parasuraman, A., Zeithaml, V. A., andBerry, L L. (1994). Reassessment ofExpectations as a Comparison Standard inMeasuring Service Quality: Implications forFurther Research. Journal of Marketing,58(January), pp.111-24.Parasuraman, A., Zeithaml, V. A., andBerry, L. L. (1988). SERVQUAL: AMultiple Item Scale for MeasuringConsumer Perceptions of Service Quality.Journal of Retailing, 64(1), pp. 12-40.Parasuraman, A., Zeithaml, V.A. and Berry,L.L. (1986). SERVQUAL: a multiple-itemscale for measuring customer perceptionsof Service Quality. Report No. 86-108,Marketing Science Institute, Cambridge,MA.

Parasuraman, A., Zeithaml, V.A., andBerry, L.L. (1985).A conceptual model ofService Quality and its implication. Journalof Marketing, Vol. 49, pp. 41-50.Rai ,Alok, K. (2009).Service Quality gapanalysis in Indian banks: An empirical study.Paradigm.Rai, Pareek, and Yadav (2012). Servicequality assessment of rural banks - a studyof select banks of Varanasi, LBSManagement Review.Reeves, Carol A; Bednar, David A (1996).Keys to Market Success — A Responseand Another View. Journal of RetailBanking, 18 (4): 33.Sharma Alka, Versha Mehta (2005).Service Quality perceptions in financialservices-A case study of bankingservices . Journal o f servicesresearch.Singh, AK., & Tripathi, Shiv K.(2007).Perceptual Difference of Quality inBanking Services: A Study on Indian PrivateSector Banks. Indian ManagementStudies Journal 11 (2007)1-14.Spathis, C., Petridou, E., and Glaveli, N.(2004). Managing Service Quality in banks:Customers´ gender effects. ManagingService Quality, 14(1), pp.90-102.Stafford, M.R. (1994). How Customersperceived Service Quality. Journal ofRetail Banking, 17(2), Summer.Zeithaml, V. A., Parasuraman, A., andBerry, L. L. (1990). Delivering ServiceQuality: Balancing Customer Perceptionsand Expectations, New York: The FreePress.



Annexure:Variables Entered/Removed

Model Variables Variables MethodEntered Removed

1 QE . Stepwise (Criteria: Probability-of-F-to-enter <= .050, Probability-of-F-to-remove >= .100).

2 R . Stepwise (Criteria: Probability-of-F-to-enter <= .050, Probability-of-F-to-remove >= .100).

a. Dependent Variable: SD

Model SummaryModel R R Square Adjusted R Square Std. Error of the Estimate1 .523a .274 .266 .557922 .614b .377 .365 .51921

a. Predictors: (Constant), QEb. Predictors: (Constant), QE, Rc. Dependent Variable: SD

Excluded VariablesModel Beta In t Sig. Partial Co linearity Statistics

Correlation Tolerance VIF MinimumTolerance

1 SE .198a 2.102 .038 .209 .806 1.241 .806QI .205a 1.833 .070 .183 .577 1.734 .577R .334a 4.019 .000 .378 .928 1.077 .928

2 SE .118b 1.291 .200 .131 .759 1.318 .759QI .197b 1.893 .061 .190 .576 1.735 .555

a. Predictors in the Model: (Constant), QEb. Predictors in the Model: (Constant), QE, Rc. Dependent Variable: SD

Structure Matrix Function1

SE .719R .411QE .322QI -.212Pooled within-groups correlations between discriminatingvariables and standardized canonical discriminant functions;(Variables ordered by absolute size of correlation within function).

Standardized CanonicalDiscriminant FunctionCoefficients

Function1

SE .766QI -.898QE .530R .216


Consumer Perception of Services forRetail Products : A Case Analysis of

State Bank of India

Himani SharmaAsst. Professor, Amity Business School, Noida

Ruhi ChawlaAmity Business School, Noida

AbstractThis case briefly describes a study conducted for State Bank of India, which is India’slargest bank with the most number of branches and also in terms of the total value ofthe business.

The emphasis is initially on initiatives by SBI and offerings for the people whichmake it stand out. The idea is to understand customer perception and their choicesand then make customizable products to suit their need and demands. The financialinstitution has mostly happy customers and a large database too. The customershave been in the forefront always for SBI.

Keywords: Financial institution, Services by SBI, mutual funds, security trading,pension fund management, custodial services, general insurance

Introduction

Before the establishment of banks,the financial activities were handled bymoney lenders and individuals. At that timethe interest rates were very high. Againthere were no security of public savingsand no uniformity regarding loans. So asto overcome such problems the organizedbanking sector was established, which wasfully regulated by the government.

This case focuses on The State Bankof India and how it has believed incustomer satisfaction.

SBI is the largest bank in India ownedby Indian Government. As of March 31,2012, the Bank had a network of 20,193branches, including 5,096 branches of itsfive associate banks. In addition tobanking, the Company, through its varioussubsidiaries, provides a range of financialservices, which include life insurance,merchant banking, mutual funds, creditcard, factoring, security trading, pensionfund management, custodial services,general insurance (non-life insurance) andprimary dealership in the money market.


Review Literature

Basically, customer service is theprovision of service to customers before,during and after a purchase. Customerservice is a series of activities designed toenhance the level of customer satisfaction– that is, the feeling that a product orservice has met the customer expectation(Mohmed & Radi, 2007). Sheeraz et al.(2012) and Angur et al. (1999) in theirresearch have reinforced this fact andalways considered customers at theepitome of any business.

Many researchers have talked aboutSBI’s Grievance Redressal Policy to helpcustomers put forward their grievances andhelp them find a solution at the earliest.Initiatives like these have helped the financialinstitution gain a competitive edge over itscompetitors and in return grow its business.

Sharma & Djiaw (2011) havefocused in their research on productinnovations offered by SBI and how it haskept pace with time bringing newinnovations always.

Researchers have commented uponproduct changes and technology upgradesthat are a core part of SBI and a key to itssuccess. Even though being a GovernmentEntity, it has moved faster than its privatecounterparts and always wins the race forinnovations.


The main aim of this study andresearch was to understand the consumerperception and satisfaction level of

customers with reference to the servicesthey receive from the State bank of Indiaat various branches as compared to otherprivate banks and how it is affecting thebusiness of State Bank of India.

Research in a descriptive form wasused to assist this study. A pilot study wasconducted and customers were asked howthey feel about the company and analyzetheir satisfaction levels.

A number of questions wereanswered with the help of the study.

The participants were existingcustomers and employees of State Bankof India, and Feedback from MNCemployees either male or female. Theywere generally the procurement managersand results were based on their personalperception. The place of this study wasNoida and neighboring areas.

The objectives of the study are:1. To study the perception of the

customers regarding SBI and otherbanks.

2. To determine the factors that play keyrole in satisfying customers andmaintain their loyalty towards aparticular bank.

3. To get customer reviews andunderstand their behavior.

4. To understand factors that affectconsumer behavior.

Analysis and Interpretation of Data

A total of 200 respondentsparticipated in the survey. The profiling has

75

been done on the basis of age, occupationto create profiles and analyze the data.

The data was collected and analyzedon basis of age first to see the differenttype of customers the bank has. Then thefactors which influenced the reason forchoosing SBI over others for thesecustomers were analyzed and datagrouped appropriately.

The respondents were also asked tomention a second preference over SBIfor taking a loan. This helped to identifycertain factors which competitors had andSBI did not.

Responses were also recorded forthe type and condition of branch facilities.Based on all these factors satisfaction levelwas defined.

Identification of Factors/ Goodness ofData

Apart from other factors on which theresearch was based, the research also triedto measure satisfaction levels amongcustomers. It related this satisfaction tolevel of awareness about the bank’sproducts and offerings. It also analyzedfuture growth areas by asking peoplepreferred bank for loans and gained insightinto such demographics. The study in thisproject is carried out using following threeperspectives:1. Perspective1: Online customer

survey from customers.2. Perspective2: Personal Visit to

branches and questioning from thestaff and the customers at banks.

3. Perspective 3: Feedback from MNCemployees and surveying why SBIis not opted by them.

After completing the study of threeperspectives an analysis tool named“Pareto analysis” was put to use whichsuggested that 80% of the defects are dueto only 20% causes.

Hypothesis

Hypothesis 1: On which bank you dependfor your regular transaction?

From above figure above we can seethat State Bank of India has preferred bymost of the clients for regular transactions.60% of our respondents do regulartransaction from SBI, 33 % from ICICI,5 % HDFC and a meager 2 % chose otherbanks apart from stated three. We canhence draw the inference that majority ofcustomers chose SBI over others forregular transactions.

Hypothesis 2: Are you aware ofproducts & services provided by SBI?

Consumer Perception of Services for Retail Products : A Case Analysis of SBI


From above we see that 85 % ofrespondents are aware of products andservices State Bank of India offer.Whereas 15 % of our respondents do notknow about the products and services theyoffer. We can hence draw the inferencethat majority of people are aware of SBIproducts and services they have.

Pareto tool, is a statistical techniquein decision making that is used for the

selection of a limited number of tasks thatproduce significant overall effect. It usesthe Pareto Principle (also known as the80/20 rule) the idea that by doing 20%of the work you can generate 80% of thebenefit of doing the whole job. Or interms of quality improvement, a largemajority of problems (80%) are producedby a few key causes (20%). This is alsoknown as the vital few and the trivialmany.

So, we can draw the inference thatthe above chart is a Pareto chart whichdepicts the theoretical 80-20 rule i.e. 20percent problems are the causes of 80%of the defects or loopholes in the service.Practically in our analysis, we observe that35% of the problems are cause of 65%loss of business of SBI or 65% defects inthe customer service of SBI or 65%dissatisfaction of the customers, whicheverway quote it.

Practically the purple line cuts the redline after 5th problem bars. Out of the total

14 issues, these five are the most significantfew i.e. (5/14)*100= 35 %approximately. These 5 problems shouldbe on priority for resolution by SBI andremaining 9 problems that represent 65%of the lower priority problems should beput in line after resolution of the first 5.

The resolution of these willsignificantly increase the confidence ofcustomers in the services of SBI and thuswould promote more business from theyouth and prime customers.

77

Problems Under Analysis Approximated Cumulative %Frequency Frequency

Too much waiting time 30 30 12.9Poor Over the counter experience 28 58 25.1Slow awareness creation in customers for 28 86 37.2machine usageRude Staff Behavior 27 113 48.9Poor Complaint Redressal system 25 138 59.7Lack of practicality or laid- back attitude 24 162 70.1of employeesSlow On the spot problem solving 18 180 77.9Security at the ATMs and branches 10 190 82.2Slow deployment of machines in branches 10 200 86.5Poor marketing of the products 8 208 90.0Poor Ambience and Infrastructure 8 216 93.5Unbalanced Employee age ratio 7 223 96.5Low collaboration with MNC’s 6 229 99.1Higher Collateral security for loans, renewal 2 231 100charges and processing feesTotal 231

Conclusion

The conclusions from the researchwere pretty conclusive. People obviouslyprefer SBI over other private banks whichaccounts for its massive database and itsturnover.

Customers would prefer toexperience a better ambience at SBI whichis not comparable to their privatecounterparts. Customers also felt ifbureaucracy could be reduced at SBIsince it makes difficult to get things donebecause of that. A good and positiveconclusion was that there is high awarenessamongst SBI customers and they are wellaware of all its products and promotions.

State bank of India still need to focuson improving the surroundings it providesto its customers. This can beaccomplished by having good interiors,and young and charming staff. Due to thelarge number of customers they also needto ensure waiting times are within certainlimits and hire extra staff during festiveseason. The bank needs to figure out away how to be personally attached to itscustomers. This might seem to be adaunting task with the number ofcustomers it has, but it needs to find away out to retain those customers andadd more in the future to become biggerand better.

Consumer Perception of Services for Retail Products : A Case Analysis of SBI


References

Angur, M.G., Natarajan, R.,& Jahera,J.S.Jr. (1999), Service quality in thebanking industry: an assesment in adeveloping economy, Internationaljournal of bank marketing, 17, 116-23

Grimmer, M., & Bingham, T. (2013).Company environmental performance andconsumer purchase intentions. Journal ofBusiness Research, 66, 1945-1953.

Ha, H. Y., & Fanda, S. (2012). Predictingconsumer intentions to purchase retailproducts. Journal of ConsumerMarketing, 29 (7), 461-469.

Shabbir, S., Kaufmann, H. R., Ahmad, I.,& Qureshi, I. M. (2010). Cause related

marketing campaigns and consumerpurchase intentions: The mediating role ofbrand awareness and corporate image.African Journal of BusinessManagement, 4 (6), 1229-1235.

Sharma, R. S., &Djiaw, V.(2011).Realizing the strategic impact ofbusiness intelligence tools.The journal ofinformation and knowledgemanagement systems, 41 (2), 113-131.

Sheeraz, M., Iqbal, N., & Ahmed, N.(2012).Impact of Brand Credibility andConsumer Values on Consumer PurchaseIntentions in Pakistan. InternationalJournal of Academic Research inBusiness and Social Sciences, 2 (8), 1-10.


Perceived Risk and Consumer Behavior TowardsOnline Shopping : An Empirical Investigation

Ajitabh DashAssistant Professor

Regional College of Management, Bhubaneswar

AbstractThe past decade has witnessed the beginning of a major directional change ofconsumer behaviour, from physical stores purchasing to online purchasingbehaviour, in the retailing industry. In India, internet is still considered as a newmedium to link customers with retailers. Still Indian people have been attached tothe traditional brick and mortar stores, they take online shopping as a risk. In thisstudy author have attempted to find out the factors leading to perceived risk withonline shopping. Reliability coefficient for the scale containing 18 variables wassatisfactory and factor analysis generated 6 major factors: product risk, financialperformance risk, psychological risk, time risk, delivery capability risk and websiteperformance risk.

Key Words: Online Shopping, Internet, Perceived Risk

Introduction

The adoption of the Internet as a wayto purchase goods and services has seenan increasing trend over the past twodecades globally. Compared to traditionalshopping, the Internet not only facilitatestransactions between buyers and sellersfrom anywhere at any time, but alsoprovides a wide range of product choicesand a platform for exchanging ideas forcustomers with low costs. To achieve thesuccess of electronic commerce,companies place great emphasis onattracting customers continuously andbuilding long-term relationship withcustomers on the web. According to latestforecast from internet and mobileassociation , there are more than 35.5

million Indians shop online. The ultimatereason behind this growth is the convenientof online shopping which not only savestime of the customer but also provideswide variety of items before him. It alsoprovides scope for comparing the offeringof variety of vendors at one click of mouse.Apart from this the most significant benefitof online shopping is the attractive discountsthat most of the e-tailer provide to attractand retain their customers. Again onlinestores are available 24×7 in the service oftheir customers and provides better accessto product review and rating system.

However, people still remain reluctantto make purchases on the Internet due tothe lack of trust toward businesses in the


new electronic environment. many peoplestill locate information on the internet andpurchase products offline at traditionalstores, conversion rate being very low. Pastresearches have indicated that consumers’perceived risk of online transactionconstituted a key barrier to the use ofInternet shopping.

Conceptually perceived risk standsfor the uncertainty that a consumer feelswhen they became unable to foresee theoutcome of their purchase decision. It alsorepresents the customers subjective beliefabout the possibility of a reverse outcomefrom any purchase decision. The natureof these risks vary from consumer toconsumer depending on the productcategory, shopping situation and also withtheir personal, cultural and psychologicalconsideration.

Existing literature:

Internet is a relatively new channel ofpurchase for customer and distribution forvendors . in general customers perceive itmore complex and risky than traditionalcommerce in brick and mortar arrangement.Tan in the year of 1999 taken an earlyattaemt to identify the risk factor associatedwith online shopping and found thatperceived risk is higher when a consumerpurchases via internet in comparison topurchasing from in house means.

In a study conducted by Rajjamma,Pswan and Ganesh in 2007 it was foundthat services are more likely to beassociated with online shopping mode ,whereas purchasing of tangibles are

associated with brick and mortar shops.As per the study conducted by Vijaysarthyand jones in 2000 , it was found that thisperceived risk influences both attitude andintention of a customer to shop on line.Miyazki and Fernandez in their study in2001 found that perceived risk decreaseswith internet experience of him.

In separate studies conducted byCunningham, et al. in 2005; Liberman andStashevsky in 2002; Park and Kim in2003; Miyazaki and Fernandez in 2001 itwas found that the major concerns of onlineshopping are security of online paymentand privacy of personal information.According to the study conducted byDoolin et al in 2005 it was found that lackof ability to inspect merchandise beforepurchase; puts them at higher risk of fraudon the part of the merchant than in aphysical store.

Bhatnagar et al. in his study in 2000recognized two types of risks in onlineshopping: product risk and financial risk.Product risk is associated withperformance or functionality of the productas expected. It is higher for technologicallycomplex products like electronics&hardware, ego-related products.

As per the above discussion it canbe revealed that perceived risk in Internetcontext is multidimensional nature. Thusin light of this background the presentpaper entitled “Perceived Risk andConsumer Behavior Towards OnlineShopping: An Empirical Investigation”,attempts to provide an better insight to

81Perceived Risk and Consumer Behavior Towards Online Shopping : ...

understand consumer’s perceived risktowards online shopping in India.

Objective of the study:

To find out the factors which encourageperceived risk of the customer in onlineshopping decisions1. To find out the Inconvenience of

customers in online shopping2. To suggest further Up-gradations

required for enhancing the adoption ofonline shopping.

