Journal of Applied Management And · PDF fileiv The Journal of Applied Management and Entrepreneurship, 2012, Vol. 17, No. 4 The Journal of Applied Management and Entrepreneurship,

The Journal of Applied Management and Entrepreneurship, 2012, Vol. 17, No. 4 iii

The Journal of Applied Management and Entrepreneurship, 2012, Vol. 17, No. 4

Volume 17, Number 4 Printed ISSN: 1077-1158 PDF ISSN: Pending

Journal of Applied Management And Entrepreneurship

Jane W. Gibson, Editor Nova Southeastern University

The Journal of Applied Management and Entrepreneurship is owned and published by Nova Southeastern University. Editorial content is controlled by Nova Southeastern University, a private, not-for-profit University in Fort Lauderdale, Florida.

iv The Journal of Applied Management and Entrepreneurship, 2012, Vol. 17, No. 4


Editorial Review Board

Jane Whitney Gibson David Lamond

Nova Southeastern University Victoria University

Editor Franz Lohrke

Barry Barnes, Student Perspective Editor Samford University

Nova Southeastern University

Fred Luthans

Shawn Carraher, Book Review Editor University of Nebraska

Indiana Wesleyan University

Terrell Manyak

John James Cater III, Executive Interview Co-Editor Nova Southeastern University

University of Texas at Tyler

Richard T. Mowday

Steven Harvey, Production Editor University of Oregon

Nova Southeastern University

Bahaudin G. Mujtaba

Roland E. Kidwell, Executive Interview Co-Editor Nova Southeastern University

University of Wyoming

Jennifer D. Oyler

Editorial Board Texas A&M University—Commerce

Kathryn M. Bartol Stephanie S. Pane Haden

University of Maryland—College Park Texas A&M University—Commerce

Arthur G. Bedeian John A. Parnell

Louisiana State University University of North Carolina—Pembroke

Russell Clayton Peter B. Petersen

University of North Carolina at Asheville Johns Hopkins University

W. Jack Duncan Lyman W. Porter

University of Alabama at Birmingham University of California—Irvine

Robert Ford Robert Preziosi, Founding Editor

University of Central Florida Nova Southeastern University

Regina A. Greenwood Shelley Robbins

Nova Southeastern University Capella University

Mario Hayek Joseph C. Santora

Texas A&M University—Commerce ENPC, School of International Management

Paul Hersey Dana V. Tesone

Center for Leadership Studies University of Central Florida

John Humphreys David D. Van Fleet

Texas A&M University—Commerce Arizona State University

Donald F. Kuratko Daniel A. Wren

Indiana University University of Oklahoma

The Journal of Applied Management and Entrepreneurship, 2012, Vol. 17, No. 4 v


Table of Contents

Editorial Review Board................................................................................................................... ii

A Message from the Editor ............................................................................................................. 1

Buying the Farm: Strategies Young Enterpreneurs Use to Prepare for the Future ......................... 3

Jason Keith Phillips, West Chester University

Diane M. Phillips, Saint Joseph’s University

The Communication and Practice of Religious Accommodation: Employee Perceptions ........... 24

Patricia C. Borstorff, Jacksonville State University

Brent J. Cunningham, Jacksonville State University

Louise J. Clark, Jacksonville State University

A Blueprint to Designing the Ethics and Compliance Program for the Small Business .............. 38

Brian Winrow, Winona State University

Mussie Tessema, Winona State University

Nicholas Miner, Winona State University

A Three-Path Model of New Venture Creation: An Image Theory Perspective .......................... 51

Tobias M. Huning, Columbus State University

Phil C. Bryant, Columbus State University

Steven C. Brown, Columbus State University

Challenges of Online Learning in Management Education: An Empirical Study ........................ 76

John James Cater III, The University of Texas at Tyler

Norbert Michel, Nicholls State University

Otmar E. Varela, University of Arkansas- Little Rock

vi The Journal of Applied Management and Entrepreneurship, 2012, Vol. 17, No. 4


Executive Interview

Social Business Entrepreneurship: A Conversation with 2006 Nobel Peace Prize Winner Dr. Muhammad Yunus ........................................................................................................................ 97

Donald L. Ariail, Southern Polytechnic State University

Gouranga Banik, Southern Polytechnic State University

Sandra Vasa-Sideris, Southern Polytechnic State University

Gregory Quinet, Southern Polytechnic State University

Joyce McGriff, Southern Polytechnic State University

Strategic Leadership Applied to Retail Management: Joe Contrucci Discusses the 21st Century Dynamic Organization ................................................................................................................ 103

Belal A. Kaifi, Trident University International

Scott Mendenhall, Saint Mary’s College of California

The Journal of Applied Management and Entrepreneurship, 2012, Vol. 17, No. 4 1


A Message from the Editor

Welcome to the October, 2012 issue of JAME. I want to begin by thanking long-time editorial board member, Eileen Kelly, for her many years of service to JAME. Eileen has decided to retire from the board at this time. She is a valued colleague and we wish her continued professional and personal success.

We also want to remind you that we have changed publishers and are now both an online and in-print journal affiliated with Whitney Press. Check out our page at http://www.whitneypress.com/jame/ where you can order a hard copy of the current issue or view a .pdf file. This is a new and evolving relationship and we will keep you informed of our progress. Remember also that you can continue to access us through the ProQuest databases.

In this issue we have five articles and two executive interviews; our book review section is temporarily on hiatus. We begin with an article by Diane M. Phillips and Jason Keith Phillips entitled “Buying the Farm: Strategies Young Entrepreneurs Use to Prepare for the Future.” I think that all of us are intrigued by the farming industry which seems to touch some romantic, nostalgic archetype in the American psyche; however, farming has become big business and far from the family business typical of past generations. It is refreshing, therefore, to read this research which focuses on young entrepreneurs who decide to go into farming as a core business. The primary area of research is what strategic decisions these people make which lead to their success.

Next, Patricia C. Borstorff, Brent J. Cunningham, and Louise J. Clark explore “The Communication and Practice of Religious Accommodation: Employee Perceptions.” This research team investigated employee perceptions of the existence of and communication about organizational policies regarding religious accommodation. Results suggested that the majority of respondents reported either no policy or they were unsure of whether the policy regarding religious accommodation was working.

Third, Brian Winrow, Mussie Tessema, and Nicholas Miner give us “A Blueprint to Designing the Ethics and Compliance Program for the Small Business.” With all the demands and priorities faced by the new small business owner, it is not surprising that many ignore the necessity to develop a sustainable ethics program which becomes part of the organizational culture. However, the reality of social responsibility on the altruistic side and the possible penalties associated with ethical charges resulting in sentencing under the Federal Sentencing Guidelines for Organizations dictate that small business owners develop such a program. The authors provide guidelines on how to develop and sustain an ethics program which will lead to positive employee conduct while avoiding infractions resulting in harsh penalties.

Fourth, Tobias M Huning, Phil C. Bryant, and Steven C. Brown authored “A Three-Path Model of New Venture Creation: An Image Theory Perspective.” The authors extend the existing literature regarding the psychology of the individual who is the successful entrepreneur by presenting a three-path model of new venture creation. This model suggests that certain

2 The Journal of Applied Management and Entrepreneurship, 2012, Vol. 17, No. 4


external influences lead to a cognitive process which produces entrepreneurial behavior. This article includes a robust literature review and strong implications sections for entrepreneurship and future research.

Finally, in “Challenges of Online Learning in Management Education: An Empirical Study,” authors John James Cater III, Norbert Michel, and Otmar E. Varela extend the literature on the efficacy of online learning. The authors compared and contrasted the online vs. traditional teaching formats in a business school environment and extrapolated their findings to a corporate education arena. Amid the literature that extols the virtues of online learning, the authors provide some interesting cautions including choice of students and trainees and a need for matching technological immersion.

Our thanks to Roland Kidwell and John James Cater, our Executive Interview Co-Editors for all their work on our behalf. The first interview, “Social Business Entrepreneurship: A Conversation with 2006 Nobel Peace Prize Winner Dr. Muhammad Yunus” is coauthored by Donald L. Ariail, Gouranga Banik, Sandra Vasa-Sideris, Gregory Quinet, and Joyce McGriff. It is with great pride that we run this interview with the fascinating Dr. Yunus who as an economics professor in Bangladesh, began a grass-roots approach to eradicating poverty by extending small loans to individuals who could get not get seed money in any other way. With these loans, these individuals started small businesses that enabled them to become economically self-reliant.

The second executive interview, “Strategic Leadership Applied to Retail Management: Joe Contrucci Discusses the 21st Century Dynamic Organization” was written by Belai A. Kailfi and Scott Mendenhall. The authors interview Contrucci, who, as Group Vice President for Target Corporation , shares his insights on leadership, managing generational differences, and leadership development.

On behalf of the editorial board team, we hope that you enjoy the October issue. Feel free to contact me with any suggestions or comments.

Jane Whitney Gibson, Editor

Fort Lauderdale, FL

[email protected]



Buying the Farm: Strategies Young Enterpreneurs Use to Prepare for the Future

Diane M. Phillips, Saint Joseph’s University Jason Keith Phillips, West Chester University

Executive Summary

Young entrepreneurs have a reputation for making high risk, high payoff decisions. Although they utilize a variety of governmental and social support systems (Laferte & Lorrain, 2006), they also utilize more business-oriented strategies such as developing business plans, seeking expert advice, using analytics, and connecting to consumers (Rexroad, 2010). We examined the decision making strategies of one type of young entrepreneur as they thought about and prepared for the future: young farmers. Ten key informant interviews and 306 surveys were conducted. We examined the extent to which they experienced economic success or difficulty as well as their business and managerial strategies. Among other findings, we discovered that a market orientation strategy mitigates the extent to which these individuals experienced some types of economic difficulties. Implications for young entrepreneurs are discussed.

Young Entrepreneurs

The media is full of stories of successful young entrepreneurs making fortunes from risky and challenging business opportunities. Most successful entrepreneurs, however, are much more deliberate in their decision making. Many factors have been identified as helping to lead to economic success for entrepreneurs. Who influences the decision maker can exert a big influence on the success of a business venture. In a broad sense, the overall sociocultural context exerts a significant impact on the decision-making and risk-taking of entrepreneurs (Grichnik, 2008). More specifically, if an entrepreneur runs the business with significant influence from family stakeholders, the business is run in a more risk-averse manner (Miller, Breton-Miller, & Lester, 2011). Conversely, the entrepreneur will run the business in a more risk-tolerant manner if there is significant influence from market-oriented stakeholders (Miller, et al., 2011).

Another issue that is important to a young entrepreneurs’ success is why that person is pursuing this business venture. In one study of young entrepreneurs, the personal characteristic of trustworthiness, or the “ability to maintain standards of honesty and integrity,” was rated as the most important motivating factor for successful young entrepreneurs (Rhee & White, 2007). Although not empirically tested, the authors further theorized that trustworthiness may facilitate stronger support networks which would assist in the success of the entrepreneurial venture (Rhee & White, 2007). Successful entrepreneurs are also motivated by other personality characteristics such as need for achievement, need for cognition, internal locus of control (Zhang & Bruning,



2011), leadership ability (Matzler, Bailom, Anschober, & Richardson 2010) and a connection to support networks (Stam & Elfring, 2008).

What kind of firm the young entrepreneur creates is another important influence on the success of the venture. Family firms are a unique kind of business operation. One study found that 70.2% of family firms employed a “high quality producer” strategy and, as a family firm ages, it is more likely to employ a “higher than market average pricing” strategy (Teal, Upton, & Seaman, 2003). Family firms also seem to be more risk-averse. Compared to non-family firms, the family firm is less likely to employ a “first to market” strategy (54.8% vs. 65.25%) (Teal, et al., 2003). The story is different, however, for fast growth family firms. For these firms, 80% utilize either a “first to market” or an “early follower” strategy (Teal, et al., 2003).

How the business is operated is perhaps the most important predictor of success for the business venture. It is, indeed, the issue most frequently studied by academics. In general, entrepreneurs who realize that operating a business is not a hobby and instead operate the business according to detailed business plans will be more successful. These entrepreneurs will readily seek expert advice, use detailed analytics, and connect to consumers (cf., Rexroad, 2010).

More specifically, an entrepreneur’s strategic orientation can fall along two continua: Market Orientation or Entrepreneurial Orientation (Baker & Sinkula, 2009; Bhuian, Menguc, & Bell, 2005; Brettel, Class, & Heinemann, 2006; Hult, Hurley, & Knight, 2004; Hult, Snow, & Kandemir, 2003; Keh, Nguyen, & Ng, 2007; Matsuno, Mentzer, & Ozsomer, 2002; Merlo & Auh, 2009; Stam & Elfring, 2008; Zhang & Bruning, 2011). Market Orientation (MO) is the extent to which the firm makes efforts to understand the needs/wants of its consumers, the drivers of satisfaction, and the competitive landscape (Baker & Sinkula, 2009). Entrepreneurial Orientation (EO) is the extent to which a firm exploits gaps in the marketplace; EO is not as focused on the consumer as much as on the interface between the firm’s offerings and the marketplace (Baker & Sinkula, 2009).

Although these concepts are strongly related to one another, most researchers find that these concepts exert separate influences on the firm’s success. One set of findings suggests that MO mediates the impact of EO on firm performance (Keh, et al., 2007; Matsuno, et al., 2002). Thus, a firm with an entrepreneurial orientation would pay more attention to consumer needs and wants (MO), which would then lead it to be more successful (and profitable) in fulfilling those needs and wants.

Young Farmers as Entrepreneurs

One type of business that blends entrepreneurship and family stakeholder interest is the family farm. Unfortunately, the legacy of the family farm in America is in a critical state of transition. It is more and more difficult to find modern examples of the nostalgic images of a hard working farmer tending the fields and making a living for himself and his family. More often today, America’s farming is done by large corporate agricultural operations.



There are, however, small pockets of individuals who, despite the challenges, decide to pursue farming as an occupation. In fact, there are an estimated 2.2. million individuals who are farmers in America today (Vilsack 2011). Approximately 1.3 million individuals are “hobby farmers” and sell over $1000 per year; approximately 600,000 individuals are “small farmers” and sell less than $250,000; and approximately 300,000 individuals sell more than $250,000 per year. The individuals in this last category are responsible for about 85% of America’s agricultural production (Vilsack, 2011).

Significant challenges exist for individuals who do decide to pursue farming as a business venture. One challenge for younger farming entrepreneurs is that because there are fewer young people engaged in farming, it is getting more difficult to find peers in farming. Indeed, the average age of the American farmer is 57 years old and 30% of all American farmers are over the age of 65 (Vilsack 2011). In a somewhat pessimistic view of the future, there has been a 30% increase in the number of farmers over the age of 75 as well as a 20% decrease in the number of farmers under the age of 25 (Vilsack, 2011).

Another challenge is that, compared to their more established colleagues, young farmers have a difficult time getting access to much needed capital (Vilsack, 2011). In general, young entrepreneurs need to have access to resources and need to build on and accelerate access to those resources (Morris, Kuratko, Allen, Ireland & Schindehutte, 2010). One recent study found that 47.5% of young entrepreneurs cited “financial uncertainty” and 37.7% cited “obtaining financing” from financial institutions as key challenges in the future (Lorrain & Laferte, 2006).

Who is the Young Farmer?

In general, the 18-35 age segment in America has come of age in an era that has seen unprecedented advances in technology and science. They grew up with the Internet, instant messaging, and a vast array of other technological and social networking tools. They also have a strong respect for their country (Schiff 2000) as well as family and traditional values (Dolliver, 1998). At almost 72 million strong (US Census, 2011), young Americans are certainly a force with which to be reckoned.

Young farmers are a particularly intriguing group of individuals. After several years of having a fairly ambivalent outlook, today’s young farmers have a somewhat optimistic outlook for the future, according to the American Farm Bureau Federation (AFBF) (The Voice of Agriculture, 2002). A majority of young American farmers (59%) are optimistic about farming and 92% believe that they will be life-long farmers. In a clear testament to the future of farming in America, almost 85% would like their children to follow in their footsteps. These same individuals do, however, have very specific concerns about the future. Their top three concerns are: overall profitability, access to land and capital, and complying with government regulations (The Voice of Agriculture, 2002).

Because the future of the family farm rests squarely on the shoulders of young entrepreneurs such as these individuals, it is imperative to identify their needs and concerns as



they make preparations for the future. Our primary question of interest was to identify the strategic decisions that are most likely to lead to success for these young entrepreneurs. In pursuit of this goal, we conducted a two-part study. The following two sections detail the qualitative portion of our research project in which we talked to several key informants and developed our hypotheses as well as the quantitative portion where we examined these hypotheses in more detail. Using both a qualitative and a quantitative approach allows us to have a more complete understanding of the phenomenon under consideration by allowing us to triangulate the findings (Yalch & Steudel, 2003). Indeed, we are able to report greater robustness in the findings because, as one researcher put it, there is “unity in diversity” (Tacq, 2011).

Qualitative Study: Key Concerns of Young Entrepreneurs

In this portion of our research study, we interviewed several individuals who were engaged in farming as well as other individuals that were involved in the advocacy of farming. Our ten respondents were recruited using a convenience sample of farmers, top figures in key farming-related organizations, and individuals directly involved in the development of policy decisions on farming. Using a structured interview, we asked them a series of questions about the challenges and opportunities facing young farmers.

Key Themes

Several key issues and themes arose out of these discussions. We combined these themes with findings from the literature to create a series of hypotheses that we believe might be confirmed in the quantitative portion of our study. The first theme was that despite problems with overall profitability and economics, there is a subjective “pull” toward farming that is difficult to articulate. These individuals report that there is a tremendous amount of subjective job satisfaction involved in working the land, being an independent business person, providing food for others, and working with animals. The importance of an entrepreneur’s own locus of job satisfaction provides strong motivation to continue in an entrepreneurial venture. Indeed, an entrepreneur’s achievement orientation and service orientation (Rhee & White, 2007), as well as locus of control (Zhang & Bruning, 2011), seem to be particularly important to motivating our respondents to persist in farming.

H1: a young entrepreneur will report that subjective sources of job satisfaction are just as important as objective sources of job satisfaction

A second theme was the importance of social networks. Going into business is not a solitary venture; research confirms the importance of building social and business networks in helping entrepreneurs succeed (Rhee & White, 2007; Stam & Elfring, 2008). Further, because of their comfort with networking technology (e.g., Schiff, 2000), we believe our respondents will also be connected to support networks.



H2: young entrepreneurs will report that connections to support networks are important

The issue of profitability and the economics involved in farming was on the mind of every respondent. Thus, our third theme focuses on the economics of the business. Several respondents elaborated by saying that to achieve long term survival, a farm needs to be thought of as a business that needs to succeed financially. A majority of the respondents related stories of how they or someone they knew was driven out of farming by a devastating financial crisis. This issue of back-breaking work for little or no pay was repeatedly related to us. Participants elaborated on the economic difficulties involved in entering farming, the difficulties in maintaining the operation, and the overwhelming economic incentives to leave farming. We believe that our respondents will also report that they are experiencing economic hardships.

H3: young entrepreneurs will report that they are experiencing economic hardships

A related theme is the reasons for those economic hardships. Indeed, every respondent mentioned that it was getting increasingly difficult to find ways to purchase additional land, equipment, etc. Even for those farmers who seemed to be finding ways to achieve economic success, many found that they are limited in their ability to expand and achieve even greater success because of the scarcity of land and the reluctance of many financial institutions to make loans to young individuals. We believe that our young entrepreneurs will also identify the source of their economic hardships as external factors such as difficulties in obtaining financing from banks or difficulties in purchasing capital.

H4: young entrepreneurs will report that difficulties in obtaining financing lead to economic hardship

H5: young entrepreneurs will report that difficulties in purchasing capital lead to economic hardship

A fifth theme that was voiced by every respondent was the recognition that successful farmers needed to be flexible enough to leave the “old mindset of commodities behind” and find new ways to develop and produce a product which can then be sold at a premium price. Defining their business in terms of the benefits it provides to the customer, developing value-added products, and direct marketing were all discussed as ways of becoming more flexible. Indeed, a market orientation does improve firm performance (cf., Matsuno, et al., 2002), especially small firm performance (Baker & Sinkula, 2009). This led to the development of our last hypothesis about the importance of developing and utilizing a market orientation.

H6: young entrepreneurs who utilize a market orientation will experience fewer economic hardships



Advice

When respondents were asked to give advice to other young farmers and other individuals who might be considering farming as a profession, six key pieces of advice emerged:

1. Develop a sound business plan. Young farmers need to view their farm as a business that needs to be profitable.

2. Identify your consumer. Farmers need to find a key sustainable competitive advantage that they can communicate about their product that resonates with consumers.

3. Educate yourself. In addition to important hands-on experience, farmers need to have university level academic training on agricultural operations and business management.

4. Identify your goals. Farmers need to set – and work toward – an overall goal of economic sustainability and profit.

5. Limit your debt. Young farmers can “start small” by leasing equipment or buying used or refurbished equipment.

6. Get involved. Farmers need to get involved in other non-farm activities to provide social balance to their lives, impact local regulations related to farming, and strengthen and extend their network of farming colleagues.

The key informant interviews accomplished our goals of identifying the issues that are of critical importance to young farming entrepreneurs and their future success. It also gave us a set of hypotheses which we could test in the quantitative portion of our study.

Quantitative Study: Survey of Young Entrepreneurs

This portion of the study was designed to more formally test our predictions.

Method

The mailing list of young farmers was compiled from data provided by The Pennsylvania Farm Bureau’s Young Farmers and Ranchers Association and the Pennsylvania Association for Sustainable Agriculture. Accompanying each survey was a postage-paid return envelope and a cover letter that described the purpose of the survey. Out of 1949 surveys that were mailed, 306 usable surveys were returned, resulting in a response rate of 15.7%.



Results & Analyses

About Our Participants. The participants were on average 31 years of age, with the youngest respondent 20 years of age and the oldest 35 years of age. Most of the respondents were men (85.4% were men and 14.6% were women). A majority of the individuals were married (65.1%), with most of the rest of the individuals identifying themselves as single or never married (32.9% were single/never married). More than half of the individuals had children (51.7%) and the average number of children living at home was 1.27.

In terms of their educational experiences, our respondents are well educated. Fully 36.4% of the participants are high school graduates and 31.8% are college graduates. For the high school graduates, many took classes and/or training in farming/agriculture (45.4%) and business/management (53.5%). For those who graduated from college, a large proportion took college level classes in farming/agriculture (41.7%) and business/management (52.8%).

In terms of the status of their farming operation, the median number of acres that young farmers owned was 70 (average = 156.4) and the median number of acres that they operated was 200 (average = 408.4). The differences here between the median figures and the average figures indicate that there are a few very large farms that are skewing the averages upward. Including the farmer, the median number of full time workers on the farm was reported to be 1.0 (average = 2.35), the median number of part time workers was 1.0 (average = 2.23), and the median number of family or unpaid workers was 2.0 (average = 1.85).

Ownership of the Farm. The majority of respondents (57.5%) reported that they owned their own farm, while 42.5% did not. For those who did own their own farm, most described their farm-business arrangement as a sole proprietorship (45.0%) and most acquired the farm by purchasing it from a relative (41.5%). The following table depicts information about the ownership of the farm by age of the respondent. For this analysis, we did a median split of our sample of respondents such that half of the respondents are now in a “younger” category and half of our respondents are in an “older” category. Younger respondents were between the ages of 18 and 29, while older respondents were between the ages of 30 and 35 at the time of the survey. In Table 1 below, we can see that, for those individuals who own their farm, the farm-business arrangement seems to differ depending on the age of the respondent. In particular, half of the younger individuals have a sole proprietorship while about half of the older respondents are involved in a partnership. The second part of Table 1 depicts differences in how the farm was acquired. About half of the younger respondents purchased their farm from a relative and about half of the older respondents inherited their farm.



