Forensic Accounting â€“ the Missing Link in Education and Practice

2012/65

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Nataša Petrović1, Alfred Snider2, Marko Ćirović1, Nemanja Milenković1

1University of Belgrade, Faculty of Organizational Sciences, Serbia2University of Vermont, United States of America

Management Journal for Theory and Practice Management 2012/65

Debate in Education for Sustainable DevelopmentUDC: 378.147:[502/504(497.11) ; 005.6:502.131.1DOI: 10.7595/management.fon.2012.0031

1. Introduction

“It is not the strongest of the species that survives, or the most intelligent, but the one most respon-sive to change.”

Charles Darwin

Industrialization and population growth cause pollution, erosion, habitat fragmentation, and wasteful con-sumption, consequently endangering the integrity of global ecosystems. Ecosystem management programsthat focus on patches or categories, such as forestry management and wildlife management, are not enoughto counter the growing damage inflicted upon our finite natural resources.

Sustainable development was developed to fulfil that need. Sustainable development is a global develop-ment management philosophy that aims to conserve the integrity of the Earth’s ecosystems while support-ing economic growth and social welfare. It was developed by the Brundtland Commission during the WorldCommission on Environment and Development in 1987 (WCED, 1987). Its primary purpose was to reducethe resistance to the conservation of the environment while raising awareness of the importance of theEarth’s natural resources, both for those who need them today and those who will need them tomorrow.

Sustainable Development has become a popular management philosophy in many countries throughout theworld. Its popularity can be partially attributed to reports of global climate change and the declining stabil-ity of global ecosystems. However, its initiation can also be attributed to the efforts of the United Nations (UN),which has encouraged all countries to develop their own national sustainable development strategies. Today,countries on all five continents have developed and are in the process of implementing national sustainabledevelopment strategies.

Further on, sustainability is defined as “development that meets the needs and aspirations of the presentwithout compromising the ability of future generations to meet their own needs” (West, 2008) and, therefore,is generally linked to ongoing economic growth and development (Petrović et al, 2011).

2. The prism of sustainability

The Prism of Sustainability (Fig. 1) is an extension of The Three Pillars of Sustainability Theory with the ad-dition of institutions. Otherwise The Three pillars of Sustainability is a very common depiction of sustainabledevelopment. Represented are the three primary pillars upholding three essential elements of sustainabledevelopment: economic development, social development, and environmental conservation (UN, 2002).

There is no doubt that higher education should contribute significantly to education for sustainable develop-ment. Given the need to develop new approaches to improve students’ environmental awareness, knowledgeand understanding of environmental issues and sustainability topics, the implementation of debating in clas-rooms has been presented in this paper, as an aditional educational tool, at the course of Environmental Man-agement at the Faculty of Organizational Sciences.

Keywords: debate, education, sustainable development, education for sustainable development

Institutions are large organizations that are influential in a community such as Government Organizations,Non-Government Organizations, Universities, and Hospitals. The development of institutions is not enough;achieving enough cooperation and coordination to successfully implement sustainable development re-quires institutional, social, and financial strength. Strong institutions are necessary to develop, implement,enforce, and evaluate policies and regulations. Social vigour is also important, meaning that the society hasthe knowledge, technical, and social capacity to adhere to rules and regulations and to participate in newinitiatives. Support from the lowest levels of society is essential for the success of sustainable development(Ghai & Vivian, 1995).

However, for the lowest levels of society to provide support from the bottom up they must first obtain liveli-hood security (food, water, and basic necessities) to make sustainable choices as well as the financial powerto pay for them. Without these components, sustainable development, as defined by the Brundtland Com-mission, cannot be achieved (WCED, 1987).

Education and public outreach programs, like Agenda 21 (1992) have been developed to increase the localpublic understanding and support of the concept of sustainability.

Figure 1: The Prism of Sustainability

3. Education for sustainable development

The United Nations Decade of Education for Sustainable Development (DESD, 2005-2015), offers an oppor-tunity to rethink the manner in which we approach global environmental and sustainable challenges (DESD,2009). Apart from the regional and national launches, progress has been achieved in both institutional andprogrammatic areas at international, regional and national levels. The Decade of Education for SustainableDevelopment comes at a time when the economic, social, environmental and cultural realms of global soci-ety are faced with daunting challenges. The obligation of higher education is work in a way of mobilizing fur-ther political support in countries where Education for Sustainable Development (ESD) is not yet a priority.Today, more than ever before, the need for a holistic approach to learning and teaching becomes both vitaland urgent. If its potential to contribute to the paradigm shift in thinking, learning and teaching for a sustain-able world is to be realized, Education for Sustainable Development has to move to the political centre-stage.

Sustainable development needs to be added to an already overcrowded curriculum of foundation subjectsthat must teach the basics of reading, writing and arithmetic (UNCED, 1992). At the same time it can beseen as an integrative, cross-curricular theme that can bring together many of the single issues that schoolsare already expected to address. Education for Sustainable Development learning goals include: acting withrespect for others, acting with responsibility locally and globally, critical thinking, understanding complex-ity, the capacity to imagine the future, understanding inter-disciplinary relations, responsible behaviour andthe ability to identify and clarify environmental values (DESD, 2009).

The main thrusts of Education for Sustainable Development, originally identified in Chapter 36 of Agenda 21,have been expanded upon in the Work Programme of the UN Commission of Sustainable Development –CSD, reports of the major UN Conferences of the 1990’s:

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2012/65Management Journal for Theory and Practice Management

1. Public understanding of the principles behind sustainability. ESD has a major role in furthering the dis-cussion of sustainability itself and the evolution of the concept from a vision to its practical application inculturally appropriate and locally relevant forms.

2. Mainstreaming ESD. This social process needs to be mainstreamed into all sectors including business,agriculture, tourism, natural resource management, local government and mass media, adding value toprogram development and implementation.

3. Lifelong learning for all. The quality life – long education and learning opportunities are required for all peo-ples regardless of their occupation or circumstances.

4. ESD is relevant to all nations. The realization that it is our most highly educated countries that createsome of the greatest threats to a sustainable future for the planet, the reorienting of existing educationprograms in all nations to address the social, environmental, and economic knowledge, skills, perspec-tives, and values inherent in sustainability is also a major thrust of ESD.

5. Specialized Training Programs. The development of specialized training programs to ensure that all sec-tors of society have the skills necessary to perform their world in a sustainable manner (UNCED, 1992).

The nature of Education for Sustainable Development demands new perspectives on matters such as cur-riculum, teaching and learning. Education for Sustainable Development and Education Sustainable Devel-opment tend to focus on connections, feedback loops, relationships and interaction. Yet the dominanteducational structures are based on fragmentation rather than on connections and synergy. Another ob-servation is that the search for a more sustainable world requires the full and democratic involvement of allmembers of society which should also have implications for teaching and learning (Petrović et al, 2011b).

Education for Sustainable Development calls for new kinds of learning that are not so much of a transmis-sive nature (i.e. learning as reproduction) but rather of a transformative nature (i.e. learning as change)(DESD, 2009).

This kind of education implies four descriptors - educational policy and practice which is sustaining, tenable,healthy and durable:• Sustaining: it helps sustain people, communities and ecosystems.• Tenable: it is ethically defensible, working with integrity, justice, respect and inclusiveness.• Healthy: it is itself a viable system, embodying and nurturing healthy relationships and emergence at dif-

ferent system levels.• Durable: it works well enough in practice to be able to keep doing it.

4. Effective teaching environmental topics and sustainable issues

Education for Sustainable Development allows every human being to acquire the knowledge, skills, atti-tudes and values necessary to shape a sustainable future. Education for Sustainable Development meansincluding key sustainable development issues into teaching and learning; for example, climate change, dis-aster risk reduction, biodiversity, poverty reduction, and sustainable consumption. It also requires partici-patory teaching and learning methods that motivate and empower learners to change their behaviours andtake action for sustainable development. Education for Sustainable Development consequently promotescompetencies like critical thinking, imagining future scenarios and making decisions in a collaborative way.Education for Sustainable Development requires far-reaching changes in the way education is often prac-ticed today (UNESCO, 2012).

Strategies to teach environmental and sustainable topics, particularly controversial ones, without coming upagainst affective barriers to learning are:• Teaching the science first: presenting the science objectively, using data and relevant examples; next, dis-

cussing issues related to this topic. By setting the stage deliberately, learners are more likely to be recep-tive to the information.

• Teaching with data: presenting the topic without emotional statements and consequent emotional re-sponses in learners.

• Using active learning techniques: learners learn better when they can learn for themselves. Environmen-tal issues lend themselves to teaching techniques like using local examples, gathering data from the field,using role-playing or debates, or participating in environmental projects.

• Leading by example: the goal is to promote environmentally-favourable behaviour in learners, consider ahands-on project that will challenge them to consider the environmental impacts of their own actions.

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5. Debate

A debate is an equitably structured communication event about some topic of interest, with opposing ad-vocates alternating before a decision-making body (Snider & Schnurer, 2006).

This definition implies a number of principles for a debate. A debate should be equitably designed. All des-ignated “sides” should be given an equal opportunity to present their views. A debate should be structured,with established communication periods and patterns with a beginning and an end. This structure allows forpreparation and strategy.

A debate is a communication event where the mode of operation is oral or written communication (a text de-bate) and serves as performance as well as a method of transmitting ideas and arguments. Every debatehas a topic, allowing the debate process to be more directed than a normal conversation. The topic itselfshould be of some importance and interest to the participants and any audience that may observe the de-bate. A debate is composed of two or more sides of an issue where the advocacy positions are identified inadvance.

For example, a debate might be held on the issue of creating a national death penalty for certain crimes, oneside is in favour of death penalty (thus they may be called “pro,” “affirmative,” “proposition,” or “government”;in this text we favour affirmative) and one side will be against death penalty (thus they may be called “con,”“negative,” or “opposition”; we favour negative). This sense of “opposing sides” is critical to the probinganalysis of the topic to be debated because debaters will bring the strongest arguments to back their sideand be prepared to challenge the ideas of the other side. Presentations in a debate should alternate betweenthe sides, creating a pulse of critical communication in opposition to previous and subsequent pulses.

During the debate the advocates will be asking other participants and observers to agree with their point ofview and, in the end, call for a “decision” by those present, either publicly or privately (Snider & Schnurer,2006).

Participation in academic debating creates numerous benefits for the students:• Data analysis is an essential debating tool. Debaters must learn how to find the relevant information on the

topic when they are researching possible motions for a tournament analysis and save or remember theirresults. After debating for some time, debaters collect a lot of information, but they will always encounternew topics, where they will have to quickly utilize the data they know in a new problem.

• Presentation of knowledge is required from debaters in a limited time frame. Debaters learn how to pres-ent vast amounts of knowledge briefly, effectively and to the point.

• Critical thinking is forced onto debaters, and debaters quickly adopt it. Sides are randomly assigned in adebate, therefore debaters must know how to argue, analyze and assess opposing sides of any argument.

• Knowledge of the world problems is necessary in the international debating scene, as the topics must bedrawn from a pool of issues which are equally important to all the countries that are participating.

• Finding the right information is important because facts count in debate. Most global debates have com-peting schools of thought, often with competing information. Debaters need to know how to weigh au-thorities, how to compare sources and spot when information is biased.

• Intercultural communication is developed and trained in debate, as judges come from different culturalbackgrounds, as well as the opposition teams. That means debaters train to be understood, as well as tounderstand.

• Persuasion is a peripheral skill for debaters. In theory, debates should be judged by completely objectivejudges. As this cannot be the case, advance debating classes cover persuasion methods as a manner ofgaining that last bit of competitive edge (Snider, 2011).

6. Introduction of the concepts of academic educational debating in environmental management course – case study

On the other hand, a number of courses in higher environmental education and a number of initiatives to in-tegrate environmental issues into university curricula have been launched in the past decade worldwide.However, to satisfy the specific needs of this kind of education implementing, innovative methods of deliv-ering such knowledge for sustainability are needed (Petrović et al, 2011b).

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Higher environmental education has to be learner-cantered, providing learners with opportunities to constructtheir own understandings through hands-on, minds on investigations (Petrović & Milićević, 2006; Petrović

& Milićević, 2007; Kostova, 1998). Having this in mind, we selected Environmental management course, be-cause it is based on a wide range of scientific and practical knowledge of environmental science and sus-tainable development. Thus this course represents a good benchmark for an adequate improvement ofstudents’ environmental awareness and knowledge about sustainability.

In the spring semester of 2012 school year, just over 200 students enrolled the Environmental Managementcourse at their third year of study at University of Belgrade, Faculty of Organizational Sciences. The courseclasses consisted of two hours of lectures and two hours of exercise each week during a 13-week semes-ter. The course has sections on ecology, environmental issues and protection, conservation of natural re-sources, environmental management and sustainable development. The course program is based on astrong methodology, requiring participants to turn their environmental and management knowledge andunderstanding into appropriate environmental actions.

The introduction of educational innovations in the classroom develops the students’ independence andgives them the capacity to be self-confident as well as self-reliable in striving to fulfil their goals and aspira-tions (Kostova & Atasoy, 2008). Having that in mind, we wanted to work on students’ analytical skills throughtheir participation in contemporary environmental debates.

A framework for the introduction of the concepts of academic educational debating in Environmental Man-agement course development consisted of:• Introduction and overview of the course content. A review of major environmental topics and sustainable

issues, and the role of various actors in addressing environmental problems.• About environmental debates. Identifying major themes in environmental discourse. E.g. Anthropocen-

trism vs. Biocentrism, Sovereignty vs. Global Commons, Resource use/Development vs. Conservation.• Motion 1 - The Climate Change Debate.• Motion 2 - Alternative Energy Sources. • Motion 3 - Nuclear energy• Motion 4 - Animal rights• Motion 5 - Environmental protection Vs. Economic growth • Motion 6 - Energy consumption limits• Motion 7 – Zero growth• Motion 8 – Vegetarianism

Students enrolled at the course were introduced to and familiarized with the concepts of academic educa-tional debating. Students, encouraged to voluntarily participate in debating, worked on their skills in: or-ganization, research, delivery, refutation, and argumentation. These students were trained to participate inclassroom practice environmental debates.

Assignment values were as follows: participation, practice speech (5 extra credits), practice debates (10extra credits), winning tournament (20 extra credits).

Each practice debate simulated the British parliamentary format of debating. This format is one of the mostcommonly and widely used debate formats currently. Students were divided into 4 teams, each team con-sisting of 2 members hence all of the practice debates had 8 students actively participating. When the de-bate was done, group discussion and an elaborate feedback from the educator followed.

After the students successfully completed the course and were graded, the students who participated in thedebates took part in a short preliminary research. The research was conducted at the University of Belgrade,Faculty of Organizational Sciences. The number of students that participated in it was 51.When these students were asked whether or not participating in the debates helped them evaluate specificenvironmental problems - 27 of them strongly agreed and 21 of them partially agreed that it helped. Thatgives us the total of 94.12% of analysed students that strongly or partially believe that the debate helped themwhen approaching specific environmental problems, while only 5.88% partially disagreed with that statement.

When the same group was asked to express their attitude towards the statement “the debate helped me crit-ically analyse all sides of the given environmental problem”, 90.19% strongly or partially agreed, while 9.2%partially disagreed with it.

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Conslusion

The introduction of debate in higher education helps students articulate and appreciate alternative arguments about crit-ical environmental issues even if they disagree with some of them. Understanding and articulating opposing points of vieware a hallmark of a strong advocacy and good literature, because respectful, informed, responsible discourse is neces-sary to address difficult environmental topics and sustainable issues. Further, critical examination of major environmentalproblems reveals numberless competing interests, priorities and perspectives.

Likewise, by using debate, Environmental Management course utilized these additional teaching methods:1. Lectures about debating and debate theory. In this way, students are introduced with information about debate con-

cepts, practices, and vocabulary.2. Class discussions. Class discussions provided environmental topics for debating, argumentative concepts, and on var-

ious debate methods and practices.3. Practice speeches. Students had a task to give short, unprepared speeches about ideas in order to gain training in de-

livery, organization, and argumentative concepts.4. Practice debates. Students were engaged in debates against each other in teams. These debates were supplemented

by research done by students as well as by additional material supplied by the educator. 5. Debate tournaments. Students were engaged in debates against each other. They would simulate all the elements that

are present at the university debate tournaments held in British parliamentary format. That would include motion analy-sis, data preparing, organizing, structuring and labelling their speeches and speech delivery.

6. Research. Students were engaged in primary research on given environmental topic which was the motion and thetheme of the debate.

The preliminary research given in this paper and high percentages of students satisfied with debates at the course of En-vironmental Management have encouraged us to proceed with this method and this research, and to involve other envi-ronmental courses at the faculty.

Based on this, we would highly recomend others to explore the use of debating in clasrooms as a supplement to traditionallearning. Our data suggest that students would use debating as a good tool not only for a broader engagement in theproces of learning but also as a way to develop a way of critical thinking and engaging in environmental transparency.

LITERATURE

[1] Agenda 21 (1992). http://www.un.org/esa/dsd/agenda21/[2] Ghai, D., & Vivian, J. (1995). “Grassroots Environmental Action: People’s Participation in Sustainable De-

velopment.” Rutledge, London.[3] Kostova, Z. (1998). How to Learn Successfully. Sofia: Pedagog 6.[4] Kostova, Z., & Atasoy, E. (2008). Methods of successful learning in environmental education. Journal of

Theory and Practice in Education, 4(1), 49-78.[5] Petrović N., Jeremić, V., & Išljamović, S. (2011a). Going green: cloud computing and sustainability. 9th

International conference: Strategic Management and its support by information systems. Celadna, Os-trava, Czech Republic.

[6] Petrović, N., Drakulić, M., Išljamović, S., Jeremić, V., & Drakulić, R. (2011b). Novi okviri ekološkog obra-zovanja u visokoškolskom obrazovanju. Management, 16(60), 11-17.

[7] Petrović, N., & Milićević, M. (2006). Education For Sustainable Development, Collection of Works, 9th

”Toulon – Verona” Conference, Paisley, Scotland.[8] Petrović, N., & Milićević, M. (2007). Higher good Environmental Education, Collection of Works, 10th

”Toulon – Verona” Conference, Thessaloniki, Greece.[9] Snider, A.C., & Schnurer, M. (2006). Many sides: debate across the curriculum, IDEBATE Press, New

York, USA.[10] Snider, A.C. (2011). Debate: Important for Everyone, University of Vermont, Vermont, USA.[11] UN (2002). Report of the World Summit on Sustainable Development: Johannesburg, South Africa, 26

August-4 September 2002. A/CONF.199/20 and A/CONF. 199/20/Corr.1.[12] UNCED (1992). Agenda 21: Programme of Action for Sustainable Development, Rio Declaration on En-

vironment and Development. N.Y.: United Nations.

[13] UNESCO (2012). Education for Sustainable Development. .[14] United Nations Decade of Education for Sustainable Development (2009). Review of Contexts and Struc-

tures for Education for Sustainable Development, Learning for a sustainable world.[15) WCED (1987). “Our Common Future” The Bruntdland Report. Oxford University Press.[16] West, J. E. (2008). The green grid’s datacenter metrics – Experience from the field. HPCwire. .

Receieved: August 2012.Accepted: October 2012.

Nataša PetrovićUniversity of Belgrade, Faculty of Organizational Sciences

petrovicn@fon,bg.ac.rs

Nataša Petrović graduated from the Faculty of Organizational Sciencesin 1991, got her mastersdegree in 1999, and a Ph. D. in 2002. She currently works as an associate professor at the

University of Belgrade - Faculty of Organizational Sciences. The area of her scientific researchincludes: environmental management, sustainable development, environmental education, eco

marketing, design for environment, public participation in environmental protection.

Alfred SniderUniversity of Vermont, United States of America

[email protected]

Alfred Snider is the Edwin W. Lawrence Professor of Forensics at the University of Vermont. Heteaches courses in Speech Communication, most often Argumentation, Persuasion, Debate,

Campaign Rhetoric, Issues in Public Address, and related subjects. He is also the Director of theLawrence Debate Union, an endowed co-curricular program that trains students to debate and

then sponsors their intercollegiate debate competition globally. He received a “LifetimeAchievement” award from the Cross Examination Debate Association in 2001, the “Humanitarian

Award” from the National Forensic League in 2008 as well as a number of other honors.

Marko ĆirovićUniversity of Belgrade, Faculty of OrganizationalSciences

[email protected]

Marko Ćirović works as a teaching associate at the Faculty of Organizational Sciences, Universityof Belgrade. He graduated from this Faculty in management in 2010, and got his masters degree in

2012. He is currently enrolled in doctorial studies at the Faculty of Organizational Sciences. Hisarea of interest includes: environmental management, eco-marketing, environmental education and

debate as a method of education.

Nemanja MilenkovićUniversity of Belgrade,Faculty of Organizational Sciences

[email protected]

Nemanja Milenkovic graduated from the Faculty of Organizational Sciences in 2010. He receivedhis M.Sc. degree in 2012 in the scientific field of computational statistics. His area of interest

includes probability theory, statistics and linear-statistical models. He is a member of The StatisticalSociety of Serbia.