Methodology:

The study is analytical in characterand seeks to examine the perceived riskassociated with online shopping in India.The study was conducted in Bhubaneswarand data was collected through surveymethod. An 18-item scale was constructedbased on previous studies comprising ofall major concerns. Perceived risk wasmeasured on 7 point Likert-type scale with‘1’ indicating ‘strongly disagree’ and ‘7’indicating strongly agree’. Personalinterviews were conducted on a sampleof 150 respondents who were chosen onconvenience basis.

The collected data are to analysedusing Factor analysis with the help of SPSS20 Version for deriving meaningfulconclusions out of the study. All statisticswere run at 95% confidence level.

Empirical results

Demographic profile:

Out of 150 respondents 70% are maleand 30% are female respondents. In

terms of age group, 33% respondentsare in the age group of 31-45 and 67%are below the age of 30. Educationalstatus of the respondents indicates that60% of total respondents are graduates,33.4% are post-graduates andonly6.6% respondents are educatedupto secondary level. In terms ofoccupation, students formed the highestportion with 61.66% respondents,23.34% belong to salaried group, and15% of the respondents belong toprofessionals.

Reliability of the study:

Internal reliability of the scale was assessedusing Cronbach’s alpha. Results showedthat alpha value was 0.715 which is quietsatisfactory.

Factor analysis:

In the present study, the factor analysisis used to remove the redundant (highlycorrelated) variables from the surveydata and to reduce the number ofvariables into definite number ofdimensions/ factors associated withperceived risk of customers in onlineshopping. The factor analysis isperformed using the principalcomponent extraction method withvarimax rotation.

In order to establish strength of thefactor analysis solution, the Kaiser-Mayer-Oklin (KMO) and Barlett’stest was first computed and given intable-2.


Table-2 : KMO and Bartlett’s TestKaiser-Meyer-Olkin Measure of Sampling Adequacy. .560Bartlett’s Test of Sphericity Approx. Chi-Square 796.663

Df 153Sig. .000

From the above table, it is foundthat the value of KMO statistics isgreater than 0.5, indicating that factoranalysis can be employed for the givenset of data.

For the study, six factors having eigen-values greater than one were extracted.The eigen-value of the six factors alongwith the cumulative percentage of thevariance is shown in Table -3.

Table-3: Total Variance ExplainedComponent Initial Eigen values

Total % of Variance Cumulative %1 3.324 18.469 18.4692 2.672 14.846 33.3153 1.738 9.653 42.9684 1.656 9.200 52.1685 1.221 6.782 58.9506 1.123 6.237 65.187

The result of the factor analysis usingprincipal component method shows that65.2% of the total variance is explainedby classifying these 18 variables into 6components or factors. The percentageof the total variance which is used as anindex to determine how well the factorsolution accounts for what the variablestogether represent.

The first factor F1 is the mostimportant factor which explains 18.5%of variance before rotation. The secondfactor F2 is the second major factorwhich explains about 14.846% of thevariance of the variables. The third factor

F3 explains about 9.6% of thevariation. Likewise the fourth factor F4explains about 9.2% of the variationand the fifth factor F5 explains about6.78% of the variations. Finally thesixth factor F5 explains about 6.78%of the variations.

Table -4 gives the factor loading ofthe variables under each of the fiveextracted factors. In order to interpret theresults, a cut-off point of 0.5 is decidedfor each variable to group them intofactors by forming a rotated componentmatrix.

83

Table-4 : Rotated component MatrixComponent

1 2 3 4 5 6Products sold by online shopping sites .762 -.043 .114 -.116 .064 -.271are defective and unsafe In online shopping, product features .751 .026 .142 -.132 -.061 .201seldom match to the web specificationsPerformance of the product purchased .728 .004 .023 -.059 -.064 .073via online shopping is not as expectedIn online shopping often there is a .086 .647 -.197 -.126 .410 .037probability of additional hidden costsThere is a Lack of protection to the credit -.029 .736 .104 .243 .137 .024card information when shopping onlineIn online shopping it is difficult to get .050 .665 .283 .408 .004 .084back the moneyIn online shopping there is a chance of losing .232 .584 .267 -.291 -.356 .033sensitive information related to bankOnline shopping leads to loss of time due to .002 -.006 .728 .205 .286 .013slow website, etcOnline shopping often leads to psychological -.201 .338 .685 -.201 .194 -.113discomfort and tensionOnline purchase affects the self-image of .220 .111 .626 .105 -.192 .121a shopperIn online shopping often there is a .242 -.063 -.151 .562 -.303 .308uncertainty about the delivery of a productProducts are often damaged during shipment .121 .309 .174 .729 .141 -.057Products are often lost during shipment .345 .225 -.089 .663 -.120 .069The delivery time for the product is not -.245 .190 .148 .069 .715 .004satisfactoryThe Product is not delivered on time .350 .020 -.070 -.265 .589 .410The website of online shopping store .377 .106 -.695 .180 .066 .686is complex to useThe website does not provide complete .223 -.274 .278 .049 .136 .645information about the productAuthorization mechanism of the online -.123 .321 -.015 -.084 .008 .779shopping sites are not satisfactoryExtraction Method: Principal Component Analysis.Rotation Method: Varimax with Kaiser Normalization.a

Perceived Risk and Consumer Behavior Towards Online Shopping : ...


The first factor F1 having threesignificant factor loadings can be namedas “product risk” as it includes, ‘defectiveand unsafe products (0.76)’, ‘mismatch ofproduct to the web specification (0.751)’and ‘poor performance of the product(0.728)’. The second factor F2 having foursignificant factor loadings can be namedas “financial performance risk” as itincludes, ‘probability of hidden cost(0.647)’, ‘lack of protection to credit cardinformation (0.736)’, ‘poor refund policy(0.665)’ and ‘loss of sensitive financialinformation (0.584). The third factor F3having three significant factor loadingsstands for psychological risk as it includes‘wastage of time due to slow weboperation (0.728)’, ‘psychologicaldiscomfort (0.685)’ and ‘impact on self-image (0.626)’. The fourth factor F4 havingthree significant factor loadings stands fordelivery risk as it includes ‘uncertaintyabout the delivery of a product (0.562)’ ,‘damage to product during shipment(0.729)’ and ‘loss of goods duringshipment (0.663). The fifth factor F5 havingonly two significant factor loadings standsfor time risk as it includes ‘un satisfactorydelivery schedule (0.715) as well as ‘lackof in time delivery of a product (0.589).Finally the sixth factor F6 having threesignificant factor loadings can be namedas website performance risk as it includes‘complexity of website to use (0.686)’,incomplete information about the productfrom the web site (0.645) and ‘improperauthorization mechanism (0.779)’.

Findings:

The findings of the study show thatthe first extracted factor namely productrisk (as it accounts for 18.469% of thetotal variance) is the most importantfactor to be taken care of by the onlineshopping sites to reduce the perceivedrisk of the customers. Likewisefinancial performance risk ,(accounting for 14.846% of the totalvariance) is the second major factorinfluencing the customer’s perceptionabout an online shopping site . Next tofinancial performance risk,psychological risk (with 9.653% of thetotal variance) is the third major factorfollowed by delivery risk, time risk andwebsite performance risk with9.200%, 6.782 and 6.237 %respectively of the total variance are tobe taken care of by online shopping siteswhen devising strategy for customerorientation and satisfaction for theirservice.

Conclusion:

Online shopping is a relatively newplatform for Indian customers. As a resultof immense growth in internet access forentire population , it may see a promisedfuture tremendous growth in India. But itis essential for the vendors to measure andreduce the perceived risk of customerwhich will help them to maximize bothcustomer orientation and satisfaction withprofit.

85

References:

Amoroso & Hunsinger. Analysis of theFactors that Influence Online Purchasing.Proc CONISAR. 2008, v1 (Phoenix).

Bhatnagar, S. Misra & H. R. Rao. OnRisk, Convenience, and Internet ShoppingBehavior. Communications of the ACM.2000, 43(11), 98-105.

Chang & Chen. The impact of online storeenvironment cues on purchase Intention:Trust and perceived risk as a mediator.Online Information Review. 2008, Vol.32, Iss. 6, p. 818-841

Consumer E-Commerce Market in India2006/07 - A Report by eTechnologyGroup@IMRB for Internet and MobileAssociation in India. E-Commerce inIndia. September 2007.

Doolin, Dillon, Thompson & Corner.Perceived Risk, the Internet ShoppingExperience and Online PurchasingBehaviour: A New Zealand Perspective.Journal of Global InformationManagement. 2005, 13(2), 66- 88.

http://issuu.com/publishgold/docs/final_ecommerce_report07?mode=a_p

Jacoby & Kaplan. The components ofperceived risk. Proceedings of theannual conference of the association forconsumer research.1972, pp. 382-393.

Miyazaki & Fernandez. Consumerperceptions of privacy and security risksfor online shopping. Journal of ConsumerAffairs. 2001, Vol. 35, No. 1, pp. 27–44.

Park & Kim. Identifying key factorsaffecting consumer purchase behaviour inan online shopping context. InternationalJournal of Retail and DistributionManagement. 2003, Vol.31, No. 1:16-29.

Peter & Tarpey, A Comparative Analysisof Three Consumer Decisions Strategies.Journal of Consumer Research. 1975,2(1), 29-37.

Schiffman & Kanuk. ConsumerBehavior, Eighth Edition. PearsonEducation. 2007.

Perceived Risk and Consumer Behavior Towards Online Shopping : ...


Measuring Effectiveness ofAttendance Management Systems in Time Office

CM MaranAssistant Professor (SG), VIT Business School

VIT University Vellore – 632014E-mail: [email protected] [email protected]

AbstractThere are various problems that have been faced in the field of Workforce Managementsuch as, some of the data that has to be converted into vital information which needsto be collected within the stipulated time period could not be acquired. This study ishelpful to overcome the problem stated. Therefore by means of this study; theorganizational goals can be achieved at a higher level. The present study helps toovercome the challenges in the work force so that the organizational goals can beachieved efficiently and effectively.

Introduction

The present study is an attempt whichcan help overcoming the challenges in thework force so that the organizational goalscan be achieved efficiently and effectively.There are various problems that have beenfaced in the field of WorkforceManagement such as, some of the datathat has to be converted into vitalinformation which needs to be collectedwithin the stipulated time period could notbe acquired. This study is helpful toovercome the problem stated. Thereforeby means of this study; the organizationalgoals can be achieved at a higher level.The HR manager needs the details ofmanpower shortage with respect toproduction in each shift so that the shortagecan be compensated by sending in thecontract employees and achieves thedesired level of production. E.g. the

Shortage in 1st shift has to be produced at8 am to the HR manager so that within 9am he sends the contract employeescompensating the shortage. But there is aproblem of getting the details aboutmanpower shortage in each shift. Thisdetail has to be furnished by the time office,but they are unable to provide this detailwithin the time. The problems that arefaced by the time office personnel inproviding this detail is carefully analysedfor a certain period and the problems hasbeen listed with their recommendedsolutions.

Objectives To Measure the effectiveness of

maintaining the attendancemanagement system in time office.

To observe the day to day activities ofthe time office employees

87Measuring Effectiveness of Attendance Management Systems in Time Office

To identify the problems faced by timeoffice personnel in their day to dayoperations.

To analyse those problems faced inorder to arrive at a better solution forit.

To make the work done by the timeoffice employees simple and easier.

To overcome further problems in thenear future and to face any uncertaintiesthat may affect the advancement intechnology to be used and thefulfillment of the organization goals.


Dr Anne1 recommended the coreelements of effective attendancemanagement policies. These elements areto provide the necessary guidance to thepublic sector on managing attendance atwork, consist of the following modules like,management training, accurate recordingand monitoring of absence in theorganization ; early management contactwith absent individuals; return to workinterviews; trigger points for action andreview; review of individual cases. Thereis an assumption that recommended ‘bestpractice’ in any field is based on evidenceof proven effectiveness. However, recentapplication of rigorous evidence reviewingprocesses in a variety of fields, includingthose related to health, has revealed thatin many cases such assumptions areunfounded. The objective of the currentreport therefore was to provide such areview of the evidence on which current“best practice” in the field of attendance

management is based. He carried out usingstandard evidence-based reviewmethodology comprising systematic andtransparent literature searching, paperselection according to pre-determinedcriteria and critical evaluation of eachpaper in terms of the standard of scientificmethodology to be employed.

In any fast growing organization,according to Prassanna & Senthilkumar2,tracking and monitoring employee timeand attendance and preparing payroll aretedious, time consuming and risky as it ismore prone to errors. Biometric time andattendance management system is one ofthe most successful applications ofbiometric technology, serves an alternativefor the traditional manual signing process.The most challenges in transformingtowards biometric based attendancemanagement system from traditionalsystem are, first, providing platform tostore and maintain employee data,secondly the timely collection of hugeamount of data from biometric machines,deployed as cluster of nodes, into a centraldatabase and finally to setting up adistributed computing environment tosupport the payroll process. They designedand implemented a reliable, scalable andcost effective Biometric Attendance payrollSystem over Cluster based Cloudtechnology, by which we successfullyoverwhelmed all these challenges. Ourcloud based Biometric AttendanceManager (BAM) works with text files tocollect data from different BiometricTerminals (BT) and process them to store


in cloud based Enterprise BiometricInformation Server (EBIS) to generatepayroll.

The development of an alternativeattendance management system usingbiometrics is proposed by Shoewu &Idowu3. Managing student attendanceduring lecture periods has become adifficult challenge in the class roomenvironment. The ability to compute theattendance percentage becomes a majortask as manual computation produceserrors, and also wastes a lot of time. Forthe stated reason, an efficient attendancemanagement system using biometrics isdesigned. This system takes attendanceelectronically with the help of a finger printdevice and the records of the attendanceare stored in a database. For studentidentification, attendance is marked to abiometric (fingerprint) identification basedsystem. This process however, eliminatesthe need for stationary materials andpersonnel for the keeping of records.Among Eighty candidates were used to testthe system and success rate of 94% wasrecorded. The manual attendance systemaverage execution time for eighty studentswas 17.83 seconds while it was 3.79seconds for the automatic attendancemanagement system using biometrics. Theresults showed improved performance overmanual attendance management system.


Collection of data

Qualitative as well as quantitativedata were used in the project. Primary data

were collected in the form of Observationand Questionnaire. Secondary Data werecollected from World Wide Web,Magazines, Articles and published journals,etc. The data is collected in the form ofschedule and observation. The scheduleconsists of a number of questions and theirresponse is collected filled up by theresearcher. Observation was done for aperiod of 15 days and data was noteddown by the researcher.

Hypotheses:

(H0): There is no significant relationshipbetween age and softwarecustomization.

(H1): There is significant relationshipbetween age and softwarecustomization

(H0): There is no significant relationshipbetween age and pace timer.

(H2): There is significant relationshipbetween age and pace timer.

(H0): There is no significant relationshipbetween age and swipe card.

(H3): There is significant relationshipbetween age and swipe card.

Analysis and interpretation

The organization currently uses twotypes of technology for attendancemanagement system. One of which isSmart card reader used for managing theattendance of apprentice workers andregular employees and another one isbarcode reader come biometric fingerprint scanner used for only the contract

89

workers. Both systems have their owndrawbacks.

Tabulation (Percentage Analysis)

1. TABLE showing age wiseclassification of employees

Age No of Percentagerespondents

Below 25yrs 10 33%25-40yrs 15 50%40yrs above 5 17%Total 30 100%

From the above table it is found that thenumbers of respondents with age groupsbelow 25yrs, 25-40yrs, 40 above are30,50, and 20 respectively. It is inferredthat majority of the respondents are fromage group 25-40yrs.

2. TABLE showing gender wiseclassification of employees

Gender No of Percentagerespondents

Male 27 90%Female 3 10%Total 30 100%

From the above table it is found that 90%are male and 10% are female of the totalnumber of employees. And the majorityof the employees are male with 90%.

3. TABLE showing years of workexperience of employees

Years of work No of Percentageexperience respondents0-1 yrs 4 13%1-2 yrs 6 20%2-5 yrs 17 57%Above 5 yrs 3 10%

From the above table it is clear that 13%of employees have 0-1 yrs of experience,20% have 1-2 yrs of experience, 57%have 2-5 yrs of experience and 10% haveabove yrs of experience. So it clear thatmajority of employees have 2-5 yrs ofexperience.

4. TABLE showing experience inproducing reports

Experience in # of Percentageproducing reports respondentsVery easy 5 17%Easy 15 50%Manageable 8 27%Difficult 2 6%Very difficult 0 0%

From the above it is inferred that 17% ofemployees feel very easy to producereports using the current software system,50% say that it is easy to produce toreports, 27% say that it is manageable forthem to produce reports and only 6% feelit is difficult for them to produce reportsand none feel that it is very difficult toproduce reports. Hence majority of theemployees feel it is easy to produce reportsusing the software.

5. TABLE showing ease of useattendance software :

Ease of use of No of Percentageattendance RespondentssoftwarePoor 0 0%Ok 0 0%Good 18 60%Very good 8 27%Excellent 4 13%

Measuring Effectiveness of Attendance Management Systems in Time Office


From the table it is clear that none of theemployee has opted for “poor” or “ok”.60% say that it is good in using thesoftware, 27% feel it is Very good and 13%it is excellent regarding the ease of use inusing the attendance software.