Table 1

Ownership of the Farm by Age of Respondent

Ownership % of “younger” Respondents

% of “older” Respondents

Farm-business arrangement:

● a sole proprietorship

● a partnership

● other

Total:

50.0

37.0

13.0

100.0

34.0

48.0

18.0

100.0

How farm was acquired:

● inherited it

● married into it

● purchased it from a relative

● purchased it from someone I knew

● purchased it from someone I didn’t know

Total:

26.0

5.0

46.0

11.0

13.0

101.0*

48.0

2.0

33.0

5.0

12.0

100.0

* the total here is slightly different than 100 because of rounding errors

Working and Operating Arrangement. For those who do not own their own farm, most indicated that they both operated and worked on the farm. Interestingly, when asked about how soon they plan to acquire their own farms, most reported that this would not happen in the very near future. In fact, 44.6% indicated that it would take longer than 5 years to acquire their own farm and 10.8% indicated that they would probably never be able to acquire their own farm. Table 2 depicts the differences in the working and operating arrangements for those individuals who do not own farms by age.



Table 2

Plans to Acquire a Farm by Age of Respondent

Plans % of “younger” Respondents


Future plans to acquire a farm:

● 0 – 1 year

● 1 – 2 years

● 2 – 5 years

● more than 5 years

● never

Total:

6.0

20.0

27.0

35.0

12.0

100.0

5.0

7.0

28.0

49.0

11.0

100.0

Important Issues. Participants indicated that there were several issues on their minds as they thought about their own future in farming. Perhaps the most striking finding was that subjective issues related to the lifestyle of farming were rated the most important, followed closely by more objective issues related to the economics of farming. The satisfaction of working with animals and/or crops received the highest rating (4.70 on a 5-point scale), followed by the freedom of being my own business person (4.69), getting a good price for my product (4.66), and the overall profitability of the farm (4.62). The things that were least important on our list were: local regulations regarding noise (2.88), local regulations regarding waste (3.61), and local regulations on expansion of the business (3.67) (see Table 3 below).

Table 3

Issues of Importance

Issue Mean Rating*

Issue Mean Rating

The satisfaction of working with animals/crops

4.70 Support from local and/or county officials

4.02

The freedom of being my own business person

4.69 The ease of getting low interest loans

4.00

Getting a good price for my product

4.66 The ease of getting important information

4.00

Overall profitability of the farm

4.62 Paying for insurance 3.97

Making a living at Farming 4.59 The ease of expanding the operation

3.94



The ability to work outside 4.56 The availability of labor 3.88

Acting as a “steward” of the land

4.50 Local regulations regarding agricultural zoning

3.88

The availability of land

4.41 Support from farm organizations

3.85

Paying a good price for my supplies

4.30 Regulations on food safety/ handling/processing

3.80

Passing the farm down to the next generation

4.23 Paying taxes 3.75

The availability of capital and other resources

4.22 State regulations 3.72

A “business” network of supply stores, equipment shops, veterinarians, etc.

4.18 Federal regulations 3.71

The ease of getting equipment repaired

4.16 Local regulations on expansion of the business

3.67

A “social” network of friends/relatives

4.14 Local regulations regarding waste

3.61

Getting start-up capital for new farm or project

4.09 Local regulations regarding noise

2.88

A “working” network of farmers/employees

4.03

* values range from 1 (not at all important) to 5 (very important)

These findings provide support for H1, that subjective issues are just as important as objective issues relating to job satisfaction. In fact, we find that subjective issues relating to job satisfaction are somewhat more important to our respondents.

We also find support for H2, that our young farmers are connected to support networks. As depicted in the table above, our respondents reported that having “business” networks (4.18), “social” networks (4.14), and “working” networks (4.03) were quite important. Indeed, these issues were cited as more important than issues relating to a variety of regulations, paying taxes, paying insurance, and a variety of more formal support from agricultural organizations and state/local officials.

Threats and Opportunities. In looking toward the future, young entrepreneurs have definite opinions as to potential threats and opportunities. With regard to the threats, farmers



believe that there are several threats on the horizon: affordability of equipment and other capital (4.15), increasing land prices (4.08), increasing taxes (4.07), getting a fair price for my products (4.04), and suburban sprawl (3.93). Two of the top five threats – increasing land prices and suburban sprawl – are certainly very closely related to one another (see Table 4 below).

Table 4

Potential Threats

Issue

Mean Rating*

Issue

Mean Rating

Affordability of equipment and other capital

4.15 State regulations (unspecified)

3.53

Increasing land prices 4.08 Overseas competition 3.47

Increasing taxes 4.07 Availability of low-interest money

3.42

Getting fair prices for my products

4.04 Competing with large factory farms

3.42

Suburban sprawl 3.93 Local regulations (unspecified)

3.42

Availability of land 3.92 Transferring the farm to the next generation

3.22

Other issues 3.79 Finding quality labor to hire 3.18

Inheritance taxes 3.69 Keeping up with technology 3.14

Lack of community support for farming

3.60 Lack of local markets 3.04

Federal regulations (unspecified)

3.56

* values range from 1 (not at all likely to be a threat) to 5 (very likely to be a threat)

While there are threats in the future that farmers identify, there are also several potential opportunities. By far, the issue that farmers identified as the biggest opportunity was the increasing public awareness of the value of local food sources (3.68). Other issues that seem to be potential opportunities were: new technologies on nutrient management (3.38), direct marketing (3.33), selling to local markets (3.32), and new technologies on soil management (3.31) (see Table 5).



Table 5

Potential Opportunities

Issue

Mean Rating*

Issue

Mean Rating

Increasing public awareness of the value of local food sources

3.68 Selling products to nearby cities

3.00

New technologies on nutrient management

3.38 New county-funded programs

2.99

Direct marketing 3.33 Contract farming 2.87

Selling products to local markets

3.32 Genetically modified plants/animals

2.84

New technologies on soil management

3.31 Farmers markets 2.76

Integrated pest management 3.29 Other issues 2.70

New technologies on plant/animal breeding (not genetic engineering)

3.22 Selling products to other states

2.53

Educational programs 3.18 Selling products to ethnic populations

2.45

Farmers co-ops 3.10 Selling products to other countries

2.33

Precision farming 3.09 Organic farming 2.31

New state-funded programs 3.09 Selling to schools and other institutions

2.29

Niche marketing 3.06

* values range from 1 (not at all likely to be an opportunity) to 5 (very likely to be an opportunity)

Economic Successes & Difficulties. Sales receipts seemed to follow a J-shaped distribution with some farmers doing fairly well, some farmers doing poorly, and some farmers doing very well (see Table 6 below). More than half (54.1%) of the respondents achieved gross sales in the top two categories.



Table 6

Gross Sales

Gross Sales # of Survey Respondents*

% of Survey Respondents

Less than $10,000

52 18.6

$10,000 - $49,999

42 15.1

$50,000 - $99,999

34 12.2

$100,000 - $249,999

75 26.9

More than $250,000 76 27.2

* a total of 279 (out of 306) of our respondents agreed to answer this question

Next, we analyzed the different levels of gross sales by age category and found that “younger” farmers report doing a bit better than their “older” counterparts (see Table 7 below).

Table 7

Gross Sales by Age of Respondent

Gross Sales % of “younger” Respondents


Less than $10,000

15.6

23.3

$10,000 - $49,999

14.2

14.7

$50,000 - $99,999

10.6

12.4

$100,000 - $249,999

26.2

27.9

More than $250,000 33.3 21.7



Respondents reported that there were many more difficulties than successes. Specifically, when asked to describe the extent to which they have been experiencing difficulties in maintaining profitability, most of our respondents indicated that they had experienced difficulties (mean rating = 3.63). A closer examination of the scale revealed that, with end points labeled “not at all” and “very much,” 83.6% of farmers selected 3, 4, or 5 on the 5-point scale, which indicates that they had experienced moderate or extreme economic difficulties. These results indicate strong support for H3, that young farmers are experiencing economic difficulties.

Participants were then asked to identify reasons for why they were experiencing those difficulties. The difficulty in getting a good price for my products received the highest rating (4.06), followed by the weather (3.90) and the high cost of new equipment (3.90) (see Table 8 below).

Table 8

Reasons for Economic Difficulties

Issue Mean Rating*

Issue Mean Rating

The difficulty of getting a good price for my products

4.06 The difficulty of renting land 2.78

The high cost of new equipment 3.90 The difficulty of applying for state and/or county farm-related assistance

2.66

The weather 3.90 The high cost of labor 2.64

The high cost of new improvements to the operation

3.82 The difficulty of finding markets for my products

2.63

Other reasons

3.77 The difficulty of buying land 2.60

The high cost of supplies 3.75 Tough competition 2.55

Excessive taxes 3.58 The difficulty in finding labor 2.35

The difficulty of finding time to complete all the tasks/ chores around the farm

3.45 Excessive personal/family debt 2.35

Excessive farm-related debt 3.05

* values range from 1 (not an important reason at all) to 5 (a very important reason)

An examination of the table above indicates preliminary support for H4, that an important source of economic difficulties can be attributed to difficulties in obtaining financing. Our



findings also indicate that debt-related issues were moderately important. We found somewhat stronger support for H5, that the sources of economic difficulties can be attributed to difficulties purchasing capital. The high cost of new equipment, improvements to the operation, and supplies were all identified as important issues leading to economic difficulties.

We next conducted a more in-depth analysis to determine more detailed information about the main forces which cause economic difficulties. First, we conducted a factor analysis of the issues identified as difficulties. We specified a promax rotation of the items and, after a few items were dropped, we found that a 3 factor solution accounted for 58.31% of the variance and demonstrated the best face validity. The first factor had 5 items and could be described as “macro-level difficulties.” It included the following items: buying land, renting land, finding labor, high cost of labor, and tough competition. This factor demonstrated high internal validity (Cronbach α = 0.757). The second factor had 3 items (high cost of supplies, difficulty in getting a good price for my products, and high cost of new equipment). This factor could be described as “cost of doing business” and demonstrated an acceptable level of internal validity (Cronbach α = 0.587). The third factor had 2 items (family debt and farm debt) and can be described as “debt difficulties.” Again, this factor demonstrated acceptable levels of validity (Cronbach α = 0.579). A stepwise regression revealed that the two primary drivers for economic difficulties were “debt difficulties” and “cost of doing business.” Specifically, the model was significant (F(2,249) = 20.203, p <.0001, R2 = 0.140) as were the effects of “debt difficulties” (t = 4.148, p < .0001) and “cost of doing business” (t = 3.866, p <.0001). “Macro-level difficulties” was not a significant predictor of economic hardships.

Individuals did seem to enact strategies to mitigate their adverse economic situations: 83.8% identified their own goals relating to farming, 82.2% limited their own personal/family debt, and 70.1% limited their farm-related debt (see Table 9 below). It is interesting to note that a large proportion of respondents reported that they had been involved in the Farm Bureau and/or other farming organization (74.4%) and church groups, social groups, sports teams, etc. (71.9%). This finding confirmed information obtained from the qualitative portion of this study and H2 which indicated that farmers seek out such connections to network with other individuals.

Table 9

Measures to Mitigate Economic Difficulties

Measure

Engaged in

Measure (%)

Measure

Engaged in

Measure (%)

Identified your own goals relating to farming

83.8 Developed a sound business plan

48.7

Limited your personal/family debt

82.2 Carefully identified your customers

48.1



Had to limit your spending on new equipment, buildings, etc.

76.8 Worked at an off-farm job 44.9

Been involved in the Farm Bureau and/or other farming organization

74.4 Other measures 41.2

Been involved in church groups, social groups, sports teams, etc.

71.9 Had to purchase lesser-quality supplies

36.6

Limited your farm-related debt 70.1 Applied for state and/or county farm-related assistance

33.2

Developed a plan to limit your personal/family debt

58.2 Taken out a personal loan 30.7

Attended classes/seminars about the latest advancements in farming

57.3 Conducted research on your market/customers

29.2

Attended classes/seminars about farm & business management

53.5 Been involved in the local government

19.1

Developed a plan to limit your farm-related debt

53.4 Sold the development rights to your land

9.8

Agreed that your spouse/partner would work at an off-farm job

49.8 Had to sell parcels of your land

4.4

Had to take out a farm-related loan

49.5

The next analysis investigated the extent to which a market orientation would impact the severity of economic difficulties. In conducting this analysis, we first created a “market orientation” measure by combining three items above: developed a sound business plan, carefully identified your customers, and conducted research on your markets/customers (Cronbach α = 0.502). Next, we conducted a series of ANOVAs to examine the extent to which the 3 difficulty factors discussed above – macro-level difficulties, cost of doing business, and debt difficulties – would be impacted by having a market orientation. We found that having a market orientation led to lower levels of macro-level difficulties (F(3,253) = -3.756, p < .011), but did not impact cost of doing business or debt difficulties. This finding provides only partial support for H6, that a market orientation would mitigate economic difficulties.



Conclusion

Both the qualitative and the quantitative portions of this study indicate that the most important issue on the minds of the young farming entrepreneur was the overall profitability of the farm. It is not surprising that this issue was very important; 83.6% of our participants reported that they had experienced moderate to severe economic difficulties in the previous year. Young farming entrepreneurs believe that they are being squeezed from both directions. They believe that they are having difficulty in getting a good price for their products while at the same time they are experiencing high costs for land, supplies, equipment, and capital. Developing a marketing orientation seemed to mitigate the extent to which young farmers experienced problems with macro-level difficulties, but this marketing orientation did not impact difficulties they experienced with the cost of doing business or with debt difficulties.

Young farming entrepreneurs were, however, compensating for their sometimes difficult economic situations by enjoying the benefits associated with the lifestyle of farming. In particular, farmers enjoyed a variety of subjective benefits of their business ventures and derived satisfaction out of being their own independent business person.

In looking toward the future, young farmers identified a variety of threats and opportunities. However, because most of our respondents were fairly well educated, they are fairly well positioned to understand and anticipate a variety of business and financial issues that may impact them in the future. As they look forward into the future, the challenge for these and any young entrepreneurs will be to make a reasonable living, maintain their individuality as decision makers, and explore new innovative opportunities.

Limitations

A good deal of caution should be used in attempting to generalize these findings to other populations. This two part study was designed to help triangulate the findings and, indeed, we have found that the quantitative portion of the study confirms many of the findings from the qualitative portion of the study. However, the quantitative portion of the study was a survey; not a closely controlled experimental design in which one (or more) condition(s) received a manipulation and another condition acted as a control. Therefore, our statistical analyses are fairly straight-forward and simplistic. We presented overall trends and themes. We did this because to do otherwise would be to imbue the results with an artificial level of precision and specificity. Future research can attempt a more rigorous test of the findings herein. Instead, we believe that we have fulfilled our initial goal of tapping into the minds of young farming entrepreneurs and offering a glimpse as to how they anticipate and prepare for the future.

This study was conducted with young farmers in Pennsylvania, a commonwealth that has a long history of agriculture. We acknowledge that the economic forces that impact young Pennsylvania farmers are likely to be slightly different than those that impact farmers from other states. Pennsylvania farms are, on average, much smaller than their Western counterparts and as such make it more difficult to achieve some of the same operational economies of scale. Recent



evidence suggests, however, that Pennsylvania farms may not be any more economically disadvantaged than farms in other parts of the country. US dairy and meat agricultural operations are doing particularly well (Knutson, 2010) and approximately 40% of Pennsylvania farms specialize in dairy and meat (Redding, 2002). In all, we believe that Pennsylvania represents a microcosm of the pressures and issues that are facing farming entrepreneurs across the nation.

Implications

Previous research has emphasized the importance of a strong support network in helping the young entrepreneur get started as well as in continuing to be successful (cf., Rhee & White, 2007; Stam & Elfring, 2008). Our research also confirms the importance of a strong network of individuals to help the young entrepreneur succeed. It is important to note, however, that this strong support network is more than just a group of people who will lend moral support or act as “cheerleaders.” Indeed, our respondents mentioned the problem of having fewer feed stores, mechanics, veterinarians, and other colleagues with whom they could work. Therefore, young entrepreneurs need the practical assistance that comes from working with other professionals in the industry. Public policy makers and local/state officials need to provide support for these other members in the entrepreneur’s support network; if one part of the network is damaged or goes out of business, all members in the network will feel the impact of that loss.

Approximately 80% of our respondents acquired the farm by inheriting it, marrying into it, or purchasing it from a relative. The family firm is a unique type of entrepreneurial enterprise. While most family firms are fairly risk averse, they do tend to pursue a strategy of providing high quality products with premium pricing (Teal, et al., 2003). Part of this may be because of the pride associated with having the family name on the product (Teal, et al., 2003). For our sample, this kind of strategy was somewhat difficult to achieve because many of our entrepreneurs sold their products to the commodity market, where there is little differentiation between producers. Although our respondents recognized that getting a good price for their products was one of the most important factors in economic success, some found it hard to do so. Despite the difficulty, young entrepreneurs working for a family business need to find ways to differentiate their offerings in such a way that they can charge a premium price for their products and feel confident about placing the family name as a quality “stamp of approval” on the product.

The respondents in our study were young entrepreneurs who were working in a difficult industry and were trying to balance both the subjective benefits of the business with the more objective economic benefits of the business. For the most part, these individuals were also engaged in small business operations, with relatively few people working for them. For small and young firms, one set of researchers has suggested that the firm’s performance can be improved by having a balanced approach by equally emphasizing “entrepreneurship, innovativeness, market orientation, and organizational learning” (Hult, et al., 2003). While it might be difficult for a time-strapped, single proprietor of a small firm to simultaneously



emphasize all of these elements, we do agree that young entrepreneurs need to continuously scan the environment and look for opportunities to better identify any unmet needs and concerns of their customers. Young entrepreneurs with small operations might even have a competitive advantage here in that they can form closer connections to their customers and make adaptations to their operations fairly quickly. This nimbleness could prove to be a source of competitive advantage to these particular individuals.

In a confirmation of previous research, our study finds that young entrepreneurs are certainly a hardworking and motivated group of people. They are educated, have experience, and are well aware of the opportunities and threats that face them as they prepare for the future. Further, we found that these individuals are quite strategic in their decision making in that they take steps to improve their competitive, operational and financial positions. If the future of farming is in the hands of these capable individuals, we feel quite confident in that future.

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About the Authors

Diane M. Phillips, Ph.D. is an associate professor of marketing at Saint Joseph’s University in Philadelphia, Pennsylvania, USA. She received her Ph.D. from Penn State University. Widely quoted in international media outlets, her research focuses on consumer attitudes, emotional responses, sustainable consumption, and consumer decision making. Her research has been presented at a variety of international conferences, including the Association for Consumer Research, the American Marketing Association, and the European Applied Business Research Conference. Her research has also been published in a variety of outlets, including the Journal of Consumer Psychology, Advances in Consumer Research, and the American Journal of Business Research.

Jason Phillips, Ph.D., C.T.L. earned a Ph.D. in Management Science, Operations, and Logistics from Penn State University. His research has appeared in numerous prestigious international journals including the Journal of Business Logistics, the International Journal of Physical Distribution and Logistics Management, and the Transportation Journal. He has made presentations of his research at academic conferences in both Europe and the United States and has over a decade of experience consulting with government and business firms. With over fifteen years of teaching experience, Dr. Phillips is currently a professor of marketing at West Chester University in West Chester, Pennsylvania, USA.

Acknowledgement

The authors thank The Center for Rural Pennsylvania and the Haub School of Business at Saint Joseph’s University for providing funding for this research project. The authors also thank The Pennsylvania Farm Bureau’s Young Farmers and Ranchers Association and the Pennsylvania Association for Sustainable Agriculture in helping us compile our mailing list. All correspondence should be directed to the first author.



The Communication and Practice of Religious Accommodation: Employee Perceptions

Patricia C. Borstorff, Jacksonville State University Brent J. Cunningham, Jacksonville State University

Louise J. Clark, Jacksonville State University

Executive Summary

Today’s workforce is becoming more diversified in ethnicity, culture, language, and religion. Religion plays an important role in the values that people hold, resulting in companies juggling the desire of employees for religious expression and accommodation with the desire of the employer to have a discrimination-free workplace. For most individuals work dominates a large part of their life and it is difficult, if not impossible, to separate one’s religious beliefs from the workplace. Organizations are asked to walk the fine line between these conflicting preferences by offering and communicating policies which accommodate religious beliefs while maintaining a productive, yet neutral, atmosphere. We investigated employee perceptions of the communication and practice of religious accommodation policies within US firms. A major finding of our study is that 75% either reported no policy or they were unaware of a religious accommodation policy and 40% reported no policy or they were not aware of a religious harassment policy. Thirty-two percent did not know if the accommodation policy worked while 44% did not know if the religious harassment policy worked. Companies are in jeopardy of increased employee problems when communication is unclear or non-existent concerning policies.

Introduction

The workplace has often been viewed as off-limits to any type of religious demonstration (Morgan, 2004); however, this narrow view is changing as a direct result of the unique combination of people who now make up the American workforce. With over 1500 religions recognized in the US, the US is the most religiously diverse country in the world. As individuals continue to immigrate to the United States, they bring with them diverse religious faiths and beliefs (King, 2008). The freedom of religion enjoyed by the citizens of the United States of America are limited by the negative impact those freedoms may have on the freedom of others.

Many companies are beginning to fully realize and understand the importance religion plays in the workplace. Religion is not merely the belief in some sort of theology or sacred text; rather it often helps shape and defines personal motivations and behavior in every facet of one’s life including work life. This is obviously an important consideration in business, thus religion is a more than worthy area of special attention and accommodation within the workplace. A better



understanding of religion can only help to improve a company’s overall performance in relationships with customers and employees (King, 2008).

According to the 2008 American Religious Identification Study, 76% of American adults identified themselves as Christian, 15% stated no religious preference/atheist/agnostic, and almost 4% as other non-Christian religions. Also, 82% of the respondents stated they believe in God while 12% were atheist or agnostic (Kosmin and Keysar 2009). These 2008 findings indicated a two-decade trend toward a more religiously diverse society in the US. Though the data may seem incongruous to postulate a trend, the religious majority (Christianity) in the US fell by more than 11% while other religious affiliations doubled over the past two decades. Over the last twenty years, it has become common practice to express one’s personal views about religious and spiritual topics and to seek religious accommodation in the workplace (Morgan, 2004). Though the laws governing religious diversity are quite clear, corporate policies regarding religion tend not to be as clear, are varied, and in many instances absent.

Data compiled by the US Equal Employment Opportunity Commission (EEOC) indicates the religious discrimination claims against employers have increased from 1,939 in 2000 to 3,790 in 2010. Much like the number of cases, the monetary rewards over this 10 year period have almost doubled as well (www.eeoc.gov/eeoc/statistics/enforcement/religion.cfm). “The latest data tell us that, as the first decade of the 21st century comes to a close, the Commission’s work is far from finished,” said EEOC Acting Chairman Stuart J. Ishimaru. “Equal employment opportunity remains elusive for far too many workers and the Commission will continue to fight for their rights. Employers must step up their efforts to foster discrimination-free and inclusive workplaces, or risk enforcement and litigation by the EEOC.” (www.eeoc.gov) With the EEOC putting businesses on notice that discrimination will not be overlooked, it is important to determine what policies exist and how they are communicated.

Literature Review

Religious Accommodation

Religious accommodation research (articles) tends to be more legal in nature. A vast body of qualitative religious accommodation literature exists in law reviews and management journals. With these qualitative studies interpretation of religious accommodation laws has been clarified and unified. A cursory review of such research outlets for religious accommodation studies resulted in almost 40 articles in the last ten years and 60 in the last twenty years being published.

However, a knowledge gap seems to exist with managers attempting to write, communicate and administer fair and legal religious accommodation policies. This gap is matched by (or maybe even a result of) the gap in research in practitioner journals of quantitative religious accommodation articles. According to King (2008), in a survey of the top 21 management journals, only four viable empirical articles were found in a ten year period on the



subject of religion accommodation at work. Various authors (Hicks, 2002; Grafton, Knowles and Owen, 2004; Ashmos and Duchon, 2000) have conflicting results from their studies of religion in the workplace. There is new interest in religion at work; however few empirical studies have investigated the communication of religious accommodation policies or the attitudes and understanding of employees with these policies.

