Global Management Journal for Academic & Corporate Studies ... · Dr. Khalid Hussain Shaikh Professor Management Science Department Bahria University, Karachi Pakistan Dr. Aamir Firoz

ISSN: 2219-6145

Global Management Journal for Academic & Corporate Studies (GMJACS)

Volume 5 Number 1 2015

Management Sciences Department

Bahria University Karachi Campus, Pakistan

Patron

Vice Admiral (Retd) Tanveer Faiz HI (M)

Rector, Bahria University Pakistan.

Executive Editor

Vice Admiral (Retd) Khalid Amin HI (M) DG, Bahria University Karachi Campus

Editor-in-Chief

Cdre Mohsin H. Malik TI (M) Director

Bahria University, Karachi Campus

Associate Editor

Professor Dr. Farooq-E-Azam Cheema Dean Management Sciences Bahria University, Pakistan

Editor

Dr. Rizwana Bashir

Associate Professor Management Science Department

Bahria University, Lahore Campus, Pakistan.

Sub-Editor

Sadaf Alam Senior Lecturer

Management Science Department Bahria University, Karachi Campus, Pakistan.

Editorial Board

Global ManagementJournal for Academic & Corporate Studies (GMJACS)

ISSN: 2219-6145 (Print), 2305-0756 (Online)


Editor: Dr. Rizwana Bashir

Publisher: Management Science Department, Bahria University Karachi.

Prof. Dr. Premkumar Rajagopal Deputy Vice Chancellor MUST University Malaysia

Prof. Dr. Joanna Brewis Deputy Head of School & Director PG Research College of Social sciences University of Leicester, UK

Prof. Dr. Ben Lee President EDS Business School Malaysia

Prof. Dr. Badar Alam Iqbal Professor, Faculty of Management Monarch Business School Monarch University Switzerland

Dr Sarath WSB Dasanayaka Professor Department of Management & Technology University of Moratuwa Sri Lanka

Prof. Dr. David L. Rowland Dean, Graduate School Valparaiso University USA

Dr Christine Mortimer Senior Lecturer & Head of Programme MBA & MA Suit (Business Management) York St John Business School York St John University, UK

Dr Faisal Aftab Director R&D/ORIC Bahria University, Pakistan Dr. Huma Baqai Associate Professor & Chairperson

Department of Social Sciences IBA Karachi Pakistan

Dr. Ishaq Bhatti Associate Professor Faculty of Business, Economics & Law La Trobe Business School, Melbourne Australia

Prof. Dr. Iqbal A. Panhwar Professor Management Science Department Bahria University, Karachi Pakistan

Dr. Tufail A. Qureshi Editor, Business Review IBA Karachi Pakistan

Prof. Dr. Shafiq ur Rehman Professor Department of Economics University of Karachi Pakistan

Prof. Dr. Abuzar Wajidi Dean, Faculty of Management & Administrative Sciences University of Karachi Pakistan

Dr. A. Nasir Afghan Director MBA program IBA Karachi Pakistan

Dr. Abdul Waheed Associate Professor University of Bahrain

Kingdom of Bahrain

Review Board

Global Management Journal for Academic & Corporate Studies (GMJACS)

ISSN: 2219-6145 (Print), 2305-0756 (Online)


Publisher: Management Sciences Department, Bahria University Karachi.

Sander Schroevers Amsterdam University of Applied Sciences, Netherland Dr. Nadeem Ahmed Bashir Associate Professor College of Business Administration King Saud University, Saudi Arabia Dr. Muhammad Ali Saeed Head of the Department Management Sciences Bahria University, Islamabad Pakistan Dr. Sumanjeet Singh Assistant Professor Department of Commerce, Ramjas College, University of Delhi, India Dr. Theodore Koutroukis Assistant Professor University of Aegean Greece Dr. Gbadebo Odularu Regional Policies and Markets Analyst, Forum for Agricultural Research in AfricaGhana

Dr. Gazi Mahabubul Alam Professor in Education Economics and Policy & Consultant for Academic Performance Enhancement Unit, University of Malaya Malaysia Dr. Kamran Siddiqui Suffa Business School DHA Suffa University,Karachi Pakistan Dr. Chandan Lal Rohra Chairman Department of Business Administration Shah Abdul Latif University, Khairpur Pakistan

Dr. Muhammad Asim Assistant Professor Karachi University Business School University of Karachi Pakistan Dr. Khalid Hussain Shaikh Professor Management Science Department Bahria University, Karachi Pakistan

Dr. Aamir Firoz Shamsi Assistant Professor Management Science Department Bahria University, Karachi Pakistan Dr. Rafique Ahmed Khan Assistant Professor Management Science Department Bahria University, Karachi Pakistan Dr. Chinwuba Ambrose Okafor Associate Professor Faculty of Management Sciences, University of Benin, Nigeria

Dr. Farah Naaz Gauri Associate Professor Department of Commerce Dr. BAM University Aurangabad, India Amna Niazi Asst. Prof & Incharge Institute of Professional Development (IPD) University of Engineering & Technology (UET)

Lahore, Pakistan.

Contents

Editorial 11 Factors Affecting Customer Satisfaction in E-Banking: Evidence from Pakistan 12 Leading Islamic Banks Amna Niazi, Ahsan Nazir, Mariam Rehman and Muhammad Ali Leadership Assessment through 360 Degree Feedback System – An Insight of 22 Prevailing Concepts Dr Akbar Ali Impact of Trade Liberalization on FDI Inflows to D-8 Countries 31 Mumtaz Hussain Shah and Saima Samdani Profit Optimization through Cobb Douglas Production Function 39 Dr. Iqbal Ahmed Panhwar, Dr Zahid Ali Channar andHira Ghaffar Bachani Impact of Work-Integrated Learning on Masters of Business Administration Students: 48 Employers’ Perspective Rubina Masum and Dr. Memoona Saeed Lodhi Governance and Management of Higher Education Institutions in Pakistan: A Case 54 of Lahore College For Women University Nadia Qasim, Nasira Jabeen, ZafarIqbal Jadoon and Irum Sajjad Dar Impact of political event, terrorist attack and natural catastrophe on stock price returns: 69 Evidence from Pakistan. Shafiq ur Rehmanand Javed Khan Impact of Employee Competency on Tangible Assets; A Quantitative Analysis in Asset 77 Management (AM) Context A.Nawaz and Dr. Zubair Khan Mediating Impact of Corporate Entrepreneurship on the Relationship among Job 99 Satisfaction, Citizenship Behavior and Organizational Commitment: Evidence from Pakistan Banking Employees Saima Safdar and Rab Nawaz Lodhi Impact of Conflict on Organizational Commitment ofthe Employees 114 Waqas Khaliq Bhatti, Dr Rizwana Bashir and Dr Mubashar Nadeem

Assessing Relationship between Improvement in Internal Process, Student Satisfaction 124 and Student Retention; Does Student’s Orientation Mediates The Relationship? MohammadiSabraNadeem,QaisarAbbas and Uzma Javed Trends and Prospects of E-Business in Pakistan 137 Dr. Farooq-E-Azam Cheema, Dr. Atif Hassan, Dr. Faisal Aftab and Sobia Shujaat The Determinants of Systematic Risk: Empirical Evidence fromPakistan’s Banking 146 Banking Sector Vijay Kumar, Abdur Rahman Aleemi and Akhtiar Ali Socio-Cultural Impediments to Pashtun Women Entrepreneurs in Peshawar, Pakistan: 155 A Narrative Approach M. Junaid, Saad.Shah and S.M.Shah Developing a Conceptual Model on TQM Implementation through Organizational Culture 162 in Pakistani Manufacturing Sector for Firms Performance Farrukh Idrees and M. Iqbal Saif Disclaimer: Research papers published in the journal have been checked through plagiarism software. All views expressed in the journal are those of the authors and do not necessarily reflect the policies or preferences of GMJACS or Bahria University.

Editor GMJACS

Editorial

“Whatever your work is, dignify it with your best thought and efforts.” - Esther Baldwin York

Alhamdulillah! Global Management Journal for Academic & Corporate Studies (GMJACS), Bahria

University, Pakistan has entered into its fifth year of publication. With every upcoming issue we are intensifying the standards of publication to become the first choice of researchers in the area of business and management for quality research write-ups, best ideas and exciting findings to match the business trends of 2015 and beyond.

The overwhelming contributions by authors/researchers from academia for current issue were

commendable. Because of limited space, some good works could not make space in the current issue. Contributors are requested to follow the author guidelines given to frame their research papers in letter and spirit. I sincerely hope that the emphasis on building bridges will continue to guide us in selecting the most important research for publication in GMJACS. I am particularly intent on making sure that any academic and corporate research endeavor finds its due place in the journal.

The diverse review and editorial boards has given valuable suggestions for improvement which

were duly considered and incorporated. We are inviting academic and corporate authors to collaborate for future research endeavors so that academic research expertise could work for the benefit of industry. It will also ensure that research outcomes are being applied for the improved methods of doing business.

Without the collaboration of researchers in several different fields, many of today's very important

discoveries and solutions wouldn't have been possible. In a time when interdisciplinary research is ubiquitous, corporate cases that combines disciplines and merges theory and application should be preferred to work upon. Research scientists from diverse disciplines are working together, discussing, and sharing ideas and the results we are experiencing are fascinating. In fact, before we see the lines between different fields start to blur even further than they have already.

As a standard the current issue of GMJACS also contains fifteen research papers. Out of the total received research papers, only sixteen percent research papers could make space and published after passing through our rigorous evaluation process.

I would like to thank all members of the editorial board, review board, contributors, and all colleagues and staff members who have extended their support that made the fifth edition of GMJACS possible. We expect our readers to send us their precious feedback at [email protected], so that we can assimilate value in order to further enhance the quality of the journal. Dr. Rizwana Bashir Editor

“Don't be dismayed by the opinions of editors, or critics. They are only the traffic cops of the arts.” -Gene Fowler

mailto:[email protected]

http://www.goodreads.com/author/show/285668.Gene_Fowler

GMJACS Volume 5 Number 1 2015

12

FACTORS AFFECTING CUSTOMER SATISFACTION IN E-BANKING: EVIDENCE FROM PAKISTAN LEADING ISLAMIC BANKS

Amna Niazi1, Ahsan Nazir12,Mariam Rehman2 and Muhammad Ali3 Abstract

Service quality is a core element of measuring, analyzing and achieving customer satisfaction. This has led to the emergence of different models. These models have helped in ensuring quality and effectiveness of strategies developed to attain, sustain and retain customers. The purpose of this research was to explore the impact of service quality, brand reputation and security for customer satisfaction. This study was conducted in leading Islamic banks, where 300 e- banking customers were selected. The data were collected through a questionnaire and has been subjective to quantitative and qualitative analysis. After applying descriptive statistics, T-test was applied. A significant relationship was found among variables. The results indicated that among said variables service quality had a major impact on customer satisfaction than brand reputation and security. Key Words: E-Banking, Customer Satisfaction, Service quality, Brand Reputation, Security 1. Introduction

Customer satisfaction is a psychological perception that a person holds in her /himself. The level and criteria of satisfaction vary from person to person. Thus to keep the customers satisfied organizations are using latest technology to cater the needs of the customers. Advances in technology related to internet are opening new horizons for organizations and their means of interaction. Similarly the way by which the organizations are interacting with its customers is also changing. Focus of organizations is shifting from organization centered to customer convenience. However, customer satisfaction and service attributes are difficult to measure since they are intangible thus placing a high challenge for the organizations survive in this competitive arena (Hong et al., 2004; Nguyen and Leblanc, 1998).

Customer satisfaction in the banking sector is linked with the expectation of the customers

(Bloemer, Ruyter & Peeters, 1998). Consumer gives high weights to different facilities in selecting or choosing a product or task. Factors that affect customer satisfaction includes economic, psychological and physical. Parasuraman and Grewal (2000) introduced a term “SERVUQAL “which describes different instrument to measure the customer’s perception of service quality. They analyzed that service quality is one of the key factor which determines the customer satisfaction. Many researchers believed that service quality can be increased by the injection of information and communication system (ICT).

Banking sector, being the financial institution of a country, needs to equip itself with the latest

technology to stay current with the market requirements. ICT no doubt, is necessary to compete with other banks in service quality. It has now become a serious challenge for the banking sector to cater customers and to retain them. Every organization is trying to improve the service quality to capture maximum customers. They are delivering ICT based services formally known as e-banking. Electronic banking has brought a positive change in making customers more contented in relationship with the banks. Customers are switching to ICT providing banks since they are well aware of the facilities that are being provided. However the researcher noted the difference between customer expectations and perception of service quality. Not only at international level, but in Pakistan also the e-banking customers are increasing day by day. Similarly, the growth of Islamic banking in the world, especially in the Middle East and Gulf countries, has led Pakistan to move towards Islamic banking. Since 1971, Islamic banking has grown worldwide (Metawa and Almossawi, 1998). Some of the estimates explained that Islamic financial services expanded from 10 to 15 % during the period of 1995 and 2005 (Estiri et al., 2011). Thus it was important to explore the behavior of the customers having relation with Islamic banking and currently availing the facilities of e-

1 Assistant Professor, University of Engineering & Technology, Lahore Pakistan. [email protected] 12 M.Phil. Scholar, University of Engineering and Technology, Lahore 54000, Pakistan.

3 Assistant Professor, FAST, National University of Computer and Emerging Sciences, Lahore, Pakistan.



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banking. Therefore, it has become imperative to conduct a research to know the reality of this phenomenon. The present research is being conducted to find out those factors which affect customer satisfaction in e-banking in the context of Pakistan especially in the leading Islamic banks.

Past studies conducted in the area of customer satisfaction pointed that service quality; brand

perception and Security in service are the chief factors that affect customers’ satisfaction in e-banking (kumbhar, 2011 & Nadiri et. al., 2009). Consequently the present study has been carried out in the context of Pakistan to highlight the impact of service quality, brand perception and security for customer satisfaction on E-banking in Islamic banking sector. This study would help Islamic banking policy makers in understanding the factors that are important for customer satisfaction. The findings reflect the key insight of consumer service expectations which are carefully measured and analyzed. Since customers have options of switching thus banking sector needs to comprehend the importance of customers and provide them with the facility which customers give preference to.

2. Literature Review

In most developed countries service sector accounts for the major chunk of total employment and total output. The service sector is amongst the most developing sectors in the world economy. In some countries the contribution of services to the GDP has been 47 percent in lower income countries, while 53 percent in middle income countries and as high as 73 percent in high income countries. Service sector holds great significance in the imports and exports of a country. It increases FDI, facilitates the exports and lowers the expenses in case of imports of a country (PIDE, 2011). In Pakistan, service sector has flourished at a very rapid pace. According to the statistics growth rate of the service sector is quite higher than the growth rate of essentially important agriculture and industrial sector (Pakistan Economic Survey, 2011). It has been noted that 54 percent of GDP comes from services alone and it’s responsible for one-third of employment in the country. Service sector acts as a backbone for other sectors such as agriculture and manufacturing sector (PIDE, 2011). For this study, Islamic banking sector of Pakistan was focused. Banking sector in Pakistan has become very competitive in the past few years. This winning customers is not only the focus of this industry, but to retain them has become a challenge. An establishment’s true value emerges when a customer experiences services. An entire service setting includes the front and support staff, mostly including by employees who play a vital role in the rise and fall of the establishment’s corporate image and the customer’s experience. Customers are the ultimate judge of service or product quality (Sakthivel et al., 2005).

The importance of quality is then enhanced by the growing recognition that delivery of high quality

services will mostly result to large competitive advantage (Sureshchandar et al., 2002). It has become crucial for service organizations to bring the service quality to the forefront of their firm’s competitive strategy (Khamalah and Lingaraj, 2007). Customers who have received consistent, satisfying services tend to be less moved by competitors, less price sensitive, and stay loyal longer (Dimitriades, 2006). Ultimately, this contributes to the bottom line or financial growth of the companies.

Model’s which have brought limelight on the empirical evidence and conceptual framework of the

service quality is the gap model of service quality also known as SERVQUAL (Parasuraman et al., 1985). Generally, the SERVQUAL model measures consumers’ perceptions of service performance (perceived vs. actual outcomes) for particular service providers (Asubonteng et al., 1996). Service settings are different depending upon the countries and their values and norms, it’s likely that the service managers of such settings have knowledge and understanding over the applicability of service dimensions appropriately (Malhotra et al., 2005). Raajpoot (2004) argued that PAKSERV was only suited for use in an Asian culture. The area of the study is not new and hence various studies and researches have been conducted in different contexts, which highlight many significant relationships and impact of the most important factors on customer satisfaction. Following is the study model being constructed for this study.


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Figure 1: Conceptual Framework

In this research internet banking was focused. The E-Bank is the abbreviation of electronic banking,

which provides financial service to the individual customer by the ways of the Internet, mobile and other electronic sources. Internet banking (E-banking) is highly acceptable facility in the banking sector through which any client with his own computer and a browser can get links to his bank’s website to carry out any of the effective banking functions. According to Daniel (1999), e-banking is the releasing of banks information and services, provided by the banks to their customers through different sources which include mobile phone and computer having browser or desktop software. In the banking sector, customer satisfaction has a decisive role and e-banking is an important tool that takes part in it.

Mageshwari & Kumar (2014) analyzed the relationship between e-banking and customer

satisfaction. They found that e-banking has become the need of customers in this modern era and it has enhanced the satisfaction level of the customers. Satisfaction is the results of various emotional and material factors which have relation with human satisfaction behaviors. Armstrong & Kotler (2000) has described satisfaction as a person’s feeling resulting from comparing a product’s perceived performance with his or her expectations. A number of researchers have investigated the relationship between perceived service quality, expectation and customer satisfaction (Zeithaml et al., 1988). Researchers have found a significant relationship between service quality and customer satisfaction. George & Kumar (2014) conducted a study in the State of Kerala (India) in order to explore the relationship between service quality and customer satisfaction. They found that service quality promotes customer satisfaction. Parasuraman et al., (1985) have found a well-built relationship between customer satisfaction and the service quality. An increase in the quality of service provision by banks helps in establishing a strong and reliable relationship among customers to banks (Nadiri et al., 2009). For analyzing the relationship between service quality and customer satisfaction hypothesis is being constructed. HI: There is a positive and significant impact of service quality on customer satisfaction in E-Banking.

Bromley (2002) and Sandberg (2002) examined reputation as a socially joint impression for understanding the behavior of an organization in different situations. It has also been observed that brand reputation has a strong and important relationship with customers’ satisfaction in various sectors. A good reputation of a product or company increases the satisfaction level of the customers. Tu et al. (2013) conducted a research in the shoe industry and found a significant and positive relationship between brand reputation and customer satisfaction. Woodruff et al. (1983) also stressed on this phenomenon and proved that brand reputation significantly affects customer satisfaction. Gotsi and Wilson (2001) and Groenland (2002) have also recommended that companies with greater reputation have unique opportunities to get lead over their contemporaries to capture more customers. A brand perception is a significant factor to provide services to the customers because; if customers are satisfied, then the brand will be recommended by those satisfied customers. So hypothesis is being proposed to test as,

Service Quality

Security

Brand

Reputation

Customer

Satisfaction


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H2: There is a positive and significant impact of brand reputation on customer satisfaction in E-Banking. Data secrecy and security risk issues have been considered as the major factors that affect

customers’ satisfaction and emphasized the customers to adopt internet banking from traditional banking (Tan & Teo, 2000). Privacy is imperative to building trust and a long-term relationship between organization and customers. There is no doubt that security and privacy are interrelated and have are of great concern for the customers and their satisfaction, following hypothesis can be developed in the context of Pakistan.

H3: There is a positive and significant impact of Security on customer satisfaction in E-banking. 3. Methodology

Mixed method approach is used to conduct this research. In order to quantitatively study the impact of brand reputation, service quality and security on the customer satisfaction, regression analysis is used. In order to explore the factors affecting the customer satisfaction and contribution of e-banking provided by Islamic banks in facilitating the life of the users, NVivo is used.

In comprehend the social realities; the positivism approach was used, which is the implementation

of the scientific theory/ model (Collis & Hussey, 2003). To find the effects of various factors on customer satisfaction that are availing the e-banking services, positivism approach was utilized in the present research. The research methodology that had the best match to study the positivism phenomena was quantitative, which was adopted. The self-administered questionnaire was employed to collect the responses from the customers, who were using the e-banking services of Islamic Banks of Pakistan. The dimensions used in the current study are backed by previous researches. Brand reputation, service quality and security have appeared as prominent factors influencing the customer satisfaction studies (Kumbhar, 2011; Nadiri et. al., 2009;Zeithaml, et al., 1988; Gotsi & Wilson, 2001).The questionnaire is a modified version of the instrument use by Kumbhar (2011). The presentation of the questionnaire was made easy to respond. First section of the questionnaire was based on the demographic information of the respondents. In the second section, questions regarding dependent and independent variables were asked. 5 point Likert scaling (1=Strongly Disagree, 2= Disagree, 3=Not Sure, 4= Agree and 5=Strongly Agree) was used.

Survey was administered personally to collect data from the e-banking services users of Islamic

Banks in Lahore, Pakistan. Convenience sampling technique was used as it best fits the study. Almost five hundred (500) questionnaires were distributed. Data from four hundred (400) respondents was collected. Due to uncompleted responses, one hundred (100) responses were discarded. Remaining three hundred (300) responses were used for analysis purpose. Reliability of the instrument was tested afterwards. Multiple regression was used to analyze the data.

The research was strengthened by using qualitative research approach. Value can be added to the

policy formation through qualitative research. It thoroughly analyzes the context in which policies are to be implemented. In the section of qualitative research, data were collected, analyzed and interpreted using qualitative research software NVivo 10. Interviews were conducted from the users of Islamic Banking by using an open ended questionnaire. Ten (20) responses were collected using online data collection tool- Survey Monkey. For this purpose, online survey was developed and administered. It took almost two weeks to collect responses about the factors affecting the customer satisfaction in e-banking of Islamic banks in Pakistan.

It is argued that NVivo is appeared as obliging software to organize and analyze qualitative data

(Ozkan, 2004). It is to be further noted that despite of such supportive behavior, role of the researcher as collector, organizer and coder cannot be ignored. The themes are explored in NVivo through use of the Text Analysis feature. Similarly Text Search Query is very useful. It helped in checking the themes. The way respondents think about something was explored through it. The interpretation of the research was facilitated with the use of Tree Map. In the current study, Word Frequency Query and Text Search Query were applied to explore the factors which affected the customer satisfaction in e-banking in Islamic Banks of Pakistan.


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Figure 2: Word Tag Cloud

Figure 2 showed the Word Tag Cloud. Its importance in thematic analysis cannot be ignored. It

presented various themes on the basis of repetition frequency. Additional themes were developed by using Word Tag Cloud diagram. Figure-1 demonstrated themes like “Security Services”, “24/7 access” and “approach”.


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Figure 3: Word Tree Map Figure- 3 presents the Word Tree Map. As shown above, the Word Tree Map exhibits the link between

the focused words with numerous discussions. In the current study, e-banking was taken as predominant word in the query. It helped to develop new themes along with their relationship with existing themes.

4. Results

In order to check the reliability of the data, Cronbach’s Alpha was found. Sekaran (2006) described that the reliability is a measure of the level to which the items of the instrument are unbiased. Reliability states that results of must be consistent over time. It aided in checking the goodness of the items. The values of Cronbach’s Alpha are considerable if above 0.7 (Sekaran, 2006), otherwise the data is considered unreliable. The results of reliability test are presented in table-1. The data is reliable as the Cronbach’s Alpha for customer satisfaction =.777, brand reputation =.765, service quality =.738 and security=.822.


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Table 1. Reliability Analysis

SPSS 20.0 was used to apply regression analysis. In order to check the sample adequacy, KMO

was used. The considerable value of KMO is near 1. The significance of the relationships was found by the F-value. This value should be less than 0.05 to approve the hypothesis. The Bartlett’s test used for the current study presented whether the hypothesis correlation between variable existed or not. The results of the study display the KMO value as 0.717 and the p-value as 0.00 which are enough to accept the presented hypotheses. Table-2 presented below shows these values;

Table 2: Validity Test

4.1. Demographic Information

Table 3 indicates the demographic information. 80 percent respondents were male and 20 percent were female. In 300 respondents 239 were male and 61 were female Islamic banking customers who participated in this study. The respondents who participated were from different age group, 7 percent respondents were between the age of 18-25, 67 percent were from 26-30 of age and 26 percent were of 30 or above. In all, 70 percent respondents were those who were using e-banking services of Islamic bank since 2 years.

Table 3: Demographic Profile of Respondents

Characteristics Frequency Percentage

Male 239 79.7

Female 61 20.3

Total 300 100.0

Age

18 – 25 21 7

26 – 30 201 67

30 or above 78 26

Total 300 100

Education

Under Matric 126 42.0 Matric 30 10.0

Intermediate 45 15.0 Graduation 64 21.3

Post-Graduation 35 11.7

Relationship with Bank

0-5 years 202 67.3

5-10 years 65 21.7

10 years and above 33 11.0

Construct Items Cronbach's Alpha

1 Customer Satisfaction 7 .777 2 Brand Reputation 7 .765 3 Service Quality 8 .738 4 Security 6 .822

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .716

Bartlett's Test of Sphericity Approx. Chi-Square 309.733

D.f 3 Sig. .000

a. Based on correlations


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Linked to E-banking

Less than 2-years 210 70.0

2-4 years 53 17.7

5-10 years 17 5.7

10 years and above 20 6.7

Total 300 100.0

4.2. Regression Regression analysis was applied to measure the impact of change of independent variables in the dependent variable. Adjusted R square is 0.55 which presented that 55% change in customer satisfaction was due to 1% change in the independent variables. Table-4 presents the regression analysis;

Table 4: Multiple Regression of Independent Variables on Customer Satisfaction

Independent Variable

Standard error Beta value t-test P value

Brand Reputation .039 .561 5.387 .001 Service Quality .040 .452 4.350 .002 Security .035 .601 7.886 .000

N= 300, Adjusted R square= .55. F= 45.7, Durbin-Watson= 1.8090, overall model significance= .001

The above mentioned table details the fitness of the model. F=45.70 showing that the model is fit

to the context. The existence of auto-correlation between the independent variables is presented by the Durbin Watson Test. The values of the result (1.8090) exhibited that there existed no auto-correlation between the independent variables.

The results of qualitative study are presented in the form of Word Tree Map illustrated below;

Figure 4: Word Tree Map

Word Tree Map is shown in the figure-4 tells the factors which affect the customer satisfaction for e-banking in the Islamic banks of Pakistan. The figure exhibits that the service quality, security, responsiveness, convenience, availability of updates tools and techniques, accessibility, customer satisfaction, saves resources, brand reputation, fairness, and introduction of innovative tools, quick problem fixation, guarantee and credibility contribute of the customer satisfaction. The customers compliant against the obsolete practices sometimes and demand its fixation.

5. Discussion

The hypotheses of this study have been tested by employing the technique of multiple regression and Durbin-Watson. In the Model Summary as show in the Table-3, the value of adjusted R Square value was found 0.550 which is less than 0.501 and value of F in ANOVA table-3 was found 45.7 which is more


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than 0.5. These results show that overall significant and positive relationships exist between the independent and dependent variables.

The results show that brand reputation in e-banking has a positive and significant impact on

customers’ satisfaction (β=0. 561 P-value=0. 001 & t-value=5. 387). Therefore, the first hypothesis of the study i.e. “There is a positive and significant impact of brand reputation on customer satisfaction in E-banking” is accepted. Similarly, the results of this study also highlighted that service quality of the banks had a positive and significant impact on customers’ satisfaction in e-banking (β=0. 452 P-value=0. 002 & t-value=4. 350). Therefore, the second hypothesis of this research i.e. “There is a positive and significant impact of service quality on customer satisfaction in E-banking.” is also accepted. Further, the results also showed that the security had a positive and significant impact on customers’ satisfaction in e-banking (β=0. 601 P-value=0. 000 & t-value=7. 886). Hence, the third hypothesis of the study, i.e. “There is a positive and significant impact of Security on customer satisfaction in E-banking.” is also accepted.

6. Conclusion and Recommendations The purpose for conducting this research was to find the impact of service quality, brand reputation and security on customer satisfaction in Islamic banks. Significant relationships were witnessed among the said variables. Prior studies conducted by Uddin & Akhtar (2012), Kumbhar (2011), Nadiri, et. al., (2009) and Zeithaml, et al., (1988) supported the findings of this research with the arguments that along with various other mentionable factors like responsiveness, fairness, etc. brand reputation, service quality and security play crucial role to satisfy customers of e-banking in the Islamic banks. Among the independent variables, security is considered the most important factor that affects customer satisfaction. The customers expect that if they will get security and confidentiality in their matters of banking services, especially in e-banking then they can better continue their business with that bank. On the basis of this research conducted by using mixed method approach, it is recommended to the policy makers or higher level management of the banking sector that above mentioned factors must be taken care of, in order to attract and retain the customers. The banks must ensure the security, work on their reputation in the industry and the service quality. This would enable them to improve their accounts. Due to limited resources, the researcher could not conduct the survey taking the country as population. Moreover, comparative study can be conducted to analyses the impact of these factors in both conventional and in Islamic banking systems. References

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Leadership Assessment through 360 Degree Feedback System – An Insight of Prevailing Concepts

Dr Akbar Ali1

Abstract Aim behind initiating this article is to rightly comprehend the conceptutilization of leadership assessment in an organization. Concept and leadership assessment models of 360 degree feedback proposed by many famous scholars were studies and discussed thoroughly to present the literary wisdom in best possible manner. Through this instrument we can collect the assessment about an individual (assesse) from all possible concerned personnel (assessors) instead of just one boss. A number of Multi-National Corporations (MNCs) are now among the beneficiaries of this tool therefore its use has become contemporary requirement. Concluding, adoptability of 360 degree feedback tool is considered the most rationalized for the assessment of leadership of a manager/leader. Keywords: Leadership Assessment, Organization, 360 degree feedback, Evaluation, Human Resource Management 1. Introduction Successful job performance is the outcome of good personal characteristics, positive behaviors, knowledge, skills and abilities (KSA) of the managers or leaders in an organization as per Jeanneret, R, and Silzer, R. (1998). Measurement of all these factors is termed as assessment. According to Briscoe and Hall, (1999). At senior level this definition also includes KSAOs. Subsequently difference between KSAO, and competency was clarified by Shippmann et al. (2000). Leaders and managers maintain almost same characteristics but leaders use these things in unique and qualitative way as elaborated by Spencer, L. M., & Spencer, (1993). In pedagogical arena, concept of “leadership” and its “assessment” has got highly relevancy “leadership assessment” and “leadership development” cannot be isolated today. Leadership assessment means that if we identify the strength and weaknesses of a manager’s leadership, then we can easily construct a program to develop him professionally to overcome the issues as studied by National Institute of Standards and Technology, Technology Administration, US Department of Commerce. Traditionally manager or leader used to be assessed by his superior / boss. But now innovations have bought change in the assessment of leadership attribute of a manager. Accordingly concept of 360 degree feedback for leadership assessment has emerged as a latest tool in the corporate arena. Later on it was further looked into and explained that the concept of 360-degree feedback means to select feedback or opinion from all the possible sources “all around” of a person. Feedback from senior (boss) junior (subordinates) as well as peers with comparison to own perception of the individual about his performance, is very valid here. 360-degree feedback should not be mixed or confused with upward system of feedback because both the approaches are very different from each other. 360-degree feedback may be said as an extension of upward feedback but it comprises of a number of sources which ultimately provides extra clear and accurate (rounded) picture, which has briefly been stated in a Guide for Department and Agencies. Most of the organizations and current managers using 360-degree tool for leadership assessment strongly believe that more realistic and accurate assessment of the individual performance is possible through use of this tool. There is no comparison between the impact on boss and impact on peers or subordinates of an individual one. Even own perception about self-performance varies from perception of peers or colleagues about the same person. Collection of feedback from all the said sources can lead towards more balance and representative view about the performance perceptions.

1Dean, Department of MIS, National University of Sciences & Technology (NUST), Karachi.Email:

[email protected]


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Another definition of this assessment is “360-degree feedback is a feedback process where not just your superior but your peers and direct reports and sometimes even customers evaluate you. You receive an analysis of how you perceive yourself and how others perceive you.”

On the introduction of this feedback tool, pointing out one’s strength weaknesses and his areas for

development would be sorted out. On the other hand, the unexpected results that may come out contain the pointing out of the divergence or disagreement between what a person’s think of his self “performance” as “compared to what others think about him”. This 3600 feedback tool is beneficial for the individual and organization as elaborated table-1.

Table 1: Individual and Organizational Benefits of 3600 Feedback Tool

Individual Benefits

Organizational Benefits

Enhances the knowledge of behaviors for the improvement of personnel and organizational powerfulness.

Enhances the dissemination of information within the organization where the information is being shared all around the organization.

Provides the employees opportunities for learning how their coworkers think about them, which leads to a better self recognition and awareness.

Encourages open mindedness and help in creating a environment where the give and take of feedback is a normal thing.

Foster self-recognition and development. Provides the organization with the ability to point out the average strength and the needs for betterment inside the work force.

Can act as an initiator in the process of bringing about a change.

Source: A guide for department and agencies, (2001), The Bashingstoke Press Ltd, UK.

Unless handled with great care, these unexpected results possess the risk and danger of producing a negative impact on the organization and its employees both. Using 360 degree feedback can:

a) Have its role on management style. b) Change relationships. c) Enhance performance. d) Alter the roles of affected parties. e) Introduce increased open mindedness. f) Change people’s attitude towards performance. Before the introduction of 360 degree feedback, organization must ponder about the effects and

the challenges that will come afterwards. Feedback can prove to be extremely powerful and hence the process requires proper support and the consideration about how it will get started, administered and also followed up properly in true spirit.

2. 360 Degree Feedback Tools in Practice With the passage of time, researchers have developed many instruments based on 3600 feedback. However, a few well known and famous tools are being discussed here for the understanding of contemporary intelligential of the field. 2.1 Leadership Versatility Index (LVI) According to Kaplan Robert, Kaiser Robert B, (2006), one of the reasons that 360 degree feedback is a privileged instrument, is that no other tool can do what it does? LVI has many unique benefits, out of which few are explained:


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Figure 1: LVI

Source: www.kaplandervies.com and www.versatileader.com.

“An innovative more realistic rating scale” This scale as shown in fig-1 indicates rating from 1 to 5. So secure rises from 1 towards 5. Extremes are not assumed as good for the managers.

“Reflects the tensions and tradeoffs in leadership” As we know that people speaks about balance that is two sided concept but in real these tools and instruments are built on “linear models”, which includes the list of skills and dimensions in separate from one another.

“Both the interpersonal and business side of Leadership” “Leadership is not just about the interpersonal side, it is the business which helps in achieving your goal. The LVI assesses the interpersonal part of leadership with opposite, forceful and enabling dimensions.” This tool helps to evaluate the business dimension “strategic and operational.” Same is clear in figure-2 and 3 below.

Figure 2: Forceful vs Enabling Leadership Dimensions


-5 +5

Forceful

Leadership

Enabling

Leadership

Exercising power and authority to push the

performance

Creating condition for other people to be influential and to contribute

Take charge

Declares / decide

Pushes

Empowers

Listens / includes

Support

VS

http://www.kaplandervies.com/

http://www.versatileader.com/




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Figure 3: Strategic vs Operational Leadership Dimensions


“Short And to the Point” Many 360 degree are just too long they consume quite some time, requires lot of data whereas on the other hand LVI data is short, the report has 55 items and gives result in only 17 pages.

“Based on science” Some 360 degree tools can honestly be called research based. The LVI was developed over 20 years’ time with action research. It has been refined and quality tested which meets professional standards

The Key to “Leadership effectiveness” Beside the brevity, LVI is the research that accounts for separating the most effective than the poor leaders.

LVI is very innovative leadership tool which is realistic, to the point, scientific in nature and considered as a key to differentiate between effective and a poor leader. Therefore its use and application in organization is supported by the author if management desires to implement 360 degree feedback. Author has converted comparison of leadership dimension into figure 2 and 3 to grasp the attention of the readers. 2.2 Vision M 360 Degrees Employee Appraisal

For clear reporting about individualized worker appraisals, Vision M 360 degrees Employee appraisal(2006), tool adds stakeholders in the process. Example is feedback from self, direct subordinates, colleague and executives as fig – 4 indicates.

Vision M-360 Provides turnkey solution of versatility. It is a facilitation in automating 3600

requirements. Competitively positioned around,thistool can do without getting Complexity, quickly so you can concentrate here on results into corresponding procedure in place.

Strategic

Leadership

Operational

Leadership

Positioning the organization for future

Driving the organization to get results in the near term

Direction

Growth

Innovation

Execution

Efficiency

Order

VS




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Figure 5: Reflective Performance Profile

Source: www.visionM-360degreeemployee appraisal.htm. Benefits of Vision M-360

Provides the organization a clear insight about appraisals and the perception of the people around the employee.

In-depth observation on the perceptions of stakeholder.

Authority and flexibility in administrative issues.

Addresses challenges about performance.

Employee cannot weakness for future self-development.

Cost-effective: This is a cheap sort of survey.

Impartial: Feedback obtained this way is unbiased.

180/360 Hybrid: Organization may implement flexible an overview 180 degrees partly or may perform 360 degree (full) for others.

Vision M-360 is also a modern tool comprising of many benefits. It is cheaper, neutral and encompasses dual use as 180 or 360 degree levels both. Its use shall significantly improve the performance of individual as well as of organization. Author feels that although such innovative technological instrument should be tested for the purpose of improvement in the organization but prior to proceed for implementation, services of expert, cooperation by all the stakeholders and support from the senior management is highly needed. 2.3 “Leadership Assessment Survey (LAS)” – A 3600 Feedback Instrument

“Leadership assessment survey (LAS) is a 360-degree feedback instrument”, which focuses on leadership capacity and the individual competencies, designed by profile system CCI (2003). In addition to self-evaluation, the panel evaluates participating member on various aspects of his or her behavior. Tools takes about 30-40 minutes and consists of 96 behavioral items that has five point scale, other than the 16 points that describes the meaning of the different part of the role of the participant. Evaluation of observer can be provided by a group of respondents.

At corporate level LAS is considered as a powerful 360 degree Evaluator tool used for management and leadership development program. What the LAS Measures?

LAS measures the competencies shown in figure 5.

This LAS system was designed by CCI but model has been improved into a beautiful figure by the author of this paper.


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The LAS Measures

risk takingquality of

results

delegating diversity

vision

communication

empowerment

creativity motivating

problem solving

planning

tactical competency

mentoring

personal integrity

Figure 5: The LAS Measures

Source: Author’s Designed

The LAS Report LAS report provides feedback to participants with many components like Overall results; overall ratings, strength and development requests by respondent and frequency of occurrence and analysis by rating and behaviors etc. Author also supports the assessment report generated by this instrument (LAS) based on 3600 feedback. The competencies (fig-5) which are assessed through this tool is a set of very innovative roles a leader should perform in an organization. 2.4 Richard Gorham 360 degree leadership Instrument

The author, Richard, Gorham.(2002), believes in favorite saying "the unexamined life is not worth living" – Plato

“Richard Gorham, an author of 360 degrees (questionnaire) management tool”, has extensive

experience of 21 years, as leader the corporate sector. The site, “leadership Tools.com” not only floated this tool, but also delivered ten steps for developing leadership quickly, 101 ways to improve life and series of audio book.

Primary goal of 360 degree feedback is to improve leadership through input of assessment by

person’s supervisor, sub-ordinates and peers. By applying this tool we can provide the information which cannot be obtained from conventional assessment.

“The author of this tool believes the anonymity which facilitates to obtain an honest, objective and

user friendly feedback. The author does not believe the tool should include written comments because he has observed that a single written comment often serves as a major distraction.” Instrument has 43 items and can (360 degrees questionnaire) assess following very famous ten leadership behaviors as shown in figure 6.


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Co

mm

un

icat

ion

Lear

nin

g

Infl

uen

ce

Co

nfi

den

ce

Kn

ow

led

ge

Stra

tegy

Pri

ori

tie

s

De

lega

tio

n

Re

lati

on

ship

s

Inte

grat

ion

Figure 6: Ten Leadership Behaviors

Source: Author’s Designed

Ten competencies of this instrument are well thought out roles to be performed by a leader in an organization; therefore author feels that true application of this tool can bring a real change by improving the effectiveness and efficiency of the individuals and the organization. Author strongly recommends the use of this tool for every organization if management really desires to bring change in environment. 3. Applications of 360 Degree Feedbacks

Now application of 3600 tool has got worldwide recognition but still many organizations have not applied this in their system. According to a Guide for Departments and Agencies (2nd edition), (2001), a few under mentioned organizations (officers and departments) have truly applied this tool in order to assess their leadership: 3.1 “According to Cabinet Office 360 Team”

Following 5 major HR activities have been identified where use of feedback of 360 degree tool can play very positive role: “Individual Development”

It is a sort of a very simple application in Senior Civil Service. Participants are encouraged to ask themselves the following questions:

What is the Impact of their behavior?

How do other perceive me?

What does this information tell me about my working relationships?

How might I adapt my behavior in order to become more effective in my role and improve my relationships with colleagues at work?”

Appraisal

This is used to expand the process of performance appraisal. In this case the participants discuss the feedback with line managers and record is placed in their personal file.

“3600 feedback doesn’t affect pay, it does inform the line managers about evaluation of the

individual performance and can indirectly influence pay decision. When 360 feedbacks is used for this process it either takes place shortly before the annual performance review or some other time to review the performance.”


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Performance related Pay This instrument is used to tell about pay for performance decision. Purpose here is to bring justice

in process by engaging many persons in the assessment of the performance of one person.

Recruitment and Selection “In Recruitment and Selection purposes. Candidates are asked to take part in 360 feedback survey

as part of the assessment process and their results are reviewed alongside their performance at interview and in other selection test.”

Organizational Development

Development in organization can be done by using 360 degree feedback questionnaire, which include areas of attributes, values, which reflect diverse environment. The compiled individual’s responses can be helpful to highlight the areas need to be developed in an organization. Staff attitude can also be examined with the help of this compilation, and also help to pinpoint which areas need some action.

3.2 “Application to use in Public Administration”

Multiple organizations, due to their nature of work and lack of objectivity of 360 degree feedback, have restricted this method only for development purpose. The organizations where feedback is appreciated, have implemented this application into their appraisal, performance pay and selection system. Before the broader use of this application, it was also used for development as well. According to a Guide for Departments and to Agencies (2nd edition), (2001), following organizations have adopted 360 degree feedback in their assessment system:

Cabinet Office After the identification of perceived lack of leadership, the cabinet office has implemented 360 degree feedback in its top management. After the successful implementation of this application, it is rolled out in the rest cabinet office. The initial briefing and one-to-one feedback is arranged by internal team and external consultant respectively. The cabinet office has program of executive coaching for Senior Civil Services (SCS), after the identification of developmental needs through this process. 360 degree feedback is discretionary to rest of the staff. Defense Ministry Captioned ministry uses this tool in their training programme. The goal is to provide participants a comprehensive analysis of their development needs, which can be addressed during the program. The core capableness of SCS and MOD based questionnaire is used for feedback. “Department Of Transport, Local Government and the Regions (DTLR)” 360 degree method is being used by the organizations since last many years. The objective to use this tool of 3600 feedback is to promote self-awareness in a specified group. And also to develop the strategies to tell the workers their weaknesses and strengths. It inculcates and flourishes leadership skills in team leaders and other senior staff of the organization and encourages them to show efficient leadership behavior. The staff coming below SCS will have to attend the workshops where 360 degree tool is taught as the initial process. “The participants of the workshop benchmark their own skills against a competitive framework or against the framework of the higher framework competence. Participants can discuss their 360 degree results and outcomes with an in house observer who works with them and provide them feedback of the duration of the workshop. For team leader’s management coaching program of the department offers them a 360 degree feedback exercise as a initial stage of the program after which 4 sessions are held with the executive coach. The program addresses their management skills in particular.” For Senior Civil Service (SCS) members’ executive coaching program consists of 360 degree feedback and is followed by three sessions. The program focuses on leaderships skills in particular. 4. Reasons for not Implementing 3600 Method

There are many reasons for not implementing and promoting the 360 degree method. A few well thought out reasons are elaborated as follows:

Autocratic style of leadership in which leaders like to exercise power. These leaders maintain the bossing mentality and they want to keep everything in selves’ control.


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The classical and old techniques are preferred which are dangerous for the promotion and development of organizations.

Lack of understanding of merits and demerits of using the 360 degree method.

The government’s slackness in promoting the benefits of 360 degree method to public and at educational level.

Non availability of funds for purchasing new technology and instruments.

Poor interaction between the large scale and small scale organizations due to which a communication gap exists between them.

Lack of positive attitude and carelessness of the management leads to the degradation. 5. Conclusion

Assessment of individual’s knowledge, skills and abilities is considered as an essential activity for the individual as well as organizational success. Implementation of the leadership assessment program is paramount for the smooth conduct of operations in the organization. The concept and purpose behind assessing the leadership skills is to understand the weaknesses and strengths so that a development plan is formulated accordingly.

There are many leadership assessment tools used in all over the world. But the 360 degree

feedback method is considered the most helpful and innovative method for evaluating a leader’s Knowledge, skills and abilities.

The 360 degree method has not yet got an implementation status in many of the organizations. Professors delivering lectures on 360 degree method keep very less knowledge and skills so even minimal standard have not been achieved so far. Organizations are not able to transform old “personnel” department into modern and innovative “human resource department.” The reason behind is that organizations don’t have the basic infrastructure for it.