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About the Author

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Miloš Mitrić¹, Aleksandra Stanković², Andrijana Lakićević³ ¹University of Kragujevac, Faculty of Hotel Management and Tourism²University of Kragujevac, Faculty of Hotel Management and Tourism

³University of Belgrade, Faculty of Organizational Sciences

Forensic Accounting – the Missing Link in Education and Practice UDC: 343.53:657.632 ; 657.632DOI: 10.7595/management.fon.2012.0032

1. Introduction

Requirements for accounting information, both within and without the company, have led to a gradual divi-sion of accounting into two subsystems, namely: financial accounting and management accounting. Withregard to the accounting division, both subsystems can be said to represent the socio-professional activities.

Forensic accounting, as a set of socio-professional activities, is aimed at protecting companies, and thus rep-resents the implementation of legal, economic, social and political functions. In this sense, forensic ac-counting is a discipline that combines accounting, auditing and law. The law reflects the government’s abilityto establish, manage and develop social, economic and political order. Forensic accounting, as a separatebranch of accounting, deals with the control of legal and professional recordkeeping [12].

The present paper shall discuss important aspects of forensic accounting, in both theory and practice, andresearch opportunities and trends towards a wider inclusion of this discipline into academic and practicalcourses.


Financial scams and fraud appear to be a global problem. Although research related to financial fraud and em-bezzlement varies slightly from region to region, fraud schemes and perpetrator characteristics are pretty sim-ilar. In Serbia in particular, forensic accounting is an underdeveloped area in education and practice, and isthus often replaced by and considered to be an audit, even in academic circles, whereas forensic accountantsare viewed as auditors.The correlation between auditing and forensic accounting is a dynamic process that changes over time due topolitical, social and cultural events, and the auditors themselves are expected to have, at least, adequate knowl-edge and skills to recognize a financial fraud. However, detailed disclosure of financial fraud and embezzlementis the matter forensic accountants are dealing with. These experts have the skill sets in many areas and are ableto apply their skills and abilities in one area, while working in another. Forensic scientists need to be familiar withnot only financial accounting, but also with tax and business law, criminology, psychology, etc.The aim of this paper is to show the incidence of financial fraud and embezzlement, indicating the conse-quences they bear and to explore the extent to which forensic accounting is represented in academic institu-tions and practice in the Republic of Serbia. It also explains the general concepts of services in the field offorensic accounting. As a research method in this paper the content analysis method is applied. With respect to the consequences of financial fraud and embezzlement it carries, and lessons learned fromrecent financial scandals in the world and in Serbia in particular, we can conclude that the development offorensic accounting in education and practice is of utmost importance. Although this process is neither easynor cheap, the benefits it provides are invaluable.The present research topic should be given more attention, given a large number of fraudulent acts in the finan-cial statements that characterized the operations of a substantial number of Serbian companies. A higher educa-tion is being proposed in the area of forensic accounting, both at the academic level and in the accounting practice.

Keywords: financial fraud, forensic accounting, auditing, forensic accountants

2. Definition of Forensic Accounting

The area that deals with the study of financial fraud and malfeasance is called forensic accounting. Certainforms of forensic accounting date back to 1817 and refer to court decisions, i.e. rulings on declaration ofbankruptcy. Then the Scottish accountants pooled their knowledge and expertise in addressing this specificissue in the form of opinions in support of arbitration proceedings in 1820’s, followed by articles examiningexpert testimonies and evidence on arbitration that began to appear in the late 1800’s and early 1900’s.Maurice E. Peloubet, a partner in the accounting firm in New York, is probably the first to publish the phrase“forensic accounting” in his article in 1946 [3].

In the accounting literature itself, there is no single definition of forensic accounting. Out of the vast array ofdefinitions that can be found in the literature, the most acceptable one, according to ACFE (Association ofCertified Fraud Examiners), is the one defining forensic accounting as a set of skills to use in potential oractual civil or criminal cases, including generally accepted accounting and auditing ones; determining lossof profits, revenue, property or damage, assessment of internal controls, fraud and everything else that leadsto the applying of accounting knowledge to the legal system.

The concept of forensic accounting is a thorough and complex setting in which an accountant, in his pro-fessional independent judgement, forms a presentation at such a high level of reliability, that it can qualifyas evidence in legal proceedings conducted [15].

In order to complete the required tasks, it is essential that forensic accountants demonstrate substantialknowledge of accounting and auditing, oral and written communication skills, strong detail-spotting skills anda good use of information and communication technology [6]. Forensic accounting, sometimes referred toas an investigative accounting, is an area that, in addition to accounting knowledge, requires a good use ofinformation technology [16]. The complex structure of the knowledge forensic accountants are equippedwith, in addition to the above knowledge, mostly relies on laws and regulations [12]. In his work, one mustdemonstrate sufficiently broad business and organizational know-how and experience, must be competentand morally reliable (no complaints), so that his professional opinion (judgement) on the operations and re-lated fraud or other illegal acts is convincing enough [7]. Forensic accountants are expected to demon-strate a high degree of independence and objectivity, which is in accordance with the Code of Ethics forProfessional Accountants. A forensic accountant shall be considered independent if he is intellectually hon-est and ready for impartial decisions. Independence is usually considered to be a prerequisite of objectiv-ity. The key feature that a forensic accountant should possess is objectivity, which is difficult to achieve dueto the many factors which might affect the assessment and expectations [5]. A forensic accountant, then, isthe creator of independent and unbiased, objective information on the economic truth.

The task of a forensic accountant is to analyze, interpret and present interconnected business and financialpositions, so that they can be properly understood and appropriately supported. In the course of their work,a forensic accountant often participates in the following activities:

• Research and analysis of evidence of fraud committed,• Developing applications using information and communication technologies used in the analysis and

presentation,• Presentation of research results, and• Participation in legal proceedings (usually as a witness in court, as an expert in forensic accounting) [10].

It is estimated that in the years to come, in developed market economies, a forensic accountant is likely tobe one of the 20 most wanted professions.

3. Forensic Accounting and Related Services

Forensic Accounting is the application of accounting principles, theories and disciplines to facts or hy-potheses in a legal dispute and encompasses every branch of accounting knowledge. Forensic accountingis comprised of two major components: (1) litigation support services in proceedings that recognize therole of forensic scientists as experts or consultants, and (2) investigative services that may or may not leadto testimony in court. Forensic Accounting may involve application of special skills in accounting, auditing,finance, quantitative methods, certain parts of the law and research, and investigative skills to collect, ana-

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lyze and evaluate evidence, interpret them, and communicate findings within reports. Forensic Accountingis either based on certification services or on advisory services [8].

Fraud Examination or Forensic Investigation of Financial Frauds is a methodology for exposing financialfrauds and involves obtaining evidence, interviewing people, writing reports and testimonies. Certified FraudExaminer is a license added by the ACFE Association (Association of Certified Fraud Examiners based in theUnited States) [2]. Such an investigation is conducted on the basis of fraud indicators, such as cash short-age or other evidence being investigated, in order to determine the extent of loss, i.e. damage and the iden-tity of the perpetrator.

Fraud Deterrence or Financial Fraud Deterrence is related to creating an environment where people are dis-couraged to commit fraud, although it can be done. Deterrence from financial fraud is usually achievedthrough a number of efforts related to internal controls and ethics programs that create integrity and stimu-late employees to report potential abuse. Such actions increase the likelihood that the fraudulent act per-ceived will be detected and reported accordingly. Financial fraud deterrence can be achieved using softwaremonitoring tools, triggered once the perception of detection is present and potential perpetrators becomeaware that they will certainly be punished if caught.

Financial Fraud Detection refers to the process of detecting the presence or existence of fraud. Financialfraud detection can be accomplished by means of well-designed internal control, supervision and monitor-ing systems, as well as by actively seeking evidence of potential fraud.

Fraud Remediation or Financial Fraud Remediation refers to rehabilitation, i.e. loss recovery through insurance,legal system or other means, modifications within operational processes and procedures, including internalcontrol system modifications in order to reduce or prevent the recurrence of similar frauds in the future.

4. Interrelationship between Audit, Financial Fraud and Forensic Accounting

Effective stress management delivers direct obligations and responsibilities, which in turn also add certaincost [9]. Stress is a psychophysical condition a man falls into in difficult circumstances and situations [11].Auditing companies and their employees are required to a much greater extent to invest time, financial re-sources and expertise in creating quality working environments that are seen as potential sources of stress.An auditor is responsible for forming and expressing his opinion on financial statements whereas the com-petent Audit Authority is in charge of their preparation and presentation (auditing does not diminish the re-sponsibility of the Audit Authority).

Numerous financial frauds occurred in the past, as well as at the beginning of this century, had disruptedthe trust of a large number of users of the financial information contained in financial statements. Financialreporting and accounting and auditing professions are often blamed for the occurrence of frauds and lossof confidence in the reliability of financial information by a number of users and decision-makers. Therehave always been some accounting frauds happening followed by financial collapses, to a much greater ex-tent recently, and with more serious consequences to all of us.

Generally speaking, a fraud can be divided into four basic elements:• Misrepresentation of Material Fact. (Materiality in the context of legal standards that vary from jurisdiction

to jurisdiction),• Awareness that interpretation is erroneous or a negligent disregard of the truth,• Confidence - a person who receives an interpretation is reasonable and justified in relying on it.• Damage - financial damage caused by all of the above mentioned [13].

There have been numerous scientific debates arguing that the two factors should be taken into accountwhen analyzing psychology and personality of the fraud perpetrator:• Biological characteristics of the individual, which vary widely and influence behavior, including social be-

havior and• Social characteristics of the individual, which are derived from the way the individual behaves, i.e. inter-

acts with other people.

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Two basic types of financial fraud perpetrators have been identified on the basis of these psychology studies:• Calculated criminals - who want to compete and prove themselves and• Criminals depending on the situation - those who are willing to do anything to save themselves, their fam-

ily or their company from disaster. [13]

Fraud detection (Figure 1) is an interactive process that includes:• Corporate control system establishment,• Investigation and problem solving,• Process testing and transaction, • Transaction control level.

Figure 1: Fraud Detection Process [4]

Interrelationship between audit, fraud and forensic accounting is a dynamic process that changes over timedue to political, social and cultural events. The work of external auditors is greatly influenced by the Sar-banes-Oxley Act, according to which an auditor is expected to demonstrate, at least, an adequate knowl-edge and skills in the area of forensic accounting and fraud in order to identify financial frauds [4].

However, auditors are not obliged to plan and perform audits to detect errors that are not material to the fi-nancial statements, regardless of whether the error is unintentional or related to financial fraud or malfea-sance. However, if the auditor encounters evidence of financial fraud and embezzlement during the audit,he shall notify the competent body.

Organizations tend to rely too heavily on external audit as a quality control mechanism to detect financialfraud and embezzlement. Societies, subjects to external audits, are the most common victims of financialfrauds. External audits are extremely important and can have a strong deterrent effect on the prevention offinancial fraud, but are not solely relied upon to detect fraud.

Detecting financial fraud and embezzlement falls within the scope of activities dealt with by forensic ac-countants who demonstrate skill sets in different domains (financial accounting, tax and business law, crim-inology, psychology, etc.) and who are thus able to apply their skills and abilities in one area while workingin another.

5. Facts and Statistics on Financial Fraud and Embezzlement

Financial fraud and embezzlement, although different in terms of patterns they follow, have many featuresin common. Monitoring and analyzing the resulting abuse and information associated with them have amajor role in discovering the new ones. Therefore, it is useful to know the following facts.

Employees holding high-ranking positions generally cause the greatest damage to their organizations. Stud-ies show that the fraud committed by owners or executives causes three times more damage than the fraudcommitted by ordinary managers, and more than nine times greater damage compared to the frauds com-mitted by general staff. Frauds committed by managers or owners, take more time to be discovered.

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More than 77% of financial frauds were committed by individuals in one of six departments: accounting, op-erations, sales, executive management, customer service and procurement departments. More than 87% offraud perpetrators had never been charged or convicted of any fraudulent practices [14].

Fraud perpetrators often display warning signs that they are likely to engage in illegal activities. The mostcommon signs imply living beyond their means (36% of cases) and experiencing financial difficulties (27%of cases) [14].

Small organizations are more often victims of financial fraud. In contrast to larger organizations, small or-ganizations often lack control activities that combat and prevent financial fraud, making the scope for fi-nancial fraud and embezzlement larger.

It has been observed that most of the frauds are committed in banking and financial services, governmentand public administration and in the manufacturing sector. Also, according to research results, it may be con-cluded that nearly half of organizations, the fraud victims, never recover from losses caused by fraud.

ACFE published research findings covering 1388 fraud cases. The analysis of fraud types and changes inthe median loss (Figure 2) indicates increased manifolds over the period from 2008 to 2012 in the medianfraud loss, whereas financial statement frauds are the most common type of fraud in the U.S., entailing there-fore the greatest average loss at the organizational level.

Figure 2: Occupational Frauds by Categoryin U.S. and Median Loss [14]

the analysis of changes in the losses resulting from fraudulent activities by number of employees in theUnited States (Figure 3) demonstrates the lowest average loss in organizations with 1000 to 9999 employ-ees and also the lowest average loss incurred within organizations in 2012 compared to 2010 and 2008.

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Figure 3: Size of Victim Organization Loss arisenfrom fraud by number of employees in U.S. [14]

ACFE research results show that tips are among the most common forms of fraud detection in the UnitedStates (Figure 4), followed by management review (management control), internal audit and random checks.

Figure 4: Methods of detecting fraud in U.S. [14]

Research findings also show that it usually takes 18 months on average before financial frauds get detected(Figure 5). Also, it is noteworthy that most fraud reports come from employees operating within the victimorganizations.

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Figure 5: Duration of fraud on the basis of fraudtype in the U.S. [14]

Financial frauds and scams make a global problem. Although research related to financial fraud and em-bezzlement varies slightly from region to region, most of the trends in fraud schemes, perpetrator charac-teristics, and controls to combat fraud are similar regardless of where the actual frauds occur.

Studies show that a typical organization loses 5% of its annual revenue due to fraud and financial irregular-ities. If this percentage is applied to the gross world product in 2011, we reach the potential global loss ex-ceeding $ 3.5 billion [1]. Nearly one-fifth of the financial frauds committed involve losses exceeding $ 1million.

Astonishing data are obtained from a survey conducted by the ACFE, indicating losses amounting to around$ 994 billion in U.S. companies during 2008 due to fraud and abuse. The perpetrators were primarily em-ployed in the accounting sector, 29% and 18% were related directly to the management [13].

The highest-profile financial frauds in recent history occurred in corporations with capital weighing billionsof dollars, such as “Tyco International”, “WorldCom” and “Enron“. These financial frauds caused massivewidespread damage, and their leading executives were convicted and sentenced to long prison terms. Thereare many privatizations in Serbia, conducted in the past decade brought into question.

6. Study and Application of Forensic Accounting Concept

In the United States business schools, forensic accounting exists as a subject at the undergraduate level,and is even mandatory as required in most of the cases. There are also a great number of academic insti-tutions and interest organizations that provide education in the domain of forensic accounting and, faced withthe questions regarding nature, scope and format of the curriculum to be introduced in undergraduate busi-ness education, they invest huge resources. Training in these areas is funded by the government, compa-nies, audit firms and nonprofit organizations.

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In Croatia, at the University of Split, there is a University Center for Forensic Sciences within which students,among the rest, can attend lectures at the Financial and Accounting Forensics Department which offerssubjects called “Forensic Accounting I” and “Forensic Accounting II.”

In contrast, forensic accounting is new and insufficiently known in Serbia as a term and is still associatedwith audits exclusively. There are a great number of professional bodies dealing with education in this area1,whereas this subject is not available in undergraduate programs. Academic achievements in this field arenegligible.

Such shortcomings in education and practice leave ample room and opportunity for potential perpetratorsof financial fraud and embezzlement. In this context, the Faculty of Organizational Sciences is quite recog-nizable owing to its Cyber Forensics and ‘Forensic Accounting’ available as a study subject within this Mas-ter’s Degree program.

7. Tips for Combating Financial Fraud

It cannot go unnoticed that many people are trying to understand how it is possible that there are so manyfrauds, who is responsible for them, and who is in charge of their detection and investigation; whether it isa question of the system, attitude, aggressive internal policies, stricter regulations or all of the above; whichis the best system for their prevention, etc. There appear to be more questions than answers. Althoughforensic accounting investigation has gained its significance in large organizations and in public in general,there is still a lot to be learned about this relatively new discipline [13].

It is important not to rely on external audit as the only way of detecting fraud. Although it may play an im-portant preventive role in potential fraud detection, its options are limited.

Employee education programs are the foundation of preventing and detecting financial frauds. Employeesare an organization’s most effective method for financial fraud detection. Staff must be trained in these mat-ters as to what constitutes fraud, in what way it concerns the entire society and how to report any suspiciousactivity. What available data show is that not only were most of the frauds discovered by the council, but alsothe losses organizations with training programs for managers and workers for combating financial frauds suf-fer due to misuse and fraud are considerably lower. [1]

Unannounced audits are an effective, but an underutilized tool in the fight against fraud. Although unan-nounced audits may be useful in financial fraud and malfeasance detection, their most important benefitlies in preventing fraud by creating the perception of fraud detection. Generally speaking, fraud perpetratorswill make an abuse only if they believe that they will not be caught. The threat of unannounced audits in-creases the perception of fraud detection having thus a strong deterrent effect on potential fraudsters.

Improvement of the internal control system is useful, but internal controls alone are not sufficient to fully pre-vent financial fraud and embezzlement. While it is important for organizations to have the strategic plan tocombat fraud through an internal control system, it will not always detect financial fraud in the making.

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1The exception is the Serbian Association of Accountants and Auditors, providing professional education and publishing a variety of publica-tions in this field.

REFERENCES

[1] ACFE Report to the Nation on Occupational Fraud & Abuse, Association of Certified Fraud Examiners.(2012). pp. 10-39.

[2] Adapted from Association of Certified Fraud Examiners, Fraud Examiners Manual, Austin: Associationof Certified Fraud Examiners. (2005).

[3] Crumbley L. (2001). Forensic Accounting: Older Than You Think, Journal of Forensic Accounting. Vol.2.pp. 181-202.

[4] Golden T.W., Skalak S.L., Clayton M.I. (2006). A Guide to forensic accounting investigation, John&WileySons, Inc.

[5] Kleinman G., Anandarajan A. (2011). Inattentional blindness and its relevance to teaching forensicaccounting and auditing, Jounal of Accounting Education. 29. pp. 37–49. doi:

[6] Krstić J. (2009). Uloga forenzičkih računovođa u otkrivanju prevara u finansijskim izveštajima, Factauniversitatis - series: Economics and Organization. 6(3). p. 295-302.

[7] Kolar I. (2010). Je li forenzičko računovodstvo pravi put za otklanjanje privrednog kriminala, ActaEconomica, 12, p. 81-103.

[8] Larry D., HeitgerL., Smith S.. (2005). Forensic and Investigative Accounting, Chicago: CCH Incorporated.[9] Mellor N., Mackay C., Packham C., Jones R., Palferman D., Webster S., Kelly P. (2011). “‘Management

Standards’ and work-related stress in Great Britain: Progress on their implementation“. Safety Science49 (7). pp. 1040–1046. doi:

[10] Novajlija S.. (2011). Forenzičko računovodstvo i uticaj kreativnog računovodstva na finansijske izveštaje.Druga međunarodna naučna konferencija ‚‚Ekonomija integracija”. Tuzla. pp.567 – 585.

[11] Ong L., Linden W., Young S. (2004). „Stress management, What is it? “. Journal of PsychosomaticResearch 56 (1). pp. 133–137. doi:

[12] Renzhou D. (2011). Research on Legal Procedural Functions of Forensic Accounting, Energy Procedia5. pp. 2147–2151. doi:

[13] Skalak S.L., Golden T. W., Clayton M. I., Pill A. S.. (2011). A Guide to Forensic Accounting Investigation,John Wiley & Sons, Inc, Hoboken. New Jersey.

[14] Association of Certified Fraud Examiners. (2012). Retrieved from [15] Zysman B.C.A, Forensinc Accounting. (2012). Retrieved from [16] What is Forensic Accounting? (2012). Retrieved from

Receieved: September 2012. Accepted: October 2012.

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Conslusion

Fraud is a possible future for any company in the world, regardless of size, location or industry.Forensic accounting and professional forensic accountants close the gap between accountants, auditors, inspectors andother government and court officials, which lack the specific knowledge and skills to prevent, detect and prove criminaland other illegal activities in establishment, operation and closure of companies.

On the global level, forensic accounting is one of the highest paid and most sought after business services, and the fieldfull of challenges when it comes to science. In Serbia, forensic accounting is quite rare. Given the fact that we want to catchup with the world, and that financial fraud and embezzlement are not something we are not familiar with, we would haveto work on the development of forensic accounting, both in education and in practice.

In Serbia, forensic accounting is often replaced by and considered to be an audit, even in academic circles, whereasforensic accountants are viewed as auditors, even though the two disciplines have quite different motives.

With regard to the consequences of financial fraud and embezzlement, based on the lessons learnt from recent financialscandals, throughout the world and in Serbia as well, we can conclude that it is extremely important to work on the de-velopment of forensic accounting, both in education and in practice. Even though this process is neither simple nor cheap,the benefits it provides are invaluable, for both business entities and the society as a whole.