As interpreted by the EEOC, religious accommodation laws, “…require an employer to reasonably accommodate an employee’s religious beliefs or practices, unless doing so would cause more than a minimal burden on the operations of the employer’s business.” This means an employer may be required to make reasonable adjustments to the work environment that will allow an employee to practice his or her religion. Examples of some common religious accommodations include flexible scheduling, voluntary shift substitutions or swaps, job reassignments, and modifications to workplace policies or practices. (www.eeoc.gov)

Recently there has been a trend in companies receiving increased requests from employees for various work related religious accommodations such as religious holiday observances, prayer requests, and dress code exceptions for religious belief attire (King, 2008; VonBergen 2008). The legislation requires organizations and managers to recognize the importance of accommodating employees’ diverse religious beliefs and practices and for hiring managers to be aware of discriminatory practices in regards to a candidate’s religious affiliation when considering an applicant for an open position ( Duffy, 2006; Ghumman & Jackson, 2008; Von Bergen, 2008).

Until recently, the pairing of research involving management related disciplines and religion have been sparse for theoretical and empirical studies, and diversity research regarding religion is lacking (King, 2008). King (2008) posits many scholars avoid studies regarding religion and work because they do not wish to become involved in the socio-political aspects such as religious radicals or religion-affiliated political groups. The few management studies which have been conducted found a positive correlation between religion and employees’ satisfaction, performance, and loyalty. They also found employees who are identified as religious are more open to new ideas and show greater confidence when they feel their organization is accepting of their religious expression (King, 2008). Duffy (2006) states that the majority of businesspeople claim their business decisions and career values are strongly influenced by their religious beliefs. This makes it important for organizations to understand the connection between the practice of religious accommodation and performance, cohesiveness, and effectiveness.

Employers can and do deny religious accommodation requests. However, these denials must be in accordance with the EEOC’s standards and within the law as interpreted by the US Supreme Court. Title VII of the Civil Rights Act of 1964 is the principal source of law on religion-based employment discrimination in the U.S. Title VII defines “religion” to include “all aspects of religious observance and practice as well as belief”. Religion includes traditional, established religions as well as new, uncommon, or individually practiced beliefs (EEOC, 29 C.F.R. 1605.1)



If an employer chooses to challenge an accommodation request, then that employer should consider two main points of accommodation laws when justifying their decision. The first is “Sincere Religious Belief”. One of the most obvious, yet hardest to prove considerations is if the employee holds a sincere religious belief. As addressed in the EEOC Compliance Manual in Section 12-I.A.2, the religious belief in question does not have to make sense to the employer, but the employee must hold a sincere belief in the religion or principle (US EEOC 2008). Second is ‘Undue Hardship on Employer’. An employer may claim an undue hardship as the basis for denying a request for a religious accommodation. Undue hardship may be shown if the accommodation would impose “more than de minimis cost” on the operation of the employer’s business (EEOC, 29 C.F.R. 1605.1). However, the courts typically find fault with employers who make little or no attempt to accommodate the religious beliefs of their employees or if the employer refuses discussion of religious beliefs in question.

Increase In Religious Accommodation Requests

The increase in the number of religious discrimination claims filed with the EEOC (doubled in the last ten years) reinforces the fact employers are not reacting fast enough when it comes to accommodating religious needs of employees. Some trends in the workplace which seem to be responsible for the increase in the religious accommodation requests and religious discrimination claims are increased employee spirituality, immigrant influx, employees are more knowledgeable of their workplace rights, and employee/employer ignorance.

Defending a suit (i.e., Civil Rights Law, Religious Accommodation Laws) can cost hundreds of thousands of dollars and take 2-3 years to settle. The courts have generally held that interpretations of the law should err on the side of upholding religious freedom and expression which does not bode well for organizations when suits are filed by employees (Isgur, 2008).

Claims of discrimination under the law typically fall into one of two categories. The first concerns religious beliefs and practices that conflict with rules and conditions in the work place. Typically, these claims involve either work schedules that conflict with religious observances, or employee appearance policies that affect individual decisions in which religion has sway, such as hair length, clothing selection, food accommodations, and religious symbols worn by workers. This would also include requests for activities outside of work such as permission to be excused for religious observances. The second category of religious issues for which employees seek protection relates to harassment. These claims involve incidents where a worker is singled out for hostile treatment because of his or her religious beliefs or incidents where a worker is subject to behavior that is religious in nature, which the worker views as an unreasonable intrusion into his own right to practice or not practice religion (Pearce, Kuhn, and DiLillo, 2005).

Correlation analysis has shown a strong positive relationship between sales professionals’ spirituality at work and his/her job satisfaction. The sales professionals who align their self-concept to their spiritual identity (inner life) express their spiritual identity by meaningful work and by belongingness to the community. Thus, there is an alignment between who one is and



what one does, resulting in satisfaction. The same reason holds true for the positive relationship between sales professionals’ spirituality at work and his/her commitment to the job. There is a strong negative relationship between sales professionals’ spirituality at work and his/her intentions to leave. When there is belongingness, i.e., the feelings of existing together in the community and when one is happy with the work, then one may not intend to leave the job and the organization (Chawla and Gruda, 2010).

In sum, people want their own religion, their particularity, personal respect, and this is more complicated matter than at first it may appear. It is essential to understand the importance and complexity of a person’s religion in terms of her or his identity (Sorrentino, 2010).

Communication

Internal communication plays a key role in organizations. Effective communication contributes to improved teamwork, safety, innovation and quality of decision-making in organizations. Firms that communicate well are 4.5 times more likely to report high levels of employee engagement and 20% more likely to report lower turnover rates than their peers (Wyatt, 2006). Communication between employees and senior management ranks among the top five “very important” aspects of job satisfaction, as reported by both employees and HR professionals in the SHRM Survey in 2007.

Research suggests that effective communication is a leading indicator of financial performance: shareholder returns of companies with effective communication strategies have been found to be more than 57% higher than returns of less effective communicators (Watson, 2006). However, trying to pinpoint the benefits of specific communication programs can be a difficult task. Effective communication can have a profound impact on minimizing expenses incurred by employee turnover, customer turnover, decreased product quality, sexual harassment and workplace discrimination, among others. If an effective communication program saves the company even 1% to 5% of these costs, it will justify the time and resources required (Sprague and Del Braccio, 2008).

In an age of increased competition for talent, communication has become a strategic tool for increasing employee engagement, satisfaction and retention. Through effective communication programs, HR professionals can significantly contribute to the success of their organization (Graebner, Lockwood, and Williams, 2007). Research has shown that satisfaction with communication is imperative to job performance and satisfaction as well as overall organizational effectiveness (Campbell, White & Johnson, 2003; Ettorre, 1996).

An employer’s failure to keep up with religious accommodation requests over time can cause a chain reaction of employee dissatisfaction, discrimination claims and negative publicity. Experts say the monitoring of such requests should be built into continuing employer-supervisor communications (Fyock, 2010).



Methodology

What are employees’ perceptions and knowledge of religious-based policies? What is happening in the workplace as far as what employers are willing to accommodate, what employees are requesting, and the communication of policies guided our research. Our research was focused on better understanding employee perceptions of the current state of the practice and communication of religious accommodation in the workplace.

The participants were alumni from a regional university located in the southeastern U.S. This group was chosen because they represented more than one generation, they had been out of school long enough to have a work history, and they were employed at multiple companies in multiple locations. The survey was electronically submitted to all alumni for the time period 1975 through 2008 for which email addresses were available, resulting in a total of 7664 individuals. Of the 1169 alumni who opened the survey, 1041 responded to the initial question: “Does your company have an official written policy regarding religious accommodation?”

Respondent Profile

Slightly fewer than 55% of the respondents are male. The median age range is between 41 and 50 years. The year of graduation from the institution ranges from 1975 to 2008, with a slightly heavier concentration over the past 10 years from 1998 to 2008. More than 60 percent of the respondents earned a bachelor’s degree, while 38.6 percent earned a master’s degree from the institution. Majors include the following fields: Accounting, Economics, Finance, Management, Marketing, Technology, Manufacturing Systems Technology, Electronics Technology, Occupational Safety, Emergency Management, Criminal Justice, Social Work, Psychology, Nursing, Communications, Mathematics, Computer Science, Computer Information Systems, Political Science, Geography, and Chemistry.

The vast majority of respondents (86.2%) are employed full-time. Only 7.1 percent indicated that they are self-employed. Whereas 31 states are identified as employment locations of these graduates, as expected, most are employed in Alabama, followed by a distant second in Georgia. Tennessee, Florida, Texas, and Virginia are also indicated with some degree of frequency as employment locations. Over half the respondents indicated that they are employed in a professional occupation, with the next highest response coming from those classified as managers. The largest percentage of respondents (20.8%) is employed in governmental organizations, followed by educational institutions (17.7%), and service organizations (12.8%). The largest group (21.2%) is employed in organizations with more than 5000 employees; however, the number employed in smaller firms, ranging from one employee to 2500, makes up over 70 percent of the respondents. Eighty-seven percent of respondents are Caucasian-American, while only 7.6 percent are African-American. Eighty-nine percent describe their religious affiliation as Christian.



Existence/Communication of Religious Accommodation Policies

Of the 1,041 alumni who responded to the initial survey question, “Does your company have an official written policy regarding religious accommodation?”, 26 percent indicated their company does have such a policy; 34.6 percent said their company does not have such a policy, and the remaining 39.4 percent indicated they were not sure about such a policy. Of those whose company does have a religious accommodation policy, 218 or 83.9 percent indicated the policy is included in the company’s overall diversity policy. Sixteen percent indicated their religious accommodation policy is a separate policy. The majority (71.3%) indicated the policy is enforced, while almost a quarter of the respondents indicated they didn’t know whether or not the policy was enforced. Sixty-five percent believe their company’s policy does work as intended.

Of the 1,022 respondents to the question: “Does your company have a written policy regarding religious discrimination/harassment?”, 607 or 59.4 percent indicated that their company does have such a policy. The remaining responses were divided evenly between those who indicated that there was no such policy and those that were not sure whether or not their company had such a policy. The religious discrimination/ harassment policy is, for the most part, included in the overall harassment policy, with 94.7 percent making this indication. Only 5.3 percent indicated that their company has a separate policy for religious discrimination/harassment. Almost two-thirds of those indicating a policy exists believe it to be enforced by company officials. The remaining one-third is not sure, while only 12 individuals or 2 percent indicated the policy was not properly enforced. Over half (53.8%) believe that the policy does work as intended.

Of the 1,022 respondents, the largest number indicated that the means of communicating the organization’s religious policies was via a company handbook. The second most utilized communication method was through orientation sessions with employees. Table 1 below provides these responses. Other means of communicating the policies include: annual certification of Code of Conduct; annual online required policy compliance review; annual update; Business Practices & Ethics Policy; college intranet; compliance training sessions; contract book; diversity update training; email and/or website; email reminders; employee portal; incorporated in company policies; internet posts/e-mails; intranet; online corporation policy; policy letter; policy memorandum; policy post harassment; and posted policy memorandums. Other responses included: “We are a religious organization and are very open to religion in the workplace but it is not regulated;” “We have scheduled formal devotional periods;” “When I am asked, I tell them about Jesus Christ;” “We have yearly harassment required test.” “It is explained at date of hire that everyone is free to express their religion from their own pulpit.” “I work for the government, and it is not allowed.” “As a public university, the undertone is not to have any religion at work.”



Table 1

Methods Used to Communicate Organization’s Religious Policies

Method

Number using the method

%

Case by Case 120 11.7

Handbook 368 36.0

Informational Packets 0 0.0

Orientation 215 21.0

Training 187 18.3

Not communicated 135 13.2

Don’t know 120 11.7

No religious policies exist 119 11.6

Other: 32 3.1

Nearly three-quarters of the respondents indicated they work for an organization for which Christmas is an official holiday, followed by 44.7 percent who also have Christmas Eve off. Fewer numbers indicated Easter (25.4%) and Good Friday (17.9%) to be official holidays for them. Very few individuals indicated other religious holidays for their companies: Ash Wednesday (2.43%), Hanukkah (1.8%), Yom Kippur (1.5%), and Rosh Hashanah (1.0%). One-third of the respondents work for an organization that allows their employees to swap holidays, if desired.

Allowance of Religious Expression by Employees

The majority (59.8%) believe their company sufficiently accommodates the various religious beliefs of the company’s employees. Table 2 below provides responses pertaining to the various accommodations allowed. As indicated, those most frequently accommodated include: decorating of office space, displaying of religious materials, allowing employees to wear religious messages on clothing, and offering flexible work schedules to provide for religious observances. Lesser interest is placed on providing designated space for religious reasons and allowing job transfers for religious reasons. Few individuals indicated their employer actually provided them with the means of celebrating their religion.



Table 2

Religious Accommodations Allowed by Companies

Yes No Don't know

allows special decoration of office space for holidays

679

(77.6%)

112

(12.8%)

84

(9.6%)

allows employees to display religious materials in the work area

604

(69.4%)

141

(16.2%)

126

(14.5%)

provides decorations to accommodate the interests of a religiously and culturally diverse employee base

195

(22.5%)

500

(57.7%)

171

(19.8%)

offers flexible work schedules in order to provide time off for religious observances

509

(58.2%)

212

(24.3%)

153

(17.5%)

takes into account the different faiths of employees when planning holiday-related events

374

(42.9%)

298

(34.2%)

199

(22.9%)

accommodates various religious preferences when planning meetings, workshops, etc.

255

(29.5%)

344

(39.7%)

267

(30.8%)

accommodates unique religious needs of employees when providing food/meals (e.g., kosher, vegetarian, etc.)

353

(40.6%)

346

(39.8%)

170

(19.6%)

accommodates religious practices in the workplace (e.g., prayer, meditation, etc.)

358

(41.1%)

290

(33.3%)

223

(25.6%)

allows the formation of on-site religious-based affinity groups

258

(29.8%)

335

(38.7%)

272

(31.5%)

provides written policies regarding religious holiday leave (paid or unpaid)

344

(39.8%)

294

(34.0%)

226

(26.2%)

accommodates religious practices regarding dress/personal appearance code (e.g., facial hair, head coverings, etc.)

414

(47.9%)

192

(22.1%)

261

(30.0%)

provides designated space for religious observance 134

(15.4%)

548

(63.1%)

187

(21.5%)



Yes No Don't know

allows job transfers for religious reasons 115

(13.3%)

270

(31.2%)

481

(55.5%)

allows employees to wear religious messages on clothing (i.e., Star of David pin, crucifix necklace, ProLife button, etc.)

555

(63.9%)

137

(15.78%)

177

(20.3%)

Discussion

People tend to bring their religious beliefs to work with the assumption everyone else has pretty similar belief systems, but that's just not always the case. This is a country of multiple beliefs and multiple religions, and not all of them agree with each other.

We investigated employee perceptions of the communication and practice of religious accommodation policies within US firms. A major finding of our study is that 75% either reported no policy or not knowing if their company had a religious accommodation policy and 40% reported no policy or that they were not aware of a religious harassment policy. 32% did not know if the accommodation policy worked while 44% did not know if the religious harassment policy worked. These low awareness numbers for religious accommodation policies are not totally unexpected. In many instances, employers would subsume such policies in general non-discrimination policies.

The two primary means of communication reported were company handbooks (36%) and orientation (21%). A majority of respondents was unaware of a religious accommodation policy or reported no policy at all. Managers should consider other means of communication or more frequent communication of the policies. Orientation is a stressful time as new employees are introduced to the company. Employees do not always remember what they heard in orientation. Company handbooks are not always read.

By an overwhelming majority, the official holidays are Christian. In fact, the only other official holidays mentioned were Jewish (reported by only 1.8% of respondents). Given that all national holidays with religious roots are Christian and that 76% of the country is Christian, these findings are not surprising. However, with the increasing diversity in the workplace, managers would be wise to consider learning and accommodating holidays that are important to other religions. People are woefully unaware of other religions’ creeds and holidays which can lead to problems.

Training in religious diversity could remedy this, making for more inclusivity in the workplace. It is often beneficial to educate employees on a variety of religious beliefs (Morgan, 2004). Education can be the key to the accommodation of religious rights of members of minority religions, which in turn protects the principles of religious rights for all. This type of



education will help employees to be more open-minded and understanding about the views of others.

Communication is a vital management component to any organization. Whether the purpose is to merely update employees on new policies, to prepare for a weather disaster, to ensure safety throughout the organization or to listen to the attitudes of employees, effective communication is an integral issue in effective management. In order to be successful, organizations should have comprehensive policies and strategies for communicating with its constituencies: employees, stakeholders and the community at large (Fyock, 2010).

Properly training managers and other employees on religious diversity and how to handle requests for religious accommodation helps create a supportive work environment. In addition, managers need to fully understand the religious discrimination and harassment policies that have been developed. This will allow managers to educate employees on the religious accommodation and diversity policies in the workplace and help managers to react to religious accommodation requests in an appropriate way.

When employees have a strong team or community spirit and a sense of belonging, the organization tends to be strong, resilient, and effective. Affecting corporate change in such a culture to create a supportive work environment can be a fairly easy and smooth process if decision and policy makers focus on the value added through pro-active religious accommodations in the workplace. A Harvard Business School study of twenty leading corporations over an eleven-year period found that “more spirited” companies outperformed others by 400-500 percent in terms of net earnings, return on investment, and shareholder values (Garcia-Zamor, 2003). Garcia-Zamor (2003) adds that Vanderbilt University Business School had similar findings using Fortune’s list of the one-hundred best companies to work for.

Finally, from our respondents, it appears that companies are informally accommodating religion on a case-by-case basis. For example, 69% offer flexible work schedules in order to provide time off for religious observances; 58% accommodate religious practices in the workplace (e.g., prayer, meditation, etc.); and 48% report accommodating religious practices regarding dress/personal appearance code (e.g., facial hair, head coverings, etc.). Few (13%) allow job transfers for religious reasons, only 15% provide designated space for religious observance, and 29% accommodate various religious preferences when planning meetings, workshops, etc. With the workforce having limited knowledge of other religions, this informal accommodation might work against a company, especially if more exotic religions with perceived unusual requests are not accommodated.

Limitations

Exploration of the effects of religion in the workplace will continue to expand as religious diversity increases and becomes more apparent in organizations. As with any study some minor weaknesses were evident. This research was geographically restricted to participants primarily located in what is known as the “Bible belt” (southeast U.S.). The data collected were



self-reported. Caution must be advised as the results are confined to college graduates. Finally, the concepts of religious accommodation examined and the findings of the study do, in essence, replicate some common understandings in the literature.

Future Research

Despite its limitations, the study results suggest several areas of interest for future research. First, due to the scope of the study, several of the concepts that were not included may provide additional insights. Second, in order to further the understanding of the boundaries and generalizability of this study’s findings, new studies should attempt to focus more on human resource managers and their understanding of religious accommodation policies and/or expand the sample to include other regions of the US. Finally, consideration must be given to creating a longitudinal study, replicating this study with this same sampling frame in order to follow the impact of immigration, education/training of employees, and dissemination of information concerning religious accommodation. Our investigation of employee perceptions of the communication of religious accommodations is a new area that needs additional investigation. In addition, looking at relationships among religious accommodation practices, job satisfaction and performance, and willingness to leave due to lack of enforced religious policies would be another direction to pursue. Future studies would benefit from investigating the role that religion plays in businesses located across the US as well as internationally.

References

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About the Authors

Patricia Borstorff is a Professor of Management at Jacksonville State University. She received her MBA from Jacksonville State University and her PhD from Auburn University, Her research interests are e-business; expatriate management; retirement planning, and mandatory employment arbitration. She has received the Irwin-McGraw Hill Best Paper award at Federated Business Disciplines conference; the Best Research Award at International Academy of Case Studies Conference; and received the Dean’s Faculty Award for Excellence in Research as well as Excellence in Service multiple times at JSU. She serves on the Board of Society for Human Resource Management as well as on the JSU Foundation Board of Directors. Dr. Borstorff has received the award of Human Resource Professional of the Year as well as was chosen as one of the outstanding women leaders in northeast Alabama. She holds the Senior Professional in Human Resources national certification.

Dr. Brent J. Cunningham received his bachelor degree from Jacksonville State University, masters degree from The University of Alabama and doctorate from The University of Mississippi. His current research areas are religious accommodation, religiosity, M-commerce, materialism and coping strategies. He has received numerous teaching, research and community service awards including AMA Doctoral Fellow, Outstanding Young Educator Award, Faculty of the Year Nominee, Dean’s Teaching Excellence Award, and Faculty Senate President. A sampling of outlets where he has published are: Marketing Education Quarterly, Journal of Nonprofit and Public Sector Marketing, and Research in Business Workbook.

Dr. Clark serves the College of Commerce and Business Administration at Jacksonville State University as Associate Dean, MBA Director, and Director of the CCBA Advising Center. She is a Professor of Statistics and teaches the computer lab that accompanies the beginning statistics course (ST 260) for business majors. Her formal education includes the B.S. degree with a major in Marketing, the M.S. degree with a major in Statistics, and the Ph.D. also with a major in Statistics. All degrees were earned from The University of Alabama. Dr. Clark is a member of the national business honor society, Beta Gamma Sigma. She is involved with numerous committees and activities supporting the College, the University, and the community. She also serves as a reader for the C&R Committee of the Southern Association of Colleges and Schools – Commission on Colleges.



A Blueprint to Designing the Ethics and Compliance Program for the Small Business

Brian Winrow, Winona State University

Mussie Tessema, Winona State University Nicholas Miner, Winona State University

Executive Summary

During the first ten years following the implementation of the Federal Sentencing Guidelines for Organizations in 1992, more than 1,500 businesses were sentenced, yielding over $2.3 billion in fines and over 3000 years of probation. Of these 1500 businesses, the overwhelming majority convicted and sentenced in federal court were small, closely-held companies. When a business is convicted of a federal crime, it is sentenced according to the Federal Sentencing Guidelines for Organizations (FSGO), with a possible fine of up to $290,000,000. According to the guidelines, a business can significantly mitigate its potential liability by implementing an ethics and compliance program designed to foster an environment conducive to developing a strong ethical organizational culture while ferreting out and preventing criminal activity. The purpose of this article is to provide guidelines to small business practitioners on how to develop a comprehensive and sustainable value based ethics program in order to enhance employee conduct while also meeting the requirements of the FSGO.

Introduction

When entrepreneurs form a business, most undertake the venture clearly understanding the types of business risks that can arise in the form of torts and contracts. They further understand they are vicariously liable for the acts of their employees and agents, when the act is performed within the agent’s scope of employment. While these types of business risks are well documented, there is another form of liability the entrepreneur must be cognizant of; the imposition of criminal liability with sentences mandated by the Federal Sentencing Guidelines for Organizations (FSGO). During the first ten years following the implementation of the FSGO, 1,500 businesses have been sentenced, yielding over $2.3 billion in fines and over 3000 years of probation (Murphy, 2002). The “overwhelming majority” of businesses sentenced in federal court were small, closely-held companies (Fiorelli and Tracey, 2008).

Once convicted of a criminal act, the court calculates the sentence according to the FSGO. The imposed sentence is based upon the organization’s culpability score, which is used to determine a minimum and maximum "multiplier". The culpability score reflects the organization’s measures designed to ferret out and remedy illegal behavior. An organization that disregarded its duty may be assessed a fine exceeding $290,000,000 (Fiorelli and Tracey, 2008). In contrast, if the business developed a quality ethics and compliance program, the fines will be reduced by up to 95% (Fiorelli and Tracey, 2007).



The purpose of this article is to complete a systematic review of the current literature to identify the key elements of an ethics and compliance program that enhances the business’s productivity, while minimizing potential fines under the FSGO. This article will commence with a brief history of the FSGO, contrasting compliance based with value based programs. The article will conclude with an analysis of the elements needed to develop an ethics and compliance program.

History of the Federal Sentencing Guidelines

The United States Sentencing Commission, established in 1984 by the Comprehensive Crime Control Act, promulgated the Federal Sentencing Guidelines in 1987 (Rexroad, Bishop, and Leinicke, 1999). The guidelines were designed to purge inequities in sentencing, based upon immaterial factors, by providing a standardized penalty in the sentencing of individuals with similar characteristics, convicted of similar federal crimes (Piquero and Davis, 2004). The Federal Sentencing Guidelines were comprised of seven chapters focusing exclusively on individuals (Rexroad, et. al., 1999). In 1991, the U.S. Sentencing Commission added Chapter 8, Federal Sentencing Guidelines for Organizations, standardizing sentences for businesses convicted of criminal acts (Rexroad, et. al., 1999).