6. TABLE showing respondents ofemployees to need of customization ofsoftware:

From the table it is clear that 90% ofemployees say that there is a need ofsoftware customization and 10% ofemployees feel that there is no need ofsoftware customization.

Majority of them feel that there is need ofsoftware customization for efficientworking.

7. TABLE showing response ofemployees regarding the problemwith pace timer

From the above table it is clear thatabout 70% of employees say that thereis some problem in the pace timer. Andthe remaining 30% of employees denythat there is no problem with the pacetimer.

8. TABLE showing response ofemployees regarding the problemwith swipe card

RESPONSES YES NOIs there any problem with 20 10the pace timer?Percentage 70% 30%

Is customiztion # of Percentageof software respondentsrequired?Yes 27 90%No 3 10%

RESPONSES YES NOIs there any 3problem with 27 3the swipe card?Percentage 90% 10%

From the above table it is clear that about90% of employees say that there is someproblem in the swipe card. And theremaining 10% of employees deny thatthere is no problem with the swipe card.

9. TABLE showing response ofemployees to hardware relatedproblem

Responses Card Swipe System All theReader Card Memory three

In hardware 6 4 2 18related pro-blem, wheredo you thinkthe problemsoccur?Percentage 20% 11% 9% 60%

From the table it is clear that about 20%of employees say that hardware relatedproblems is due to Card Reader and about11% of employees say that swipe cardtotally contributes to the hardware relatedproblems. 9% of employees say thatsystem memory is responsible forhardware related problems and remaining60% of employees say that all three i.e.the reader, swipe card and the systemmemory is responsible for hardwareproblems of the attendance system.

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10. TABLE showing response of employees to software related problemResponses Data Poor Software Network Due to

Transfer Coding Problem VirusIn software related 10 14 4 2problems, where doesthe problem occur?Percentage 31% 49% 11% 9%

From the table it is clear that about 31%of employees say that software relatedproblems occurs during data transfer .Andabout 49% of employees say that poorsoftware coding the attendance systemaccounts to the software related problems.

RESPONSES Very Low Low Average High Very HighRating of the current 5 20 4 1 0attendance systemPercentage 17% 67% 11% 5% 0%

It is clear from the table, about 17% ofemployees feel that the performance of thecurrent attendance system is very low. Andabout 67% of employees feel that theperformance of the current attendance

RESPONSES Strongly Agree Neutral Disagree StronglyAgree Disagree

Opinion in changing 7 17 4 2 0Attendance SystemPercentage 22% 56% 11% 5% 0%

It is clear from the table that about 22%of employees Strongly agree to changethe current attendance system. Andabout 56% of employees agree tochange the current attendance system.

11% of employees say network problemsaccounts to software problems andremaining 9 % of employees say thatsoftware problems are due to the virusesthat are present in the system.

11. TABLE showing response of employees to performance of attendance system

system is low. 11% of employees say thatthe performance is Average and remaining5% of employees feel that the performanceis high. None of the employees have optedfor very high performance.

12. TABLE showing opinion of employees to change the attendance system

11% of employees are neutral in theiropinion about changing the system andremaining 5% of employees disagree tothe opinion of changing the current at-tendance system.



13. ANOVA- TEST

AGE VS. CUSTOMIZATION, SWIPE CARD AND PACE TIMER

ANOVASum of df Mean F Sig.Squares Square

Is customization Between Groups 1.500 2 .750 16.875 .000necessary Within Groups 1.200 27 .044

Total 2.700 29Is there any problem Between Groups 3.333 2 1.667 13.500 .000in the pace timer Within Groups 3.333 27 .123

Total 6.667 29Is there any problem Between Groups 1.500 2 .750 16.875 .000in the swipe card Within Groups 1.200 27 .044

Total 2.700 29

The calculated value is .000 which isless than (< .05) the table value, hencereject the null hypothesis and accept thealternate hypothesis. So there is significantrelationship between age and softwarecustomization.

The calculated value is .000 which isless than (< .05) the table value, hencereject the null hypothesis and accept thealternate hypothesis. So there is significantrelationship between age and pace timer.

The calculated value is .000 which isless than (< .05) the table value, hencereject the null hypothesis and accept thealternate hypothesis. So there is significantrelationship between age and swipe card.

Findings & Recommendations:

1. Majority of the respondents feel thatthere is problem in both the softwareand hardware components of theattendance system.

2. Most of them have opted that there isa need in software customization of thecurrent attendance software.

3. Majority of the respondents areunsatisfied in the performance ofcurrent attendance software.

4. Most of them have opted that there isproblem in swipe card and pace timer.

5. Most of the respondents feel that it iseasy to produce reports using thesoftware.

6. Most of the respondents are wellexperienced in using the software.

7. Most of the respondents are alsoready to work in new kind ofattendance system that suits theirindustry.

Most of the system related problems thatprevail is because of the mismatching ofthe company’s requirement and the

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software design of the current attendancesystem. This can be overcome bycustomizing the attendance softwareaccording the specific needs of thecompany i.e.

- Extending the software memory supportup to 5000 employees from 4000employees.

- Upgrading the software up to the latestavailable technology so that it doesn’tneed any buffer to store data thetemporarily where the data gets lost.

- Periodic surveillance of the software hasto done by the software serviceprovider and caters the needs forcustomization if necessary.

Problem with the pace timer can berectified by debugging the software andproperly maintaining it once in 6 months.Problem with swipe card can be resolvedby using high quality magnetic tapes wherewear n tear is minimal. For ancillaryproblems management has to clearly defineduties and responsibilities of eachdesignation and address the problems ofthe employees.

Paper works for c-off and weekly offapplication form can be made online at leastfor the executives so that time spent onpaper works can be reduced and makethe time office employees concentrate onother important works. All the systemrelated problems can be fixed by using oneof the advanced technologies that isrecommended by the employees. All thesystem related problems can be

completely overcome by implementingpalm vein technology for the followingreason:

This technology doesn’t use buffermemory (Access memory) to temporarilystore the data rather they directly capturethe information and store it in the systemmemory (SQL). Unlike the present systemhaving just 4000 user capacity thistechnology have 10000 user capacity thusavoiding overloading of the machine. Usingthis technology avoids ‘buddy punch’ i.e.a worker swiping the card of his co-worker to make him escape from the lateentry or mark him present for the day.Unlike the biometric finger print scannerused for the contract workers the rejectionratio in palm vein technology is veryminimal. Palm vein technology overcomesthe disadvantages of barcode enabledswipe card system since this technology iscontactless, fast and hygienic. Build withLatest technology thus avoids softwareand hardware overload problems.

Conclusion

Attendance system is a vitalcomponent in any type of organization asit serves as an important and only sourceof information providing the entire detailsof the each and every individual employeethat are used in payroll system, workforcemanagement by the HR manager, byfinance department and for otherpurposes. Only if these purposes arefulfilled organization can functioneffectively without any hurdles. Thusattendance system has to properly



monitored, maintained and to be checkedfor any contingencies and rectified if thereis any as it is vital source of information.Hence it is sometimes even better toreplace the system for the smooth workingof the organization.

Notes:1. Dr Anne Spurgeon Institute of

Occupational Health The University ofBirmingham September 2002;

2. Implementation of BiometricAttendance Management System onCloud Environment by Prassanna J,Senthilkumar, 2003.

3. Development of AttendanceManagement System using Biometrics.O. Shoewu and O.A. Idowu.

References:

Bevan S and Hayday S. (1998):Attendance Management: a Review ofGood Practice” Report 353, Institute forEmployment Studies.

Kadry S. and Smaili M. (2010): WirelessAttendance Management System basedon Iris Recognition. Scientific Researchand Essays Vol. 5(12), pp. 1428-1435,18 June, 2010.

McKeehan D.A. (2002): AttendanceManagement Program, The City ofPleasanton, Human Resources.

Shehu V. and Dika A. (2011): Using RealTime Computer Vision Algorithms inAutomatic Attendance ManagementSystems. Proceedings of the ITI 201032nd Int. Conf. on Information TechnologyInterfaces, June 21-24, 2010, Cavtat,Croatia.

Shoewu O., Olaniyi O.M. and Lawson A.(2011): Embedded Computer-BasedLecture Attendance Management System.African Journal of Computing and ICT.Vol 4, No. 3. P 27- 36, September, 2011.

Web Sources:

1. http://www.mba.com/the-gmat/test-day/palm-vein-reader-biometric-identification/palm-vein-recognition-frequently-asked-questions.aspx

2. http://www.biometricsystem.in/Biometrics-Attendance-System.html

3. http://www.ti.com/solution/fingerprint_biometrics

4. http://www.sersc.org/journals/IJCA/vol3_no1/3.pdf

5. http://seminarprojects.com/Thread-palm-vein-technology

6. http://www.scribd.com/doc/88305233/429-Palm-Vein-Technology


Behaviour of Individuals in Everyday FinancialDecisions : A study of Demographic Variables

Sunita MehlaAssociate Prof., Department of Business Management,

CCS Haryana Agricultural University, HisarE.mail: [email protected]

Suman GhalawatAsst. Professor, Dept of Business Management,

CCS Haryana Agricultural University, Hisar, Haryana.E-mail: [email protected]

AbstractBehavioral finance considers the impact of individual’s attitude on their financialdecisions. The present paper empirically assesses the factors that influences theindividual behavior regarding everyday financial decisions and further examine theimpact of demographic variables on these factors. The study is mainly primary databased with a sample of 250 respondents from Hisar district of Haryana state andapplied statistical tools of factor analysis and one way ANOVA to achieve the objectiveof the study. The factor analysis discloses nine factors which are named as compulsiveshopper, financial awareness, financial botheration, financial advice, concern forfuture, saving schemes, composed decision believes in savings and income. Further,gender, age, marital status and occupation are found to have significant impact onthe derived factors.

Key Words: Financial behavior, Factor analysis, ANOVA.

Introduction

Behavioral finance is an integral partof financial decision making process ofindividuals. It is the persuasion of feelingson decisions concerning the spending ofmoney. Researches on behavior ofindividuals regarding financial affairs aresubject to certain psychological andemotional aspects. According to Barberisand Thaler (2003), individuals showconsiderable disparity in decision makingprocess when judged against the

presumed behavior. This may be because,it is not expected from humans to arrive ata conclusion exclusively on the basis ofobjective factors, rather the issues such astheir behavior, emotions, attitude and frameof mind are the major analyst in shapingtheir decisions. Moreover, Tversky andkahneman (1981) recognized that thepsychological behavior that administer thesensitivity of decision making andassessment of likelihood of outcomegenerates alteration in preferences even


when the same problem is framed indifferent ways. According to Skinner(2005), it is exceptionally complicated toexamine the human behavior since eachindividual has dissimilar personality and theactions taken by them are the intricateinfluence of internal as well as externalstimulants. This interface of stimulantsforms the human behavior.

Although, an appropriate financialdecision can play a considerable role inmaximizing the financial gains, but eachindividual behave in their own way inmaking up their mind about the spendingdecisions on their needs and necessitiesand further a huge variation can be seenwith respect to demographic variables i.e.socio-economic background, educationalqualification, sex, age etc among humans.Moreover, the integral part of individualsis the emotions where same individualbehave in different manner in differentphases of his life. Therefore, financialdecision making is most complex andchallenging for humans.

The researchers have shown thatindividuals do not make investments purelyon rational manner, rather their investmentdecisions are influenced by a number offactors which include psychological biases,social affiliation, demographic factors andso on (Kumar and Lee, 2006; Barnea etal, 2010). Therefore, an endeavor hasbeen made to study the behavioral patternamong individuals about everyday financialdecisions making in their life. The paperalso tries to study the impact ofdemographic variables on behavioral

aspect of decision making on routinefinancial matters.


Many recent studies in appliedfinance argue that individual’s behaviouris often affected by a variety ofpsychological heuristics (Barber, Odeanand Zhu, 2009). According to Campbell(2006), the household finance is intricatebecause it is not simple to evaluate thehousehold behavior. There is evidence thathouseholds are familiar with their ownlimitations and stay away from financialstrategies for which they feel inept. Ronayand Kim (2006) have recognized that thereis no behavioral difference betweenindividuals of different gender towards riskin financial investments. Whereas, Fellnerand Maciejovsky (2007), studied theimpact of risk taking behavioral differenceson gender and found that female investorsare more risk averse than their malecounterparts, which is established by theirmore conservative investment behavior.The study conducted by Racciardi (2007)disclosed the relationship between risktaking behavior of individuals in financialdecision making and demographic factors.The study revealed that males are morerisk-takers compared to females,unmarried are more risk-takers comparedto married people, young people have atendency to take more risks compared toelderly, more educated people tend to takemore risks compared to those with lesseducation and the people with morefinancial information take more riskscompared to those with less financial

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information. Similarly, Brown et al. (2008),found in their study that Individuals’financial investment decisions might bestimulated by approval from peers andfamily and they found it easier to learnabout taking financial decisions, bydiscussing with their friends than by usingother mechanism. The study also disclosedthat even without verbal idea orendorsement, people observed thebehavior of others and learned in thecourse of interface with them. Funfgeld andWang (2009) conducted a study on thefinancial attitude and behavior of German-speaking part of Switzerland on dailyfinancial affairs. The paper revealed fiveunderlying dimensions on financial attitudesand behavior, i.e. anxiety, interests infinancial issues, decision styles, need forprecautionary savings and spendingtendency. Moreover, gender, age, andeducation were found to have significantimpacts. Graham et al. (2009) haverecognized that perceived expertise leadsto overconfidence among investorsregarding investing their hard earnedmoney.

Thus, it can be observed thatliterature has extensively examined thebehavior of individuals’ on various aspectsof financial investments, however, therehas not been much work focusing oneveryday financial decision makingbehavior of individuals. Hence, the presentpaper is an effort to examine the extent towhich behavior influence financial decisionmaking of individuals.

Objectives of the Study:

To investigate the factors thatinfluences the individuals’ behaviorregarding everyday financial decisions.

To determine the relationship betweendemographic variables and factorsaffecting the financial decisions.

Hypothesis

As demographic variables affect thedecisions of individuals, therefore, toachieve the objective of the study,following null hypothesis have beenformulated:

H0(1): There is no significantrelationship between gender andfactors influencing decision makingregarding financial matters

H0(2): There is no significantrelationship between age and factorsinfluencing decision making regardingfinancial matters

H0(3): There is no significantrelationship between marital statusand factors influencing decisionmaking regarding financial matters

H0(4): There is no significantrelationship between occupation andfactors influencing decision makingregarding financial matters.


The present study is an empiricalresearch based on the sample of 250respondents from Hisar district of Haryanastate. Convenient sampling method is

Behaviour of Individuals in Everyday Financial Decisions : a study ...


adopted for collecting the sample. Thequestionnaire is designed with two sections:section 1 confine to demographicinformation of the respondents and section2 has questions describing the financialdecision making behaviour of individuals.The questionnaire used a Likert scaleranging from 1 = Strongly Disagree to 5 =Strongly Agree. The data is analyzed usingSPSS version 13.0. The study employsfactor analysis to find out the underlyingfactors from the collection of apparentimportant variables. Factor analysis trimsdown the total number of variables intofewer factors and also shows thecorrelation between the factors(Nargundkar, 2005). Further, the papermakes use of one way analysis of variance(ANOVA) to study the associationbetween demographic variables and thefactors. Mean score was calculated forfactors where significant relationshipbetween independent variable(demographic) and dependent variables(factors) was observed. Secondary datais collected through research papers,journals, websites and books.

Demographic Profile of The Sample

The demographic description of therespondents unveils a fairly equalproportion of males (56 %) and females(44 %). The sample respondents aremainly in the age group of 45-55 years(30%) followed by age group of more than50 years (21%). Further, a majority of therespondents (72%) were married. Therespondents were largely post-graduates

(59.2%) followed by graduates (26.8%)implying that sample consist of of highliterate respondents. With regard to theemployment status, service andprofessionals have (78%) share implyingthat respondents are well placed in theircareer. The table also depicts that 28% ofrespondents save up to Rs15000-25000.The sample had a majority of respondents(28.4%) earning between Rs 55,000-75000 followed by 15000-25000 (28%).

Result and Discussions:

In the present study, the researcherapplies Kaiser-Meyer-Olkin (KMO) testand Bartlett’s Test of Sphericity as pre-analysis verification for judging thesuitability of the entire sample which is apre-requisite of factor analysis.

Table 1.1 shows the value of Kaiser-Meyer-Olkin (KMO) and the Bartlett’sTest of Sphericity as 0.532 and 1225.729respectively, which are statisticallysignificant at 1% level of significance.Thus, it indicates that the sample issuitable for factor analytic procedures(Hair et al., 2006). In addition, thesignificant value of chi-square test statistic(1225.729), depicts that there isexceptionally low probability of obtainingthis result (a value greater than or equalto the obtained value) if the nullhypothesis (H0) was true. Hence, the nullhypothesis that the population correlationmatrix of the measures is an identity matrixhas been rejected as the variables werefound to be correlated with each other.Table 1.2 presents the overall reliability

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of this construct with Cronbach’scoefficient alpha having the value of0.629, which is highly significant.