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Miloš MitrićUniversity of Kragujevac, Faculty of Hotel Management and Touris

E-mail: [email protected]

Mr Mitrić is Audit Director of LeitnerLeitner in Serbia and a team leader for audit, forensic servicesand advisory engagements. His expertise includes audit, due diligence, forensic accounting, fraud

examinations, valuations and various consultancy services. Before joining LeitnerLeitner, hepracticed audit at Deloitte & Touche in the USA and BDO in Serbia. Mr. Mitrić is a holder of CPA

qualification and a Member of the American Institute of Certified Public Accountants, and is aCertified Auditor in Serbia. He is also a Certified Fraud Examiner (CFE) and Credited Forensic

Accountant (Cr. FA). Mr. Mitric has an MBA from Villanova University, USA, and is a PhD candidateat Belgrade University Faculty of Economics.

Aleksandra StankovićUniversity of Kragujevac, Faculty of Hotel Management and Touris

[email protected]

Aleksandra Stankovic works as a Teaching Assistant at the Faculty of Hotel Management and Tourism in Vrnjačka Banja, University of Kragujevac. She completed her Bachelor Studies in

Accounting and Corporate Finance as well as her Master studies at the Faculty of Economics in Kragujevac. The fields of her scientific and professional interests are related

to Accounting and Finance.

Andrijana LakićevićUnivesity of Belgrade,Faculty of Organizational Sciences

[email protected]

Andrijana Lakićević was born in Belgrade. She graduated from the Faculty of Economics inBelgrade. Holds an MBA degree (Master of Business Administration) from the Texas A&M

University-Commerce in cooperation with the Faculty of Economics in Belgrade. Has several yearsof work experience in the industry sector. Areas of interest: Finance, Accounting, Banking,

Management and Environmental protection. Currently working at the Faculty of OrganizationalSciences in Belgrade, Department of Financial Management.

About the Author

51

Zohar LasloSCE –Shamoon College of Engineering

The Adjustment of Locus of Influence and Organizational Forms Towards Better ProjectPortfolio’s Performance UDC: 005.72:005.74 ; 005.83DOI: 10.7595/management.fon.2012.0030

XIII International Symposium SymOrg 2012, 05 - 09 June 2012, Zlatibor, Serbia

1. Introduction

The matrix structure has become the popular organizational framework for managing the development ofnew products and services (Perham, 1970) and the primary organizational means for maintaining an efficientflow of resources in project portfolios. This structure operates through a two-dimensional system of control:a projectline chain of command and a functional chain of command (Lawrence et al., 1982). Within the ma-trix, each chain of command keeps its traditional role and takes responsibility for goals as in the two earlierhierarchical forms of organization (Lawrence &Lorsch, 1967). Project managers retain responsibility for de-veloping products, while functional managers concentrate on the organization’s capability to make use ofup-to-date technical knowledge. In order to complete a job, functional managers must address different ob-jectives and priorities than project managers. The different objectives are based on functional managers’focus on long-term effectiveness, while project managers concentrate on more immediate accomplishments(Allen et al., 1988; Project Management Institute, 1997). The matrix organization attempts to combine the ad-vantages of functional structures with product-oriented structures so as to create synergism by a shared re-sponsibility between project and functional management. A balance between these often opposing forcesin an organization was presumed to lead to an optimum balance between product completion and techni-cal excellence (Katz & Allen, 1985). In matrix organizations, both lateral and hierarchical dimensions of ma-trices depend on one another and neither stands alone (Joyce, 1985). Organizations using matrix structureswere expected to keep up with new technologies while obtaining savings in a more efficient assignment ofhuman and physical resources.

Important issues that loom high in the management of R&D projects are those of uncertainty, ambiguity,and complexity (Pich et al., 2002). To survive, high-tech companies must cope with the effects these issuesmay produce. Burton &Obel, (1998) recommend the matrix configuration for high uncertainty environ-ments,because matrix management allows for a greater ease in loaning an employee to another project


Project managers support the idea that successful projects occur when the resources necessary for their workare obtained. Functional managers support the idea that resources should be made available based on theoverall needs of the organization. In fact, organizations are much more complex entities as different projectgroups compete for scarce resources. One successful project may divert essential resources from other proj-ects and thereby prevent the organization from achieving an overall successful performance. Thus, in contrastto the customary emphasis on the needs of individual projects when thinking about matrix forms, effective im-plementation calls for an ‘optimized’ equilibrium between the satisfaction of goals of the different organizationalunits. The paper introduces some insights about the implementation of matrix forms in high-tech project port-folios where uncertainty, ambiguity, and complexity are looming.

Keywords: project portfolio, matrix forms, locus of influence, flow of resources, purchase policy, setting pri-orities, low-tech environment, system dynamics model.

without making the change permanent. In any event, it is easier to accomplish work objectives in an orga-nizational structure such as matrix, where task loads are shifting rapidly between departments.

While the matrix enjoyed widespread popularity in the 1970s, discord about the effectiveness of the conceptsurfaced in the 1980s. Shortcomings in the matrix form of organization became evident as functional andproject managers were found to compete detrimentally for organizational resources (Peters & Waterman,1984). Project managers seek to obtain resources to meet any unanticipated circumstance by either ex-panding existing capacities or contracting for services from external suppliers. In contrast, functional man-agers oppose indiscriminate accumulation of assets by a project; they usually reject attempts to outsourcework because of possible underemployment of firm personnel. A project portfolio adds another set of dis-agreements when project managers compete against each other for the allocation of scarce resources (Platjeet al., 1994; Payne, 1995). These disagreements may be destructive according to evidence that high inten-sity conflicts revolve around items such as scheduling, priorities, and manpower (Thamhain&Wilemon, 1974).

Critics of the matrix, however, describe an inherent propensity for conflict among managers, which substan-tially limits its effectiveness. Although conflicts may actually encourage more effective information exchangethat can improve decision making (Stasser& Titus,1985), this positive effect breaks down quickly when con-flict becomes more intense (De Dreu&Weingart, 2003). Larson &Gobeli (1987) argued that even when con-flict in the matrix was kept to a low level, shared decisionmaking caused slow reaction times and made itdifficult to evaluate responsibility. Moreover, the strife reduces job satisfaction for functional managers (Turneret al., 1998) and results in contradictory policies that lead to a misallocation of resources and reductions inorganizational effectiveness (Martin,1994; Cardullo, 1996). However, high intensity conflicts and an unbal-anced power of influence are the most substantive failures of matrix implementation (Davis & Lawrence,1977). High-tech companies, however, must survive in a dynamic environment and the matrix retains its pop-ularity as the solution for rapidly changing marketplaces and technologies (Grinnell & Apple, 1975).

This paper surveys research carried out over a decade in which implementations of matrices seeking improvedproject portfolio performance have been investigated. This research has introduced new paradigms for matriximplementations due to the increased complexity of projects, especially those relative to uncertainty. A systemdynamics model was developed and implemented for such complex high-tech environment, a milieu with highuncertainty in meeting project deadlines and with intensive competition over scarce resources.

2. The low-tech case

The first category in organizational classification is the low-tech case—an environment not involving scarceresources of unique specialization. Total shared resource capacity is not a constraint, because a shortageof internal resources can be reinforced through the import of external capacities that can be provided by sub-contractors in a fairly rapid response time.In this environment the matrices can be classified into the follow-ing fundamental types (Laslo & Goldberg,2008):

1. Project matrices, so-called ‘profit and cost centres’.

2. Functional matrices, so-called ‘megaprojects’.

In project matrices power is given to project managers. The common configuration of these matrices isbased on the following basic principles:

1. The project manager has full control over a project budget and is authorized to take independent make-buy decisions.

2. The functional unit manager allocates resource capacity without discrimination among projects (the sameprice, no project preferences, or project priorities).

The second principle is relevant for a high-tech case but not for a low-tech case,because in the latter envi-ronment each project manager is permitted to achieve full satisfaction of needed resources from externalsources (outsourcing).

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In functional matrices power is given to functional managers. The functional managers do not allocate re-sources to the projects, but rather, the resources are directly allocated to project activities, taking their crit-icality into consideration. The common configuration of these matrices is based on the following basicprinciples:1. The functional manager allocates resources according to present or future internal capacity, and agrees

to take external buy decisions only when this does not threaten the future employment of organizationalresources.

2. The functional manager allocates internal resource capacity without discrimination (the same price, nopreferences or priorities).

In the low-tech case, the principle of allocating internal resource capacity without discrimination is commonto both project and functional matrices; the difference between these fundamental forms derives only fromthe ‘make internally’ or ‘buy externally’ policy (see Table 1).

It is clear that project managers will prefer matrices where they have full control of the budget and where theyare authorized to take independent make-buy decisions. Project matrices provide freedom to obtain all re-sources seen as needed to implement programs.

For the functional manager, the project matrices can be seen as a disaster. These matrices prevent reason-able planning for future employment of the organization’s capacities. Functional managers seek functionalmatrices so they can control when and how projects are given additional resources, often on the basis ofoutsourcing.

The different preferences of the matrices in a low-tech environment are shown in Table 2.

The traditional description of confrontations occurring within a matrix organization is shown in Figure 1.

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Tab.1: Fundamental matrices associated with the lowtech case Make or Buy Policy MatrixForm Full satisfaction of projects’ needs Project matrices Partial satisfaction of projects’ needs Functional matrices

Tab. 2: The lowtech case: Preferences of matrices Matrices From the Aspect of …

ProjectMatrices FunctionalMatrices

The project manager (P) Best matrices Worst matrices The functional manager (F) Worst matrices Best matrices

FUNCTIONAL MATRICES

PROJECT MATRICES

P

F

Fig. 1: The lowtech case: Single front of confrontation

The implementation of project matrices by an organization is never acceptable to functional managers (F)who pursue functional matrices. This aspiration by functional managers will be opposed by a coalition of proj-ect managers (P) involved with both favoured and unfavoured projects. In contrast, functional managerswill do everything to prevent moves to project matrices.

This confrontation is intrinsic to the nature of the managerial positions. Davis & Lawrence (1978) suggest thatbecause power struggles occur when managers share authority, organizations should seek ways to preventconflict from reaching destructive heights.

3. The high-tech case

Laslo & Goldberg (2008) consider the high-tech case as one where organizational technological special-ization causes difficulties in achieving additional resource capacities in a rapid response time, although re-inforcement by external capacities is legitimate. The allocated capacities of scarce resources are constraintsthat determine progress in the implementation of a project.In this environment the matrices can be classi-fied into three fundamental types:• Project matrices.• Balanced matrices (prioritized resource allocations).• Functional matrices.

Project matrices are the same in both the high-tech and low-tech environments. Moreover, the basic princi-ples of these matrices remain the same. In contrast to the low-tech situation, however, in the high-tech situ-ation, resource allocation without discrimination becomes a real decision alternative. When the organizationmaintains a monopoly over scarce resources, it would have difficulty supplementing those resources throughexternal purchase. In both low-tech and high-tech environments, functional matrices are based on the sameprinciples.The balanced matrices are unique to the high-tech environment. Where scarce resources are in-volved, an organization’s readiness and ability to purchase those resources externally cannot satisfy the re-source needs of the projects—external resource unavailability trumps both readiness and ability topay.Limited capacities must be shared somehow between favoured and unfavoured projects.

In the balanced matrices, greater power goes to favoured project managers and to functional managerswho deal with unfavoured project managers. The configuration of these matrices is based on two principles:1. The functional manager allocates organizational resource capacity according to directed priorities - usu-

ally to the favoured projects, while unfavoured projects have to manage with the remaining resources.2. The make-buy policy is usually differential and determined by a project’s priority.

With the virtual impossibility of a differential make-buy policy because of an inability to obtain further scarceresources, instead of two fundamental matrices involving differential project treatment, we define only onefundamental form. So, the high-tech case can be described through three fundamental matrices based ontwo dimensions: the make-buy policy and the priority policy (see Table 3).

A two dimensional definition of fundamental resource policies in the high-tech environment brings about aconsideration of more complicated decision preferences (see Table 4).

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Tab. 3 Fundamental matrices associated with the hightech case Priority Policy Make or Buy Policy

Equal Resource Allocations

Prioritized Resource Allocations

Full satisfaction of projects’ needs Project matrices Partial satisfaction of projects’ needs Functional matrices

Balanced matrices

Tab. 4 The hightech case: Preferences of matrices Matrices

From the Aspect of … ProjectMatrices BalancedMatrices FunctionalMatrices

The favoured project manager (H) Fair matrices Best matrices Worst matrices The unfavoured project manager (L) Best matrices Worst matrices Fair matrices The functional manager (F) Worst matrices Fair matrices Best matrices

In this case, competition between projects on resource allocations, especially concerning scarce resources,breaks the traditional coalition between project managers, and brings about unexpected agreement be-tween functional managers and project managers.

In a high-tech situation, scarce resource capacities are constraints. These constraints reduce the attrac-tiveness of project matrices among managers of favoured projects. Project matrices offer unlimited resourcecapacities for normal resources, but competition occurs for scarce resources with unfavoured projects. Bal-anced matrices create an option for favoured projects to obtain scarce resources. Therefore balanced ma-trices should be the preferred choice for favoured project managers. Functional matrices, on the other hand,mean favoured projects face a rationing of resources, and give favoured project managers a good reasonto reject such matrices.

Project matrices are the favourite matrices for managers of unfavoured projects. These matrices guaranteethem a share of all resources, in contrast to balanced matrices that leave unfavoured projects with a low prob-ability of receiving scarce resources and could lead to their failure. Despite the fact that functional matricesalso aim at rationing resources, unfavoured projects prefer them over balanced matrices, because they havea better chance of receiving resources.

The functional managers’ objective, because it is directed at the optimized use of available resources, makesthe functional matrices the most attractive. For the same reason, functional managers reject the project ma-trices, matrices that prevent resource allocation planning. Balanced matrices, however, can be a compro-mise for functional managers. Project managers, however, disagree on the worth of balanced matrices,because favoured projects are not limited by the need to allocate resources to internal development, whileunfavoured projects, most of which are internal ventures, face difficulties as resources are pulled from themto be given to the favoured, mostly sponsored, projects.

According to Laslo & Goldberg (2008), the high-tech environment derives three confrontations within the ma-trix organization as shown in Figure 2.

Fig. 2: The hightech case: Three fronts of confrontation

All project managers resist functional matrices. When favoured project managers (H) seek project matrices,they are able to build a coalition with the unfavoured project managers (L) against the functional managers.But if favoured project managers try to improve their position even further by adopting balanced matrices,functional managers and unfavoured project managers may cooperate to oppose this move.

Functional managers, on the other hand, will do everything they can to prevent project matrices. When theyattempt to achieve full control over buy decisions through functional matrices, however, the traditional coali-tion between the favoured and the unfavoured project managers oppose them. But if functional managersare ready to compromise, they can achieve an agreement with the favoured project managers on the adop-tion of balanced matrices, a step that will be opposed by unfavoured project managers.

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FUNCTIONAL MATRICES

PROJECT MATRICES

BALANCED MATRICES

L H

F F

LH F

L

H

Balanced matrices are the preferred policies for favoured projects, but a disaster for unfavoured projects.Managers of unfavoured projects can partner with functional managers if they agree to improve their posi-tion by moving toward the functional matrices, a step that will be opposed by favoured project managers.The efforts of unfavoured project managers to go farther, and to obtain project matrices, will be confrontedby an unexpected coalition of favoured project managers and functional managers.

4. The system dynamics model of a project portfolio’s flow of resources

A model describing a dynamic flow of resources in a project portfolio can be used to evaluate the impact ofalternative matrices on the performances of the project portfolio, of its functional units, and of each of its in-dividual projects.Under uncertainty, these expected performances are difficult to investigate empirically be-cause all the variables are an integral part of a complex nonlinear organizational system where it would beimpossible to obtain an adequate variety of situations. When it is infeasible or impossible to compute an exactresult with a , the Monte Carlo method tends to be used (Metropolis &Ulam (1949). Contrary to determinis-tic modeling using best guess single-point estimates, the Monte Carlo method considers samples of randomvariables as model inputs to produce a large number of probabilistic outcome occurrences (Vose, 2000).Monte Carlo simulations can quantify the effects of uncertainty in project schedules and budgets, providingthe project manager with statistical indicators of project performance, such as target project completiondate and cost. The Monte Carlo method has also been widely used for decades to simulate various mathe-matical and scientific situations, and it is frequently referred to in project management curricula and stan-dards, such as A Guide to the Project Management Body of Knowledge (Project Management Institute,2004). Broad Monte Carlo simulations allow a limitless number of comparisons, where a real organizationwould resist intervention because of its possible consequences. Hence, many more variables are controlledthan would be possible in a study of real organizations.

Forrester’s ‘system dynamics’ theory provides a means to understand the payoff outcomes of each player’sactions in such a complex and uncertain system (Forrester, 1980). What makes using system dynamics dif-ferent from other approaches to studying systems is the use of feedback loops. In its simplest sense, sys-tem dynamics focuses on information that is transmitted and returned throughout the progress of a process,and the system behaviours over time that result from those flows. The feedback loops create the nonlinearityfound so frequently in complex dynamic problems. Running ‘what if?’ simulations to test certain matrix formson such a model enables us to study reinforcing processes—feedback flows that generate exponentialgrowth or collapse—and balancing processes—feedback flows that help a system maintain stability.

The probability of a project meeting a scheduled due date within a fixed budget cannot be estimated for R&Dprojects because of uncertainty about the resources and time needed to complete any one activity,as wellas the extent to which freed resources can be used to expedite the work of other activities. In such a situa-tion, giving full satisfaction to all assumed project requirements at the first stage of a project may actuallybring about delays due to an inability to meet unexpected and unmet resource requirements at later stagesbecause of constrained budget conditions. In contrast, projects with only partial satisfaction of requirementsmay, under crisis conditions, obtain additional resources in order to prevent delays. The system dynamicsmodel as shown in Figure 3 enables the prediction of the matrix form outcomes.

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The first pushing force in this model is the project portfolio. Moore (1977) argued that the flow of resourcesis the basic force that identifies the dynamic nature of a system. Efficient flow of resources requires contin-uous matching between eligible project activities with available capacities of resources, and vice versa. Laslo& Goldberg (2001; 2008) introduced three independent characteristics; each of them determines the chanceto attain such events of successful matching. The probability of project programs meeting timetables andnot exceeding allocated budgets was found to be influenced by these characteristics: 1. Required asset specificity- the need by projects for scarce resources.2. Multidisciplinary activity - the extent to which activities needed personnel from different functional areas.3. Time duration variance - the degree of uncertainty regarding the time necessary to complete activities.

Each of these three characteristics can be used as an indicator of the project portfolio’s’ technological sta-tus. Increasing level of each characteristic indicates higher technological degree, but also more compli-cated scheduling process and instability of the flow of resources within the project portfolio. By applyingbinary attributes (low or high) to each characteristic, eight possible combinations define eight different proj-ect portfolio patterns from which projects can be sampled. These sampled projects enable us to investigatethe performances of the different matrix forms within eight project portfolios with various typologies.

The second pushing force in this model is the matrix form. Assuming a‘’ model, system dynamics feedbackloops for alternative matrix forms provide the following possible results:• The feedback loops might not contribute new information that could influence decisions regarding favourite

matrix form.• The feedback loops might reveal that a preferred matrix form is not as advantageous as previously thought

and therefore leads to neutrality.• The impact of the feedback loops might even demonstrate that a previous position was wrong and reverse

a participant’s position about which matrix form to favour.

An objective function composed of one or more of a large number of objectives can be chosen for per-formance evaluations of the project portfolio, each of its projects, and each of its functional units. For theanalysis of the impact of matrix forms on these performances, the following objectives were selected byLaslo & Goldberg (2001):1.Reducing delay penalties.2.Reducing direct labour costs.3.Reducing idle labour costs.4.Reducing manpower expansion expenses.5.Reducing losses from unnecessary outsourcing.

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Consequent period

Latestperiod

Latestperiod

Initialperiod

Consequent period

Consequent planning

Accelerating motion

Performance evaluations

1st pushingforce: The project portfolio

2nd pushingforce:The matrix

Adjusting resource capacities

Planning a resource unconstrained

Determining the resource requirements

Allocating resources among the projects

Dynamic scheduling during each planning period

Initial organizational resource capacities

Fig. 3: System dynamics model of project portfolio’s flow of resources

5. Insights provided by the implementation of the system dynamics model

5.1. Adjusting the locus of influence to organizational objectives

The readiness to change organizational structures is particularly important in an environment characterizedby rapid changes in the nature of the competition, while at the same time offering new technological ad-vantages. Upper management may choose to centralize decision making and provide greater resources toparticular projects, give control over budget decisions to functional managers, or provide more freedom toindividual projects to make use of similar resource allocations (Kim & Burton, 2002). In order to optimize ma-trix performance, the distribution of power among project and functional managers must be changed con-tinuously in line with the project portfolio’s characteristics and objectives.

