AFBE JOURNAL · mentioned by Werther and Davis (1993) some argue that HRM will never become a...

AFBE JOURNAL

Volume 7, No. 2, December, 2014

ISSN 2071-7873

AFBE Journal Vol.7, no. 1

TABLE OF CONTENTS

ACADEMIC PAPERS

Jamnean Joungtrakul, “Human Resource Professional Accreditation System in Thailand”

114

Roger J. Baran, “Effects of Wives’ Employment on Husband-Wife Roles in Family Financial Decision Making and Financial Activities”

127

Wasan Kanchanamukda, “Budgeting of Thai Autonomous University: Case Study of Thaksin University”

148

Koustab Ghosh, Samir Ranjan Chatterjee, “Global Mindset: Organizational Consciousness; And Sustainable Leadership: The New Path of Corporate Excellence”

162

Roger J. Baran, “The Not-So-Straight-Forward Relationship Between Customer Satisfaction, Loyalty and Profitability”

172

Farhat Saba, Apollo Nsubuga-Kyobe, “Performance Appraisal Accuracy: The Effects and Consequences of Rater’s Motivation in Performance Appraisal Context; A Case Study of Pakistan Higher Education Sector”

188

AFBE Journal Vol.7, no. 2 114

HUMAN RESOURCE PROFESSIONAL ACCREDITATION SYSTEM IN THAILAND

Jamnean Joungtrakul, LL.B., DBA.

Chairman, Institute for HR Professional Development, Personnel Management Association of Thailand

Professor of Human Resource Management, School of Global Business, Far East University, Korea

Chair of Doctor of Business Administration Program, Graduate School, Rattana Bundit University, Thailand

E-mail: [email protected]

ABSTRACT

The objective of this paper is to present the present Thailand HR professional accreditation system and the status of the project for revision of the accreditation system. The paper is divided into five parts: (1) introduction; (2) the concept of professional; (3) HR professional accreditation system in selected countries; (4) HR professional accreditation system in Thailand; (5) discussion; (6) conclusion and recommendation. A comparison of four major components of HR Accreditation system in four countries including Canada, Singapore, The United States and Thailand were made. The certifying body in Singapore and Thailand is similar as the accreditation is performed by an organization extended from the national HR professional association. In Canada the roles of provincial HR associations are highly recognized by linking their activities with the Canadian Council of Human Resources Associations (CCHRA) and Certified Human Resources Professional (CHRP). In the United States there will be two separated certifying bodies from 2015 onward, HR certification Institutes (HRCI) and the Society for Human Resource Management (SHRM). Regarding the credential provided, all three countries have separate levels of credential i.e. Professional, Senior Professional and Global Professional except in Canada where there is no distinction of credentials given. For examination and testing the accrediting organization in these three countries conducts the examination and testing except in Canada where the examination and testing is a national examination. All three countries use functional competencies as the main framework for examination and testing except in the case of SHRM where integrated competencies will be utilized. Only Canada emphasizes Occupational Health, Safety and Wellness while SHRM includes ethics in the competencies model. Canada and Singapore give first priority to ethics in the process while SHRM includes ethics in the competencies model. HRCI and IHPD in Thailand did not explicitly identify ethical issues in the process. Accreditation helps promoting HR practitioners to be more recognized by their peers and stakeholders. In Canada HR practitioners who are accredited receive higher pay and get promotion faster than those who are not. HR practitioners are playing more critical roles in both organizations and national development. Therefore, accreditation should be promoted and expanded. Occupational Health, Safety and Wellness should be included in the examination and testing framework as this function is normally reporting to the HR Department. In order to be able to supervise this function effectively HR professionals must


pass examination and testing in this area. In addition, ethics is an integral part of any profession so it should be an integral part of an HR professional accreditation process in any country.

Keywords: professional, human resource professional, accreditation system, human resource certification

INTRODUCTION The Human resource (HR) profession nowadays has become the backbone of organizations no matter if it is in the government or private sectors. HR has become a major source of organizations’ competitive advantage. In order to win in a stiff competitive business world today an organization must manage its human resources properly. Human resource management (HRM) is not a kind of back office work and doing hiring and firing at best costs a great deal (Christensen, 2006). The roles of the HR Department and HR practitioners have been changed dramatically from that of merely being the gatekeeper or purchasing role (Christensen, 2006) in the past to becoming a strategic partner and leader in organizations (Ulrich, 1997; Ulrich & Brockbank, 2005). HRM has now become strategic human resource management (SHRM) which is a “strategic and coherent approach to the management of an organization’s most valued assets-the people working there who individually and collectively contribute to the achievement of its objectives” (Armstrong, 2006, p. 3). It has become an international human resource management (IHRM) as more and more companies are expanding globally to take part in the global market. HR professionals have to deal with an international workforce including the parent country, host country and third country nationals. These changes lead to a lot of changes in HR professional competencies. The HR jobs become more demanding requiring higher quality HR professionals with new skills, knowledge, and traits (Christensen, 2006). To ensure that HR professionals are able to cope with these new requirements an HR professional standards and testing system has been established and implemented in many countries such as Canada, Singapore and the United States. Those who have passed the test are accredited and provided with certification and become certified HR professionals. Thailand by the Institute for Human Resource Professional Development (IHPD), the Personnel Management Association of Thailand (PMAT) has also established its accreditation system and is now undergoing a revision of its HR professional standards and testing system. The objective of this paper is to present the present Thailand HR professional accreditation system and the status of the project for revision of the accreditation system. The paper is divided into 5 parts: (1) introduction; (2) the concept of a professional; (3) HR professional accreditation system in selected countries; (4) HR professional accreditation system in Thailand; (5) discussion; and (6) conclusion and recommendation.

THE CONCEPT OF A PROFESSIONAL


One of the greatest challenges to human resource practitioners is professionalism. As mentioned by Werther and Davis (1993) some argue that HRM will never become a professional because there is no common body of knowledge in this field. The term “professional” indicates that a professional must be a member of a profession. It also indicates that in order to become a member of such a profession the person must be well prepared with standards of education and training with the particular knowledge and skills necessary to perform the role of that profession (“Professional Definition”: http://en.wikipedia.org/wiki/Professional). In addition “most professionals are subject to strict codes of conduct enshrining rigorous ethical and moral obligations. Professional standards of practice and ethics … are typically agreed upon and maintained through widely recognized professional associations” (“Professional Definition”: http://en.wikipedia.org/wiki/Professional) According to Steiner and Steiner (1994) “professional people have strongly internalized ethical codes that guide their action … It holds that you should do only that which can be explained before a committee of your peers” (p. 225). According to Joungtrakul and Allen (2012), ethics is an indispensable component of a professional and Bowie (1991, p. 19) states that “the chief function of a professional is … to use her specialized knowledge to protect ignorant clients from being exploited from others.” This is one of the major distinctions of a profession from other trades or occupations.

However, certain definitions of "professional" limit this term to “those professions that serve some important aspect of public interest” (Harvey, Mason, Ward, 1995, cited in http://en.wikipedia.org/wiki/Professional), and “the general good of society” (Sullivan, 2005; Gardner & Lee, 2005, cited in “Professional Definition”: http://en.wikipedia.org/wiki/Professional). At the same time, in some cultures, “the term is used to describe a particular social stratum of well-educated workers who enjoy considerable work autonomy and who are commonly engaged in creative and intellectually challenging work” (Gilbert, 1998; Beeghley, 2004; Eichar, 1989; Ehrenreich, 1989, cited in http://en.wikipedia.org/wiki/Professional). At present HRM could be included in this type of definition.

According to Marston (1968, cited in Pace, Smith, & Mills, 1991) to become a profession the following criterion are required: (1) a defined area of competence; (2) an organized and important body of knowledge; (3) identified with a career field; (4) competence individuals enter the profession by controlled access; (5) principles and practices supported by research; (6) involvement of working professionals in academic programs; (7) program of continuing education; (8) graduates who exercise independent judgment. In 2006, Joungtrakul (2006) added two more components into Marston’s existing model making it comprising of 10 major criterion of a professional: (9) a code of ethics; (10) an academic journal. This revised model has become the basis for the existing Thailand HR Professional Accreditation System.

THE CONCEPT OF ACCREDITATION

Accreditation is “a process in which certification of competency, authority, or credibility is presented… The accreditation process ensures that their certification practices are acceptable, typically meaning that they are competent to test and certify third parties, behave ethically

http://en.wikipedia.org/wiki/Professional





and employ suitable quality assurance.” (Accreditation: http://en.wikipedia.org/wiki/Accreditation). Accreditation of a professional is normally performed in those professions clearly defined by law i.e. engineer, architect, doctor, nurse, etc. Although HRM at present cannot be counted as a full profession and “certification does not make HRM a profession” (Werther & Davis, 1993, p. 55) many countries have an accreditation system to certify HR practitioners as HR professionals.

The HR Accreditation benefits various groups of stakeholders including employers, individual HR practitioners and society. For employers, it provides a source of high quality of applications for recruitment of HR staff i.e. HR specialists, Managers, Directors or Vice Presidents, etc. It helps ensuring that the HR staff recruited are well qualified and are able to perform their roles as expected by the company and the demands of business. For individual HR practitioners, it helps raising their standards and professionalism. It also helps them to gain respects in an organization, industry and society (SHRI: http://www.shri.org.sg/). In Canada, it was found that those HR practitioners who were accredited got more promotion and received better pay than those who were not accredited, for example a survey by Payscale in 2012 found that 45 per cent of HR generalists with Certified Human Resources Professional (CHRPs) become HR managers in five years compared to only 21 per cent of HR generalists without the CHRP (CHRP: http://www.chrp.ca/). For society, it helps attracting foreign investment for example in the case of Singapore. It helps brand Singapore as a Human Capital hub where Singapore can further develop its human capital industry. In addition, it facilitates HR to play an important role in driving national initiatives. It assists HR to play a critical role in human capital development (SHRI: http://www.shri.org.sg/).

HR PROFESSIONAL ACCREDITATION SYSTEM IN SELECTED COUNTRIES To understand the process of accreditation of HR profession a brief review of accreditation system in selected countries will be presented in this section. It will include the certification system in Canada, Singapore and the United States. CANADA The HR accreditation in Canada is performed by Canadian Council of Human Resources Associations (CCHRA) by The Certified Human Resources Professional (CHRP). CHRP did not designate a different level of certification but requires all applicants to pass a National Knowledge Exam (NKE) to be eligible for accreditation. The content of the NKE comprises seven parts: (1) Professional Practice; (2) Organizational Effectiveness; (3) Staffing; (4) Employee and Labor Relations; (5) Total Compensation; (6) Organizational Learning, Training and Development; (7) Occupational Health, Safety and Wellness. Those who fail the examination for 3 consecutive sessions are not allowed to take the next examination for one year before taking the fourth examination and in the case of the fifth examination application it must be approved by the specific Provincial HR Association (CCHRA : http://www.chrp.ca/; PMAT, 2014). The content of each part can be summarized as follows: (1) Professional Practice in Human Resources includes: Human Resources Information Systems-HRIS; organization design; diversity management; systemic discrimination; fixed costs; (2) Organizational Effectiveness

http://www.shri.org.sg/


includes: employee motivation and satisfaction; organizational productivity; human resources planning and corporate strategic planning; Trend analysis; Job analysis; forecasting labor demand; employee performance; Performance appraisal methods; Quality circles; (3) Staffing includes: the recruitment and selection process; a practice that promotes positive; non-discriminatory recruitment perceptions; Employment interviews which includes non-directed or unstructured interviews; Structured interviews; Panel interviews; Behavioral interviews; (4) Employee and Labor Relations; effective disciplinary systems; union organizing; Business unionism; collective bargaining; The collective agreement provisions; The pattern bargaining area, The bargaining zone and The deadlock bargaining area; strike activity; (5) Total Compensation; a method used to analyze whether a lead, lag, or match compensation-level strategy; method of job evaluation; pay equity law; compensation policy of the organization; Labor market conditions; Employer's ability to pay; job classification systems; incentive compensation programs; Employee Stock Ownership Plan-ESOP; flexible benefit programs; pension plans; Defined benefits plans; Contributory plans; Non Contributory plans; Defined contribution plans; effective compensation systems; reward strategies; Work motivation; (6) Organizational Learning, Training and Development; The criteria for evaluating the effectiveness and results of corporate training programs; evaluation methods organizations; Managers plans and employees' career planning and goals; organizational training investments; social learning theory; Self-directed learning; Job instruction training; Role plays; Behavior modeling; The training culture; The culture for transfers; (7) Occupational Health, Safety and Wellness; workplace hazardous materials; Accidents resulting in property damage; Accidents resulting in lost-time injuries; effective evacuation plans (CCHRA : http://www.chrp.ca/; PMAT, 2014). The process of accreditation comprises seven steps as follows: (1) Eligibility: HR practitioners with minimum education of a Bachelor’s degree from an accredited college or university with a minimum three years of experience in HR fields (retroactive to 10 years) who are member of a Provincial HR association are eligible to apply for accreditation; (2) National Knowledge Exam-NKE: Those who pass the eligibility check in step one are eligible for applying for NKE. Registration which must be made at least 60 days before the examination date; (3) Preparation for NKE: The applicants will prepare themselves for NKE by studying the Required Professional Capabilities (RPCs®) and do a Sample NKE Quiz; (4) CCHRA National Code of Ethics: Ethical check according to CCHRA National Code of Ethics will be accomplished; (5) Review of NKE and CCHRA National Code of Ethics check. A review of the results of NKE and CCHRA National Code of Ethics check is conducted; (6) Professional Activities: Those who pass all the assessments in step five and those who have been holding the certificate of accreditation for three years must participate in professional programs organized by the specific Provincial HR Associations with a full score of 100 marks; (7) Renewal of Accreditation Certificate: Those who are holing accreditation certificates must renew their certificate every three years. They are required to participate in professional programs organized by the specific Provincial HR Associations and pass the NKE and CCHRA National Code of Ethics check every three years (CCHRA : http://www.chrp.ca/; PMAT, 2014). SINGAPORE


In Singapore the HR professional standards and professional qualification is developed by the Singapore Human Resource Institute (SHRI) while HR accreditation is performed by SHRI Academy Pte.Ltd., according to the Singapore HR Accreditation Framework. There are three levels of accreditation status; (1) Human Resource Associate (HRA) with the following required competence: Performs an executive role in an organization’s HR functions; possesses the competencies and knowledge to perform either simple activities in a number of HR processes, or specialized activities in selected HR processes and activities; possesses understanding of most key related functions. An HRA candidate should hold the title of HR Assistant / HR Executive / HR Officer and have less than two years of working experience. The candidate may also be a fresh graduate with sufficient HR knowledge and the awarding institute is recognized by SHRI (2) Human Resource Professional (HRP) with the following required competence: Performs an executive, managerial or specialist role in an organization’s HR functions; Possesses the competencies and knowledge to perform either complex activities in a number of HR processes, or in specialized and complex activities in selected HR processes; possesses substantial understanding of most key related functions. An HRP candidate should hold the title of HR Executive or HR Manager and have less than 10 years of working experience. (3) Senior Human Resource Professional (SHRP) with the following required competence: Performs a strategic role in an organization’s HR function; possesses the competencies and knowledge to perform either: strategic activities in a number of HR processes, or specialized and strategic activities in selected HR processes; possesses strategic understanding of most key related functions (SHRI: http://www.shri.org.sg/; PMAT, 2014). The process of HR accreditation in Singapore comprises five major steps as follows: (1) A candidate submits an application to the HR Accreditation Ethics and Appeal Panel for assessment; (2) Applications of those who passed the ethical assessment will be submitted to the Assessment Panel; (3) The Assessment Panel will consider the applications and conduct interviews with candidates and assess the candidate according to the Singapore HR Accreditation Framework and submit the applications of those who pass the assessment to the HR Accreditation Board ; (4) The HR Accreditation Board accredits those candidates who pass the assessment; (5) Those who are accredited must renew their accreditation every three years with the HR Accreditation Secretariat (SHRI: http://www.shri.org.sg/; PMAT, 2014). THE UNITED STATES OF AMERICA The HR accreditation In the USA has been performed by the HR certification Institutes (HRCI). The HRCI “was established in 1976 as an internationally recognized certifying organization for the HR profession. The Institute has certified more than 130,000 HR professionals in 100 countries. HR certification represents a high level of professional achievement valued by employers and organizations across the globe” (HRCI, 2014). However, from 2015, the Society for Human Resource Management (SHRM) will commence its own HR Accreditation Program with the two credentials of SHRM Certified Professional (SHRM-CP) and SHRM Senior Certified Professional (SHRM-SCP). Although “SHRM created HRCI over 40 years ago, SHRM and HRCI have always been, and still remain,




separate and distinct organizations. The HRCI certifications (e.g., PHR, SPHR, GPHR, HRBP and HRMP) are owned and controlled by HRCI, not by SHRM. The new SHRM Certifications are separate from these HRCI certifications” (SHRM: http://www.shrm.org/pages/default.aspx). HRCI provides five credentials for accreditation: (1) Professional in Human Resources (PHR) is credential for technical or operational level of HR practitioners; (2) Senior Professional in Human Resources (SPHR) is a credential for senior HR practitioners who deal with Strategic/HR Policy Issues of organizations; (3) Global Professional in Human Resources (GPHR) is a credential for HR practitioners who perform Global/International HR functions and are responsible for HR functions in several countries; (4) Human Resource Business Professional (HRBP) is a credential for those HR practitioner at the PHR level who perform HR functions outside the United States; (5) Human Resource Management Professional (HRMP) is a credential for those HR practitioner at the SPHR level who perform HR functions outside the United States. The HRCI accreditation program is based on Experience-based Knowledge (HRCI, 2014; PMAT, 2014). The distribution of testing contents is displayed in Table 1.

TABLE 1: DISTRIBUTION OF TESTING CONTENT OF EACH HRCI HR PROFESSIONAL CREDENTIALS

PHR

SPHR

GPHR

Business Management and Strategy 30% 11% - Workforce Planning and Employment 17% 24% - Human Resource Development 19% 18% - Compensation and Benefits 13% 19% - Employee and Labor Relations 14% 20% - Risk Management 7% 8% - Strategic HR Management - - 25% Global Talent Acquisition and Mobility - - 21% Global Compensation and Benefits - - 17% Talent and Organizational Development - - 22% Workforce Relations and Risk Management

- - 15%

Total 100 100 100 Source: Adapted from PMAT, 2014. Table 1 shows the distribution of testing content of each HRCI HR Professional Credentials. The same testing framework with different areas of focusing is used for PHR and SPHR levels. For PHR, it focuses on Business Management and Strategy (30%), Human Resource Development (19%), and Workforce Planning and Employment (17%) respectively. At the same time for SPHR, the test focuses on Workforce Planning and Employment (24%), Employee and Labor Relations (20%), Compensation and Benefits (19%), and Human Resource Development (18%) respectively. However, for GPHR level a different testing framework is used. The test focuses on Strategic HR Management (25%), Talent and


Organizational Development (22%), and Global Talent Acquisition and Mobility (21%) respectively. The process of HRCI accreditation comprises six steps as follows: (1) Applicant submits application to HRCI; (2) Applicant prepares for examination; (3) Applicant takes examination; PHR examination stresses technical aspects and operations, SPHR examination stresses policy and strategy while GPHR stresses on International HR; (4) Those who pass the examination will be given credential certification by HRCI; (5) The certified HR professionals must renew their accreditation status every three years by taking an examination and participating in HR professional activities as specified by HRCI; (6) Those who pass the conditions in step 5 will be given a renewal of certification for another three years (PMAT, 2014). The SHRM accreditation program is based on a HR Competency Model developed by SHRM which comprises nine core competencies as follows: Competency 1: Human Resource Expertise: The ability to apply the principles and practices of human resource management to contribute to the success of the business. Sub-competencies (competencies related to and/or subsumed by the relevant general competency) comprise: Strategic Business Management; Workforce Planning and Employment; Human Resource Development; Compensation and Benefits; Risk Management; Employee and Labor Relations; HR Technology; Global and International Human Resource Capabilities; Talent Management; Change Management. Competency 2: Relationship Management: The ability to manage interactions to provide service and to support the organization. Sub-competencies comprise: Business Networking Expertise; Visibility; Customer Service (internal and external); People Management; Advocacy; Negotiation and Conflict Management; Credibility; Community Relations; Transparency; Proactivity; Responsiveness; Mentorship; Influence; Employee Engagement; Teamwork; Mutual Respect. Competency 3: Consultation: The ability to provide guidance to organizational stakeholders. The sub-competencies comprise: Coaching; Project Management (Vision, Design, Implementation, and Evaluation); Analytic Reasoning; Problem-solving; Inquisitiveness; Creativity and Innovation; Flexibility; Respected Business Partner; Career Pathing/Talent Management/People Management; Time Management. Competency 4: Leadership and Navigation: The ability to direct and contribute to initiatives and processes within the organization. Sub-competencies comprise: Transformational and Functional Leadership; Results and Goal-Oriented; Resource Management; Succession Planning; Project Management; Mission Driven; Change Management; Political Savvy; Influence; Consensus Builder. Competency 5: Communication: Verbal Communication Skills; Written Communication Skills; Presentation Skills; Persuasion; Diplomacy; Perceptual Objectivity; Active Listening; Effective Timely Feedback; Facilitation Skills; Meeting Effectiveness; Social Technology and Social Media Savvy; Public Relations. Competency 6: Global and Cultural Effectiveness: The ability to value and consider the perspectives and backgrounds of all parties. Sub-competencies comprise: Global Perspective; Diversity Perspective; Openness to Various Perspectives; Empathy; Openness to Experience; Tolerance for Ambiguity; Adaptability; Cultural Awareness and Respect. Competency 7: Ethical Practice: The ability to support and uphold the values of the organization while mitigating risk. Sub-competencies comprise: Rapport Building; Trust Building; Personal, Professional, and Behavioral Integrity; Professionalism; Credibility; Personal and Professional Courage. Competency 8: Critical


Evaluation: The ability to interpret information to make business decisions and recommendations. Sub-competencies comprise: Measurement and Assessment Skills; Objectivity; Critical Thinking; Problem Solving; Curiosity and Inquisitiveness; Research Methodology; Decision-making; Auditing Skills; Knowledge Management Competency 9: Business Acumen: The ability to understand and apply information to contribute to the organization’s strategic plan. Sub-competencies comprise: Strategic Agility; Business Knowledge; Systems Thinking; Economic Awareness; Effective Administration; Knowledge of Finance and Accounting; Knowledge of Sales and Marketing; Knowledge of Technology; Knowledge of Labor Markets; Knowledge of Business Operations/Logistics; Knowledge of Government and Regulatory Guidelines; HR and Organizational Metrics/Analytics/Business Indicators (SHRM: http://www.shrm.org/pages/default.aspx). The certification program will begin in 2015. It is based on detailed competencies and one of the core competencies is ethical practice.

