Dr. David King - Intellectbase International Consortium



Dr. David King - Intellectbase International Consortium
ISSN 2150-6906
nternational Handbook of Academic Research and Teaching
Summer 2012 - Nashville, TN, USA
Published by: Intellectbase International Consortium.
Editors: David King, Karina Dyer & Reviewers Task Panel (RTP)
Academic Conference, Nashville, TN - USA,
MAY 24-26, 2012
Conference Proceedings
Discussion Forums and Journal Publications
Multi-Disciplinary Foundations & Intellectual Perspectives
Web: www.intellectbase.org І Call +1 615 944 3931
Spring 2012
Dr. Gerald Marquis
Dr. David King
Dr. Dennis Gendron
Executive Session Chair (ESC)
Tennessee State University, USA
Program Chair & Editor (PCE)
Tennessee State University, USA
Conference Co-Chair Associate (CCA)
Tennessee State University, USA
Dr. James D Williams
Dr. James A. Ellzy
Senior Advisory Board Associate
Kutztown University, USA
Senior Advisory Board Associate
Tennessee State University, USA
Ms. Aqiyla Reed
Mrs. Karina Dyer
Academic Associate Coordinator
Academic Senior Executive & Chief-Coordinator
United States
Ms. Amy Waugh
Ms. Anita Medhekar
Ms. Christina M. King
Mr. Bobby Daniels
Mr. Graeme William
Mr. Benjamin Effa
Ms. Cynthia Conricode
Ms. Michelle J. Dyer
Mr. Kevin Kofi
Mr. Cindy Newman
Mr. Kenneth Obeng
Mr. Tim Gabrielsen
CALL FOR PAPERS – Academic Conferences and Journal Publications
August 7-9, 2012 - Shanghai, China
March, 2013 - Bangkok, Thailand
October 18-20, 2012 - Atlanta, USA
April, 2013 - San Antonio, TX, USA
December 13-15, 2012 - Las Vegas, USA
May, 2013 - Nashville, TN, USA
June, 2013 - Kuala Lumpur, Malaysia
August, 2013 - Shanghai, China
Email Papers to: [email protected]
October, 2013 - Atlanta, USA
Authors may also submit Full Papers directly for Review to be
considered for Journal Publication.
December, 2013 - Las Vegas, USA
Published by Intellectbase International Academic Consortium:
Intellectbase International Consortium, 1615 Seventh Avenue North, Nashville, TN 37208, USA
ISSN (Print):
ISSN (Online):
--------- Issued by the Library of Congress, Washington DC, USA
--------- Issued by the Library of Congress, Washington DC, USA
--------- Issued by the Library of Congress, Washington DC, USA
©2012. This volume is copyright to the Intellectbase International Academic Consortium. Apart from use as permitted under
the Copyright Act of 1976, no part may be reproduced by any process without prior written permission.
Dr. David White
Roosevelt University, USA
Dr. Dennis Taylor
RMIT University, Australia
Dr. Danka Radulovic
University of Belgrade, Serbia
Dr. Harrison C. Hartman
University of Georgia, USA
Dr. Sloan T. Letman, III
American Intercontinental University, USA
Dr. Sushil Misra
Concordia University, Canada
Dr. Jiri Strouhal
University of Economics-Prague, Czech Republic
Dr. Avis Smith
New York City College of Technology, USA
Dr. Joel Jolayemi
Tennessee State University, USA
Dr. Smaragda Papadopoulou
University of Ioannina, Greece
Dr. Xuefeng Wang
Taiyun Normal University, China
Dr. Burnette Hamil
Mississippi State University, USA
Dr. Jeanne Kuhler
Auburn University, USA
Dr. Alejandro Flores Castro
Universidad de Pacifico, Peru
Dr. Babalola J. Ogunkola
Olabisi Onabanjo University, Nigeria
Dr. Robert Robertson
Southern Utah University, USA
Dr. Debra Shiflett
American Intercontinental University, USA
Dr. Sonal Chawla
Panjab University, India
Dr. Cheaseth Seng
RMIT University, Australia
Ms. Katherine Leslie
Chicago State University, USA
Dr. R. Ivan Blanco
Texas State University – San Marcos, USA
Dr. Shikha Vyas-Doorgapersad
North-West University, South Africa
Dr. Tahir Husain
Memorial University of Newfoundland, Canada
Dr. James D. Williams
Kutztown University, USA
Dr. Jifu Wang
University of Houston Victoria, USA
Dr. Tehmina Khan
RMIT University, Australia
Dr. Janet Forney
Piedmont College, USA
Dr. Werner Heyns
Savell Bird & Axon, UK
Dr. Adnan Bahour
Zagazig University, Egypt
Dr. Mike Thomas
Humboldt State University, USA
Dr. Rodney Davis
Troy University, USA
Dr. William Ebomoyi
Chicago State University, USA
Dr. Mumbi Kariuki
Nipissing University, Canada
Dr. Khalid Alrawi
Al-Ain University of Science and Technology, UAE
Dr. Mohsen Naser-Tavakolian
San Francisco State University, USA
Dr. Joselina Cheng
University of Central Oklahoma, USA
Dr. Rafiuddin Ahmed
James Cook University, Australia
Dr. Natalie Housel
Tennessee State University, USA
Dr. Regina Schaefer
University of La Verne, USA
Dr. Nitya Karmakar
University of Western Sydney, Australia
Dr. Ademola Olatoye
Olabisi Onabanjo University, Nigeria
Dr. Anita King
University of South Alabama, USA
Dr. Dana Tesone
University of Central Florida, USA
Dr. Lloyd V. Dempster
Texas A & M University - Kingsville, USA
Dr. Farhad Simyar
Chicago State University, USA
Dr. Bijesh Tolia
Chicago State University, USA
Dr. John O'Shaughnessy
San Francisco State University, USA
Dr. John Elson
National University, USA
Dr. Stephen Kariuki
Nipissing University, Canada
Dr. Demi Chung
University of Sydney, Australia
Dr. Rose Mary Newton
University of Alabama, USA
Dr. James (Jim) Robbins
Trinity Washington University, USA
Dr. Mahmoud Al-Dalahmeh
University of Wollongong, Australia
Dr. Jeffrey (Jeff) Kim
University of Washington, USA
Dr. Shahnawaz Muhammed
Fayetteville State University, USA
Dr. Dorothea Gaulden
Sensible Solutions, USA
Dr. Brett Sims
Borough of Manhattan Community College, USA
Dr. Gerald Marquis
Tennessee State University, USA
Dr. Frank Tsui
Southern Polytechnic State University, USA
Dr. David Davis
The University of West Florida, USA
Dr. John Tures
LaGrange College, USA
Dr. Peter Ross
Mercer University, USA
Dr. Mary Montgomery
Jacksonville State University, USA
Dr. Van Reidhead
University of Texas-Pan American, USA
Dr. Frank Cheng
Central Michigan University, USA
Dr. Denise Richardson
Bluefield State College, USA
Dr. Vera Lim Mei-Lin
The University of Sydney, Australia
Dr. Reza Vaghefi
University of North Florida, USA
Dr. Robin Latimer
Lamar University, USA
Dr. Jeffrey Siekpe
Tennessee State University, USA
Dr. Michael Alexander
University of Arkansas at Monticello, USA
Dr. Greg Gibbs
St. Bonaventure University, USA
Dr. Kehinde Alebiosu
Olabisi Onabanjo University, Nigeria
Dr. Mike Rippy
Troy University, USA
Dr. Gina Pipoli de Azambuja
Universidad de Pacifico, Peru
Dr. Steven Watts
Pepperdine University, USA
Dr. Andy Ju An Wang
Southern Polytechnic State University, USA
Dr. Ada Anyamene
Nnamdi Azikiwe University, Nigeria
Ms. Alison Duggins
Vanderbilt University, USA
Dr. Nancy Miller
Governors State University, USA
Dr. Dobrivoje Radovanovic
University of Belgrade, Serbia
Dr. David F. Summers
University of Houston-Victoria, USA
Dr. George Romeo
Rowan University, USA
Dr. Robert Kitahara
Troy University – Southeast Region, USA
Dr. William Root
Augusta State University, USA
Dr. Brandon Hamilton
Hamilton's Solutions, USA
Dr. Natalie Weathers
Philadelphia University, USA
Dr. William Cheng
Troy University, USA
Dr. Linwei Niu
Claflin University, USA
Dr. Taida Kelly
Governors State University, USA
Dr. Nesa L’Abbe Wu
Eastern Michigan University, USA
Dr. Denise de la Rosa
Grand Valley State University, USA
Dr. Rena Ellzy
Tennessee State University, USA
Dr. Kimberly Johnson
Auburn University Montgomery, USA
Dr. Kathleen Quinn
Louisiana State University, USA
Dr. Sameer Vaidya
Texas Wesleyan University, USA
Dr. Josephine Ebomoyi
Northwestern Memorial Hospital, USA
Dr. Pamela Guimond
Governors State University, USA
Dr. Douglas Main
Eastern New Mexico University, USA
Dr. Vivian Kirby
Kennesaw State University, USA
Dr. Sonya Webb
Montgomery Public Schools, USA
Dr. Randall Allen
Southern Utah University, USA
Dr. Angela Williams
Alabama A&M University, USA
Dr. Claudine Jaenichen
Chapman University, USA
Dr. Carolyn Spillers Jewell
Fayetteville State University, USA
Dr. Richard Dane Holt
Eastern New Mexico University, USA
Dr. Kingsley Harbor
Jacksonville State University, USA
Dr. Barbara-Leigh Tonelli
Coastline Community College, USA
Dr. Chris Myers
Texas A & M University – Commerce, USA
Dr. William J. Carnes
Metropolitan State College of Denver, USA
Dr. Kevin Barksdale
Union University, USA
Dr. Faith Anyachebelu
Nnamdi Azikiwe University, Nigeria
Dr. Michael Campbell
Florida A&M University, USA
Dr. Donna Cooner
Colorado State University, USA
Dr. Thomas Griffin
Nova Southeastern University, USA
Dr. Kenton Fleming
Southern Polytechnic State University, USA
Dr. James N. Holm
University of Houston-Victoria, USA
Dr. Zoran Ilic
University of Belgrade, Serbia
Dr. Joan Popkin
Tennessee State University, USA
Dr. Edilberto A. Raynes
Tennessee State University, USA
Dr. Rhonda Holt
New Mexico Christian Children's Home, USA
Dr. Cerissa Stevenson
Colorado State University, USA
Dr. Yu-Wen Huang
Spalding University, USA
Dr. Donna Stringer
University of Houston-Victoria, USA
Dr. Christian V. Fugar
Dillard University, USA
Dr. Lesley M. Mace
Auburn University Montgomery, USA
Dr. John M. Kagochi
University of Houston-Victoria, USA
Dr. Cynthia Summers
University of Houston-Victoria, USA
Dr. Yong-Gyo Lee
University of Houston-Victoria, USA
Dr. Rehana Whatley
Oakwood University, USA
Dr. George Mansour
DeVry College of NY, USA
Dr. Jianjun Yin
Jackson State University, USA
Dr. Peter Miller
Indiana Wesleyan University, USA
Dr. Carolyn S. Payne
Nova Southeastern University, USA
Dr. Ted Mitchell
University of Nevada, USA
Dr. Veronica Paz
Nova Southeastern University, USA
Dr. Alma Mintu-Wimsatt
Texas A & M University – Commerce, USA
Dr. Terence Perkins
Veterans' Administration, USA
Dr. Liz Mulig
University of Houston-Victoria, USA
Dr. Dev Prasad
University of Massachusetts Lowell, USA
Dr. Robert R. O'Connell Jr.
JSA Healthcare Corporation, USA
Dr. Kong-Cheng Wong
Governors State University, USA
Dr. P.N. Okorji
Nnamdi Azikiwe University, Nigeria
Dr. Azene Zenebe
Bowie State University, USA
Dr. James Ellzy
Tennessee State University, USA
Dr. Sandra Davis
The University of West Florida, USA
Dr. Padmini Banerjee
Delaware State University, USA
Dr. Yvonne Ellis
Columbus State University, USA
Dr. Aditi Mitra
University of Colorado, USA
Dr. Elizabeth Kunnu
Tennessee State University, USA
Dr. Myna German
Delaware State University, USA
Dr. Brian A. Griffith
Vanderbilt University, USA
Dr. Robin Oatis-Ballew
Tennessee State University, USA
Mr. Corey Teague
Middle Tennessee State University, USA
Dr. Dirk C. Gibson
University of New Mexico, USA
Dr. Joseph K. Mintah
Azusa Pacific University, USA
Dr. Susan McGrath-Champ
University of Sydney, Australia
Dr. Raymond R. Fletcher
Virginia State University, USA
Dr. Bruce Thomas
Athens State University, USA
Dr. Yvette Bolen
Athens State University, USA
Dr. William Seffens
Clark Atlanta University, USA
Dr. Svetlana Peltsverger
Southern Polytechnic State University, USA
Dr. Kathy Weldon
Lamar University, USA
Dr. Caroline Howard
TUI University, USA
Dr. Shahram Amiri
Stetson University, USA
Dr. Philip H. Siegel
Augusta State University, USA
Dr. Virgil Freeman
Northwest Missouri State University, USA
Dr. William A. Brown
Jackson State University, USA
Dr. Larry K. Bright
University of South Dakota, USA
Dr. M. N. Tripathi
Xavier Institute of Management – Bhubaneswar, India
Dr. Barbara Mescher
University of Sydney, Australia
Dr. Ronald De Vera Barredo
Tennessee State University, USA
Dr. Jennifer G. Bailey
Bowie State University, USA
Dr. Samir T. Ishak
Grand Valley State University, USA
Dr. Julia Williams
University of Minnesota Duluth, USA
Dr. Stacie E. Putman-Yoquelet
Tennessee State University, USA
Mr. Prawet Ueatrongchit
University of the Thai Chamber of Commerce, Thailand
Dr. Curtis C. Howell
Georgia Southwestern University, USA
Dr. Stephen Szygenda
Southern Methodist University, USA
Dr. E. Kevin Buell
Augustana College, USA
Dr. Kiattisak Phongkusolchit
University of Tennessee at Martin, USA
Dr. Simon S. Mak
Southern Methodist University, USA
Dr. Reza Varjavand
Saint Xavier University, USA
Dr. Ibrahim Kargbo
Coppin State University, USA
Dr. Stephynie C. Perkins
University of North Florida, USA
Mrs. Donnette Bagot-Allen
Judy Piece – Monteserrat, USA
Dr. Robert Robertson
Saint Leo University, USA
Dr. Michael D. Jones
Kirkwood Community College, USA
Dr. Kim Riordan
University of Minnesota Duluth, USA
Dr. Eileen J. Colon
Western Carolina University, USA
Mrs. Patcharee Chantanabubpha
University of the Thai Chamber of Commerce, Thailand
Mr. Jeff Eyanson
Azusa Pacific University, USA
Dr. Neslon C. Modeste
Tennessee State University, USA
Dr. Eleni Coukos Elder
Tennessee State University, USA
Mr. Wayne Brown
Florida Institute of Technology, USA
Dr. Brian Heshizer
Georgia Southwestern University, USA
Dr. Tina Y. Cardenas
Paine College, USA
Dr. Thomas K. Vogel
Stetson University, USA
Dr. Ramprasad Unni
Portland State University, USA
Dr. Hisham M. Haddad
Kennesaw State University, USA
Dr. Thomas Dence
Ashland University, USA
Intellectbase International Consortium and the Conference Program Committee express their sincere thanks to the following sponsors:
 The Ellzy Foundation
 The King Foundation
 Tennessee State University (TSU)
 International Institute of Academic Research (IIAR)
Intellectbase International Consortium (IIC) is a professional and academic organization dedicated to advancing and
encouraging quantitative and qualitative, including hybrid and triangulation, research practices. This Volume contains articles
presented at the Summer 2012 conference in Nashville, TN – USA from May 24-26, 2012.
The conference provides an open forum for Academics, Scientists, Researchers, Engineers and Practitioners from a wide
range of research disciplines. It is the twenty third (23rd) Peer-Reviewed Volume produced in a unique format. The theme of
Intellectbase International Consortium is responsible for publishing innovative and refereed research work in the following hard
and soft systems related disciplines – Business, Education, Science, Technology, Music, Arts, Politics, Sociology
(BESTMAPS), as designed on the back cover of the proceeding. These subsequent disciplines: Law, Anthropology, Theology
and Entrepreneur (LATE) will be included in the next Volume.
The scope of the proceeding (International Handbook of Academic Research & Teaching - IHART) highlights the following
philosophical format: original research titles, abstracts, introductory concepts, literature reviews and data collection, choice of
methodology, hypothesis-based composition, creative and convincing arguments, research design, data reliability and
evaluation, findings and analysis, data interpretation, conclusion with intellectual contribution, research limitations (weakness)
acknowledgement, etc.
The theme “multi-disciplinary foundations and intellectual perspectives” of the proceeding is related to pedagogy, research
methodologies, organizational ethics, accounting, management, leadership, marketing, economics, administration, policies and
political issues, health-care systems, engineering, multimedia, music, arts, sociology, psychology, eBusiness, technology
information science, law, theology and other disciplines . Intellectbase International Consortium promotes broader intellectual
resources and exchange of ideas among global research professionals through a collaborative process.
To accomplish research collaboration, knowledge sharing and transfer, Intellectbase is dedicated to publishing a range of
refereed academic Journals, book chapters and conference proceedings, as well as sponsoring several annual academic
conferences globally.
Senior, Middle and Junior level scholars are invited to participate and contribute one or several article(s) to the Intellectbase
International conferences. Intellectbase welcomes and encourages the active participation of all researchers seeking to
broaden their horizons and share experiences on new research challenges, research findings and state-of-the-art solutions.
Build and stimulate intellectual interrelationships among individuals and institutions who have interest in the research
Promote the collaboration of a diverse group of intellectuals and professionals worldwide.
Bring together researchers, practitioners, academicians, and scientists across research disciplines globally - Australia,
Europe, Africa, North America, South America and Asia.
Support governmental, organizational and professional research that will enhance the overall knowledge, innovation
and creativity.
Present resources and incentives to existing and new-coming scholars who are or planning to become effective
researchers or experts in a global research setting.
Promote and publish professional and scholarly journals, handbook, book chapters and other forms of refereed
publications in diversified research disciplines.
Plan, organize, promote, and present educational prospects - conferences, workshops, colloquiums, conventions —
for global researchers.
First Name
Last Name
Syracuse University
Mercy College
Southern Illinois University Carbondale
Charsheia S.
Alabama A&M University
Northwest Florida State College
West Chester University of Pennsylvania
Frank W.
The University of Newcastle
Al Saeed
Colorado Technical University
Alabama A&M University
Eastern Michigan University
University of Windsor
Lawrence K.
Southern Illinois University Carbondale
Adekunle Ajasin University Akungba-Akoko
LaQue Thornton
Saint Leo University
Pennsylvania State University
Colorado Technical University
National Graduate School
Athens State University
Troy University
Shelley H.
University of South Alabama
University of Maribor
Purdue University
Darrell N.
Walden University
George Mason University
A. T. Still University
Middle Tennessee State University
Millersville University
First Name
Last Name
Colorado Technical University
Rutgers, The State University of New Jersey
Georgia Southern University
Metropolitan State University of Denver
Saint Leo University
Howard H.
Cochran Jr.
Belmont University
Gregory J.
St. Thomas University
The University of Tennessee at Martin
Tennessee State University
Southern Illinois University
Payap University
Maurice E.
Dawson Jr.
Alabama A & M University
Colorado Technical University
Walden University
Northern Kentucky University
Nmeiji University
Eleni Coukos
Tennessee State University
The University of Tennessee at Martin
Strayer University
Purdue University
Nova Southeastern University
Tennessee State University
University of South Alabama
Deanna Essington
East Tennessee State University
Mississippi State University
Terry John
Marylhurst University
Argosy University
First Name
Last Name
Donald W.
East Tennessee State University
Mamie Y.
Alcorn State University
Kathleen M.
Capella University
Nicole V.
Kinetics Concepts, Inc.
Harrison C.
Emory University
Robert J.
University of South Alabama
Ojoma Edeh
Millersville University
The University of Southern Mississippi
Metropolitan State University of Denver
Texas A&M International University
Robyn W.
Austin Peay State University
Athens State University
Troy University
Kim M.
Kaplan University
Northern Kentucky University
Keiser University
Transformation Technologies Inc.
Clayton State University
Siti R.
Southern Illinois University Carbondale
Georgia College & State University
Christopher M.
University of South Alabama
King III
Indiana University Southeast
Nadir Ali
SZABIST University
Paul A.
University of Southern Indiana
Sandy A.
Capella University
First Name
Last Name
Keiser University
Florida International University
Linda Wren
The University of Tennessee at Martin
Troy University
Winthrop University
Austin Peay State University
Austin Peay State University
EMC Corporation
Alabama A& M University
Teri Denlea
Georgia Southern University
Michael R.
Austin Peay State University
Jacksonville University
Southern Illinois University Carbondale
Georgia College & State University
University of Alabama
Jacksonville University
University of Oslo
Austin Peay State University
K. O.
Delta State University
Troy University
Zan Jan
University of Maribor
The University of Tampa
Renee M.
Jacksonville University
Definitive Marketing
Alvin S.
Walden University
First Name
Last Name
Middle Tennessee State University
Jerry D.
Austin Peay State University
Steve F.
University of South Alabama
Mid-Continent University
Colorado Technical University
Athens State University
Athens State University
Austin Peay State University
Arthur L.
Mercer University
Georgia College & State University
Nova Southeastern University
University of Delhi
The National Graduate School of Quality
Systems Management
Katherine Taken
Murray State University
L. Murphy
Murray State University
Northwest Florida State College
Marianne C.
Columbia College Chicago
Alabama A&M University
Adekunle Ajasin University Akungba-Akoko
Mary L.
Florida International University
Kenneth R.
Middle Tennessee State University
Teresa Kent
Tennessee State University
Argosy University
C. O. A.
Anambra State University
GEA College
First Name
Last Name
Northern Kentucky University
O. D.
Independent Research Consultant
Lisa D.
Baker College
Alabama Agricultural and Mechanical University
DeVry University – Sherman Oaks
The University of Southern Mississippi
Laurea University of Applied Science
A. T. Still University
Adekunle Ajasin University Akungba-Akoko
Alabama A& M University
Alabama Agricultural and Mechanical University
Alcorn State University
Anambra State University
Argosy University
Argosy University
Athens State University
Austin Peay State University
Baker College
Belmont University
Capella University
Clayton State University
Colorado Technical University
Columbia College Chicago
Definitive Marketing
Delta State University
DeVry University – Sherman Oaks
East Tennessee State University
Eastern Michigan University
EMC Corporation
Emory University
Florida International University
GEA College
George Mason University
Georgia College & State University
Georgia Southern University
Independent Research Consultant
Indiana University Southeast
Jacksonville University
Kaplan University
Keiser University
Kinetics Concepts, Inc.
Laurea University of Applied Science
Marylhurst University
Mercer University
Mercy College
Metropolitan State University of Denver
Mid-Continent University
Middle Tennessee State University
Millersville University
Mississippi State University
Murray State University
National Graduate School
Nmeiji University
Northern Kentucky University
Northwest Florida State College
Nova Southeastern University
Payap University
Pennsylvania State University
Purdue University
Rutgers, The State University of New Jersey
Saint Leo University
Southern Illinois University
Southern Illinois University Carbondale
St. Thomas University
Strayer University
Syracuse University
SZABIST University
Tennessee State University
Texas A&M International University
The National Graduate School of Quality Systems Management
The University of Newcastle
The University of Southern Mississippi
The University of Tampa
The University of Tennessee at Martin
Transformation Technologies Inc.
