IJLTFES Vol-5 No. 2 June 2015

Volume 5 No. 2

June 2015

E-ISSN: 2047-0916

Editorial Board

Editorial Board

Editor in Chief

Prof. Dr. José António Filipe, Instituto Universitário de Lisboa (ISCTE-IUL),

Lisboa, Portugal

Managing Editor

Prof. Dr. Sofia Lopes Portela, Instituto Universitário de Lisboa (ISCTE-IUL),

Lisboa, Portugal

Editorial Board Members

1. Prof. Dr. Manuel Alberto M. Ferreira, Instituto Universitário de Lisboa

(ISCTE-IUL), Lisboa, Portugal

2. Prof. Dr. Rui Menezes, Instituto Universitário de Lisboa (ISCTE-IUL), Lisboa,

Portugal

3. Prof. Dr. Manuel Coelho, ISEG/UTL, Socius, Lisboa, Portugal

4. Prof. Dr. Isabel Pedro, IST/UTL, Lisboa, Portugal

5. Prof. Dr. A. Selvarasu, Annamalai University, India

6. Prof. Dr. Desislava Ivanova Yordanova, Sofia University St Kliment

Ohridski, Bulgaria

7. Prof. Dr. António Caleiro, University of Evora, Portugal

8. Prof. Dr. Michael Grabinski, Neu-Ulm University, Germany

9. Prof. Dr. Jennifer Foo, Stetson University, USA

10. Prof. Dr. Rui Junqueira Lopes, University of Evora, Portugal

11. Prof. Bholanath Dutta, CMR Inst. of Tech, Blore, India

12. Prof. Dr. Henrik Egbert, Anhalt University of Applied Sciences, Germany

13. Prof. Dr. Javid A. Jafarov, National Academy of Sciences, Azerbaijan

14. Prof. Dr. Margarida Proença, University of Minho, Portugal

15. Prof. Dr. Maria Rosa Borges, ISEG-UTL, Portugal

16. Prof Dr. Marina Andrade, Instituto Universitário de Lisboa (ISCTE-IUL),

Portugal

17. Prof. Dr. Milan Terek, Ekonomick´a Univerzita V Bratislava, Slovakia

18. Prof. Dr. Carlos Besteiro, Universidad de Oviedo, Spain

19. Prof. Dr. Dorota Witkowska, Warsaw Univ. of Life Sciences, Poland

20. Prof. Dr. Lucyna Kornecki, Embry-Riddle Aeronautical University, USA

21. Prof. Dr. Joaquim Ramos Silva, ISEG-UTL, Portugal

Abstracting / Indexing International Journal of Latest Trends in Finance and Economic Sciences (IJLTFES) is

abstracted / indexed in the following international bodies and databases:

EBSCO

Google Scholar

DOAJ

Scirus

Getcited

Scribd

NewJour

citeseerx

Table of Contents

1. The Determinants of Governance: A Global Analysis ....................................................... 868

Konstantinos Rontos, Maria-Eleni Syrmali, Ioannis Vavouras

2. Evaluation of the Value Creation in an Innovative Product Using Fuzzy Linguistic

Computing ...................................................................................................................................... 878

M. I. Pedro, M. Sarmento , Marta Silva

3. Business Partnership at the Information Technology Sector in Brazil ..................... 891

Daniel Correia de Albuquerque, José António Filipe, Manuel Alberto M. Ferreira

4. The Managerial and Economic Effects of Celebrity Endorsement on Consumer

Purchasing Intentions ................................................................................................................. 898

Hélia Gonçalves Pereira, António Carvalho, Sofia Lopes Portela

5. Organization Design Redefinition Using Design Thinking ................................... 910

David Lamelas, José Lamelas, José Filipe

6. Better Decision Making in Complex Dynamic Tasks-A Book Review........................ 920

Manuel Alberto M. Ferreira

Int. J Latest Trends Fin. Eco. Sc. Vol-5 No. 2 June, 2015

868

The Determinants of Governance:

A Global Analysis

Konstantinos Rontos1, Maria-Eleni Syrmali2, Ioannis Vavouras3

1 Department of Sociology, University of the Aegean

Mytilene, Lesvos, Greece

[email protected]

2 Department of Public Administration, Panteion University of Social and Political Sciences

Syngrou Avenue 136, Athens, 17671, Greece

[email protected]

3 Department of Public Administration, Panteion University of Social and Political Sciences

Syngrou Avenue 136, Athens, 17671, Greece

[email protected]

Abstract - The scope of the paper is to explore the

underlying determinants of governance quality at the

global level. The study suggests that cross-country

variation in governance is mainly attributed to

differences not only in countries’ level of economic

development but to the range of political freedom and

level of social development. More specifically, the impact

of economic development is stronger for the control of

corruption, the rule of law and regulatory quality as far

as the examined governance dimensions are concerned.

Political development is strongly related to political

stability and absence of violence as well as voice and

accountability. A very interesting finding is the high

correlation of social development, as depicted by the

relevant human development index, with the level of

government effectiveness. Therefore, strengthening and

maintaining governance is achieved only through the

adoption and effective implementation of the

appropriate long-run policies. In a similar vein, concrete

policy guidelines lie at the core of the good governance

agenda. The associated reforms target a broad list of

comprehensive governance objectives in order to achieve

government effectiveness, anti-corruption safeguards,

high standards of legitimacy and accountability, among

other attributes of governance systems.

Keywords - Governance; Institutional quality; Corruption;

Public sector reforms; Economic development; Human

development; Political rights.

1 See, also, Woods (2000).

1. Introduction

After the end of the Cold War, global and

regional emphasis on democratization and the

advancement of human rights have created demands

for more accountable and transparent political

institutions and a reformed judiciary (World Bank,

1998). In a similar vein, widespread corruption largely

unveils the existence of institutional fragilities, as well

as economic, social and political underdevelopment

(Rontos, Sioussiouras and Vavouras, 2012). Under

this framework, in the policy world the issue of

governance has come to the fore after the failure of a

long stream of reforms applied to borrowing countries

that did not consider the importance of institutions and

governance issues 1 . More specifically, Africa’s

development problems and the inefficiency of

international aid were attributed to a governance crisis,

whereas governance refers to the exercise of political

power to manage a nation’s affairs (World Bank,

1989). In the same study it is supported that improved

governance standards require political renewal,

whereas emphasis is given to tackling corruption by

strengthening accountability, capacity building, sound

policy fundamentals and institutional frameworks in

order to improve structural weaknesses.

The scientific awareness over the role of

governance and institutions can also be broadly

viewed as an integral part of the ongoing research for

the “deeper” determinants of economic growth and

development 2 . Acemoglu, Johnson and Robinson

2 Rodrik, Subramanian and Trebbi (2004).

____________________________________________________________________________________ International Journal of Latest Trends in Finance & Economic Sciences IJLTFES, E-ISSN: 2047-0916 Copyright © ExcelingTech, Pub, UK (http://excelingtech.co.uk/)

mailto:[email protected]


http://excelingtech.co.uk/


869

(2005) make the discrimination between the proximate

explanations of comparative growth supported by

standard economic models of factor accumulation and

innovation and the fundamental or deeper causes,

which emphasize the importance of factors like

economic institutions, geography and culture. Even if

capital accumulation or technological innovation

account for significant differences in long-run levels

of per capita output across countries, they do not

answer truly causal questions concerning the success

or failure of certain societies to take the actions

necessary to accomplish such accumulation or

innovation. Similarly, North and Thomas (1973) argue

that factors like innovation, economies of scale,

education and capital accumulation are not causes of

growth, they are growth instead. To further explore

these issues, the emerging field of the economics

literature concerning the deep determinants of growth

described above, is called the new institutional

economics3.

While the notion of governance has gained

prominence in the literature and is extensively

discussed among scholars and policymakers, there is

little agreement on the essence of the concept.

Governance is a multidimensional theme4 associated

with a variety of economic, social and political factors,

such as high per capita income, high human

development standards and democratic institutions.

Due to its elusive nature there is not a clear consensus

on the concept neither a universally agreed definition

of governance 5 (Kjaer, 2004). On the contrary,

international agencies and researchers follow their

own definitions depending on the conceptual spectrum

under which they analyze the phenomenon, with a

main focus on the sociopolitical dimension apart from

the economic aspect of governance.

Although it is difficult to agree on a precise

definition, the most common of them prevailing in the

relevant literature are presented in the following

paragraphs. Governance is defined by the World Bank

as the manner in which power is exercised in the

management of a country’s economic and social

resources for development (World Bank, 1991). In

3 North (1990). 4 Governance is at the intersection of many fields in social

sciences including development studies, economics,

international relations, law, political science, public

administration and sociology (Dixit, 2009). 5 For a concise overview of the relevant literature

definitions, see Dethier (1999) and United Nations (2007). 6 Quibria (2006). 7 Measuring governance performance could assist with

setting standards for improvement and achievement as well

more concrete terms, the World Bank’s involvement

in governance has primarily focused on sound

development management emphasizing public sector

reform, public expenditure control and privatization6.

Therefore, good governance infrastructure is

fundamental in creating, operationalizing and

maintaining an environment of strong and equitable

development, whereas it is a central supplement to

sound economic policies. However, this definition is

characterized as somewhat narrow since it does not

take into account the political system and civil liberties

as well as the role of civil society (Johnston, 1998).

According to Kaufmann, Kraay and Mastruzzi (2010)

this definition is limited centered on public sector

management issues. On the contrary, as discussed by

Keefer (2004) more emphasis should be given to

causal or more fundamental concepts, which enclose

the incentive structure that guides the actions of

political actors. The World Bank identifies three

distinct aspects of governance: (i) the form of political

regime, (ii) the process by which authority is exercised

in the management of a country’s economic and social

resources for development, and (iii) the capacity of

governments to design, formulate, and implement

policies and discharge functions (World Bank, 1994).

One of the most widely used definitions of

governance in the literature is provided by the World

Bank. Governance is defined as the traditions and

institutions by which authority in a country is

exercised. This broad definition includes: (a) the

process by which governments are selected, monitored

and replaced, (b) the capacity of the government to

effectively formulate and implement sound policies,

and (c) the respect of citizens and the state for the

institutions that govern economic and social

interactions among them (Kaufmann, Kraay and

Lobatón, 1999). The governance indicators that have

been developed in this context capture six key

dimensions of institutional quality or governance, and

measure7, through two indicators each, the political,

economic and institutional dimensions of governance

(Kaufmann, 2005). Overall, six dimensions of

governance emerge, which are the following8:

as indicating where funds could have been better used and

where policy might prove most effective (Besançon, 2003). 8 The Worldwide Governance Indicators introduce

sustainability metrics as they incorporate social, economic

and political concerns related to sustainability. The elements

captured by the index, such as accountability, political voice

and political stability among other attributes of governing

systems, are important over both the shorter as well as the

longer term and therefore are of crucial importance from a

sustainability perspective (World Economic Forum, 2011).


870

1. Voice and Accountability expresses perceptions

of the extent to which citizens are able to

participate in selecting their government, as well

as freedom of speech, freedom of association and

a free media.

2. Political Stability and Absence of

Violence/Terrorism expresses perceptions of the

likelihood that the government will be

destabilized or overthrown by unlawful or violent

means, including politically‐motivated violence

and terrorism.

3. Government Effectiveness expresses

perceptions of the quality of public services, the

quality of the civil service and the degree of its

independence from political pressures, the quality

of policy design and implementation, and the

credibility of the government's commitment to

these policies.

4. Regulatory Quality expresses perceptions of the

ability of the government to formulate and impose

sound policies and regulations that permit and

promote private sector development.

5. Rule of Law expresses perceptions of the extent

to which agents have confidence in and comply

with the rules of society, and in particular the

quality of contract enforcement, property rights,

the police, and the courts, as well as the likelihood

of crime and violence.

6. Control of Corruption expresses perceptions of

the extent to which public power is exercised for

private gain, including both petty and grand forms

of corruption, as well as misappropriation of the

state by elites and private interests.

The definition of governance according to the

Organisation for Economic Co-operation and

Development (OECD) is in line with the World Bank’s

definition. It denotes the use of political power and

exercise of control in a society in relation to the

administration of its resources for economic and social

developmen9. This broad definition encompasses the

role of public authorities in establishing the framework

in which economic agents operate and in determining

the allocation of benefits and the nature of the

relationship between the ruler and the ruled.

According to the OECD, good governance refers to the

9 Organisation for Economic Co-operation and Development

(1995). 10 In the same vein, the Commission’s governance policy

advice includes five principles for establishing more

democratic governance. These are openness, participation,

accountability, effectiveness and coherence (Commission of

the European Communities, 2001).

rule of law, efficient public sector management and

corruption control.

According to the European Commission,

governance refers to the state’s ability to serve the

citizens. It concerns the rules, processes, and behavior

by which interests are shaped, resources are

administered, and power is exercised in society. The

way public functions are accomplished, public

resources are managed and public regulatory affairs

are conducted is the major issue to be addressed in that

framework. Despite its open and wide character,

governance has a practical value related to the core

aspects of the functioning of any society and political

and social system and in this respect it can be

characterized as a basic measure of stability and

performance of a society as well as of quality and

performance of any political and administrative

system10 (Commission of the European Communities,

2003). Thus, institutional sustainability and capacity

building are the primary elements of the good

governance agenda.

According to the United Nations Development

Programme (UNDP), governance is the system of

values, policies and institutions by which a society

administers its economic, political and social matters

through synergies within and among the state, civil

society and private sector. It describes the rules,

institutions and practices that set limits and provide

incentives for individuals, organizations and firms11.

From an empirical perspective, the relationship

between governance and its determinants has been left

rather imprecise, with a notable absence of a concrete

theoretical framework to guide empirical work 12 .

Impediments to empirical research concerning

governance and institutional quality can be attributed

to conceptual and measurement problems, whereas the

way these themes are defined determines what gets

modeled and measured13.

Under this analytical framework, the scope of the

paper is to investigate the determinants of governance

for all countries of the world for which the required

data are available, that is 173 countries. The study

builds on three strands of the governance literature,

namely the economic, political and social14. The first

strand focuses on the level of economic development

11 United Nations Development Programme (2007). 12 Al Marhubi (2004). 13 A similar view has been expressed about corruption,

which constitutes a fundamental pillar of governance (Jain,

2001). 14 The conceptual framework employed builds on La Porta

at al. (1999).


871

as measured by gross national income per capita in

purchasing power parities or current international

dollars. The second strand refers to the political

determinants of governance approached by the range

of political rights and the extent of civil liberties. The

third strand analyzes the social aspects of governance

proxied by the non-income human development index,

which combines measures of life expectancy and

educational attainment. The analysis suggests that all

the above factors are of primary importance in

determining the level of governance worldwide and

should not be examined in isolation from each other.

Policy implications that have emerged out of the

empirical analysis reveal that different combinations

of economic, social and political factors contribute to

governance performance not uniformly but depending

on the specific governance dimension under

consideration. Generally, maintaining good

governance is achieved only through the adoption and

effective implementation of the appropriate long-run

policies of economic, social and political nature.

2. Methodology, data and analysis

2.1 Model specification

To explore the factors that determine each

dimension of governance in the global context,

regression modeling was used with the six dimensions

of governance taken as the dependent variables.

Actually, six linear regressions of this kind were

constructed, each of them having as dependent

variable one of the six dimensions of governance

presented above. Concerning the regression approach,

the multiple linear regression model of the following

general specification was used:

Y = bo + b1.X1 + b2.X2 + … + bn.Xn + e

More analytically, to express governance, the

relevant Worldwide Governance Indicators (WGI)

dataset is used estimated by the World Bank 15 . It

should be acknowledged that it is the most extensively

used dataset and has emerged as a standard point of

reference in the relevant empirical literature. It covers

a broad spectrum of the six governance dimensions

described above, which neatly capture the good

governance agenda framework as delineated by the

World Bank. The values of the indicators lie between

15

http://info.worldbank.org/governance/wgi/index.aspx#hom

e. 16See,

http://data.worldbank.org/indicator/NY.GNP.PCAP.PP.CD. 17 https://freedomhouse.org/report/freedom-world/freedom-

world-2012.

-2.5 and 2.5, where higher values correspond to better

governance. Gross National Income per capita in

purchasing power parities or current international

dollars (GNI.pc.ppp) is used to approximate the level

of economic development in each country.

GNI.pc.ppp is an indicator widely used in international

comparisons of economic development and is

provided by the World Bank16. To approximate the

quality of democracy in each country the political

rights index (PR) is used estimated by the Freedom

House organization. The scale of the PR index ranges

between 1 and 7. Countries and territories with a rating

of 1 enjoy a wide range of political rights, including

free and fair elections, whereas countries and

territories with a rating of 7 have few or no political

rights because of severe government oppression,

sometimes in combination with civil war 17 . To

approximate the extent of civil liberties in each

country the civil liberties index (CL) is used compiled

by the Freedom House organization as well. The scale

of the CL index ranges between 1 and 7. Countries and

territories with a rating of 1 enjoy a wide range of civil

liberties, including freedom of expression, assembly,

association, education, and religion. Countries and

territories with a rating of 7 have few or no civil

liberties18. The human development index (HDI) is

used as a summary measure of the level of human

development. It is estimated by the United Nations

Development Programme (UNDP) and it measures the

average achievements in a given country in three

relevant dimensions of human development: a long

and healthy life, access to knowledge and a decent

standard of living18. According to this index, countries

are classified in four categories: very high human

development if the value of the index is higher than

0.900, high human development if the value of the

index lies between 0.800 and 0.899, medium human

development if the value of the index is between 0.500

and 0.799 and low human development if the value of

the index is lower than 0.50019.

All dependent and explanatory variables of the

regression models are quantitative, measured in the

scales suggested by the organizations that produce

them. The normality of the dependent variable was

tested, while linearity, multicollinearity,

heteroscedasticity and autocorrelation checks were

also carried out. The explanatory power of the model

was expressed by the adjusted coefficient of

determination (R̅2). The stepwise procedure used by

the SPSS package was employed for building the

models, with a probability of F equal to 0.05 as a

18 http://hdr.undp.org/en/data. 19Since the HDI includes as one of its main components GNI

per capita that has already been used as the basic variable of

economic development, the variable HDI based on non-

income measures is employed, that is the HDI excluding its

income dimension or component. See,

http://hdr.undp.org/en/data.

http://data.worldbank.org/indicator/NY.GNP.PCAP.PP.CD


872

criterion to enter a variable and equal to 0.10 as a

criterion to remove a variable. The economic

significance (the direction of the effect) of a variable

was also a criterion for its approval.

2.2. Estimation results

Table 1 presents summary statistics containing

some preliminary results. All countries independently

of their average real income levels are included in the

analysis. This is also evident by the large difference

between the minimum and maximum value of the

relevant per capita income index, which ranges

between $370.00 and $82,340.00 respectively. Table 2

presenting the correlation matrix provides a first

approximation for the main determinants of

governance. The analysis shows that, on average,

countries with higher income exhibit improved

governance capacities. More specifically, gross

20 Linearity is not a real problem here, as the variance of the

dependent variable is higher than the variance of the

residuals for all models.

National Income (GNI.pc.ppp) is more strongly

positively related to government effectiveness (GE),

control of corruption (CC) and the rule of law (RL).

The relationship between civil liberties (CL) and all

governance dimensions is negative as lower values of

the civil liberties indicator correspond to improved

levels of the index. The strong correlation between

Political factors (Political Rights-PR and Civil

Liberties-CL) with Voice Accountability (VA) is also

remarkable. An interesting finding is the positive

relationship between the human development index

(HDI) with government effectiveness (GE) and

regulatory quality (RQ), which is also reached by the

ensuing regression results. The sign of the relationship

between PR and CL in positive as expected due to the

measurement scale of both indexes. Linearity of the

models seems to be followed according to the

correlation matrix of table 220.

Table 1. Summary statistics

Mean Standard deviation

Minimum

MMaximum

PSAVT -0.11 0.97 -2.69 1.40

VA -0.07 0.97 -2.21 1.75

RQ -0.02 0.94 -2.24 1.96

RL -0.07 0.97 -1.72 1.95

CC -0.06 0.99 -1.56 2.39

GE -0.03 0.96 -1.66 2.21

GNI 14,711.86 15,653.43 370.00 82,340.00

PR 3.38 2.09 1.00 7.00

CL 3.31 1.82 1.00 7.00

HDINI 0.707 0.172 0.310 0.980

Table 2. Correlation table

CC CL GE GNI HDINI PR

PSAVT RL RQ VA

V

A

CC 1.00

CL -0.68 1.00

GE 0.93 -0.68 1.00

GNI 0.77 -0.42 0.80 1.00

HDINI 0.66 -0.58 0.77 0.69 1.00

PR -0.63 0.94 -0.66 -0.38 -0.54 1.00

PSAVT 0.74 -0.68 0.70 0.58 0.56 -0.60 1.00

RL 0.94 -0.73 0.95 0.80 0.72 -0.68 0.76 1.00

RQ 0.85 -0.70 0.93 0.76 0.71 -0.65 0.62 0.89 1.00

VA 0.79 -0.96 0.80 0.55 0.63 -0.93 0.70 0.83 0.79 1.00


873

The results of the empirical analysis are provided

separately for each dependent variable expressing each

of the six dimensions of governance. Regression

coefficients presented in table 3 are in the expected

direction and most of them are statistically significant

either at the 1% or at the 5% level.

In model 1, the b coefficients (-0.283 and 0.022)

of CL and GNI.pc.ppp are in the expected direction,

indicating that in a certain country of the studied

group, the higher the income per capita is the higher

the political stability and absence of

violence/terrorism (PSAVT) is. The higher the civil

liberties are, the higher the political stability and

absence of violence/terrorism (PSAVT) is and vice

versa. Stepwise procedure did not include HDI into the

model as it does not add to the explanatory power of

the model in a statistically significant level 21 . The

model has an acceptable total explanatory

performance, as the coefficient of determination R2 CL,

GNI = 56.6%.

In model 2, the b coefficients (-0.345, 0.011, -

0.116) of CL, GNI.pc.ppp and PR are in the expected

direction, indicating that in a certain country of the

group studied, the higher the political rights and civil

liberties are, the higher the voice and accountability

(VA) is and vice versa. Moreover, the higher the

income per capita is, the higher the voice and

accountability (VA) is. Stepwise procedure did not

include HDI into the model as it does not add to the

explanatory power of the model in a statistically

significant level. The b's coefficients of CL,

GNI.pc.ppp and PR are statistically significant (tCL = -

14.007, p = 0.000 < 0.001, tGNI.pc.ppp = 10.554, p = 0.000

< 0.001 and tPR = -5.514, p = 0.000 < 0.001).