When Chapter 8 of the Federal Sentencing Guidelines was enacted, it was based on the premise of compliance. The chapter was designed to provide incentives to companies that implemented safeguards tailored toward preventing and detecting violations of the law by using due diligence to ferret out criminal conduct committed by the business’s agents and employees (Murphy, 2002). Under the guidelines, an organization that implemented a satisfactory compliance program received consideration in the form of reduced fines during sentencing (Murphy, 2002).

According to the FSGO (2007), an effective compliance program is comprised of the following seven factors:

Establishing standards and procedures to detect and prevent criminal misconduct.

Oversight by high-level personnel to ensure legal compliance.

Background checks prior to delegating authority.

Training and dissemination of material to all employees.

Procedures to monitor employee compliance.

Consistent enforcement of standards and procedures.

Ongoing assessment of safeguards and preventive measures.

Compliance with the seven standards was considered the standard for assessing internal compliance programs (Fiorelli and Tracey, 2007).



While the FSGO provided practitioners with an enumerated list of factors that needed to be included within the compliance program, there were two central criticisms. First, the focus of the FSGO was compliant based, concentrating on the detection and prevention of illegal acts and not on ethical behaviors (Fiorelli and Tracey, 2007). Secondly, the FSGO punished small businesses, as larger organizations were more likely to have formal ethics/compliance programs (Trevino, 2005). The FSGO increased the sentence if a key member of the managerial team was involved in the impermissible activity (Fiorelli and Tracey, 2008). Since most small businesses do not implement a traditional corporate model of governance, it was probable that a key member of management within the small business is involved in the unsavory acts. As a result, most small business did not receive full credit for its compliance program (Fiorelli and Tracey, 2008).

Amendment to the FSGO

In 2004, the U.S. Sentencing Commission amended the sentencing guidelines, providing clarity to the original seven components of an effective compliance program (Imperato, 2005). Under the amendment, an effective compliance program includes prevention and detection of criminal conduct in concert with mandating the development of an organizational culture designed to promote ethical actions and an adherence to compliance with the law (Imperato, 2005). In other words, the amendments shift the emphasis from a purely compliance focus to a combination of compliance and commitment to an ethical organizational culture.

In order to facilitate ethical actions, the 2005 amendments require businesses to implement training programs for all employees and agents of the organization, including top executives. The training program should be tailored toward the specific risks that each employee is likely to face while carrying out their duties (Imperato, 2005). While formal training programs can be expensive, the amendments specifically sanction informal communication as a viable means of training for small businesses, as the nature of the small business presents management with the opportunity to informally converse with their employees. While the FSGO does permit a small business to engage in informal training, management should judiciously document all training in order to proffer evidence of substantial compliance.

Holder Memorandum

While the FSGO is applied during the sentencing phase of a criminal trial, the Holder memorandum in instrumental in determining whether the government will pursue criminal charges. The Holder memorandum, drafted in 1999 by then-Deputy Attorney General Eric H. Holder, Jr., recognizes that each corporation possesses its own culture (Finder and McConnell, 2006). As a result, the organization should be held responsible for the conduct it sanctions (Finder and McConnell, 2006). The memo articulates eight factors that serve as the framework for prosecutors in ascertaining whether to pursue criminal charges against a business. The eight factors include the nature of the offense; frequency of the behavior; history of similar acts; willingness to cooperate in the investigation; sufficiency of the corporation's compliance



program; remedial actions to remedy the acts; disparate harm to stakeholders that were not personally culpable; and the sufficiency of non-criminal remedies, such as civil actions (Finder and McConnell, 2006).

The Holder framework provides valuable insight for entrepreneurs as they attempt to develop their ethical compliance programs, as it provides an understanding of how the Department of Justice analyzes cases pertaining to misconduct. Coincidentally, some of the factors contained within the Holder memorandum are included under the FSGO, such as sufficiency and assessment of the compliance program. As a result, focusing on an ethics and compliance program not only enhances the organization’s efficiency, but protects the small business from the perils of prosecution should a rogue employee or agent engage in unsanctioned activities in furtherance of the organization.

Development of an Ethical Compliance Program for Small Businesses

When drafting an ethics and compliance program, the entrepreneur should refrain from exclusively relying on the FSGO or Holder memo, as the framework is compliance based. Evidence shows that compliance based programs are less effective than values-and-integrity based models, as culture is a driver to achieving ethical compliance (Tyler, Dienhart, and Thomas, 2008). The ethics and compliance program must permeate through all facets of the business, becoming part of the organizational culture to optimize the likelihood of success.

The following section focuses on the components needed to develop an effective organizational culture and ethics program. It includes developing an ethical culture; creating a code of ethics; oversight of the program; development of whistle-blowing policy; and training and assessment, as illustrated in table 1. By incorporating each of these factors, the entrepreneur will develop a comprehensive compliance program while also satisfying the spirit of the law as articulated in the Federal Sentencing Guidelines and the Holder memo.



Table 1

Components of an Effective Organizational Culture and Ethics Program

Culture

The first step in designing a program is to foster an organizational culture that accentuates ethical conduct. In order to achieve this measure, the organization must determine the business’s values (Fiorelli and Tracey, 2008). By identifying the values, the entrepreneur is able to develop an organizational culture conducive to becoming socially responsible (Jenkins,



2009). Research has found that values have a stronger correlation with compliance than a program based on fear of punishment (Tyler et. al., 2008). As a result, the practitioner should instill a culture promoting fairness, rewarding ethical behaviors, and punishing unethical behavior to maximize employee compliance (Tyler et. al., 2008).

In order to implement a culture conducive to self-regulation, the entrepreneur should focus on four concepts (Tyler et. al., 2008). Secondly, it is imperative that management at each level of the organizational structure adhere to the established ethical standards to demonstrate a good example. Third, the importance of ethics must be communicated to the employees, which can be accomplished through training. Finally, the business must take measures to ensure applicants for employment share the same values as the organization (Tyler et. al., 2008).

To instill the appropriate culture, top management must adhere to a high level of ethical standards, which is arguably the most important factor in developing an organizational culture. According to the National Business Ethics Survey (NBES), organizations in which top management are perceived as setting a good example are 15% less likely to observe misconduct (Seligson and Choi, 2006). As with top management, middle managers have significant influence in sustaining an ethical organizational culture. For example, when middle managers honor commitments, employees are 26% less likely to observe transgressions (Seligson and Choi, 2006). Finally, when employees perceive supervisors as exhibiting a good example, they are 13% more likely to be satisfied with the organization (Seligson and Choi, 2006). Satisfaction with the business is important as research suggests a correlation between an organization’s ethical climate and job satisfaction (Thorne, 2009).

In addition to reinforcing ethical values through conduct, it is important to communicate the importance of ethics with the employees. When an employee is satisfied with the information distributed to employees, misconduct decreases by 6% (Seligson and Choi, 2006). When satisfied with middle management’s efforts in promoting an ethical culture, misconduct is 8% less likely to occur (Seligson and Choi, 2006). Likewise, job satisfaction increases 3% when employees are satisfied with the level of communication about ethics from their supervisor (Seligson and Choi, 2006). An effective communication system provides the employee with the opportunity to converse about compliance and ethics, which can be achieved by promoting an open dialog about ethics and values (Fiorelli and Tracey, 2007).

In order to promote a culture where a strong sense of values permeates though the entire organization, the employer should further implement a system to screen employees for past ethical transgressions, as well as employing applicants that have personal values that emulate the organizations values. By screening applicants, the business complies with the amended Federal Sentencing Guidelines for Organizations. Moreover, research suggests that lack of fit between the organization and employees are associated with most adverse outcomes (Thorne, 2009). For example, Ulrich et al. (2007) found a positive ethical climate reduces the rate of employee turnover. In addition, research has shown that ethical conflict leads to diminished organizational commitment and increased absenteeism (Thorne, 2009). Ethical conflict results when employees encounter actions conflicting with their own core values (Thorne, 2009). In contrast, research has



established that the fit between a person’s individual values and the organization’s ethical climate is a predictor of enhanced commitment and job satisfaction (Ambrose et al., 2007; Throne, 2009).

Code of Ethics

When developing the ethics and compliance program, a fundamental element is the code of ethics. The code of ethics should support the business’s values. The purpose of the code is to provide direction to the employees on how to comply with the organization’s values, augmenting the employee and agent’s ability to resist unethical mandates, and promoting a positive organizational culture (Metzger, Dalton, and Hill, 1993).

When drafting the code of ethics, it should include a written policy endorsed by the business’s top officer, reinforcing the significance of the code (Fiorelli and Tracey, 2008). The policy should include a preamble emphasizing the expectation that employees will conduct their business affairs in a legal and ethical manner. While most small businesses have adopted a code of ethics, many are legalistic in nature, emphasizing legal responsibility (Metzger et. al, 1993). Such an approach is often ineffective, as they discount the importance of business ethics (Metzger et. al, 1993). Instead, the code should contain a list of ethical norms that coincide with the values of the organization (Metzger et. al, 1993). The norms should be prioritized to minimize ambiguity in the code, as ambiguity is a basis for organizational misconduct (Metzger et. al, 1993).

After developing the code, it is important to take measures to integrate it into the organization (Detlev Nitsch, Baetz, and Hughes, 2005). After implementing the code, the organization must enforce the provisions, immediately and publicly disciplining employees or agents that neglect to comply with the provisions. Failure to enforce the code can make the code appear hollow, resulting in employee behavior that is contrary to the code (Detlev et. al., 2005). It should contain language that establishes disciplinary measures for failing to comply with the provisions. By carefully executing the code, the business can capitalize upon benefits associated with implementation, including improved investor confidence, enhanced reputation, lower turnover, increased employee morale, and the preclusion of corruption within the organization (Painter-Morland, 2006).

Training

The Federal sentencing Guidelines for Organizations requires all businesses to engage in training activities (Trevino, 2005). While complying with the FSGO will minimize fines in the event of a criminal prosecution, training also enhances the ethical culture of the organization by reiterating the importance of ethics from top management to each employee. Moreover, it can have the incidental benefit of serving as the springboard for open dialog regarding ethics, which further strengthens the businesses culture.



According to the FSGO, employee training must pervade through the entire organization (Teicheira, 2008). With that said, formal training within the organization should not be homogeneous (Seligson and Choi, 2006). Instead, it is important to strategically tailor the content based upon whether the employee is in a managerial position. According to a recent study, training has a greater impact on non-management employees than on managers (Seligson and Choi, 2006). The study revealed that 98% of managers trained in ethics feel equipped to manage risk as opposed to 91% of who were not trained (Seligson and Choi, 2006). In contrast, 79% of non-managers who have undergone training feel equipped to handle risk, versus 58% of non-managers who have not received training (Seligson and Choi, 2006). Based upon this research, training for junior employees should focus on strengthening decision-making skills, while management capacity should receive training structured to cover topic-specific issues that heightens the awareness of designated forms of misconduct (Seligson and Choi, 2006).

While large organizations usually have formal training sessions, the amended FSGO recognizes the unique challenges small businesses encounter due to resource constraints. Under the amendments, a small business may conduct informal training, as they have the ability to routinely communicate and hold informal meetings with the entire organization (Fiorelli, Tracey, 2008). While small businesses may conduct training informally, management should take precautions to document the measures they undertook in providing training.

Whistle-blowing and Reporting

One of the most effective and least expensive resources to detect unethical and legally questionable behavior is through the implementation of whistle-blowing hotlines (Metzger, Dalton, and Hill, 1993). While most companies are still in the process of establishing internal hotlines for anonymous employee reporting of ethical concerns, it is an integral component of an effective corporate ethics program (Metzger et. al., 1993). According to the NBES, employee whistle-blowing increased to 63% in 2009, up from 58% in 2007 (Bannon, Ford, & Meltzer, 2010). Even though the number of employees reporting misconduct has increased from 2007 to 2010, there are still challenges in convincing employees to report transgressions. For example, a 2003 study established that nearly 44% of all non-management did not report the misconduct they observed (Nitsch, at. al., 2005).

While a reporting hotline provides employees a means to report questionable conduct and to seek advice, the protocols can prove to be problematic. In some situations, such as when the supervisor is the root of the misconduct. It would be impractical to expect employees to report to their supervisor (Fiorelli and Tracey, 2008). As a result, many firms have implemented anonymous reporting system to encourage employees to report misconduct. While small businesses may not have the financial resources to outsource the compliance hotline, they can create "in-house" reporting controls with a simple P.O. Box or confidential drop box (Fiorelli and Tracey, 2008).



In addition, organizations can implement measures to ensure employees are aware of the purpose, process and procedures for internally reporting instances of illegal or unethical acts. First, the organization can develop a policy requiring employees to report misconduct through the established reporting mechanism. Some professions, such as the legal profession, have implemented the mandated reporting policy where attorneys are required to report violations of the Model Rules of Professional Conduct committed by other lawyers or judges (ABA, 1999). In addition to developing such a policy, the organization should disperse the procedures to all employees to ensure everyone is aware of the mandate (Miceli et al.,2008). There are several venues in which the policy and reporting procedures can be disseminated, including the use of intranet and orientation resources (Miceli et al., 2008). The policy should further be available on the organizations website where employees and other stakeholders have easy access to the material (Miceli et al., 2008).

Ethics Officer or Committee

According to the amended version of the FSGO, high-level personnel must be involved in the oversight of the ethics and compliance program (Fiorelli and Tracey, 2008). In order to oversee these comprehensive programs, many organizations elect to employ ethics or compliance officers (Murphy, 2002). The role of the ethics and compliance officer is to develop and administer the ethics and compliance program (Murphy, 2002). Their primary functions consist of overseeing the compliance program, investigating employee misconduct, and ensuring employees are receiving ethics training (Weber and Fortun, 2005). Since the development of the FSGO, the number of businesses hiring ethics and compliance officers has significantly increased.

While larger organizations have the need to hire an ethics and compliance officer, it is often impractical for small businesses to allocate financial resources to employ an officer to oversee the program. As a result, many small businesses develop a committee comprised of several employees that oversee the program in addition to their primary job responsibilities (Fiorelli and Tracey, 2008). Whether an organization employs an ethics and compliance officer or develops a committee to administer the program, it is beneficial for the designated officer or committee members to collaborate with the human resources office (Berenbeim, 2010). This is acutely true in the area of investigating complaints, taking disciplinary actions, and training employees on ethics (Berenbeim, 2010).

Assessment

Simply developing and implementing an ethics and compliance program is insufficient to satisfy the FSGO, or to ensure that the organizational culture reinforces the business’s values. In order to develop an effective program, it is imperative for the organization to periodically asseses the program. The ethics officer or committee should utilize the data obtained from the reporting system to identify potential high-risk areas within the business (Penman, 2009).



By examining the calls to the reporting hotline, the business can gain valuable insight. One area of interest is the number of reported violations or requests for guidance and advice. An uneven rate of reports may indicate compliance issues, or signify that management is not trusted (Penman, 2009). If there is a lack of employee reports, it could be indicative of employees that fear retaliation for reporting incidences, or may be a lack of communication whereby the employees are unaware of the reporting venue (Penman, 2009). The results should be compared to appropriate benchmarks, both internally against previous reporting data as well as externally against industry norms (Penman, 2009).

Conclusion

The trepidation of the entrepreneur in having the business criminally prosecuted for misconduct is a legitimate concern. Since the enactment of the FSGO, the overwhelming majority of businesses convicted of criminal behavior are small businesses. As a result, entrepreneurs need to be proactive in developing an ethics and compliance program that not only addresses the requirements of the FSGO, but also the spirit of the law in order to minimize culpability, should an employee or agent engage in unpermitted activities. By developing and implementing a strong ethics and compliance program, the entrepreneur is not only promoting investor confidence and increasing employee morale leading to such favorable conditions such as increased employee satisfaction and lower turnover, but is also complying with the amended FSGO. As a result, in the event a rogue employee engages in illegal conduct, the business will be able to avert criminal prosecution, or minimize its culpability by having implemented an ethics and compliance program in conjunction with taking remedial measures to ensure the unpermitted act does not reoccur.

While the guidelines permit small businesses to informally implement the ethics and compliance program, it is imperative that the entrepreneur continuously document their efforts in developing and maintaining the compliance program. This should entail notes of informal employee training, results of investigations from internal complaints, as well as documentation that the employer performed background checks such as contacting references. Moreover, while compliance with the FSGO will minimize the scope of sanctions administered against an offending organization, the development of a value based ethics and compliance program can transform an organization surpassing the mere avoidance of sanctions, as a strong ethics climate can reduce the rate of employee turnover. In addition, organizations that foster a strong ethical climate minimizes the employee’s level of ethical conflict that has been linked with increased stress, diminished organizational commitment, and increased absenteeism. As a result, small businesses can enhance commitment and job satisfaction in addition to minimizing possible sanctions for employee misconduct by developing and implementing a strong ethics and compliance program.



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About the Authors

Brian Winrow, JD, MBA is an Associate Professor of Business Law and Applied Business Ethics at Winona State University. His research interests include corporate governance and organizational ethics.

Mussie T. Tessema, PhD, is an Associate Professor of Human Resources at Winona State University. His research interests include international HRM, HRM-performance relationship, and HRD.

Nick Miner graduated from Winona State University with a degree in Business Administration and Human Resource Management. He currently serves as a manager in the Engineering and Manufacturing industry.



A Three-Path Model of New Venture Creation: An Image Theory Perspective

Tobias M. Huning, Columbus State University Phil C. Bryant, Columbus State University

Steven C. Brown, Columbus State University

Executive Summary

Researchers in the entrepreneurship discipline have long sought to answer the question: “what drives people to entrepreneurship?” Previous research has focused, with little payoff, on the psychology of the entrepreneur in terms of which individual level traits differentiate those who engage in entrepreneurial behavior from those who do not. In this manuscript, we posit that people choose entrepreneurship as a career through one of three paths. We present a three-path model of new venture creation, which suggests that certain external influences initiate an individual’s cognitive processes of cognitive scripts and sense of opportunity recognition, thereby producing entrepreneurial behavior. This model is unique from, yet is complimentary to, the psychology-based theories that have been previously offered in the literature.

Introduction

What drives people to start a new venture? Potential entrepreneurs typically choose to start a new venture when they see it as the best alternative from a pool of viable alternatives. Many people may see starting a new venture as a suboptimal decision, while some may never even contemplate it as an alternative. Various reasons for the differences that distinguish entrepreneurs from non-entrepreneurs have been examined, such as personality characteristics (Abbey, 2002; Forlani & Mullins, 2000) and demographic characteristics (Crant, 1996; Stewart, Carland, Carland, Watson, & Sweo, 2003). Intentional models, however, have proven to be a better alternative in predicting entrepreneurial activity (Krueger & Carsrud, 1993; Krueger, Reilly, & Carsrud, 2000), since intentions are considered to be immediate antecedents of behavior (Ajzen, 1991).

According to Elfving, Brännback, and Carsrud (2009), the greatest reason for intention is an entrepreneurial event, referred to as a shock, which is a change in direction of a person’s life (i.e. job loss, midlife crisis, risk opportunity, money). A shock leads to the individual contemplating their circumstances, which, in turn, might lead to entrepreneurial behavior. However, Elfving and colleague’s (2009) contextual model of entrepreneurship acknowledges that these entrepreneurial events are necessary yet insufficient predictors of new venture creation. Other authors have pointed to factors such as necessary motivations, goals, and opportunity evaluation (Naffziger, Hornsby, & Kuratko, 1994; Boyd & Vozikis, 1994). Begum (1993) notes that self motivation, confidence, job skills, technical qualification, external



motivation, government policy, and calculated incentives are motivational factors related to a proclivity for entrepreneurship. Few studies have attempted to integrate these perspectives into a more comprehensive and generalizable model.

A new venture is often described as an extension of the founder, created in the founder’s image (Chandler & Hanks, 1994; Mintzberg, 1988). While some researchers propose that entrepreneurship should be studied as a firm behavior at the organizational level (Ahuja & Lampert, 2001; Covin & Slevin, 1991; Lee & Peterson, 2000), there are also studies regarding entrepreneurship as a part of the life cycle of firms (McCarthy, Krueger, & Schoenecker, 1990). Much of the extant research focuses on entrepreneurs and their behaviors (Venkataraman, 1997), which has led to a tradition of considering entrepreneurship synonymous with new venture creation. Many studies have examined entrepreneurship as various personal characteristics of entrepreneurs, presenting the entrepreneur as an innovator (Schumpeter, 1934), locator and implementer of ideas, and leader (Baumol, 1968), as well as a possessor of idiosyncratic knowledge that enables opportunity recognition (Shane & Venkatraman, 2000).

Many researchers opine that entrepreneurs are individuals who focus specifically on newness and novelty in the form of new products, processes, and the development of entirely new markets and industries (Lumpkin & Dess, 1996), which is the perspective on entrepreneurship we adopt for our research provided that much research has followed this line of thinking (Chrisman, Bauerschmidt, & Hofer, 1998; Gnyawali & Fogel, 1994.

Existing research seeking to understand entrepreneurial behavior includes a number of content-focused models that do not really examine or explain the underlying process of new venture creation. The context is of particular importance for the study of entrepreneurship as entrepreneurial actions, and cognitions, occur in the presence of high risk and uncertainty (Baron, 2008). The increased uncertainty likely produces increases affective responses and perhaps even entrepreneurial motivation. For example, researchers have tried to answer the question by relating entrepreneurial cognition to new venture creation (Markman, Balkin & Baron, 2002; Mitchell, Busenitz, Bird, Gaglio, McMullen, Morse, & Smith, 2007).

Recent research has expanded the contextual view into the interaction between the entrepreneurs affective experiences and the inherently uncertain context. Biniari (2010) argues that the resulting emotions from the dyadic interaction between entrepreneurs and non-entrepreneurs in a given social context affect the entrepreneurial process and its outcomes. This, in turn, influences the emotional and social embeddedness of the entrepreneur, which may prove to be quite valuable for access to resources and credibility. Hahn, Frese, Binnewies, and Schmitt (2012) concluded that well-being is an important determinant of proactive behavior which illuminated the necessity to take a more differentiated view into the nature of entrepreneurial emotions than offered in the past. This is further echoed by Podoynitsyna, van der Bij, and Song who proposed that the strain caused by the experience of conflicting emotions collectively influence decision making.

Along similar lines of thought Morris, Kuratko, Schindehutte, and Spivak proposed that both entrepreneur and the venture itself create one another through a dyadic interaction that



provides experiences to the entrepreneur that vary in their volume, velocity, and volatility (Morris, Kuratko, Schindehutte, and Spivak, 2012). Consistent with the aforementioned framework, Hayton and Cholakova (2012) suggest that both cognition and affect represent a deeply intertwined process that enables the entrepreneur to feel, think, and act in a systematic fashion. Welpe and colleagues (2012) further explain that the experienced emotions impact the evaluation and consequent exploitation.

Research suggests that cognitive maps are sensemaking tools that help continuously elucidate a subject, revising explanations as the information received changes. Cognitive maps are a form of mental processing in which an individual psychologically transforms information about a phenomenon into a personal understanding of it. These cognitive maps serve as the basis for decision making and action. These cognitive maps have been defined through many related terms, such as schema, mental models, and scripts.

In relation to this current manuscript, a cross-cultural study by Mitchell and colleagues (2000) examined the effect of cognition maps in the form of three scripts (arrangements, willingness, and ability) on the venture creation decision. Scripts are defined as a cognitive mechanism that comprises the key elements in a decision situation and the likely ordering of events. Previous literature has suggested that there are biases within the scripts of entrepreneurs, such as overconfidence (Busenitz & Barney, 1997) and self-justification (Baron, 1998). These entrepreneurship-related scripts integrate the tacit knowledge of the entrepreneur producing cognitive maps outlining the path to new venture creation. Consequently, many theorists advocate that new ventures are created in the image of the founder (Chandler & Hanks, 1994). Recent research has suggested that the entrepreneurial new venture is rooted in affect and emotion (Morris et al, 2012). Specifically, the venture and the entrepreneur create each other through an ongoing interactional process (Morris et al.,2012). While pointing out important variables in terms of venture creation, these models nevertheless fail to offer a greater understanding of why individuals choose entrepreneurial career paths.