Troy University
University of Alabama
University of Delhi
University of Maribor
University of Oslo
University of South Alabama
University of Southern Indiana
University of Windsor
Walden University
West Chester University of Pennsylvania
Winthrop University
LIST OF CONTRIBUTORS .............................................................................................................VIII
LIST OF INSTITUTIONS, STATES AND COUNTRIES ................................................................ XIV
Determinants of Career Mobility of Young Educated Female in Sri Lanka: An Empirical Investigation
Kumudinei Dissanayake ...................................................................................................................................................... 1
Determinants of Credit Demand Among Broiler Poultry Producers in Nnewi North Local Government
Area of Anambra State, Nigeria
C. O. A. Ugwumba and K. O. Okwuanaso......................................................................................................................... 10
The Current Issues Facing the International Monetary Fund (IMF) and Nations Borrowing with Inability to
Repay Loans
Tiffany Jordan.................................................................................................................................................................... 15
What is the Dependent Variable in the Okun’s Law Relationship Between Real GDP Growth and
Unemployment Rates in the U.S.?
Harrison C. Hartman.......................................................................................................................................................... 34
Exploring the Essentials of Leveraging Technology to Build Trust and Relationships, While Utilizing High
Performing Self-Managed Virtual Teams
William Quisenberry and Darrell Norman Burrell ............................................................................................................... 43
Determining the Keys to Entrepreneurial Sustainability Beyond the First Five years: A Qualitative Study
Alvin S. Perry and Emad Rahim ........................................................................................................................................ 52
Engagement and Workplace Negativity: A Systematic Approach to Improvement
Daniel Singleton ................................................................................................................................................................ 57
Corporations Are People, Too: The Maturation Process of the American Corporate Form
Kim M. James, Gregory J. Cosgrove and Robyn W. Hulsart ............................................................................................. 61
An Applied Case Assessment of the Development of Harmony Station 2011 Strategic Sustainability Plan
Terry John Gibson ............................................................................................................................................................. 70
Changing Trends in International Human Resources Management: Managing Approaches for Effective
Global Operations
Tiffany Jordan and Claudette Lawrence ............................................................................................................................ 84
The Other Side of Whistle-Blowing: Examining the Effects of Narcissism on Whistle-Blowers’ Behavior
Granville King III ................................................................................................................................................................ 99
Recruiting adjunct faculty in Business, Public Health, and Information Technology Using Social Media
Aikyna Finch and Darrell Norman Burrell ........................................................................................................................ 108
Learning to Lead Through an Ethical and Financial Crisis
Robyn Hulsart and Vikkie McCarthy ................................................................................................................................ 113
Multicultural Marketing and Consumer Well-Being in UnderServed Hispanic Neighborhoods
Ruth Chavez, Madison Holloway and Rocio Perez ......................................................................................................... 122
Impact of Firm Performance, Multi-Nationality and Innovation in MNCs
Sadu Shetty ..................................................................................................................................................................... 131
The Relationship Between Leadership Styles and Subordinate Outcomes in Medium Size CPA Firms in
the Southeast
James Turkvant, Craig Cleveland and LaQue Thornton Banks ....................................................................................... 140
Questions About the Changing Relationship Between Total Reserves (or the Monetary Base), M1, and
Real GDP in the U.S.
Harrison C. Hartman........................................................................................................................................................ 147
Macro and Microeconomic Concept of Monopoly in Major League Baseball
Joseph Cappa and Emad Rahim ..................................................................................................................................... 156
Innovative Practices for Recruiting and Retaining Information Assurance and Cyber-Security Employee
Talent in Public Health Oriented U.S. Federal Government Agencies
Darrell Norman Burrell, Maurice Dawson, Aikyna Finch and William Quisenberry .......................................................... 174
Contributing Factors Underlying the Surge in Foreign Owned Agricultural Land
Howard H. Cochran Jr. and Jerry D. Plummer ................................................................................................................ 184
Igniting a Venture Spirit Through Entrepreneurship Storytelling
Emad Rahim, Grady Batchelor, El-Java Abdul-Qadir, Alvin Perry, Curtis Abel, Darrell N. Burrell
and Maurice Dawson ....................................................................................................................................................... 185
Faculty Promotion and Tenure - Quest for an Optimal Model?
Somjit Barat ..................................................................................................................................................................... 187
Life Science Industry Firms’ Response Rates to Various Marketing Techniques
Jim Mirabella and Renee M. Pasco-Covell ...................................................................................................................... 189
International Payment: A Case Study of Freight Forwarding and Logistics Companies in Vietnam
Ngoc Minh Thu Huynh, Thanh Lan Le and Van Huy Le .................................................................................................. 190
Revenue Management Modeling for High Frequency Broadcasters
Howard H. Cochran, Jr. and Jerry D. Plummer ............................................................................................................... 191
Is Emotional Intelligence the Key to Medical Sales Success?: The Relationship Between EI and Sales
Jim Mirabella, Nicole V. Harris and Richard Murphy........................................................................................................ 192
An Examination of Advertising Expenditures, Revenues, and Market Performance in the Pharmaceutical
and IT Industries
Katherine Taken Smith, Jun Huang and L. Murphy Smith ............................................................................................... 193
The Impact of Migrant Workers Towards Sustainable Development and Working Conditions
Javis Nketiah ................................................................................................................................................................... 194
Direct Taxes Code 2010 & Tax Revenue Forecasting: An Exploratory Study
Monica Singhania ............................................................................................................................................................ 195
An Evaluation of Consumer Buying Criteria and its Impact On the Purchase of Commoditized Laptops
Jim Mirabella, Rachel McClary and Richard Murphy ....................................................................................................... 196
On the Determinants of Remittance Flow to Ghana
Frank W. Agbola .............................................................................................................................................................. 197
A Finite State Machine Approach to the PLC Traffic Light Problem
Paul A. Kuban ................................................................................................................................................................. 199
Information Technology Process Improvement Decision-Making: An Exploratory Study from the
Perspective of Process Owners and Process Manager
Sandy A. Lamp and Kathleen M. Hargiss ........................................................................................................................ 209
Cybersecurity and Mobile Threats: The Need for Antivirus Applications for Smart Phones
Jorja Wright ..................................................................................................................................................................... 223
Diverse Views of Information, Technology and People in Literature of Multimodal GIS
Hongmei Wang ................................................................................................................................................................ 232
Creating an Infrastructure for Virtual Worlds for Education
Ralph Butler and Chrisila Pettey ...................................................................................................................................... 238
Enhancing the Learning in First Course of Networking Using Wireshark
Hetal Jasani..................................................................................................................................................................... 245
Sequences of Multiple Representations in Mathematical Education
Lin Ge .............................................................................................................................................................................. 254
Dinosaur Science - Mass Extinction
O. D. Williams.................................................................................................................................................................. 260
Attitudes of Nursing Mothers Towards Immunization in Nigeria and the Role of Entre-Educate Approach
as Communication Intervention
Omolade Amuseghan and Amuseghan Sunday .............................................................................................................. 271
Youth and Energy Drinks: Harmless Boost or Long-term Death Sentence
Jonathan Ratliff, Dana Ratliff and Yvette Bolen ............................................................................................................... 279
Security and Privacy in Media Networking
Imad Al Saeed ................................................................................................................................................................. 284
Earthquakes, Volcanoes and Sand
O. D. Williams.................................................................................................................................................................. 286
Introduction to Vedic Mathematics
Rajalakshmi Sriram and Ryan Adams ............................................................................................................................. 287
Modification of Graphic User Interface Common Controls Using MFC Library and Win32 API
Imad Al Saeed ................................................................................................................................................................. 288
Applying Mathematics to Game and Simulation Programming – The Analog Clock
Penn Wu.......................................................................................................................................................................... 289
Virtual Worlds to Model Training Scenarios within Industry and Academia
Maurice Eugene Dawson Jr. and Imad Al Saeed ............................................................................................................ 300
Cyber Terrorism
Charsheia S. Adams and Maurice Dawson ..................................................................................................................... 301
The Intra-Personal Effect on Information Systems Usage: The Effects of Ability, Acceptance,
Reinforcement Consistency, and Support on Personal Motivation to Use Information Systems
Larry McDaniel, Nareatha Studdard and George Muncus ............................................................................................... 302
The Benefits of EHR Technology in Today’s Health Care Environment
Gian Alexis ...................................................................................................................................................................... 303
Fur, Love, & Licks: Animal Therapy in Diverse Patient Populations
Linda Wren Luther ........................................................................................................................................................... 304
Striving for Excellence: Resilience Among Gifted Students from Different Cultural, Linguistic, and LowSocio-Economic Backgrounds
Ojoma Edeh Herr, Carmen Castro and Michael Canty .................................................................................................... 307
Beyond the Classroom Product Offering: Product Analyses by Two Distinct Customer Groups
Doreen Sams, Gregg Kaufman and Brian Mumma ......................................................................................................... 317
Student Success: A Comparison of Face-to-Face and Online Sections of Community College Biology
Deanna Essington Garman and Donald W. Good ........................................................................................................... 327
The Influence of Demographic Factors on Student Success in Online Vs. Face-to-Face Instruction in
Hospitality Education
Mary L. Tanke and Twila Mae Logan............................................................................................................................... 334
Higher Education Online Course Accessibility Issues: Universal Design
Rebecca Ingram, Barbara Lyons, Rhonda Bowron and Jan Oliver.................................................................................. 344
Addressing the Increasing College Student Attrition Rate by Creating Effective Classroom Interaction
Susan Abu, Beatrice Adera, Siti R. Kamsani and Lawrence K. Ametepee ...................................................................... 351
Global Perspectives on School Leadership: An Ongoing Study of Policy, Practice, and Cultural Context
Teri Denlea Melton, Barbara J. Mallory and Lucinda Chance .......................................................................................... 357
Is Bilingual Education Needed in Saudi Arabia’s Educational System?
Faisal Alzahrani ............................................................................................................................................................... 364
The Observation of a Reading Intervention Program for At-Risk Students at a Title 1 School
JoAnn Y. Fisher ............................................................................................................................................................... 374
A Study of Age as a Social Factor in Banlieue Language
Teresa Kent Todd ............................................................................................................................................................ 380
Measuring the Results of Type Training of Academic Affairs Support Staff at Tennessee State University
Eleni Coukos Elder and Patricia Crook ............................................................................................................................ 389
School Playgrounds: Safe or Sorry?
Ginny Esch and Betty Cox ............................................................................................................................................... 411
Preservice Teacher Perceptions of the Value of Arts Education in the Community and in the Public Schools
Wanda Hutchinson, Yvette Bolen and Jonathan Ratliff ................................................................................................... 417
Service Learning: Differences in Student Perceptions of Sports Event Experiences
Christopher M. Keshock, Steve F. Pugh, Robert J. Heitman, Brooke Forester and Shelley H. Bradford......................... 421
Controlling Research Misconduct, Normal Misbehavior and Error
Phyllis Flott ...................................................................................................................................................................... 424
Analysis of Recidivism Rate of Magdalene Rehabilitation Program for Prostitution
Chinyere Ogbonna-McGruder, Michael R. Miller and Eric Martin .................................................................................... 428
A Phenomenological Study of the U.S. Army Warrior Transition Unit (WTU)
Lisa D. Wright .................................................................................................................................................................. 434
System of Local Self–Government Financing and Costs of Municipality in Slovenia
Zan Jan Oplotnik1, Bostjan Brezovnik1 and Borut Vojinović2 ........................................................................................... 442
Nationwide Agitation Against Widespread Corruption in India: Agitation Launched by Anna Hazare in 2011
Tripta Desai ..................................................................................................................................................................... 452
The Utilization of Enhanced Audio Feedback to Improve Student Learning
Marcelene Cunningham................................................................................................................................................... 457
Invite Students to Deconstruct Stories and Experience Shared Meaning Making Through Reflective
Critical Discourse
David Allbright ................................................................................................................................................................. 460
Analyzing Contemporary Counterterrorism Approaches
Bimal Dahal ..................................................................................................................................................................... 463
Governance: Best Practices for Addressing Complex Social Problems
Angelique Goliday ........................................................................................................................................................... 464
Student Attitudes and Interest in Working Internationally: Pre and Post 911
Kenneth R. Tillery, Arthur L. Rutledge and Louis Jourdan ............................................................................................... 466
PowerPoint in the Classroom: Success or Suicide?
Raymond Papp and Lois Jordan ..................................................................................................................................... 467
Innovative Methods to Teach Entrepreneurship with Technology
Maurice Eugene Dawson Jr. and Larry McDaniel............................................................................................................ 468
School Staff Perception of Professional Development in a School Improvement Initiative: Two Case Studies
Marianne C. Stallworth .................................................................................................................................................... 469
Employability Skills in Practice: The Case of Manufacturing Education in Mississippi
Mamie Y. Griffin............................................................................................................................................................... 470
The Integration of Multi-Discipline Professionals in Distant Higher Education Practices
Dustin Bessette ............................................................................................................................................................... 471
Exploring Practicum Models to Spawn Geniuses: Developing a Framework Between Business Education
Leaders (Teachers) and Future Business Ambassadors (Students)
Nadir Ali Kolachi .............................................................................................................................................................. 472
Rethinking Traditional Written Feedback: Students’ Perceptions of Electronic Audio Feedback
Marcelene Cunningham .................................................................................................................................................. 473
African-American Single Mothers Coping with Being Student
Akilah Morris.................................................................................................................................................................... 474
A Correlation Between Hours Spent in the Math Computer Lab and Final Exam Scores Among
Computer-Based College Algebra Students
Ningjun Ye and Sherry Herron......................................................................................................................................... 475
K. Dissanayake
IHART - Volume 23 (2012)
Kumudinei Dissanayake
Meiji University, Japan
The global trends in work organizations, employment strategies those aligning with the economic, demographic, and sociocultural conditions of the environment, combined with transforming work ethics, behaviors, values and desires of work
populations have created individual careers those crossing the occupational, organizational and national boundaries at times.
Such a work environment essentially enables the career mobility into many directions. Even though these boundary-crossing
careers have been well theorized and practically visible in work organizations, the extant literature and empirical findings are
limited to Western contexts. Especially, such developments in relation to female employees and in Asian and South Asian
region ceased to exist. Grounding on that motivation, the present study empirically investigates the determinants of career
mobility of educated young female employees attached to a higher degree program in Sri Lankan context. It administers a
questionnaire survey for data collection. The survey instrument covers the determinants of career mobility namely, family
demands, geographical distance of the spouse, economic reasons, need of challenge, need of simplification of life, need of
flexibility, need of job security, future betterment, organizational routine, and organizational politics. The findings reveal that the
need of flexibility, economic reasons, need of challenge, and the need of job security have been the determinants of career
mobility of educated young female employees in this population. The study highlights the implications for organizational
management and human resource practitioners while showing avenues for future research.
Keywords: Career Mobility, Female, Boundaryless Career, Boundary-Crossing, Motivation.
The presence of newly emerging structures of organizations with multiple opportunities for crossing their boundaries together
with aggregating national patronages for promoting diverse work styles for the workforce has created workplaces with a visible
trend of career mobility in the contemporary world of work. In addition to this, the transforming work cultures and work
behaviors towards the adaptation of more liberated and self-regulated career patterns by individuals have further suggested
their defensible need of crossing over work organizations, occupations, area of expertise or even geographical boundaries of
The general demographic conditions in the globe, progressing through low birth rates, shrinking population, and resultant aging
societies, have indicated the justifiable need of promoting more female into workforce and to careers. Some developed
countries have already accommodated such practices through their labor policies and regulations (MHLW, 2005). Despite the
fact that the trend of female workforce participation is not that impressive, especially in most of the developing and South Asian
countries, the trend of females entering into education and higher education is seen in an up-movement, accompanied with
such records of increasing literacy rates available in those nations. Along with this, the number of females those who become
qualified enough for engaging in continuous employment, and thus for creating a career are rising up.
The existing literature provides ample support for the recognition that contemporary careers lie at the hand of the individual
employees (Hall, 1976) and are developed through relational efforts (Mirvis & Hall, 1996) and intelligent means adopted by
individuals (Arthur, Claman & DeFillippi, 1995). They may take turns through the life course (Sullivan & Mainiero, 2008), and
cross the boundaries of single work organizations (Peiperl & Baruch, 1997). The work of Sullivan and Mainiero (2008)
particularly revealed the diverse dimensions emphasized throughout the work life of female employees. In general, career
theory and empirical findings appeared in the existing knowledge have extensively looked into the barriers those hinder the
entry into careers and the career progression of female employees in diverse work settings. Among them, the barriers for
career mobility also accorded attention to a considerable extent.
Sullivan (1999) and Sullivan and Baruch (2009), in their review and research agenda, clearly pointed out the lack of knowledge
and the need of research on individual career out of the Western contexts. Ituma and Simpson (2009) elaborated the need of
researching into career mobility in different national contexts. Even though extant empirical studies and subsequent findings
are available in Western contexts, thus, the lack of the same in Asian, and particularly in South Asian context, lead to an
Determinants of Career Mobility of Young Educated Female in Sri Lanka: An Empirical Investigation
empirical gap. Especially, career mobility of educated female employees in South Asia has not been well examined through
research. The determinants of career mobility of young educated female employees at workplace would bring out significant
implications for work organizations in designing their organizational and human resource strategies in the long run. Further, the
intensifying attention on vocational and career counseling within work organizations and outside would be benefited with fruitful
inputs through the results of such a research agenda.
Thus, with the motivation of filling this knowledge gap through an empirical study, the present study aims at investigating into
the determinants of career mobility of young educated female employees in Sri Lanka. The structure of the paper is as follows.
Following the present introduction, it briefly reviews the literature related to the study. Revealing the method followed in the
research, it analyses the data collected in the questionnaire survey. Presenting the discussion of the findings, it concludes with
implications, limitations, and directions for future research.
In contrast to the traditional, linear, and hierarchical upward movements of careers bound to single organizations, there seems
substantial evidence of individual career transitions and mobility among occupations, organizations, or even nations as
appeared in the extant literature and sufficiently proved in the career practices in contemporary organizations. These
transitions have been made possible through the structural, procedural, and systems changes in the organizations with
emerging new forms (Ashkenas, Ulrich, Jick & Kerr, 1995; Palmer, Beneveniste, & Dunford, 2007) and adaptation of diverse
employment strategies in the new economic system.
Diminishing Boundaries and Multiple Directions for Career
Accordingly, the recent developments in career theory presents and validates the models of boundaryless careers (Arthur &
Rousseau, 1996; Briscoe & Hall, 2006; DiFillipi & Arthur, 1994), and thus boundary-crossing attempts of individual employees
in organizational settings.
Boundaryless Career
Boundaryless career is defined as “careers those unfold in a single employment setting” (Arthur & Rousseau, 1996, p.5) or “a
sequence of job opportunities that goes beyond the boundaries of any single employment setting” (DeFillippu & Arthur, 1994, p.
167; Arthur, 2008). Baruch (2006) notes that boundaryless career “may exist when the actual career or the meaning of the
career transcends the boundary of a single path within the boundaries of a single employer” (p.128). Baruch (2006) identifies
the reasons for going boundaryless as to (a) reduce the stress generated through ambiguity and diminishing security, (b) gain
work-life balance, (c) acquire career resilience, and (d) gain employability. As per Arthur (1994), the boundarylessness can be
discussed in terms of both objective dimension and subjective dimension. Thus, boundaryless career can cross the boundaries
of both dimensions at multiple levels of analysis such as organizational position, mobility, flexibility, work environment, and the
opportunity structure (p.31). It may include both physical and psychological boundarylessness. Hence, it is further related to
boundaryless attitudes. The concept has been used even as ‘boundary-crossing careers’ (Lips-Wiresma & Mcmorland, 2006;
Sullivan, 2001).
Boundary-Crossing Behavior
The organizational boundary-crossing may occur when individual employees move across the boundaries of separate
employees, draw validation and marketability from outside the present employer, are sustained by external networks or
information, break the principles of hierarchical reporting and advancements available within the organization, or rejects the
existing career opportunities for personal or family reasons (Arthur & Rousseau, 1996). Occupational boundary-crossing may
be caused by the upsurge of individual professional commitment over his/her organizational commitment (Wallace, 1993).
Personality of individual employees was found to be one determinant of organizational boundary-crossing decisions (Kilduff &
Day, 1994; Larwood, Wright, Desrochers & Dahir, 1998).
Multiple Directions and Career Mobility
With diminishing boundaries, individual employees are exposed to multiple directions in their career journey. Thus, changing
career systems (Baruch, 2003) and emergence of multidirectional careers (Baruch, 2004) along with the shifts of career
responsibility from organization to individual (Hall, 1996; Hall & Mirvis, 1996) and the rising need of employee resilience,
intelligence, and employability (Baruch, 2001) have created the path and need of career mobility. Subsequently, multiple and
shorter learning cycles over work life spans (Hall & Mirvis, 1996) and recycling and renewal process of career in individual lives
K. Dissanayake
IHART - Volume 23 (2012)
(Smart & Peterson, 1997; Bejian & Salomone, 1995) are being experienced by individual employees in contemporary
Sullivan and Baruch (2009) highlighted two types of mobility in boundaryless career, one is physical mobility, and the other is
psychological mobility. Under physical types of mobility, they specified the direction, cause, origin etc. According to them, the
obstacles to physical mobility come in line with geographical immobility due to being a member of dual-career couple or eldercare responsibilities, individual factors such as personality, values, past mobility experiences etc., or structural factors like
economic, societal, industry and organizational. Under the types of psychological mobility, psychological changes in individual
perspectives and attitudes about a work situation have been noted. Career barriers are lined up under different categories.
Person centered (internal states) or situation centered (environmental factors) barriers and subjective (perceived) or objective
(real) barriers are some of them (Ituma & Simpson, 2009).
Female Boundary-Crossing and Barriers to Career Mobility
Among the research studies been conducted on female career, a considerable number claims the investigation of peculiar
characteristics of female career or gender differences in determinants of career behavior (eg., Ragins, Townsend & Mattis,
1998; Gordan & Whelan, 1998; Powell & Mainiero 1992; Ornstein & Isabella, 1990; Smart & Peterson, 1994). Even in less
number, female’s mobility in career is also drawn attention during recent years (eg., Cabrera, 2007; Mainiero & Sullivan, 2005;
Sullivan & Mainiero, 2008).
Boundaryless career model has been found to be suited to female employees than their male counterparts under certain
circumstance (eg., Fletcher, 1996; Fondas, 1996). However, some peculiar determinants are found in occupation or
organizational boundary-crossing behavior of female employees. In a study by Moore and Buttner (1997), the reasons for
crossing the boundary of corporate firms to self-employment of female employees were found to be organizational factors and
personal factors, rather than family demands. Further, female organizational boundary-crossing had been evidenced due to
lack of career opportunities at the current organization employed (Stroh, Brett & Reilly, 1996). Ituma and Simpson (2009) noted
the barriers to career mobility in lines of difficulty in finding a mentor, education attainments, lack of social capital, and
What Makes People Mobile in Career
The investigation into what makes employees mobile in their career would further be eased by the knowledge accumulated in
human behavior and human motivation theories. Human behaviors are not spontaneously occurred irrational life events of
individuals, but those involve a number of inner and outer environmental conditions of an individual. Motivation is the set of
inner forces that cause people to behave in certain ways (Griffin, 2009). Psychology defines motivation as the desires, needs,
and interests that arouse or activate an organism and direct it towards a specific goal (Crider, Goethals, Kavanaugh &
Solomon, 1989). In line with this argument, the occupational behaviors of individuals are identified to be driven by personal
determinants such as motivation, attitudes, personality traits, intelligence etc.
Furnham’s (1992) model of occupational behavior shows that individual motivation, personality traits and intelligence are
directly related to occupational behavior (p.13). Career behavior of the employees, similarly, is the outcome of the felt needs or
inner drives of them in relation to their career. Thus, individual career behavior can be defined as the conduct or action of
individual employees displayed in performing career related activities.