Additionally, the constant coefficient is statistically

significant as well (t = 30.770, p = 0.000 < 0.001). The

model has an excellent total explanatory performance,

as the coefficient of determination R2 CL, GNI, PR =

95.9%.

In model 3, the b coefficients (0.028, - 0.217,

0.758) of GNI.pc.ppp, CL and HDI are in the expected


studied group, the higher the income per capita or the

human development is, the higher the regulatory

quality (RQ) is. Moreover, the higher the civil liberties

are, the higher the regulatory quality (RQ) is and vice

versa. Stepwise procedure did not include PR into the

model as it does not add to the explanatory power of

21 The contribution of each independent variable in

explaining the dependent’s variation has been estimated for

all six models and is available upon request.

the model in a statistically significant level. The b's

coefficients of CL, GNI.pc.ppp and HDI are

statistically significant (tGNI.pc.ppp = 7.797, p = 0.000 <

0.001, tCL = -9.186, p = 0.000 < 0.001, and tHDI = 2.101,

p = 0.037 < 0.05). Additionally, the constant

coefficient is not statistically significant at

conventional significance levels (t = -0.870, p = 0.386

> 0.05). The model has a very good total explanatory


GNI, HDI = 75.3%.

In model 4, the b coefficients (0.037, - 0.254) of

GNI.pc.ppp and CL are in the expected direction,

indicating that in a certain country of the studied

group, the higher the income per capita is and the

higher civil liberties are, the higher the rule of law

(RL) is. Stepwise procedure did not include PR and

HDI into the model as they do not add to the


significant level. The b's coefficients of GNI.pc.ppp

and CL are statistically significant (tGNI.pc.ppp = 16.648,

p = 0.000 < 0.001, tCL = -13.458, p = 0.000 < 0.001).

Additionally, the constant coefficient is statistically

significant as well (t = 2.598, p = 0.010 < 0.05). The

model has a very good total explanatory performance,

as the coefficient of determination R2 GNI, CL = 82.2%.

In model 5, the b coefficients (0.038, - 0.236) of

GNI.pc.ppp and CL are in the expected direction,

indicating that in a certain country of the group

studied, the higher the civil liberties are, the higher the

control of corruption (CC) is and the higher the income

per capita is, the higher the control of corruption (CC)

is and vice versa. Stepwise procedure did not include

PR and HDI into the model as they do not add to the


significant level. The b's coefficients of GNI.pc.ppp

and CL are statistically significant (tGNI.pc.ppp = 14.069,

p = 0.000 < 0.001, tCL = -10.269, p = 0.000 < 0.001).

Additionally, the constant coefficient is not

statistically significant at conventional significance

levels (t = 1.542, p = 0.125 > 0.05). The model has a

very good total explanatory performance, as the

coefficient of determination R2 GNI, CL = 75.1%.

In model 6, the b coefficients (0.028, - 0.192,

1.411) of GNI.pc.ppp, CL and HDI are in the expected


studied group, the higher the civil liberties, the higher

the government effectiveness (GE) is and vice versa.

Moreover, the higher the income per capita and HDI


874

are, the higher the government effectiveness (GE) is.

Stepwise procedure did not include PR into the model

as it does not add to the explanatory power of the

model in a statistically significant level. The b's

coefficients of CL, GNI.pc.ppp and PR are statistically

significant (tHDI = 4.372, p = 0.000 < 0.001, tCL = -

9.054, p = 0.000 < 0.001 and tGNI.pc.ppp = 8.607, p =

0.000 < 0.001). Additionally, the constant coefficient

is also statistically significant (t = -3.261, p = 0.001).

The model has a very good total explanatory


GNI, HDI = 75.3%.

Tolerance statistics are high and VIF are low

(VIF < 10) for all independent variables, indicating no

serious multicollinearity problems. Condition index

for the last dimension is low (< 15) and Eigenvalue is

near 0 but not equal to it, both indicating not serious

multicollinearity22. Studentized deleted residuals seem

to follow the normal distribution according to all

statistics and tests with the exception of the equation

of regulatory quality and government effectiveness,

which seem to face some but not very serious kurtosis

problems. Moreover, Durbin-Watson test employed

for all equations did not indicate autocorrelation.

Therefore, all estimated models are approved denoting

the existence of linear dependence of each of the six

governance dimensions on each of the independent

variables examined.

3. Conclusions and policy proposals

3.1 Conclusions

The most basic relationships that emerge out of

the empirical analysis between each of the six

dimensions of governance and the employed

economic, political and social predictor variables are

summarized. As far as the economic factors are

concerned, the results indicate that income per capita

is positively associated with all the six dimensions of

the predicted governance variable but it is most

strongly correlated to the degree of corruption, the rule

of law and the regulatory quality. As expected, the two

variables, namely control of corruption (CC) and

GNI.pc.ppp, are positively related. Therefore, higher

values of GNI.pc.ppp are associated with higher

values of CC, that is lower perceived levels of

corruption. From a parallel point of view, the level of

22 Collinearity diagnostics of each final stepwise model,

skewness statistics, kurtosis statistics and their standard

errors, Kolmogorov-Smirnov tests with their p values and

degrees of freedom, the distribution of studentized deleted

residuals, homoscedasticity tests for all equations have been

estimated and are available upon request.

corruption is an extensive one in low income

countries. Moreover, as far the rule of law and

regulatory quality are concerned it appears that their

constituent elements and, more particularly, the

protection of property rights and contract enforcement,

the independent functioning of the justice, the respect

of citizens for the accompanying governance

institutions and the capacity of the state to formulate

and enforce a coherent policy framework are more

prevalent in high income societies.

The political system, mainly represented by civil

liberties, seems to be another critical factor that affects

the level of governance globally. More specifically,

the level of civil liberties seems to be negatively

associated with all the six dimensions of governance,

that is the higher the protection of civil liberties the

higher the quality of governance. However, it should

be pointed out that the most strong negative correlation

is present between civil liberties on the one hand and

political stability and the level of voice and

accountability on the other. As far as the political

rights index is concerned, it is also correlated to the

political dimension of governance. Concerning voice

and accountability the sign of the relationship is

negative as predicted by theory, since higher values of

the political rights index correspond to lower political

development. So, it is concluded that he long-run

health of the political system often requires internal

checks and balances, whereas openness and

transparency are the best ways of ensuring that such

structural mechanisms develop23.

The strong correlation of the economic dimension

of governance, namely government effectiveness and

regulatory quality, with the human development index

should be highlighted. This finding indicates the role

of socioeconomic environment in the quality of policy

formulation and enforcement. Social structures, as

captured by the human development index, are related

to the quality of public services provided and the

credibility of government’s commitment to such

policies. Human development is also positively

correlated to regulatory quality. Human capital

building, which is shaped by the accumulation of its

basic ingredients, is, therefore, closely connected with

increased governance capacities24. Investing in basic

social infrastructure, including education and health,

23 Islam (2006). 24 Countries with high levels of the human development

index are associated with low levels of corruption (Rose-

Ackerman, 2005), which is a fundamental aspect of

governance.


875

emerge as drivers of navigating towards sustainable

human development, which is critical for promoting an

adaptive governance structure

.

3.2 Policy proposals

The results of the empirical section suggest that

governance quality differs among countries due to the

variation in countries’ level of economic development,

extent of political rights and civil liberties as well as

their respective level of human development, which

determine the overall level of institutional quality.

Therefore, it is confirmed that countries should not

25 As far as the worldwide governance indicators project is

concerned, it must be pointed out that good governance

characteristics are not the privilege of rich countries only but

of developing economies as well. For example, it is indicated

that emerging economies like Botswana, Chile, and Estonia

in specific governance dimensions, such as the control of

follow a blue print for reform so as to increase their

overall long-run development levels (Rontos and

Vavouras, 2013). Moreover, these inclusively

examined factors do not have a symmetric impact on

governance structure, but vary depending on the

specific dimension of governance under consideration.

Insufficient governance capacities and failures largely

unveil the existence of economic and political

weaknesses as well as institutional and social

underdevelopment. An alternative policy

interpretation is that government performance is in

part determined by economic development25, whereas

it is also shaped by the systemic variation in the

political and social conditions of individual countries,

corruption, score better than countries such as Greece and

Italy, which are considered industrialized countries

(International Bank for Reconstruction and Development,

2006). This argument supports the view that good

governance is not only shaped by the level of economic

development but by social and political factors as well.

Table 3. Estimates of governance determinants (2012)

Model 1

(PSAVT)

Model 2

(VA)

Model 3

(RQ)

Model 4

(RL)

Model 5

(CC)

Model 6

(GE)

GNI 0.022***

0.003

6.343

0.011***

0.001

10.554

0.028***

0.004

7.797

0.037***

0.002

16.648

0.038***

0.003

14.069

0.028***

0.003

8.607

PR

-0.116***

0.021

-5.514

CL

-0.283***

0.029

-9.634

-0.345***

0.025

-14.007

-0.217***

0.024

-9.186

-0.254***

0.019

-13.458

-0.236***

0.023

-10.269

-0.192***

0.021

-9.054

HDI

0.758**

0.361

2.101

1.411***

0.323

4.372

Constant

0.508***

0.136

3.736

1.296***

0.042

30.770

-0.224

0.258

-0.870

0.227**

0.087

2.598

0.164

0.106

1.542

-0.752***

0.231

-3.261

R̅2

0.566

0.959

0.753

0.822

0.751

0.753

Durbin-

Watson

2.005

1.822

1.886

2.008

2.005

2.059

Notes: Values below coefficient estimates refer to standard errors and t-statistics respectively. ***, ** denote

significance at the 1% and 5% level respectively.


876

especially those related to the level of non income

human development.

In practical terms, the analysis implies that

implementing universal policy recommendations to all

countries indiscriminately, regardless of their

economic, social and political background, proves to

be at least unresponsive. Consequently, initiatives

taken to promote good governance should correspond

to individual sociopolitical traits of countries. Fighting

endemic, deeply rooted weakness should involve a

deliberate policy mix, targeted reforms and structural

adjustments aiming at the root causes of governance

failure. For these countries, the control of structural

corruption requires additional global action aiming at

the reduction of poverty (Lalountas, Manolas and

Vavouras, 2011). However, in spite of the existence of

context specific governance weaknesses prevalent in

each country, there is scope for the emergence of

overarching principles that embody economic

development, democracy, equitable and sustainable

human development. Accordingly, concrete policy

measures lie at the core of the good governance agenda

targeting a lengthy list of governance objectives,

including developing anti-corruption safeguards,

reinforcing the rule of law, achieving high standards of

legitimacy and accountability, improving the

performance of public institutions, among other

attributes of effective governance systems.

References

[1] Acemoglu, D., Johnson, S. & Robinson, J.

(2001), The colonial origins of comparative

development: An empirical investigation,

American Economic Review, 91(5), pp. 1369-

1401.

[2] Al-Marhubi, F. (2004), The determinants of

governance: A cross-country analysis,

Contemporary Economic Policy, 22(3), pp.

394-406.

[3] Besançon, M. (2003), Good governance

rankings: The art of measurement, WPF

Reports, No. 36, Harvard University.

[4] Commission of the European Communities

(2001), European governance - A white paper.

COM, 428.

[5] Commission of the European Communities

(2003), Governance and development, COM,

615.

[6] Dethier, J-J. (1999), Governance and economic

performance: A survey, ZEF Discussion Paper

on Development Policy, No. 5, University of

Bonn, Germany.

[7] Dixit, A. (2009), Governance institutions and

economic activity, American Economic Review,

99(1), pp. 5-24.

[8] [8] International Bank for Reconstruction and

Development -The World Bank (2006), A

decade of measuring the quality of governance,

Washington, DC: The World Bank.

[9] Islam, R. (2006), Does more transparency go

along with better governance?, Economics and

Politics, 18(2), pp. 121-167.

[10] Jain, A. (2001), Corruption: A review, Journal

of Economic Surveys, 15(1), pp. 71-121.

[11] Johnston, M. (1998), What can be done about

entrenched corruption?, Pleskovic, B. & J.

Stiglitz, J. (eds.), Annual World Bank

Conference on Development Economics.


[12] Kaufmann, D. (2005), Myths and realities of

governance and corruption, Global

Competitiveness Report 2005-2006.

[13] Kaufmann, D., Kraay, A. & Lobatón, P. (1999),

Governance matters, Policy Research Working

Paper Series 2196.

[14] Kaufmann, D., Kraay, A. & Mastruzzi, M.

(2010), The worldwide governance indicators:

methodology and analytical issues, Policy

Research Working Paper No. 5430.

[15] Keefer, P. (2004), A review of the political

economy of governance: From property rights

to voice, World Bank Policy Research Working

Paper No. 3315, World Bank.

[16] Kjaer, A.M. (2004), Governance, Cambridge:

Polity Press.

[17] La Porta, R., Lopez-de-Silanes, F., Shleifer, A.

& Vishny, R. (1999), The Quality of

Government, Journal of Law, Economics &

Organization, 15(1), pp. 222-279.

[18] Lalountas, D.A., Manolas, G.A. & Vavouras,

I.S. (2011), Corruption, globalization and

development: How are these three phenomena

related?, Journal of Policy Modeling, 33, pp.

636-648.

[19] North, D. (1990), Institutions, institutional

change and economic performance,

Cambridge: Cambridge University Press.


877

[20] North, D. & Thomas, R. P. (1973), The rise of

the Western world: A new economic history,

Cambridge: Cambridge University Press.

[21] [21] Organisation for Economic Co-operation

and Development, (1995), Participatory

development and good governance,

Development Co-operation Guidelines Series.

[22] Quibria, M. G. (2006), Does governance

matter? Yes, no or maybe: Some evidence from

developing Asia, Kyklos, 59(1), pp. 99-114.

[23] Rodrik, D., Subramanian, A. & Trebbi, F.

(2004), Institutions rule: The primacy of

institutions over geography and integration in

economic development, Journal of Economic

Growth, 9(2), pp. 131-165.

[24] Rontos, K. & Vavouras, I. (2013),

Socioeconomic and Political Development:

Their Measurement and Connections, Global

Journal of Human Social Science, 13(5), pp.

51-65

[25] Rontos, K., Sioussiouras, P. & Vavouras, I.

(2012), An Incentive Model of Corruption in

the Mediterranean and Balkan Region,

International Journal of Latest Trends in

Finance and Economic Sciences, 2(2), pp. 99-

110.

[26] Rose-Ackerman, S. (2005), The Challenge of

Poor Governance and Corruption, Revista

Direitogv, Special Issue 1, pp. 207-266.

[27] United Nations (2007), Public governance

indicators: A literature review, Department of

Economic and Social Affairs, United Nations,

New York.

[28] United Nations Development Programme

(2007), Governance indicators – A users’ guide

(Second edition).

[29] Woods, N. (2000), The challenge of good

governance for the IMF and the World Bank

themselves, World Development, 28(5), pp.

823-841.

[30] World Bank (1989), Sub-Saharan Africa: From

crisis to sustainable growth, Washington, DC:

The World Bank.

[31] World Bank (1991), Managing development:

The governance dimension - A Discussion

Paper, Washington, DC: The World Bank.

[32] World Bank (1994), Governance: The World

Bank experience, Washington, DC: The World

Bank.

[33] World Bank (1998), Beyond the Washington

consensus: Institutions matter, World Bank

Latin American and Caribbean Studies,


[34] World Economic Forum (2011), The Global

Competitiveness Report 2011-2012.


878

Evaluation of the Value Creation in an

Innovative Product Using Fuzzy Linguistic

Computing M. I. Pedro1, M. Sarmento2 , Marta Silva3

1CEG-IST – Instituto Superior Técnico, Universidade de Lisboa, Portugal

[email protected]

2Department of Management, Military Academy, Lisbon, Portugal;

CLEGI – Research Center on Engineering and Industrial Management, University Lusíada of Lisbon, Portugal

3Instituto Superior Técnico, Universidade de Lisboa, Portugal

Abstract - Innovation is a vital tool for growth, enhancing

value creation and is also a competitive advantage. The aim

of this research is to propose a methodology to evaluate the

potential for value creation in innovation of a new product,

relatively to intangible and tangible assets. For intangible

assets the proposed methodology combines a multiple

criteria decision-making method with an adaptation of Tai

and Chen (2009) model using 2-tuple fuzzy linguistic

approach. This methodology was applied to the EToll

product developed by the Portuguese company Brisa

Innovation and Technology. It was concluded that the

benefits that most contributed to value creation are the

development and entrepreneurship of national companies

and a better cooperation with suppliers and partners. The

EToll also allowed a significant reduction in operating costs

in the company. The originality of this study is based in the

challenge for business managers to assess the real impact of

new products based not only on financial reports, but also

in terms of intangible assets and also, how to consider the

more appropriate qualitative dimensions to evaluate the

performance of intangible assets resulting from innovation.

Keywords - Innovation, Value Added, Intangible Benefits,

Stakeholders, Multiple Criteria Analysis, Linguistic Variables,

2-Tuple fuzzy.

1. Introduction

In a competition-based economy era, innovation has

become a vital tool for growth, as it enhances value

creation, becoming a competitive advantage

(Damanpour and Wischnevsky, 2006). Also, the process

of developing new products is more and more an open

innovation system where suppliers, research partners and

customers are gaining more and more highlight.

Therefore, during a new product development project it

becomes necessary to assess the real impact of

innovation not only for shareholders, but also for all the

stakeholders that take part in the project (Pérez-Luño,

Cambra, 2013).

This study has several contributions to the literature.

The first concerns the novelty of investigating the return

on investment from an innovative product that is often

not only tangible but also intangible. In fact it is a

challenge for business managers to assess the real impact

of new products based not only on financial reports, but

also in terms of intangible assets. The second is to

consider the more appropriate qualitative dimensions to

evaluate the performance of intangible assets resulting

from innovation. Commonly, intangible assets’

evaluation methods cannot appropriately evaluate the

qualitative factors and expert judgment in the evaluation

process of intangible benefits.

The aim of this research is to propose a

methodology to evaluate the potential for value creation

in innovation of a new product, taking into account not

only the financial return on investment, as usually

happens, but also the intangible benefits to shareholders

and company stakeholders.

Thus, to evaluate the intangible benefits we propose

the application of a multiple criteria methodology

combined with an evaluation model for intangible assets

based on 2-tuple fuzzy linguistic variables. Finally, the

tangible benefits resulting from the development of a

new product are measured through the net present value,

as well as the additional evaluation indicators of the

investment projects.

The article is organized as follows: Section 2

introduces the concept and measurement of value

creation of intangible benefits resulting from the




879

innovation of a new product. Section 3 makes a brief

summary of the evaluation of intangible assets models.

Section 4 presents the adopted methodology for this

research. Section 5 proposes the model for measuring

intangible benefits. Section 6 shows the method based on

2-tuple fuzzy linguistic information through a case study

of an innovation of the new product “EToll” - toll

payment system. Finally, section 7 presents the

concluding remarks.

2. Innovation and Value Creation

The developments of new products are crucial for

companies when innovations are recognized as key

processes of competitiveness in markets (Quintana-

Garcia and Benevides-Velasco, 2004).

Nowadays, the markets look for high quality and

products’ performance in development cycles more and

more short, at a lower cost (Maffin, 2001).

For a good performance of a new product, it is

important to have an efficient and effective management

of the product development process. However, what

seems to be missing in this process is the consistency in

the development system, including an effective process

of assessing the potential for value creation of the new

product. Particularly companies are interested in

measuring the profitability of an innovation in terms not

only tangible but also intangible (Choi, Poon and Davis,

2008).

However, the development of innovative products

depends on the net of customers, suppliers and partners

of the company that contribute to the generation of new

ideas and concepts. More and more, companies are

applying an open innovation to their new projects,

accepting that new ideas can come from inside or outside

the company (Chesbrough et al., 2006; Dornberger and

Suvelza, 2012).

Brooking (1996), Sveiby (1998), Stewart (2002),

Lev (2001), Martín de Castro and López Sáez (2008) and

Vidrascu (2013) among others, try to classify the

intangible assets. A great majority of the authors who

study intangible assets classify them in three or four

categories. For instance, Sveiby (2002) proposed that

intangible assets should include employee competence,

internal structure, and external structure. Stewart (2002)

identified also three categories such as human capital,

structure capital and customer capital.

However, for Brooking (1996), the intangibles have

four classes:

human assets, are linked with to the benefits

that individuals can provide to organizations

through their experience, creativity, knowledge

and capacity to solve problems, among others;

Assets market are related to the market, with the

main brand, customers, customer loyalty, the

recurring business, ongoing operations and

distribution channels;

intellectual property assets are connected with

know-how, trade secrets, copyrights, patents

and designs;

Assets infrastructure are technologies,

methodologies and processes as information

systems, management methods, customers’

databases.

According to Kayo (2002) intangible assets can also

be divided into four categories:

human assets, such as knowledge, talent, skills

and experience of employees, management, and

training;

innovation assets, such as research and

development, patents, technological know-

how;

structural assets, such as processes, information

systems and databases;

relationship assets, such as brands, trademarks,

copyrights, contracts with customers and

suppliers.

Mahroum and Al-Saleh (2013) concluded that there

is a positive relationship between the activities of

research and development and companies’ market value,

what is in accordance with other studies that showed the

same results.

Moreover, it is significant the influence of the

innovations in the customer loyalty, in the less

vulnerability to competitive marketing actions and in the

possible opportunities for extension of the product line.

As a consequence the company has higher and more

consistent operating results in the medium-term (Dobni,

2008).

3. Evaluation Models of Intangible

Assets

The importance of intangible assets in business

valuation is so significant that many authors have

developed models for evaluating intangible assets. In

fact, these models had its great development in the

nineties decade. Some authors employ accounting ratios

or traditional models of companies’ assessment, which

use corporate financial reports. However, these

procedures do not reflect the real value of intangibles.

Qualitative evaluation methods of intangible assets

are proposed to tackle the existing problems of

traditional financial reports’ methods (Smith, 2003). It

became essential to consider multiple dimensions or

factors, which were evaluated by experts in the

evaluation process of intangibles (Sohn and Ju, 2013).

These models are rich in structural terms. The

comparison between these models is made in terms of the


880

calculation process and the identification of the starting

and arrival points, since each model uses a different

process.