HR PROFESSIONAL ACCREDITATION SYSTEM IN THAILAND

Thailand began its HR Professional Accreditation Program in 2011 by the Institute for HR Professional Development (IHPD), an independent organization under the patronage of the Personnel Management Association of Thailand (PMAT). The IHPD proposed three levels of credential: Professional Human Resource (PHR); Senior Professional Human Resource (SPHR); Global Professional Human Resource (GPHR). However, at present the IHPD is able to certify only one level which is Professional Human Resource (PHR). Accreditation of the Senior Professional Human Resource (SPHR) will be accomplished later. For the Global Professional Human Resource (GPHR) level, IHPD plans to cooperate with HRCI to accredit this level of professional. SHRM was contacted and discussion was made for future cooperation of accrediting other levels of professional as well. IHPD HR professional competencies comprise generic/managerial competencies and functional/technical competencies as specify in Table 2. TABLE 2: THAILAND HR COMPETENCY MODELLING AND PROFILE 1. Generic / Managerial Competency 1.1 Business Effectiveness

1. Business Acumen 2. Strategic Acumen 3. Environment Scanning and Trend Analysis

1.2 Organization Effectiveness

1. Change Management 2. Collaboration 3. Counseling

1.3 Personal Effectiveness 1. Leadership 2. Communication & Presentation 3. Cognitive Flexibility

2. Functional / Technical Competency 2.1 HR Competency for HRM)

1. HR Planning 2. Recruitment and Selection


3. Compensation Management 4. Employee Relation

2.2 HR Competency for HRD

1. Training, Development & learning 2. Career Development 3. Organization Development 4. Performance Management

Source: Adapted from PMAT, 2014. Table 2 shows Thailand HR competency and modeling profile. The model is divided into two parts: generic/managerial competency; and functional/technical competency. The process of accreditation by IHPD comprises seven steps as follows: (1) Applicant submits an application to IHPD; (2) Qualification checks conducted by IHPD; (3) Eligible applicants take written examination; (4) Those who pass the written examination will be interviewed by Interviewing Panel; (5) Those who passes the interview will be accredited; (6) Certificate of accreditation is valid for three years and recertification is required upon the expiration of the current certification (Joungtrakul, 2014).

To promote HR professionalism in Thailand the Thailand Professional Qualification Institute (TPQI) an independent governmental organization under the Prime Minister’s Office has extended its support both in terms of technical and financial support to PMAT. An MOU was signed and followed by a one year contract which began from 1 August 2014 to be ended on 31 July 2015. The project is to develop competencies and determine the levels of credentials for Thai HR professionalism. It is expected that the credentials could be divided into 4 levels: beginning; operational; professional; and senior levels. The present professional level will be revised to be in line with the other three new developed credentials. The accreditation of GPHR and other similar credentials will be done with HRCI or SHRM as the case may be (Joungtrakul, 2014).

DISCUSSION Based on a briefly review of the HR professional accreditation system in four countries including Canada, Singapore, The United States and Thailand four major components of the accreditation system in each country can be identified and compared as display in Table 3. TABLE 3: FOUR MAJOR COMPONENTS OF THE ACCREDITATION SYSTEMS

IN FOUR COUNTRIES Country Accrediting

Body Credentials Examination

and Testing Accreditation Process Highlight

Canada CCHRA by CHRP

Not separate into different

Passed National Examination.

-National Code of Ethics check and


level Occupational Health, Safety & Wellness are highlight

participate in provincial HR association activities -Valid for three years

Singapore SHRI by SHRI Academy

HRA, HRP, Senior HRP

HR Accreditation Framework,

Ethical check, interview by assessment panel and approved by HR Accreditation Board -Valid for three years

The United States

SHRM by HRCI and both from 2015 onward

HRCI: PHR, SPHR, GPHR SHRM: SHRM-CP, SHRM-SCP

HRCI: Functional Competency Model SHRM: Integrated Competency Model with emphasis of Ethics

-HRCI: Examination -Valid for three years -SHRM; Examination with the emphasis of ethical competencies

Thailand PMAT by IHPD

Present: PHR, SPHR, GPHR Future: Four Levels plus GPHR

Functional competencies and interview

Final approval by IHPD Board -Valid for three years

Table 3 illustrates a comparison of the four major components of HR Accreditation in four different countries including Canada, Singapore, United States and Thailand. The certifying body in Singapore and Thailand are similar as the accreditation is performed by an organization extended from the national HR professional association. In Canada the role of provincial HR associations are highlighted by linking their activities with the CCHRA and CHRP. In the United States there will be two separate certifying bodies from 2015 onward, HRCI and SHRM. Regarding the credentials provided by the certifying body of each country all three countries have separate levels of credential i.e. Professional, Senior Professional and Global Professional except in Canada where there is no distinction of credentials given. For examination and testing the accrediting organization conducts the examination and testing except for the case of Canada where the examination and testing is a national examination. All three countries use functional competencies as the main framework for examination and testing except in the case of SHRM in the United States where integrated competencies will be utilized. Only Canada emphasizes Occupational Health, Safety and Wellness in the examination and testing while SHRM in the United States includes ethics in the competencies model. Canada and Singapore give first priority to ethics in the process of accreditation while SHRM includes ethics in the competencies model. HRCI in the United States and IHPD in


Thailand does not explicitly identified ethics in the process of accreditation. Accreditation is valid for three years in all countries studied. Accreditation is normally conducted for those professions that are controlled under the national laws for the best interests of the countries i.e. engineer, architect, doctor, nurse, etc. However, the definition of professional is extended to those professions that require high education and skills. Based on the professional definition by Marston (1968, cited in Pace, et al., 1991) HR cannot be considered as a profession as it does not meet all the eight criterion requirement of the professional. The major criteria that would be very difficult for HR to fulfill is that the “graduates who exercise independent judgment”. As HR practitioners have very limited absolute authority in making people decision due to the fact that people decisions are made by line managers and top management. Werther and Davis (1993) argue that certification does not make HR a profession. They further argue that some argue that the field will never become a profession because there is no common body of knowledge and it is not a clearly separate discipline like law, medicine or economics” (p. 55) as it “draws on a variety of disciplines” (p. 55). Whether HR will become a profession or not it appears that HR is playing a pivotal role in any organization no matter if it is private or public, profit on non-profit organizations. The role of HR today is not limited in an organizational level but it is extending to industry, national and international levels (Armstrong, 2006; Christensen, 2006; Noe, Hollenbeck, Gerhart, & Wright, 2011). As human resources becomes a major competitive edge of any country in the global market and economy HR practitioners are increasingly playing important roles in organizations and in national development. Although accreditation will not make HR a profession it helps HR practitioners to be able to play more critical roles in organizations, and in national and international contexts (SHRI: http://www.shri.org.sg/; (PMAT, 2014).

CONCLUSION AND RECOMMENDATION

HR professional accreditation may not make HR to become a profession. However, it does no harm to the community, society or country. In contrast, it helps promoting HR practitioners to be more recognized by their peers and stakeholders. In Canada HR practitioners who are accredited receive higher pay and get promotion faster than those who are not. HR practitioners are playing more critical roles in both organizations and national development as mentioned earlier. Therefore, HR professional accreditation should be promoted and expanded. Occupational Health, Safety and Wellness should be included in the examination and testing framework of a HR professional accreditation system. Although, in Thailand there is a system of certifying Safety Officer under Safety and Health laws this function normally reports to the HR Department. In order to be able to supervise this function effectively HR professionals must pass the examination and testing in this area as well. In addition, ethics is considered as an integral part of any professional including HR. Thus ethics should be an integral part of any professional accreditation process including HR professional accreditation process in Thailand.

REFERENCES Accreditation: Online Available: http://en.wikipedia.org/wiki/Accreditation, Retrieved 1 October 2014.



Armstrong, M. (2006). Strategic Human Resource Management: A Guide to Action (3 ed.). London: Kogan Page. Bowie, N. E. (1991). Business Ethics as a Discipline: The Search for Legitimacy. In R. E. Freeman (Ed.), Business Ethics: The State of the Art (pp. 17-44). New York: Oxford University Press. CCHRA: Online Available: http://www.chrp.ca/; Retrieved 1 October 2014. Christensen, R. (2006). Roadmap to Strategic HR: Turning a Great Idea into a Business Reality. New York: American Management Association. HRCI. (2014). HR Certification Institute: 2014 Certification Policies and Procedures Handbook HRPB and HRMP. Virginia: Human Resource Certification Institute. CHRP: Online Available: http://www.chrp.ca/: Retrieve 1 October 2014. Joungtrakul, J. (2006). HR Profesionalism. Bangkok: Personnel Management Association of Thailand. Joungtrakul, J. (2014). The Future Global and Regional Challenges to Thai Human Resource Professionals. Paper presented at the Thailand Eastern Region HR Forum 2014, Dusit Thanee Resort Hotel, Pataya, Thailand. Joungtrakul, J., & Allen, B. M. (2012). Research Ethics: A Comparative Study of Qualitative Doctoral Dissertations Submitted to Universities in Thailand and the USA. Science Journal of Business Management, 2012 (2012)(2), 11. Noe, R. A., Hollenbeck, J. R., Gerhart, B., & Wright, P. M. (2011). Fundamentals of Human Resource Management (4 ed.). New York: McGraw-Hill/Irwin. Pace, R. W., Smith, P. C., & Mills, G. E. (1991). Human Resource Development: The Field. New Jersey: Prentice Hall. PMAT. (2014). Second Progress Report of Human Resource Professional Standard and Professional Qualification Development Project (in Thai). Paper presented at the Workshop on Human Resource Professional Standard and Professional Qualification Development Project, Maruay Garden Hotel, Bangkok. Professional Definition: Online Available: http://en.wikipedia.org/wiki/Professional, Retrieved 1 October 2014. SHRI: Online Available: http://www.shri.org.sg/, Retrieved 1 October 2014. SHRM: Online Available: http://www.shrm.org/pages/default.aspx, Retrieved 1 October 2014. Steiner, G. A., & Steiner, J. F. (1994). Business, Government, and Society: A Managerial Perspective, Text and Cases (7 ed.). New York: McGraw-Hill. Ulrich, D. (1997). Human Resource Champions:The Next Agenda for Adding Value and Delivering Results. Boston, Massachusetts: Harvard Business School Press. Ulrich, D., & Brockbank, W. (2005). The HR Value Proposition. Massachusetts: Harvard Business School Press. Werther, W. B., & Davis, K. (1993). Human Resources and Personnel Management (4th ed.). New York: McGraw-Hill.

http://www.chrp.ca/



EFFECTS OF WIVES’ EMPLOYMENT ON HUSBAND-WIFE ROLES IN FAMILY FINANCIAL DECISION MAKING AND FINANCIAL

ACTIVITIES

Roger J. Baran DePaul University, Chicago, USA

[email protected]

ABSTRACT This study investigates two issues that are critical to increasing our understanding of family financial decision making. First, numerous studies use weak measures of spousal influence—often consisting of just a single question and often confusing financial decision making with financial task performance. This study develops a more robust measure. Second, numerous studies have shown that, consistent with resource theory, the greater the wife’s income, the greater her influence in family financial decisions. Recent studies, however, have begun to question that. This study finds that while wife’s employment is a resource leading to greater influence on the selection of financial services, with respect to other family financial decisions and tasks, it impacts wives influence only in later stages of the family life cycle.

INTRODUCTION The literature on family decision making is extensive, as the area has received attention in such diverse areas as consumer behavior, sociology, economics, economic psychology, family economics, cultural anthropology, and rural sociology. Our knowledge of family decision making has been enriched by such diverse approaches; however, the fields have often operated as silos without sharing and building upon important findings. Occasionally, there are very basic disagreements regarding the influence of husbands and wives on critical family financial decisions and task performance. On the one hand there is traditional economic theory with its view that decision making within the family is based on common preferences of family members who pool household resources so that individual resources have no bearing on spousal influence. On the other hand, bargaining models state that household decision-making outcomes depend on the relative bargaining power of each spouse which derives from the resources they bring into the relationship. This is in line with resource theory and would predict, for example, that employed wives would have greater power than unemployed wives in household bargaining, including financial decision making. Becker’s (Becker 1981) standard theory (common preference model) of household decision making assumes that a husband, wife or both together maximize a single household utility function subject to a pooled resource constraint. According to Becker, although an increase in income has a bearing on household demand, whether it’s the husband’s or wife’s is

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immaterial. Numerous studies have raised doubts that households can be treated as unitary decision makers. In contrast, the bargaining model holds that there may be differences between husband-wife preferences and, when there are, who will win depends on the spouse’s threat points or resources. The idea that spouses engage in cooperative bargaining began with McElroy and Horney, and Manser and Brown. (McElroy and Horney 1981, Manser and Brown 1980). In their view, a spouse’s bargaining power depends on his/her threat points; i.e., the utility they would experience by divorce. Variables which are related to threat points – like spouses’ wages, pension earnings, or wealth—affect the influence a spouse can bring to bear on decisions when there are disagreements. This is similar to resource theory where the outcome is likely to reflect the preferences of the partner who has relatively more control over resources in the marriage (e.g., income, education, occupational status). The impact of threat points and resources are similar in conveying power and influence over family decisions. The spouse who is less dependent on the marriage has a higher threat point and therefore has a resource which can be brought to bear on winning a decision. The spouse with greater resources can use these to exert influence. To a large degree, the unitary, common preference or standard model of the household has given way to what some call the “fractious” model or collective approach to modeling the household—one in which spouses try and cooperate. It recognizes that a husband and wife have distinct utility functions and the household maximizes a weighted average of the two functions with the weight capturing the balance of power in the household (Basu 2006). In keeping with the prediction that resources and threat points convey power, numerous studies have found indicators of women’s bargaining power to have a significant effect on women’s involvement in household decision making. Bernasek and Bajtelsmit (Bernasek and Bajtelsmit 2002) found a positive relationship between a woman’s share of total household income and her involvement in family financial decision making. Woolley (Woolley 2003) found that males with higher earnings exerted more control over household finances through activities such as writing checks, making cash withdrawals, and keeping the books. Friedberg and Webb (Friedberg and Webb 2006) found earnings have a significant effect on decision-making power. A wife’s current annual earnings significantly lower both spouses’ reports of the husband’s decision-making power. A husband’s earnings also significantly raise his wife’s report of his decision-making power. Interestingly, a wife’s earnings have been shown to matter several times more than a husband’s. Recently, however, resource theory predictions have been questioned. Jianakoplos and Bernasek, (Jianakoplos and Bernasek 2008) using data from the 2004 Survey of Consumer Finances focused on a sample of 1,379 dual-earner married households and found only very limited support for resource theory hypotheses. Commuri and Gentry’s findings (Commuri and Gentry 2005) with respect to Wife as Chief Wage Earner (WCWE) couples did not find evidence of a shift in control of family financial decisions toward the wife. This is contrary to


both resource theory and the human capital perspective. This is surprising since in these couples the wife is not only employed and earning an income but her income surpasses that of the husband. If Friedberg and Webb (Friedberg and Webb 2006) are correct, and a wife’s earnings matter several times more than a husband’s, then if wives in WCWE households don’t have greater influence over family financial decisions, then the applicability of resource theory must be questioned. If resource theory is to serve as a model of spousal influence, it should certainly hold in WCWE households. It is therefore important to revisit resource theory predictions regarding spousal influence. In this study we investigate the most basic of wife resources—employment—and the impact this has on her influence on family financial decisions and tasks.

BACKGROUND: THE IMPACT OF WIFE’S EMPLOYMENT ON HER INFLUENCE IN FAMILY DECISION MAKING

Four explanations are prominent in the attempt to explain why working wives are likely to be more involved in household decision making than non-working wives: (1) Resource theory (2) Exchange theory (3) the Structural-Functional approach and (4) Social Power Theory. Blood and Wolfe’s resource theory (Blood & Wolfe 1960, Blood 1963) suggests that the reason employed wives have more influence in family decisions is that when the wife works she supplies valued resources for the family, and the greater one’s resources, the greater one’s power. These resources gained from employment may be tangible, such as income, or intangible, such as an increase in interpersonal skills, a broadened perspective, and greater prestige. Resource theory states that the more resources a spouse has in comparison to the partner, the more power he or she will have. One resource which non-working wives have more of compared with working wives is time. Time is a particularly critical resource when considering which spouse is likely to perform family tasks. Blood and Wolfe suggest that the division of labor within a family has its basis in how easy it is for either spouse to perform a task, and that ease is a function of time and skill. With respect to the performance of family financial activities, it is felt that while working wives may be more skilled in handling of the family finances, non-working wives have more time to handle the financial activities. Therefore, there is no reason to believe that working wives are more likely to perform the family financial activities. A second related explanation for increased decision-making involvement of the working wife is the theory of exchange and reciprocity in social relationships (Thibaut and Kelley 1959, Homans 1958). Heer (Heer 1963) applied exchange theory to the discussion of marital decision making. According to Heer, the family’s balance of power is related to the comparative value of the resources obtained within the relationship to the value of the


resources that could be obtained outside the marital relationship. Both the resource and exchange theories are related. Resources are the commodities exchanged and “exchange” is the process. But Heer’s emphasis is upon the comparison of the value of the resources obtained within the marital relationship to that obtainable outside, while Blood and Wolfe emphasize the comparative resources each person brings to the marital relationship. Exchange theory maintains that the relative socio-economic resources possessed by spouses are compared by each and exchanged for the right to make decisions. A wife who is employed and earning money lessens her husband’s control over this resource and increases the likelihood that she will have more involvement in decisions—particularly financial ones. Scanzoni’s (Scanzoni 1982) application of social exchange theory provided the perspective that men have held greater power in decision making in the marital relationship based on their greater economic resources, educational advantages, and occupational prestige. The third main explanation for why working wives have more power or influence in family decisions is suggested by Pitt’s (Pitts 1964) structural-functional approach. He suggests the role of working wife carries with it greater prestige and social status than the role of homemaker and, therefore, also carries with it greater decision making authority. The greater prestige accruing to the working wife role legitimizes her greater influence in family decisions. A fourth explanation is contained in social power theory by Raven, Centers and Rodrigues (Raven, Centers and Rodrigues 1971). Of the six bases of power, expert power — the belief that one family member has superior knowledge in a decision area — was shown to be particularly relevant in determining which spouse would have the power or influence in that area.

FACTORS INFLUENCING HUSBAND-WIFE INFLUENCE IN FAMILY MONEY MANAGEMENT

Demographic and marital role attitudes have been identified as variables affecting the amount of influence husbands and wives have in family money management:

1) Length of time married: Wolgast (Wolgast 1958) found an increase in the division of labor for economic decisions over length of time married. Similarly, Ferber and Lee (Ferber 1955, Ferber and Lee 1974) found a shift from joint to individual influence in early years of marriage in bill paying, budgeting and use of leftover pay.

2) Attitudes toward male and female roles: Green and Cunningham (Cunningham and Green 1974) found that contemporary attitudes toward female roles are associated with greater involvement by the wife in family financial management. Rosen and Granbois (Rosen and Granbois 1983) found that when a couple’s sex role attitudes were traditional (and education low) the wife controlled routine savings and money management implementation tasks.

3) Wife’s employment status: Skinner and Dubinsky (Skinner and Dubinsky 1984) found in families with a working wife (and a husband with less formal education) wives had


stronger influence in purchase of insurance—even though husbands still retained the dominant role. Robertson (1991) found working wives had more influence than non-working wives for life insurance, savings and timing, cost, location and transportation for vacations (but not home, apartment or doctor).

4) Age, income and education: Lovingood and Firebaugh (Lovingood and Firebaugh 1978) found that the older and more educated the wife is, the more involved she is in the family’s finances. Pahl (Pahl 1995) found that it is women who are responsible for household finances and making ends meet in low income households.

5) Type of relationship: First marriage, remarriage and cohabiting: McConocha, Tully and Walther (McConocha, Tully and Walther 1993) found that women tended to be the household financial officer in first marriage couples whereas each partner in a nontraditional couple tended to make his/her own decisions.

SAMPLING

The data in this study were collected from a questionnaire personally administered by professional interviewers to 423 couples residing in the Chicago SMSA. To be selected as respondents, the couple must have opened a checking or a savings account at a financial institution within the past two years. In addition, the head of household must have been currently employed and forty years old or less. Seventeen geographic areas each approximately the size of two census tracts were selected from across the SMSA based on the racial composition of the area according to census statistics. Within each of the seventeen areas, the criss-cross directory was used to determine the number of dwelling units. The proportional number of dwelling units in each area compared to the total number of dwelling units in all seventeen areas determined the proportion of 423 interviews to be obtained in each area. Once the number of interviews to be conducted in each area was determined, the specific dwelling units were selected using the criss-cross directory as the sampling frame. A systematic sampling method was used and a skip pattern employed. After a randomly selected start these households were called and, if they met the screening criteria, an appointment was made for the interviewer to visit the couple. During the visit the interviewer explained the self-administered questionnaire and remained there to answer any questions, to ensure the questionnaires were completed by both husband and wife without collaboration, and to review each questionnaire’s completeness. Interviewers and respondents were matched by race.

MEASURES OF THE DEPENDENT VARIABLE

Many studies have been conducted on family financial decision making and most assume the structure of husband-wife roles is essentially unidimensional. Very often a single question is asked such as “who handles the finances in your family, “who handles the banking relationships in your family,” or “who in your family is primarily responsible for making banking decisions. Even if there is a “joint” response available, such questions assume this decision-making unit is responsible for all financial decisions and tasks subsumed in the question. While it is simpler to ask a single global questions such as “Who handles the


finances in your family?” such questions mask the different patterns that may exist for interrelated sub-decisions such as charge cards, checking accounts, savings accounts, etc. For example, Friedberg and Webb (Friedberg and Webb 2006) used data from the 1992 Health and Retirement Study, a longitudinal survey of over 7,600 households with a member aged 50-60 in 1991. Each spouse was asked the following question about decision-making power: “When it comes to making major family decisions, who has the final say – you or your (husband/ wife/ partner)? By ‘major family decisions’ we mean things like when to retire, where to live, or how much money to spend on a major purchase.” Isn’t it likely that different influence patterns would hold depending upon which “major decision” was considered? Graziella Bertocchi, Marianna Brunetti and Costanza Torricelli (Bertocchi, Brunetti and Torricelli 2012): “Is it Money or Brains? Used one Bank of Italy question. Husbands and wives jointly determined which spouse is the household head in the family by answering this question: “The person who is responsible for the financial and economic choices of the household.” Husbands and wives jointly determine which spouse is the household head in their family. Once again, wouldn’t we expect influence patterns to differ across different financial and economic choices such as expenses for childrens’ clothes, mortgage, groceries, insurance, automobile, furniture, vacations, education, bill paying, etc.? Further, when measuring influence in family financial matters it is important to consider decisions and tasks independently. A spouse under time pressure may make decisions but not handle the financial tasks. Consequently, the dependent variables used in this study are specific and cover both decisions and activities. Refer to Figure 1.