Robbins (1979) explains that the ultimate motivating force of individuals is the self-interest. Referring to economic theory and
motivation theory, he emphasizes that the underlying concept of such theories is the maximization of self-interest’, which could
be denoted by self-serving behavior, need satisfaction, or hedonism. Thus, motivation theories provide a substantial account of
drives, needs, or factors behind human career behavior as well. When referred to Maslow (1954), it offers theoretical evidence
to look into diverse types of human needs (primary living conditions, security, sociability, flexibility, life satisfaction etc.), which
could provoke career mobility. ERG theory (Alderfer, 1969), stimulate thinking in line with existence, relatedness and growth
when looked into the career mobility of individual employees. The two-factor theory of Herzberg (1959) reminds the hygiene
factors and motivating factors as the pullers of career mobility. Further, the expectancy theory (Vroom, 1964) would suggest
how the mobility behavior could strive for goal achievement in individual work life.
The present study accommodates the knowledge guided by the above review in investigating into the determinants of educated
young female in this context.
Determinants of Career Mobility of Young Educated Female in Sri Lanka: An Empirical Investigation
The respondents of this investigation were the first year postgraduate students of a two-year MBA program in a metropolitan
university. Either thus, all of them were bachelor’s degree holders or professionally- qualified individuals in managerial level
employment with minimum one year post-qualifying experience, at the time of enrolment in the program. The investigation was
conducted for the population of both male and female students, and the data set for female students was extracted for the
purpose of the present study. A questionnaire survey was administered with the use of an instrument containing two parts, one
part carrying questions for collecting demographic data, and the other part with questions for examining the determinants of
career mobility.
The first part of the instrument collected demographic data including educational qualification, age, civil status, employment of
spouse, level of income, industry affiliation of employment, number of years of work experience and the number of dependents.
The part that investigated career mobility composed of ten determinants namely, family demands, geographical distance of the
spouse, economic reasons, need of challenge, need of simplification of life, need of flexibility, need of job security, future
betterment, organizational routine, and organizational politics. These determinants were given as statements and in a five-point
Likert scale ranging from one to five, one denoting “I strongly disagree” and five denoting “I strongly agree”. There was done a
pre-test, and the questionnaire was moderated accordingly. The data was analyzed with the use of SPSS. Descriptive
statistics, cross-tabulation, and mean comparison were used in the analysis.
Demographic Factors
The female population of the study was 56 and the response rate was 89%. The mean age of the respondents was 28 years
(SD = 0.5 years). Forty four percent of the respondents were married while the rest was never married. Seventy eight percent
of the female population were holding bachelor’s degree, while six percent was having a professional qualification, and another
five percent was having a postgraduate qualification. The majority of the population (18%) was employed in finance / banking
and internet / computer industries each. Fourteen percent were employed in manufacturing and 12% were in telecom or
education sector each. Employment in civil service, health care, public relations, law, research and any other sectors were in
between 8% - 2% each. Six respondents out of 50 had no mobility experienced during their career so far.
Determinants of Career Mobility
The descriptive statistics of the determinant factors investigated in the study are given in Table 1(Annexure 1). A Bar Chart
displaying an easy comparison of mean values of the determinants of career mobility shows below (Chart 1).
Chart 1:
Determinants of Creer Mobility
K. Dissanayake
IHART - Volume 23 (2012)
The chart portrays the fact that geographical distance of the spouse is not relatively important for educated young females in
determining their career mobility. At the same time, organizational routine procedures have not been decisive in making their
career mobility. Thus, most decisive factor is the need of flexibility. Further, the economic reasons have played a major role
closer to the similar extent of the need of flexibility. Further, the needs of security, the need of challenge, and the simplification
of life have been the next strong determinants in their career mobility. Moreover, family demands and corporate politics have
been activated to a considerable extent. Future betterment, as a determinant in career mobility does not play a significant role
in the educated young females in this context.
Interestingly, the results of cross-tabulation between determinants of career mobility and (a) civil status, (b) age, (c)
employment of spouse, (d) level of income, and (e) education did not show any statistically significant interdependency.
The 10 determinants of career mobility were clustered into five groups namely, family (family demands and geographical
distance of spouse), facilitation (economic reasons and flexibility), security (job security and betterment of future), organization
(organizational routine and politics), self (simplification of life and need of challenge). The results of the comparison of
summated means of the five clusters with the use of one-sample T test (test value = 0) at 95% confidence level are given
below (Table 2).
Table 2: Results of One-Sample T Test
Test Value = 0
95% Confidence Interval of the
Sig. (2-tailed)
Mean Difference
The finding that the strongest determinant of career mobility is the need of flexibility, silently informs us about the easiness and
comfortability in the employments those preferred by educated young female employees in this context. This would be a
demarcation of the said population from the traditional female work values and desires, as it is contradictory with the tradition of
accepting any rigid employment by females, and thus anchored in one occupation or single organization. It itself is a notification
of the boundary-crossing behavior of educated young females in the contemporary work organizations. This would be an
indication that occupations or organizations in the future will not be taken-for-granted by the educated young females.
It seems that economic concerns are still stronger in determining career mobility of educated young females in developing
regions. Economic prosperity is most sought by the educated people (both male and female) in these contexts, due to the fact
that it is closely linked to the upholding social expectations, status, living standards etc. of the community. Due to the facility of
free education up to university graduation in Sri Lanka, not only the economically prosperous social categories, but also other
categories have been blessed with the opportunity of school education and higher education. Thus, they look forward a more
burden-free future through their higher education and aligned career opportunities.
The ‘need of job security’ has been another strong factor in determining career mobility, and it could be validated through
similar perceptions (as above) on socio-economic environments of the country. The ‘need of challenge’ as a decisive factor in
career mobility, interestingly suggests the non-conventional career orientation of educated young females. This fact, together
with the other determinant ‘simplification of life’, would be reasonably perceived in light of the contemporary generational
changes those are visible around. It will prove that the young females even in developing countries would well align with the
generational characteristics those identified in other parts of the world. (The population in the present study falls in Generation
Y category). On similar grounds, the ‘future betterments’ as a determinant taking relatively a lower position among other
determinants (already discussed), further prove the generational orientations of the population. Family demands have not being
prioritized by this population in their career mobility decisions. This finding matches with one of the findings in Moore and
Buttner’s (1997) study. However, family demands still secure a moderately high position among overall determinants.
Determinants of Career Mobility of Young Educated Female in Sri Lanka: An Empirical Investigation
Organizational politics have played a somewhat considerable role, enabling to perceive the internal politics prevailing in the
said context. However, this would require a further comparison with a male sample in similar context to see whether it has been
especially influential on females. Organizational routine has not been much deterministic in career mobility decisions of
educated young females. A further explanation on it would be difficult without looking into the availability of routine
assignments, which make career mobility essential. The final interesting determinant is the indecisive behavior of the
‘geographical distance of spouse’. This would be perceived as to less chance in spouse’s mobility or the independent and
strong character of the subjects in remaining their employment without being sensitive to such changes.
Thus, diminishing boundaries of career (Arthur & Rousseau, 1996; DeFillippu & Arthur, 1994) is proven for female employees
even in the present research context, without much doubt. The traditional motivation theories have not been explanatory in this
context but they have been helpful in gaining some insights on career behavior and general orientation of the population. Thus,
it shows that the subjects are not fallen nicely into a model of hierarchical need achievement (Maslow, 1954) or satisfiable
through motivators (Herzberg, 1959). The orientation towards ;self’ and ‘facilitation’, rather than towards the’ family’ suggests
the individualistic orientation of the educated young generations in the contemporary society (Oishi, 2000).
As revealed in the present study, the career orientation of educated young female employees takes an individualistic turn, thus,
requiring all concerned parties, including organizational practitioners, human resource specialists, and career counselors etc. to
re-visit the existing practices, procedures, and systems. Especially, in designing motivational strategies for successfully utilizing
the skills and competencies of this population, the organizational management will have to pay attention on aspects such as
their life priorities and life satisfactions, in line with this individualistic orientation.
Similarly, in designing human resource strategies for the better utilization of existing human talents, the findings of the present
study provide implications along certain directions. Those could be centered on the offering of diverse working modes enabling
young female employees’ adaptations to diverse life styles. The possibilities would be the arrangements for flexible place and
flexible time for work, teleworking, homeworking or assignment based work, or even short-work schedules with shorter weeks
or shorter days etc.
Further, it implies the need of re-visiting the existing traditional HR practices of work organizations in the countries like Sri
Lanka, especially in recruitment, promotion, performance evaluation, and remuneration decisions and nominating for training
and development programs, job designs, and work assignments.
Organizational management are implied the need of adapting more flexible structures and systems at work. Thus, virtual,
boundaryless, or assignment-based type of work arrangements would be of worth towards an increase in the national
workforce participation, and for career progression of female workers in the future.
Limitations and Directions for Future Studies
The present study is not free from limitations. It has covered a population of educated young female employees in a Master’s
program of a metropolitan university. An expansion of the coverage would bring some more insights into the picture. Even
though this was a study of female employees, it is suggestible a comparative study in order to look into the possible disparities
of the male and female career mobility. Such findings would strengthen HR strategies and practices those focused on female
employees. The present study did not inquire about the nature of ‘boundary-crossing’ that is experienced by the population. An
investigation into the nature of boundary-crossing (in terms of occupational, organizational, or national boundaries) of the
educated young employees would open new lines of thinking for organizational management and human resource functions.
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K. Dissanayake
IHART - Volume 23 (2012)
Table 1:
Descriptive Statistics of the Determinant Factors of Career Mobility
Std. Deviation
Family demands
Geographical distance of spouse
Simplification of life
Need of challenge
Economic reasons
Need of flexibility
Need of job security
Future betterment
Organizational routine
Organizational politics
Valid N (list wise)
C. O. A. Ugwumba and K. O. Okwuanaso
IHART - Volume 23 (2012)
C. O. A. Ugwumba1 and K. O. Okwuanaso2
1Anambra State University - Igbariam, Nigeria and 2Delta State University - Asaba, Nigeria
The study assessed the determinants of credit demand among broiler poultry producers in Nnewi North Local Government
Area of Anambra State, Nigeria. It utilized data obtained through the administration of pre-tested questionnaires to 50
respondents selected by purposive, multistage and random sampling methods. Descriptive statistical tools and empirical probit
regression were used to analyze the data. Results indicated that literate youths (50 years and below), majority (52%) of whom
depended on personal savings to finance production activities, dominated the enterprise. Credit demand was statistically
significantly influenced by educational level, stock size, cost of inputs, years of experience and net farm income. More credits
will be demanded by the formulation of policies to: reduce delays in disbursement, introduce concessionary interest rates,
adopt joint liability repayment strategies, and broaden extension services.
Keywords: Credit Demand, Probit Regression, Broiler Poultry, Anambra State.
Agricultural credit is defined by Adegeye and Dittoh (1985) as the process of obtaining control over the use of money, goods
and services in the present in exchange for promise to repay at a future date. It is a borrowed resource (in cash and kind)
which can be used to acquire basic inputs that will enhance agricultural production (Olukosi, 1988). Agricultural credit therefore
enhances productivity and income of the farmers, thereby promoting their standard of living and breaking the vicious cycle of
poverty among them.
Realizing the importance of credit availability for sustainable agricultural growth, both the government and private sectors are
committing huge sums of money into financing the activities of farmers through micro-credits. Farmers access the credits via
formal and informal sources. Outside the formal sources such as Agricultural, Commercial, Development and Microfinance
banks, Poverty Eradication Programmes, Non Governmental Organizations, United Nations Development Programme
(U.N.D.P.), e.t.c., which provide about 35% of the credit needs of farmers, the informal sources including friends, relations,
local money lenders, traders and merchants, ‘ISUSU’ and other traditional lending groups operating outside legal framework,
provide 65% (Ugwumba et al, 2009) or 57% (Mesike and Okoh, 2008).
The demand for agricultural credit depends on the cost of credit (interest rate) and the returns on investment (marginal
efficiency of capital). If the marginal efficiency of capital is greater than the cost of credit, more credit will be demanded (and
vice versa). Provision of credit can help in the development of small farmers, but is not essential for agricultural development.
Credit is merely an accelerator; it can cause disaster if misused (Johnson, 1987 in Mesike and Okoh, 2008). It is influenced
positively and significantly by farmer’s experience, educational level and amount spent on farm inputs (Mesike and Okoh,
In Nigeria, the demand for animal protein has been on the increase. This is due to the high growth rate (7%) of the population
resulting to 165 million people as at 2010 estimate (National Population Commission (N.P.C.), 2010); and need for the people
to take enough protein for body building and maintenance. On the contrary, the supply of animal protein which relies heavily on
broiler poultry chicken due to its fast growth rate (Ali, 2002) has lagged behind demand. A situation attributed to lack of credit
facilities for the procurement of basic equipment and materials for the raising of birds especially broilers by Aronsaya (2003)
and Akanni (2007); and constraints to credit demand such as inexperience, low level of education and lack of awareness of
existing loan facilities reported by Mesike and Okoh (2008). Other constraints recorded by Philip et al (2008) and Okojie et al
(2010) are non-possession of collaterals, non-involvement of farmers in the development of extension projects, fear and
uncertainties, excessive bureaucratic procedures, high interest rates and delays in disbursement.
In the study area broiler poultry production was common; however, most of the farmers seemed to be operating at the small
scale level. This was probably due to poor credit demand that might have stemmed from the constraints to credit demand
C. O. A. Ugwumba and K. O. Okwuanaso
IHART - Volume 23 (2012)
earlier mentioned. It is against this background that this study was designed to specifically examine the socio-economic
characteristics of broiler poultry farmers in the study area; establish the effects of respondents’ socio-economic factors on
credit demand; and identify constraints to credit demand in the area.
Nnewi North Local Government Area (L.G.A.) is one of the seven (7) L.G.A.s of the Central Senatorial Zone of Anambra State,
Nigeria. It is located east of River Niger and about 22km southeast of Onitsha. The L. G. A. has an area of 72km2 and an
approximate total population of 157,569 people (National Population Commission (NPC), 2006). It lies on longitude 6.92oE and
latitude 6.03oN. The climate is tropical with the vegetation typical of the rain forest zone of West Africa. The average relative
humidity is 80 percent. The mean daily temperature is 30oC, while the mean annual rainfall is 200cm. The main occupations of
the people are trading and farming. Farming of crops such as maize, cassava, yam, cocoyam and vegetables, and livestock
especially poultry are common. Due to urban nature of the L. G. A., scarcity of land for large scale crop and livestock
production has favoured intensive poultry enterprises which require small land spaces for establishment.
The L.G.A. was purposively selected because of the preponderance of broiler poultry farmers in the area. Subsequently, the
multistage sampling method was used to select two communities out of the four constituent communities in stage I. The
second stage was the random selection of 25 broiler poultry farmers from each of the two selected communities to arrive at a
sample size of 50 respondents for the study. The current list of broiler poultry farmers from the two communities obtained from
the L. G. A.’s Livestock Department facilitated the exercise. Both primary and secondary data were used to accomplish the
survey. The primary data were collected by the administration of well structured pre-tested questionnaire and interview
schedules and covered socio-economic variables such as age, farm size, cost of inputs, farming experience, distance from
financial institution, educational level, net farm income, interest rate and number of extension visits within a production period.
A 4-point Likert Scale method was used to collect data on constraints to credit demand. The scale was used to determine the
degree of seriousness of problems militating against credit demand. The scale employs an ordinal level of measurement. The
responses from the respondents were ranked in the following order: very serious = 4; serious = 3; moderately serious = 3 and
not serious = 1. Determination of cut-off point (critical mean),
 f 4  3  2  1 10
 2.50 .
To make inferential statement, the mean score was compared with the critical mean of 2.50. Where the calculated mean of a
problem was greater than the critical mean, that problem was regarded as very serious.
Descriptive statistical tools such as means, percentages, frequency distributions and mean ranking were used to analyze data
generated on socio-economic factors and constraints to credit demand. The empirical probit regression was used to establish
the influence of the farmers’ socio-economic factors including age (AGE), farm size (FAS), cost of inputs (COI), years of
experience (EXP), distance from financial institution (DFI), educational level (EDU), net farm income (NFI), interest rate (ITR),
and extension visits (EXT) on credit demand. The implicit and explicit forms of the model are respectively given as:
CRD = f (AGE, FAS, COI, EXP, DFI, EDU, NFI, ITR, EXT; εi), and
CRD = β0 + β1AGE + β2FAS + β3COI + β4EXP + β5DFI + β6EDU + β7NFI + ϕ β8ITR + β9EXT + εi
Where CDR (credit demand) is a dichotomous dependent variable which is equal to 1 for the farmer who demands credit and 0
otherwise, that is:
1ifCRD  0
CRD  1CRD0  
AGE = age of the farmer (years)
STS = stock size (number of chicks stocked in the production period)
COI = cost of inputs (N)
EXP = farming experience (years)
DFI = distance to financial institution (kilometers)
EDU = educational level (years)
NFI = net farm income (N)
ITR = interest rate (%)
Determinants of Credit Demand Among Broiler Poultry Producers in Nnewi North Local Government Area of Anambra State, Nigeria
EXT = extension visits (number of visits in the production season)
βi = parameters to be estimated
εi = stochastic error term
It is hypothesized that the independent variables are significant factors in a farmer’s decision to demand for farm credit. The
estimated model will be tested for significance using the chi-square distribution and the default value of the model.
Socio-Economic Statistics of the Respondents
The respondents’ socio-economic statistics such as age, educational attainment, years of experience, credit demand, source of
fund, extension visit, distance to financial institution and stock size are summarized in Table 1. The average age of the
respondents was 46.5 years with a good majority (72%) aged 50 years and below. This implies that broiler poultry business in
the area is dominated by youths energetically endowed for the labour challenges and psychologically prepared to handle the
associated risk challenges including credit misuse, diseases and fire outbreaks and burglary. Akanni (2007) in his study on the
effect of microfinance on small scale poultry business in South-Western Nigeria recorded that younger farmers dominated the
industry because they possess the energy required by such production ventures characterizes by the afore-mentioned risks.
The mode of educational attainment was secondary education. Majority of the farmers (76%) acquired a few years (1-5 years)
of experience in the business. This means that literate farmers are more likely to succeed in broiler poultry business than those
who have no formal education, despite the number of years of experience acquired. This finding agrees with Chukwuji (2006)
of the positive influence of education on cassava production output, but is at variance with Ugwumba (2011) that education has
negative and not statistically significant influence on catfish production output.
Majority of the respondents (52%) did not demand for credit within the production period, rather they utilized their personal
savings to fund production activities, thus contradicting Mesike and Okoh (2008) in which 38% of the rubber farmers financed
their enterprise through owner’s equity and 62% from formal and non-formal sources of credit.
Furthermore, most of the broiler poultry farmers (86%) were small-scaled (stocking between 1-500 birds). The reason could be
that majority (70%) were not visited by any extension agent and therefore lacked the information and opportunities that would
have enabled them to demand for credit and expand their production capacity. Surprisingly, a greater percentage of the
farmers (94%) were stationed between 0-10 kilometers from financial institutions but never demanded for credit to broaden
their production scope. This development could be traced to lack of awareness of available credit packages in the financial
institutions and/or fear of default in repayment; a reason given by Ugwumba et al (2009) to have prevented women from
accessing microfinance to develop small-scale enterprises.
Table 1: Socio-economic statistics of the broiler poultry farmers
Age (≤ 50 years)
46.5 years
Educational attainment
Secondary school level
Years of experience
1-5 years
Credit demand
Did not demand credit
Source of fund
Personal savings
Extension visit
Zero visit
Distance from financial institution
0-10 kilometers
Farm size (stock size)
1-500 broiler birds
Source: Field survey, 2011.
Effects of Socio-Economic Factors of the Respondents on Credit Demand
The probit regression model was adopted to predict the collective and individual effects of socio-economic factors (predictors)
on credit demand (predictand). The predictors were educational level represented by EDU, farm size (FAS), cost of inputs
(COI), years of experience (YEP), distance to financial institution (DFI), net farm income (NFI), interest rate (ITR), extension
C. O. A. Ugwumba and K. O. Okwuanaso
IHART - Volume 23 (2012)
visit (EXT) and age (AGE). The E-Views 5.0 statistical package was deployed in running the analysis. The estimated result is
presented in Table 2.
The likelihood ratio test showed a significant Chi-square value of 122.36, implying that the estimated model is statistically
significant. Hence the model is considered to be a good fit and equally consistent with theory. Also the value of fit measure,
McFadden R2 (0.82) indicated a very satisfactory fit. Out of the nine (9) predictors, five namely education, farm size, cost of
inputs, years of experience and net farm income were positively signed and statistically significant at 1% probability level. This
implies that the probability to demand for credit is higher with educated and experienced farmer with large farm size, willing to
spent higher amount of money on production inputs to earn higher income. This result corroborates Mesike and Okoh (2008)
that the probability of credit demand is more with experienced, educated farmers and also those that spent higher amount of
money on farm inputs.
Table 2: Estimated determinants of credit demand for the respondents
Standard error
- 0.41
- 0.78
- 0.49
Source: Field survey, 2011.
Constraints to Credit Demand
The major constraints to credit demand in the study area were delays in disbursement, high interest rates, lack of awareness of
existing credit institutions, lack of collaterals, excessive bureaucratic procedures, fear and uncertainties, The ranking of these
constraints collected by means of a 4-point Likert Scale approach implicated delays in disbursement, high interest rates and
lack of awareness of existing credit institutions as serious constraints to credit demand, while the rest (lack of collaterals,
excessive bureaucratic procedures, fear and uncertainties) were moderate retardents to credit demand. The result (Table 3)
indicated that delay in disbursement ranked first, while fear and uncertainties ranked last out of the six problems. This finding is
similar to Adeniyi et al (1984) which indicated delays in the disbursement of credit as a problem to production because it often
leads to diversion of credit to other unproductive uses.
Table 3: Constraints to credit demand in the study area
Mean score
Delays in disbursement
High interest rates
Lack of awareness of existing institutions
Lack of collaterals
Excessive bureaucratic procedures
Fear and uncertainties
Source: Field survey, 2011.
Broiler poultry farmers demanded credit for production activities in the study area; however, their demand for credit was most
seriously constrained by delays in disbursement often leading to diversion of funds. Improvement in the demand for credit for
Determinants of Credit Demand Among Broiler Poultry Producers in Nnewi North Local Government Area of Anambra State, Nigeria
enhanced productivity and profitability would be ensured through the introduction of policies that would facilitate speedy
processing of applications, disbursement of funds, and introduction of concessionary interest rates by credit institutions; and
more sensitization of the farmers on available credit packages in existing financial institutions by extension agents.
Adegeye, A. J. & Dittoh, J. S. (1985). Essentials of Agricultural Economics (2th ed.). Impact Publishers Limited, Ibadan,
Adeniyi, O., Adeduro, O. and Olugbenga, E. (1984). An evaluation of the performance of Ilorin Agricultural Development
Project. Report No. 98, Agricultural Projects Mornitoring, Evaluation and Planning Unit (APMEPU), Kaduna.
Akanni, K.A. (2007). Effect of microfinance on small scale poultry business in South-Western Nigeria. Journal of Food and
Agriculture, 19 (2): 38-47.
Arosanyi, G.T. (2003). Calibration of Commercial Banks’ credits to the rural sector. The Nigeria Journal of Agriculture and Rural
management, 6 (1): 8-18.
Chukwuji, C. O. (2006). Factor productivity and technical efficiency in cassava-based food crop production systems in Delta
State, Nigeria. Ph. D. Dissertation, Delta State University, Asaba, Nigeria.