For other authors the measurement indicators are

based on a questionnaire elaborated with the company’s

stakeholders. However, in the models based on

scorecards as the Skandia Navigator (Edvinsson, 1997)

or the Intangible Assets Monitor (Sveiby, 1997) it is not

easy to visualize the elements of intangible assets.

Besides, they do not provide a systematic process to

build the evaluation model.

Thus, the inclusion of the experts’ subjective

judgments on value creation is an essential process in

order to consider all the important components of the

problem.

4. Methodology

The methodology that we follow, respects the

perceptions of shareholders and stakeholders of a

company, namely company employees, customers,

partners and suppliers, among others. In other words, the

proposed methodology must take into account several

aspects evaluated by the stakeholders and capture the

value of intangible benefits of the new product.

Therefore, to properly assess the value created in

the innovation of a new product, we suggest the multiple

criteria decision-making (MCDM) methodology. This

procedure should include:

Problem structuring;

Model structuring;

Evaluation process.

Problem structuring contains the problem context

and the actors identification involved. Then, model

structuring is composed by the definition of an

hierarchical structure of intangible benefits of the new

product, grouped into classes with their respective

criteria. Also, for each criterion are defined measurement

indicators. Finally, evaluation process is the construction

and implementation of a research instrument through

which the context actors will make subjective value

judgments on each of the evaluation items and assign

weights according to its importance. Besides, to each

indicator is given a rating that reflects the performance

of the product with respect to each criterion.

Then, the rating of the performance of the

evaluating criteria and of the benefits are calculated

using an adaptation of the algorithm to measure the

intellectual capital developed by Tai and Chen (2009),

which uses a dual fuzzy linguistic approach.

At the end, the value created by the new product

considering each of the intangible benefits of the product

is obtained.

Definition 1. A positive triangular fuzzy number �̃�

can be defined as �̃�=(l, m, u), where l ≤ m ≤ u and l>0.

The function 𝜇�̃� (𝑥) is defined as:

𝜇�̃� (𝑥)= {

𝑥−𝑙

𝑚−𝑙, 𝑙 < 𝑥 < 𝑚

𝑢−𝑥

𝑢−𝑚, 𝑚 < 𝑥 < 𝑢

0, 𝑜𝑡ℎ𝑒𝑟𝑤𝑖𝑠𝑒

(1)

Definition 2. The value β [0,1], will be obtained after

aggregating the result of the evaluation using the

linguistic variable set S. Then, the symbolic translation

process is applied to translate β into a 2-tuple linguistic

variable. The translation function (Δ) can be represented

as:

Δ : [0,1] → 𝑆 × [ −1

2𝑔,

1

2𝑔)

Δ (β) = (𝑠𝑖 , ∝) with {𝑠𝑖 𝑖 = 𝑟𝑜𝑢𝑛𝑑 (𝛽 ∙ 𝑔)

𝛼 = 𝛽 −𝑖

𝑔 𝛼 ∈ [

−1

2𝑔,

1

2𝑔) (2)

Where 𝛽 ∈ [0,1]

Definition 3. When x = {(s1,α1), … , (sn,αn)} is a 2-

tuple fuzzy linguistic set, its arithmetic average X̅ is

computed as follows:

�̅� = Δ (1

𝑛∑ Δ

−1(𝑠𝑖 , 𝛼𝑖)𝑛𝑖=1 ) = Δ (

1

𝑛∑ 𝛽𝑖

𝑛𝑖=1 ) =

(𝑠𝑚 , 𝛼𝑚) (3)

In the process of the information aggregation, both

symbolic translation functions Δ and Δ-1 are applied to

ensure that the dual fuzzy linguistic variable can have two

tuples with no loss of information (Herrera-Viedma et al.,

2004).

Definition 4. When x = {(s1,α1), … , (sn,αn)} is a 2-

tuple fuzzy linguistic set, and W = {w1, … , wn} is the set

of weights of each xi , its 2-tuple fuzzy linguistic

weighting average X̅w is:

�̅�𝑤̅̅ ̅̅ = (∑ Δ

−1(𝑠𝑖,𝛼𝑖)𝑛𝑖=1 ∙𝑊𝑖

∑ 𝑊𝑖𝑛𝑖=1

) = Δ (∑ 𝛽𝑖

𝑛𝑖=1 ∙𝑊𝑖

∑ 𝑊𝑖𝑛𝑖=1

) =

(𝑠𝑤 , 𝛼𝑤) (4)

5. Proposal for a New Model to

Measure Intangible Assets

The proposed model is an adaptation of the

evaluation model of intellectual capital based on

computing with linguistic variables from Tai and Chen

(2009). However, in this study we intend measuring the

level of intangible benefits for companies, when a new

product is developed (Fig. 1).

In fact, there is a lack of knowledge of how to

measure these benefits. In this situation the linguistic


881

variables are suitable to evaluate the level of intangible

benefits by managers.

It is assumed that there are m intangible benefits

resulting from the new product Bl (l = 1, 2, ..., m) and n

Cli criteria (i = 1, 2, ..., n) with respect to each benefit.

Each criterion contains several indicators of

measurement. The steps of the proposed method are as

follows:

Step 1. During the questionnaire, each expert uses the

linguistic importance variables (shown in Table 1) to

represent the weight of each intangible benefit for the

study, the weight of each criterion with respect to each

benefit and the weight of each item with respect to each

criterion. Also, linguistic rating variables (shown in

Table 2) are used to evaluate the performance of items

with respect to each criterion.

Table 1. Importance of linguistic variables

Linguistic

label

Linguistic

term

Triangular

fuzzy

number

sw4

Very

important

(VI)

(0.75,

1.00,

1.00)

sw3 Important (I)

(0.50,

0.75,

1.00)

sw2 Fair (F)

(0.25,

0.50,

0.75)

sw1 Unimportant

(U)

(0.00,

0.25,

0.50)

sw0

Very

unimportant

(VU)

(0.00,

0.00,

0.25)

Table 2. Rating of linguistic variables

Linguistic

label Linguistic

term

Triangular

fuzzy

number

s4 Very good

(VG)

(0.75, 1.00,

1.00)

s3 Good (G)

(0.50, 0.75,

1.00)

s2 Fair (F)

(0.25, 0.50,

0.75)

s1 Poor (P)

(0.00, 0.25,

0.50)

s0 Very poor

(VP)

(0.00, 0.00,

0.25)

Step 2. Combining the values of the fuzzy evaluation

of the K experts, we obtain:

The performance rating X̅lij of the item j, with

respect to the criterion Cli and the benefit Bl, after

the evaluation of all the experts:

�̅�𝑙𝑖𝑗 = Δ (1

𝐾∑ Δ

−1𝐾𝑘=1 (𝑠𝑙𝑖𝑗𝑘 , ∝𝑙𝑖𝑗𝑘))

�̅�𝑙𝑖𝑗 = Δ (1

𝐾∑ β

𝑙𝑖𝑗𝑘𝐾𝑘=1 ) = (𝑠𝑙𝑖𝑗 , ∝𝑙𝑖𝑗) (5)

Where 𝑠𝑙𝑖𝑗𝑘 is the fuzzy rating of item j.

Figure 1 - Evaluation framework of intangible benefits.

Intangible Benefits

B1

C11

C111 C112 ...C11j

j = 1, 2, ..., p

C12 C1n

B2

C21 ... C2n

... Bm


882

The weight �̅�𝑙𝑖𝑗 of the item j, with respect to the

criterion 𝐶𝑙𝑖 and the benefit Bl, after the

evaluation of all the experts:

�̅�𝑙𝑖𝑗 = Δ (1

𝐾∑ Δ

−1𝐾𝑘=1 (𝑠𝑤𝑙𝑖𝑗𝑘 , ∝𝑤𝑙𝑖𝑗𝑘))

�̅�𝑙𝑖𝑗 = Δ (1

𝐾∑ β

𝑤𝑙𝑖𝑗𝑘𝐾𝑘=1 )=(𝑠𝑤𝑙𝑖𝑗 , ∝𝑤𝑙𝑖𝑗) (6)

Where 𝑠𝑤𝑙𝑖𝑗𝑘 is the fuzzy importance of item j.

The weight �̅�𝑙𝑖 of criterion 𝐶𝑙𝑖 with respect to

benefit Bl, after the evaluation of all the experts:

�̅�𝑙𝑖 = Δ (1

𝐾∑ Δ

−1𝐾𝑘=1 (𝑠𝑤𝑙𝑖𝑘 , ∝𝑤𝑙𝑖𝑘))

�̅�𝑙𝑖= Δ (1

𝐾∑ β

𝑤𝑙𝑖𝑘𝐾𝑘=1 ) = (𝑠𝑤𝑙𝑖 , ∝𝑤𝑙𝑖) (7)

Where 𝑠𝑤𝑙𝑖𝑘 is the fuzzy importance of criterion

𝐶𝑙𝑖.

The weight �̅�𝑙 of the benefit Bl, after the

evaluation of all the experts:

�̅�𝑙 = Δ (1

𝐾∑ Δ

−1𝐾𝑘=1 (𝑠𝑤𝑙𝑘 , ∝𝑤𝑙𝑘))

�̅�𝑙 = Δ (1

𝐾∑ β

𝑤𝑙𝑘𝐾𝑘=1 ) = (𝑠𝑤𝑙 , ∝𝑤𝑙) (8)

Where 𝑠𝑤𝑙𝑘 is the fuzzy importance of benefit 𝐵𝑙.

Step 3. Applying equation (3) it is possible to obtain

the fuzzy rating of criterion 𝐶𝑙𝑖(𝑋𝑙𝑖.̅̅ ̅̅ ̅ )

�̅�𝑙𝑖 = Δ(∑ 𝛽𝑙𝑖𝑗

𝑙𝑖𝑗=1

∙𝛽𝑤𝑙𝑖𝑗)

∑ 𝛽𝑤𝑙𝑖𝑗𝑙𝑖𝑗=1

= (𝑠𝑙𝑖𝑤 , 𝛼𝑙𝑖

𝑤) (9)

with 𝛽𝑙𝑖𝑗 = Δ−1(𝑟𝑙𝑖𝑗 , ∝𝑙𝑖𝑗) e 𝛽𝑤𝑙𝑖𝑗 =

Δ−1(𝑤𝑙𝑖𝑗 , ∝𝑤𝑙𝑖𝑗)

Step 4. Applying equation (4) it is possible to obtain

the fuzzy rating of benefit 𝐵𝑙(𝑋𝑖.̅̅ ̅̅ ̅

�̅�𝑙 = Δ (∑ 𝛽𝑙𝑖

𝑙𝑖𝑗=1

∙𝛽𝑤𝑙𝑖)

∑ 𝛽𝑤𝑙𝑖𝑙𝑖𝑗=1

= (𝑠𝑙𝑤 , 𝛼𝑙

𝑤) (10)

with 𝛽𝑙𝑖 = Δ−1(𝑟𝑙𝑖 , ∝𝑙𝑖) e 𝛽𝑤𝑙𝑖 = Δ

−1(𝑤𝑙𝑖 , ∝𝑤𝑙𝑖)

Step 5. Computing the overall performance level, the

linguistic term ST can be applied to represent the

performance level of the new product in terms of value

creation in an innovation.

P = Δ (∑ βl

lj=1 ∙βwl)

∑ βwllj=1

= (sT,αT) (11)

with βl

= Δ−1(rl, ∝l) e β

wl= Δ

−1(wl, ∝wl).

6. Empirical Results and Overall

Evaluation

The proposed methodology was applied to evaluate

the potential of value creation in the innovation of the

EToll - toll payment system, which was developed by the

Portuguese company Brisa Innovation and Technology.

This company belongs to the highway toll Group Brisa

Auto-estradas de Portugal S.A..

6.1 Problem structuring

EToll is a toll machine introduced in 2010 in the

tolling system of Brisa Auto-estradas. The toll operator

was replaced by the equipment EToll, which continues

to provide the same payment means of the traditional

manual lanes. This demonstrates the intangible value of

EToll.

The actors of the problem context are shareholders

and employees of Group Brisa, product users, suppliers,

and partners involved in the product’s implementation

project.

6.2 Model Structuring

Firstly, intangible benefits are based on opinions of

two employees who were involved in the project

implementation. The chosen categories were the market

benefits, the research and development (RD) benefits

and the human capital benefits.

Secondly, from the list of benefits considered

relevant to the problem, we establish the relationships

between the various aspects that constitute the form of a

tree structure, with the objective to identify the criteria

that could contribute to value creation of each class of

benefits. Throughout the design phase, the tree of points

of opinions was improved with the involvement of the

evaluators and the analyst. The final tree of benefits and

criteria was composed by 12 benefits and 17 criteria (Fig.

2, Fig. 3, and Fig. 4).

Thirdly, in order that the resulting assessment

criteria of value creation in innovation are measurable, it

is necessary to have metrics that indicate the product

performance in relation to these criteria. Thus, we need

to design the measuring instrument, and we applied the

following methodology:

It was drawn up a list with indicators and 6 experts

answered objectively whether the indicators of each class

of benefits would be relevant to assessing the potential

for value creation in innovation through one of three

possible answers: “Yes” if the respondent considers the

indicator relevant for the study. “No” if the respondent

considers it not relevant and “Maybe” if the respondent

has doubts about the indicator.

After evaluating the comments of the experts, a new

list of metrics was drawn up. This list was composed

solely by metrics which had not received any rejection.

Finally, the result was sent to the 6 experts requesting the


883

final confirmation/ disconfirmation on the selected

indicators.

So, the final list of metrics that comprise the pre-

survey instrument was sent to internal and external

groups. The first questions are related with the market

benefits; the second with the research and development

(R&D) benefits and the latter with human capital.

Figure 2 - Tree of market benefits and its criteria.

Figure 3 - Tree of R&D benefits and its criteria.

Market benefits

Increased user satisfaction

Quality of product / service

Performance of the payment transaction

Improved business image

Company image

Increase the market potential/strategic

impact

International competitive advantage

Comparative analysis with competing or

substitutes products of other companies

Comparative analysis with competing or

substitutes products of Brisa

Better collaboration with suppliers

Level of partnership

Development of national enterprises

and entrepreneurship

Commitment in national industry

New opportunities for national companies with export capacity

Export of the product

Benefits of R & D

Internal knowledge obtained

Knowledge applied to products under

development

Scientific diffusion

External knowledge obtained

R & D or innovation resulting from

partnerships with suppliers and universities

Getting a technologically

innovative product

Applied knowledge in the product


884

Four experts belonging to Brisa Company validated

the pre-survey. The validation allowed changing 4

questions. Subsequently, we redesigned the pre-survey

that was tested by 10 people randomly chosen in the

internal and external groups that belong to the sample.

The suggestions were considered in the design of the

final survey, which was sent to the sample.

6.3 Evaluation Process

In the final phase of a multiple criteria method, the

evaluation of the items that were defined in the model

structuring is made through the interaction among the

company's stakeholders. Therefore, internal groups

(direction, commercial department, technical

department, research and development department) and

external groups (partners, suppliers and users of the

product) of participants were defined. The application of

the research method was made through the

implementation of an electronic survey, which was sent

to 200 participants. We adapted the algorithm used by

Tai and Chen (2009), applying the dual fuzzy linguistic

approach to measure the value of intangible benefits of

the EToll product, through the respondents’ answers.

According to the methodology suggested in section 4

and the proposal for a new model to measure intangible

assets in section 5, the computing process for the

evaluation of the EToll intangible benefits is presented

in the following steps.

This process can be performed with the responses of

all participants or one group of participants. In the

examples mentioned below data is from all participants.

We received 180 valid responses to the survey out of 188

responses in total.

Step 1. Evaluators use linguistic variables (Tables 1

and 2) to determine, through the survey instrument, the

following items:

The performance rating of Etoll, with respect

to each indicator for each criterion;

The weight of each indicator, with respect to

each criterion for each benefit;

The weight of each criterion, with respect to

each benefit;

The weight of each benefit for value creation

in innovation.

Step 2. The 2-tuple fuzzy linguistic aggregation

method was applied to compute fuzzy evaluation (Eq. 5)

and the weighting value (Eq. 6) of each indicator with

respect to each criterion. For instance, the fuzzy

evaluation and weight of the indicator "Index of user

satisfaction" with respect to the criterion "Quality of the

good/service" is connected to the benefit “Increasing

user satisfaction” are computed as:

W̅111 = Δ(1

180(0.75 + 0.75 + 0.5 + 1 + 1 + 0.5 + 1 +

0.5 + 0.5 + 0.25 + 0.5 + 0.5 + 0.75 + 0.75 + 0.5 +

0.75 + 0.75 + ⋯ + 0.75))

W̅111 = Δ (0.67) = (s3, −0.08)

W̅111 = Δ(1

180(1 + 0.75 + 0.75 + 1 + 1 + 0.75 + 1 +

1 + 1 + 1 + 0.75 + 0.75 + 0.75 + 0.5 + 0.5 + 1 + 1 +

⋯ + 0.5))

W̅111 = Δ(0.82) = (s3, 0.07)

The results for all indicators can be seen in Table

1A, Appendix A

Figure 4 - Tree of human capital benefits and its criteria.

Benefits of human capital

Increased employee satisfaction

Employee satisfaction

Improvements in skills development

Development of specific skills in managing activities

of innovation and R & D

Development of appropriate expertise to perform the activities of

Innovation and R & D

Creation of qualified jobs

Creation of qualified jobs


885

The calculation of the 2-tuple fuzzy linguistic to

obtain the weighting value of each criterion is based on

Eq. 7. For instance, the weighting value of criterion

“Quality of good/service” with respect to the benefit

“Increasing user satisfaction” is computed as follows:

W̅11 =Δ(1

180(1 + 0.75 + 0.75 + 1 + 1 + 0.75 + 1 + 1 +

1 + 1 + 0.75 + 0.75 + 0.75 + 0.5 + 0.5 + 1 + 1 + ⋯ +

0.5))

W̅11 = Δ (0.83) = (s3, 0.08)

The results for all criterions can be seen in Table 2A,

Appendix A

The calculation of the 2-tuple fuzzy linguistic

weighting value of each benefit is given by Eq. 8. For

instance, the weighting value of benefit “Increasing

customer satisfaction” is computed as follows:

W̅l = Δ (1

180(1 + 1 + 0.75 + 0.5 + 0.75 + 0.5 + 0.75 +

1 + 0.75 + 0.75 + 1 + 0.75 + 0.75 + 0.5 + 0.75 +

0.75 + 1 + ⋯ + 0.5))

W̅l = Δ (0,76) = (s3, 0.01)

The results for all benefit can be seen in Table 3A,

Appendix A

Step 3. The 2-tuple fuzzy linguistic weighted average

method was applied to compute fuzzy rating value

(Eq. 9). For instance, the fuzzy rating value of

criterion “Quality of the good/service” is based on

computing results presented in Table 1A, Appendix

A.

The results to the rating for all criteria can be seen in

Table 2A, Appendix A)

Step 4. The same procedure was applied to obtain the

fuzzy rating of performance of each benefit (Eq. 10). For

instance, the fuzzy rating value of benefit “Increasing

user satisfaction” is based on computing results

presented in Table 2A, Appendix A computed as X̅l = Δ

(0.60×0.83+0.64×0.90

0.83+0.90) = ∆(0.62) = (s2, 0.12).

The results to the rating for all benefits can be seen

in Table 3A, Appendix A

Step 5. According to the fuzzy rating and weighting

value of each benefit, the overall performance level

of the value creation in innovation P is given by Eq.

11 and based on Table 3A, Appendix A.

Therefore, the value creation in the innovation of the

EToll corresponds to a rating of "Good", according

to the set of linguistic terms S. However, it is very

close to "Fair" – if the final rating was equal to

∆(0.62) = (s2,0.12).

This research aims at perceiving which are the

intangible benefits, which contributed to the value

creation in innovation. According to the value

judgments of the Brisa stakeholders, ratings of

performance for each intangible benefit were

obtained, as shown in Table 3.

X̅11 = ∆ ( 0.67 × 0.82 + 0.51 × 0.79 + 0.63 × 0.82 + 0.63 × 0.71 + 0.63 × 0.83 + 0.55 × 0.79

0.82 + 0.79 + 0.82 + 0.71 + 0.83 + 0.79)

X̅11 = ∆(0.60) = (s2, 0.10)

P=∆ (0.62×0.76+0.64×0.79+0.57×0.85+0.74×0.61+0.82×0.82+0.54×0.82+0.7×0.88+0.63×0.85+0.62×0.75+0.62×0.82+0.58×0.86+0.57×0.86

0.76+0.79+0.85+0.61+0.82+0.82+0.88+0.85+0.75+0.82+0.86+0.86)

P = ∆(0.63) = (s3, −0.12)


886

6.4 Tangible Assets

To assess the potential for value creation in

innovation of a new product, we must take into

consideration not only the intangible assets but also the

tangible.

The economic evaluation was focused on the impact

and variations of perceived costs in the income statement

of the company Brisa Auto-estradas de Portugal, S.A. in

2010. In this year, 249 ETolls were installed in 84 toll

plazas in Brisa’s network. The time horizon considered

was five years, starting with the implementation of the

equipment in July 2010 (year 0) and finishes in July 2015

(year 5).

According to the Annual Report the investment of the

project implementation and installation of EToll resulted

in 11.9 million euros. RD costs were considered as sunk

costs, for purposes of the cash flows.

The implementation costs were costs of machine

manufacturing, external consultancy, logistics, software

development and implementation team. To estimate the

cost of installing the machines, two scenarios were

considered:

In the optimistic scenario, the EToll machine is

integrated in an existing toll booth;

In the worst scenario it will be constructed a new

line of tolling. It is assumed that in 70% of the cases,

the tollbooths already exist and in 30% of the cases,

new lines will be built.

The road construction and equipment installation

costs totaled about 8.7 million euros. The residual value

in year 5 was considered as 10% of the investment.

Operating costs of the EToll project consist primarily

of maintenance, training, layoff and depreciation costs.

It was considered that 2% of the initial investment was

spent in maintenance per year and in the training costs

during the installation period in year zero. We consider

the equipment depreciation has a rate of 20% per year.

The major cost savings of this project were the toll

employees dismissed in 2010. From 2011 until 2015, the

company made high savings with the revenue. The

annual values range from 6.2 million euros in 2011 to 7.2

million euros estimated in 2015. In 2010, the company

managed to save 1.4 million euros. This reduction in

operating costs allowed the company to be innovative

when it comes to efficiency and value creation for its

shareholders.