The study which is described in detail in the article ‘Matrix structures and performance: The search for op-timal adjustment to organizational objectives’ (Laslo & Goldberg, 2001) aimed to find when organizationaland market conditions necessitate increases or reductions in the influence of project managers, in order toreach improved performance of the project portfolio and/or its units.The locus of influence within the or-ganization is reflected by the different matrix forms.Conversion of the functional matrix into a balanced ma-trix or, of the balanced matrix into a project matrix increases the influence of project managers; whileconversion of the project matrix into a balanced matrix, or, the balanced matrix into a functional matrix in-creases the influence of the functional managers what decreases the influence of the project managers.

The implementation of the system dynamics model provided simulated results from which we can draw thefollowing conclusions as shown in Figure 4:

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Fig.4: Differential recommendations for adjusting the locus of influence as response to changes of the project portfolio’s typology

Required asset specificity Multidisciplinary activity Time duration variance

Multidisciplinary activity

Required asset specificity

Time duration variance

Required asset specificity Time duration variance

Required asset specificity Multidisciplinary activity Time duration variance

Multidisciplinary activity

Increase Maintain Decrease

Increase Maintain Decrease

Maintain

Maintain Decrease

Reducing delay penalties

Reducing direct labour costs of the favoured projects & reducing idle labour costs& total labour costs

Reducing direct labour costs of the unfavoured projects

Reducing manpower expansion expenses & reducing losses from unnecessary outsourcing

Organizational objective

Environmental change & action

Characteristic level changes Decreased Initial Increased

Adjusting the project manager’s influence

Type

• For the objective of reducing delay penalties:– As the level of each of the three characteristics increase from the initial level, it is necessary to increase the

influence of project managers. Similarly, decreases from initial levels of each of these characteristics en-courage a decrease in the influence of project managers.

• For the objectives of reducing direct labour costs of the favoured projects, idle labour costs and totallabour costs (the sum all direct costs and idle labour costs) as well:

– Any change in the level of required asset specificity does not require any change in the locus of influence;– As the level of multidisciplinary activity increases from the initial level, it is necessary to increase the influ-

ence of project managers. Similarly, decrease from initial level of this characteristic encourages a decreasein the influence of project managers;

– As the level of time duration variance increases from the initial level, it is necessary to decrease the influ-ence of project managers. Similarly, decrease from initial level of this characteristic encourages an in-crease in the influence of project managers.

• For the objective of direct costs of the unfavoured projects labour:– Any change in the level of required asset specificity or time duration variance does not require any change

in the locus of influence;– As the level of multidisciplinary activity increases from the initial level, it is necessary to decrease the in-

fluence of project managers. Similarly, decrease from initial level of this characteristic encourages an in-crease in the influence of project managers.

• For the objectives of reducing of manpower expansion expenses and losses from unnecessary out-sourcing changes:

– Any change in the level of each of the three characteristics does not require any change in the locus of in-fluence.

5.2. Looking for a consensual project portfolio’s matrix form

Conflicts believed to be unavoidable are assumed to reduce the effective performance of matrix structuresbecause project managers and functional managers struggle for greater control over the allocation of or-ganizational resources. As a consequence, organizations do not unite around one matrix form and fail toadopt one of the matrix forms as a preferred organizational structure.A difficulty of predicting the full con-sequences of each matrix form in a dynamic environment has become a serious complicating factor in at-tempted pre-accepted formation. Disagreement among managers over matrix forms, however, may turn outto be unrealistic as the attainment of a favoured matrix form may actually reduce their performance.Thestudy which is described in detail in the article ‘Resource allocation under uncertainty in a multi-project ma-trix environment: Is organizational conflict inevitable?’ (Laslo & Goldberg, 2008) aimed to find the possibil-ity of unnecessary and unrealistic conflicts in the context of the favoured matrix form. The authors calculatedthe expected net benefit to be obtained by each organizational participant for each matrix form as the par-ticipants relate to various project portfolio’s characteristics and objectives.

Assuming that the functional managers’ objectives always seek reducing the idle labor costs, the manpowerexpansion expenses and the losses from unnecessary outsourcing, the implementation of the system dy-namics model provided simulated results from which it was possible to draw the following conclusions:• Consensus on functional matrices can be attained only when both favoured and unfavoured project man-

agers’ objective is reducing direct labor costs. Consensual matrix form is attainable in each project port-folio pattern where the level of the multidisciplinary activity is high. In an additional pattern where the levelof this characteristic is low, the level of required asset specificity is high and the level of time duration vari-ance is low such consensual matrix form is attainable as well.

• Reduction of the number of conflicts in the context of matrix form, but not consensual matrix form, canmostly be achieved in other scenarios, i.e. additional combinations of project managers’ objectives andproject portfolio patterns.

When the participants are aware that some of the conflicts are in fact unrealistic, in some scenarios con-sensual matrix form is attainable while in other scenarios only reduction of the number of conflicts amongthe organizational participants as demonstrated in Figure 5.

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Fig. 5: Realistic conflicts for a project portfolio where the level of the three characteristics is high

5.3. Looking for an additional implementation of the balanced matrices

Hendrix et al. (1998) found that a multi-project situation causes problems in the allocation of scarce re-sources,such as personnel, to a diversified project portfolio. They suggest flexible resource planning to takeinto account the availability of scarce resources. Laslo (2010), as in detail description in his article ‘Projectportfolio management: An integrated method for resource planning and scheduling to minimize plan-ning/scheduling–dependent expenses’, investigated the implementation of this suggestion in informationtechnology project portfolios, where such resources are available, but very expensive. The idea of the inte-grated matrices is implementation of a project matrix on normal resources and a functional matrix on scarceresources. For this purpose a sophisticated resource planning and scheduling search algorithm was de-veloped.The simulated results of the integrated matrix form implementation,in comparison with those of theproject matrices implementation,showed the following:• For the objective of reducing delay penalties the integrated matrices seem to be significantly superior.• For the objective of reducing idle labour costs the integrated matrices seem to be significantly superior.• For the objective of reducing manpower expansion expenses the integrated matrices seem to be signifi-

cantly superior in the context of scarce resources but inferior in the context of normal resources.• For the objective of reducing losses from unnecessary outsourcing the integrated matrices seem to be sig-

nificantly inferior.

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Functional Matrices

Project

Matrices

Balanced Matrices

H

F F

H F

L

Functional Matrices

Project

Matrices

Balanced Matrices

LF F

LHF

L H

The project managers’ objectives are reducing thedelay penalties. The functional managers’objectives are reducing idle labour costs,

manpower expansion expenses & reducing losesfrom unnecessary outsourcing.

The project managers’ objectives are reducing thedirect labour costs. The functional managers’

objectives are reducing idle labour costs,manpower expansion expenses & reducing loses

from unnecessary outsourcing.

Summary

Irrespective of the findings in the context of the matrix forms and their implementations in project portfolios, a simulationcan never be the reality—it can only reflect it. These studies assumed ‘h’ participants and a management policy directedat the improvement of the project portfolio’s performance. ‘Noises’ such as friendship or antagonism among participantsmay change the results. Nevertheless, these studies provide evidence for the problematic nature of assumptions about be-haviours and conflicts in matrix structures, and call for further research.

REFERENCES

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uling to minimize planning/scheduling–dependent expenses. International Journal of Project Manage-ment, 28(6), 609-618.

[15] Laslo, Z. & Goldberg, A. I. (2001). Matrix structures and performance: The search for optimal adjustmentto organizational objectives. IEEE Transactions on Engineering Management, EM-48(2), 144-156.

[16] Laslo, Z. & Goldberg, A. I. (2008). Resource allocation under uncertainty in a multi-project matrix envi-ronment: Is organizational conflict inevitable? International Journal of Project Management, 26(8), 773-788.

[17] Lawrence, R. L. Kolodny, H. F. & Davis, S. M. (1982). The human side of matrix. Readings in the Man-agement of Innovation, M.L. Tushman and W.L. Moore eds., 504-519.

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[19] Martin, M. J. C. (1994). Managing Innovation and Entrepreneurship in Technology-Based Firms, NewYork: John Wiley.

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[21] Moore, F. G. (1977). A Management Sourcebook. New York: Ann Arbor, MI, University Microfilms In-ternational.

[22] Payne, J. H. (1995). Management of multiple simultaneous projects: A state-of-the-art review. Interna-tional Journal of Project Management, 13(3), 163-168.

[23] Perham, H. (1970, August). Matrix management: A tough game to play. Dun’s Review.[24] Peters, T. J. & Waterman, R. H. (1984). In Search of Excellence. New York, NY: Harper and Row.[25] Pich, M. T., Loch, C. H. & De Meyer, A. (2002). On uncertainty, ambiguity, and complexity in project

management. Management Science, 48(8), 1008-1023.[26] Platje, A. Seidel, H. &Wadman, S. (1994). Project and portfolio planning cycle: Project-based manage-

ment for the multiproject challenge. International Journal of Project Management, 12(2), 100-106.[27] Project Management Institute (1997). The principles of project management. Sylva, NC: Project Man-

agement Institute. [28] Project Management Institute (2004). ANSI Standard #ANSI/PMI 99–001–2004 - A Guide to the Project

Management Body of Knowledge: PMBOK Guide. Newton Square, Pennsylvania: Project ManagementInstitute..

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62


About the Author

[29] Stasser, G. & Titus, W. (1985). Pooling of unshared information in group decision making: Biased in-formation sampling during discussion. Journal of Pereonality and Social Psychology, 48(6), 1467-1478.

[30] Thamhain H. I. &Wilemon, D. L. (1974, September). Conflict management in project-oriented work en-vironment. Proceedings of the Sixth International Project Management Institute, Washington D.C.

[31] Turner, S. G., Utley, D. R. & Westbrook, J. D. (1998). Project managers and functional managers: A casestudy of job satisfaction in a matrix organization. Project Management Journal, 29(3), 11-19.

[32] Vose, D (2000). Risk Analysis, A Quantitative Guide. NJ: John Wiley & Sons.

Receieved: June 2012. Accepted: October 2012.

Zohar LasloSCE –Shamoon College of Engineering

[email protected]

Zohar Laslo is Dean and Professor of Industrial Engineering at SCE - Shamoon College ofEngineering. He received his B.Sc. and M.Sc. from the Technion - Israel Institute of Technology,

Ph.D. (Summa cum Laude) from the Ben Gurion University of the Negev and continued as a post-doctoral research fellow at the Tel Aviv University. His academic career includes teaching

and research at Bezalel - Academy of Art, Ben Gurion University of the Negev, Tel Aviv University and SCE - Shamoon College of Engineering. Prof. He has published over 60 publications in the operational research and industrial management literature.

63

Snežana Knežević1, Aleksandra Stanković2, Rajko Tepavac3

1 Faculty of Organizational Science, University of Belgrade2 Faculty of Hotel Management and Tourism, University of Kragujevac

3 Company Dunav Insurance


Accounting Information System as a Platform for Business and Financial Decision-Making in the CompanyUDC: 007:657]:004 ; 005.51:007]:004DOI: 10.7595/management.fon.2012.0033

1. Introduction

In the process of making business and financial decisions the starting point are the previously determinedcompany objectives. The basic assumption of a rational company management is information. Informationcan be non-quantitative and quantitative, and quantitative information is further differentiated into financialinformation (accounting) and non-financial information. The identification of adequate information system isof crucial importance for company management, which should provide a reliable information basis for busi-ness and financial decision-making. Accounting has an indispensable function in determined the informa-tion system.

Business information system includes the following sub-systems: (1.) Management Information System, (2.)Accounting Information System, (3.) Marketing Information System, (4.) HR Information System and others. Twomain functions of an accounting system are: (1) rendering accounts function and (2) company managementfunction. The first function is under the competence of financial accounting that is primarily oriented towardsmeeting needs of external users, that is, it is focused on financial communication of the company with its en-vironment. From the methodological point of view, it is known as a fact that financial accounting is based ontechnique of double-entry book-keeping. Dual observation of economic categories is the basic characteristicof double-entry book-keeping. The second function is under the competence of management accounting thatis oriented towards meeting the needs of internal users, first of all towards managers in the company. Managersneed financial (accounting) information for making various business and financial decisions. Management ac-counting is focused on planning, running and control of business processes in the company.

The final phases of data processing in accounting are financial statements. They are carriers of accountinginformation and a basic tool for financial communication of the company and its external interested users.Basically, financial statements are the key source of information on financial position of a legal entity at theend of a period, on total performance of the legal entity for the given period and on cash flows of a legal en-tity, and they are used for making economic decisions for a broader range of users.

It is necessary to organize an accounting system in a way that accounting information system, which col-lects and processes data regarding accounting planning, record-keeping, control and analysis, generates

Information system in the company should provide all necessary information for decision-making. Accountinginformation systems are continuously upgraded, apart from other types of information systems. The aim of thispaper is to identify the role of accounting information system in the process of business and financial decision-making in the company in line with everyday development of information and communication technologies.Accounting information system can be viewed as a special discipline and as part of a larger system and pres-ents a discipline that is oriented towards practice. The aim of this paper is to signify different types of ac-counting information systems, detection of the objective side of these contents and their role and active useas a platform in decision-making. The research method used in the paper is the content analysis method.

Keywords: accounting, information system, decision-making, company

valid, timely and quality information [3]. Qualitative characteristics of financial information are: comprehen-sibility, comparability, relevance and reliability. The essential quality of information published as financialstatements is that they should be understandable to users – various interested groups. Measurement andpresentation of financial effects of similar transactions and other events must be performed consistently forthe entire company, its parts, within the same accounting period and consistently to other companies. In-formation is relevant when it affects economic decisions of users in terms of helping them evaluate businessevents and correct previous evaluations.

The relevance of information is under significant influence of materiality as an intersection point of relevanceor irrelevance of information. Information is reliable when it does not contain material errors, when it is pre-cisely shown and when users can rely on it during the process of evaluation of financial performance andmaking business and financial decisions.

Accounting Information System (AIS) is the basis of information system of a company for reporting to inter-nal and external users. In those terms, it presents a platform for company managers in the decision-makingprocess.

2. Organisation of an Accounting Information System in the company

Today we see significant evolutionary changes that head for creation of a more modern company in line withchanges caused by market globalisation, business internationalisation, dynamic development of informationtechnologies and strong competition. Constant interactions with both external and internal events are the rea-son for an analysis of the role and quality of an information system for efficient business operations. The needfor creation of information systems, which provide not only the database but to a great extent simplificationand relief in functioning of business systems, is of crucial importance for successful business operations ofa company. Information and communication technology includes all electronic media whose function is totransfer information between the sender and the receiver, and to enable or support communication. Changesin information and communication technologies are dynamic. Development of modern technology and in-formation systems caused significant change in the business of a company as well as changes in account-ing information systems.

The development of the accounting system dates back to the times of Babylon, 3.600 BCE, when the old-est record of a business event occurred. There is much evidence that accounting systems were used in theancient Greece, China and Rome. Trade activities became more complex which led to the development ofgreater organisational forms. Changes in accounting were in line with changes in data processing methods,along with the development of technique, starting with manual and including mechanographic and computerdata processing as the most modern method for data processing. Current changes in accounting informa-tion systems refer to the improvement of the existing or purchase of new accounting information systems.In modern business conditions, accounting information system is part of a Computer-Based InformationSystem (CBIS) that uses computer technology and consists of the following applications: data collection,data processing, database management and generating information.

Accounting information is understood as transformed data and indicators, directed towards users who woulduse them to realize a certain task within business activity of the company. Since information has a great sig-nificance for management of the company, existence of modern and comprehensive database is importantfor control and financial reporting of the company [6]. Regardless of the design and implementation of theinformation system, human factor, that is, management has a crucial role in using and managing changes [2].

The accounting information system is by its nature and design a more or less strictly formalized sub-systemof a company’s business system. This sub-system is characterised by complexity, significant presence ofmodern information technologies and coherence with other segments of a business system [7]. The mostimportant part of a complete information system of a company, comprised of people, equipment, software,data, manners and methods of their organisation, communication and network solutions that connect all el-ements and organisational procedures, is an accounting information system [9].

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Accounting information system deals with:1. measurement or quantification of business events in monetary forms (by recording in accounts) – INPUT;2. data processing in business books and drawing accounting reports – PROCESS; and3. publication of financial statements, with which the accounting communicates with internal and external

users thus giving them information necessary for business and financial decision-making - OUTPUT.

The main characteristic of an accounting information system made of individual sub-systems is the creationof special sub-systems for complete units within the company, that is, modules supported by various soft-ware solutions, without possibility for integrated functioning [9].

The accounting information system is connected to several other areas, the most important of which are: • Accounting and administrative organisation is a system of organisational measures with a focus on col-

lection and processing of data, which are directed towards provision of information to the management,certain functions in the company and for accounting purposes;

• Internal control as a control of activities and decisions made by other employees, conducted for the pur-poses of management by or on behalf of the said management;

• Provision of information required for decision-making through systematic collection, recording, keepingand processing of data with the aim to provide information that is relevant for decision-making (selectionamong many options) for various functions in the company including the accounting function; and

• Information systems are a set of interconnected components which serve for collecting, procurement, pro-cessing, warehousing and analysis of information with the purpose to plan, control, coordinate and makedecisions in business and other organisations [15].

In modern organisation, apart from the role of the general manager who is responsible for decision-makingbased on relevant information, the roles of a financial auditor, control and IT manager involved in processesof control and counselling are very important regarding procurement and provision of information while thegeneral manager has the role of a moderator and coordinator between the stated functions.

3. Accounting information system as basic for business and financial decision-making

The business system as a complex system can be divided into three sub-systems: executive sub-system,information sub-system and management sub-system. The executive sub-system means basic businessfunctions such as: procurement, production, sales, financial and other. The information sub-system as a linkbetween the executive and management sub-systems has a task to provide timely information to the exec-utive and management sub-system for decision-making. The information sub-systems, according to the cri-terion for roles and tasks of accounting, are divided to accounting and non-accounting informationsub-systems (accounting information system, management information system) [13] [10]. It is important tostress that those systems are not organized in physically separated modules, but are frequently integratedin overlapping areas of responsibility.

Scapens (1996) confirmed the opinion that, due to advancement of information and communication tech-nology, the management is in a better position during decision-making process because now it is possibleto improve and constantly upgrade the accounting information system as a support to decision-making ofmanagement [12].

Sutton (2006) stressed that relation between information technologies and management is extremely com-plex in the field of accounting information systems [4]. By an adequate connection between accounting in-formation systems and management, as well as executive functions and external users, compatibility of allfunctions in the company is established. The bottom line is that coherence between management and ac-counting information systems leads to the simplification of making business and financial decisions by themanagement.

Research conducted by Nilsson and Rapp [11] showed a theoretical framework of successful implementa-tion and application of particular managerial strategies in Swedish companies, only if they owned the rightinformation. Strategic management requires mostly concise and various information in order to make deci-sions. These management decisions are mostly directed towards future and therefore are significantly riskier

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for the final outcome. Management at the tactical level needs detailed information in relation to the strate-gic management and, by a rule, for a shorter time period. Operational management mostly needs analyti-cal data and information. At this level decisions are made almost every day.

In execution of their activities, the management depends on information from the accounting information sys-tem (Figure 1). Numerous accounting reports containing different information are necessary for differentlevels of management structures. These reports can be presented in different time intervals, in differentmethods and for different phases in management and decision-making in the company.

Figure 1. Positioning of an accounting information system [15]

Management accounting and control deal with information in order to make decisions and control in the or-ganisation. Information management is a field traditionally connected to information systems and deals with”production” of information by using information and communication technologies [15].

The connection between the accounting information system and information management is in the field of de-velopment of information systems – making data models, simulation and development of internal control. Theconnection between the accounting management and control and information management is reflected inseveral common elements. They are contained in the definition of management as a discipline. They greatlydepend on the human factor in the organisation. Unlike these two fields, the accounting information systemtraditionally has a stricter and more formal approach that does not greatly depend on the human factor. It canbe said that the approach distinguishes the human factor in comparison to technocratic approach - account-ing information system is between accounting management and control and information management [15].

When studying accounting information system it is necessary to mention the human factor (human resourcesmanagement). The approach that neglects the human factor in studying accounting information system isnot modern and presents a narrow view of human issues.

The accounting information system should adequately meet information requests from the management ofthe company. The connectivity of the accounting information system with the company’s management isspecific because of coordination of management with complete information capabilities of the accountinginformation system. It generates financial statements that are significant for management and decision-mak-ing; and it presents initial pulse for improvement of information content when management endeavours toremove weaknesses in production by repeating requests.

Connectivity between the company’s management and the accounting information systems is reflected inthe management’s requests that refer to the INPUT of the accounting information systems. Upon requestsof the management, the accounting information system must be adequately adjusted, starting with record-

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ing of business events, drawing and publishing of reports and information. The complexity of connectivitybetween the management and accounting information systems originates from the necessity to adjust in-formation received from different segments of accounting information systems to the different levels of man-agement and managerial structures in the company.

In order to adequately meet the management’s requests, the accounting information system must be or-ganised as an active and creative system. How does the accounting information system meet the manage-ment’s requests? The organizer of the accounting function should review, direct and improve informationrequests made by the management by using pro-active solutions. In that manner, the information strengthof the accounting information system is increased, and making business and financial decisions by the man-agement is facilitated.