In order to flourish with fast pace it is need of the hour to adopt prevailing modern concepts and innovative technology. However, it is concluded that in order to conduct all the operations in the organization in the most efficient and effective manners, implementation of instrument 360 degree feedback is recommended as mandatory. Because an assessment about an individual made by all the concerned people is considered much more rationalized and accurate than the one conducted by only one boss. References:

A guide for department and agencies, (2001),The Bashingstoke Press Ltd, UK available at: http://www.cabinet-office.gov.UK/civilservice/performanceandreward/senior-civil-service.htm.

Briscoe, J. P., & Hall, D. T., (1999), “Grooming and picking leaders using competency frameworks: Do they work? An alternative approach and new guidelines for practice”, Organizational Dynamics Review, autumn, Vol 28 No 2 pp. 37.

CCI Profiling System (2003), “Leadership Assessment Survey (LAS)”, at http://shrm.org. Gorham, Richard (2002), “Tools for the Successful Leader - 360 Degree Leadership tool”available

at: http://www.Leadership-Tools.com, Jeanneret, R. & Silzer, R. (1998). ”An overview of individual psychological assessment. Jossey-

Bass Publishers, NY. USA, pp.3. Kaplan Robert, Kaiser Robert B, (2006), “The Versatile Leader”, available at;

www.kaplandervies.com and www.versatileader.com. Organizational Performance Products>Employee Performance> VisionM-360 Degree Employee

Appraisal – 2006 Vision Metrics Disclaimed, available at: www.visionM-360degreeemployee appraisal.htm. Perth – The concept of the Leadership Cockpit.TM “Leadership Assessment and Training”. Perth

Leadership Institute, Australia.Published by National Institute of Standards and Technology, Technology Administration in US Department of Commerce, available at: www.baldrige.nist.gov/Progress.htm,

Shippmann, J.S., Ash, R.A., Battista, M., Carr, L., Eyde, L.D., Hesketh, B., Kehoe, J., Pearlman, K.,& Prien, E.P. (2000), “The practice of competency modeling”,Personnel Psychology, Vol.53, pp.703-740.

Spencer, L. M., & Spencer, S.M. (1993), Competence at Work. NY: USA p.125.

http://www.visionmetrics.net/en/op_index.aspx

http://www.visionmetrics.net/en/performance_management.aspx

http://www.baldrige.nist.gov/Progress.htm


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Impact of Trade Liberalization on FDI Inflows to D-8 Countries Mumtaz Hussain Shah1 and Saima Samdani2

Abstract

This paper studies the impact of trade liberalization on foreign direct investment (FDI) in D-8 member countries, that are, Bangladesh, Egypt, Indonesia, Iran, Malaysia, Nigeria, Pakistan and Turkey over the time period of twenty two years (1991-2012). Using panel data random effect model, it has been revealed that trade liberalization is significantly and positively effecting FDI inflows to D-8 members. This study also show that the traditional location pull factors of FDI such as market size, economic growth, infrastructure and exchange rate are also desirable besides with trade liberalization for inward FDI in D-8 member nations.

Keywords: Foreign Direct Investment, Trade Liberalization, Panel Data, Inward FDI relationship, D-8 countries. 1. Introduction

Over the past few decades liberalization of natural and artificial barriers to trade and investment has encouraged overseas investment flows to the developing countries. During the late 1980s and early 1990s, liberalization took place in almost all the developing economies (Naveed and Shabbir, 2006) causing increasing inward FDI. Mexico by signing North American Free Trade Agreement (NAFTA) with Canada and United States liberalized its trade and investment regimes and witnessed increased FDI inflows especially from US multinationals. Economies like Turkey, Korea and Ghana also follow suit and were subsequently hosting foreign investments after successful trade liberalization.

Trade liberalization is generally termed as reducing or elimination of tariffs, quotas and non-tariff

barriers and thus making the trade free of these hurdles among the economies worldwide. It enables the countries to capture those markets where they can avail comparative advantage i.e. they can easily produce their product at lower cost. Restrictions on FDI are reduced by many countries and incentives been adopted in order to encourage FDI (UNCTAD, 1996). Moreover, the economic success of the East Asia is partly because of the trade facilitating factors, where over the past twenty years the import tariffs are reduced to 10 percent from 30 percent (IMF, 2001).

Foreign Direct Investment plays an important role in worldwide business. It is a potent and important

tool of economic development in today’s world. FDI is basically an investment in which the investors ought to invest in the other countries either by fully owing the whole business or in partnership. This allows the investors to access other markets where they can avail different and possibly better opportunities, than their own country. Those opportunities can be in the form of advance technology, better production facilities, economies of scale and other resources. In today’s globalized world trade liberalization is certainly one of the vital factors in attracting FDI to the host country. According to World Bank, FDI is the investments done for attaining enduring organizational benefits (at least having a control of 10% or more in the organization) in the host country.

The primary research objective of this study is to explore the influence of trade liberalization on FDI

inflows in D-8 countries. The reason for choosing D-8 countries is because research studies on trade liberalization are rarely found specifically in D-8 members. This study, therefore, will surely not only enhance the readers understanding about trade liberalization and its effect on inward FDI but also add to the scant existing pool of knowledge about trade openness and inward FDI relationship in D-8 member countries.

1.1 Hypothesis of the Study:

The following hypotheses are set to answer objective of this study: Hο1: Trade liberalization has no impact on inward FDI in D8 countries

Ha₁:Trade liberalization has an impact on inward FDI in D8 countries

1Assistant Professor Institute of Management Studies, University of Peshawar. 2Postgraduate Scholar at Institute of Management Studies, University of Peshawar.


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2. Literature Review Over the past few decades FDI inflows have grown both in developed and developing countries

and constitute a major element of the economic globalization. The main focus of this literature review is evaluation of the impact of trade liberalization on inward FDI in D-8 economies. Other conventional location FDI pull factors are also briefly discussed.

Numerous location pull factors affect foreign direct investment in one way or other. Market size is

considered one of the primary ones among them. Mughal & Akram (2011) revealed that market size positively affects FDI inflows and there exists a long term association between the two in developing countries; whereas the exchange rate and corporate taxes in case of Pakistan had negative relationship with FDI. Aqeel & Nishat (2004) also ascertain that in case of Pakistan market size has positive effect on FDI inflows.

Rehman et al. (2011) studied the case of Pakistan for analysing how FDI inflows are affected by

host country’s infrastructure, exchange rate and market size. By the use of time series data for the time period 1975 to 2008, their findings proved the significance and positivity of infrastructure’s impact on inward FDI. Similarly, Bakar et.al (2012) focusing on the Malaysian economy explored the role of infrastructure availability along with trade openness, market size and human capital in attracting FDI. Time series analysis technique on data for the years 1970-2010 was used. The results showed positive and significant effect of infrastructure on FDI and concluded that there should be focus on both hard and soft infrastructure development. The results also confirmed positive and significant effect of trade openness, market size and human capital on FDI.

Mottaleb (2007) inferred in his study that larger the GDP and GDP growth rate the higher is the

countries potential to attract FDI. Similarly, business friendly environment and better infrastructure facilities are also efficacious motives of FDI attraction for a country.

Liargovas & Skandalis (2012) worked on FDI and openness in developing countries and revealed that

openness positively influences inward FDI in long run. They used panel data on a set of thirty six developing countries using five variables, namely, nominal gross domestic product, GDP per capita, political risk, exchange rate stability and openness. Asiedu & Brempong (2008) paid attention towards the liberalization of investment policies and scrutinized its impact on employment and multinational corporation approach towards investment in Africa. By using dynamic panel data method for thirty three countries their findings proved the significance of liberalization for investment and the subsequent indirect impact on multinational employment. The study also revealed that FDI may help in poverty mitigation for which liberalization play a vital role. Their results recommend that the countries could be made attractive by policy makers through liberalizing there investment regulatory framework.

Asiedu’s (2002) study showed that trade liberalization and FDI complement each other. Trade

liberalization promotes FDI to sub-Saharan as well as non sub-Saharan African countries. However, the benefits are realized more in non sub-Saharan African countries due to greater trade liberalization. The study revealed that openness is universally important for FDI attraction as open economies are more likely to influence the initiation of foreign capital.

Goldar & Banga (2007) advocate that trade openness reduces trade expenditure which leads to

higher profitability of international vertical integration of multinational firms engaged in export oriented investment. This would attract efficiency seeking and cost reducing FDI since it implies that foreign firms can now import cheaper intermediate goods which they may produce in some other country and export the final product to their home country or a third country. Contrary to their findings Seim (2009) investigated the impact of openness on FDI inflows and found a negative relationship between them i.e. between FDI and the degree of openness.

Zakaria, Naqvi & Fida (2014) focused on the impact of trade openness on FDI in Pakistan. For this

purpose they used quarterly data from the period 1972-2010. They included nine variables along with openness in their model. They discovered that decrease in tariff and obstructions on import would encourage foreign investors to invest in Pakistan; moreover, it would make the conditions better and


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favourable for the rent and efficiency seeking FDI. Other determinants that positively affect FDI included human capital, urbanization, infrastructure etc. Their results were robust to the use of alternative specifications.

According to Erdal and Tatoglu (2002), there’s remarkable increase in FDI in Turkey; after its

government initiated a series of reforms in 1980’s. Time series analysis of location-related determinants was undertaken for the period of 1980 to 1998. Results revealed that FDI was positively affected by market size as larger the size of the market, greater are the opportunities because of more customers. Likewise infrastructure and openness increased attractiveness of the host country.

Shah (2010) also found positive and significant relationship of TRIPS, TRIMS and liberalization of trade

on inward FDI. Likewise Edward (1990) also showed the importance of trade openness for FDI inflows. Anyanwu (2011) examined the factors responsible for FDI to African countries using panel data for the time period 1980-2007. His empirical findings revealed positive relationship of FDI with market size, openness to trade and negative relation of financial development with FDI in African region. The study showed that larger market size encouraged FDI and regional cooperation and integration help increasing market size which in response would encourage investors to invest. Secondly, lower financial development in African regions tends to be strong interpreter of FDI inflows. Thirdly his results showed that investors achieve higher investment return in open economies.

Oyamada’s (2003) findings show that the openness between Japan and ASEAN4 resulted in boosting

of FDI in the partner countries and the increase does not lower the volume of production in Japan and ASEAN4. His findings also depicts that due to higher production of Japanese companies in ASEAN4, the output prices of the products depreciate due to lowering of intermediate goods cost, ultimately resulting in higher consumption of these goods in every country except China.

Sekkat and Varoudakis (2004) validate that trade and foreign exchange liberalization are the

essential factors for FDI desirability. Owusu-Antwi et.al (2013) tried to find the factors influencing FDI in Ghana. Time series data was used for the time period of 1988-2011. By using regression analysis, their results illustrated that trade openness, exchange rate, infrastructure and natural resources are the key drivers of FDI to Ghana. A cross-sectional study on 38 developing countries was done by Demirhan and Masca (2008), in order to capture the factors determining FDI. Positive and significant results were discovered for openness, infrastructure as well as growth potential. Hoang (2012) also portrays the positivity and significance of trade openness, market size, quality and availability of better infrastructure on FDI inflows in South East Asia during 1991-2009.

3. Theoretical Framework

Theoretical frame work is basically a structure that embraces and provides ground to the theory of the research study. Because of theoretical frame work, network of association is created between the dependent and independent variables. Here an effort is also made to identify whether trade liberalization has positive or negative impact on FDI inflows.

3.1 Dependent Variable: Foreign Direct Investment

Foreign Direct Investment is a long term investment, in which the investor invests in the assets and resources of another country directly. The investors basically invest in the real assets of the host country. Here FDI is taken as an independent variable and net FDI inflows in US $ are taken as a proxy from the World Bank, World Development Indicators (WDI) 2014 database for D-8 countries in order to check the influence of trade liberalization on FDI.

3.2 Controlling/Independent Variables:

In this study, six independent variables are taken, in which market size, economic growth; financial development, exchange rate and infrastructure are controlling variables while trade liberalization is taken as the main explanatory variable. All the independent variables utilized in the study are elucidated below, in order to show their relative importance.


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3.3 Market Size: Market size is one of the vital factors in attracting FDI. Larger markets provide opportunities for the

economies of scale. In FDI literature market size is mostly considered as one of the important determinant of FDI inflows. Population (total) is taken as a proxy for market size from the World development indicators 2014 for each member of D-8 countries.

3.2.1 Financial Development:

Like other factors financial development is also considered as an essential locational determinant of FDI. In this study financial development is captured with the proxy of ‘‘market capitalization of the listed companies’’ which is taken from the WDI 2014.

3.2.2 Exchange Rate:

Exchange rate is also one of the location pull factors of FDI inflows. Weaker currency mostly seems attractive to the foreign investors as it provides better purchasing power. Froot and Stein (1991) found negative relation between exchange rate and FDI. Here the local currency’s exchange rate per US$ is taken as a proxy for exchange rate. The data is collected from the Penn world table 8.

3.2.3 Economic Growth:

Economic growth is presented by gross domestic product per capita growth in US$. It is taken from the WDI 2014. Countries with better living standards and income levels are fancied by the investors because their citizens have purchasing ability to buy quality products and afford valued services.

3.2.4 Infrastructure:

Better, developed and quality infrastructure’s presence is one of the key factors in attracting investors to invest in the country (Shah, 2014). The proxy of electricity production (total) from World development indicators 2014 is included and positive effect is expected on inward FDI.

3.2.5 Trade Liberalization/Openness:

The cardinal variable in this study is trade liberalization/openness. Openness here means when a country is allowing or permitting another country to enter its market through investing, importing and exporting etc. More liberal economies offer more investment opportunities than the closed ones. As evident from our literature review several authors including Goldar and Banga (2007) & Liargovas and Skandalis (2012) signifies its importance for host countries to attract foreign investment. The expected effect of all the explanatory variables is summarized in table 1.

Table 1. Expected Signs of the Variables Effecting FDI Inflows into D-8 Countries

VARIABLES EXPECTED EFFECT

MARKET SIZE POSITIVE

FINANCIAL DEVELOPMENT POSITIVE

EXCHANGE RATE NEGATIVE

ECONOMIC GROWTH POSITIVE

INFRASTRUCTURE POSITIVE

TRADE OPENNESS POSITIVE

4. Methodology 4.1 Sample

This study is basically done to investigate the impact of trade liberalization/openness on FDI in D-8 countries i.e. Bangladesh, Egypt, Indonesia, Iran, Malaysia Nigeria, Pakistan and Turkey. The study is based on secondary data for the time period 1991-2012. Data is collected from World development indicators (WDI) 2014 and Penn world table version 8.


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4.2 Model Specification The following model is specified in this study to analyse the impact of trade liberalization/openness

along with the market size, financial development, economic growth and infrastructure on inward FDI in D-8 countries.

FDljt= f (Market Size, Financial Development, Exchange Rate, Economic Growth, Infrastructure, Trade Openness) jt ………………….……………………………………………………… (I)

Where: Foreign Direct Investment is taken as a dependent variable. Market Size, Financial Development,

Economic Growth, Infrastructure and Openness are taken as independent/controlling variables. Trade openness is the principal independent variable of the study, whose influence is checked along with the other controlling variables on FDI inflows. j is representing the member countries that vary from 1 to 8. t is representing the time period from 1991-2012. Therefore the total observations for each variable are 22*8=176. These variables are replaced by suitable proxies and equation 1 is log linearized, which gives us equation II. Taking log of the variables helps in removing the expected heteroskedasticity (Resmini, 2000).

Lnfdijt= αo + β1lnPopjt + β2lnMclcjt + β3lnXratejt + β4lnGDPPcGjt + β5lnElecjt + β6lnTradejt + ξjt… (II)

Where:

lnFDI = log of net FDI inflows in US$ is taken as a proxy for FDI. α = constant. β₁β₂β₃β₄β₅ and β₆ = parameters used to link the dependent variable with independent variables. lnPop = market size is represented by log of total population. lnMclc = financial development is the log of market capitalization of listed companies in US$. lnXrate = log of exchange rate per US$ is used for exchange rate. lnGDPPcG = log of gross domestic product per capita growth is taken as a proxy for economic growth. lnElec = log of total electricity production is employed as a proxy for infrastructure. lnTrade = log of trade (% of GDP) is taken as a proxy for trade openness. ξis the error term. The descriptive statistics for all the variables are given below.

Table 2. Descriptive Statistics

Variables Proxy Number of

Observations Mean Median

Standard Deviation

Minimum Maximum

FDI LnFDI 176 20.8865 21.0683 1.9003 14.1451 23.8164

Market size LnPop 176 18.2958 18.3039 0.6548 16.7446 19.3243

Financial Development

LnMclc 176 19.1273 19.1286 1.7381 14.9866 23.2671

Exchange Rate LnXrate 176 4.1401 3.9475 2.9039 0.004 9.4162

Economic Growth LnGDPPcG 176 1.0632 1.4612 1.1413 -3.2451 3.4450

Infrastructure LnElec 176 24.8586 25.0429 0.8414 22.8359 26.2027

Trade Openness LnTrade 176 4.0164 3.9315 0.5281 2.9902 5.4

Values are rounded off to four decimal places

5. Estimation Issues and Techniques In this study STATA 11 software is used for analysing and estimating the results. Data is taken for all

the eight D-8 member countries for 1991-2012 time period.

5.1 Hausman Specification Test In order to apply the imperative estimation technique for analysing the data arranged in the panel

form, Hausman (1978) specification test is carried out to choose between the fixed and the random effect method. The results of the test with the Probability of chi² = 0.9702 shows that we are unable to reject the null that’s why random effect panel estimation technique is used.

5.2 Heteroskedasticity

For heteroskedasticity Breusch-Pagan / Cook-Weisberg test is conducted which with a p-value of 0.000, shows that we can reject the null hypothesis of homoskedasticity and have to control for heteroskedasticity. The problem is managed by applying the robust option and values robust to heteroskedasticity are reported throughout the study.


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5.3 Multicollinearity: It is known that, multicolinearity between the predictor variables causes a number of problems in

recognising the significance of each explanatory variable individually. Correlation as well as variance inflation factor (VIF) in multiple regressions is used as multicollinearity indicator. There are different acceptable levels of VIF proposed by different researchers in the literature. The most recommended maximum value of VIF is 5 (e.g. Rogerson, 2001). The maximum value 10 of the VIF is also recommended by some authors which is also acceptable (e.g. Kennedy, 1992). In this paper with mean VIF of 1.89 there is no problematic multicollinearity issue. The correlation matrix is reported as table 3 and VIF values for each model are given in table 4.

Table 3. Correlation Matrix

Serial No Variable Name 1 2 3 4 5 6 7

1. FDI 1

2. Market size -0.061 1

3. Financial Development 0.510 -0.398 1

4. Exchange rate -0.079 0.559 -0.138 1

5. Economic Growth 0.195 0.027 0.049 0.101 1

6. Infrastructure 0.421 -0.183 0.247 0.134 0.042 1

7. Trade Openness 0.477 -0.644 0.657 -0.208 0.064 0.132 1

Values are rounded off to three decimal places

Table 4. Variance Inflation Factor

No MODEL VIF

1 Lnfdijt = αo + β1 lnPopjt + ξjt 1.00

2 Lnfdijt = αo + β1 lnPopjt + β2lnMclcjt + ξjt 1.19

3 Lnfdijt = αo + β1 lnPopjt + β2lnMclcjt + β3lnXratejt + ξjt 1.46

4 Lnfdijt = αo + β1 lnPopjt + β2lnMclcjt + β3lnXratejt + β4lnGDPPcGjt + ξjt 1.36

5 Lnfdijt = αo + β1 lnPopjt + β2lnMclcjt + β3lnXratejt + β4lnGDPPcGjt + β5lnElecjt + ξjt 1.37

6 Lnfdijt = αo + β1 lnPopjt + β2lnMclcjt + β3lnXratejt + β4lnGDPPcGjt + β5lnElecjt + β6lnTradejt + ξjt 1.89

6. Results and Discussion

The data for D8 countries for 22 years i.e. for 1991-2012 is analysed here. Table 5 on the following page shows the regression analysis in which the coefficient of market size (i.e. population) in model 1 is 1.7956 which means that with a one unit increase in market size, FDI increase by 1.7956. Market size here, is significant at 10%. With the inclusion of financial development (Mclc) in model 2, market size (Pop) is significant at 10%, while financial development shows insignificant effect on FDI, having Z-score of 1.31. After adding exchange rate (Xrate) in model 3, market size is still significant at 10%, while financial development and exchange rate have no significant effect on FDI.

The addition of economic growth (GDPPcG) with market size, financial development and exchange

rate in model 4, brings the fit of the model to 19.17%. Here economic growth is significant at 1%. While market size, financial development and exchange rate exhibits no significant influence on FDI as their Z-scores are 1.39, 1.42 and 0.79 respectively, which are less than the corresponding critical values.

With the inclusion of infrastructure (Elec) in model 5, the fit of the model increases to 32.15%. The

Z-scores of market size (Pop); financial development (Mclc) and exchange rate (Xrate) shows insignificant relationship with FDI whereas economic growth (GDPPcG) and infrastructure (Elec) shows positive and significant sway on inward FDI at 5% and 1% respectively.

Table 5. Regression Analysis

Variable Used Proxy Used 1 2 3 4 5 6

Market Size LnPop 3.2668* (1.7956)

1.3827* (0.8124)

0.8956 * (0.6379)

0.8396 (0.6027)

0.9256 (0.9964)

2.3258*** (0.4182)

Financial Development

LnMclc 0.4376

(0.3343) 0.4724

(0.3092) 0.4223

(0.29687) 0.2338

(0.1683) 0.1354

(0.1595)

Exchange Rate LnXrate 0.0772 0.0660 -0.1029 -0.2593***


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(0.0852 ) (0.0835) (0.1198) (.0619)

Economic Growth

LnGDPPcG 0.3525*** (0.0906)

0.3042 ** (0.1464)

0.2864 * (.1688

Infrastructure LnElec 1.6912*** (0.5216)

1.2159 *** (0.3396 )

Trade Openness LnTrade 2.6836*** (0.6692)

Number of Observations 176 176 176 176 176 176

R-square 0.37% 13.03 % 17.10% 19.17% 32.15% 63.55%

Values rounded off to four decimal places, Significance:*10%, **5%, ***1%, standard errors are robust to heteroskedasticity

Trade Openness (Trade) which is the principal variable, when added in model 6, the desired

estimation of the study is completed. Market size (Pop) become significant at 1%, with the expected positive sign showing that the increase in the market size is well connected with FDI inflows in host country. While financial development (Mclc) shows positive but insignificant effect on FDI having Z-score of 0.85, which means that, its presence or absence has no effect on FDI. Although, the result is insignificant, yet the sign came out to be positive as expected. Exchange rate is negatively significant with FDI at 1%. It shows that these countries will also benefit from increased inward FDI, if the value of their currency depreciates in a slow predictable manner. Economic growth (GDPPcG) is significant with 10% showing positive sign meaning that FDI inflows are responsive to per capita growth of the investing countries. Infrastructure is also positive and statistically significant variable for FDI inflows. It came out to be significant at 1% showing consistency with the proposition that better and developed infrastructure is one way of attracting FDI to the host country. The core variable i.e. trade openness (Trade) is positively significant at 1% level. This result indicates that trade liberalization leads to improvement in the host countries business activities. Open economies seems to be a better choice for the investors and it thus increases FDI flows to the country.

The overall fit of model 6 is 63.55%, which demonstrates the extent to which FDI i.e. the dependent

variable is influenced by these independent variables i.e. market size (Pop), financial development (Mclc), exchange rate (Xrate), economic growth (GDPPcG), infrastructure (Elec) and trade openness (Trade).

7. Conclusion

The objective of this paper is to shed light on the impact of trade liberalization on the FDI in D-8 member countries. Here random effect panel estimation technique is utilized for the time period of 1991-2012. Trade liberalization/openness proves to be an important locational pull factor for FDI. It seems to be significantly influencing overseas investors’ investment decision. It is also substantiated through the results that the presence of larger domestic market size, better infrastructure, and prospects of economic growth facilitates FDI in these countries. The devaluation of currency is also one of the causes of the inflows of FDI to these members. However, it need to be remembered that the results are relevant to D-8 economies only and cannot be generalized universally to other countries. References

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Tell Us? Middle East Journal of Scientific Research, 19(12), pp.1587-1597.


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Profit Optimization through Cobb Douglas Production Function

Dr. Iqbal Ahmed Panhwar1, Dr Zahid Ali Channar2andHira Ghaffar Bachani3 Abstract The purpose of this study is to examine the relationship between dependent variables– capital & Labor L- and independent variable- production turnover- in order to optimize the profits of the JS bank in Pakistan. Data was collected from the financial statements of the JS bank for period of five years. Using regression technique through SPSS parameters A, α and β were estimated. Cobb Douglas Production function was estimated through Econometric Views (Eviews) package. The model constructed through Eviews is 73.419K0.669L0.885 , here value of A, which is called as total factor productivity, is 73.419, value of α, which is the parameter of Capital(K) and measures the responsiveness of output to change in capital, is 0.669 and value of β = 0.885. Beta (β) is the parameter of Labor (L) and measures the responsiveness of output to change in labor. The results show that the value of β (0.885) is more than the value of α(0.669), hence the responsiveness of labor is more in production than responsiveness of the capital. This proves that investment on labor (L) is more profitable than investment on capital (K). This research has implications for the managers as well as for the owners of the organizations. Key Words: Production, Cobb Douglas, Capital, Labor, Output. 1. Introduction Profit maximization is a term applied to utilize the resources of the organization in most efficient way. By utilizing the resources properly, profits will be automatically enhanced (Malcolm 2003). Unlike Profit maximization, profit optimization is cutting down the unnecessary costs in the production. By optimizing the profits the firms can occupy a better place in the international markets. Profit optimization is mostly concerned with cutting the costs which incur on wages, production of finished goods, etc. According to (Dominick 2004) A firm produces goods and services through combining land labor and capital and raw material to maximize its profits or maximizing sales or growth. How much of the land, labor and capital is to be used has always been a question for the organization to produce the output most efficiently. The firm needs technological and engineering data on production possibilities to product the efficient output. These possibilities are summarized in the production function. Banaeian (2011) has defined production function as “specification of the minimum of the input requirements to produce an output, at available technology”. In the neoclassical economics, production fnction has a vital position for economic analysis. Philips (1894) was considered as the pioneer of the production function because he was the first economist who algebraically expressed the production function in a formula i.e. P = f (x1, x2 ,..., xm). There are also certain evidences that John von Thünen was the pioneer of this function (Humphrey, 1997). Production function is used not only at micro level, for firms, but also at the macro level, on whole economy. At the firm’s level it is used for cost effectiveness and input demands. At macro level it is used to find the contribution of inputs, income and technology in the economic growth (Thomas 1997). In general terms any production function can be expressed as Q=A KaLb Where Q is the quantity of output, K is capital invested and L is the labor and A, a, b are the parameters which are to be estimated empirically. The above equation is often referred as Cobb Douglas production function. The Cobb-Douglas production function is the mostly used empirical analysis for growth & productivity. The Cobb Douglas production function is in-between linear production function and a fixed proportion production function. In this model Labor and capital can be substituted for each other. The elasticity of substitution for Cobb Douglas lies between 0 and ∞ (David, 2010). The Cobb Douglas production function has declining marginal products at all levels of inputs but the decline is increasing as the input increases. It involves constant elasticities and that is the main advantage of Cobb Douglas production function. The elasticity in this case is the output elasticities; the coefficient b refers to output

1Professor, Department of Management Sciences, Bahria University, Karachi. Email: [email protected] 2Dean, Management Sciences, Institute of Business and Technology Karachi. Email: [email protected] 3 Lecturer, Department of Management, Isra University, Hyderabad.




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elasticity with respect to labor. Meaning that every 1 percent increase in labor input will increase output by b percent assuming that capital input is held constant (Nick Wilkinson 2005). In this function Q is the output and L and K are the labor and capital respectively. Α, α and β are the positive parameters. The greater the value of A, the advanced is the technology. The α and β also shows the returns to scale, if α+β>1 it shows that there is increasing returns to scale, α+β<1 shows that there are decreasing returns to scale and α+β=1 there are constant returns to scale. (Dominick 1991). 2. Literature Review AbidemiAbiola (2010) attempts to evaluate the performance of commercial banks in Nigeria in order to determine that factors that give strength to banks and how they are able to sustain the performance in the era of stiff competitive banking environment. The methodology used for this research is co integration and error correction model. The time series data has been used spanning 49 years. Two models have been defined for the study, the Cobb Douglas production function and the constant elasticity of substitution production function. The results showed that the substitution parameters, α and β are in support of economic theory of the two being positive values of less than one. It also revealed that if the bank doubles their inputs in terms of labor and capital, the deposits which are the outputs will also be doubled. He suggests that if the bank wants to increase the productivity in terms of deposits more unit of capital and labor must be employed. Baba et al (1997) investigated how the productivity & profitability in the retail banking sector of US is affected by the investment in IT sector. Data were collected through a major study of 115 retail banking institution in the United States and it has also been collected from an ongoing four year project at the financial institution center at the Wharton school. They have employed Cobb Douglas production function as most of the IT based productivity has used this model. Their study simulates bank as operating according to the Cobb Douglas production function. The results showed that IT investment has more significant negative impact on output than non IT capital investment. It further reveals that the banks in their study may have overstated in their IT capital. IT labor is the most profitable of all four types of investments therefore there is significant benefit in hiring and retaining IT labor. This paper also presents an elementary investigation into what characteristics of a bank lead to effective use of IT labor. It is further suggested that key driver of efficiency and effectiveness in the industry is the management of the IT labor force and procurement process. Nasir et al. (2011) have conducted research to find the impact of social and physical infrastructure on agricultural productivity in Punjab, Pakistan. Both physical and social infrastructure has been pointed out in this study. To verify the study they have used multivariate Cobb Douglas production function for the period 1970-2005. Data about Punjab total factor productivity, expenditures on rural health and education, rural roads (1985 to 2005) expenditures on irrigation and transportation and number of villages having electricity in the province, expenditures has been collected from various sources as aggregate expenditures on crop and livestock subsectors in province of Punjab, survey variables to capture the influence of weather, floods etc. External source of secondary data was used for this research. The results revealed that public investment on physical infrastructure that include rural roads, village electrification and irrigation and social infrastructure including rural education and health have contributed very much and positively to total factor productivity. The study recommended that more resources should be steep towards the development of physical and social infrastructure that will amplify the agricultural productivity as well as it reduces the poverty. Winston et al (2002) has examined the productivity impact of ATM development in the Barbadian banking industry over the period 1979-2001. They have employed the Cobb Douglas production function. Sample of seven local commercial banks was taken. The value of real output of commercial banks has generally trended upwards throughout most of the period under consideration primarily due to a relatively robust rate of growth in real economic activity experiencing during the period. The Cobb Douglas estimate results using the pooled fixed effects and instrumental variable estimators. The results revealed that ATM when was introduced initially lowered bank productivity due to implementation costs related to staff training, customer awareness programs.


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3. Hypotheses H1: Organization invests in right proportion on capital and labor. H2: Appropriate investment in capital and labor will heighten the profits of the organization. 4. Research Methodology Secondary data was used for this descriptive research. Data was collected from the internal records of the organization mainly from the financial statements of the JS bank. Data for capital & Labor is recorded through ratio scale. The range of data is five years i.e. 2008-2012. Four year (2008-2011) financial statements are taken from the internal records of the organization whereas the data for 2012 is taken from the financial statement published in Jung newspaper 30th march 2013. The independent variable used in this study is production/ turnover: total non-markup/ interest income which include all the services rendered by the bank with the help of labor and capital where as it excludes profits earned through reinvestment of the funds or interest generated from the investment. Two dependent variables have been used in this study. The two dependent variables are labor which includes the total wages of the labor, and capital which includes all the investment in fixed assets by the JS bank. Statistical technique used for analyzing the data of this research is called Cobb Douglas production function, which is the most widely used technique in econometrics. The method of ordinary least square is applied to convert the non-linearity of the Cobb Douglas production function into linearity. 4.1 Data Analysis Data presented in the table 1 has been gathered from the internal records i.e. financial statements of the JS bank. The Js bank has the following production in five years,

Table 1: Production Per Year for JS bank

Year K(000) L (T.wage) (000) Production (000) Total Labor

2008 2496883 383618 1094692 887

2009 3039329 592601 287368 1200

2010 2882941 645010 1241243 1255

2011 3021439 781169 2656710 1619

2012 3165117 1141489 4054833 1945

Data in table 2 shows the results of the analysis carried out by E-views.

Table 2: Eviews results

Table 3: Values of constant & coefficients

Table 3 shows the value of constant i.e. A which is 73.419 which is the value for the total factor

productivity. Total factor productivity is a variable which accounts for effects in total output not caused by traditionally measured inputs. It can range from the technology to the knowledge of worker. The log capital

Variable Coefficient Std. Error t-Statistic Prob.

C 73.4191 48.83212 -1.5035 0.02

LOG(CAPITAL) 0.669 4.438386 1.509105 0.04

LOG(WAGES) 0.88579 1.434153 -0.61764 0.05998

A 73.419

Α 0.669

Β 0.885


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shows the value of α which is 0.669 which shows the output elasticity of capital or in other words it shows the responsiveness of output to change in capital. The log wages is the value of β which is 0.885 this shows the output elasticity of labor and the responsiveness of output to change in labor. Through the above obtained values the model is constructed as Q=73.419K0.669L0.885

Table 4: Output of JS Bank according to the Constructed Model

10 7.22451E+11 1.3342E+12 1.91012E+12 2.464E+12 3.0019E+12 3.53E+12 4.04E+12 4.55033E+12 5.05025E+12 5.54E+12

9 6.73282E+11 1.24339E+12 1.78012E+12 2.296E+12 2.7976E+12 3.29E+12 3.77E+12 4.24064E+12 4.70654E+12 5.17E+12

8 6.22265E+11 1.14918E+12 1.64524E+12 2.122E+12 2.58562E+12 3.04E+12 3.48E+12 3.91932E+12 4.34991E+12 4.78E+12

7 5.69088E+11 1.05097E+12 1.50464E+12 1.941E+12 2.36465E+12 2.78E+12 3.18E+12 3.58438E+12 3.97817E+12 4.37E+12

6 5.13324E+11 9.47989E+11 1.3572E+12 1.751E+12 2.13295E+12 2.51E+12 2.87E+12 3.23315E+12 3.58836E+12 3.94E+12

5 4.5438E+11 8.39133E+11 1.20136E+12 1.55E+12 1.88803E+12 2.22E+12 2.54E+12 2.8619E+12 3.17632E+12 3.49E+12

4 3.91369E+11 7.22767E+11 1.03476E+12 1.335E+12 1.6262E+12 1.91E+12 2.19E+12 2.46502E+12 2.73584E+12 3E+12

3 3.22851E+11 5.9623E+11 8.53601E+11 1.101E+12 1.3415E+12 1.58E+12 1.81E+12 2.03347E+12 2.25687E+12 2.48E+12

2 2.46149E+11 4.54579E+11 6.50803E+11 1.023E+12 1.02279E+12 1.2E+12 1.38E+12 1.55036E+12 1.72069E+12 1.89E+12

1 1.54813E+11 2.85904E+11 4.09318E+11 5.28E+11 6.43275E+11 7.56E+11 8.66E+11 9.75086E+11 1.08221E+12 1.19E+12

1 2 3 4 5 6 7 8 9 10

Table 4 shows the values of output (production) obtained by the constructed model which are obtained by substituting the different values for L and K in the model: 73.419K0.669L0.885. The results indicates that if one million of labor and one million of capital is used the bank can produce 0.1548 trillion of production at the same time if it uses three million of labor and two million of capital it can produce 0.650 trillion of output, if the bank uses seven million of labor and four million of capital it can thus produce 2.19 trillion of production. The output is obtained as 73.419K0.669L0.885

Substituting the values for labor and capital 0. 73.419(1000000)0.669(1000000)0.885

=73.419*10327.614*204173.7944 = 1.548*1011

In the similar manner, the firm can produce 0.246 trillion of output with one million of labor and two million of capital, 0.454 trillion of production can be obtained by investing two million of labor and two million of capital, whereas five million of labor and two million of capital produces 1.022 trillion of production, 5.05 trillion of production can be obtained through investing 9 million in labor and ten million in capital. The JS

Labor (million)

Cap

ital

(m

illio

n)


43

bank can produce 3.58 trillion of production by eight trillion of labor and seven million of capital. Ten million of labor and nine million of capital can produce 5.17 trillion of production. Three trillion of production can be produced by ten million of labor and four million of capital. 4.34 trillion Of production can be produced by nine million of labor and eight million of capital. 1.91 trillion Can be obtained through six million of labor and four million of capital. Different combination if inputs can yield to a different output level. The table of model shows three relationships: substitutability between factors of production, returns to scale, and law of diminishing returns.The following shows the substitutability between the factors of production: labor and capital. Table 5: Substitutability between factors of production

Q Comb 1 Comb 2 Comb 3 Comb 4

K L T K L T K L T K L T

1.2 Tn 2 6 8 1 10 11

2.2 Tn 5 6 11 4 7 11

2.5 Tn 6 6 12 5 7 12 4 8 12 3 10 13

3 Tn 4 10 14 8 6 14 - - -

3.5 Tn 10 6 16 8 7 15 5 10 15

Table 5 shows that there are a variety of ways to produce a particular level of output. As seen in the table 1.2 trillion output can be produced with two million of capital and six million of labor with total eight million of investment in inputs, at the same time 1.2 trillion can be produced with one million of capital and ten million of labor with a total of eleven millions of investments in inputs. The firm JS bank should invest with eight million of investment as it costs less but yields the same level of output as eleven millions of input investment. The 2.2 trillion of production output can be produced with five million of capital and six million of labor with total investment of 11 million in inputs, in the same manner same output level: 2.2 trillion can be produced by four million of capital and seven million of labor with a total of eleven millions of input investment. The Bank can decide over which combination of inputs to employ looking at the availability and per unit cost of the inputs. The 2.5 trillion of production can be produced by employing six million of capital and six million of labor with total investment of twelve millions of inputs. The same 2.5 trillion of output can be produced by five million of capital and seven million of labor with the total investment of twelve millions in inputs. The third combination of inputs which can yield the same level of output is four million of capital and eight million of labor with the total investment of twelve millions. The fourth combination of inputs is three million in capital and ten million of investment in labor with the total investment of thirteen million in inputs. As it can be seen the 2.5 trillion of output can be produced with the total investment of twelve and thirteen million in inputs, the bank can therefore choose from different combinations of inputs resulting twelve millions of investment. The three trillion of output can be produced by four million of capital and ten million of labor with the total investment of fourteen million in total. The other input combination for three trillion is eight million of capital and six million of labor with the total investment of fourteen millions in inputs. The bank if intends to produce three trillions of output should consider these two input combinations depending upon the availability of resources as it wants to use labor intensive or capital intensive input combination. The 3.5 trillion of output can be producing using ten million of capital and six millions of labor with a total of sixteen millions of investment in inputs. The same level of output can be yielded by employing eight units of capital and seven millions of labor with a total investment of fifteen millions in inputs, in the same manner five million of capital and ten millions of labor can also yield 3.5 trillion of output. The bank should choose to employ that input combination that totals fifteen millions of input investment. This study reveals that the firm can either use the labor intensive production process of capital intensive production process. This study shows increasing returns to scale. According to the observed values from E-Views analysis the value for α is 0.669 and the value for β is 0.885 which if summed becomes 1.554 which is obviously greater than one therefore it is proved that JS bank has increasing returns to scale. Α + β = 0.669+0.885=1.554


44

Table 6: Returns to Scale

K L Production

1 2 0.2859 Tn

2 4 0.839 Tn

Table 6 shows the returns to scale. The inputs relates to the outputs, as seen in the table when

one million of capital and two millions of labor are invested, 0.2859 trillion of output is observed but if the capital is doubled to two million and the labor is doubled to four million the output is also more than double i.e. 0.839 trillion that’s also proves that JS bank has increasing returns to scale.

Table 7: Returns to Scale

K L Production

3 4 1.1 Tn

6 8 3.22 Tn

Table 7 shows that when three million of capital and four million of labor is invested 1.1 trillion of output is yielded, when these inputs are doubled as six million of capital and eight million of labor the output yielded is also more than doubled i.e. 3.22 trillion, which is once again showing high returns to scale for JS bank. If one of the inputs is increased and the other input remains constant, the returns are known as return to the factor.

Table 8: Marginal Productivity of Labor

K L Production MPL

1 1 1.548 --

1 2 2.859 1.311

1 3 4.093 1.2342

1 4 5.28 1.1868

1 5 6.432 1.1528

Table 8 shows the marginal productivity of labor. If capital of the JS bank is held constant say one million of capital is invested and the labor investment is increased by one million the total output tends to increase but the marginal productivity of labor decreases as more is invested in labor. As the table shows that when the capital investment is one million and the labor investment is also one million the total product is 0.1548 trillion of production is observed as the investment in labor is increased by one million to two million then three millions and onwards the outputs tends to increase as 0.285r trillion, 0.4093 trillion, 0.528 trillion, 0.6432 trillion but the marginal productivity tends to decrease as 1.311 trillion, 1.2342 trillion, 1.1868, 1.1528 trillion. As the investment in labor is increased the marginal productivity of labor tends to decrease that’s proves the law of diminishing returns here for JS bank.

Table 9: Marginal Productivity of Capital

K L Production MPk

1 1 1.548 --

2 1 2.461 0.9119

3 1 3.22 0.7675

4 1 3.913 0.6857

5 1 4.543 0.6301


45

Table 9 shows the marginal productivity of labor. As seen in the above table the labor is kept constant and the capital input is variable means increasing by one unit. If the labor of the JS bank is held constant and the capital of the JS bank is varied, the overall productivity of the bank increases but the marginal productivity of the variable input that is capital is decreased. When one million of labor is employed and two millions of capital the marginal product is 0.9119 trillion, the capital is increased to three million keeping the labor constant the marginal productivity of capital is 0.7675 trillion, when four million of capital is employed the marginal productivity of capital is decreased to 0.6857 trillion, by employing one more unit of capital that is five trillion the marginal productivity further decreases to 0.6301 trillion. Hence, as we can see as more units of the capital are employed the marginal productivity of the capital tends to fall which approves the law of diminishing returns. 5. Findings and Discussions This research started with first hypothesis, which was “Investment on L (labor) is more profitable than investment on K (capital)”. For testing this hypothesis secondary data collected from the financial statements of the JS bank was analyzed through Cobb Douglas production function. Cobb Douglas Production function was estimated through Econometric Views (Eviews) package. The model constructed through Eviews is 73.419K0.669L0.885 , here value of A, which is called as total factor productivity, is 73.419, value of α, which is the parameter of Capital(K) and measures the responsiveness of output to change in capital, is 0.669 and value of β = 0.885. Beta (β) is the parameter of Labor (L) and measures the responsiveness of output to change in labor. The results show that the value of β (0.885) is more than the value of α (0.669), hence the responsiveness of labor is more in production than responsiveness of the capital. This proves that investment on labor (L) is more profitable than investment on capital (K). On the basis of these results we reject null hypothesis and accept alternative hypothesis: H01: Investment on Labor (L) is not more profitable than investment on Capital (K). Ha1: Investment on Labor (L) is more profitable than investment on Capital (K). In second hypothesis it was predicted that “Appropriate investment in capital and labor will heighten the profits of the organization”. The results presented in the production table have shown that if we invest two million on labor and one million on capital we can produce total production of Rs 0.85 trillion rupees, on the other side if we invest Rs 2 million on capital and one million on labor, we can produce total production of Rs 0.46 trillion. This shows that same amount of investment is used in both cases, i.e. three million, but in first case production of 0.39 trillion is more than the production in the second case. Same is the case for all other combinations of investment on capital & labor. These results show that appropriate investment in capital and labor will increase the profits of the organizations. Furthermore it was confirmed from the table of marginal productivity of Labor and marginal productivity of capital. The table of marginal productivity of labor showed that when the capital investment is one million and the labor investment is also one million the total product is 0.1548 trillion of production is observed as the investment in labor is increased by one million to two million then three millions and onwards the outputs tends to increase as 0.285r trillion, 0.4093 trillion, 0.528 trillion, 0.6432 trillion, respectively, but the marginal productivity tends to decrease as 1.311 trillion, 1.2342 trillion, 1.1868, 1.1528 trillion, respectively. The table of marginal productivity of capital showed that when one million of labor is employed and two millions of capital the marginal product is 0.9119 trillion, the capital is increased to three million keeping the labor constant the marginal productivity of capital is 0.7675 trillion, when four million of capital is employed the marginal productivity of capital is decreased to 0.6857 trillion, by employing one more unit of capital that is five trillion the marginal productivity further decreases to 0.6301 trillion. From these results it is very clear that marginal productivity of labor is more than the marginal productivity of capital. These results proved that appropriate investment in capital and labor has increased the profits of the organizations. Hence we reject the null hypothesis and accept the alternative hypothesis: H02: Appropriate investment in capital and labor will not heighten the profits of the organization. Ha2: Appropriate investment in capital and labor will heighten the profits of the organization. 6. Conclusions From the above analysis and findings, following are the main conclusions: Investment in labor is more profitable that the investment on capital. These conclusions are in contrast to the study of AbidemiAbiola (2010) who conducted research to evaluate the performance of commercial


46

banks in Nigeria. He concluded that if the bank doubles their inputs in terms of labor and capital, the deposits which are the outputs will also be doubled. This study has concluded that if the investment on labor is doubled it will have a more impact on profitability of bank as compared to doubling the investment on capital. If the investment is made in the right proportion on capital and labor, the profits of the organizations can be optimized. These conclusions are same as yielded by the research of Baba et al (1997) that IT labor is the most profitable of all four types of investments therefore there is significant benefit in hiring and retaining IT labor. Their study conducted only on IT labor whereas this study is conducted on general labor. 7. Suggestions The management should apply econometrics decision making tools i.e. Cobb Douglas production function and linear programming, before investing in labor and capital and also before producing different varieties of the products. References

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Impact of Work-Integrated Learning on Masters Of Business Administration Students: Employers’ Perspective

Rubina Masum1 and Dr. Memoona Saeed Lodhi2

Abstract The current study empirically investigates the extent to which the private universities in Pakistan prepare work-ready students at Masters of Business Administration level. Mixed method approach was applied to collection of data. Stratified sampling technique was employed for selecting 30 human resource managers from the tertiary sector. In all, questionnaires were administered to collect quantitative data from 30 human resource managers and sixty five employees. For qualitative measure interviews of 5 manager operation were conducted. Significant result (p <0.031) for the measure of “relevant degree” revealed that employers considered degree to be an important factor for recruitment; employability skills were considered necessary by the employers and employees for sustaining a job. Employees regarded employability skills to be crucial for sustaining a job. Qualitative results also indicated that personal attributes were considered more important by the employers. The study recommends the provision of a database monitored by universities and organizations to facilitate the process of preparing future employees in accordance with the need of the industry. Key Words: Work-Integrated Learning, Employability Skills, Compatibility, University-Industry Partnership 1. Introduction

Universities and industries constitute two basic components of society and respectively take up the responsibility for social development (Powell, Tindal, & Millwood, 2008). Being inherent parts of society, both pursue the common goal of enhancing socio-economic development but despite all the claims made by the educational institutions, there is a growing concern among employers that masters of business administration (MBA, henceforth) graduates lack adequate employability skills that are preferred in the global market. Woods and King (2002) comment on the practice of successful managers who respond to the need of a global market and prefer employability skills in employees: industry requires skills of leadership (Brown and Fritz, 1993), conflict management (Andelt, Barrett & Bosshamer 1997), teamwork (Kay & Russette, 2000), motivation (Rainbird, 2000), adaptability (Schmidt, 1999), and creativity (Evers, Rush, & Berdrow, 1998).