In order to obtain the net present value (NPV) of the

EToll implementation project, we consider the weighted

average cost of capital 4.45%. The NPV was €

8.982.362, which is positive, so the project has created

value and is generating more money than the best

alternative application of resources for the same risk.

Table 3. Global rating of performance of Etoll in terms of intangible benefits

Intangible benefits Rating of performance

of EToll Linguistic

term

Development and entrepreneurship of

national companies 0.82 = (s3, 0.07) Good

Better cooperation with suppliers 0.74 = (s3, -0.01) Good

Technologically innovative product 0.70 = (s3, -0.05) Good

Better image of the company 0.64 = (s3, -0.08) Good

Internal knowledge acquired 0.63 = (s3, -0.12) Good

Increasing user satisfaction 0.62 = (s2, 0.12) Fair

Increasing employee satisfaction 0.62 = (s2, 0.12) Fair

External knowledge acquired 0.62 = (s2, 0.12) Fair

Improvements in skills’ development 0.58 = (s2, 0.08) Fair

Increase of the market potential / strategic

impact 0.57 = (s2, 0.07) Fair

Creation of qualified employment 0.57 = (s2, 0.07) Fair

New opportunities for national companies

with exporting capacity 0.54 = (s2, 0.04) Fair


887

The internal rate of return (IRR) is 21.9%. It is higher

than the discount rate used in the calculation of the NPV

(4.45%), which far exceeds the acceptance criteria of a

project.

Regarding the discounted payback of the project, we

obtained a relatively short payback of 3 years and 3

months. This criterion becomes important due to the

economic instability that Portugal has been going

through since 2010.

7. Conclusions

In this research, the methodology combined a

method of multiple criteria decision support for

defining the intangible benefits (respective criteria and

indicators) and from the adaptation of the model for

evaluating intellectual capital from Tai and Chen

(2009).

Linguistic variables were applied to express the

level of qualitative evaluation items, criteria and

benefits of experts’ subjective judgment. It was

concluded that the benefits which most contributed to

value creation in innovation of the EToll were

“Development and entrepreneurship of national

companies”, “better cooperation with suppliers” and

“technologically innovative product”. However the

evaluating weights of innovation process is different

considering the distinctive stages of the process, even

within the same company Wang et. al (2014).

The EToll project is an example to other national

companies with technological scope. The production

and implementation of the new product EToll will be

done by Portuguese companies what will improve

national economy, with a high multiplicative factor,

since many companies are involved in this project,

such as manufacturing, software, equipment

installation and also consulting companies.

Considering the scale of operations, there is also a

potential for new external partnerships and technical

services. Furthermore, Brisa has to seize the strategic

advantage of being the only company in Portugal that

has a machine that allows the integration of several

payments forms. There were also created new control

of route processes, such as remote assistance, charging

and collection of cash.

The reduction in operating costs allowed the

company to be innovative when it comes to efficiency

and create value for its shareholders. The NPV of the

project was approximately € 9.0 million and the

payback period of 3 years and 3 months.

In synthesis, the EToll generates high positive cash

flows, according to the prevision calculations of the

project, what allows the Brisa Auto-estradas de

Portugal S.A. sparing annually an average of 6.9

million euros, since 2011.

We conclude that the methodology used to evaluate

the potential of value creation in the innovation of a

new product is a good contribution to management

science, since the evaluation model of the intangibles

assets used in this research, allowed the company

understand which intangibles assets more contributed

to the value creation in the innovation of EToll.

Additionally, this paper aid to lead for further

studies such as the subjective evaluation of technology

transfer and optimal solution patents. It can also be

applied in the evaluation and selection of other

innovation processes.

Limitations of the study

One of the major problems was the lack of

adherence to participation in the research instrument of

the employees and the difficulty in obtaining financial

data of the company with respect to EToll

implementation and installation costs as well as

information relating to operating expenses or savings.

For the analysis of NPV some data had to be estimated

from the available data.

References

[1] Allee, V. (2008) Value Network analysis and value

conversion of tangible and intangible assets.

Journal of Intellectual Capital 9 (1), 5-24.

[2] Brooking, A. (1996) Intellectual Capital: Core

Asset for the Third Milleninum Enterprise.

Thomson Publishing Inc., Boston.

[3] Chesbrough, H., Vanhaverbecke, W., West, J.

(2006) Open Innovation: Researching a new

paradigm. University Press, Oxford.

[4] Choi, B., Poon, S.K., Davis, J.G. (2008) Effects of

knowledge management strategy on organizational

performance: a complementarity theory-based

approach. Omega 36(2),235–251.

[5] Damanpour, F., Wischnevsky,J.D. (2006) Research

on innovation in organizations: distinguishing

innovation -generating from innovation-adopting

organizations. Journal of Engineering and

Technology Management 23, 269–291.


888

[6] Dobni, C. (2008) Measuring innovation culture in

organization. European Journal of Innovation

Management 11, 539–559.

[7] Dornberger, U., Suvelza, A. (2012) Managing the

fuzzy front-end of innovation. Intelligence 4

innovation, Leipzig

[8] Edvinsson, L. (1997) Developing intellectual

capital at Skandia. Long Range Planning 30 (3),

366-373.

[9] Ensslin, L., Montibeller, G.N., Noronha, S.M.

(2001) Decision support: methodology for problem

structuring and multi-criteria evaluation of

alternative [Apoio à decisão: metodologias para

estruturação de problemas e avaliação multicritério

de alternativas]. Insular, Florianópolis.

[10] Herrera-Viedma, E., Herrera, F., Martinez, L.,

Herrera, J., & Lopez, A. (2004). Incorporating

filtering techniques in a fuzzy linguistic multi-agent

model for information gathering on the web. Fuzzy

Sets and Systems , 148, 61-83.

[11] Herrera, F., Martinez, L. (2000) A 2-tupple fuzzy

linguistic representation model for computing with

words. IEEE Transactions on Fuzzy Systems 8 (6),

746-752.

[12] Kaplan, R.S., Norton, D. P. (2001) Transforming

the Balanced Scorecard from performance

measurement to strategic management: Part I.

Accounting Horizons 15 (1), 87-104.

[13] Lev, B. (2001) Intangibles: management,

measurement, and reporting. Brookings Institution

Press, Washington DC.

[14] Maffin, D., Braiden, P. (2001) Manufacturing and

supplier roles in product development.

International Journal of Production Economics 69,

205-213.

[15] Mahroum. S., Al-Saleh, Y. (2013) Towards a

functional framework for measuring national

innovation efficacy. Technovation, 33, 320–332.

[16] Martín de Castro, G., López Sáez, P. (2008)

Intellectual capital in high-tech firms: the case of

Spain. Journal of Intellectual Capital 9(1), 25–36.

[17] Montibeller, G.N., Belton, V. (2009) Qualitative

operators for reasoning maps: Evaluating multi-

criteria options with networks of reasons. European

Journal of Operational Research 195 (3), 829-840.

[18] Montibeller, G.N., Shaw, D., Westcombe, M.

(2006) Using decision support systems to facilitate

the social process of knowledge management.

Knowledge Management Research and Practice

(4)2, 125-137.

[19] Pérez-Luño, A., Cambra, J. (2013) Listen to the

market: Do its complexity and signals make

companies more innovative? Technovation 33,

180–192.

[20] Quintana-Garcia, C., Benevides-Velasco, C. (2004)

Cooperation, competition, and innovative

capability: a panel data of European dedicated

biotechnology firms. Technovation 24 (2), 927-938

[21] Smith M. E. (2003) Another Road to Evaluating

Knowledge Assets. Human Resource Development

Review, March 2, 6-25.

[22] Sohn, Y.S., Lee, W.S., Ju, Y.H. (2013) Valuing

academic patents and intellectual properties:

Different perspectives of willingness to pay and

sell. Technovation 33, 13–24.

[23] Stewart, T.A. (2002) The wealth of knowledge.

Intellectual capital and the 21st century

organizations. Nicholas Breadley Publishing,

London.

[24] Sveiby, K.E. (1997) The intangible assets monitor.

Journal of Human Resource Costing & Accounting

2 (1), 73-97.

[25] Sveiby, K.E. (1998) The new organizational

wealth: managing and measuring knowledge-based

assets. Barrett-Koehler publishers, San Francisco.

[26] Tai, W., Chen, C. (2009) A new evaluation model

for intellectual capital based on computing with

linguistic variable. Expert Systems with

Applications 36(2), 3483-3488.

[27] Vidrascu, P. (2013) The complexity classification

of intangible assets. Hyperion Economic Journal

1(1), 42-50.

[28] VorbecK, J., Heisig, P., Mertins, K. (2003)

Knowledge Management: concepts and best

practices, 2.nd edition. Sringer-Verlag, Heidelberg.

[29] Wang, G., Tian, X., Geng, J (2014) Optimal

Selection Method of Process Patents for

Technology Transfer Using Fuzzy Linguistic

Computing, Mathematical Problems in

Engineering, 2014: 10.


889

Appendix A. List of the computing results

Table 1A. Rating of the EToll performance per indicator and the respective indicator weight

# Indicator Indicator Name Rating Importance

111 Index of user satisfaction about the product 0.67 0.82

112 Customer retention rate 0.51 0.79

113 Good performance compared to the quality goal 0.63 0.82

114 Number of uses of remote assistance per year 0.63 0.71

115 Number of errors or equipment failures per month 0.63 0.83

116 Investment in user support 0.55 0.79

121 Percentage of transactions per year 0.62 0.71

122 Service performance compared to the quality goal 0.69 0.83

123 Average response time of transaction payment 0.65 0.88

124 Average response time of remote assistance 0.62 0.89

211 Rate associations of the product name to the company 0.61 0.76

212 Number of citations in the media that relate the product to the brand 0.54 0.74

213 Index of company's innovation 0.76 0.76

311 Number of international competitors 0.59 0.62

312 Number of competing products or substitutes of international

companies 0.58 0.68

313 Characteristics of competing products or substitutes for international

companies 0.56 0.74

321 Characteristics of competing products or substitutes 0.59 0.68

322 Duration of competitive differential 0.69 0.66

331 Utilization rate of the new equipment in relation to other payment

methods 0.48 0.74

411 Relationship with partners 0.73 0.75

412 Number of years with major partners 0.75 0.72

511 Percentage of national companies involved in the project 0.82 0.87

611 Number of identified business opportunities for national companies

with export capacity 0.55 0.81

612 Number of national companies with export capacity potentially

interested in the product 0.52 0.76

711 Percentage of R&D applied 0.70 0.77

811 Percentage of R&D applied to products under development 0.73 0.76

821 Number of presentations at scientific conferences per year 0.57 0.65

822 Number of scientific publications per year 0.45 0.61

911 Number of established technology partnerships with suppliers 0.66 0.75

912 Number of implemented ideas resulting from partnerships with

universities 0.58 0.71

1011 Motivation Index 0.63 0.75

1012 Index of empowerment 0.63 0.74

1013 Satisfaction index 0.62 0.74

1111 Investment in management training on Innovation and R&D 0.58 0.78

1121 Investment in technical training on Innovation and R&D. 0.58 0.78

1211 Number of jobs created 0.57 0.75


890

Table 2A. Rating of the EToll performance per criterion and the respective criterion weight

# Criterion Criterion Name Rating Importance

11 Quality of product / service 0.60 0.83

12 Performance of the payment transaction 0.64 0.90

21 Company Image 0.64 0.76

31 International competitive advantage 0.58 0.81

32 Comparison with competing products or substitutes of national

companies 0.64 0.79

33 Comparison with competing products or substitutes of Brisa company 0.48 0.79

41 Partnership level 0.74 0.75

51 Commitment to national industry 0.82 0.87

61 Opportunity to export the product to national companies 0.54 0.81

71 Knowledge applied to the product 0.7 0.77

81 Knowledge applied to products under development 0.73 0.81

82 Science communication 0.51 0.68

91 R&D or innovation resulting from partnerships with suppliers and

universities 0.62 0.75

101 Employee satisfaction 0.62 0.74

111 Development of specific skills in managing innovation activities and

R & D 0.58 0.74

112 Development of technical expertise adequate to the activities of

Innovation and R&D 0.58 0.76

121 Creation of qualified jobs 0.57 0.86

Table 3A. Rating of the EToll performance per benefit and the respective benefit weight

# Benefit Benefit Name Rating Importance

1 Increased user satisfaction 0.62 0.76

2 Improved company image 0.64 0.79

3 Increase the potential market / strategic impact 0.57 0.85

4 Improved collaboration with suppliers 0.74 0.61

5 Development of national enterprises and entrepreneurship 0.82 0.82

6 New opportunities for national companies with export capacity 0.54 0.82

7 Getting a technologically innovative product 0.7 0.88

8 Gain insider knowledge 0.63 0.85

9 Gain external knowledge 0.62 0.75

10 Increased employee satisfaction 0.62 0.82

11 Improvements in skills development 0.58 0.86

12 Creation of qualified jobs 0.57 0.86


891

Business Partnership at the Information

Technology Sector in Brazil Daniel Correia de Albuquerque#1

José António Filipe*2

Manuel Alberto M. Ferreira*3

#Instituto Universitário de Lisboa (ISCTE – IUL), Lisboa – Portugal [email protected]

*Departamento de Matemática (ISCTE – IUL)

Instituto Universitário de Lisboa – BRU-IUL, ISTAR-IUL, Lisboa - Portugal [email protected]

[email protected]

Abstract – This article is made up of a case of

application of Game Theory to business partners. It

analyzes the partnership as an element that has

consequences on the sustainable growth process of

companies in the Information Technology (IT) industry

in Brazil and presents the application of a model

adopted by business partners on this sector. Research

shows that partnership between IT companies with

complementary profiles has beneficial effects and

contributes to the sustainable growth of the companies

in the IT sector, and consequently to this technology

sector in Brazil.

Keywords – Game Theory, Business Partnership,

Information Technology Sector.

1. Introduction

Nowadays societies face many challenges and

obstacles resulting from economic, social and

environmental imbalances, which are compounded by

globalization phenomenon, imposed on all countries.

Consequences of this globalization interfere in the

way of thinking and acting of individuals and on the

movements institutions make in the markets in which

they compete. Faced with such a scenario, it is

important to adopt certain principles and standards to

guide human behavior in the individual and collective

spheres.

This article develops an approach to model

business partnership in the technology sector in

Brazil. This reality is experienced by most business

organizations in general, and in particular for

companies located on Brazil (the country which is

studied on this research), with a special emphasis on

companies in the Information Technology (IT) sector.

In order to understand situations of conflict in

the process of partnership, Game Theory framework

was adopted, based on the mathematical logic and on

the facilitates of the process of decision making. A

game is characterized by conflicts of interest and

considering the need to choose the best strategy for

each player, it is therefore appropriate to use this

theory which aims to forecast movements of other

players, either competitors or allies, whoever they are

standing the best way to achieve their desired results.

In a conflict situation at the time of decision,

Game Theory allows each player to understand the

logic of the problem/dispute, by seeing if there is a

possibility for cooperation; by identifying the

circumstances under which it is appropriate to

cooperate or not; and/or by adopting strategies that

may favor cooperation between players.

Considering also the Mechanism Design Theory,

working as a catalyst for the analysis and serving to

boost the study and allowing new emphases to the

analysis of the context of business partnership in the

Information Technology sector in Brazil.

Thus, there is a novelty in relation to what is

usually studied in the context of theories involved in

this article, which corresponds to the application of

the Mechanism Design Theory to a practical situation

involving the Information Technology sector and

allowing a creative interconnection with the parts of

methodological analysis and yet with the results and

conclusions of the study.

This application is specific and is targeted to a

specific situation, allowing to get innovative findings,

which are settled considering many years of




892

experience and practice in a reference company in the

Information Technology sector in Brazil by one of

the researchers.

2. Research Objectives

The objective of this study is to analyze the

concept of business partnership in the perspective of

Game Theory as a way to contribute to the

sustainable growth of Information Technology

companies in Brazil. The basic working hypothesis is

that, in Brazil, the strategies used in business

partnership interfere in the sustainable growth of

these companies, which were used in the present

study as the analysis field.

The first motivation for this research was born

during the development of the research master's

thesis (see Albuquerque, 2010). According to

Albuquerque (2010), there are several factors that

interfere in the process of sustainable growth of

companies in the information technology sector in

Brazil, among which stands out partnership.

Considering that one of the researchers was an

employee of a technology company for 25 years,

having worked much of this period with business

partnership and their mutual relations, the existence

of a situation of conflict and competition is verified,

what can be illustrated in the following figure.

Figure 1. Scenario involving suppliers (business

partners) and clients in the Information Technology

Sector.

Source: Authors’ figure

Figure 01 shows the sector of Information

Technology, represented by its suppliers and

customers, highlighting a particular customer.

At the bottom, it is the ecosystem of the

Information and Communication Technology

industry suppliers who are represented by

manufacturers and their business partners. Those

companies make up the supply chain and distribution

of the Information Technology sector.

The central part of the figure represents the most

attractive market. This market can be characterized

by a particular industry or a particular customer,

which has the characteristic of being a major

consumer of technology and therefore arouses the

interest of all industry vendors.

In this scenario, if all suppliers pursue the same

market at the same time, the following facts may be

experienced:

Initially, companies will supply the market

at the same time, so they come on a collision

course with each other;

In a second phase, when addressing the

secondary market, they will not be well

accepted because nobody wants to be the

second. This reaction is typical of a market

when it feels discredited.

Then it may be observed that:

As there is a greater effort by the most

attractive market, there will be an expense of

additional resources among business

partners disputing the market, which will

decrease the profitability of companies;

If the business partners losses come, a loss

trend also for manufacturers happen, as they

come pressured to reduce their profit

margins.

If the manufacturer and business partners lose in

an initial situation, it is possible to conclude that the

market gains; however, this is a market short-term

gain in the perspective of the researchers insight.

Thus, the following question arises: In the long run,

there will be specialized companies to meet

customers?

It is important to say that the market (customer)

needs companies experts in technology to serve them

through IT solutions, and thus these companies may

become more competitive in their respective business

segment.

3. Literature Review

3.1 Game Theory

Fiani (2006, p.9) states that: “In an overview,

Game Theory is the mathematical analysis of a

situation involving a conflict of interest, to find out


893

the best options that, given certain conditions, should

lead to the goal desired by a rational player.”

It is a mathematical theory created to model

phenomena that can be observed when two or more

decision makers interact with each other. It provides

a way to describe conscious decision processes

having goals that involve all players.

In this article, the theoretical framework will be

seen in the perspective of Economic Theory of

Games, which should not be confused with the

Combinatorial Game Theory, initiated by Sprague

(1935) in the 1930s. The first has predominantly

economic motivations and seeks to establish methods

to maximize the gain (payoff), while the second

theory focuses on aspects of table games (e.g., card

game).

According to Osborne & Rubinstein (1994),

Game Theory is a set of analytical techniques

designed to aid the understanding of observed

phenomena when decision makers or players interact

with each other.

Thus, game theory is the study of the means in

which strategic interactions between rational players

produce payoffs related to the preferences of each

player. Such preferences are utility calls.

This theory is based on the principle of

instrumental rationality with which players seek the

best results for themselves or for their group. This

works on the assumption that players are endowed

with a perfect rationality (strong rationality).

Thus, it is intended to seek forms to examine

ways to achieve the desired ends. The application of

Game Theory can be of great relevance to fields of

study in which the social element exerts influence.

Morgenstern (1944), one of the precursors of

game theory, states that this theory is a new matter,

which aroused great interest because of its novel

mathematical properties and its multiple applications

to social, economic and political areas. Its effects on

social sciences have also been expressed over a broad

spectrum. Its applications are numerous and refer to

significant issues for social scientists because the

mathematical structure of the theory profoundly

differs from previous attempts to provide

mathematical foundation to social phenomena.

Since its inception, it has a wide application

because focuses on decision problems of the

participants, it allows to make predictions on the

behavior of the players and also features likely

outcomes. Thus, the insights provided by this theory

contribute significantly to the understanding and

comprehension of the strategic cooperation and the

formation of strategic alliances.

3.2 Partnership

The global scenario has undergone changes in

economic and social order that affect the market and,

also and significantly, industries. At the current

juncture, it is observed the advance of globalization,

the high interdependence in the economic sector and

the dynamism of markets.

However, this highly competitive posture does

not provide the same kind of results as it happened

few years ago. Organizations have no longer any

direct resources being enough to the success of their

business; and thus the formation of strategic alliances

is gaining strength as a strategic posture in the

economic scenario.

The concept of strategic alliances is difficult to

elaborate, because there is a wide range of possible

relationships between organizations. According to

Yoshino and Rangan (1996, p.5), a strategic alliance

is some kind of a business partnership that increases

the effectiveness of the competitive strategies of the

participating organizations, providing mutual and

beneficial exchange of technologies, skills and

products based on that.

This concept has the idea of mutual benefit. As

participants increase their skills work cooperatively.

However, this concept is still limited by stating that a

strategic partnership is a business partnership.

Reasons for the formation of an alliance and the

interests of partners involve, in most cases,

commercial interests, even if the various interests are

not shown explicitly.

According to Abbade (2010), there are three

characteristics which must be met:

- Two or more companies that come together to meet

a number of combined goals remain independent

after the formation of the alliance;

- Partner companies share the benefits of the alliance

and control the performance of specified tasks,

perhaps the most distinctive feature of alliances and

makes it very difficult to manage;

- Business partner continually contribute with one or

more key strategic areas.

As Parkhe (1993) states, strategic alliances are

voluntary agreements of interorganizational


894

cooperation often characterized by inherent instability

caused by the uncertainty related to the partner's

future behavior and by applying a high level of

authority to ensure the commitment. This high level

of authority is related to the governance structure.

Contractor and Lorange (1988) define strategic

alliances from the degree of interdependence between

the organizations involved. The degree of

interdependence can vary between high and low. In a

high degree of interdependence, the reversal of

partnership would be more difficult due to the high

existing degree of dependence among parties. In a

low degree of interdependence, the reversal of

alliance could occur more easily. The degree of

interdependence is an important parameter that

should be considered during the partner selection

process.

According to Lewis (1992), alliances provide

unique opportunities for the development of force

with an exceptionally wide range of partners, such as

manufacturers, retailers, competitors, academic

centres and other companies of any nature.

Faulkner and Rond (2000) consider that the term

“alliance” that at some time in the past meant a

clearly defined relationship between particular

companies, today it is used as a “umbrella” term to

give a feature of a wide range of relationships among

companies.