FIGURE 1: SAVINGS AND CHECKING ACCOUNT

DECISIONS AND ACTIVITIES INVESTIGATED

Decisions Activities

S A V I N G S

A C C O U

( 1 )

Recognized need for the account (D)

Decided when to open savings account (D)

Decided where to open savings account (D)

Decided when to make deposits into savings account (C) Decided how much money to deposit (C)

Decides how much to save out of each pay

( 2 )

Opened the Account (D)

Makes saving deposits (C)

Withdraws money from the savings account when necessary (C)


N T

check (C)

C H E C K I N G

A C C O N T

(3)

Recognized need for the account (D)

Decided when to open checking account (D)

Decided where to open checking account(D)

Decides when to make deposits into checking account (C) Decides how much money to deposit (C)

(4)

Opened the account (D)

Makes checking account deposits (C)

Cashes checks when ready cash is needed (C) Carries the checkbook (C)

Discrete or one-time decisions and activities are denoted “D” and continuously occurring ones are denoted “C” Questions relating to these eighteen decisions and activities were intermixed throughout the questionnaire to avoid a response set. In most cases these questions were answered using a 3-point scale where 1 = mainly husband, 2 = both (“joint” or “either one” was used where more appropriate), and 3 = mainly wife. Previous studies (H. L. Davis 1970a, H. L. Davis 1970b) indicate that use of more categories does not appreciably change the results. Husbands and wives do not appear to recall past roles in finer detail. Wives were classified with respect to their employment status into two groups: those who were currently employed outside the home and those who were not. In examining the impact of wives’ employment on their involvement in the eighteen financial decisions and activities, it was necessary to control for race and the family’s stage in the life cycle. Since black couples and white couples (no racially mixed couples) were selected as respondents, respondents are classified into either of those two racial groups. Classification of couples into family life-cycle categories was considerable more complex, since family life cycle is a multidimensional concept subsuming age, length of marriage, presence of children, age of children, employment status of head of household, and various measures of sibling relationships.” Since all of the respondents in this study were married and heads of


households 40 years old or younger, the following classification scheme was developed:

1) Married, no children ( N = 117 ) 2) Married, preschool children present ( N = 202 ) 3) Married, no preschool children, only older one(s) ( N = 104)

DIMENSIONS OF FAMILY FINANCIAL ROLES

This section reports on the results of a factor analysis of eighteen checking and savings account decisions and activities. The purpose is twofold:

1) To identify a set of dimensions that may provide useful information with respect to the underlying structure of husband-wife roles in the area of financial services, and

2) To identify and perhaps create a smaller set of dependent variables for use in the subsequent analysis relating wife’s employment to influence in these areas.

Factor analysis was selected for conceptual as well as statistical purposes:

1) A one-factor solution might support those who feel the handling of family finances is unidimensional. Based on a spouse’s response to a single, global question such as “who handles the finances in your family?” many researchers then presume to know how all financial decisions and tasks are handled. It would also give support to the pooled resource household perspective.

2) A two-factor solution where each factor is related to the service – checking account or savings account – would suggest product specialization or a basic form of role specialization: a decision-maker role vs. a user or task-performer role.

3) Other multifactor solutions would suggest more complex structures of roles such as role specialization based on the nature or importance of the decision or task. For example, a similar involvement pattern for the “where to bank” decisions would

4) denote a financial institution specialization; whereas a similar involvement pattern for “when to deposit” and “how much to deposit” would denote a financial allocation specialization.

The factor analysis may facilitate reduction in the number of dependent variables from eighteen to a more manageable set. The common factor model was used in this analysis--the PA2 method of factoring in SPSS--in which initial estimates of the communalities are given by the squared multiple correlation between each of the eighteen variables and the other seventeen in the matrix. Only the value of the communality estimate is decomposed into factors. To facilitate interpretation, factors were extracted using varimax rotation. Two stopping criteria determined the number of factors extracted: (1) only factors having eigenvalues greater than one were considered significant; and (2) extraction of factors was stopped when the cumulative percent of variance explained by successive factors was 60%. Only factor loadings greater than + .45 were considered and no variable had loadings of ± .45 or more on


multiple factors. Table 1 is the varimax rotated factor matrix listing the variables, with the significant loadings on each factor highlighted. The responses from wives suggest four basic roles. The variable loadings on the four separate factors lead to a relatively straight-forward interpretation. Factor I: This factor is labeled the Family Financial Officer (FFO) role or “controller of the family purse strings”. This role cuts across both the checking account and savings account with respect to allocation of funds. It involves not only determining how much money should be saved from each paycheck, but also determining when this money should be deposited. Many writers have posited the existence of a family financial officer role. This factor not only lends credence to such supposition, but also helps in building a profile of such a role. Factor II: This factor is product specific and is labeled the IDOSAV role. It consists of making the initial suggestion to open the savings account, deciding where to open the savings account, deciding when to open the account, and visiting the financial institution to open the account. Factor III: This factor is labeled Financial Task Performer (FTP). It consists of performing the regular, routine tasks of making deposits into the savings account, making withdrawals from the savings account, making deposits into the checking account, cashing the family checks when cash is needed, and carrying the family checkbook. Just as the FFO role cuts across bank retail services, so does the FTP role. Within the family there appears to be a specialized task-performer role – a role which is devoid of decision-making influence – which consists of handling the transactions specified by the Family Financial Officer.


TABLE 1: VARIMAX ROTATED FACTOR MATRIX: WIVES’ RESPONSES

Factor IV: This factor is product-specific and is labeled the IDOCX. It consists of making the initial suggestion to open a checking account, deciding where to open the checking account, deciding when to open the checking account, and actually visiting the financial institution to open the account. This role consists of exactly the same components as Factor II, except it involves the checking account. Thus, there appear to be different involvement patterns among husbands and wives for these two financial services. These four factors explain 65% of the total variance. After rotation, the proportion of the total variance explained by the FFO factor is 20%, the FTP factor explains 16%, the IDOCX factor explains 15%, and the IDOSAV factor explains 14%. Investigating the responses from husbands (not shown here) separately from those of wives was done to contribute to the reliability of the findings. The responses of husbands indicate exactly the same factor structure and virtually identical variable loadings as existed for wives

FFO Factor I

IDOSAV Factor II

FTP Factor III

IDOCX Factor IV

Decides Amount to Deposit in Family Savings Acct Decides When to Deposit $ in Savings Acct Decides How Much to Save From Paycheck Decides Amount to Deposit in Checking Act Decides When to Deposit $ in Checking Act Decided When to Open Savings Account Opened Savings Account Decided Where to Open Savings Account Suggested Opening Savings Account Withdraws money from Savings Account Deposits money in Savings Account Cashes Family Checks Deposits money in Checking Account Carries Check Book Decided When to Open Checking Account Decided Where to Open Checking Account Opened Checking Account Suggested Opening Checking Account

W’s H’s W’s H’s W’s H’s W’s H’s .82 .81 .70 .68 .66 .24 -.05 .13 .22 .28 .39 .18 .20 .29 .32 .18 .06 .27

.85 .78 .66 .65 .65 .32 .01 .18 .28 .24 .37 .11 .19 .26 .21 .15 -.00 .25

.31 .31 .12 .06 .03 .76 .66 .65 .62 .28 .26 .08 .06 .02 .19 .16 .22 .16

.26 .32 .16 .04 .03 .65 .66 .73 .62 .19 .21 -.05 .12 .10 .08 .30 .23 .16

.19 .19 .21 .33 .32 .05 .30 .10 .07 .71 .70 .58 .56 .49 .14 .16 .38 .22

.15 .14 .21 .42 .42 .01 .31 .15 -.01 .70 .71 .53 .66 .47 .20 .25 .43 .09

.14 .14 .18 .34 .36 .04 .23 .24 .10 .13 .09 .22 .36 .24 .70 .65 .59 .57

.09 .06 .25 .34 .35 .13 .02 .25 .20 .04 .07 .25 .29 .35 .71 .63 .50 .67


indicating that these four factors do, in fact, characterize the underlying dimensions of husband and wife roles in family financial management of financial services. For husbands, the four factors explain 65% of the total variance. After rotation, the proportion of the total variance explained by the FFO factor is 20%, the FTP factor explains 17% and the IDOCX and IDOSAV factors each account for 14% of the total variance.

The results of the factor analysis indicate that while a single spouse is not likely to specialize in all savings and checking decisions and tasks, the FFO role and FTP role do hold across the two financial services. The implication is that husband-wife roles in family financial decision making should be investigated on a product-by-product basis, but roles may hold across a variety of products.

EFFECTS OF WIVES’ EMPLOYMENT ON HUSBAND-WIFE ROLES IN

FAMILY FINANCIAL DECISION MAKING AND ACTIVITIES

Because wives’ employment is presumed to significantly alter role relationships among family members, the effect of wives’ employment on family money management roles was investigated. It is hypothesized that working wives would have greater involvement in financial decision making (namely, the FFO, IDOCX, and IDOSAV roles) than nonworking wives, but would not be more involved in financial activities (the FTP role). These hypotheses were based on a structural-functional approach (greater prestige is equated with greater decision-making authority); exchange theory (resources possessed by each spouse can be exchanged for the right to make decisions); and the concept that the division of labor in a family is a function of time and skill. It was felt that the employed-wife role has greater prestige than the housewife role; that employed wives possess more resources than non-employed wives; and that working wives may have more skill but have less time to handle these activities compared with nonworking wives. Since the purpose is to determine the effect of wives’ employment status on their involvement in family checking and saving account management, it is necessary to determine to what extent working and nonworking wives differ on other characteristics which could account for differences on the dependent variables. The two groups were compared on three sets of characteristics: (1) socioeconomic status of their families of origin; (2) wives’ employment history before marriage; and (3) current family demographic characteristics. Working and nonworking wives were compared on the following measures of their parents’ socioeconomic status: fathers’ education, mothers’ education, fathers’ occupational status, mothers having been employed, and mothers’ occupational status. No differences significant at the .05 level or greater were found. The second characteristic on which the two groups were compared was wives’ employment history before marriage; specifically, whether and how long the wife was employed before marriage. Working and nonworking wives did not differ significantly on having been employed before marriage (89% and 84% respectively), or on the number of years employed (the mean is 2.8 years for both groups).The third group of comparison characteristics was current family demographics that have been shown to be


related to marital roles; namely, total family income, wives’ educational level, race, and number of children. Differences between the two groups on total family income and wives’ educational level are statistically significant at the .05 level, but the differences are not large. Differences, however, between the two groups on racial composition and size of family are very large, making it necessary to control for race and size of family in further analysis.

The first step in the analysis was to develop a measure of involvement in each of the four financial roles by summing the higher loading items on each factor. Since each item was answered on a three-point scale where 1 = mainly husband, 2 = both (joint or either one), and 3 = mainly wife, the 5 item FFO and FTP roles each range from 5 (husband dominant) to 15 (wife dominant) and the 4 item IDOCX and IDOSAV roles each range from 4 (husband dominant) to 12 (wife dominant). Because 60% of the working wives were black, while only 31% of the nonworking wives were black; and because 39% of all working wives had no children, while only 11% of the nonworking wives had no children, it was necessary to control for race and stage in the life cycle Dummy variable regression was employed to examine the impact of a wife’s employment status while controlling for variations in her race and family life cycle (FLC). The main effects considered in the regression equations were: D1 = 1 if wife employed, 0 if not D2 = 1 if preschoolers (under 6) present, 0 if not D3 = 1 if only older children present (6 and older), 0 if not D4 = 1 if wife white, 0 if not In those cases where examination of the main-effects-only model indicated possible interaction among these variables, regressions were run which included the interaction terms. D1 D2=1 for employed wives with preschoolers, 0 if otherwise D1 D3=1 for employed wives with only older children, 0 if otherwise D1 D4=1 for employed wives who are white, 0 if otherwise With this coding, the reference category (intercept) refers to those cases where the wife is not employed, has no children, and is black. This resulted in the adoption of a main-effects-only model, Y’ = A + B1D1 + B2D2 + B3D3 +B4D4 + E

(Where Y’ = wife’s involvement score) for the two IDO roles and the adoption of a “full model, Y’ = A + B1D1 + B2D2 + B3D3 +B4D4 + B5(D1D2) + B6(D1D3) + B7(D1D4) + E


for the FFO and FTP roles. The complete results of the four regressions are given in Table 2. TABLE 2: RESULTS FROM REGRESSIONS OF WIVES’ INVOLVEMENT IN EACH

OF FOUR FAMILY FINANCIAL ROLES VS. WIVES’ EMPLOYMENT STATUS, RACE AND STAGE OF FAMILY LIFE CYCLE

Dependent Variable

Regression Coefficients

F Ratio Beta SE B

IDOSAV B1 B2 B3 B4 Constant

14.64** 2.00 0.49 0.01

0.22 -0.10 -0.05 -0.01

0.26 0.31 0.34 0.25

1.00 -0.44 -0.24 -0.27 7.77

IDCOX B1 B2 B3 B4 Constant

11.49** 0.16 0.12 1.10

0.19 0.03 -0.02 -0.06

0.26 0.31 0.34 0.25

0.89 0.13 -0.12 -0.27 7.55

FFO B1 B2 B3 B4 B5 B6 B7 Constant

0.64 0.56 0.98 1.54 0.06 4.16* 2.93

0.12 -0.10 -0.13 0.12 0.03 0.25 -0.19

0.91 0.82 0.89 0.57 0.10 1.06 0.75

0.73 -0.62 -0.88 0.71 0.25 2.17 -1.28 9.69

FTP B1 B2 B3 B4 B5 B6 B7 Constant

0.15 2.69 2.16 10.29** 1.53 4.31* 3.66

0.06 -0.22 -0.19 0.33 0.16 0.26 -0.23

0.85 0.75 0.84 0.58 0.96 1.06 0.79

0.33 -1.23 -1.24 1.88 1.19 2.20 -1.50 10.47

*Significant at the 95% level **Significant at the 99% level

As expected, wives’ employment increases the likelihood of their being involved in the


IDOSAV and IDOCX roles. There is no significant effect of race or stage of family life cycle. The predicted involvement score for wives in the IDOSAV role is based on the equation:

IDOSAV = 7.77 + 1.00 (D1) - .44(D2) - .02(D3) - .27(D4)

The predicted involvement score for wives in the IDOCX role is based on the same model where: IDOCX = 7.55 + .89(D1) + .13(D2) - .12(D3) - .27(D4)

The meanings of the significant effects are illustrated in Figures 2 and 3.

With respect to the Family Financial Officer (FFO) role, the predicted involvement score for wives is based on the equation: FFO = 9.69 + .73(D1) - .62(D2) - .88(D3) +.71(D4) + .25(D1D2) + 2.17(D1D3) -1.28(D1D4)

There is no main effect of employment on involvement. However, there is a significant interaction term indicating that employed wives who are in the latter stage of the family life cycle – having children but no preschoolers – are more likely to be involved in the FFO role than employed wives in the two other FLC stages or wives who are not employed. This effect is shown graphically in Figure 4. With respect to the Financial Task Performer (FTP) role, the predicted involvement score for wives is based on the equation:

FTP = 10.47 + .33(D1) – 1.23(D2) -1.24(D3) +1.88(D4) + 1.19(D1D2) +2.20(D1D3) –

1.50(D1D4)

Wives’ employment by itself has no significant effect on wives’ involvement in the financial task-performer role. However, as with the FFO role, the significance of the interaction term indicates that employed wives who are in the latter stage of the family life cycle – having children but no preschoolers – are more likely to handle financial tasks than employed wives in the two other FLC stages or wives who are not employed. Furthermore, the significant regression coefficient for race indicates that white wives are more likely to be involved in the FTP role than black wives. These significant effects are illustrated in Figure 5.

EFFECTS OF WIVES’ EMPLOYMENT ON INVOLVEMENT IN FAMILY MONEY MANAGEMENT

Wives’ employment increases wives’ involvement in the FFO role only for those families


having older children but no preschoolers. Wives’ employment does not significantly increase their involvement in this role if the couple is childless or if they have preschool children. This holds for black families as well as for white families. A number of tentative explanations for this finding could be put forth:

1) The sample for this study consists of relatively young couples (the average age for wives is less than 29 years), and the childless group is the youngest of the three FLC groups studied. Perhaps among newly married couples it is considered the norm for husbands to handle family financial decisions whether or not the wife is employed.

2) Wives with preschool children perhaps do not have the time, nor consider it their prescribed role, to be the family financial officer or to be heavily involved in family financial decisions. Time pressures are particularly strong for working wives with preschool children.

3) Some researchers (Blood and Wolfe 1960; Wolgast 1958) have found that husbands’ influence declines over a family’s life cycle. They claim that this occurs because each spouse becomes both more familiar with the family’s needs and more competent in decision making. Aligned with this finding is the feeling that women with older children are more experienced in making decisions and therefore have a legitimate right to make decisions in numerous areas. This “experience” factor by itself does not increase a woman with older children’s involvement in the FFO role; but if she is employed, the “experience” factor coupled with the fact that she is bringing resources into the family increases her involvement in the FFO role.

With respect to the financial task performer role we find, as we did for the FFO role, that wives’ employment by itself has no significant effect on wives’ involvement in the FTP role. But wives who are employed and who are in the latter FLC stage are more likely to handle financial tasks than employed wives in the other two FLC stages, or wives who are not employed. The hypothesis was based on the premise that working wives would not have as much available time to perform the tasks as nonworking wives. Wives in the latter FLC stage perhaps have both the experience and the time, experience not only associated with their employment but also with the financial outlays involved in raising children. In addition, since their children are in school, they may have the requisite amount of time to handle these tasks. A surprising finding, however, is that white wives are more likely to be involved in the FTP role than black wives. While the research literature is quite large in predicting that marital roles will differ between white families and black families (Bauer, Cunningham and Wortzel 1965, Billingsley 1968, Bridgette 1970, Carlfred and Broderic 1971, Moynihan 1965), it is interesting that in black and white families where both husband and wife are present, black wives are less likely than white wives to be involved in performing family financial tasks. One can only speculate as to why differences by racial group where found for the FTP role and not for the three other family financial roles. Perhaps black wives lack the access to banks that white wives have and are therefore less likely to handle the savings account and checking account deposit and withdrawal tasks. Race has no impact on wives’ involvement in the IDOCX and IDOSAV roles, perhaps because the opening of an account is a discrete act as opposite to the FTP role, which is continuous.


With respect to the IDOCX and IDOSAV roles, there is a significant main effect of employment. This was as predicted. Employment increases a wife’s resources, both personal and financial, and lessens a wife’s financial and emotional dependency on her husband. These resources may be exchanged for the right to make decisions, and lessened dependency on the husband may lead to greater assertiveness. In addition, the working-wife role has higher social status attributed to it than the nonworking-wife role, and differences in wives’ authority corresponds to this difference in prestige. Consequently, working wives are more likely than nonworking wives to suggest opening retail bank accounts, decide where and when to open the account, and actually visit the bank to open the accounts. The significance of the interaction term in predicting wives’ involvement in the FFO and FTP roles has important implications for future research on working wives and family decision making. Specifically, wives’ employment status should not be treated as a unitary concept but rather certain distinctions must be made, e.g., between “working wives” and “working mothers” or between “working mothers with preschoolers” and “working mothers with adolescents. These results indicate that stage of the family life cycle can exert important moderating influences regarding the effects of wives’ employment on their roles in family financial decision making and task performance and should be taken into account.

CONCLUSIONS

As resource theory predicts, employment increases a wife’s resources and increases her influence in checking and savings account decisions. Wife’s employment increases the likelihood of her seeing the need for retail bank accounts, deciding when and where to open the accounts, and actually opening them. Further research is needed to determine if these family financial decision, activity and role patterns exist for other retail bank accounts, investment services and retirement plans. However, wives’ employment by itself has no significant effect on wives’ having greater involvement in the family financial officer and task performance roles unless they are in the latter stages of the family life-cycle. The implication for future research is the need to refine the wife-employment variable. Wives who are employed should not be considered as a homogeneous group. The presence and ages of children impact wives’ influence in the area of family financial decisions and tasks; and race impacts working wives’ influence in family financial tasks. Family financial research should investigate specific as opposed to global financial decisions and activities. Asking a question such as “Who is in charge of your family’s finances?” to determine spousal influence masks the variety of spousal influence patterns that exist across a multitude of family financial sub-decisions and tasks that together comprise family financial planning. It is possible that not treating working wives as heterogeneous subgroups and not viewing family financial decision making as a multifaceted dependent variable consisting of separate and distinct family financial areas (separate pools so to speak as opposed to a common pool) has led to conflicting findings with respect to the impact of resources on spousal influence.


FIGURE 2

FIGURE 3

Predicted Involvement Scores for Wives in the IDOSAVRole Based On Employment Status, Race, and Family Life

Cycle Stage

7.2

7.47.6

7.8

88.2

8.4

8.68.8

9

No Children Pre-schoolersPresent

Only olderChildrenWi

ves’

Inv

olve

ment

in

the

IDOS

AVRo

le not employed

employed

Predicted Involvement Scores for Wives in the

IDOCX Role Based On Employment Status, Race, and

Family Life Cycle Stage

77.27.47.67.88

8.28.48.6

No

Children

Pre-

schoolers

Present

Only older

Children

Wives’

Involvement in the

IDOCX Role

not employed

employed


FIGURE 4

FIGURE 5

Predicted Involvement Scores for Wives in the FTP

Role Based On Employment Status, Race, and Family

Life Cycle Stage

0246810121416

No

Children

Pre-

schoolers

Present

Only older

Children

Wives’

Involvement in the

FTP Role

whites notemployed

whites employed

blacks notemployed

blacks emloyed

02468

101214

No

Children

Pre-

schoolers

Present

Only older

Children

Wive

s’ Inv

olve

ment

in

the

FFO

Role

Predicted Involvement Scores for Wives in the

FFO Role Based On Employment Status, Race, and

Family Life Cycle Stage

not employed

employed


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by Ed Harold T. Christiensen. Chicago, Illinois: Rand McNally, 1964. Raven, B. H., R. Centers, and A. Rodriguea. "Conjugal Power Structure: A Reexamination." American Sociological Review Vol. 36, No. 2, 1971. Rosen, D. L., and D. H. Granbois. "Determinants of role structure in family financial management." Journal of Consumer Research, 1983: 253-258. Scanzoni, J. "Sexual Bargaining: Power Politics in the American Marriage 2nd ed." Chicago: University of Chicago Press, 1982. Skinner, S.J., and A.J. Dubinsky. "Purchasing Insurance: Predictors of Family Decision-Making responsibility." Journal of Risk and Insurance, 1984: 513-523. Thibaut, J. W., and H. H. Kelley. "The Social Psychology of Groups ." New York: Wiley, 1959. Wolgast, E. J. "Do Husbands or Wives Make the Purchasing Decisions? ." Journal of Marketing, 1958: 151-158. Woolley, F.. "Control over Money in Marriage." Marriage and the Economy: Theory and Evidence from Advanced Industrial Societies, ed. by Shoshana Grossbard-Shechtman. Cambridge: Cambridge University Press, 105-128, 2003.


BUDGETING OF THAI AUTONOMOUS UNIVERSITY: CASE STUDY OF THAKSIN UNIVERSITY

Wasan Kanchanamukda

Thaksin University, Songkhla, Thailand [email protected]

ABSTRACT

The study context considered the subjects of: universities as specific institutions; the origins and operations of Thai universities; specificities of the South of Thailand (where Thaksin University is located); modernization of the sector, and university budgeting and financial management. Upon being proclaimed autonomous in 2008 the Thaksin University Council appointed a Vice President for Finance and Budgeting to introduce corporate financial systems. The experience of that appointee who is also the researcher informs the five-year narrative in this work, which is complemented by a survey of users of the new systems, and interviews of senior decision-makers at two other autonomous universities, one at a similar stage to Thaksin and the other created de novo as autonomous. It was found that budgeting in traditional public universities in Thailand is unresponsive to fiscal and educational needs. In addition, the true cost of staff employment is hidden if pension and welfare costs are not shown in university budgets and this can bias personnel decision-making. It was also found that the creation of independent entities within government universities can lead to financial irregularities and loss of academic quality control, and that such problems can be remedied within a full budgeting and monitoring approach. The five-year implementation process was judged as successful, and possibly as quick as is possible when entrenched staff behaviours are considered. The questionnaire of users within Thaksin University revealed that the allocation of the majority of funds to functional units was welcomed by staff, as were central allocations to personnel development, research and welfare provisions although central control over expenditure on capital items was criticized. The processes of the new system and their introduction were ranked highly and most considered that functional units had generally worked well within approved budgets. Overall the variations between systems employed in autonomous universities do not indicate one being uniformly superior to others, and all indicate the benefit of communication in the continuous improvement of any budget planning and monitoring. Autonomous universities now offer a useful benchmark for government universities with their higher accountability and budget-aligned plans, which are major tools for enhancing a university’s quality and its sustainability.