The specificity of connectivity between the procurement function, as one of business functions of the exec-utive sub-system, and the accounting information system of the company is reflected in a vital communi-cation between executive functions and the accounting information system in order to timely take actions incase of changes in the environment and to make right decisions at the right moment. This two-way relationis shown as follows: procurement receives information from financial accounting, analytical book-keepingand management accounting, and provides information to the accounting information system, which is fur-ther processed and placed at disposal of all interested parties in the company. If there is a high level of com-munication and connectivity, the company will be able to adequately solve problems and successfullyachieve desired economic objectives [8].

4. Support of various types of the accounting information system to the company’s management

The first published paper on accounting was written by a Venetian monk Luca Paciole who summed up theprinciples that have remained the same in their essence until today [14]. The basics of accounting are de-rived from these principles that are used in implementation and use of the accounting information systems.

In terms of organisation, the accounting information system can be:1. made of individual sub-systems, 2. integrated or3. combination.

Further below are analysed the accounting information systems comprised of individual sub-systems, thatis, modules and integrated, from the point of view of support to the company’s management. Combined ac-counting information systems as a combination of different types of the previous two are not subject of con-sideration. Depending on the needs of users, Hall (1995) pointed out that the following sub-systems can becreated: sub-systems for processing of transactions, sub-systems of book-keeping journal, sub-systems offixed assets and sub-systems of reporting to management [5]. Apart from that, G.H. Bodnar and W.S. Hop-wood (1993) stated the following sub-systems: revenues, expenditures, production, finance and financial re-porting [1]. Sub-systems that are characteristic of most contemporary accounting information systemscomprised of individual sub-systems are: sub-systems of general ledger, sub-systems of analytical book-keeping and auxiliary sub-systems. Considering the fact that needs for information are different in differentorganisations, a single view on the module structure, which would be applicable in all companies, cannotbe created. Regardless of the different module structure in companies, the accounting information systemcreated upon individual sub-systems, presents support to management in the decision-making process andthe realization of various types of business decisions.

The advantage of the accounting information system, created upon individual sub-systems, is the automatictransfer of data from the sub-systems of analytical book-keeping into the sub-system of the general ledger,which makes booking easier, while the main shortcoming is the entry of data in accounting, and not theplace of occurrence of business change.

On the other hand, integral accounting information systems in companies are a set of modules which areintegrated in one and a single information system of the company. Integral accounting information systems

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operate in a way that data are only once entered into the system and are further used for processing. It ismostly based on an on-line computer system that enables the entry of transactions at the place of occur-rence, using and updating information in all places where applicable.

The advantages of integral accounting information systems reflect first of all in recording data only onceand online entry. The establishment of interactions between accounting modules enables that one businessactivity from one cycle causes certain changes in other cycles and in this manner the integrated account-ing system shows advantages in relation to other forms of organisations.

REFERENCES

[1] Bodnar, G. H., Hopwood, W. S. (1993). Accounting Information System. Prentice Hall. New Jersey.[2] Ćirić, Z., Raković, L. (2010). Change Management in Information System Development and Implemen-

tation Projects. Management Information System, Vol. 5, No.1, pp. 023-028.[3] Gajic, Lj. (2002). Instruments of organizing accounting function in the realization of information support

to enterprise management. Economic Construction, XLV, pp. 251-257. doi:10.2298/PRIZ0203251G[4] Granlund, M. (2011). Existing AIS Research to Management Accounting and Control Issues: A Research

Note. International Journal of Accounting Information Systems, Vol.12, No.1, pp. 3-19. [5] Hall, J. A. (1995). Accounting Information Systems. South Western College Publishing.[6] Khajavi, S., Nazemi, A. (2010). Innovation in Management Accounting: the Needs of World Class Firms.

International Journal of Academic Research, Vol.2, No.5, pp. 320-330. doi: 10.7813/2075-4124.2012[7] Malinić, S. (2010). The accounting information support to company management in generating value for

stakeholders. Proceedings of the 14th Congress of the Association of Accountants and Auditors of theRepublic of Serbian, Teslić, pp. 43-67.

[8] Malinić, S., Janjić, V., Todorović, M., Jovanović, D. (2011). Management Accounting Information Sup-port in Optimizing Product Mix Using Linear Programming. Economic Themes, Vol. 3, pp. 415-432.

[9] Malinić, S., Todorovic, M. (2011). Implementation of an integrated-accounting-information system - the-oretical and methodological basis and risks. Accounting, Vol. 1-2, Association of Accountants and Au-ditors of Serbia, pp. 20-34.

[10] McLeod, R., Schell, G. (2001). Management Information Systems. Prentice Hall Upper Saddle River.New Jersey.

[11] Nilsson, F., Rapp, B. (1999). Implementing Business Unit Strategies: The Role of Management ControlSystems. Scandinavian Journal of Management, Vol.15, No.1, pp. 65-88. doi:

[12] Pierce, B., O’Dea, T. (2003). Management Accounting Information and the Needs of Managers – Per-ception of Managers and Accountants Compared. The British Accounting Review Vol.35, No.3, pp. 257-290. doi:

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Changes in features of corporations lead to changes in the management. Faced with risks, the company’s managementsignificantly improved its theoretical and methodological solutions as well as practice regarding management. Businessmanagement of the company today means existence of new, improved knowledge, changes in planning methods and im-plementation of new techniques. An important role in the previously stated has the accounting information system, its im-plementation, use and upgrading. The management that succeeded in accepting changes and adequately combinedpotential within the company and available resources and factors from the environment would lead the company towardsgeneration of values for different interested groups.

The organiser of the accounting function should review, guide and improve the management’s requests for information andthus increase information strength of the accounting information system and facilitate making business and financial de-cisions to various profiles of managers. The necessity to adjust information from different segments of accounting infor-mation systems, at different management levels and managerial structures in the company, shows the complexity ofconnectivity between accounting information systems and the management.

The accounting information system meets the management’s requests as an active and creative system. To discuss man-agement and at the same time neglect accounting as a basic source of information is really not possible.

Conslusion

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[13] Romney, M., Steinbart, P. J. (2009). Accounting Information System. Eleventh Edition. Pearson PrenticeHall.

[14] Schiell, E., Borba, J., A., Dal-Ri, Murcia, F. (2007). Financial Accounting: an Epistemological ResearchNote. Revista Contabilidade Financas, Vol.18, No.45, pp. 83-90. doi: 10.1590/S1519-70772007000400008

[15] Vaassen, E. H. J. (2002). Accounting Information Systems – A Managerial Approach. John Wiley & SonsLtd.

Receieved: May 2012.Accepted: November 2012

Snežana KneževićFaculty of Organizational Science,University of Belgrade

[email protected]

Snežana Knežević was born in 1966 in Pančevo (Jabuka), where she graduated from the school ofeconomics. She graduated from the Faculty of Economics in Belgrade where she also got her MSc

degree. She got her PhD degree at the Faculty of Organizational Sciences in Belgrade. The areasof her scientific interest are Finance, Accounting and Environmental protection. She is fluent in

French and English. She has published several monographs and papers of scientific andprofessional orientation in the country and abroad. Currently, she works at the Faculty of

Organizational Sciences in Belgrade, Department of Financial Management. She is an associatemember of the Scientific Society Of Economists and a member ot the EUMMAS (European

Marketing and Management Association).

Aleksandra StankovićUniversity of Kragujevac, Faculty of Hotel Management and Tourism Vrnjačka Banja

[email protected]

Aleksandra Stankovic works as a Teaching Assistant at the Faculty of Hotel Management and Tourismin Vrnjačka Banja, University of Kragujevac. She completed her Bachelor Studies in Accounting and

Corporate Finance as well as her Master studies at the Faculty of Economics in Kragujevac. Thefields of her scientific and professional interests are related to Accounting and Finance.

Rajko TepavacCompany “Dunav Insurance‘’

[email protected]

Dr Rajko Tepavac graduated from the Faculty of Economics University of Belgrade. He acquired acertificate of title of authorized broker - dealer in 2000, and a Master’s Degree in Legal andEconomic Sciences in 2006, at the Academy of Commerce in Novi Sad, then, in 2008, he

defended his doctoral dissertation and earned his Ph.D. in Economics. He works as a member ofthe Executive Board of the Company “Dunav Insurance‘’ in charge of corporate governance,

strategy and product development. At the University of Business Academy, Fimek in Novi Sad, inthe capacity of assistant professor, he teaches “Insurance”. He is the author of numerous books

and papers, with special emphasis on different areas of security, regional development perspective,the insurance industry and its legal regulation.

About the Author

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Dalibor Petrović,1 Ivana Kovačević2

1 University of Belgrade, Faculty of Transport and Traffic Engineering 2 University of Belgrade, Faculty of Organizational Sciences


Distrust as Obstacle to e-Commerce Development in SerbiaUDC: 004.738.5:339(497.11)DOI: 10.7595/management.fon.2012.0035

1. Introduction

One of the main global consequences of the revolutionary development of information and communicationtechnologies (ICT) was a diffusion of e-commerce, i.e., activities related to purchasing and distribution ofgoods and services over the Internet and other channels of electronic communications. Today, every coun-try with Internet access has some kind of e-commerce, while Europe, Asia and North America are the lead-ing regions in this segment of trade (Nielsen, 2010). However, further analysis of e-commerce in Europeancountries reveals cross-country differences. Northwest European countries are leaders while southeast Eu-ropean (SEE) countries lag in e-commerce development (Eurostat, 2011). For the purpose of this study themost important data is that Serbia, with only 4% of e-commerce users (Vukmirović et al, 2011), is at the bot-tom of the list of European countries. This leads to the conclusion that the existing e-commerce initiativesfailed to yield significant result.

Our paper deals with the reasons of e-commerce underdevelopment in Serbia with a focus on cultural factors.Although there are many reasons for poor ICT development in Serbia (Petrović et al., 2012), the premise we havefollowed in this paper is that the low level of e-commerce in Serbia is mainly the consequence of socio-culturalfactors, especially the widely spread atmosphere of distrust that is deeply embedded in the Serbian society.

The paper is organized as follows. The next section, after the introduction, explains and emphasizes that cul-tural factors are somehow neglected in studies of e-commerce in developing countries. Within the third sec-tion theoretical framework is devised and used to signify the importance of trust for modernization of asociety. In this sense the modernization potential of e-commerce is discussed along with distrust as the keyobstacle for significant e-commerce development. In the fourth - analytical section general social factorsare analyzed as the reasons for underdevelopment of e-commerce in Serbia with a focus on distrust as animportant cultural element of sociability in Serbia. The fifth section deals with the analysis of the World Val-ues Survey with special attention to the level of (dis)trust in Serbian society, especially regarding the institu-tions that should guaranty the security of e-commerce in a modern society. The concluding remarks includeperspectives for e-commerce development in Serbia.

The development of electronic commerce (e-commerce) can be analyzed from many different aspects, whichconsequently affect the selection of substantial elements that can be used for understanding the obstacles fore-commerce implementation. In this paper we analyzed the (dis)trust as one of the elements which is, in our opin-ion, somehow neglected even though it can be the key factor of slow e-commerce development in Serbia. Al-though the distrust can be studied on different levels when related to e-commerce, it seems that cultural andsocio-psychological are the most important for the countries that are still in the process of modernization and donot have a long tradition of free markets. This is why in our paper we focus on two macro factors of distrust inSerbia: distrust related to the normative and value systems, and distrust as part of the Serbian cultural pattern.To illustrate to what extent the distrust is embedded into Serbian society we analyzed the results of World ValuesSurvey, which involved 80000 participants around the world including the citizens of Serbia. In the concludingremarks of the paper we highlight the importance of transformation of the normative and value system and pointout that without this, all other actions for raising the confidence in e-commerce will have a limited impact.

Keywords: e-commerce, distrust, Internet, cultural patterns, normative and value system

2. Culture as a factor of e-commerce development

In analyzing the different aspects of ICT use, we can distinguish four main perspectives. The first perspec-tive can be defined as technical - implying that ICT development is perceived through infrastructural prism.The premise is that the development of infrastructure will automatically lead to a growth in the Internet use.The second perspective is legislative - the ICT diffusion is perceived through legal prism. This implies that ifsuitable laws are adopted, the ICT use will be higher. The third perspective is policy – the spread of ICT isanalyzed through the institutional prism. The standpoint is that the adoption of different governmental andnongovernmental strategies and initiatives will result in a higher level of ICT use. The fourth perspective canbe defined as instrumentally – utilitarian where the main aspects of ICT use are perceived through the serv-ice prism. The focus is on the development of online services which are expected to foster ICT diffusion. How-ever, there is one more, somehow neglected, perspective which, in our opinion, could have substantialinfluence on the ICT use. This is the socio-psychological perspective which uses the cultural prism to em-phasize the aspects of ICT use that are important but not easily detectable. For instance, The Strategy of In-formation Society Development in Serbia until 2020 (Official Gazzete of RS, 2010) is dominated byinfrastructural and instrumentally – utilitarian perspective. This can be stated because two main elements ofinformation society development in this Strategy are: 1) high level of Internet access; 2) development of dif-ferent e-services. Although the Strategy stresses the need for higher level of information availability, skills,inclusion of different social groups, it seems that cultural factors are somehow neglected.

All the mentioned perspectives of ICT development can be used in analyzing e-commerce. In that sense we canstate that the scope of e-commerce in overall economy depends on the infrastructure development, referent leg-islative and strategies, overall socio-economic development, business environment, etc. However, when it comesto the implementation of e-commerce in developing countries, i.e. countries with a short market economy tradi-tion, it is of great importance to take cultural characteristics into consideration. A similar standpoint can be foundin several studies dealing with factors of slow e-commerce expansion in developing countries. For example,Efendioglu et al., (2005) found that although the Governments in developing countries, such as China, disposewith necessary infrastructure capacities, the e-commerce development will not occur until the cultural specificsof this country are taken into account. For example, the important elements of China’s market tradition are directi.e. face-to-face transactions, familiarity with the other party (“guanxi”, strong individual relationship and long termassociation between the parties) and getting satisfaction from winning business negotiations of all sorts. It is ob-vious that such tradition is incompatible with e-commerce. Similar observation is made by Dekhordi et al., (2011)who conducted a comparative study on e-commerce factors in Iran and United Arab Emirates. They confirmedtwo of the three hypotheses of their research - clear evidence that the culture and the previous experience in ICTuse have a strong impact on e-commerce, while the use of e-commerce is not gender sensitive.

Serbia is a country without a long tradition of wide market economy and a country of incomplete or distortedmodernization. That is why one must include cultural factors in order to understand the diffusion of ICT use inSerbia. Although there are a number of studies dealing with e-commerce in Serbia, only few of them take thesefactors into account. One of the few papers that considered cultural factors (among others) is written by Trav-ica et al., (2007). They analyzed different levels of e-commerce in Serbia and came to the conclusion that a dis-trustful customer was a major obstacle to its development in Serbia. Travica et al., (2007) defined several factorsof customers’ distrust: collapse of the old chain stores during the crisis in the 90’s in XX century; the collapseof the banking system that also occurred during this period and came to be known by despoliation of citizensthrough subtraction of old savings or savings in private banks of dubious quality. The authors also emphasizethe following factors: socio-psychological factors like the conservatism of old people who are not ready to ac-cept new brands; and cultural factors – which are characterized by a strong reliance on the past instead of onthe future. They concluded that the distrust is the key socio-psychological obstacle for e-commerce diffusion.

3. Distrust and e-commerce

Distrust is a cultural and psychological phenomenon and as such represents one of the basic building blocksof every human community. With the development of the society, extensive division of labour, and growinginterdependence of society as a whole and its segments, the role of trust as integrative element is more im-portant than ever. Nevertheless, when social development overcomes the defined and controlled boundaries,the society becomes a risk society (Beck, 2001), where the a priori trust (especially in abstract elements oflife) becomes a crucial element for the functioning of a modern society.

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In many theories of different authors that studied the social functions of trust, in our further analyses we de-cided to focus on two. The author of the first one is Sztompka and he defines trust as a bet about the futurecontingent actions of others (Sztompka, 2000). In line with that, he explains two main elements of trust: be-liefs and commitment. In contrast, the concept of “distrust’’ is treated as the negative mirror-image of trust.It is also a bet, but a negative bet. It involves negative expectations about the actions of others and it involvesnegative, defensive commitment. According to Sztompka, trust has three main dimensions: relational –which comes as the consequence of social relations; psychological – comes as the consequence of im-pulse to trust someone; and cultural – a consequence of macro-structural factors. For the purpose of ouranalysis, i.e. understanding the underdevelopment of e-commerce in Serbia, we will pay special attentionto the macro-structural factors of trust. Among them Sztompka distinguishes five macro-societal circum-stances as conducive to the emergence of a trust culture: normative coherence, stability of the social order,the transparency of the social organization, the familiarity of the environment in which people undertaketheir actions, the accountability of other people and institutions. As the majority of these elements are un-derdeveloped in Serbia, one may assume that it is understandable that the general level of trust is very low.This will be further explained later in the paper.

The other important theory that can help understanding how trust is related to the e-commerce is definedby Giddens (1990). He sees the trust as confidence in the reliability of a person or a system, regarding agiven set of outcomes or events, where that confidence expresses a faith in the probity or love of another,or in the correctness of abstract principles (technical knowledge). The second part of this definition is ofparticular importance for our analysis. According to Giddens, the very nature of modern institutions is deeplybound up with the mechanisms of trust in abstract principles i.e. symbols (money) and expert (technical) sys-tems. Practically, every time when we use the money, enter the elevator, or travel by plane or train; we be-have in accordance with our unquestioned trust in the functioning of these abstract principles. It does notmean that we do this without any feeling of discomfort, but without an a priori trust the development of mod-ern societies would be impossible. Practically, by accepting the benefits of abstract principles, we also ac-cept the included risks of their use. For example, the included risk of driving a car in Serbia in 2011, can berepresented by 721 killed and nearly 20 000 injured in road accidents (www.mie.gov.rs). This “price” is evenmore drastic if it is calculated for the last 30 years – 38 784 killed and more than 550 000 injured on theroads (http://prezentacije.mup.gov.rs/usp/Index/Pokazatelji%20BS%202010.pdf). However, although awareof this risk, no one is nearly ready to give up the benefits of car use.

E-commerce is a par excellence example of abstract principles - predictors of modernization as defined byGiddens, since it combines two key elements: symbols and expert systems. Similar to other expert systems,e-commerce cannot be done without an a priori trust, since it is essentially different from the traditional tradei.e. it is characterized by uncertainty, anonymity, lack of control and potential opportunism. In a situationwhere the action and its consequence are separated in time and space (for example, the act of buying andthe actual receipt of merchandise), perceived risks are higher and that is why trust is the most important el-ement of e-commerce, even more important than the price itself (Kim et al., 2012). In other words, the lackof the trust, i.e., the distrust is one of the decisive reasons for lack of participation in e-commerce both bycompanies and individuals (Beldad et al., 2010; Abbasi et al., 2011; Ling et al., 2011). Therefore we canagree with Grabner-Kraeuter who sees the distrust as the most important long-term barrier to realizing thee-commerce potentials (Grabner-Kraeuter, 2002).

Because trust is a complex and ambiguous phenomenon, in order to analyze it in the context of e-com-merce, we must include different levels of observations. The first and the simplest approach is related to themost obvious aspect – perception of the security of buying online (in the technical sense). This is, above all,related to different software solutions for insecurity reduction. The second level is related to the reputationof the distributor, his brand and the way he trades. The third level can be described as normative trust – trustin the transaction system. The fourth one is associated with profound cultural and psychological precondi-tions and the overall level of trust in one society.

The first two levels can be seen as general or universal and these levels are familiar and widely investigated(Grabner-Kraeuter, 2002; Efendioglu et al., 2005; Dehkordi et al., 2011; Li et al., 2012). However, the othertwo levels are more specific and much more prominent in the cross-country and cross-regional differences(Gefen and Heart, 2006; Connolly and Bannister, 2007). Therefore, since in this paper we deal with Serbia,our attention will be focused on the macro indicators which are, in our opinion, a necessary precondition fore-commerce development, although they are not the only ones.

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4. Social factors which adversely affect the development of e-commerce in Serbia

Social factors which adversely affect the development of e-commerce in Serbia can be divided into indi-rect – those that generally affect the Internet use, and direct – seen as cultural and psychological charac-teristics of the Internet users. When it comes to indirect factors, we can say that the potential maximumnumber of e-commerce users is equal to the number of Internet users in Serbia – penetration of 42% in2011, with a modest trend of growth (Vukmirović et al., 2011). This unsatisfying trend cannot be justified bythe global economic crisis because other countries from the region have experienced intensive growth ofInternet users, in spite of the recession. Therefore, the reasons must be sought in Serbia itself. The first andthe basic factor of a low penetration of Internet users in Serbia is the bad economic situation in the coun-try – by the end of 2011 the average household income was below 500 euros (National Statistic Office ofRS, 2012). According to the latest survey on ICT use in Serbia (Vukmirović et al., 2011) 600 euros of aver-age household income can be seen as the breakpoint - 84% of these households has an Internet access.At the same time, only 26% of households with average income less than 300 euro are connected to theInternet. However, besides the bad economic situation, the problem is also the indifference of the Gov-ernment regarding the ICT development. Although Serbia has adopted several Strategies on ICT develop-ment, there are no detailed action plans and timelines. That is why the Serbian ICT Strategies can be seenmore like wish lists than the actual plans that are, or are going to be, realized. Different e-services like e-government, e-commerce, e-learning, which reflect Governments’ commitment to ICT development, prac-tically function on the basic level. Last but not the least is the socio-demographic image of Serbian Internetusers which does not provide a good basis for the development of e-commerce. Because the users aredominated by young people and many of them still do not have their own or significant material resourcesit is not likely that they should be expected to be the drives of e-commerce in Serbia. On the other hand,some positive characteristics can be found in the fact that the Serbian Internet users are above the na-tional average as regards education and income. However, the key question is why even 81.9% of Internetusers in Serbia never shopped online i.e. while only 9.3% of them (i.e. 3-4% of Serbian population) haveexperience of online shopping (within last three months). The answer to this question, in our opinion, liesin direct factors (which we explained earlier in the paper).