Similarly, communication skills are essentials tools for the smooth functioning of administrative

tasks (Coplin, 2003); students may learn to transfer their academic skills into workplace setting (Atkins, 1999); personal attributes (Martin and Stains, 1994). Additionally, critical thinking prepares students to analyze situations from a variety of angles before making their judgment (Billing, 2003) and is considered integral for service related workplaces.

The study intends to focus on the utilization of time spent in academic institutions in accordance

with the future need of the industry and make this experience more productive and beneficial by enhancing employability skills in students (Hewitt, 2005). In order to implement this, the current curriculum in Pakistan requires a radical shift to translate these conceptual objectives into a concrete reality by preparing students as a readily available work-force.

1.1 Statement of the Problem

Educational institutions in Pakistan tend to become inward looking units (Ranis et al. 2000) whereas the economic climate in Pakistan places demands on the educators to take practical steps to connect students to the wider market and make the best use of intellectual capital: Sampson (2013) demonstrates a similar situation insists on utilizing human capital and other resources to their fullest:

“At the current reckless rate of exploitation and manhandling, we face the threat of waking up one day to find that our economies have been debased beyond recognition and our social and institutional structures have been gruesomely mismanaged at the detriment of this and future generations.”

1 Hamdard Institute of Education and Social Sciences Email: [email protected] 2 Hamdard Institute of Education and Social Sciences Email: [email protected]


49

Masters of business Administrations is regarded as a successful career option for many university graduates (Hay & Hodgkinson, 1996), due to which the Pakistan has witnessed mushroom growth of universities offering this program; this particular discipline offers several benefits to individuals and organizations alike. Despite acquiring a degree in their respective area of expertise, the most intimidating question faced by all graduates might very well be some relevant job experience; in view of this situation it is hypothesized that work-integrated learning may offer practical solution to students by incorporating employability skills on-campus thus preparing work- students; the cultivation of these skills as well as developing the right aptitude can help integrate theory with practice (Little and Harvey, 2006). Such practice may be broadly categorized as work-integrated learning (WIL) - it is a systematic educational framework that aims to blend theoretical knowledge and employability skills in students for better job placements in future (Martin, Fleming, Ferkins, Wiersma & Coll, 2010).

The purpose of the current study is to find out the efficiency level of the educational industry in

fulfilling the need of the tertiary industry by gathering employers’ perceptions; the study also intends to purpose the need for establishing coordinating units between educational institutions and tertiary sector. In view of this perception, educational industry is required to match its learning-teaching techniques to readily provide a workforce that is able to handle service related tasks efficiently (Green, 2011). In order to examine the effectiveness of programs taught at Masters of Business Administration level, employers’ perspectives is deemed essential. The employers’ perspective may be measured in terms of their preference for recruiting candidates who possess certain skills and attributes. The current study intends to explore the selection criteria of candidates for the tertiary sector from employers’ point of view.

1.2 Significance of the study

The primary aim of this study is to contribute to the body of scientific knowledge about WIL and its effectiveness form employers’ point of view. The study is crucial in assessing the role of educational institutions in capacity building of human capital in the tertiary sector. The study offers a rich possibility for students, teachers, policy makers and educational institutions to be able to anticipate future trends and adapt learning to comply with the local global market. The study is also significant in directing stake holders to save time and resources by coordinating with the educational institutions for cultivating required human capital.

It is conceptualized that this data may facilitate educational process by identifying market

preferences which can be translated into the curriculum; the study also identifies that WIL may offer better prospects for work ready graduates by inculcating skills at classroom level; developing orientation of the market situation by placing more emphasis on experiential learning and field work; it stresses on requisite attributes and employability skills to be more rigorously inculcated at university level as by developing university-industry collaboration.

2. Review of Literature Literature review of several relevant studies has suggested that WIL produces enhanced skills, knowledge, competence, and experience that increases employability and leads to more satisfying careers (Bates, 2008); employability skills are essential for acquiring and retaining a job (Saterfield & McLarty, 1995). According to Higher Education Commission of Pakistan (2012): “The MBA program aims at developing a student's intellectual ability, executive personality and managerial skills through an appropriate blending of business and general education”. Very sparse literature with regards to WIL with its implications for employers is available in the context of Pakistan; one noteworthy attempt, in Pakistan has been made by country wide University Industry Partnership (henceforth UIP) symposia series funded by Pakistan Science Foundation that aims at “building effective coordination between R&D and industry for enhancing innovations, competitiveness and productivity of indigenous technologies” UIP, (2011, p.3); another research by Gul and Ahmad (2012) is significant in highlighting academia and industrial linkage; Saba et al (2010) demonstrates the effect of MBA qualification on professional development and asserted that MBA degree has positive link to skill development. Ulrich (2005) demonstrated that students prefer major in marketing because it offers opportunities for experiential learning. Interestingly, research evidence gathered by Robson (2007)


50

demonstrated the expectations of employers to be as simplistic as the employees to “be enthusiastic” and “expected the students to be willing to learn”. In the same vein, Fallows and Steven (2000) have also demonstrated that employability skills are highly valued by the employers. Asheim and Coenen (2005) argue that the rationality of interdependence between university and industry; Davies and Pillay (2000) argue that curricula need to meet “the ever changing employer market requirements, to ensure relevancy” (p.1).In similar vein, trend toward hybrid industry is gaining popularity (Owen-Smith 2003). In addition Dunn, 1991, recommended that for the higher education sector to achieve acceptable levels of competitiveness by bringing about collaboration between Industry and university.

Tyler (1949),argues “Since the real purpose of education is not to have the instructor perform certain activities but to bring about significant changes in the students' pattern of behavior, it becomes important to recognize that any statements of objectives of the school should be a statement of changes to take place in the students”(Tyler, 1949: 44).

3. Methodology 3.1 Conceptual Framework

According to Cassidy (2006) “employers consider it the responsibility of educational institutions “to teach the requisites skills to students (p.508). In order to meet the ever changing demands placed on Masters of Business Administration program, the study employs a conceptual framework based on Haywood and Maki (1991) model in which they postulate that quality exists when expectations match perception. Thus the research has focused on the educational competence against the employees’ performance. The model offered by Haywood and Maki (1991) has been incorporated in the current study to maximize the utility of academic programs for better job placement for Masters of Business Administration students (Table1). Since education and tertiary industries are dynamic and complex frameworks thus the adapted framework offered by the current research intends to benefit the employers in general and future employees in particular by creating cyclic movement and making it permanently receptive to newer approaches.

Table 1: Conceptual framework of MBA and needs and practices

Employers’ Expectations Perceptions Educators

Influences Needs Experiences Social Political Economic

Employees’ Expectations Perceptions Students

Masters’ of Business

Administration

Source: Adapted from Haywood and Maki (1991: 106) 3.2 Objectives of the study The objectives of the research are: a. To investigate the current practice related to the recruitment policy; b. To facilitate the process of preparing students for better job placement; c. To encourage employers’ involvement in the educational process. 3.3 Research Question To what extent personal attributes and employability skills prove to be more beneficial than a relevant degree?


51

3.4 Hypothesis Employers and employees mutually agree on the importance of a relevant degree. 3.5 Participants of the Study

Five manager operations were selected for the interviews for generating qualitative data. For the quantitative analysis thirty participants -Human Resource Managers (HRMs) were selected through stratified random sampling: the experience in dealing with recruitment policy and at least 5 years of relevant experience in this field (n2=30). Sixty five employees were selected who had an MBA degree (n=65). A similar questionnaire was administered to gather employees’ perception about the employability skills, which have been useful for them during their job experience.

3.6 Instruments of the Study In order to collect data for quantitative analysis a questionnaire (measure of employability skills) was designed. Employers and employees were administered the same questionnaire that was used to gather employers and employees perception of with regards to employability skills. The instructions in both the questionnaires were different whereas the 15 items were the same. The questionnaire was comprised of 15 items (Relevant degree: 1; Department specific skills: 2; Communication skills: 3; Adaptability: 4; Critical thinking: 5; Enthusiasm: 6; Language skills: 7; Acquaintance with technology: 8; Leadership qualities: 9; Motivation: 10; Teamwork: 11; Self-regulation: 12; Reflective Skills: 13; Problem solving Skills:14; and Crisis Management Skills: 15). For example, Communication Sills-item; Problem-solving Skills- item; Crisis-management-item Due to the time constraint it was deemed necessary to simply name the skill in each item that respondents were asked to measure it in terms of its importance on a forced choice four point likert scale-ranging from not at important:1- very important: 4. The qualitative data was drawn upon by employing a semi-structured interview of the manager operations. The interview was designed for approximately 15-20 minutes. However, the duration of the interview varied in each case. 3.7 Study Methodology

The data was collected at 30 diverse organizations from Defence, Shon Circle and I.I Chundrigar Road. These locations were chosen as this area has several business organizations. Five manager operations and 24 HRMs were approached for the meeting and questionnaire via emails. Due the time constraint 6 HRMs were sent the questionnaire through email. HRMs also granted permission on behalf of the employees who also filled out the questionnaires in the presence of the researcher. The information was obtained from the sampling frame with the help of the concerned departments.

Informed consent was obtained by all participants and they were assured of the confidentiality of

the information obtained. A pilot study was conducted with the one head of the department to identify any ambiguity. Some

questions were rephrased due to ambiguity or ethical constraints. The responses were assigned numerical values categorized as interpreted and connected to

consistent numerical codes. The coded data were tabulated and edited for computer analysis using scientific package for social sciences (SPSS) version 20.0 was used.

A face to face interview was conducted with manager operations to inquire about the importance of employees’ performance with regards to a relevant degree and employability skills. Employers’ and employees’ questionnaire was used to collect data in relation to the practicality of a relevant degree and employability skills.


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4. Data analysis and Interpretation Research Question To what extent personal attributes and employability skills prove to be more beneficial than a relevant degree? The qualitative analysis of the question carried out with the help of a face to face semi structured interview; 5 manager operations were asked about the relevance of the degree for MBAs while performing routine work. Four of the them were of agreed to the relevance of “right attitude”, “ability to meet deadlines”, “respect for authority”, “pleasant manner” and “ability to understand the nature of the task” to be far important attributes than a degree and even employability skills. One manager operations, however, insisted on the relevance of the degree more the than the personal attributes and employability skills. Thus there was 80% agreement among the manager operations. Hypothesis Employers and employees mutually agree on the importance of a relevant degree. The hypothesis was designed to make a comparison between the preference of employers for hiring graduates and employees’ experience of the relevance of their degree was made. Non-parametric test was conducted because the data did not follow a normal distribution. Independent sample Mann-Whitney U test was employed which showed significant result with p<0.031Thus null hypothesis stands rejected and there is difference between the perception of a relevant degree. According to the employers a degree is essential at the time of recruitment whereas employees perceived that the relevance of a degree is not much significant to carry out routine tasks at the workplaces. However the mean score of all other 14 items indicate a closer proximity on the level of agreement between employers and employees (Table2). Table2: Difference shown between the mean scores for employers and employees

Participants 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Employers 3.5 3.0 3.3 3.2 2.9 3.3 2.7 3.1 2.9 2.8 3.0 3.1 3.1 3.0 2.7

Employees 3.1 3.2 3.0 3.1 2.7 3.1 2.8 3.0 2.8 2.6 3.1 3.2 3.0 2.9 2.8

5. Discussion and Conclusion The current highlights the three facets of workplaces: relevance of the degree for recruitment for the employers; employees’ perception related to job-performance and employers’ perception with regards to importance personal attributes and employability skills for sustaining and retaining a job. Thus degree is although the primary concern for the employers has its validity for selection but the sustainability of the job is more dependent on personal attributes and employability skills. The findings of the study reiterate the assumptions that employability skills require more focus in the educational institutions for future placements of employees at workplaces. 6. Limitations and Delimitations of the Study Due to the extensive nature of the research an effort was made to employ purposive sampling technique, if employers’ perception was included. The study is comprised of 30 HRMs and 5 manger operations, since tertiary sector is a large enterprise and for the sake of generalizability more data may be necessary. Employees’ perception regarding their job placement may offer prospect for future research. The major concern of the research was that it was presumed that HRMs and manager operations were employers. Since recruitment is essentially made by individuals who themselves are employees of the same organization because it is a rare practice for the entire board of directors to be directly involved with recruitment process- a duty which these days is performed the by senior employees. The current study did not make any effort to measure its influence on the selection process- this is a delimitation of the research which was not addressed, but provides avenues for future research in this area. The sampling frame was restricted to posh area of Karachi owing to law and order situation, a multi-phase sampling technique that would involve different areas of Karachi to generate more generalizable findings. The questionnaire included straight forward aspects of employability skills, some open ended questions which require employers view might have provided more insightful information about the need of the market. Due to time constraints, interviews were conducted using a wide range of questions to generate


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more data, and none of the HRMs was asked all questions. However, an effort was made to ask critical questions from all HRMs. Since the study is an individual endeavor provides a starting point for a complex and dynamic issue which requires funding and sponsorship of government funded project; the involvement of education industry, corporate sector, educational policy makers and finance sector has implication for

7. Recommendation The research attempted to show that WIL may present a better solution to prepare students according to the need of their future placement at workplaces. A better collaboration between industry and education may bridge the gap for enhancing social and economic development. Employers’ perspectives offer insightful findings which may question the conventional ways of imparting knowledge in view of the fact that employers are concentrating not only on potential but application of skills. This research has identified the probable path that needs to be followed to make this collaboration a reality, and WIL is just a beginning. References

Billett, S. (2008). Learning through work: exploring instances of relational interdependencies. Cassidy, S. (2006). Developing employability skills: Peer assessment in higher education.

Education and Training, 48, 508-517. doi:10.1108/00400910610705890 Dunn, M.P. (1999). Completing the triangle: The employer side of student learning assessment. Haywood M, Maki K (1991). A conceptual model for education and employment interface for the

tourism industry. Little, B. & Harvey, L. (2006) Learning through work placements and beyond, Sheffield: Centre for

Research and Evaluation. Lucia, Oscar; Burdio, Jose M; Acero, Jesus; Barragan, LuisA; Gracia, Jose R. (2012). Educational

opportunities based on the university-industry synergies in an open innovation framework OrieAzuka (1992). Curriculum at the Tertiary level. EBSU/PG/M.ED/Ph.D/02128 Ebonyi State

University Abakiliki. Natarajan S, Kandel Bijay Kumar (2014). Employability of MBA students with HR Specialization:

The Case Study of Educational Institution in India Robson, K (2007) 'Juggling the needs of students and employers in the workplace arena: A

discussion of the future direction of the Work Experience program within Property/Valuation education at RMIT University, Melbourne', paper presented to 14th Pacific-Rim Real Estate Society Conference.

Tyler (1949). Innovations in Business education. Retrieved on March 20, 2015 fro wikipedia.org/wiki/Ralph_W


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Governance and Management of Higher Education Institutions In Pakistan: A Case Of Lahore

College For Women University

Nadia Qasim1, Nasira Jabeen2, ZafarIqbal Jadoon3 and Irum Sajjad Dar4

Abstract The paper deliberates on the governance and management system and practices in public sector higher education institutions of Pakistan using Lahore College for Women University (LCWU) as a case in point. LCWU was granted autonomy in 2002 as a result of HEC governance and administrative reforms that resulted in change of its structure and internal management practices. Since autonomy of public institutions is one of the major objectives of administrative reform, the paper analyses the pattern of autonomy and control in LCWU to understand the governance and management of higher education institutions in Pakistan and its linkage with performance of the institution. The Transformational and the Evolutionary approaches have been utilized to explain the changing pattern of governance and management practices through an in-depth analysis of policy, finance, academics and HR practices over time. The findings of the study reveal that Higher Education Commission (HEC) of Pakistan has a strict control for performance evaluation of the institution. Being the main funding agency, it monitors performance on quarterly as well as annual basis. The real concept of autonomy as ‘freedom’ could not be achieved yet as HEC is the main funding agency to the university. The study provides meaningful recommendations for autonomy of higher education institutions in real sense through financial independence, merit based selection and minimal interference in operational affairs of the university. It also discusses ways to achieve autonomy and minimize control in this direction. Key words: Governance, Autonomy, Control, New Public Management, Reform 1. Introduction Governance refers to the procedures and practices through which an entity organizes it to achieve its objective. It is mainly concerned with structures and procedures of decision making, accountability, control and codes of conduct which is expressed through legislation, policies, by-laws, and informal cultural norms and practices. The goal of effective governance in an organization may be achieved through its peak performance and accountability to the people it serves. Education is generally accepted as a most important tool for promoting socio-economic, political and cultural development in a country. Universities educate future leaders and develop high-level technical competencies that strengthen economic growth and development. The main rationale and significance of university education is to provide professional and technical manpower to boost socio-economic development of a country. Higher education is considered as a tool of social change and economic development. Universities have a key role in human capital development, research and technological innovation. They impart knowledge, ideas and skills. Public expenditure towards university education focuses on three main premises, 1). To produce highly skilled and capable human resource for engineering, medicine, management, technology and other professions to serve society; 2). To develop intellectual resource pool through scientific research and generating new knowledge to solve emerging issues; and 3). To churn out teachers, administrators and managers for other levels of human resource development institutions. Research universities survive in multifaceted environments, compete in many different marketplaces, and perform an array of administrative, educational, research oriented, managerial, scientific, technology-specific disciplines that carry meaning for educational, academic and extracurricular activities and functions to solve developmental problems. Although research universities are the hub of

1M.Phil. Institute of Administrative Sciences (IAS), University of the Punjab, Lahore, Pakistan 2Professor, IAS, University of the Punjab, Lahore, Pakistan. Email: [email protected] 3Dean, Business Management, University of Central Punjab, Lahore, Pakistan. Email: [email protected] 4Assistant Professor, College of Statistical and Actuarial Sciences, University of the Punjab, Lahore, Pakistan.

[email protected]


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teaching and research, they connect to a wide range of other activities developed from knowledge and resources accumulated in support of teaching and research. 1.1 Lahore College for Women University Lahore College for Women University is one of the most prestigious institutions of Pakistan. This university is the first Women University of Asia with a full enrollment of about 8000 students. It has more than 500 faculty members teaching at Intermediate, Graduate, Master and Ph.D. levels. It was founded in May 1922, in a small building at Hall Road, Lahore, Pakistan as an intermediate residential college. In 1990, Lahore College was given financial and administrative autonomy. This proved to be a milestone in the history of the College. On 13th August 1999, it was declared as a Degree-Awarding institution. On 10th September 2002, the institution was awarded the status of a Women University and the existing principal of the college was appointed as the first Vice Chancellor of the University. Its Sub Campus was also established in Jhang in 2005. After getting financial and administrative autonomy in 1990, the College started offering Master Degrees in only six subjects. Now with the University status, LCWU is offering degrees at graduate, postgraduate and doctoral levels. The 21st century revolution in science and development has completely changed the world. Today sciences are discovering areas that challenge imagination. Due to the importance of the sciences and technology in today’s world, LCWU has been satisfying the demands of the female students in the area. Majority of its graduates are serving in professions like Medicine and Engineering, Information Science, Management etc. Since 1922 the College has proved its value as the top class institution providing knowledge for wide range of academic disciplines. As part of the new public management and governance reform certain level of autonomy was also awarded to the Lahore College for Women University with its enhanced status. The paper based on an in-depth review and analysis of the governance including policies, decision making, financial and administrative practices reveals if autonomy as granted by the HEC as part of administrative reform has brought autonomy in the real sense with regard to performance of the university or there are more control measures being involved in this direction. Since a large number of reform initiatives are being introduced in public sector organizations to increase efficiency, better service delivery, improved performance and good governance, a timely evaluation of such reform may help keeping its strengths while improving the shortcoming. 2. Literature Review The present study focuses on the university governance to find the pattern and effect of reform in governance structure and practices of the university resultantly linked with performance. The Higher Education Commission (HEC) was established in Pakistan in 2001 after replacing the old University Grants Commission. HEC provided more funding to higher education institutions (HEIs) of Pakistan in order to improve research and quality of academics. Certain level of autonomy and control measures were introduced in HEIs with more funding and research grants. This study aims at investigating the changing patterns of autonomy and control as a result of these reforms. The paper points to the contribution made by the governance theories by different research scholars in the past with a special focus on autonomy and control. 2.1 Autonomy University autonomy and academic freedom are very important to the idea of university. These two concepts have incalculable value and are regarded as the foundations of a university. Ekundayo and Ajayi (2009) argued that university autonomy is an inadequate concept. This autonomy provides universities independence from external control in decisions relating to academia and administration. Universities are free to formulate and implement policies and programs. The author hypothesized that for university autonomy to be fully carried out there should be no external control that provides guidance to maintain the standard of the university. Only funding authorities can evaluate performance of the university. University of Ibadan in its Press Release defined university autonomy as ‘a system of internal rules and regulations to guarantee survival instead of waiting for an external organization to do so’. As Scott (1997) argued that for the development and application of knowledge, university autonomy and academic freedom are essential. They protect university from intervention of the government officials in the administration of the university affairs related to: the admission criteria of students; the selection and


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appointment of teaching faculty; the selection of the degree programs and courses of study; determination of degree standards; number of students and the rate of growth and development. It includes the organization of the balance between teaching, research and advanced study, the preference of research projects/ thesis and choice of publication; and the allocation of budgeted income for different developmental projects etc. Academic freedom assures choice of expression and of action, independence to publicize information and choice to carry out research and distribute knowledge and reality without external control. Engwall (2007) argued that university autonomy can also be defined as delegating powers to universities to manage their issues like appointment of academic as well as administrative staff, determine the job description of their staff, decide admission criteria for students, determine curriculum for different study programs, manage their finances and make their decisions without interference from government and its agencies. Therefore, the organization needs autonomy for the accomplishment of its goals. The organization must be independent to solve its own issues without external control. It must make its own decisions to solve internal issues and to organize its own academic curricula. In many developed countries, governance of higher education has resulted in autonomous institutions instead of public possessions (Moran 2002). Similar is the case with European higher education institutions that have gained autonomy and these are in need of an organized analysis for control laws (King 2007). In Europe, universities have awarded greater autonomy that has resulted in aggregate budgeting, free from comments seeking exercises and minute intricacies of nitty-gritty of curricula (Santiago et al. 2008). Autonomy is simultaneously neutralized with fresh accountability parameters. (Santiago et al. 2008). In Netherlands, for example, official bureaucratic structures were replaced with autonomous institutions to cater to the needs of public education (Van Vught and Westerheijden 1994). This autonomy has resulted in greater control on account of various procedures adopted e.g quality assessment, performance measurement criteria, funding criteria and evaluations of research projects. In England, higher education institutions posed a completely different picture. i.e they enjoyed autonomy. Being private institutions in their own right they exhibited highly healthy official-legal statutory status. This was done to enable these centers of excellence to respond to public requirements (Westerheijden 2008). Netherlands launched autonomy to enable institutions to open up. On the other hand, England reinforced accountability methods to make universities answerable to public demands and sentiments. De-regulation is well documented. And so is re-regulation. Ex-post control evaluation followed previous bureaucratic structures. It was further followed by performance based accountability criteria. Both of these characteristics gleaned through the prism of the New Public Management (NPM) model (Hood et al. 1999). The same is also evident in higher education sector universally (Westerheijden 2008). Organizational autonomy delegates power to the universities to decide about their organizational structures and governing bodies. This autonomy discloses that whether universities decide their internal academic and administrative structure or not, however, their leadership is decided by legislative framework given by the state (Orberg 2006b). 2.1.1 Dimensions of Autonomy According to the German sociologist Rudolf Stichweh (1994), the concept of institutional autonomy may include the following properties and dimensions:

The right and ability to make autonomous decisions on the limits of institutional responsibility

The right to support a specific organizational culture and describe forms of administrative and academic vacancies and pay scales.

The right to independently formulate rules and regulations for the internal control and management of institution.

The ability to organize the admission criteria for the students.

The right and ability to develop vision and mission of the institution.

The code of conduct for the administrative and academic staff and as well as for students for interaction in the society.


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The obligation to presume full responsibility and accountability for decisions taken by the administration of the institution.

In international literature, university autonomy refers to a model or an objective where it enjoys academic freedom and defends its independence from the interests of the government and private sector. Therefore, the control over the universities by government is considered the greatest risk. Institutional independence from the government has usually been guaranteed by creating universities as public corporations. These corporations have their own laws and boards of governors, fully outside state structures. Farrant (1987: 48) lists the following components of university autonomy:

Selection of their own staff without external interference

Decision about student’s admission criteria

Decision about degree programs and course contents

Maintain the quality and standards of teaching

Decision about allocation of funds to different departments

Vision and mission for their own future growth and development.

Estermann & Nokkala (2009) described the following dimensions of university autonomy:

Organizational Autonomy, the ability to find constitutions and administrative and management bodies, university leadership and who is accountable to whom.

Financial Autonomy, the ability for management and allocation of funds, the ability to decide tuition fees of students, to make savings, to borrow and raise money from different funding agencies, the ability to own assets and reporting practices as accountability tools.

Staffing Autonomy, the ability for staff recruitment, the responsibility for determination of terms of employment such as salaries of permanent and contractual employees.

Academic Autonomy, the ability to start new degree programs, to introduce or terminate degree programs, to define the courses and contents of degree programs, tasks and responsibilities of teaching staff for quality assurance of programs. Based on the above views on university autonomy the following theoretical model has been developed for the study. 3. Theoretical Framework As the theoretical framework is a collection of interrelated concepts. It provides logic for the relationship of different variables related to the research question. This research is intended to determine the different levels of the autonomy, control and internal management of university governance. More specifically, it is aimed at identifying factors that affect autonomy, control and management techniques. The theoretical framework of the study draws from the following two approaches to explain relationship among different factors: A. Transformational Approach B. Evolutionary Approach A. Transformational Approach: In transformational approach, it is argued that why universities have specific levels of autonomy and control, and why they have specific forms of internal management. The explanations to these questions are based on two major logics of action. The first is that the leaders choose ‘logic of consequentiality’ in order to meet certain goals. Organizations have inherent rationality; therefore, actions are executed on the basis of their consequences or future results. This logic refers to instrumental perspective, where leaders use organizations and form of autonomy, control and internal management to achieve specific goals (Christensen et al. 2007).The second logic is the ‘logic of appropriateness’, which is important in institutional perspective. This means that actions are based on constituents of past experience that is considered reasonable, rational and suitable in culture and environment. Keeping these two logics in mind, this study distinguishes between four different theoretical perspectives that explain the significance of different ideas.

i. Structural-instrumental perspective ii. Cultural-institutional perspective iii. Task-specific perspective iv. Environmental perspective


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i. Structural-instrumental perspective: According to the instrumental approach, public organizations can be assumed as tools or instruments to achieve certain goals in society. These public organizations and their members act with instrumental rationality in completing tasks and achieving the goals. It enables the organizational members to consider different alternatives based on their consequences in order to achieve goals. Instrumental rationality can also be expressed in the structural form of an organization and the process that helps to determine it. Organizational structure is determined through positions and rules. These rules define the job responsibility of different positions and the procedures to perform the tasks. As a result, public sector organizations have bureaucratic structure with the elements of hierarchy, division of labour and routines. Full instrumental rationality refers to an organization having clear and consistent goals and chooses the alternatives that give maximum degree of goal achievement. ii. A cultural- institutional perspective: According to this perspective, culture provides limitations for the organization and its members. In this opinion, actions are based on prevailing norms and values rather than goals. This means that actions are dependent on logic of appropriateness rather than logic of consequentiality. Public organization’s culture includes both formal and informal norms. In organizations internal pressure develops the institutional norms. In public organizations, different groups having professional background develop institutional norms that contribute to the emergence of subcultures. The external pressure is from the task environment. This task environment is responsible for providing resources to the organization and is concerned with the performance and efficiency. Organizational culture becomes more evident when the informal norms and values are at risk by reforms and reorganization in public organization. Therefore, in public sector most of the reforms are opposed and rejected. Like other public sector organizations, universities can have dissimilar organizational cultures. This refers to the informal norms, values and features that develop step by step over time. Organizational culture develops appropriate behaviour in the organizations (March and Olsen, 1989). Like other institutionalized organizations, universities develop dissimilar features. When a new situation is faced, they have to identify the nature of that situation and find a rule for action that is consistent with their identity. Organizational culture involves a comparatively established set of rules and identities. Thus, an organization’s culture differentiates it from others. iii. A task-specific perspective: This perspective focuses on the technical environment of the public organizations. The technical environment can be defined as the environment related to the goal setting and goal attainment, or more narrowly as the sources of inputs, markets for outputs, competitors, and regulators (Dill 1958, Thompson 1967, Scott 2003). The technical environment of an organization is determined by the type of tasks it performs. These tasks are responsible for the actions of the organization and its members and these tasks may be changed as a result of instrumental action or appropriate behavior. Organizational environment is important to formulate its structure and performance of the tasks through instrumental rational actions. General environment consists of social, cultural, legal, political, economic, technological and physical factors. Technical environment includes those factors which directly influence public organization in achievement of goals and completion of the tasks. The task environment refers to the inter-organizational network, which is responsible for supplying resources and performance measurement. For universities, HEC refers to the task environment that provides funding to the universities, control their activities and rank them based on performance. James D. Thompson (1967) suggests two dimensions of task environment: whether it is stable or shifting, and whether it is homogenous or heterogeneous. For LCWU, its task environment is homogenous and shifting. This means that there is the homogeneity and agreement between the ministry and administration and the organization has clear goals and knows how to accomplish them. The purpose of the autonomy is to make the leadership to participate directly in decision making based on rational calculations. iv. An environmental/ Myth perspective: According to this perspective, institutional environment includes socially created norms for organizational structure and function in order to receive legitimacy and support. Organizations tend to


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integrate and replicate these norms even if they make the organization ineffective. These socially created norms in institutional environments are called myths. Organizations can increase their legitimacy from institutional environment by incorporating procedures and routines required by social norms such as continuous growth, innovation and rationality. Institutional environment focuses on the structures and processes while the task environment is concerned with quantity and quality of the outcomes. An organization is therefore facing with many different conflicting and changing ideas and course of actions for legitimate structure and procedures. These norms are adopted by the agencies without producing instrumental effects, that is, they may sometime function as ‘window dressing’. Organizational leaders make the people feel that they are implementing the reforms, but in reality the leaders do little to make this happen (Brunsson1989; Pollitt 2001). In addition to the decoupling between the structure and practice in organizations, an institutional environmental perspective focuses on how similarity between organizations increases. Such isomorphism is restricted to a particular organizational field. B. Evolutionary Approach: Evolutionary approach has three basic processes: (i) Variation, (ii) Selection and (iii) Retention. These processes help explain evolutionary change in organizations. i. Variation:

Evolutionary process starts from variation. It is defined as a change from routine or tradition. Variations can be of two types: Intentional or Blind. Intentional variation results when organizations try to find solutions to the problems and generate different alternatives to solve them. Individuals produce variations continuously to regulate their behavior to others in the organization and to regulate the organization’s relationship to the environment i-e responses to difficult situations, planning sessions, advice from outside consultants and so forth. Blind variations occur unintentionally due to the external pressures. These variations results from accidents, chance, luck, conflict, malfeasance and so forth. Organizational variations provide the raw material for selection processes. Some variations are more advantageous to organizations than others. So managers select these variations to acquire resources in the competitive environment. ii. Selection: The second evolutionary process is selection. Variations are selected to acquire resources and legitimacy from environment. Selection of variations is dependent on the environmental conditions like operation of market forces, competition, economic conditions, government policies, organizational structure and its conformity to institutionalized norms. In highly successful organizations, all key strategy routines match the environmental demands. Strategic management researchers suggest that optimistic internal selectors can be initiated by establishing goals and objectives to accomplish vision and mission of organization. Moreover, organizational structure and administrative style should be in line with implementation of policies to achieve these goals and objectives through viable gain of that plan of action (Saloner et al., 2001). In selection, organization form must fit the particular environment perfectly. Mintzberg (1974) argued that managers initiate optimistic selectors in response to the existing setbacks instead of strategic planning. Evolutionary approach argues that many selection methods are unrelated of changes in the environment. These methods maintain organizational culture that supports best and high potential diverse workforce. Some organizations are inflexible and rigid to change and are called as “ossified” organizations. These organizations are permanently failing as to some extent shielded from the environment (Meyer and Zucker, 1989). iii. Retention: Retention is the third evolutionary process. Retention crop ups when variations are preserved, replicated and imitated. Retention helps organizations to preserve existing beneficial routines to derive value from them. Replication of selected variations in an organization is directly related to changing environment. Written precedents provide basis for understanding procedures of an organization. Acclimatization of habits is the key to retention. Instincts mould environment, in turn, shaping human habits. Instincts are helpless where environments change fundamentally drastically.


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At population level, retention of human resource is linked with its technological and managerial abilities. Some factors discourage learning in organizations e.g. unforeseen circumstances like sudden strikes, blunders of unions, intra organizational hostilities, mistakes of staff or leaders, incompetence of certain staff or leaders, deliberate unwillingness to learn etc. With industrialization written records, machines, and capital development have taken over oral traditions. More so, technological changes, like imprint media, electronic media, and digital media have helped simplify elaborate administrative procedures. State is the pivot around which organizations take shape and are maintained. This may take the form of ideology, political stability, educational policies, communication networks, economic planning and such state investments. These are the forces making out conditions of availability of resources. After the status of university, university’s management structure has been changed but management style is still the same. Faculty members are involved in administrative assignments. University has retained its college culture. Faculty members are to stay in campus for 5-6 hours daily. Its examination branch is central. For examination related decisions, departments are not decentralized.

Figure 1: Theoretical Framework Including Transformational Approach and Evolutionary

Approach

Source: Christensen et al. 2007 and Aldrich et al. 2006

4. Methodology

The present research study has a mix of two theories. These theories include Transformational Approach and Evolutionary Approach to describe and differentiate management practices in different eras of the university. In these eras, the concepts of autonomy, control and internal management have been explained at length while using the above approaches. In this study, LCWU has been used as a case study to evaluate the pattern of autonomy and control according to the concepts used in literature review and model used in theoretical framework. The population for this study was LCWU that have been given autonomy according to the HEC reforms 2002. Target population for this study included the Vice Chancellor, senior administration, faculty members, members of selection boards, officials from Higher Education Department etc. 5. Data Collection and Analysis The data collected for this study was the combination of primary and secondary data. So far as secondary data is concerned, it was collected from the University Act and documents. Primary data was


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collected through structured interviews. The interviews were conducted to get information from Vice Chancellor, Deans, members of different authorities, registrar, additional secretary academics and secretary higher education. Both structured and unstructured interviews were conducted to find out the relevant information from the targeted respondents. An interpretive approach was used for analysis. NVivo qualitative research software was used for data coding and nodes were identified for graphical representation of the derived themes. 5.1 Discussion Using the Transformational Approach for three prominent eras in view of the research findings the following explanation may be offered: 5.1.1 Structural/ Instrumental perspective suggests that in the first era 1922 to 1990 LCW was a Punjab University affiliated college. In 1922, it started as an intermediate college. Punjab University was responsible for providing finance and academic support to college. After 1973 constitution, Punjab University was only responsible for academics while Punjab Government became responsible for funding and recruitments. Boards of Intermediate and Secondary education were established to conduct intermediate and secondary school exams. Punjab University only conducted graduation and masters exams in Punjab. The Principals were largely responsible for college administration. In the second era 1990-2002, the college was given Administrative and Financial Autonomy by the Punjab Government. This autonomy resulted in more administrative control to achieve educational objectives. According to this autonomy, fee of the students were not transferred to Government, but it were retained by the college to manage its finances. In addition, the Punjab Government paid 20 million every year to college. For examination, it was affiliated to Board of Intermediate and Secondary Education and Punjab University. Curriculum was also decided by Lahore Board and Punjab University. Recruitment and appointment of staff was through Punjab Public Service Commission. In result of this autonomy, the salaries of college employees remained frozen for five years by Punjab Government. The college was awarded the status of Degree Awarding Institution in 1999. At this time, BOG was formed by Punjab Government for management of institution. The Principal was the secretary and autonomy to design its curriculum for bachelors and masters level was also granted. In the third era 2000 and onwards, college was awarded the university status having its own governing boards according to Act 2002. It is accountable and responsible for utilization of funds to HEC, which is the monitoring body. Punjab Government has no direct influence in decision making. It only helps the institution in administrative and legal affairs. Decision making is centralized; decisions are made by governing boards with consensus and staff has to follow them. 5.1.2 Cultural/Institutional Perspective suggests thatLahore College has a culture of academic excellence by providing quality education to female students. In Punjab University examination, its result always remained 70%-80% which shows its academic and teaching quality of the college. The college has produced a large no of female doctors, engineers, bureaucrats, scientists and other professionals since its inception. In the first era1922 to 1990, staff members were reluctant to participate in academic staff unions activities. The focus was only on teaching quality and co-curricular activities. Its English Department was established in the year 1940 that was considered as one of the best teaching departments in all over the Punjab. While in the second era1990-2002 the Principal promoted its culture of academic excellence and teaching quality. Faculty members were accountable for results of their classes. They were punctual, dutiful and concerned about completion of their courses. Faculty members were not allowed to participate in political activities of academic staff associations. In the third era 2000 and onwards, with change in administration, the university culture also underwent major changes. Faculty members were more involved in administrative affairs and assigned duties of registrar office and examinations. They have to stay in university for longer time usually from 5-6 hours. It suggests that culture of an organization provides limitations for its members. In this regard, most of the actions are based on prevailing norms and values rather than goals. Public organization’s culture includes both formal and informal norms. In organizations internal pressure develops the institutional norms. In public organizations, different groups having


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professional background develop institutional norms that contribute to the emergence of subcultures (Christensen et al. 2007). This happened in the case of LCWU evolution over time. 5.1.3 Environmental/ Myth perspective suggests that institutional environment includes socially created norms for organizational structure and provide support and legitimacy for its functioning. In the first era LCW had to implement Government policies for its efficiency and effectiveness. Staff was recruited as per Punjab Government policies of recruitment and selection. New study programs including masters in different subjects were introduced according to the Government rules. After 1973 constitution, Punjab Government served as institutional environment as it was funding agency to the college. In the second era 1990-2002 the college was awarded the degree awarding status to increase teaching quality and competition among institutions. BOG was formed and necessary changes were introduced to fulfill the legal requirements for official procedures and practices. In the third era 2002- to date the institutional environment focused on the structures and processes. As discussed earlier that organizations may increase their legitimacy from institutional environment by incorporating procedures and routines required by social norms such as continuous growth, innovation, rationality and efficiency. For LCWU, it has to fulfill legal requirements for meetings of different governing boards including the Syndicate, Academic Council and Selection Boards. All these formal boards required presence and nomination of experts from academia, Punjab Government, finance, law department etc. HEC was the main funding agency that required appropriate allocation of funds according to audit procedures and the focus remained on efficiency, improved service delivery, quality of teaching and research as per new public management reform. Using the Evolutionary Approach to explain the findings of the study the following points are to made: 5.2 Policy Making In first era (1922-1990), policy making was at Governmental level. College principals had to manage the staff according to their job responsibility. The focus in this era remained on punctuality of the staff and teaching standards. After 1973 Constitution, University of the Punjab was responsible only for academics and decision making related to finance were transferred to education department. In second era (1990-2002), when financial and administrative autonomy was awarded, some decision making power was transferred to the college. While in the third era 2002 – to date it was granted the university status with University Act 2002. This autonomy enabled the institution to develop its own mission and vision. Autonomy to make decisions related to its administrative affairs according to legal requirements and delegation of powers was also accorded as per rules. 5.3 Recruitments In first and second eras, the recruitment and appointment of staff was through the Punjab Education Department. Principals only forwarded requisitions for staff required in different subjects. Salaries were also paid by the Provincial Government. Though, in the second era 1990-2002 some autonomy was given to the Principal who was the secretary of BOG regarding recruitment of staff but still it was restricted and bounded by certain limitations of the Punjab Government. The third era 2002- to date provided more HR Autonomy. According to the University Act 2002, staff can be recruited on contract as well as on permanent basis. Vice Chancellor of a university may use emergency powers for staff recruitment on contract basis for a maximum time of one year which is then approved by the Syndicate. Selection boards are organized for regular appointments on permanent basis. For selection boards to be held, certain legal criterion has to be followed for representation of board members. 5.4 Finance In the first era, before 1973 constitution, Punjab University provided funds to the college. Afterwards education department was the main funding authority. Funding was given on the basis of line item budgeting. Salaries of employees were paid by the Punjab Government. In the second era, funds were provided by the education department but on the basis of aggregate budgeting. The students’ fees were retained by the college and 20 million rupees were allocated by the education department every year. In the third era, financial autonomy was granted to prepare university beget. Finance and Budgeting


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Committee were established for undertaking financial decisions. These decisions are then approved by the syndicate. Both funds and salaries of the university employees are to be paid by the Higher Education Commission (HEC). 5.5 Academics In first era, academic programs were developed by Punjab University and Education Department. College staff was responsible to cover all course contents. In second era, with the status of degree awarding institution, the college developed its degree programs. Now with university status, academic autonomy has been granted to decide about degree programs and course contents according to the guidance from HEC. Academic council approves new degree programs to be started by the University and boards of studies approve the course contents of their respective programs. 6. Conclusion The Higher Education Commission was established in 2002 by the Government of Pakistan to stimulate economic growth by developing research culture and improving academic quality of education. New universities were established and up gradation of existing colleges were made. Lahore College for Women was also awarded the university status in 2002 to develop a culture of research and innovation through developing knowledge and skills that in turn would contribute to economic growth. The whole idea was to bring in more efficiency and improve quality of higher education institutions in Pakistan in line with new public management reform. The study has led to the following conclusions: 1. The purpose of the autonomy is to enhance academic freedom of the university to provide quality education. The powers of VC and other university officials have been defined in the university ordinance 2002. According to the ordinance, governing boards have the legal obligation to retain the autonomy of the university as it is always open to the external pressures from the society. In this connection, autonomy does not mean independence. This refers to the theme of decision making in a sphere of external limitations, development of administrative policies for university and ensuring their accountability. 2. The degree to which university perform has been outlined by external assessments. This control has been closely linked with operational autonomy across the board. University is required by government to embrace external quality assessment as a precursor to freedom from government control i.e. stepping toward operational autonomy. As a result of reforms, a combination of government control and university freedom has been developed to guarantee proper funds allocation, quality assessment for teaching and research, institutional reaction towards social and economic development. The Government indirectly provides funds to the university through HEC. Tendencies are seen towards enhancement of tuition fee, performance based budget allocations and recruitment systems. Greater autonomies run parallel to greater accountabilities. 3. Syndicate is the main decision-making authority of the university. Its members have been nominated in the ordinance. These members give their point of view in the best interest of society. Its members include representatives from law, finance and education departments of Government of the Punjab. One representative from HEC is on panel of the syndicate. Academic council’s recommendations are approved in the syndicate meeting. Budget approval is also on the same agenda. 4. In Medium Term Development Framework (MTDF), Access, Quality and Relevance have been recognized as the key challenges faced by the higher education sector. HEC has a monitoring role for universities to assess their research and academic quality. HEC have developed the standards in accordance with the International practices. In LCWU, Quality Enhancement Cell has established for internal quality assurance. It provides annual as well as quarterly reports to HEC that include Standards Assessment Report from each department of the university. 5. HEC is the main funding agency to LCWU. Punjab Government only provides Grant-in-aid to the university. It helps the university in administrative affairs. HEC has no specific funding criteria for universities. Therefore, most of the funds are need based to develop infrastructure and new academic programs. Out of the total funds 10% are research based. At present, LCWU is offering degrees in 35


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subjects and it became possible due to funding from HEC. Being a Women University, it has always been pressurized by the government to not increase the tuition fee. 6. According to the ordinance, LCWU has been awarded administrative, academic, financial and HR autonomy. For administration, it has developed internal policies and procedures. Registrar office is responsible for administrative affairs under the guidance of VC. For academic autonomy, university is free to decide about new academic programs to be offered, number of courses, course outlines, examination criteria and procedures and total number of credit hours for completion of a degree etc. For this purpose, university is bound to follow instructions outlined by the HEC to maintain standards for quality assessment. 7. For financial autonomy, Finance & Planning Committee has been established in LCWU according to the provisions of the law. This committee prepares budget according to the requirements of the university under the guidance of the Vice Chancellor. It is responsible for the matters related to investments, planning, development, finance and accounts. For HR autonomy, selection board has been established whose members are nominated in the ordinance. HEC only provides qualification criteria for recruitments. Selection of the teaching and non-teaching staff is finalized according to the recommendations of selection board. 8. Affiliation of Government Colleges with the different universities is a good step by Punjab Government that aims to provide quality education to the students through semester system. Therefore, three colleges have been affiliated with LCWU. Administration of these colleges is the responsibility of Higher Education Department. University is responsible for curriculum development and examination of different study programs in these colleges. LCWU is offering 4years degree program in 13 subjects in affiliated colleges including science, technology and humanities. For examination, it is confirmed that all the course contents have covered by the faculty as university is responsible for paper setting and marking. 9. Establishment of universities is a good step for improving quality of higher education in Pakistan. LCWU is the first Women University of Asia. Since, parents have always been reluctant to encourage their daughters to study in co-education in Pakistan, therefore, it was a good step to establish a Woman University in Lahore that would provide opportunities for quality education for female students. The initiative aimed at enhancing economic growth in the country. LCWU with its university status has 9046 students on its roll in disciplines of arts, science and technology. 10. At present, LCWU has 463 faculty members out of which 80 are PhD’s and 104 are M. Phil/MS. It is expected to provide excellence through education to empower women of Pakistan which in turn would enhance their creativity and potential towards a knowledge based economy. Faculty Development programs by HEC are aimed at creating a research based culture through retention of qualified faculty. In this regard, HEC has been providing foreign and indigenous scholarships to the faculty of the universities. It has been encouraging to note that by the year 2016 most of the existing university faculty plan to enroll in the indigenous or foreign PhD program. 11. LCWU mainly focuses on faculty development in its vision 2020. For this purpose, the Directorate of Faculty Development and Internationalization has been established to promote research based culture in the university. At present, 262 research papers have been published in different journals. University is keen to establish linkages with industry to help job placement to the students. Therefore, Directorate of Students Affairs has been established to provide career counseling and internship opportunities to the students. 7. Recommendations 1. LCWU needs to improve its infrastructure to provide research culture to its faculty and students. This includes establishment of libraries and computer labs in each department. Faculty of Natural Sciences and Faculty of Engineering & Technology are well developed providing all the requisite equipment and literature to the students but Faculty of Administrative and Management Sciences and Faculty of Arts and Social Sciences need computer labs and libraries having latest books and journals. HEC should develop criteria for utilization of funds equally for all departments. This criterion should be mentioned in the Act of the university.