INTRODUCTION

The 1990s decision of Thailand to transition some public universities towards autonomy retained overall accountability for government allocations while internal university matters



were to be left to University Councils. An autonomous university in Thailand is defined as a government agency that receives a block grant, operates outside the government bureaucracy and is overseen by the Minister of Education. This includes freedom to determine salaries and staff benefits. The policy objective isto allow flexibility to increase fiscal and academic efficiencies.The process of moving from a finely detailed and flexible government department budget to one managed according to a strategic plan requiring skilled planning.This was the process studied.The study context considered the subjects of: universities as specific institutions; the origins and operations of Thai universities; specifically concerned with the South of Thailand (where Thaksin University’s main campus is located); modernization of the sector, and university budgeting and financial management. Upon being proclaimed autonomous in 2008 the Thaksin University Council appointed a Vice President for Finance and Budgeting to introduce corporate financial systems. The experience of that appointee informs the five-year narrative in this work, which is complemented by a survey of users of the new systems, and interviews of senior decision-makers at two other autonomous universities, one at a similar stage to Thaksin and the other created de novo as autonomous.

LITERTURE REVIEW The reviews literature that provides some background to the origins and operations of the Thai university sector, particularities of the Southern Region of Thailand, recent approaches taken to modernize the Thai University sector and specific aspects of changes necessary in the budgeting and financial management of individual Thai universities Recent University Reforms in Australia The resultant Unified National System again brought focus into the benefits of differentiating between institutions and to encouraging mergers of small institutions to obtain supposed economies of scale. This required State legislation, which dutifully followed the Federal funding model. However, it is important to note that throughout all periods, universities were autonomous in their internal management, a factor enhanced by their founding State legislation. But accounting for funds required specific management systems to be developed, and Federal requirements increasingly demanded demonstrations of efficiency. This has led to complex formulae that aim for efficiencies in each defined output in teaching, research and management and has been part of the top-end of Australian universities ranking above peers in comparable OECD countries. However, a 2008 review noted that ‘without significant reform and additional investment, current performance is unlikely to be sustained … (OECD 2008a, Vol. 2, p. 36)’ One outcome of the focus on cost-efficiency within Australian universities has been increased reliance on casual employment of qualified academics, defined as ‘any higher education instructors not in tenured or permanent positions, and employed on an hourly or honorary basis’ (ALTC, 2008, p.4). With up to 50 per cent of lecturers in some institutions being casual, staff income security, unpaid workloads and loss of collegiality are said to be undermining staff motivation (Brown, Goodman and Yasukawa, 2008). Furthermore, succession planning and the tradition of the elite of a generation taking over from those of the previous generation is under threat as younger academic staff are more likely to be casually employed such that ‘the use of flexible and casual working arrangements …disproportionately affects younger academics at the start of their careers and might serve to


discourage young researchers from entering or remaining in the academic profession’ (Kubler and DeLuca, 2006, p.6). In the paper, ‘A Fair Chance for All’ (DEET and NBEET, 1990) the increased equality of access and equity in higher education was seen as necessary, which was addressed through various social support programs and a Commonwealth Scholarships Program for low income families. James (2008) found school completion rates of 59 percent compared to 78 percent for low socio-economic students as against high socio-economic status students, which as it reflects findings in other developed countries (OECD 2008a, Vol. 2, p. 36) raises the question of the role of universities in supporting social equity. Australia also faces some specific challenges that may not apply generally, including only about 12 per cent (in 2007) of all students, including both domestic and international students being enrolled in regional institutions (DEEWR, 2008). The sparseness of Australia had earlier (1986) led to the suggestion that a minimum population catchment of 500,000 was needed to make a university viable and that less than 5,000 students would not be cost-effective for a university (Hudson, 1986). Such policies and local factors reflect the diversity of influences on universities even when operating autonomously for their own affairs. Autonomy and Academic Freedom University autonomy and academic freedom are said to be fundamental to quality, yet as the above illustrates, government continually intervenes in both (Russell, 1993) and universities have not acted consistently with their rhetoric (Encel, 1965) usually being willing to compromise if incremental funds are offered. The debate in Australia seems to have been confused by linking autonomy and academic freedom when they are in fact quite different principles. Academic freedom relates to scholarly independence unfettered by outside requirements, while autonomy relates to the university’s independence of governance and management (Brubacher, 1977). Autonomy is interpreted to mean that only scholars can understand the complexity of university management and hence must administer universities. This is an ideal, and is not accepted by funding agencies, nor is it in evidence in the higher performing universities, which employ competent specialists in administration to work beside academic managers. In the Seventh Report of the Higher Education Council, Australian Universities indicated that they felt their autonomy was compromised by: government requests for information; curriculum demands from professional associations; government policies on foreign students, and special incentive funding (Higher Education Council, 1993). Such facts indicate that, in contrast to being truly autonomous, universities in Australia enjoy certain freedoms under their respective Acts of Parliament, but remain responsible for detailed financial budgeting and accountability. It is this aspect of sound financial management for optimal educational outcomes that define the adoption of aspects of the Australian system by Thailand, notwithstanding the distinctly different origins of the Thai university system. The Meaning of ‘Autonomy’ in the Thai University Sector Adapting to globalizing free trade in higher education has been difficult for Thailand (OHEC, 2008a) because it is a culture based on consensus, national needs and a minority language.


The language has some utility in neighboring countries, but their low educational status does little to enhance that of Thailand, and much of it is offered as a form of development assistance. From that insulated environment, Thailand’s agreement to include education in the GATS multilateral schedule, the ASEAN Free Trade Agreement, and bilateral free trade agreements with Australia, Bahrain, China, India, and New Zealand (and possibly Japan, Mexico, South Korea, Switzerland and the US) has placed a burden of change on the sector that has in turn increased concern within Thai universities (Suwanwela, 2005). At the same time as changing to suit global systems, Thai universities are expected to continue to meet political ends such as expounding the philosophy of a self-sufficient economy (OHEC, 2008a) and to ameliorate violence in the Deep South. It is through such a window that the Thai version of ‘autonomy’ may be viewed. Thai universities leading to an increased interest and activity in research (Liefner and Schiller, 2008). As elite performers within the Thai university system noted the advantages of being part of an international knowledge fraternity linking research to education, old critiques of universities being sluggish bureaucracies that were inflexible and incapable of sustained research and graduate training supported moves for increased autonomy (Kirtikara, 2004). One critical outcome of these developments was a recognition that budget processes were a constraint on innovation and motivation (Fry, Wisalaporn, Lertpaithoon, Sinprasert, Peerapornratana and Larpkesorn, 1999) Budgeting Transitions for Autonomy In 2002 when autonomous institutions were possible, the then Ministry of University Affairs (MUA) changed from an expenditure-driven funding system to block grants for autonomous universities (West, 1999). Built on the relative funding model introduced earlier, the following principles guided government implementation (West, 1999):

• use of a ‘base model’ for resource allocation related to the educational service budget but not including research, health services, capital or other parts of the budget

• progressive inclusion of the recurrent research budget into the base model • simulations of the application of the proposed model to past years

Budgeting and Financial Management Approaches in Universities Autonomy in academic, personnel and financial management are aspects of university autonomy. Academic autonomy is to be limited in the Thai case, while autonomy over personnel management has faced much apprehension and some militant resistance among staff that have become dependent on bureaucratic rules and civil service conditions. Nevertheless, the use of improved financial management has allowed monetary distinctions to be made in employment conditions, with incentives for those outside the civil service conditions if they perform well as academics. Thus financial management becomes an important tool for overall autonomy, including innovative academic measures, particularly at post-graduate level. Such autonomy requires increased responsibility and accountability, which is foreign to many Thai university personnel who have enjoyed freedom without responsibility and accountability under university regulation, and so improved university council governance must be accompanied by improved financial management. Performance evaluation of faculties, functional units as well as senior administrators are needed to be carried out by a university Council. Acting in the public interest for use of government funds


has been perfunctory for most past university councils in Thailand. In an autonomous university, the council is supreme in:

• setting the vision and direction • formulating policy on education and research • overseeing the personnel system which formulates policy and regulates personnel

management, but not the operations of the system. • budgeting and finance • performance evaluation, faculties, functional units as well as senior administrators. • internal audit (in addition to the external auditing of the Thai National Audit Office).

As reporting, internal auditing and assessment become more regular features of university councils, increased transparency and accountability become indicators of good university governance (Kirtikara, 2002). Models for Budgetary Autonomy Budgeting and financial management are central to the move towards autonomy in university management. The systems in place in Australia, from which much of the initial Thai policy had been informed, differ significantly from what is the case in Thailand. In Australia, universities enjoy a higher level of autonomy under their own individual parliamentary acts, established under State rather than national parliaments in general. Government block grants based primarily on undergraduate student numbers with research funding channeled separately under competitive conditions and capital allocations following its own variable formula allow much internal university flexibility. In most universities, it is expected that undergraduate allocations subsidize other essential activities. Universities are self-accrediting under their own legislation and receive public funding from the national government with much autonomy over that funding. Thus not all aspects of the Australian model apply to the Thai situation.This system is analogous to that of Thailand, as is to be expected from the history of Thai universities as introduced earlier – but this does not provide a basis for the transition to budgetary and financial management for an autonomous institution, and illustrates the need for specific new knowledge of the implementation process for budgetary autonomy within a Thai autonomous university. The increased responsibility required of autonomy points to the need to consider the methods employed in the corporate sector.Conceived in this manner, budgeting based on submissions to government with restrictive allocations and acquittals does not allow its use as a management tool to effect organizational change. Motivating collective action through allocation of available financial resources according to a long-term strategy as is routine in business (Jongbloed and van der Knoop 1999) is therefore essential to the process of moving toward autonomy. Following this model leads to a formal document that specifies the level of resources allocated for the ensuing year being directly linked to specified academic, research and personnel outputs.

METHODOLOGY To investigate the transition from public to autonomous university within the Thai system requires a parallel qualitative approach, Qualitative and quantitative methods can be integrated in three different forms, which for convenience we call parallel, sequential, and iterative. In parallel approaches, the quantitative and qualitative research teams work separately but compare and combine findings during the analysis phase (Rao and Woolcock, 2003), because the transition itself follows various paths according to the personalities of


management, the order in which different aspects of change are acted on and the starting point of an institution. Data collection instruments follow conventional methodologies (Gillham, 2000), with the following approaches adopted to add to the knowledge base presented in the Literature Review:

1. Narrative – from experience of the researcher within Thaksin University over a four year period

2. Interviews of key policy makers and users in two other autonomous universities in Thailand

3. Questionnaire of key users of the system during the transition period at Thaksin University

Results from each of the four qualitative approaches are then considered in the final Discussion and Conclusion. This means that the final analysis includes inputs from:

• the four years of experience within Thaksin University presented in narrative form by the researcher

• questionnaires of users in the Thaksin system through the transition period for all Deans or Equivalent (17), Vice Deans or Equivalent (25) and Heads of Administrative Divisions (23) – a total of 65 persons.

• interviews with experienced persons in a university adopting the autonomous systems on a timetable similar to that of Thaksin University – involving the President, Vice President (Finance) and the Head of Budgeting.

• interviews with experienced persons in a university newly established under the new autonomous legislation – involving the President, Vice President (Finance) and the Head of Budgeting.

• King Monghut’s University of Technology, North Bangkok does not have a Vice-President (Finance) so only two interviews were conducted, one with the President and one with the Head of Budgeting.

RESULT Increased Personnel Costs The study revealed that the proportion of expenditure on personnel in total budgets was relatively high at 40 percent. This had resulted from government policy specifying that no positions of a civil servant ‘officer’ would be provided for autonomous universities. Rather, staff of autonomous universities would be engaged as general employees. This has the effect in the total salary budget having to rise substantially since salaries for general employees are set higher than those of governmental ‘officers’. For example, academic staff are paid 1.7 times that of an equivalent person in a government university; for support staff the ration is 1.5. The reason for this difference is that the full employment cost of staff is to be carried by autonomous universities whereas in government universities unfunded benefits of whole-of-family health insurance and retirement cost do not appear in a university’ grants because they are managed centrally for all civil service ‘officers’. In addition to this shift to full accounting for the cost of personnel and its concomitant budgetary impact, autonomous universities are at liberty to employ personnel at salary rates higher than government scales in order to attract higher calibre staff, particularly academic staff. As all such additional costs must be funded within the autonomous university from its combined governmental and other revenue, it presents an ongoing management challenge in accurate budgeting, balancing revenues to


outgoings and in developing a sustainable financial future. Some recognition of this challenge by government may lead to supplementary funding to autonomous universities but, if received, it is unlikely to be long-term. It is therefore critical for an autonomous university to quickly adjust to professional levels of commercial accounting and to move to enhance revenue generation to cover these additional costs, and so achieve the essential sustainability. Central or Dispersed Financial Management Despite similarities, the universities studied demonstrate differing modes of budget administration. Universities that are in transition from being governmental to autonomous administer their budgets on a block grant basis, probably as a legacy of experience. In general this means that budgets are allocated to faculties and functional units that are then authorized by the central university to administer their allocated budgets themselves. This is different from universities that were autonomous from the beginning, such as Walailak University in this study. At Walailak University, a ‘Centralized Services and Coordinated Mission’ unified budget is administered centrally. This process is conducted under the auspices of the central university for all steps with functional units working with a centre to create the single overall budget. The budget is administered as agreed and any unspent funds are retained centrally. By way of contrast, universities that are transitioning to become autonomous are enabled to allow unspent funds to be retained by the concerned functional units. The difference between the two approaches means that the university is created as autonomous from the outset so could accumulate significant savings centrally for and from major investments, whereas retention by functional units produces dispersed savings and does not encourage efficiencies of use of capital or use of the university’s most skilled financial personal. In all cases, capital and other investments are required to obtain approval of the University Council in order to limit risks to survival or sustainability. Overall, even autonomy in Thai universities is essentially conservative compared to that in other nations with more mature university sectors and the relative difficulty of simply copying foreign models is well recognized (OHEC, 2008a). Flexibility in Budget Administration In all three cases studied, it is concluded that the budgetary contexts in an autonomous university allow much smoother operation than is possible in a government university. This is due to the flexibility possible in formulating the overall budget in the first place, aligning functional units demands in a unified plan and the ability to adjust and transfer funds during the year according to justified demands. As this flexibility extends across all budgetary units, it makes overall management a more professional and efficient task since unused government income is not returned to the Thai Budget Bureau by autonomous universities but is a requirement of government universities. This need for government universities to return unspent funds to the government creates anomalies when circumstances change or new initiatives arise. For a university to engage energetic and well-qualified lecturers, such a lack of flexibility limits the capacity of government universities and thereby provides a potential advantage to autonomous institutions that are well managed. Such good management requires unified university budgetary management complete with regulations on finances, budgets, academic requirements including quality and personnel developmental matters. To be able to manage such matters without seeking to allocate individual tasks to predetermined


government expenditure categories allows smooth and independent operation that is more transparent and accountable. Ultimate accountability is maintained by every university being subject to inspection by the Office of the Auditor General of Thailand, which is an independent organization that verifies external accounts and reports to the Office of the Higher Education Commission of the Ministry of Education for some more recently ungraded universities. The flexibility allow for autonomous universities is not absolute, however, as for example in purchasing and the hiring which must follow regulations and criteria set by the university to be in line with Cabinet Resolutions. For purchasing and hiring expenditure above two million baht procedures must conform to the supply regulations prescribed by Prime Minister’s Office. This constraint on autonomy affects all such universities and in the case of Thaksin University means that it is not fully independent in areas where it must follow governmental criteria. Flexibility in budget administration is also a tool to meet government policy in areas of ethnic and religious diversity (OHEC, 2008b).

CONCLUSION

User Perspectives After the detailed narrative of the process of implementing changes at Thaksin University, which is based on subjectivity as a result of the author’s own direction of the year-on-year changes, the views of users of the system as it has evolved to that of 2013 comes important. The questionnaire of users administered across major users within Thaksin University reveals that the allocation of the majority of funds to functional units was welcomed by staff (79 percent), as were central allocations to personnel development (59 percent), research and welfare provisions (62 percent in each case) although central control over expenditure on capital items was criticized by 50 percent of respondents. Processes of the new system and their introduction were ranked highly (94 percent) and most considered that functional units had generally worked well while not (only 47 percent) managing to work within approved budgets. This feedback from users is largely consistent with perceptions of budget planning, which is here suggested to be primarily due to the process of introducing the new system involving users in feedback sessions each year. This is an important conclusion for the introduction of new budgeting and planning systems where old habits must be changed. The iterative and consultative aspects of the process used at Thaksin University are considered to have been major determining factor in the successful introduction of the new system. Continuing improvement of the processes will necessarily involve similar involvement of stakeholders. Budget Administration Processes As illustrated in Table1, the administration processes of budgets in the three universities studied contain both strong and weak points. For example, Thaksin University’s budgeting seems to be overly complicated compared to others’ possessing several detailed procedures and criteria compared to that of Walailak University, which is quite simple and straightforward. On the other hand, the budgeting process of Walailak University lacks the flexibility of Thaksin University because of if its centralized control and unwillingness to allow budgetary administrative independence. The differing origins of the two universities


explains the possible difference and it is concluded that the system employed by Walialak University is not suitable for Thaksin University. Table 1: Budget Process at Three Universities

Thaksin University Walailak University King Mongkut’s University Technology North Bangkok

Concept of Budgeting “Block Grant” Style Budgeting is administrated centrally by the university and budget allocations are block grants to faculties and sections as their budgets. Faculties and sections are authorized to independently administer their allocated budgets in line with their pre-determined strategies and plans. The central university establishes budgeting criteria and retains some revenue for such matters as savings, central expenses, public utilities, protection and security, personnel development and research before allocating the rest of the overall budget to faculties and sections. This means that some 53% of revenues are allocated to faculties and sections for academic matters.

“Centralized Services and Coordinated Missions” Style Budgeting is more highly centralized than in the different block grant approaches. Faculties as well as sections propose their budget requests to the university’s central section in order that all such requests can be considered at the same time to effect efficiencies and savings in a overview of the whole university budget. Next, their faculty and section requests will be prioritized according to their pre-agreed strategic plans and current necessities within the limitations on budgets. All such requests are taken into account by the university before final allocations are made to the faculties and sections.

“Block Grant” Style University budgeting is arranged by the centre and allocated in the block grant style. In this university, authority is allocated to faculties and sections with the intention that they will be independently administer their allocated budgets and that their strategies and their pre-approved plans correspond to their administration of the allocated budgets. Twenty percent of the overall revenue is taken off the top before allocations to the faculties and sections to be used by the university’s central section for central costs. Significantly, the faculties and sections are required to accept responsibility for all of their expenses (compared to these being handled centrally in the Thaksin University case.

Budget Administration All Deans and Heads of faculties and sections are authorized to administer budgets with flexibility to transfer or adjust any budget items and expenses within the approved general strategic plan of the faculty or section.

Deans and Heads of faculties and sections are not authorized to transfer or adjust allocated budgets. If they would like to do so, they must submit proposals to the University President who will consider requests on their merits.

Deans and Heads of faculties and sections are able to transfer or adjust budget allocations. However, they are not allowed to make adjustments that are not consistent with agreed strategies and plans. Approval is required from the University President.

Savings of Surpluses Each faculty and section is permitted to employ their surpluses as savings with the objective of using such savings in the enhancement of management of teaching, learning and research. However, the university administers all savings belonging to the faculties and sections on a combined basis and retains income generated from such administration.

Faculties and sections are not allowed to manage their surplus budgets. Any savings made within a faculty or section becomes the property of the central university. The budgets are administrated centrally by the university and any revenues generated are the property of the university for its allocation as it sees fit, guided by the overall university strategic plan.

With the central university’s permission, faculties and sections can retain surpluses as their savings. This is allowed so long as savings are employed to improve the faculties and the sections’ teaching, learning and research. The central university administers all the savings as a whole. Any revenues generated from such administration are regarded as the property of the central university.

Budget Monitoring The university’s planning section is responsible for following the

A committee responsible for monitoring expenditure of

A committee responsible for monitoring and enhancing efficiency


budgeting process to determine conformity with the pre-determined plans. It then reports to the Finance and Assets Committee of the University Council. This process has been found to be less successful than intended because a number of budgets have not been spent according to the plans. A case in point relates to the difficulty of monitoring construction budgets.

budgets is established with the University President as the Chair, which monitors budgets every academic term with this rising in frequency to monthly in the final term of a year. Monitoring is conducted on this basis to encourage conformity between the budgets, expenditure and agreed plans, and to progressively increase the effectiveness of the budgeting and expenditure.

of expenditure is appointed with the University President with him as Chair. The expenses are monitored for every academic on the basis of budgeting and expenditure effectiveness with the aim of increasingly aligning expenditure with pre-determined plans.