We identified cultural and socio-psychological characteristics of the Serbian population as direct factorsfor underdevelopment of e-commerce. One of these factors is the absence of motivation for the Internetuse. According to the findings of the National Statistical Office for 2011, 56% of non-users say it is so be-cause they have no need or simply because they do not want to use the Internet. However, the absenceof motivation is not the only reason for a low level of online shopping in Serbia. Travica et al., (2007) foundthe reason in the widespread feeling of distrust which occurs as a result of fear of possible fraud in thiskind of trade. This feeling of distrust is the consequence of several factors which will be elaborated in thepaper: 1. the lack of trust in state institutions which should be a guarantee of reliability and fairness. A lowlevel of trust in these institutions is primarily the consequence of various events that have occurred in thepast twenty years (unfair transition, despoliation of citizens by state and private banks, sanctions, wars,lack of social functions of the state); 2. Low level of trust is deeply embedded in cultural patterns in Ser-bia that can be seen as pre-modern. 3. Distrust comes as a natural and psychological mechanism thatpeople use to protect themselves from risks in everyday life. Since the third reason is a universal one andovercomes the scope of this paper, we will focus on the first two that are more related to the specifics ofthe Serbian society.

5. The embeddiness of distrust in Serbian society

The basic reasons for distrust in the Serbian society can be found in the unfinished modernization charac-terized by traditional social patterns mostly based on irrational understanding of nature and society. Miladi-nović (2008) points out the traditionally-conserving values as dominant in Serbia during many years. He seesthese social values as a relapse of pre-industrialized society that is still present in Serbia because technicalmodernization and industrialization were not fully completed. The key to understanding the attitude towardsnew technologies lies in fact that the traditional way of thinking imply relaying only on the past, togetherwith a negative attitude towards new ideas such as individualism, freedom, industrialization, technology i.e.the aversion to any kind of change. Poor modernization of the Serbian society was followed by the collapseof socialism at the end of 80’s in XX century, leaving a normative vacuum and a crash of dominant valuessystem. This was followed by civil wars, hyperinflation, despoliation of citizens done by banks, economic

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sanctions by international community. All these circumstances led to additional re-traditionalization of the Ser-bian society, withdrawal into the private sphere and a loss of confidence in the Government.

One of the limitations of this study lies in fact that the authors were not in the position to conduct a surveyof their own and obtain detailed and precise data about the level of distrust and its relation to e-commercein Serbia. In line with that, the future research direction is aimed at conducting a survey focused on factorsthat arouse the (dis)trust in online shopping. However, in order to illustrate the level of distrust in Serbia wewill discuss the results of Word Values Survey-WVS conducted from 2005 to 2008. About 57 countries (includeSerbia) and 80 000 respondents participated in this survey and results can be found at a specially designedweb portal (www. worldvaluessurvey.org).

In order to analyze normative trust we focused on results regarding trust in two state institutions – police andjustice system, as the most important in preventing criminal acts and protecting citizens from e-commercefrauds. According to the WVS only 28.5% of Serbian citizens have full (2.5%) or high (26%) level of confi-dence in the justice system, while the world average is 53.2%. In the European Union and USA, where e-commerce is highly developed, about 50% of citizens have trust in justice system (in Europe the highestnumber is in Norway 86% and the lowest in France 40.1%, while this result is 57.4% for USA and 82% forJapan). Countries in the region showed lower scores but still higher than Serbia (Romania 29.3%; Bulgaria36.9%; Slovenia 32.8%).

The results are similar regarding the confidence in the police. Only 35% of Serbians has full (4%) or par-tial (31%) trust in police - far below the world average (58.4%). In the EU, over 60% of citizens have at leastpartial trust in the police (the lowest number is in Holland and the highest in Finland 91.8%). This number is70.3% in the USA and 83.1% in Australia. Similar to the results regarding trust in the justice system, coun-tries in the region display a higher level of trust in the police in comparison with Serbia (Romania 39.8%; Bul-garia 54.8%, Slovenia 38.4%).

In addition to not having trust in state institutions, Serbian citizens show a low level of general trust. Serbiais among the countries with the lowest level of trust in other people – only 15,3% of Serbian citizens thinkthat they can trust most of people in general, and that is lower than the world average - 26.4%. Findings forSerbia are similar to the data obtained for countries in the region (Slovenia 18.1%, Bulgaria 22.2%, Roma-nia 20.3). When it comes to the EU, cross-country differences are higher (only 18,8% of Frenchmen have trustin other people, while this number is 74.2% in Norway). From a global perspective, 39,3% of Americans(USA) have trust in other people, 39,1% of Japanese and 46,1% of Australian citizens.

A similar level of distrust was found when respondents were asked about the extent to which they agree withthe statement - most people try to take advantage of me. In Serbia, 14.6% citizens agree with this, whilethe world average is 10.7% and the average of west-European countries is 5%. In the countries of the region,the level of distrust similar to the Serbian can be found in Romania (14,9%), while it is significantly lower inSlovenia (8%) and Bulgaria (9.3%). Here we also want to point out that Serbia (with the result 1.2%) is thelast in the list of countries in the survey when it comes to agreeing with the statement that a majority of peo-ple try to act fair and the world average is many times higher - 9.9%.

Nevertheless, maybe the most illustrative finding of WVS for us is the one that shows how many Serbiansagree with the statement that it is justifiable to cheat on taxes. This finding is important not only to illus-trate the attitudes of citizens regarding their home state (because this can be further explained with unfa-vorable attitude of the state towards them), but to illustrate to what extent the idea of “cheating” andaccompanying fear of cheating are the important elements of the Serbian behavioral pattern. According toWVS findings, among all other countries in the survey, Serbia is the one with highest number of people thatthink that it is always or often justified to cheat a state regarding tax paying (29.5%). The world average is6,1%, and the countries with the results closest to those in Serbia are Mali (17,6%), Zambia (13.4%), Brazil(16.4%) and in Europe - Moldavia (11.7%). In line with these findings we can conclude that the possibility tomake a fraud or to be a victim of fraud is widespread among Serbian citizens and that, as such, is a majorobstacle to the further modernization of the Serbian society.

Without changing the prevailing atmosphere of distrust, especially in the situation where people do not havea direct insight into all phases of a process, there will be no intensive development of e-commerce in Serbia.

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Conslusion

Four main perspectives of ICT development (and prisms trough which to perceive them) are defined in the paper, with theconclusion that in Serbia infrastructural and instrumentally - utilitarian perspectives are dominant. The fact that can be seenas a serious problem is the negligence of the fifth socio-psychological perspective that focuses on cultural factors of ICTdevelopment. A thorough analysis of direct and indirect obstacles to e-commerce development, this study highlights thedistrust as one of the main direct reasons for low level of e-commerce in Serbia.

One of the main findings in this paper is that all macro elements that are important for building the atmosphere of trust inSerbia are underdeveloped or quasi developed. Although basic institutions of modern society are established, social orderis not stable yet. Normative coherence as an ideal will not be reached in a long time. The situation is similar regarding thetransparency of social organization i.e. the responsibilities of institutions and the people that run them. In other words, ageneral atmosphere for building trust among future e-commerce participants can be seen as highly unsatisfactory. In linewith that, we can conclude that without fundamental changes, there will be no intensive e–commerce development.

However, while waiting for global stabilization and consolidation of Serbian society, stakeholders should work on buildingtrust on the micro level, since this may be a sufficient incentive for those that are deciding to shop online. This means im-proving and promoting technical and security aspects of online shopping; insisting on clear a definition and respecting ofprivate policy, along with the simplification of its content so that regular citizens can understand it. However, the key maybe in strengthening the reputation of those that do business online, as well as in introducing systems with high reputation,such is PayPal on Serbian market.

To summarize, the common goal of all those that have an interest in e-commerce development is to build the atmosphereof trust at all levels, using both technical and normative solutions and strengthening the reputation of e-commerce stake-holders. Without this, in spite of the existence of various Strategies on information society in Serbia, significant develop-ment of e –commerce will not occur.

[12] Li, F., Pienkowski, D., van Moorsel, A. and Smith, C. (2012). A Holistic Framework for Trust in OnlineTransactions. International Journal of Management Reviews, 14: 85–103,http://dx.doi.org/10.1111/j.1468-2370.2011.00311.x

[13] Ling, K. C., Daud, D., Piew, T. H., Keoy, K. H. And Hassan, P. (2011). Perceived Risk, Perceived Tech-nology, Online Trust for the Online Purchase Intention in Malaysia. International Journal of Business andManagement, 6(6):167-182, http://dx.doi.org/10.5539/ijbm.v6n6p167

[14] Miladinović, S. (2008). Društvo u raskoraku. Nova srpska politička misao, Beograd[15] Petrović, M., Bojković, N., Anić, I., Petrović, D., (2012). Benchmarking the digital divide using a multi-level

outranking framework: Evidence from EBRD countries of operation. Government Information Quarterly,29(4):597-607, http://dx.doi.org/10.1016/j.giq.2012.05.008

[16] National Statistic Office of RS (2012). Survey on household expenditures, num. 070. LXII, 15.03.2012url: http://webrzs.stat.gov.rs/WebSite/repository/documents/00/00/61/62/LP12_070_srb.pdf

[17] Official Gazzete of RS (2010). Strategy of Information Society Development in Serbia until 2020, num. 51,url: http://www.digitalnaagenda.gov.rs/wp-content/uploads/Dokumenti/Strategije_akcioni_planovi/Strategija_razvoja_informacionog_drustva2020.pdf

[18] Sztompka, P. (2000). Trust: A Sociological Theory. Cambridge University Press, UK[19] Vukmirović, D. Pavlović, K. i V. Šutić, (2011). Upotreba informaciono-komunikacionih tehnologija u Re-

publici Srbiji. Republički zavod za statistiku, Beograd[20] Travica, B., Kajan, E., Jošanov, B., Vidas-Bubanja, M. i Vuksanović, E. (2007). E-Commerce in Serbia:

Where Roads Cross Electrons Should Flow. Journal of Global IT Management, 10(2):34-56

ACKNOWLEDGMENT

This paper is part of the project (number 36022), funded by the Ministry of Education, Science and Tech-nology of the Republic of Serbia, Project number: TR36022.

Receieved: May 2012. Accepted: December 2012

.

Dalibor PetrovićUniversity of Belgrade, Faculty of Transport and Traffic Engineering

E-mail:[email protected]

Dr Dalibor Petrović received his B.A., M.A. and PhD degree in Sociology at the Faculty of Philoso-phy in the University of Belgrade. He teaches Sociology and Sociology of e-communications at

Faculty of Transport and Traffic Engineering. He has been interested in the study of social aspectsof the Internet use and he published his research findings through scientific articles, conferences,

lectures, forums and other public appearances. He is the author of the first sociological studyabout social aspects of the Internet use in Serbia.

Ivana KovačevićUniversity of Belgrade, Faculty of Organizational Sciences

E-mail:[email protected]

Ivana Kovacevic works as teaching assistant at the Faculty ofOrganizational Sciences, University of Belgrade, at the department of Human Resource Manage-ment where she teaches several courses in the area of organizational behavior. She received her

M.A. degree in Work Psychology at the Faculty of Philosophy at the University of Belgrade, whereshe also obtained a Bsc in Psychology. Other areas of her interests include human computer inter-

action, spatial behavior and cognitive psychology.

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About the Author

79

Stefan Vukicevic1, Sanja Milosevic2

1Lund University School of Economics and Management2Microsoft Serbia


IT, Innovations and SustainabilityUDC: 007:004]:502.131.1 ; 005.591.6DOI: 10.7595/management.fon.2012.0029

XIII International Symposium SymOrg 2012, 05 - 09 June 2012, Zlatibor, Serbia

1. Introduction

One of the key characteristics of every natural resource is the limitation of its usage. This limitation is trans-ferred to today’s economy and society as a very strong influence. Limitations have a very important placeat the beginning of every business or social activity, but also in the end as a final goal that should beachieved. These influences can be looked at from different perspectives, such as ecological, social, eco-nomic, etc. Although they have various approaches, all of them focus on the same problems, and can becovered by one term, that of sustainability.

Today’s world is characterized by big progress and innovations, in almost every direction. Maybe the mostdynamic one is the field of information technologies and systems. By looking just on previous ten years ofinnovations in that area it becomes clear why that is true. With information technologies and systems andinnovations expansion, interaction between them and sustainability become stronger and more significant.To be able to examine that mutual influence between information technologies and systems, innovations andsustainability, it is important first to explain some key concepts.

2. Sustainability

The term sustainability is widely used and known, but despite that it is not simple to define it. This is the casebecause sustainability definition is very much determined by our views and beliefes. Thus, sustainability fora biologist means being able to preserve some species, but on the other hand, to an engineer, sustainabil-ity will be the possibility to reuse energy.

Therefore we can define sustainability in two different ways, the weak and the strong sustainability. Weak sus-tainability proposes that general well-being cannot be decreased, which means, for example, that any useof natural resources is not bad while is doing well to people. On the other hand, we have strong sustainabilitythat separates resources that are created by nature, from the ones that people create. This means that nat-ural resources are limited and if people transformed them, their value cannot be reused. (Jamieson, 1998;Vucetich, 2010)

Today there is growing need for questioning the usage of resources of every kind based on limitations that in-evitably exist regarding that use. This pattern is especially noticeable in dynamic and fast developing indus-try areas such as the area of information systems and technology. Particularly in this area it is necessary tostress how development and innovation, produced in that process, are affected by sustainability. This is oneof the topics which this paper deals with. Also, this paper attempts to highlight the importance of that influenceand the maner in which organizations are affected by it. This is done by reviewing the actual research in thisfield of study. Additional attention is paid to the definition and recognition of terms such as sustainability andinnovations, so that consequences and the ways to deal with them could be easily comprehended and ac-cepted. The implication of this paper, that could be both academic and practical, presents us with the goal ofsustainability that society and organizations will need to achieve in the future as one of the milestones ofprogress and development.

Keywords: Sustainability, Innovations, Sustainable development, Information systems and technologies

Sustainability could also be observed from other perspectives according to Gladwin, Kennelly and Krause(1995) such as:• Technocentric view

This point of view is similar to strong sustainability. According to this view natural reassures are ex-ploitable without special limitations, humans are superior to nature, economy is isolated from natureand it encourages global growth.

• Ecocentric viewThis point of view is more similar to weak sustainability. The value of this view promotes earth as alive,fragile and sensitive to human’s actions, where human population is already reached the maximum.

• Sustain-centric viewThis point of view is trying to reconcile the previous two. its main characteristics are that earth and hu-mans are connected in one system, population must be stabilized, economy and ecological systemsare underpinned.

Besides this definition, sustainability can also be defined as regards different understandings of time line.From one point of view, the period that is important is present, from another, that is the future. In this sensesustainability should satisfy the present needs or satisfy the needs of future generations. (Jamieson, 1998)

Although sustainability can be defined in more than one way, it is important to remark that every one of themis both correct and incorrect, depending on the perspective and beliefs. This is one of the reasons that makeit difficult to give one unique definition of sustainability, but common to all of them is that sustainability bringspositive things to its creators.

3. Sustainable development

Sustainably development represents the processes or means that are used to achieve the goals of sus-tainability (Diesendorf, 2000). By observing the previous definitions of sustainability it is easy to notice aconnection with economy, industry or, in one word, organizations. The primary goal for almost every or-ganization is to obtain profit. In that way goals of sustainability often do not correspond with goals of the or-ganizations, but still the need for organizations to be sustainable is present.

According to the research, the main reasons for that are: competitiveness, legitimity, environmental re-sponsibility. These reasons affect organizations in different ways. First, there is competitiveness whose maingoal, from the organizations’ perspective, is to gain long-term profit and competitive advantage by being sus-tainable through managing waste and energy matter, obtain higher output for the same inputs, green mar-keting, etc. The second reason, legitimity, refers to organizations’ need to adopt standards from their areaof business, so that they could achieve stakeholders’ satisfaction. The third reason is mainly the merit ofstrong individuals in the company, and as a result gives satisfaction and an effect of a good deed. These andother motivators do nott stand alone, but they are effected by many other influences, which twist and changethem and accordingly change the perspective and actions of organizations. (Bansal and Roth, 2000)

Once the motivation that drive companies to be sustainable is known, it is necessary to explain how they canachieve that goal through sustainable development. Here again it depends on the different ways in whichsustainability is understood. As it was mentioned before, sustainability could be hard or soft. Now, lookingon this from the perspective of organizations, some of them pay more attention to sustainability as a goalas well as to the manner in which it can be achieved. As a result of this action it is possible to produce neg-ative ecological impacts.

The solution for this could be the ecologically sustainable development, which is trying to reconcile hard andsoft tendencies from organizations’ perspective. There are four mechanisms in which organizations canreach ecologically sustainable development:• Total quality environmental management• Ecologically sustainable competitive strategies• Technology transfer• Corporate population impact controls

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This will give to companies quality guide lines, but unfortunately this it is not often enough, because besidesthis, there are also external factors as governments and consumers that must be involved, so that true eco-logical sustainable development could be achieved. (Shrivastava, 1995)

4. Sustainability and IST

The above description of sustainability and organizations refers to a more general approach to this topic, butthere is one more specific part that is very important, not only for organizations, but also for other parts of so-ciety, and that is Information Systems and Technologies (IST). Not so long ago the field of IST was not of biginterest for sustainability, but thanks to the fast progress in that field things are now changed. ISTs were firstperceived as the means to help sustainability; now there are a lot of reasons that question that point of view(Ijab, Molla, Kassahun and Teoh, 2010). Because of this, today there is a strong bond between IST and sus-tainability, as well as the need to research that bond better. As information systems and information technolo-gies complement each other, further below they will be looked at as a unity. (Hevner, March and Park, 2004)

The relationship between IST and sustainability can be divided into two parts. The first part concerns the neg-ative effects that production, usage and disposal of IST can have on sustainability. Besides, IST can effectsustainability in other, totally opposite, directions, as a great force that drive companies and society toachieve goals of sustainability. (Watson, Boudreau and Chen, 2010; Davison, 2004)

To explain how IST can help achieve sustainability in organizations, further in the text, institutional theory willbe explained. Information systems supported by information technologies can act in three ways:• Automate• Informate• Transfere

Automation improves the efficiency of processes by replacing manual labor with cheaper and faster auto-mated IST processes. IST helps inform individuals and organizations by connecting different parts of a sys-tem. Transfer have important role in the reorganization of systems, where the application of the Internet canbe used as a good example. (Chen, Boudreau and Watson, 2008)

Now, when the actions of IST are known, the question is where these actions should be directed so that theycould help in achieving the goals of sustainability? The answer to this question, according to Thomas and Kai(2002), is: eco-efficiency, eco-equity and eco-effectiveness. Those are the three goals of sustainability that ISTcan improve. Eco-efficiency represents an economic pressure on companies or individuals that forces themto be sustainable so that they could achieve bigger profits. Eco-equity is time-oriented and suggests that allgenerations should have the same chance and right to consume common recourses and effects on sur-roundings. Eco-effectiveness represent a complete change of approaches and beliefs that are connectedwith sustainability, rather than improving individual parts of systems. (Watson, Boudreau and Chen, 2010)

Bearing in mind the properties of the previous IST actions and goals that could be improved, it is easy tonotice how they can be paired up. So there are: automate and eco-efficiency, informate and eco-equity,transfer and eco-effectiveness. According to the institutional theory, applying different types of pressures likemimetic, coercive and normative to these actions of IST, individual goals can be accomplished and at thesame time sustainability can be achieved. It is important to say that these types of pressures are not the onlyone or necessarily the right motivators. (Chen, Boudreau and Watson, 2008)

This is the case because they could be differently structured; according to Kuo and Dick (2009) there are:competitive pressures, legitimation pressures, social responsibility pressures, organizational factors andtechnological constraint.