Factor Analysis

The survey data from thequestionnaire is analyzed using factoranalysis in order to summarize the 22statements related to financial behavior intosmaller sets. First of all, the data issubjected to principal component analysis,where these 22 statements are reduced tonine principal components through varimaxrotation (Table 1.3). The statements withfactor loading of 0.40 or higher areclustered together to form separateconstructs, as recommended by (Hair etal., 2006). The reliability coefficients forfactors ranged from 0.562 to 0.841,indicating a fair to good internalconsistency among the items of eachdimensions. Nine factors have beenextracted which accounts for 68.030percent of variance. The percentages ofvariance explained by factor 1 to 9 are14.227, 9.679, 8.158, 7.510, 6.773,6.275, 5.521, 4.966 and 4.923 percentrespectively. The communalities shown inthe Table explains the amount of variancein the variable that is accounted by thefactors taken together. Large communalitiesindicate that a large amount of variance hasbeen extracted in a variable by the factorsolution. The paper considers only thosefactors whose Eigen-values is more thanone. Five statements are dropped due tofactor loading of less than 0.40 which alsoreduces factors from nine to eight.

The names of the factor statementsand factor loadings have been summarizedin Table 1.3. A factor loading represents acorrelation between an original variableand its factors. Factor loading is nothingbut coefficient of correlation. Further, thenine factors that defined thesecharacteristics have been assigned suitablenames according to the nature of variablesloaded on each factor. The nine factorsare: compulsive shopper, financialawareness, financial botheration, financialadvice, concern for future, savingschemes, composed decision, believes insavings and lastly Income. Five statementshave been dropped due to factor loadingof less than 0.40, and one factor i.e.income has also been dropped becauseof single statement with low factor loading.The derived factors represent the differentelements of financial behavior which formthe underlying factors from the original 5point scale of 22 statements.

Factor-1: Compulsive Shopper

The rotated matrix has disclosed thatfive out of twenty two statements areloaded on significantly to this factor. Thisfactor has been named as compulsiveshopper as, it consists of statements like:not able to keep some money away for arainy day, my expenses exceed my incomesome time, spend most of the part of myincome and believe in taking loans to meetmy requirements. Thus, it is observed thatthe sample respondents are squandererand have a tendency to spend generouslythat ultimately leads to exceed their



expenses. Moreover, they are likely to takeloans to accomplish their wishes. It is themost crucial factor considered byrespondents as this factor explained highestvariance of 14.227 %.

Factor 2: Financial Awareness

The second most important factoraccounts for 9.679 % of the variance.Three statements load high on to thisfactor. The factor includes statements suchas, like to join conversations about financialmatters, compare and calculate risk indifferent investment proposals and read thebusiness newspaper or listen to businessnews regularly. Here, the samplerespondents acknowledge that one shouldhave knowledge on financial affairs bylistening regularly to the business news anddiscussing the financial matters withexperts, therefore has been named asfinancial awareness.

Factor 3: Financial Botheration

The third noteworthy factor, with highloading of two features, has been namedas financial botheration that accounts for8.158 % of the variance. The factorincorporates the statements such as, tendto postpone my financial decisions andfinancial decisions are botheration to me.Therefore, financial botheration disclosedby the respondents confirm that they arenot fond of handling financial affairs sinceit involves spending of hard earned moneyand a wrong decision can have itsrepercussions. This may be the reason forfeeling inconvenient with respect tofinancial decisions.

Factor 4: Financial Advice

Financial advice is considered to berelatively important as the respondentsload two types of features on to this factorand they together account for 7.510 % ofvariance. This factor includes statementssuch as, believe in the advice of my familyand like to have the advice of financialexperts in managing the financial affairs.Thus, the respondents believe in takingadvice from financial expert or familymember since they wants to be doublesure before investing their hard earnedmoney.

Factor 5: Concern for Future

This is a very significant factor, whichaccounts for 6.773 % of variance. Twofeatures have been loaded on to this factori.e. care for future is essential for me and Ido not complain very often, if I have takena wrong financial decision. The factor hasbeen named as concern for future sincefuture is uncertain and the mistakendecisions will not allow you to go back toyour old days, therefore one must savesomething for future.

Factor 6: Saving Schemes

The sixth factor that surfaced fromthe factor analysis accounts for 6.275 %of the variations and has been designatedas saving schemes. The Eigen value of1.38 denotes that the factor is of moderatesignificance to the respondents. The singlestatement incorporated on this factor isrelated to investment in variety of savingschemes for future uncertainties. This

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shows that the sample respondentscontemplate over the various option ofinvesting in saving schemes as they act ascushion at the time of financial need infuture.

Factor 7: Composed Decisions:

This factor, which accounts for 5.521% of variations, is named as composeddecisions and only one out of twenty twovariables have been loaded on this factor.The Eigen value of 1.21 substantiates toconfirm that the factor is of modestimportance with regard to financialdecision aspects of the respondents. Thestatement included in this factor i.e. at theend of the day, I decide peacefully on thefinancial affairs, reveals that financialdecisions should not be takenspontaneously rather, a calm and cool mindcan assist in taking a better decision.

Factor 8: Believe in Savings:

The last factor, accounts for 4.966%of variance with a load of two statements.The two integrated statements of this factorincorporates, believe in saving a part ofmy income and special offers like sales cantempt me into buying. Consequently, it isnamed as believe in savings, because therespondents would try hard to put aside apart of their income as savings instead ofspending on dribs and drabs. Moreover,they like to make purchases from sales ata lesser price to satisfy their desires andwishes. It can be concluded from the lastfactor that respondents believe in savingsto meet their uncertain future needs.

Objective 2: To Determine theRelationship Between DemographicVariables and Factors Affecting theFinancial Decisions.

1. Effect of Gender on Factors:

Table 2.1 displays that the nullhypothesis H0 (1) is partially rejected as itdiscloses that there is a significantdifference between the views of males andfemales on five factors i.e. compulsiveshopper, financial awareness, concern forfuture, saving schemes, and composeddecision. From the descriptive analysis, itis evident that the females have assignedmore significance to the compulsiveshopper and concern for future. This maybe because the females are comparativelymore extravagant towards shopping.Further, they also assign priorities to theirconcern for future therefore, believe inmaintaining some money for uncertaintiesof the future.

On the other hand, male considerfinancial awareness, saving schemes andcomposed decisions as more significant.It is widely seen in Indian families thatmales are extra awake on financial issuesas compared to females and with theirknowledge on monetary matters, they areassigned with the responsibility investingin different saving schemes that maximizetheir income. The results also shows thatmales are more unruffled, cool, calm andcollected while taking financial decisionswhen compared with females. Thus, theperception of males and females show adiscrepancy to a large extent regarding



decision making on financial matters. Thus,it can be concluded that among samplerespondents, males pay more attentiontowards economic information andsubsequently, they make their mind oninvestment decisions on the other hand,females show their apprehensions forupcoming future needs but they do nothave curiosity in acquiring the financialknowledge

2. Effect of Age on Factors

Table 2.2 clearly states that the nullhypothesis H0 (2) is rejected as age isfound to be significantly related to thefactors financial botheration, financialadvice, concern for future, savingschemes, composed decision and income.Respondents in the age group of 45-55years were found to be leaning with factorslike financial botheration and financialadvice. The higher age group respondentsundergo a feeling of pressure andnervousness while settling on financialissues and for that purpose they tend totake the advice from experts. This isbecause the risk taking capacity declineswith the increase in age and they want tobe extra sure on their financial investments.Moreover, respondents in the age groupof above 55 are found to be highly relatedto the factor composed decision. This isagain for the reason that higher age groupinvestors are risk averse and prefer to takefinancial decision with a peaceful and calmmind. The younger respondents in the agegroup of 25-35 years feel more concernedfor future and saving schemes. This is a

noticeable wisdom of young respondentswho wish to spend apart of their incomeon variety of saving schemes as they areapprehensive for unsure future. Thus, thereis difference in the preferences of therespondents which is predominantly dueto the stage of their life cycle. The youngrespondents believe in savings and olderrespondents are risk averse and therebybelieve in expert advice.

3. Effect of Marital Status onFactors:

Table 2.3 states that the nullhypothesis H0 (3) is rejected as maritalstatus is found to be significantly relatedto the factors financial botheration, savingschemes, composed decision and believesin savings. Married respondents considersaving, composed decision and believe insavings as significant factors. This may befor the reason that married respondentshave more responsibility towards theirfamily and are more worried about theirfuture protection, which can be fulfilledthrough investment in saving schemes.Additionally, they would like to takefinancial decisions with a peaceful state ofmind which can explore the pros and consof the investment decisions. At the sametime, the unmarried respondents are moreliable for only one factor i.e. financialbotheration as, they are too young to thinkabout savings. Besides, they are eitherstudent or in the early stage of career,where they don’t have much money tosave and whatever they earn they tend tospend that amount.

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4. Effect of Occupation on Factors:

The results of one way ANOVA(Table 2.4) reveals that the null hypothesisH0 (4) is partially rejected as occupationhas a considerable impact regardingperception of the respondents on theirbehavior relating to financial matters. Itcan be observed from the result that sixfactors i.e. compulsive shopper, financialbotheration, financial advice, savingschemes, believes in savings and incomehave significant relationship with differenttypes of occupations. The descriptiveanalysis confirms that the respondentshaving business have higher agreementfor compulsive shopper. This may be dueto the higher disposable income on thepart of business and self-employedrespondents. These respondents love tohandle financial affairs and do not bothertheir expenses. The respondents falling inthe category of professionals revealfinancial advice and believe in savings asmore important factors. This highlightsabout the traits of professionalrespondents in view of the fact that, theyassign priority in keeping some moneyaside from their income as savings andalso believe in obtaining advice onfinancial matters before investing theirhard earned money. They know that thefinancial decisions are irrevocable,therefore should be taken with a cautiousadvice. Similarly, the respondents in theservice category also relate themselvesmore towards saving schemes andincome. The service class respondentsalso have similar approach on financial

matters as that of professionals becausethey also consider it important to havesome investment in different savingschemes. The category others includestudents, housewives and retired peoplewho think decisions on financial issues asbotheration and for that reason they tendto postpone the financial matters. Theserespondents undergo hassles whilechoosing a correct course of action onfinancial matters. The combined resultsare also depicted in summary results ofANOVA (Table 2.5) highlighting therelation between demographic variablesand derived factors.

Conclusion:

The present study is an effort toanalyze the individuals’ behaviorregarding routine decisions on financialaffairs and also the influence ofdemographic variables on the derivedfactors. The study uses the analytical toolsof Factor analysis and one way ANOVA,to accomplish the purpose of the study.The results revealed through Factoranalysis explains that the twenty twostatements used to measure the financialdecision making behavior of individualswere reduced to eight factors i.e.compulsive shopper, financial awareness,financial botheration, financial advice,concern for future, saving schemes,composed decision and believes insavings. The general disclosure about thefinancial behavior of sample respondentsthrough the factor analysis enlightensabout the financial awareness of



respondents on financial matters and theydo not hesitate in taking views fromfinancial experts and from member oftheir family. The respondents also revealtheir worry for future and for that theybelieve in savings and have a tendency toinvest in a range of saving schemes.However, the respondents regard thefinancial decision making as botherationand for that reason, they believe in takingthese decisions with a poised mind.Further, the results revealed by one wayANOVA discloses that gender, age,marriage and occupation of therespondents have significant impact on thefactors regarding everyday decision onfinancial matters. Moreover, the savingschemes are the most important factor asit is found to be significantly related to allthe demographic variables. This isfollowed by the factors composeddecisions which is significantly differentacross gender, age and marital status.Moreover, financial botheration is alsosignificantly different across threedemographic variables i.e. age, maritalstatus and occupation. On the other hand,compulsive shopper, financial advice,concern for future, believes in savings andincomes are significant only for twodemographic variables. Financialawareness is the factor that is found tobe significant only for gender.

Thus, the study highlights the factorswhich need to be emphasized concerningthe behavioral decision pattern as regardsto financial matters. Moreover, itbecomes pertinent to give due weightage

to those factors, which have theirrelevance with respect to demographiccharacteristics of sample respondents.

References:

Barber, Brad M., Odean, Terrance andZhu, Ning. (2009). Systematic Noise.Journal of Financial Markets, 12,547-569.

Barberis, N. and Thaler, R. H. (2003).A Survey of Behavioral Finance. inGeorge Constantinides, Milton Harris,Rene Stulz, (Eds.) Handbook of theEconomics of Finance, (Amsterdam:North-Holland). pp. 1053-1123

Barnea, Amir, Henrik Cronqvist, andStephan Siegel (2010). Nature orNurture: What determines investorbehavior?. Journal of FinancialEconomics, 98 (3), 583-604.

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Table 1.1: KMO and Bartlett’s TestKaiser-Meyer-Olkin Measure of Sampling Adequacy 0.532Bartlett’s Test of Sphericity Approx. Chi-Square 1225.729

df 231Sig. 0.000

Table 1.2: RELIABILITY STATISTICSCronbach’s Alpha 0.629No. of Items 22



Table 1.3: FACTOR NAMES AND THEIR LOADINGSSl. Name of Statements Factor Cronbach Eigen % ofNo. Factor Loading Alpha Values Variance1. Compulsive A12: I am not able to keep 0.795 0.679 3.130 14.227

Shopper (F1) some money away for arainy day

2. A15: My expenses exceed 0.736my income some time

3. A13: I spend most of the 0.578part of my income

4. A14: I believe in taking loans 0.562to meet my requirements

5. A4: I love to handle financial 0.321 *and money affairs

6. Financial A9: I like to join conversations 0.718 0.670 2.129 9.679Awareness (F2) about financial matters

7. A6: I compare and calculate 0.695risk in different investmentproposals

8. A8: I read the business 0.647newspaper or listen tobusiness news regularly

9. Financial A3: I tend to postpone my 0.727 0.555 1.795 8.158Botheration (F3) financial decisions

10. A1: I think financial decisions 0.724are botheration to me

11. A10: Even on large purchases, 0.386*I tend to spend spontaneously

12. Financial A21: I believe in the advice of 0.734 0.352 1.652 7.510Advice(F4) my family

13. A2: I like to have the advise of 0.715financial experts in managingmy financial affairs

14. A5: After making a decision, 0.055*I am anxious whether I wasright or wrong

15. Concern For A18: To care for future is 0.809 0.345 1.490 6.773Future(F5) essential for me

16. A11: I do not complain very 0.589often, if I have taken a wrongfinancial decision

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17. Saving A19: I have invested in variety 0.841 0.355 1.380 6.275schemes(F6) of saving schemes for future

uncertainties18. A22: I will postpone the 0.331*

purchase decision if I do nothave sufficient money to buy it.

19. Composed A7: At the end of the day, 0.775 1.215 5.521Decision (F7) I decide peacefully on financial

affairs20. Believe in A16: I believe in saving a part 0.725 0.306 1.093 4.966

Savings(F8) of my income21. A17: Special offers like sales 0.662

can entice me into buying22. Income(F9) A20: My family advises me to 0.251* 1.083 4.923

save a part of my income

* represents the statements dropped due to factor loading less than 0.40Five statements i.e. A4, A10, A5, A22, A20 have been deleted due to factor loading less than 0.4.

Table 2: Summary Results of ANOVA

Factors Gender Age Marital Status OccupationCompulsive Shopper × ×

Financial Awareness × × ×Financial Botheration ×

Financial Advice × ×

Concern For Future × ×Saving Schemes

Composed Decision ×Believes in Savings × ×

Income × ×

() represents significant relation at 1% and 5% level of significance



Corporate Restructuring:Causes, Measurement Methods and Effects

Raju L HyderabadPost-Graduate Department of Studies in Commerce

Karnatak University, Dharwad – [email protected]

AbstractCorporate restructuring has been a very popular strategy for reinvigorating firmsthe world over. Highly diversified, poorly performing firms are using the strategy torestructure activities and unlock the hidden value. Against this background, itbecomes pertinent to analyse the motives or reasons for the use of corporaterestructuring by firms and empirical evidence relating thereto. The present paperaims to review the existing literature on causes, effects and measurement methodsfollowed in evaluating the performance of restructured firms. Restructuring is viewedas process of unlocking the hidden value. Consequently, firms aim to improve themarket valuation and financial performance.

Though there are both short-run and long-run methods of analyzing the performanceof restructured firms the long-run methods are considered to be desirable in view ofthe fact that the benefits of restructuring are realized in the long-run rather than theshort-run. The extent of benefits realized depends on the method of restructuringemployed and the intensity with which the method is employed or used. In India,though several firms have employed restructuring methods, there exists no exhaustivestudy analyzing the performance of restructured firms for want of suitable data bases.

Keywords: Restructuring, Wealth Effects, Regulatory Shocks, Measurement.

Introduction

Corporate restructuring has been thewidely used strategy to rid the business ofvarious afflictions inflicting the body fabricor to reorient and rejig the activities toemerge as a new entity. It has become acommon event in the professional lives ofmanagers. Since 1980, more than a trillionUS dollars have been spent by companiesfor restructuring, either in or out of court(Gilson 1998). Numerous firms havereorganized their divisions, streamlined

their operations, and spun-off theirdivisions (Bowman, et al. 1999). Lewis(1990) estimates that ‘nearly half of largeU.S. corporations have “restructured” inthe 1980s.’ Similarly, a special report oncorporate restructuring published in theWall Street Journal (1985) found that outof the 850 of ‘North America’s largestcorporations,’ 398 (47%) of themrestructured (Markides, 1995).According to a study by the HarvardBusiness School corporate restructuring

109Corporate restructuring: Causes, measurement methods and effects

has enabled thousands of organizationsaround the world to respond more quicklyand effectively to new opportunities andunexpected pressures, thereby re-establishing their competitive advantage.