Source: Interview At The President of Walailak University Room, Nakhon Si Thammarat Province. On October 21, 2013 and Interview on February 5, 2014 at King Mongkut’s University of Technology North Bangkok. The budgeting system of King Mongkut’s University Technology North Bangkok, however, does seem to be relevant to Thaksin University because it offers a means of reducing administrative burdens. By allocating budget administration to the faculties and sections concerned with academic delivery, the central administrative role can be reduced in proportion to the budget allocations, although central responsibilities retain their specific demands. In fact, the proportion of overall budgets allocated to faculties and sections at Thaksin University is similar to that of King Mongkut University Technology Thonburi as is the block grant approach utilized by both. This was confirmed in the interviews as being appropriate for a university that was once governmental before transitioning to become autonomous. In contrast, the “Centralized Services and Coordinated Missions” employed by Walailak University which was created as autonomous from the outset was not considered appropriate for Thaksin University for reasons of the difficulty of introducing such a major change suddenly, and the expected disagreements that would arise among university staff. This is a major lesson from the study – that transitioning from a government to an autonomous university is a slow and ongoing process that has no defined end point. Rather than view the Walialak case as a likely endpoint, it is considered, from the information gathered in this study, that even such institutions are in transition as they learn how to administer budgets within the particular environment created by the Thai government. As long as government remains a major source of revenue, systems that increase the efficiency of overall expenditure will drive university administration – in this respect, an institution such as Walailak University is in a learning phase as much as Thaksin or King Mongkut University Technology North Bangkok Sustainability of an Autonomous University From a budgeting perspective it must be concluded that creating a sustainable autonomous university is a major challenge. Government’s intentions in creating such institutions, as modified from imported values (DEET and NBEET, 1990), appear to have mixed two possibly incompatible objectives – increased educational quality on the one hand and limiting the accelerating cost of mass education in universities on the other. At present, no autonomous universities are significantly lessening government costs per student compared to fully government-controlled institutions, although the potential for educational innovation and raising of additional revenues do appear to have been partially successful. To be able meet its financial requirements, an autonomous university requires strong budget


administration, which is rare in government universities, in order to gain the most benefits from the Thai educational environment. The need to create, maintain and manage university reserves for major capital works and emergencies requires a level of stewardship hitherto not thought of. As it has transpired, autonomous universities have generated increases in their non-government revenues, but these have not been on a par with the increases in costs of operating an autonomous university. With general government allocations decreased each year, personnel budgets increased for the combined reasons of the full employment including overheads cost of staff is now included in university budgets, and general salary rises and promotions continually occur. This has caused the proportion of budget allocated to rise from 6 per cent to 40 per cent with expectations that will continue to increase further. With such an increase sustainability of the model becomes a real question. With the university’s major responsibility being the provision of educational services to the society rather than profit seeking, incentives for autonomous universities to generate additional revenue can be seen to work against the primary mission of universities themselves. Perhaps a means to minimize this conflict of missions could be to establish a separate section external to the university that is responsible for increasing university revenues, which by being separate is not a distraction of university administration from its central function of education. The need for effective monitoring and professional administrators within universities remains regardless of such a proposal, and in this respect the transition to autonomy has been instructive in highlighting the many ways in which government universities can be made more effective and efficient in the use of available resources. In the meantime, autonomous universities with their government revenue mixed with other sources provide an ongoing comparison with government ‘civil service’ style universities that can highlight means of improving both educational and fiscal efficiency. After all, finances and their sound administration is the life-blood that nourishes a university’s quality and its sustainability.

This conclusion considers the observations and learnings from the narrative about the

Thaksin University experience in transitioning from a government to an autonomous university in conjunction with those from interviews at two other universities and a survey of some of the users of the system within Thaksin University. Thaksin University has proved an excellent case study for this analysis since it allowed a five-year narrative from personal experience to be documented. Overall the variations between systems employed in autonomous universities do not indicate one being uniformly superior to others, and all indicate the benefit of communication in the continuous improvement of budget planning and monitoring. Autonomous universities now offer a useful benchmark for government universities with their higher accountability and budget-aligned plans, which are major tools for enhancing a university’s quality and its sustainabilty.


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GLOBAL MINDSET: ORGANIZATIONAL CONSCIOUSNESS; AND SUSTAINABLE LEADERSHIP: THE NEW PATH OF CORPORATE EXCELLENCE

Koustab Ghosh

Indian Institute of Management, Rohtak [email protected]

Samir Ranjan Chatterjee Curtin University, Perth, Western Australia

ABSTRACT

The new challenges and issues in global business environment have thrusted upon huge pressures on organizational leaders. The evolving leadership challenges in terms of long term sustainability criteria has surfaced factors like living with uncertainty and complexity; managing diversity; developing socially networked organizations; identifying and acting on social opportunities; and developing the next line of leaders. This paper on one hand has revisited modern management concepts like MBO, knowledge management, and boundary less organizations propounded by management thinkers like Peter Drucker and Henry Mintzberg; whereas on the other side has explored leadership lessons from the ancient Indian scriptures like Vedanta and Kautilya’s Arthashastra. Hence, it stands out to be an attempt to synthesize the Western and Indian thoughts in the context of organizational leadership and sustainable development through the integrative review of literature supplemented by authors’ own explanations and comments. The paper concludes with drawing out the leadership competencies required for the new arena of business environment; imperatives for the Business School graduates; and by developing a triad approach model for sustainable organizational development. Keywords: Global mindset; corporate social responsibility; leadership competencies; sustainable leadership; sustainable development.

GLOBAL MINDSET Global mindset combines an openness to and awareness of diversity across cultures and markets with a propensity and ability to see common patterns across countries and markets. In a company with a global mindset, people view cultural and geographic diversity as opportunities to exploit and are prepared to adopt successful practices and good ideas wherever they come from (Phadnis, 2012). Chatterjee (2005) expressed that as work organizations expand and respond to competitors and collaborators regionally and globally, they need workforces and managers who can ride the waves of culture and diversity by learning and adapting in every sphere of organizational life. He added that Global mindset is a cognitive orientation anchored in any organization and expressed through its values and practices that demonstrate its ability to transcend the boundaries of immediacy. Developing a global mindset is a process of synthesis between the tangibles and intangibles in the cognitive domain, and then configured into corporate values, beliefs, strategies, culture, and competencies (Chatterjee, 2005).


Perlmutter (1969) conceptualized three types of mindsets namely ethnocentric (strong home country orientation in terms of organizational policies and practices); polycentric (strong host country orientation in terms of organizational policies and practices); geocentric (true global orientation without any bias towards home or host country). The issue remains to achieve the dynamic balance between the global efficiency on one hand, and the local responsiveness on the other following the ‘GLOCAL’ approach (Bartlett and Ghosal, 1989; Murtha et. al. 1998; Gosling and Mintzberg, 2003). Rhinesmith (1995) and Srinivas (1995) identified the key areas of managerial attention that help developing global mindset are holistic perspective; tolerance for ambiguity; people relations and positive social network; managing diversity; proactivity to change; organizational flexibility; long term orientation; and systems thinking. Vasudhaiv Kutumbhkam (World as a family) is an ancient Indian thought wherein the entire world is considered a family – a global family. Advances in Information and Communication Technology (ICT) has reduced the world to a ‘global village’ which is essentially a market oriented economic metaphor and is indicative of reduction in market distances, where as ancient Indian concept of Vasudhaiv Kutumbhkam (Global Family) is a cultural, emotional, psychological, human relations and a spiritual concept. The global family concept aims at reducing ‘heart to heart’ distances. It emphasizes emotional & spiritual integration. People need to think beyond the concept of ‘global village’ to the concept of ‘global family’ for overall welfare of humanity and wherein there is no hegemony of any one family member. Imbibing this idea of global family would certainly lead to development of global mindset for practicing managers and corporate executives.

ORGANIZATIONAL CONSCIOUSNESS IN MODERN MANAGEMENT

Peter F. Drucker has been widely recognized as one of the key proponents of modern management thoughts and principles. Some major observations from the works done by Drucker (1974) are described below – • Management is about human beings. Its task is to make people capable of joint

performance, to make their strengths effective and their weaknesses irrelevant. • Because management deals with the integration of people in a common venture, it is

deeply embedded in culture. • Every enterprise requires commitment to common goals and shared values. Without such

commitment, there is no enterprise. • Every enterprise is learning and teaching institution. Training and development must be

built into it on all levels. • Every enterprise is composed of people with different skills and knowledge doing many

different kinds of work. It must be built on communication and on individual responsibility.

• Neither the quantity of output nor the bottom line is by itself an adequate measure of the performance of management and enterprise.

• Finally, the single most important thing to remember about any enterprise is that results exist only on the outside. The result of a business is satisfied customers, and in the long run its stakeholders.


Over emphasis on earning profit as the sole motive of any business organization at the cost of business ethics and social welfare may lead to disastrous consequences like Enron, Lehman Brothers, and Satyam Computers. In the words of Peter Drucker “It is not enough to do well; it must also do good.’ But in order to ‘do good,’ a business must first ‘do well.” He further stated that “…If we want to know what business is, we have to start with its purpose. And the purpose must lie outside the business itself. In fact, it must lie in society, since a business enterprise is an organ of society. There is only one valid definition of business purpose: to create a customer. The customer is the foundation of a business and keeps it in existence. He alone gives employment. And it is to supply the customer that society entrusts wealth-producing resources to the business enterprise….” – (Pearce et al., 2010) Lately there has been observed growing realization among the ehavior that better societal relations foster a sense of trust in the relationship with stakeholders. From there it is being ultimately linked to the triple bottom lines viz. people, planet and profits. People in the form of suppliers, distributors, bankers, employees, agents, etc constitute our “living” stakeholders. “Planet” constitutes the natural resources and the larger environment, the “non-living” or abiotic component in the stakeholders’ domain. The living and non-living stakeholders are inter-related to each other through organizational systems and processes. Hence, the term “business ecosystem” at this level indicates this web of inter-relationships. Finally, global management is facilitated by promotion of free trade both on a trans-national and trans-continental basis. The rapid globalization and inter-mixing of cultures is leading to the creation of a common global culture, where people of the various countries are exhibiting certain common cultural traits leading to the formation of a uniform world order with every person being a citizen of this new world order. This has led to the concept of global citizenship and applying the same in the context of a work organization, has been labeled as the organization citizenship ehavior. Clearly, the business ecosystem model and the open innovation model have broadened the scope of business focus which earlier was only restricted to either shareholders or the consumers. Business expansion leads to more production facilities and higher consumption of natural resources as well as creation and accumulation of more residues and wastes which affect our “planet”. So, focusing on planet and creating more environment-friendly processes is also important. This has led to the promotion of the concept of “Triple Bottom Lines”. The three major factors for an organization’s overall success are: People, Planet, and Profit. After the ratification of United Nations & International Council for Local Environmental Initiatives (ICLEI) in early 2007, this has become the dominant approach towards creating a more responsible and larger reporting system in the various organizations. When an organization promotes any CSR initiative, it indirectly addresses its commitment to the TBL initiative for a more transparent and responsible mechanism of corporate governance. Full Spectrum Consciousness Richard Barrett (2012) described full spectrum organizations display all the positive attributes of the Seven Levels of organizational consciousness. He has also expressed that at the present moment in time, there are very few full spectrum organizations. Whenever we do encounter them, they always have exemplary performance characteristics. • They master survival consciousness by focusing on profit, financial stability, and the

health and safety of employees.


• They master relationship consciousness by focusing on open communication, employee recognition, and customer satisfaction.

• They master self‐esteem consciousness by focusing on performance, results, quality, excellence, and best practices.

• They master transformation consciousness by focusing on adaptability, innovation, employee empowerment, employee participation, and continuous learning.

• They master internal cohesion consciousness by developing a culture based on shared values, and a shared vision that engenders an organization‐wide climate of trust.

• They master making a difference consciousness by creating strategic alliances and partnerships with other organizations and the local community, as well as developing mentoring, coaching and leadership development programmes for employees.

• They master service consciousness by focusing on social responsibility, ethics, and sustainability, and keeping a long‐term perspective on their business and its impact on future generations, as well as embracing compassion, humility and forgiveness.

Kautilya’s Arthashastra revisited on Leadership Arthashastra viewed the man in leadership position as ‘Vijigsu’, i.e. desirous of vijaya (victory/ achievement). It is an all encompassing phrase denoting ‘overall achievement orientation’. However this achievement orientation is not guided by the narrow self interest but by the well-being, happiness, prosperity and security of the ‘subjects’ or the organizational members. A leader ensures that his team mates carry on their tasks successfully in a peaceful and undisturbed environment. On the use of authority or power to punish, Kautilya contended that a leader is advised not to misuse his power or authority. Kautilya prefers to use the power to instill the order and protect the weak. He suggests that the leader (king) should have concern for protecting the weak. He prohibits excessive use of power and authority entrusted to an individual. He indicates that an unjust or improper use of authority may lead to strenuous relationship between the leader (king) and follower (subjects). Arthashastra dealt in detail the qualities & disciplines required for a ‘Rajarshi’- a wise and virtuous king (a prudent and ethical business leader) as summarized by Rangarajan (1987) – • Has self-control, having conquered inimical temptations of the senses • Cultivates the intellect by association with elders (domain experts) • Improves his own discipline by (continuing his) learning in all branches of knowledge • Keep his eyes open through spies (vigilant about happenings in the business world) • Is ever active in promoting the security and welfare of his people (organizational justice) • Ensures observance by the people (employees) of their dharma (organizational rules,

policies, procedures and systems) by authority and example • Endears himself to his people (employees) by enriching them and doing good to them • Avoid daydreaming, capriciousness, falsehood and extravagance • Avoid association with harmful people and indulging in harmful (illegal and unethical)

activities • Practice ahimsa (non-violence) towards all. Hence the king (leader) should always be energetic. Kautilya’s leader is guided by reason and experience. Leader’s action should be based on both reason as well as past experience. “With


the aid of former he analyses and with the help of latter, draws general conclusions (Garde, 2010). Thus, Kautilya emphasizes the importance of rationality as well as past experience in decision making. Further the need for bridging the theory-practice gap has also been emphasized. “One conversant with the science, but not experienced in practical affairs, would come to grief in carrying out undertakings” (Rangarajan, 1987). Thus the importance of the practical experience has also been emphasized. The most important component of leadership is the futuristic vision. No planning succeeds without this vision. Chanakya said; “Ministers are those who can decide what should and what should not be done” (Rangarajan, 1987). A visionary leader must also be a missionary, extremely practical, and intensely dynamic, capable of transforming his dreams into reality. Manager should be a man of action, able to translate his ideas into action and young enough to keep working towards his goal for at least another decade. This dynamism and strength of a true leader flows from an inspired and spontaneous motivation to help others. A leader is one, who has learnt the art of drawing different kinds of people towards him and extracting the best from each one according to his qualities and aptitudes. This quality to draw all people towards one self is a function of few factors like (a) followers or team-mates must know that the leader sincerely feels for them, (b) they must see that the leader himself loves to share the work with team members, and (c) a leader must be pure in body and mind. A pure body and mind develops a rare bio-magnetism, which draws all people spontaneously toward him and compels them to do what he (leader) rightly desires.

SUSTAINABLE LEADERSHIP Managers have to face a dynamic business environment where change is the only constant and they have to keep adapting to these changes. But sometimes in situations of complexity or uncertainty, managers may get lost. It is then than someone has to show them the right direction. As Stephen Covey said: “Management is efficiency in climbing the ladder of success; leadership determines whether the ladder is leaning against the right wall.” (Covey, 1989) Fullan (2005) stressed that the organizational leaders in order to be effective in the long run at all levels of a system must take moral purpose seriously in the sustainability process. He further added that humanity has the ability to make development sustainable. Such efforts can develop and increase leadership capacity locally, nationally, and internationally to create economic, environmental, and social sustainability. While a paucity of literature on leadership sustainability exists, one primary study done by Hargreaves and Fink (2003) indicated “that one of the key forces influencing change or continuity in the long term is leadership, leadership sustainability”. Furthering this and embracing the environmental stance, Hargreaves and Fink claimed that sustainability is more than merely making things last: Sustainable leadership matters, spreads and lasts. It is a shared responsibility, that does not unduly deplete human or financial resources, and that cares for and avoids exerting negative damage on the surrounding educational and community environment. Sustainable leadership has an activist engagement with the forces that affect it, and builds an educational environment of organizational diversity that promotes cross-fertilization of good ideas and successful practices in communities of shared learning and development. From this


definition, Hargreaves and Fink (2004) specifically cited seven critical principles of sustained leadership: 1. Sustainable leadership creates and preserves sustaining learning. 2. Sustainable leadership secures success over time. 3. Sustainable leadership sustains the leadership of others. 4. Sustainable leadership addresses issues of social justice. 5. Sustainable leadership develops rather than depletes human and material resources. 6. Sustainable leadership develops environmental diversity and capacity. 7. Sustainable leadership undertakes activist engagement with the environment. Continuing the evolution of this concept in 2006, the authors promoted the depth, length, and breadth of sustainable leadership while reinforcing justice, diversity, resourcefulness, and conservation, which they clarified as learning “from the best of the past to create an even better future”. In fact, Hargreaves (2007) went so far as to say that sustainable leadership preserves and develops deep learning for all that doing no harm and creating positive benefits for others around the sustainable leaders, present and in the future. At the core of these principles is the need for leadership education to encourage leaders to know themselves, their hidden strengths and personality tendencies, as well as their leadership abilities within the organization. TABLE 1 : COMPETENCIES FOR SUSTAINABLE LEADERSHIP DEVELOPMENT

(PROFESSIONAL COMPETENCIES) External Awareness and Appreciation of Trends • Scans the horizon far beyond his/her own company and industry to understand what is

happening in business and society at large. Able to interpret “weak signals” from many sources even when the impact of them might not be immediately obvious.

• Spends the majority of their time with people, both inside and outside the organization, gathering information from both formal and informal channels (including blogs and other social media), and from networks of “different-thinking” people.

• Interprets trends and signals in such a way that colleagues, customers, and other stakeholders can see how this might create opportunities as well as risks.

• Explores “jarring notes” (signals that are uncomfortable, fairly undefined at the start, but that could be very important) without shying away from thinking the unthinkable, even if the implications might be bleak.

Visioning and Strategy Formulation • Leads the development of and communicates a compelling future (vision) for the business

reflecting its social responsibilities, creating value for the many, and recognizing the varying aspirations and expectations of stakeholders.

• Co-creates a strategy with people across the company and is informed by those outside it, recognizing the value of a broad-based, flexible, multi-stranded approach.

• Leads the development of socially responsible products and services with a view to making a positive impact throughout the value chain.

Risk Awareness, Assessment, and Management • Identifies, assesses, and manages risks including as they relate to corporate reputation and to

stakeholder relations. • Assesses low probability/high impact risks that could jeopardize the company’s future while


recognizing that risks are not independent, and leads the organization in assessing intertwined risks (so-called “risk-ropes”).

Stakeholder Engagement • Demonstrates an interest in and knowledge of evolving stakeholder sentiment and

expectations, and is able to respond astutely and respectfully to competing stakeholder interests.

• Listens to people who question or do not agree with his/her or the company’s direction, and is able to extract valuable insights from such dissent.

• Builds action-oriented, mutually beneficial partnerships including those with unconventional stakeholders.

• Reads the political and opinion landscape, and represents the company’s interests to a broad range of stakeholders.

Flexibility and Adaptability to Change • Demonstrates the ability to lead the organization when there is considerable controversy and

ambiguity concerning the best way forward. • Creates step-by-step strategies and “good enough” decisions flexible enough to be modified

in the light of changing circumstances. • Listens carefully and respectfully to voices inside and outside the company for new

information that might require a change of direction and thinks creatively about possible new ways of doing things.

• Does not see own personal credibility as relying on being perceived as right all the time. Source: Faruk and Hoffmann (2012), BSR Finally, the cognitive framework of sustainable leadership can be related to the eight fold path conferred by the holy preaching of Lord Gautama Buddha. The conscious practice of them lead to the mental development, ethical conduct, and the wisdom on the part of the leaders intend to mark their holistic vision and welfare achievement.

TABLE 2: EIGHT PATS FOR HOLISTIC DEVELOPMENT (PERSONAL COMPETENIES)

1. Right View Wisdom (Spiritual Quotient) 2. Right Intention 3. Right Speech

Ethical Conduct (Emotional Quotient)

4. Right Action 5. Right Livelihood 6. Right Effort 7. Right Mindfulness Mental Development

(Intelligent Quotient) 8. Right Concentration FIGURE 1: TRIAD OF SUSTAINABLE ORGANIZATIONAL DEVELOPMENT


Source: Developed by Authors

CONCLUSION

A good number of Business Schools have introduced courses on business ethics, corporate social responsibility, sustainable development, social leadership and the like in their business management programmes. This indicates the growing realization among the academicians, educationists, and industry practitioners for the significance of educating and exposing the budding managers or executives to the positive path of development that meets the criteria of individual aspirations and careers; organizational survival; social commitments; and ecological responsibility in legitimate manners. The B-School graduates must be sensitized to appreciate one’s relationship with nature, fellow human beings, society and collective welfare, and concern for all. In the present age of global business environment, organizational functions and processes are highly interconnected. It requires practicing managers to remove the mental barriers and getting prepared to culturally adapt themselves in diverse clusters of business environments. At the same time, there is tremendous pressure on today’s organizations to perform and sustain in legally and socially satisfying ways. This change in operational practices and managerial mindsets has made the organizations rethink their business strategies in alignment with corporate social responsibilities and community welfare. The anchoring point to this dynamic balance is sustainable leadership that integrates people, profit, and planet together. New leadership competencies focused on holistic concern for the internal and external organizational factors should be developed among the efficient and well performing managers in order to make them as well as their respective organizations sustainable in the long run. A quality approach to our life, organization, community, society, and the planet at large can bring about this change for the betterment of all concerned.

SUSTAINABLE

LEADERSHIP

ORGANIZATIONAL

CONSCIOUSNESS GLOBAL MINDSET

• PEOPLE • PROFIT • PLANET


REFERENCES

Bartlett, C. and S. Ghosal (1989), Managing Across Borders: The Transnational Solutions (Boston: Harvard Business School Press). Barlett, R. (2012), The seven levels of organizational consciousness, Barrett Values Centre,. Electronic Version.

Chatterjee, S.R. (2005), Weaving the threads of a global mindset in work organizations:

Managerial roles and responsibilities, Journal of Human Values, 11 (1), 37-47.

Covey, S. (1989), The Seven habits of highly effective people: restoring the character ethic, Simon and Schuster.

Drucker, P. (1974), Management: Task, Responsibilities, Practices (Harper and Row).

Faruk, A. and Hoffmann, A. (2012), Sustainability and leadership competencies for business leaders, Electronic Version.

Fullan, M. (2001). Leading in a Culture of Change. San Francisco CA.: Jossey-Bass.

Garde, A. R. (2010), Canakya on Management, Jaico Publishing House.

Gosling, J. and H. Mintzberg (2003), ‘The Five Minds of a Manager’, Harvard Business Review, 81 (11), 54–63. Hargreaves, A., and Fink, D. (2003), The seven principles of sustainable leadership. Retrieved from http://www2.bc.edu/~hargrean/docs/seven_principles.pdf. Hargreaves, A., and Fink, D. (2004), The seven principles of sustainable leadership [Electronic version]. Educational Leadership, 61 (7), 8-13. Hargreaves, A., and Fink, D. (2006), Sustainable leadership. San Francisco: Jossey-Bass. Hargreaves, A. (2007), Sustainable leadership and development in education: Creating the future, conserving the past. European Journal of Education, 42 (2), 223-233. Murtha, T.P., S.A. Lenway and R.P. Bagozzi (1998), ‘Global Mindsets and Cognitive Shift in a Complex Multinational Corporation’, Strategic Management Journal, 19 (2), 97–114. Pearce, C.L., Joseph A. Maciariello, Hideki Yamawaki, (2010), The Drucker Difference: What the World's Greatest Management Thinker Means (McGraw Hills).

Perlmutter, H. (1969), ‘The Tortuous Evolution of the Multinational Corporation’, Columbia Journal of World Business, 4 (January–February), 9–18.

Phadnis, N.Y. (2012), Contribution of Ancient Indian Ethos in Developing Global Mindset in Leadership and Management, Proceedings of the International Conference on Business Management & Information Systems, 2012. Rangarajan, L.N. (1987), Kautilya, The Arthashastra, Penguin Books.

Rhinesmith, S.H. (1995), ‘Open the Door to a Global Mindset’, Training and Development, 49 (5), 34–43.


Srinivas, K.M. (1995), ‘Globalisation of Business and the Third World: Challenge of Expanding the Mindsets’, Journal of Management Development, 14 (3), 26–49.