According Noleto (2000), when companies

realize that their competitors have competitive

advantages, they are motivated to partnership

establishments since they find that it is advantageous

for them by joining efforts in order to optimize

mutual resources and expertising.

4. Business Partnership – The Model

The supra mentioned researcher’s experience

that was gained through many years of working with

business partners enabled the development of a

model that reflects the real business situations on

partnership in the Information Technology sector.

Throughout this article a set of considerations

were developed and some applied cases were

presented to the concrete study of companies in the

IT sector. Successively the market was observed and

a companies’ positioning analysis was made, working

theoretical foundations in the context that was

surveyed.

The model definition will be presented, defining

some variables that will make up the model. The

object of research was also presented as its

suitability. Some analogies and studies related to this

model and under this model are also presented.

This model aims to answer the following

questions:

- Partnership is recommended to companies under

investigation?

- If partnership is made, how would be the

participation (in percentage terms) of each business

partner in the project?

In the construction of the model, the work

developed in Albuquerque (2010) was used as the

research base. There factors that contribute to the

sustainable growth of information technology

companies were studied, i.e. skill, local presence and

relationship. These factors are the variables of this

model.

From the survey results applied to customers in

Albuquerque (2010), a normalization to 100% (one

hundred percent) for factors is made (for skill, local

presence and relationship).

Models Variables

The model consists of questions to each one of

the supra mentioned factors: skill, local presence and

partnership (see below the definition of variables).

These factors will be the variables of the model.

Skill

Question 01: The business partner has the

technical capacity to deliver 100% of the information

technology project? If not, what is the percentage of

the estimated delivery capacity for the solution?

Possible answers in percentages: 0%, 25%, 50%,

75%, and 100%

Local Presence

Question 01: The business partner has a

commercial office in the country place of the

contracting company?

Answer: Yes = 100% and No = 0%

Relationship

Question 01: The business partner personally

knows the person who makes the decision in relation

to the information technology project contractor?

Answer (*): Yes = 50% and No = 0%

Question 02: The business partner has a good

business relationship with the person who makes the


895

decision in relation to information technology project

contractor?

Answer (*): Yes = 50% and No = 0%

(*) The weight is considered in this way to

model methodological issues, by considering two

questions for the same item.

For purposes of this study, based on responses to

each question, it was drawn up the following table

comparing the skill factors, local presence and

relationship, which allowed to calculate the

relationship among the factors that influence the

partnership.

Table 01: Comparative model among the factors that

influence the partnership

Source: Authors’ calculations.

In this model, the results are as follow:

- Skill factor - the business partner 01 has the

capacity to deliver 100% of the required solution,

while the business partner 02 has limited capacity to

deliver only 50% of the required solution.

About the factors local presence and

relationship, it is observed that:

- Local presence - the business partner has 01

commercial office in the country of the contracting

company. This position is the same at the business

partner 02 who also has a commercial office in the

country of the contracting company.

- Relationship Factor - the business partner 01 despite

having offices in the headquarters of the contracting

company, does not know personally the person who

makes the decision regarding the IT project therefore

does not establish any business relationship. But the

business partner 02 personally knows and has a

business relationship with the person who makes the

decision in relation to the contracting company's IT

project.

Since the master's thesis in Albuquerque (2010),

the authors have been developing this model in the

market, being applied strategically in the

management of partnerships in the IT company

where one of the researchers works already for many

years. This model has already had much recognition

and merit assigned considering the results it has

achieved with its use.

5. Game of Partnership – Dilemma of

Business Partner

In situations of conflict, involving two or more

business partners, it is common to consider a question

about the best strategy to be followed by each

company once there is a dilemma always present in

organizations: competing or cooperating?

The Game of Partnership - Dilemma of the

Business Partners will be presented. It analyses the

applicability of the two ways: is it more advantageous

to compete at the risk of losing or winning, or even,

the best alternative is the adoption of a policy of

cooperation between the business partners?

It should be clarified that table for the game of

Partnership (which will be presented below), was

prepared from the above table data. In this analysis,

some factors considered as variables of the model

will be used.

- Skill;

- Local presence + Relationship.

Table 02: Game of Partnership - Dilemma of the

Business Partners

Source: Authors’ calculations

Business partners have the same set of actions to

play (factor “skill” and “local presence +

relationship”), but their payoffs are different for each

move as shown in the table above, which expresses

the game question. The business partner 01 is


896

represented on the line and the business partner 02 is

represented in the column.

Few are the games that have a balance of

dominant strategies, such as the classic case in the

literature of the Prisoner's Dilemma.

Now presented in this game, the business partner

01 has a dominant strategy as it is its skill. This

strategy is strongly dominant compared to the skill

factor of the Business Partner 02 and weakly

dominant factor as the local presence + relationship.

The business partner 02 has a strongly dominant

strategy as the local presence factor + relationship in

relation to the business partner 01 and its strategy is

strongly dominant compared to the skill factor and

also to factor local presence + relationship.

The combination of strategies (skill, local

presence + relationship) is a balancing dominant

strategies that seems to have grip with reality and

involves business partners.

6. Results

In this study, it was intended to move towards

and propose solutions for the management of

situations involving conflicts in the information

technology sector. This results knowledge from the

experience gained by one of the researchers, who has

developed a model within the company where he

works.

In addition, this paper’s development resulted as

a unique opportunity to bring to the Academy the

experience obtained in the business reality. Managing

conflict situations which exist in the day to day life

results a very interesting way proposed by this model

for the management area of companies in the market

and on competition in front of business in this very

competitive industry.

Such a situation of conflict, very interesting

from the academic point of view and scientific

research, is a source of relevant modelling being

possible to bring it to analysis and theoretical

foundation.

The possibility of creating a situation arising

from the use of Game Theory and Quantitative

Methods proved to be rewarding with the results

obtained from the study, which are very clear and

defined. Thus, not only the cooperation gains

function as a logical consequence of the results for

games in such situations, as it can be extended to

other types of modelling.

It must be emphasized that the existence of clear

rules makes possible the emergence of a climate of

trust among the participants of the game, who are

willing to comply with them (the rules).

In the analysed situation (the Information

Technology sector in Brazil), it is necessary to define

the conditions of the process of partnership in order

to find alliance strategies between potential business

partners; to enable cooperation gains resulting from

such partnerships; and also to generate efficiency

gains and productivity.

7. Conclusions

At the present juncture, the advance of

globalization, interdependence in the economic sector

and the dynamism of markets contribute to the

emergence of a competitive scenario which results

are different from those obtained 20 years ago.

Companies have not enough resources to the success

of their businesses, so they need to establish strategic

alliances in order to remain in these competitively

markets.

Several factors lead the business partners

working together, considering that some relationships

are better suited to the objectives previously

determined than others. Even in the partnership

process, there is the possibility of conflict, which

justifies the application of game theory, and the

analysis of formation of strategic alliances.

This theory, based on mathematical analysis,

enables the analysis and interpretation of real

situations of conflicts in the negotiation process.

Such conflicts are similar to a game in which the

following elements are present: availability of

information, decision-making, positioning and

actions of the players, the adoption of strategies,

results and equilibrium.

The use of this theory enabled the researcher to

perceive and to analyse the strategies of each player

and the key motivational forces for the formation of

this type of cooperative relationship in the case

studied.

In situations of conflict, involving two or more

business partners, a common question may be posed:

which is the best strategy to be followed by each

company, as there is a dilemma always present in

organizations, competing or cooperating. In this

paper, the applicability of the two ways was

analysed: when it is most advantageous to compete at

the risk of losing or winning; or when a better


897

alternative is to adopt a policy of cooperation

between business partners.

The Mechanism design theory also was used.

According to the literature, a game may be based on a

mechanism on which a player can set his own

strategies. A mechanism consists on rules for the

game and shall be developed in order to achieve this

purpose, so decisions must be taken in accordance

with the interests of each player. The player who

draws the mechanism should consider his exercising

influence over other players, therefore his

expectations need to be reasonable, and otherwise

other players will not accept the game.

In this situation, the establishment of rules

dictated by the manufacturer / business regulator for

distribution of hardware (equipment) and software

(programs), the provision of services and the

existence of cooperation determines the benefits to

participants throughout the process. For this, it is

essential that there is a climate of trust, to ensure

every player that the rules are complied with.

In constructing the model, which occurred from

the factors skill, local presence and relationships was

elaborated a comparative table, which was assigned a

weight to each factor in relation to the business

partner's positioning and its client, the game (project)

in progress.

In the model, the factors skill, local presence and

relationship entered as variables. It was possible to

estimate the payoffs of each player. Such factors are

quantifiable variables and somehow are identified

without great difficulty. Such features make this

model a simple and objective alternative to the

analysis and decision making regarding the

partnership in situations of conflict involving

business partners in the IT industry.

The experience gained through years of working

with business partners made one of the researchers

able to model real situations of experienced business

in the information technology sector.

The work carried out, which consisted in the

application of game theory to business partners, has

enabled the understanding of partnership as a factor

that contributes to the sustainable growth of

information technology companies in Brazil as a

benchmark for other organizations or future research.

References

[1] Abbade, E. (2010), Aplicação da teoria dos

jogos na análise de alianças estratégicas.

Revista Gepros – Gestão da Produção,

Operações e Sistemas, ano 5, nº 3, p. 131-147.

[2] Albuquerque, D. (2010), O Crescimento

Sustentável da IBM Brasil na Região Norte-

Nordeste do País. Tese de Mestrado em Gestão

de Empresas, ISCTE. Lisboa.

[3] Contractor, F. J.; Lorange, P. (1988), Why

should firms cooperate? The strategy and

economics basis for cooperative ventures. In:

Contractor, F. J.; Lorange, P.. Cooperative

Strategies in International Business, D.C.

Heath, Lexington, MA.

[4] Faulkner, D. O. and Rond, M. (2000),

Cooperative strategy: economic, business and

organizational studies. Cornwall: Oxford.

[5] Fiani, R. (2006), Teoria dos Jogos: com

Alicação em Economia, Administração e

Ciências Sociais. 2.e. Rio de Janeiro:

Campus/Elsevier.

[6] Lewis, Jordan D. (1992), Alianças estratégicas:

estruturando e administrando parcerias para o

aumento da lucratividade. São Paulo: Pioneira.

[7] Morgenstern, O. (1944), Theory of Games and

Economic Behavior. Princeton University Press.

[8] Noleto, Marlova Jovchelovitch. (2000),

Parcerias e alianças estratégicas: uma

abordagem prática. São Paulo: Global.

[9] Osborne, M. J.; Rubinstein, A. (1994), A Course

in Game Theory. Boston: The MIT Press.

[10] Parkhe, A. (1993), Strategic alliance

structuring: a game theoretic and transaction

cost examination. Academy of Management

Journal. v. 36, p. 794-829.

[11] Sprague, R. (1935), Uber Mathematische

Kampfspiele. Tohoku Mathematical Journal, p.

438-441.

[12] Yoshino, M. Y.; Rangan, U. S. (1996), Alianças

estratégicas: Uma abordagem empresarial à

globalização. São Paulo: Makron Books.


898

The Managerial and Economic Effects of

Celebrity Endorsement on Consumer

Purchasing Intentions

Hélia Gonçalves Pereira*, António Carvalho+, Sofia Lopes Portela#

*Department of Marketing, Operations, and Management

Instituto Universitário de Lisboa (ISCTE-IUL), BRU-IUL, Lisboa, Portugal [email protected]

+Instituto Universitário de Lisboa (ISCTE-IUL), Lisboa, Portugal

[email protected]

#Department of Quantitative Methods for Management and Economics

Instituto Universitário de Lisboa (ISCTE-IUL), BRU-IUL, Lisboa, Portugal [email protected]

Abstract - Despite the fact that celebrity endorsement

brings up some risks, it has been used quite extensively

in the present era and it is a method to reach

competitive advantage by companies. The economic

effects for companies are obvious. This study focuses on

examining the relationship between a set of variables

(gender, credibility, attractiveness, type, multiple

endorsements and multiple product endorsement) that

were identified during the literature review as

characteristics of the TV advertisings and consumers

purchasing intentions.

A questionnaire survey was applied. This study is based

on a sample of 285 young respondents. Respondents

answered two sets of questions after viewing an

advertisement of a specific product featuring one or

more endorsers. A quantitative approach has been

adopted to investigate the relationship between the

purchase intentions and the perceptions of the six

characteristics of celebrity endorsement mentioned

above.

Results revealed that all the characteristics of celebrity

endorsement analyzed had a positive impact in

consumers purchasing intentions, however some of

them were quite low. This study has an approach with

relevant consequences for companies, either economic

or managerial, bringing room to analyze and to discuss

the related coming up managerial implications.

Keywords: celebrity endorsement, purchase intentions.

1. Introduction

Due to the competitive environment in which

companies are working on, with many economies

living a serious social downturn and others, doing an

effective communication definitely is one of the key

issues to catch the attention of the consumers and

there are a variety of communication strategies,

which allow the advertisers to reach their target. The

use of celebrities as spokespersons is becoming an

increasingly common strategy in the advertising

industry.

There is a daily access to hundreds of television

stars, movies, sport athletes and other well known

celebrities through the five major mass advertising

media: television, radio, magazines, newspapers and

internet. This, made celebrity advertising an

appealing choice by advertising makers, who invest

huge amounts of money in contracts with celebrity

endorsers each year, since it was found that

celebrities are able to increase: brand visibility (Muda

et al., 2011; Constanzo and Goodnight, 2007), levels

of attention (Friedman and Friedman, 1979; Newman

et al., 2011), positive attitudes towards the product

(Friedman and Friedman, 1979; White et al., 2009)

and greater purchase intentions (Friedman and

Friedman, 1979; Khatri, 2006).

Understanding the effectiveness of endorsers is a

key issue for both academics and practitioners and

clearly justifies the relevance of this study.

2. Literature Review

Friedman and Friedman (1979) consistently

found that the type of endorser used in an advertising

campaign, might interact with the type of product

being endorsed. They also found out that the use of

celebrity endorsers is appropriate when product

purchasing involves high social and psychological

risk.







899

Some previous studies that have explored the

relationship between endorser’s gender and

consumer’s gender resulted in two opposite ideas:

endorser’s gender does not significantly influence

consumer attitudes toward products (Freiden, 1984;

Boyd and Shank, 2004) and endorser’s gender

significantly influences consumer attitudes toward

products (Debevec and Kernan, 1984; James, 2010).

Freiden (1984) studied if there was any

influence of endorser’s gender on consumers’ attitude

to television advertisements, using a durable and a

neutral product. The result was that the gender of the

endorser did not significantly influence consumer

(226 adults and students) attitudes. On the other hand,

Debevec and Kernan (1984) found that there was a

relationship between the endorser gender and the

consumer. Attractive female models generated

superior attitudes than attractive male models across

both genders but particularity among males. Mishra

et al. (2001) also pointed out that consumers respond

differently to female celebrity endorsers than to male

celebrity endorsers and ads featuring female

celebrities were evaluated more favorably than an ad

featuring male celebrities. Female endorsers have

also been shown to be more credible than male

endorsers (James, 2010).

Thus, it is proposed the following research

Hypothesis:

H1: Endorser’s gender has a relation with consumers

purchase intentions

Selecting the perfect celebrity to endorse a

product or brand is not an easy task. Many researches

have been done in order to help on the construction of

a guideline model to select the endorser. Carl

Hovland and his associates presented one of the

earliest models in 1953, called the Source Credibility

Model. Following this, three additional models were

improved: the Source Attractiveness Model

(McGuire 1985), the Product Match-Up Hypothesis

(Kamins, 1990) and the Meaning Transfer Model

(McCracken, 1989). To date, the models cited above,

have been the basis and the backbone for explaining

the effectiveness of celebrity endorsement, playing a

pivotal role in developing our understanding about

the topic.

One of the most important reasons for using

a celebrity as a spokesperson is to make the message

more credible, an important benefit due to the fact

that some advertising research suggests that about 70

percent of consumers think that advertising is often

untruthful (Eisend, 2006). Source credibility is

defined as a “communicator's positive characteristics

that subsequently influence the receiver’s evaluation

of the message” (Ohanian, 1991; Till and Shimp,

1998). An endorser, who has the key credibility

source factors, is able to increase considerably the

purchase intentions of the consumer (Eisend, 2006)

and can also influence their beliefs, opinions,

attitudes and behaviors through a process called

internalization.

Taking these studies into account, the

authors propose the hypothesis:

H2: Endorser’s credibility has a relation with

consumers purchase intentions.

It is for no coincidence that most

advertisements use attractive people (Erdogan, 2006),

once consumers tend to form positive stereotypes

about such people. In addition, research has proven

that physically attractive communicators are more

successful at changing beliefs (Debevec and Kernan,

1984; Kahle and Homer, 1985) and generating

purchase intentions (Friedman and Friedman, 1979)

than their unattractive counterparts.

Source attractiveness and its effectiveness

are more related to physical attributes, such as

similarity, familiarity and likeability, which are

important factors in an initial judgment of another

person (Ohanian, 1991).

Summarizing the effect of source

attractiveness, one can say that it is used to create

effective messages, where the attribute attractiveness

refers to the endorser’s physical appearance,

personality, likeability and similarity (Kahle and

Homer, 1985; Ohanian, 1991). It is demonstrated that

attractive celebrity endorsers enhance attitudes

towards advertising and brands, but what is not

proved yet is whether they are or not able to create

purchase intentions. Within the broader context of

celebrity endorsement, endorser attractiveness is

certainly a relevant construct. However, the nature

and scope of the attractiveness construct remains

uncertain, and therefore appears worthy of additional

attention.

The authors propose the following research

hypothesis:

H3: Endorser’s attractiveness has a relation with

consumers purchase intentions

A consumer that observes messages from

two different brands, one containing a celebrity

endorsing a product and the other not, believes the

celebrity-endorsed product will have more purchases

(Ranjbarian et al., 2010). In side-by-side

comparisons, celebrity endorsers were found to be

more trustworthy, competent and slightly more


900

attractive than non-celebrity endorsers (Gaied and

Rached, 2010). The study of Perception of

Advertising and Celebrity Endorsement (Rashid et

al., 2002) shows that using a well-known celebrity as

an endorser could help to improve the subjects rating

of the commercial. Upadhyay and Singh (2010)

argued that the difference between celebrities and

anonymous person is that celebrities have the

capability to deliver meanings of extra depth, power,

subtlety and also offers a range of lifestyle and

personality that cannot be matched by anonymous

people.

In addition, Silvera and Austad (2004) stated

that using celebrities to endorse a product enhances

positive advertising ratings and product evaluations.

According to the authors, a possible explanation for

the success of celebrity-endorsed advertisements

could be attributed to consumers, who believe that

celebrities accept to endorse products as a result of

their true emotions towards the product and not

because of the payment that they receive. Therefore,

it is advisable for companies to consider using a well-

known celebrity as an endorser rather than nameless

spokesperson so they can have a competitive

advantage in differentiating a firm’s products from

competitors (Van der Waldt and Van Zyl, 2007).

Thus, the authors proposed this forth

research hypothesis:

H4: Advertising campaigns that contain celebrity

endorsements have a higher relation with consumers

purchase intentions than ad campaigns that do not

perform with any celebrity.

Celebrity endorsement can be classified

according to the number of products endorsed (single

product vs. multiple products) or number of

celebrities doing the endorsement (single celebrity vs.

multiple celebrities).

When using more than one celebrity in a

campaign, the consumer has a positive impact on

attitude toward the advertisement, attitude toward

brand and purchase intentions (Saleem, 2007). Hence

the use of multiple celebrities for a product can have

some benefits for a company, such as attract and

cover all the different target audiences (Um, 2008a;

Um 2008b) and help the advertisers to reduce the

boredom of the ad. One should however be careful in

this strategy to take care of the core brand values

because there is a great chance of confusing

consumers about the brand identity. In order to avoid

this sort of mix-up, managers who have genuine

reasons to use more than one celebrity for a particular

campaign should make sure that each and every

celebrity possesses compatible meaning that are

sought for brands (Erdogan, 2006).

In addition, multiple product endorsements

weaken the effects of celebrity to the product (Zahaf

and Anderson, 2008) and the number of products a

celebrity endorses, apart from the number of

exposures to the celebrity endorser, negatively

influences consumer perceptions of the endorser and

advertising itself. McCracken (1989) states that the

celebrity endorser carries on meanings from an

advertisement to other, and endorsing multiple

product affect those assigned meanings such that the

consumer perceive the celebrity to be less credible

and less likable. When a celebrity endorses for

multiple products, the endorsement effect loses its

strength because the attitude of the consumer will

decrease (McCracken, 1989).

So, finally, the authors propose these two

research hypothesis;

H5: Advertising campaigns featuring more than one

celebrity endorsing the product, have a relation with


H6: Celebrities who endorse more than one

product/brand at the same time have a relation with


3. Methodology

According to the definition of McCracken (1989:

310) a celebrity is “any individual who enjoys public

recognition and who uses this recognition on behalf

of a consumer good by appearing with it in an

advertisement”. Thus, a pretest was developed to

confirm if the respondents were familiar with all the

endorsers that were being shown in the questionnaire,

so that it would exist accuracy in the final

questionnaire.

In a second phase, an online questionnaire was

used, in order to gather the required data for this

analysis. When doing research of this type there are

merits to use a fictitious celebrity in order to

minimize prior exposure to and perceptions about

real celebrities and their endorsement relations (Choi

and Rifon, 2007). On the other hand, using actual

celebrities in a study allows a sense of realism and

celebrities in the marketplace often evoke a much

richer set of feelings, representing the life of their

own (Chen and Huddleston, 2009; Balakrishnan and

Kumar, 2011) and this is what makes them

interesting in the first place. All the advertisements

that were used in the questionnaire performed

national celebrities, who were (1) previously tested in

the pretest and (2) an output of the pretest.


901

The target population is the population of

individuals, which we are interested in describing and

making statistical inferences about. The target

population for this study is comprised of all male and

female individuals over the age of 18 years. In this

research, 251 people participated in the survey.

According to Ohanian (1991) the higher the

perceived credibility of an endorser, the more

effective the advertising tends to be. Ohanian (1991)

developed a list of 139 adjectives related to source

credibility, which was believed to measure celebrity

endorsers’ perceived credibility. Later on, those

adjectives are reduced to a more manageable list of

15 manifest variables, five for each construct:

Expertise, Trustworthiness and Attractiveness. The

resulting scales were submitted to a confirmatory

factor analysis as well as several validity tests, from

which was obtained a valid and reliable instrument.