In addition to the positive effect that IST can generate, there is also a negative one. This dimension is es-pecially important, because of the growth that IST industry undergoes. This statement supports the facts thatIST industry created 5.4% of global GDP in 2008 and predictions are that in 2020 this would be 8.7% ofglobal GDP. (Soumitra and Irene, 2010)

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The best way to overcome the problems that IST can create in the field of sustainability is to distinguishthem first. According to Vykoukal, Wolf and Beck (2009) there are three fields of IST that can affect sustain-ability and those are:• Green Design and Manufacturing• Green Use• Green Disposal

Every one of those fields refers to different aspects of IST life cycle, which means that IST is always a pos-sible threat for sustainability. For example, production processes can be inefficient during production, thenduring the usage, power consumption is not managed appropriately and in the end ofthe life cycle therecould be irregular disposal. For dealing with this problems we could say that there is no wrong way to dothat, only a more or less efficient one. So by improving individual aspects of the life cycle, or by suggestingspecial approaches as implementation of Grid infrastructure, some efforts will be made toward removal ofthreats to sustainability. (Vykoukal, Wolf and Beck, 2009)

5. Innovations

The term innovation is used very widely and often today, but this does not mean that it is used correctly andin the right context. Simply said, innovations represent something new or some newness. But newness isnot necessarily an innovation and other way around. So some newness could be innovation, despite the factthat all elements of that newness are very well known, but the different application and understanding madethat newness an innovation. (Slappendel, 1996)

From this it is possible to conclude that the definition of innovation is a more relative than strictly defined term.To be able to put a definition into a theoretical frame, Johannessen, Olsen and Lumpkin (2001) proposethat three dimension of newness should be examined:• What is new?

This question should define true values that distinguish innovation.• How new?

Here the orientation is to a degree to which newness contributes to innovation, for example there areradical or incremental innovations.

• New to whom?The main purpose of this question is to explain that innovation can affect different sides, such as for ex-ample: company that created innovation, customers and competitors.

As mentioned above, innovations can be looked at from different perspectives. Most important are the per-spectives of organizations’ and users’. Organizations are among biggest creators of innovations. Besides,organizations that do not embrace innovations, risk to fail in achieving their goals (Bower and Christensen,1995). Because of these it is important to evaluate their relation with innovations.

The relation between innovation and organization can be viewed from the individualist perspective, the struc-turalist perspective and the interactive process perspective. The first perspective assumes that the mainforces of innovation in an organization are individuals. For this to happen, individuals need to have a pre-disposition for innovative behaviour. The second perspective, totally opposite from the first one, defines thesource of innovation from organizational characteristics. In the end there is perspective that tries to accountfirst two and explain that innovations in organization are produced by combining actions of individuals andstructural influences. (Slappendel, 1996)

The main problem with the above quoted explanation of sources of innovation in an organization is that onlyinner factors are included, without taking into consideration very important outer ones, such as users. Ac-cording to Bogers, Afuah and Bastian (2010), users are very often the source of innovations and their influ-ence rise all the time. Also, Von Hippel (2007) suggests that very often users of goods are the ones thatinitiate the development of new products, which can be best seen on the example of rapidly changing in-dustries such as mobile industry and open source industry.

In addition to the mentioned field of innovation creators, there is also one more dimension that is very im-portant. This is the relation between innovation and sustainability. Especially today, the mutual relationshipbetween innovations and sustainability is very much apparent (Davison, 2008).

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As sustainability today presents a very actual question, companies are trying to get involved in that area. Oneof the reasons is measures of governments, but a more important one is competition. In this field compa-nies struggle with a dilemma to choose sustainability and then to be in a disadvantage in comparison withthe competition that did not chose that way. The solution as to overcoming this dilemma faster lies in inno-vations. This connection has a reciprocal character, because sustainability also represents the strong en-couragement to innovate. A model that supports achieving both sustainability and innovation suggest fivestages for that:• Viewing compliance as opportunity• Making value chains sustainable• Designing sustainable products and services• Developing new business model• Creating next-practice platforms

By going through these stages and achieving sustainability, the company will gain different opportunities toinnovate, such as to experiment with new sustainable materials, to use clean energy, develop new packag-ing, create business models that combine digital and physical infrastructure, use by-product energy. (Nimolu,Prahalad and Rangaswami, 2009)

REFERENCES

[1] Bansal, P. and Roth, K. (2000): Why companies go green: A model of ecological responsiveness. Acad-emy of Management Journal 43(4): 717-737.

[2] Bogers M., Afuah A., and Bastian B. (2010): Users as innovators: A review, critique and future researchdirections. Journal of Management 36(4): 857-875.

[3] Bower J.L. and Christensen C.M. (1995): Disruptive technology: catching the wave. Harvard BusinessReview 73(1): 43-53.

[4] Chen A.J.W., Boudreau M.C. and Watson R.T. (2008): Information systems and ecological sustainabil-ity. Journal of Systems and Information Technology 10(3): 186-201.

[5] Davison A. (2004): Sustainable technology: Beyond fix and fixation. in R. White (eds.) Controversiesin Environmental Sociology. Cambridge: Cambridge University Press.http://eprints.utas.edu.au/2018/1/Sustainable_Technology_Beyond_Fix_and_Fixation.pdf

[6] Davison, A. (2008): Ruling the future? Heretical reflections on technology and other secular religions ofsustainability. Worldviews 12:146-162.

[7] Diesendorf, M. (2000): Sustainability and sustainable development. Dunphyhttp://www.ies.unsw.edu.au/docs/CorpSust2000.pdf

[8] Gladwin, T., Kennelly, J., and Krause, T. (1995): Shifting paradigms for sustainable development: Im-plications for management theory and research. Academy of Management Review 6(2): 874-907.

[9] Hevner A.R., March S.T., and Park J. (2004): Design science in information systems. MIS Quarterly28(1): 75-105.

[10] Ijab, M.T., Molla, A., Kassahun, A.E. and Teoh, S.Y. (2010): Seeking the “green” in “green IS”: A spirit,practice and impact perspective. Pacific Asia Conference on Information Systems (PACIS).

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Summing what was already above mentioned mentioned it is obvious that sustainability, information systems and tech-nologies and innovation advance at a high speed. In that way, the fact is that they are becoming closer and more connectedevery day. Although that mutual relationship could also have some negative effects, they are just small obstacles that willeventually be overcome. If this trend continues to rise at the same rate, it is very possible that in the future there will be noneed to talk about this topic. The reason for that is because both innovations and information systems and technology willalready have included the goal, namely, achieving sustainability ina every one of their activities. Researching these topicsfrom a theoretical point of view helped us recognize the future trends that will inevitably occur. This will help organizationsdirect their efforts to progress in a way that will be beneficial both for themselves and for others around them. Most researchinto some topic starts with a theoretical overview, therefore this research will highly benefit from further qualitative andquantitative research that will support this topic with appropriate data in order to gain in-depth understanding about it.These efforts will speed up shifting and applying of mentioned principles to practice.

Conslusion

84


About the Author

[11] Jamieson, D. (1998): Sustainability and beyond. Ecological Economics 24: 183-192[12] Johannessen J-A., Olsen B. and Lumpkin G.T. (2001): Innovation as newness: What is new, how new,

and new to whom? European Journal of Innovation Management 4(1): 20-31.[13] Kuo, BN and Dick, GN (2009): The greening of organisational IT: What makes a difference. Australasian

Journal of Information Systems 16(2): 81-92.[14] Nimolu R., Prahalad C.K., Rangaswami M.R. (2009): Why sustainability is now the key driver to inno-

vation. Harvard Business Review 87(9): 57-64.[15] Shrivastava, P. (1995): The role of corporations in achieving ecological sustainability. Academy of Man-

agement Review 20(4): 936-960.[16] Slappendel C. (1996): Perspectives on innovation in organizations. Organization Studies 17(1): 107-

129.[17] Soumitra, D. and Irene, M. (2010): Global information technical report 2009-2010. World Economic

Forum. http://www3.weforum.org/docs/WEF_GITR_Report_2010.pdf[18] Thomas, D. and Kai, H. (2002): Beyond the business case for corporate sustainability. Wiley Inter-

Science. http://instruct.uwo.ca/business/bus020-mwf/acs410/reading14.pdf[19] Von Hippel E. (2007): Horizontal innovation networks – by and for users. Industrial and Corporate

Change 16(2): 293-315.[20] Vucetich, J.A. and Nelson, M.P. (2010): Sustainability: Virtuous or vulgar? BioScience 60(7): 539-544.[21] Vykoukal J, Wolf M, and Beck, R (2009): Does green IT matter? Pacific Asia Conference on Information

Systems (PACIS).[22] Watson R., Boudreau M.C and Chen A.J. (2010): Information systems and environmentally sustainable

development: Energy informatics and new directions for the IS community. MIS Quarterly 34(1): 22-38.

Receieved: June 2012. Accepted: October 2012.

Stefan VukićevićLund University School of Economics and Management

emai: [email protected]

Stefan Vukićević is a recent MSc graduate in Information Systems at Lund University School ofEconomics and Management. He proceeded with his education aftera year and a half work

experience in retail in Serbia, with a focus on application of information technologies and systemsin business environment. He previously graduated at the Faculty of Organizational Sciences,

University of Belgrade.

Sanja MiloševićMicrosoft Serbia

[email protected]

Sanja Milosevic is currently employed at Microsoft Serbia as Partner Account Manager at thedepartment of Small and Midmarket Solutions and Partners, engaged in working with partners on

developing their solutions and growth of their business on local market of small and mediumenterprises. She obtained a BSc degree as well as a MSc degree from the Faculty of

Organizational Sciences, University of Belgrade majoring in Project management.

85

Svetlana Miladinović¹, Dragan Đurić²¹ Zvornik Theatre “Kapitalina Eric”, Republic of Srpska² Ministry of Finance and Economy, Republic of Serbia

Public Relations of the National Theatre in BelgradeUDC: 659.4:792.091(497.11 Београд)”2010/2011” ; 659.13/.16DOI: 10.7595/management.fon.2012.0034

1. Introduction

The National Theatre of Belgrade, as one of the oldest theatres in the region, can be said to be the first the-atrical institution which applied principles of marketing communication with audience in its work. At the endof 80s of the twentieth century, the national theatre, with its activities in certain marketing areas, introducedsome novelties which can be called the pioneer steps in theatre marketing in our region. (Zdravković, 2007).

Having in mind the long practice in marketing and the fact that according to the latest studies, the NationalTheatre of Belgrade during the previous season was the most visited theatre in the country, (The Institutefor Studying Cultural Development, 2010), it is relevant to establish the contribution of PR activities to thisachievement as one of the most significant elements of promotional mix.

The subject of this paper’s analysis is PR activities of the National Theatre of Belgrade and their quality andquantity analysis. This paper attempts to answer the questions about the PR activities conducted in the Na-tional Theatre, during the season 2010/2011, find out what their potential for improvement is and in the end,to what extent it managed to develop the integrated marketing communication as a system applied in mod-ern marketing business.

Professional literature abounds in theoretical and emphirical studies dedicated to marketing and PR.However, there are not enough studies in this country that deal with problems of PR activities of culturalinstitutions incorporated within the promotional mix. Concerning the fact that this kind of papers have beentheoretically and empirically insufficiently processed in theater marketing, it is important to analyse the PRactivities applied in such a recognized institution as The National Theatre of Belgrade.

The objective of this paper is, besides a detailed analysis, to diagnose deficiencies in conducting PRactivities. On this basis, potential solutions and available options would be suggested in order to eliminatethe irregularities. The importance of the paper could be in an epistemological contribution to the area oftheatre marketing, through precise description of observed phenomena, that is, promotional activities of theNational Theatre which are in the research focus. Besides, the importance of the paper could have practicalusability because by the application of suggested solutions we would create the conditions for the realizationof integrated marketing communication of the National Theatre of Belgrade.


The subject of the paper are the PR activities by The National Theatre in Belgrade. The researcher intends toexplore and undertake the quantitative and qualitative analyses of Public Relations implemented during the2010/11 seaso, by The National Theatre in Belgrade. According to the latest updated research, The NationalTheatre in Belgrade was the most-visited Theatre in our country in the past season, and this paper intends toassess the role and the value of PR activities by the Theatre in gaining the successful rate. Since PR activitiesare one of the key elements of promotion, the main goal of the paper is to establish the extent of its contribu-tion in the achievement. Special goal is to diagnose the disadvantages in the implementation of Public Rela-tions, followed by further recommendation and potential solutions and options, for the purpose of removingdetermined irregularities.

Keywords: PR activities, The National Theatre in Belgrade, Marketing, Promotional mix

Analytical and synthetic methods, test methods and methods of description were used in this paper. In themethod of analysis we used the method of content analysis of documents and method of structural analy-sis, by classical technique of qualitative document content analysis, and within test methods we used thetest form with the interview technique.

2. Marketing in the national theatre in Belgrade

If the marketing in its broadest sense is defined as a social and governance process, by which individualsand groups obtain what they need and what they want by creating and exchanging products / services andvalues with others (Kotler, 2007:6), then it is reasonable to argue that the forms of activities in the theatre thatare called marketing today, appear in all internal organizations and administration of the National Theatre inBelgrade since the times it was founded (Zdravković, 2007). Such a long marketing practice puts the nationaltheatre among the initiators of theatre marketing in this region.

In order to make a precise analysis of PR activities and enable a better understanding and observation oftoday’s position of PR, it is useful to briefly review the development process of marketing principles in theNational Theatre in Belgrade.

The forerunner of today’s Marketing Service of the National Theatre in Belgrade was the propaganda de-partment, formed in 1962. This service can be conceptually divided into a form of marketing activity, con-cerning the fact that its goals were informing and educating the audience, as well as the promotion of the play.The theatre community was initiated in the 60s, and as one of the main courses of action and propagandawas to promote the theater repertoire, but the first true form of marketing operations of the National Theatrein Belgrade was the establishment of organizational units - Centre for propaganda and marketing, at the be-ginning of the 90s. Together with the development of marketing activities in the National Theatre in Belgrade,there was also growth of marketing awareness. There were new ideas for starting the modern approach tomarketing activity, in order to achieve successful communication with target audiences. The examples ofsuch a form of institutional organization with defined marketing aims were the bases of specific clubs, asso-ciations and foundations whose aim was to establish and maintain cooperation with sponsors, donors andbenefactors of the theatre. Some of those organizations that were part of the National Theatre are Friends’Club of the National Theatre, Consortium of the National Theatre, Donors’ action... Although none of theseactivities has come to life, primarily due to inexperience of those marketing operations, and partly due to se-rious social and political situation in that period of time, “they had a very positive role in creating new pathsof creative opening of the National Theatre in Belgrade towards modern marketing activity.“ (Zdravković,2007). Marketing activities in that period were conducted by one of the most significant national theatre in-stitutions in the region. Even though they had no direct connections with modern world marketing, they werethe first step in the process of establishing marketing principles of work of national theatres.

Continued development of marketing activity in the National Theatre in Belgrade is still in progress which isconfirmed by the latest studies which showed that the National Theatre in Belgrade was the most visited the-atre in Serbia; in the season 2010/2011 it was visited by 160 000 spectators (Institute for the Study of CulturalDevelopment, 2010). Today, marketing department of the National Theatre in Belgrade is organizationally po-sitioned as a special unit which carries out its activities within the sector of professional and general affairs.When we talk about the place of PR activities within an organizational structure, it is necessary to highlightthat they are not achieved through separate organizational unit but incorporated in the Marketing Depart-ment of the National Theatre in Belgrade. The PR activities are segmented in accordance with three theatri-cal and artistic activities that are presented in the national theatre - drama, opera and ballet.

During the research for this article, it was observed that marketing in the National Theatre in Belgrade in-cludes all the elements of marketing mix – price, product/service, promotion and distribution.

Although promotion, as one element of marketing mix, according to Kotler includes five activities (economicpropaganda, sales promotion, PR, personal sale and direct marketing), the focus of this article is directedtowards PR activities as central and the most important promotional activity among modern approaches tomarketing communication (A.Ries&L.Ries, 2002). In the following part of the article, a precise analysis of PRactivities conducted within the National Theatre, during the season 2010/2011 will be presented.

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3. Analysis of practivites of national theatre in Belgrade

In his anthological book Principles of marketing Philip Kotler defines public relations/ PR activities as build-ing good relations with the company’s public by obtaining favourable publicity, building up a good “corpo-rate image,” and handling or heading off unfavourable rumours, stories, and events.

PR activites conducted by the Belgrade Natonal Theatre are aimed at four major directions: • building and maintaining local, national and international relations• relations with donors and sponsors• relations with the founder• relations with the media

Building and maintaining local, national and international relations by the National Theatre in Belgradecomprises establishing inter-sector and intra-sector cooperation at local, national and international levels,through formal means such as signing Memoranda of understanding, partnership, co-production and ex-change, or through less formal mechanisms of cooperation, by including instruments of cultural policies,such as participation in the process of cultural decentralization, in the implementation phase.

The National Theatre in Belgrade holds written Memoranda of understanding with the Swedish Dramaten, theNational Theatre of Northern Greece in Thessaloniki, the Cairo’s Opera and Ballet, and with almost all nationaltheatres in the region. Currently, negotiations are ongoing with the Bolshoi Theatre from Moscow, the New The-atre from Budapest and the Ukrainian Opera and Ballet. Additionally, there are contracts signed with numerousnational institutions such as the Radio and Television of Serbia, The Facutly of fine arts, the RS Official gazette,the Turist organization of Belgrade and many others. Apart from prominent national institutions with which itmaintains cooperation, the National Theatre in Belgrade extends support to theatre academies whose studentshold graduation performances before expertise public from the whole Serbia at the end of theatre season. Thereare frequent other examples of establishing less formal cooperation, predominantly in the field of culture poli-cies. The National Theatre in Belgrade gave its contribution to the process of culture decentralization, by par-ticipating in „Srbija u Srbiji/Serbia in Serbia“ activity, enabling theatre and culture to enter areas where theyrarely go to. It was a very important move by the National Theatre, because it made culture, at least for a littlewhile, accessible to many citizens who, so far, had a very rare opportunity to have that experience. For the firsttime there were guest performances in Dimitrovgrad, Osečina, Irig, while as a real curiosity one could point outthe first gala opera concert held in Trstenik, as well as „Ko to tamo peva“ ballet performance in Sombor. Apartfrom „Srbija u Srbiji“ activities that aimed at cultural decentralization and formation of united cultural space inSerbia, the performance by The National Theatre in Belgrade „Zlatno tele“, was first put on stage in Leskovac,Šabac and Pančevo before its première in Belgrade, while the City Theatre from Šabac had a première of its per-formance „Bubnjevi u noći“ firstly on the scene of the National Theatre, and only then on its home scene.

Based on the above said, one could conclude that the National Theatre follows modern social trends thatunderstand implementation of association strategy, currently more than ever in the context of social changes,such as European or regional integrations, which advocate for establishing cooperation at all levels (�ukić,2011:239). Building and maintaining good inter-sector and intra-sector cooperation at local and national lev-els, as well as at the international one, represents a very important course of action for PR activities at theNational Theatre in Belgrade.

Relations with donors and sponsors are implemented though cooperation with publicly responsible compa-nies, foundations and individuals with an aim to gain their support. As a more frequently used instrument of PRactivities in modern marketing, sponsorship represents a business relation between a private corporation or foun-dation and an institution establishing exchange relationship, while donation includes more of a humanistic char-acter and represents humanitarian, philanthropic deed of a company, foundation or individual (Dragičević-Šešić,2007:244). The National Theatre in Belgrade pursues important cooperation with numerous companies that indifferent ways contribute to the improvement and enrichment of cultural creativity of the National Theatre. Givenits strategic partnership with the Telenor foundation, one of the most important cultural institutions in Serbia be-came accessible for persons with disabilities. The National Theatre in Belgrade, as the first in the region, has en-abled blind and visually impaired persons to follow performances with assistance of simultaneous translationand wireless earphones, while a professional person concisely explains events on the stage. Apart from that, thepit of the Main stage has been tuned on by the induction system for amplification of speech so persons with

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hearing impairment can follow a performance. Within its cooperation with the National Theatre, the Telenor foun-dation will to support the development of the Theatre’s photo monograph to present the artists of this institutionin a unique manner, including the entire opus of the National Theatre in Belgrade. During the reconstruction ofthe building, through PR activities of the National Theatre in Belgrade, cooperation has been established with theInstitute for Transportation CIP, as well as with prominent architects, that designed project ideas as their donation.Apart from the established cooperation with donors and sponsors, the National Theatre in Belgrade has organ-ized and participated in humanitarian activities on its own. Within the activities that were part of B92 Fund „Bitkaza bebe“, Nušić’s comedy „Dr“, directed by Jagoš Marković was performed at the Main stage, and the incomefrom sold tickets was donated to this fund. In addition, after the repairs of the “Raša Plaović” scene was com-pleted, the removed seats were donated to “Suno e Romengo” Theatre at Novi Karlovci.

The relations with the founder are subject of special attention of the National Theatre’s PR activities; they arebased on maintaining good communication with the Government of Serbia as the main financier and thefounder of the Theatre. This relationship primarily means cooperation with the Ministry of culture, which is re-flected in the financing of the National Theatre. The State regularly covers the expenses for employees’ salaries,building maintenance, production financing, even maintaining repertoire. Thanks to the funding by the com-petent Ministry, the phased reconstruction of the National Theatre’s building is currently ongoing, the buildingwas last repaired at the end of the 1980s1. Additionally, the National Theatre in Belgrade keeps good relationswith lower levels of authority, which can be illustrated by the example of their cooperation with the Stari gradmunicipality, on whose territory the Theatre is located. This Belgrade’s municipality, among other things, fundedthe video surveillance of the National Theatre’s building. The statement by the management, that the NationalTheatre has for a longer period of time been one of the best financed institutions of this kind in the region tes-tifies the quality of the established relations with the founder and with the local community2.