THE NOT-SO-STRAIGHT-FORWARD RELATIONSHIP BETWEEN CUSTOMER SATISFACTION, LOYALTY AND PROFITABILITY

Roger J. Baran DePaul University, Chicago, USA

[email protected]

ABSTRACT Check out of your hotel and you’ll soon be sent an electronic questionnaire asking for your satisfaction ratings of the hotel’s various services. While having a meal at a restaurant you’ll often see a card-questionnaire on the table asking for your satisfaction with the meal and service. Call up the telephone company regarding a telephone issue and you’ll be asked to stay on the line an extra minute to respond to several questions regarding your satisfaction with the service. Visit a doctor and, before you leave, there are some questions they’d like to get your responses to regarding your satisfaction with the visit. Most companies recognize that in order to maintain high levels of customer satisfaction they must maintain and deliver high-quality products and services. But will providing high levels of measurable satisfaction ensure that companies create a coterie of loyal customers, and will this in turn increase company profitability? This paper investigates the links in the Customer-Company Profit Chain beginning with the construct of “satisfaction,” a construct that has become a feature of everyone’s daily life.

SATISFACTION

Less than 20 years ago, service marketing was recognized as a unique branch of marketing with its own issues and theories separate and distinct from tangible-goods marketing. A stream of service marketing research was generated, resulting in contributions in the areas of service development, implementation, and assessment. The measurement of customer satisfaction became prominent as a means of assessing users’ attitudes toward the quality of companies’ service delivery. Restaurants, banks, airlines, hospitals, hotels, car rental agencies, insurance companies, and universities, among others, queried their diners, account holders, passengers, patients, guests, customers and students about the quality of their service. This was the “Golden Age” of customer satisfaction studies. No effort was spared to ensure that customers were receiving the highest quality service possible. The reasonable assumption is satisfaction makes a difference in developing and maintaining customer relationships, and through better service comes higher profits. The Customer-Company Profit Chain (See Figure 1) posits that increasing service quality increases customer satisfaction which will lead to retention and loyalty. Such customers cost less to serve, will increasingly buy more, trade-up to more expensive offerings and increase company profitability. This article investigates whether this is really the case.



FIGURE 1: THE CUSTOMER-COMPANY PROFIT CHAIN

Organizations believe that satisfied customers will provide positive word of mouth, buy a greater variety of products and services and trade-up, which will, in turn, increase profits and improve company value. But will providing high levels of satisfaction ensure that companies create a coterie of loyal customers who will spend more and increase company profitability? Understanding the relationship between satisfaction, loyalty, and profitability is critical to our developing better marketing strategies and is the topic of this paper.

If satisfaction is the key to maintaining and enhancing customer relationships which, in turn, lead to greater profitability, then measurements of marketing strategy effectiveness can be based on the rich array of satisfaction measures that already exist. Marketing strategies should be developed that focus on increasing customer satisfaction. However, if satisfaction does not prove to be intimately related to customer loyalty and profitability, then we should determine why, and search for other marketing effectiveness measures.

Quality of service is what the customer, not the company, says it is. A recent study showed that while 80 percent of the 362 companies surveyed felt they provided a superior-quality service, only 8 percent of customers felt they did (Anderson, Fornell and Lehmann 1994). While it is generally agreed that the concepts of service quality and service satisfaction are related, some feel that there is confusion regarding exactly how the two variables relate to one another (Brown, Fisk and Bitner 1994). Some have suggested that customer satisfaction is transaction specific (an immediate post-purchase evaluation) and therefore somewhat

COMPANY INCREASES

PRODUCT AND SERVICE QUALITY

CUSTOMER SATISFACTION

CUSTOMER LOYALTY

CUSTOMER RETENTION +

REDUCED DEFECTIONS

REDUCED COSTS IN SERVICING

CUSOMERS WHO INCREASINGLY BUY MORE + BUY MORE EXPENSIVE ITEMS

INCREASED COMPANY

PROFITABILITY


variable. Others feel that since consumer satisfaction is an evaluation based on the total purchase and consumption experience with a good or service over time (cumulative satisfaction), it is an enduring attitude toward an organization’s service quality (Evans 2011).

It is possible that a customer may experience low transaction-specific satisfaction but still have high cumulative satisfaction with a company. For example, a business traveler waiting a long time to check into their hotel room and then being told their reservation can’t be found is bound to experience low satisfaction with the hotel for this particular transaction. They may have stayed at this hotel for a number of years without incident, however, so their overall cumulative satisfaction with the hotel is still high. Transaction-specific satisfaction measures are more useful in determining the effectiveness of training or other quality improvement efforts. Cumulative satisfaction measures are more useful in determining the effectiveness of customer retention efforts.

One conclusion that seems to characterize the many diverse studies with respect to customer satisfaction is that while satisfied customers may not remain loyal, dissatisfied customers certainly won’t (if they have a choice). The vast majority of dissatisfied customers, reported to be as high as 90 percent in some studies, will not have further dealings with such companies (Knauer 1992). Further, nearly all research has shown that dissatisfied customers tell more people about their bad experiences than satisfied customers with good experiences. Negative word-of-mouth (mouse) is spread more quickly, to more people, than positive word-of mouth (mouse) and it has more impact on their future behavior. Satisfaction is, therefore, said to have an asymmetric impact on variables such as loyalty and profits. Leaving a customer dissatisfied damages a company in two ways: loss of business from that customer and negative word of mouth leading to the loss of business from many others.

It behooves a company to try to recognize dissatisfied customers and reverse a bad situation. Unfortunately, numerous studies have shown that only a small percentage of dissatisfied customers complain—usually less than 10 percent. T. Peters reported that 26 of 27 customers failed to report a bad experience (Peters 1987). Why? Perhaps because they felt that the time and effort involved was greater than the potential return they would accrue from the company satisfactorily handling their complaint.

Handling customers’ complaints satisfactorily is impossible if customers do not report them. Companies must establish systems, procedures, and an underlying culture that views customer complaints as an opportunity rather than a threat. Tony Tuor, the late, Swiss-born executive manager of the Dusit Thani Hotel in Bangkok, could be seen every day talking with hotel guests in one or more of his hotel’s restaurants, soliciting their feedback regarding lapses in his hotel’s service. Tuor once said: “I love when customers complain because that gives me the opportunity to solve their problem, provide a solution that exceeds their expectation, and cement the relationship. These previously dissatisfied customers will become more loyal to our hotel than if they didn’t experience a lapse in service quality in the first place.”


Dissatisfied customers have dire consequences for a company’s business, but let us now turn our attention to the benefits of having satisfied customers. Here, the matter becomes less straightforward. The following are two definitions of what it means to be a satisfied customer (Lemon, White and Winer 2002): Satisfaction can be broadly characterized as a post-purchase evaluation of product quality given pre-purchase expectations (Anderson and Sullivan 1993). Satisfaction is the consumer’s response to and evaluation of the perceived discrepancy between prior expectations (or some other norm of performance) and the actual performance of the product as perceived after its consumption (Tse and Wilton 1988).

Notice the similarity in these definitions of satisfaction: the comparison of prior service expectations with the actual service level received. This is referred to as the expectancy confirmation/disconfirmation model of satisfaction, wherein satisfaction is the difference between expectations and current experiences. If service rendered exceeds what was expected, the consumer is satisfied. If service rendered is below what was expected, the consumer is dissatisfied. An important strategic outcome of this is that there are serious ramifications in store for those companies that promise more than they can deliver. On the other hand, if a company keeps expectations relatively low (Carnival Cruise Lines) customers leave satisfied when they find their expectations have been exceeded.

From the mid-1980s until 2000, service firms and academics worked diligently to establish the best ways to measure customer satisfaction because of the belief in the relationship between customer satisfaction and loyalty and, further, the belief that long-term relationships were more profitable than short-term relationships. As research results accumulated, however, some concluded that satisfied customers may not necessarily develop into loyal customers. For example, while Carnival Cruise Lines has 95% satisfaction, less than 20% of their customers return more than once!

SATISFACTION, TRUST, COMMITMENT AND LOYALTY

To many researchers of relationship marketing, satisfaction appears to be too weak a construct to describe the strength and depth of a relationship, so other variables were investigated as predictors of future behavior. Since relationships are studied in many fields including social psychology, industrial marketing, services marketing, marriage and family, and even religion, it is not surprising that a vast array of variables were considered. Several constructs more essential than satisfaction were hypothesized to underlie relationship-strength including: caring, support, loyalty, honesty, communication, respect, affection, helpfulness, trust, understanding, liking, reciprocation, trustworthiness, commitment, placing priority on the other’s interests, maintaining privacy, desire to maintain a long-term relationship, interacting over time, benefits accruing to both parties, not criticizing publicly, working through disagreements, and keeping confidence.


While many elements such as these underlie relationships, the research literature singles out trust and commitment between both parties as being critical. R. M. Morgan and S. D. Hunt, in their theory of relationship marketing, state that trust and commitment are essential because they encourage partners to: 1. Preserve the relationship through cooperation 2. Resist attractive short-term alternatives in lieu of expected long-term benefits 3. Take risks since they are confident their partner will not act opportunistically (Morgan and

Hunt 1994)

With trust, one partner will rely on another because they have confidence in their integrity, durability, and ability to work out problems they will face in the marketplace. Commitment refers to both parties’ understanding that they are in the market together for the long run. They are willing to make sacrifices for their partner because they are mutually dependent upon one another in their quest to achieve long-term returns on their psychological and financial investments.

The importance of trust and commitment was further emphasized by B. B. Jackson who identified three types of relationships that a company can have with its customers—that of being an acquaintance, friend or partner. She states that acquaintance relationships, based on satisfaction, are the weakest (Jackson 1985). An acquaintance relationship exists when a customer is satisfied with the product or service a company provides because it is on par with what they could get elsewhere. This implies that satisfaction, in and of itself, cannot be expected to be a precursor to loyalty since competitors’ offerings are comparable with the selected offering, and any number of situation-specific variables could lead the consumer to switch to an alternate. A friendly relationship exists when the customer trusts that a company provides differentiated value. And a partner relationship exists when the customer is committed to the company because it provides customized value.

When there is commitment, both parties will do whatever is necessary to maintain the relationship. As such, partner relationships are more likely to occur in the business-to-business (B2B) sector (for example, between franchisor and franchisees) although they do occur in the business-to-consumer (B2C) sector as well (for example between Harley-Davidson and Harley Owners Group (HOG) members). Since the strength of a relationship moves from satisfaction to trust to commitment, satisfaction alone cannot be expected to lead to loyalty since it indicates only a weak bond between customer and company. Organizations may want to determine what type of relationship—acquaintance, friend, or partner—characterizes ongoing customer–company bonds in their company and industry, and then decide whether measures of satisfaction, trust, or commitment are most appropriate.

While satisfaction as a measure of the bond between customer and company may be a somewhat weaker construct than loyalty, a few research studies have shown that a positive relationship exists between satisfaction and financial performance even though the relationship may not be direct. One study showed that for every 1 percent, or 1 point, increase


in satisfaction, a firm’s market value increased by $35 million (Anderson, Fornell and Mazvancheryl 2004, Ittner and Larcker 2000). Other research has shown that the satisfaction–profit link is asymmetric and nonlinear with a 1 percent increase in satisfaction increasing return on investment (ROI) by 2.4 percent, but a 1 percent drop in satisfaction decreasing ROI by 5.1 percent (Gupta 2006). The findings cannot be generalized, however, since the satisfaction-profit link varies by industry.

With respect to the construct of loyalty, researchers have still not developed a definition of loyalty acceptable to everyone. At least four definitions exist: 1. Behavioral or Spurious loyalty simply looks at the brand(s) purchased without

consideration of the feelings toward the brand. For example, a consumer purchasing Minute Maid orange juice every week for 10 years would exhibit behavioral loyalty if they purchased it because it was the only brand available even thought they didn’t like it.

2. Affect or True loyalty: “Affects “are the feeling components of an attitude and include “liking” and “preference.” Proponents of this approach state that loyalty is determined not simply by looking at what is purchased but also by looking at a person’s “liking” and “preference” of the brand. Many feel that for true loyalty to exist there must be affect loyalty; that is, a strong commitment to a brand.

3. Situation-specific loyalty: Proponents of this approach state that the relationship between attitudes and behavior is moderated by other variables such as an individual’s economic circumstances, personality, and the buying situation (on-the-shelf availability, low price, point-of-purchase displays, sales promotion, etc.). With this model, it is possible that a consumer may forgo purchasing a brand they like and prefer because of another brand’s promotion or availability. A consumer exhibits situation-specific loyalty if they purchase a Honda motorcycle because of a $2,500 cash-back offer even thought they prefer Harley-Davidson.

4. Latent loyalty: Latent loyalty exists when a consumer loves a brand but can’t buy it because of price or other restrictions.

When there is no feeling toward brands within a particular product category and the consumer purchases whichever brand the store sells (coffee filters, vegetable oil, sugar), there may be no loyalty at all. “Convenience” goods are characterized by such brand indifference.

RETENTION

Reichheld, Markey and Hopton were not keen on measuring customer satisfaction since they claimed it was not related to retention. Instead, they stated that companies should carefully track repurchase loyalty as the “truer measure of how they stack up versus the competition.” They stated that Lexus uses repurchase loyalty as their key satisfaction indicator (Reichheld, Markey and Hopton 2000). Reichheld was one of the first to propose that companies needed to focus more on customer retention as opposed to acquisition. Along with Sasser, he made a strong case that customer retention is the major driver of company profits. They made the following points regarding the importance of retention: • Customers defect at the alarming rate of 10–30 percent per year. In fact, the annual


defection rate for newspaper subscriptions is 66%. • A 5 percent increase in customer retention consistently resulted in 25–100 percent profit

swings, over time, across all industries studied. • Companies can boost profits by almost 100 percent by retaining just 5 percent more of

their customers. For one auto-service firm the expected profit from a fourth-year customer was more than triple the profit the same customer generated in the first year.

• Reducing defections by just 5 percent generated 85 percent more profits in one bank’s branch system.

• Companies with loyal customers can financially outperform competitors with lower unit costs and higher market share but high customer churn. In the credit card business, for example, a 10 percent reduction in unit costs was financially equivalent to a 2 percent decrease in defection rate (Reichheld and Sasser 1990).

FACTORS INTERVENING BETWEEN SATISFACTION AND LOYALTY

“Loyal customers, high in repeat purchase behavior and strong in attitude, are, theoretically, the most desirable customers…loyalty indicates a commitment to the support of a relationship.” W. G. Zikmund, R. McLeod, Jr., and F. W. Gilbert, Customer Relationship Management (New York, NY: Wiley & Sons, 2003).

Will maintaining high levels of satisfaction lead to customer loyalty? Most companies believe it will. Following, however, is a comprehensive view of intervening factors that may decrease, or even negate, the relationship between satisfaction and loyalty: • The sheer numbers of competitive offerings that are on par with the company’s offerings

make it easy for satisfied customers to switch allegiance without any negative effects. For example, a consumer may love his Mercedes-Benz auto but when it comes time to purchase a new car he may decide among other high-quality luxury autos such as Lexus, BMW, Audi and Infiniti. Conversely, if few or no competitive offerings are available (telephone service, for example), a dissatisfied customer may, in fact, continue to purchase a product or frequent an enterprise toward which they are dissatisfied.

• Novelty-seeking behavior: while a consumer loved his last three Volvos he switches to an Audi just to experience something different

• Lack of personal attachment to a brand with which they are satisfied: a consumer may be very satisfied with Duracell batteries but purchase Eveready the next time he needs batteries. Consumers in general do not become emotionally attached to brands of convenience goods; e.g., brands of coffee filters, flashlight batteries or tooth-brushes. Even if highly satisfied, consumers buy what is available.

• Lack of consistency in performance: A season ticket holder loved 5 of the 6 operas at the Civic Opera House but decides not to repurchase season tickets because of the one opera she disliked.

• New competitors offer better value: the consumer loved his Mercedes but purchased a Lexus because of the automatic park-itself feature.

• New competitors provide a greater variety of ancillary services that lead a satisfied customer to switch. Such ancillary services could include financing, guarantees, training, delivery, formulation, servicing, packaging, etc.

• With respect to customer retention, high expectations of future use may override low levels


of satisfaction, and low expectations of future use may override high levels of satisfaction (Anderson and Sullivan 1993): For example, a consumer may not like Avis but since the company expects him to use Avis he has a long-term relationship with the brand.

• Customers may be very satisfied with a company’s service and yet not want a long-term relationship with the firm. For example, a consumer cannot wait to stop doing business with a major credit card company even though its service is superb.

All of these examples point to the “disconnect” between satisfaction and loyalty and should give companies pause in their use of satisfaction measures to predict the direction of future sales.

RESEARCH FINDINGS REGARDING THE RELATIONSHIP BETWEEN SATISFACTION AND LOYALTY

Even though customers may have high satisfaction scores but defect anyway, there is a lot of academic and commercial support for the satisfaction/loyalty/repurchase model; and companies continue to invest in attitudinal satisfaction studies. Why do some researchers stress that satisfaction is intimately related to retention but others caution that one should never relate satisfaction levels to retention (Rust and Zahorik 1993, Reichheld 1993)?

There appear to be five reasons for such disagreement: 1. Some research indicates that there is a relationship between satisfaction and loyalty, but it

is not a simple linear relationship (See Figure 2). V. Kumar and W. J. Reinartz claim that the link between satisfaction and retention is asymmetric (dissatisfaction has a greater impact on retention than satisfaction) and nonlinear (the impact of satisfaction on retention is greater at the extremes, with the flat part of the curve in the middle called the zone of indifference) (Kumar and Reinartz 2005).

FIGURE 2: THE SATISFACTION-RETENTION CURVE

2. One must make the distinction between spurious loyalty and true loyalty. The former can

be generated in industries where competition is scarce, high-switching costs exist, or


loyalty programs engender usage even when service does not warrant it. With local phone service, a convex relationship exists where customers are loyal (falsely loyal), even at high dissatisfaction levels (See Figure 3). On the other hand, where numerous high-quality competitors exist—e.g., the auto industry--a concave relationship exists where even a slight drop from complete satisfaction causes a tremendous drop in loyalty. Note, again, that there is not a simple linear relationship between satisfaction and loyalty. Thus, when it comes to measuring the effectiveness of marketing strategy, a researcher must distinguish between true (affect) and false (behavioral) loyalty. As T. O. Jones and W. E. Sasser, Jr. point out, to a much greater extent than previously thought, completely satisfied customers are more loyal than merely satisfied customers (Jones and Sasser 1995).

FIGURE 3: HOW THE COMPETITIVE ENVIRONMENT AFFECTS THE SATISFACTION-LOYALTY RELATIONSHIP

3. Even though Reichheld, Markey, and Hopton provide findings that show customers buy

significantly more from companies with which they are completely satisfied, they hold to a more rigorous definition of satisfaction than most. To them, a customer is satisfied only if they are a “5” on a 5-point scale (Reichheld and Sasser 1990).Other satisfaction levels do not show a similar relationship.

4. Many studies investigating the relationship between attitudinal satisfaction and other dependent variables (longevity, profits, positive-recommendations, buying higher margin items, etc.) do not differentiate among first-time, short-term, and long-term customers. We posit that the relationship between satisfaction and indicators of loyalty or profitability will be strongest for long-term customers with positive satisfaction scores and lowest for short-term customers with positive satisfaction scores. The former can be considered in a relationship, while many of the latter may turn out to be transactional buyers. This may result in their having high initial satisfaction scores but low scores on the dependent variables such as retention.

5. Perhaps most importantly, your most loyal customers may also be your competitors’ most loyal customers. Most loyal customers may not, in fact, be exclusively loyal. “Road Warriors” may actually be the best customer segment for numerous airlines, hotels, and


rental car agencies. This group may be highly satisfied with all company interactions, but one slight slip may cause them to defect since there are so many high-quality alternatives. As G. R. Dowling and M. Uncles pointed out: “There is reliable empirical evidence to suggest that many or most heavy users are multi-brand loyal for a wide range of products and services. That is, a company’s most profitable customers will probably be the competitors’ most profitable customers as well (Dowling and Uncles 1997).

A. S. C. Ehrenberg found empirical proof for a logical corollary; namely, “100 percent loyal buyers tend to be light buyers of the product or service” (emphasis added) (Ehrenberg 1988). In other words, in many markets, the high-volume buyers split their purchases across companies, whereas the low-volume buyers are more likely to purchase from a single company. The implications for measuring the effectiveness of marketing efforts is that one must be careful in how loyalty is defined. Customers who are 100 percent loyal should be expected to be most profitable. In actuality, those with divided loyalty may be a firm’s most profitable segment.

THE RELATIONSHIP BETWEEN CUSTOMER LOYALTY AND COMPANY PROFITABILITY

Companies focus on developing a loyal customer base for the increase in profits this group is expected to generate. It seems intuitive that the longer loyal customers buy from a company, the more profitable they become. Few would argue this in contractual situations; e.g., between health clubs and their members or between phone companies and their subscribers. But these contractual settings should be contrasted with more transactional settings such as exist between retail stores and their customers. Even in transactional settings the relationship between customer loyalty and company profitability has been found to exist. Reichheld and Sasser’s study showed that even a small increase in customer retention rates could have a major impact on profitability (Reichheld, Markey and Hopton 2000). Reichheld and T. Teal showed that profits increase with the length of time a customer remains in a relationship with a company (Reichheld and Teal 1996). R. C. Blattberg and J. Deighton showed that it was much more cost effective for a company to retain their current customers than to acquire new ones (Blattberg and Deighton 1996). R. Best said that retained long-life customers produce higher revenues and margin per customer than lost or newer customers and that total profits should increase over time (Best 2000). These studies reinforced the benefits of what is called defensive marketing as opposed to offensive marketing.

The increased profits from loyal, long-term customers are said to accrue for a number of reasons: • They buy more • They tend to “trade up” (i.e., purchase more expensive items in a company’s product lines) • They lose their vigilance toward price and become less price-sensitive. The reasoning is

that long-term customers, because they understand a company’s procedures and product lines well, can extract more value in terms of convenience and purchase efficiencies and, therefore, are not as price sensitive as newer customers.


• They give word-of-mouth referrals to family and friends • They cost less to serve since companies are more efficient in meeting their needs All of these factors have increased companies’ efforts to retain customers.

Recently, however, results of empirical studies have led to numerous qualifications regarding loyalty–profitability tenets. Uncles and Dowling caution: “In short, the contention that loyal customers are always more profitable is a gross oversimplification (Ehrenberg 1988).” Reinartz and Kumar point out that if the cost of servicing customers is greater than the profit margin generated by customers profits will not increase over time nor will the nature of the lifetime-profitability relationship be positive (Reinartz and Kumar 2000).

Costs of servicing long-time customers can be high. Consider the catalog company that sends ten or more catalogs per year to a household that never buys. Consider the cost to a company that sends out millions of bills each month to customers with a $0 balance. Consider long-time customers who tie up the contact center personnel with constant complaints or consistently return merchandise. Finally, consider the significant costs associated with loyalty/reward programs. Costs of servicing long-term customers can actually exceed the profit margins they generate.

Does it truly cost less to service long-term customers than short-term customers? Those involved with B2B say “yes” because experience factors play a role in most of these relationships. When the transaction involves learning, long-term customers should cost less because the cost of educating them gradually decreases while transaction efficiencies increase over time. For example, corporate tax accounting firms can service long-term clients more efficiently since they have acquired a deeper knowledge of their business over time and trained the client in time-saving input routines. Those involved with B2C, however, point out costs such as mailing, are unaffected by a customer’s tenure.