Johnson, D.T. (1987). The business of farming: A guide to farm business management in the Tropics. Macmillian Publishers,
London, U.K.
Mesike, C. S. & Okoh, R. N. (2008). Factors influencing demand for credit among rubber small-holders in Edo State, Nigeria.
Natural Rubber Research, 21 (1&2), 32-37.
National Population Commission (NPC) (2006). National Population Commission, Publication, Abuja, Nigeria, 2006.
National Population Commission (NPC) (2010). Projected population figure for Nigeria. National Population Commission,
Publication, Abuja, Nigeria, 2010.
Nnewi North Local Govermnent Area (2006). Local government empowerment and development strategy manual. Nnewi North
Local Government Area Publication, 2006.
Okojie, C. A., Monye-Emina, A., Eghafona, K., Osaghae, G. & Ehikhamen, J. O. (2010). Institutional environment and access
to microfinance by self-employed women in the rural areas of Edo State, Nigeria. A review of Nigeria Strategic Support
Programme (NSSP). Brief No. 14. Washington D. C.: International Food Policy Research Institute.
Olukosi, J. O. (1988). Financing agriculture in Nigeria: Performance and challenges of the Nigeria financial system. Paper
presented at the plant training course in agricultural credit management organized by Nigeria Agricultural & cooperative
Bank, Kaduna, Nigeria.
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State, Nigeria. Journal of Central European Agriculture, 6 (4), 619-624.
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Nigeria Strategic Support Program (NSSP). Background Paper No. 006, Washington D. C.: International Food Policy
Research Institute.
Ugwumba C. O. A., Okoh, R. N. & Isitor, S. U. (2009). Microfinance for small-scale enterprises development in Anambra State,
Nigeria: A gender analysis. Nigerian Journal of Research and Production, 15(2): 145-159.
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Dissertation, Delta State University, Asaba Campus, Asaba, Nigeria.
T. Jordan
IHART - Volume 23 (2012)
Tiffany Jordan
Keiser University, USA
The International Monetary Fund (IMF) “is a world financial organization, working to foster global monetary cooperation, secure
financial stability, facilitate international trade, promote high employment and sustainable economic growth, reduce poverty,
tracks global economic trends and performance; and provide policy advice and financial assistance to members countries that
are experiencing serious in economic difficulties" (IMF.org). The IMF’s influence in the global economy steadily increased as it
accumulated more members. In 2008, faced with a shortfall in revenue, the International Monetary Fund’s executive board
agreed to sell part of the IMF’s (IMF.org). However, according to Weisbrot (2008), The IMF's failure to provide advance
warning of most of the major financial crises of the last 15 years and its record of suggesting inappropriate remedies after the
fact raise serious questions about its ability to perform this function. Policies have been repeatedly criticized for making it
difficult for indebted countries (Hill, 2011). The International Monetary Fund (IMF) has become the target of extensive criticism,
particularly in the US. This comes at a time when the IMF is playing a key role in protecting the world economic system.
Arguments in favor of the IMF say that economic stability is a precursor to democracy; however, critics highlight various
examples in which democratic governments fell after receiving IMF loans. Others say the International Monetary Fund (IMF)
has given too little attention to improving financial structures in developing countries and too much on rescue operations. A
conceptual study, this paper examines current issues facing the IMF and the decision making process of nations prolong
borrowing and inability to repay.
Keywords: International Monetary Fund; IMF Role; The IMF and G20; Global Crisis; Global Financial Meltdown; Borrowing;
Monetary Policies; Economic Growth, Forecasts, Economic Policy, Bretton Woods.
International Monetary Fund (IMF) administers the world financial system through economic policies to regulate the exchange
rates for a better international payment system. The IMF was conceived by the United Nation, convened at Bretton Woods,
New Hampshire, July 1944 along with the World Bank, as an international organization to weather the turbulent economical
environment that reigned between World War I and World War II. Nevertheless, the IMFs’ policies have been widely criticized
in time, being tagged as inefficient and lame (Hill, 2011). While the IMF acknowledges that the Bretton Woods international
monetary system broke down in August 1971 with the suspension of the dollar's convertibility into gold, its treatment of this
calamity and its declared willingness to accept all kinds of disparate currency arrangements strikes one as inordinately
acquiescent, if not perverse.
The new order was called, “The International Monetary Fund” (IMF) an international organization that supervises the global
financial system by following the macroeconomic policies of its member countries. In particular, those with an influence on
exchange rate and the balance of payments. IMF along with World Bank, who’s focus was to rebuild Europe by smoothing the
progress of investment in reconstruction and development, was set up to stabilize world currencies, lower trade barriers, and
help developing nations pay their debts.
The IMF members have been free to choose any form of exchange arrangement they wish (except pegging their currency to
gold): allowing the currency to float freely, pegging it to another currency or basket of currencies, adopting the currency of
another country, participating in a currency bloc, or forming part of a monetary union (IMF, 2009b). About 187 countries
participate in the organization, in a joint venture to promote employment, stabilize the economy, maintain financial stability and
help eliminate homelessness. IMF plays a role of financial assistance to many countries that are least fortunate with support
financed from the member countries (Hill, 2011, p.342; Shelton, 2007).
The IMF pursues its goals through its economic surveillance, and keeps track of the economic health of member countries, and
thereby alerts them about any unforeseen risks, provides policy advice and lends money to those in difficulty and provides
technical assistance and training to help countries improve economic management (img.org). It seeks to obtain global
monetary cooperation, secure financial stability, help conduct international trade, find measures to reduce unemployment, and
The Current Issues Facing the International Monetary Fund (IMF) and Nations Borrowing with Inability to Repay Loans
sustain economic growth and ultimately reduce poverty around the world. The Fund’s mission is to monitor exchange rates,
provide short-term financing for balance of payments adjustments, provide a forum for discussion about international monetary
concerns and give technical assistance to member countries. The primary objective of the IMF is to support global financial
system and ease economic and political risks, such as surrendering economic sovereignty, exchange rate, and having
sustainable growth. Taken a step further, the IMF was to obtain global monetary cooperation, secure financial stability, help
conduct international trade, find measures to reduce unemployment, and sustain economic growth and ultimately reduce
poverty around the world.
Difficult challenges face the global economy and organizations such as the IMF who aid in the scrutiny of the international
economic guidelines. The challenge for the IMF is to successfully bring their policies into compliance for economic reason.
More than four years now, the impact of the financial crisis that erupted in August 2007, is still being felt as the global economy
emerges from the Great Recession. The crisis intensified dramatically after the bankruptcy of Lehman and the rescue of
insurance giant AIG in September 2008, which narrowly avoided a near-simultaneous failure of multiple counterparties (Xafa,
The role that the global imbalances played in causing the financial crisis has been heatedly debated. From research, my view-which may not universally shared--is that they played a marginal role, if any. Unsustainable cross-border capital flows
originated from surplus and deficit countries alike. For example, externally funded credit booms in emerging Europe originated
both in advanced European countries with current account deficits, like France, Greece, and Italy, as in those with surpluses,
like Austria, the Netherlands, and Sweden. Recent research also highlights the fact that investors in structured investment
vehicles (SIVs) came from both surplus and deficit countries, and concludes that it was global banking flows, rather than global
imbalances, that determined the geography of the financial crisis (Acharya and Schnabl 2009). SIVs are a pool of investment
assets that attempts to profit from credit spreads between short-term debt and long-term structured finance products such as
asset-backed securities (ABS).
The IMF was profoundly susceptible to global monetary collapse, viable devaluations, trade conflicts, soaring job loss, and a
broadening financial collapse that transpired between world conflicts. Member countries continue to have scope to choose the
type of exchange rate regime that best suits their needs, appropriate exchange rate regime—floating, managed or fixed
arrangements—for individual countries in light of important changes that have taken place in the world economy in recent
years. According to Hill (2011) “The overall goal of the Bretton Woods agreement, of which the IMF was the main custodian,
was to try to avoid a repetition of that chaos trough a combination of discipline and flexibility” (P. 358).
The two main concerns from economists have been that monetary support is constantly bound to specific conditions such as
the Structural Adjustment Program (SAP). SAP is a type of credit facility that helps developing countries become more
economically self-sufficient. Structural adjustments are intended to reduce the current account debt of a debtor nation, as
opposed to financing a new project. They do this by allowing the debtor nation to reschedule principal payments to a later date.
Experts also maintain that the conditions (monetary routine objectives that are recognized as a prerequisite for the IMF credit)
can hinder and, therefore, reduce the acknowledged objectives of the IMF, while Structural Adjustment Programs augment
poverty in beneficiary countries (IMF, 2010).
According to the IMF website, “The current prospective of the world economic environment, capital movements have
established both a permanent and prominent presence”, and have added to the difficulties of implementing changes on a
global level (IMF, 2010). It is important to understand that employing any strategy on an international level is complicated due
to the conflict of interest from country to country (IMF, 2010).
The International Monetary Fund’s early forecast of the severity of the resulting economic downturn (IMF, 2008a) helped
mobilize concerted official action to address quickly and forcefully these extraordinary economic and financial events by
providing fiscal stimulus to sustain growth, as well as capital injections and guarantees to ease the credit crunch. Following the
emergency summit of G20 leaders in Washington in November 2008, support packages for banks were put together in a hurry
in the United States, Europe, and elsewhere to prevent the disorderly failure of systemically important institutions and to restore
confidence in the financial system. These unprecedented interventions prevented a meltdown and contributed significantly to
signs of economic and financial stabilization since the spring of 2009 (Xafa, 2010).
The IMF has come under considerable fire from those who believe that its actions target the poor, developing countries, which
the IMF often sends on a mission impossible. The emerging market countries go to the IMF from relief when they are in a
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recession or are going through some form of economic contraction. The IMF solution is often to demand that they introduce
an austerity program and implement some sort of structural reform. If an economy is in a recession, that means more people
are unemployed more people needs help from the government so this is exactly when a government needs to spend more.
Spending more usually provides a boost for the economy and tends to spur growth when the private sector lacks confidence
and not willing to invest. To cut spending during a recession is to exacerbate the economic downturn. The IMF’s position in
question, would seem to be that it is appropriate as long as the borrowing countries agree to an IMF program to maintain their
This conceptual paper is based on secondary research. The advantage of using secondary data is that it reduces time and
cost. The downside of this research is that the researcher has no control over the data.
It is important to evaluate the study through aggregate data critically. This study has certain potential limitation taken into
account, for example: 1. the theoretical and conceptual problems, 2. the potential limitations of the research strategy, and, 3.
the research quality, which may need more cohesion. Therefore, some biases may exist from sources and the lack of a primary
research creates a narrow view, which leaves room for further research. It is not possible from such a broad base to address
all challenges and reforms. Further areas of research will include the validation study design and statistical analysis to be
tied closely to global changes, while identifying which strategies may be particularly effective (if any) to borrowers, as this is a
narrow view.
History of the IMF
The Fund became more active in the mid-1950s. For a few years, the new system functioned smoothly. Membership
increased; more countries drew on the Fund's resources, and the amounts drawn increased. The Fund specialized in making
relatively small, short-term loans. Because repayment was usually prompt, the Fund recycled its resources (James, 1996). A
series of crises or disturbances came affecting key currencies; first the pound, then the dollar. By 1968, the U.S. gold stock had
fallen so far that a de facto restriction on gold convertibility was in place. The fixed-but-adjustable rate system limped through
the next two years. In mid-1971, convertibility ended formally with the closing of the gold window.
The IMF's primary purpose is to ensure the stability of the international monetary system—the system of exchange rates and
international payments that enables countries (and their citizens) to transact with one other. This system is essential for
promoting sustainable economic growth, increasing living standards, and reducing poverty (IMF.org, 2010).
In the 1970s and 1980s, the Fund played an important role in capital-account lending to "recycle" the revenues of oil-producing
countries after the oil price rise. Its role as advisor to developing countries on macroeconomic adjustment increased. That
advice was tied to lending; the Fund made loans to ease the burden of adjustment to the structural and macroeconomic
reforms it advocated. It is widely agreed that accountability is a fundamental tenet of good governance (Hyden and Bratton,
1992, p. 14; World Bank, 1992; Healey and Tordoff, 1995). Accountable governance means holding those in public office who
manage political affairs and public resources responsible for their actions and performance. This concept of accountability
encompasses both political accountability, by which political leaders are held accountable to their people, and administrative
accountability, by which the public administration or bureaucracy is held accountable to the political leadership and the people.
The International Monetary System consists of institutional arrangements that countries adopt to govern exchange rates (Hill
2010, p. 721).
Funds are distributed to these countries so that they may be better prepared in preventing more serious financial turmoil with
financial investment, by implementing policies to generate more revenue, thus, reducing budget deficits (Clift, (2010). The
functions of surveillance, governance and accountability to governments and its members, financial assistance, special drawing
rights (SDRs), and technical assistance, are still valid but the IMF has undergone many reforms.
The Current Issues Facing the International Monetary Fund (IMF) and Nations Borrowing with Inability to Repay Loans
As the exchanges among nations become numerous and more significant, the nations have to adopt some types of regulations
in order to maintain the equilibrium around the world while working for a safe and a prosperous condition of living in the
countries. It is difficult to align different legal system and different criminal laws in general code of conducts (Hill, 2010) to
facilitate the expansion of the international business. One group of countries, because of their political and economical ideals
can make decision to profit of some especial situations against the ethical interest of other nations, for example lower
unethically the exchange rate of its local money regardless the international Monetary Fund’s requirements concerning
international exchange rate.
The designing and the implementation of the international standards of value as the gold standard, the Breton woods System,
and the fixed exchange rate system can be considered as crucial means to control the international trades and exchanges.
These values and codes of conducts are modified over time while remaining a significant base of regulation to avoid conflicts
and wars. The international relations have to be discipline and flexible to meet the expectations of every country to ensure a
harmonious and prosperous world. Essentially, poor or rich nations have to apply the IFM’s requirements to stabilize their
monetary system while gaining advantages of the world’s bank’s efforts to promote their economic development by improving
wealth and wellbeing of their populations (Hill 2010, p. 367).
Khan (2003) argued that the policies set by the IMF are designed to facilitate the interest of the multinational companies
(MNCs). Hence today, the IMF treads softly around the issue of exchange rates among currencies, perhaps fearing that to
acknowledge the advantages of stable exchange rates-- would be to highlight the organization's failure to prevent the
dissolution of the Bretton Woods system. Moreover, to embrace the connection between stable exchange rates and the goal of
realizing maximum global economic returns from foreign trade and investment is to question the IMF's current relevance with
regard to achieving global monetary stability (Shelton, 2007).
Shelton (2007) “The International Monetary Fund has a wonderful heritage and a priceless legacy. It was created for the loftiest
of economic purposes— to provide a stable monetary foundation to facilitate free trade and international capital flows—and to
provide hope to a world beset by vicious and destructive war. Its architects, Harry Dexter White and John Maynard Keynes,
surmounted personality clashes and political strains to carry out the mission that garnered their mutual respect: to establish
optimal conditions for achieving world prosperity and world peace.” Exhibit A
The global economic crisis taught us to question our most cherished beliefs about the way we conduct macroeconomic policy
(Blanchard, 2011). Many of the problems or international financial crises of recent years arose because there is too much
lending, especially short-term lending, to developing countries, not too little. Recent history suggests that if a country adopts
market-oriented policies of privatization and deregulation, opens its trade to competition in foreign markets and opens its
domestic market to foreign competition, and carefully controls its budget, foreign lenders and investors are willing to finance its
Yet the international financial system is crisis-prone. Latin America in the 1980s, Mexico in the mid-1990s, and Asia and Russia
most recently present well-known examples of deep, pervasive financial crises. The past fifteen years have seen ninety serious
banking crises, most of them followed by deep recessions. More than twenty of these crises produced direct losses to a
developing country exceeding 10 percent of its gross development product (GDP). In half of these cases, including several
Asian countries currently losses exceed 25 percent of GDP (Caprio and Klingabiel 1996, 1997; Calomiris, 1998).
In response to the crisis, central banks injected massive amounts of liquidity by broadening the range of accepted collateral
and by lengthening the term of refinancing operations. However, non-reserve currency countries faced shortages of foreign
exchange liquidity, which threatened to further depress trade and international financial transactions. The general allocation of
$250 billion of SDRs to Fund members in proportion to their quotas in August 2009 alleviated this bottleneck by providing such
liquidity on a global scale. (3) Emerging market and developing countries as a group received about $100 billion of the new
allocation. The size of this SDR allocation was unprecedented compared to the previously outstanding stock of just $33 billion
of SDRs. The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries' official
reserves. Its value is based on a basket of key international currencies, and SDRs can be exchanged for freely usable
currencies among the IMF members (IMF.org, 2012).
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Greece Economic Crisis
The problem Greece is now facing is the combination of a high debt, a big deficit and low competitiveness. The economic crisis
of 2007–2009 and its subsequent spoils of world credit and stock markets, have hit Europe in probably the final stage of a
world economic recession. Countries like Portugal, Italy/Ireland Greece, and Spain known as PIGS were the biggest challenge
for the European Union. Greece was forced to ask for help from the IMF, since it had become heavily indebted abroad. Its socalled external debt was 82.5 per cent of GDP in 2009 and the public debt and the budget deficit were 127 per cent and 15.4
per cent of GDP respectively. The deficits of the state budget were covered by borrowing (Cabral, 2010). As a result of the big
deficits from the financial management of the last three decades and the high interest rates during the 1980s and 1990s, the
total amount of Greek public debt increased enormously. The country was more in debt through the 2000s than in previous
years. It was already in debt and imported more than it exported. As a result, the amount of capital inflow from the EU declined.
The IMF and the European Union (EU) provided Greece with a loan of euro110bn in order to help as part of a cooperative
package of financing with euro zone states over three years to come out of its difficult financial situation. Greece for its part
has to adopt fiscal, structural and financial adjustments in order to be able to pay back the loan (IMF, 2011). Meanwhile, the
emerging nations – Brazil, Russia India, an China (BRICs) were and are transforming.
For the payment of its debt, Greece must succeed on two fronts. First, there must be an improvement to the public finance and
the government must have a significant primary surplus. Secondly, the economy must become more competitive. Finally, ‘The
financial system remains stable, and time will be provided to allow banks to deleverage and restructure in an orderly fashion.
Greece as an EU member follows the same policies! See Exhibit C
Great Britain’s Economic Crisis
The International Monetary Fund (IMF) is a global organization that services 187 countries today. Its purpose is to provide
“policy advice and financing to members in economic difficulties and also work with developing nations to help them achieve
macroeconomic stability and reduce poverty” (International Monetary Fund, 2012). Typically, the IMF tracks any type of
economic trends and alerts the members if it foresees an upcoming problem and advises ways it can solve the problem. Other
key activities include loaning funds to those members that are in financial distress and technical assistance to those members
who are facing poverty and to help manage their economies.
The IMF has been said to be slow to respond and costly in their rescue operations. Economies have been wrecked and much
of the blame has been put on the IMF. “Businesses are closing. Poverty is soaring. Ethnic hatreds are rising” (Huhne, 1999, p.
20). The recession in 2007 was a global one, with many global businesses shutting down, declaring bankruptcy, and/or cutting
thousands of jobs. “Rich” governments were affected and were in trouble, the kind of trouble that was never even foreseen or
expected. Britain’s economy and government was one of them.
Confidence was shattered when markets begun collapsing more than a decade ago. European countries such as Russia and
Britain defaulted on government debts. In 1999, Britain was one of the first economies “showing signs of a serious recession”
(Huhne, 1999, p. 20). Britain represents one of the richest economies in the entire world, and was now looking at a tremendous
debt and unprecedented “stock market overvaluation. People were borrowing more than were saving; stock markets were in
ruins, and “commodity prices have plumbed 30-year lows” (Huhne, 1999, p. 20). The hope was for the IMF to step in and help
aid countries such as Britain, but instead, failed to provide necessary sustainment.
With the beginning of a meltdown in Britain and other countries in Europe, the IMF was supposed to improve the financial
structure of the government or at least provide some advice on how to steer Britain in the right direction. The IMF failed to do
so. “Not only did the IMF fail to take account of private-sector debt and short term maturity of debt, it then compounded its error
by misapplying remedies when the crisis began” (Huhne, 1999, p. 20). Britain had no choice but to cut spending and the IMF
suggested raising taxes in order to “restore confidence.” The public worried, though. Many had money invested in the
government and feared that it would be lost during the recession. The government urged the public that their money was safe
the debtors would get their principle back. At this point, Britain, just like every other nation affected by the global recession,
could do nothing but wait, and hope for the economy to rebound and stabilize.
The IMF was designed to provide analysis, aid, and recommendations to economies that were facing financial hardship. Many
countries, such as Britain felt the IMF failed to do its job and the global response was weak. Global financial stability was
threatened in 1999 and feared to get worse. By 2003, the IMF took a better approach to managing risk by highlighting policies
that “help mitigate systematic risks and enhance financial stability” (Xafa, 2010, p. 476). The IMF has proved to most definitely
The Current Issues Facing the International Monetary Fund (IMF) and Nations Borrowing with Inability to Repay Loans
be slow in responding after Britain called for help, but has never stopped providing advice to those who experience financial
Hungary’s Economic Crisis
Recent global financial troubles have resulted in financial crisis management for many countries around the world. Hungary is
one of the countries hit hardest by the global financial crisis. A debt crisis, exchange-rate crisis and perceived lack of
transparency have all contributed to Hungary’s recession. The economic difficulties are spreading throughout the population
and business sectors. Due to their fiscal emergency, Hungary found itself in the position of asking for financial aid from the
International Monetary Fund (IMF).
Hungary, with an emerging market economy was suffering from a large debt crisis. It had watched its budget deficit grow until it
was one of the largest in the European Union. The budget had grown as the socialist government has increased its size and
introduced expensive reform programs on health care and pensions. This was done at the expense of public opinion as many
protested and rioted over the government actions. (Nadler, 2009) The economic crisis and public pressure caused Hungary’s
Prime Minister to step down in March, 2009. The economic recession has spread throughout the financial sector,
manufacturing industry and service sector of Hungary and raised unemployment.
The outcome of continued economic pressures has resulted in Hungary facing a currency-rate crisis as well. The official
currency of Hungary is the forint (HUF). As a member of the EU, Hungary’s long term goal is to replace the forint with the euro.
The Hungarian forint has slid 19% against the dollar and 13% against the euro, resulting in inflationary pressures. (Nadler,
2009) Currency devaluation will often exasperate a nation’s deteriorating balance of payment position. The currency deflation is
due in part to foreign investors taking flight “to safer havens of investments denominated in dollars, Euros and Swiss francs”
(Jolly, 2008). When foreign currency traders see a falling currency they sell on the expectation of future depreciation. There is
also a perceived lack of transparency which is additionally discouraging foreign investment and stalling economic growth.
Hungary is ranked 46th most corrupt in the Transparency International’s 2009 corruption perception index (www.reuters.com).
This is a cause for concern for a nation that needs to attract foreign investment to grow its economy. Foreign direct investment
into Hungary was a negative 500 million Euros for the first half of 2009. (www.reuters.com)
Both crises have led Hungary to the edge of bankruptcy in 2006. The IMF stepped to help stabilize the Hungarian economy
with a U.S. 25.1 billion dollar credit line in October, 2006. In return, the IMF “insists on a combination of tight macroeconomic
policy, including cuts in public spending, higher interest rates, and tight monetary policy” (Hill , 2010, p.389). The loan has
helped to steady the economy somewhat, with the economy forecasted to shrink 6.7% in 2009 and less than 1% in 2010. By
IMF dictate, the Hungarian government has to limit its spending to cut the deficit to no more than 3.9% of GDP for 2009 and
3.8% for 2010 (www.expatica.com). The Hungarian government must now adhere to the IMF’s tight macroeconomic policy. So
far, the government has cancelled bonuses, frozen wages, reduced gas heat subsidies and increased sales taxes in an attempt
to adhere to the IMF’s conditions. According to the OECD Economic Outlook, Hungary’s current GDP currently stands at 6.9%
with 9 % unemployment. Exports are at -11.2 % and imports at -18.1 %, which indicates a trade deficit. Hungary needs to
attract foreign investors along with the reduction in government spending it has undertaken to recover. An increase in foreign
investments can help to lower the trade deficit and increase their balance of payments. The financial loan from the IMF has
helped to stabilize the economy but more needs to be done for future economic growth.