In view of this increased reliance onthis strategy, it becomes pertinent toidentify the concept and its value creatingproperties. From where do restructuringcreates benefits and how to measure thesebenefits? Do all forms equally valuable?What are the measurement approachesand how reliable those measurementapproaches? An attempt has been madein this paper to find explicable answers tosome of these issues.

Concept of Restructuring

Jensen and Meckling (1976) arguethat a company can be viewed as acollection of contracting relationship amongindividuals - a nexus of contracts. Thesecontracts are what make it possible for thecompany to conduct business. The partiesto these contracts include shareholders,creditors, managers, employees, suppliersand customers - in other words, anyonewho has a claim on the firm’s profits andcash flows. Restructuring is a process bywhich firms change these contracts (Gilson,2010). Firms restructure to overcomesome of these market imperfections,rigidities, or in-built inefficiencies crept invarious contracts. The objective is toemerge out of suffocating environment andhave more focused and stronger firms.

Corporate restructuring is an all-inclusive term which indicates all that a

business firm does to regain its competitiveadvantage. Crum & Goldberg (1998)define restructuring of a company as “aset of discrete decisive measures taken inorder to increase the competitiveness ofthe enterprise and thereby to enhance itsvalue”. It is a set of measures rather than asingle measure. One action does not makecorporate restructuring just like a fattyperson starving for a day to reduce hisweight. The measures are discrete in thesense that each measure is separate anddistinct from the other. Each measure aimsat a particular advantage. Further, themeasures are decisive in the sense that theyare used for a definite purpose andmanagement is conscious of why it is using.The restructuring has a specific goal orpurpose – the goal of increasing thecompetitiveness of the enterprise throughunlocking the hidden value.

Venkiteswaran (1997) definesrestructuring as a significant reorientationor realignment of the investment (assets)and/or financing (liabilities) structure of acompany through conscious managementaction with a view to drastically alter thequality and quantum of its future cash flowstreams. Small changes do not constituterestructuring activities. Actions undertakenare significant. Besides, they significantlyreorient firms existing operations. Theactions undertaken affect either or bothside of the balance sheet, i.e., asset-sideand liabilities-side. Measures likeexpansion or divestitures or sale of assetsaffect only the assets side of the balancesheet as sale of assets is offset by the receipt


of the cash. Conversion of debt into equityor short-term debt into long-term debtaffects only the left-hand side of thebalance sheet. On the other hand, debtredemption or buyback of shares affectboth sides of the balance sheet.

Reasons for Corporate Restructuring

There are many reasons as to whyfirms restructure their operations. Besidespoor operating performance promptingfirms to restructure activities, even afinancially sound firm can restructure topreempt surprises overtaking it. Manysuccessful companies undergo frequentrestructurings to improve their overallefficiency (Herz and Abahoonie 1992).According to Brickley and Drunen (1990)poorly organized firms are motivated bymarket pressures to change theirorganizations. Change also occurs inhealthy firms as part of the growth process.Restructuring often occurs where there isno evidence of takeover threats. Economicshocks to the corporate environment mightgive rise to several organizationalinefficiencies. This has recently beenoccurred during the credit crisis when manyfirms in Europe tend to restructure theirbusinesses to a more ‘back to basics’approach to become more transparent forits stakeholders (Cockshott and Zachariah,2010). Peel (1995) opines that although thestrategic motives underpinning anyparticular restructuring transaction may becomplex and varied and concludes thatcompanies may be at least partly respondingto a common set of environmental/macrofactors. The economy-wide variables, such

as deregulation of markets and increasingglobal competition are associated withstrategic change and corporaterestructuring.

Restructuring activity is generallyassociated with three motivations in theacademic literature, namely (i) to addresspoor performance; (ii) to exploit strategicopportunities and (iii) to correct valuationerrors (Reneboog and Szilagyi, 2006).Similarly Smart and Waldfogel (1994)opine that firms that are experiencingunusually low current performance may bemore likely than other firms to restructure.As a precautionary measure, such firmsrealign or rejig their activities on an on-going basis so that the value does not desertthem. John et al. (1992) and Kang andShivdasani (1997) find that firms respondto financial distress using predominantlycontraction policies, which refers primarilyto asset sales, divestitures, spin-offs,employment reduction and emphasis oncore business. Kang and Shivdasani(1997) document restructuring of 92Japanese corporations that experienced asubstantial decline in operatingperformance between 1986 and 1990.

Lang et al. (1995) argue that firms’restructure when raising funds on thecapital markets is too expensive becauseof high leverage and/or poor performance.They find 26% of sample firms divestingtheir subsidiaries for poor operatingresults. Many studies also examine firmsrestructuring in response to financialdistress (Berger and Ofek 1999, Atiaseet al. 2004, Faccio and Sengupta 2006).

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Brown et al., (1994) found that firms thathad either defaulted or anticipated default,divest business units to improve overallperformance and generate funds.

Pattnaik (2005) provides twoexplanations for US firms’ restructuringdecisions in the form of asset sales. Theenvironmental explanation posits that therise in corporate restructuring in the U.S.was due to changes in the regulatory andcompetitive environment, e.g.,government antitrust and tax policies,monitoring and discipline from externalcapital markets through acquisition threats,and increases in competition leading to risein corporate restructuring. In contrast, thefinancing hypothesis of asset sales, whichis based on agency theory, argues thatmanagers value firm size and control.Contrary to efficiency gains, managerialmotivation in this case is to sell assets inorder to survive the credit crunch. Underthis theory, managers sell assets to obtainfunds when alternative sources of financingare too expensive due to agency cost ofdebt or information asymmetry, whichmakes equity sales unattractive

Thus, in general, the following can beidentified as reasons for restructuringacross business enterprises:

Change in legal environment affectingbusiness enterprises, as in the case ofnatural gas sector in India. ThePetroleum and Natural Gas RegulatoryBoard wants gas utilities like GAIL toseparate gas transportation andmarketing businesses.

Restructuring may be resorted toreorient or refocus a firm’s activitieson core activities. This is generallytermed as ‘refocusing’ strategy. Firmswith wide diversification resorted tothis practice in 1980s and 1990s. Itis generally said that a diversified firmtrades at a discount, known as‘diversification discount.’ Berger andOfek (1995) and Lang and Stulz(1994) shows that diversified USfirms trade at a significant discountrelative to specialized firms. A widerange of diversified firms restructuredthemselves in the late 1990s bydivesting business units (Fukui andUshijima, 2007). According toMerkides (1995) a significantproportion of major diversified firmin the U.S. have reduced theirdiversification in the 1980s byrefocusing on their core businesses.

Competitive pressures may unleashrestructuring measures across diversefirms as mergers, divestitures, spin-offs, etc. Ekholm et al (2011) examinethe impact of a sharp real appreciationof the Norwegian Krone in the early2000s on Norwegian manufacturingfirms. A change in the real exchangerate affects a firm’s export sales,purchases of imported inputs andimport competition faced in thedomestic market. Both net exportersand import-competing firms wereexposed to increased competitiondue to the real appreciation. Bothgroups reacted by shedding labor.

Corporate restructuring: Causes, measurement methods and effects


To unlock hidden value as too manybusinesses may make it difficult forinvestors or market to value thebusiness. This was realized by the ZeeTelefilms Ltd when it restructured itsbusinesses in response to investors’concerns that Zee had too manybusinesses under one company,making it hard to evaluate theirprospects, and Zee hoped to attractmore investment in the different unitsto fund their growth.

Emergence of new technology couldalso lead to restructuring ofbusinesses. The emergence of newtechnology has severely dented theperformance of banks and they havebeen forced to restructure in the formof downsizing, focus on customerscare, restructure of non-performingloans, etc. Cefis and Marsili (2012)examine the impact of innovation inproduct and processes on firms’M&A activities and restructuringactivities for Dutch manufacturingfirms. They find that firms whichinnovate more are less likely to beforced to close down their activities.This effect persists for a number ofyears after the achievement of theinnovation, and is independent of thetype of innovation. Further, innovativefirms are less likely to engage inradical restructuring, whichrepresents an exit of the firm in itscurrent identify.

Lower or poor valuations may promptfirms to restructure their activities and

improve market valuations. Firmsmay use buyback options to propelmarket prices or may announcedownsizing, cost cutting measures,etc. In India, Bata India Limitedcompleted series of restructuringmeasures to improve marketvaluations. Such actions includeddirect marketing, debt-restructuring,introduction of new variety offootwear, etc. Denis and Kruse(2000) observe incidence ofdisciplinary events that reduce thecontrol of current managers, andcorporate restructuring among firmsexperiencing a large decline inoperating performance. Roland andSekkat (2010) argue that careerconcerns among managers in poorlyperforming firms’ leads to adoptionof restructuring strategies. Generallymanagers would lose their job if firmsbecome takeover targets or if activegovernance mechanisms areactivated. The study viewsrestructuring as resulting only frommanagerial effort and call it defensiverestructuring rather than strategicrestructuring.

Restructuring activities may bepursued by acquiring firms as a partof value maximizing strategy in post-merger period. Firms with greaterpotential but low current valuationsmight be acquired and restructuredsubsequently to weed out waste andunlock the hidden value.Maksimovic et al (2011) find for US

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acquirers pursuing a vigorousrestructuring that involved a significantnumber of sell-offs and closures ofthe target firm’s assets. Within threeyears, firms sold or closed 46% ofthe plants they had purchased viawhole-firm acquisitions or mergers.The extent of this restructuring farexceeded benchmarks based onindustry/year matched firms or assetsin partial-firm acquisitions.

Bandrowski (1991) cite the followingeight reasons for restructuring bycompanies:1. To sustain the growth and financial

performance,

2. To get back to the core,3. Because of poor prospects for the

core business,4. Because of shifts in markets or

technology,5. Due to a volume or profits shortfall,6. To accomplish equity carve-outs,7. To achieve break-up value, and8. In leverage buy outs.

A survey undertaken by the Japan Institutefor Labour Policy and Training (JILPT) of1683 Japanese companies concerning thereasons for corporate restructuring revealsvarious reasons for restructuring. Table -1 shows details:

Table – 1: Reasons for Corporate Restructuring as per surveySl. No Reasons for Corporate Restructuring % of Cos1 Increasingly fierce domestic competition 84.4%2 Maturing markets and stagnant demand 73.6%3 Increased burden of long-term obligations related to employment 48.0%4 Advances in technological innovation 37.6%5 Problems with human resource procurement inside the company 32.2%6 Changes in accounting standards 29.5%7 Increasingly fierce competition with companies overseas 24.8%8 Changes in funds procurement 20.3%9 More frequent corporate mergers and acquisitions 15.6%10 Changes in corporate governance 13.5%

Total Number of Companies Surveyed 1683Source: www.jil.go.jp/english/laborinfo/library/.../sr_restructuring(co).pdf

A perusal of the table shows that‘increasingly fierce domestic competition’and ‘maturing markets and stagnantdemand’ in Japan are two majorcompelling reasons for restructuring.

24.8% of companies restructure due to‘competition from overseas players’ while15.6% have undertaken restructuring toundo frequent M&A activities, i.e., to undodiversification strategy. Industry analysis



also indicates that the ‘increasingly fiercedomestic competition’ as a major factor.For all industries except the informationservice industry and the personal servicesindustries, ‘maturing markets and stagnantdemand’ were the second biggest factor.

Does corporate restructuring createvalue?

Restructuring should createshareholders’ value. In other words, itshould benefit the shareholders.Otherwise, there is no meaning in carryingout the restructuring exercise. In fact, it isdefined as a process of unlocking thehidden value. The classic motivation forcorporate restructuring is to redeploy thefirm’s assets to higher valued uses.Anslinger et al. (1999) argue thatcompanies that elect to restructure usuallyhave one goal in mind – creating value forshareholders. As long as the restructuringimproves the firm’s operating performanceand increases its post-transaction cash flowand debt servicing ability, it creates valuefor both shareholders and creditors(Renneboog and Szilgayi, 2008). The WallStreet Journal, in its report on 11/24/1994,states that ‘investors love restructuringsbecause following a jumbo charge, acompany’s profit nearly always improvessharply (Webb et al., 2005). Brickley andDrunen (1990) find that stock pricesincrease at restructuring announcements.The primary explanation proposed forthese price increases is that restructuringannouncements convey favorableinformation to investors on firms’ efficiencyprospects.

More specifically, restructuringcreates value when value of a firm in post-restructuring period is greater than the valuein pre-restructuring period. Symbolically,

How does restructuring create value?Value is defined as discounted value andis created by improving significantly thequantum, quality and timing of cash flowsgenerated and by reducing the riskperception of investors. Symbolically, it isgiven by:

Where

However, the benefits of restructuringare not immediate and are realized over alonger period of time. Hence, whilemeasuring the benefits of restructuring alonger time frame has to be consideredrather than the immediate short-run period.Further, long-run period should besubstantial enough for the restructuringstrategy to demonstrate the wealth effects.Generally a period ranging from three tofive years is taken for computing the wealtheffects. Because restructurings aregenerally implemented over a one to twoyear time period, efficiency improvementspromised by management may not berealized until the plan is fully implemented,which may be several years subsequent

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to the restructuring announcement (Webbet al, 2005).

Potential Sources of Value Creation

From where does restructuringexercise derive its benefits? The basicpurpose of restructuring is to altersignificantly the quantum and quality ofcash flows of a firm. Value increases whenfirm increases the amount of existing cashflows and also reduces the unsystematicvariability of the cash flows. The increasedflow of information, as a result of improvedcorporate focus, reduces the extent ofinformation asymmetry and makes holdersof stock to value the company using alower discount rate. The sources of valuecreation depend on the method ofrestructuring followed and the intensity withwhich the strategy is adopted. Some ofthe benefits of restructuring are quantitativeand some are qualitative. Some of thebenefits are realized in the short-run whilethe others over a period of time. In view ofthese reasons, it can be said here that it goesvery difficult to project all the benefits. Anelement of uncertainty enters the processof predicting the cash flows. Significantsources of restructuring benefits are: Reduction in reported cash losses due

to sale of loss-making divisions,segments, etc

Acquisition of related businesses andstrengthening the core competencylevels

Savings in labour cost on account ofreducing the labour force andrevamping HR policies

Reduction in rejection rate andreworks cost

Reduction in interest burden throughappropriate debt recast measures

Reduction in management expensesthrough a process of portfoliorestructuring

Savings in servicing costs on accountof share buyback method

Greater ability to raise larger funds withminimum flotation costs

Improved industrial relations Improvement in relations with

suppliers, bankers, customers andgeneral public at large

Focused approach resulting in clearvision and mission statements

A responsive organizational structure Improvement in performance of

divisions, segments, etc., spun off asseparate firms

Greater flow of information to marketand improving the valuations

Schipper and Smith (1983) claim thatvalue creation may come fromenhanced managerial efficiency as wellas from tax and regulatory benefits

D’Souza et al (2001) analyse theeffect of privatisation on the performanceusing a sample of 118 firms selected from29 countries and 28 industries. They findsignificant increases in profitability,efficiency, output and capital expenditure.The study identifies three potentialsources of value increases in privatisationdecisions:



1. Privatisation subjects managers to thepressure of the financial markets andto the monitoring and discipline ofprofit-oriented investors. Use ofpublicly traded stock as performance-based compensation method wouldalso incentivize managers.

2. The change in the firm’s ownershipredefines the firm’s objectives and themanagers’ incentives.

3. Privatisation releases firm fromgovernment control and providesgreater entrepreneurial opportunitiesincluding freedom to borrow atcompetitive rates from the market.

Measurement of benefits ofrestructuring

An accurate measure of the effect ofrestructuring on firm performance isimportant because it sheds light onorganizational efficiency (Smart andWaldfogel, 1994). Scientific literature doesnot present a single methodology forestimation of restructuring impact on valueof a company and its performance results(Stankeviciene, 2012). The empiricalworks have developed two methods ofmeasuring the post-restructuringperformance. Bowman et al (1999)identify two distinct methods of computingthe gains involved in restructuring: Operating or accounting performance Market performance

In an operating performanceapproach, the effects of restructuring areidentified by comparing the changes in pre

and post-restructuring operating profits orby changes in financial parameters likereturn on equity and return on capitalemployed. Analyzing the firm’s net cashflow (which is influenced by increasingrevenues and cost reduction) the increasein shareholder value can be quantified(Brickley et al, 2003). This method ofmeasuring the shareholder value is alsosupported by Hailemariam (2001) andJohnson (2002), who state thatshareholder value is created when thereturn on investment is improved byincreasing cash inflows and reducing risks.Beside traditional financial measures ofperformance other methods which usefinancial information are cash flowmethods, value based methods and cashflow return on investments (Stankeviciene,2012).

Atiase et al. (2004) examine theoperating performance of 212 restructuringusing return on equity and profit margin astheir primary measures of operatingperformance. Jin et al (2004) examinedthe impact of restructuring on theoperational aspects of the publicly tradedfirms in China and used changes in revenue,profit margin, return on assets and the totalturnover ratio before and after restructuringas proxies for firm performance andconducted tests to determine whetherrestructuring resulted in significant changes.

Under market performance theabnormal movements in the firm’s stockprice in the days after a restructuringannouncement are computed. Thesechanges in returns are adjusted for market

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-wide returns or for returns earned bycontrol firms (firms of equal size andprofitability in the same industry notcarrying out any restructuring). There areboth short-term and long-term pricemovement methods. The short-termmethods capture the effect ofannouncement of restructuring plans onshare prices and compute abnormal eventreturns. Since all returns involved inrestructuring decisions are not immediate,long-run performance measures have beendeveloped to gauge the long-run pricebehaviour. Long-run measure, buy-and-hold abnormal return, Fama-FrenchCalendar Year approach, etc., are someof the methods used.