Each of these constructs has descriptive pairs to

measure these variables on a 7-point bi-polar

adjective scale. The descriptive pairs that measure

Trustworthiness are: dependable/undependable,

dishonest/honest, unreliable/reliable,

insincere/sincere, and trustworthy/untrustworthy. The

descriptive pairs for measuring expertise include:

expert/not-expert, inexperienced / experienced,

unknowledgeable/knowledgeable,

qualified/unqualified and unskilled/skilled. The

following descriptive pairs measure attractiveness:

unattractive/attractive, classy/not classy,

ugly/beautiful, sexy/not sexy and plain/elegant.

However, in this research it was adapted Ohanian’s

credibility measure scale and it has only comprised

the five-item endorser trustworthiness and endorser

expertise scale. This decision was based on the fact

that the attractiveness level of the endorser is one of

the independent variables of the study, so it was

reasonable to create an independent variable of

endorser credibility that did not include attractiveness

as an underlying construct.

4. Results

Of the 285 respondents, 50.5% were male and

49.5% female. The similarity between the number of

respondents of both genders was intentional, so it

could be possible to have an equal number of

responses of males and females in each question. In

terms of sample distribution by age criteria,

respondents have at least 18 years and there is not a

predefined maximum value for age, referred in the

questionnaire as "25 +". However, the majority of the

responses were recorded between ages of 22 and 23,

representing rates of 22.8 and 26% respectively.

Regarding reliability, generally, values with a

Cronbach Alpha between 0.65 to 0.7 are considered

to be the lower limit for a reliable scale, that is to say

that all the internal dimensions do have consistency

and can be used for statistical analysis. According

Cronbach’s Alpha, all the dimensions presented

values above those

Ohanian’s (1991) adapted credibility scale was

used to measure the credibility of two different

celebrities in two different advertisements, so it has

reproduced two values (Cronbach's Alpha = 0.902

and Cronbach's Alpha = 0.930). The same procedure

was applied to measure attractiveness, consisting on

an evaluation of two advertisements with different

reliability values (Cronbach's Alpha = 0.906 and

Cronbach's Alpha = 0.898), respectively. Endorser

type items showed the lowest reliability value

(Cronbach's Alpha = 0.760) but it is still an

acceptable value.

Purchase intentions scale followed each

advertisement question that was shown (total of 8

advertisements) and have reliability values of

Cronbach's Alpha from 0.949 to 0.982.

4.1. Endorser’s gender

The results are quite stucked in the middle, that

is to say, on average respondents do not have a strong

responding trend in any of the items. However, when

questioned if the use of a female endorser played an

important role in the advertisement and if that gender

created interest on the product, respondents are more

inclined to agree with it.

On the opposite side, respondents slightly

disagree with the idea that the use of a female

celebrity endorser and not a male, change the

evaluation that is done about the product, implying

that if in that advertisement a male endorser

appeared, their evaluation about the product would

not be different. However, and still according to the

use of a male endorser rather than a female,

respondents are neutral on the item related to their

motivation for that advertisement if a male celebrity

was used. Finally, on the item that evaluated if there

was a match between the gender of the endorser

(female) and the product being promoted (ice cream),

respondents also do not have a strong responding

trend, so they do not agree or disagree.

As previously stated, the main purpose of this

study is to analyze the correlation between a set of

independent variables and consumers purchase

intentions.

The first hypothesis (H1) aims to evaluate the

relationship between the gender of the endorser and


902

purchase intentions. In this way, to make that

analysis, two correlations were used:

1. Pearson’s correlation shows that endorser’s

gender and purchase intentions are positively

correlated, however it is a weak correlation (ρ=

0.382). Thus, it could be concluded that the

gender of the endorser does have a relationship

with consumers purchase intentions, which

means that H1 is not rejected.

2. Spearman’s correlation aims to go deeper and

present results between each gender item and

purchase intentions. Results show that there is a

positive (but weak) correlation between all the

items and purchase intentions, so reinforcing the

positive correlation presented in Pearson’s value.

4.2. Endorser’s credibility

For this second research hypothesis (H2), two

advertisements were shown. The first one (more

credible) presented José Mourinho (a worldwide

known football coach) and the second one (less

credible), also performing a sports related person -

Paulo Futre, an older football player. An adapted

credibility scale was used with a set of 10 items that

supported the assessment to be made about the

impact of endorsers credibility in the shown

advertisement. Answers were given based on 7-point

bi-polar adjective scale.

Results present evidence about the perception of the

respondents about the credibility of José Mourinho.

All the items follow a positive trend, which means

that respondents on average do agree with the fact

that the endorser in that advertisement is:

Honest; Reliable; Sincere; Trustworthy; Expert;

Skilled; Experienced; Knowledgeable; Qualified.

To analyze the correlation between this

second endorser variable and consumers purchase

intentions, the same two-independency tests (Pearson

and Spearman) were done.

H2 aims to evaluate the relationship between

endorser’s credibility and purchase intentions. So, for

the first advertisement, which the endorser is José

Mourinho:

1. Pearson’s correlation shows that endorser’s

credibility (mean of 10 items) and purchase

intentions (mean of 3 items) are positively

correlated, however it is a weak correlation (ρ=

0.394). Thus, it could be concluded that the

credibility of the endorser does have a

relationship with consumers purchase intentions,

which means that H2 is not rejected.

2. Spearman’s correlation shows that there is a

positive (but weak) correlation between all the

items and purchase intentions, so reinforcing the

positive correlation presented in Pearson’s value.

A second advertisement with Paulo Futre

endorsing other product was shown.

Based on Pearson correlation, H2 is once again

not rejected. The obtained ρ= 0.437 means that

despite being a less credible endorser, the credibility

still has a positive correlation with consumers

purchase intentions. Spearman results correlate each

of the ten credibility items with purchase intentions

and also provides evidence that a positive relation

between all the items and purchase intentions is

present.

When comparing values of Pearson’s correlation

about credibility and purchase intentions, we find out

that despite being considered to be a higher credible

endorser, José Mourinho presents a lower correlation

level with purchase intentions. One of the possible

reasons is that the product endorsed by José

Mourinho is a bank and Paulo Futre endorses a drink

and if we take in consideration the age of the sample

used in the study, we may conclude that people

would prefer to buy a drink rather than a bank service

product. Also, banks have, in the present economic

situation, a negative image for most of consumers,

being the bank industry considered one of the most

important responsible stakeholders in this economic

downturn and this can be one of the reasons for José

Mourinho cannot overcome this trend.

4.3. Endorser’s attractiveness

To measure the impact of endorsers

attractiveness, two advertisements were shown. The

first one (less attractive) presented the actress Ana

Bola and the second one, also related with the same

product/brand, presented the actress Diana Chaves

(most attractive). A set of 5 items were used to

support the assessment to be made about the impact

of endorsers attractiveness in each advertisement.

Answers were given based on 7-point bi-polar

adjective scale.

The perception that respondents have about her

is that she is more (1) unattractive than attractive, (2)

ugly than beautiful, (3) not sexy than sexy, (4) not

classy than classy and (5) plain instead of elegant.

H3 aims to evaluate the relationship of

endorser’s attractiveness and purchase intentions. To

analyze this hypothesis, two stimuli were shown. As

regards to the first advertisement (Ana Bola

endorsing MultiOpticas, an optical company):

1. Pearson’s correlation shows that Ana Bola

attractiveness (mean of 5 items) and purchase



903

correlated. It is a medium correlation (ρ= 0.557)

and it could be concluded that the attractiveness

of the endorser does have a relationship with

consumers purchase intentions, which means that

H3 is not rejected.

2. Spearman’s correlation shows that there is a

positive correlation between all the items,

whether it is in terms of (1)

unattractive/attractive, (2) ugly/beautiful, (3) not

sexy/sexy, (4) not classy/classy or (5)

plain/elegant and purchase intentions, so

reinforcing the positive correlation presented by

Pearson’s value.

Regarding the second advertisement where

Diana Chaves appeared also endorsing MultiOpticas,

the same two analyses were done.

1. Pearson’s correlation shows that Diana Chaves

attractiveness (mean of 5 items) and purchase


correlated. It is a medium correlation (ρ= 0.517)

and it could be concluded that the attractiveness

of the endorser does have a relationship with

consumers purchase intentions, which means

once again that H3 is not rejected.

2. Spearman’s correlation present results between

each attractiveness item and purchase intentions

(mean of 3 items). Results presented shows that

there is a positive correlation between all the

items, whether it is in terms of (1)

unattractive/attractive, (2) ugly/beautiful, (3) not

sexy/sexy, (4) not classy/classy or (5)

plain/elegant and purchase intentions, so


Pearson’s value.

4.4. Endorser’s Type

To analyze what type of evalution people make

about the type of endorser, that is to say, celebrity

versus non-celebrity, it has been developed a set of

five items that supported the assessment to be made

about it. Answers were given based on a 7-point

likert scale, where 1 = strongly disagree and 7 =

strongly agree.

It is clear that four out of five items have, on

average, an agreement trend and respondents disagree

with the remaining one. On balance respondents

agree with the idea that:

1. Ratings about the product are different from

advertisements that show a celebrity endorsing a

product, than those advertisements that do not.

2. Levels of attention are higher in advertisements

that show a celebrity endorsing a product, than

those advertisements that do not show a celebrity

endorsing a product.

3. Advertisements that show a celebrity endorsing a

product are more popular than advertisements

that show an anonymous person.

4. Advertisements with celebrities are more

favorable to remember than advertisements with

non-celebrity endorsers.

The last item, which linked quality and products

endorsed by celebrities, did not have on average, an

agreement among respondents, thus concluding that

products which are endorsed by celebrities may not

be of good quality and also that celebrity will not

increase product’s quality.

H4 aims to evaluate the relationship between the

type of endorser and purchase intentions. In terms of

correlation between the two variables, the results are

presented below:

1. Pearson’s correlation shows that there is a

positive and medium relationship between the

variable endorser type (mean of 5 items) and

purchase intentions (mean of 3 items) (ρ= 0.409),

thus allowing to conclude that H4 is not rejected.

2. Spearman’s correlation present results between

each endorser type item and purchase intentions

(mean of 3 items). Results show that there is a

positive correlation between all the items, so


Pearson’s value.

4.5. Multiple endorsements

To analyze the multiple endorsement question, it

has been developed a set of four items that supported

the assessment to be made about the impact of more

than one celebrity in an advertisement. Answers were

given based on a 7-point likert scale, where 1 =

strongly disagree and 7 = strongly agree.

When analyzing the first two items: if the

presence of more than one celebrity in the

advertisement makes it (1) persuasive and (2)

convincing, it seems that, on average, respondents do

not agree. On the other hand, when they were asked if

the presence of more than one celebrity in the

advertisement makes it (3) appealing and (4)

dynamic, on average, respondents do agree.

H5, which aims to find out if there was any

relationship between multiple endorsements and


1. According to Pearson’s correlation, there is

a positive and medium relationship between the

two variables (ρ= 0.555) and makes the

hypothesis H5 not rejected. It seems that when

an advertisement shows more than one celebrity

endorsing the product, it has a positive relation

with consumers purchase intentions.


904

2. Spearman’s correlation present results

between each item of multiple endorsements

and purchase intentions (mean of 3 items).

Results show that there is a positive correlation

between the items: (1) persuasiveness, (2)

convincement, (3) appeal and (4) dynamism and

purchasing intentions, so reinforcing the

positive correlation presented by Pearson’s

value

4.6. Multiple product endorsement

On average, the answers to all the four items are

either neutral or slighty positive. The fact that a

celebrity endorser appears promoting many different

products does not change the respondents opinion, on

average, about (1) the advertisement and (2) celebrity

itself. In terms of trust about the celebrity when she

endorses more than on brand in a short period of

time, on average, it also follows a neutral pattern,

concluding that there is no great effect. However, on

balance, respondents do agree with the fact that when

a single celebrity endorses more than one brand, it is

not easy to remember all those endorsed brands.

To test the last hypothesis (H6), which aims to find

out if multiple product endorsement has a

relationship with consumers purchase intentions, two

correlations were used:

1. According to Pearson’s correlation, there is a

positive but weak relationship between the two

variables (ρ= 0.136). Despite this low

relationship, the hypothesis H6 is not rejected.

2. Spearman’s correlation aims to go deeper and

present results between each item of multiple

product endorsement and purchase intentions

(mean of 3 items). Results presented some

interesting findings based on the lack of

correlation between the next three items and

purchase intentions, that is to say, regardless the

level of agreement with the items, consumers

purchase intentions do not change.

“My opinion about the celebrity changes because she

endorsers many different products”.

“My level of trust about the celebrity changes

because she endorses more than one brand in a short

period of time”.

“My opinion about an advertisement changes when I

see the same celebrity endorsing many different

products”.

5. Conclusions

This study was designed to investigate how a set

of endorsers characteristics (i.e., gender, credibility,

attractiveness, type, multiple endorsements and

multiple product endorsement) would influence

consumers intention to purchase a product, being this

understanding important for economy, having in

consideration that, better company results imply

better economic indicators.

All the correlations presented in the study,

indicate that there was a positive relationship

between the dependent variables and consumers

purchasing intentions. This indicates that higher

scores in those dependent variables lead to higher


One of the first purposes of this study tried to

find any relationship between endorser’s gender and

consumers purchasing intentions. In order to avoid

unbiased results, it was used a neutral product – ice

cream – so no gender tendency would exist. The

respective research hypothesis was considered to be

valid, showing a positive and moderate correlation

between the two variables.

Previously studies that analyzed endorser’s

gender resulted in multiple ideas: endorser’s gender

does not significantly influence consumer attitudes

toward products (Freiden, 1984) and endorser’s

gender significantly influences consumer attitudes

toward products (Boyd and Shank, 2004).

Findings from the study also concluded that there

was a relationship between the endorser and the

consumer, particularly in what regards the use of a

female endorser and male respondents answers,

stressing that males do agree more in all the gender

items. Previous studies reinforce this output and

pointed out that consumers respond differently to

female celebrity endorsers than to male celebrity

endorsers and ads featuring female celebrities were

evaluated more favorably (Klaus and Bailey, 2008).

Furthermore, it was found that attractive female

models generated superior attitudes than attractive

male models across both genders but particularity

among males.

It was also tested the relationship between

the product – ice cream – and the use of a female

endorser. It was found that the female endorser was

considered to create interest on the product, however

the level of agreement was not too strong.

Contradicting this last finding, respondents stated that

if instead of a female celebrity endorser there would

be a male one, their evaluation about the product and

motivation to the ad would not be different, which

makes this relationship inconclusive. Mishra et al.

(2001) also examined the relationship of three neutral

products and male and female endorsers. They found

that there was no interaction between the gender of

the endorser and the gender of the respondent


905

regarding the likelihood of purchase, and attitude

toward the ads.

H2 meant to explore the relationship

between endorser’s credibility and consumers

purchase intentions and despite presenting a moderate

but positive correlation its final findings were not

totally in accordance with the previous studies.

The majority of the research done about

credibility states that an endorser, who has the key

credibility source factors, is able to increase

considerably the purchase intentions of the consumer

(Till and Shimp, 1998). Additionally, it is supported

the idea that using credible endorsers and their

personal sources may be a way to bring higher levels

of believability into an advertising message

(Erdogan, 2006), once it has been shown that they are

able to increase and influence consumers purchase

intentions (Ohanian, 1991).

Surprisingly, this study does not support all

the results from the literature. José Mourinho, who is

considered to have higher levels of credibility,

appeared in the first advertisement endorsing a bank

service. In the second advertisement appeared Paulo

Futre who is considered to be less credible, endorsed

a drink called Licor Beirão. According to the

literature review José Mourinho should enhance

purchase intentions due to his credibility scores.

In the study of Ohanian (1991) one of the

major conclusions was that the perceived expertise of

a celebrity in the eyes of the consumers is more

important in explaining purchase intentions and

carries more persuasiveness rather than their

attractiveness and trustworthiness. When analyzing

the results obtained from Spearman’s correlation

(José Mourinho versus Paulo Futre) it can be

concluded that for all the items of expertise, Paulo

Futre presented higher values, what can be part of a

possible explanation. Other possible explanation is

the fact that José Mourinho is endorsing a bank,

which has – the overall industry – a negative image in

the eyes of the market, being this sector considered

guilty for most of the economic situation people live

nowadays in Europe and several other developed

countries. Financial institutions were in the genesis of

the crisis that led to the current recession. The

environment we live in has been shaped by the

undisputable force of a perfect storm that can be

dated from 2007: the Great Recession. With its

genesis in the United States, it resulted from a

combination of complex events including the U.S.

housing boom, the subprime MBS (mortgage-backed

securities) bubble and the deregulation of OTC (over-

the-counter) derivatives. Such explosive cocktail

would later reveal that it was unable to contain itself

within American land – it would be only a matter of

time until it crossed borders. Globalization worked as

a catalyst that quickly spread it throughout the planet

like wildfire: austerity, high levels of household debt,

trade imbalances, high unemployment, failure of key

businesses and the bailout by national governments

of banks – the same institutions which through

excessive borrowing, risky investments and lack of

transparency.

Additionally, further research done about

credibility supports the theory that highly credible

sources are more persuasive than less credible ones,

but only under certain conditions (Mc Guire, 1985;

Kamins, 1990). This idea finds its basis in the

cognitive response theory which claims that social

influence depends on a message recipient’s initial

opinion (Friedman and Friedman, 1979).

Theoretically, a source lacking credibility can be

more persuasive than a high credible source if

individuals have a positive predisposition towards the

message. With this study, this theory finds here one

additional empirical finding, once that the product

endorsed by Paulo Futre is much more targeted to the

range of ages of the sample than the product

promoted by José Mourinho. In this case, the

recipient’s initial opinion about a bank is worst than a

drink.

H3, which explored the relationship between

attractiveness and consumers purchasing intentions

was also valid and presented a moderate correlation

in both advertisements. According to Erdogan (2006)

there is no coincidence on most advertisements using

attractive people once consumers tend to form

positive stereotypes about such people. In addition,

research has proven that physically attractive

communicators are more successful at changing

beliefs (Temperley and Tangen, 2006; Al Zoubi and

Bataineh, 2011; Alsmadi, 2006; Debevec and Keman,

1984) and generating purchasing intentions

(Friedman and Friedman, 1979; Amos et al., 2008)

than their unattractive counterparts.

Findings from this study contradict previous

authors, since the endorser who is considered to be

less attractive obtained higher levels of purchasing

intentions. Contrary to what happened in the

credibility question, the product being endorsed in

these two shown advertisements was the same,

however the content of both ads were different from

each other and consumers might get involved in

different ways. In the advertisement of Diana Chaves

(attractive endorser), respondents could read that

when buying a pair of eyeglasses, they would receive

a second pair as an offer and in the second ad the


906

main message was that when buying a pair of

eyeglasses, consumers would receive a discount

equal to their age (i.e. 25 years old = 25% discount).

One of the possible reasons to explain the results is

that consumers would prefer to have a discount,

especially in the economic scenario in which we are

living, rather than getting an extra pair of eyeglasses,

which could be unnecessary.

Additionally, Erdogan (2006) also stated

that attractiveness is not merely based on physical

attributes and that there are other virtuous

characteristics that receivers may perceive in

endorser intellectual skills, personality properties or

lifestyle characteristics. Empirically, Diana Chaves is

physically much more attractive than Ana Bola and

this idea gets more power if we take a look into the

sample’s range of age due to the fact that Ana Bola

has much more influence in elder generations and

Diana Chaves in younger’s one.

Another possible reason is that there might

exist a relationship between the endorser

attractiveness and credibility. Eisend (2006) tested if

the physical attractiveness of endorsers would have a

positive relationship with endorser’s credibility and

her conclusion was that attractive endorsers received

statistically significantly lower ratings of endorser

credibility than unattractive endorsers. Thus, despite

having a greater influence power next to younger

generations, Diana Chaves might be seen as a less

credible endorser and as a consequence the

purchasing intentions on the products she endorses

are lower.

In terms of the benefits of using celebrities

rather than non-celebrities to endorse the products,

findings of this study didn’t reach the desired

precision due to failures on the construction of the

questionnaire. However, results were in accordance

with some of the literature.

Endorser’s type presented a positive and

moderate relationship with consumers purchasing

intentions, which means that the hypothesis was

valid. Despite agreeing positively with the majority

of the purposed endorser’s type items, respondents

did not show a remarkable tendency in their answers,

in particular as regards to the questions about

attitudes toward the ads and also attitudes towards the

products endorsed by celebrities. Respondents saw

simultaneously two advertisements promoting the

same product and the same brand: the first ad

contained a celebrity and the second did not. In fact,

respondents slightly agree with the fact that their

evaluations about the product would be different

from the ad with a celebrity to the other. It reinforced

the theory supported by previous studies, which

argues that when a consumer observes messages from

two different brands, one containing a celebrity

endorsing a product and the other not, believes the

celebrity-endorsed product will have more purchases

(Biswas and O’Donnell (2009). This increasing

tendency on purchasing intentions is also related with

the fact that celebrity endorsers were found to be

more trustworthy, competent and slightly more

attractive than non-celebrity endorsers, as it is stated

by Kahle and Homer (1985).

It also proved that there exists a relation

between ads containing celebrities and attitudes

towards the ad and product. Respondents do agree

with the idea that when an advertisement contains a

celebrity it becomes more popular, easier to

remember or even that it can stuck their attention.

These findings are not aligned with some of past

studies, which shows that using a well-known

celebrity as an endorser could help to improve the

subjects rating of the commercial (Rashid and

Nallamuthu 2002). Furthermore, Silvera and Austad

(2004) also stated that using celebrities to endorse a

product enhances positive advertising ratings and

product evaluations.

However respondents agree with the idea

that products being endorsed by celebrities might not

be of good quality, reinforcing the idea that despite

having a well-known person promoting the product

there isn’t a transfer of perceived quality into the

product, which might go against the idea of

McCraken (1989) who argued that celebrities have

the capability to deliver meanings of extra depth,

power, subtlety and also offers a range of lifestyle

and personality which cannot be matched by

anonymous people.

The use of more than one celebrity in an

advertisement proved to have a positive relationship

with consumers purchasing intentions and their

attitude towards the ad seems to be different. In this

research question it was used once again an

advertisement, which was showing a bank service

and respondents agree with the fact that the ad

becomes more dynamic and appealing that is aligned

with previous studies. Those have concluded that

when using more than one celebrity in a campaign,

the consumer has a positive impact on attitude toward

the advertisement, attitude toward brand and

purchase intentions (Saleem, 2007). Furthermore, Um

(2008a, 2008b) also concluded that this technique

would help the advertisers to reduce the boredom of

the ad. However, the use of multiple endorsements

did not proved to be worthwhile if practionners want

to make the ad more convincing or more persuasive.