Bhave (1994) offered a process model of entrepreneurial venture creation, which, through interviews with entrepreneurs, identified important variables in the process of venture creation, such as opportunity recognition. This study built a foundation for improved theorization concerning the process of new firm creation. However, this model leaves out important factors that have been suggested by previous research in entrepreneurial cognition. One of the factors omitted is the idea of mental maps or scripts. As suggested by Mitchell et al. (2000), scripts function as a knowledge structure and account for the comprehensive reality based on consideration of both the external situation and knowledge required in the situation to achieve better performance. Therefore, scripts play an important role in explaining entrepreneurs' decisions to start new ventures and the decision process of venture creation. Although Bhave (1994) acknowledged the importance of external triggers in initiating externally stimulated opportunity recognition, the model does not incorporate external variables addressing such triggers. The inclusion of such triggers would provide a better understanding of the entrepreneurial process since external environmental factors clearly play an important



influencing role. As such, inclusion of cognitive processes within a path model provides a promising avenue for further inquiry into the creation of new ventures.

The purpose of this paper is to propose a model of new venture creation that allows for systematic integration of factors, both internal and external, as part of the entrepreneurial venture creation process. Specifically, we propose a three-path model of new venture creation that extends the work of Bhave (1994) by incorporating scripts and external factors referred to as shocks. The model presented is consistent with Elfving and colleague’s (2009) findings, which suggest that the goal behind new venture creation may be to gain independence based on the process of detachment derived through situational momentum. Detachment precedes the need to acquire resources for the purpose of new venture success, whereas vision, self-efficacy, and goals relate to subsequent venture growth (Baum & Locke, 2004). Nevertheless, choice and goal development remain independent processes conceptually and behaviorally (Sarasvathy, 2001). Based on image theory, as presented by Beach and colleagues (Beach, 1993a; Beach, 1993b; Beach & Connolly, 2005; Beach & Mitchell, 1987), the three-path model of entrepreneurial venture formation takes into account the possibility of irrationality among decision makers within the decision making process. Beach stated that real decision processes seldom involve extensive evaluation: there is rarely any actual choice, behaviors are often pre-programmed, and decision makers use few strategies in making their decisions (Beach, 1993a). This view complements the current literature on opportunity recognition. Ultimately, image theory is less about rational decision making processes (i.e. opportunism, opportunity recognition) than it is about a surface level screening process that motivates entrepreneurial behavior. According to Herron and Sapienza (1992) motivation plays an important role in the formation of new ventures despite the validity of the argument for situational dependency as a primary determinant of new venture creation. Regarding the importance of motivation, Stewart and Roth (2007) found that a high achievement motivation plays an important role in the creation of new ventures through underlying commitment and perseverance.

By incorporating both cognitive and environmental factors into this path model of entrepreneurial venture formation, we offer an explanation of how entrepreneurs go through decision stages that culminate in the creation of a new venture. Therefore, the three-path model of new venture creation presented herein will provide greater understanding of new venture formation. In addition, the introduction of image theory into this area of research interjects a new and helpful perspective by suggesting that the entrepreneurial process is not wholly rational (Herron & Sapienza, 1992). Image theory further emphasizes that new ventures are, to a great extent, created in the image of the founders. Each new venture becomes an extension of its founder’s values, beliefs, and assumptions about the business (Chandler & Hansk, 1994; Mintzberg, 1988).

In the following sections, we review relevant literature on image theory, scripts, and the idea of shocks. Based on this body of research, we offer a three-path model of new venture creation. Implications and discussions are offered subsequently.



Theoretical Development

The intention of an individual to become an entrepreneur is crucial to understanding new venture creation (Bird 1988). Models of decision making with a cognitive basis, such as Ajzen’s (1991) Theory of Planned Behavior, and Shapero and Sokol’s (1982) Entrepreneurial Event Model, emerged in an attempt to explain entrepreneurial intention (Audet, 2002, 2004; Krueger, Reilly & Carsrud, 2000; Kuehn, 2008; Peterman & Kennedy, 2003). Such rational choice models of decision making have dominated academic thought within this area for decades. However, the assumption of rationality within these models does not conveniently provide for the inclusion of such less-than-rational concepts as intuition, gut feelings, experience, fate, luck, or tradition. Whether referred to as an “economic model of decision making” or the more constrained “administrative model of decision making,” such models posit that individuals gather a wide range of alternatives for a pending choice and evaluate those alternatives with the ultimate selection being based on the maximization of some personal outcome. However, rational decision models have fallen out of favor and alternatives have arisen. Research has recognized a range of cognitive differences, from intuitive to analytic, in terms of how people learn, gather knowledge, process information, and make decisions (Brigham et al., 2007; Leonard, Beauvais, & Scholl, 2005).

Image Theory: An Alternative to Rational Choice

Image theory suggests that decision makers make their decisions by using images stored within their cognitive frameworks based on their personal experience. Image theory suggests that most decisions in life do not involve choosing from several alternatives. Instead, one alternative surfaces after all others are rejected, at which point the person can decide to pursue that alternative or not. Such decisions are made based on congruence between the various alternatives and an individual’s personal values, goals, and strategies (Lim, Morse, Mitchell, & Seawright, 2010; Morrell, 2004) found within their images. Thus, image theory is consistent with the research that suggests ventures are extensions of their founders. Image theory presents a description of how an individual actually makes decisions as opposed to a prescription of how the person should make decisions (Beach & Mitchell, 1987; Beach & Connolly, 2005;Lim et al., 2010). Image theory has been applied to decisions relating to turnover (Holtom & Inderrieden, 2006; Maertz & Campion, 2004), business ethics (Morrell, 2004), consumer behavior (Nelson, 2004); and punishment decisions (Dunegan, 1996).

Image theory suggests that decision makers use their accumulated knowledge and experience, stored as cognitive frameworks, to set standards regarding personal values, goals, and strategies to accomplish goals (Beach, 1998; Beach & Connolly, 2005). These standards are referred to as value images, trajectory images, and strategic images, respectively (Beach, 1993a; Beach, 1993b; Beach & Connolly, 2005; Beach & Mitchell, 1987). Value images are the set of values, morals, and ethical standards that define acceptable and unacceptable principles for living for each decision maker; Beach (1997) called these value images “self-evident truths.” These value images determine the alternatives that are possible within the remaining two image



categories. Trajectory images are the goals and agendas that can be pursued in the decision maker’s anticipated future. These images, which must be congruent with the value images, can range from specific to abstract, and they reflect what the decision maker seeks to achieve, as well as the decision maker’s vision of the future. Strategic images represent the plans and tactics that will be used to achieve the decision maker’s desired goals, as well as the forecasted results expected as a result.

A central point of image theory, as opposed to rational choice approaches to decision making, is that decision makers do not simply choose between alternative choices with objective criteria, instead “decisions consist of 1) adopting or rejecting potential candidates to be new principles, goals, or plans, and 2) determining whether progress toward goals is being made” (Montgomery, 1987, p. 221). In this way, decision makers screen information that could potentially lead to behavioral changes that violate perceived images. When important information about an alternative is missing or inconclusive, it is more likely that the alternative will be rejected. Although the vast majority of information received by the decision maker results in no changes in behavior, it is the differences in perceived image compatibility that causes the decision maker to consider an alternative course of action (Beach, 1993a; Beach & Connolly, 2005; Kuehn, 2009; Lee & Mitchell, 1994). When a decision maker recognizes a misalignment of images, the decision maker will then select an available course of action that realigns those images. We hold that the recognition of this misalignment is likely to occur through an event known as a shock.

The Precipitating Role of Shocks

Research has found that there is a bias toward maintaining the status quo, meaning that individuals tend to be more aware and sensitive to information that supports their current course of action than information that does not (Dunegan, 1995). As a result, to overcome the inertia within human behavior, it takes a “displacement event” or shock (Shapero, 1982). While such an event does not have to be negative in nature, negative events are often more powerful than positive events in terms of causing drastic life changes. A shock is defined as a specific jarring event that initiates the psychological analyses involved in the process of screening alternative courses of action (Lee & Mitchell, 1994; Kuehn, 2009). This definition conceptualizes shocks as disruptive events, such as the death of a family member or the loss of a job. Alternative courses of action consist of paths that would lead to the creation of a new venture. The notion of shocks has been conceptualized at multiple levels of analysis and by different streams of scholarly research. At the macro-level, shocks have been characterized by technological discontinuities (Tushman & Romanelli, 1985), regulatory upheaval (Greenwood & Suddaby, 2006), and broad societal and cultural change (Tolbert & Zucker, 1996), as well as the disruption of relationships upon which firms are highly reliant (Uzzi, 1997).

At the individual level, shocks can be categorized as positive, negative, or neutral events and as personal or organization-related in nature. An example of a personal event could be an illness or death of family members or close friends, receiving a financial windfall, or some



significant personal or familial milestone, such as a birth, a geographical move, or a graduation (Moffit, 2007). An example of a non-personal event could be a company closing that results in layoffs, the abandonment of particular markets that will be left to potential competitors, or an announcement of a new plant opening that will create opportunities for new business ventures in the supply chain. The key indicator of a shock is that the event is distinguishable and it causes the individual to consider the alignment of his own personal values, goals, and actions.

Shocks have been shown to be a key antecedent of quitting a job. In a study by Lee, Mitchell, Wise & Fireman (1996), 59% of nurses experienced a shock before changing jobs. Lee, Mitchell, Holtom, McDaniel, and Hill (1999) found that 71% of accountants in their study experienced a shock before changing jobs. Using a data set from GMAT, Holtom and Inderrieden (2003) found that 58% of the subjects who changed jobs experienced a shock prior to the career change. While the research has centered on shocks leading to job turnover, anecdotal evidence illustrates how shocks might also influence entrepreneurial new venture creation as well.

For example, Arthur Blank and Bernie Marcus scribbled plans for their new venture, called Home Depot, on a napkin after they had been fired from Handy Dan, a small chain of home improvement stores (Blank, Marcus & Andelman, 1999). They began their paths toward entrepreneurial ventures after experiencing a significant moment. Such shocks lead to the recognition of an opportunity and initiate psychological analyses that lead to the screening of alternative courses of action. Events are the triggering and defining element within a shock. While the shock may be an expected or unexpected event, it must be too powerful to go unrecognized. Most events experienced over a lifetime are not shocks. Events that are shocks to one individual will not necessarily be a shock to other individuals. The event is a shock if it gains the attention of the decision maker and shakes him out of a state of equilibrium or away from the status quo (Tushman & Romanelli, 1985). The shock needs not create negative emotion in the individual (Holtom, Mitchell, Lee, & Inderrieden, 2005), yet it must create a noticeable disruption within the individual’s life equilibrium.

When a person encounters a shock, that individual is confronted with the possible recognition that their own values, goals, and actions may be misaligned with one another. It may be that the shock causes the individual to see that, in light of the new information embedded within the event, that their current tactics are not aligned with their perceived images. This prompts the individual to seek out whether the “shock can be responded to easily and in an appropriate manner. Of special interest is whether an obvious response (script) comes to mind in the form of past actions or rules the employee has generated from observing others or from knowledge he/she has acquired in other ways” (Holtom, et al, 2005, p. 341). It is the nature of these scripts that will be addressed next.



Scripts

Extant research has addressed the defining characteristics of an entrepreneur and what distinguishes them from other managers (Steward & Roth, 2007). In particular, theorists have long recognized the importance of studying the cognitive abilities and such theories have great potential within the field of entrepreneurship as well (Kuehn, 2009; Mitchell et al., 2007). Entrepreneurial cognitions are “the knowledge structures that people use to make assessments, judgments, or decisions involving opportunity evaluation, venture creation, and growth” (Mitchell et al., 2007, p. 97). These cognitions enable the discovery and exploitation of entrepreneurial opportunities (Shane & Vankataraman, 2000). In our model, we focus on cognition in the form of the cognitive scripts, which allow for the entry decision into entrepreneurship.

Scripts are schemas, cognitive structures that help a person understanding events and behaviors (Gioia & Poole, 1984). Scripts help organize knowledge and assumptions about a given topic or situation, thereby providing personal understanding and guidance for future actions (Lord & Kernan, 1987). Scripts are used in interpreting and processing information, transforming information into potentially meaningful sequences of possible events and situations. Scripts consist of memory units that are presumed to be constructed of scenes organized into vignettes (Wyer & Carlston, 1979). Abelson (1981) posited that three conditions are required for scripts to be relevant within a decisional event: 1) the individual must retain a cognitive representation of the script; 2) a situation that activates the script must occur; and 3) the script must be enacted as a choice in behavior. Research has found that new venture creation can be both a linear or non-linear process involving broad stages of development, such as opportunity searches, planning the new venture, marshalling resources, and implementation (Timmons, 2005). Abelson (1981) categorized scripts as weak and strong. Weak scripts stipulate the expected behaviors of self and others, but they do not limit the individual to a specific order in which to enact the behaviors. Strong scripts are ritualistic in nature because they relate to known events and situations in which the person knows exactly what behaviors are expected and the order in which they are to be performed (Abelson, 1981). As such, both strong and weak scripts can be applied to new venture creation.

Scripts have taken on varying conceptualizations depending upon the context in which they are examined. As it relates to this study, Mitchell, Smith, Seawright, and Morse (2000) differentiate between different kinds of scripts as they pertain to new venture creation. Specifically, they discuss arrangement scripts, willingness scripts, and ability scripts (Kuehn, 2009; Mitchell et al., 2000, 2007).

Arrangement scripts are the knowledge structures that individuals possess which concern the use of specific arrangements, such as contacts, relationships, resources, and assets, which support their own performance and expert level mastery within a given domain. Possession of, or access to, specific arrangements is an integral part of a script. With regard to venture creation decisions, arrangement scripts might be about idea protection, venture networks, and the application of venture specific skills. Expert information processing theory suggests that



entrepreneurs, those who make the venture creation decision, have and use appropriate arrangement scripts about idea protection, venture networks, resource access, and venture specific skills in order to make the venture creation decision (Mitchell et al. 2000).

Willingness scripts are the knowledge structures that underlie an individual’s receptivity to the idea of engaging in and committing to a new venture. They include actionable thoughts about seeking, committing to, and pursuing opportunities. For example, willingness scripts focused on opportunity seeking might revolve around openness and exploring new situations and possibilities. Entrepreneurs are expected to have more highly developed scripts relating to opportunity seeking, commitment, and opportunity pursuit (Mitchell et al., 2000). Willingness scripts permit entrepreneurs to experience less risk by reducing their perceived uncertainty.

Ability scripts are knowledge structures that individuals possess which concern the capabilities, skills, knowledge, norms, and attitudes required in order to create a successful venture. These scripts are particularly important for ventures that require a significant amount of skill input from the founder.

According to Lord and Kernan (1987), scripts allow for the adoption and elaboration of new goals. A script may include one or more paths toward a specific goal. Various situations can allow a script to have multiple tracks in the form of an “if then” decision tree (Gioia & Poole, 1984). Such a script organizes tasks and challenges into a hierarchical means-end-structure that can easily be adapted to include or exclude new experiences. This multiple track decision tree within scripts is particularly important with regard to our three path model of entrepreneurship. The model allows for built-in flexibility and the ability to pursue alternative paths. Basically, one blocked path does not necessitate an end to progress, but, rather, opens up alternative pathways. Scripts also organize goals within a hierarchical means-end structure, prioritizing and providing direction in terms of pursuing them in a specific order.

Entrepreneurs have been categorized within the literature as novice, one-time, and habitual entrepreneurs based on the frequency in which they engage in entrepreneurial ventures (Baron & Ensley, 2006). Mitchell and colleagues (2007) found that entrepreneurs have unique knowledge structures that help them to process information in ways that allow them to see advantages even in imperfect market conditions because they use information in better ways than non-entrepreneurs (Ericsson, Krampe, & Tesch-Romer, 1993; Leddo &Abelson, 1986; Read, 1987). Research has suggested that entrepreneurial scripts are dynamic knowledge structures that are influenced by deliberate practice-based change (Baron & Henry, 2010; Mitchell, 2005).

Opportunity thinking versus obstacle thinking provides an example of the different types of thought patterns that an entrepreneur might adopt (Manz, 1986; Neck & Manz, 1992; 1996). Opportunity thinking involves a pattern of thought that focuses on opportunities, worthwhile challenges, and constructive ways of dealing with challenging situations. Obstacle thinking, conversely, involves a focus on the negative aspects and hurdles involved in challenging situations (e.g. reasons to give up and retreat from problems). Additionally, within the entrepreneurship literature, there are additional constructs that share domain content with opportunity thinking (Timmons, 2005). One related construct, skill in opportunity recognition,



has been found to be significantly related to entrepreneurial performance (Baum, 1995). Because of this, the question arises: What can be done to increase the likelihood and the degree to which entrepreneurs are opportunity thinkers?

Opportunity Recognition

The discovery and exploitation of opportunities underlies the successful execution of an entrepreneurial endeavor (Eckhardt & Shane, 2003; Shane, 2003; van de Ven & Engleman, 2004; Zahra, Sapienza, & Davidsson, 2006). Typically, discovery occurs prior to exploitation (Eckhardt & Shane, 2003, 2010), though this is not necessarily the case (Baker, Miner, & Eesley, 2003; Bhave, 1994; Davidsson, et al., 2008; Sarasvathy, 2001). Scripts can lead to the search of entrepreneurial opportunities and, ultimately, to finding them. Therefore, we address within our model the process by which individuals come to pursue opportunities due to external shocks or existing mental scripts, which in turn leads to new venture creation.

Eckhardt and Shane (2003) brought forth a new perspective on entrepreneurship, namely, the perspective of opportunities, which has its basis in a long history of research efforts (Schumpeter, 1934; Stevenson & Jarillo, 1990). Eckhardt and Shane (2003) suggested that opportunities should be the key concept within the field of entrepreneurship, arguing that entrepreneurial opportunities are the prerequisite for the formation of entrepreneurship. Gaglio and Katz (2001, p. 95) echoed this argument by asserting that “understanding the opportunity recognition process represents one of the core intellectual questions for the domain of entrepreneurship.” Following this line of reasoning, Eckhardt and Shane (2003) further defined the field of entrepreneurship as involving “the study of sources of opportunities; the process of discovery, evaluation, and exploitation of opportunities; and the set of individuals who discover, evaluate, and exploit them” (p. 218). A major contribution of this perspective is that viewing entrepreneurship as the study of opportunities allows researchers to study entrepreneurship without being restricted to organizational or individual levels of analysis, since focusing on entrepreneurial opportunity is crucial for both individuals and firms.

Extensive research has suggested that opportunity recognition plays a critical role within the new venture creation process. Opportunity recognition has been found to be an important antecedent of new venture creation (Shaver & Scott, 1991). Bhave (1994) noted that entrepreneurs are driven by internal or external opportunity recognition when starting new ventures. In other studies, Baum, Locke and Smith (2001) regarded opportunity recognition as a competency possessed by entrepreneurs for the future growth of new ventures. Opportunity recognition is not, however, considered to be constrained to a systematic search; it can also be based on accidental discovery. Research suggests that people do not necessarily search for opportunities, but, rather, they happen to recognize the value of newly received information (Kirzner, 1997). Koller (1988) reported that most entrepreneurs recognize, rather than seek out opportunities for their firms. In such a mode, the entrepreneur is receptive, yet not actively engaged in a formal, systematic search process.



Currently, the areas of entrepreneurship research previously examined, namely, shocks, scripts, images, and opportunity recognition serve as the theoretical basis for three different paths that might lead to the formation of new ventures. In remedy, this manuscript offers a three-path model of new venture creation, which explores the implications of scripts, shocks, and opportunity recognition in combination with one another. The three-paths are explained within the sections that follow.

Path 1 to New Venture Creation: Post Shock No Rational Choice

First, a shock to the system impacts a non-entrepreneur. This event triggers immediate reactions from the individual, which are based on the individual’s personal characteristics and experiences. Based on this shock, the individual scans the situational idiosyncrasies and determines whether these characteristics match up with past situations. If no match is found and no script present, this may trigger impulsive behavior from the potential entrepreneur, resulting in an assessment of whether the present time might be the right time to begin a new venture. This type of decision frame resembles a “what-if” type of thought pattern. The potential entrepreneur may recognize certain unique situational characteristics, which might lead the individual to conclude that these circumstances are appropriately favorable for the creation of a new startup. Research has found that entrepreneurs do not perceive starting a new venture as risky due to certain underlying cognitions, meaning what is perceived as risky to one person is not perceived as risky to another (Simon, Houghton, & Aquino, 2000).

In other words, the decision to pursue a new venture is almost an automatic one, occurring rapidly and instinctively, with little or no systematic analysis conducted. This almost automatic decision is mostly consistent with entrepreneurship theories grounded in effectuation rather than causation (Sarasvathy, 2001). It may not involve the process of discovery before an individual moves into the process of exploitation. Discovery is the conceptual process of initial recognition and opportunity development for a new venture (Shane & Venkataraman, 2000; Ardichvili, Cardozo, & Ray, 2003). Exploitation is a separate process involving concrete actions undertaken in pursuit of the opportunity (Davidsson, et al., 2008; Eckhardt & Shane , 2010; Shane & Venkataraman, 2000). While much of the research claims that discovery and exploitation are sequential, with discovery occurring first, some researchers claim that discovery and exploitation are symbiotic, non-directional, iterative, counterintuitive, and accidental (Sarasvathy, 2001; Baker et al., 2003). Symbiotic discovery-exploitation incorporates feedback, learning and adaptation (Bhave, 1994).

Sarasvathy (2001) suggested that “the generalized aspiration of starting a business is not a necessary starting point for effectuation processes” (p.247). Effectuation theory is rooted in the logic of control over the future, meaning that the entrepreneur takes a given set of means and then focuses on selecting a particular alternative from a list of several alternatives plausibly achievable through the given set of means. The given set of means can include any sort of financial, material, human, and organizational resources. Effectual thinking is the application of



the “what-if” scenario to each of the possible alternatives for the purpose of choosing the best course of action.

Path 2 to New Venture Creation: Post Shock Rational Choice

An external shock could lead to the judgment that nothing like that particular shock has ever occurred in the individual’s past. Accordingly, there may not be any personal or situational experiences that trigger a corresponding response. Prompted by such a shock, the potential entrepreneur assesses the value, strategic, and trajectory images in order to re-assess the situation. Consistent with research on effectual thinking, this assessment could lead the individual to the decision to pursue a new venture. Specifically, the potential entrepreneur’s value images might elicit an evaluation of how well the opportunity fits with the individual’s personal principles and how easily these principles can be integrated into the potential decision to pursue the new venture.

The trajectory image then determines whether the potential entrepreneur’s personal goals are congruent with the judgment as to whether the new venture will meet these goals or not. Expert information processing theory, combined with cognition literature, suggests that potential entrepreneurs may have scripts that are more entrepreneurially expert than other people, thus they are more willing to make commitments within their domain of expertise (Mitchell, et al., 2007). Further, the strategic image leads to judgments as to whether the current efforts and goals are consistent with the desired goals. The potential entrepreneur then decides to become an entrepreneur, producing an organization that is consistent with their own personal images and pursuing the new venture start up accordingly.

In this decision path, the potential entrepreneur shifts to a more rational decision model, which involves further steps in the decision process to pursue a new venture. A significant event (shock) leads the individual to re-assess the current situation, which results in a recognition of the uniqueness of the situation. Consequently, the potential entrepreneur scans the environment for opportunities. Upon recognition of such an opportunity, the entrepreneur decides to pursue the new venture if it is consistent with their own value, trajectory, and strategic images.

Path 3 to New Venture Creation: No Shock Long Term Intent

For a person to pursue a particular alternative, it must be compatible with existing images. Beach (1998) noted that by the time most people reach adulthood, they have developed sufficient images to deal with any life issues that arise. New alternatives must make it past a large number of developed images, meaning that this compatibility test is not easily passed. New alternatives that deviate too far from the status quo are usually rejected (Beach & Mitchell, 1990). Therefore, for an entrepreneurial alternative to be considered compatible, it must not be in misalignment with existing images. This would imply that value images, trajectory, and strategic images have already taken into account entrepreneurship as a viable path, even if it is not part of one’s experiential history.