Josien (1995) argues against the useof market data. According to him, the‘balanced stakeholders’ view isincompatible with stock market data, sincethese data do not represent the interestsof other stakeholders. Restructuring affectsmore stakeholders than only theshareholders. Some of the studies employeither of these measures to study theeffects while some examine bothaccounting market-based performancemeasures.

There are several studies which haveemployed both the measures of evaluatingrestructuring effects. Brickley and Drunen(1990) and Kross et al (1998) study theimpact of restructuring announcement onshort-period returns; both studiestangentially examine accounting measureof post-restructure operating performance.Brickley and Drunen (1990) measure

operating performance as the industry-andmarket-adjusted return on equity for theseven years surrounding the restructuringyear. Kross et al (1998) measureoperating performance as return on assets.

Do these measures of evaluating thepost-restructuring performance arescientific? A word of advice is suggestedby Smart and Waldfogel (1994) in thisregard. The authors argue that the relevantbenchmark against which post-reorganization performance should bemeasured is not necessarily pre-organization performance. Firms that areexperiencing unusually low currentperformance may be more likely than otherfirms to restructure. Simply calculating pre-and post-reorganization performancechanges may overstate the effect of thereorganization. Another measure, knownas a ‘difference in differences’ involvescomparing the performance at therestructuring firm with that of control firm,similar size and characteristic firm whichhas not done any form of restructuring. Thechief shortcoming of this approach lies inits assumption that, if not for therestructuring, the reorganizing firm wouldhave experienced the same change inperformance as its competitors. Thedifficulties in accepting this measure is thatthe restructuring firms are a non-randomsample of firms, the reason forrestructuring may depend on past andfuture performance, difference in theperformance levels of different firms beingat different levels relative to other firms,etc. The performance measure should be



good enough to recognize all thesefundamental flaws in different measures ofperformance.

Wealth Effects and Empirical Evidence

Several studies have been carried outover the wealth effects of restructuringannouncements. As far as the wealtheffects of restructuring are concerned, theempirical evidence is not clear. If onewanted to make a broad generalizationabout state of the literature, however, itwould be to suggest that restructuringannouncements generally produce smallbut significant increases in returns, at leastin the US market (Beason, et al., 2008).Black and Grundfest (1988) find Americancorporations creating roughly $162 billionof shareholder value within only five yearsof restructuring. Analysing the effect ofrestructuring actions of Japanese firms forthe period 2000-2001, Beason et al(2008) find that firms announcingrestructuring programs experiencesignificant improvement in operatingearnings in the following year as well as inthe second year following theannouncement. Kinai W M (2012) in hisstudy on impact of corporate restructuringon the shareholder value of Nairobi StockExchange listed companies observed thatin a majority of the restructured companies,net cash flow, earnings per share, dividendsper share, and market price per share hadimproved. This implied that restructuringcontributed to the improvement in financialperformance and enhancement ofshareholder value. Further it was found thatthere existed a relatively strong positive

correlation/association between earningsper share and market price per share, andalso between dividends per share andmarket price per share.

Jin et al (2004) examined the impactof restructuring on the operational aspectsof the publicly traded firms in China. Theyused changes in revenue, profit margin,return on assets and the total turnover ratiousing before and after methodology. Theirstudy showed that there were significantimprovements in total revenue, profit marginand return on assets following restructuringsbut there was no evidence of any significantimpact on asset turnover ratio. Yawson(2009) studied the effect of restructuringdecisions on profits of sample Australianfirms experiencing significant declines inoperating performance. These firmsexperience significant gains in operatingperformance in each of the first 3 yearsfollowing the restructuring. These changeswere significant even after controlling forfirms matched by size and industry.

However, contrasting evidence is alsoavailable. A recent American ManagementAssociation survey concludes that profitsrose for only 51% of the companies thatdownsized between 1989 and 1994 andthat only 34% reported an increase inproductivity (Webb et al, 2005). Webbet al (2005) after incorporating a set ofmethodological enhancements designed toprovide reliable evidence related to thelong-term impact of operationalrestructurings finds that median profitmargin, return on equity, return on assets,asset turnover and operating margin relative

119

to non-restructuring control firms is eithersignificantly negative or insignificant for allfive post-restructure years.

Forms of restructuring and wealthcreation

The literature distinguishes threedifferent types of transactions,encompassing multiple forms of change infirm organization (Stewart and Glassman,1988; Bowman and Singh, 1993; Gibbs,1993). Portfolio restructuring makesdisposals from and additions to a firm’sbusinesses, through asset sales, spin-offs,equity carve-outs or mergers andacquisitions (M&As). Financialrestructuring changes the firm’s capitalstructure e.g. through leveraged buy-outs(LBOs), recapitalizations (LRs), sharerepurchases, or employee stockownership plans (ESOPs). Finally,

organizational restructuring, representsa change from a functional to a business-unit design. These restructurings oftenoccur simultaneously or sequentially.

All forms of restructuring are notnecessarily equally profitable. The wealtheffects could vary across various forms.Further, two firms using the samerestructuring measures need not generatethe same amount of wealth. The wealthcreation can vary from firm to firmdepending on factors like nature of thefirm, size, profitability status, intensity inimplementation, etc. Bowman et al (1999)analyse the impact of financial, portfolioand organizational restructuring strategiesby taking into account the number ofstudies estimating the impact. Table 2shows the average impact of restructuringon company performance:

Table 2: Average Impact of Restructuring on Company PerformanceType of Mean Percentage Median Percent Number Averagerestructuring Performance Percent Positive of Sample

Improvement Performance Means studies SizePortfolio 5.6 2.9 86 21 154Financial 37.5 24.5 86 27 35Organizational -0.21 0.1 50 4 207Portfolio and Organisational 2.7 0.7 81 10 NA

Source: Bowman et al., “When Does Restructuring Improve Economic Performance,” CaliforniaManagement Review, 41 (2) 33-54, January, 1999.

The financial restructuring has thestrongest positive returns, in large partdue to the higher returns reported instudies of leveraged buyouts andmanagement buyouts. Debt for equityswaps and other forms of financial

restructuring are associated withconsiderably more modest returns andshow negative values in some cases.Portfolio restructuring displays the nexthighest returns. Organizationalrestructuring exhibits the least impact.



The third column of the table showsthe proportions of the studies that reportpositive means. It indicates that financialand portfolio restructuring studies displayhigher proportions of positive returns thanorganizational restructuring. In five out ofsix cases (86%) of financial and portfoliorestructuring, the impact on performanceis positive. In only half of the cases oforganizational restructuring, however, theimpact is positive.

More specifically, retrenchmentactions are followed by improvements inoperating performance, while expansionactions are not. Financial restructuringsalso result in performance improvements.These results are robust to outliers andindustry adjustments. When we controlfor other firm characteristics, as well asfor the performance change for non-announcing firms, the results foremployment changes and internalreorganizations remain significant,although the performance improvementfor contraction-type reorganizations areno longer significant (Bowman etal,1999).

Yawson (2009) studied theinteraction effects of financial and othercorporate restructuring decisionsundertaken by a sample of performancedeclining Australian firms. The studyprovides evidence that revenue growth,debt restructuring and cost cutting areessential strategies for poorly performingfirms to achieve turnaround. Assetcontraction policies and forced CEO

turnovers also increase the likelihood ofperformance improvement. When firmsexpanding assets cut dividend paymentsat the same time, they experienceimprovement in operating performance.Further evidence revealed that newCEOs who are able to pursue debtrestructuring policies are more likely toachieve a turnaround.

Defining refocusing firm as onewhich divests at least 10% of its assetbase or a firm which reduces the numberof industries in which it is competing bymore than two, Merkides (1995)analyses the performance of refocusingfirms in US. He finds that over-diversified firm by using refocusingstrategy improves the overallprofitability. Eckbo and Thorburn (2008)survey the empirical literature oncorporate breakup transactions,leveraged recapitalizations, andleveraged buyouts (LBOs). Theempirical evidence shows that the typicalrestructuring creates substantial value forshareholders. The value-drivers includeelimination of costly cross-subsidizationscharacterizing internal capital markets,reductions in financing costs forsubsidiaries through asset securitizationand increased divisional transparency,improved investment programs,reduction in agency costs of free cashflow, implementation of executivecompensation schemes with greater pay-performance sensitivity, and increasedmonitoring by lenders and LBOsponsors.

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Corporate Restructuring Exercises inIndian Companies

Corporate restructuring activities inIndia are on the rise. Firms across sectorsare using one or other forms of corporaterestructuring. Mergers, downsizing,management, organizational, portfolio,financial, debt, ownership restructuringstrategies, etc., are used extensively toregain the competitive advantage lost inprevious controlled regime. The otherreasons for restructuring are to keep atbay the potential cash rich MNCs, Indianfirms, etc., from making hostile takeoverattempts.

However, there is no authenticsource of data available relating to slewof restructuring measures undertaken byCorporate India. This could be onereason why there are no or limitedstudies undertaken in evaluating thewealth effects of restructuring measures.Most of the studies pertain to mergersand acquisitions and analyse eitherannouncement returns or post-mergerfinancial performance. Baumik andSelarka (2008) analyse the impact ofM&A on firm performance in Indiawhere nearly 70% of firms are familycontrolled and where most of the familycontrolled firms are part of largerbusiness groups. On average, M&A inIndia results in reduction in firmperformance. Rajeshkumar andPanneerselvam (2009) analyse theannouncement returns from the point of

view of acquiring and target firmsemploying a sample of 252 acquirer and58 target firms involved in acquisitions,and 165 acquirer and 18 target firmsinvolved in mergers for the period 1998-2006. The study finds that mergerscreate more benefits for target firmshareholders than for acquiring firms.The 3-day CAR is 10.3% for target firmsas against 1.79% for acquiring firminvestors. On the other hand, under theacquisition situation the gains are limitedto both types of firms: the 3-day CARbeing 1.15% for acquirer and 0.07% fortarget firms.

Gautam (2012) analyses 325 assetsales by 282 firms manufacturing firmsin India for 1996-2008 period. Besidesfinding characteristics of firms sellingassets, the study finds no improvementin profitability, solvency or operations inpost-asset sale period. It can be saidhere that this particular area is a fertileresearch area for future researchers. Acritical review of reasons, methods andeffects of restructuring strategies ofIndian firms is called for to germinatenew inputs and insights into therestructuring phenomena.

An attempt has been made here tolist out some of the significant restructuringundertaken by Indian firms. Theinformation was collated from severalprint and electronic media for severalyears. Table 3 summarises some suchcollections:



Table – 3: Forms of Restructuring Adopted by Selected Indian CompaniesName of the Type of Restructuring adopted Year ofCompany RestructuringBata India Brand Repositioning 2009

Operational 1998Financial 2007Marketing 2009Portfolio 1997Technological & Manpower 2005

SAIL Financial, Debt & Manpower 2000Wockhardt Debt restructuring 2009Suzlon Energy Ltd Debt Restructuring 2012Infosys Management 2011L&T Split into nine independent verticals 2012Vedanta Resource Merge Sterlite Industries & Sesa Goa; Vedanta 2012

stake in VAL and Malco to be transferred to Sesa GoaCairn India to become subsidiary of Sesa Sterlite

Aditya Birla Nuvo Management, Portfolio, etc (acquisition of Pantaloon) 2012Spin-Off (financial services businesses)

Asian Paints Spin-Offs – Decorative India, Decorative 2012International and Chemical Business – 3 SBUs

Tata Steel Divestitures (Cement Division) 2010-11Manpower Restructuring (VRS)Asset Sale 2011

Grasim Demerger – Cement division into separate businessBajaj Auto Demerger – four companies 2010

Downsizing 2012Tata Consultancy Manpower restructuring/downsizing 2012ServicesCoal India Ltd Downsizing (20,000 employees) 2012Sun Pharma Spin-off its domestic formulation business 2012Dabur India Spins off its retail business into a separate unit – 2012

H&B Stores

Conclusion:

The rapid changes in the externalenvironment, a very volatile and vulnerablebusiness cycle, as well as changes in

technology, capital structure and increasedglobal competition have createdrevolutionary changes in management.Organizations are repeatedly challenged to

123

modify their strategies and reorganize andstreamline their business to satisfy theirshareholders and to enable theircompanies to weather through thementioned challenges of the recent past.An increasingly favoured way of enhancingthe company’s value is to reorganize andrestructure the firm’s business. In doing so,American corporations were able to createroughly $162 billion of shareholder valuewithin only five years (Black & Grundfest,1998).

There are no accepted methods ofevaluating the performance of restructuringas each method has its own pros and cons.The period of measurement is anothercomplex issue in the measurementprocess. Since the benefits are expectedto flow only in the long run, what long runperiod is to be considered to capture thebenefits is a difficult question for a financeresearcher. Separating the benefits ofrestructuring from other policy actions ofthe firm is yet another problemencountered. All the improvements in post-restructuring period cannot be ascribed tothe restructuring only. Restructuringgenerally involves use of more than oneform of restructuring and the effects couldvary. A portfolio restructuring on its owncan produce different gains compared toa situation when it is used along withorganisational and or financial restructuring.Identifying benefits to a particular form iswell-nigh possible. Reasons forrestructuring can also vary across firmsand might be difficult to judge the exactcause for which firms restructure though

empirical evidence shows that poorperformance compels a firm to restructure.However, successful firms also restructure.Economic and industrial shocks couldgenerate restructuring actions.

In recent years a controversy overthe desirability of corporate restructuringhas arisen because of the effectiveness andefficiency of the “newly invented” firms.Proponents argue that leaner and moreefficient organizations arise after beingrestructured, while critics assert thatorganizational disruption exceeds theanticipated benefits from such transactionsand therefore is a method of destroyingshareholder value. The question arises asto which actions can be taken to reorganizea company, and much more importantly,which actions can spur the company’sperformance and thus satisfy theshareholder and enhance the company’svalue effectively.

India presents a peculiar picture forresearchers in finance. There are noorganisations documenting corporaterestructuring actions. Data is hardlyavailable. Most of the studies so far haveconcentrated only the M&As activitieswhile other restructuring processes likeasset sale, spin offs, split offs, divestitures,equity carve-outs,, downsizing, ownershipchanges, debt recast, etc., are hardlylooked at. A well organized researchinputs on these aspects would make theIndian researchers to study the CorporateIndia’s perspective on these forms ofrestructuring.



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Climate Controlled Environment and StudentProductivity : An Empirical Analysis

Akankshya PatnaikAssistant Professor, Business Management,

Presidency College, Berhampur

Ratnakar MishraAssociate Professor,

National Institute of Science and Technology, Berhampur

AbstractThis paper deals with the influence of climatic condition on student productivity. Ithighlights the impact of temperature on student’s performance. Several factors playsimportant role on student productivity one of it is ‘variation in internal temperatureof a class room’. Climatic conditions of India are different to that of its westerncounterparts. Studies conducted in Indian conditions often points to a host of teachingquality related factors rather than external environmental impact. This study adoptsa descriptive approach and uses primary source of data comprising the classes inprofessional courses, carrying equal weight age. All total 60 samples are takencomprising of students from both climate controlled and non-controlled class rooms,for the test.

Key words: Climate controlled class rooms, Students, Productivity

Introduction

Research shows that, academicachievement is directly correlated tofactors like ‘ventilation’ and ‘behaviour ofparties’, concerned equally in theclassroom. The research also shows thatbehaviour is enhanced or degraded bysome factors such as ‘confidence’,‘consistency’, ‘encouragement’,‘responsiveness’, etc. By introduction ofair condition classroom ‘concentration’ canbe enhanced and negative behaviour suchas ‘bunking’, can be minimized.

Further, research outcomes showthat, the academic achievement at schoollevel during winter get affected byparameters like varied temperature,humidity and air speed. Air velocity, ifinadequate in these conditions, affects theperformance a lot. The students usuallycomplain about headache, difficulty inconcentration, problems in respiration,cough and lastly the usual tiredness dueto inadequate availability of abovementioned air control parameters insideclass rooms.


Literature Review

Influence of the School Facility onStudent Achievement: ThermalEnvironment

Many studies have revealed that thethermal environment in the classroom willaffect the ability of students to graspinstruction. Herrington (1952) found thattemperatures above 26.67 degrees (C)tend to produce harmful physiologicaleffects that decrease work efficiency andoutput. Furthermore it is explained thatpoor ventilation interferes with heat lossfrom body surfaces produced from theeffects of temperature, humidity and airmovement. Manning and Olsen (1964), intheir study, concluded that temperaturecontrol was considered to be the mostcritical factor in providing an optimumthermal environment for learning.

Peccolo (1962) is of opinion thatideal thermal classroom environments hadan effect on the mental efficiency ofstudents especially in situations wherestudents were performing clerical taskscalling for quick recognition and response.In relation to mental efficiency and thermalconditions, Canter (1976) found thathuman beings work most efficiently atpsychomotor tasks when the environmentis at a comfortable temperature.