Christoph Rosenberg, IMF mission Chief for Hungary, discusses the challenges faced by Hungary’s economy as, “Hungary
struggled as growth slowed considerably, and investors retreated. Hungary never really recovered from the last crisis, so
growth in the last years has been relatively modest, particularly compared to regional peers. He further stated, we now expect
the economy to stagnate in 2012 due to both external and domestic factors, and to only slowly recover thereafter (Rosenberg,
The IMF’s policy recommendations for the country, “Hungary has taken some positive steps. The budget this year is very
ambitious. It includes a structural fiscal adjustment that is large by any country’s standards. It is, of course, pro-cyclical: the
government is raising taxes and cutting spending at the same time as the economy is slowing. But after two years of structural
loosening, this is necessary to ensure that the debt-to-GDP ratio remains on a downward trajectory and does not continue to
burden the economy forever. This is also important to maintain investor confidence and keep financing costs in check.
Monetary policy has also been appropriately tight, to prevent further destabilizing depreciation of the forint” – Hungary’s
currency (Rosenberg, 2012).
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Iceland’s Economic crisis
Prior to the global economic crisis, Iceland was a thriving country. The tiny island situated in the mid-Atlantic, a country of
impressive natural beauty was high on the United Nation’s Human Development Index. The country’s high standard of living,
literacy and life expectancy placed the country in this ranking. Iceland was the most developed country in the world by the
United Nations in the year 2007 (Morris, 2009). “Iceland has survived famine, volcanic eruptions and smallpox, now it must
confront the fact that it has been blighted by a man-made disaster” (Morris, 2009). The foundation of the economy has
remained strong, despite the economic crisis. The country’s clean energy, marine structures, strong infrastructure and welleducated workforce has provided the strong foundation to help overcome the current economic difficulties and implement the
reforms necessary for recovery.
The recent global economic crisis that has engulfed the world has claimed another country. The economic crisis in Iceland has
had a profound effect on its population. The outside debt had increased substantially from being the lowest level in the world to
one of the highest, with drastic increase in unemployment and inflation. There were many people that were close to retirement
age that had placed their life’s savings stocks in the banks that failed. There were many people that had every cent they saved
disappear in to the “turbulent waters which connect Iceland with its American and European neighbors” (Morris, 2009).
Iceland’s economic crisis involved the collapse of three major banks in the country. The banking system grew and became very
concentrated. Eventually, privatization of the banking sector was completed, which increased the bank’s assets from being
100% of GDP to 1,000% of GDP.(Anderson, 2008) As the economic crisis prevailed, Iceland realized the banking system was
larger than the economy relatively speaking. In October, 2008 in an effort to save the economy, the government negotiated a
$10 billion bail-out plan with the International Monetary Fund (Anderson, 2008).
The IMF is an organization that oversees the global financial system. The organization works to foster global monetary
cooperation and secure financial stability. The IMF eventually approved giving assistance to Iceland. The economic policy had
been established by the government and the IMF. Iceland, in order to receive aid, had to produce an economic program for the
future. It involved conditions about fiscal and monetary policy and the restoration of the banking sector (Veal, 2009). The main
challenges the IMF addressed were preventing further decline or depreciation of the króna. This was to be accomplished
through maintaining a strict monetary policy of a flexible exchange rate framework and efficient organizational structuring. This
was to aid in the restructuring process, proceeding with the valuation of banks’ assets, maximizing asset recovery in the old
banks, and ensuring fair and equitable treatment of depositors and creditors of the intervened banks (Iceland, 2008).
The IMF also focused on developing a comprehensive and collaborative plan for restructuring the banking division. The global
credit crisis brought about the decline of the Icelandic banks, but a demand from the politicians and regulatory institutions
should have insisted on a reduction in the size of the banks. The politicians allowed the country to falter which proved fatal for
the nation (Ward, 2009, p. 5). The IMF was focused on stabilizing the króna. The króna had to be stabilized; otherwise further
decline would cause a surge in corporate and household defaults. The decline of the króna placed a burden on people who
had loans in Euros and dollars (Blair, 2009). In the beginning of 2008, it cost more than 85 Icelandic króna to one euro. Items
priced in Euros cost twice as much to buy in krónas (CNN News, 2009). Iceland was losing one of its only three McDonald’s
restaurants (CNN News, 2009) due to the poor economic situation in the country. The economic crisis also had other
consequences for the Icelandic economy. The national currency had dropped sharply in value. The foreign currency
transactions were suspended for a period of time. The Icelandic stock exchange dropped by more than 90% and the króna had
declined more than 35% against the euro. Inflation was at 14% and interest rates had increased to almost 16% (Iceland, 2008).
Iceland does have several assets that will help the country through the financial crisis. The country is a technology-driven
society with a young and educated workforce and a thriving cultural sector.
Iceland was among the first to be affected by the global crisis. It is progressing toward economic recovery with assistance
through the IMF. Iceland’s recovery is dependent on its fundamental and excellent infrastructure. Iceland will face more
economic hardship, however; the economy of the country is flexible. Once the currency of Iceland stabilizes and there is
normalcy in the country’s foreign exchange operations, companies that import and export will have access to the foreign
exchange market. The country will continue to work constructively with the IMF and other countries to address the problems
that came about due to the connection with the government takeover of Iceland’s three largest banks.
Turkey’s Economic Crisis
The IMF and the World Bank sought to weather the turbulent economical environment that reigned between World War I and
World War II. Nevertheless, the IMFs’ policies have been widely criticized in time. The IMF has put 18 recovery programs in
place for Turkey, since the country become part of the organization in 1958. Repeatedly, the IMF had demanded economic and
The Current Issues Facing the International Monetary Fund (IMF) and Nations Borrowing with Inability to Repay Loans
social changes to Turkey in order to cope with the country’s financial crisis. One of the most important changes demanded by
the IMF was the privatization of numerous government assets and companies, but Turkey keeps falling short on those efforts.
In the 1980s, Turkey had a mixed economy with a large public sector that encompassed energy, tobacco, broadcasting,
telecommunications and air transport industries. In time, some of these industries had been opened to the public via licensing,
build-operate-transfer, subcontracting, sale and public share offerings. Yet, “privatization has been a stop-start affair
surrounded by political debates, courtroom battles, lengthy procedures, sleaze allegations and economic crises” (Oxford,
The lack of private enterprise financing and the heavy use of government debt have been at the epicenter of the Turkish crisis.
Inflation had its peak in December 2000 at a 65 percent, reflecting the financial turmoil in which several banks defaulted due to
nonperforming loans (Hill 2010). Most of the efforts of the IMF in Turkey targeted on bringing down the inflation rate, stabilizing
the lira (the country’s currency), and restructure the economy to reduce government debt. This is, in general, the common
approach the IMF follows when helping a country in despair. This “one-size-fits-all” approach, by the way, has been widely
criticized by authors such as (Sachs, 1997). In Turkey, nevertheless, those policies seem to work at last, with the Turkey’s
market rebounding and the budget surplus averaging 4 percent of GDP for the last five years (Birch, 2009).
The relationship between the IMF and Turkey was complex. After several rescue plans, it seems that the country was reaching
some sort of stability, considering the world financial crisis. Nevertheless, reluctance to make more steps towards bigger
market openness undermine the current growth and stability. Adding up to this current situation was the possible inclusion of
the country as part of the European Union, which could boost the economy and back up the current industrial development. In
any case, it seems that somehow Turkey is taking advantage of what is being call “moral hazard”, a situation in which people –
our countries– behave recklessly “because they know they will be saved if things go wrong” (Hill 2010, p 375). The question
became: was the IMF going to give a 19th chance to Turkey?
Critics pointed out that the IMF favors the capitalist military dictator who has good relations with the U.S. and European
companies. They thought that the IMF does not attach importance to democracy, human rights, and labor rights. These
criticisms aroused social discussion and prompted the anti-globalization movement (IMF, 2012).
As Argentina has implemented the economic policies proposed by the Bretton Woods institutions, IMF made an utmost effort to
promote Argentina as a model country. However, Argentina had a catastrophic financial crisis in 2001. Bankruptcy, devaluation
of the currencies, frequent changes of government, and social upheaval has done serious damages to this South American
country’s economy and society. At that time, the IMF refused to advance a loan of $1.26 billion to Argentina, and the IMF
required Argentina to achieve zero deficits and abandon the fixed exchange rate regime (Agarwal, 2003).
Most people believe that the Argentina’s financial crisis was caused by the IMF proposed development projects of austerity
budget and privatization of important resource. The tight budget weakened the capacity of government to maintain
infrastructure, welfare, and education services. Argentina’s financial crisis has deepened the resentment of the South American
countries to the IMF; they accused the IMF of being responsible for the economic problems of South America. With the impact
of the economic crisis in Argentina, the present government of South America gradually goes the route of center-left and
makes great efforts to get rid of the pressure of commercial companies on economic policy (Kedar, 2010).
The behavior of the IMF to take a series of actions to remedy the situation has impacted its reputation. Often when the country
was negatively affected by the economic shocks, the IMF would offer assistances to it. In fact, the reason these countries have
economic problems is their decades of poor management. Mismanagement results in the country plunging itself into years of
economic hardship, the IMF usually gives a hand at the time. Therefore, people associate the economic collapse with the
intervention of the IMF, which was alleged to have diverted attention by politicians, using the nationalism and people’s bad
impression of the IMF to make the IMF a scapegoat.
Beginning in the 1970s Jamaica was going through tremendous economic difficulties and sought IMF assistance. As part of a
structural adjustment program with the IMF, Jamaica liberalized its exchange rate. According to Blackman (1995) after pegging
its currency to the United States in 1971, there have been a variety of exchange rate regimes. There were many minidevaluations and in September 1990, a flexible exchange rate interbank system was instituted. In September 1991, exchange
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rate control regulations with minor exceptions were abolished. According to the Bank of Jamaica (2006), the devaluation of the
Jamaican dollar was to adjust the real rate of exchange and make exports more competitive. Stone (1995) also claims that
Jamaica policy was aimed at restricting imports and increasing exports.
Harrigan (1991) since 1978, Jamaica has been under a series of IMF- and World Bank-guided economic reform programs. The
objective was to restore macro-economic balance by controlling the budget deficit and adjusting the exchange rate (guided by
the IMF) whilst promoting diversified private sector export-led growth (guided by the World Bank). An important finding which
emerged from the Jamaican study was that international financial organizations, particularly the International Monetary Fund
(IMF) and to a lesser extent the World Bank, had complex and multiple impacts on the accountability of public resource
management. In 1980-1992 when the Washington institutions were particularly heavily involved in the Jamaican economy and
before the 1993 re-election of the PNP Government under its new leader P. J. Patterson, who was committed to improving
accountability. Wapenhans (1994) study showed that some facets of IMF involvement in the Jamaican economy helped to
improve the accountability of public expenditure management, while other aspects of IMF behavior had a strong negative
The involvement of the IMF, World Bank, and other donors in the Jamaican economy, affected public expenditure in three
distinct ways. First, influencing the allocation of resources within the budget; second, advocating and supporting reforms to
improve general financial management in the public sector; and third, setting macro-economic targets under stabilization and
structural adjustment programs which impacted on the nature and outcome of the state budgetary process. Wapenhans (1994)
identified several fundamental accountability weaknesses in Jamaica's public expenditure management, which included a long
“lack of public understanding of and participation in the budgetary process; lack of consultation outside Government;
an ineffective Parliamentary Estimates Committee; budgetary timetables and procedures which lacked credibility
owing to a disorderly and uncoordinated budgetary process, which was fragmented amongst many agencies;
recourse to special and often concealed expenditures which fell outside the budgetary process; an emasculated
Ministry of Finance, which no longer played a co-coordinating role; weak and unreliable initial expenditure guidelines
leading to a mark-up budget mentality; a political executive which intervened late and arbitrarily in the budget process
such that line ministries did not feel they 'owned' the final budget; frequent and large supplementary budgets which
were retrospectively approved; crisis management budget slashing which undermined transparency; and resource
allocation influenced by political clientelism”. (Harrigan, 1995)
Incentives to attract private investment, particularly foreign investment in new export sectors, were also established (Harrigan,
1991). From 1978 onwards both Washington institutions have been heavily involved in the Jamaican economy by imposing
conditions, in the form of the above reform programs, on their structural adjustment and stabilization loans offered to the
Jamaican Government. Jamaican policy makers, however, have been able to get away with a fair amount of slippage on
implementing these reform programs, partly because large inflows of American aid, aimed at stopping the spread of Castro's
communism in the Caribbean basin, have reduced the Government's dependence on IMF and World Bank finance (Harrigan,
The analysis of public expenditure accountability in Jamaica used the following criteria of accountability: the potential for
change in political leadership and policy agenda; the representation of societal interests and political responsiveness to interest
groups; the degree of openness and transparency in public expenditure decision making; the opportunity for debate and
dialogue; the Government's monitoring and evaluation of its own performance, including the extent to which expenditure
outcome reflected intentions; the effectiveness of checks on public expenditure, including that of the legislature in approving
and scrutinizing expenditure and that of investigative audit and follow-up sanctions; and the neutrality and accountability of the
bureaucracy in posing options to the political executive. Despite the significant currency devaluation, Jamaica trade deficit
Jamaica has preferential tariff agreement for its export with many trading partners (Duncan, 2008). They include the United
States under the Caribbean Basin Initiative; with the European as part of the LOME Convention (for Agricultural exports); with
Canada under CARIBCAN (products can enter Canada duty free) and with CARICOM. Agreements with such entities are
made with predetermined prices and predetermined volume. Therefore, having Jamaica’s exportables relatively cheaper, will
not necessarily affect trading volumes with such blocs.
The Current Issues Facing the International Monetary Fund (IMF) and Nations Borrowing with Inability to Repay Loans
The era of massive bailouts began with 1994 – 1995 peso crisis that transformed the event of the IMF, but the evaluation of the
Mexico-IMF relationship of the 1980s must be considered as the decade that the flaws of the IMF led approach began to
appear (Vasquez, 2002). As the collapsed of the Mexican peso approached in December 1994, two factors assured the sheer
size of the forthcoming IMF (Federal Reserve Bank, 1999) bailout. The Mexican economy now much more liberalized and open
to capital flows confronted an unresolved monetary trilemma due to inconsistencies in monetary and exchange rate policies.
The IMF is said to have created by then moral hazard in Mexico due to its having provided emergency aid to the country with
episode of irresponsible monetary and fiscal management since 1976 (Hoskins and Coons 1995).
U.S. banks had made sovereign loans in excess of their capitals and provided breathing room for Mexico and other indebted
countries to get their finances in order. The IMF increasingly relied on loan conditionality in an effort to promote policy change.
However the IMF’s role as creditor and third-party negotiator created disincentives for Mexico and its private sector creditors to
agree on a debt workout, thus delaying reform (Lindert, 1990). The IMF was described as “participating in a big charade”
because of the agency’s continued lending to countries that had a low probability of achieving balance of payments viability.
Vasquez (2002) stated that “according to the conventional view the International Monetary Fund’s bailout of Mexico in 1995
was a success because it restored confidence in the collapsing peso, led to a quick economic recovery, and possibly stemmed
the outbreak of a global systemic financial crisis.”
It is believed that Mexico’s relationship with the IMF is especially important because the country seems to influence the lending
agency almost as much the agency influences Mexico. The bailout helped to keep Mexico on a market-oriented track. But
Vasquez (2002) believes the high cost of the IMF’s intervention to ordinary Mexicans is downplayed as moral hazard to the
world economy, although the evidence suggests that market solutions offer greater benefits and lower.
Reinhart, Rogoff and Savastano (2003) report that France defaulted on its sovereign debt eight times between 1500 and 1800,
while Spain defaulted thirteen times between 1500 and 1900. And, more recently, over the past quarter of a century emerging
market economies (EMEs) have defaulted on their sovereign debts frequently. There are a number of potential costs of default
that incentivize debtors to repay. Some are penalties imposed by external creditors on the cost or ability of defaulters to access
future finance. So increasing consumption today, may be at the expense of reducing consumption in the future.
To contain the fallout of the crisis on EMCs, officials at the G20 summit in London in April 2009, pledged to triple the Fund's
lending resources to $750 billion and agreed to a general SDR allocation of $250 billion. Armed with more resources, the Fund
was quick to adapt its lending policies in response to the crisis. A new instrument, the Flexible Credit Line (FCL) was created to
provide large, upfront financing on a precautionary basis and to better tailor conditionality to country circumstances. Xafa
(2010) continued to note, “countries with solid fundamentals and strong policies now have access to IMF financing on demand,
with no conditionality, to address actual or potential balance-of-payments pressures. Together with increased lending limits, the
new precautionary FCL provides insurance that helps strengthen market confidence about the country's ability to meet rollover
needs and thus avoid a crisis. Mexico was the first country to benefit from the FCL in March 2009, with a $47 billion loan--the
largest in the Fund's history--followed by Colombia and Poland.”
More recently, it is stated that “the IMF’s role has changed to that of a lender of last resort to countries in economic distress.
With this change has come a host of accusations suggesting that recipients of IMF loans have been required to cut back on
spending for the poor. Newly appointed head of the IMF, Rodrigo Rato, denies these accusations. Rato defends the IMF’s
actions arguing that the IMF simply stepped in to help countries when no one else would. He suggests that spending cutbacks
required by the IMF were not directed at the poor, rather they were simply an effort to rein in government spending and get a
country on a budget. Rato has also stated that he believes in forgiving debt held by the very poorest nations so long as they
follow an IMF program to stay fiscally on track” (Xafa, 2010). Furthermore, Rato suggests that while the U.S. may not be a
recipient of IMF aid, it is important for the U.S. to understand its mission, both from an ethical standpoint, and because as
citizens of the global economy, the U.S. stands to gain from less prosperous economies. In other words, the American
economy needs the world, and the world needs the American economy. Rato has also called on the U.S. to reduce its debt,
fearing that the country will not be able to carry such a burden in the longer term.
Over the past quarter of a century, emerging market economies (EMEs) have defaulted on their sovereign debts frequently.
Since the financial crises of the 1990s, including the sovereign defaults by Russia, Ecuador and Argentina, a number of policy
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initiatives have been taken and others suggested to improve the international financial architecture, including the effectiveness
of crisis resolution (Bedford, Penalver, and Salmon, 2005). The larger these default costs, the greater the incentive for debtors
to avoid default or, if default occurs, to resolve the crisis as effectively as possible. But to the extent that these costs are not
internalized, there may be a role for international official sector intervention, by an agency such as the IMF, to help prevent or
resolve debt crises. Distinguishing the size and type of different costs of sovereign default may help to determine where efforts
at crisis prevention and management should be most focused (IMF, 2003).
Costs as measured by the fall in output, are particularly large when default is combined with banking and/or currency crises.
Output losses also seem to increase the longer that countries stay in arrears or take to restructure their debts. Defaulters may
lose access to borrowing from financial markets. However, the theoretical evidence is mixed on how a sovereign contemplating
default might balance the potential loss of access to international capital markets against its ability to use the breathing space
afforded by default to support domestic expenditure, a loss of trade finance may also result in defaulters facing a reduction in
international trade. However, trade finance need not be provided by the same creditors that hold the defaulted debt
(Sturzenegger and Zettelmeyer, 2006).
There are a number of potential costs of default that incentivisze debtors to repay. Some are penalties imposed by external
creditors on the cost or ability of defaulters to access future finance. So increasing consumption today may be at the expense
of reducing consumption in the future. A loss of trade finance may also result in defaulters facing a reduction in international
trade. However, trade finance need not be provided by the same creditors that hold the defaulted debt.
The International Monetary Fund’s (IMF) Organisation for Economic Co-operation and Development (OECD), and the United
Nations Convention Against Corruption (UNCAC) Convention on Combating Bribery of Foreign Public Officials in International
Business Transactions is a noble effort, but falls short just based upon its limitations. The agreement criminalizes acts of giving
bribes, but not of soliciting or receiving bribes (International Monetary Fund, 2001; OECD, 2008). This in itself is a problem, as
it does not criminalize solicitation and is only focused on public officials. It is also based upon peer review with participating
nations. The OECD monitors through an open-ended peer-driven mechanism, by supporting a comprehensive approach. The
examination of 34 countries show investigation of inadequacies involving multinationals as well as public officials (UNODC.org
2012); OECD.org, 2009). According to reports, the IMF will have difficulty with implementing this strategy first and foremost
because it is an incomplete effort, but also because of the nature of the problem itself. Corruption is not an open act, meaning
the world does not have an open view corruption in politics and business. This secrecy makes it harder to detect, and if it is not
a criminal act to solicit bribes, then is it really conceivable that accepting a bribe will be reported.
There are many initiatives that have been established by International Monetary Fund to help eliminate bribery to of a foreign
public official a crime under the respective country’s law (Department, 2001). In my opinion, it is tough with so many countries
to eliminate all bribery because of the number of countries involved with different laws governing them. As the exchanges
among nations become the more and more numerous and the more and more significant, the nations have to adopt some
types of regulations in order to maintain the equilibrium around the world while working for a safe and a prosperous condition of
living in the countries. It is difficult to align different legal system and different criminal laws in general code of conducts to
facilitate the expansion of the international business. One group of countries, because of their political and economical ideals
can make decision to profit of some especial situations against the ethical interest of other nations, for example lower
unethically the exchange rate of its local money regardless the international Monetary Fund’s requirements concerning
international exchange rate.
The World Bank and the IMF have set forth time and resources to combat fraud and corruption with one of the most powerful
weapons available – money. This is quite a challenge for both entities as bribery is estimated to be a trillion dollar a year
enterprise (World Bank, 2004). The problem of corruption not only includes the actual corruption but also creates hurdles in
reducing poverty, inequality and infant mortality in those economies. Simply put, controlling corruption will increase income per
capita. The World Bank has even published a list of firms that have been implicated in questionable business practices and
have declared them as ineligible.
One of the most difficult tasks of promoting the OECD Anti-Bribery Convention was the enforcement of the policies contained
within it. The Convention holds that each government is responsible for enforcing the rules on themselves. When the progress
report was last taken, only four governments (Germany, Norway, Switzerland and the United States) are actively enforcing the
rules. Twenty-one countries that are involved have little or no enforcement. Reasoning varies from funding constraints to
The Current Issues Facing the International Monetary Fund (IMF) and Nations Borrowing with Inability to Repay Loans
security concerns within the countries however if there is ever going to be applicable constraints and punishments, these
reasons must be overcome (Financial Integrity and Economic Development, 2009).
Experts suggest, the real way to make this better is to have a cooperative effort that criminalizes the entire process, much like
in the United States where there are racketeering statutes that can charge all people involved with a criminal process with the
activities of the organization. This would allow the fight corruption, as all participants can be charged for involvement - those
who solicit, deliver payments, make arrangements and whatever else will be equally liable. The stumbling block on this is
participation, as many foreign nations are built on corruption and the same politicians who would agree to participate would
also be cutting of their source of revenue (imf.org).