907

Finally, despite that fact the same celebrity

appears endorsing more than one product/brand, it

has got a positive but weak relationship with

consumers purchasing intentions.

Findings from this study, present evidence

that respondents agree with the idea that when the

same celebrity endorsers several different brands, the

phenomenon of overexposure occurs and makes the

consumer confused and unable to recall correctly all

the endorsed brands.

Past research on multiple product endorsements

(Mc Cracken, 1985; Zahat and Anderson, 2008)

suggest that it does negatively affect consumers

assessment of the endorser's trustworthiness, brand

image and ad evaluations, however respondents of

this study showed to be totally indifferent to those

aspects.

5.1. Future research

Further research on this topic should include the

usage of qualitative studies because such tool can be

helpful on obtaining consumers thoughts and beliefs

from varied angles. Despite having used a

quantitative approach to collect data for this study,

qualitative studies such as semi-structured interviews

and focus group would also enable researchers to

probe answers and enrich the understanding of the

research questions.

Alsmadi (2006), Chen and Huddleston (2009)

and Biswas and O’Donnell (2009) noted that source

characteristics are more persuasive when they appear

in television ads than in print ads. Despite making the

questionnaire too exhaustive, it would be interesting

to present TV advertisements, not only due to sources

characteristics but also to the overall dynamism that it

would bring into the analysis. Another possibility

would be the use of those TV ads as the content of

the focus groups.

Finally, the Meaning Transfer Model by

McCracken (1989) needs to be analyzed with greater

depth. Study on how the meaning is transferred from

the celebrity to the product, reasons on how the

media selects such celebrities and how consumers are

attracted towards their attributes and what in turn

leads to buying behavior can also be investigated.

References

[1] Al Zoubi, M. and Bataineh, M. (2011), The

Effect of using Celebrities in Advertising on the

Buying Decision - Empirical Study on Students

in Jarash Private University, American Journal

of Scientific Research, Vol. 13, pp. 59-70.

[2] Alsmadi, Sami. (2006), The Power of Celebrity

Endorsement in Brand Choice Behavior: An

Empirical Study of Consumer Attitudes in

Jordan, Journal of Accounting – Business &

Management Vol. 13, pp. 69-84.

[3] Amos, C., Holmes, G and Strutton, D (2008),

Exploring the relationship between celebrity

endorser effects and advertising effectiveness,

International Journal of Advertising, Vol. 27,

No. 2, pp. 209-234.

[4] Balakrishnan, L and Kumar and C.Shalini

(2011), Effect of Celebrity Based

Advertisements on the Purchase Attitude of

Consumers towards Durable Products (A study

with reference to the city of Chennai), World

Review of Business Research, Vol.1, Vol. 2, pp.

98-112.

[5] Biswas, S., Hussain, M. and O´Donnell.K

(2009), Celebrity Endorsement in

Advertisements and Consumer Perceptions: A

Cross-Cultural Study, Journal of Global

Marketing, Vol. 22:121-137.

[6] Boyd, T. and Shank, M. (2004), Athletes as

Product Endorsers: The Effect of Gender and

Product Relatedness, Sport Marketing Quarterly,

Vol.13, No.2, pp.82-93.

[7] Chen, Shih-Mei. and Huddleston, Patricia.

(2009), A comparison of four strategies to

promote fait trade products, International

Journal of Retail & Distribution Management,

Vol.37, No.4, pp. 336-345.

[8] Choi, S. and Rifon, N. (2007), Who is the

Celebrity in Advertising? Understanding

Dimension of Celebrity Images, The Journal of

Popular Culture, Vol.40, No.2, pp.121-140.

[9] Costanzo, Paul J. and Goodnight, Janelle E.

(2005), Celebrity Endorsements: Matching

Celebrity and Endorsed Brand in Magazine

Advertisements, Journal of Promotion

Management, Vol. 11, No. 4, pp. 86-97.

[10] Debevec, Kathleen and Kernan, Jerome B.

(1984) ,More Evidence on the Effects of a

Presenter's Attractiveness Some Cognitive,

Affective, and Behavioral Consequences, in NA -

Advances in Consumer Research Volume 11, eds.

Thomas C. Kinnear, Provo, UT : Association for

Consumer Research, Pages: 127-132.

[11] Eisend, M. (2006), Source Credibility

Dimensions in Marketing Communication – A

Generalized Solution, Journal of Empirical


908

Generalizations in Marketing, Vol. 3, No. 4,

pp.121-136.

[12] Erdogan, B. (1999), Celebrity Endorsement: A

Literature Review, Journal of Marketing

Management, Vol.15, pp.291-314.

[13] Freiden, Jon B. (1984), Advertising

Spokesperson Effects: An Examination of

Endorser Type and Gender on Two Audiences,

Journal of Advertising Research, 24

(October/November), pp. 33-41.

[14] Friedman, H. and Friedman, L. (1979), Endorser

Effectiveness by Product Type, Journal of

Advertising Research, Vol.19, No.5, pp.87-101.

[15] Gaied, A. and Rached, K. (2010), The Persuasive

Effectiveness of Famous and Non Famous

Endorsers in Advertising, IBIMA Business

review, Vol.10, pp.241-256.

[16] James, M. (2010), “Female Sports Celebrities

Targeting Female Teenagers: A Content

Analysis of Magazine Advertising”, Journal of

Business & Economics Research, Vol.8, No.1.

[17] Kahle, Lynn. and Homer, Pamela. (1985),

Physical Attractiveness of the Celebrity

Endorser: A Social Adaptation Perspective, The

Journal of Consumer Research, Vol.11 (4), pp.

131-145.

[18] Kamins, Michael A. (1990), An Investigation

into the ‘Match-Up’ Hypothesis in Celebrity

Advertising: When beauty maybe only skin deep,

Journal of Advertising, Vol. 19, No. 1, pp. 4-13.

[19] Khatri, P. (2006), Celebrity Endorsement: A

Strategic Promotion Perspective, Indian Media

Studies Journal, Vol.1 (1), July-Dec.

[20] Klaus, N. and Bailey, A. (2008), Celebrity

Endorsements: An Examination of Gender and

Consumers Attitudes, American Journal of

Business, Vol.23 (2), pp.95-107.

[21] Lord, K. and Putrevu, S. (2009), Informational

and Transformational Responses to Celebrity

Endorsements, Journal of Current Issues and

Research Advertising, Vol.31, No. 1.

[22] McCracken, G. (1989), Who is the Celebrity

Endorser? Cultural Foundations of the

Endorsement Process, Journal of Consumer

Research, Vol.16, No.3.

[23] McGuire, William J. (1985), Attitudes and

Attitude Change, in Handbook of Social

Psychology, Vol.2, GardnerL indzeya nd El-liot

Aronson, eds., New York: Random House, 233-

346.

[24] Mishra, P., Dhar, U. and Raotiwala, S. (2001),

Celebrity Endorsers and Adolescents: A Study of

Gender Influences, The Journal for Decision

Makers, Vol.26, No.4.

[25] Muda, M., Musa, R. and Putit, L. (2011),

Celebrity Endorsement in Advertising: A

Double-Edged Sword, Journal of Asian

Behavioral Studies, Vol.1, No.3.

[26] Newman, G., Diesendruck, G. and Bloom, P.

(2011), Celebrity Contagion and the Value of

Objects, Journal of Consumer Research, Vol.38.

[27] Ohanian, R. (1991), The impact of celebrity

spokespersons “perceived image on consumers”

intention to purchase, Journal of Advertising

Research, Vol. 31, No. 1, pp. 45–64.

[28] Rachita, J. and Priya, P. (2012), “An empirical

examination of Celebrity versus created

animated spokes-characters endorsements in

print advertisement among youth”, Journal of

Asian Research Consortium, Vol.2, Issue 2.

[29] Ranjbarian, B., Shekarchizade, Z. and Momeni,

Z. (2010), “Celebrity Endorser Influence on

Attitude Toward Advertisements and Brands”,

European Journal of social Sciences, Vol.13,

Number 3.

[30] Rashid, M., Nallamuthu, J. and Sidin, S., (2002),

Perceptions of Advertising and Celebrity

Endorsement in Malaysia, Asia Pacific

Management Review, Vol.7, No.4, pp. 535-554.

[31] Saleem, Flarida. (2007), Effect of Single

Celebrity and Multiple Celebrity Endorsement

on Low Involvement and High Involvement

Product Advertisements, European Journal of

Social Sciences, Vol.5, No.3.

[32] Silvera, David H. and Austad, Benedikte. (2004),

Factors predicting the effectiveness of celebrity

endorsement advertisements, European Journal

of Marketing, Vol.38, No. 11/12.

[33] Temperley, J. and Tangen, D. (2006), The

Pinocchio factor in Consumer Attitudes towards

Celebrity Endorsement: Celebrity Endorsement,

The Reebok Brand, and an examination of a

recent campaign, Innovative Marketing, Vol.2,

Issue 3.

[34] Till, B. and Shimp, T. (1998), Endorsers in

Advertising: The Case of Negative Celebrity

Information, Journal of Advertising, Vol.17,

No.1.


909

[35] Um, Nam-Hyun (2008a), Exploring the Effects

of Single vs. Multiple Products and Multiple

Celebrity Endorsements, Journal of Management

and Social Sciences, Vol.4, No.2, pp.104-114.

[36] Um, Nam-Hyun (2008b), Revisit Elaboration

Likelihood Model: How Advertising Appeals

Work on Attitudinal and Behavioral Brand

Loyalty, Centering around Low vs. High-

Involvement Product, European Journal of

Social Sciences, Vol.7, No.1.

[37] Upadhyay, Y. and Singh, S. (2010), When Sports

Celebrity Doesn’t Perform: How Consumers

React to Celebrity Endorsement?, The Journal of

Business Perspective, Vol.14, No.1/2.

[38] Van der Waldt, Schleritzko and Van Zyl K.

(2007), Paid versus unpaid celebrity endorsement

in advertising: an exploration, African Journal of

Business Management, Vol.1, No.7, pp.185.191.

[39] White, D., Goddard, L. and Wilbur, N. (2009),

The effects of negative information transference

in the celebrity endorsement relationship,

International Journal of Retail & Distribution

Management, Vol.37, No.4, pp.322-335.

[40] Zahaf, M. and Anderson, J., (2008), Causality

effects between celebrity endorsement and the

intentions to buy, Innovative Marketing, Vol.4,

Issue 4.


910

Organization Design Redefinition Using Design

Thinking David Lamelas+, José Lamelas#, José Filipe*

+Nova School of Business & Economic, Portugal [email protected]

#Universidade Lusófona de Humanidades e Tecnologias - ULHT, CPES, Portugal

[email protected]

*Lisbon University Institute ISCTE-IUL, BRU-IUL, Portugal

[email protected]

Abstract - This paper intends to present and discuss

some concepts and methods in the area of organization

design, showing how a new vision can bring a significant

upgrading to the classical methodologies. In this case it

is demonstrated how classical design and design

thinking can be used in organizational design theories to

create an organization design to be applied to different

kind of organizations. The implementation of these

techniques have already been implemented by the

researchers in terms of a practical way to some different

projects in different economic sectors (tourism sector,

wine industries, design companies and non

governmental organizations). The present case is

referred to the first implementation, an experimental

application to a social project in a NGO - “Bairro

Criativo” - with interesting results.

Keywords – Classical design, design thinking

organization design, engineering-based organization

design, design-based organization design, simplicity,

beauty, functionality, sustainable, contextual information,

users-oriented, co-creation, mutation, integrative and

participative processes.

1. Introduction

The idea of an organization design is not merely

mapping out an organizational structure. It involves

an additional perspective about the way the

organization is associated with many other aspects,

since the users (co-workers and clients), governance,

functions, processes, strategies that coexist in the

organization and the general context and environment

the organization faces.

By the end of the 19th century, organization

theory art and the classical design art have known

considerable changes in the way they were

conceived. Since the accomplishments of Frederick

Taylor in the area of organization design, with a

strong engineering characteristic, later the fit on

human systems was added and significant

improvements were obtained.

Going back on the organizations history it can

be seen that, in some companies, old theories and

beliefs survived in terms of organization theories

appliance. In fact, all organizations are guided by a

management doctrine which reflects basic values.

Considering some illustrations, it can be said, for

instance, that for the first administrative doctrine (the

military) there was a maxim: “do this or die”; for a

contemporary doctrine (eg. Henry Ford) the principle

was: all what we ask men is that they do the work,

which is set before and which implies “being fired is

better than being shot... ”.

More sophisticated doctrines are needed when

meaningful and fulfilling work for organization’s

employees is the organization central goal. Doctrine

and attitudes affect the morale, the performance and,

more importantly, the organizational culture. Each

organization’s doctrine remains in force until

technological and situational changes make the

organization’s adaptations less useful and render the

organization incompetent.

It is central to say that organizational culture

affects the overall competence (or incompetence) of

an organization.

In general, organization theories alternated

between a more “rational” view, more focused on the

functions and results (economist), and a more

“normative” view, more focused on the importance of

human relations (humanistic - psychology and

sociology).

Despite this, the different schools in the

management theories area are similar to a “jungle”

with braiding trees that are rarely seen as a totality

(Koontz, 1961, 1966).




911

In the following figure, we highlight six major

theories that currently coexist in the literature in this

area:

Theory Period Type

Scientific

management

1900 - 1923 Rational

Human relations 1923 - 1955 Affective

Systemic rationalism 1955 - 1980 Rational

Organizational culture 1980 - 1993 Affective

Radical rationalism

(Re-engineering and

others)

1993 – 2000 Rational

New Trends: Design

thinking

2000 - ? Integrative sharing

and big data

management

This figure is based on Cunha (2006). Since about the year 2000,

there is a tendency that allows us to emphasize the existing

tendency of organizational design based on processes that integrate

people and various different elements, as described in the text.

The so-called “classical theories” of

management may be presented as follows:

the “scientific management”, especially

represented by F. Taylor (1856-1915) and H.

Ford (1863–1947),

the “administrative management”, especially

represented by H. Fayol (1841-1925) and

the “bureaucratic management”, especially

represented by Max Weber (1864-1920).

All these theories have a mechanistic view of the

human person and are concerned with the increase of

the work efficiency. In this research paper we call it

as the “Engineering-based Organization Design” -

let’s label it as EOD.

In opposition, we will label the new trends on

organization design, based on design thinking as

“Design-based Organization Design” - let’s label it as

DOD.

Taylorism denounces the causes of worker

inefficiency and presents the management as a “true

science” by applying the principles of mechanics

(down to top). By its turn, Fordism added the

assembly line and vertical and horizontal integration,

in order to reduce the unproductive cycles.

The underlying philosophy of scientific

management lies on the following principles:

the rationalization makes the work less hard

and more productive;

all people are rational;

people understand the work only as an

economic enterprise.

The principles of scientific work organization

can be presented as the following ones:

leaders plan, workers perform;

division of labor in sub-tasks;

maximum efficiency (“one best way”);

selection and training of scientific workers

(right person, right place);

train people to be effective;

tight supervision of the performance of

workers.

With the same goal (efficiency), the Fayolism

focuses on the six basic functions of management, as

follows:

technical,

commercial,

security,

financial,

accounting,

administrative;

and on the four basic administrative functions:

planning

organizing

directing

controlling.

Finally, the bureaucratic management of Max

Weber has also a rationalist view of man. It

prescribes strict and disciplinary precepts for the

effective performance of the individual and of the

organization.

Elton Mayo marks the beginning regarding the

human factor at work, not with many moral and

humanistic concerns to improve the worker but with

concerns to improve working conditions and also to

increase efficiency (a classics heritage). The previous

logic remains mainly in the improvement of

productivity.

The Hawthorne heritage remains today, namely:


912

in the importance of considering people

themselves and not just the effectiveness and

efficiency;

in the idea of social man;

in the participation of workers;

in the leader as a key element in the moral

and job satisfaction group.

It is in this school that the organizational

behavior (the organizations psycho-sociology), the

human resources management, the holistic co-

leadership and even the DOD are rooted.

With systemic rationalism (Herbert Simon and

others) a rationalist and mechanistic view of the

human person is back. The affective component is

replaced by the cognitive science. Engineering

predominates again. The organization is a processing

machine information. The mind as a “digital

computer” becomes the conceptual model of human

thought. Employees are considered as rational beings,

nearly an automatic machine, whose behavior is

foreseen. The schools of management and business

are in favour of operational research, statistics,

finance and accounting. This proves that “the

organization’s vision as a machine is deeply rooted in

western management, from Taylor to Simon” (Pina e

Cunha, 2006).

With the advent of organizational culture (G.

Hofstede, Pascal and Athos, T. Peters, etc.) the

concern for the human factor at work is back. “The

organization’s human side occupies the stage again”

(Pina e Cunha, 2006). The influence of the success of

Japanese companies questioned the Systemic

Rationalism and brought back the emotional

component. The systemic thought reduces the loyalty

and the commitment of people and removes the

necessary flexibility to the organizations in a

changing world that needs the existence of committed

people.

With the coming of this new millennium, we

have evolved to models that integrate, as are the co-

leadership models, the holistic management, the

integrative management, the participative

management, the multidisciplinary teams, the

multifunctional teams, the change management, the

holacracy.

These innovative trends (which we can even

consider revolutionary) can be witnessed by

researchers and authors such as Heenan and Bennis

(1999), Zohar and Marshal (2000), Endenburg

(1998), or Robertson (2007). In these models, the

design has a fundamental function, because with it

there is the knowledge to integrate all the elements.

Today there is a stream of researches that point

to the need of considering people as beings with

various facets: cognitive / rational, emotional and

spiritual. That is to say, there is a unique organization

design that fits and serve the good performance of

any different organization and each group of co-

workers in the organization. Design thinking allows

the process in order to find that there is a unique

organization design for the needs of any organization.

“Professional managers often resort to mimicking the

‘best practices’ of their industry as a preferred course

of action. Around this idea, it is possible to cite the

management maxim: ‘don’t reinvent the wheel’, even

though reinventing the wheel might be precisely what

a situation calls for” (Boland et al, 2008).

Considering the evolution of organizations and

new visions for management, today there are valued

topics, such as the concepts of democratic

organization, corporate social responsibility, friend

company family (best places to work), healthy

organizations, virtuous organization, enlightened

organization, or spirituality in the workplace.

Although the engineering organizational design

had evolved with the human resources approach and

useful management tools, there are constraints for

generating new and different ideas (as is defended by

Boland and Collopy, 2004).

The models that resulted from the School of

Humanities and Human Resources often may not

have a proper basis to be able to have the expected

effect. This means that they continue to survive in an

organizational basis, being designed and inspired

considering the old hierarchical organizational model

designed by Taylor and his followers.

At the same time there is the classical design,

which is practiced since the 16th century1. Depending

also on the human sense, on social, cultural,

economic, political, technical and aesthetic aspects,

the classical design evolved to an extreme functional

and engineering design during the Industrial

Revolution. The design was supposed to be mainly

functional, the object or process mainly had to serve

its objective.

1 It was practised in a very small scale, for example in royal

furniture and architecture design to ornament the high society class

of that time.


913

Unlike the existence of EOD, the Classical

Design continued to mutate pro-actively and

massively throughout the market. Over the recent

decades, some strong design histories changed with

matters of concern like education levels, society

models, class, gender, postcolonial, voluntarism, new

crisis, aesthetics, economics and ecology, which have

contributed to new ways of understanding the world

mode of organization and the way it configures

around us today, persecuting to give people what they

really need and look for, according to their own

objectives.

In truth, EOD hardly seems to have evolved in

practice. Even though several studies have shown

considerable development frameworks responding to

the new needs of society and ecology (for example

through the School of Human Resources in general

and Human Resources Management). The fact is that

these theories are far from being usually implemented

in the market and are distant from being massively

applied, contrarily to what happens with design

theories.

Just late in time, science got interested in

improving organization design, using the classical

design approach in all business dimensions (see

Boland and Collopy, 2004). As presented before, this

may be called “Design-based Organization Design”

(DOD).

This paper focus on this new approach. By

experimenting the development of this idea,

formulating methods and interfaces that can be useful

not just to create a DOD method, but also to use it in

a DOD interface (an outcome of a design thinking

process and method applied to the organization

design creation and mutation). This is not just and

exclusively relevant for the organization design

practitioners but also for non-organization designer

users. This means that the design is not just to create

whatever be - because it is an evidence that “design is

everywhere” (Peters, 1994).

Based on the aforementioned, in this paper not

only a method for the conception and creation of an

organizational design is presented, but it is also

showed how an organizational design can be created

by using the design thinking, the design methods and

the principles and fundamental bases of a classic

design.

There is a good and very interesting definition about

design and organizational design paradox: “By it self,

design is an empty vessel waiting to be filled with

people, meanings, and actions… it is a dead form

that as no life or energy itself… Yet on the other

hand, it creates everything since the organizational

design will have a fundamental framing effect on

people’s expectations and perceptions, setting the

context for the organizing activity – the social

construction of roles and relationships – through

which structure is enacted” (Bate, Khan and Pye,

2000).

Considering this, design methods take the user into

account because they were created to serve users. For

example to mediate and guide the achievement of the

expected outcome, design methods use internal and

external boundaries, meanings, values, sense, actions

and the minimum of rules instead of strict processes

used on the EOD design; that is, sometimes they are

aggravated by the fact that those processes on the

EOD are created by technocrats, being far away from

the operation and so they don’t know and think on

what users need.

This research follows a research action process,

“…a participatory, democratic process concerned

with developing practical knowing in pursuit of

worthwhile human purposes, grounded in a

participatory worldview… It seeks to bring together

action and reflection, theory and practice, in

participation with others, in the pursuit of practical

solutions to issues of pressing concern to people, and

more generally the flourishing of individual persons

and their communities” (Reason and Bradbury,

2001)

2. Creation Methodology for

Organizational Design

In this research, the creation methodology is

used considering Tim Brown2’s products

development methods in IDEO (Brown, 2008).

2 The CEO and president of a large innovation and design firm

called IDEO.


914

Figure 1 The three spaces: Inspiration, Ideation, Implementation.

It consists of 3 main spaces:

Inspiration, that motivates the search for

solutions and creates opportunity;

Ideation, which is the process of generating,

prototyping, developing and testing that may

lead to solutions;

Implementation, for the Charting of the path

to the market.