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2. In social sciences, number of PhD faculty is very small. In Management Sciences, none of the faculty member is PhD. Therefore, LCWU is in dire need of funds to create and strengthen research culture in all the departments of the University. Since HEC is responsible for allocation of scholarships it should be ensured that scholarships for each faculty are allocated fairly in view of the need of each faculty rather than granting more favor to the Faculty of Natural Sciences and Faculty of Engineering & Technology etc. 3. At present the number of faculty members is more than 500, a clear job descriptions for teaching and non-teaching staff is an immediate requirement to avoid any inconsistency. Since primary duty of faculty is to provide quality education to the students, faculty should not be involved in administrative assignments which ultimately decrease their efficiency. HEC should also encourage LCWU in coping with the transition and attaining the university culture instead of the college culture. In all departments, administrative staff should be appointed to deal with issues and to fulfill the requirements of registrar office, examination branch and Quality Enhancement Cell. 4. The Vice Chancellor has emergency powers for recruitment of staff and financial matters. These decisions are then easily approved by syndicate without questioning. In law, there should be some specific rules for VCs to use such emergency powers. There must be proper justification for recruitment on contract basis. 5. In university Act, VC is the main decision making authority with designated powers. In syndicate meeting, the proposals from VC are always approved. In syndicate, decisions related to finance, recruitments and academics are finalized. The experts from other institutions and officials from Government departments always favor VC’s point of view. Sometimes, Government officials are unable to attend the meetings. University sends them agenda of the meeting one or two days before the commencement. They are unable to have a deep understanding of matters to be discussed. Sometimes, they nominate their subordinates to attend the meeting. Therefore, agenda items should send to the members at least one week before commencement of the syndicate meeting. Moreover, presence of nominated members should be confirmed instead of their subordinates. 6. After 18th Amendment, the provision of education and health has become the responsibility of the provinces and the Chief Minister being the provincial head is the key decision making authority. The Governor being the Chancellor can give his/her point of view. He/She has to approve CM’s advice and for this time line has been fixed in law. The Governor can only reject advice sent by the CM office once. This has resulted in some administrative issues for the university. For instance, Education department has been refusing the proposal of afternoon and evening classes in the university. As these programs would be on self- supporting basis and would help to generate funds. But Education department has been rejecting the proposal as the programs might exploit female students coming from low socio-economic background. Being the women university, it has been facing pressures from the Government to not to increase tuition fee in order to provide easy access to education for women across the board. Therefore, Punjab Government should allow university to start professional degree and training programs on self-supporting basis for working females to enable them to improve their career prospects i.e. knowledge, experience and skills. 7. HEC is responsible for policy making and Punjab Government Higher Education Department helps them in implementation of these policies. Punjab Government only provides salaries of their employees serving in the university. Punjab Government must also provide grant to develop infrastructure as HEC has reduced university funding. HEC has advised university to make investments and arrange funds by themselves. There has always been a pressure to not to increase student’s fees. So, Punjab Government should be responsible for funding also and budget allocation for education should be raised. 8. The Chief Minister should fix realistic timelines for education department to achieve its goals. He must focus on development of a system to achieve the desired goals. Policy implementation requires realistic time limits. In case of affiliated colleges, university has been facing many problems. Introduction of semester system is a good step as it will increase education quality. But these colleges are unable to fulfill university requirements in terms of curriculum and examination systems. Proper training of the faculty and staff need to be imparted in this direction.


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9. Punjab Government should encourage universities for their collaborations for academic and research facilities. As LCWU has not been able to develop library for social sciences. Students are unable to view research journals for their thesis. It should request other universities for membership of their students to view research journals and books. In this regard, Education Department should facilitate such collaborations among other universities including Punjab University, Government College University, Forman Christian College University etc. to promote research culture. LCWU administration should also take initiatives for such collaborated learning among higher education institutions to gain access to quality research facilities on loan basis. Last but not least, a strong commitment and political will is needed to bring the real reform in higher education institutions in Pakistan with increased autonomy and less control measures having more focus on better services delivery and improved performance.

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Impact of Political Event, Terrorist Attack and Natural Catastrophe on Stock Price returns: Evidence from Pakistan.

Shafiq ur Rehman1 and Javed Khan2

Abstract This study examines how events of different nature like political, terrorist and natural catastrophe affect the stock returns of firms listed at Karachi stock exchange. To probe this issue, we adopted event study methodology as our research frame work. Our sample consists of those twenty three non-financial listed firms at Karachi stock exchange, for which the data is available for all the three events. Our results report that events of all the three natures affect the stock price returns. The results further reveal that the terrorist attacks negatively affects the stock market of a country, political elections positively affects the stock market, while the natural catastrophe has no significant impact on the overall stock market. The results of the study also highlight that the stock market is resilient to natural shocks. Key Words: Political Event, Terrorist Attack, Natural Catastrophe, Event Study, Stock Returns 1. Introduction Stock price is the price of a single share of common stocks outstanding of a company. Stock price of a company is of very importance to investors as well as to managers. If the stock price of a company is increasing day by day, its management and board of directors would be happy, because it shows that they are efficient and are going in a right direction. Further, the company would be safe from takeover by another company(Hunjra, Shahzad, Chani, Hassan, & Mustafa, 2014) Share price returns have many determinants and it varies with number of factors. Even the time of the day affects the stock price (French & Roll, 1986). Other researchers such as Nazir et al. (2010),has identified dividend policy as potential determinant of stock price return. Other determinants of the stock price returns are previous stock returns behavior, company size and previous earning per share(Mehr-un-Nisa & Nishat, 2012). The macro economic variables like gross domestic products growth rate, interest rate and consumer price index also affects the stocks returns(Mehr-un-Nisa & Nishat, 2012; Zafar, 2013). Stock price returns are also sensitive to the occurrence of events. These events may be political, terrorist or natural. For example LIU (2007) and Pantzalis et al.(2000)have found that stock price returns are volatile during elections in a country. When a natural event occurs, the investors withdraw investment from the market of that country and search a safe market for investment elsewhere. Due to this flee of investors, the market either goes down in the long run, or it can recover, in case of the investor’s hope return. This occurred during the earth quake 2005 in Pakistan, the stock returns were negative just after the quake, but the market recovered soon(Javid, 2007). In addition, the terrorist activities also badly affect the stock returns of companies of a country. The investors both national and international hesitate to invest in the country, which is more vulnerable to terrorism. The international terrorist activities also affect the stock market of a country, and this impact is greater on the emerging markets(Arin, Ciferri, & Spagnolo, 2008). A limited literature exists on the impact of political, terrorist and natural events on the stock returns behavior of a country. This literature has mostly focused on developed economies. Although few studies have focused on the developing economies, but the results of those are mixed and inconclusive and are not generalizable for Pakistan, because of differences in institutional, political and tax system(see for example, Akbar, Rehman, & Ormrod, 2013). Further, these studies have not examined the impact of individual events of all natures on stock return. Therefore, this study examines the individual impact of events (such as political, natural and terrorist) on the stock returns of Pakistani public listed firms. To the

1Department of Management Studies, University of Malakand, KPK Pakistan. [email protected] 2MS Scholar, Department of Management Studies, University of Malakand, KPK Pakistan. [email protected]


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best of authors’ knowledge, this is the first study which has examined the impact of the above mentioned events on stock returns in Pakistan. 1.1 A brief history of the events under study A need of explaining the events of study by the researcher is felt, to let the readers know a little bit about their nature. The events of all the nature like political, terrorist and natural disasters are numerous, but the events which are to be investigated here have a unique nature among their class. 1.1.1 Natural Event (Earth quake of October 8, 2005) The earth quake, which hit the Pakistan on October 8, 2005, 08:52am, was the most terrifying of all ever struck in Pakistan (Javid, 2007). The magnitude of the earth quake was 7.6 on the rector scale making it similar in size to San Francisco 1906 earthquake and Sumatra earth quake of 2009. According to government of Pakistan official sources, death toll from the quake was 75000 till November 8. 1.1.2 Terrorist Event (Assassination of Benazir Bhutto, December 27, 2007) Miss Benazir Bhutto, the chairperson of Pakistan People’s Party, was assassinated in LiaqatBagh Rawalpindi on 27, December 2007, when she was returning home after addressing a huge public gathering. She was leading the political campaign of her party, as the general election 2008 was near. This event jolted the country politically as well as economically, because her supporters started intense protests and road blocks. Several petrol pumps and vehicles were burnt. This political and economic instability flee the international investors from the market. Due to this event, general elections were delayed for forty days.The event was big, because she had twice remained the prime minister of Pakistan, had a record of becoming first woman prime minister in the history of Pakistan and also was chairing her party at that time. 1.1.3 Political Event (General election, 11 May, 2013) General election 2013 was the first general election in the history of Pakistan, which held in a fully democratic environment. For the first time national assembly completed its constitutional tenure and transferred power to next democratic government. No political party boycotted the election, no large scale institutional rigging observed, and also a third political power, Pakistan Tehreek e Insaaf aroused during this general election(Rizvi & Gilani, 2013). 2. Literature Review The impact of event on stock market returns has been the focus of many studies. Researchers have focused on many events such as dividend announcement, stock splits, policy announcement, shock or natural disaster(Javid, 2007).Recently, Gul et al. (2013) has examined the impact of events on stock returns. By using paired sample t test statistics, the results report that stock returns behave negatively during events. The existing literature regarding the impact of events on stock returns is divided into two groups. First the political events are considered, second terrorist events are discussed. 2.1 Political events Pantzalis et al. (2000) examined the stock price returns of thirty three countries during political elections for the period 1974-1995. The researchers utilized event study methodology, and find that stock returns are significantly positive two weeks before the election. According to the researchers these positive abnormal returns are function of economic, political and press freedom of a country. The results further report that the returns are more positive in less free countries when the incumbent lose the election. According to Mei and Guo(2002), the stock market show greater volatility during election period. The study utilized probit and switching regression analysis on a sample of twenty two emerging markets for the period 1994-1997. The results further reveal that the election uncertainty lead to financial panic and the market becomes more vulnerable to financial crises during political elections. Döpke andPierdzioch(2004) have examined the stock market behavior in Germany during elections. They found that German stock market favors conservative government rather than liberal government. Snowberg et al. (2007), have carried out a study with the same objective in mind to find out


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the party effect on economic outcomes. They find that stock prices rose in response to republican’s majority in the house and fell in response to democrat’s majority, but the effect is small. The results further reveal that the stock market favors divided government rather than unified government in United States. The results reported by Wisniewski (2009)are in contrast to that of Snowberg et al.(2007). The researcher examined the relationship of stock returns with the party of the government, and concluded that the US companies stocks prices raise when democrats are in government. The promises made by presidential candidates during elections also have an impact on the stock prices.Bialkowski et al. (2006a) denies the results reported by (Döpke & Pierdzioch, 2004; Snowberg, et al., 2007; Wisniewski, 2009). The researchers investigate the stock returns of an international sample of 24 OECD countries around 173 elections, and find no significant difference in returns during the governments of one party or another. Goldman et al. (2006) investigated the impact of political connectedness on firms stock price of 153 companies listed at S&P 500 during presidential election 2000 in United States. The results reveal that, political connectedness have a significant positive relationship with the firms value, because firms politically connected with republicans enjoyed positive abnormal returns as a result of republican win in presidential election 2000. While companies connected with democrats yielded negative abnormal returns.Kim et al. (2012) have also carried out such type of study in United States for the period 1966-2004. By using data of 40 years, and political alignment index (PAI) as the determinant of stock prices during elections, the researchers support the findings of Goldman et al. (2006) that firms benefit from political connectedness during elections. Bialkowski, Gottschalk, & Wisniewski, (2006b) examined the stock returns of 27 OECD countries around political elections by using event study methodology. The researchers find that stock prices are more volatile on Election Day as compared to other days. The strength of volatility depends on the specific factors of the countries, for example the stock prices are more volatile during elections in which a coalition government is going to be formed because it leads to a greater uncertainty. The strict voting laws decreases volatility, because voter turnout rises and a reduced uncertainty. LIU, (2007) found significant positive returns fifteen days before and fifteen days after the presidential elections. The study used event study methodology to find the impact of presidential elections on stock returns of five East Asian countries, namely Taiwan, Singapore, South Korea, Philippine and Indonesia. The results further argue that strength of abnormal returns depends on the specific factors, such as a country’s press and political freedom and incumbent win or lose. These factors determine the level of uncertainty and thus contribute to strong or weak abnormal returns. Ortega &Tornero, (2009) examined the stock returns behavior of Spanish stocks during elections for the period 1976-2008. The researchers found the stock market responsive to political events and conclude that stock returns are negative before the elections. It rises once the election date is over, because the uncertainty is resolved. 2.2 Terrorist events The literature provides the evidence that stock price returns are also affected by terrorist attacks. For example Richman and Santos (2005) examined the stock returns of 33 industrialized and emerging stock markets during the terrorist attack of September 11, 2001. By utilizing capital asset pricing model, the researchers found significant negative returns in response to the terrorist attack. Their results also reveal that systematic risk for ten countries increased, due to which the stock markets exhibited negative stock returns in the long run, however other stock markets show flexibility and were not affected in the long run. According to Arin et al. (2008), the stock returns show negative response to terrorist events. The researchers examined the stock market behavior of six different countries during terrorist attacks for the period 2002 to 2006. The results reported by the researchers also states that the stock price returns of emerging stock markets are more responsive as compared to developed countries during such attacks. The Japanese stock market responds negatively to the terrorist attack of September 11, 2001 in United States, two months later. TAISEI,s fire, a Japanese insurance company declared its bankruptcy on November 22, due to huge insurance claims after the 9/11 attack. The Japanese stock returns exhibited


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more negative returns during the event of TAISEI failure. Therefore, it is concluded that the Japanese stocks reacted to the terrorist attack two months later through the letdown of Japanese insurance market(Yanase & Yasuda, 2010). Drakos(2010) concludes that the effect of terrorist activity on the stock returns is intensified by the investor’s emotions. The researcher has investigated the impact of terrorist activities on a sample of 22 countries. The results support the literature regarding the negative effect of the terrorist activities on the stock returns, but highlight the importance of a new moderating variable, that the feelings of investors boosts or weakens this effect. 3. Methodology In this study we use event study methodology. The basis of this methodology is to find the abnormal returns on the stocks of firms before and after the event of interest, which is the difference between the actual returns and expected returns. Two models are used for finding normal or actual returns; market model and mean adjustedreturn model. Market model is also called regression model because it adopts a steady relationship between the security returns and market returns(Mackinlay, 1997). Rit= αi + βiRmt+ εit………………………………….(1) RitandRmtare the individual security returns and returns on a market portfolio respectively. εitis the error term and αi and βi are the parameters of the model. Under the mean adjusted return model the normal returns or expected returns are taken as constant. Since we are examining the events on national level, therefore in this study a constant mean return model is applied. The formula for finding the normal returns under the constant mean return model is;

E(Rit) =1

𝑇∑𝑅𝑖𝑡………………………………..(2)

After it abnormal returns during the event period are found through the following equation ARiτ = Riτ−E(Riτ)……………………………………..(3) ARiτ is the abnormal returns, Riτ is the actual returns and E(Riτ) is the expected or normal returns for the stock i. Returns on security iare found through the following formula; Rit = Pt– P(t-1) /P(t-1) * 100……………………………….(4) The time line showing all the windows is given below;

Estimation Pre-event Event Post-event

Window Window day Window

-125 -116 -115 0 0 +1 +15

The estimation window is taken 110 days. Event day is day 0 and is included in the pre event window. Abnormal returns are found for 15 days before and 15 days after the event.


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Traditional t test is applied for finding the statistical significance of these abnormal returns during the pre-event and post event period. 4. Data A sample of twenty three companies listed at Karachi stock exchange is selected for the analysis. Those nonfinancial companies are included in the sample which represent their sector and for which data is available for these three events. Daily stock price data for these companies is taken from the web pages of business recorder and Karachi stock exchange. The period of analysis is 8 years form 2005-2013. 5. Results and Discussions: To know the impact of events on the stock returns we utilized mean adjusted return model (MAR) for finding abnormal returns during the event period. Traditional t test is used to know that whether the abnormal stock returns are statistically significant or not. The following hypotheses are tested for all the three events; Ho: Average Abnormal Returns (AAR)= 0 Ho: Average Cumulative Abnormal Returns(CAAR)= 0 H1: Average Abnormal Returns ≠ 0 H1: Average Cumulative Abnormal Returns ≠ 0 If the value of t equals or exceeds the critical value, Ho will be rejected and if not Ho will be accepted, which will be interpreted as that the abnormal returns will be statistically insignificant.

Table 1: Impact of Earth Quake on Stock Returns

Event window AAR CAAR t- statistics P value

(-15; 0) 0.4317 5.183 11.977 .000

(0;+2) 0.005 -0.325 -.444 .659

(0;+5) 0.312 0.818 1.253 .213

(0;+15) 0.503 3.106 4.788 .000

(-15;+15) 0.467 4.145 10.583 .000

The earth quake occurred on 8 October 2005. Results for cumulative abnormal returns are reported in table one. The results for fifteen days before and fifteen days after the event show positive significant returns. The impact of the event for the first two days is negative but statistically insignificant. The impact of the earth quake is both positive and negative. For example Atlas Honda, Brother Textiles Mills Ltd, Cherat Cement Co Ltd, Frontier Ceramics Ltd, Pakistan Tobacco Co Ltd, Sakrand Sugar Mills Ltd, Shakarganj Mills Ltd and Singer Pakistan Ltd show negative abnormal returns for the first few days, while the remaining companies show positive returns after the shock. The overall impact on the market is insignificant, because the Karachi stock market was in bullish phase after the market crash of march 2005 (Javid, 2007).The event study can only reflect the shock, when the market is in bearish phase (Henderson, 1990), further the hope for huge investment in the cement and steel sector, and influx of the foreign aid on large scale also helped the market to recover soon(Javid, 2007).

Table 2: Impact of terrorist attack on stock returns


(-15; 0) 0.071 1.240 1.668 .096

(0;+2) -2.769 -5.314 -4.471 .000

(0;+5) -0.766 -5.148 -7.162 .000

(0:+15) -0.336 -4.427 -6.942 .000

(-15;+15) -0.132 -1.593 -3.179 .002


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Table 2 reports the impact of terrorist attack of 27 December 2007 on the firms listed at Karachi stock exchange, which resulted in the assassination of Miss Benazir Bhutto. The returns before the event are positive but weakly statistically significant. As the election 2008 was also arriving, therefore the stock market is positively responding(LIU, 2007). As the event occurs, the stock returns behave strongly negative. The results of the study supports the findings of Arin, et al., (2008), Richman & Santos,(2005) and Drakos (2010), who also report that the stock returns responds negative to the terrorist events. This is because the political instability in the country increases, and the investors search for a safer market somewhere else.

Table 3: Impact of political event on stock returns


(-15; 0) 0.214 1.596 1.842 .066

(0;+2) 1.168 2.659 2.107 .041

(0;+5) 0.520 2.227 2.765 .007

(0;+15) 0.298 2.781 5.246 .000

(-15:+15) 0.256 2.189 4.307 .000

Table 3 reports the impact of political event (general election May 11 2013) on the stock returns of firms listed at Karachi stock exchange. Returns for 15 days before and 15 days after the event are calculated. The pre event results are positive but weakly statistically significant. This is because the uncertainty in the market exists. The returns turn positive and statistically significant, as the event overs. The same results are reported by LIU (2007) and Ortega and Tornero(2009), which states the stock returns behave significantly positive after the event of election. This is because the uncertainty is resolved and the investors become certain about the next democratic government. 6. Conclusion The study examines the impact of three events of different nature on the stock returns of firms listed at Karachi stock exchange. Event study methodology is utilized on daily stock returns of the said firms. The findings of the study reveal that the impact of natural catastrophe on the stock returns is company specific as some firms are negatively affected while some others exhibited positive returns during the event. The overall market is bullish before and after the event, but it exhibited negative insignificant results for the first two days after the event, which means that though the event negatively affected the market but it recovered soon. The effect of the terrorist attack on the stock returns is strongly negative. This finding is supported by the literature that terrorist attacks affect the stock markets negatively. The impact of the political event is significantly positive. This finding also supports the existing literature on the topic, that the political election positively affects the stock market. This is because, with occurrence of the political election, the uncertainty is resolved and the investors feel safe. This study contributes to corporate finance and adds to the existing literature on the impact of political, terrorist and natural events on the stock returns. This study is the first of its nature up to the best level of researcher’s knowledge that examines the impact of events of different nature on stock price returns. The main beneficiaries of the study are national and international investors, because the results provide the information about the stock returns behaviors during three kinds of events. The managers can also benefit by the results, because they will know the stock returns pattern during such events in the Pakistani context, and how to manage this volatility in the best interest of their owners.


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Policy, Earning per Share, Return on Equity, Profit after Tax on Stock Prices. International Journal of Economics and Empirical Research, 2(3), 109-115.

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Impact of Employee Competency on Tangible Assets; A Quantitative Analysis in Asset Management (AM) Context

A Nawaz1 and Dr. Zubair Khan2

Abstract

Asset Management (AM) has its origin in the early 70's whereby it initially served for transportation infrastructures. AM has, over the years, developed into a faculty that works on program and portfolio level. Literary research on AM is much but empirical evidence is still scarce. This paper is the result of a year-long research conducted on one of the specific areas pertaining to Asset Management. Employee competency was the Intangible Asset which was empirically assessed over the year as to its impact on one of the Tangible Assets of an engineering concern. The results were assessed after detailed analysis and Improvement Strategies were resultantly designed by presenting a framework. The same were implemented for a period of 4 months in the case organization and results have been re-assessed and any improvement or decline has been carefully analyzed and presented. Key Words: Asset Management (AM), Employee Competency, Tangible Assets, Intangible Assets, Skills, Knowledge, Experience, Education, Leadership, Creativity, Training, Promotions, Trust, and Framework etc. 1. Introduction Asset Management (AM) has been defined as, a comprehensive and structured approach to the long-term management of assets as tools for the efficient and effective delivery of community benefits (Austroads 1997). Among various other definitions, AM has also been termed as a methodology needed by those who are responsible for efficiently allocating generally insufficient funds amongst valid and competing needs (Asset Management Task Force 1998) of the assets so their utility is optimum. The total asset management concept expands the scope of conventional infrastructure management systems by addressing the human element and other support assets as well as the physical assets (Dr. Ralph Haas, Ms. Lynette Snelgrove. 2000). Assets have been classified into 2 broad categories. Following figure1 shows the classification of assets in a comprehensive manner:

Figure 1: Organization’s Total Assets

Source: Sveiby, K. E. ((1997), The New Organizational Wealth: Managing and Measuring Knowledge-Based Assets, Berrett-Koehler Publishers Inc, San Fransisco.

From the above figure we are quite clear that Tangible Assets are the ones that are measureable and are; Plant, Machinery, Equipment, Land and Cash. The further break-up of the Intangible Assets has also been given by various authors. Some have counted the intangible among the Intellectual Capital (Lonnqvist, A., Mettanen, P. 2002) of any organization while elaborating the 3 categories of the intangibles (Sveiby, K. E. 1997 and Lonnqvist, A., Mettanen, P. 2002):

1Center for Advanced Studies in Engineering, 19-Attaturk Avenue, G-5/1, Islamabad, Pakistan. Email: [email protected] 2Center for Advanced Studies in Engineering, 19-Attaturk Avenue, G-5/1, Islamabad, Pakistan. Email:[email protected]

Cash Accounts Competence of

the Personnel Property,

Equipment,

Machinery

Internal

Structure

External

Structure

TANGIBLE ASSETS INTANGIBLE ASSETS


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1. External Structure a. Brands b. Image c. Arrangements with the stakeholders d. Relation with:

i. Customers ii. Suppliers

2. Internal Structure

a. Patents b. Concepts c. Information systems d. Culture and values e. Management philosophies f. Organizational Structure

3. Competence of personnel

a. Skills b. Innovativeness c. Leaderships d. Training e. Motivation

This paper is the result of a yearlong Research conducted on one of the specific areas pertaining to AM. 2. Literature Review AM has its origin in the early 70's with the work conducted by the United States Army Corps of Engineers (US-ACE) on Pavement Management Systems (PMS) for airfields (Infrastructure Canada Research Article 2008). In this intensive effort, the US-ACE designed a system which ensured an observation and reporting model regarding the health and future needs for the structures at air fields like maintenance schedule viz a viz fund requirement for runways and pavements on airstrips. One of the first comprehensive adoptions of the term “asset management” was during the privatization of water utilities in Great Britain in the 1980s (Stapelberg, R.F. 2006). AM has various contexts depending on the type of its employment and use. In financial terms, the AM means managing stocks, bonds and other financial assets. For factories/ plants and engineering concerns, the machinery and the human resource are the assets. The proper management of assets remains the single largest business improvement opportunity in the 21st century (H. W. Penrose 2008). The essence of managing infrastructures assets is to convert goals and objectives into real beneficial outcomes (Too, Eric G. 2008). The practice of AM, at its most basic level, involves the systematic collection of key data and the application of analytical tools such as life-cycle cost analysis and risk assessment (United States General Accounting Office Report to the Ranking Minority Member, 2004). AM’s system-wide perspective and an extended time-horizon (Asset Management Strategic Plan, 2005) instead of project to project approach, makes it a tool of great viability. Some of the core principles on which infrastructures are generally developed are (Asset Management strategic plan, 2005 and Strategic Business Plan, 2007):

1. Strategic approach 2. Reliance on quality information. 3. Proactive approach 4. Sustainable outputs. 5. Balance maintenance and renewal with aim to minimize whole life cost. 6. Use of a risk management system.


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Some of the key elements in any AM system are (J. Fortin, J. Colbert, T. Regan 2001, D. Ferguson. 2002, Asset Management Evaluation Framework 2002, An Asset Management Model for UK Railway Safety 2003, N. Coley, 2002, and Asset Management Methodology 2006):

i. External Requirements – requirements and expectations by the customers and the expectations from the business by the external stakeholders.

ii. Internal requirements – needs and requirements of the internal processes. iii. Data Collection and processing – collection of data regarding present health and further

requirements of the asset and processing the data for gaining exact state of the asset and its requirements.

iv. Whole Life Costing – calculating the overall cost incurred on the asset from its origin to the date it completes its life.

v. Information Management – includes information technology based issues and their resolution. vi. Risk Management – evaluation of risk and measures to mitigate or avoid risk etc. vii. Scheduling – defining the time line and deadlines for each activity of the project or program. viii. Continuous Improvement {one of the major function of Total Quality Management (TQM)also} ix. Good Industry Practices – ensuring that the practices for asset management are safe and nearest

to the standards established thereby for the same over the years. x. Interface Management – managing the continuous and optimum interface between the various

sub divisions and processes etc. The basic cycle of an asset management program can be formulated as (Hakan Guler, Murat Akad and Murat Ergun 2004):

1. Inventory on assets 2. Conduct condition assessment standards 3. Develop and apply performance standards 4. Evaluate assets against standards 5. Make decisions on allocation of resources 6. Implement investment plan 7. Develop and use performance measures to determine the performance of assets 8. Collect feedback information and make adjustments as needed

Each element of AM has its due importance and slackness in one will affect the other in one form or another. The various forces that are work on an AM system have been summed up as follows in fig. 2 below:

Figure 2: Various forces at work on an AM system

Source: IAM (2004), "PAS 55 Part 1: Specification for the optimized management of physical infrastructure assets.


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Considering these forces, a mass spring metaphor has been presented as in Figure 3 below: Figure 3: Metaphor of Springs

Source: Wijnia and Herder, (2009) The state of asset management in the Netherlands, 4th WCEAM in Athens, 28-30 September 2009

Human resource is the driver of any system. Each individual of an organization is a separate entity in his being with a distinct thought process and attitude. It may thus be said that one of the basic elements for having the holistic approach is the right culture for the human resource. It would be rare to enter into a discussion with any manager or supervisor and not have them agree as to the culture’s importance (but) ask them to go one step further to define what they mean by culture and the picture loses clarity (Murphy GD, 2008). Culture has been defined as a set of basic assumptions about the functioning of an organization shared by the majority of employees that drive their perceptions, attitudes, feelings and behaviors (Schein. E. 1992). It has been noted that trust improves the strength of working relationships, solidifies partnering roles, and increases the willingness of various project stakeholders to cooperate in non-self-motivated ways (J. K. Pinto, D. P. Slevin, and B. English, 2008).

If, unfortunately everyone is skeptical about others, the conduciveness of environment will

evaporate in no time. The culture that is empirically driven, based on control, efficiency and measures is less likely to develop trusting relationships (Wiewiora, Anna and Murphy, Glen D. and Trigunarsyah, Bambang, 2010). It is therefore the fair belief and trust in the individuals that can make us comfortable and contributing towards the overall culture of the organization because although our beliefs and assumptions can make us effective, they can sometimes makes us ineffective (House, Robert J., and Philip M. Podsaltoff , 1994) too. It has therefore been asserted that adopting a business strategy that aligns to the overall corporate and commercial vision often requires changes to how the company actually works in three key areas – ‘people’, ‘process’ and ‘technology’ (Paconsulting, 2004). However, the balancing act between human and machine is very important. The stress on employees’ and their contribution to the organization cannot be underestimated. Employee competency is of a great to any manager at the organization level. Teams get affected if competent members are not its part. For example, it has been reported that team performance, that has a direct impact on the output of a project as a special case and the organization as a whole is directly, positively affected by the positivity in the following (Ahsen Nawaz, Shahid Mehmood, Dr. Nadeem Ehsan, 2010 and Ahsen Nawaz, Dr. Nadeem Ehsan 2009):

i. Direct communication ii. Accuracy of communication iii. Routine feedback iv. Decentralization v. Routine accountability vi. Chances for skill enhancement vii. Consistency in work-procedures viii. Speedy decision making


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ix. Mutual trust x. Empowerment xi. Motivation xii. Chances for Training and development xiii. Hygiene factors

Review of literature on employees has brought out an important element i.e. employee

competency. It has been said that competency is the characteristic feature of individual to perform best in a given situation (Boyatzis, R. E. 1982). So the individuals would equip themselves with knowledge, skills and competencies to be a talented resource (Jyotsna Bhatnagar , 2007) for the organization. This quality of the human resource cannot be underestimated at all and the organization must benefit from it. In HR context, it has been said that talent management is an architecture where a set of processes are designed to ensure there are an adequate number of employees for jobs within an organization (Schuler, R.S. 1990). But it is not mere replenishment of individuals; it is having the right resource available at the right time for the right job (Schippmann, J. S., Ash, R. A., Carr, L., Hesketh, B., Pearlman, K., Battista, M. 2000). If the right environment is ensured, the organization will be able to acquire, develop and retain talent using competency management as a tool (Becker, B.E and Huselid, M. A. 1998). It can therefore be said that the right management of employees’ competencies can bring “value” to the organization; value being defined by the intended recipient (Ulrich, D., &Brockbank, W. 2005). It has therefore been echoed that high level of individual and organizational performance has been contributed by employee competency (Armstrong, M. 2006).

The relation and impact that a competent employee has with the organizations’ tangible output is

also the focal area of this study. The term “competency” has been used to generalize clusters of attitudes, knowledge, skills

and other features that affect a major part of job related tasks, roles and responsibilities, correlate them with the performance level (Sebt, M.H., Shahhosseini, V. & Rezaei, M. 2010). It has been recorded that competence management requires qualitative and quantitative methods for identifying and recording organizational competencies (Zulch, G., Becker, M. 2007). Some processes like competence identification, competence assessment and competence usage are also required (Berio G., Harzallah, M. 2007). Competencies being demonstrable characteristics of a person including knowledge, skills, and behavior that enable performance (Heneman, R.L. & Ledford, G.E. 1998) i.e. explicitly shown and detectable (Cooper, K. 2000), must be well channelized.

3. Need for This Research AM is recognized and practiced as a distinct concept in developed countries. Theoretical evidence is there in the available literature however as reported by Mr. Eric, there is a scarcity of the empirical evidence and a standardized model for AM (Too, Eric G. 2009). However the empirical evidence is scarce. Only one standard model has been presented till now and that too is not yet tested/ validated and its status as a Qualitative contribution only, thus, remains as a major pocket. Impact of Intangible Assets like External and Internal Structure of the organization and Employee Competency; on the Tangible Assets of the organization is still a vacuum. 4. Aims and Objectives of the Research The aim of the research was to analyze the impact of Employee Competency on the tangible assets of an engineering concern. To answer this aim, following were the Research Questions for the research:

1. What are the various variables of Employee Competency in the AM context? 2. What is the impact of change in the variables of Employee Competency on Tangible Assets of an

engineering concern? Following were the objectives of the research:

1. Review literature pertaining to AM. 2. Identify the various variables pertaining to Employee Competency. 3. Record the variables of Employee Competency that affect the Tangible Assets of a case

organization.


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4. Identify expectations of the employees from the case organization with regards employee competency.

5. Calculate present satisfaction level of employees against these expectations. 6. Develop improvement measures in selected variables of Employee Competency. 7. Implement the suggested improvement measure for a period of at least 4 months in the case

organization. 8. Record the results after the implementation phase.

5. Case Organization The case organization is Regional Engineering Centre (REC) which is a public sector organization. REC has its setups in 6 major cities of Pakistan, namely, Karachi, Lahore, Gujranwala, Bahawalpur, Rawalpindi and Quetta. The main functions of REC are as follows:

1. Assembly line for overhaul and disassembling/ assembling of engines and vehicles including those of small and middle load vehicles.

2. Small scale manufacturing like molding of spares and decor items of vehicles. The infrastructure, resources, personnel, procedures and processes are all common in all the 6

REC setups with negligible difference. The generic organogram of REC is that of a typical tall hierarchical organization with the exception that at the operational level of REC, teams are established on the basis of projects.

With the inclusion of all the staff, the total number of employees at any of the REC setups ranges from 563 to 571. For example, detail of personnel for REC-Quetta including Top, Middle and Operational Managers is as given in Table.1 as follows:

Table 1: Detail of Personnel REC - Quetta

S.NO DEPARTMENT

NO OF INDIVIDUALS

TO

P

MID

OP

ER

TO

TA

L

1 Admin Block 3 4 72 79

2 Repair Block 1 3 88 92

3 Foundry Department 1 2 35 38

4 Assembly Line 1 2 4 160 166

5 Assembly Line 2 2 5 181 188

Grand Total 9 18 536 563

The total population of 6 setups of REC is approximately 3400.

6. Research Methodology 6.1 Research Approach This research was a combination of various research approaches including both exploratory and investigative. 6.2 Road Map for Research Following road map was adopted:

1. Discussion session with top and middle management of all the setups and assess following: a. Tangible and Intangible Assets of REC. b. Intangible assets of REC that affect tangible assets. 2. Question sessions with random respondents (all tiers) from each setup and assess; Expectations

of employees from the organization. 3. Select one of the REC setup and research for details about the expectations so found. 4. Discuss the findings with each setup. 5. Devise improvement strategies after discussion with management of all 6 setups and implement in

at least 3 setups (it was decided that the strategies will be implemented in REC-Quetta, REC-Bahawalpur and REC-Karachi).

6. Record the improvements/ decline after implementation. 7. Record the improvement/ decline in satisfaction level.


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6.3 Data Collection Technique Following data collection techniques will be used: 1. Interviews(Semi Structured with Open-ended questions) 2. Questionnaires (for reliability purpose, efforts will be made to administer them in person or through

trained surveyors). Upon preparation, the Face and Content validity of the questionnaire will be duly verified through discussion sessions with professionals and academicians.

6.4 Sample Selection Random sampling technique with judgmental sampling will be used for the research. 6.5 Tools and Techniques Used For Research Affinity Diagram: This diagram will be used to compile the initial large amount of data and questions will be created after the data is compiled. Secondary Data: Secondary Data source will be resorted to by studying the archives of the organization that need to be considered for the research. Brain Storming Sessions: Brainstorming sessions in the form of interviews will be conducted with the randomly selected sample to inquire about; Expectations of the employees. The responses of the sample will be recorded in the Affinity Diagram. On the basis of the outcome of the Affinity Diagram, questionnaire will be developed. Likert Type Scale: Questionnaires will be developed with a 5 point Likert Scale to assess the following:

1. Expectations of employees towards the organization. 2. Present satisfaction level.

Measurement System Analysis: This will be used to determine the reliability of the data collection system. A small number out of the sample will be initially questioned and the data will be analyzed in SPSS soft-ware. Care will be taken that the Repeatability and Reproducibility errors are within the normal Range defined by the Automotive Industry Action Group (AIAG) (Automotive Industry Action Group, 2009). Pareto Analysis: A number of observations and complaints will emerge after the data is collected which need analysis. The Pareto analysis will be done to segregate the vital few from the trivial many. SIPOC Analysis: The vital factors that will be identified from the Pareto Analysis will be further dissected with the help of SIPOC Analysis. Cause and Effect Matrix: This will be used to identify the major inputs that have the strongest effect on all the outputs and also those outputs that are the major representative of all the inputs. Scatter Plots: Scatter plots are used to see the trend of relationship. Positive, negative or no relationship at all will thus be found with the help or this tool. Pearson’s Correlation Coefficient: Strength of relationship between various shortlisted inputs and outputs will be assessed with the help of this tool. Its range is between +1 and -1. 7. Identification of Various Variables of Employee Competency In Case Organization This was achieved after 3 sessions of brainstorming and discussions with all the tiers of the management of all the 6 setups of REC. In tabular form they are presented as table.2 as under:

Table 2: Variables of Employee Competency Affecting Tangible Assets Of Rec

S.No.

VARIABLES OF EMPLOYEE COMPETENCY TANGIBLE ASSETS

1 Skills Production Rate (Vehicles)

2 Knowledge Production Rate (Engines)

3 Experience

4 Education

5 Innovativeness

6 Leadership

7 Creativity

8 Training

9 Motivation

10 Ownership of Organization


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11 Ownership by Organization

12 Urge to learn and enhance the skills

13 Chances for growth in and out of the organization

14 Cultural background of Employees

15 Urban or Rural Background of Employees

8. Sample Selection Sample was selected across the board from all the departments and sub-departments. Statistical research was carried out in one of the 6 setups having an average 563 population. Statistics tells us that if the population size is 600 and we want to draw a sample so that we have a Confidence Interval of 95% with a margin of error of 5%, we should take a sample of at least 234. Hence we deduce that since the total population is 563, we should at least take a sample of 230. To be on safe side, a total of 236 will be selected as a sample. 8.1 Expectations & Satisfaction Level of Employees Before the survey, it was important that the care should be taken that the Repeatability and Reproducibility errors of the 2 surveyors (author and 1 trained surveyor) are within the normal Range defined by the Automotive Industry Action Group (AIAG) [43]. After careful analysis, it came out that the Repeatability and Reproducibility error is 7.18 %. The normal permissible range is upto 9%. It is therefore obvious that the chances of variations in the data are actual and not because of fault of the surveyors and hence, the data collection mechanism is correct. The brainstorming session with the management of the 6 setups brought out 65 expectations/ complaints of the employees before categorization into Affinity Diagram. Compartmentalization into affinity diagram totaled the complaints into 35. As decided earlier, one of the setups, REC-Quetta was taken as the setup for drawing the sample. The 35 complaints were transformed into questionnaire and net result was found after administering the questionnaire to 236 respondents. For segregating the Vital Few from the Trivial many complaints, Pareto charge was prepared. Resultantly, a list of 25 “Vital Few” complaints was prepared. The average Satisfaction Level was found to be 35.55 %. List of 25 factors is attached as Appendix 1. 8.2 Analysis of Mean and Standard Deviation Analysis of mean and standard deviation was also carried out and max deviation was found to be 1.378. 8.3 Regression Analysis Regression analysis was also carried out for the 25 Vital-few complaints and following was the result: 1. All the 25 factors are interdependent on each other. 2. Change in any one will affect all the others.

8.4 SIPOC DIAGRAM SIPOC diagram was prepared to further dissect the 25 vital few factors. SIPOC diagram thus prepared is attached as Appendix 2. 8.5 Cause & Effect Matrix This was prepared to find out the most important factors which need further dissection. The same is attached as Appendix 3. “Optimum Delivery of Technical Potential” is the best indicator for any noticeable changes in the 25 inputs with 559.3 points and the three inputs of (1) more chances of promotion with 580.07 points, (2) clearly defined scope of task for each team and employee with 465.21 points and (3) efficiency based evaluation more competitive environment with 451.06 points are capable of maximum affecting the outputs. It shows that Optimum Delivery of Technical Potential is the most sensitive parameter out of these 25 outputs.


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8.6 Scatter Plot For further analysis we drew scatter plots. The result of Scatter Plot showed that “Optimum Delivery of Technical Potential” has direct relation with all the 3 inputs shown by a straight line. Increase or decrease in either one of them will directly influence it. 8.7 Pearson’s Correlation To find the strength of relationship we find out the Pearson Correlation for each of the 3 with Optimum Delivery of Technical Potential. The results are as follows: 1. More Chances of Promotion = 0.766 (Strongest) 2. Clearly Defined Scope of Work And Task = 0.673 (Weaker in comparison) 3. Efficiency Based Evaluation = 0.622(Weakest in comparison)

From here we can see that the strongest relation with Optimum Delivery of Technical Potential is of “More Chances of Promotion”. 9. Further Analysis for “More Chances Of Promotion 9.1 Affinity Diagram At this stage we decided to further investigate into the factor “more chances of promotion”. The same steps as narrated earlier were followed. The result of Affinity Diagram is as following: 1. Regular promotion boards 2. Suitable training to meet the promotion criteria 3. Challenging employment on tasks 4. Proper job description of employees 5. Identification of employees’ potential 6. Identification of employees’ aptitude 7. Regular counseling sessions 8. Conducive environment 9. Fair competition

These parameters that came out of the Brainstorming sessions were then transformed into a Questionnaire. 9.2 Pareto Chart For segregating the Vital Few from the Trivial many complaints, Pareto chart was prepared and a list of 6 “Vital Few” complaints was found. 9.3 Regression Analysis Regression analysis for finding out the interdependence of 6 vital few factors was also done and following was the result: 1. All the 6 factors are interdependent on each other. 2. Change in any one will affect all the others.