On the way to reach its goals, the International Monetary Fund has adopted several decisions and principles to coordinate
disparate legal systems in order to arrive at minimum standard with respect to an important form while collar crime. These
codes of conducts oblige the signatory countries; members and non-members to make the bribery of a foreign public official a
crime under their laws. The countries have to generally govern all aspects in their economic and monitory system to ethically
be competitive in the international exchange and business, including its economic policies and regulatory framework. They
often confront a type of Corruption that can be described as a narrower concept, which is often considered as the abuse of
public authority or trust for private benefit (Good governance, 1997). The Organization for Economics Cooperation and
Developments (OECD) identifies and defines a code of conducts to respect discipline and flexibility such as the need to
maintain a fixed exchange, a fixed exchange rate regime imposes monetary discipline on countries, an attempt to reduce
money supply growth, and correct persistent balance of pavements deficit, and so forth (Hill, 2010, p. 368). The countries have
to respect those principles to maintain the equilibrium monetary system in the world to avoid devaluations and to promote
developments all over in the world.
Chandavarkar (2002) claimed that the IMF acting as a crisis manager is not accurate. The IMF, as the author stated, has been
acting as the last alternative. This contradicts its original objective and indicates that the Fund was never been intended as the
last option. The author questioned the need of having the IMF act as a last resort and whether the IMF should be reconstituted
to achieve such an objective.
As the Fund accurately predicted, emerging market countries (EMCs) were not able to decouple. The crisis that originated in
the advanced countries had a significant impact on EMCs as risk aversion and flight to quality led to a dramatic drop in private
capital flows. European emerging markets that relied on externally funded credit booms were particularly hard hit. IMF staff
analysis indicated that refinancing needs of EMCs were set to rise from $1.7 trillion in 2008 to $1.8 trillion in 2009 and $2.0
trillion by 2012 (IMF, 2009d). Rollover rates of 100 percent would be difficult to reach at a time when banks and institutional
investors were trying to reduce the risk and leverage in their portfolios to maintain capital adequacy despite the losses suffered
during the crisis. The large potential external financing gaps highlighted the need to ensure that the Fund had adequate
resources to remain a credible stabilizing influence.
To contain the fallout of the crisis on EMCs, officials at the G20 summit in London in April 2009 pledged to triple the Fund's
lending resources to $750 billion and agreed to a general SDR allocation of $250 billion. Armed with more resources, the Fund
was quick to adapt its lending policies in response to the crisis. A new instrument, the Flexible Credit Line (FCL) was created to
provide large, upfront financing on a precautionary basis and to better tailor conditionality to country circumstances. Countries
with solid fundamentals and strong policies now have access to IMF financing on demand, with no conditionality, to address
actual or potential balance-of-payments pressures. Together with increased lending limits, the new precautionary FCL provides
insurance that helps strengthen market confidence about the country's ability to meet rollover needs and thus avoid a crisis.
Mexico was the first country to benefit from the FCL in March 2009, with a $47 billion loan--the largest in the Fund's history-followed by Colombia and Poland.
Countries not eligible for the FCL could access IMF financing beyond the normal access limits under High-Access
Precautionary Arrangements (HAPAs)--essentially precautionary standby arrangements with large and frontloaded access. The
Fund's concessional lending capacity was doubled, in line with the G20 call for $6 billion in new lending to low-income
countries over 2-3 years, with windfall profits from IMF gold sales helping to fund concessional lending.
Jha and Saggar (2001) argued that the financing role of the IMF should be central to the international monetary system of the
less developed countries. The authors found that (1) the reliance on IMF loans is steadily increasing for developing countries
and has been falling only for OECD countries, (2) The response of IMF loans to macroeconomic variables of different countries
varies considerably, and (3) The key macroeconomic magnitudes for determining IMF loans, sometimes are insignificant and
provide wrong signs. They conclude that there exists arbitrariness in IMF loan programs.
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IHART - Volume 23 (2012)
Policies within the IMF are hard to implement because of the ramifications that it will have for certain countries involved.
Countries involved in international agreements are governed by different laws. There are many initiatives that have been
established by International Monetary Fund to help eliminate bribery to of a foreign public official a crime under the respective
country’s law (Department, 2001). It seems rather tough with some countries to eliminate all bribery because of the number of
countries involved with different laws governing them. Then again, bribery and corruption is often viewed in developing
countries, “in whose opinion?” See Exhibit D
It is difficult to apply these ethical laws to maintain the international monetary system equilibrium when the governments are
officially implicated in the corruption. As the international monetary fund operates to maintain order in the international
monetary system to strive against any type of world corruptions, they focus on a code of conducts to regulate nations (Hill
2010, p369). It is true it is more difficult to maintain this equilibrium in under development countries. However, they are
seriously concerned to protect the world against series of phenomenon such as the exchange rate system, corruption, poverty,
political conflicts, wars, and so on in order to maintain this significant monetary system equilibrium, to generate wealth, and
promote wellbeing.
However, though the plan was implemented with great intentions, there was great division among the public, politicians, and
media in many of the countries. Though peace was the common goal, war amongst them was the center of attention, as well
as, becoming key targets of the anti-globalization movement. The United States especially were suspicious of international
control of their sovereign economic policy. Also, the U.S. and British delegations, who were the leading countries at the
conference, stated that their home governments had to politically agree and ultimately endorse any plans. The main problem
was that many people did not understand the speech of monetary policy and therefore, had great concern for its ability to
succeed. Consequently, the negotiations at the conference were arguable. Countries were concerned about the steadiness of
power within the organizations according in their amount of offerings of gold to the IMF and their ability to draw from the IMF
(their “quotas”). This is why the policy is difficult to implement (www.imf.org; www.worldbank.org)
The countries do not conceive the codes of ethics and the standard of values the same manner to stabilize their economics
and monetary systems. The IMF has to strive to impose on to all its members this code of conducts to maintain the monetary
equilibrium system, to promote the growth of rich countries while stimulating the development of the poor ones. The essential,
the world has to avoid the crises of 1930 and 1973, the two World Wars, and provide wellbeing so that people can live in safe
and abundant world (Good Governance, 1997).
The designing and the implementation of the international standards of value as the gold standard, the Breton woods System,
and the fixed exchange rate system can be considered as crucial means to control the international trades and exchanges.
These values and codes of conducts are modified over time while remaining a significant base of regulation to avoid conflicts
and wars. The international relations have to be discipline and flexible to meet the expectations of any countries to live in a
harmonious and prosperous world. The essential, poor or rich nations have to apply the IFM’s requirements to stabilize their
monetary system while gaining advantages of the world bank’s tasks to promote their economic development to provide wealth
and wellbeing to their populations (Hill 2010, p367).
The two main concerns from economists have been that monetary support is constantly bound to specific conditions such as
the Structural Adjustment Program (SAP). Experts also maintain that the conditions (monetary routine objectives that are
recognized as a prerequisite for IMF credit) hinder shared constancy and, therefore, reduce the acknowledged objectives of the
IMF, while Structural Adjustment Programs augment poverty in beneficiary countries (IMF, 2010).
Their primary objective is to obtain global monetary cooperation, secure financial stability, help conduct international trade, find
measures to reduce unemployment, and sustain economic growth and ultimately reduce poverty around the world. IMF
pursues its goals through its economic surveillance, and keeps track of the economic health of the member countries, and
thereby alerts them about any unforeseen risks, provides policy advice and lends money in difficulty and also provides
technical assistance and training to help countries improve economic management (img.org).
Difficult challenges face the global economy and organizations such as the IMF who aid in the scrutiny of the international
economic guidelines. The challenge for the IMF is to successfully bring their policies into compliance with economic reason,
which argues in opposition to boundaries despite the character of their transactions. According to the IMF website, “The
current prospective of the world economic environment, capital movements have established both a permanent and prominent
presence”, and have added to the difficulties of implementing changes on a global level (IMF, 2010). It is important to
The Current Issues Facing the International Monetary Fund (IMF) and Nations Borrowing with Inability to Repay Loans
understand that employing any strategy on an international level is complicated due to the conflict of interest from country to
country (IMF, 2010).
The World Bank and the IMF have set forth time and resources to combat fraud and corruption with one of the most powerful
weapons available – money. This is quite a challenge for both entities as bribery is estimated to be a trillion dollar a year
enterprise (World Bank, 2004). The problem of corruption not only includes the actual corruption but also creates hurdles in
reducing poverty, inequality and infant mortality in those economies. Simply put, controlling corruption will increase income per
capita. The World Bank has even published a list of firms that have been implicated in questionable business practices and
have declared them as ineligible.
One of the most difficult tasks of promoting the OECD Anti-Bribery Convention was the enforcement of the policies contained
within it. The Convention holds that each government is responsible for enforcing the rules on themselves. When the progress
report was last taken, only four governments (Germany, Norway, Switzerland and the United States) are actively enforcing the
rules. Twenty-one countries that are involved have little or no enforcement. Reasoning varies from funding constraints to
security concerns within the countries however if there is ever going to be applicable constraints and punishments, these
reasons must be overcome (Financial Integrity and Economic Development, 2009). See Exhibit D
A key message of the Fund's analysis is that exit strategies need to be clearly articulated and crisis-related assets and
liabilities on public balance sheets be managed in a way that protects the long-term interests of taxpayers while allowing
beneficiaries to return to viability soon. The Fund also has stressed the need to reestablish clarity in the policy assignments
across public institutions, by transferring quasi-fiscal operations of the central bank to the government, so as to avoid any
impairment of the central bank balance sheet that could affect its ability to implement monetary policy effectively (Xafa, 2010).
With the difficult and uncertain outlook pointing to a protracted global recession, the IMF's managing director called for global
fiscal stimulus in early 2008, thus helping the global economy avoid a Great Depression (IMF 2008b). The Fund also took the
lead in providing thoughtful and timely papers on exit strategies from crisis-related measures to support economic activity and
safeguard financial stability (IMF 2009f). Fiscal risks have risen substantially due to financial sector support, fiscal stimulus, and
declines in the price of assets acquired from the private sector through swaps or outright purchases. Given their scale, these
interventions could add significantly to public debt levels in the advanced countries. Now that a systemic collapse has been
averted and markets are normalizing, attention is therefore focusing on exit strategies from exceptional support to safeguard
fiscal sustainability and avoid a buildup of inflation pressures. World leaders at the G20 summit in Pittsburgh in September
2009 pledged to maintain policy support until a durable recovery was secured. The IMFC reiterated this pledge at its October
2009 meeting and instructed the Fund to report at its next meeting in April 2010 on how best to coordinate exit strategies so as
to avoid regulatory arbitrage and protectionist measures (Xafa, 2010).
Christine Lagarde, the Managing director of the international monetary fund told the Associated Press (Butler, 2012) that “the
IMF has about $400 billion in resources that it can use to provide loans to countries in trouble. She wants to expand those
resources to close to $1 trillion, of which 17 countries using the euro already have promised to provide $200 billion of that
amount” (IMF.org, 2012).
Past efforts by the Fund to be more flexible failed in part because weak loan conditions often were followed by weak national
economic policies, and in part because the conditions were still considered to be stigmatic. Finding the right balance between
discipline and flexibility is bound to be an ongoing test. The year 2010 was—finally—the year of IMF reform. Dominique
Strauss-Kahn, the IMF’s Managing Director. According to Boughton (2010) and (IMF, 2011), there are three major changes
that have been agreed to with the IMF and it will be difficult to make effective but a blessing if implemented.
1. For the first, the fast-growing emerging market countries will have a bigger say in how the institution is run and how it
interacts with its membership. The combined voting power of the United States and the current European Union members
will fall below 50 percent. He stated, “These changes will be difficult to complete because they require sensitive political
commitments by several countries.”
2. The institution has become much more flexible in the way it lends money. When the IMF made its first loans in 1947, it
had just one technique: an immediate currency swap (the borrower’s domestic currency exchanged for a convertible
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IHART - Volume 23 (2012)
currency, usually U.S. dollars). He continues to note, “It gradually expanded the repertory to include stand-by
arrangements, extended (larger and longer term) arrangements, more favorable terms for loans to cover commodity price
shocks or loans to low-income countries, and other special-use facilities.”
3. Third, the general financial resources of the IMF, which usually have been quite scarce in relation to member countries’
financing needs are to be doubled. That increase, however, is to be matched by a rollback in the Fund’s standing
borrowing arrangements. The main immediate effect of this reform, therefore, will not be to increase the amount that the
IMF can lend, but rather to reduce the need for the Fund to borrow from creditor countries to finance large lending
The new goal of the reform are to improve the Fund’s ability to avert financial crises and to respond more flexibly to borrowers’
needs. can lend, but rather to reduce the need for the Fund to borrow from creditor countries to finance large lending
operations. The challenge in coming years will be to ensure that the IMF’s resources are adequate, are used well, and do not
become a substitute for the difficult policy reforms that can be made only when manifestly necessary. One major ongoing effort
is for any future competition for the leadership of the IMF to become more open (Broughton, 2010).
All evidence suggests, as long as the IMF continues playing the role of an international bailout agency, it will continue
disrupting relations between creditors and debtors. It is also noted that in the foreseeable future, citizens of the developing
world will have to contend with episodes of severe financial crisis. These crises demonstrated the need for prudential measures
to reduce balance sheet mismatches and exposure to exchange rate risk, as well as other vulnerabilities associated with large
capital inflows. A strong case can be made that, in addition to the envisaged expansion of the Fund's surveillance mandate
beyond exchange rates to macro-financial stability, the Fund should be given a clearer mandate on financial flows and the
capital account (Xafa, 2010). It is suggested that exit strategies need to be clearly articulated to avoid impairment that could
prevent the implementation of monetary policy effectively (Xafa, 2010).
The exercise is designed to detect underlying vulnerabilities, such as excessive leverage, risk concentrations, credit growth,
currency and maturity mismatches, which could undermine financial stability (Ghosh, Ostry, and Tamirisa 2009). The objective
is to communicate these risks to policymakers sufficiently early and convincingly to prompt corrective action that would help
contain crisis risks. Based on a statement made by Olivier Blanchard,” “While we remain cautiously optimistic about the pace of
recovery, there are clearly dangers ahead,” said Blanchard. “How Europe deals with fiscal and financial problems, how
advanced countries proceed with fiscal consolidation, and how emerging market countries rebalance their economies, will
determine the outcome.” There is no doubt that many countries have recovered from difficult periods due to the benefits of IMF,
but there are imbalances such as economic growth and recovery are obstacles. Recession is global- wide, with challenging
periods that will take vigorous fiscal, financial and reform efforts before we see growth (Clift, 2010).
In retrospect, the financial crisis was a failure of regulation and of market discipline that would not have been addressed by a
correction in the global imbalances.” Although the IMF should be applauded for its efforts, given the fragmented nature of the
convention itself, it is most likely a lost cause. The IMF often recommends that country devalue its currency and try to export
more. However, many developing countries tend to export agricultural products and raw materials for which the demand is
very elastic. It is very possible that the country can increase exports considerably by devaluing its currency and thus making its
products cheaper. But, it may experience a marginal increase in foreign exchange. The objective of the IMF should be to seek
the appropriate balance between cutting spending and fostering growth. The IMF should also seek to devise more customized
programs based on the unique needs of the country rather than the one-size-fit all programs that it currently pursues.
Experts believe that policies like the IMF are hard to implement because of the ramifications that it will have for certain
countries involved. Countries involved in international agreements are governed by different laws. Countries that benefit
financially are hurting their own economies of scale whether it is a legal or illegal transaction.
There are many initiatives that have been established by International Monetary Fund to help eliminate bribery of foreign public
officials - a crime under the respective country’s law (Department, 2001). In my opinion, it is tough with so many countries to
eliminate all bribery because of the number of countries involved with different laws governing them.
Anderson, C. (2008). Iceland Gets Help to Recover
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Acharya, V., and Schnabl, P. (2009) “Do Global Banks Spread Global Imbalances? The Case of Asset-Backed Commercial
Paper during the Financial Crisis of 2007–09.” Paper presented at the 10th Jacques Polak Annual Research Conference
hosted by the IMF, Washington, November 5–6.
Bedford, P., Penalver, A., and Salmon, C. (2005), 'Resolving sovereign debt crises: the market-based approach and the rote
of the IMF', Bank of England, Financial Stability Review. June, pages 91-100.
Bernanke, B. S. (2005) “Remarks at Sandridge Lecture.” Virginia Association of Economics, “The Global Saving Glut and the
U.S. Current Account Deficit.” Richmond, Va. (March).
Birch, N. (2009, May 29). World News: Turkey Defies IMF Demand For Austerity. Wall Street Journal (Eastern
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Borrowed from www.imf.org
Borrowed from www.imf.org
Borrowed from www.imf.org
Borrowed from www.imf.org
H. C. Hartman
IHART - Volume 23 (2012)
Harrison C. Hartman
Emory University, USA
This study finds an Okun’s-law-type relationship between real GDP growth and unemployment rates in the United States. But,
which variable should be the dependent variable? Some (for example, Knotek (2007) and Gordon (2010)) use a measure of
either the employment rate or the unemployment rate as the dependent variable on the left side of the equation. But others (for
example, Dornbusch, Fischer, and Startz (2008, p. 135)) place a measure of real GDP on the left side of the equation. A
possible benefit of the percentage change in real GDP as the dependent variable is that the relationship found between the
growth rate in real GDP and the change in the unemployment rate is closer to the one anticipated by a current interpretation of
Okun’s law, as in Dornbusch, Fischer, and Startz (2008, p. 135). In that case, all other things equal, a one per cent increase in
the unemployment rate is associated with approximately a two per cent decrease in real GDP. Another possible benefit of the
percentage change in real GDP as the dependent variable is that regardless of whether the full sample period or a sub-sample
period is considered, the same number of lagged values minimizes the Schwarz (1978) criterion in all cases considered. A
benefit of using the change in the unemployment rate as the dependent variable is that it appears more consistent with the
view that changes in unemployment rates are lagging indicators. With the change in the unemployment rate as the dependent
variable, a one per cent increase in the real GDP growth rate is accompanied by approximately a 0.40 per cent decrease in the
unemployment rate. Thus, an increase in the growth rate of real GDP of roughly 2.5 per cent would be required, all other things
equal, to reduce the unemployment rate by 1 percentage point. However, in some cases considered, a Wald test fails to reject
the null hypothesis that a one per cent increase in real GDP is accompanied by a one-third-of-one-per-cent reduction in the
unemployment rate, which according to Gordon (2010) was one of the original findings of Okun in the 1960s. Gordon (2010)
finds evidence of structural change in the U.S. economy occurring in 1986. While the present study uses a methodology
different than Gordon (2010), the present study possibly also finds some evidence of structural change in the U.S. economy
around that time. However, the present study finds little, if any, change in the relationship between the growth rate of real GDP
and changes in the unemployment rate during the same year when comparing results from an earlier sub-sample period
ending with 1986 and from a later sub-sample period beginning in 1987, regardless of whether the percentage growth rate of
real GDP or the change in the unemployment rate is the dependent variable. Future work could address whether a change in
the relationship between real GDP growth and unemployment rates occurred around the time of the most recent U.S.
recession. More work could also be done considering the benefits of each variable serving as the dependent variable.
Keywords: Okun’s Law, Macroeconomics, Real GDP, Unemployment Rates.
This study is inspired by Okun’s law and recent economic data related to increasing real GDP and declining unemployment
rates. One way of stating Okun’s law is to say that a one per cent increase in the unemployment rate is associated with a two
per cent reduction in real GDP. (Dornbusch, Fischer, and Startz, 2008, p.148) However, Okun’s law can also be written to state
that a one per cent increase in the unemployment above its natural rate is accompanied by a reduction of real GDP below its
trend by two per cent. (Dornbusch, Fischer, and Startz, 2008, pp. 135, 148) Knotek (2007) also notes that there is more than
one way to state Okun’s law. According to Knotek (2007), Okun’s law is an empirical finding that may change.
Gordon (2010) notes that Okun originally found that a one percent decrease in the output gap could be decomposed into a
0.33 percentage point decrease in real GDP per hour of labor, a 0.33 percentage point decrease in the rate of employment,
and a 0.17 per cent decrease in both total hours of work divided by the number of employees and the labor force divided by the
population (working age). Thus, as Wikipedia notes, Okun originally found that a three per cent increase in real GDP was
associated with a one percentage point decrease in the unemployment rate. (en.wikipedia.org/wiki/Okun’s_law)
According to Wikipedia, using quarterly data from 1947 through 2002, the per cent change in real output (not annualized) in the
U.S. equals -1.827*(Ut – Ut-1) + 0.856, where Ut – Ut-1 represents the change in the unemployment rate.
(en.wikipedia.org/wiki/Okun’s_law) (While the graph depicting this relationship states that GDP is the measure of output, the
equation lists GNP as the output measure).
H. C. Hartman
IHART - Volume 23 (2012)
Data from economagic.com show that real GDP in the U.S. economy has returned to growth following the recession of 2008
and 2009. However, data from economagic.com and the author’s calculations also show that real GDP growth in the current
recovery has been less than during many other recoveries, and unemployment rates have been declining slowly. Based on
data from economagic.com and the author’s calculations, the accumulated annual percentage growth rate of real GDP in 2010
and 2011 was approximately 4.8 per cent, while monthly unemployment rates have fallen by 1.7 percentage points from
October 2009 through January 2012. Based on these events, does the Okun’s law relationship between real GDP and
unemployment rates still hold? Policymakers could benefit from an improved understanding of Okun’s law to help them
determine if additional policy changes will be necessary to decrease the unemployment rate further.
Despite the fact that Okun’s law was first proposed in the 1960s, it is still being discussed today. Mitchell and Pearce (2010) list
a reference for Okun’s law as being originally from 1962. See Mitchell and Pearce (2010) for the reference. In this article, the
findings of Mitchell and Pearce (2010) include that economists surveyed by the Wall Street Journal believe that real growth in
GDP is less sensitive to changes in the unemployment rate than the sensitivity implied by Okun’s law.
Knotek (2007) uses the change in the unemployment rate as the dependent variable and finds that the relationship between
unemployment rates and real GDP growth has varied a lot with the passage of years. Knotek (2007) also finds that as long as
the limitations of Okun’s law are considered, Okun’s law can be helpful.
Gordon (2010) lists a reference for Okun as being from 1965. See Gordon (2010) for the reference. In his study, Gordon (2010)
rewrites output as real GDP divided by hours, hours divided by the number of employees, the number of employees divided by
the labor force, the labor force divided by the number of those of working age, and those of working age. (The unemployment
rate would then be inversely related to the number of employees divided by the labor force.) These fractions and those of
working age are multiplied together to equal real GDP. Gordon (2010) uses the output gap rather than the percentage growth
rate in real GDP. Findings of Gordon (2010) include that beginning in 1986, real GDP per hour of labor changes much less, if at
all, with the business cycle, and that changes in the employment rate vary more with changes in real GDP compared with its
trend beginning in 1986.
Monthly unemployment rate data (seasonally adjusted) were found on economagic.com as of April 5, 2012. The unemployment
rate data probably correspond with the U3 measure of unemployment compiled by the Bureau of Labor Statistics. Discouraged
workers, or those who gave up looking for work due to the low probability of finding a job and last sought a job more than four
weeks ago, are not counted in the work force and are not counted as unemployed by the Bureau of Labor Statistics.
(Dornbusch, Fischer, and Startz (2008), p. 150)
Real GDP data (quarterly, seasonally adjusted) were found on economagic.com as of April 7, 2012. Real GDP is measured in
billions of chained 2005 dollars.
The unemployment data were converted to annual data by averaging the twelve months of data in each year. The quarterly
real GDP data were converted to annual data by averaging the four quarters of data in each year. The use of annual data is
likely to better match the data in a figure in Dornbusch, Fischer, and Startz (2008, p.148), although it is not completely clear
that this figure uses annual data.
This study focuses on the interpretation of Okun’s law as the relationship between the change in the unemployment rate and
the percentage change in real GDP (rather than the unemployment rate compared with its natural rate and real GDP compared
with trend real GDP). Thus, this study calculates the change in the annual average unemployment rate and the percentage
change in real GDP from one year to the next. Phillips-Perron (1988) unit root tests verify that the variables after transformation
are stationary or I(0). Thus, the study does not need to worry about spurious regressions as discussed in Hamilton (1994, pp.