In this circular method, as can be seen later,

projects may loop back frequently, mainly to the

inspiration and ideation spaces, since ideas are

redefined and projects take other directions different

from the initial design project. However, for this

research we enriched and developed this method by

making a framework and the representation of one

design space (Figure 2), a generator and a test of

DOD interfaces for different organization designs.

Figure 2: Framework for the Design-Based Organization

Design (inspired in Brown, 2008)

This way the methodology followed to create

DOD interfaces was a design process that generates

design outcomes in the design space (the process on

the top of Figure 2), and filled it with the design

components (at the bottom of Figure 2). For a better

understanding, we can view design methods from a

chemical and biological language perspective, i.e. by

viewing the outcome solution as a chemical solution,

where the design space is a “solvent”, the circular

processes and the design components are the

“reagents”.

As can be seen, first there is the inspiration

space, which motivates the search for unique

solutions. In this stage it is important to understand

the problem and create questions. Sometimes the

extreme solutions or jokes help to create an

opportunity for creativity. In this space, together with

the participants that collaborated in this work project,

we studied the words, found what is the business

sense, what were the business constraints, where the

opportunities were, what has changed or may change

in a near future within the organization and on the

external environment. We also observed what people

did, how they thought, what they needed and wanted.

Since two of the projects in the complete research

were located on the middle of the nature (on national

natural parks), being the nature the main inspiration3.

In this stage we often use examples to communicate.

For instance, after working for two days with a future

Eco Hotel administrator, co-workers and designers,

we were talking about the way to make an Eco Hotel

more sustainable. To get a solution, since there were

functional and beautiful synergies, we suggested that

we could put some strong ecology values or even a

NGO or a foundation in the middle of the

organization.

However, it is important to notice that this

inspiration space was never abandoned. It was a

constant state of mind which was also supported by

the diversity of activities that were being experienced

during the work project. For this purpose, some of the

members of the team participated in many real

projects, conferences, exhibitions, travels and design

museums in several countries to learn more about

design but also to take some ideas from what each

member learned. This gave the team a lot of

inspiration and the opportunity to explore this theme

abroad and the possibility to learn about other

3 Actually somehow nature can show us all the patterns that exist.

In one of the projects we even inspired and putted permaculture ethics and principles in everything we do and in the centre of the

organization.


915

organizations with some alternative organization

designs that are less known because of their small

dimensions. However, they have really been made to

XXI century people.

Secondly, there is the ideation space, which is

the process of generating, in a very fast and rough

way, the prototyping, the developing and the testing

phase, that may lead to solutions. At this space, we

used brainstorming, made many sketches, mixed

existent scenarios to reach, finally, a few number of

ideal solutions. Consequent creative frameworks

were built, as order out of chaos was got, using the

main principles of design and instruments (bottom of

Figure 2) serving as boundaries to the creative space.

It was noticed that these boundaries had a huge

impact in this method. The team applied integrative

thinking, put users and customers in the midst of

everything and also described their journeys and

experiences. In this part, it was very important to

engage in developing and codifying the external

elements (bottom of Figure 2) what helped to align

the organization theory and DOD methodology. After

this process, some more elements were prototyped

and refined until the part of testing in which the Van

Akens´s Alpha/Beta test interface was followed.

“Alpha testing involves the initial development of a

design proposition, and is done by the researchers

themselves through a series of cases. Subsequently,

Beta testing is a kind of replication research done by

third parties to get more objective evidence as well as

to counteract any blind spots or flows in the design

proposition not acknowledged by the researchers”

(Van Aken, 2001, cited in Romme, 2003). The testing

space of this work project was made by comparison

with other project results with which the team was

working, through interviews and focus groups. The

team created and tested a DOD interface of an Eco

Hotel with design methods. The results were tested

with users, in the voluntary program called “Bairro

criativo”4 (“Creative Quarter” - described below)

created and coordinated by one of the authors of this

paper.

During the brainstorming where decisions

should work fast, the team used a minimal testing

process by testing mainly four boundaries of the

prototype, which - as referred before - are considered

the four big buzzwords and principles of the design:

4 “Bairro Criativo” is a voluntary program from an NGO for

development called AHEAD (Associação Humanitária para a

Educação e Apoio ao Desenvolvimento), an entrepreneurial voluntary organization of NOVA University, which came from

PUMAP (Programa de Universitários em Maputo).

functionality, beauty, simplicity and sustainability

(from now on, the FBSS test).

The third space is the Pre-Design based

Organization Design (Pre-DOD), which means a

final prototype conception that will be the guidance

to the implementation phase. Without this pre-design,

implementation can easily fall into chaos. This way,

in this space a fledged DOD interface is created to

serve that purpose and to put everybody on the track

to the final design. Two good effects on prototyping

result from materializing and observing the big

picture in less time, being possible to change it later

for improvements. For example, sometimes it is only

possible to see the existence of problems or

opportunities when we actually see and materialize

the prototype. In fact, there are things that are

difficult to see in the ideation stage where everything

is still very rough. Most of the projects and

organizations that the team helped and in which

participated have achieved this space.

The fourth space is Implementation, which is the

path to the market and DOD action in the field. This

step happened thanks to the growing interest of the

interviewees that experienced the DOD.

The final space is Post Design, which is

characterized by conducting field studies and tests of

the DOD in use (of the prototype or of the final

implemented DOD), to obtain data for new versions

or to improve the quality of the DOD based on new

features.

Therefore since this design methodology has a

circular design, whenever we have new resources, or

either new opportunities or yet new constraints, the

process may loop to the initial moment, “inspiration”,

and it is possible to restart again the design

methodology that was created and is reflected on

figure 2.

A very important characteristic of DOD

framework is the possibility of filling since the

beginning this design vessel or process with some

guidance or boundaries like the ones that were used

in DOD experimental tests (at the bottom of figure

1): users (resulting in the question: who and where

are the users or potential users?), the contextual

information (by posing the questions: are we here for

what? Where are we? When?) and the main design

principles referred previously, which are:

Functionality (it serves the purpose); Beauty (people

love it); Simplicity (everyone understands);

Sustainability (it must integrate time and prosper in

time taking into account ecology, sociology and


916

economy), that is to say FBSS test (functionality,

beauty, simplicity and sustainability).

3. The case of DOD interface in

“Bairro Criativo”

3.1 Concept

This project refers to the social inclusion

through a musical cultural training, creativity

development, cognitive development, behavioural

and emotional development of children and

adolescents from social and economically

disadvantaged neighbourhoods (at Bairro da Boavista

– Lisbon suburbs).

We wanted to make a very personalized

volunteering program for the worst cases in terms of

behaviour in the explanatory program of the same

NGO for Development occurring in the same place.

3.2 Target population

The first target population that we chose were

children and young people from 13 to 15 years old,

who had creative skills and some behaviour problems

in another volunteering program of the same NGO,

where they had been receiving private lessons since

2006.

3.3 Activity plan

The plan is to

to perform a dynamic group/team to

promote cooperation, communication and

trust among Bairro Criativo “family”

members;

to perform a number of different workshops

to give the necessary knowledge and

technology to create the music for one song;

to allow the participants’ self-achievement

through the composition and production (on

a CD) of one song made by each of them.

3.4 History

The project emerged, based on a particular and

personal “dream” of one of the authors of this paper,

to create a volunteering program related to music and

education. As he had already worked and coordinated

for 2 years some volunteering programs in this NGO,

called AHEAD (the biggest NGO of Nova School of

Business & Economic, Portugal), he knew that it

would be easy to get support and management

freedom for doing it.

The first step was quite hard, based on

uncertainty. After having everything together, he

quickly made a prototype of the operational viability

and started to speak with people who could be

interested in this musical project and people he

wanted in his team. He scanned through the

neighbourhood population to see their needs and

skills related to creativity and music. After knowing

who would be the children that would participate, the

resources needed, the resources he had and the DOD

interface that he was interested in testing, he

concluded that this project would fit perfectly to a

volunteering program like “Bairro Criativo”.

However he knew that some adjustments or deep

changes could emerge since he wanted to respect

users and contextual information reality. He made it

with a volunteer, who has worked with him before,

who was specialized in forensic psychology. He

wanted this member would be his co-coordinator in

this project. In three weeks, they made a work team

(some months after it was called “family”) with eight

people, around his age, having different backgrounds

and being also from different social backgrounds.

The team had these disciplines: management,

psychology, law, musicians and music producers.

Since then the team created their project all together

from the basic prototype he designed, which was

applauded by all the members of the group (because

some adjustments were made), saying that it was the

best representation of “our” organization. They

rebuilt, adapted and implemented it in one month.

With meetings, chats and emails, they used the DOD

methods and debated the prototypes of the necessary

documents to the NGO, and at the same time, they

designed another document to make the promotion

outside the NGO. These documents would be the

official ones that would show their intentions, how to

put them into practice and who they were. Moreover,

those documents encouraged the team to create,

prototype and implement their organization with the

DOD methods (figure 2).

3.5 DOD in the “Creative Quarter”

The team first started to question words like

creativity, learning, voluntary, family, music,

education, workshops, classes, neighbourhood,

children, … They also talked about children’s

educational experiences and their family lives.

Finally lots of ideas appeared, which would be

managed, mixed, put in the “waiting list” or affected

directly to someone that would be responsible for

implementing them. For example each workshop

(that happened before the music production), was


917

performed by the person who had the skill to teach

that subject. That person would be the coordinator of

the workshop of that week, making each

departmental space (the circles around the central co-

coordination) working with his own processes.

Besides that at the same time this person had to

coordinate other volunteers, including the co-

coordination (the “general direction” figure), because

the team established that all the workshops would be

very personalized and there would be, more or less, a

volunteer’s support per student to help in the games5

and to give “our” “brand mark” to volunteer work in

this educational area. In other words instead of

making a mass educational program with 20 or 30

children, the team chose 8 specific problematic

children/adolescents. The group gave them a

premium and personalized service to make a

profound revolution on their lives, since the team

were 8 volunteers giving that personal monitoring,

being 2 of them skilled psychologists and supporting

everyone.

Following the DOD framework (Figure 2:

Framework for the Design-Based Organization

Design) some principles started to be integrated. All

members of the teamwork presented the principles

and values they wanted.

The yellow little balls in the first DOD interface

presented below are the points the team thought it

would be the principal activity, meeting and most

important control points.

The values they chose were: cooperation,

cohesion, creativity, mutual help, empathy, trust,

responsibility, optimism, entrepreneurship,

multidiscipline and diversity, personalized and

familiar environment.

Then the team refined the prototype again and

its final result was the DOD interface below, which

works well in small teams. Volunteers were

positioned in a very democratic work practice and

arranged according to their skills and emotional

connections.

Skills of each volunteer

Number of people with this

skill

Positioning

Master in management

1 Coordination, production,

5 It was the name the team gave to exercices.

Skills of each volunteer

Number of people with this

skill

Positioning

workshops.

Finalist in the Forensic Psychology Master and graduated in law

1 Coordination, workshops & group dynamics, psychologist and law.

Finalist in educational psychology Master

1 Workshops & group dynamics, psychologist, dance, percussion.

Degree in management

2 Workshops, percussion.

Degree in law 2 Workshops, Jazz.

Musicians 5 Hip hop, percussions, jazz, rock, pop, workshops.

Music producers 4 Productions, workshops.

Dance professor 1 Outsourcing.

Virtual total 17 Skills distributed and integrated through the organization design.

After 3 sessions in the field the team perceived

that the DOD interface was already implemented and

operating. But the team also noticed that this DOD

interface was mutating and what they planned at the

beginning was not what was happening in reality


918

when they were already operating. Therefore in the

middle of this project the team made this

phenomenon of change in team’s DOD interface and

a more real representation was drawn about their

organization, as follows:

The changes were mainly on the area of

“psychologists and law” where the needs of

intervention increased and because that area was the

one with the biggest performance and participation.

Contrarily to what could be expected, the co-

coordination (green colour) also moved down to this

“psychologist and law” approach. Since the

beginning, the team thought it would move up to the

music and production area, but that didn’t happen.

That is why the “hip hop, percussion and jazz” has a

form directing outside in the second picture. This

means that it has to move, or in the future, it will be

taken away, change positioning or substituted. The

“dance” area was outsourced because it deviated from

our music purpose and because we didn’t have those

skills inside the organization, this way being

separated from the organization, and being managed

directly by the “workshop and group dynamic” area.

At the same time, the points of control (the yellow

little balls in the first DOD interface) disappeared

because we didn’t need them, since our values

overruled that. This way all the activity, control and

decisions were made and discussed by everyone at

the interception of all the balls (departmental areas)

of the DOD interface in the second DOD interface of

“Bairro Criativo” (look at the centre of the DOD

interface where all the circles and forms intercept

each other).

At this moment of change, all the users assumed

that this DOD interface was a very useful tool,

considered as “our” body, because of its organic and

dynamic characteristic.

Additionally the vertical red bar - that we see in

this DOD interface, separating the NGO AHEAD and

the program “Bairro Criativo” - represents the

operational freedom given by the NGO AHEAD to

the “Bairro Criativo” project, creating at the same

time a political relationship between the two parts.

The author of this paper who intervened in the

project and who was central in the project conception

and development also observed that the first five

people who made part of the project from the

beginning became presently the ones more effective

and motivated; also the ones who performed

“impossible tasks” in troubled times. Those who

entered in the middle of the process were more aside

of all the decisions and of the processes “we created

to ourselves” inside the group. However, they state:

“we want to go every week, because we want to be

integrated in this family spirit, but we don’t have

energy to participate in this project like you”.

Everybody loved this organization design since

it suited perfectly the creative and volunteering

environment. The team worked like a multi

disciplinary team where each skill was respected. So

in most cases there were no centralized decisions.

Important values, as it is the case of equality, came

out. Everyone understood the idea and culture on the

project. Moreover, it was quite functional, though

they often felt it was necessary some time to take

decisions. However, these decisions were better and,

no doubt, more appreciated by all, only possible

because it was a very small organization. For

example if it was a big organization, one of the

improvements of this organization design could have

been the usage of some sociocracy and holacracy

processes and structures, that could have facilitate

this decision and elections processes (that is why we

used and inspired on this sociocracy and holacracy

knowledge on the bigger projects we created after

this “Bairro Criativo” first project and experiment).

On one of last team sessions about the

integration and discussion about the DOD interface

of “Bairro Criativo”, we discussed it again and the

final result was that not only they understood other

different DOD interface we was working on (because

we shared some other DOD with similar results), but

also gave a lot of good witnesses and suggestions to

future DOD interface and methods. For instance,

what they could see in that “round table6” was what

6 The name they gave to characterize the organization design of

“Bairro Criativo”.


919

they saw in reality. “It is our face, our reality”, they

said. They also referred that the fact of having

participated in this DOD interface construction

allowed them to love “Bairro Criativo” as if it was

“their baby”, and that really helped to make the

implementation space without any problems.

There was only one person in the eight co-

workers who said it was confusing. By the way, he

was one of the volunteers who joined the project in

the middle of the process.

Finally this project was the most appreciated,

according to the inquiry made in one of the

conferences we participated in the Psychology and

Education Science faculty” (FPCE- Faculdade de

Psicologia e Ciências da Educação da Universidade

de Lisboa), on 7th May 2009. Additionally in all the

conferences in which we have participated, the

audience showed a lot of interest in our organization

and in the design of the entire project.

References

[1] Bate, P., Khan, R. and Pye, A., (2000). Towards

a Culturally Sensitive Approach to Organization

Structuring: Where Organization Design Meets

Organization Development, Organization

Science, Vol. 11, No. 2, pp. 197-211.

[2] Boland, R. J. Jr. and Collopy, F. (2004)

Managing as designing, CA: Stanford

University Press.

[3] Boland R. J. Jr., Collopy, F., Lyytinen, K. and

Yoo, Y. (2008). Managing as Designing:

Lessons for Organization Leaders from the

Design Practice of Frank O. Gehry,

Massachusetts Institute of Technology. Design

Issues, Winter 2008.

[4] Brown, T. (2008). Design Thinking. Harvard

Business Review, June 2008.

[5] Endenburg, G. (1998). The organization of

decision-making ‘no objection’ as the principle

of sociocracy. Eburon.

[6] Heenan, D. A. and Bennis, W. (1999). Co-

Leaders, the Power of Great Partnerschips,

John Wiley & Sons, Inc., New York.

[7] Koontz, H. (1961). The management theory

jungle. The Journal of the Academy of

Management, 4(3): 174-188. December 1961.

[8] Koontz, H. (1966). A Miscelânea nas Teorias de

Administração. RAE-Revista de Administração

de Empresas, 6 (18), 169-196.

[9] Peters, T. (1994). The pursuit of Wow!: Every

person’s guide. Vintage Original – 1994.

[10] Pina e Cunha, M. (2006), Manual de

Comportamento Organizacional e Gestão, RH

Editores, Lisboa.

[11] Reason, P. and Bradbury, H. (2001) Handbook

of Action Research – Participate Inquiry and

Practice, SAGE Publications.

[12] Robertson, B. J. (2007). Organization at the

Leading Edge: Introducing Holacracy.

HolacracyOne.

[13] Romme, A. G. L. (2003). Making a difference:

organization as design. Faculty of Economics

and Business Administration, Tilburg

University, Tilburg, The Netherlands.

[14] Zohar, D. and Marshal, I. (2000). Spiritual

Intelligence, the Ultimate Intelligence,

Bloomsbury Publishing, Ltd. London.


920

Better Decision Making in Complex Dynamic

Tasks-A Book Review Manuel Alberto M. Ferreira

Lisbon University Institute ISCTE-IUL, BRU-IUL

Portugal

[email protected]

Abstract – The objective of this work is the book “Better

Decision Making in Complex Dynamic Tasks (Training

with Human-Facilitated Interactive Learning

Environments)”, 978-3-319-07985-1, from Springer

Series “Understanding Complex Systems” review:

H. Qudrat-Ullah, Editor of

this book points its three main

objectifs as:

1. Providing a comprehensive

study of decision making and

learning with human

facilitated ILEs.

2. Introducing decision

making in dynamic tasks.

3. Explaining the methods and obstacles of training with

human facilitated simulation-based learning

environments.

It is composed of four parts:

Part I serves as an introduction to the importance and

complexity of decision making in dynamic tasks.

Part II provides background material, drawing upon

relevant literature, for the development of an integrated

process model on the effectiveness of human facilitated

ILEs in improving decision making in dynamic tasks.

Part III focuses on the design, development, and

application of FishBankILE in laboratory experiments

to gather empirical evidence for the validity of the

process model.

Part IV presents a comprehensive analysis of the

gathered data to illustrate the lessons to be learned.

The keywords and the related subjects presented below,

also supplied by the Editor, complete the understanding

about the subjects dealt with in this book and also on

the research methodologies used. The whole book is

written in very correct and accessible English. It is

scientifically rigorous and exigent. The contributors are

leading experts in this field, with high reputation.

According to the Editor, this book will be useful for

managers and practitioners, researchers, and students

of dynamic decision making.

Keywords - Business Dynamics; Complex Decision

Making; Complex Dynamic Task; Decision Making

Dynamic Task; Decision Making and Learning; How to

Develop an ILE; Human Facilitated Interactive Learning

Environment; ILE - Interactive Learning Environment.

Related subjects - Complexity; HCI; Learning &

Instruction; Operations Research & Decision Theory.

1. The review

The Albert Einstein words, cited by this book

Editor:

“I never teach my pupils, I only

attempt to provide the conditions in

which they can learn”

are paradigmatic in what concerns a good teacher

work. In fact to learn is a personal, and original,

achievement. Who does not learn for itself does not

learn effectively and never will be autonomous in

action. Who is not able to learn for itself, always has

to be driven for any other, more or less closely and

will never be independent.

So the teacher work is to supply the adequate

learning environment for the pupils.

Following this idea, in this book it is intended to

give ways of training with Human-Facilitated

Interactive Learning Environments-ILEs, in order to

have better decision making in complex dynamic

tasks. In particular in ILEs design, development and

application.

The complex dynamic tasks to be considered in

the scope of this book are innumerous and diverse as

Human and Natural Catastrophes, Medicine,

Epidemics, Fisheries, Finance, Economy, War,

Traffic…

So the word Complex appears in the sense that a

Complex Problem is a one about which very few or

even nothing is known. It is also referred in

“Complex Decision Making” that is in a higher level

than the “Decision Theory” usually considered in the

“Operations Research” scope.


http://www.springer.com/978-3-319-07985-1



921

The word Dynamic is connected with something

that changes very rapidly, demanding a permanent

learning.

Part I and Part II are more theoretic and

conceptual supplying background on this theme. Part

III and Part IV are driven to the applications: design,

development, data analysis.

Part III is entirely devoted to an application in

Fisheries: the design, development, and application of

FishBankILE in laboratory experiments, performed

and described with a very great detail. Through this

application, empirical data are collected for the

validity of the process model. It is a very clever and

pedagogic way to show how to construct and validate

ILEs.

Finally note that the literature on this subject is

not particularly abundant and so this book gives an

important contribution to pad this gap.

2. Overall review

This is an outstanding book, scientifically

rigorous, fundamental and valuable in “Training with

Human-Facilitated Interactive Learning

Environments”, simultaneously conceptual and

operative. Written by highly reputed contributors it is

an essential reading for managers and practitioners,

researchers, and students of dynamic decision

making.

Reference

[1] H. Qudrat-Ullah (Ed.). Better Decision Making

in Complex Dynamic Tasks (Training with

Human-Facilitated Interactive Learning

Environments). Understanding Complex

Systems, XIV, 2015, XX, 252 p., 69 illus., 59

illus. in color, ISBN: 978-3-319-07985-1. DOI:

10. 1007/978-3-319-07986-8_1.

Call for Papers

The journal welcomes high quality original research papers, survey papers,

review papers, tutorial, technical notes as well as discussion papers.

International Economics Economic Development

Monetary and Fiscal Policy Decision-

Making

International Banking and Portfolio

Management

Financial Economics International Political Economy

Financial Analysis Financial Market Regulation

Financial Risk Analysis Transition Economies

Corporate Finance Exchange Rate Modelling

Forecasting Financial Markets Economic Policy

International Finance Portfolio and Asset Management

Pricing and Risk of Financial

Instruments

Advances in Financial Econometrics

and Statistics

Public Finance Decision-Making

International Journal of Latest Trends in

Finance & Economic Sciences

Documents

IJLTFES Vol-5 No. 2 June 2015