9.4 SIPOC Diagram As done earlier, a SIPOC diagram was prepared. 9.5 Cause and Effect Matrix A Cause and Effect Matrix was also prepared as was done earlier. The same is available at Appendix 4. “Motivated and Polished Work Force” is thus the best indicator for any noticeable changes among the 6 outputs with 156.06 points and the three inputs of (1) Frequent interaction sessions planned over a quarter with 168 points, (2) Comprehensive training modules conducted in between two promotion boards with 147.36 points and (3) Frequent interviews and counseling sessions with 139.85 points are capable of maximum affecting the outputs. 9.6 Scatter Plot The result of Scatter Plot showed that “Motivated and Polished Work Force” has direct relation with all the 3 inputs shown by a straight line.


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9.7 Pearson’s Correlation To find the strength of relationship we find out the Pearson Correlation for each of the 3 with Motivated and Polished Workforce. The results are as follows: 1. Comprehensive training modules conducted in between two promotion boards = 1 (Strongest) 2. Frequent interviews and counseling sessions = 0.784 (Weaker in comparison) 3. Frequent interaction sessions planned over a quarter = 0.708 (Weakest in comparison) We can thus safely conclude that the best way for the organization to enhance its output is to work on all the 3 inputs especially the 1st i.e. Comprehensive Training Modules in between 2 Promotion Boards. 10. Further Analysis For Comprehensive Training Modules Between 2 Promotion Boards. 10.1 Affinity Diagram The result of Affinity Diagram prepared was as following: 1. Timely conduct 2. Evaluation of employees’ aptitude 3. Evaluation of employees’ motivation level 4. Challenging syllabus 5. On-Job based training 6. Conduct within the factory’s daily timings 7. Fairly interesting 8. Constant appraisal of performance 9. Supportive environment 10. Fair competition These were served through a questionnaire to 236 randomly selected respondents. 10.2 Pareto Chart Pareto chart was prepared which gave us a list of 7 “Vital Few” complaints. 10.3 Regression Analysis Regression analysis for finding out the interdependence of 7 vital few factors was also done and following was the result: 1. All the 7 factors are interdependent on each other. 2. Change in any one will affect all the others. 10.4 Sipoc Diagram As done earlier, a SIPOC diagram was prepared. 10.5 Cause and Effect Matrix A Cause and Effect Matrix was also prepared as available at Appendix 5. “Ownership with the organization” is thus the best indicator for any noticeable changes among the 6 outputs with 204.54 points and the three inputs of (1) Continuous feedback during training with231.06 points, (2) Counseling and interviews of trainees prior to commencement of trainingwith 161.13 points and (3) Continuous evaluation of new trends and advancements in engineering concerns with 120.16 points are capable of maximum affecting the outputs. 10.6 Scatter Plot The result of Scatter Plot showed that “Ownership with the organization” has direct relation with all the 3 inputs shown by a straight line. 10.7 Pearson’s Correlation To find the strength of relationship we find out the Pearson Correlation for each of the 3. The results are as follows:

1. Supportive environment and Employees’ motivation level = 0.606 2. Supportive environment and Challenging syllabus = 0.628 3. Supportive environment and Constant appraisal = 0.733

We can thus safely conclude that the best way for the organization to enhance its output of training is to work on all the 3 inputs especially “Constant appraisal of performance”.


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COMPREHENSIVE TRG

MODULES BETWEEN 2

PROMOTION BOARDS

CONSTANT APPRAISAL

OF TRG

MORE CHANCES OF

PROMOTION

SATISFIED EMPLOYEES

OPTIMUM DELIVERY OF

TECHNICAL POTENTIAL

CONTINUOUS

FEEDBACK

INTERVIEWS/

COUNSELLING

EVALUATION

OF NEW

TRENDS IN

TECHNOLOGY

EMPLOYEES’

MOTIVATION

LEVEL

OWNERSHIP

WITH

ORGANIZATION

PROFESSIONALLY

SOUND WORK

FORCECLEARLY

DEFINED

SCOPE OF

WORK

EFFICIENCY

BASED

EVALUATION

FREQUENT

INTERACTIVE

SESSIONS

CHALLENGING

SYLLABUS

11. Consolidated Results The author therefore now presents the results in the form of a flow chart as fig.4 as following:

Figure 4: Framework of Consolidated Results

Basing on the above framework, the next step was to devise improvement strategies which were to be implemented in at least 3 setups of REC. For finalizing the improvement strategies a brain storming session was thus conducted. After this session, we have selected the following as presented in Table. 3 below:

Table 3: Improvement Strategies Framework

INPUT Clearly defined scope of work

Efficiency based evaluation

Frequent interactive sessions

Interviews/ counseling session

OUTPUT Optimum delivery of Technical Potential

Comprehensive Training Modules between 2 Promotion Boards

EFFECT Satisfied and Motivated and Professionally Competent Employees

RESULTANT IMPACT Enhanced Tangible Output of the Organization

Following steps with regards the inputs were therefore decided to be taken for the next 4 months i.e. 1st Jul to 30 Nov 13: 1. Optimum delivery of Technical Potential Clearly defined scope of work a) Preparation and documentation of Job Description for each and every individual. b) Weekly feedback meetings followed by documentation of the proceedings of meetings distributed

among all concerned. c) Breaking down and documenting the overall quarterly plan into small, weekly and individual targets.


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Efficiency based evaluation a) Graded fortnightly evaluation in the light of job description. b) Planned extracurricular activities like outings, combined lunch etc. c) Frequent interactive sessions between top/middle management and operational staff with due

documentation of suggestions and complaints so brought out. d) Swift eradication measures with feedback into the processes to avoid recurrence.

2. Comprehensive Training Modules between 2 Promotion Boards Frequent interactive sessions a) Planned and surprise interactive sessions between top and middle managements and the trainees,

at least fortnightly. b) Documentation of suggestions and complaints brought out during the interactions. c) Swift eradication mechanism with feedback into the training processes to avoid recurrence. d) Planned extracurricular activities like outings, combined lunch etc. Interviews/ counseling sessions Weekly interviews: a) To debrief trainees about their weekly performance. b) To document suggestions and complaints of trainees. 12. Implementing the Suggested Improvement Strategies As decided the improvement strategies were implemented in 3 setups i.e. REC–Bahawalpur, REC–Karachi and REC–Quetta, for almost 4 months i.e. from 1st Jul to 15 Oct 13. 13. Recording of Results after Implementation and Assess the Resultant Impact Following were reassessed at the end of the implementation phase of improvement strategies in the 3 setups of REC: 1. Production Rate i.e. Output of the 3 setups for 1st Quarter of FY 2013-14 i.e. from 1st Jul to 30 Sep 2013 2. Production Rate i.e. Output of the 3 setups for 1st month of 2nd Quarter of FY 2013-14 i.e. from 1st Oct

to 31 Oct 2013 3. Satisfaction level of employees in REC-Quetta. 13.1 Production Rate The record for any raise or decline or carrying forward of vehicles was assessed in the 3 setups in which the improvement strategies were implemented. The careful analysis of the results from 3 setups showed that: VEHICLE Average raise in planned vs Executed – 22.54% Average decline in carried forward – 22.56% ENGINES Average raise in planned vs Executed – 16.455% Average decline in carried forward – 16.521% 13.2 Analysis of Satisfaction Level For this part of the results, we considered the Vital Few factors of following: 1. Parameters of general satisfaction level pertaining to optimum delivery of technical potential. 2. Parameters pertaining to training. 3. Multiple Brain Storming sessions were conducted with the management and operational staff of the organization for the selection of the questions to be asked. All 3 earlier questionnaires were the baseline and the questions to be asked were selected from among the 3 questionnaires. The reason was that the Importance of Questions had already been established for each of the questionnaire and the comparison with earlier results was the aim this time.


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The concerned points were all included in a fresh questionnaire. After the survey and a resurvey, the comparative analysis was done and finally we can conclude that percentage-wise following are the final results of this study: 1. 60.86 % (14 out of 23) of the Parameters have shown improvement. 2. 39.13 % (9 out of 23) of the Parameters still need further improvement. Hence we can safely conclude that: The raise in the production rate (Tangible), resulted because of the improvements that worked in the Employee Competency (Intangible) that we implemented. 14. Conclusion The concept of AM is not new. It has seen its growth in the recent years. The empirical evidence is how ever scarce. This research was aimed to present empirical evidence about one of the areas of AM and its utility. For the purpose, a public engineering concern of Pakistan was selected as the case organization. The results of the effort have proved that Tangible Assets are dependent on Intangibles. Each has a specific purpose of its own. All have been found contributing towards each other and towards each other and in fact creating ripples towards each other and on the overall situation in the organization. The results of this research have shown that Employee Competency has many ingredients and elements. All parameters have proved to impact the Tangible assets of our case organization. The research can contribute to the bank of empirical evidence with regards the concept of Assets Management. The research has been conducted in a public organization of a developing country, Pakistan. The specific dynamics of Pakistan and its culture must have been the contributing factors in the habits and thinking style of the respondents for this research. Further research in this regard is therefore recommended to be carried out on the lines of this research in a developed country so that a comparison is available for the literature. Developing countries can however benefit from the research details and findings and bring home the concept of AM in a more refined and up to date way. References

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Zulch, G., Becker, M. (2007). Computer-supported competence management: evolution of industrial processes as life cycles of organizations, Elsevier, Computers in Industry, 58, pp. 143–150.


92

Ap

pe

nd

ix 1

: 2

5 I

NIT

IAL

VIT

AL

FE

W F

AC

TO

RS

S/

NO

Q

UE

ST

ION

N

O O

F C

OM

PL

AIN

TS

%

OU

T O

F 2

36

RE

SP

ON

SE

S

1

No

Fa

vo

riti

sm

1

11

47

.01

2

Su

ita

ble

ex

tracu

rric

ula

r a

cti

vit

ies

1

00

42

.37

3

Su

ita

ble

pa

y

85

36

.01

4

No

Ca

rtels

am

on

g t

he

em

plo

ye

es

9

8

41

.52

5

Su

ita

ble

pe

rks

fo

r th

e e

mp

loye

es

’ fa

mil

ies

9

8

41

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6

Reg

ula

r in

cre

as

e i

n a

llo

wa

nc

es

9

7

41

.10

7

Reg

ula

r tr

ain

ing

s o

n n

ew

tec

hn

olo

gie

s a

nd

ma

ch

ine

ry

96

40

.67

8

Su

gg

es

tio

ns

sh

ou

ld b

e h

on

ore

d

95

40

.25

9

Co

mp

lain

ts s

ho

uld

be

he

ard

9

3

39

.40

10

No

Ca

rtels

am

on

g s

up

pli

ers

9

3

39

.40

11

No

Un

ce

rtain

tie

s

91

38

.55

12

Tra

ns

pa

ren

t P

roc

ure

me

nt

pro

ce

ss

of

sp

are

s a

nd

ma

ch

ine

ry

87

36

.86

13

Le

nie

nc

y o

f m

an

ag

em

en

t to

wa

rds

un

-in

ten

tio

nal

dam

ag

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87

36

.86

14

Cle

an

dri

nk

ing

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ter

83

35

.16

15

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ita

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g o

f n

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em

plo

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8

2

34

.74

16

No

Am

big

uo

us

ne

ss

82

34

.74

17

Co

mfo

rta

ble

wo

rkin

g p

lac

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81

34

.32

18

Su

ita

ble

po

st

reti

rem

en

t b

en

efi

ts

79

33

.47

19

Init

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ve

79

33

.47

20

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xib

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imin

gs

7

9

33

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21

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uc

tio

n o

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ma

ch

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n r

eg

ula

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as

is

78

33

.05

22

Pro

mis

es

sh

ou

ld b

e k

ep

t 7

8

33

.05

23

No

Mo

no

po

ly

77

32

.62

24

Co

nti

nu

ou

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nc

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se

in

ch

an

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s f

or

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in

th

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on

7

5

31

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25

No

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ota

sys

tem

7

3

30

.93

AV

ER

AG

E

35

.55


93

Ap

pe

nd

ix 2

: S

IPO

C D

IAG

RA

M F

OR

25

VIT

AL

FE

W F

AC

TO

RS

S/

NO

S

UP

PL

IER

(S

) IN

PU

T (

I)

PR

OC

ES

S (

P)

OU

TO

UT

(O

) C

US

TO

ME

R (

C)

1

To

p

Ma

na

ge

men

t M

ore

ch

an

ces

of

pro

mo

tio

n

Su

ita

ble

Pa

y

Mo

re i

nvo

lve

me

nt

of

team

s in

p

roje

ct

ma

na

ge

me

nt

Op

era

tio

na

l s

taff

2

Mid

dle

m

an

ag

em

en

t

Ex

tra d

elib

era

tio

n o

n c

riti

ca

l tr

ain

ing

viz

a v

iz e

mp

loye

es

’ a

pti

tud

e

Su

ita

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tra

inin

g o

f n

ew

e

mp

loye

es

M

ore

ex

pe

rt h

an

ds

on

flo

or

Op

era

tio

na

l s

taff

3

To

p

ma

na

ge

me

nt

Ide

nti

fica

tio

n o

f e

mp

loye

es

p

ote

nti

al

Co

nti

nu

ou

s i

nc

rea

se

in

c

ha

nce

s f

or

gro

wth

in

th

e

org

an

iza

tio

n

Op

tim

um

deli

ve

ry o

f te

ch

nic

al

po

ten

tia

l O

pe

rati

on

al

Sta

ff

4

To

p

ma

na

ge

me

nt

Clo

se

r in

tera

cti

on

wit

h

ind

us

try

Su

ita

ble

po

st

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rem

en

t b

en

efi

ts

Mo

re a

pp

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ab

le p

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or

job

s p

os

t re

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me

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dle

M

an

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en

t &

O

pe

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on

al s

taff

5

To

p

ma

na

ge

me

nt

Cri

tic

al

pro

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t fl

ow

an

aly

sis

In

du

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on

of

new

ma

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on

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sis

In

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ase

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t h

an

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Mid

dle

m

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em

en

t

6

Op

era

tio

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l s

taff

Eq

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lity

in

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nd

p

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ish

me

nt

for

pro

ble

m

cre

ato

rs

No

Ca

rtels

am

on

g E

mp

loye

es

A

va

ila

bil

ity o

f c

on

str

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tive

e

ne

rgy

To

p m

an

ag

em

en

t a

nd

mid

dle

m

an

ag

em

en

t

7

To

p

Ma

na

ge

men

t

Mo

re c

on

ce

rn f

or

civ

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se

rvic

es

fo

r em

plo

ye

es

&

fam

ilie

s

Su

ita

ble

Pe

rks

Fo

r E

mp

loye

es

’ F

am

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s

Mo

re s

en

se

of

ow

ne

rsh

ip

Op

era

tio

na

l s

taff

8

Mid

dle

m

an

ag

em

en

t E

ffic

ien

cy b

as

ed

eva

lua

tio

n

No

Fa

vo

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sm

M

ore

co

mp

eti

tive

en

vir

on

men

t O

pe

rati

on

al s

taff

9

To

p

ma

na

ge

me

nt

Pe

rio

dic

ch

an

ge

of

wa

ter

filt

ers

C

lea

n D

rin

kin

g W

ate

r G

oo

d h

ea

lth

of

wo

rke

rs

Op

era

tio

na

l s

taff

10

To

p

Ma

na

ge

men

t B

ett

er

fin

an

cia

l m

an

ag

em

en

t R

eg

ula

r In

cre

as

e i

n

All

ow

an

ce

s

Mo

re j

ob

sa

tis

fac

tio

n

Op

era

tio

na

l s

taff

11

Mid

dle

m

an

ag

em

en

t K

ee

n e

ye

on

te

ch

no

log

ica

l a

dva

nc

em

en

ts

Reg

ula

r T

rain

ing

s o

n N

ew

T

ec

hn

olo

gie

s a

nd

Mac

hin

ery

O

pti

mu

m u

tili

za

tio

n o

f in

du

cte

d

ma

ch

ine

ry

Mid

dle

m

an

ag

em

en

t &

O

pe

rati

on

al s

taff

12

To

p

Ma

na

ge

men

t M

ore

ac

tive

welf

are

po

lic

ies

C

om

pla

ints

sh

ou

ld b

e h

ea

rd

Gu

ida

nc

e t

o a

cc

om

mo

da

te e

ac

h

oth

er

Op

era

tio

na

l s

taff

13

To

p

ma

na

ge

me

nt

&

mid

dle

m

an

ag

em

en

t

Clo

se

r a

naly

sis

of

ne

ed

s w

ith

re

ga

rds

to

ch

an

ge

of

se

aso

ns

a

nd

ge

ne

ral w

ork

ing

e

nvir

on

me

nt

Co

mfo

rta

ble

wo

rkin

g p

lac

e

Mo

re y

ield

wh

ile

min

imiz

ing

th

e

ex

tern

al fa

cto

rs

Op

era

tio

na

l s

taff


94

1

4

Mid

dle

m

an

ag

em

en

t

Mo

re i

nc

en

tive

s f

or

su

gg

es

tio

ns

an

d v

olu

nta

ry

invo

lve

me

nt

of

team

s

Init

iati

ve

Op

tio

ns

fo

r s

olu

tio

n o

f u

nfo

res

ee

n p

rob

lem

s

Op

era

tio

na

l s

taff

15

Mid

dle

m

an

ag

em

en

t

Bett

er

pla

nn

ing

of

pro

jec

t to

a

cc

om

mo

da

te l

ull t

ime i

n

be

twee

n a

cti

vit

ies

Su

ita

ble

Ex

trac

urr

icu

lar

Ac

tivit

ies

M

ore

me

nta

l a

gil

ity a

nd

se

ns

e o

f p

rop

ort

ion

O

pe

rati

on

al s

taff

16

Mid

dle

m

an

ag

em

en

t P

roje

cte

d t

ime

lin

es

be

sp

elle

d

ve

ry c

lea

rly

Fle

xib

le t

imin

gs

M

en

tal e

ase

of

the

wo

rke

rs

inc

rea

sin

g o

ut

pu

t M

idd

le

ma

na

ge

me

nt

17

To

p a

nd

Mid

dle

m

an

ag

em

en

t F

ina

nc

ial

sta

tem

en

ts b

e m

ad

e

ac

ce

ss

ible

to

all Q

ua

rterl

y

Tra

ns

pa

ren

t P

roc

ure

me

nt

pro

ce

ss

of

sp

are

s a

nd

m

ac

hin

ery

Inc

rea

se

in

ow

ne

rsh

ip o

f e

mp

loye

es

fo

r th

e o

rga

niz

ati

on

Mid

dle

m

an

ag

em

en

t &

O

pe

rati

on

al s

taff

18

To

p a

nd

Mid

dle

M

an

ag

em

en

t In

du

cti

on

an

d p

rom

oti

on

s o

n

me

rit

No

Qu

ota

sys

tem

F

are

ch

an

ces

of

co

mp

eti

tio

n

Op

era

tio

na

l s

taff

19

To

p

ma

na

ge

me

nt

Wo

rds

sh

ou

ld b

e f

ulf

ille

d

Pro

mis

es

sh

ou

ld b

e k

ep

t M

ore

de

vo

ted

wo

rkin

g t

ea

m

Op

era

tio

na

l s

taff

20

To

p

ma

na

ge

me

nt

Cle

arl

y n

arr

ate

d p

roje

ct

go

als

a

nd

ob

jec

tive

s

No

un

ce

rtain

tie

s

Fo

cu

sed

wo

rkin

g h

an

ds

Mid

dle

m

an

ag

em

en

t &

o

pe

rati

on

al

sta

ff

21

Mid

dle

m

an

ag

em

en

t C

lea

rly d

efi

ne

d s

co

pe

of

task

fo

r e

ac

h t

ea

m a

nd

em

plo

ye

e

No

Mo

no

po

ly

Mo

re c

oh

es

ive

eff

ort

s

To

p m

an

ag

em

en

t

22

To

p &

mid

dle

m

an

ag

em

en

t Im

ple

me

nta

tio

n o

n p

os

itiv

e

iss

ue

s w

ith

ow

ne

rsh

ip

Su

gg

es

tio

ns

Sh

ou

ld B

e

Ho

no

red

A

va

ila

bil

ity o

f e

xtr

a b

rain

s f

or

bra

ins

torm

ing

O

pe

rati

on

al s

taff

23

Mid

dle

m

an

ag

em

en

t

Cle

arl

y d

efi

ne

d j

ob

d

es

cri

pti

on

of

ind

ivid

ua

ls a

nd

te

am

s v

iz a

viz

pro

jec

t a

cti

vit

ies

No

Am

big

uo

us

ne

ss

Fo

cu

sed

wo

rkm

an

sh

ip

Op

era

tio

na

l s

taff

24

To

p

ma

na

ge

me

nt

Cle

arl

y d

efi

ne

d a

nd

im

ple

me

nte

d r

ule

s o

f b

us

ines

s

No

Ca

rtels

am

on

g S

up

pli

ers

H

ea

lth

y c

om

pe

titi

on

am

on

g

su

pp

lie

rs

Mid

dle

m

an

ag

em

en

t a

nd

o

pe

rati

on

al

sta

ff

25

To

p

ma

na

ge

me

nt

Sc

ien

tifi

c a

pp

roa

ch

to

wa

rds

u

nin

ten

tio

na

l d

am

ag

es

/ fa

ilu

res

viz

a v

iz q

ua

ntu

m o

f w

ork

Le

nie

nc

y o

f m

an

ag

em

en

t to

wa

rds u

n-i

nte

nti

on

al

da

ma

ge

s

Me

nta

l e

ase

an

d o

wn

ers

hip

in

e

mp

loye

es

O

pe

rati

on

al s

taff


95

A

PP

EN

DIX

3:

CA

US

E A

ND

EF

FE

CT

MA

TR

IX F

OR

FU

RT

HE

R D

ISS

EC

TIO

N

A

VE

RA

GE

OF

PR

IOR

ITY

GIV

EN

BY

TH

E R

ES

PO

ND

EN

TS

4.73

4.90

4.70

4.69

4.78

4.57

4.76

4.38

4.80

4.88

4.66

4.70

4.72

4.69

4.56

4.67

4.67

4.61

4.68

4.60

4.63

4.63

4.64

4.50

4.68

PR

OC

ES

S O

UT

PU

TS

More involvement of teams in project management

More expert hands on floor

Optimum delivery of technical potential

More approachable places for jobs

Increase in project handling capacity

Availability of constructive energy

More sense of ownership

More competitive environment

Good health of workers

More job satisfaction

Optimum utilization of inducted machinery

Guidance to accommodate each other

More yield while minimizing the external factors

Options for solution of unforeseen problems

More mental agility and sense of proportion

Mental ease of the workers increasing out put

Increase in ownership of employees for the

organization Fare chance of competition

More devoted working team

Focused working hands

More cohesive efforts

More conducive environment for brain storming

Focused workmanship

Healthy competition among suppliers

Mental ease and ownership in employees

TO

TA

L

PROCESS INPUTS

Mo

re c

ha

nc

es

of

pro

mo

tio

n

3

1

3

1

9

9

9

9

0

3

0

0

0

0

3

3

9

9

9

9

9

9

9

0

9

58

0.0

7

Ex

tra d

elib

era

tio

n o

n

cri

tic

al

train

ing

viz

a v

iz

em

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ye

es

’ a

pti

tud

e

0

9

9

3

9

3

1

1

0

1

9

0

9

1

3

3

1

1

9

9

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1

9

0

1

40

7.5

3

Ide

nti

fica

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n o

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mp

loye

es

p

ote

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al

1

9

9

1

1

3

3

3

0

1

0

3

1

3

1

1

3

3

9

3

9

1

3

0

3

34

6.9

3

Clo

se

r in

tera

cti

on

wit

h

ind

us

try

1

3

3

9

1

1

3

3

0

1

0

0

0

1

1

3

3

3

1

9

3

0

9

0

3

28

4.2

6

Cri

tic

al

pro

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t fl

ow

a

na

lys

is

9

3

9

0

9

1

1

3

0

1

0

0

9

3

0

3

0

1

3

3

9

1

3

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33

2.3

6

Eq

ua

lity

in

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ng

s a

nd

p

un

ish

me

nt

for

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ble

m

cre

ato

rs

3

1

3

0

1

9

3

3

1

3

0

1

1

1

3

9

3

3

3

3

1

3

3

0

3

29

7.9

4


96

M

ore

co

nc

ern

fo

r c

ivic

s

erv

ice

s f

or

em

plo

ye

es

&

fam

ilie

s

3

1

3

0

1

3

9

1

9

3

0

1

1

1

3

3

9

0

1

3

3

3

3

0

9

34

2.8

7

Eff

icie

nc

y b

as

ed

eva

lua

tio

n

9

3

9

3

3

3

9

1

3

1

1

3

1

9

3

3

9

3

3

3

3

3

3

0

3

45

1.0

6

Pe

rio

dic

ch

an

ge

of

wa

ter

filt

ers

1

1

1

0

0

3

3

0

9

1

0

0

1

0

0

1

3

0

1

0

1

0

0

0

3

1

37

.15

Bett

er

fin

an

cia

l m

an

ag

em

en

t

0

0

3

0

3

0

1

9

0

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99

Mediating Impact of Corporate Entrepreneurship on the Relationship among Job Satisfaction,

Citizenship Behavior and Organizational Commitment: Evidence from Pakistan Banking

Employees

Saima Safdar1 and Rab Nawaz Lodhi2

Abstract Present study underlines the importance of corporate entrepreneurship especially in banking sectors. The foremost objective of existing study is to discover the significant interactive association of proposed variables. For quantitative study, survey based 400 structured questionnaires were send to five leading banks of Pakistan. Convenient sampling was used for research accessibility. For reliability and validity of constructs, composite reliability and Cronbach Alpha used. Software of Smart PLS3 used for analysis of hypothesis through PLS-SEM (Partial Least Square-Structure Equation Modeling) technique. Study analysis present statistically optimistic and significant association among organizational citizenship behavior and job satisfaction with organizational commitment directly and indirectly through corporate entrepreneurship. Moreover, its shows that organizational commitment of banking employee enhance due to enhance of citizenship behavior, satisfaction and corporate entrepreneurship After seeing the importance of banking employees in Pakistan, organizational commitment is effective predictor of job satisfaction, organizational citizenship behavior and corporate entrepreneurship. Key Words: Corporate Entrepreneurship, Job Satisfaction, Organizational Commitment, OCB, PLS-SEM 1. Introduction & Background Banking sector is one of the large contributor financial institutions. Today around 45 different private, commercial and public banks currently employed in Pakistan region. The majority portion of our society is engaged with financial institution directly and circuitously through financial consultants. It subsidizes around 54.4% portions in services sectors which encourage the growth rate (GDP) of Pakistan’s economy. Growth of financial sectors should be based on challengeable funds, well-organized functioning activities, optimum consumption of resource and trustworthy financial structure (Raza, 2001; Shah and Jan 2014) but banking performance inversely related with merger as well as acquisition activities (Abbas et al., 2014). Naeem (2013, pp28-30) conducted his study on banking sector in which he concluded that consumer gratification forecast from operative’s attitude, these attitude derived with the help of empowerment, worker satisfaction regarding their job and employees commitment. The idea of commitment was familiarized by Mayer and Allen (1990) in very comprehensive ways. They divided the concept of organizational commitment in three different mind-sets, affective, normative and continuous (Mayer et al., 1990). If employees of the specific organizational are emotionally attached with the affairs of its organizations it leads organizational affective commitment (NG., Thomas and Feldman 2011; Mayer and Herscovitch 2001; Mayer et al., 1990, 1998). Normative commitment help to generate the sense of belongings of individual workers toward their organizational goals and settings (Mayer and Allen 1990, 1996, 1998; Bergman 2006). Intend of leaving the organization from employees known as organizational continuous commitment (Mayer and Hersovith 2001; Bergman 2006; Cl., Wang et al., 2010). Employees in any organizations considered the real asset of that organization. It is moral obligation of the organizations to take cares the needs, wants and interest of their employees in order to maintained their working environment and competitive edge. Memari et al., (2013) illustrated in this respect as individuals job performance and organizational commitment has positive impact on each other’s. Though male participant were found highly committed to their works as compare to female candidates, study held in Meli Bank of Iran. Performance of the organizations is highly depends upon the capabilities, skills and behavior of their employees.

1M. Phil Scholar, Institute of Business & Management UET, Lahore. Email: [email protected] 2Asst.Professor, Institute of Business & Management, UET, Lahore. Email:[email protected]


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Organizational Commitment highly influenced by different related variables including employee empowerment, job satisfaction, physiological climate of organizations, organizational citizenship behavior, organizational justice and also by POS (perceived organizational support) ( Moorman et al., 1993; Zehir et al., 2012; Mamman et al., 2012; Gabamosi 2011; Dude 2012; Suma and Lesha 2013). The concept of corporate entrepreneurship may not solitary connected with the activities of newfangled endeavor but it also introduced new techniques and created innovation in existing organizations. Previous scarce spans, corporate entrepreneurship enhance effective performance of the organizations. Technological Advancement is increase day by day in entire business world which ultimately lead stiff competition among organizations performance and their outcomes. In-spite of this mechanical world there is still need of human resources. Employees and their satisfaction regarding their jobs requirement are now considered an essential part for any small, medium and large organizations. Highly satisfied employees would performed efficient and fulfill their obligations within timeframe. Dehghani et al., (2014) investigated the meaningful relationship among entrepreneurial behavior, organizational efficiency and empowerment of workforce The reason of diminishing the citizenship behavior within organization is just because of unfairness and inequity response of employees (Organ, 1990). Tella et al., (2007) interpreted that effective organizations emphasized on their employee’s needs rather than capital investment for the purpose of improvement, study was held in Nigeria’s research library. Over past three decades, corporate entrepreneurship and organizational commitment played substantial part in improving organizational value through inspiration, creativity and revolutions. Originality/ Value: The relevant literature shows the importance of proposed variables with organizational commitment and corporate entrepreneurship. Furthermore, literature clearly presents the picture in which these all variables are under research area. So, the current study will contribute to understand related significant issue in context of Pakistan banking organizations. 1.1. Research Objective Research objectives of this study are clearly described in following point;

i. To investigate the nature of relationship between dimensions of organizational commitment with citizenship behavior

ii. Examine the nature of association amongst job satisfaction and organizational commitment. iii. To explore the interactive connection between corporate entrepreneurship and organizational

commitment. iv. To recognize the nature of affiliation among citizenship behavior and corporate entrepreneurship v. To measure the nature of connection amid job satisfaction and corporate entrepreneurship.

2. Literature Review Organizational commitment can be explained by means of, “attachment of individual active worker’s attention and emotions toward their organizational objectives, missions, values and goals” (Mayer et al., 1990).Mehrabi, (2013) conducted study on textile sectors and found no directly relation among organizational commitment with citizenship behavior but some dimension of organizational commitment include altruism and conscientiousness have positive significant impact on organizational commitment, case study held on Textile industry of Iran. Perceived organizational support played significant role to develop the strong correlation among job satisfaction and commitment of sports department employees, study held in Iran (Ehsani, Sofdel et al., 2013). There is a positive and substantial correlation existed between Perceived organizational support (POS) with organizational commitment under positive controlling outcome of work autonomy and locus of control, their study was directed from Canadian prisoners (Eisenberger 2002; Aube et al., 2007) and also positive association with job satisfaction Vandenberghe and Trembley, (2008). Prior scholars have been found various organizational factors with interrelated to organizational commitment including corporate entrepreneurship (Zehir et al., 2012), work place empowerment and work engagement (Choen, 2006).


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2.1. Affective Commitment Affective commitment means “effective passionate attachment of employees with their organizational affairs” (Mayer and Allen 1990). As Feldman et al., (2011) explored the relationship in affective commitment with citizenship behavior through controlling impact of organizational tenure, there study was purely based on meta-analysis consisted on 40 studies and their findings reveals that organizational tenure as a moderator impact on affective commitment plus citizenship behavior in a non-linear way and followed curve linear pattern to showed that affective commitment and citizenship behavior increased as an increased organizational tenure at a certain point but after that certain limit it will be decreased as an increased of organizational tenure. Affective commitment shows statistically significant and long term impact on citizenship behavior as well as it help to reduced turnover intension of bank’s employees voluntarily, data was collected from Nigerian commercial banks with the help of structure questionnaires (Benjamin 2012). Wang et al., (2010) was collected interviews from UK NHS Hospital’s employees regarding affective and continuous commitment, their result reveals the facts that perceived organizational support toward the management of the companies has increased affective and continuous commitment of employees. 2.1.1. Normative Commitment Normative commitment means “emotional feeling of obligation regarding employee’s employment” (Mayer and Allen 1990). Bergman (2006) was presented the importance of affective while normative commitment in a way that affective and normative commitment are two different aspects but both are used to bound the individuals with in organizational affairs. Normative commitment presented psychological impact on individual performance and behavior toward their organization because it is help to generate the sense of ‘willingness to achieve’ within the behavior of individuals that create loyalty among their performance, study held in Pakistan public and private organizations (Khattak and Sethi 2013). As Leung (2005) was conducted his study on project team belong to Hong Kong, collected data with the help of survey and presents the facts that reward, goal acceptance, equity, role specificity and internalization are five major behavioral variables which help to derived the normative commitment among those employees who works in some construction like projects. 2.2. Job Satisfaction (JS) According to general concept of organizational behavior “job satisfaction is the person’s emotional reaction toward their jobs”. Job satisfaction helps to promote the worker efficiency and also consider the tool of motivation (Aziri 2011). According to Masomi and Derkhsan et al., (2013) indicates corporate entrepreneurship and job satisfaction has positive relation with each other, study held in Sepah Bank of Golestan Province. As Risherhri et al., (2013) illustrated that dimension of job satisfaction such as initiative, decision making power, creativity and risk shown positive significant relationship with corporate entrepreneurship, they used descriptive analysis to test their proposed hypothesis and their study was held in private Bank of Iran. Petty et al., (1984), investigating on meta-analysis for defining the relationship between job satisfaction of individuals and their voluntarily performance, their result shown constructive correlation amongst job satisfaction and their work performance. Satisfaction in circumstance of quality supervision work- itself, Coworkers and pay satisfaction leads employee to highly commit with their organizations. Furthermore, they used descriptive and inferential statistics techniques in their study and found positive influence of proportions of job satisfaction on municipality employee’s commitment, study held on public sectors of Shkoder, Albania (Malik et al., 2000 and Suma & Lesha, 2013). According to Shore & Martin (1989), job related attitude are strongly allied with assignment related outcomes for example performance rating and worldwide administrative attitude are carefully related by organizational based consequences such as turnover intention. In the Malaysia context, Jehad et al., (2011) studied on the measurements of OCB such as organizational citizenship behavior toward individual (courtesy, altruism) and organizational citizenship behavior toward organization included civic virtue, conscientiousness and sportsmanship with intrinsic and extrinsic factors of job satisfaction, their fallouts represented both factors of job satisfaction is highly important to predict citizenship behavior.


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McClelland (1962), presented three needs theory; need for achievement, need for affiliation and need for power. He stressed on need for achievement because in his views, majority of workers and employees are relate themselves with need for achievement. Employees or workers through high need for achievement struggle for personnel attainment rather than for the trapping and reward of success. 2.3. Organizational Citizenship Behavior (OCB) OCB can be explained by way of “discretionary behavior of employees, recognized by recognized reward arrangement as well as help to encourage the effective operative of the organizations”, (Organ 1988, 1990). Maintained the relationship between employees either termination of project period (Braun et al., 2012). OCB indication great presentation of workforces that straight influence on corporate entrepreneurship, study detained in pharmaceutical industry, China (Zhang et al., 2008). OCB consists of altruism behavior have significant influence on affective commitment and emotional intelligence of workforces (Carmeli and Colakoglu 2005). Chiang et al, 2011 suggested Psychological empowerment with citizenship behavior displayed optimistic inspiration on job performance though POS (perceived organizational support) presented adverse impact on job performance, research based on hotel operators, in Taiwan (Chiang et al, 2011). As Davin et al., (2012), OCB and self-worth were extremely interrelated and showed constructive relation, on the other hand not any relation was originate concerning OCB and educational background, research conducted on teachers in Iran. 2.4. Corporate Entrepreneurship (CE) The level regarding entrepreneurship varies in concentration reliant upon national cultural variations and nature of the organizational structure. Innovation is considered the vital dimension of entrepreneurship because it measured the bottom-top progression of the institute/ organization (Armesh, et al., 2014; Rutherford et al., 2004). The terms autonomy, self-efficiency, and Competence are correlated with employee’s creativity (Ghorbant and Ahmadi 2011). Entrepreneurial orientation represented strong commitment and citizenship behavior of workforces. With the help of regression analyses they investigated the positively and statistically substantial impact of corporate entrepreneurship on citizenship behavior and organizational commitment, study held in Turkey (Zehir and Muceldili et al., 2012). As Knight (2000) said corporate entrepreneurship usually founded on pro-activeness, risk taking and innovativeness. Development of entrepreneurship would result in promoting entrepreneurial orientation and leadership Ghina (2012). Grow green industries or banks are based upon entrepreneurial activities, researched held on Indian banking sectors (Bhardwaj et al., 2013). Unemployment definitely decreased with an increase of entrepreneurial behavior and activities, multiple regression analysis was used, study held in Nigeria (Oladele, et al., 2011). After analyzing comprehensive literature, found few researcher who actually investigate the relationship of corporate entrepreneurship as a mediator of job satisfaction, OCB and organizational commitment.


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3.Theoretical Framework Figure 1: Theoretical Model of Study

Figure-1 presents the study research model. It consists of the relationship between different variables with their appropriate dimensions. Arrow in the model represent the relationship between two exogenous variables included dimensions (job satisfaction and organizational citizenship behavior) with dependent/ endogenous variable (organizational commitment) directly and indirectly with the help of mediating/ endogenous variable (corporate entrepreneurship). These above mentioned relationship generates five different hypotheses (H1 to H5). 3.1. Development of Hypotheses The succeeding sub-sections deliberate the hypotheses of proposed model based on past relevant literature. Influence of Organizational Citizenship Behavior with Job Satisfaction on Organizational Commitment through Mediating Role of Corporate Entrepreneurship: After comprehensive study of literature, it is found that the relationship of corporate entrepreneurship as a mediating variable of citizenship behavior, and job satisfaction and organizational commitment has not been empirically tested before especially in Pakistan banking sectors area. This study deploy corporate entrepreneurship as mediating variable to found direct and indirect relationship among proposed variables. Mediator has a two possible ways to impact on variables, a single or dominant mediator and potent mediator (Baron et al., 1986). Gabadamosi et al., (2011) examined in their study that organizational justice, job satisfaction, and entrepreneurial intentions/ activities considered as a good positive predictors of organizational commitment. H1: Corporate Entrepreneurship has significant influence on the relationship between Citizenship Behavior and Organizational Commitment of banking employees. H2: Corporate Entrepreneurship has significant impact on the relationship between Job Satisfaction and Organizational Commitment banking sectors individuals.


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3.2. Corporate entrepreneurship and Organizational Commitment: According to Cemal, Busra and Zehir (2012), were founded momentous association among corporate entrepreneurship with citizenship behavior and affective commitment, study based on Turkey’s SMEs. Olaclele et al., (2011) studied on secondary data, suggested if government of Nigeria wants to reduced unemployment then they should be promote entrepreneurial skills, behavior and culture in a right positive ways. Relationship among formal control, environmental scanning, management supports, organizational commitment and work freedom have positive influence on the relationship with corporate entrepreneurship, study based on Iranian culture (Armesh and Shahnevazie et al., 2013). HRM practices helps to promote corporate entrepreneurship for the purpose of attaining long term objectives (Hayton 2005). So, on the basis of overhead mentioned indication, subsequent relation is need to analyze. H3: Corporate Entrepreneurship has positive significant influence on employee’s Organizational Commitment working in banking sectors employees. 3.3. Job Satisfaction and Organizational commitment: As Eslami and Gharakhani (2012), defined in his study of the relationship between job satisfaction with organizational commitment is that the tree basic dimension of job satisfaction such as personal relationship, promotion and favorable working condition influence positive effect on organizational commitment, study held in Iran. Job satisfaction with related to demographical factors such as job tenure and age was found the effective predictors of organizational commitment, study held in Oman (Azeem, 2010). Normative and affective commitment is very much related to job satisfaction and employee’s satisfaction, study held in Iran (Daneshfard and Ekvaniyan, 2012). On the basis of above mentioned literature, following relationship will analyze. H4: Job Satisfaction has positive and interactive influence on Organizational Commitment of the employees working in banking sectors. 3.4. Citizenship Behavior and Organizational Commitment Benjamin (2012) conducted qualitative study in Nigeria and reveled positive and statistically significant relationship among OCB, turnover intention and organizational affective commitment. Carmeli et al. (2005) also exposed positive direct impact amongst organizational citizenship behavior plus organizational commitment but under the positive influence of moderator’ emotional intelligence. Foote and Tang 2008 suggested job satisfaction plus organizational citizenship behavior goes side by side and showed significant relationship among themselves. Zang Wang and Jia (2008) also emphasized on associational relationship among corporate entrepreneurship and high performance human resource practices and showed that HR practices have positively impact on entrepreneurial activity with the help of organizational citizenship behavior. So, on the way of proposed literature, study hypothesized as; H5: Citizenship Behavior has significant positive relation with Organizational Commitment of banking workforces. 4. Research Design and Data Collection For the purpose of getting well defined objective, methodological paradigm included Qualitative approach were used (Mouton 2001). Data was collected through established structured questionnaire during survey from different banking organizations located in Lahore region of Pakistan. Questionnaires were also mailed to different branches of selected banks for getting maximum response within a short time span. Questionnaires contain of two parts. First part consists of demographic data of the respondents and second part cover the area of research question relate to each variable to test the proposed hypothesis. Responses is obtained from a five- point liker scale (not important (1), of little important (2), undecided (3), quite important (4), very important (5)). 4.1. Unit of Analysis Many banking organizations (Private and Commercial) are currently being operated within the boundaries of Pakistan. Out of which only those banks was included the part of this study that is located in


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Lahore region only. Out of theses all banks only five leading banks are the part of this study, which are HBL, MCB, NBP, Standard Chartered and Bank of Punjab. 4.2. Sampling Scheme and Sample Size Convenience sampling becomes the part of this research (Farrokhi et al., 2012). Data is collected from the employees belong to higher and middle authority 400 Questionnaires (mailed and face to face questionnaires) was dispersed amongst the workers of study nominated banks. Out of these 325 were received with the responding rate of 81.25%. In these 325 questionnaires only 300 were found correct and complete and used to become the part of data analysis with 75% responding rate. 4.3. Measurement of Variables The variables were measured with the help of structured questionnaires derived from prior studies. The first segment of questionnaires involved demographics information. While other segments of questionnaires contains research based question to test the planned hypothesis. Table A presents the proposed variable with its dimensions. Table A: Operational Definition of items

Variable Operational Def. Dimensions Items Ref.

Job Satisfaction “Job satisfaction represent attitude of individuals towards their jobs activity. Its consists of positive and negative aspects of intrinsic and extrinsic factors of one’s job”, (Menguc, 2002)

Work-itself, supervision, pay

10 Taylor and Bowers, (1972); Foote, A., and Tang (2008)

Organizational Citizenship Behavior

“Discretionary behavior of individuals (employees), renowned by ceremonial reward system, help to promote the effective operative of the organizations”, (Organ 1988).

altruism, conscientiousness, courtesy, civic virtue

12 Podsakoff et al., (1997); Smith et al., (1983); Markoczy

(2004)

Organizational Commitment

“Employee’s emotional attachment toward their organizational values, missions, goals and attributes” (Mayer and Allen 1997).

Normative, Affective

12 Mayer and Allen (1997); Malhotra and Mukhrjee,

2004.

Corporate Entrepreneurship

“the process in which the group of individuals related to reform the pattern of production by exploiting as invention”, (Sharma, Chrisman, Schumpeter 1999).

Self-renewal, innovation, risk tendency and pro-activeness,

10 Zahra and Calvin (1990). Antoncic et

al., 2001

4.4. Quantitative Data Analysis Partial least square based on structure equation modeling (PLS-SEM) method used to analyzed and measure the research model’s hypotheses. SEM (Structure Equation Modeling) based PLS model is designed to solved a variant of multiple regression (Jogiyanto et al. 2009; Surienty et al. 2013). PLS-SEM technique is considered as multivariate statistical techniques in which manifold comparison exists between dependent and other numerous independent variables. Smart PLS version 3.0 analysis technique was used to measure and analyzed the gathered data. Harman Wold and Joreskog (1974, 1978, and 1982) was first introduced PLS-SEM and CB-SEM based techniques. However, after many modification finally Ringle et al. (2005) was familiarized Smart-PLS software for analysis of PLS-SEM.

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

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


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Moreover, bootstrapping method (500 resamples) in Smart PLS approaches was used to analyze the significance level of the path coefficient, level for loading and weight. Cronbach’s alpha as well as composite reliability in PLS-SEM technique was used to check the reliability of constructs in region of Pakistan. The appropriate factor loading value for valid constructs should be greater than 0.700. Cross-factor loading value in PLS-SEM technique was used to checked the discriminant validity (Yap et al., 2012) 4.5. Respondent’s Demographic Profile Correct and accurate data was collected from 300 respondents with the help of structured questionnaires. Out of which a total 64.97% (194) was male and 35.30% (106) was female which shows that majority males are working in banking sectors. Moreover, majority age of respondents lies in 31-40 years range. Approximately, 53% of respondent were having master degrees. Their income level is mostly round about PRs 20,001-40,000 and their working experience is more than 6 years in banking environment. Table 1 is showing all demographic profile analysis in detailed.