Reinartz and Kumar empirically tested the relationship between retention and profitability and their findings contradict many of the traditional tenets. They found that: • In terms of profitability per month, short lifetime but high revenue customers were the

most attractive. • Profits for long-life customers did not increase over time. • Short-life customers paid higher prices than long-life customers. This supported company

managers, who said that long-term customers have a higher value consciousness (i.e., pay lower average prices).

• Some long-life customers may cost the firm more in the long run due to marketing expenses exceeding profits for this group (Reinartz and Kumar 2000).

Their study illustrated the importance of weighing promotional costs against expected profits from varying tenured customer segments.

Additional empirical studies across industries will have to be conducted before the many


tenets of the loyalty/profit relationship can be accepted or rejected. What can be recommended now, however, is that each company tests these loyalty/profit tenets using their customer base. Transaction-based service companies, such as restaurants, hotels, and airlines, may have a significantly different loyalty/profit profile than health clubs, telephone companies, and insurers that have contractual service relationships with customers. In addition, companies producing highly identifiable products and services that are strong in psychological benefits and consumer involvement (university degree programs, professional sports teams) may have significantly different loyalty/profit profiles than companies producing products and services that are undifferentiated from their competitors (luxury hotels, airlines).

In one of their landmark articles, W. J. Reinartz and V. Kumar provided an interesting typology of customers based on their profitability and their projected duration with a company (Reinartz and Kumar 2000). (See Figure 4)

The typology is useful because once a company determines which quadrant a customer belongs to, it can determine the amount it should spend on relationship efforts. They suggested that since Butterflies are high-profit/short-term customers, the mistake that most companies make is investing too much money over too long of a time period in relationship marketing. The key with Butterflies is to maximize transactional profit through short-term promotional blitzes and not to attempt a long-term relationship. Because True Friends offer the greatest profit over the longest time period, companies must foster this relationship more than the others but not overwhelm these customers with constant communications. Since Strangers are low-profit/short-term customers, no investment should be made on them. Companies should seek profit on every transaction and never expect that offering them loss-leaders will cause them to trade-up. They are only loyal to low prices and will not change. Barnacles are long-term/low-profit customers. They may be low profit either because their wallets are small or because you have a small share of their wallet. Companies should try to increase profits from this group by cross-selling and trading-up. If this fails, assume their wallets are small and minimize relationship marketing expenses.


FIGURE 4: CUSTOMER LOYALTY AND PROFITABILITY

Profitability

High

Butterflies

True Friends

Low

Strangers

Barnacles

Short-Term Long-Term Customer Loyalty

Based on a categorization of customers classified on profitability and loyalty, here are the marketing strategies that are recommended (See Figure 5): For high-profit/high-loyalty customers use a CRP strategy: customize, reward, and personalize. For high-profit/low-loyalty customers try and OUTFOX the competition. This group probably divides its purchases among a number of competitors, so companies should try and increase their share by developing effective strategies and tactics; however, this must be done continuously for competitors will match the ones that prove successful. For low-profit high-loyalty customers X-RAY WALLETS: i.e., direct promotions to the entire group for a year to determine which customers are valuable and which aren’t. Drop those with thin wallets and keep those with thick wallets. For low-profit low-loyalty customers use the FAT strategy; i.e., “forget about them.” You will never recoup your marketing investment in this group.


FIGURE 5: CHOOSING A LOYALTY STRATEGY BASED ON TYPE OF CUSTOMER

Profitability

High

Butterflies Outfox Strategy

True Friends “CRP” Strategy

Low

Strangers “FAT” Strategy

Barnacles X-Ray Wallet Strategy

Low High

Loyalty

SUMMARY

The relationships between customer satisfaction, loyalty and profitability are not clear. Increases in satisfaction have been related to increases in company profitability although the relationship does not appear to be linear. In addition, the relationship between satisfaction and profitability appears to by asymmetric. Dissatisfaction will hurt the bottom line more than satisfaction will help it. Most established competitors today produce quality products and render high-quality service, so consumers are highly satisfied with numerous options in each category. That being the case, companies need to strive for something greater than customer satisfaction. Companies need to deliver a marketing mix that customers simply cannot live without. Companies need to bond with their customers through effective relationship marketing strategies and create loyalty, trust and commitment rather than just satisfaction. The difficulty is in not overspending on customer segments that don’t want a deep relationship with your organization. It is most probable that the relationships between customer satisfaction, loyalty and profitability are industry specific and are best determined by companies mining and analyzing the data in their customer information bases. The greatest successes will be gained by companies who are able to identify their “steep-skew” customer segments; i.e., those generally small groups of customers spending the most money on high-margin products and services. These are the segments you want to become loyal and you want to retain through relationship marketing efforts.


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PERFORMANCE APPRAISAL ACCURACY: THE EFFECTS AND CONSEQUENCES OF RATER’S MOTIVATION IN PERFORMANCE APPRAISAL

CONTEXT; A CASE STUDY OF PAKISTAN HIGHER EDUCATION SECTOR

Farhat Saba PhD Candidate,

School of Business Faculty of Law & Business

La Trobe University, Melbourne, Victoria, 3086 [email protected]

Apollo Nsubuga-Kyobe

School of Business Faculty of Law & Business

La Trobe University, Melbourne, Victoria, 3086 [email protected]

ABSTRACT

Performance Appraisal (PA) is a key element of Performance Management (PM) but often the former entails controversial practices, among other things impacted by accuracy and effectiveness. Nevertheless, it is generally believed that Performance Appraisal System (PAS) often lead to positive organisational outcomes, yet the “accuracy of the measuring instruments” is still a debatable issue with lots of criticisms. These tend to relate to Rater’s Motivation, effect and consequences, accuracy and integrity of the PAS in-place. Using literature review, the foregoing matters are tested as a case study approach by focusing on higher education institutions/Universities in Pakistan. Since Higher education sector increasingly is playing a critical role in economic competitiveness of a country, reviewing Higher Education Sector PA practices provides a developmental causeway in the regards to the other significant institutions. Aiming to assess the impact of the rater motivations in PA processes in Higher Education in Pakistan Sector, can be a critical contribution to Organisational and peoples’ performance. Thus, this paper explores the effects and consequences of rater motivation on PA accuracy in the first place. This is in addition to examining the role social contextual variables may play in higher education sector in Pakistan. Identifying other key factors responsible for PA accuracy in the Pakistan’s case is equally important. Keywords: Performance Appraisal, Performance Management, Performance Appraisal Accuracy, Rater Motivation, Higher Education.




INTRODUCTION

This paper focuses on the impact of performance appraisal (PA) accuracy, examined through

a case study approach of Pakistan Higher Education Sector (universities), thus it assesses the

effects and consequences of the rater’s motivation given the context. In today competitive

business environment, universities as organisational institutions also seek to use roles, which

employees play as a source of competitive advantage (Barney, 1995; Pfeffer, 1996). Perhaps,

they are following on Porter’s (1990a) observation that a nation's economic prosperity would

no longer be tied to abundant natural resources and cheap labour; rather, their "competitive

advantage through people" a situation that would be increasingly based on creative and

scientific innovations. This new paradigm of economic development positions colleges and

universities as primary engines of growth and development (Romer, 1990; 1993), therefore

their experiences provide a good ground for lessons.

Since universities as institutions can play key role in economic growth, development and

social change of a country, many governments are influenced to expand the sector’s capacity

and quality for new frontiers. Thus, high quality and capacity of the Higher Education

Sector cannot be achieved without continuous assessment and improvement of staff

performance evaluations. Given the foregoing, Universities as institutions are used so as to

throw some light on the “PA accuracy” and “rater’s motivation in PA” basing on case studies

from Pakistan. Large, medium, and small organisations do have and implement Human

Resource Management (HRM) Policies and Practices that seek to promote employee

productivity and efficiency among other things (Brown & Benson, 2005; Linna et al., 2012).

One of the HRM functions and practices is performance appraisal (PA). If used effectively, it

tends to improve competitiveness, innovation, research and development, employee

productivity and efficiency as well as motivation and performance enhancements (Murphy &

Cleveland, 1991). These outcomes can be achieved in a number of ways including creating a

culture of high performance where all members could be responsible for continuous

improvement in their own skills and business processes (Armstrong, 2006). This is sub-

divided as follows:


LITERATURE REVIEW

Performance appraisals have increasingly become part of a more strategic approach to

integrating human resource (HR) activities and business polices and is now a generic term

covering a variety of HR activities . It is through this that organisations seek to assess

employees and develop their competence, enhance their performance and distribute rewards

(Fletcher, 2001). Muczyk and Gable (1987) believe that the way these activities are managed

determine the success/failure of an organization. As PA plays the most crucial role towards

the organization’s success, it is essential to have an effective PAS, so that employees’

performance could be assessed accurately. Also, such a system could adequately support

various human resource decisions (Ikramullah, Shah, Hassan, Zaman, & Shah, 2011:37).

Mohrman & Lawler, (1983) have listed the PA uses for organisations and they include

decisions such as: human resource planning, selection and placement, promotions and

development, compensation, training and development, and individuals’ feedback. For PA

to be useful, regardless of their specific purpose, they should be as accurate as possible.

Some research in PA area has examined performance rating formats and rater training in an

attempt to improve the accuracy. However, research focused onto rating formats was only

moderately successful in improving rating accuracy, thus researchers like Landy and Farr

(1980) called for a moratorium on format research; at the same time they commenting on the

inadequacies (Banks & Murphy, 1985; Bemardin & Villanova, 1986). As a result, more

recent researchers have started focusing their attention on the factors other than performance

appraisal format and rater’s training. This is in addition to contextual variables surrounding

the performance appraisal process impacting accuracy. One such factor is rater motivation

(e.g., Banks & Murphy, 1985; Bemardin & Villanova, 1986; Harris, 1994; Murphy &

Cleveland, 1991).

Given the foregoing improving PA accuracy and a better understanding of the rater’s

motivation, these do represent every important and underexplored component (Banks &

Murphy, 1985, Bemardin & Villanova, 1986; Cleveland & Murphy, 1992; Decotiis & Petit,

1978; DeNisi & William, 1988; Fisher, 1989; Harris, 1994; Lawler & Mohrman, 1983;

Longenecker, Sims, & Gioia, 1987; Murphy & Cleveland, 1995). Notable, the work has

focused on understanding and improving appraisers’ ability (Banks & Murphy, 1985;


Bernardin & Beatty, 1984). More recently, certain researchers have bemoaned the dearth of

writing on appraisers’ motivation in the performance rating context (e.g., Bernardin &

Villanova, 1986; Murphy & Cleveland, 1991). Banks & Murphy, (1985) pointed to the

scarcity of published empirical research on the nature, antecedents, and consequences of

appraiser motivation (Cleveland & Murphy, 1992; DeNisi & Williams, 1988; Fisher, 1989).

Scarcity of conceptual models of rater’s motivation in certain developing country’s’ context

has been referenced in regard to the Asian context, particularly in higher education sector in

Pakistan (Batool & Qureshi, 2007). Therefore, this paper focuses on rater’s motivation

seeking key PA determinants in Pakistan context using case study approach.

Several scholars have developed conceptual models of rater’s motivation in developed

country’s context, for example, DeCotiis & Petit, 1978; Mohrman & Lawler, 1983; Murphy

& Cleveland, 1991), these have provided the main ground for this work. Thus, the paper

starts with the description and discussion of the possible effects and consequences of PA

rater’s motivation in higher education sector in Pakistan. The work seeks to respond to a

more recent call of re-examing the contextual variables surrounding the PA process, e.g. the

appraisers’ motivational process aspects and the extent of accuracy. More specifically, the

main emphasis is on the motives of managers when rating performance. Thus, at a very

broad level, the purpose of this paper is to contribute to the existing literature on PA with by

identifying and explaining the contextual factors, their influences, broad rater’s behavior as

well as the impacts to the ratee as accompanying behaviors may produce leniency or the

opposite, which two situations undermine the integrity and accuracy of the PAS.

Factors affecting Raters Motivation

In order to design effective interventions to improve performance appraisal accuracy, we first

need to identify key social factors affecting performance ratings as the performance appraisal

process involves a series of behaviors and attitudes during which the appraiser observes,

stores, and when necessary, recalls and integrates appraise behavior (Wexley & Klimoski,

1984). A more detailed description of the factors affecting rate motivation in PA context will

be discussed in the next section.


Political Behavior

Longenecker, Sims, and Gioia (1987) defined politics as deliberate attempts by individuals to

enhance or protect self-interests when conflicting courses of action are possible. They found

that raters nearly always had political considerations in mind when they conducted

performance appraisals. Specifically, the authors provided documented evidence that raters

use discretion, and consider the potential effectiveness and consequences of their ratings

when rendering performance ratings. What was perhaps most enlightening about

Longenecker et all (1987) findings was that raters confided that they were not often

concerned with providing accurate ratings. Rather, ratings were often more a function of such

influences as raters' motivations to avoid confrontations, make themselves look like more

effective managers, and to procure desired rewards either for themselves or their

subordinates. Similarly, Nayyar and Raja (2012) investigated the impact of impression

management on organisational politics and posited that in mechanistic system employees

more inclined towards impression management to manage their political behavior then in

organic organizations. Motives politics behavior and activities in organizational culture in

higher educational sector in Pakistan may include inflating subordinates' ratings to avoid

confrontations with subordinates and to get rid of troubled employees out of one's

department.

Altman, Valenzi, & Hodgetts, (1985) posited that supervisors avoid giving performance

ratings that may antagonize employees (e.g., low rating)” and inflate performance ratings in

order to maximize rewards offered to their employees (e.g., salary increases, promotions,

prestigious assignments, etc.). It has also been observed that raters often use the performance

assessment system as an instrument for realizing specific self-centered objectives such as

image improvement or affecting positive relationships with subordinates (Murphy &

Cleveland, 1995). According to Tziner, et al. (2005) raters that believe in such political

dimension of performance appraisals are less likely to provide accurate or useful evaluations

of their subordinates' performance than raters who see the performance appraisal system as a

credible and useful gauge of individuals' performance. Poon, (2004) referred several studies

(Ferris and Kacmar, 1992; Kacmar et al., 1999; Valle and Perrewe', 2000) which discussed

the organizational politics having relationship with job satisfaction and turnover intention.


Arshad, Masood & Amin,(2013) investigated on performance appraisal politics PAP and its

relationship with job satisfaction and turnover intentions in Pakistan and validated that PAP

influences job satisfaction and turnover, which are in aligned with previous researches

(Poon, 2004, Logenecker et al., 1987).

Deliberate Leniency:

Raters have been purported to be lenient for a multitude reasons. Most typically, raters are

believed to be lenient to avoid negative interpersonal consequences with ratees (e.g.,

Bernardin, 1987; Bernardin & Buckley, 1981), to appear successful (Greenberg, 1983), or as

a result of organizational norms or discomfort with performance appraisals (e.g., Bernardin &

Beatty, 1984; Villanova, Bernardin, Dahmus, & Sims, 1993). Rating leniently as a function

of organizational norms typically means that raters inflate performance ratings due to a

perception that other raters inflate their ratings as well.

Tziner, Murphy, and Cleveland (2002) also examined trust in the performance appraisal

process and found that raters who have low trust have a greater propensity to assign higher

ratings. Additionally, Villanova et al. (1993) posit that rater discomfort with the appraisal

process has also been proposed as a predictor of rating leniency. He further found that raters

who scored high on discomfort were more likely to inflate ratings. The suggestion for why

uncomfortable raters inflated ratings was that these raters did not want to deal with the

negative feedback that would result from giving low ratings. Bernardin and Buckley (1981)

provided a list that essentially summarizes the reasons why raters would tend to be lenient.

Not surprisingly, many of the reasons are consistent with the reasons stated for political

manipulations in performance ratings (e.g., low ratings will negatively affect relationship

with subordinate, self-enhancing, culture). A research conducted recently on performance

evaluation of university teachers in Pakistan by Aslam (2012) endorses the same opinions

that rater avoid having their performance discussion in order to keep themselves away from

embarrassment or any disagreements between the parties involved. Segal (2000) summed up

some of the deficiencies of carrying out appraisal evaluations accurately because of the

following factors affecting performance appraisal accuracy: use of primarily defective

appraisals, focus on cheering individual, which automatically depresses


teamwork/collaboration, contradictions in setting and pertaining appraisal criteria,

spotlighting on edges (exceptionally good or poor performance), appraisal’s hub on

accomplishment of short-term goals, propping up the autocrat supervisors, biasness of

appraisal results and formation of emotional agony in employees.

Role of culture and value system:

By definition, it is the specific collection of norms and norms shared by people and groups in

an organization. These codes are instrumental in controlling their work behavior, their

interaction with each other within the organization and with stakeholders outside the

organization. Performance appraisal is one norm or value that management utilizes to control

and manage employees’ behavior. As there hardly exists an absolute organizational culture,

an absolute appraisal system cannot be thought of. Researchers (Kavanagh, 1982; Landy &

Farr, 1980) after undertaking reviews of the performance appraisal literature conclude that

there hardly exists any exclusive performance rating format which may ensure performance

rating accuracy.

Although many researchers have studied the link between organizational culture and

performance (Ogbonna & Harris, 2000; Rousseau, 1990; Kotter & Heskett, 1992;

Marcoulides & Heck, 1993), not much research has been done on organizational culture as a

contextual factor of performance management (Magee, 2002). Organizational culture

manifested in beliefs and

assumptions, values, attitudes and behaviors of its members is a valuable source of a firm’s

competitive advantage (Hall, 1993; Peteraf, 1993), since it shapes organizational procedures,

capabilities into a cohesive whole, provides solutions to the problems faced by the

organization, and, thereby, hinders or facilitates the organization’s achievement of its goals

(Yilmaz, 2008).

Organization culture plays an important role in determining the role of the performance

appraisal system. Whatever the form of an appraisal system may be its success is heavily

conditioned by the organization's tasks and culture. Its crucial role has been elaborated in


these words: "that factors such as the nature of jobs, culture and organizational structure can

combine to create an environment in which 'best practice' in the accepted sense of the word

may not be an effective strategy" (Wilson & Beaton, 1993: 167). Similarly, an analysis done

by Ahmed et al., (2010) indicates that an organisational culture which lacks necessary skills,

knowledge, management support and personal priorities, and the discomfort most employees

experience when giving and receiving feedback, are the forces inhibiting this critical process

to be effective and successful. Failure to set goals and provide ongoing feedback and

summary evaluations generally results in employees becoming dissatisfied and result reduced

performance. Effective PA systems stand to create a vision of success and a climate in which

performers want to give their best and strive for continuous improvement. They confirmed

that in-order to bring PA satisfaction among employees and to build their trust on the

appraisals in semi-governmental organizations of Pakistan, research based policies are

desired. A better PA system integrated with better HR practices will enhance performance

appraisal satisfaction and also increase employee job satisfaction and reduce turnover

intentions to bring effectiveness in the organizations.

Raters Perception

Diverse studies on appraisal process (Murphy et al., 1996; Murphy & Cleveland, 1991;

Murphy & Cleveland, 1995) have talked about the centrality of understanding appraiser-

appraiser's attitudes and beliefs about the assessment and about the organizational contexts

that such assessments occurs. It has been observed (Banks & Murphy, 1985) that many of the

seeming inadequacies of assessment ratings are the consequences of goal-driven, adaptive

behaviors rest with the rater and not being the causes of rater's inability to provide true

evaluations. These shortcomings cannot be termed as rating errors and thereby cannot be

cured by using different rating scales or improved rater training. There is a need of change in

raters’ perception of organizational norms (Tziner, et al., 2005).

According to Bernardin and Orban (1990) a rater's perceptions of the degree to which others

bias their performance appraisals may influence performance appraisals process. This

perception of raters inflation or distortion of ratings is likely to reduce confidence in the


performance appraisal system; raters who believe that the prevailing norm is to give high (or

low) ratings are likely to distort their own ratings in the same direction (Murphy &

Cleveland, 1995).

Rater Motivation and PA Accuracy

Historically, substantial research has sought to understand and improve “ performance

ratings” and “appraisal behavior” on relatively ‘cold’ cognitive processes (Metcalfe &

Mischel, 1999) The latter refers to "Executive Functioning in Typical and Atypical

Development" (Zelazo, Philip David; Mller, Ulrich (2002: 445–469) of the rater (e.g. Bretz,

Milkovich, & Read,1992; Landy & Farr, 1980); a perspective that largely ignores the human

and social intricacies involved in the processes and PA research (Harris, 1994; Levy &

Williams, 2004; Murphy & Cleveland, 1995; Murphy, Cleveland, Skattebo, & Kinney, 2004;

Spence & Keeping, 2010; Wong & Kwong, 2007). However, later developments highlighted

the importance of the rater motivations in the performance rating process. The task remained

to explain how and why managers navigate PA context the way they do?

The exciting development of studying the notion of rater cognitions provided further

opportunity to explore performance appraisals from a new perspective. In so doing, it opened

up new research avenues and theoretical frameworks upon which PA practices were newly

investigated and perhaps improved. Despite voluminous research undertaken in the area, a

number of scholars and practitioners argue that the cognitive approach to PA has done little

to improve the actual practices in organizations (Banks & Murphy, 1985; Bretz et al., 1992).

Notable, criticisms of the cognitive approach are generally followed by calls to investigate

non-cognitive influences, such as the PA social context (Banks & Murphy, 1985; Levy &

Williams, 2004). As well, there is a relative lack of empirical research, examining non-

cognitive influences of PA ratings.

Investigatory responses on rater motivation in PA context have been gaining momentum. For

example, Lawler (1979) discussion of control systems advocated paying attention to intrinsic

and extrinsic motivators in the implementation of PA control systems. In a similar vein,

Mohrman and Lawler (1983) proposed that raters' motivations be evaluated in the


investigations of PA processes. A call was view PA outcomes as “motivated behavior”

accordingly seeking examination of PA consequences rather than just measurement issues. It

was observed that if rating accuracy is the goal, then it is not enough to simply make

someone a better rater, but that raters must also be willing to provide accurate ratings (Banks

& Murphy, 1985). The need to provide raters with incentives to rate accurately was

similarly echoed by Murphy (1992) in his discussion of forced distributions. He noted that

managers tend to show minimal cause of investing time and energy into performance

appraisals because such take time away from their more rewarding activities (they pay little

attention). Another factor relates to negative interpersonal practices associated with

providing distorted (i.e. low and mediocre) ratings.

Haris (1994) has broadly and comprehensively examined rater’s motivations, and developed

some theoretical frameworks based on a view that rating is a function of various predictors,

that “rater motivations predict performance ratings outcomes”; that rater’s rate accurately if

they are motivated to do so (a function of various predictors) and that they rate inaccurately if

they are motivated to avoid negative consequences or they are not motivated to rate

accurately. Predictors of rater motivations in Harris' framework include such things as

having to face the subordinate, the possibility of receiving rewards, and how much

performance appraisals interfere with other tasks; these predictors are further examined in

detail in the next sections. The concept of “rating motivation” may be a source of confusion

as it describes instances in which raters play around with (inflate, deflate, or centralize

ratings) (Cleveland & Murphy, 1992; Harris, 1994; Mohrman & Lawler, 1983; Tziner,

Murphy, & Cleveland, 2001). Also, raters' lack of motivation to rate accurately (Banks and

Murphy, 1985), raters' motivation to rate inaccurately (Cleveland & Murphy, 1992), and

raters' disinterest in rating accurately (Harris, 1994).