Based on a survey given to teachers,it is found that classroom conditionsimproved by air conditioning resulted inreduced annoyances, improved visualdisplay and flexibility, and comfortableconditions. Teachers’ attitudes and work

patterns were significantly improved dueto less fatigue. Likewise, studentperformance, attitude, and behaviorimproved in proper air conditionedclimates making it easier to concentrate andmaking them feel less drowsy and fatigued.McDonald (1960) Sometimes it is felt, ina hot and humid type of climatic conditionsthat usually prevail in India, highertemperatures have a negative relationshipwith academic learning. In relation to thisfinding McCardle (1966) discovered thatstudents in an ideal thermal environmentmade significantly fewer errors on tasksand required less time to complete thetasks than students in regularly controlledthermal environments. In similar studies onstudent’s academic performance in relationto climate controlled classrooms Stuartand Curtis (1964) reported greater gainsin academic achievement of students inclimate controlled schools as opposed tothose students in non-climate controlledschools.

Temperature and School WorkPerformance:

Several studies conducted in the1950’s and 1960’s found that studentshave performed better in thermallyconditioned classrooms than in classroomswithout heating or cooling. However, therehave been few studies of the influence oftemperature in thermally-conditionedclassrooms on school work performanceor learning. In the late 1960s, six groups,each with six students, were brought to aclimate-controlled chamber at KansasState University. Each group of students

129Climate Controlled Environment and Student Productivity

performed simulated school work withchamber temperatures ranging from 16.67to 33.33 °C. Error rates and speed ofwork were used as performanceindicators. Two out of four performancemeasures, error rates and time requiredto complete assignments, were affected bytemperature. The error rate was highestat 16.67 °C and lowest at 26.67°C;however, students worked most slowly at26.67 °C and fastest at 20°C.

Similar studies were also performedin the 1960’s by David Wyon andcolleagues. Some of these studiesperformed in climate chambers, and otherstudies in actual classrooms, found readingspeed, reading comprehension, andmultiplication performance of schoolchildren to be poorer with temperaturesof 27.22 to 30 °C, relative to 20 °C. Inone study, the decrements in reading speedand reading comprehension at 27.22 °C,compared to 20 °C, were as large as 30%.

While the previous studies focusedprimarily on the effects of avoidingtemperatures of 26.67 °C or higher, theinfluence of more moderately elevatedtemperatures on student performance wasinvestigated more recently via field studiesconducted in classrooms. Classroomtemperatures were manipulated by turningcooling systems on and off, while keepingair circulation fans running so that noiselevels were constant. All other factors weremaintained constant to the degree possible,although, teachers opened windows“slightly more often when it was warm inthe classroom”. Performance tasks

representing eight aspects of schoolwork,from reading to mathematics, wereembedded into the normal school work.The speed and accuracy of taskperformance was assessed. The averagespeed of eight simulated school work tasksdecreased by approximately 1.1% pereach -17.22 °C as temperatures increasedfrom 20 °C to 25 °C. The number of errorsin school work was not significantlyaffected by temperature changes in thistemperature range.

Ventilation Rates and SchoolPerformance: Four studies in schoolshave investigated the linkage of ventilationrates to objectively measured, as opposedto self-reported, school workperformance. A Norwegian studyperformed in 35 classrooms located ineight schools used reaction times in astandard test to measure studentconcentration and vigilance. Reactionswere 5.4% faster with a ventilation rate of8.1 air changes per hour (ach)corresponding to 26 cfm per personcompared to 2.6 ach (8 cfm per person).“An U.S. study in 5th grade classroomsfrom 54 schools, used studentperformance in standard academic testsas the measure of performance”.“Performance in both math and readingtests increased with ventilation rate. Testscores increased about 13% fromclassrooms with the lowest ventilation rates(less than 4.5 cfm per student) toclassrooms with the highest ventilationrates (greater than 9 cfm per occupant)”.However, statistical tests indicated a 30%


probability that the increases in readingperformance with ventilation rate were dueto chance. In a Danish study performedwithin four classrooms, Wargocki andWyon used performance tasksrepresenting various aspects ofschoolwork, from reading to mathematicsthat were embedded into the normal schoolwork. “The speed and accuracy of taskperformance was assessed. This studyreported an 8% increase in speed of schoolwork tasks with a doubling of ventilationrate. There was no statistically significantinfluence of ventilation rate on the numberof errors made by students”.(Wargocki,Wyon,2006)

Ventilation Rates and Absencesin Schools: In an elementary gradeclassroom study, on average, for each 100ppm decrease in the difference betweenindoor and outdoor CO2 concentrationsthere was a 1% to 2% relative decreasein the absence rate. Given the relationshipof CO2 concentrations with ventilationrates, for each 1 cfm per person increasein ventilation rate, it is estimated that therelative decrease in absence rates isapproximately 0.5% to 2%.

This relationship applies over anestimated ventilation rate range of 5 to 30cfm per person, and should not be appliedoutside those limits. Data relating buildingventilation rates and absence rates are verylimited.

Indoor Air Quality: Poor indoor airquality (IAQ) is widespread, and its effectsare too important to ignore. The U.S.

General Accounting Office has found thatfifteen thousand schools suffer from poorIAQ, affecting more than eight millionchildren or one in five children in America’sschools (General Accounting Office1995). The IAQ symptoms identified—irritated eyes, nose and throat, upperrespiratory infections, nausea, dizziness,headaches and fatigue, or sleepiness—have collectively been referred to as “sickbuilding syndrome” (EPA 2000).

Temperature and Humidity:Temperature and humidity affect IAQ inmany ways, perhaps most significantlybecause their levels can promote or inhibitthe presence of bacteria and mold. “Forexample, a study of Florida classroomswith relative humidity levels greater thanseventy-two percent found visible moldgrowth on the ceilings and complaints ofallergy symptoms associated with sickbuilding syndrome” (Bates 1996). At theother end of the humidity scale, Leach(1997) reported “findings of a 1970 studydone in Saskatoon, Saskatchewan,Canada, which found absenteeism wasreduced in schools by twenty percent asrelative humidity in the facilities wasincreased from twenty-two to thirty-fivepercent”. Wyon (1991) showed that“student performance at mental tasks isaffected by changes in temperature”, andFang et al. (1998) found that “officeworkers are most comfortable in the lowend of temperature and humidity comfortzones”. “These findings support the ideathat students will perform mental tasks bestin rooms kept at moderate humidity levels


(forty to seventy percent) and moderatetemperatures in the range of sixty-eight toseventy-four degrees Fahrenheit” (Harner1974, Wyon, Andersen & Lundqvist,1979).

Objective of the Study

The present research paper intendsto know the following aspects, in Indianacademic conditions:

To know whether a climatecontrolled atmosphere is related tostudents’ motivation towards studies.

How much the classroomenvironment effects and playsinstrumental in lowering commonstudent maladies like bunkingclassrooms etc?

To check the extent of influence ofother factors like infrastructure onstudent productivity.

To enumerate certain other factorsresponsible for student overallproductivity.

Hypothesis

HO 1: Air conditioned classroomsdoes not have any effect on studentoverall productivity.

HO 2: Air conditioned classroomslead to higher classroom productivitythan quality of teaching.

HO 3: Technical teaching aids usedinside the classrooms is instrumentalfor higher productivity.

Methodology

Design: The design is in form of adescriptive research performed bythe researchers.

Data: Categorized data are taken intwo parts, namely primary andsecondary. Primary data are collectedfrom different colleges. Secondarysource is taken from different articlespublished related to topic andresearch.

Samples: 60 samples are taken forthe study.

Operationalisation of variables:Total 10 variables are used in thisresearch. The variables are groupedinto following; ‘increase inconcentration power of students’,‘high scoring of marks’, ‘less bunkingof classes’, ‘reduction of mischievousactivities’, ‘method of teaching playsan important role than air conditionedclass room for student productivity’,‘the knowledge of teaching faculty isinstrumental in comparison to airconditioning environment’, ‘layout ofclassrooms is more importantcompared to quality of teaching’,‘quality of teaching aids/materialsprovided by faculty is more productivethan air conditioned environment foracademic achievements’, ‘teachingaids such as projector used inside theclassroom is helpful for high scoringof marks’, ‘understanding procedureis eased when teaching aids are usedinside the classrooms’.


Data Analysis

StatisticsAgeN Valid 60

Missing 0Mean 21.15Std. Deviation 1.071Minimum 19Maximum 25

The age of the samples were dividedinto two parts to ease the complication ofstudies and the respective mean, standarddeviation and maximum, minimum of itssubsequent parts were found out.

The above table shows the differentrange of ages taken in the survey.The fre-quency for 21 and 22 is the highest oneand highest percentage too i.e. of 40 and29 respondents respectively. The valid per-centage and cumulative percentage is alsofound out and the histogram is drawnwhich is uniform and less scattered.

AgeFrequency Percent Valid Percent Cumulative Percent

Valid 19 3 5.0 5.0 5.020 12 20.0 20.0 25.021 24 40.0 40.0 65.022 17 28.3 28.3 93.323 3 5.0 5.0 98.325 1 1.7 1.7 100.0Total 60 100.0 100.0

Histogram of AgeCase Processing Summary

CasesValid Missing TotalN Percent N Percent N Percent

institute * age 60 100.0% 0 .0% 60 100.0%course * age 60 100.0% 0 .0% 60 100.0%


The case processing summary showsthe number of samples taken and validpercentage which comes out to be 100 %and hence none of the sample is outlined.

Institute * age Cross tabulationCount

Age Total19 20 21 22 23 25

Insti- NIST 0 10 20 16 2 0 48tute C.V. 3 1 4 0 1 1 10

RAMANNMIET 0 1 0 1 0 0 2

Total 3 12 24 17 3 1 60

The above table shows the instituteage cross tabulation between different agesof samples and their respective college.

Course * age Cross tabulationAge Total19 20 21 22 23 25

Cou- B.TECH 3 12 23 16 1 0 55rse MBA 0 0 1 1 2 1 5Total 3 12 24 17 3 1 60

The above table represents the crosstabulation of course pursued andrespective age of samples.

Agree 4.27 22 .767strongly agree 4.57 7 .535Total 3.98 60 .948

ReportConcentration power is enhanced in airconditioned classroomsHigh scoring of Mean N Std.marks is seen in Deviationstudents whenprovided with an airconditionedenvironmentstrongly disagree 2.00 3 1.732Disagree 3.79 14 .802can’t say 3.86 14 .770

This is the number of mean answersbetween two questions as shown and theirrespective standard deviations whichsomehow is helpful in concluding that highscoring of marks is seen in students whenprovided with an air conditionedenvironment as the mean answers in agreeand strongly agree are high compared toother cases.

The variables present in the left handside are named as variable1,2,3,4,5,6,7,8,9,10, respectively. Now thecorrelations of variables are calculated witheach other. Variable 1 is highly correlatedwith variable 2 and vice versa too. Whereasit is not in correlation with any othervariables, it clearly indicates that high scoringof marks and concentration power aresomehow related to each other and can beconcluded that both becoming dependentand independent variables in analysis affectthe student productivity. Variable 2 is highlycorrelated to variable 1 and shows somecorrelation with variable 3 as well and isnegatively in correlation with variable 5. Therest of the variables are no wherecorrelated. Variable 3 is correlated withvariable 2 and negatively correlated tovariable 5. Rest is not in correlation. Variable4 is not correlated with any of the variables.Variable 5 is negatively in correlation withvariable 2 and 3 and in positively correlatedwith variable 8.Variable 6 is not in correlationwith any of the variables. Variable 7 is


negatively correlated to variable 8, rest isnot in correlation. Variable 8 is positivelycorrelated with variable 5 and negatively

correlated with variable 7. Variable 9 andvariable 10 are not correlated with any othervariables.

One-Sample StatisticsN Mean Std. Dev. SE

concentration power is enhanced in air 60 3.98 .948 .122conditioned classroomshigh scoring of marks is seen in students when 60 3.27 1.103 .142provided with an air conditioned environmentcomfortable air conditioned classrooms leads 60 4.22 .958 .124to less bunking of classesmischievous activities taking place inside the 60 3.23 1.140 .147classroom is decreased when it is air conditionedmethod of teaching plays an important role than 60 4.23 1.079 .139air conditioned classrooms for productivitythe knowledge of teaching faculty is instrumental 60 3.75 1.129 .146in comparison to air conditioning environmentlayout of classrooms is more important compared 60 2.68 1.295 .167to quality of teachingquality of teaching aids/materials provided by 60 4.02 .833 .108faculty is more productive than air conditionedenvironment for academic achievementsteaching aids such as projector used inside the 60 3.63 1.134 .146classroom is helpful for high scoring of marksunderstanding procedure is eased when teaching 60 4.07 .899 .116aids are used inside the classrooms

One-Sample TestTest Value = 095% Confidence Interval of the DifferenceT df Sig. Mean Lower Upper

(2-tailed) Differenceconcentration power is enhanced 32.560 59 .000 3.983 3.74 4.23in air conditioned classroomshigh scoring of marks is seen in 22.948 59 .000 3.267 2.98 3.55students when provided with anair conditioned environmentcomfortable air conditioned 34.083 59 .000 4.217 3.97 4.46classrooms leads to less bunkingof classes


mischievous activities taking place 21.961 59 .000 3.233 2.94 3.53inside the classroom is decreasedwhen it is air conditionedmethod of teaching plays an 30.381 59 .000 4.233 3.95 4.51important role than air conditionedclassrooms for productivitythe knowledge of teaching faculty is 25.721 59 .000 3.750 3.46 4.04instrumental in comparison to airconditioning environmentlayout of classrooms is more important 16.047 59 .000 2.683 2.35 3.02compared to quality of teachingquality of teaching aids/materials 37.330 59 .000 4.017 3.80 4.23provided by faculty is moreproductive than air conditionedenvironment for academicachievementsteaching aids such as projector used 24.808 59 .000 3.633 3.34 3.93inside the classroom is helpful forhigh scoring of marksunderstanding procedure is eased 35.021 59 .000 4.067 3.83 4.30when teaching aids are used insidethe classrooms

The above table shows the result of T-test done and the value of T is very high ascompared to normal value required for the test which means that there is a lot of differencesin the variables which are taken. It also shows the other factors in the table such asdifference, mean difference with upper and lower limits defined.

Model SummaryModel R R Square Adjusted R Square Std. Error of the estimate

1 .475 .225 .212 .841

Predictors: (Constant), high scoring of marks is seen in students when provided with anair conditioned environment. The R value shows that the variables are highly correlatedand R square value shows a good impact on predictor.


1 .058a .003 -.014 5.411


a. Predictors: (Constant), concentration power is enhanced in air conditioned classrooms. HereR as well as R square values both shows that the variables are not at all correlated and haveon impact.

CoefficientsModel Un-standardized Standardized T Sig.

Coefficients CoefficientsB Std. Error Beta

1 (Constant) 3.706 .865 4.286 .000concentration power is enhanced in .047 .106 .058 .446 .657air conditioned classrooms

a. Dependent Variable: high scoring of marks is seen in students when provided with an airconditioned environment and the value of standardized and un-standardized coefficients isfound out.

One-Sample StatisticsN Mean Std. Deviation Std. Error Mean

concentration power is enhanced in 60 4.82 6.655 .859air conditioned classroomshigh scoring of marks is seen in 60 3.93 5.374 .694students when provided with an airconditioned environment

The one-sample statistics shows the two variables which were studied in above tablesindividually as independent and dependent are jointly considered and mean, standarddeviation, standard mean error are shown.


(2-tailed) Differenceconcentration power is enhanced 5.606 59 .000 4.817 3.10 6.54in air conditioned classroomshigh scoring of marks is seen in 5.670 59 .000 3.933 2.55 5.32students when provided with anair conditioned environment

The T values of the two variables concentration power is enhanced in air conditionedclassrooms versus high scoring of marks is seen in students when provided with an airconditioned environment and mean difference, lower and upper limits are defined too.


One-Sample StatisticsN Mean Std. Deviation Std. Error Mean

high scoring of marks is seen in 60 3.93 5.374 .694students when provided with an airconditioned environmentmethod of teaching plays an important 60 4.23 1.079 .139role than air conditioned classroomsfor productivity

This is the one-sample statistics for the other two variables taken i.e. high scoring ofmarks is seen in students when provided with an air conditioned environment versusmethod of teaching plays an important role than air conditioned classrooms forproductivity and mean, standard deviation, standard mean error are found out.


(2-tailed) Differencehigh scoring of marks is seen in 5.670 59 .000 3.933 2.55 5.32students when provided with anair conditioned environmentmethod of teaching plays an 30.381 59 .000 4.233 3.95 4.51important role than air conditionedclassrooms for productivity

Now in this table the same two variables is compared related to its T values and themean difference along with the lower and upper limits are shown.Model SummaryModel R R Square Adjusted R Square Std. Error of the estimate

1 .058a .003 -.014 5.411

a. Predictors: (Constant), concentration power is enhanced in air conditioned classrooms, whenthis variable is considered as independent the R and R square values are very much low,consequently they are not at all correlated and impact factor is very low.



1 (Constant) 3.706 .865 4.286 .000concentration power is enhanced in .047 .106 .058 .446 .657air conditioned classrooms


a. Dependent Variable: high scoring of marks is seen in students when provided with an airconditioned environment, considering the independent as concentration power is enhancedin air conditioned environment and the standardized and unstandardized coefficients arecalculated.


1 .102a .011 -.007 5.391

a. Predictors: (Constant), method of teaching plays an important role than air conditionedclassrooms for productivity, the two variables are also not correlated anywhere and there isno impact too.