This decision-making path resembles long-term planning that results in the creation of new ventures that have been thought through for a long time. The decision here lies less in scripted images of the potential entrepreneur than the two previously discussed paths, but more so in the recognition of an opportunity. In such scenarios, entrepreneurs pursue self-actualization over more fundamental needs. When the “time is right” the potential entrepreneur acts on a plan that has been developed over a significant period of time, perhaps several years in development. Much of this mindset results from perceptions of risk, which fits with the effectuation concept of affordable loss (Sarasvathy, 2001). When contingencies such as the financial stability of the potential entrepreneurs’ family will not be jeopardized by pursuing the new venture, then the individual chooses to pursue a life-long dream of starting the firm in order to achieve a level of personal fulfillment from it. This would imply that images recognize stability and security as important precursors for pursuing a new venture. These potential entrepreneurs may differ from other entrepreneurs in terms of their perception of risks, which leads to the necessary stability and security conditions within their images.

Implications

Implications for Entrepreneurship

New venture creation, as an engine of innovation, is important for everyone, from the individual consumer to the overall economy (Parker, 2004), and Audretsch (2009) has asserted that an entrepreneurial society is key to taking advantage of global economic opportunities. Therefore, understanding the decision process by which individuals choose to start new ventures is incredibly important. The purpose of this manuscript was to examine the intention to pursue a new venture, since research has established that such action is intentional (Krueger, 1993).

McGrath and MacMillan (2000) posited that entrepreneurs have an entrepreneurial mindset that affects their decision making, including whether they choose to pursue value creation opportunities. The present investigation provides an integrative framework that addresses three underlying pathways that lead to individuals becoming entrepreneurs by choosing to start new ventures. This model integrates not only internal and external factors that influence people in their decisions to create a new venture, but it extends the current literature by providing a deeper understanding into the way that people think through the decision process. Despite our approach in integrating multiple paths our theoretical model allows for differentiation between the three-paths discussed.

The model provides new answers to questions that have been asked for decades concerning the cognitive structures of entrepreneurs. Mitchell and colleagues (2007) called for further exploration of entrepreneurial cognition and how it affects decision making. Summers (2000) posited that some individuals have psychological traits that make them more likely to pursue new venture creation upon a trigger event. These trigger events, alternatively called entrepreneurial, displacement, and precipitating events, push or pull an individual to change



course. We propose that the combination of images and scripts compose, to some extent, this propensity to act. This paper suggests that shocks are often necessary to evoke entrepreneurial scripts. In turn, those scripts rely upon the value, trajectory, and strategic images inherent to the potential entrepreneur. Scripts analyze the circumstances for the determination of potential opportunities. If potential opportunities are identified, the entrepreneur must then determine whether the opportunities need to match the circumstances, which are evaluated as to alignment with their images.

This model proposes that there are significant differences based on whether the decision is made more instinctively or rationally. Differences in cognitive styles utilized would imply differences in approaches to opportunity discovery and exploitation, particularly in terms of whether effectual or causal approaches are preferred. Indeed, the knowledge structures composing the potential entrepreneur’s arrangements, willingness, and ability scripts may be a priori indicators of their preference in cognitive style. Likewise, personal experiences, particularly in terms of values, trajectory, and strategic images, might likewise influence which scripts direct the cognition process. Indeed, these images may serve as the foundation upon which scripts are constructed.

Of particular note within this model is the third path, which suggests that a shock is not a necessity. However, since no evident shocks occur yet these individuals choose to pursue new venture creation, there is likely some internal trigger that occurs. There could be some important differences in terms of such individuals’ value, trajectory, and strategic images. In particular, the individual may have value images that are equally, if not more so, inclined toward the pursuit of entrepreneurship as the value images of individuals within the other two paths. It could be that their trajectory images include certain built-in alarms that, if they are self-aware, produce shocks when the conditions are met. For example, an individual might believe that they need to start a business before they become too old to meet the physical demands in terms of hours of effort each day, affects of sleep and stress level, and so forth. As such, recognition of their own age might trigger a shock that is emergent from their own trajectory images. Likewise, perhaps seeing others they know be successful, or remembering how good it feels to think about their aspirations, could cause internal triggers that have no external visibility to generate shocks that are no less affectively potent than external shocks. Alternately, it could be that the scripts that these individuals have developed are such that certain preconditions must be in place for the scripts to be enacted, such as financial security, retirement, or sufficient discovery effort to ensure less risk in the exploitation stage of pursuing the new venture.

In the past, attention was given to the fact that entrepreneurship education has not spent enough time and attention on attitude development (Garavan & O’Cinneide, 1994) and personal skill development (Chen et al. 1998). However, there has been expansive growth in entrepreneurship education across all levels, both formally and informally. In fact, Kuratko (2005) cites over 1600 colleges or universities that offer entrepreneurship education and Katz (2003) has even suggested that the educational field of entrepreneurship “has reached maturity” (p.283). As a result, this has exposed individuals to more positive images of entrepreneurs and entrepreneurship as a career choice (Kuehn, 2009). This would imply that, from these positive



images, people would develop value, trajectory, and strategic images that are more aligned with entrepreneurship, and that, through the instruction and role modeling provided, people would develop scripts that are more expert in nature, leading to better entrepreneurial performance in terms of opportunity discovery and exploitation. Indeed, recent research suggests that entrepreneurial role models may enhance future entrepreneurial activity. (Bryant, Fabian, Kinnamon, & Wright, 2012). However, there is scant evidence to support major upswings in the number of successful nascent entrepreneurs. Yet contrary to this, it is suggested that veteran entrepreneurs develop expert scripts to process information very differently than inexperienced entrepreneurs (Gustafsson, 2004). More research needs to be conducted in this area to see if, indeed, images and scripts have been improved, leading to greater numbers of entrepreneurs and greater success.

Implications for Future Research

There are a number of ways in which the three-path model of new venture creation might be further explored, developed, and improved. Certainly, empirical testing of the theoretical framework presented herein would be a beneficial route. Such empirical validation would enable us to gain further insight, thereby advancing theoretical and empirical knowledge in the field of entrepreneurship. Entrepreneurship researchers might conduct a study similar in design to the study conducted by Bhave (1994). Interviews with current entrepreneurs about their personal shocks, scripts, opportunity searches, opportunity recognition, and opportunity refinement experiences would prove extremely useful in examining the validity of the model we have presented.

Researchers might study also this model at the macro-level by examining the onset of shocks that occur on the societal level. One might examine the founding processes of new ventures stemming from societal level shocks such as the attack on the world trade center in 2001, Huricane Katrina in 2005, and the economic troubles which have occurred since 2008. The proposition inherent within this aforementioned research opportunity is that societal level shocks will be precursors of increased levels of new venture creation. The fact that negative shocks are more likely to trigger entrepreneurial intention than positive shocks indicates that the nature of the shocks themselves need further research.

Research suggests that some individuals are more inclined to pursue entrepreneurial alternatives than others due to entrepreneurial psychological traits, such as independence (Ang & Hong, 2000), innovativeness (Ang & Hong, 2000; Rauch & Freese, 2007), internal locus of control (Brockhaus, 1987), and risk-taking propensity (Ang & Hong, 2000; Luthje & Franke, 2003). It has been argued within the literature that there is a global culture of entrepreneurship (Mitchell, 2003; Mitchell et al., 2000, 2007) with a pervasive entrepreneurial mentality (McGrath & MacMillan, 2000). Future research might examine how these traits are related to the creation of scripts and how they are the foundations of images.



Related to this would be the impact of the normative environment, particularly the effects of one’s culture and one’s family environment. Such influences are known to influence entrepreneurial intention (Davidsson & Honig 2003; Liñán & Santos 2007; Urbano, 2006; Veciana, Aponte, & Urbano, 2005). According to Shapero and Sokol’s (1982) model, perceptions of desirability not just from the individual’s value system, but from the social system as well influence the decision to pursue an entrepreneurial course. These factors might influence the degree and nature of impact particular shocks have on a potential entrepreneur based upon how those shocks are interpreted normatively within the culture and family unit.

Recent research by Haynie and his colleagues suggests that individuals with an entrepreneurial mindset actually evolve their scripts as they are faced with shocks and uncertainties (Haynie, Shepherd, Earley, & Mosakowski, 2010). If the meta-cognition of scripts by entrepreneurs and individuals with an entrepreneurial mindset is supported by future empirical evidence, it may support additional script-based and non-script-based paths to entrepreneurship that may broaden the model we have introduced herein.

Finally, further examination of the interplay and influence of images and scripts, as well as other aspects of cognition, on the entrepreneurial process is strongly warranted. It is important to understand the influence of images and scripts, not just in terms of entrepreneurial intention, but in terms of all aspects of the entrepreneurial process, because this will provide greater predictive power in identifying potential entrepreneurs and it will also provide insight for the development of higher quality entrepreneurial educational content.

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About the Authors

Tobias Huning has a Ph.D. in Organizational Behavior and Human Resource Management from the University of Memphis. His research focus is on entrepreneurship and human resource management.

Phil Bryant has a Ph.D. in Organizational Behavior and Human Resource Management from the University of Memphis. His research focus is on entrepreneurship and human resource management.

Steven Brown has a Ph.D. in Organizational Analysis and Organizational Change from Auburn University. His research focus is on entrepreneurship, organizational behavior, organizational culture, organizational change, and technology acceptance.



Figure 1: Paths to New Venture

Potential Entrepreneur

Shock ?

Ent. Behavior

?

Ent. Choice

?

No Yes

No

Yes Yes

No

Path 3: No Shock

Long Term Intent

Path 2: Post Shock

Rational Choice

No New Venture Creation

Yes Path 1: Post Shock No Choice

NoEnt.

Behavior ?



Challenges of Online Learning in Management Education: An Empirical Study

John James Cater III, The University of Texas at Tyler Norbert Michel, Nicholls State University

Otmar E. Varela, University of Arkansas- Little Rock

Executive Summary

We examined the online teaching approach, extending our analysis from higher education in management to corporate management education. We compared the impact of teaching delivery approach – online versus classroom - on student performance in business college settings. We investigated what factors led to better student performance in online classes. Then, we extrapolated our findings from the business college setting to the corporate educational area. Our results indicated that the classroom students scored significantly higher on our measure of performance. In the analysis of the online students’ performance, we found that majoring in business and possessing a higher grade point average led to superior learning outcomes, but student age, college experience, and experience in online classes did not. We found three implications for corporate management education - a caution of the use of the online delivery approach, a need for matching of technological immersion, and a suggestion for choice of trainees.

Introduction

Management educators in most forms of organizations, from multinational corporations to small business companies, have increasingly engaged in the use of online delivery of instruction (Aguinis & Kraiger, 2009). A similar situation occurs in higher education where approximately 96% of colleges and universities offer online courses (Chapman & Henderson, 2010). Online courses are a form of distance education as students are physically dispersed from each other and the instructor (Smith & Mitry, 2004). Online learning relies on network technology to transfer information and instructions to participants (Welsh, Wanberg, Brown & Simmering, 2003). Although substantial research has followed the growing academic interest in online education (Arbaugh, Godfrey, Johnson, Leisen Pollack, Niendorf, & Wrensch, 2009), opportunities exist for original studies measuring its effectiveness and means of improvement not only in business college settings, but also in corporate management education contexts as well. The rush to offer competitive online teaching delivery methods raises questions for all educators concerning the quality and effectiveness of this approach. Are, for instance, students or trainees actually learning the material online as well as in classroom settings?

A recent meta-analysis, sponsored by the U. S. Department of Education, compiled empirical studies of online learning (Means, Toyama, Murphy, Bakia, and Jones, 2010). Approximately ninety of these studies, published between 1996 and 2008, used an experimental or quasi-experimental design, compared some outcome of online or blended learning to face-to-face instruction, and focused on students in higher education. Of note, most if not all of these studies were from various academic areas outside the business college setting. Results indicated



that students who participated in online conditions performed at least equally (or even slightly better) than those in purely classroom settings (d = 0.05; k = 27; p > .05). These results suggest that online delivery can be an effective teaching option. Therefore, further research is needed to advance our knowledge of the conditions (moderators) accounting for online delivery effectiveness. This line of investigation is especially relevant in light of the different outcomes that have been reported when classroom and online learning are contrasted. For example, the effect sizes (d) of the studies included in Bernard, Abrami, and Wade (2004) meta-analysis ranged from – 1.31 to + 1.41. Such substantial dispersion suggests the presence of significant factors that might be moderating learning outcomes in online education. Given these results in the broad context of higher education, our study took place in the narrower context of business college education and more specifically the teaching of management.

Although our study involved business college students, we devoted a significant part of our research effort to the application of our results to corporate management education. We perceive online learning in business college settings to be very similar to corporate training, especially after contemporary business schools’ efforts toward making education more applicable and skill driven (see Datar, Garvin, & Culler, 2010). Indeed, significant parallels can be established between management education and corporate training. For example, empirical criteria in both settings clearly overlap. There is some consensus in management-education research to consider learners’ affects, cognitions, and skills as central criteria (e.g., Rubin & Martell, 2009). Similar factors can be observed in Kirkpatrick (1974) classification of training criteria wherein trainees’ reactions (affects), learning (cognitive retention) and behaviors (skill development) primarily indicate the effectiveness of the intervention. Parallels between management education and corporate training can also be observed in their pedagogies. Grounded on fundamental learning theories, similar experiential exercises, group work, and case studies can be observed in management education and corporate training (Varela, Burke, & Michel, 2012). As such, with some caveats we address later, we investigate the effectiveness of online management education under the assumption that our research findings inform both business schools and corporate training.

Corporate management education consists of two related parts: training, which may be more short term in nature; and development, which often is more long term. Training may be characterized as a systematic approach to learning to improve individual, team, and organizational effectiveness (Goldstein & Ford 2002). On the other hand, development involves actions resulting in the acquisition of new knowledge, skills, or abilities to augment personal growth (Aguinis & Kraiger, 2009). For employee development, large corporations may use corporate universities or career development centers. Rapid technological advances have resulted in the use of e-development, taking the form of video conferencing, chat rooms, document sharing, video streaming, and online courses (Moss, 2007). In practice, it may prove difficult to distinguish between the terms training and development. Therefore, in the present study, we use the terms "corporate management education" and "training" to refer to both training and development activities. It is estimated that 30 percent of training hours are purely online and that this statistic will rise as younger workers enter the workforce. Online learning is increasing gradually in the work place, not explosively (American Society of Training and Development, 2012).

Although some argue that comparative studies between online and classroom delivery of instruction methods have been saturated (Abrami, Bernard, Bures, Borokhovski and Tamim, 2011), we believe that there is still value and knowledge to be gained. For instance, a recent study



by Nemanich, Banks, and Vera (2009) found that students enjoyed taking a management course in the classroom to a greater extent than online and that this led to moderately better learning performance. In our study, we do compare the impact of online and classroom teaching approaches on student performance in management education. Moreover, our research is guided by three questions: “Is the online teaching approach as effective as the classroom approach in measures of student performance in management education?”; “What factors lead to better student performance in online management classes?”; and "What are the possible ramifications for corporate management education concerning the online teaching approach? Our study differs from most previous studies because we have been able to reduce some exogenous factors that may have confounded previous attempts. In our study, the same professor taught both the online and classroom courses at the same time period, using the same course materials (textbook, power point slides, practice questions, and case study exercises) and following the same testing procedures. Also, we strictly held the course materials constant across the three sections of online classes.

Literature Review

Online Advantages and Disadvantages

The online versus classroom teaching delivery approach debate has centered on a tradeoff between student convenience and media richness. For students, the ability to do class work any time (anywhere) is appealing (Hiltz & Wellman, 1997). In the media richness theory, Daft & Lengel (1986) propose that communication flows more effectively in face-to-face interactions than other media channels, such as telephone, e-mail, or written letters. The face-to-face communication is richer because it contains not only verbal cues, such as voice inflection and intonation, but also nonverbal cues, such as facial expression and bodily gestures.

Some business educators take a defensive stance in the battle with purely online institutions for students, claiming that online courses need to be offered to prevent defections of students in their geographic area. Conversely, there is a possible advantage for traditional business educators in the opportunity to increase student enrollment through online classes without the expense of building new classrooms (Gagne & Shepherd, 2001). Chau (2010) cautioned against the expansion of online education, citing a lack of quality in this method of delivery and comparing education to an economic commodity.

There are other advantages for students in online learning, including flexible scheduling and reduced travel expense (Gagne & Shepherd, 2001). The pace of learning in online courses relies somewhat on the students, who can choose convenient times to concentrate on learning. This feature has proven to be of great value, especially for students with irregular schedules due to work or parenting obligations (Hiltz & Wellman, 1997). Similarly, the avoidance of frequent commuting to campus reduces expenses and saves time, which is attractive to students, especially those who live geographically distant from the campus (Gagne & Shepherd, 2001; Hay, Hodgkinson, Peltier, & Drago, 2004). Studies of student course evaluations show that students are generally satisfied with online classes (Campbell, Floyd, & Sheridan, 2002). This increased satisfaction may be a result of gratefulness for relief from the inconvenience and expense of commuting for night and/or weekend classes (Hay, Hodgkinson, Peltier, & Drago, 2004).



Table 1

Literature Review of Online Learning versus Classroom Learning Empirical Studies in the Business School Context

Empirical Study Study Variables Findings Assessment Arbaugh, 2000 Discussion patterns

and student learning Online = Classroom Questionnaire

Campbell, Floyd, & Sheridan, 2002

Student performance; Student satisfaction

Online > Classroom Online = Classroom

Course exam; Course evaluation

Chen & Jones, 2007 Student perceptions Online = Classroom Questionnaire Dellana, Collins, & West, 2000

Student performance Online = Classroom Course score

Drago, Peltier, Hay, & Hodgkinson, 2005

Perceived course quality and effectiveness

Online = Classroom Questionnaire

Gagne & Shepherd, 2001 Student performance; Student satisfaction

Online = Classroom Online = Classroom

Student exams; Course evaluation

Grandzol, 2004 Student performance; Student satisfaction

Online = Classroom Online = Classroom

Student exams, Course evaluation

Hay, Hodgkinson, Peltier, & Drago, 2004

Student interaction and course quality

Online > Classroom Course evaluation

Hay, Peltier, & Drago, 2004

Reflective learning Online = Classroom Questionnaire

Hiltz & Wellman, 1997 Student performance, Student satisfaction

Online = Classroom Online > Classroom

Questionnaire

Kock, Verville, Garza, 2007

Student performance; Student perceptions

Classroom > Online Online = Classroom

Student grades; Questionnaire

McFarland & Hamilton, 2006

Student performance, Student satisfaction

Online = Classroom Course grades, Questionnaire

Nemanich, Banks, & Vera, 2009

Student performance; Student perception

Classroom > Online Classroom > Online

Student exams; Questionnaire

Ponzurick, France, & Logar, 2000

Student perceptions and preferences

Classroom > Online Questionnaire

Sapp & Simon, 2005 Student performance Classroom > Online Student grades Smart & Cappel, 2006 Student perception Online > Classroom Questionnaire Sonner, 1999 Student performance Online > Classroom Course grades Stansfield, Mclellan, & Connolly, 2004

Student performance Online > Classroom Course grade

Sweat-Guy & Wishart, 2008

Student performance Online = Classroom Student grades

Terry, Owens, & Macy, 2001

Student performance Classroom > Online Final exam

Vamosi, Pierce, & Slotkin, 2004

Student perceptions Classroom > Online Questionnaire



Problems reported when instruction is delivered online often deal with a delayed feedback from peers and teachers, which incites anxiety and irritation in students (Hiltz & Wellman, 1997). Arbaugh (2000) argues that online contexts may negatively impact student involvement and participation primarily because of the isolation and lack of informal learning opportunities that occur through peer interaction in traditional contexts. Consequently, disproportionately high dropout rates have been experienced in online courses (Sapp & Simon, 2005). Changing the dynamics of interaction between instructors and students may undermine the quality of education delivered (Dellana, Collins, & West, 2000). Unless there is a form of dialog between the appropriately certified faculty member and the student (and also among the students), online courses may devolve into a form of correspondence class (Smith & Mitry, 2004).

Although online classes do not require classroom space in buildings on campus, costs for online classes generally exceed costs for traditional classes (Smith & Mitry, 2004). The major cost for universities is not classroom space, which may be considered a sunk cost in many situations, but instructors' salaries. The cost per student is higher in online classes because of limitations set on class size in online settings. For example, at the first author's business college, an instructor may teach over 60 students in a traditional Principles of Management class, but class size is limited to 25 students in online classes. The 25 student limit prevails across the university in this case.

Previous Empirical Studies in Business Education

Over the past decade, business school researchers have studied online versus classroom teaching approaches with mixed results. Table 1 provides an overview of previous empirical research (listed alphabetically) in this field and lists twenty studies with their results. The table is not meant to represent an exhaustive list of online versus classroom learning research, but only to provide an overview of the studies and findings of the research in an academic area similar to the one in our study, business college education.

According to Merisotis and Phipps (1999), empirical studies of online versus classroom learning in the business school context have focused on student performance outcomes, such as grades and test scores, student attitudes about learning, and student satisfaction, most often measured by university course evaluations. In our review, we found that the most common study variable was student performance as thirteen of twenty-one studies reported on some measure of performance. Eight studies reported on student attitudes and six studies employed measures of student satisfaction. Six of the studies reported on multiple variables. The majority of the studies (fourteen) showed no significant difference between the use of online teaching delivery of instruction and the traditional on-site approach. Six studies reported that the online approach was superior, while six studies claimed significantly better results for the classroom approach. Only one other study, Nemanich, Banks, & Vera (2009), focused on undergraduate principles of management classes.

Following the majority of studies, we chose to measure student performance in our research. Of the thirteen studies in our review which reported on student performance as a determinant, the results were once again mixed as three studies reported that online student performance was significantly better than classroom student performance, four studies showed



that students performed better in traditional settings, and six studies reported no significant difference in performance under the two teaching delivery approaches.

We briefly highlight these findings as follows. Stansfield, McLellan, and Connolly (2004) found that online students performed better than their classroom counterparts on four course modules in global commerce and information systems classes. Kock, Verville, & Garza (2007) found results supporting both the superiority of the classroom approach and the no-significant-difference perspective. In measures taken at the middle of their semester-long research, students’ grades were significantly better in the classroom condition than in the online class and there was greater perceived communication ambiguity in the online class. However, by the end of the semester, the online situation improved to the point that there was no significant difference in student grades and student perceptions. Sweat-Guy and Wishart (2008) examined students in two upper-level business courses, Organizational Behavior and International Management, using final course grades as a measure of performance. No significant differences were found in student performance between online and classroom students. Sapp and Simon (2005) compared the classroom delivery of instruction method with the online approach in business writing classes. They found a disproportionately high number of students failed to complete the online class. There was a thirty percent dropout rate in the four online sections examined, compared to no dropouts in five equivalent face-to-face classes.

Online Corporate Management Education

Advantages and disadvantages for online learning in corporate management education are similar to those reported in higher education. Online learning may be more cost effective in reaching geographically dispersed workers and may be more convenient for trainees because of its inherent on-demand, any time, any place availability in asynchronous activities (DeRouin, Fritzsche, & Salas, 2004). The online delivery of instruction approach provides learners with the possibility of sharing information and working together with fellow learners, instructors, and subject matter experts, and the opportunity to explore links and visit web sites (Klein, Noe, & Wang, 2006). Kraiger (2008) asserts that in some ways interaction among participants is easier online (e-mail, chat rooms, and instant messaging) than in the classroom, which may lead to more interaction among learners, especially in the case of younger learners.

Online learning facilitates the ability to adapt to individual learners (Brown, 2001). This ability leads to an increase in learner control (Noe, 2008), which refers to "a mode of instruction in which one or more key instructional decisions are delegated to the learner"(Wydra, 1980, p. 3). This learner control allows trainees to proceed at their own pace within instructional guidelines. While learner control may lead to enhanced motivation for trainees, learner control is not always beneficial and may have negative effects (Kraiger & Jerden, 2007). Given greater control of the learning process through the use of the computer, learners may make poor decisions and fail to exercise good judgment (DeRouin, Fritzsche, & Salas, 2004). Therefore, instructors should provide adaptive guidance to their trainees in this context (Aguinis & Kraiger, 2009).