Some new research has established the extent to which different ratings motive, and how the

same can alter performance ratings (e.g., Murphy et al., 2004; Wong & Kwong, 2007). In

general, different ratings motive as well account for variability in performance ratings

(Murphy et al., 2004). Also, beyond specific rater motives are found engendering different

rating patterns. For example, raters' attempts to increase group harmony or decrease rating

variability or increase mean ratings (Wong & Kwong, 2007), all these engage slight


manipulations. The overlap across the four different constructs of politics, impression

management, leniency, and motivation is considerable. The constructs have in common the

same behaviors (e.g., inflating ratings, failing to distinguish amongst ratees) and motives for

engaging in the behaviors (e.g., avoid conflict, self-enhance). The situation in which a rater

inflates a subordinate's ratings to avoid conflict with the subordinate has been referred to as

politics, impression management, and leniency; these are further examined in detail in next

sections after a brief discussion on the role of raters motivation in performance appraisal

system in Pakistani higher education sector.

Rater motivation in PA context in Pakistan:

Organizational effectiveness is contingent on individual performance (Gong, Law, Chang, &

Xin, 2009). Thus, most organizations in Pakistan have some form of performance appraisal

system in place to evaluate employee’s performance over some period of time usually by his

immediate supervisor.

Common PA practice in most public sector universities in Pakistan is Annual confidential

report (ACR) which was introduced in 1940s, and is still in use in public sectors as a remnant

of the legacy of the British rule over Pakistan like in many other developing countries. This is

a comprehensive report written once in a year about the employee by his senior or supervisor

for his or her responsible duties and performance in these duties. The reports have no bearing

on pay and benefits. Rather these have no immediate effect unless grading is below the

minimum acceptable standard. However they have long term impact on promotions as well as

selection on merit for lucrative posts and courses.Audiences of these reports are not the

employees but the senior management because on this report decisions are made whether the

person should be promoted or not. Bad points of this unidirectional practice are, because of

no participation of employee there is no feedback about his or her performance which means

no learning, no development (Stafylarakis & Eldridge, 2002). Communication gaps, personal

biasness, and minimal employee participation are some of the negative aspects of ACR

system which makes it an old and ineffective system, which does not help in employees’

learning and development, (Stafylarakis et al., 2002; Rasheed et al, 2011). A person promoted


on the basis of ACR is always unaware of the fact that in which part of year and work was

he/she the most efficient one.

Since its inception, the system has been rectified many times to clarify some technical issues

by higher education commission Pakistan. Although some progress has been made in last

decade but the current system is still far from successful in practical operation and world

level standards.

These performance evaluations (also called performance evaluation reports: PER) are

generally used worldwide to evaluate employee performance to make administrative

decisions, determine training needs, and evaluate recruitment and selection processes (Kane

& Lawler, 1979; Levine, 1986; Cleveland, Murphy, & Williams, 1989, Rasheed et al., 2011 ;

Aslam,2011; Shakil, 2012 ). But in public sector organizations in Pakistan, an employee's

promotion and retention in service mostly depends on what has been recorded in these PERs

(PE Guide, 2004). Since the Evaluation reports constitute an aid to selections for

appointments/transfers, promotions, confirmations or screening of officials, it is essential that

they are written most carefully and accurately. A reporting officer before he embarks on the

report writing work should try to comprehend the characteristics listed in the Evaluation

Report Forms. The report should give a clear picture of the officer reported upon viz personal

qualities, standard of performance, dealings with others, potential growth and his suitability

for promotion to special posts according to individual aptitude. Similarly, the countersigning

officers should scrutinize the report scrupulously, in accordance with the prescribed

procedure before countersigning it as these evaluation reports are supposed to reflect an

employee's strong and weak points more objectively and to ensure that such performance

evaluation effectively serves its true purpose.

Contradictory to this, as discussed in PE Guide (2004) the deficiencies commonly noted in

such reports undermine the effectiveness and accuracy of the PA system by producing

subjective ratings of job performance of an employee. As pointed out by Murphy (2008),

despite its popularity and importance in organizations, the relationship between actual

performance and subjective ratings of job performance is relatively weak (Viswesvaran,

Ones, & Schmidt, 1996). Furthermore, performance evaluations are contaminated with non-

performance factors such as impression management, rater motivation and politics (Wayne &


Ferris, 1990; Spence, Keeping, 2011, Nayyar and Raja (2012)) and therefore capture less of

the relevant criterion space (Austin & Villanova, 1992). As performance ratings do not yield

the intended information, the effectiveness of the PA system as well as interrelated

organizational systems is diminished (Lawler, 1990; Spence, Keeping, 2011).

Such PA system with diminished effectiveness due to the following commonly noted

deficiencies (PE Guide, 2004) is:

(1) Assessment by Reporting Officer

Many reporting officers are overly generous in their assessment based on misjudgments as in

some extreme cases, reporting officers rate all officers "very good” because of the effects of

rater motivation in this process. Such reporting places equally good employees of the same

group working elsewhere at a disadvantage if their work is evaluated under more objective

and stricter criteria.

(2) Counseling

Adverse remarks are often recorded by the reporting officers without prior counseling to the

officer reported upon. This is contrary to the existing instructions and is, in fact, a reflection

on the reporting officer. They are expected to counsel an officer about his weak points and

advise him how to improve. Adverse remarks should normally be recorded only when the

officer fails to improve despite counseling. Thus this gives the importance of the

understanding of how the complex interpersonal relationships inherent in the performance

appraisal context, which have been largely neglect in the PA literature in Pakistan, influence

rating accuracy (Levy & Williams, 2004). Rasheed et al. (2011) suggest that quality and

accuracy of PA can be improved by intermittent counselling of employees by the assessor.

Whenever there is a problem, it must be discussed and improvement sought instead of

waiting for months when performance will be recorded.


(3) Countersigning

It has been noticed time and again that countersigning officers, when differing with the

assessment or remarks given by a reporting officer, neither score these out nor do they give

their own assessment in red ink against the relevant remarks. These entries, particularly on

"quality and output of work" and "integrity" are of crucial importance when considering an

officer for promotion.

Najafi et al (2010) observe that mostly the management as well as lower employees are

dissatisfied with the performance appraisal methods. Main reasons of the dissatisfaction are

complexity of the process, lack of adequate support by managers, impracticability, and the

appraiser’s failure in conducting a realistic and fair appraisal. They also state that in

government organizations usually performance appraisal (PA) does not make its impact

because of indifference of the appraiser and objectivity in PA affects negatively on creativity,

perseverance and sincerity of employees. Employees’ perception of the PAS in the

organization is important because employees are more likely to be receptive and supportive

of a given PAS if they perceive the process as a useful source of feedback which helps to

improve their performance.

No empirical research has so far been undertaken to investigate the effects of rater’s

motivation as a conscious rating distortion in appraisal context in higher education sector in

Pakistan. Thus a gap exists in the research in this area of strategic importance. The present

study is an attempt to address this gap. The present study will offer valuable insight to the

management of these organizations about the understanding of the role it plays in appraisal

context to have accuracy in performance appraisal process.

Determinants of Rater Motivation

The three important determinants of rater motivation are perceived rewards, perceived

negative consequences, and impression management. In turn, these determinants are


hypothesized to be affected by both situational (e.g., accountability) and personal (e.g.,

mood) variables. Scholars have thoroughly discussed the determinants of rater motivation in

performance appraisal context (e.g., Cleveland & Murphy, 1992; Longenecker, Gioia &

Sims, 1987; Murphy & Cleveland, 1991) and come up with the following three important

determinants of rater motivation that predicts performance ratings (Harris, 1994). A more

detailed discussion of the determinants and their effect on PA context will follow in the next

section

REWARDS

Attainment of a valued reward is an important determinant of almost any behavior (Kanfer,

1990). In the performance appraisal context, raters are likely to consider the possibility of

receiving extrinsic rewards, such as raises and promotions. Majority of the public sector

universities performance appraisal is used mostly for promotional purpose. (Anjum, Yasmeen

and Khan (2011) labeled this as a major shortcoming of currently using system and

demanded that there is a need to fill the gap as PAS can be used for a variety of activities

through which organizations seek to assess employees to identify the training needs to

develop their competence, and improve their performance, to give open and timely

discussions regarding employee performance as well as allocate rewards (Fletcher, 2001)

apart from promotion and salary increases. That is, it is possible that engaging in careful

information processing, making accurate ratings or providing feedback to subordinates about

their performance will be directly rewarded by the organization. Likewise, the rater may

consider whether engaging in performance appraisal activities will indirectly result in

achievement of rewards. For instance, providing feedback that leads to improved employee

performance may result in improved unit performance. In turn, this could lead to higher pay

increases or promotions for the manager.

Alternatively, a rater may value attainment of intrinsic rewards from engaging in

performance appraisal activities. Some raters, in other words, may find engaging in

performance appraisal activities to be inherently satisfying. Providing helpful feedback to

subordinates, for example, may result in increased esteem and recognition from subordinates

or supervisors. Here again, The result of Anjum, Yasmeen and Khan (2011) research show


that this is another major shortcoming of the performance management system in Pakistan as

employees assessments are not discussed with them on regular basis. This shows that the

direct or indirect engagement of employees in performance appraisal system is absent and has

a very limited scope for being used as a development function, a forward looking approach,

directed towards increasing the capacity of employees to be more productive, effective,

efficient and satisfied in the future. It covers such things as job skills, career planning,

employee motivation and effective coaching between mangers and subordinates. It is any

endeavor concerned with enhancing attitudes, experiences and skills that improve the

effectiveness of employees (Boswell & Bourdeau, 2002).

The limited field research addressing rewards for doing performance appraisals portrays a

dismal picture. Napier and Latham (1986) examined managers’ expected outcomes (e.g.,

raises, promotions, employee appreciation) for providing both negative and positive feedback

to employees. Other than employee dismay (in the case of negative feedback) and employee

appreciation (in the case of positive feedback), respondents generally felt that the primary

result would be “nothing.” According to the literature e.g. Taylor (1998) appraisal system not

only should be open but it should also leave room for discussion. Performance review

discussions help in the professional development of employee and successful implementation

of appraisal system.

In practice, then, the direct, extrinsic rewards for engaging in performance appraisal activities

may be few and infrequent (Murphy & Cleveland, 1991). This is likely to be particularly true

for making accurate ratings. There may be, however, greater perceived rewards for giving

feedback to employees. As discussed later, some organizations may encourage managers to

give feedback to subordinates (e.g., Friedman & LeVino, 1984), but in most of the public

sector universities in Pakistan this is a rear phenomenon as employees participation in PA

process is minimal making it a one way communication process (Anjum, Yasmeen &

Khan,2011). According to them, employee participation enhances motivation, feelings of

fairness and acceptance of performance appraisal system. And to gain these positive effects it

must be realized that employee participation is an enriching factor. Cox (2000) also

acknowledged that a system which are implemented with meaningful consultation of

employees are more effective than those which are implemented unilaterally by supervisor


NEGATIVE CONSEQUENCES

A second determinant of rater motivation in the performance appraisal context is the

avoidance of negative consequences. There are a number of negative consequences that are

associated with performance appraisal activities. These may be organized into five, albeit

somewhat overlapping, categories: damage to subordinate-supervisor relationships,

demoralization of employees, criticism from the rater’s subordinate, criticism from the rater’s

supervisor, and interference with other tasks.

Many researchers have commented on the potential for performance appraisal activities to

negatively affect supervisor-subordinate relationships (e.g., Lawler, 1990; Murphy &

Cleveland, 1991). In particular, a common concern expressed by managers is that making

accurate (i.e., lower than the employee expects) performance ratings or giving negative

performance feedback will hurt their relationship with the subordinate. Similarly, a frequently

encountered fear on the part of raters is that making accurate ratings or providing feedback

will demoralize rather than motivate the employee (Longenecker et al., 1987).

Possible subordinate criticism of feedback and ratings is also a frequently voiced concern by

managers, particularly when the ratings or feedback are negative (Murphy 8z Cleveland,

1991). In the present context, most managers have a myriad of job responsibilities beyond

performance appraisal; time spent on performance appraisal activities may be viewed by the

organization and appraiser as detracting from other, more important, tasks (Heneman et al.,

1989). This would be particularly true when the appraiser has limited time availability. A

recent survey by Bernardin and Villanova (1986) revealed that a common characteristic of

the performance appraiser’s role was inadequate time to devote to this task. Moreover, lack of

time was regarded by supervisors as a major reason for inaccuracy. Thus, while an appraiser

may wish to engage in performance appraisal activities, other work-related tasks often take

priority.

In Pakistan, too, these issues exist as an unexplored phenomenon embedded in Public sector

Performance appraisal system, confidential and one way communication process without

getting them involved and engage in it. Performance appraisal in public sector universities


only used at a low level for communication. There is little feedback from appraisers to

appraisee and is the importance of harmonious peer and subordinate relationships is very

limited in such a closed appraisal system (Easterby-Smith et al, 1995; Khan, 2010). The

results of performance appraisal usually remain confidential because management feels

reluctant to pass on any negative information to appraisees so that direct confrontation is

avoided and "face" can be saved (Zhu & Dowling, 1998; Khan, 2010), it is called Mianzi

(Hofstede; Hwang, 1987).)

Obisi (1996) adds that some managers and supervisors involved in performance appraisal

ignore periodic counseling after an incident has taken place. The confidential nature of the

system tends to generate tension among the ratees and also deprives them of constructive

direction for improving performance in the future. This confidentiality creates an

environment/culture of secrecy, mistrust and estranges the relationship between both the

parties involved. Due to confidentiality appraisees are unable to get adequate performance

feedback about the strengths and weaknesses. Likewise, they are unable to ascertain as to

where they stand with respect to preset goals/targets and achievement, and future direction

for their professional development. Furthermore, there is no provision of appraisal review

meeting in the rules, so that appraisees can formally get performance feedback from

appraiser. Nevertheless, appraisees get informal performance feedback from superiors

during their various interactions throughout the rating periods (Khan, 2010) .

General perceptions of the performance appraisal in practice are seems to be unhelpful as an

improvement tool as their participation is almost nil. Therefore, the performance appraisal is

perceived as a work expectation (a duty or a routine activity), which is provides minimal

support to identify areas of professional development (Obisi , 1996). Among all the

responses, it is clearly indicated and supported that perception of confidentiality persists in

PAS (Khan, 2010) in public sector organizations and this has created more problems than

resolving the issue. These annual confidential reports are like a closed system which is non

transparent and open to favoritism, corruption and tribalism in public sector institution and

universities.


Impression Management Concerns

Villanova and Bernardin (1989: 299) defined impression management as “any behavior that

alters or maintains a person's image in the eyes of another and that has as its purpose the

attainment of some valued goal”. They discussed impression management as the tendency for

supervisors to provide appraisal ratings that either directly or indirectly forward their self-

interests. Impression management activities are abundant in the workplace (Ferris & Judge,

1991; Gardner & Martinko, 1988). Nayyar and Raja (2012) researched the impact of

Impression management on organisational politics and posited that in mechanistic system,

employees both male and female are more inclined towards impression management to

manage their political behavior then in organic organizations. Motives for both politics and

impression management activities in organizational culture in higher educational sector in

Pakistan may include inflating subordinates' ratings to avoid confrontations with subordinates

and to promote troubled employees out of one's department.

Most of the research regarding this construct in the performance appraisal situation has been

directed towards subordinate behavior (e.g., Wayne & Ferris, 1990; Wayne & Kacmar,

1991), researchers have also acknowledged that raters also engage in impression management

activities (Villanova & Bernardin, 1989). Ferris and Judge (1991) observed that the behavior

evinced by a supervisor giving feedback may be more influenced by how their behavior will

look to their superiors than by the anticipated effect on the subordinate. According to Zerbe

and Paulhus (1987) impression management activities include self-impression management

and management of other's impressions. Self-impression management is the desire to have

highly rated subordinates to maintain one's self image as a successful manager and

perceptions of one's role as a manager. Management of other's impressions is concerned with

maintaining an appropriate image regarding one's subordinates, i.e. that one has successful

subordinates.


In sum, these three facets determining motivation discussed above are in turn determined by

both situational and personal variables (Harris, 1994). The situational variables include

accountability, organizational strategy, taslc/outcome dependence, trust, and rating forms.

Harris (1994) postulated that accountability to subordinates should lead to inflated ratings

because of supervisors' concerns that negative ratings will reduce subordinates' motivation

and damage supervisors' relationship with subordinates. Accountability to raters' supervisors

should lead to more accurate performance ratings as long as the supervisors' positions

regarding the ratee are unknown. Recent research has found that accountability may lead to

more accurate ratings as long as supervisors' or subordinates' views are not known to the rater

(Jones, 1992; Klimoski & Inks, 1990; Mero & Motowidlo, 1995). Furthermore, according to

Harris (1994), task outcome dependence should increase rater motivation: the greater the

extent to which the supervisor’s outcomes are linked to the subordinate’s work (task

dependence), the more likely the supervisor will provide accurate ratings and accurate

feedback. The last situational variable to be discussed, trust in the performance appraisal

system, is likely to increase rater motivation: Increased trust in the system is related to

increased motivation to provide accurate ratings. Low trust has been shown to be related to

rating leniency (Bemardin & Cardy, 1992; Bemardin, Orban, & Carlyle, 1981). The personal

variables affecting the three facets of rater motivation include the amount of information,

self-efficacy, and mood. According to Harris (1994), insufficient information regarding the

ratee and raters' low self-efficacy should adversely affect rater motivation, but raters' negative

moods should be linked to increased motivation to provide accurate performance ratings

(Forgas, 1992).

Furthermore, in keeping with the model of performance appraisal these all factors have

potential effect on rater’s motivation, which in turn affects all steps of performance appraisal

process from observation, storage, retrieval, integration, rating, to feedback. Social

psychological theorists have suggested that motivation affects the type of information

processing used by the rater (Chaiken, 1980; Petty & Cacioppo, 1986; Tesser & Shaffer,

1990; Tetlock, 1985). They have postulated two quite different information processing

strategies; a rater may use a very thorough, analytic approach called deliberate processing, or

a quick, heuristic-based approach which is called non-deliberate processing to judgment and

decision-making. The general proposition here is that motivated raters will be more likely to


use deliberate processing, while non-motivated raters will be more likely to use non-

deliberate processing (Mitchell & Beach, 1990; Feldman, 1981).

Consequences of Rater’s motivation

In addition to its effects on various steps in the performance appraisal process, appraiser

motivation is likely to have several other consequences. These are discussed next.

Appraiser behavior:

A number of other appraiser behaviors may be affected by motivation. It seems plausible that

motivated raters will be more likely to maintain a diary of subordinates’ behavior. And the

rating form that rater who keeps the record and maintain diaries will have significantly less

leniency and halo effect, and, most important, have a greater inter-rater agreement (Bernardin

and Walter , 1977). It is likely that appraiser motivation will affect the time and energy spent

preparing for feedback sessions. According to Neuberg (1989), the more motivated the

appraiser is, the more likely the appraiser will seek out performance-related information from

a variety of sources, including peers, customers, and others. Finally, appraiser motivation is

likely to affect whether a performance appraisal form is completed accurately or not (Fried et

al., 1992).

Appraisee reactions:

Ratee reactions are a frequently employed indicator of performance appraisal system

effectiveness (e.g., Dipboye & de Pontbriand, 1981; Giles & Mossholder, 1990; Landy,

Barnes & Murphy, 1978), and there are several reasons to believe that rater motivation will

increase employee satisfaction with the performance appraisal system. Kaleem, Jabeen, and

Twana (2013) explored the significance of satisfaction in performance appraisal context in

Pakistan and analysed how work performance can be increased by fairness of organizational

justice perceptions among the employees of an organization. The results indicated that there

is mediating role of performance appraisal satisfaction in the organizational justice and work

performance relationship that increase the work performance. Similarly, according to Sabeen


and Mehboob (2008), employee perception of fairness of performance appraisal has been

shown to be linked to satisfaction with the system.

A research carried out by Folger and Konovsky (1989) and Greenberg (1986) has indicated

that the performance appraisal process (e.g., whether the appraiser was familiar with the

appraisee’s work) is separate from performance appraisal outcomes (e.g., size of one’s raise)

and both of these constructs play a role in ratee reactions to the system. Given that appraiser

motivation is hypothesized to increase the amount of information gathered and recalled, the

thoroughness with which this information is processed, and so forth, it seems likely that

higher rater motivation to engage in performance appraisal activities will result in superior

procedural justice perceptions, which in turn will improve appraisee reactions to the appraisal

system. Giles & Mossholder, (1990) assumed that rater motivation will lead to more specific,

timely, and accurate feedback, subordinates should also be more satisfied with the

performance appraisal session. Hence, it is hypothesized that higher rater motivation will

result in greater employee satisfaction with the appraisal process. The opportunity to

communicate information in the decision adds to judgments of the fairness of the decision

making process. The most important performance appraisal issue faced by organizations is

perceived fairness of the appraisal review and the performance appraisal system. The

performance appraisal process can become a source of extreme dissatisfaction when

employees believe the system is biased, political, or irrelevant.

RECOMMENDATIONS AND CONCLUSIONS

A number of researchers have recently suggested that rater motivation is a key factor in

understanding performance appraisal issues: for instance, lack of rater motivation may

account for the greatest amount of variance in the quality of data (Schmitt & Klimoski 1991:

189). Murphy and Cleveland (1991) argued the similar argument in this way; that raters do

not fail to give accurate ratings because they are incapable of accuracy but rather because

they are unwilling to rate accurately. The present paper provides researchers with the

opportunity to explore performance appraisals from a new perspective; never has been

explored before in Pakistan as a developing country context. In so doing, it opened up new


research avenues and theoretical frameworks upon which performance appraisals could be

investigated and improved.

Pakistan faces many challenges in the education sector. Although subsequent governments

have made different efforts to improve the education situation, these efforts have not led the

system to the desired outcomes. Indeed studies over the past 15 years ( Ahmad, 2009;

Andrabi, Das, & Khwaja, 2002; Farah, 1996; Simkins, Garrett, Memon, & Nazir-Ali, 1998)

have concluded that in spite of various innovations and substantial financial assistance poured

into the national education system by both foreign and local aid donors, there appears to be

no significant change in the quality of the education system in Pakistan (National Education

Policy, 1998- 2010). It would seem that in Pakistan education is in a more serious state of

decline than it was at the time of independence in 1947 (Hoodbhoy, 2004).

Common PA practice called Annual confidential report (ACR) which was introduced in

1940s, and is still in use in public sectors as a remnant of the legacy of the British rule over

Pakistan. Since its inception, the system has been rectified twice to clarify some technical

issues. Although some progress has been made in last decade but the current system is still

far from successful in practical operation. To improve its implementation among government

universities, the Pakistani performance appraisal system needs to address some challenging

issues, including the following: better connection of the performance appraisal system with

other human resource management (HRM) systems, consideration of the employee

participation in performance appraisal system, and improvement of performance appraisal

system while understanding the relationship it has with its social context like rater motivation

and so on.


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