CorrelationsTeaching aids such as High scoring of marks isprojector used inside the seen in students whenclassroom is helpful for provided with an airhigh scoring of marks conditioned environment

Teaching aids such as Pearson 1 .013projector used inside the Correlationclassroom is helpful for Sig. (2-tailed) .924high scoring of marks N 60 60High scoring of marks is Pearson .013 1seen in students when Correlationprovided with an air Sig. (2-tailed) .924conditioned environment N 60 60

The correlations as shown between the above two variables selected are showing nocorrelations between them and hence we can conclude that impact factor is also null.

The correlations depicted here between teaching aids such as projector used inside theclassroom is helpful for high scoring of marks versus high scoring of marks is seen instudents when provided with an air conditioned environment and vice versa are notcorrelated anywhere and their impact is also close to null.


1 .013a .000 -.017 5.419

a. Predictors: (Constant), teaching aids such as projector used inside the classroom is helpful forhigh scoring of marks, R and R square values shows absolutely no correlations and impact onvariables respectively.




1 (Constant) 3.716 2.365 1.571 .122teaching aids such as projector used .060 .622 .013 .096 .924inside the classroom is helpful forhigh scoring of marks

Dependent Variable: high scoring of marks is seen in students when provided with an airconditioned environment is seen in context with independent variable teaching aids such asprojector used inside the classroom is helpful for high scoring of marks and standardized and un-standardized coefficients is found out.

Conclusion

The research process on “airconditioned classrooms and studentsproductivity” was started way back in2011 when the researchers felt its need,looking to student’s discomfort due torising of temperature in summer time.Classrooms in India are not still climatecontrolled so the students are exposed tovaried temperature despite the unchangedclass timings throughout the year. Whenthe need of research arose, the researchersstarted reviewing the literature andshortlisted certain variables looking theconditions prevailing in Orissa classrooms.Then the samples were collected basicallyfrom Orissa colleges.

Objectives of the study were basicallyto find out the impact of air conditioningsystem. But in addition to it other highlyrelevant and related matters like ‘impactassessment of teaching aids/quality onstudent productivity’ is also included to seethe multi-dimensional impact on studentproductivity. The initial variable intends to

explore possible ramifications of naturaltemperature classrooms on studentproductivity. To check the “concentrationon studies” by students was taken asmeasuring instrument. The respondentshowever are in favour of climate controlledclassrooms. Result showed more than70% respondents are in favour of climatecontrolled classrooms. So the objective ofseeing the impact of temperature is fulfilledlike this.

Other objectives like to see therelationship between climate controlledclassrooms and student mischief alsoshows some interesting results. Nearly50% respondents are in favour ofpresence of air conditioned classrooms toeradicate the common student menaceslike inside mischief.

Third objective was answerableabout the infrastructure playing any role inproductivity. The samples were in favourof quality of teaching, it showed that around60% said that ‘layout’ was merely acomponent but the ‘role of faculty’ was


much more important if related withproductivity. It was always seenthroughout the survey that the emphasiswas on quality of teaching for attaining anycomponents of the student productivityscale. The quality of teaching plays moreimportant play in productivity scale.

Last objective was to identify thedifferent other factors that contribute to thestudent productivity. In the process ofresearch the other factors such as teachingaids, teaching methodology was taken intoconsideration from literature review andplaced in for survey process. The definedvariable were, “method of teaching playsan important role than air conditionedclassrooms” and “teaching aids used insidethe classroom is helpful in high scoring ofmarks”. In analysis part 66% of thesamples went in the favour of above twoenumerated variables and hence the twofactors are effective component in resultof student productivity. The samplesreadily answered in favour of method ofteaching than air conditioned classroom via5-point scale, air condition was importantbut when compared with method ofteaching the statistics say that it had moreweight age than air condition classroomsfor productivity factor. There seemed tobe one more factor which was defined as“method of teaching/materials provided bythe teaching faculty”, the lecture deliveredin the classrooms is sometimes not enoughfrom examination point of view and henceteaching lecturers provide some teachingaids helpful in scoring of marks andindirectly increasing productivity stated by

56% of the samples. Air conditionclassrooms may provide a comfortableenvironment but for more productive statethe samples considered quality of teaching/materials provided.

ReferenceBates, J. (1996). Healthy learning.American School & University 68(5), pp.27–29.Canter, D.V. (1976). Environmentalinteraction psychological approaches toour physical surroundings. New York:International University Press.Fang, L., G. Clausen, and P.O. Fanger.(1998). “Impact of temperature andhumidity on the perception of indoor airquality.” Indoor Air 8(2):80–90.General Accounting Office. (1995).School facilities: America’s schools notdesigned or equipped for 21st century.GAO report number HEHS-95-95.Washington, D.C.: General AccountingOffice. (ED383056)Herrington, L.P. (1952). Effects of thermalenvironment on human action. AmericanSchool and University, 24, 367-376.Harner, D. P. (1974). Effects of thermalenvironment on learning skills [Abstract].,The Educational Facility Planner 12(2),4-6Leach, K. 1997. In sync with nature:Designing a building with improvedindoor air quality could pay off withimproved student health andperformance. School Planning andManagement 36 (4): 32–37.


Manning, W.R. & Olsen , L.R (1964). Airconditioning: Keystone of optimal thermalenvironment. American School BoardJournal, 149(2), 22 -23.Mark Schneider (2002). “Do SchoolFacilities Affect Academic Outcomes?”,National Clearinghouse for EducationalFacilities1090 Vermont Avenue, N.W.,Suite 700, Washington, D.C. 20005–4905 888–552–0624www.edfacilities.org ©2002, NationalInstitute of Building SciencesMcCardle, R.W. (1966). Thermalenvironment and learning. Unpublisheddoctoral dissertation, University ofMissouri.McDonald, E.G. (1960). Effect of schoolenvironment on teacher and studentperformance. Air conditioning, Heating,and Ventilation, 57, 78 - 79.Peccollo, M. (1962). The effect of thermalenvironment on learning. Unpublisheddoctoral dissertation, Iowa StateUniversity.Stuart, F. & Curtis, H.A. (1964). Climatecontrolled and non-climate controlledschools. Clearwater, Florida: The PinellasCounty Board of Education.Airconditioning, Heating, and Ventilation, 57,78 - 79.

United States Environmental ProtectionAgency. (2010). How does indoor airquality impact student health andacademic performance? The case forcomprehensive IAQ management inschools.U.S. EPA. (2000).Indoor Air Quality &Student Performance revised August 2003Wargocki, P. and D.P. Wyon,(2006)”Research report on effects ofHVAC on student performance”.ASHRAE Journal,. 48: p. 22-28.Wyon, D.P., I.B. Andersen, and G.R.Lundqvist. (1979). “The effects ofmoderate heat stress on mentalperformance.” Scandinavian Journal ofWork, Environment, and Health 5:352–61Wyon, D.P. (1991). The ergonomics ofhealthy buildings: Overcoming barriers toproductivity. In IAQ ’91: Post ConferenceProceedings. Atlanta, Ga.: AmericanSociety of Heating, Refrigerating, and Air-Conditioning Engineers, Inc., pp. 43–46

Website

ht tp : / /www.iaqsc ience . lb l .gov/performance-temp-school.html

http://www.epa.gov/iaq/schools/pdfs/student_performance_findings.pdf


Case Study Section

Noamundi Steel Plant Ltd. (NSP)

Saroj K RoutraySchool of Management,

KIIT University Bhubaneswar India

In the corporate office of NSP (Noamundi Steel Plant) at sector V, Salt Lake, Kolkata,the board was having its 98th meeting on 25th November 2003, to take a final decisionon renovation of the steel plant. Mr. Srinivasan, GM (Projects), the head of thecommittee for the upgradation, had submitted the report with all technical andfinancial data. The committee was formed in the last Board meeting with theunanimous decision of the Board to go for modernization of plant. The committeewas to study the proposals, aimed at increasing capacity, incorporating state-of-arttechnology in the blast furnace including new skip system and modern technologiesin peripherals. It was required to see the technical and financial feasibility of theupgradation of Blast furnace 1. The committee was comprised of Mr.Srinivasan, Mr.Dinesh Agrawal, GM(Finance) and three more technical persons. The Chairman ofthe company, Mr. Rajen Malhotra addressing the Board emphasized the need ofmodernization of the plant. He said:

“We are doing well partly because of the growing demand of steel for the last fewyears. But to keep the company competitive, as per the Board’s decision in the lastmeeting we have to upgrade the plant. I would like to thank the committee forsubmitting the report. Now, I request Mr. Srinivasan to present the report to theBoard”.

Noamundi Steel Plant

NSP was established in year 1973-74, in an area spread over 6500 acres ofland. The plant was originally designed forthe production of 1.8 MT of crude steeland gradually increased to 4.5 MT capacityand producing a variety of flat productslike HR plates, HR Steels, Cold RolledCoils, Hot Rolled coils and GalvanizedPlain and Corrugated(GP/GC) sheets, etc.The products were mostly consumed byindustries like Automobiles, Railways,

Defense, Heavy Engineering and Power& Energy and Real Estate etc.

The Steel Plant had 4 blast furnacesand the company was going to modernizethe furnaces starting with the BF 1. Thesteel plant was extensively repaired in year1994 and the second extensive repair wasto be done in year 2005-06. Thereforethe Board was interested to take a decisionwhether to go for upgradation or do therepair in the year 2005-06.

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Committee Report:

In the presentation, committeerecommended the renovation andmodernization of plant. Few of thejustifications given by the committee werestated below. It emphasized the need ofmodernization, keeping the world widesurge in steel demand and new plantsestablished by companies around theworld. Mr. Srinivasan read the followingpoints to justify the approval of theproject: The blast furnace to be repaired

extensively in the year 2005-06,which could be avoided if the BF isupgraded and the repair cost of Rs.50crore would be saved and the furnacewould not required to be shut downfor 3 months.

The existing cooling system hadbecome very old, which would bereplaced by a state of art refractoryand cooling system, having longerstack life matching with the hearthlife.

The existing dust extraction systemhad also become very old and washaving high maintenance cost andenergy consumption. It was no moreenvironment friendly even.

The existing Blast furnace was notoperating at the same temperature forwhich it was designed.

The new Blast furnace would resultin improved furnace life of 25 yearsand enhanced production of 4200tonnes per day.

The projected Blast Furnace wouldhave an advantage in technologicalparameters also(Exhibit 1)

Mr. Srinivasan told that the completeupgradation of BF1 project would take18 months time including the plant shutdown period of 150 days. The work wasplanned to start from April, 2004 and finishby September 2005.

Financial details and Project Financing

Mr. Agrawal, GM (Finance)informed the board about the capital costof the project which was estimated atRs.571.40 crore including the IDC(interest during construction) andappraised about the other financial benefitsand the plan for raising the money for theproject.

It was informed by Mr. Agrawal thatdue to the up gradation of BF1 there wouldbe lots of benefits in the technical terms,which was converted into financial termsin the report. The upgradation wouldincrease the productivity, consequentlypositively affect the contribution and leadto reduction in coke and steamconsumption. Also, it would haveadditional benefits from power generation.But at the same time it would add littleadditional cost due to higher consumptionof CDI Coal, power, oxygen, nitrogen andCO gas and repair & maintenance costetc.

It was stated by the committee thatno additional manpower would berequired due to the upgradation, except

Noamundi Steel Plant Ltd (NSP)


some amount of training required to begiven to the workers and supervisors,which would cost around Rs. 50 lakhs. Itwas informed to the board that theupgradation would meet all the stipulatednorms of the State Pollution Control Board.

Mr. Agrawal appraised the boardabout the plan for generating financialresources for the investments to be made.He said that the project would be financedthrough internal resources and commercialborrowings. It was said that the companywas having sufficient reserves for fundingthe internal resources. The reserves andsurplus of the company was Rs.890.35crore and the company was having a debtof Rs.35.08 crore from a commercialbank as per the last years balance sheet.The debt to internal resources wasreported to be in the ratio of 1:1 forfinancing the project. The cost ofborrowing projected was at 9% p.a. (littleless than the cost of equity because ofhigher equity financing and the average costof capital would come to be 10% p.a.).The loan was planned to be raised from anationalized bank, which would be paid in10 equal annual installments. It wassuggested that 50% of the debt will betaken at the beginning of the project andrest after six months.

The project was to be implementedthrough seven packages within a periodof 18 months and the life of the projectwas 20 years from the year of installation.So in the first year of construction therewill be no production from BF1, in the

second year it is assumed that the plantwill works at 60% capacity( for a periodof 6 months after commissioning), thirdyear at 90% capacity, forth year onwardsat 95% capacity, till the 22nd year(full yearwas to be considered). The depreciationwould be charged @10% p.a on straightline method.

Going through the details presented,most of the board members agreed to theproposal but they had someapprehensions. One of the independentdirector, Mr. Kothari was not convincedwith the figures projected. Therefore theboard asked the committee for moredetailed analysis of various aspects andto incorporate the apprehensions raised bythe Board. Mr. Malhotra said Mr.Srinivasanand the team to study the viability of theproject keeping a cut off rate of 15%, whichis the regular practice of the company forthe approval of the project and also tostudy the impact of the followinguncertainties on the outcome of the report.

a) Financial implication of any delay in thecompletion of the project, say it takesanother six months for completion.

b) If the investment cost over runs by10%.

c) If the productivity decreases whichreduces the contribution margin by 6%on additional pig iron.

The committee is expected to submitthe report in another one week time, sothat the board would be able to take adecision soon. The above points are

145

independent from each other. Mr.Srinivasan handed over all the documentsto Mr. Agrawal to do the necessary

calculations and find out the NPV, IRR andthe sensitivity analysis to justify profitabilityof the project.

Exhibit.1 Comparison of technical parametersParameters Existing After upgradationWorking volume (cum) 1750 2300Hot Blast Temp.(0C) 920 1200Hot Blast Pressure (kg/cm2 max.) 2.44 4Blast volume (NM3/min) 3000 3100 (with 5% Oxygen enrichment)H.M. production(tpd) 2400 4200Coke Rate(kg/thm) 540 375Furnace top Pressure(kg/cm2) 0.98 2.0

Source: Company Data

Exhibit 2: The broad break up of the capital cost is given below:Total cost (Rs. Crore)

Plant and Equipment 221.29Structures 50.24Refractories 55.29Civil works 40.13Erection and Commissioning cost 22.11Engineering and Construction 34.00Freight and Insurance 18.02Taxes and Duties (including import duty) 90.08Training and educating 1.22Contingencies 25.07Total Plant cost 557.45IDC 13.95Total Capital cost 571.40Source: Company Report

Exhibit 3: Technical Committee

Noamundi Steel Plant Ltd (NSP)


Exhibit 4: The above benefits and expenses are given below at 100%capacity utilization:

(Rs. Crore)Benefits:Contribution on additional Pig iron 266.07Saving due to less coke consumption 210.08Savings in steam consumption 12.98Additional power generation 13.55Additional revenue from Gran. Slag 2.12Total Benefits 504.80Additional Expenditure:CDI coal 102.44Electricity 3.78Nitrogen 3.01Oxygen 53.59CO gas 12.04Make-up water 0.56Training and development 0.50Repair and maintenance 15.05Total additional Expenditure 190.97Gross Margin 313.83

Source: Company Data

Exhibit 5: Production of steel in India( in Million Tonnes)

Exhibit 6: A typical Blast furnace

Source : Industry Data (Projected figures from2004-05 onwards)

Source: http://www.sitesofnj.com/Bethlehemsteel/BethlehemSteelBlastfurnace1.html

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Reference from Journal:Alkaike, H. (1987). Factor analysis and AIC. Psychometrica, 52, 317-332.

Reference from Edited book:Browne, M. W. & Cudeck, R. (1999). Effects of Organizational Climate and CitizenshipBehavior on Organizational Effectiveness. In K.A. Bollen & J.S. Long (Eds.) HumanResource Management (pp. 136-147). Newsbury Park, CA: Sage.

Reference from Book:Luthans, F. (2002). Organisational Behaviour. New Delhi: McGraw-Hill International.Booth, W. C., Colomb, G. G., & Williams, J. M. (1995). The craft of research. Chicago:University of Chicago Press.

Reference from online resources:Hacker, D. (1997). Research and documentation in the electronic age. Boston: BedfordBooks. Retrieved October 6, 1998, from http://www.bedfordbooks.com/index.htmlMorse, S. S. (1995). Factors in the emergence of infectious diseases. Emerging InfectiousDiseases, 1(1). Retrieved October 10, 1998, from http://www.cdc.gov/ncidod/EID/eid.htm

Smith, E. E. (2001). Internet term paper mills: The case for mandatory expulsion[Electronic version]. Journal of Crime and Punishment, 6, 123–139.

Newspaper ArticleGoleman, D. (1991, October 24). Battle of insurers vs. therapists: Cost control pittedagainst proper care. New York Times, pp. D1, D9.

Newspaper Article (Online)Markoff, J. (1996, June 5). Voluntary rules proposed to help insure privacy for Internetusers. New York Times. Retrieved April 1, 1996, from http://www.nytimes.com/library/cyber/week/yo5dat.html

Newspaper Article (No Author)Undisclosed settlement reached out of court in Michigan Biodyne civil suit. (1992, March1). Psychiatric Times, p. 16.

Conference Paper (Published):Kuroda, S. Y. (1988). Whether we agree or not: A comparative syntax of English andJapanese. In W. J. Poser (Ed.), Papers from the second international workshop onJapanese syntax (pp. 103–143). Stanford, CA: CSLI.

Dissertation:Downey, D. B. (1992). Family structure, parental resources, and educational outcomes.Ph.D. dissertation, Department of Sociology, Indiana University, Bloomington, IN.

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