Model Selection
The study will use ordinary least squares regressions with either the change in the unemployment rate or the percentage
growth rate of real GDP as the dependent variable. In each regression, the dependent variable is a function of a constant term,
What is the Dependent Variable in the Okun’s Law Relationship Between Real GDP Growth and Unemployment Rates in the U.S.?
at least one lagged change in the unemployment rate, at least one lagged percentage change in real GDP, and the value of the
other variable within the same year. After running regressions with zero through five lags of both the change in the
unemployment rate and the percentage change in real GDP, the study selects the model that produces the lowest Schwarz
(1978) criterion (or SC), provided that serial correlation does not seem to be a problem. In most cases, this is the model with
two lags, regardless of whether the dependent variable is the change in the unemployment rate or the percentage change in
real GDP, or whether the regression spans the full sample period or a sub-sample period. Schwarz (1978) criteria statistics are
in Tables 8 and 9 in the Appendix, with the results assuming that U is the dependent variable in Table 8 and the results with Y
as the dependent variable in Table 9.
If my understanding of Knotek (2007) is correct, Knotek (2007) uses two lags of quarterly data in at least some of the
regressions his study based on minimizing a different information criterion. A potentially important difference is that Knotek
(2007) uses quarterly data for some of the regressions, while the present study uses only annual data, although many of the
regressions in the present study are somewhat similar to at least some of those in Knotek (2007).
Due to the emphasis on estimating the relationship between unemployment rates and real GDP within the same year, for
convenience, when the change in the unemployment rate is the dependent variable (as in Tables 1, 2A, 2B, and 3), the growth
rate of real GDP within the same year is the first variable listed in the tables to follow. Likewise, when the growth rate of real
GDP is the dependent variable (as in Tables 4, 5, and 6), the first variable listed in the table is the change in the unemployment
rate within the same year. In all cases considered, either the value of the real GDP growth rate (in Tables 1, 2A, 2B, and 3
where the change in the unemployment rate is the dependent variable) or the value of the change in the unemployment rate (in
Tables 4, 5, and 6 where the real GDP growth rate is the dependent variable) is statistically significant at not only the five per
cent level but also at the one per cent level.
Table 7 in the Appendix presents results from Breusch-Godfrey serial correlation LM tests available in EViews not only for the
regression in Table 1 over the full sample period with two lags of Y and U. Breusch-Godfrey LM test results for the regressions
in Tables 2A, 2B, 3, 4, 5, and 6 also appear in Table 7 in the Appendix. Serial correlation does not seem to be a problem based
on the test statistics (which are Chi-squared distributed) for at least the first ten lagged errors, as the tests would fail to find
serial correlation at the five per cent level. The only possible evidence of serial correlation found by this study is discussed
briefly in the Appendix, but again, it does not appear to be a problem. See Hamilton (1994, pp. 225-7) for more on serial
However, the results of the current study should be interpreted with caution for several reasons. One reason is that the study
cannot claim complete immunity from serial correlation given that the serial correlation tests were for a maximum of ten lagged
residuals. It is possible that serial correlation could be found if a larger number of lagged residuals were included in the tests.
Another reason is that by focusing on just the growth rate of real GDP and the change in the unemployment rate, an omitted
variables problem may exist.
Possible Advantages of Using Either U or Y as the Dependent Variable
Does it matter whether the change in the unemployment rate or the growth rate of real GDP is the dependent variable? Knotek
(2007) and Gordon (2010) use a measure of either the unemployment rate or the employment rate as the dependent variable
in at least some of their work. However, Dornbusch, Fischer, and Startz (2008, p. 135) and Wikipedia
(en.wikipedia.org/wiki/Okun’s_law) place a measure of real GDP on the left side of the equation.
According to Dornbusch, Fischer, and Startz (2008, p. 152), changes in the unemployment rate are often considered as a
lagging indicator of economic activity. In that case, it may be more appropriate to use the change in the unemployment rate as
the dependent variable. One possible benefit of using the percentage growth rate of real GDP as the dependent variable is that
in all cases considered (the full sample period and the two sub-sample periods), two lags of Y and U minimize the SC. This
was not the case when using the change in the unemployment rate as the dependent variable. Another possible benefit of
using the percentage growth rate of real GDP as the dependent variable is that the results are closer to a current version of
Okun’s law. Given possible benefits of using either variable as the dependent variable, the study considers results using each
variable as the dependent variable.
H. C. Hartman
IHART - Volume 23 (2012)
Results with the Change in the Unemployment Rate as the Dependent Variable
Table 1 shows some of the results from EViews of an ordinary least squares regression of the annual change in the
unemployment rate (U) on the percentage change in real GDP in the same year as the change in the unemployment rate (Y),
the percentage change in real GDP in each of the previous two years (Y(-1) and Y(-2)), the change in the unemployment rate
in each of the previous two years (U(-1) and U(-2)), and a constant term. The adjusted R-Squared statistic of more than 0.81
implies that the terms on the right-side of the regression equation forecast well the change in the unemployment rate in the
sample period.
Note that the estimated coefficient of approximately -0.42 in Table 1 for Y, the value of the percentage change in real GDP in
the same year as the change in the unemployment rate, is roughly equal to -0.5, which is the value that would be predicted by
the current interpretation of Okun’s law. Yet, a Wald coefficient test statistic of 7.743262 (which is Chi-Squared distributed with
one degree of freedom) and an associated probability of 0.0054 would reject the null hypothesis that the actual coefficient on Y
is -0.50. With a probability of 0.0023, the Wald test statistic of 9.259514 would reject the null hypothesis that the actual
coefficient for Y is -0.33, the value originally found by Okun according to Gordon (2010).
As in regressions to follow in Tables 2A, 2B, and 3, the percentage growth rate in real GDP in a year (Y) in the regression in
Table 1 appears to have a statistically significant impact on the change in the unemployment rate in the same year. The only
two terms on the right-hand-side of the regression from Table 1 that are not statistically significant at the five per cent level are
Y(-1) and U(-2), the percentage growth rate of real GDP one year ago and the change in the unemployment rate two years
ago, respectively. All other things equal, it appears that overall an increase the real GDP growth rate leads to a decrease in the
unemployment rate, at least initially, based on the large absolute value of the estimated coefficient on Y (approximately -0.42)
compared with the estimated coefficients on Y(-1) and Y(-2), approximately +0.04 and +0.13, respectively. Given the positive
estimated coefficients for U(-1) and U(-2), higher unemployment rates in the past lead to higher unemployment rates in the
future, ceteris paribus.
Table 1: Regression with the Change in the Unemployment Rate as the Dependent Variable
Full Sample
Std. Error
Adjusted R-Squared
Recall that Gordon (2010) finds evidence of a structural change in 1986. Thus, for further econometric analysis, the sample
period in this study is divided into two parts: one ending in 1986 and the other beginning in 1987. (Given that Gordon (2010)
uses quarterly data and the structural break in his study is in the first quarter of 1986 (if my understanding is correct), it may not
be possible to divide the sample period in the current study at exactly the same time as in Gordon (2010).)
Perhaps it is worth noting that with the sub-sample ending in 1986, the model with just one lag of Y and U (combined with the
value of Y in the same year as U (the dependent variable) and a constant term) minimizes the SC, despite the fact that two
lags minimize the SC for the full sample (whether U or Y is the dependent variable) and the sub-sample beginning in 1987
(again, whether U or Y is the dependent variable). Could this be evidence of a structural change as found in Gordon (2010)?
Given these findings and that the model with two lags also minimizes the SC for the sub-sample ending in 1986 but with Y as
the dependent variable, the present study also presents for comparison purposes regression results from the model with U as
the dependent variable and with two lags of Y and U.
Table 2A presents results for the sub-sample ending with 1986 assuming that U is the dependent variable and using one lag of
Y and U. The results in Table 2B are from a regression with the same assumptions as in Table 2A except that the model in
Table 2B has two lags.
What is the Dependent Variable in the Okun’s Law Relationship Between Real GDP Growth and Unemployment Rates in the U.S.?
Table 2A: Regression (One Lag of Y and U) with the Change in the Unemployment Rate as the Dependent Variable
Sample Ending with 1986
Std. Error
Adjusted R-Squared
Table 2B: Regression (Two Lags of Y and U) with the Change in the Unemployment Rate as the Dependent Variable
Sample Ending with 1986
Std. Error
Adjusted R-Squared
From the perspective of the impact of an increase in the real GDP growth rate on the change in the unemployment rate in the
same year, it seems to matter little, if at all, whether one lag or two lags of Y and U are used in the regression, as the estimated
coefficients for Y are roughly equal in Tables 2A and 2B. The Wald test statistic of 0.528955 with an associated probability of
0.4670 (for the equation with only one lag of Y and U as in Table 2A) fails to find a statistically significant difference between
the estimated coefficient for Y (-0.381971 as shown in Table 2A) with only one lag of Y and U in the regression equation versus
the estimated coefficient for Y (-0.408101 as shown in Table 2B) with two lags of Y and two lags of U in the regression
equation. In both of the cases from Tables 2A and 2B, the estimated coefficients of approximately -0.40 for the impact of the
percentage growth rate in real GDP on the unemployment rate are very close the +0.40 coefficient estimated by Gordon (2010)
for the impact of the output gap on the employment rate between the first quarter of 1963 and the first quarter of 1986.
(Because Gordon (2010) uses the employment rate rather than the unemployment rate, the reader should expect the
coefficient in the current study to have the opposite sign.)
With a probability of 0.1480, the Wald test statistic of 2.092545 for the sub-sample ending with 1986 and only one lag of Y and
U in the model would fail to reject the null hypothesis at the five and ten per cent levels that the actual coefficient for Y equals 0.33. However, for the sub-sample ending with 1986 but with two lags of Y and U in the model, the Wald test statistic of
4.249450 with an associated probability of 0.0393 rejects the null hypothesis that the coefficient for Y equals -0.33.
The Wald test for the estimated coefficient for Y in Table 2A fails to find a difference in the estimated coefficient for Y from the
full sample regression in Table 1. The Wald test statistic is 1.05069 with a probability of 0.3053. Results not included here lead
to qualitatively similar results for the Wald test applied to the version of the model with two lags as in Table 2B. Additionally, the
Wald test statistic for the sub-sample ending with 1986 with one lag of Y and U in the model (10.79254 with an associated
probability of 0.0010) and for the sub-sample ending in 1986 but with two lags of Y and U in the model (5.883542 with an
associated probability of 0.0153) both reject the null hypothesis that the actual coefficient is -0.50.
Regardless of whether one lag or two lags of Y and U are included, the null hypothesis that the coefficients on any of the
lagged values of Y and U in Tables 2A and 2B are equal to zero cannot be rejected at either the five per cent level or the ten
per cent level. Perhaps the main difference between the results from Table 2A and Table 2B is that the estimated constant is
larger in Table 2A. Other differences include that with just one lag of Y and U, the estimated coefficient for Y(-1) is significant at
the thirteen per cent level (although clearly not significant at the five or ten per cent levels), but it is not close to being
significant in the model with two lags of Y and U in Table 2B. Y and C are statistically significant at the five per cent level with
one lag (Table 2A) and with two lags (Table 2B).
Results from Table 3 also show great similarity in the estimated coefficient for Y (-0.397204) if the sample period begins in
1987 compared with the estimated coefficients for Y in Tables 1 (the full sample), 2A (the sample period ending with 1986, one
lag of Y and U in the model), and 2B (the sample ending with 1986, two lags of Y and U in the model). The Wald test statistic of
0.118769 with an associated probability of 0.7304 fails to reject the null hypothesis that the estimated coefficient for Y is equal
H. C. Hartman
IHART - Volume 23 (2012)
to -0.381971, the estimated coefficient with the sample ending in 1986 as in Table 2A. Another Wald test statistic of 0.060783
with an associated probability of 0.8053 fails to reject the null hypothesis that the estimated coefficient for Y in Table 3 is
actually -0.408101, as was estimated in Table 2B.
Yet another Wald test that the coefficient for Y equals -0.33 is not rejected at either the five per cent or ten per cent levels for
the sub-sample beginning in 1987. The Wald test statistic for this test is 2.311716, with a probability of 0.1284. Hence, if
structural change has occurred, this study does not find evidence of a change based on the relationship between the
percentage growth rate of real GDP and the change in the unemployment rate within the same year. As with the cases
considered in Tables 1, 2A, and 2B, the Wald test statistic (5.408823 with an associated probability of 0.0200) rejects the null
hypothesis that the actual coefficient for Y in Table 3 is -0.50.
The reader may wish to note that the estimated coefficient for U(-1) in Table 3 is statistically significant at the ten per cent level.
This was not the case in either Table 2A or 2B. This finding, combined with a much smaller estimated constant, could be
evidence of a structural change as found by Gordon (2010).
Table 3: Regression with the Change in the Unemployment Rate as the Dependent Variable
Sample Beginning with 1987
Std. Error
Adjusted R-Squared
Results with the Percentage Growth Rate of Real GDP as the Dependent Variable
Tables 4, 5, and 6 present regression results with the growth rate of real GDP as the dependent variable. Table 4 displays
results over the full sample period, while Table 5 displays results with the sample period ending with the year 1986, and Table
6 shows results for the sample period beginning with 1987.
Recall the finding that the percentage growth rate of real GDP has a statistically significant impact on the change in the
unemployment rate within the same year in all cases considered with the change in the unemployment rate as the dependent
variable. Similarly, the change in the unemployment rate has a statistically significant impact on the percentage growth rate of
real GDP within the same year in all cases considered where the percentage growth rate of real GDP is the dependent
variable. But, in percentage terms, the estimated coefficients for U (the change in the unemployment rate in the same year as
the percentage change in real GDP, the latter on the left side of the equation) with Y as the dependent variable are much
closer to the value of -2.0 that is consistent with the current version of Okun’s law than the estimates from Tables 1, 2A, 2B,
and 3 are to the -0.50 that would be implied by that version of Okun’s law. While the estimated coefficients in Tables 1, 2A, 2B,
and 3 are at least sixteen per cent greater than or less than -0.50, none of the coefficients estimated for U in Tables 4, 5, and 6
are more than six per cent greater than or less than -2.0.
Further, over the full sample period with Y as the dependent variable, the Wald test statistic of 0.773007 with an associated
probability equal to 0.3793 fails to reject the null hypothesis that the coefficient for U is -2. Additionally, for the first sub-sample
period ending with 1986 and for the second sub-sample period beginning with 1987, the Wald test statistics (0.086108 for the
first sub-sample, 0.028200 for the second sub-sample) both fail to reject the null hypothesis that the coefficient for U is actually
-2. The probabilities associated with the Wald test statistics are 0.7692 for the first sub-sample and 0.8666 for the second subsample. Hence, a possible benefit of using the percentage growth rate of real GDP as the dependent variable is that the
estimated coefficients more closely adhere to those in the modern version of Okun’s law. Results not included here reject the
null hypothesis that in the equation for the percentage growth rate of real GDP, the estimated coefficient for change in the
unemployment rate in the same year is actually -3 whether the full sample period (as in Table 4) or either sub-sample period
(ending with 1986 as in Table 5 or beginning with 1987 as in Table 6) is used.
The study cannot conclude that a change in the coefficient estimated for U has occurred. With a Wald test statistic of 0.458310
and an associated probability of 0.4984, the study fails to reject the null hypothesis that during the second sub-sample
beginning in 1987, the coefficient is actually -1.884548, which was the estimated coefficient over the full sample. Similarly, with
What is the Dependent Variable in the Okun’s Law Relationship Between Real GDP Growth and Unemployment Rates in the U.S.?
a test statistic of 0.161440 and a probability of 0.6878, the Wald test fails to reject the null hypothesis that the coefficient
estimated for the sub-sample beginning in 1987 is actually -1.94696, the estimated coefficient for the sub-sample ending with
1986. Thus, the study finds no evidence of a change in 1986 in the relationship between the change in the unemployment rate
and the percentage growth rate of real GDP within the same year.
Over the full sample period, all terms in Table 4 except U(-2), the change in the unemployment rate from two years ago, are
statistically significant at the five per cent level. Only the change in the unemployment rate within the same year as the
percentage growth rate of real GDP on the left side of the equation is estimated to have a negative impact on the real GDP
growth rate.
Table 4: Regression with the Growth Rate of Real GDP as the Dependent Variable
Full Sample
Std. Error
Adjusted R-Squared
Table 5: Regression with the Growth Rate of Real GDP as the Dependent Variable
Sample Ending with 1986
Std. Error
Adjusted R-Squared
Table 6: Regression with the Growth Rate of Real GDP as the Dependent Variable
Sample Beginning with 1987
Std. Error
Adjusted R-Squared
For the sub-sample period ending with 1986 (with Y as the dependent variable), the only terms statistically significant at either
the five per cent level or the ten per cent level are the change in the unemployment rate in the same year as the growth rate of
real GDP and the constant term. The change in the unemployment rate from one year ago would be statistically significant at
the eleven per cent level but not the ten per cent level. Regarding statistical significance, the results are qualitatively similar for
the sub-sample beginning with 1987 as shown in Table 6, except that U(-1) is statistically significant at the ten per cent level
(and at the seven per cent level), and that the constant term in Table 6 is significant at the seven per cent level but not the five
per cent level.
Limitations of the Study
This study is intended as an initial step in investigating the relationship between the change in unemployment rates and the
growth rate of real GDP in the United States. The findings could be sensitive to the use of annual data rather than quarterly
H. C. Hartman
IHART - Volume 23 (2012)
data. Work is underway to see if dividing the sample period into an earlier sub-sample period ending with 1985 (rather than
1986) and a later sub-sample period beginning in 1986 (rather than 1987) would have much of an impact on the results. With
annual data, insufficient observations exist to employ a Chow Breakpoint test to see if a structural change occurred in 2008 or
2009 in conjunction with the recent recession. The use of quarterly data in the future could produce sufficient observations to
test for a structural change occurring at some point in 2008 or 2009. Perhaps a vector autoregression model could better allow
both the real GDP growth rate and changes in the unemployment rate to impact each other within the model.
This study finds support for the current interpretation of Okun’s law in its form that a one per cent increase in the
unemployment rate is accompanied, all other things equal, by approximately a two per cent decrease in the percentage growth
rate of real GDP with the percentage growth rate of real GDP as the dependent variable. With the change in the unemployment
rate as the dependent variable, a one per cent increase in the growth rate of real GDP is accompanied by a decrease in the
unemployment rate of roughly 0.40 percentage points. In some cases considered, the study cannot find a statistically
significant difference between the estimated coefficients for the impact of the growth rate of real GDP on the change in the
unemployment rate within the same year of approximately -0.40 and the value of -0.33. According to Gordon (2010), the latter
value would be consistent with Okun’s findings.
Given possible benefits of using both the change in the unemployment rate and the percentage growth rate in real GDP as the
dependent variable, the study is not ready to conclude that using one of the two variables as the dependent variable is better.
For some situations, it may be better to use one of the variables rather than the other. This could be a topic of further study.
Future work could address whether a change in the relationship between real GDP growth and changes in unemployment rates
occurred in the U.S. in 2008 or 2009. Future work could also use a vector autoregression model where both variables depend
on lagged values of each of the variables. Additionally, Granger (1969) causality tests could determine if a change in one of the
variables precedes a change in the other.
Dornbusch, R., Fischer, S. and Startz, R. (2008) Macroeconomics, 10th edition. McGraw-Hill Irwin, New York, pp. 135, 148,
150, 152.
en.wikipedia.org/wiki/Okun’s_law, Retrieved May 2, 2012
economagic.com, Retrieved April 5, 2012 and April 7, 2012, www.economagic.com
Gordon, R. (2010) ‘Okun’s law and productivity innovations’, American Economic Review Papers and Proceedings, vol. 100,
no. 2, pp. 11-5.
Granger, C. W. J. (1969) ‘Investigating causal relations by econometric models and cross-spectral methods’, Econometrica,
vol. 37, pp. 424-38.
Hamilton, J. (1994) Time Series Analysis. Princeton University Press, Princeton, New Jersey, pp. 225-7, 557-62.
Knotek, E. S. II (2007) ‘How useful is Okun’s law?’ Federal Reserve Bank of Kansas City Economic Review, vol. 92, iss. 4, pp.
Mitchell, K. and Pearce, D. K. (2010) ‘Do Wall Street economists believe in Okun’s law and the Taylor rule?’ Journal of
Economics and Finance, vol 34, iss. 2, pp. 196-217.
Phillips, P. C. B. and Perron, P. (1988) ‘Testing for a unit root in time series regression’, Biometrika, vol. 75, pp. 335-346.
Schwarz, G. (1978) ‘Estimating the dimension of a model’, Annals of Statistics, vol. 6, 461-4.
What is the Dependent Variable in the Okun’s Law Relationship Between Real GDP Growth and Unemployment Rates in the U.S.?
Table 7: Breusch-Godfrey LM Tests for Serial Correlation
Maximum of Ten Lagged Error Terms
Dependent Variable
U, One Lag of Y and U
U, Two Lags of Y and U
Sample Period
Full Sample
End with 1986
End with 1986
Begin with 1987
Full Sample
End with 1986
Begin with 1987
Test Stat
The test statistic is Chi-squared distributed with the number of degrees of freedom equal to the number of lagged errors in the
test equation. The Breusch-Godfrey LM test was conducted ten times for each case in Table 7 above, each time adding an
additional lagged error term. The purpose of conducting the test ten times is due to the observation that from results not
included here, the estimated probabilities associated with the statistical significance of residuals included in the test equation
can vary somewhat from one trial with one fewer lagged residual to the next with one additional lagged residual. Only the
results from the last test with ten lagged residuals are included in the table above.
For the case shown in the first row of Table 7 (with the change in the unemployment rate as the dependent variable and using
the full sample period as in Table 1), the residual from seven years earlier in test regressions (where the residual in the current
year is the dependent variable) used to calculate the Breusch-Godfrey LM test statistic is statistically significant at the five per
cent level when testing for serial correlation for a maximum of seven lags, eight lags, nine lags, and ten lags in results not
included here. However, the Breusch-Godfrey LM test statistic fails to reject the null hypothesis of serial correlation up to the
number of lagged errors in all of these cases.
Table 8: Schwarz (1978) Criterion Results with U as the Dependent Variable
Lags of Y and U
Full Sample
End 1986
Begin 1987
Table 9: Schwarz (1978) Criterion Results with Y as the Dependent Variable
Lags of Y and U
Full Sample
End 1986
Begin 1987
W. Quisenberry and D. N. Burrell
IHART - Volume 23 (2012)
William Quisenberry1 and Darrell Norman Burrell2,3,4
1Mid-Continent University, USA, 2Walden University, USA, 3George Mason University, USA
and 4A.T. Still University, USA
In the last 5 years, the emergence of virtual collaborative work teams has exponentially increased in organizations across the
world. The growth has been attributed to the expansion of globalization and the advancements in technology. With the advent
of technological advances, acquisitions, and globalizing operations, leaders of various organizations are discovering the need
to lead outside of the traditional face-to-face leadership situation, and are transitioning to leading in the virtual environment.
Although the groups have increased in popularity, managerial strategies and leaders often lack the ability to create an
atmosphere of trust, relationship building, communication, and effective collaboration. This conceptual paper explores the
complex nature and the benefits of virtual teams with a goal of influencing the world of organizational practice.
Keywords: Virtual Teams, Virtual Team Building.