Trainees who are high in ability, have experience, are highly motivated, or believe that the subject matter is relevant to their work, may find greater learner control in online learning more beneficial (DeRouin, Fritzsche, & Salas, 2004; Tesone & Fjelstul, 2006). Improvements in



hardware and software capabilities have allowed for better delivery of online instruction (Arguinis & Kraiger, 2009; Tesone, 2004).

Hypotheses

In this section, we develop hypotheses for studying our research questions. Recent meta-analytical results, compiled from empirical studies of online learning (Means, Toyama, Murphy, Bakia, and Jones, 2010) found that students who participated in online conditions performed at least equally (or even slightly better) than those in purely face-to-face settings (d = 0.05; k = 27; p > .05). In our review of the literature, we focused on studies within business education settings. We do not claim that our review is exhaustive, nor is it a statistically valid sample size. However, the literature indicates that there are mixed results in the debate concerning the superiority of classroom versus online delivery of instruction. In our review, the majority of the studies (fourteen) showed no significant difference between the use of online teaching delivery of instruction and the classroom approach. Six studies reported that the online approach was superior, while six studies claimed significantly better results for the classroom approach. Given the above, we expect students in our study to perform better (or at least at the same level) in the online condition than the traditional teaching approach. Therefore, we propose the following.

Hypothesis 1: Online students will have superior learning outcomes relative to classroom students.

The second part of our study focuses on the factors that lead to better student performance in online management classes. Our study centers on undergraduate students, juniors and seniors taking a Principles of Management course. Because online students must be self-disciplined and primarily motivate themselves to study and set the pace of the course (Gagne & Shepherd, 2001) as opposed to having an outside influence (the professor) physically guiding them, one may argue that more mature students would perform better than less mature students. Higher levels of maturity should come with increased age and/or increased college experience. This gives rise to the following hypotheses.

Hypothesis 2: Senior students will have superior learning outcomes relative to junior students in online classes.

Hypothesis 3: Older students will have superior learning outcomes relative to younger students in online classes.

Another possible reason for student performance variation in online management education is the perception of importance or relevance the student may assign to the class (Nemanich, Banks, & Vera, 2009. While students from outside the college of business may believe that a Principles of Management class is important and may help them in their chosen profession, they are not majoring in a business discipline and may possibly perceive a management class to be irrelevant or an imposition on their chosen field. Conversely, business college students should be easily convinced that management is central to their education and that the principles they learn in their first management class will reappear in subsequent business classes and be relevant for their chosen career in business. Therefore, we propose the following.

Hypothesis 4: Business school majors will have superior learning outcomes relative to non-business majors in online business classes.



In the examination of the variance of student performance in online management education, other studies have shown that one consistent determinant of performance is student grade point average (Daymont & Blau, 2008). Students with higher grade point averages overall perform better in online classes than students with lower grade point averages. Therefore, we propose that this finding will hold true in our study.

Hypothesis 5: Students with higher grade point averages will have superior learning outcomes in online classes.

An alternative reason for student performance variation in online management education may be technical or computer skills. Researchers have suggested that as students become more familiar with online classes that learning performance may improve (Arbaugh, Desai, Rau, & Sridhar, 2010). At the university in our study, students are required to pass computer literacy classes in their first two years at the university (presumably a common practice at most universities), which may alleviate some of the disparity existing in computer skills. However, students are not required to take any online classes before taking the Principles of Management online class, resulting in a possible variation of experience in online class participation. Therefore, we propose the following.

Hypothesis 6: Students with prior online class experience will have superior learning outcomes in online classes relative to students with no prior online class experience.

Methods

Sample and Procedures

Our study was undertaken at a southern regional university with an enrollment of approximately 7,000 students. Nearly 70 percent of the university’s students attend full-time, 88 percent of full-time students receive some type of financial aid, 18 percent of all undergraduates live on campus, and 25 percent of degree-seeking undergraduates are at least 25 years old. We conducted our study in four sections of a Principles of Management class. Three sections of the course were taught online (with a total of 72 students) and one was taught in the classroom (with a total of 60 students). The instructor had taught ten sections of the course in the classroom and online before the present study.

Each section was taught by the same instructor during the course of three semesters. The instructor is an assistant professor in the college of business, has approximately eight years of teaching experience, and regularly receives “above average” student evaluations. The university restricted the number of students to 25 in each online class - this rule was beyond the control of the course instructor. The main reason for this restriction, dictated by the University’s Administration, was to increase the learning experience of students by allowing the instructor to give more attention to each student.

The same textbook, power point slides, chapter review questions, case study exercises, and exams were used in the online and classroom sections. Both online and classroom students watched the same videos and answered questions about them in case study exercises. The online classes participated in weekly chapter review quizzes in multiple choice format, while the classroom section participated in similar quizzes in short answer format. The classroom section



received lectures from the professor, while the online class did not. The lectures covered the power point slides, textbook, review questions, and some discussion questions. To facilitate interaction among the students and between the instructor and the students, the online classes participated in discussion board exercises. The discussion board questions were similar to those used in the classroom lectures. The following is an example of a discussion board question. “Our textbook explains that there is no one best generic strategy. In your opinion, which generic strategy would be most effective in today’s market place – cost leadership, differentiation, or focus? Justify your answer with supporting information.”

Some characteristics of the students in the study were as follows. At the median, online students in the study had a 1 point higher ACT composite score and a 0.11 higher cumulative GPA than classroom students. Also, relative to the classroom section, the online sections were composed of older students (approximately 2 years), a smaller percentage of males (32% vs. 42%), a smaller percentage of business majors (48% vs. 64%), a smaller percentage of juniors (44% vs. 69%), and a larger percentage of seniors (56% vs. 27%). Controlling for these differences in regression analyses will be further discussed below.

Learning Measure

Student cognitive outcomes were measured with the scores on three multiple choice exams, each one consisting of 50 questions with four alternative answers per question. The three exams were not cumulative and each exam covered about one-third of the course material. The learning measure is the student-level average (mean) score of the three exams.

Students in all sections took the same exams. The exams were administered in the same exact format; both online and classroom students took the proctored exams completing scantron forms. The exams were proctored by the course professor for all students, except for four students in the online sections who were geographically distanced from the university campus. Those students’ exams were proctored by local college professors or city librarians with the approval of the course professor. The course professor had previously used the exams in six classroom sections and two online sections of the course. During the eight prior classes, the course professor worked to eliminate questions which the students missed in very high percentages or answered correctly in extremely high percentages. The exams proved to be reliable and valid for the course with this experience.

The resulting exams proved accurate in creating a grade dispersion among the students from 100 to 42 percent. The following is a sample question: What skill do all managers need regardless of their position or level in the firm? The scores of the three tests were equally weighted for students' course grades. Following previous studies, we used the average of the three scores as a proxy for learning (Stanovich, West, & Harrison, 1995). Conceptually, this measure represents the students’ retention of class material.

Experimental Issue

Student Withdrawal. Range restriction (or survivor bias) tends to challenge the type of analysis in this paper because withdrawing students are left out of the final sample. For instance, because student attrition has been shown to bias ordinary least squares (OLS) regression



estimators (Becker & Walstad (1990)), the problem cannot be ignored. Only two students withdrew from any of the four sections included in our study. Because such a low withdrawal rate renders statistical methods such as the Heckman (1979) selection model and the propensity score approach useless, we simply dropped the two withdrawn students from the analysis.

Analysis

Descriptive Statistics. Table 2 highlights descriptive statistics related to our cognitive outcome measures and control variables. These statistics show that the average (at both the mean and median) of the three exam scores was approximately two points higher in the classroom (traditional) vs. online class, but that the median ACT score and GPA were slightly higher in the online sections. These figures also show students in the online section were approximately two years older (on average) than those in the traditional section, that a higher percentage of females (relative to males) took the online course, and a higher percentage of business majors (relative to non-business majors) participated in the classroom section. These statistics also illustrate that most students in both classes were either juniors or seniors, and that the highest concentration of juniors was in the traditional class, while the highest concentration of seniors was in the online sections. (The classroom class also contained one freshman and one graduate student, but the results presented below are virtually unchanged when these students are withheld from the sample.) These differences in student characteristics highlight the importance of controlling for such factors in explaining exam score differentials across the two sections.

OLS Equation. To test our first hypothesis, we use the following OLS equation: Average Exam Score = + 1Class + 2GPA + 3Age + 4Business + 5Experience + 6OnlineID (1).

For our dependent variable in model (1), we use the students’ average exam scores (i.e., we average the three (common) exam scores for each student). The independent variables in model (1) are as follows: Class is the student’s grade level (junior, senior, etc.), GPA is the student’s cumulative college GPA, Age is the student’s age (in years), Business is an indicator variable set to one for students who are business majors, and Experience is a variable that measures experience with online classes. The Experience variable will be further discussed below. The remaining independent variable, OnlineID, is an indicator variable set to one for students in the online sections of the course and zero for those in the traditional course. This last variable, therefore, represents the marginal difference in the cognitive outcome for students in the online sections after controlling for student characteristics. A statistically significant positive coefficient for OnlineID, for instance, would indicate that students in the online course typically performed better on the exam questions than students in the traditional section. To test our remaining hypotheses, we drop the OnlineID variable and re-run our regression on only the online students.



Results

The main set of results from running model (1) is presented in Table 3 (in all regression result tables, whether the estimated coefficient is approaching statistical significance is identified as follows: *** p<0.01, ** p<0.05, * p<0.1). The variable of interest is the estimated coefficient for OnlineID, which estimates the marginal difference in the cognitive outcome for students in the online sections relative to the classroom section. The results in Table 3 show that students in the online sections of the course performed 3.3 points worse than students in the classroom section. This result, statistically significant at the 1 percent level, shows that controlling for student characteristics worsens the univariate differences presented in Table 2. The difference in the average exam scores without controlling for these characteristics was only 2 percentage points.

Table 2

Descriptive Statistics of the Study Variables

Variable Traditional Class Online Class

Mean Median SD % Mean Median SD %\

1. Exavg 78.10 76.67 9.32 - 75.42 74.67 8.87 - 2. ACT 20.96 20.00 3.61 - 21.42 21.00 3.11 - 3. GPA 2.76 2.73 0.51 - 2.93 2.83 0.52 - 4. Age 24.07 22.00 5.11 - 27.15 24.00 8.33 - 5. Male 42 32 6. B. Major 64 48 7. Junior 69 44 8. Seniors 27 56

Note. Exavg = exams average; GPA = Grade point average; B. Major = business major



Table 3

Ordinary Least Square Regression Results from Model 1

Independent Variable β coefficient SE R2

.46

1. Class -0.81 1.06 2. GPA 10.44*** 1.26 3. Age -0.45 1.39 4. B. Majors 3.39** 1.40 5. Experience -1.54 1.43 6. Online ID -3.25*** 1.18

Note. N = 129. Dependent variable = Students’ exam average. SE = Standard error. Class = nominal variable representing students’ classification in college (e.g., freshman, sophomore); GPA = Grade point average. B. Major = business majors. Online ID = dummy variable where 1 indicates online students. *** p < 0.01; ** p < 0.05; * p < 0.1.

To find the results presented in Table 3, the regression model was run using a dummy variable for “experience.” In this formulation, the variable was simply set to one for any student that had previously (since Fall 2005) completed an online course. A measure of cumulative experience may be expected to produce stronger results given that students may become more accustomed to the online learning environment as they take more online classes. Therefore, a “total experience” variable was created that counted the number of online classes each student previously completed. The results from running this formulation of model (1) are presented in Table 4.

These new results are very similar to those presented in Table 3. Now, with the new “total experience” variable, students in the online section performed, on average, 3.6 points lower on the exams. The total experience variable does not make the (generally accepted) 5% level of significance, but it does meet the lower threshold of the 10% level. Interestingly, the sign on this total experience variable is the opposite of what was expected – students with more experience in online classes tend to underperform (barely) their counterparts in the classroom course.

To test Hypotheses 2 through 6, we drop the OnlineID variable and run the model after dropping all students from the traditional section. These results, found using only the online students in our sample, are presented in Table 5. Again, the total experience variable was found to be a statistically insignificant predictor of learning outcomes. (Using the indicator-variable version of “experience” gives nearly identical results.) The estimated coefficient on the Age variable is statistically insignificant, and the estimated coefficient (-2.73) on the Class variable is statistically significant only at the 10% level of significance. The estimated coefficients on the GPA (10.61) and Business (3.64) variables are both statistically significant and of the expected



sign. Including additional control variables for gender and ACT scores has no material impact on any of the regression results presented here (both variables were statistically insignificant).

Table 4

Alternate Ordinary Least Square Regression Results from Model 1


.47

1. Class -1.18 1.05 2. GPA 10.42*** 1.20 3. Age 0.13 0.09 4. B. Majors 3.28** 1.32 5. Experience (total) -0.85 0.49 6. Online ID -3.57*** 1.17

Note. N = 129. Dependent variable = Students’ exam average. SE = Standard error. Class = nominal variable representing students’ classification in college (e.g., freshman, sophomore); GPA = Grade point average.

B. Major = business majors. Experience = number of online classes previously completed; Online ID = dummy variable wherein 1 indicates online students.

*** p < 0.01; ** p < 0.05; * p < 0.1.

Table 5

Regression Results. Only Online Students


.54 1. Class -2.73 1.45 2. GPA 10.61*** 1.41 3. Age 0.11 0.11 4. B. Majors 3.64** 1.57 5. Experience (total) -0.75 0.64

Note. N = 71. Dependent variable = Students’ exam average. SE = Standard error. Class = nominal variable representing students’ classification in college (e.g., freshman, sophomore); GPA = Grade point average. B. Major = business majors. Experience = number of online classes previously completed; Online ID = dummy variable wherein 1 indicates online students. *** p < 0.01; ** p < 0.05; * p < 0.1.



Discussion

In the first section of our study, we compared student performance under the conditions of online delivery of instruction versus the classroom delivery of instruction in the business school setting. In our review of studies in the business college context, we found mixed results in the debate concerning the superiority of classroom versus online delivery of instruction. Given this review, we expected students in our study to perform better (or at least at the same level) in the online condition than in the classroom teaching approach. Our results did not confirm this expectation. Instead, students in the classroom section out-performed their online counterparts significantly on the three identical course exams in our study, averaging two points higher when compiling raw scores (Table 2) and then three points higher when demographic variables were controlled (Table 3).

Our literature review showed that the prevailing explanation for findings supporting the classroom approach is the media richness theory (Daft & Lengel, 1986), which proposes that face-to-face communication is the most effective communication channel and is characteristic of the classroom approach. With more effective communication, learning results should be enhanced. In our particular study, the professor was readily available for all students both classroom and online, but the added exposure of face-to-face lectures, interaction, and explanations may have aided the classroom students. Although the media richness theory has plausible appeal, there is an alternate stream of research countering this theory. In a meta-analytic study, Clark (1983) asserts that there are no benefits accruing to any one sort of delivery of instruction method. Studies finding advantage to one media over another are confounded in Clark’s estimation. Rather, it is the quality of instruction that leads to better learning results.

In our study, we looked beyond the media richness (Daft & Lengel, 1986) versus no media difference (Clark, 1983) debate for some answers to explain our results. The regional university where this study took place is noted for its classroom teaching excellence. Here, most classes are taught by experienced academically qualified professors as opposed to larger research universities, where PhD students often receive their training by teaching undergraduate courses. The professor who taught both classes received "above average" student evaluations: therefore, we may suppose that this professor typified the university known for its classroom teaching excellence.

Another view of this situation is that the students in the study's regional university have come to rely on the classroom instruction of the professors to a greater degree than students in larger institutions. In other words, students in larger universities with typically larger class sizes receive less face-to-face interaction with their professors and are more independent in their approach to learning. Students in smaller teaching-oriented universities may expect more one-on-one interaction with their professors.

In the second part of our study, we examined factors that may lead to better student performance in online management classes. The two strongest predictors of performance were the student’s college GPA (at the 1 percent level of significance), and whether the student was a business major (at the 5 percent level of significance). Both variables were positively related to how well students perform on their exams. Furthermore, student classification (whether a senior, junior, etc.), student age, and experience are found to be statistically insignificant predictors of students’ average exam scores.



In summary, our results provide evidence against Hypothesis 1 – classroom students had more positive learning outcomes than online students. Our results do provide evidence for Hypotheses 4 and 5. Students with higher grade point averages have superior learning outcomes in online classes, and business majors have superior learning outcomes in online business classes relative to non-business majors. No evidence was found for Hypothesis 2, 3, nor 6. In particular, there was no supporting evidence that seniors had superior learning outcomes relative to juniors (H2), older students had superior learning outcomes to younger students (H3), or that prior experience in online classes improved learning outcomes (H6).

Limitations of the Study

While we have tried to correct for the major statistical bias issues, there are surely explanatory factors in learning outcomes for which we have been unable to control. For instance, we have included ACT scores and college GPAs in our regressions, but these measures are surely not perfect proxies for what likely matters most: student ability. Regardless, we have followed the standard procedure of including this sort of proxy for ability.

One limitation of our study is that the online classes were limited to 25 students by the university, an issue which led us to pool the students in all three online classes. Naturally, this procedure brings into question whether there is a group level data problem. If, for example, learning outcomes in the three online classes were significantly different, the three sections should not be pooled. However, an analysis of variance showed that the learning outcomes across the three sections were not statistically different (p < .05); thereby suggesting that pooling the data is acceptable.

Implications for Corporate Management Education

This study took place in a regional state university with small class sizes and instruction delivered by experienced professors as opposed to graduate students. As discussed previously, this setting may have had some bearing on the results of the study. When extrapolating our results to corporate management settings, it may be unfair to compare this regional university to a multinational or major U.S. corporation. However, an analogy might be drawn to a small business organization, focused primarily within a state or local market. A small business may be characterized as being independently owned and operated, small in relation to the size of its market, and not part of a larger organization (Street & Cameron, 2007).

The resources of the regional university in our study may be described as moderate or fair, but far below those of research universities (which may have substantial endowments). Small businesses fit this description as well compared to large businesses. Large firms possess the advantage of greater resources, such as cash reserves and updated plant and equipment with which to address a competitive situation (Young, Smith, & Grimm, 1996) and slack resources to lengthen survival in difficult times (Headd, 2003). Specifically, although students had adequate access to university computers and the class employed the Blackboard platform, which is standard for the industry, organizational support, such as web cameras, voice-over production, and other areas of IT support were lacking. The results of Hypothesis 1 pointed toward better performance for the classroom students than those in the online condition. Our results in the regional university when extrapolated to a small business setting, call for managers to exercise



caution in using the online approach. Our first implication for corporate management education is that the use of the online delivery of instruction approach may not be beneficial in all business settings, especially when resources are scarce and investment in equipment, programs, and personnel may be needed for quality online delivery of instruction.

In Hypothesis 2 and 3, we did not find any significant differences between the learning outcomes for older and younger students and in Hypothesis 6 we did not find any differences in learning outcomes relative to prior online class experience. Still, there may be several mitigating factors at work here. It may be reasonable, for instance, to assume that younger learners benefit more than their older counterparts in online applications (Kraiger, 2008) because they have grown up in a culture immersed in online technology which did not exist in the youth of older workers (such as baby boomers). However, in the college environment in general and specifically in our study at a regional university, students learn computer skills in required classes and use those skills to communicate with professors, other students, and the university administration on a daily basis. Whether the student is traditionally-aged (18 to 22 years-old) or an older student (25 years-old plus) returning to college life, they must adapt to the pervasive use of online technology. Thus, by the time students reached junior status and qualified for the principles of management class at the regional university, they had been assimilated into the university culture and the vast majority of them possessed the basic computer skills needed in the principles of management class. Many small businesses may also have this same pervasive culture of online technology. Without this culture, online training may not be a good fit for an organization. Thus, we arrive at our second implication for corporate management education. In the online delivery approach, the age of the learners is less important than the level of immersion of the business organization in online technology.

We did find support for Hypotheses 4 and 5 that business school majors and students with higher grade point averages had superior learning outcomes. Both of these groups of learners may have possessed greater ability, experience, or motivation to learn in the online setting. This is consistent with DeRouin, Fritzsche, and Salas (2004) who asserted that able, experienced, and highly motivated trainees may flourish in online settings, which have greater learner control. In the training literature, the concept of learner control appears to be more salient than in the area of management education (Kraiger, 2008; Noe, 2008). One reason for this concern may be that corporate management educators do not want to give up control of the training process. In corporate management education, the company usually pays for the training, while college students (or their parents) typically pay for tuition. Corporate management educators generally select the delivery of instruction method (classroom or online), while students in higher education generally choose the delivery of instruction method themselves. The third implication from our study for corporate management educators is to carefully select and prepare trainees for their ability, experience, and motivation when using the online delivery of instruction approach.

Conclusion

In our study, we attempted to add to the current knowledge of online learning in management education by first comparing student learning outcomes in online versus classroom settings and then examining the factors related to better student performance in online learning. We contribute to the discussion of online learning by adding a caveat to the prevailing idea that



there is no significant difference in learning outcomes between classroom and online conditions. We take a step beyond the concept of media richness and suggest that there may be instances in which smaller “teaching universities” may have faculty and students more receptive and attuned to the classroom mode of delivery of instruction. Here, student performance in learning measures may be appreciably better in the classroom. Further research in like circumstances is needed to better understand this caveat.

In regard to factors that may help explain better student performance in online learning, we provide evidence that “better” students tend to outperform their counterparts in these online settings. In particular, college GPA was found to be the best predictor of performance in online classes. Further, as expected, business students outperformed non-business students in the online setting. Prior experience with online classes was not found to be a significant explanatory factor in learning outcomes in the online classes.

Then, we extrapolated our findings from the higher education setting into the area of corporate management education, finding three implications. First, we cautioned that small businesses with scarce resources may not find online training beneficial if investment costs are high. Secondly, corporate management educators should match the use of the online approach with the level of online technological immersion of their company. Thirdly, corporate management educators may want to selectively employ the online delivery of instruction, carefully choosing trainees for their ability, experience, and motivation.

We encourage future studies of the interface between management studies in higher education and corporate management education. While both groups of researchers have been active in studying the online delivery of instruction, each side may benefit from crossover studies. For example, future researchers may bridge this same interface focusing on blended forms of instruction delivery, combining aspects of both online and classroom learning.

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Executive Interview

Social Business Entrepreneurship: A Conversation with 2006 Nobel Peace Prize

Winner Dr. Muhammad Yunus

Donald L. Ariail, Southern Polytechnic State University Gouranga Banik, Southern Polytechnic State University

Sandra Vasa-Sideris, Southern Polytechnic State University Gregory Quinet, Southern Polytechnic State University Joyce McGriff, Southern Polytechnic State University

Executive Summary

Have you wondered why, in this world of plenty, there is such disparity between the haves and the have-nots? Why does the capitalist system work so efficiently in producing goods and services while being perceived by some as failing to justly distribute the bounty that it produces? Attempts to remedy the plight of the poor have included progressive income taxes, which take more from the “rich” so that governments can provide relief to the poor, government control of the production and/or distribution of all goods and services, and the implementation of social welfare systems where key social services like health care are under government control. In short, the attempts at solving the problem of poverty have focused on either tinkering with or destroying capitalism, yet poverty persists. And with the financial crisis, which began in 2008, poverty has increased.

As an economics professor at Chittagong University in Bangladesh, Dr. Muhammad Yunus started a grass-roots approach to eradicating poverty through small personal loans to the very poor in the community. It was based on his belief that credit should be a human right and that there should not be exploitation of the poor by high-priced money lenders. His efforts expanded, and in 1983, he established the Grameen Bank, to provide banking access to poor individuals, most of whom were women.

Yunus received the 2006 Nobel Peace Prize for his pioneering work with microcredit, in which individuals who were previously considered “un-creditworthy” received very small loans with which they were able to start small businesses and which eventually enabled them to become self-reliant. So, instead of focusing on charity, a temporary cure for the problems of the poor, Yunus focused on curing the root of the problem, a philosophy related to the Chinese proverb, “give a man a fish and feed him for a day; teach a man to fish and feed him for a lifetime.” Yunus has been recognized around the world for his efforts, and he continues to champion his approach to solving social problems through social entrepreneurship.