5. Results and Findings 5.1. Convergent Validity and Reliability Analysis Convergent validity known as a degree in which all included multiple items are used to measure at a same concept (Suriety et al. 2013). As Yap et al., (2012) illustrated in his study, we also showed in table 2 loading value of factors, composite reliability (CR), value of AVE (Average Variance Extracted) and Cronbach’s alpha.to represent convergent validity and reliability of constructs.


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Table 2: Construct Reliability and Measurement Model Result

Note1: Some constructs including OC5, OC6 and JS 5 were deleted from analysis due to lower loading value (P< 0.05) Note 2: (1)Composite Reliability (CR) = Square of the summation of the factor loading/ (square of the summation of factor loading) + (square of the summation of the error variance) (2) Average Variance Extracted (AVE) = summation of the square of the factor loadings/ (summation of the square of the factor loading) + (summation of the error variances)

Model Construct

Measurement Items

Loading Value

Cronbach’s Alpha

CR(1) (Composite Reliability)

AVE(2)(Average Variance

Extracted)

Organizational Citizenship Behavior

OCB1 OCB2 OCB3 OCB4 OCB5 OCB6 OCB7 OCB8 OCB9

OCB10 OCB11 OCB12

0.604 0.681 0.561 0.622 0.700 0.623 0.578 0.555 0.495 0.529 0.609 0.601

0.822

0.859

0.540

Job Satisfaction

JS1 JS2 JS3 JS4 JS6 JS7 JS8 JS9

JS10

0.571 0.559 0.633 0.492 0.490 0.581 0.443 0.457 0.582

0.701

0.734

0.637

Corporate Entrepreneurship

CE1 CE2 CE3 CE4 CE5 CE6 CE7 CE8 CE9

CE10

0.654 0.662 0.685 0.533 0.517 0.591 0.435 0.491 0.406 0.403

0.781

0.788

0.618

Organizational Commitment

OC1 OC2 OC3 OC4 OC7 OC8 OC9

OC10 OC11 OC12

0.401 0.648 0.616 0.436 0.456 0.465 0.613 0.450 0.683 0.619

0.717

0.797

0.519


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As per PLS-SEM requirement, the value of Cronbach’s alpha would be higher than 0.700. In table 2, it’s clearly defined that the reliability of all proposed constructs in rage between 0.734-0.900 greater than required limit (Suriety et al. 2013). The value of average variance extracted (a degree which shows the actuality of convergent validity) were in the range between 0.519-0.673 also exceeded from required limit 0.500 (Bagaozzi et al. 1991; Yap et l., 2012). Composite reliability of all constructs (OCB= 0.859, JS= 0.734, CE=0.788 and OC= 0.797) also more than their required limit 0.700. After these analysis we conclude that loading value of all measurement are valid and reliable. 5.2. Discriminant Validity Discriminant variability shows distinct concepts of items and their constructs (Surienty et al., 2013). As (Hair F., et al., 2010) suggested that in discriminant variability we approached correlation between the proposed constructs and after that also take square root of AVE (average variability extracted) of that constructs. As per table 3, it’s clearly presented that all square root of AVE was more than their correlation values exists in following column and row. In short, table 3 presented sufficient loading value of discriminant values.

5.3. PLS-SEM Path Analysis Causal relationship among variables showed by structure model more concisely (). Figure 2, present all such causal relationship among proposed variables. Inner-model relationship between variables analyzed by PLS-SEM approach. The findings of analysis reveal that if other aspects persist constant, with one unit increased in organizational citizenship behavior, it’s increased corporate entrepreneurship by 0.174. Similarly, with a change in one unit of job satisfaction, it will bring 0.396 unit change in corporate entrepreneurship. If other factor remain unchanged, one unit variation in corporate entrepreneurship, organizational commitment change by 0.128. On the other hands, if other related factors remain same, one component alteration in citizenship behavior, organizational commitment transformation by 0.287. Similarly, if job satisfaction bring change in one unit, organizational commitment definitely change by 0.413. All positive values in path analysis represent that increasing error must be minimum.

Figure 2: PLS-SEM Path Analysis Results


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Table 4 also supports path analysis by showing their P-value, path coefficients and T- statistic value. Result shows organizational citizenship behavior (β= 0.174, P-value= 0.011) and job satisfaction (β= 0.396, P-value- 0.000) have significant impact on organizational commitment directly and also indirectly through corporate entrepreneurship (β= 0.128, P-value= 0.044). Thus, result findings support H1, H2, H3, H4 and also H5 respectively.

5.4. Conclusion and Discussion The purpose of this proposed study was to reveled different perception of banking employees toward their job working environment and organizational behavior. The statistical findings of this study presented in-depth picture about what banking individuals actually feels within the boundaries of their organizations especially in context of Pakistan. Furthermore, the primary purpose behind conducted this research was to find out the significant associational relationship among organizational citizenship behavior, organizational commitment, job satisfaction and corporate entrepreneurship of banking employees voluntarily. For this purpose, quantitative approach with the help of structured questionnaires (derived from prior study/ literature) was used. Results of proposed model were calculated with the help of PLS-SEM technique. The empirical analysis showed positive and significant relationship among different dimensions of all included variables. According to analysis, corporate entrepreneurship has positive significant mediating impact on organizational citizenship behavior, job satisfaction and organizational commitment. On the other hands, citizenship behavior plus job satisfaction has significant positive impact on corporate entrepreneurship and corporate entrepreneurship directly has significant positive impact on organizational commitment. In summary, citizenship behavior and job satisfaction has directly or indirectly through corporate entrepreneurship positive and strong impact on organizational commitment. According to this analysis, it is clear that if an organizations provide excess competitive resources and powers in some stance to their working individuals, they will definite become the real assets of that organizations. The result of this step is that employees will retain themselves to that organizations for long period of time and try their best to enhance organizational performance and goodwill. On the other hands turnover ratio will be reduced. The findings of this study also backing prior research analysis which was conducted in different prospects and in different region according to their cultural prospects. Findings of many different study was also concluded at result of significant relationship among organizational citizenship behavior, organizational commitment, job satisfaction, corporate entrepreneurship (Zehir et al., 2012; Armesh et al., 2013, 2014; Sjoberg and Sverke 2000) 5.5. Limitations and Direction for Future Research Limitations may exists in almost every type of research. It is the law of nature that no one can be perfect in all respects. This study also has some sort of limitation but they provide a unique way for up-coming future. In this area for conducting study we may suggest future researcher in following ways


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a) Comparative Study This study accompanied in financial banking sector of Pakistan. So, first and foremost direction for future researcher is to conduct this on comparison of different sectors within a country or in one sector among distinct countries and national cultures. b) Mixed Methodology This study was purely based on quantitative approach. So a better way for other researcher to conduct the analysis of this application on missed paradigm (quantitative or qualitative through interviews, ethnography, and focus group). c) Longitudinal Study. For the shortage of time, this study was conducted under certain time frame and based on cross sectional. While longitudinal study help the researcher to derive more in-depth analysis regarding this prospect and will present more negotiable result. d) Other organizational variables Present study has focused on the relationship between citizenship behavior, corporate entrepreneurship, organizational commitment and job satisfaction. Future research should include others more reliable variable including employee empowerment, organizational psychological environment, turnover intention etc. References

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Impact of Conflict on Organizational Commitment of the Employees

Waqas Khaliq Bhatti1, Dr Rizwana Bashir2 and Dr Mubashar Nadeem3

Abstract This study describes how conflict affects the organizational commitment. In the current study, organizational commitment is taken as the dependent variable and conflict as independent. The organizational commitment is measured by individuals performance, participation in decision making, and individual’s productivity in an organization. The conflict is measured by workers strikes, gender biasness, educational level, empowerment, and tenure of employees. The positive and negative impacts on variables of organization commitment is measured and analyzed in Karachi, Pakistan. The most volatility in Karachi’s environment due law and order situation is found one of the major factors influencing the rational trends of business. Law and order is analyzed as mediating variable and is recommended for further researches to investigate the impact of this factor on other variable. The life safety and the job security have also effecting the organizational commitment in this area. These factors are studied as moderating variable and also recommended for future studies. Conflict and its two broad types i.e. task conflict and relationship conflict has also been discussed. Task conflict has positive impact on organizational commitment and the relationship conflict vice versa. Key Words: Organizational Commitment, Conflict, Absenteeism, Employees, Relationship Conflict. 1. Introduction 1.1 Problem Background: Two are more people form an organization or gathered to complete a common objective in a structured pattern and subsequently for the commonwealth or welfare of the society. The noble job is seriously effecting due disagreements in ways to do a particular task or job. These disagreements perceive as “conflicts”. Conflict considers important part of any organizational growth. Some of the researchers have described conflict as positive towards organizational growth and some are against it. Considering modern challenges faced by organization i.e. formation of groups or teams to perform specific tasks, diversified work force, globalization, and other frequent changes, organizational commitment is effecting. Conflicts further divide in two categories. Most commonly, disagreements can be classified as personal and task conflict. The conflicts, which arise due to personal differences such as liking or disliking, cultural differences etc, grouped as relationship conflict. The other type of conflict is task conflict. Followings questions are problem questions for this study. What is impact of conflict on organizational commitment? Has Task conflict or Relationship conflict positive or negative impact on organizational commitment? 1.2 Aim of the Research Work The study aim is to determine the impact of conflict on employee’s organizational commitment through investigating some of the important variables that have direct and indirect impact on organizational commitment. The purposes of this study are as follows: a. To enhance the knowledge b. To facilitate the organization in its development c. To understand the conflict, its type and its pros and cons d. To understand the direct and indirect effects of conflict e. How an organization can use this as a fruitful tool for its growth

1Research Asst., Management Sciences, Bahria University. Email:[email protected] 2Associate Professor, Management Sciences, Bahria University Lahore. Email: [email protected] 3Associate Professor, University of Education, Lahore. Email: [email protected]


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1.3 Research Questions / Hypothesis The research questions are as follows:

1. How employees of company X perceive conflict? 2. How conflict (Task and Relationship) is effecting the organizational commitment of employees? 3. How conflict effects an organization?

Impact of conflict on organizational commitment was studied. The conflict was measured through workers strikes, education level, gender, tenure in an organization and empowerment. Organizational commitment was measured by absenteeism, productivity, decision making, and performance. Variables were correlated and following hypothesis were then formed: H01 Worker strikes have negative impact on productivity. H1 Worker strikes have positive impact on productivity. H02 It is expected that experienced person stay long with organization. H2 It is expected that experienced person not stay long with organization. H03 Empowerment has positive impact on decision making. H3 Empowerment has negative impact on decision making. H04 Enhanced education level has positive impact on decision making. H4 Enhanced education level has no impact on decision making. H05 Gender biased environment has negative impact on employee performance. H5 Gender biased environment has positive impact on employee performance. 1.4 Theoretical Framework Conflict and organizational commitment is measured by variables shown in the diagram.

Figure 1: Theoretical Framework

1.5 Significance of the Study I remain engaged with participants over a seven weeks period, from 27 September to 15 November 2013. I met top management and after their approval, also met the supervisors and employees of the company X. I have conducted informal interviews of the employees, as needed to clarify and provide insight into specific conversations. I have selected 10% people among the organization from different level of management and non-managerial staff to fill questionnaire and only few have be interviewed.


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2. Literature Review (Ghaffar, et.al, 2012) have selected secondary schools for observing conflict and its resolution methods in the District Charsada of KPK, Pakistan. 50 in no respondents were selected from various dimensions of the governing sectors. Questionnaire were used for gathering of primary data and concluded that collaborative style of conflict resolution is most preferred by principal. Avoidance style is never even considered by principals for conflict resolution. The education and training of principals is focus for better understanding the conflicts and use of most appropriate style for different conflicts. (Reuver and Woerkom, 2009) have studied conflict impact on abseentism between supervisors and its subordinates relationship. They have selected 433 respondants for their study and response rate was about 45%. Higly educated and staff from consultancy were selected as sample. Quesstionnaire were used for primary data collection. The study revealed that stress is not only the cause of abseentism there are more other factors that also influence the organizational commitment and subsequently the abseentism. The study focuses on developing good working relations between supervisors and their subordinates and also develop a sense of emtional attachment with the organization in order to reduce the abseentism. These results are only focused on higly educated persons and their perception of conflict and its impacts on organizational commitment. (Wall, and Callister, 1995) have discussed on how conflict become a part of employees life and how subsequently conflicts have influced the organizations. They argued that people were etremely committed with their organizations and for the sake of success and betterment of the organization they avoided conflicts. The fear of job losting due downsizing in organization have made people less committed to their organization. The same was the reason of conflict between managerial ans non managerial staff. They also suggested managers, not to build conflicts and use it as competition tool because no one can prove the above said till that time. Stop conflict do not manage it, is better. The study also stated that it is difficult to eliminate or avoide the conflict all the time, in such conditions managers must be well educated and trained paricularly human resource department because conflict resolution is cost and time consuming business. (Pelled, 1996) has described the effects of diversity on group formation and subsequently on conflict which further influences the organizatioal commitment of employees. Furthermore, she added that uptill now there are lot of studies conducted on various issues related to this topic but still there is much more to increase the body of knowledge. She has also criticised that reseachers had only concentrated one of the demograhic factor to study its impacts. She further elaborated the multipal factors affecting the conflict and organizational commitment most commonly turnover. Demographic factors have more close effect on conflcit and turnover. People try to avoid the differences in groups that are more likely caused of demographic factors. The author has developed a model on visibility of demographic factors and job relatedness to test the group performance. The conflict is considered as intervening factor between these two major variables. She expalined that higher the visibility in job relatedness in group may have the major influencing power on conflcit. “Training programs may also enhance the impact of substantive conflict on cognitive task performance. Specifically, groups that are not taught to manage controversies constructively-e.g., through collaboration (seeking maximum satisfaction of both parties' concerns) rather than forcing (one party imposing a solution on another)-may not realize benefits of that controversy to the same degree as groups that are trained in conflict management” . (Samantara, 2003) has described that task conflict arose in seniors and their subordinates needs much more attention because it directly related to productivity of the organization. The development of organization is on stake due task conflicts, not properly and timely handled. These conflicts are associated with personal, demographic, and cultural difference. Diversity in workforce in one major cause of such types of conflicts in work setting. She argued that managers now a days using democratic way to deal with conflicts as it is useful tool to generate boost in productivity of overall organization.“Positive impact of problem solving and smoothing behaviors on different aspects of organizational effectiveness are motivating the managers to rely on these behaviors to a much greater extent than they did before”.


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3. Research Methodology 3.1 Research Design The study was aimed to test the work setting in Pakistan. How conflict is affecting organizational commitment. What are the perceptions of the employees of the company? The primary data is gathered through questionnaire. The results are then analyzed on SPSS for hypothesis testing and findings of the research. Chi-square test is applied on responses received from respondents. 3.2 Sampling Technique Stratified sampling technique was used to obtain sample for this study. As study is only focusing on employees and management of company X. The total borne strength of company was population for this study. Population further divided into four groups according to managerial levels and workers as a whole. The groups were top level managers, middle managers, first line managers, and workers. Total 250 people were selected from these groups. The sampling unit of this study is an organization and 250 elements were randomly selected after dividing them into groups. The extent of this study is residents of Pakistan working in the company X i.e. sampling unit. Questionnaire was prepared in English and Urdu to obtain views of the elements. Questionnaire in English were filled by top and middle managers, while in Urdu were filled by first line managers and workers. Questionnaire filled by top managers were only served other were given to a top level manager. After two days it was received from the same source. 3.3 Data Collection Method Questionnaire was designed to collect the data. Primary data was collected through informal interviews and questionnaire filled by the management and workers of the company X. Same were collected back and analyzed. Secondary data was collected from different websites, research papers and published journals. The secondary data was used for guideline. 4. Results and Analysis The findings of the survey after compiling the data stated that response rate was 86.16%. The average non response was 13.84 %. In some of the questions respondents have not chosen any given option. The general statistics of data gathered are as follows:

Effect of Gender

biasness on performance

Effect of empowerment

on decision making

Effect of worker strikes on

absenteeism

Effect of tenure on productivity

Effect of Education on

decision making

N Valid 206 238 211 220 202

Missing 44 12 39 30 48

N here shows the total respondents of the survey where valid shows the acceptable response and missing vice versa. The details of responses received as per Hypothesis are briefed below:


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The trend of the organization states that organization is not gender biased. Employees are satisfied with their jobs as they are treated equally. Only 9.7% respondents have replied against this. The general trend and thinking prevailed in the organization is positive about fair justice. 17.6 % respondents have not chosen any given option. Therefore, a descriptive answer from these respondents may increase the body of knowledge, as it was not given option in the questionnaire. Although the maximum responses received neither shows positive nor negative. The Ho is tested and verified that gender biasness has negative impact on performance of the employee.

4.1: Effect of Empowerment on Decision Making

Frequency Percent Valid Percent Cumulative Percent

Valid Almost Never

12 4.8 5.0 5.0

Occasionally 30 12.0 12.6 17.6

Half of the time

21 8.4 8.8 26.5

Usually 95 38.0 39.9 66.4

Almost always

80 32.0 33.6 100.0

Total 238 95.2 100.0

Missing System 12 4.8

Total 250 100.0

The above table elaborates that the employees can take on the spot decisions on their own discretion. The employees in large are satisfied and perform their duties actively. The empowerment of on the spot decisions has motivation to take initiative and to feel responsibility of what they are assigned. The conflict based on empowerment can be utilized in wellbeing of the organization if managed well and empowerment is given on rational basis. The empowerment (if used in rational way) increases the organizational commitment. The Ho is hereby proved that empowerment has positive impact on decision making and ultimately on organizational commitment.


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4.2 Effect of Worker Strikes on Performance.


Valid Almost Never 32 12.8 15.2 15.2


Half of the time 48 19.2 22.7 52.1

usually 44 17.6 20.9 73.0

Almost always 57 22.8 27.0 100.0

Total 211 84.4 100.0


Total 250 100.0

Worker strikes are one of the causes of lower the productivity. The data gathered to measure the impact of worker strikes on productivity above stated that there is a trend of strikes in the organization to guard their rights or to pressurize the management to fulfill their demands. Worker strikes keep the employees away from the productive work of the organization until their demands are addressed at an appropriate level. The mediating factor that I have analyzed here are the prevailing law and order situation and political background of the workers. In this regard the H1 is stated true. There is a positive impact of worker strikes onproductivity.


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4.3: Effect of Tenure on Productivity

Frequency Percent Valid Percent

Cumulative Percent



Half of the time 58 23.2 26.4 59.5

Usually 63 25.2 28.6 88.2

Almost always 26 10.4 11.8 100.0

Total 220 88.0 100.0


Total 250 100.0

It was assumed that experienced people stay long with the organization. The table above elaborates the data gathered in this regard. There is a strong relation in tenure and productivity. The more you spent the time with the organization the more you will be committed to your job that ultimately increases the productiveness of the employee. The survey shows that productivity effects by tenure. 12% have not attempted this question. The Ho in this regard is stated true. The experienced people in the organization stay long with the organization and it increases their productivity.

4.4: Effect of Education on Decision Making




Half of the time 33 13.2 16.3 35.6

Usually 64 25.6 31.7 67.3

Almost always 66 26.4 32.7 100.0

Total 202 80.8 100.0


Total 250 100.0


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The impact of education on decision making was studied. 64% of the sample said that the education level matters a lot on decision making. The education level gives a vision to any individual to handle any conflict. The education creates the alternative and the best one is chosen. The Ho is stated true. Decision making is affected by education level and it has a positive impact on decision making.

5. Conclusion and Recommendations The study concluded that conflict effect the organizational commitment. The conflict was measured by some variables that directly produce the conflict in work setting and its impacts on organizational commitment. The direct impacts of conflict variables on variables of organizational commitment have studied which reveals a strong connection among them. If a work place is gender biased the people will not perform to their extent, they will just try to kill the time and that ultimately will affect their productivity and performance. The work setting may not be biased in terms of gender as study revealed that it has positive impact on productivity. The empowerment encourages the worker to own its work. This becomes a motivational power for it to take initiates in exploring the new ways and fresh ideas will also be given by them. The worker strikes may not be used as tool to fulfill their demands. It is observed that people staying long with organization are keener to their job and perform well for the betterment of the organization. The education level plays vital role in better handling of any situation and also become motivation factor for the employees of an organization. The task conflicts are more useful conflicts to enhance the performance and to increase the sense of competition between the employees. It also gives boost to productivity of an organization. The relationship conflict has negative impact on organizational commitment. That ultimately affects the performance of an individual. The new thing that plays an important role in organizational commitment in Karachi, is law and order situation and political background. The organizations have to suffer a lot due to this pressure group. Law and order situation is so worse, if you are denying accepting the demands of the political pressures you could even loss your life, case of factory in the same city is relevant in this regard. The impact of political pressure groups and law and order situations may also be considered in future studies to gain the accuracy of the information and subsequently its results. 6. Limitations Time constraints available time was less than may be ideal for an ethnographic study. Being in the organization for only few hours, there are bound to be aspects of leadership practice, organizational culture and team communication that will not be revealed during the study observations. Being an outsider may


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also limit, what is revealed to researcher. The employees may be guarded in their conversations around researcher, especially in initial observations. The questionnaire filled by middle managers, first line managers, and workers may be biased because the elements may be forced or pressurized to fill the form according to management wishes. The study is focused on a single company based in Karachi, Pakistan. The law and order situation in Karachi is one the factor has most influence on companies operating in this city. References

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Assessing Relationship between Improvement in Internal Process, Student Satisfaction and Student Retention; Does Student’s Orientation Mediates the Relationship?

MohammadiSabraNadeem1,QaisarAbbas2 and Uzma Javed3

Abstract Quality assurance of academic programs has traditionally been through accreditation. Specialized accreditation is a means for specific academic fields to ensure quality. In the field of business education, National Business Education Accreditation Council (NBEAC) is sole accreditation agency in Pakistan. In 2014, 25 business education institutions in Pakistan were accredited by NBEAC and 41 were in the process of accreditation. As specialized accreditation is just a novel phenomenon in Pakistan, there is also scarcity of research in this area. As the process of accreditation is evolving and institutions are looking forwards towards program accreditation, this paper aims to identify the impact of accreditation on student orientation and satisfaction. In doing so this paper aims to identify does improvement in internal process due to accreditation assure students’ satisfaction and retention by focusing on student orientation? Structural Equation Modeling (SEM) was applied to the sample of 574 students of NBEAC accredited institutions. The indirect effect was computed using bootstrap method. The results of the analysis show that improvement in internal process leads to student orientation and student’s orientation fully mediates the relationship between students satisfaction and student retention. Key Words: NBEAC, Student Satisfaction, Student Retention, Stakeholders Orientation, Accreditation 1. Introduction According to NBEAC by-laws “NBEAC Accreditation protects and promotes the interest of all stakeholders, namely parents, students, faculty, academic administrators, employers, government and taxpayers. It serves to notify: Parents and prospective students that a program has met minimum standards; Faculty, Deans and administrators of a program’s strengths and weaknesses and of ways to improve the program; Employers, that graduates are prepared to begin professional practice; Taxpayers that their funds are spent well; and The public, that graduates are aware of public /society considerations”. Previous researchers in the context of international specialized accreditation, shows that accreditation brings numerous benefits for stakeholders (Lawrence & Dangerfield, 2001; Romero, 2008; Safi, 2012) e.g. improvement in the quality of faculty and program (Cochran, 2008; Dicks and Taylor, 2005; Haakstad, 2001), increase in student success, achievement and satisfaction (Lawrence and Dangerfield, 2001), as well as increase students retention(Cochran, 2008; Dicks and Taylor, 2005; Haakstad, 2001). Furthermore, students of accredited institution experienced greater career options (Alameh, 2006; Mc Cauley, 2007). However, most of these studies are view-points or commentaries. Lack of empirical research on the outcome of accreditation, make it a grey area of research. Therefore, this research is trying to fill this gap by developing a model on the basis of stakeholder’s theory. 2. Literature Review 2.1 Stakeholders Theory and Stakeholders Orientation Proposed by Freeman, (1983) the stakeholder’s theory emphasized on “efficient operation of an organization focusing on the needs and wants of its stakeholders”. Most citied definition of stakeholders is “individuals or groups may influence or be influenced by the scope of organizational objectives”(Clarkson, 1995; Freeman & Reed, 1983; Rhenman & Adler, 1968; Safi, 2012). Maignan & Ferrell, (2004) identified three characteristics of stakeholders; 1) the individual can be positively or negatively affected by the organization’s activities and/ or is concerned about the impact of the organization’s activities on them. 2)

1PhD Scholar; Departmentof ManagementSciences,ComsatsInstituteof InformationTechnology,Islamabad, Pakistan.

Email: [email protected] 2Professor/ Dean; Departmentof ManagementSciences,ComsatsInstituteof InformationTechnology,Islamabad,

Pakistan 3Asst Professor; Departmentof ManagementSciences,ComsatsInstituteof InformationTechnology, Islamabad,Pakistan



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The individual can grant or withdraw resources needed for the organization. 3) The individual is valued by the organization’s culture. Typically stakeholder’s theory emphasized on three aspects 1) Identification of stakeholders; 2) identification of their needs and wants; and 3) creation of superior value for the stakeholders by focusing on their needs (Freeman, 1983; Yau et al., 2007). Thus creating superior value for the stakeholder is the primary focus of the firm (Freeman, 1983; Yau et al., 2007). Freeman (1984) noted that managerial attention to stakeholder interests is critical for organization’s success. He further mentioned that managers must develop relationships as well as inspire their stakeholders to create an environment whereby all stakeholders strive to deliver what an organization promises (Freeman, Wicks, & Parnar, 2004)..strategic importance given by a company to identify needs of its stakeholders is defined as Stakeholder’s orientation When an organization uses stakeholders’ orientation in its strategies, stakeholder resources increase (such as employee commitment, reputation and goodwill etc…) and this will in turn result in increased business performance (Deogratias & Akonkwa, 2013; Donaldson & Preston, 1995; Freeman, 1999; Yau et al., 2007).Stakeholder’s orientation also asserted that every organization has to create an environment of stakeholder’s orientation to identify the needs and wants of the stakeholders. This environment is developed by the share contribution of SO culture and behavior and resulted in the enhanced financial and market performance as well as reputation of the organization thus resulting into employee commitment. Stakeholder’s orientation behavior depends on three components, 1) Intelligence generation: Analysis of the factors that influence stakeholder’s needs and preferences (Kirca et al., 2005; Kohli & Jaworski, 1990; Maignan & Ferrell, 2004). 2) Intelligence dissemination: participation of all the departments in an organization to respond to stakeholder’ needs (Kirca et al., 2005; Kohli & Jaworski, 1990; Maignan & Ferrell, 2004). 3) Responsiveness - is the action taken in response to intelligence that is generated and disseminated (Kirca et al., 2005; Kohli & Jaworski, 1990; Maignan & Ferrell, 2004). The stakeholder theory was traditionally been subject to organizations (Bjørkquist, 2009) but when it applied on higher education institutions due to the complex nature of higher (Owlia & Aspinwall, 1996), it expands and takes into account more important factors and actors (Lagrosen, Seyyed-Hashemi, & Leitner, 2004; Maassen, 2000). Higher education institutions stakeholders were defined by Singh & Weligamage, (2010), as “the groups or individuals who can affect, or are impacted by, the institutional activities. “There is a long list of stakeholders of higher education as identified by the researchers, i.e. parents (Kasetwar, 2008; Quinn, Lemay, Larsen, & Johnson, 2009; Singh & Weligamage, 2010); research sponsors (Quinn et al., 2009) ; state and federal governments (Quinn et al., 2009); society (Kasetwar, 2008; Quinn et al., 2009; Singh & Weligamage, 2010); and future employers of students (Kasetwar, 2008; Quinn et al., 2009); staff (Quinn et al., 2009). Academic and non-academic staff (Kasetwar, 2008); funding parties (Kasetwar, 2008; Singh & Weligamage, 2010). However, students and faculty were identified as the main stakeholders in the extended literature (Benneworth & Jongbloed, 2010; Chapleo & Simms, 2010; Kasetwar, 2008; Lagrosen et al., 2004; Mainardes, Alves, & Raposo, 2010; Quinn et al., 2009; Singh & Weligamage, 2010). Like any corporate sector, higher education is also operating in a competitive environment. Across the globe, the sector is facing external challenges (Amaral & Magalhaes, 2002) in term of quality assurance, falling public support, increases in academic fees, funding and competition (Deogratias & Akonkwa, 2013). Thus to be profitable a university/ institution has to focus on the needs and wants of their stakeholders. It is important to note that every individual or group in higher education has their distinctive needs based on their sets of expectations and interest (Clarkson, 1995; Freeman & Reed, 1983; Harrison & John, 1994; Safi, 2012). Student’s expectations with their learning environment were categorized into four main domains (Kandiko & Mawer, 2013). 1) The students expect an institution to provide quality of teaching (Singh & Weligamage, 2010). 2) Availability of Physical and Financial resources (Kandiko & Mawer, 2013; Singh & Weligamage, 2010), 3) staff support and counselling and 4) learning experiences in term of their future employability (Singh & Weligamage, 2010).


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Considering the importance of stakeholder’s orientation, the studies are now emerging on this issue. However, studies have most often examined relationship between organizational performance and stakeholder's orientation (Greenley and Foxall 1997, 1998; Berman, Wicks, Kotha and Jones 1999; Yau et.al. 2007). In one other publication, Greenley and Foxall (1996) studied the consequences of stakeholder orientation in terms of the actual stakeholder groups to examine the different levels of orientation among the groups. There has also been only one publication found of stakeholder orientation that introduced a mediator. Berman et.al. (1999) used business-level strategy as a mediator in a model of stakeholder orientation with firm performance. Finally, moderators have been used in most empirical studies of stakeholder orientation to date; although, all can be classified as substantive moderators of the environment. These moderators include competitive hostility, market turbulence, market growth, and technological change (Greenley and Foxall 1996, 1997, 1998). Secondly, ethics and corporate social responsibility were analyzed mostly in term of stakeholder’s orientation. In higher education settings only one research (Safi 2012) is conduced that contributed towards the link between accreditation, stakeholder’s orientation and performance. Therefore, there is a gap in the literature regarding the outcomes and antecedents of stakeholder’s orientation in Pakistani Business Schools. 2.2 Accreditation and Stakeholders Orientation From a stakeholder’s perspective, accredited business schools assure stakeholders about having clearly stated and relevant mission statement, as well as advanced business knowledge through excellent quality of teaching, and finally a meaningful interaction between students and faculty for the purpose of producing graduates who have achieved clear learning goals (Espiritu, 2007). Thus an accredited program added superior value for the university as well as for stakeholders. In addition, in a business school setting, it is stated that “accreditation is a seal of quality to ensure adherence to standards of excellence” (Rothwell & Wang, 2008). Getting accredited means that the school has undergone a long process of evaluation. Therefore, when a school is accredited it would place a great sum of effort in satisfying its stakeholders as they contribute to the school’s success. In fact, the primary objective of an organization on the long run is the creation of superior value for its stakeholders as Freeman (1984) noted. Hence, an accredited school would try to understand the faculty/ student’s needs (i.e. faculty, and students’ orientations) in order to create superior benefits and values for them. Literature notes that accreditation assures stakeholders of its implied benefits, then, it could be considered that there is a relationship between improvements resulted by accreditation process and stakeholder’s orientation. Thus, to create superior value for them, institution must focus to fulfill their needs and wants. As identified by (Singh & Weligamage, 2010) students wants academic guidance, appropriate environment with availability of financial and physical (Kandiko & Mawer, 2013; Singh & Weligamage, 2010), staff support and counselling and learning experiences in term of their future employability (Singh & Weligamage, 2010). These needs can be fulfilled if an institution focused to improve them as an internal process. Further to this notion, comparison of NBEAC standards with international standards (Nadeem, Abbas, & Javed, 2014) asserted that NBEAC standards focused on student needs. The evaluation standard’s demands business education institution in Pakistan to enhance their processes to create value for the students. Thus we can elaborate the relationship between improvement in internal process (to meet the needs of students) and student orientation. Furthermore, student retention and acquiring good student also found to be one of the benefits identified by previous literature, and there are separate standards of admission process evaluation in NBEAC standards. Therefore, if the admission process is too lengthy or cumbersome, it may affect student retention (as they will not opt the institution again for further studies). Secondly, if the admission process is not clear the existing student will not suggest the institution to their other peers. Based on these arguments, this research is also adding admission process as one of the component of internal processes and tried to test its impact on student’s orientation. Therefore, following hypotheses were developed to study the improvement of the internal processes and student’s orientation;


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H1: There is a positive relationship exists between improvement in internal process (student’s personal development strategies, availability of resources, support and counselling and admission process) and students orientation. It was also found in the previous literature that when an organization focused on needs of customers it will increase customer’s satisfaction and retention (Deogratias & Akonkwa, 2013; Kirca et al., 2005; Kohli & Jaworski, 1990). The outcome of stakeholders’ orientation behavior is stakeholder’s commitment (Maignan and Ferrell (2004) . Thus student orientation can lead to student commitment i.e. student satisfaction and student retention. Thus based on the above assertion following hypotheses were developed; H2: There is a positive relationship exists between students orientation and student satisfaction H3: There is a positive relationship exists between students orientation and student retention. It was evident from the above developed hypotheses that, improvement in internal processes to meet the needs of students has impact of student orientation. Secondly student orientation effects student’s satisfaction and retention. Thus, this creates an opportunity to study the mediating role of student’ orientation between improvement in internal process and student satisfaction and student retention. H4: Stakeholder’s orientation mediates the relationship between improvement internal process (personal development, availability of resources, admission process counselling and support) and student satisfaction. H5: Stakeholder’s orientation mediates the relationship between improvement internal process (personal development, availability of resources, admission process counselling and support) and student retention.

Figure 1: Proposed Study Model

Personal

development

Availability of

Resources

Counselling

and Support

Student

orientation

Internal process

Students

Satisfaction

Students

Retention

Admission

Process

Outcomes


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The proposed model has three distinct components; first, this model is testing improvement in internal processes to focus on students’ needs and wants as antecedents of student’s orientation. Second the impact of improvement in internal process on student’s orientation and then on student satisfaction and retention. To test the above proposed model, next section will discuss the adopted methodology. 3. Methodology The purpose of this study is to identify the impact of accreditation on stakeholder’s orientation and its outcomes. Thus this section will highlight the research methodology for this study, by discussing research design, sample design and adopted techniques for data analysis. 3.1 Research Design Research design is a guideline which enables the researcher to find out answers to the question being studied for any research work (Saunders, Saunders, Lewis, & Thornhill, 2011).This research applies the stakeholder’s theory in higher education to study the impact of accreditation. Thus the results of this research will identify several implications for NBEAC and business education institutions itself therefore, it’s an applied research. As we are testing hypothesis therefore, it is a quantitative research, furthermore on the bias of time frames the study is longitudinal in nature because data will be collected only one time. 3.2 Questionnaire Design Scale development in a research can be done in two ways, we can used a scale which was previously used in some other research however, sometimes it is not possible for us to use a validate scale so we try to established our own scale for the research. This study also had the same limitation. Improvement in internal process with respect to accreditation is never being under study. Therefore keeping under consideration quality standards of NBEAC, this study tries to develop and validate a scale for improvement in internal process due to accreditation. For this purpose process suggested by Churchill & Iacobucci, (2009) and Moore & Benbasat (1991) was adopted. First part of student questionnaire focused on the demographic variables. The student was asked about their gender, age, program semester and if they involved in the process of accreditation what were their responsibilities? Second part focused on variables under study. To study the expectations of the needs of students was developed on the basis of NBEAC standards. As the aim of the questionnaire was to study the actual improvement or benefits students exercised after institution being NBEAC accredited. The questionnaire comprises of standards regarding availability of support and counselling, resources available and the prospect of personal development. Health, welfare and counseling services meet my requirements, Adequate financial aid is available. Student orientation was measured by 9 items scales modified and used by Safi. (2012). the four items were adopted by (Narver & Slater, 1990; Safi, 2012) and next 5 items were used from (Lings et al., 2000). Student retention was measured by two items of scales. The overall questionnaire was pilot tested to identify any problem related to questionnaire and questionnaire responses. This strategy is helpful because the small sample may represent an error which may be rectified at this stage. However, if the error persists in the large sample of data collection it will be disastrous. Thus, pilot testing was viewed as the best safety net. The questionnaire was sent to one of the accredited institution on the basis of convenience sampling. 25 students’ questions were returned. Based on their suggestions minor modifications were made in the questionnaire. Reliability and validity of the questionnaire were also measured. 3.3 Sample Design There were eleven institutions seek accreditation at the pilot stage of NBEAC accreditation during 2012-2013. Therefore it is purposive sampling technique. The institutions in the pilot phase were chosen on the basis of assertion that the impact of accreditation exercise must be evident till now. Out of ten institutions, six institutions showed their willingness to take part in the study. The total numbers of students studying in bachelors program of accredited institutions were 1800. The initial attempt was made to use technology to gather data. In this regards an online version of the questionnaire was developed


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using Google Doc. This online version was emailed to Deans of all accredited institutions by NBEAC itself along with the introduction of the researcher, research objectives and request to support in the data collection process. However, despite of several reminders there was no response from the institutions. The second step was taken to collect the data when researcher called all the Deans and requests them to support in the data collection process. However, all these efforts were unable to achieved desired results. In quest to get better response researcher personally visited each institution. However, institutions from Sukkur and Peshawar were contacted through emails and telephone calls. The researcher met the contact person and informed about the research objectives and details. The questionnaires were distributed to the students. Filled questionnaire were return to the contact person, who dispatched the filled questionnaire to the researcher. Out of 1800, 580 questionnaires were returned. Finally 574 student’s questionnaires were added in the data analysis, after deleting 6 more than half empty questionnaires. 3.4 Data Analysis Techniques Different data analysis techniques were adopted for this research. 1) Data screening; 2) Assessment of reliability and validity; 3) SEM to test hypothesis relationship was conducted by using AMOS-18 and SPSS-20 softwares. 4. Findings This section will discuss the findings of data analysis. In doing so it is divided into three sub-sections. 1) Overall sample profile,2) Data screening and 3) structural model. 4.1 Overall Sample Demographic Profile This section will discuss the descriptive analysis of the student data and summarize the statistics related to student’s demographic profile. The demographic profile of the student survey respondents presented in Table 1shows that 64% of the respondents were male and 36% were female. The largest age group consisted of those aged between 19-21 years (65%), followed by 22-24 years (34%) and only 1% respondent was of age 25 years and above. The majority of respondents were enrolled in the BBA program (64%) whereas 36% were from the MBA program. Table 1: Demographic Profiles of Respondents

Demographic variable

Category Research Sample (n= 574)

Frequency %age

Gender

Male 365 63.6%

Female 209 36.4%

Age (in years) 19-21 375 65%

22-24 192 34%

25 & above 7 1%

Program BBA 366 64%

MBA 208 36%


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4.1 Data Screening

Data preparation and screening is one of the vital components of multivariate analysis. Although it can be

time consuming but ignoring it can lead to failure or misinterpretation of model estimation (Kline, 2011). To

go ahead for multivariate analysis three assumptions must be assure. There must be no missing values in

the data, Data must be normal and finally the outliers must be ruled out. This section discusses the results

of missing data, outliers and normality.

4.1.1 Missing Values, Normality and Outliers

Missing values of the data were < 5% therefore; all the missing values were imputed using the method of

trend fit in SPSS. Normality of data was the second assumption, specific range of skewness and kurtosis

i.e. ± 2 assured normality of the data. Furthermore, all the cases fall within the limits (Q1 - 1.5 IQR, Q1 +

1.5 IQR). Thus, there were no outliers. Hence, data is ready for multivariate analysis. Results of student

missing values, normality, standard deviation and mean are shown in Table 2.

4.1.2 Validity and Reliability

Two steps were taken to assure reliability and validity of the student data. First Inter-item correlations and

Cornbach alpha was considered. Secondly confirmatory factor analysis was adopted to assure validity of

the measures.

Results of overall construct show that model is fit for hypothesis testing. Reliability and unidimensionality

of measures were established using Cornbach alpha and item-total correlation respectively. The result of

all the variables shows that alphas were above the threshold of 0.6, thus supporting the evidence of internal

reliability. Inter-item correlations were also within the range of 0.30 and 0.80 supporting the results.

Furthermore, composite reliability estimates and AVE’s were computed with confirmatory factor analysis results. All of the composite reliability estimates exceed the 0.70 cut-off value. In addition, all factor loadings were high in value and were statistically significant; thus, satisfying the criteria for convergent validity. The average variance extracted (referred to as AVE) exceeded the threshold of 0.50 assuring the convergent validity. Discriminant validity can be examined by comparing the square root of AVE’s with R² values. Results are reported in Table 2. Further to this notion, Table 2 reveals that SQAVE’s are greater than their respective R² values. This finding supports that all constructs have discriminant validity. All the indicators fell onto their posited underlying factors and were statistically significant at the 0.05 level. The factor loadings determine the relative importance of observed variables as indicators of the constructs and all the factor loadings are above 0.5. The R-square values for all indicators range from 0.168 to 0.768. Hence, some R-square values are below the acceptable level of 0.50 (Byrne, 2001, 2013). However, composite reliability measures for all constructs are well above the cut-off value of 0.7. In addition, AVE values for all constructs are well above the recommended value of 0.5 (Fornell & Larcker, 1981). Thus, the variance captured by the construct is higher than that the variance due to measurement error (Hair et al., 2009).


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Table 2: CFA Results of Overall Measurement Model

IItems Description Loadings R2 ITC Admission Process ( α=0.80, CR=0.87, AVE = 0.61 , SQAVE = 0.84) AP_1 0.51* 0.26 0.43 AP_2 You were informed properly about the criteria of

your admission 0.77* 0.60 0.68

AP_3 You are satisfied with the admission process 0.74* 0.55 0.62 AP_4 Before the commencement of classes an

orientation session was conducted by the institution

0.72* 0.55 0.56

Counselling and Support ( α=0.86, CR= 0.91, AVE = 0.63 , SQAVE = 0.79) CS_1 Health, welfare and counseling services meet my

requirements 0.60* 0.48 0.58

CS_2 Adequate financial aid is available. 0.60* 0.363 0.60 CS_3 I am satisfied with the careers advice provided. 0.76* 0.576* 0.71 CS_4 I receive sufficient support with my studies. 0.80* 0.64* 0.72 CS_5 I am able to contact staff / faculty when I need to. 0.76* 0.57* 0.68 CS_6 I feel personally safe whilst on campus. 0.70* 0.483* 0.61 Resources ( α=0.80, CR=0.85, AVE = 0.66 , SQAVE = 0.81) RR_1 Sporting facilities are provided within the

university. 0.65* 0.416 0.50

RR_2 The library resources are sufficient and readily accessible.

0.76* 0.583 0.64

RR_3 I am able to access information technology resources when needed.

0.76* 0.579 0.62

Personal Development ( α=0.86, CR=0.9, AVE = 0.70 , SQAVE = 0.84) PD_1 0.58* 0.34 0.51 PD_2 My communication skills are now more effective. 0.88* 0.77 0.79 PD_3 I have developed confidence to explore new ideas. 0.73* 0.73 0.79 PD_4 I have developed personal confidence through my

university experience. 0.76* 0.70 0.75

PD_5 My university experience has improved my employment prospects.

0.63* 0.38 0.54

Student Retention ( α=0.89, CR=0.9, AVE = 0.82 , SQAVE = 0.90) TO_1

If I have choice, I will continue my further studies in this institution.

0.85* 0.69 0.70

TO_2 Overall, I would recommend this institution to my peers.

0.83* 0.72 0.70

Student Satisfaction ( α=0.92, CR=0.95, AVE = 0.66 , SQAVE = 0.81) SS_1 Overall, my university experience has fulfilled my

objectives. 0.73* 0.53 0.715

SS_2 Overall, I am satisfied with the quality of the course.