Relations with the media encompass relations with print media, news agencies, TV stations and Internetportals. They are established through regular creation and distribution of important information and news onthe work of the National Theatre in Belgrade. The interested public can be informed of the undertaken ac-tivities through media conferences, printed repertoires and brochures (afishas) on performances, throughtheatre’s newsletter, the Internet presentation and social networks. The printed repertoire of the NationalTheatre in Belgrade is visually attractive and well designed in the form of a flyer; it consists of a detailedmonthly plan of performances and events taking place at the two available stages – The Main stage and the‘‘Raša Plaović’’ scene. The repertoire includes, apart from the monthly announcements of drama, operaand ballet, the planned activities of the Museum of the National Theatre in Belgrade. At one of the repertoirepages there is the entire plan of performances in English, while part of the last page is reserved for logos ofthe Theatre’s donors and sponsors. Although the printed repertoire of the National Theatre in Belgrade isvery well designed, there is still room for improvements. By analyzing the content of the printed repertoireit was noted that it could be enhanced with potentially important information for the visitors, such as regu-lar ticket prices, permanent discounts (discounts for students, pupils, group visits) and current promotionsregularly prepared by the National Theatre in Belgrade. By including this information into the printed reper-toire, which conceptually belongs to improving the sale, the conditions would be made for more quality in-formation sharing with the audience on potential benefits, which would open a possibility for increasedattendance. Thus, the PR activities would be an adequate support to another element of the promotional mix– improving the sales, which would in the future contribute to forming an integral marketing communication,as the ultimate aim of all marketing efforts. Having in mind that there is no information on where one can finda printed repertoire of the National Theatre in Belgrade, it is clear that distribution channels of the printedrepertoire (as well as other promotional materials) are not clearly defined. Therefore it is necessary to un-dertake its segmentation and decide on primary places where repertoire would be distributed, based on asurvey amongst the audience. The example of good practice that can be taken into consideration is the dis-tribution of the Opera’s and Ballet’s repertoire for the entire season, which can be found at information boardof the Nikola Tesla Airport and at prominent Belgrade hotels, as well as cooperation with the Belgrade’sTourist association thanks to which the repertoire of the National Theatre in Belgrade was presented as partof cultural offer of Belgrade in London.

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1 Interview with the Manager of the National Theatre in Belgrade, (accessed 10. January-15. February, 2012) 2 Interview with the Manager of the National Theatre in Belgrade, (accessed 10. January-15. February, 2012)

The National Theatre in Belgrade publishes, once a month, The Theatre newsletter, distributed as part of thedaily “Večernje novosti’’, every last Saturday in the month. Samples are free of charge and can be obtainedat the Theatre’s premises, while there is also a possibility to download The Theatre’s newsletter in an elec-tronic form from the Internet presentation. The Theatre’s newsletter, could, eventually, commercialize part ofits printed space, in the context of selling part of the ad space, thereby optimizing its activities within theframework of the promotional mix. In addition, the Theatre newsletter could inform about the permanent ticketdiscounts, as well as about occasional promotional activities that the National Theatre in Belgrade frequentlyconducts and that would offer support to yet another element of the promotional mix – improving the sales.

A very important instrument used within the PR activities of the National Theatre in Belgrade is its official In-ternet presentation, which has recently been entirely redesigned and refreshed with new contents. The In-ternet presentation looks fresh and modern, the visual identity has been excellently designed and realized,while the contents are logically organized and presented. The cover page offers an overview of the latestnews and events, with links leading to the rest of the content. It is noted that marketing services are regu-larly maintaining news at the Internet presentation, thus becoming quickly and easily accessible to all thevisitors. The visitors of the site are able to easily follow info-boxes at the left side; they contain the calendarof events, the “Today at repertoire” section, the option for downloading the entire monthly repertoire in PDFformat, as well as notifications about any new première.

All the above said does not mean that there is no room for improvement of internet presentation’s function-ing. During several visits to the web site, what was noted was a rather slow work of the site, most of thepages needed time to be opened or downloaded, thus it would be necessary to find out whether it was justa temporary server overload, or an inherent code fault, in order to remove these failures. The site could beadjusted to mobile presentations, where strategic partnership with the Telenor operator could be well used.The Internet presentation of the National Theatre must be one of the key instruments of support to the otherelements of the promotional mix by PR activities, in order to have a more coherent common appearance ofall the Internet promotional elements. Apart from the official site, the Internet service Youtube is also usedfor the presentation of the Theatre at the Internet, where a special channel was created dedicated to the The-atre and where commercial jingles of the Theatre’s performances are uploaded, inserts from the perform-ances, as well as television reports on the work of the National Theatre.

In addition, there are activities on social networks, thus a twitter account was created, while at the Face-book social network a profile was opened as well as a fan page of the National Theatre in Belgrade3. Al-though there are profiles of the Belgrade National Theatre on Youtube and social networks, these activitieshave not been harmonized and are not of proper intensity. The visual and textual identities are not cohesive,thus the accounts have different names, profile pictures of each account differ, which needs to be adjustedso as to create a distinctive picture of the National Theatre in Belgrade as a brand. Using the mentioned PRinstruments the public is informed about all theatre activities, premières, performance announcements, op-eras, ballets, exhibitions, concerts, visits, established cooperation with other theatres and companies, par-ticipation at festivals, achieved awards, humanitarian activities, as well as other special events where theTheatre participates or is part of organization. Therefore, two main goals of PR activities are achieved, themedia coverage is secured and a positive image of the National Theatre in Belgrade is created. Instead ofpaying for the media coverage and time, the marketing service of the National Theatre achieves the sameeffect by designing and distributing interesting news and information, thus animating the media to promotethe National Theatre in Belgrade through their own announcements.

What were the effects of marketing focus with emphasis at PR activities aimed at animating the media canbe seen in a recent research on the presence of the National Theatre in Belgrade in media announcementsfor the past theatre season.4The basis for development of these analyses was the assessment and de-scription of each announcement based on the following criteria: date, media, media type, scope, frequency,commercial and PR values of announcements, space/timing of announcements, announcement form, focus,thematic framework and authorship of announcements. The analyzed unit was an announcement, under-stood as a visibly framed piece in media.

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3 - http://www.youtube.com/user/NPBGD; https://www.facebook.com/narodno.pozoriste?ref=ts; https://www.facebook.com/pages/Narodno-pozorište-uBeogradu-National-Theatre Belgrade/171050519623290.4 Analyses of Media- clipping about The National Theatre in Belgrade, august 2010. – july 2011.

The total number of noted announcements about the National Theatre in Belgrade for the past season (Fig-ure 1) in all the media was 2342. Out of that number there were 1748 announcements noted in the printmedia, or 75% of the total announcements, there were 380 noted on TV channels, which represents 15% ofthe announcements, while 213 were registered at the Internet portals or 10% of the total announcements.

The quality of achieved publicity (Figure 2) was assessed based on three categories of announcements.There were 1494 (64%) media announcements talking exclusively about the National Theatre in Belgrade(primary focus). There were 782 (33%) of media announcements where the National Theatre in Belgrade wasindicated within some other subject (secondary focus), while there were 66 (3%) of the announcementswere the National Theatre was casually mentioned (tertiary focus).

The analysis included the perception of positive, neutral and negative announcements. During the past sea-son the National Theatre in Belgrade mostly had positively coloured announcements, that is 92% of the to-tally recorded announcements. There were 138 (6%) of the neutral ones and 38 (2%) of negative ones. It canalso be concluded that in two thirds of the media announcements the National Theatre in Belgrade occu-pied the central position, while only in 3% of the total announcements it was causally mentioned. If onetakes the total number of announcements, than it can be concluded that the National Theatre in Belgradeis mentioned in 6 media announcements per day. In order to undertake a more accurate and a more sub-stantial analysis of PR activities undertaken by the National Theatre and provide relevant suggestions, it isalso important to present the results of the survey among theatre audience on how they are informed of therepertoire and theatre activities (the Institute for study of cultural development, 2010).

The majority of audience get informed on the National Theatre’s repertoire (Figure 3) through the Internet(37.3 %); although the classic ways of getting informed through daily print media are still represented, thereis a trend of their standstill with anticipated further decrease, proportionate to the increase in modern waysof getting information through information technologies. TV and radio are by far the least used ways of get-ting information about theatre. (the Institute for study of cultural development, 2010).

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Figure 1. Announcements about TheNational Theatre in Belgrade - media type,

2010-2011

Figure 2. The number of announcementsabout The National Theatre in Belgrade

(primary, secondary and tertiary focus) in2010-2011

Figure 3. The ways of getting informations about repertoire of The National Theatre in Belgrade

The National Theatre in Belgrade was the least represented on the Internet, with only 10% of the total mediaannouncements. This fact does not by any means correspond to the current social and technological de-velopments, or habits and preferences of the population. According to the latest studies undertaken by theThe Statistical Office of the Republic of Serbia, almost 2 million people in Serbia use the Internet on a dailybasis (The Statistical Office of the Republic of Serbia, 2011). In addition, according to the latest surveyamong theatre audience (Figure 4) one can see that 70.1% of Belgrade National Theatre’s audience are be-tween 19 and 45 years of age (the Institute for study of cultural development, 2010), while at the same timethis particular age group represents the biggest number of the Internet users in Serbia.

Thus, the PR activities by the National Theatre in Belgrade need to be to a much greater extent directed to-wards the Internet, in particular the most visited Internet portals, as well as the most read on-line editions ofthe printed media.

A more in-depth analysis of the chart representing the number of announcements at the Internet portals(Figure 5) shows that media agencies rarely report information related to the activities of the National The-atre in Belgrade (www.tanjug.rs - only one announcement, www.beta.rs - 26 announcements), which is a dis-proportionately small number given the observed period of time. Along that line it is necessary to improvethe distribution of news and information about the National Theatre in Belgrade to media agencies, in orderto enable their smoother distribution to other media that use these services in their daily work.

Apart from the PR activities aiming at the Internet portals, it is necessary to pay attention to the increaseduse of social networks, given the surveys showing that more than three quarters of the Internet users alsouse social networks, which represents a huge potential (the Statistical Office of the Republic of Serbia, 2011).It is necessary to mention that the influence by the National Theatre in Belgrade upon increase of an-nouncement numbers is the highest on the Internet, in comparison to announcements in print media or tel-evision, given that it directly depends on the capacity and readiness of the employed to create news, uploadthem at the official Internet presentation and social networks and to distribute them to media agencies andthe Internet sites.

The participation of announcements about the National Theatre in Belgrade is the highest in print media(75%) in comparison with the total number of media announcements. The in-depth analysis of media an-nouncements in print media has shown that the participation of the National Theatre in daily newspapers isfar above the participation in weekly, bi-weekly or monthly editions – 81% daily editions, 19% in weekly edi-tions, bi-weekly or monthly ones (Media clipping, 2011). This indicates that the cooperation with daily news-papers is at a very high level, in particular when it comes to the most popular daily newspapers, but also thatmore attention should be paid to weekly, bi-weekly and monthly editions. Having in mind the survey amongthe audience of the National Theatre in Belgrade, according to which more than two thirds of the overall the-atre audience are women (the Institute for study of cultural development, 2010), in the context of printedweekly, bi-weekly and monthly media editions, it is necessary to establish a better cooperation with thenewspapers that are in their concept and contents dedicated to women.

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Figure 4. Age structure of audience of The National Theatre in Belgrade

Figure 5. The number of announcementsabout The National Theatre in

Belgrade on the Web

The participation of the National Theatre in television media represents 15% of the total media announce-ments. Although the announcements at Radio and TV Stations have the biggest outreach, their influence atdedication to theatre is still very limited, given that the survey among theatre audience point out at a verylow number of visitors using these media as means of getting information about repertoire and activities ofthe National Theatre (only 3,4%). The reason for such a low influence by one of the most used electronicmedia might be the fact that programs on culture, thus including theatre are very rare. Although it is a factthat TV and radio are the rarest way of getting information on theatre’s repertoire and activities, that in noway means that cooperation with these media is redundant, moreover this cooperation should be developedin terms of media coverage of premières, as well as important events taking place at the National Theatre.

A major contribution in the promotion of the National Theatre in Belgrade goes to individuals presenting theNational Theatre in their media appearances. The analysis of information on individuals who had been pre-senting the National Theatre in the biggest number of announcements (Media clipping, 2011) show that itis possible to assess the capacity of certain individuals and their capability to promote the theatre, but alsoto plan their media appearances in order to achieve optimum results. In addition, there is a possibility of pro-viding briefings to affirmative individuals that are mostly exposed to the media to optimize the benefit of thepublicity for theatre attendance.

Analyzing the data from Media clipping on the authors of media announcement there is a possibility to es-tablish who are the signed authors and TV programs where their contributions were broadcasted, or columnsin printed media where their texts related to the National Theatre were printed. In order to ensure that pro-motional activities are even richer and of higher quality, there needs to be a good communication establishedwith identified authors of media announcements, as well as a deeper cooperation through special benefits,invitations to opening events, special theatre happenings, distribution of free-of-charge tickets.

In order to have a comprehensive analysis of PR activities it is necessary to measure commercial and PRvalue of media announcements, given that without these values it would be impossible to establish the ra-tionale of PR activities.

The Advertising Value Equivalence (AVE) is based on the price of a commercial of adequate size in anymedia – basically it represents commercial value of achieved publicity (Media clipping, 2011). AVE valuesare calculated by measuring the size of an announcement in square centimeters (in the case of print media),or seconds (in the case of electronic media), multiplied by the corresponding value of advertising rate (percentimetre or second). The obtained number shows how much it would cost to place an advertisement ofthat size, or length in a given media. By assessing the media coverage using this methodology and by gath-ering all such calculations one can calculate the total AVE value of the coverage for a certain period.

The PR value of announcements – Considering that an image and a reputation of a client are containedin published announcements, the commercial value is multiplied by the quality factor (QF between -5 and+5) and the PR value of announcements is calculated.

The PR value represents the advertising value of announcements multiplied by the quality factor which is de-termined based on added value to client’s image and a degree of positively coloured texts (-5 is the mostnegative value, +5 is the most positive).

Table 1: The total advertising value and the total PR value of the announcements,according to data of Media clipping

The total advertising value (AVE) of the announcements in monitored media on activities of the NationalTheatre in Belgrade (Table 1.) according to the explained methodology has been estimated to 2 863 600euros. While the total PR value of the announcements is positive and it amounts to 7 060 000 euros.

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Media The number of announcements

AVE - € PR value - €

Internet 214 28 600 72 300 Print media 1748 1 160 000 2 470 500

TV 380 1 675 000 4 515 600 TOTAL 2342 2 863 600 7 060 000

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Conslusion

An example of PR activities of the National Theatre in Belgrade shows that a constant lack of funds necessary for the op-eration of theatres in general, and especially marketing services, also has a positive reflection. In the absence of financialresources, marketing management decided that PR activities are the main part of promotion of the national theatre.Although in this case knowledge of the superiority of PR activity is not the result of strategic planning, but rather of an in-tuitive move conditioned by the lack of financial resources, traditionally the most common type of promotion - economicpropaganda, the usability of such an activity of marketing management of the National Theatre in Belgrade is multiple.Giving priorities to PR is in accordance with modern marketing tendencies, and a certain number of respectable consultantseven claim that the era of economic propaganda has finished and that PR becomes the most powerful means of promoting(A.Ries&L.Ries, 2002).

Although a greatest number of marketing experts are not of a mind on this issue, we can say that it is true according tothe example of the promotional mix of the National Theatre in Belgrade because the PR activities of this cultural institutionare the most important and the most valuable activities of the promotional mix which represent the most relevant part inthe promotion of the national theatre.

In the course of the analysis of the PR activities of the National Theatre in Belgrade, it was observed that there are nodefined procedures of planning, conducting and evaluation, and therefore there is no strategy of the development of PRactivities. As the main decisions on PR activities are carried out intuitively, the objectives of PR activities and the objectivesof other elements of the promotional mix are not clearly defined. Therefore it is necessary to systematize and formalize thePR activities of the National Theatre in Belgrade, determine the optimal strategy of action, formally define aims andcoordinate them with all the elements of promotional mix, and make them look like a unified, integrated whole and not likeseparate parts with aims and tasks that do not correspond interactively. Without further analysis of the promotional mix ofthe National Theatre, during the research for the needs of this article, it was noticed that there are all the elements ofpromotional mix (economic propaganda, sales promotion, PR, personal sale and direct marketing) but that the mostimportant and largest in volume by the number of activities within the promotional mix is related to PR. In spite of thecentral position that PR activities have in the promotion of the national theatre, there must be a certain range of economicpropaganda so that this important element of promotional mix, together with quality and sensible PR activities, should bemore effective with the aim of achieving integrated marketing communication.

Although various audience research is used in the work of the National Theatre, there are no clearly defined ways ofaudience segmentation. One of the biggest marketing prejudice and misconceptions is that about the attitude that the en-tire theatre audience make a potential target group. The essence of marketing is a very simple idea which is based on aclaim that success comes from understanding the needs and wishes of others and creating ideas, services or productsthat satisfy those needs and wishes. In accordance with that, the National Theatre in Belgrade has to define the targetgroups clearly. On the basis of the results of the audience research, it is possible to divide markets and in that way specifypromotional activities for each segment separately with the aim to optimize the communication with the audience. Evenwith superficial analysis of the relevant research, such as theatre audience research (the Institute for Studying CulturalDevelopment, 2010), very important data that are useful for the entire work of the national theatre can be found. Theresearch shows that more than 70% of the audience of the National Theatre in Belgrade are between 19 i 45 years old.When these data are put into the context of the Internet use, we come to one of the most important concluding recom-mendations of the paper which refers to understanding the importance of orientation of promotional activities on the In-ternet. According to numerous studies, the development of communication technology, especially the Internet, is very fastand has a great influence on changing the way of communication, business, informing and promotion. These data arevaluable when specific PR activities of the National Theatre in Belgrade are determined, but also the actions of other ele-ments of the promotional mix that must use the current methods of communication with the public and monitor the de-velopment of media streams.

It is necessary to coordinate PR activities with the Internet and emphasize the improvement of cooperation with mediaagencies as well as the most visited Internet portals and on-line editions of the most widely read daily newspapers, inorder to enlarge the distribution of the information on the activities of the National Theatre in Belgrade. Due to the increaseduse of modern information technologies it is relevant to focus on the Internet if the national theatre wants to follow thetrends in the way of communication and informing in modern information society. By conducting the abovementionedrecommendations in practice, the conditions for integration of all the elements of promotional mix would be created andwould contribute to the achievement of integrated marketing communication in the future which is a final objective of allmarketing efforts.

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LITERATURE

[1] Media clipping Agency (2011), Kvalitativno-kvantitativna analiza medijskih objava sezona 2010/2011,Beograd

[2] Dragićević-Šešić M. (2007), Kultura menadžment animacija marketing, Clio, Beograd[3] Dragićević-Šešić M., (2002), Javna i kulturna politika, Magna agenda, Beograd[4] Đukić, V. (2010), Država i Kultura, Čigoja štampa, Beograd[5] Filipović V. Kostić M. (2003), Marketing menadžment, FON, Beograd [6] Kuba L. Koking Dž. (2004) Metodologija izrade naučnog teksta, CID i Romanov, Banja Luka[7] Kotler, F. (2007), Principi marketinga, Mate, Zagreb[8] Republički zavod za statistiku RS (2011) Upotreba informaciono-komunikacionih tehnologija u Republici

Srbiji, Beograd [9] Ries, A. & Ries, L. (2002), The Fall of Advertising and the Rise of PR, Harper Business, New York

[10] Institute for Studying Cultural Development Republic of Serbia (2010), Audience of The National Theatrein Belgrade, mr Sobodan Mrđa, Beograd

[11] Institute for Studying Cultural Development RS (2010), Theatre audience in Serbia, mr Sobodan Mrđa,Beograd

[12] Zdravković, M. (2007), Savremeni marketing u pozorištu, Zbornik radova Fakulteta dramskih umetnosti,Beograd

[13] http://webrzs.stat.gov.rs [14] http://www.narodnopozoriste.rs[15] http://www.blic.rs[16] http://www.tanjug.rs[17] http://www.vreme.com

Receieved: April 2012. Accepted: December 2012.

Svetlana MiladinovićZvornik Theatre “Kapitalina Erić”[email protected]

Svetlana Miladinović - PhD candidate at the Faculty of Drama Arts in Belgrade, the Department ofManagement of Culture and the Media. She completed her undergraduate studies at The Academyof Arts in Belgrade, the Department of Management of Culture and the Media. Scholar of European

Movement in Serbia (200 best students in Serbia), and scholar of Fund “Dr Milan Jelic” (the best students in Republic of Srpska).

Dragan ĐurićMinistry of Finance and Economy, Serbian Government

[email protected]

Dragan Đurić - Graduated in management at the Faculty of Organizational Sciences in Belgrade,where he started his PhD studies in 2009 on the Information systems and Management study

programme. Works at the Ministry of Finance and Economy, in the Government of Serbia asstrategic planning coordinator. His scientific interests are Strategic management and Marketing.

About the Author

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