In his three books--Banker to the Poor, Creating a World Without Poverty and Building Social Business--Professor Yunus explains the concepts and benefits of microcredit lending and social businesses. A social business is a “no loss, no dividend” business. While similar to the typical for-profit corporation, the social business has a different goal--instead of striving to maximize profits, the goal is to maximize the social good provided by the business.

Professor Yunus spoke at Southern Polytechnic State University (SPSU) in 2010, and was the keynote speaker at the Georgia Social Business and Microcredit Forum and Social Business Plan Competition held at the Georgia Institute of Technology in November 2011. The Social Business Team from SPSU, which was mentored by authors Ariail, Vasa-Sideris, Quinet and McGriff, placed first out of the 36 University System of Georgia schools that participated in this competition. At these events Professor Yunus shared with the authors his views on social business.

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Authors: You state that the “main difference between starting a social business and starting a regular business is the core motivation of the entrepreneur.” Would you elaborate on these differing motivations and their practical implications?

Muhammad Yunus: Well in conventional business, you look at the enterprise as a vehicle to earn money: profit maximization, the return on the investment, that’s the whole motivation. So, of all the business options available, you pick the one which gives you the best return--which makes you the most money. The bottom line is what matters; that is, what you get out of the business is what matters. In a social business, you start out to solve a problem, and you design a business for that purpose. The condition is that whatever money you invest should come back sooner or later--a return of investment instead of a return on investment. Investors in a social business must have a space or time where they can wait for the return of their investment--and finally it should break even. And, that’s the whole objective. The whole idea and the whole motivation of the business is to find a solution to the social problem. So if you are not making that impact, the business is not solving a social problem, then it’s not a social business. No matter how you deny or delay taking money out of the business, it’s still not a social business, because you are not achieving a social goal.

Authors: Should a social business start-up plan on having a longer period of non-sustainability?

Yunus: It depends. In some for-profit companies you also expend a lot of time, hoping that it will bring lots of money. So, the waiting period may be longer. In a social business, your objective is to finally get the money back; but you are not in a hurry; you are trying to make a social impact. If the desired impact is coming about, you can wait, because, after all, you are not in a hurry to make a profit for yourself. All you are waiting for is to get an eventual return of your investment. If you see the business making progress, the gap between the revenue and the expenses is getting closer and closer--that it’s only a question of time--the wait may be longer. If you are lucky, you solve the social problem and get a return of your investment in a shorter



period. But, if it is a very intricate problem you don’t mind waiting because you are actually making progress towards achieving the goal. A social business provides a methodology to solve social problems. If globalization creates a problem (for example, when big companies come in and take over the local businesses and local people are put out of jobs), a social business solution can be created which does the reverse. The objective of the social business can be to create jobs and maintain local companies. The social business and the conventional business kind of work in a reverse way.

Authors: How does the “reverse way” of social business relate to the current dependence of the poor on government programs?

Yunus: That is the whole crux of the methodology. We usually try to solve social and environmental problems by giving subsidies, by giving grants, or by creating social safety net programs. We take care of poor people with budget money or taxpayer money. A social business provides an alternative way of addressing social problems. You can create a business to do many of the things currently done by governmental programs. You can take care of welfare dependence by creating a business that provides a decent livelihood for the poor, so they don’t have to be dependent; so, you are trying to move the poor from dependence to self-reliance. This is a business methodology which can be applied to many social problems.

There are subsidies, for example, for environmental issues. If you are using solar energy, the government will give you a subsidy. To the extent the government has a certain amount of money available for this purpose, you can go up to that limit, then you stop. You cannot expand from there. So that’s not a solution which can satisfy the needs of the economy. However with a social business, once all of the costs are covered, you can go as far as you want, because the business provides a return of investment and covers all the cost. Nobody can stop you.

Authors: You mentioned the poorer the person, the better the fit for a loan. How do you transition the borrowers as they become more self-sustaining or self-sufficient?

Yunus: Yes, that depends on the borrower. There is no pressure to force anyone out of the program. If it were a subsidized loan [from a conventional bank], then you would have a reason to get the borrower out of the program quickly because the loan costs money. In a social business there is no reason to push anybody out. As long as a borrower wants to do business, you do business. Since they are paying you, you cover your costs and it’s not a burden. The more money he or she makes, the more their company earns and the more they become self-reliant. So there is no reason to say, okay, now that you are self-reliant, don’t come here; go to a conventional bank. However, no conventional bank will touch them with a hundred-foot long pole. So, if you exclude the newly self-reliant, you are putting them in a position to again become poor. That’s not a good solution.

Authors: Can academics encourage social business experimentation?

Yunus: Very much! You can challenge your students like what is being done today in the social business plan competition. Ask your class to solve a problem: we want to take five welfare



recipients off government dependence; can you design a social business that will do this? Then, the whole class can provide their solutions, and you have a lively discussion.

As an academic, you see what new ideas are coming and assess their pluses and minuses. So, this should be a new idea. See what the students think; what you think. You might take a negative position! You might say that the social business idea is not fair or that it will soon disappear – ‘I don’t think this has any chance of survival - it’s a sick baby’; or, you might say ‘the social business idea is the strongest thing I ever heard, this idea is going to make a big difference.’ It’s up to you, it’s your position; it’s an academic position. Let students debate the topic and see what they think about it.

Authors: Do you anticipate resistance to this new business ideology from for-profit businesses?

Yunus: I don’t see any opposition. People may like to criticize it, but not in a way, you know, that is damaging. It’s not like that. You need to understand people. That’s the only way the world will be very different. We see the world through ‘profit maximizing glasses.’ Using this perspective, the social business concept is difficult to understand. If you take off the ‘profit maximizing glasses’ and put on the ‘social business glasses’, you will see the world differently–this will soon happen. It just needs organization and exposure; this new model needs to be taught in the classroom and included in textbooks.

And, I should mention that there are already social business programs being implemented in partnership with for-profit businesses. We currently have a joint venture in Bangladesh with Intel Corporation, called Grameen Intel Company, in which we are focusing on health care, particularly pregnancy. It uses new technology to save pregnant mothers from death--maternal death is very high in Bangladesh villages. Another joint venture involves fertilization for farming. A very simple methodology is used to test the soil in only a few minutes, right on the spot. The farmer enters details about a particular crop and receives detailed information regarding the kind of fertilizer and soil preparation that is needed.

There are many companies that might become involved, but first, it is necessary to present them with a creative business plan for solving a social problem such as welfare, crime, and drug usage. Then invite them to join in. A social business fund, like the one being considered by the state of Georgia, is a potential governmental initiative for providing seed money needed by social businesses. With start-up funding available from the state, people will be encouraged to design social business plans. They will also be encouraged to develop business models that meet social business requirements [no loss, no dividend companies]. Such a fund provides a seed, and with a seed you can have a big plantation.

Authors: While creating a social business sounds wonderful, how does the business creator support himself or herself?

Yunus: Just like in any other business: whether you are staff or the CEO, reasonable salaries are a part of the normal operating expenses of the company. In a social business, you don’t want to take profit out of the company. It doesn’t mean that you can’t take a salary as remuneration for



the services you render to the company…. start by doing that. You run the company, you get your market salary, and the company should be able to pay for all the expenses that are requested of the company. But the investors must not pay out the profits; they are totally dedicated to solving the social problem.

Authors: How are your ideas related to health care?

Yunus: Very much. We have participated in a number of health care-related social businesses. I just mentioned Grameen Intel Company. We are also working with General Electric Healthcare, to design a very simple prenatal diagnostic tool almost like a mobile phone. Most of the diagnostic tools [for health care] currently being manufactured have impressive capabilities but are too expensive for use in developing areas of the world. All that is needed is an additional mobile phone application. A probe taped to the mother’s stomach takes images of the womb that are then transmitted by telephone. You don’t even have to see the images on the screen; the screen is unnecessary. All the images will be transmitted to the doctor wherever he or she sits. They will be shown on a screen in the doctor’s location so that he or she can pick up the phone and talk to the mother and tell her “your child looks very good, no problem, you just take care of yourself.” With this device, even in the remotest place on earth, prenatal care is available.

In the future, many health care problems will be solved with smart phone technology–you will just need a new app. If your child is sick, just press the application and you are connected to the doctor. The doctor views the child, makes a diagnosis and determines the treatment. He or she doesn’t have to go to the patient, and the patient doesn’t need to leave home. So health care is provided in the home the way it used to be. You don’t have to go anyplace, and that’s the direction we should be going. Health care is an excellent area for social businesses.

Authors: How can we execute the use of micro credit in a big society like the United States?

Yunus: Well, we started micro credit in New York City in January 2008. Today we have four branches there. When we started, we did not know the financial crisis was coming. In the later part of 2008 the financial crisis came and huge banks just melted away in front of us. But the Grameen program (Grameen America) is flourishing. Borrowers are repaying their loans. By 2010 we had a 99.3% payback rate. Today we have over 6000 borrowers in New York City, all women (the average loan is $1,500 and the repayment rate is nearly 100%). And then we were invited to Omaha, Nebraska. So we have had branches in Omaha, Nebraska for the last two years. Then, we were invited to Indianapolis this year. So we are running another branch there. This year we are starting two more branches, one in San Francisco and one in Detroit. So, micro lending is already in the United States.

Authors: Thank you, Dr. Yunus, for answering our questions.



About the Authors

The authors are all faculty members at Southern Polytechnic State University in Marietta, Georgia.

Donald L. Ariail, CPA, CFF, CVA, is an associate professor and the accounting program coordinator. He earned his DBA degree from Nova Southeastern University in 2005. Contact: [email protected].

Gourauga Banik is a professor of construction management. He holds a Ph.D. in Civil, Construction, and Environmental Engineering from Iowa State University and is a licensed professional engineer.

Joyce McGriff is an assistant professor of marketing. She holds a Ph.D. from the University of Cincinnati.

Gregory Quinet is an assistant professor of management and director of international business programs. He holds a MS in Technology Management from Southern Polytechnic.

Sandra Vasa-Sideris is a professor of management and the MBA coordinator. She completed her MBA and PhD degrees at Georgia State University.



Strategic Leadership Applied to Retail Management: Joe Contrucci Discusses the 21st

Century Dynamic Organization

Belal A. Kaifi, Trident University International Scott Mendenhall, Saint Mary’s College of California

Executive Summary

Joe Contrucci started his retail career at Wal-Mart. Shortly after, Joe joined the Target Corporation where he has risen through the ranks over the past twelve years. Joe served as the Group Vice President of Northern California where he was responsible for leading 52 Target stores, driving $3 billion in revenue, and managing 20,000 Target Team Members. Joe recently relocated to his childhood roots near Kansas City where he is now Group Vice President for the Kansas City, St. Louis, and Indianapolis area. He is a graduate from the Class of 1994 from St. Mary’s College with a major in history. He currently serves on the Saint Mary’s Board of Trustees and resides in the Kansas City area with his wife and two children.

Target Corporation, a Fortune 50 company with over $67 billion in annual revenue, operates 1,767 stores across the United States and has plans to open its first stores in Canada in 2013. Target was recognized in 2009 as one of the Top Companies for Leaders in North America in a study led by Hewitt Associates. Joe embodies an ability to recognize, develop, and inspire leaders at all levels to drive results, value collaboration, and think strategically. He recognizes the value of a diverse leadership base to lead a dynamic organization in the rapidly changing environment of mass retail.

Authors: Based on your experiences, what is the best way to manage the different generations in the workforce?

Contrucci: Very early on, and even up to the past couple of years, I expected people to manage more to my expectations rather than the other way around. I do not think I truly respected the differences in generations as much as I should have. However, I have recently started to realize the need and importance to focus more of my energy to more fully understand how each person is personally motivated, what fuels their passion, and the value of creating an environment that inspires and engages as many people as possible.



It sounds simple, but sometimes I think leaders have a level of arrogance that says “If you want to succeed, you have to do it my way.” After all, this was the path I walked to be successful early in my career. I suppose this translated to my beliefs in the past as this is the path others should also take.

As I continue to grow as a leader and reflect on the successes I have achieved, and more importantly the successes I have helped others achieve, I think a lot of my initial thinking came from the environment in which I was raised. I succeeded because I changed based on what my leaders wanted from me. I now realize as leaders in our organizations, there is a need for us to be much more adaptable and willing to change.

Authors: Who is a leader you admire and why? Why and how did this person impact your life and/or leadership style?

Contrucci: A leader I admire is actually one of my first mentors and someone who I still have a relationship with. This relationship was established with someone who I worked with at my first job…ironically, someone at Wal-Mart.

As the years have passed we have stayed in touch and I still seek advice from him. Although I may have surpassed him in title, I certainly have not surpassed him in the experience and knowledge he continues to share with me. I believe it is important to continue to be a student – someone who retains an open mind and is not closed to new ideas simply based on a title or position in an organization.

So what is the advice I continue to seek? It is simple, yet very significant in my growth as a leader. He has shown me, year after year, how to stay fresh and how to re-invent myself. As a leader, and a person, it is good to consistently re-invent your perspectives, your willingness to learn from others, and to take in and incorporate new ideas. This person has not only helped me re-invent myself each year, but does it while always pushing me to be true to who I am as a person.

Sometimes in business, there is a temptation to put who you are in the background in order to get to the next level or position yourself for the next opportunity. I think back to the past seventeen years and truly thank this person for not only helping me stay fresh, but also stay true to who I am. This has been a difficult, but valuable, balance to strike.

Authors: How can a leader influence and mold the culture of an organization?

Contrucci: First, a leader has to embrace the culture of the organization itself before you can attempt to change or maneuver it. It is important and necessary for a leader to buy in and understand the principles of the organization. This is true if you are running a store, a district, a group, or a region. We all have to understand the principles of what we are there to do every day.

The best way I know how to change or mold a culture is by creating and leveraging relationships. These relationships exist not just within your team, but also in the resources/partners throughout the organization. If you have great relationships, you can then



begin to influence and mold your own ideals through others. The best successes I have had with regards to implementing change is by utilizing my partners and resources. Without these types of relationships, it is nearly impossible to simply force your ideals through by simply using title or position.

Authors: Can organizational politics help an organization?

Contrucci: Yes. When I think of politics, I place it in a framework of give and take. Politics can certainly help an organization because it provides an opportunity to give and take from one another. There are countless times when I have been able to support another’s agenda. The return to me is tenfold when they then support me. This is when organizational politics works to help the business and leaders get better. Of course, politics can certainly be a negative within an organization. When used properly, politics allows for compromise and collaborative efforts among leaders within the organization to accomplish more than one could as an individual.

Authors: What motivates you to be successful?

Contrucci: I think all of us still have those people who we want to make proud. To this day, making my parents proud remains a very important part of who I am. Of course, winning also motivates me to be successful. The satisfaction I get from winning everyday motivates me to get up each morning, work a little harder, and run a little faster to beat the competition.

Authors: Who is the competition?

Contrucci: It changes and is at times tough to define. In general, I think of my competition as the same people doing the same role I am in - within the same organization. I certainly do enjoy my peers and they are some of my best friends, but admit that I get up every morning wanting to beat them.

Authors: What is one mistake you witness leaders making more frequently than others?

Contrucci: The most common mistake I see is when leaders do not change their style to fit the situation. When I think about leaders I encounter, there is sometimes a level of arrogance that the only way to accomplish something is through their way. This is very risky mindset to have as a leader because many times the organization will them pass them by without the person knowing. Once the organization passes a leader by and the organization gets ahead, it is nearly impossible for them to succeed. I think it is important to be open to listening to your team, seek to understand alternative ideas and perspectives, and to be willing to not take yourself and title so seriously that you eventually are left behind.

Authors: What is the one behavior or trait that you have seen that derails more leaders’ careers?

Contrucci: It is not so much a trait as it is the whole personal arrogance some new leaders get that they have “arrived.” They then become closed to feedback or changing based on who they think they are and forget that there are people who can help them every day continue to get better. Put another way, leaders have a tendency to get complacent. Once someone becomes complacent, it is very difficult to become a student again.



Authors: What advice would you give someone going into a leadership role for the first time?

Contrucci: Go in as a student and ask the right questions. Ensure not to let the new position / title go to your head too quickly and begin to think you know everything. I think one of the most important things new leaders can do is to utilize the team to teach them. In my experience, the people who have struggled are the ones who say “I’m the boss” rather than get the team’s buy-in.

Authors: What do you do to ensure you continue to grow and develop as a leader?

Contrucci: I try to surround myself with those who think and act differently than I do. I truly appreciate having a team that challenges me to think differently – even when they are 100 percent different than my style.

Authors: What skills does Target value in its leaders? Does Target build these or are they skills that eventually surface during their tenure with Target?

Contrucci: Target has a set of characteristics called Leadership Expectations. I think there are three of these expectations that really drive success – at least for me.

The first is the ability to engage and inspire. The details of this differ slightly based on where you are in the organization. However, the underlying premise is that the ability of a leader to engage their team, to convey trust in people’s competence to do their jobs creates a feeling of energy and excitement that will separate a good team from a great team.

The second is not just simply the ability to drive for results, but the ability to uniquely drive for results. This goes back to some of the things I was saying earlier in that each person has to be able to get the results in their own way. There is not a “Target” way and each leader needs to determine how they can best foster a sense of urgency and commitment to achieve goals. Engaging and inspiring others to find their strengths in order for them to drive the results necessary for success is important to me as a leader.

The Leadership Expectation I believe is critical is for a leader to be resilient and adaptable. I think this is important not just in Target or retail, but in any leadership role. As a leader, we are expected to keep the ship upright and going in a straight line. In order to accomplish this, leaders have to constantly adjust to the changes in the economy, local issues, regulations, spending habits, etc. You have to be able to not only maintain a positive focus and drive your team forward, you sometimes have to bend and adapt to your surroundings all while keeping true to yourself and the principles of the organization. A leader must be able to adapt to change, ambiguity and uncertainty with a certain level of confidence and openness.

Authors: What do you focus on as a leader responsible for almost $3 billion in revenue? How do you drive these focuses through your organization?

Contrucci: I think my biggest focus is taking the company vision and focus and then communicating in the simplest way possible to our teams so that they can understand and see the message very clearly. You then have to push really hard to get the team to move at the same speed.



In my role, where I oversee 52 stores, I believe all stores should get to a milestone at the same time. If there is a store that is lagging behind, we need to wait till they catch up before moving forward. What is tough is when we allow stores to move at their own pace. If we as leaders are going to push (and push hard), each individual store should try to arrive at the goal at the same time. It is not about creating a race where each individual store simply tries to be the first to the finish line. It is about creating a culture where each Target store views themselves as part of a larger team and there the stores meeting stated goals first then helps other stores so that everyone moves forward together – not racing as an individual store.

Authors: How to you perceive Target changing as more leaders who are part of the Millennial Generation (those born after about 1980) become more prominent and visible within Target?

Contrucci: Realistically speaking, I am not sure we are 100% ready for the change these emerging leaders bring to an organization and we may not have prepared enough for this influx of new leadership. Perhaps it is our own little bit of arrogance as an organization that we believe people are going to change/adapt to our way of doing things. For example, one of the ways the millennial generation differs from previous generations is that they may not stay around long enough in places that don’t change. They may simply move on to an organization that is more in tune with their values and beliefs. I do not think we at Target are alone on in addressing this change of leadership. Other organizations and leaders I speak with also may not be diving into how millennial leadership will impact an organization as much as they should.

Authors: What are the most important decisions you make as a leader at Target?

Contrucci: People placement. This is actually a dual role. The first is to give the leader experience they need to develop and maximize their potential. The second is to provide each store the type of leader they deserve based on the challenges they face at that particular time. For example, we have brand new stores that are opening for the very first time. We also have stores that are very established and have a very tenured staff. Some stores are in a market with significant competition and we have to execute certain behaviors within the store to remain relevant within the community, etc. Each one of these types of environments provides an opportunity to help a new leader grow as well as to learn to recognize, acknowledge, and adapt to different situations. For senior leaders, it is an exercise to also ensure each store gets the type of leader that will make both the store and the leader successful.

Authors: What is the biggest challenge that leaders at Target face today?

Contrucci: Everyone is always hiring great people. When the economy is up or down, or unemployment is high or low – everyone is always on the lookout for great people. Target has a reputation for training and developing great people. As a result, they also become highly sought after. I think our challenge is to do what we can to ensure our people are not looking elsewhere but also be honest with them what the future may hold for them at Target.



Authors: Can you share the impact, if any, that social networking has had on Target or you personally?

Contrucci: We are really getting to a place where social media and networking will certainly affect us. I am not sure if it has yet significantly impacted us at a corporate level. Until now, it has not really hit us unless it is negative. For example, a bad experience or a bad running store was something most companies were able to hide until they fixed it. This is no longer the case. There have been examples where a bad experience has quickly become a very large and socially driven event that individual stores and corporate must contend with.

Authors: Do you enjoy taking risks? Talk about a risk you've taken in your leadership position and how this risk relates to the growth of Target.

Contrucci: I LOVE taking risks and this is one of the reasons I enjoy Target so much. Target allows leaders to take risks if they make great business sense. In my most recent role, we took some risks as a group related to inventory control – something not previously done in the company. I was able to find some partners to help move the idea forward and the risk we took resulted in a savings of nearly $45M.

“Risks” can be found in many different parts of an organization – opportunities to improve operations to run a more sound business and get more guests in and out of the store with the same people resources, driving inventory efficiencies to maintain better stocked shelves and have less merchandise in the back that can get lost or damaged, or looking at opportunities to better protect our assets from the equipment we use to the merchandise in our stores.

Authors: What will you do in the next two years to lead your team to revenue and profit growth? How will it be significantly different from what you've done in the last two years?

Contrucci: The next two years will be different than the past two years. In my previous role, I had a number of the top revenue stores in the company with limited competition. The focus for these past two years was essentially ensuring we keep our shelves full to ensure we are in-stock for our guests. In my new role, my stores are located in a very competitive area. Here it will be necessary to focus on driving a great shopping experience. We will have to ensure we are running stores in a way in which all stores feel, look, and act similar.

Authors: How have you evolved as a leader in the last five years? What insights have you gained about your talents and strengths?

Contrucci: I take a more practical approach and continue to find new ways to keep my emotions in check. I strive to be not just an emotional leader, but also one who drives for great results and appreciates teams and leaders who do it the right way. Regarding strengths, I have realized I can use my relationships and personality to drive for higher results and push harder than others. However, there are times where I do catch myself pushing so hard that my quick response can stunt or hinder growth because I may close off the open-mindedness of my team based on the strength of my opinion. This goes back to continually being a student of leadership, being open to new ideas, and surrounding myself with those that will present different perspectives of how to solve the many challenges we face in the retail environment on a daily basis.



Authors: What is the greatest lesson you have learned as a leader?

Contrucci: The greatest lesson I have learned as a leader in the past five years is not to take anything for granted – even outside of work. We certainly have to strive for greatness and wins in our jobs, and we certainly have to ensure we fulfill the expectations of our roles and do the things to provide continued success in our careers. But we need to also not take things too seriously. As leaders, we must be appreciative of our success, but we should not take things for granted or stop being a student of our profession. At the end of the day, we just sell stuff….but we do it pretty well.

About the Authors

Belal A. Kaifi completed a post-doctoral program at the University of Florida’s Warrington College of Business Administration where he researched Management and Marketing. He earned a doctoral degree from the University of San Francisco where he studied organization and leadership. Belal is an Associate Professor of Business Administration at Trident University International. Belal can be reached via email at: [email protected].

Scott Mendenhall earned his BA in Business Administration from the University of Nebraska-Lincoln. Scott spent eight years with Accenture in the Human Performance Competency and then joined Wachovia as a Regional Sales Consultant to be part of Wachovia's westward expansion into California and Arizona. Scott worked with Joe at Target where he led a team of 60 Team Members. Scott currently is a District Operations Manager for a private Medical Supply company and attends the Executive MBA Program at Saint Mary's College of California. Scott can be reached at [email protected].

Documents

Journal of Applied Management And · PDF fileiv The Journal of Applied Management and Entrepreneurship, 2012, Vol. 17, No. 4 The Journal of Applied Management and Entrepreneurship,