0.74* 0.54 0.76

SS_3 I am satisfied with the Learning outcomes 0.74* 0.55 0.77 SS_4 Learning outcomes properly communicated to the

students 0.77* 0.59 0.78

SS_5 Teachers use proper plans for the lecture 0.72* 0.51 0.73

SS_6 Teaching methodology is appropriate according to the course contents

0.74* 0.55 0.75

SS_7 Grading criteria is well defined and well communicated

0.66* 0.43 0.64

SS_8 Proper mechanism exists for assessment 0.74* 0.54 0.69

SS_9 Overall I am satisfied with the institution 0.74* 0.55 0.61


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Student’s Orientation ( α=0.95, CR=0.97, AVE = 0.77 , SQAVE = 0.87) SO_1 The Department of Management Sciences is

committed to its students 0.78* 0.60 0.73

SO_2 The Department of Management Sciences creates students value

0.80* 0.64 0.78

SO_3 The Department of Management Sciences l understands students’ needs

0.83* 0.69 0.83

SO_4 The Department of Management Sciences understands student’s satisfaction objectives

0.84* 0.71 0.84

SO_5 The Department of Management Sciences uses competitive strategies based on understanding students’ needs

0.83* 0.68 0.83

SO_6 The Department of Management Sciences makes sure that student satisfaction is systematically and frequently assessed

0.83* 0.69 0.81

SO_7 The Department of Management Sciences makes sure that its commitment to serving students is closely monitored

0.81* 0.66 0.81

SO_8 The Department of Management Sciences gives close attention to after sales service i.e. students service

0.77* 0.59 0.77

SO_9 The Department of Management Sciences’ objectives and strategies are driven by the creation of student satisfaction

0.76* 0.58 0.75

*significant at 5% Chi-square (df) = 1735.856 (615), CFI = 0.93, TLI = 0.92, RMSEA = 0.056

Correlation among the variables is less than 0.8 (refer Table 4-13), hence multicollinearity is discarded. Sufficient correlations between the construct show that these construct can be used in the structural model for hypothesis testing. Furthermore, the goodness of fit indices indicates that the overall measurement model yields an acceptable fit (Chi-square (df) = 1735.856 (615), CFI = 0.93, TLI = 0.92, RMSEA = 0.056). Thus, the measurement model has provided the evidence to further proceed with the structural modelling. 4.2 SEM to Test Hypothesis Relationship After establishing reliability and validity of the measurement model, this section discussed the hypothesized relationship between the improvement in internal process, (i.e. admission, support and counselling, personal development and availability of resources), student satisfaction, and student orientation and student retention. The structural model is tested in AMOS to estimate the fit of the hypothesized model to the data. The model is used to test hypothesized relationships between four internal process variables (exogenous variables) and three outcome variables student orientation, student satisfaction, and student retention(endogenous variables). It was hypothesized that improvement in internal process to meet the expectations of students in term of resources, admission process and personal development has a positive impact on student orientation. Secondly it was hypothesized that student orientation has a positive impact on student satisfaction and student retention. The standardized coefficients and their associated t-values were studied to draw the conclusion. Coefficients represent the strength of associations among latent variables. The higher the coefficient, the stronger is the association. Also, if t-values are greater than absolute 1.96, it means the estimated parameter value is different from zero, and the hypothesized relationships are supported. With the help of SEM analysis, the direction and magnitude of the association between counselling and support, admission process, resources available, student orientation, student satisfaction, personal development and student retention are determined. This section, therefore, verifies whether the empirical results of the structural model support the hypothesized model. All indirect effects are further examined. The significance of indirect effect was estimated by using a bootstrap method.


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4.2.1 Analysis Direct Effects Hypotheses 1, 2, and 3 tested the direct relationships between internal improvement components (admission process, Support and Counselling, Resources, personal development) and student’s orientation. Hypotheses, 5, 6 are formulated to test the direct relationship between student orientation and student retention and satisfaction. Most of the hypothesized relationships are supported based on structural equation modelling results. Hypothesis 1 predicted that personal development is related to student orientation. The direct relationship of personal development and student orientation is both significant and positive. Thus, hypothesis one is supported. Hypothesis 2 and 4 predicted that availability of resources and satisfaction with the admission process is also the component needs to be focused as student orientation value culture respectively. But the insignificant results rejected these hypotheses. Hypothesis 3 stated that support and counselling are positively related to student orientation. The findings support the hypothesis as positive significant values were resulted (Table 4-15). Therefore, it is found that support and counselling service are a major component affect the student orientation. Student orientation was hypothesized to have a positive impact on student satisfaction and student retention in hypothesis 5 and 6 respectively. It was found that student orientation a very strong predicator of both student satisfaction and student retention. 4.2.2 Analysis of Indirect effect Besides the direct effects hypothesized in the proposed model several indirect relationships are also hypothesized. Indirect effects, their standard errors and significance values are computed in AMOS and results are shown Table 3. Confirming Hypothesis 7, students’ orientation mediates the relationship between all four internal processes characteristics and student retention. It was found that stakeholder’s orientation mediates the relationship between two characteristics of internal process i.e. personal development and support and counselling and student retention. Similarly the student’s orientation also mediates the relationship of some internal process components and student satisfaction which was stated in Hypothesis 8. However, it was found that student’s orientation does not mediate the relationship between resources and admission process, student retention and student satisfaction. Table 3 Standardized coefficient of Direct and Indirect Estimates

Hypothesized Relationship Direct Estimates

Indirect Estimates

Critical-Ratio (t-value)

Admission Process-Student orientation -0.170 -.167

Personal Development- Student orientation

0.228** 3.41

Support & counselling- Student orientation

0.703** 4.35

Resources-Student Orientation 0.029 .227

Student Orientation-Student satisfaction 0.861** 18.44

Student orientation- Student retention 0.938** 17.70 Admission Process-Student satisfaction (SO)

-0.156 0.141

Admission Process-Student Retention (SO)

-0.146 0.158

Personal Development -Student satisfaction (SO)

0.214* 0.097


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Personal Development -Student Retention (SO)

0.196* 0.197

Support & counselling- Student satisfaction (SO)

0.660** 0.395

Support & counselling- Student Retention (SO)

0.606** 0.352

Resources - Student satisfaction (SO) 0.27 0.261

Resources- Student Retention (SO) 0.025 0.295

Standardized coefficients * Significant at 0.05 levels, ** Significant at 0.01 levels 5. Discussion and Conclusion The data analysis was carried out using SEM with a two-step approach (Anderson and Gerbing, 1988; Byrne, 2001; Schumacker and Lomax, 2004). In the first step, a measurement model is developed and evaluated for each individual construct and then for the entire constructs together. The purpose of testing a measurement model was to establish the unidimensionality, reliability, convergent and discriminant validity of the constructs with confirmatory factor analysis. In the second step, the full proposed structural model was estimated based on the measurement model. In summary, of the 6 hypothesized direct paths from the proposed model, 4 was statistically significant. Whereas 2 hypotheses were developed to estimates indirect path, these two hypothesis were further subdivided into 4 hypotheses each, thus eight proposed indirect path four was found statistically significant. Hypothesis which are found significant are personal development- student orientation, Support and counselling- student orientation, student orientation- student satisfaction. Personal development-student orientation-student satisfaction; Support and counselling- student orientation-student satisfaction; Personal development- student orientation-student retention, support and counselling- student orientation-student retention. This study developed a scale to find out the actual changes in term of student expectations in the internal process considering, admission process, resources, and support and counselling, and personal development. The results show that personal development and support and counselling are related to student orientation behavior in the accredited institutions. Furthermore, it was also found that when institutions focused on student orientation, this leads to student retention and student satisfaction. The mediating effect of student orientation was found to have an impact on personal development and student satisfaction, support and counselling and student satisfaction.as well as personal development and student retention, support and counselling and student retention. This study contributes by providing a link between stakeholder’s orientation and stakeholder’s satisfaction and retention. The relationship of stakeholder’s orientation and satisfaction was under study my many scholars in the marketing context (Deogratias & Akonkwa, 2013; Kirca et al., 2005; Kohli & Jaworski, 1990, Freeman, 1984). This study applied the SO in higher education industry (accredited institutions). Furthermore, this research extended the literature of accreditation by adding a link between improvements in internal process as accreditation exercised, stakeholders orientation and stakeholder’s satisfaction and retention. The study developed a validate scale to study the improvement in internal process to meet the student’s expectations. The scale comprises of admission process, support and counselling, availability of resources and personal development. 6. Future Research Directions For the researcher with an interest in business education accreditation in Pakistan, this study has provided a platform from which a wide range of further enquiry can be launched. Future studies may be conducted to incorporate other stakeholders (e.g. Alumni, employers, staff, and parents. etc.), to study the impact of accreditation exercised on their orientation and satisfaction.


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Trends and Prospects of E-Business in Pakistan

Dr. Farooq-E-Azam Cheema1, Dr. Atif Hassan2, Dr. Faisal Aftab3 and Sobia Shujaat4

Abstract This study is aimed at identifying the trend of the customers towards online shopping, the factors that promote this trend as well as the barriers in its promotion in the country. The research mainly focuses on Karachi market and is carried out on four areas of buying: airline tickets, gift shops, electronic appliances and book shops.The research work is of mix of descriptive and exploratory nature. Geographically, it was limited to the markets of Karachi city. Data was collected from three major areas of the metropolis; Clifton, Nazimabad and Gulshan-e-Iqbal. First stage of sampling was undertaken on quota bases i.e. 50 respondents from each area. In the second stage, non-probability technique was used to identify the individual respondents. Accordingly, original sample size was 150, however, 120 of them agreed to respond. All 120 respondents were sent the questionnaire online, and blissfully all of them returned the filled questionnaire within reasonable time.Findings of the study show bright prospects for e-shopping in Pakistan especially in its urban areas. Its trend is fast increasing among the educated and well off people. The factors identified by the study underlying the online shopping behavior were convenient, time saving, more product choices and low price whereas the factors identified as barrier to promotion of the online shopping in Pakistan were non-availability of credit card, fear of getting money lost, long delivery times, product delivered different from the showcased, and high shipping cost. The trend documented by this study is supported by the findings of the numerous earlier studies contained in the literature reviewed for this study.The study conducted in the metropolis of Karachi is generalized to other urban areas of the country. Finding of the study is likely to help understand the future prospect of e-business in Pakistan and its expectations from the present consumer market. The factors highlighted in the study as supporting and hindering the E-business in Pakistan are important finding for the policy makers. Keywords: E-Business, E-commerce, Online Shopping, Internet, Traditional Buying 1. Introduction The terms of e-business, e-commerce, and online shopping may be used interchangeably in this research work. All three terms refer to buying and selling through the internet, servicing the customers and working in partnership with different business entities. With the advent of internet, e-business and online shopping are advancing briskly worldwide. 21st century has witnessed a colossal breakthrough in this field. E-business is the easiest way to conduct business through internet with the least possible resources required. It has facilitated small entrepreneurs to start up their business on a small scale, as it is both cost effective and efficient. It is becoming increasingly simple for them and their customers to carry on transactions comfortably at their own locations. In this technologically fast changing world, people tend to seek an easy and quick access to the online world. As more and more people are becoming user of internet, bigger is becoming the variety of the mobile devices – personal computers, tablets, smart phones adding more convenience to the online users, and making the online shopping a usual and more frequent sight. Online education, online advisory, and even online purchasing have become order of the day. Retailers are adding tags to their offerings for the orders to be placed online. Online shoppers are booking the stuff online and making pick-up at a drive through or getting home delivery. Online shopping is offering more options and choices to the consumers – more things to buy, more variety to choose from and more ways to compare the goods and evaluate their prices. All this is done while sitting home.Convenience is the hallmark of online shopping; it cuts the travel costs and time spent on travelling.

1 Dean, Management Sciences Department Bahria University Karachi Campus. Email: [email protected] 2 Chairman, Department of Management, School of Business and Economics, University of Management & Technology (UMT), Lahore. Email:[email protected] 3Director Research& Development, Bahria University, Islamabad, Email: [email protected] 4 Assistant Prof, Management Sciences, Bahria University, Karachi. Email: [email protected]


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This online shopping trend is now accelerating beyond the international borders as well since online retailers are now doing better part of their sales outside their own country. This development is part of the process of globalization fostered by quick penetration of the computer and internet in the daily life of the common man. The internet revolution has closely connected different parts of the world jelling it into a global village and has made the products and services of one country available to the citizens of other country at their doorstep. Now it is possible to earn higher education degrees including the apex degree online from the countries in other corner of the world and to undertake banking like sensitive transactions online internationally. Accordingly, online shopping in Pakistan is also surging. This surge is mainly because of computer and internet boom in the country. A significant portion of the population has gone online and almost every business has a website – a trend that is here to stay. In Pakistan, besides opportunities, the beginning of online shopping has created many challenges for the producers as well as the buyers. It contains both good as well as bad outcomes for the buyers. There exist numerous factors that work in favour of and against the online shopping in Pakistan. Faster rate of penetration of computer technology and internet is the most enabling factor in this regard. Introduction of 3G and 4G network in Pakistan is a pinnacle in the field of internet till date. With the introduction of this sophisticated technology, Pakistan is likely to experience 20-30% increase in online shopping in a year on the pattern of India. Among the factors that do not favour online shopping in Pakistan is lack of its maturity.Most of the businesses offering online shopping are smaller and newer ones. They have yet to develop their expertise in this field, especially, their delivery time is higher than the expected one. Other factor that undermines rosy prospects of online shopping in Pakistan is lack of trust regarding quality of the home-delivered goods. There are complaints of inferior product supplied when delivered at home. Especially regarding home-delivered food, it is mostly complained being stale and less in quality and quantity. Likewise, reports are common that goods sold online are different from the ones showcased on the website. This visual fraud makes people hesitant to buy online in Pakistan. Though this is not the case with all e-commerce websites operating in Pakistan, certain incidents of selling products with inaccurate descriptions and false promises are causing masses to lose their trust in overall online shopping sector in Pakistan. This research work is aimed at studying the trends and prospects of e-business in Pakistan. The research mainly focuses on Karachi market and is carried out in four areas of buying: airline tickets, gift shops, electronic appliances and book shops.This research was conducted in three highly populated areas of Karachi focusing on the respondents who used internet for online purchasing. Sample size was carved out using non-probability sampling technique. According to the research problem in hand the research questions studied were:

What are the factors that motivate people for online shopping in Pakistan?

What are the barriers in promotion of online shopping in Pakistan?

What are the future prospects of online buying in Pakistan? 2. Literature Review Tunyo (2008) says e-business serves four basic purposes. First, it provides a channel to attract new customers through online marketing and advertisement. Second, it serves the existing pool of customers through online customer service and home delivery. And third, it facilitates development of new markets. Lederer et.al (1997) had already found that companies obtain a number of benefits through the adaptation of e-business technologies that may include enhanced customers information, less expenditure on marketing, ability to plan and control in a tighter way, and exposure to new applications. Subsequently, Stewart and Zhao (2004) said that from the marketing perspective e-business is an alternative channel for supply of the products or services, whereas for some companies as ebay.com, amazon.com etc. e-business is the only way through which they make their product available for the final customer. In the contemporary period Xia and Sudharshan (2002) also found that the internet provides an interactive information search and decision environment for the customers.


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Sheikh (2009) took the point forward and gave a precise list of benefits that the companies and the can have of e-business, including:

Expansion of geographical reach – with the emergence of e-business people living in different part of the world can tune-in any part of the world to gather information. This has made an easy access to all products and services available widely.

24/7 availability of services – electronic media helps to access the virtual world 24 hours in a day and seven days in a week.

Low Cost – reduction in cost of sales by lowering the workforce, office space, resources, expenditures etc

Marketing Opportunities – helps in increasing the marketing opportunities for the organizations.

Access of information to the customers – information is spread in milliseconds to the people all around the world

Reduction in consumer’s cost – reduction in the cost of visiting the store and gathering information about the product; this helps in reduction of resources utilized by the customers also.

Convenience – making simpler for customers to access the products they intend to purchase conveniently and can have the stuff purchased at their doorstep.

Xia and Sudharshan (2002) mention another benefit of e-shopping to the customers. They say that the elect ronic environment provides tools to the customers for information search, information storage and decision analysis resulting in an environment that can have a profound effect on how customers construct their purchase related decision-making process. They say that internet makes things economical, simpler and easier for the customers. It is an easy way for the businesses also to communicate with the consumers and for the consumers to communicate with each other. Stewart and Zhao (2004) support this point and say that internet can generate value for the online consumers through a variety of means which may include lowering the cost of products and services as compared to the offline stores, and increasing the enjoyment of shopping etc. However, the authors also mention down-side of the online shopping saying that it deprives the customers of the sensory information such as taste, touch, texture and smell etc. Other reason of change of consumer buying behavior towards online shopping is the paucity of time in metropolitan life, cost of travelling and inconvenience caused by the traffic predicaments. Moe and Fader (2004) support this point and say that the customers can undertake virtual shopping – they can visit the shop while sitting home and without an intention of buying. Whereas in offline shopping, they have to take time off from their schedules to visit the shops sometimes more than once before they could actually make purchase that may makes them take inappropriate purchasing decisions. Oxley and Yeung (2001) say that the major obstacles in the way of switching from traditional buying to online shopping are limited availability of computers, internet and credit card. These factors are more potent in the developing societies like Pakistan more particularly in the rural areas. Authors (ibid) say that the e-business channel heavily relies on the credibility of the payment channels. Credit card companies play a vital role in ensuring security to both buyers and sellers; they need to ensure secure payment after the transaction is carried out. They (ibid) further say that development of online shopping depends on the presence of an institutional environment that facilitates the building of transactional integrity in online markets. People mostly take a long time to come to the fact that they can even order for physical products through internet. Moe and Fader (2004) say that literacy rate also plays an important role in the development of e-business in the market; the low literacy rate causes lack of inclination towards using the service. Another factor that prohibits growth of online shopping in the developing societies, according to the authors, is the lack of distribution of goods caused by poor transportation infrastructure. Price sensitivity of the consumers also affects the buying pattern and decision making; consumers are mostly price sensitive which effects their buying decision on the internet.


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2.1 Global Perspective on E-business In developed world like USA 50% of the population is online (Singh et-al., 2001). It is expected to experience an increase in the near future; but the growth would be primarily witnessed in developed countries. For instance, the global economy has reached $70 trillion, but less than 2% of that is online. By 2014 the figure is expected to exceed $140 trillion, of which 8 to 10% will be online (Hayden, 2000).Year 2013 marks an increase in the worldwide clientele of internet. All the regions of the world demonstrate growth but on different rate; the growth rate within each part of the world is due to the cultural, social and economical factors prevailing (Internet World State, 2013).

Table 1: Internet World Users Report 2013

Region 2012 2013 Growth P.R.

Africa 53,136,930 44,361,940 19.8 % 5.4 %

America, Caribbean 7,994,300 5,985,209 33.6 % 19.8 %

America, Central 28,814,000 25,997,600 10.8 % 19.0 %

America, North 246,328,977 238,015,529 3.5 % 73.0 %

America, South 127,296,284 77,978,800 63.2 % 32.7 %

Asia 647,168,227 510,478,743 26.8 % 17.1 %

Europe 396,834,928 348,125,847 14.0 % 49.4 %

Middle East 45,101,346 33,510,500 34.6 % 22.9 %

Oceania, Australia 20,594,751 19,175,836 7.4 % 59.9 %

Total World 1,573,269,743 1,319,872,109 19.2 % 23.4 %

Source: Internet World Stats Database, accessed on December 31, 2013.

According to the Internet World Stats (2013), the internet users worldwide have grown to 1773.26 million in 2012, an annual growth at the rate of 19.2% since 2008. According to the source (ibid), the internet users in Asia have increased by 136.689 million, highest one in any subcontinent. Such higher internet penetration rate in Asia points out that there is much potential for e-commerce growth.

Source: Internet World Stats 2.2 Pakistan Perspective on E-commerce According to the World Fact Book (2011) statistics total population of Pakistan is 180.24 million, out of which only 25% is literate. 24% of the total population is below poverty line. Kundi (2007) had earlier said that despite such says that IT industry in Pakistan is steadily growing. The access to internet has been made available in Pakistan since mid 1990s. Pakistan Telecommunication Limited (PTCL) initiated it by giving access via the nationwide local call network in 1995. In early 1996 internet penetration was low in

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Asia World Average Rest of theWorld

Internet Penetration in AsiaJune 2013

Asia

World Average

Rest of the World


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the country. The increased availability of wireless and broadband options marked an increase in its use throughout the country (Online Merchant Services, 2009). According to statistics till June 2013 there are 0.197 million internet hosts in the country and only 18.5 million internet users; which makes an average of 10.5% of the total population with a penetration rate of 10.6 % (Internet World Stats News, 2013). According to an earlier survey of the 54 SMEs in Pakistan conducted by Seyal et al. (2004), 84% of the organizations had internet accounts 46% of them had already adopted average to above level e-business. Survey further says that 59% of the organizations had either an in house or vendor supported web servers while 67% of them had their own home pages. According to Nizamuddin and Khalid (2001) and Ibrahim (2004) the growth of e-business in Pakistan is 50% per annum and PC’s growth rate is 30% per year. 3. Research Methodology The research work is of mix of descriptive and exploratory nature. It is aimed at analyzing the trend of the customers towards online shopping as well as exploring the factors that motivated them to undertake online buying. Geographically, research was limited to the markets of Karachi city. Data was collected from three major areas of the metropolis; Clifton, Nazimabad and Gulshan-e-Iqbal. First stage of sampling was undertaken on quota bases i.e. 50 from each area. In the second stage, non-probability technique was used to identify the samples. The respondents were reached out by the help of the gift shops, book shops, electronic appliances shops and airline ticketing franchises from where the customers did bought the items online. This was a difficult job since all vendors were not ready to share data of the online shoppers. This is one of the reasons that the sample size remained comparatively smaller. Out of 150 online customers contacted 120 agreed to respond. Out of these 120 respondents 60.8% were male and 39.2% were female. By age, 70.8% of the respondents were of 20-30 years old, 19.2% of 31-40 years old, 7.5% were 41-50 years old while 2.5% were more than 51 years old. It showed that age factor matters in online shopping trend. Furthermore, it was revealed that younger respondents mostly bought gift items and food while the elderly respondents’ online purchases related to airline tickets. In terms of income, 08.2% earned 20-30 thousand rupees per month, 10.3% earned 31-40 thousands, 12.5% had a monthly income of 41-50 thousands while 67% of the respondents had earned more than 51 thousand rupees per month. It shows that online shopping trend had a correlation with the income also. All 120 respondents were sent the questionnaire online, and gladly all of them returned the filled questionnaire within reasonable time. The questionnaire contained questions on the following areas:

Products frequently purchased online

Frequency of online purchases

Duration of online purchasing

Reasons for online purchasing

Frequency of visiting the website before taking buying decision

Hurdles in promotion of online buying in Pakistan 4. Data Analysis 4.1 Products purchased online Table 2 below shows the kinds of products purchased online by the respondents. The data show that people are more inclined towards purchase of Air Tickets as there is higher incentive in buying ticket online. 41.8% of the respondents purchase air tickets, whereas 27.6% purchase gift items followed by books which are 19.4% and electronic appliances which are 11.2%.


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Table 2: Product purchased

Responses

Product purchased online N Percent

Valid Percent

Books 38 19.4 19.4

Air tickets 82 41.8 41.8

Gift items 54 27.6 27.6

Electronic items 22 11.2 11.2

Total 196 100.0 100.0

4.1 Frequency of online purchasing Table 3 below shows frequency of online purchases made by the respondents. The data show that majority of the respondents (44.2%) made online purchases on yearly basis. While 28.3% respondents made online purchases on monthly basis followed by 20.8% making purchases occasionally while the 6.7% respondents making online purchases on weekly basis. The figures of purchases on weekly and monthly basis show that the trend of online purchasing is increasing and there exists potential among the people to carry out such purchases.

Table 3: Frequency of online purchase

Frequency of online purchasing Frequency Percent Valid Percent

Weekly 8 6.7 6.7

Monthly 34 28.3 28.3

Yearly 53 44.2 44.2

On occasions 25 20.8 20.8

Total 120 100.0 100.0

4.2 Online Purchasing Period Table 4 below shows the period since when the respondents have been making online purchasing. Data show that majority of the respondents (43.3%) have been making online purchases for last 1 to 3 years followed by 29.2% of the respondents who have recently (since less than one year) started purchasing online. Rests of the respondents seemed to be senior online purchasers i.e. 15% making online purchases for 4 to 6 years back while 12.5% started even earlier than the last six years period. It means trend in bulk towards online purchases in Pakistan has emerged since last three years i.e. 2010 onward. The data on nascent online purchasers (29.2%) reveals that online purchasing trend is fast increasing.

Table 4: Duration of online purchasing

Duration of online purchasing Frequency Percent Valid Percent

Less than an year 35 29.2 29.2

1-3 52 43.3 43.3

4-6 18 15.0 15.0

More than 6 years 15 12.5 12.5

Total 120 100.0 100.0

4.3 Reasons for online purchasing To identify the factors having potential to promote e-shopping in Pakistan was one of the key aim of this study. Findings are integrated in the Table 5 below. According to the data, 40% of the respondents believed that online purchasing saves time and it is the main reason for them buying online. The factor of convenience is closely following – 29.8% of the respondents believed did resort to online purchasing because it it was convenient as compared to conventional mode of buying. Keeping in view paucity of time


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majority the people faced with in present day time and the hustle bustle of the densely populated metropolis, it is quite plain to accept that time economy and convenience are the prime reasons for majority (62.5%) of the respondents for resorting to online shopping. In the follow up interview the respondents said that they were able to have the items at their door steps without passing through much hassle involved in physical shopping. Availability of wider choice among the variety of product to purchase comparing among themselves and the low price also played important role in creating online buying trend among the respondents (40% accumulatively). Other factors that constituted almost 4% of the reasons of online buying included lack of parking space within the city, good quality product and non-availability of product in the real market.

Table 5: Reasons to online purchasing

Reasons to online purchasing Responses

N Percent Valid Percent

Convenient 36 30 30

Saves time 40 33.3 33.3

More product choices 22 18.3 18.3

Low price 18 15 15

Others 4 3.3 3.3

Total 120 100.0 100.0

4.4 Frequency of Visiting the Website Before Making a Purchase Decision Customers visit the website several times before making the final decision for the online purchase. Table 6 below shows the frequency of visiting the website by the respondents before taking decision to make online purchases. Data show that 25% of the total respondents usually made the purchase at the first visit of the website. 35.8% of the respondents said they visited the website 4 to 10 times while the remaining 15% usually visited the website even more than 10 times to reach a final purchasing decision. Though ascertaining the reason for such difference is out of scope of this study, accompanying interview revealed that most of the time purchases made during first visit of the website visit were of the airline tickets. Obviously purchasing a ticket did not need deeper probe into the quality and price of the tickets rather its availability was the main concern. The respondents had already trodden the website path. For other stuffs especially the gifts and the electronic appliances, the difference of number of website visits was price sensitivity i.e. the respondents who visited the website more than 5 times belonged to the category whose income was in 20-30 thousand range. Besides, some of the respondents were of the view that since the stuff to be purchased is no more available physically, it takes more time to identify the pros and cons of the purchase.

Table 6: Website visits for online purchase

4.5 Hurdles in Promotion of Online Buying in Pakistan To identify the factors having potential for inhibiting e-shopping in Pakistan was the other key aim of this study. Respondents were asked to give various possible barriers in the way of promotion of online shopping in Pakistan. The data were compiled in the Table 7 below which show that the biggest barrier (believed by 33.3% of the respondents) in online purchasing in Pakistan is low trust level of the online shoppers in the vendors. Fear of getting swindled and the money lost is the main hurdle. In accompanying interview one of the respondents told that there is no active law in force currently in Pakistan that the shoppers could resort

No. of website visits before online purchasing

Frequency Percent Valid Percent

1 time 2-4 times 5-10 times More than 10 times Total

30 44 35 11

120

25.0 36.7 29.1 9.2

100.0

25.0 36.7 29.1 9.2

100.0


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to in case of some eventuality. Law on cybercrime in the country is toothless whereas 25% of the respondents believed that the major barrier is the fear of poor quality stuff delivered – stuff different from that was showcased. Followed by it, high shipping cost was believed to be the barrier in the way of promotion of online shopping in Pakistan. A respondent said that sometimes shipping cost makes a good part of the entire price of the goods purchased. Non-availability of the credit cards was known to be the least considered barrier. Table 7: Barriers in promotion of online purchasing in Pakistan

Barriers in promotion of online shopping in Pakistan

Responses

N Percent Valid Percent

Non-availability of credit card

Fear of getting money lost

Long delivery times

Product delivered different from the showcased

High shipping cost

Total

15

40

10

30

25

120

12.6

33.3

8.3

25.0

20.8

100.0

12.6

33.3

8.3

25.0

20.8

100.0

5 Discussion Findings of the study show bright prospects for e-shopping in Pakistan especially in its urban areas. The findings are important in the backdrop of the figures given by the World Fact Book (2011) that only 25% of the population is literate. The trend documented by this study is supported by the findings of the study of Kundi (2007) that IT industry in Pakistan is steadily growing and the increased availability of wireless and broadband options has marked an increase in the use of internet throughout the country. Another reassuring factor that supports this trend is fast adoption of IT by the SMEs in the country. We can refer in this regard to the survey of 54 SMEs conducted by Seyal et al. (2004) which showed that 84% of these organizations had internet accounts while 46% of them had already adopted average to above level e-business. The survey further showed that 59% of the organizations had either an in-house or vendor supported web servers while 67% of them had their own home pages. SMEs adopting the IT with such pace especially the e-business is a healthy sign related to promotion of e-shopping in Pakistan. The study under reference also endorsed findings of Sheikh (2009) in identifying benefits of e-shopping. Both studies commonly found out that e-shopping has brought about lot of convenience to the shoppers especially in the densely populated metropolis of Karachi. According to the findings of this study, 40% of the respondents believed that online purchasing saved their time and it was the main reason for them buying online. Sheikh (2009) calls it 24/7 availability of services i.e. internet helps to access the virtual world 24 hours in a day and seven days in a week. It also offers them ample time to think before taking the online shopping decision. This study has accordingly found out that 36.7% of the respondents visited the website up to 4 times before actually buying the stuff while 38.3% visited the website up to 10 times or even more before making online shopping. Likewise, this study showed that 29.8% of the respondents resorted to online purchasing because of convenience. Keeping in view paucity of time majority the people faced with in present day time and the hustle bustle of the densely populated metropolis, it is quite plain to accept that time economy and convenience are the prime reasons for majority (62.5%) of the respondents for resorting to online shopping. In the follow up interview they said that they were able to have the items at their door steps without passing through much hassle involved in physical shopping. The city of Karachi is highly populated and traveling from one end to the other takes a lot of time. It may make the customers prefer buying product online. In this way the study also comes in agreement with the work of Moe and Fader (2004). These researchers had concluded that paucity of time in metropolitan life, cost of travelling and inconvenience caused by the traffic predicaments are the main factors that make the people resort to online shopping. Their work showed that the customers can undertake virtual shopping – they can visit the shop while sitting home and yet without an intention of buying. Whereas in offline shopping, they have to take time off from their schedules to visit the shops sometimes more than once before they could actually make purchase that may makes them take inappropriate purchasing decisions.


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Furthermore, due to the prevailing law and order situation in the country people have started avoiding going out to highly populated areas especially the shopping malls, which at present is also a driving force towards online shopping. With respect to Airline industry a great majority of the customers have shifted from real market buying towards electronic buying as the company offers the company rate through websites. This study also endorses findings of research work of Oxley and Yeung (2001) relating to barriers to online shopping in Pakistan. 12.6% respondents in this study, in lines with the work of Oxley and Yeung (2001), believed that the major obstacle in the way of switching from traditional buying to online shopping is non-availability of credit card to the people. These factors are more potent in the developing societies like Pakistan more particularly in the rural areas. Another barrier that emerged common in these two studies is fear of getting swindled. 33.3% respondents in this study expressed this apprehension as main barrier to online shopping. The respondents believed that providing personnel information online is of major concern for them since they thought it unsafe. They said that in many cases they abandoned online shopping attempt when the website required a pile of personal information from. Difference of quality of the stuff delivered from that which is showcased is another aspect of lack of trust with the vendor that has been reported by this study. A good part (25%) of the respondents expressed this apprehension and believed it is a core barrier to the promotion of online shopping in Pakistan. This study has also shown that people in Karachi are mostly price sensitive. Before buying a particular product they search in the complete market so as to make the purchase decision. Data showed that majority of respondents who visited the website more times before making online shopping were those from lowest level of income bracket. This factor also makes the online shoppers to make purchase with lowest shipping costs. High shipping cost was reflected as a barrier to online shopping in Pakistan by 20.8% of the respondents of this study. References

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The Determinants of Systematic Risk: Empirical Evidence From Pakistan’s Banking Sector Vijay Kumar1, Abdur Rahman Aleemi2 and Akhtiar Ali3

Abstract The primary concern for both investors and firms remain to be the maximization of return, however in this regard, systematic risk has always been the primary concern of both the researchers and the firms. It is imperative to examine the determinants of the systematic risk as it provides information regarding risks associated with investment, and provide insights regarding the risk & return relationship. Furthermore from a firm’s perspective the required rate of return for an investor is basically the Cost of Capital, therefore determinants of systematic risk is having dual effects both over Cost of Capital and market value of stock indirectly. The aim of this paper is to find out key financial determinants of systematic risk in the banking sector of Pakistan. Utilizing panel data analysis techniques of Pooled OLS, Fixed Effects and Random Effect models, over selected banks listed on Karachi stock exchange for the period of 2006 to 2012. We took seven accounting variables and examined its effect over systematic risk. It was found that loan portfolio quality and profitability significantly positively affect the systematic risk for the Pakistani banks, while liquidity is significantly negatively affecting the systematic risk in the case of Pakistan. Furthermore dividend payout, leverage and size of the banks were found to be insignificant in the case of Pakistan. It is suggested for the Pakistani banks that by improving on these parameters like loan portfolio quality, the systematic risk can be potentially reduced. Keywords: Systematic Risk, Beta, Pakistan, Loan Portfolio Quality, Leverage, Liquidity, Dividend. 1. Introduction Systematic risk is the risk of experiencing systematic events, while systematic events are defined as where bad news relating to one firm can significantly troublesome to some other firms or market as a whole (Bandt & Hartmann, 2000). A risk-averse investor’s behavior depicts that in market equilibrium a security will provide a return corresponding to its unavoidable risk. Such an unavoidable risk is known as systematic risk, and it cannot be even avoided by various diversification techniques. The diversification techniques do not work out, as systematic risk depends upon such things as changes in economy (Inflation, Recession and Interest rates) and political atmosphere, which affect all stocks and market as a whole. There is a direct positive linear relationship between systematic risk and investor’s expected return from the security. (Sharpe, 1964)&(Lintner, 1965) introduced such a relationship between expected return and systematic risk, and valuation of securities to follow through Capital Asset Pricing Model (CAPM). Capital assets pricing model (CAPM) advocates two types of risks, systematic risk and unsystematic risk, where former is unavoidable and related with market, while later is avoidable and related to individual firm. The most fundamental measure of systematic risk is equity beta (β), which is also known as “Stock Beta” or “Market Risk”. It represents the sensitivity of security’s excess return over market portfolio. A slope or value of equal to one represent that stock has systematic risk equivalent to that of market or market portfolio as a whole, while a slope of greater than one and less than one represent stock has greater systematic risk than market (Aggressive Investment) as a whole and lesser systematic risk than market (Defensive Investment) respectively. (Biase & Apolito, 2012) emphasis on the usefulness of determinants of systematic risk for investors, as it provides them information regarding risks associated with various investment opportunities, and risk return relationship, while from company’s perspective required rate of return for investor, is basically Cost of Capital, therefore determinants of systematic risk simultaneously affect Cost of Capital and market value of stock indirectly. Thus given such importance of systematic risk, this study is directed at inquiring and discussing major financial determinants of systematic risk in the banking sector within the economic framework of Pakistan. Various accounting ratios are used to examine the financial determinants of

1 Business Graduate at the Institute of Business & Technology Karachi, Pakistan. 2 Faculty of Business Administration at the Institute of Business & Technology, Karachi, Pakistan. Email: [email protected] 3 PhD Scholar at the Wuhan University of Technology, China


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systematic risk. In this study seven such major determinants are selected which are based on well explained economic theory and long standing relationship to examine their impacts on the systematic risk for the banking sector of Pakistan. 2. Literature Review Globally many researches have been conducted on systematic risk and its determinants, in this regards, Capital assets pricing model (CAPM) established by (Sharpe, 1964), (Lintner, 1965) and (Mossin, 1966) is one of first model which established a relationship between sensitivity of security and market risk, and found out positive relationship between market risk that is beta or systematic risk and expected rate of rerun on security. (Horne, 1974) To deal with real world issues, certain assumptions were also made in formulation of Capital assets pricing model (CAPM), which were well informed investors, zero transaction costs, no taxes, no restriction on investment, all investors having same expectations regarding expected return, price taker investors i.e. small investors with no power to affect the market price, and all investors will invest and borrow according to risk free rate. There are two schools of thought on capital structure, first thought suggest that there is close relationship between leverage and value of a firm, while second believes that financing mix (different combinations of debt and equity) has no impact company’s cost of capital, i.e. it supports capital structure irrelevance principal. (Durand, 1959) gave the Net Income (NI) Approach, it favored capital structure relevancy principal, while Net Operating Income (NOI) approach also given by Durand and (Modigliani & Miller, 1958) (MM) approach favored the capital structure irrelevancy principal. While traditional theory takes intermediate position and agrees to some features of both relevancy and irrelevancy approach. (Hamada, 1972) combined the Modigliani, & Miller (MM) theorem and Capital assets pricing model (CAPM), and found out significant importance of corporate leverage, Modigliani, & Miller (MM) theory is correct and strong possibility of estimating cost of capital for individual firms. (Conine, 1980; Mandelker & Rhee, 1984; Bhandari, 1988; Darrat & Mukherjee, 1995; Fernandez, 2003; Prasetyo, 2011) all researched to find out association between leverage and market risk, majority of these hold up for relationship between leverage and beta. Futher various other researches have been conducted to to check possibility of accounting variables as determinants of systematic risk. Though globally researchers have enjoyed great amount of freedom while selecting various accounting variables as determinants of systematic risk; few mainly used variables were leverage, operating leverage, financial leverage, profitability, corporate growth, dividend payout, earnings growth, earnings, earning yield, size, book to market ratio, cash flow, sales, capital expenditure, liquidity, price level, growth potential, stock price history, business cycle, capital structure, return on equity, volatility, market correlation, tax rate, safety, return on assets, financial risk, real asset risk, Book Value per share, Cash Operating to assets and fixed assets, operating profit, depreciation, cash flow to book value per share, total liability to total assets, sales to receivables and total assets, operating efficiency, and market value of equity. (Beaver, Kettler, & Scholes, 1970; Rosenberg & Mckibben, 1973; Gonedes, 1973; Lev & Kunitzky, 1974; Bildersee, 1975; Bowman, 1979; Martikainen, 1991; Chan, Hamao, & Lakonishok, 1991; Haugen & Baker, 1996; Hung & Liu, 2005; Hong & Sarkar, 2007; Lee & Jang, 2007; Mnzava, 2009; Eldomaity, Al Dhaheri, & Al Shukri, 2009; Iqbal & Shah, 2012; Asl, Karimi, & Eghbali, 2012; Lee & Hooy, 2012). As far as banking industry is concerned, (Jahankhani & Lynge, 1980) found out that 25 to 43% of market risk can be explained by accounting variables, while researching on U. S. banks and there holding companies, authors also found dividend payout ratio as a major predictor, while signs of estimated coefficients were consistent with expectations, supporting the relevance of these ratios for estimation of market risk. (Rosenberg & Perry 1981) concluded that size, dividend yield, equity capitalization, and asset to long term liability ratio as important variables for predicting beta for U.S. banks. (Lee & Brewer, 1985) research suggested that leverage and dividend payout ratio key determinants of systematic risk. (Bhattacharyya & Purnanandam, 2011) analyzed that significant rise in U.S. banking sector systematic risk was due to residential mortgage loan from 2000 to 2006, which lead to financial crisis of 2007. Further authors conclude that U.S stock market was able to forecast this activity of increased mortgage lending as a cause of increase in systematic risk.


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(Templeton & Severiens, 1992) concluded that diversification has inverse relation with market risk, and diversification does not have strong effect over measures of systematic risk, hence author supported the predictions of portfolio theory. (Demsetz & Strahan, 1997) found out that diversification does not appear to reduce risk, though large Bank Holding Companies (BHC’s) are better diversified that small ones, but their risk reducing prospective of diversification is offset by low capital ratios as well as large loan portfolios. (Vander, Baele, & De, 2005) investigated the European banking sector, and found out that capital, loan, and core deposits tend to have inverse relationship with systematic risk, while higher level of diversification and provisions for loan loss have direct impact. (Miles, Yamg, & Marcheggiano, 2011) worked on optimal capital structure and found out that amount of capital used by banks currently is much lower than the desirable capital, and thought not fully complying with MM theorem and CAPM, authors find out negative relationship between leverage and systematic risk. (Yang & Tsatsaronis, 2012) conducted a research on 11 OECD countries, from 1990 to 2009, and found out that beta of banks tend to be higher during recessions, and lower in boom, while beta having a positive relationship with leverage and book to market value of equity and behaves negatively with profitability. (Agusman, Monroe, Gasbarro, & Zumwalt, 2008) applied panel data on 46 Asian banks from 1998 to 2003, their studies reveled that standard deviation of return on assets is notably related to total risk and gross loan to total assets are considerably related to non-systematic risk, while loan loss reserves to gross loans have significant relationship with both total risk and non-systematic risk, indicating that firm specific risk is more important that systematic risk in Asia’s banking sector. (Eldomaity, Al Dhaheri, & Al Shukri, 2009) analyzed the effect of financial ratios on beta, for banking, insurance, and non-financial sector, listed on Dubai Financial market (DFM), and found out for banking sector key determinants are asset to equity ratio, book value per share, and both have negative correlation with systematic risk.

The crux of this literature is that globally researchers have enjoyed a great amount of freedom while selecting various accounting variables, and almost all accounting variables have proved be beneficial in forecasting market risk and return on stock. Which suggests that a sufficient market conditions do exist for these accounting variables to influence on the systematic risk of the equities. 2.1 Hypotheses H1: Dividend payout is inversely related to systematic risk (Equity Beta). H2: Leverage is positively related to systematic risk (Equity Beta). H3: Liquidity payout is inversely related to systematic risk (Equity Beta). H4: Size is positively related to systematic risk (Equity Beta). H5: Profitability is positively related to systematic risk (Equity Beta). H6: Degree of diversification is inversely related to systematic risk (Equity Beta). H7: Loan portfolio quality is positively related to systematic risk (Equity Beta). 3. Research Methods 3.1 Sample size Sample of the current study is 17 banks out of total 22 listed on Karachi Stock Exchange, taken over the period 2006 to 2012, without discriminating on size, age, or any other factor. However the following 5 banks are excluded from the final list due to the non-availability of continuous data for the entire period under study, these 5 banks (out of total 22) include, Bank Islami, JS Bank, NIB, Samba and Summit Bank. Since State Bank of Pakistan (SBP) has started publishing “Report of Financial Statement Analysis for Financial sector” from 2006, which has made us to restrict our study to seven years i.e. from 2006 to 2012. A total of 120 balanced panel observations with 17 cross sections over the seven years has been included in the final model that is quite a reasonable sample. Table A-l depicts the list of banks included in the final analysis presented in the appendix. 3.2 Data and Specifications In this study panel data has been used and has been extracted from the State Bank of Pakistan (SBP)’s report on “Financial Statement Analysis of Financial Sector” for key accounting ratios of all banks, while market and stock return data has been obtained from Karachi Stock Exchange.


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3.3 Definitions As discussed in our literature review that various researchers have enjoyed great amount of freedom in selection of accounting variables to determine systematic risk, and almost all accounting variables have proved to be beneficial in forecasting market risk and return on stock. We have limited our study to seven key determinants of systematic risk taken as independent variables discussed below. Dependent Variable 1) Systematic Risk= represents risk of experiencing effects of bad news of one firm by another firm or the whole market. It has been calculated by regressing monthly average return of banks against monthly returns of Karachi Stock Exchange. Independent Variables 1) Dividend Payout= (Iqbal & Shah, 2012) and various researches found out inverse relationship between dividend payout ratio and systematic risk due to the fact that returns through dividends are supposed to be more certain in nature than return from capital gains. It is calculated by following formula.

𝑫𝒊𝒗𝒊𝒅𝒆𝒏𝒅𝑷𝒂𝒚𝒐𝒖𝒕𝑹𝒂𝒕𝒊𝒐 =𝑨𝒏𝒏𝒖𝒂𝒍𝑫𝒊𝒗𝒊𝒅𝒆𝒏𝒅

𝑵𝒆𝒕𝑰𝒏𝒄𝒐𝒎𝒆

2) Leverage= (Modigliani & Miller, 1958) and other researchers found out there is a positive relationship between leverage and systematic risk beta. It has been calculated by following formula.

𝑳𝒆𝒗𝒆𝒓𝒂𝒈𝒆 =𝑻𝒐𝒕𝒂𝒍𝑬𝒒𝒖𝒊𝒕𝒚

𝑻𝒐𝒕𝒂𝒍𝑨𝒔𝒔𝒆𝒕𝒔

3) Liquidity= (Biase & Apolito, 2012) found out that there is a negative relationship between liquidity and beta, authors argued that this is due to the fact that strong liquidity is always supposed to reduce the risk. While some other researchers (Eldomaity, Al Dhaheri, & Al Shukri, 2009), (Lee & Jang, 2007) found out negative relationship.

𝑳𝒊𝒒𝒖𝒊𝒅𝒊𝒕𝒚 = 𝑪𝒂𝒔𝒉𝒂𝒏𝒅𝑪𝒂𝒔𝒉𝑬𝒒𝒖𝒊𝒗𝒂𝒍𝒆𝒏𝒕𝒕𝒐𝑻𝒐𝒕𝒂𝒍𝑨𝒔𝒔𝒆𝒕𝒔

4) Size= (Vander, Baele, & De, 2005) found out that big sized banks are often exposed to increased systematic risk due to increased credit, operating and exchange risk. While (Biase & Apolito, 2012) and (Iqbal & Shah, 2012) argue a negative relationship between systematic risk and size due to economies of scale, diversification, and too big to fail (TBTF) principle. It has been calculated as follows.

𝑺𝒊𝒛𝒆 = 𝑻𝒐𝒕𝒂𝒍𝑨𝒔𝒔𝒆𝒕𝒔

5) Profitability= Researchers have found out negative (Biase & Apolito, 2012) as well as positive relationships (Iqbal & Shah, 2012) in between profitability and systematic risk. Profitability has been calculated as follows.

𝑷𝒓𝒐𝒇𝒊𝒕𝒂𝒃𝒊𝒍𝒊𝒕𝒚 = 𝑬𝒂𝒓𝒏𝒊𝒏𝒈𝒑𝒆𝒓𝒔𝒉𝒂𝒓𝒆 (𝑬𝑷𝑺)

6) Diversification= Diversification is expected to reduce systematic risk (Biase & Apolito, 2012), because diversification is expected to increase the revenues. However some researchers (Vander, Baele, & De, 2005) have also found out a positive relationship between diversification and beta. It has been calculated as follows.

𝑫𝒆𝒈𝒓𝒆𝒆𝒐𝒇𝑫𝒊𝒗𝒆𝒔𝒊𝒇𝒊𝒄𝒂𝒕𝒊𝒐𝒏 =𝑨𝒅𝒗𝒂𝒏𝒄𝒆𝒔 (𝒏𝒆𝒕𝒐𝒇𝒑𝒓𝒐𝒗𝒊𝒔𝒊𝒐𝒏𝒔)

𝑻𝒐𝒕𝒂𝒍𝑨𝒔𝒔𝒆𝒕𝒔

7) Loan Portfolio Quality= (Biase & Apolito, 2012) argue a significant relationship between equity beta and quality of loan portfolio. It has been calculated as follows.

𝑳𝒐𝒂𝒏𝑳𝒐𝒔𝒔𝑹𝒂𝒕𝒊𝒐 = 𝑷𝒓𝒐𝒗𝒊𝒔𝒊𝒐𝒏𝒂𝒈𝒂𝒊𝒏𝒔𝒕𝑵𝒐𝒏 − 𝑷𝒆𝒓𝒇𝒐𝒓𝒎𝒊𝒏𝒈𝑳𝒐𝒂𝒏𝒔

𝑮𝒓𝒐𝒔𝒔𝑨𝒅𝒗𝒂𝒏𝒄𝒆𝒔


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3.4 Research Model Developed This study adopts three regression models, first the common effect has been checked with Pooled OLS and then the same relationships have been introduced into Fixed Effect model and Random Effect model to address and adhere with panel analysis issues and conditions. As a first step the variables are supplemented into the following regression model as below; Systematic Risk = α+ β1 (Dividend Payout) +β2 (Leverage) +β3 (Liquidity) +β4 (Size) +β5 (Profitability) +β6 (Diversification) +β7 (Loan Portfolio Quality) + e Or in a panel settings, the above relationship can be expressed as follows;

ititit

itititititiit

LLRationDiversific

yofitabilitSizeLiquidityLeverageDividendBeta

76

54321 Pr..(1)

Where the subscripts it represents the measure for bank i at time t. The above equation (1) is a balanced pooled estimation approach, however to deal with panel and cross sectional specifications, the Heterogeneity bias and the Endogeneity issue needs to be addressed. Hence to care for the unmodeled heterogeneity and endogeneity within our parameters, the following Fixed Effect and Random Effect models have been considered; A simple Fixed Effect relation can be expressed as follows;

ititi X ity … (2)

Similarly a Random Effect relationship can be modeled as;

ititiit Xy … (3)

The efficiency of the above models are tested under the Haussmann Test as a model selection tool to test the appropriateness of our models that whether FE or RE will produce efficient estimators in our case. 4. Results 4.1 Descriptive Statistics Table 1 depicts the summary descriptive statistics, where mean beta for all listed banks at Karachi stock Exchange is 1.099, which is slightly more than market value of beta. As discussed in introduction part that value of one indicates that stock has systematic risk equivalent to that of market, but here value higher than one indicates that Pakistani banks quite up to the mark and is enjoying a stable position. Table 1: Descriptive Statistics

Beta Diversification Dividend Leverage Liquidity LLR Profitability Size

Mean 1.099667 0.489515 0.329000 0.081469 0.064903 5.645333 3.39E+08

Median 1.060000 0.501450 0.200000 0.075800 0.092250 0.061150 3.190000 2.60E+08

Maximum 5.600000 0.708600 1.400000 0.207500 0.216000 0.209300 24.47000 1.61E+09

Minimum -0.830000 0.298700 0.000000 -0.031000 0.030200 0.000000 -19.02000 26538735

Std. Dev. 0.852704 0.092133 0.357826 0.041700 0.037584 0.056098 7.910662 3.01E+08

Skewness 1.790509 -0.212621 1.152498 0.611423 0.808942 0.509437 0.439683 1.578912

Kurtosis 10.14470 2.466322 3.520796 4.459973 3.262468 2.485580 4.077700 5.723364

Jarque-Bera 319.3525 2.328210 27.92115 18.13437 13.43218 6.513664 9.673615 86.94283

Probability 0.000000 0.312202 0.000001 0.000115 0.001211 0.038510 0.007932 0.000000

Sum 131.9600 58.74180 39.48000 9.776300 12.23480 7.788400 677.4400 4.07E+10

Observations 120 120 120 120 120 120 120 120

Table 2 shows the results for correlation, which shows that systematic risk, is positively correlated with leverage, size, profitability and loan loss ratio, while it is negatively correlated with remaining three variables i.e. dividend payout, liquidity, profitability, and diversification of bank. No signs of multicollinearity exist as none of the explanatory variables are highly correlated.


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Table 2: Correlation Matrix

Beta Diversification Dividend Leverage Liquidity LLR Profitability Size

Beta 1.000000

Diversification -0.040540 1.000000

Dividend -0.020044 -0.012868 1.000000

Leverage 0.013817 -0.208060 0.103561 1.000000

Liquidity -0.038716 -0.071868 0.201985 0.106238 1.000000

LLR 0.301010 -0.306446 -0.184743 0.036290 -0.275515 1.000000

Profitability 0.017568 -0.067196 0.823483 0.128235 0.276505 -0.293871 1.000000

Size 0.077642 -0.155443 0.680864 0.006466 0.305560 0.074849 0.620531 1.000000

Regression Models As stated earlier, that globally researchers have enjoyed tremendous amount of freedom in selecting various accounting variables to determine systematic risk, which shows that no exact accounting variables are known for determination of systematic risk. (Jahankhani & Lynge, 1980) researching on US banks concluded that 25% to 43% of systematic risk can be determined by accounting variables, (Iqbal & Shah, 2012) concluded that 17% of systematic risk can be determined by accounting variables for non-financial companies listed on Karachi stock exchange. The results for our regression models are presented in Table 3 which exhibits the ability of independent variables to determine systematic risk in the banking sector of Pakistan as to be about 30 % under Pooled OLS, 17% under Random Effects and 41% under the Fixed Effect model.

Table 3: Summary of regression results

Where ***, ** and * mean significant at 1, 5 and 10 % levels respectively.

The summary for our three estimated models, represented in table 3 that the overall predicted value of beta (intercept) is negatively affecting and is significant when all explanatory variables are zero consistently under all the models. As discussed returns through dividends are supposed to be more certain in nature than return from capital gains, resulting in negative relationship between dividend and systematic risk, our findings also confirms a

Variables Pooled OLS Random Effect Fixed Effect

C -3.292174

(-3.824139)*** -1.317003

(-1.645980)* -3.598011

(-1.614485)*

Dividend -0.495389

(-1.041164) -0.437727

(-1.096425) -1.124212

(-0.877424)

Leverage 0.394931

(0.234824) 0.154465

(0.083716) 5.284096

(0.993035)

Liquidity 9.070905

(3.532467)*** 3.830605

(1.544603) -12.23199

(-2.330078)**

Profitability 0.053099

(2.398166)** 0.037700

(2.104066)** 0.051154

(1.896842)*

Size -8.89E-10

(-2.200003)** -4.90E-10

(-1.153885) -1.90E-09

(-1.164324)

LLR 6.075403

(3.427238)*** 3.417270

(1.844535)* 18.33685

(2.677161)***

Diversification 4.553465

(4.164493)*** 2.694662

(2.467623)** 6.018585

(2.142172)**

R2 0.305983 0.176582 0.418153

F-Statistic 6.958890 3.386962 11.388807

Hausman Test 15.477558 (0.0505)**


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negative relationship between dividend payout and systematic risk. However the said regressor is found to be statistically insignificant across the models losing any further significance in this study. Leverage is found to be positively affecting systematic risk, but again the coefficient for leverage is statistically insignificant. Liquidity shows a mixed behavior as it shows an inverse relationship with systematic risk of banking sector under the FE specifications, which is due to the general perception that liquid banks are generally regarded as less risky than less liquid banks and is positively affecting the systematic risk under the PLS, however the relationship is insignificant under the RE model. Like (Iqbal & Shah, 2012), our research also suggests a positive and significant relationship between profitability and systematic risk. Interestingly, despite diversification, economies of scale and the too big to fail (TBTF) principal, there is a highly significantly negative relationship between Bank size and systematic risk beta under the PLS settings, suggesting decrease in systematic risk due to increase in size however the it becomes insignificant under the FE and RE model specifications. The loan portfolio quality or the Loan Loss Ratio (LLR) is found to be statistically significant and positively affecting the systematic risk, as the provision of nonperforming loans increase, it is obvious that that overall quality of advances tend to decrease, and decrease in overall loan quality will definitely result in increased systematic risk. Theory suggests that diversification tend to increase revenues, and thus decrease systematic risk, our results are our contrary to this but at the same time the coefficient for the degree of diversification is statistically insignificant hence losing any further significance in this study. Moreover as per as the model selection is concerned, The Haussmann test is significant in favor of the Random Effects. However looking at the overall significance of the estimated parameters under all the three models and the R2 values, one can easily revert that the Fixed Effect model stands to be relatively more appropriate as it explains 41% of the variability in modeling of the systematic risk for the Pakistani banking sector. Furthermore the highest F-Statistic also stands in favor of the FE model. These parameters make the Fixed Effect model as a model of choice in our case. 5. Conclusions The primary concern for both investors and banks remain to be the maximization of return, (Biase & Apolito, 2012) emphasis the usefulness of determinants of systematic risk for investors, as it provides information regarding risks associated with investment, and risk return relationship, while from company’s perspective required rate of return for investor, is basically Cost of Capital, therefore determinants of systematic risk have dual effects both over Cost of Capital and market value of stock indirectly. Given such importance of systematic risk, it is necessary to study various aspects of systematic risk—particularly from Pakistan’s Perspective where very limited work exist on the subject matter. The current research has taken selected banks listed on Karachi Stock Exchange as a sample, for the period of 2006 to 2012. Seven determinants (explanatory variables) were taken and hypothesis were developed based on available literature. This study stands as an important contribution to the literature as according to the best of authors’ knowledge this research is first of its kind on the banking sector of Pakistan, though a study on the non-financial sector has already been conducted by (Iqbal & Shah, 2012). Some useful conclusion can be drawn by Pakistani Banks from this study, firstly loan portfolio quality is a major predictor of systematic risk and by improving loan portfolio quality; systematic risk can be reduced. Secondly revenue diversification is very important to reduce beta. On the other hand leverage, and profitability are increasing the systematic risk, while dividend payout, liquidity and size have negative relationship. It can be concluded that by knowing and apprehending these determinants, the behavior of systematic risk cannot only be understood but will also lead to better maneuvering of strategies to reduce it.


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In addition, to banks, this study is also very useful from the investors’ perspective, as having knowledge and empirical evidence of these determinants of systematic risk at hand will enable investors to take efficient investment decisions. This study is having good prospects for future research by inclusion of other accounting variables, or scope of this study can be extended to the whole financial sector rather than only banking. Subject to the availability of data, increasing the time duration under study for more years can be a prospective continuation in this regard to produce more substantial results. References

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Table A-1: List of Banks under Study:

Sr. No Bank Name Sr. No Bank Name

1 Bank Al Habib Limited 12 Meezan Bank Limited

2 Bank Alfalah Limited 13 National Bank of Pakistan

3 Allied Bank Limited 14 Silk Bank Limited

4 Askari Bank Limited 15 Soneri Bank Limited

5 Bank of Khyber 16 Standard Chartered Bank Pakistan

6 Bank of Punjab 17 United Bank Limited

7 Faysal Bank Limited

8 Habib Bank Limited

9 Habib Metropolitan Bank Limited

10 KASB Bank Limited

11 MCB Bank Limited


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Socio-Cultural Impediments to Pashtun Women Entrepreneurs in Peshawar, Pakistan: A Narrative Approach

M. Junaid1, Saad.Shah2 and S.M.Shah3

Abstract This paper explores the factors that hinder Pashtun women entrepreneurs (PWE) in Peshawar, Pakistan. Adopting a qualitative approach, life history narratives, concerning life and business, from fifteen respondents were elicited using a purposive sample frame. The thematic analysis of interviews illustrates that they must navigate dynamically transforming religious and socio-cultural milieu to become entrepreneurs. PWEs are considered homemakers, in no need of autonomy and under no obligation to make monetary contribution at home. They generally face four types of impediments arising from socio-cultural milieu including their unacceptability as earners, lack of mobility, fulfillment of domestic responsibilities and dependence on male members. This study contributes to the literature on women entrepreneurs by providing insights into hitherto under researched geography. Key Words: Impediment to Pashtun women entrepreneurs; Socio-Cultural Norms; Khyber Pakhtunkhwa; Women entrepreneurs in Peshawar 1. Introduction Entrepreneurship is deemed as a catalyst to the economic growth (Jack and Anderson, 2002). It is a dynamic process of value creation by individuals who take a variety of risks. It is considered as a means to increasing the rate of employment and economic development of the country (Acs, 2007). The term entrepreneur is derived from a French word “entreprendre” translated as “one who takes in between” (Deakins and Freel, 2003). Entrepreneur is the owner of an economic venture, who organizes, manages, and assumes the risk (Brockaus, 1982). Entrepreneurship emerges in a variety of contexts with diverse manifestations. Among others, women in developing countries, facing various socio-cultural boundaries, become entrepreneurs by adopting unique and contextually idiosyncratic ways. Sometimes, the lack of opportunities compels women entrepreneurs to use their home as a business premises (Noronha, 2010). In Khyber Pakhtunkhwa (KPK) province of Pakistan, the cultural code of Pashtunwali results in a male dominant society restricting PWEs. Of late, despite the socio-cultural constrains, Pakhtoon women have emerged as successful entrepreneurs. This exploratory study endeavours an in depth understanding of the socio-cultural impediments faced by PWEs. It takes a qualitative inductive approach by employing a narrative method of data collection and analyses. The study contributes thorough scientifically understanding an under-researched context of KPK on an emergent phenomenon. The paper presents the exploratory study in five sections. A succinct review on women entrepreneurs in the first section is followed by the methodological approach in the second section. The third section presents the analysis of data while the fourth section presents the discussion on results. The final section concludes the paper. 1.1 Conceptualizing Pakhtoon Women Entrepreneurs Entrepreneurs are in control of their lives and activities (Chakraborty, 2006), they like to act the way they want rather than what they are told. But this comes at a cost as they go through experiential learning by making mistakes and finding the right ways. Entrepreneur’s inclination for risk is actually the love for independence at the cost of security (Sarasvathy, 2001). These unique behavioural tendencies become the basis for their crucial role in the marketplace and economy. Cantillon (1931), Schumpeter (1934), Kirzner (1973) and several others view entrepreneur as a person with distinguishing character of possessing new and creative ideas. Thus, entrepreneurship can be described as a process of new value creation through the convergence of personal, tangible and intangible resources resulting in monetary rewards (Hisrich et.al, 2007). Other researchers have focused on the more practical aspects of entrepreneurship. They argue that opportunity identification is the heart of entrepreneurship (Stevenson

1Institute of Management Studies, University of Peshawar Pakistan. E-mail: [email protected] 2Master of Science in Project Management, COMSATS Islamabad, Pakistan. 3University Malaysia Sarawak, Malaysia.


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and Gumpert, 1985) as individuals discover and identify opportunity before creating ventures (Ardichvili et.al, 2003). Entrepreneurship is concerned with discovering, evaluating and exploiting the“opportunities” (Shane, 2003) where opportunity is defined as a favourable chance of growth or progress to meet the market demand through a combination of resources to create a value (Schumpeter, 1934; Kirzner, 1973). Opportunity has been viewed in two different ways. Firstly the realistic view where opportunities pre-exist in prior to being discovered by the skilful, alert or fortunate entrepreneurs (Kirzner, 1973, Drucker, 1985, Shane and Venkataraman, 2000). Secondly, it is argued that entrepreneurs create their ventures and use their entrepreneurial imagination to create them opportunity (Berglund, 2007). Kirzner’s (1973) assertion about alert entrepreneur emphasizes the central role of individual in opportunity recognition/construction and exploitation. Thus, the existence of opportunities does not necessarily mean that they will be perceived by every protagonist (Casson, 2003). An individual with “an appropriate quality” will perceive the opportunity. In other words, individual difference matter in discovery/creation of opportunity (Venkataraman, 1997). In this vein, researchers have considered many factors as instrumental such as the stock of prior knowledge (Holcombe, 1998; Ardichvili.et al, 2003) and entrepreneur’s cognitive ability and creativity (Corbett, 2005; Shane and Venkataraman, 2000). Stock of prior knowledge can create the “knowledge corridor” which helps the entrepreneur to better perceive the situation than others (Shane and Venkataraman, 2000). However, individuals are embedded in a social context and they can only create/sense opportunities through the “space” allowed by the socio-cultural context. The case of women entrepreneurs is particularly illuminating in this regard. The culture of a country moderates entrepreneurial intentions, searching and discovering the opportunity and decision to exploit the opportunity to create the new venture (Shook et.al, 2003). In most of the Islamic countries women are confined to home and are isolated in term of mobility, interaction, freedom and the patriarchal force including the veil and honour (Roomi and Parrott, 2008). The business environment in Pakistan is also influenced by the more contemporary constitutional structures, policies, and institutional mechanism (Goheer, 2003). The constitution of Pakistan 1973 article 25 supports the women right and guarantees equality of rights to all the citizens irrespective of gender, race and class. However, the informal socio-cultural norms play a more dominant as compared to the formal one. The interplay of these ambivalent forces result in women entrepreneurs being allocated to businesses that cater for women’s needs. It includes textile and apparel sector, home tuition, school and clinics, beauticians manufacturing of lamps, buttons and toys and food sector including the bakery items, restaurants (Goheer, 2003; Sinha, 2005). The case of Pasthoon women entrepreneurs in Peshawar is of particular interest as they have to abide by a strict code of life- the Pashtunwali. Pashtunwali (code of ethics of Pashtoons) is the combination of undocumented conventions and traditional customs in which women are confined to a particular set of activities specifically the household. The code is more strictly followed in rural KPK as compared to urban areas. However, women participate in economic activities even in the villages. For instance in District Swat and Dir of KPK, women, working form within the boundaries of their home, prepare handicrafts including shawls and caps. Peshawar’s population mostly constitutes of people who have migrated from villages decades ago. Due to urban environment, the Pashtoons here are showing some degree of flexibility inducing female education. However, many women entrepreneurs in Peshawar sell are engaged in traditional businesses that serves women from within the boundaries of their homes. A broader question relates to the tension between consequent empowerment and autonomy of women through entrepreneurship (Tambunan, 2009) and the role they are required to perform in a Pashtoon household. Researchers have pointed to three categories of women entrepreneurs inducing chance entrepreneurs (hobbyists), forced entrepreneurs (meeting financial needs) and created (through training programs) entrepreneurs (Seymour, 2001; Tambunan, 2009). Most women are forced entrepreneurs (Tambunan, 2009) who take up self-employment due to an unhappy event such as the death of the spouse (Goheer, 2003). Socio-cultural norms have better acceptance for forced entrepreneurs as compared to created ones. However, all three types face barriers in becoming and sustaining being entrepreneurs. To sum up, women entrepreneurs face a multitude of contextually unique barriers in a male dominated socio-cultural environment which they must overcome. The creation/discovery of opportunities presents a distinctive challenge for women entrepreneurs in Pakhtoon society. It is necessary to understand these


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barriers and the ways around them from the perspective of the entrepreneurs. The next section presents a methodological approach towards data collection and analysis for undertaking this exploratory study. 2. Material and Methods This exploratory study employs qualitative methodology to prioritize the respondent’s viewpoint (Tuli, 2010). Qualitative data includes description and direct quotations from respondents about their values, beliefs, attitudes, thoughts, and experiences (Geertz, 1973). Thus providing flexibility to explore and investigate the experiences and views of the respondents. In addition, the researcher is not bound to limit the study to the research questions and can take account of emergent phenomenon (Dana et al., 2005). Thus, it is the most suitable methodology for this study. Data collection in qualitative methodology is flexible and can use a variety of methods including personal observation and open-ended interviews (Dana et al., 2005). For this study, face to face open ended, in-depth interviews were conducted with 15 PWEs. The funnelling technique was used in unstructured interviews where preliminary issues, emerging in the start of interview, were further probed subsequently. The interviews elicited narrative where the interviewee recounted their past memories revolving around personal and business life. The emergence of narratives was serendipitous and not deliberate. Narratives bridge the gap between the implicit and explicit knowledge by reflecting the true voices of the entrepreneurs reflecting the values, beliefs and traditions. The narratives of PWEs act as meaning making tools revealing their interactions with the environment (Meads, 1934). Their narratives also acted as tools for contextualizing their experiences within the given social and cultural environments. The interviews lasted were between 30 and 70 minutes and open ended questions were asked in Pashto and Urdu language. Interview opened with the general questions like the type of business and family and educational background. Most of the respondents shared their experiences and were openly discussing issues. They took place within the business premises and at the time and date specified by respondents. The audio recorded interviews were transcribed and translated simultaneously. To ensure the confidentiality the respondents name were not disclosed and were replaced with surrogate names. This study employed thematic analysis to identify and report themes within data (Boyatzis, 1998). It is a form of pattern recognition within the data, where emerging themes become the categories for analysis (Fereday et al. 2006). Thematic analysis involves constant moving back and forward through the entire data set as codes are extracted throughout the data being analysed. The themes that emerge are important to the explanation of the phenomenon. The emergent methodological approach produced rich insights into the barriers context PWEs. The next section illustrates the results before discussing them. 3. Results and Discussion Four sub-themes emerged as socio-cultural barriers after the detailed thematic analysis of data. Firstly, the unacceptability of women as earners, secondly, the lack of mobility and access to market place, thirdly, the burden of domestic responsibilities and lastly, sole dependence on male members for legitimacy.

Table-1 showing the results as three sub-themes Socio-cultural barriers by PWEs

Unacceptability of women as earners

Lack of mobility and access to market

Burden of domestic responsibilities

Sole dependence on male members for legitimacy

The results are explained in the following.

Unacceptability of women as earners The unacceptability of women doing business in Pakhtoon society is primarily a reaction of male dominance arising from their bread earner role. If a women earning is interpreted as a failure of her family’s male members (husband/father/brothers) in providing the basic livelihood for home. The social stigma would be even worse if the wife turns out to be more successful than the husband, leading to deep social embarrassment and dishonour of the family name (Amine & Staub 2009).


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“The problem in Pakhtoon society is that men perceive women doing business as harm to their honour, especially if a woman earns man gets degraded.”[Respondent 5] Men also feel insecure if their female counterparts become entrepreneurs as independently earning women cannot be made subservient and become rebellious. The concept of men as bread earners and women as staying at home to look after the household can be considered as overarching and most enduring impediment. “…there is no use of them (women) going out to earn their livings as they have father, brothers or a husband to earn for them so they consider women earning as useless.” [Respondent15]

Lack of mobility and access to market Women are not allowed to travel alone. The socio-cultural norms aided by strict religious edict on this issue make the presence of a “Mahram” (acceptable companion) compulsory when going out of homes. It has been found as a major impediment to PWEs as it decreases their chances to develop and progress their business. “In Peshawar city...Women are dependent on the driver, father or brother to come and take them” [respondent 3] “It’s very difficult to operate business in Peshawar as women cannot travel alone and easily in this society” [Respondent 10] This explains the lack of access to market. “In our Pashtoon society is it possible for a woman to sit in the market and sell things? Obviously not, the only option left with her is to do the business at home which limits our earnings” [Respondent 5]

Burden of Domestic Responsibilities The primary responsibility of Pakhtoon women is to look after the household and family. These domestic responsibilities restrict them from giving sufficient time to their business. If domestic responsibilities are fulfilled by the women, she is allowed to do their business but they have little time left. “My husband allowed me to do the business only with the condition that I have to look after the home along with business.” [Respondent 4] PWEs had to plan their schedule of household work and give it the first priority for the family to agree and not object over their businesses. “It is really difficult … for ladies to do their business. I face a lot of difficulties… I have to finish all my household work then I have kept all the work of bazaar for a single day to be finished therefore it gets really difficult for me to give full time to business” [Respondent 11] For PWEs, the venture becomes a second priority due to prevailing role expectations. A woman is expected to taking care of children, household and elders (dependent) in the family. The task becomes harder in a joint family. “It is really difficult to manage time because our family is very big and almost every day there is a commitment with them. We have to attend to a marriage, funeral or ask about a sick in addition to household chore” [Respondent 13]

Sole Dependence on Male Members for Legitimacy Husbands had acted as gatekeepers in permitting the women to do business and the families always complemented their perspective. “The thing is that when you don’t get support from your own family no one else supports you” [respondent 2] “My husband never allowed me to engage in business activity (in the beginning) and society complied.” [Respondent 4] When PWEs got permission from their husbands, it was translated into support from husbands and not mere consent.


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“So my husband said that you can do this as well, and at that time I got a slight idea that yeah I can do this business” [Respondent 4] Thus, PWEs had to convince their husbands before legitimizing their becoming entrepreneurs to the rest of family and society. The results are discussed in the light of previous studies. Becoming an entrepreneur is a task burdened with struggles, uncertainties, risks and efforts. A Pakhtoon woman has to go through additional hardships as she tries to fit into fulfil her socio-cultural role before satisfying her aspiration and need. Researchers agree that Pakhtoon culture is one of the most conservative one in Pakistan (Yousafzai and Gohar, 2005) where the role of women is invisible and they remain in the four walls. Access to finance is considered to be the most common globally recognized reason for women entrepreneurs (Affholder and Box, 2004; Naude, 2010). Clearly it is rooted in the general lack of trust on women entrepreneurs (Kolvereid et al., 1993). In Pashtoon culture, women carry an additional burden of being considered as dependent on men (Gohar, Rauf and Abrar, 2011). Banks also show the same lack of trust on women and are not generally recommended for loans (Sajjad and Raza, 2007). Consequently, PWEs must fulfil the ascribed roles to get please their families and get financial support (Roomi and Parriot, 2008). Fulfilling gender impedes women entrepreneurship (Sinha, 2005) drastically curtailing the choices of business as women must choose businesses which allow them to give time to family (Affholder and Box, 2004). Perhaps one reasons for higher rate of PWE in the urban environment (as compared to rural) is the high occurrence of nuclear families. Women with nuclear families are better suited than those with extended families to start a business (Sinha, 2005). This study complements these results by nuclear families are less demanding as compared to joint families for women (Jamali 2009). Previous studies show that in undeveloped countries women are not allowed to go out of homes and talk to strangers (Field et.al, 2010). Restricting the mobility of women not only impedes access to market (Roomi and Parrott, 2008; Tambunan, 2009) but also curtails their abilities to tap into the markets as they are unable to attain the required knowledge, experience and social network (Sinha, 2005). 4. Conclusion To sum up, it can be argued that socio-cultural impediments faced by PWEs are a common feature of those countries where the cultural values are considered to be superior. Although, change is a fundamental property of society and culture, its rate is very slow (Brush et al, 2010). One of the major reason for fewer number of women entrepreneurs as compared to men is rooted in the fact that they cannot devote all their time and energies to their business (Seymour, 2001). They socio-cultural barriers and time constraints render them in no position to develop their businesses and compete in the market with the men. Thus, they are normally allocated to businesses which cater for women needs. Despite these disadvantages, the flexibility in time allocation compels women to choose businesses and not jobs although not for growth but survival (Minniti and Naude, 2010). Further research is required in getting a deep insight into various ways through which PWEs become successful entrepreneurs despite all the hindrances. References

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Developing a Conceptual Model on TQM Implementation through Organizational Culture in

Pakistani Manufacturing Sector for Firms Performance

Farrukh Idrees1and M. Iqbal Saif2 Abstract The concept paper explores the phenomena of organizational culture and its impact on Total Quality Management (TQM) implementation assumed to enhance the firm performance in manufacturing sector of Pakistan (Awan, Bhatti, Bukhari, & Qureshi, 2008). This paper provides the substantive views in the field of inquiry in general and the context of Pakistani manufacturing sector in particular. The study revolves around the TQM philosophy impacting firms’ performance.The proposed approach is expected to be helpful in developing a tool helpful in assessing the level of organizational culture in successful TQM implementation in manufacturing sector. Keywords: TQM, organizational culture, manufacturing sector, efficiency, effectiveness 1. Introduction In 1960s, Lean Production System was launched in Japan to meliorate system approach to organizational management. An organizational system consists of processes, which are articulated to contribute to a single common output. Bruun et al (1996) and Oakland (1994) have demonstrated TQM as key elements of Lean Production System and an innovative organizational approach to planning, organizing and understanding each activity in which organizational businesses engage. It manages the system of organizations by concentrating on dimensions of customers focus, process orientation, continuous improvement, leadership commitment and teamwork (Elmuti, et al, 1996; James, 1994; Antony et al, 2001; Zairi 1993; Smith et al, 2006). TQM is gaining popularity in the modern world due its perceived benefits for example most of the TQM champions claim that it helps a company in ameliorating its performance like customer satisfaction, employee satisfaction, market share, return on investment, lowering manufacturing costs, conformance to requirements and increasing productivity (Garvin, 1983, Wollner, 1992, Cole, 1983; Phillips et al 1983, Tenner et al 1992, Holusha 1989, Garbutt 1996, Olian, et al. 1991, Zairi, 2005, Silverman 1996, Sutter 1996, Shao 2005, Jarrar et al 1999, Cecily et al 1996, Taylor & Wright 2006, Atkinson 2012, Zhang et.al. 2012). Furthermore, many other authors have advocated the role of TQM as an innovative philosophy for bringing excellence in performance for all stakeholders (Elmuti et al 1996, Dean et al 1994, Benson 1991, Fenwick 1991, Zairi 1993, Lewis et al 1994, Sila 2007, Bayazit etal 2007; Fuentes-Fuentes etal 2004, Jayaram 2010, Naor 2010). All these views support TQM as an innovative organizational management approach that satisfies the stakeholder needs and enhances the overall firm performance. On the other hand there is a lot of evidence giving birth to controversy regarding successful implementation of TQM being a real challenge for the corporate world. An extensive review of the literature accentuated that some organizations opted for TQM programs and got those programs implemented successfully (Benson 1991, Fenwick 1991, Zairi 1993, Lewis et al 1994). Unfortunately, the recognition and acknowledgement of TQM philosophy is very little within many organizations particularly in developing economies (Salaheldin 2009; Sila 2007). The common conviction about the limited acceptance of TQM programs is because within the organization the individuals do not want to move from traditional to quality oriented work practices and they always resist the change (Atkinson 2012; Liberatore 1993). This change management is absolutely necessary for stability, development and success of all organizations. Review of literature on change management with reference to an individual resistance on TQM programs suggests that it may be nicely managed if organizations develop quality oriented culture (Naor 2010). In other words quality oriented culture is needed to change their conventional values, norms, beliefs and artifacts etc. and develop corporate culture where individuals share their ideas and openly communicate among each other for the accomplishment of common goals. The present study

1Bahria University, Management Sciences Department, Islamabad. Pakistan. E mail: [email protected] 2Bahria University, Management Sciences Department, Islamabad. Pakistan.


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contends quality oriented organizational culture may play a pivotal role for the successful implementation of TQM programs particularly in the context of developing economies and specifically in Pakistani manufacturing sector. 2. Literature Review The emergence of Japan as an economic super power may be the consequence of quality revolution in the 20th century (Juran, 1993). A number of Japanese companies, rebuilding from wartime havoc and confusion, adopted an ingenuous, integrated approach to achieving quality. Several leading applied statisticians and quality experts, most notably W. Edward Deming and Joseph M. Jruan, introduced quality management principles to Japanese industry. The Union of Japanese Scientists and Engineers (UJSE) invited Deming to give a lecture to Japanese workers, managers, and engineers on quality control methods. He introduced to them SQC and the PDCA, and found ready acceptance of his proposition that if they adopted this methods, Japan would reverse its established prominence for producing poor quality products/services and would promptly become a world leader in quality (Deming, 1986). Japanese quality revolution was remarkably successful. Japan became the world quality leader in many product lines. TQM programs are gaining high acceptance and interest among academicians and practitioners. Proponents of the approach intrinsically argue that a dynamic movement towards quality is critically needed, and the issues addressed by quality movement are extensive and interrelated for enhancing organizational performance. A vast variety of outcomes in pursuing quality management are presented in the body of literature that that open new vistas for the TQM philosophy’s wide spread acknowledgement among stakeholders. The promising benefits of TQM implementation are seldom achieved. Various reasons are quoted in the academic literature for the failure of TQM implementation and are presented in the following section. 2.1 TQM Implementation and Organizational Performance As discussed above, the work of Juran (1980) and Deming (1986) and their eventual impact on Japan manufacturing sector proved to be the catalyst for feasibility of TQM acceptability as a management approach for rest of the world. Today, it has widened to services sectors e.g. educational institutions, health care organizations, hospitality firms, hotel organizations, and government agencies (Dexelar et al 2000). Bou-Llusar et al (2009) argued that to remain competitive in the ever-changing environment, organizations need to be tuned on a set of those aspects that are encompassing totality of organizations for performance improvements. The philosophy of TQM paves the way to comprehend the whole organization since it comes up with multi dimensional scopes to meliorate performance (Bruun et al 1996). Most commonly recognized multi dimensions include: I. Continuous improvement: it is the relentless pursuit of improvement in the delivery of value to the

customer (Turney et al 1989; Fuentes-Fuentes et al 2004; Zairi et al 2003). It uses hard (quantitative) and soft (human) aspects to focus on the system, process, issue, or problem.

II. Customer focus: this reflects the main intent of an organization i.e. to meet or exceed customer expectations (Zairi et al 2003; Arawati et al 2001; Cohen and Brand 1993; Crosby 1994; Deming 1986; Juran 1989)

III. Team work (Fuentes-Fuentes et al 2004) covers the working structure of an organization i.e. people working in teams to have cross departmental skills and commitment to achieve organizations’ goals and target(Zairi et al 2003

IV. Employee Participation: employees must be empowered, and they must be fully involved in the decision making process, if quality is to be successfully implemented. Crosby, Juran and Deming all emphasize the notion that participation is an imperative concept in the practice of contemporary management.

V. Top management commitment: this includes the visible commitment of an organizations’ top management in brining quality culture in organziaitons and setting its vision and future (Arawati et al 2001; Zairi 2005);

VI. Process management: itencompasses the system approach of an organization i.e. organization consists of interrelated processes that are contributing towards the offerings of an organization.


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All these dimensions are taken in to consideration in this research. The aim is to study the TQM implementation and how well it leads an organization towards performance improvements. Performance improvements due to TQM implementation are described in the body of literature in terms of growth, profitability, productivity, process control, market competiveness, improved delivery rate, product development capabilities, safety etc(Turney et al 1989; Fuentes-Fuentes et al 2004; Zairi et al 2003). 2.2 Impact of Organizational Culture on TQM Implementation In Asian countries, emphasis on quality has been enhanced in the last decade because of various forces e.g. customers retention, profitability, market share, waste reduction etc. For example, Quality problems in China – such as tainted milk products and excessive lead levels in toys – have raised interest in quality assurance from China and other East Asian countries (Chao and Leow, 2008; Teagarden and Hinrichs, 2009). Such problems raise the concern of supply chain managers about their suppliers’ use of TQM practices (Kaynak and Hartley, 2008). Moreover, the commitment and use of QM are highly influenced by cultural values and context-specific effects (Chiang and Birtch, 2007; Lozeau et al., 2002; Zhao et al., 2004). Mostly quoted contextual factor about the relation of TQM and performance is organizational culture (Atkinson 2012; Zhang et al 2012). The organizational culture is defined as the pattern of basic assumptions that a given group has invent, discovered, or developed in learning to cope with its problems of external adaption and internal integration, and that have worked well enough to be considered valid, and therefore to be taught to new members as the correct way to perceive, think, and feel in relation to those problems.” (Shein 1994); customary or traditional ways of thinking and doing things, which are shared to a greater or lesser extent by all members of the organization and which new members of the organization must learn and atleast partially accept in order to be accepted into the service of the firm (Duncan 1989); a set of collective norms that govern the behavior of people within the company. The essence of these definitions is that organizational culture is learned, it is shared, and it is transmitted for enhancing performance through behaviors. It is taught to news members as the correct way to behave, thus perpetuating organizational survival and growth. Schein (1992) has divided organizational culture in to three levels to explore its impact on the organizational behavior for performance excellence: Level one being very visible i.e. behavioral artifacts, verbal artifacts; level two is espoused values i.e. values for rationalization of people behavior; level three is invisible or assumptions i.e. unchangeable and taken for granted values. This research demonstrates that there must be facilitating organizational culture to make TQM programs successful and enhance the firm performance. A number of studies in different contexts depict that organizational culture plays a mediating role for the implementation of TQM program and improve performance in manufacturing sector (Zhang et al 2012; Jayaram 2010; Lemak et al, 2000; Zu et al 2010 and Paiva 2008; Bowen et al. 1988). Moreover, Kujala et al, (2004) argued that TQM programs are more likely to succeed if the prevailing organizational culture is compatible with the values and basic assumptions the by the TQM discipline e.g. to survive in rapidly evolving global market, customers and their needs should govern all the activities within an organization. If the culture of the company is not supportive then all the rest of the components of the TQM model may not get success. A strong organizational culture enables smooth flow of information and nurtures harmony among its members (Karathanos, 1998). Improvements in work culture and internal communication thus improve customer (internal and external) satisfaction, which is essential for market growth and profitability in the long term (Lakhe and Mohanty, 1994). Literature suggests that employees in a strong organizational culture have a sense of mission, which may in turn improve productivity. Further, it provides an understanding about how business should be conducted, and about how employees should behave and be treated (Love et al., 2000). Lawler (1994) stated the success of team building depends on the organizational culture. The success of quality teams in Japanese organizations may suggest that they are particularly effective because of some cultural characteristics that endorse the teams. These cultural values may be in terms of willingness to share information, empowerment, goal orientation, leadership commitment etc. Since most of TQM techniques are developed in Japan, which has a distinct


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culture as compared to other Asian countries therefore TQM may not be as effective in other countries unless and until it is being supported by an appropriate organizational context (Tari et al., 2007). Moreover, commitment to implement TQM by management and employees is impacted by organizational culture and context specific factors (Lozeau et al 2002). Kaynak et al (2003) has gone a step ahead by suggesting that liabilities of culture include barriers to change and performance improvement which influence cross departmental co-operation and effects diversity for the implementation of best practices It plays a critical role in deriving company’s strategy by modifying the behavior of the people to enhance productivity through successful implementation of TQM. Bairstow (2006) argued there are two views on changing organizational culture 1) change what we are or 2) change what we do. Whether we choose option 1 or 2 or indeed a combination of both it is important to remember that cultural change must be closely linked to the strategic direction of the business. In a quality oriented culture, organization may share a common vision and mission for organizational success (Carr et al 1993); problems are taken as opportunities for improvements and quality problems are caused by poor systems-not the employees; employees are rewarded for their contribution; decision making is done based on hard data rather barely opinions (Kull et al., 2010); prevention based corrective actions are taken; employees are trained cross departmentally for enhancing their skills set; suppliers are considered as business partners and hence are taken on board in product development since inception; employees are trained as team players to work on processes of the organization; organization is taken as a system with the purpose of achieving the results that its stakeholders consider important. Results are achieved through internal process improvements, prevention of defects and customer focus; whole organization is oriented towards adding value to customers’ satisfaction through better products and services-the financial results will follow; improvement requires long term orientation and a strategic approach to management. Commonly explored dimensions of organizational culture include employees shared perception about sharing information; Employees beliefs and values about team working & social interaction; Employees perception about management commitment; Employees beliefs and values about cross departmental cooperation; Employees shared perception about system approach in the organization; Employees beliefs and values about reward systems of organization. The literature suggests that TQM implementation may only be made successful by correctly aligning its organizations’ culture with TQM oriented culture. The aim of the study is to explore the influence of organizational culture construct on TQM program in manufacturing sector of Pakistan. The country is having numerous issues in uplifting quality level to cope up with national and international competition. Its manufacturing quality conundrums are because of collateral shifting from agrigarian age to information technology age. As by and large the world has seen four hefty waves i.e. stone, agriculture, industrial, and information one. There is a step by step transition from one wave to the next one. But unfortunately in Pakistan, the economy directly embraced the information age without going in to a proper transposition to industrial and then to information one. That leap was taken in policy making at both macro and firm levels by not properly focusing on the development of manufacturing sector in Pakistan. Owing to this, the sector could not be nurtured in the country. The thrust of the study is to examine organizational culture, which is compatible with TQM implementation to enhance firm performance. There is growing consensus that organizational culture constrains organizational ability to nurture TQM implementation for firm performance (Wilkinson and Wilmott 2008). The mediating role of organizational culture in facilitating the articulation of TQM ethos are fundamentally undervalued and misunderstood in Pakistani organizational settings. It may be argued that manufacturing sector organizations of Pakistan are successfully choosing the quality oriented strategic direction by emphasizing corporate culture for the implementation of TQM to enhance firm performance. The aim of the research is to deal with quality related issues of the sector i.e. diminishing performance in terms of productivity to help it becoming more competitive domestically and internationally by addressing these issues efficiently and effectively. This study seeks to develop a framework to answer the central research question “To which extent organizational culture impacts TQM programs implementation for performance excellence in manufacturing sector of Pakistan?” Hypotheses and theoretical model are developed based on the literature review which was also used to devise a questionnaire.


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3. Methodology One of the desired outcomes of this study is to establish a viable predictive model which will guide a comprehensive study of conceptually pertinent factors in the empirical phase of the research. Further, the model will aid in predicting the degree of success with a calculated amount of associated risks in the implementation of a TQM program through intervening or mediating role of organizational culture. Management theory can provide a useful lens to distinguish different orientations of TQM practices (Amundson, 1998; Van de Ven et.al, 1995). This study draws on Zhang’s (2012) concept of corporate culture’s impact on QM implementation in an organization. Corporate culture implies the attitudes and behavior patterns in an organization that reflect the overall personality of an organization. The conceptual model of TQM implementation specially focuses on the role of organizational culture in mediating the impact of TQM on firm performance. To focus the existing erudition and relevant primitives, a theoretical framework pertaining to creating an organizational culture for organizational performance by means of TQM implementation is argued in the present study. It facilitates in elucidating the dimensions pertinent to the research questions and directs the empirical anatomy of the emphasized issues of subject of investigation. This study contemplates to develop mechanism for predicting the likelihood of TQM implementation towards performance improvements through organizational culture in the manufacturing sector of Pakistan. Various hypotheses about relationships among study variables are drawn. . Following figure 1 summarizes the conceptual framework. The model is showing the postulates among organizational culture, TQM implementation, and organizational performance constructs. Organizational culture is functioning as a mediating variable (MV) that affects the link between TQM which is independent variable (IV) and organizational performance which is dependent variable (DV). Figure1: Conceptual Framework Following table shows dimensions of the constructs involved in the present study.

Total Quality Management

Organizational

Culture

Organizational

Performance

H1

H2

H3


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Table 1: Dimensions of the Constructs

TQM Implementation Organizational Culture Organizational Performance

Leadership commitment Employees shared perception about sharing information

Productivity

Customer focus Employees beliefs and values about team working & social interaction

Employee satisfaction

Employee orientation Employees perception about management commitment

Customer satisfaction

People management Employees beliefs and values about cross departmental cooperation

Process improvements

Continuous improvement Employees shared perception about system approach in the organization

Process management Employees beliefs and values about reward systems of organization

The level of achieved performance in TQM implementation is to be treated as the dependent variable in this study. The level of success and/or failure will be based on self-reported activities that had been understood or personally observed by the employees of the organization, who have been involved in some form in the implementation of TQM programs. Relationship between TQM Implementation and Organizational Culture include: H1: An organizational Culture significantly contributes to TQM implementation in manufacturing sector of Pakistan. Relationship between Organizational Culture and Organizational Performance include: H2: An organizational culture has a significant influence on the organizational performance in manufacturing sector of Pakistan. Relationship between Organizational Culture, TQM Implementation and Organizational Performance include: H3: An organizational culture has a significant impact on the relationship between TQM implementation and organizational performance in manufacturing sector of Pakistan. 4. Summary Poor policy level decisions and inconsistent strategies ended up in deteriorating economic condition of Pakistan (Raja, Bodla, & Malik, 2011). A new managerial model focused on protecting stakeholders’ interests is to be introduced to cope up with the existing challenges. The research is opted to provide such a comprehensive model. Further an increasingly critical focus on the implementation of TQM and the need for further research also sets justification for this research. The research provides simple means of illustrating how organizational culture mediates the relationship of total quality management and organizational performance. Based on this framework and literature review, various hypotheses are drawn. The hypotheses presented deal with the range of determinants of TQM success. References

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