Engaging and collaborative and team-building activities in the workplace is a pretty established idea. For decades,
organizational supervisors have introduced initiatives that encourage knowledge sharing, collaboration, accountability, and
interdependence to bring out the best in their teams. And in today’s highly competitive age, such team-building, problemsolving activities have never been more important. Due to globalization and an expanding international business landscape,
several firms have turned to dispersed teams, often referred to as virtual teams; to increase collaboration, efficiency, and
competitive advantages. Some organizations have adopted virtual teams, characterized by geographically dispersed members
who communicate mainly through technology, such as sophisticated groupware technologies, telephone, videoconferences,
virtual meetings, and email (Lipnack & Stampts, 1997).
With the advent of technological advances, acquisitions, and globalizing operations, leaders of various organizations are
discovering the need to lead outside of the traditional face-to-face leadership situation, and are transitioning to leading in the
virtual environment. Although the groups have increased in popularity, managerial strategies and leaders often lack the ability
to create an atmosphere of trust, relationship building, communication, and effective collaboration.
The benefits of virtual teams are many. One significant benefit of virtual teams is that virtual teams provide organizations with
the ability to expand operations globally without excessive operating costs. “Virtual teams facilitate the implementation of
corporate-wide initiatives in global organizations, and are especially valuable for companies in which the initiatives must adapt
to local cultures” (Kerber & Buono, 2004, p. 4). “Virtual teams bring together critical contributors who might not otherwise be
able to work together due to time, travel, and cost restrictions” (Kerber & Buono, 2004, p. 4).
Another benefit of virtual teams is that the virtual environment allows an organization to obtain the best employees by
recruiting, hiring, and retaining those unable or unwilling to relocate, and to adapt and realign the team when team members
are lost or when project requirements change (Kerber & Buono, 2004). While the benefits of virtual teams are vast, leading of
virtual teams does not operate without complexities. Traditional management practices will need to be adjusted when leading a
virtual team (Beagrie, 2006).
The challenge is that these groups often never reach full potential by operating as high performing self-managed virtual teams
and need leadership support and organizational technological resources in order to be successful. Ultimately the review of the
literature pointed to the importance of organizations leveraging technology and establishing project goals and guidelines early
on in the project to succeed. Such diverse and dispersed teams communicate mainly through technology. Such communication
raises the challenge for the team leader of how to unify the team, and have the members identify themselves collectively as a
knowledge sharing collaborative community.
Exploring the Essentials of Leveraging Technology to Build Trust and Relationships, While Utilizing High Performing Self-Managed Virtual Teams
Additionally, organizational leaders should understand that trust and relationship building on virtual teams are not based upon
traditional aspects that are typically found in collocated team atmospheres. Understanding the difference between the two
teams is important when constructing a collaborative-friendly, virtual team environment.
As technology continues to advance, organizational leaders are finding new ways to expand into global markets. As the
business landscape shifts from one dimensional and domestic to include members from different locations, including other
countries, it is paramount that organizational leaders understand how to leverage these global resources to achieve maximum
efficiency and profit (Elmuti, 2003; Wagner & Harter, 2007). One solution that the leaders of many firms have turned to is selfmanaged virtual teams (Gratton, Voigt, & Erickson, 2007; Klein, Ziegert, Knight, & Xiao, 2006). These teams include members
from different locations who leverage technology to communicate while operating under a limited hierarchical structure
(Amurgis, 2007; Copeland, 2006; Qureshi, Liu, & Vogel, 2006; Thomas & Bostrom, 2010). The teams typically include highly
competent, talented resources that can successfully operate in environments that provide autonomy, and the team members
are often tasked with making important, challenging decisions on their own.
Understanding the dynamics of self-managed virtual teams is important for leaders to make these teams successful. Many
virtual team leaders attempt to use the same leadership skills used to oversee face-to-face teams, but the strategies typically
are not effective enough. Self-managed virtual teams are growing in popularity, and several large organizations use these
groups for complex tasks. It is essential that organizational leaders understand the competitive, financial, and strategic
advantages that can result from not only implementing self-managed virtual teams, but also ensuring that they are effective,
high performing groups.
One important aspect of high performing teams is that the group members trust one another and have beneficial relationships
that contribute to increased performance. Establishing these relationships and a level of trust has often been mystified in virtual
atmospheres, since there is very limited or no face-to-face or personal interaction on dispersed teams. As such, this paper
seeks practical examples that are backed by empirical research, to understand not only “why” organizations should embrace
technology, while creating trust and relationships on virtual teams; but this paper will also seek to expand this concept and use
a literary review to explain “how” leaders can use technology, trust, and relationship building to improve virtual team
The above figure outlines the nuances of virtual teams. The that truly maximizes this process will have required technological
tools to connect employees from different locations, common goals that create a community, and an understanding that virtual
teams give organizations the ability to tap into the talent, ideas, and intellectual capital from professionals from all over the
The collaboration of diverse communities of innovators provides opportunities of innovative knowledge developments and
breakthroughs (Friedman, 2007). According to Tapscott and Williams (2008, p. 153), people’s ability to collaborate, innovate,
and use technology to develop new processes and inventions is often a key driving force behind the kind of developments that
keep citizens, businesses, and commerce from languishing. In the past, before the “world became flat” (Friedman, 2007),
organizational and community stakeholders operated in closed, individualistic, rigid, inbred, and hierarchical systems where
decisions were strategies were developed and implemented in a vacuum absent of peer benchmarking and review.
Collaboration and technological innovation are critical to innovative, global, multinational, and knowledge driven economies
W. Quisenberry and D. N. Burrell
IHART - Volume 23 (2012)
(Friedman, 2007). Knowledge can build more rapidly within shared and collaborative networks of professionals that use
technological innovation to communicate, distribute ideas, benchmark, and share lessons learned from both successes and
failures (Brown & Duguid, 2000).
The above figure shows the visual depiction of Friendman’s (2007) idea of technology and innovation connecting people with
intellectual capital from all over the world.
Technology is often the driving force behind knowledge transfer, knowledge creation, change, progress, and innovation
(Lipnack & Stampts, 1997). Consider how the Internet and e-mail allows people with various backgrounds that are separated
by geographical distances to collaborate, network, and even complete executive and academic education together (Junco &
Mastrodicasa, 2007).
Global complexities are forcing organizational leaders to seek ways to develop international strategies without large financial
expenditures. The number of multinational companies has doubled since 1990, and the size of these companies in terms of the
number of employees has continued to decrease (Copeland, 2006). Firms are using increases in technology to create teams
and corporations that span the globe (Copeland, 2006). Virtual team members typically utilize instant messaging, e-mail,
teleconference calls, and webinars to communicate and complete tasks.
When groups work across different time zones, they face several challenges. Some firms use this situation to their advantage
by sending work to the next time zone when one shift is over, which allows the next team to pick up on assignments where the
previous team left off (Brett, Behfar, & Melymuka, 2006). Optimizing time zones allows a continuous flow of work and increases
efficiency. These methods of virtual teamwork are only possible when leveraging technology and when the ability to succeed at
these complex tasks can be improved if proper technological systems are in place.
Virtual teams can use technology not only to improve communication but also to improve the overall efficiency and level of
knowledge. Leveraging technology can eventually modify the corporate culture and structure, which can improve organizational
effectiveness (Amurgis, 2007). Several corporations have implemented internal technology to improve communication among
colleagues and associates separated by distance (Amurgis, 2007). Technology allows these individuals to interact in real time
and increases the level of efficiencies, despite geographic separation, and also improves organizational feedback at all levels,
creating a bottom-up and side-to-side strategic approach. Using these improvements in virtual teams is relevant and beneficial
to dispersed project performance and creates strategic implications within the organization.
Advancements in technology, globalization, and competition have made it more difficult for firms to compete and have also
constricted the amount of available time for leaders to make and implement decisions (Pathak, 2005). Moving to virtual teams
has saved several organizations millions of dollars per year in facilities costs (Johnson, 2005). By utilizing technology and
constructing teams that span several geographical regions, organizations have the opportunity to improve responsiveness,
become more agile, and reduce unnecessary cost (Johnson, 2005). Thus productivity is not the only or even the main reason
that many firms have moved to virtual teams, but instead several organizations have done so to reduce cost. This strategy can
allow more organizations to become sustainable and environmental degradation.
Exploring the Essentials of Leveraging Technology to Build Trust and Relationships, While Utilizing High Performing Self-Managed Virtual Teams
Making key decisions that create strategic implications for an organization while developing competitive advantages is an
important aspect of any firm. In the past, many firms have focused on what decisions must be made instead of understanding
how they will make and implement those decisions (Moutinho, Rita, & Li, 2006). Leaders have turned to customized processes
and technological systems to improve strategic decision making. Complex IT systems can make processes more efficient while
allowing strategic decision making to be more accurate and profitable to an organization (Moutinho et al., 2006). The benefits
of customized technology that improves efficiency and business decision making are relevant to self-managed virtual project
teams that often operate in global atmospheres and must make decisions that involve more complexities than those in
collocated environments. Using technology to reduce the risk of complex decisions can save organizations time and money.
Leading globally distributed teams requires leaders to adapt and enhance leadership styles that appropriately match the
environment of a virtual team. Selecting the optimal leadership style appropriate for the virtual environment can be challenging.
Virtual teams rely mainly on the use of technology in order to conduct business and communicate. The face-to-face aspect of
working relationships is non-existent, which presents challenges for team leaders of virtual teams. Virtual leaders are finding
themselves in the position of learning how to communicate and build team relationships without relying on daily visits or
conversations with individual employees. “While technology is the lifeline of the virtual team, building the relationship over time
provides the most challenges” (Combs & Peacocke, 2007, p. 27).
Studies have been conducted which provide team leaders tips on how to successfully lead virtual teams. This information is not
limited to virtual leaders, as leaders in the traditional setting may also benefit from the studies. According to Combs and
Peacocke (2007), prior to the launch of a virtual team, leaders benefit by creating a virtual team charter. The team charter will
explain the mission, the business problem(s) needing resolution, and the objectives of the team.
Team leaders should clearly define the roles of each team member, establish ground rules and outline the decision-making
process (Combs & Peacocke, 2007). Members of the team should feel free to raise issues and concerns and expect
information to be shared openly. All team members must agree upon the long-term objectives set by the team (Combs &
Peacocke, 2007). Virtual team members are likely to work in multiple locations and in different countries with varied time zones.
Creating a matrix with the various time zones each team member operates, and designating blackout periods to ensure all
members can attend meetings is a process the virtual leader can benefit from (Combs & Peacocke, 2007). Reviewing and
establishing communication etiquette is essential for virtual team leaders (Combs & Peacocke, 2007).
By incorporating these practices, the team leader can establish a professional, efficient and inclusive team environment
(Combs & Peacocke, 2007). Leaders must also consider that members of virtual teams may harbor feelings of isolation. In
order to help negate these feelings, leaders can share non-confidential information with the entire team. Virtual leaders should
consider seeking out team member input. The virtual environment allows for varied perspectives and experiences, which
members bring to the team (Combs & Peacocke, 2007). Open dialogue is encouraged and solicited. Value judgments
concerning team member differences should not occur. The leader should be aware of and encourage diversity, and discussion
of ideas generated is encouraged (Combs & Peacocke, 2007).
Organizational leaders must be mindful of the impact of technological system upgrades and implementations and also consider
how their employees will react to the change. Enterprise resource planning systems provide integrated solutions to informationprocessing needs for the entire organization (Shih, 2006). Self-efficacy relates to an individual’s perception or mind-set that he
or she can accomplish goals or complete tasks according to the requirements (Shih, 2006). Shih (2006) discovered that selfefficacy had a significant impact on the use of an enterprise resource planning system after implementation and affected the
employees’ perceptions of the usefulness of the system. The research conducted by Shih depicted the importance of selfefficacy, especially for dispersed virtual team members because technology is important to the success of virtual teams and
projects. According to these data, self-efficacy appears to be a positive quality for self-managed virtual team members to
possess. Leaders overseeing virtual project teams must ensure members are trained and understand the technology being
used for project coordination; otherwise, the reduction in self-efficacy can reduce project cohesion and performance.
Leadership decisions that reduce the level of team efficacy can continue to progress into more detrimental problems that
eventually spread throughout the entire group and negatively impact performance. Schenkel and Garrison (2009) conducted a
study that solidified previous theories that suggested team efficacy is a major predictor of team performance. The study
discovered that early experiences and feedback given to virtual team members could construct a self-fulfilling prophecy and
have a significant impact on self-efficacy and team performance (Schenkel & Garrison, 2009). For instance, researchers found
that if team members performed poorly early in the project and received negative feedback from leaders, the group typically
continued to exert below-average effort and receive poor results (Schenkel & Garrison, 2009). The same occurred for team
members who performed well early on and received praise and encouraging feedback from leaders; these team members’
W. Quisenberry and D. N. Burrell
IHART - Volume 23 (2012)
levels of self-efficacy vastly improved and the teams exerted high levels of effort and performed well for the remainder of the
project (Schenkel & Garrison, 2009). Team leaders’ feedback on virtual teams has a powerful influence on the team’s selfefficacy as well as the overall performance of the team, so it is important that leaders properly gauge their decisions and
feedback methods. If teams feel hindered or do not understand the technological systems used to coordinate projects, or if they
believe that managerial feedback is inadequate, the results can be devastating to the entire team. These findings helped to
provide insight into the fragile nature of self-managed virtual teams.
Technology is often utilized as the primary communication tool for dispersed teams. Technology has contributed to the abilities
of members of distributed teams to communicate and work on projects from all around the world (Weimann, Hinz, Scott, &
Pollock, 2010). Weimann et al. (2010) concluded that technologies used to communicate within virtual teams and the team
members’ level of satisfaction with the technologies and methods are critical to the virtual team’s success. Personality traits
affected how employees perceived virtual team membership as well as their levels of anxiety associated with participating with
the groups (Jacques, Garger, Brown, & Deale, 2009). Different personality traits can influence employees’ beliefs concerning
virtual communication and technological efficacy (Jacques et al., 2009). Technological training is paramount in virtual teams to
ensure that all members are up-to-date with functions, which will help eliminate unnecessary ignorance and frustration that can
lead to reduced levels of performance.
Despite the benefits of technology, there are challenges that come along with using technology as the primary form of
communication. Virtual teams typically utilize computer-mediated communication methods, which are beneficial and convenient
but can sometimes construct inaccurate viewpoints of the senders when there is no other information on which to gauge the
message sender (Vignovic & Thompson, 2010). For instance, Vignovic and Thompson (2010) found that senders of e-mails
that lacked proper etiquette or had grammatical errors were typically viewed as lacking competence and having lower
intellectual levels. Having improper e-mail etiquette possibly would not be viewed as a major violation or result in negative
perceptions of the sender if the teams worked face-to-face because the team members would have other opportunities to
determine if the team member was intelligent or a competent member of the group. Because virtual teams are not collocated,
there is less opportunity to construct additional viewpoints about the individual as electronic communication is the primary form
of interaction.
Organizational leaders and virtual project leaders must evaluate not only an organization but also the team members, specific
project, and goals before determining the technological systems that will be utilized to coordinate dispersed projects. The need
for and use of IT relates to Maslow’s hierarchy of needs in relation to organizations (Unwiler & Frolick, 2008). Organizations
need IT at the most basic level just to survive in a complex globalized environment (Unwiler & Frolick, 2008). Organizations
also need IT for security and stability, and at the most complex levels of the needs paradigm, they need IT to remain accurate
and consistent (Unwiler & Frolick, 2008). Depending on the organization and its competitors, the demands might not be
completely necessary for executives to progress to the highest levels of the IT hierarchy value chain (Unwiler & Frolick, 2008).
Organizational leaders must assess their particular situation and determine the need of the IT infrastructure, just as they must
with virtual teams.
Virtual teams are typically organized to complete specific projects and thus are formed quickly and dissolved after the
implementation or contract is complete. Because virtual teams are sometimes formed rather quickly and have members from
all over the world that may not know one another, the issue of trust is a relevant topic (Dani et al., 2006). Virtual teams rely on
trust, cohesiveness among the group, and the ability to operate effectively (Dani et al., 2006). Dani et al. (2006) contended that
trust is the main factor required to succeed on virtual teams but did not provide sufficient information concerning the
requirements for trust in virtual teams compared to collocated teams as well as why virtual team members thought trust was
such a major factor. Dani et al. (2006) lacked information regarding relationship building and friendship, which often are byproducts of trustful relationships. It is also interesting that trust can be such an important factor for teams that will rarely if ever
come face-to-face with one another and typically are less intimate.
Despite these critiques, additional researchers confirmed the theories of trust. Virtual teams cannot be managed the same way
face-to-face teams were in the past (Colfax et al., 2009). To succeed, organizational leaders must shift paradigms and train
managers to operate and lead in virtual atmospheres, establish trust, effectively delegate, and communicate with teams in
global, virtual environments (Colfax et al., 2009). The need for trust continues to be a required part of virtual teams, but why
and how to establish trust still is unknown and not thoroughly discussed by Colfax et al. (2009).
Exploring the Essentials of Leveraging Technology to Build Trust and Relationships, While Utilizing High Performing Self-Managed Virtual Teams
Not only do virtual teams face the challenge of dispersion but also time can eliminate the ability to establish a beneficial trusting
relationship among team members. Organizational trust is established over time, so project teams created to complete tasks
typically do not have this foundation at the start of the project (Mancini, 2010). Establishing trust among virtual team members
is harder, due to cultural and communication challenges (Mancini, 2010). Mancini (2010) found through a literature review that
the best approach for virtual project teams is to avoid judgmental behavior; compromise on less important issues; and clearly
communicate the goals, rules, and procedures to all team members. The response by Mancini provided more insight into how
leaders can seek to establish trust in virtual teams by creating communication, setting expectations, and reducing the level of
judgmental perceptions from the beginning of the project.
Properly establishing a trustful environment from the beginning of the project was a reoccurring theme as well. Researchers
discovered that organizations that utilized virtual team meetings using technology could still provide an environment that
incorporated trust, and the team members had more trust in their peers’ professional abilities (Dani et al., 2006). Organizational
structure also plays a critical role on how virtual teams can operate. Traditional structures that thrive on high levels of hierarchy,
control, and transactional managerial styles typically do not coexist well with virtual teams (Dani et al., 2006). Organizations
that thrive on trust are charisma, have transformational leaders, are flattened, are project oriented, are diverse, are dispersed,
and are more open typically construct conducive environments for virtual teams to operate.
For leaders and team members, the ability to establish trust can contribute to virtual project performance more than
professional acumen and skill. Individuals value the character trait of trustworthiness and cooperativeness above all other traits
in team relationships (Cottrell et al., 2007). Cottrell et al. (2007) found that other traits such as knowledge or intelligence were
also valued but were dependent on the specific situation or team relationship, which helps solidify that trust and the ability to
get along with or cooperate with team members are highly important, even above intellectual level. Simply having trust among
team members will not result in project success if there is not a level of skill, intellectual ability, and proper systems in place to
support the team. Being in virtual environments makes it harder to establish personal relationships and typically these
members focus more on the tasks at hand, so it is harder to establish a personal connection. Not having a personal connection
can reduce the ability to build a trustworthy relationship.
Trust is not always defined by personal characteristics. Trust and cooperation also can be built on professional characteristics
that allow the virtual team members to develop trust in others’ ability to complete a task or cooperate by going outside the
scope of their assigned role to meet objectives (Cottrell et al., 2007). Individuals who earn the reputation of being deadbeats or
deserters on virtual teams are typically viewed negatively by fellow team members and face more conflict (Furumo, 2009),
which supports the importance of continued trust and cohesiveness on virtual teams and also reiterates the importance of
successfully performing to increase levels of group satisfaction.
Establishing trust and cohesion on virtual teams is a major contributing factor to team performance, but establishing the trust is
difficult. Virtual teams are difficult to manage and cause more problems to the firm due to training and technology costs,
feelings of isolation among team members, cultural differences, and a lack of trust (Horwitz et al., 2006). Leaders can use the
transformational styles of management to inspire virtual team members and reduce the level of isolation and lack of trust they
may experience while working in dispersed environments. Horwitz et al. (2006) provided another exploratory character trait to
investigate in the current article. Understanding if virtual team members typically are happy, trustful individuals and enjoy their
dispersed role or if they feel depressed, do not trust fellow team members, and feel isolated and removed from the group was
still unknown after reviewing the study by Hortitz et al. (2006) and needed further investigation.
The environment in which teams are constructed can have a lasting impact on the success of a group. Evidence showed there
are clear correlations between employee satisfaction in new team environments, depending on whether the teams were
introduced in a conflicting or a cooperative manner. Employee attitude and feelings of involvement, commitment, and trust have
been identified as key contributors to employee success rates (Bacon & Blyton, 2006). Conflict can create positives for teams
and employees by clearly defining roles, eliminating abuse or overuse of power, establishing trust, and allowing all parties to
negotiate for options important to them.
A high degree of communication, discussion, and fending for professional viewpoints and opinions contribute to a stronger,
more beneficial, and even more enjoyable work environment for team members. Research has also indicated that efficacy, or
the personal belief that an individual or more specifically the collective group is capable of effectively performing, coordinating,
and accomplishing tasks, is another key attribute in workgroups and also virtual teams (Fuller, Hardin, & Davison, 2006).
Researchers found correlations between virtual teams’ success rates and the levels of efficacy they possessed (Fuller et al.,
2006). Despite the arguments that conflict can somehow contribute to team cohesion and trust, too much conflict among team
members and the organization can hinder team morale, trust, collaboration, and cohesion, which will ultimately place the
W. Quisenberry and D. N. Burrell
IHART - Volume 23 (2012)
project at risk. These are issues that managers should consider before allowing conflict to become the norm within their
organization or on virtual project teams because conflict can reduce the level of trust and team efficacy.
Not only are individual traits and characteristics important to the team, but also the ability to buy into the overall group’s
capabilities and develop confidence in fellow team members is a key attribute to successful production. Relieving oneself of
personal, selfish feelings and accepting the concept of teamwork and collaboration not only relates to virtual teams but also
can be linked to one of the contributing traits displayed by transformational leaders (Colquitt & Piccolo, 2006). If employees on
virtual teams do not develop trust in the group’s ability to accomplish goals, typically the success rates of the team will suffer on
a collective level (Fuller et al., 2006). Trust is another attribute encouraged by transformational leaders (Dani et al., 2006).
Transformational leadership should be considered for overseeing virtual teams to help alleviate selfishness and contribute to
increased levels of trust.
Recognizing the effects of trust on virtual teams is not always easy, and it would seem that most of a project’s success would
rely on professional competencies of team members and not the level of trust. Although virtual teams have increased in
corporations, some evidence indicated that they fail more often than they succeed (Furst et al., 2004), typically due to the
inability to develop strong levels of trust in team members, the inability to get to know other team members on a personal level,
the lack of face-to-face conversation, and predetermined stereotypes (Furst et al., 2004). When face-to-face teams begin to
build trust, they can discuss personal items that allow them to bond on a different level and also to develop friendly working
environments more rapidly (Furst et al., 2004). Once teams are virtual, the trust is built strictly upon professional aspects such
as responses to electronic communications, ability to complete tasks in a timely manner, dependability, responsiveness, and
other work-related qualities, which makes it much hard for team members to bond, develop lines of trust, and contribute to
project failure. Virtual project success is deeply rooted in relationship building and trust; even if a bond developed from
professional experience, in regard to team cohesion, it is still important that a high level of regard, dependability, and respect is
developed among virtual team members and project leaders.
Virtual project teams are obviously beneficial in some regard, as more organizations continue to implement these teams. The
premise that virtual teams are diverse; have the ability to obtain, process, and share knowledge with dispersed individuals
rapidly; and accomplish global goals instead of being hindered by geography are positive reasons for turning to virtual teams
for increased innovation. Despite the perceived benefits of virtual teams, Gibson and Gibbs (2006) contended that these
groups hinder innovation in firms due to team members’ dependence on technology, dispersion, structural dynamism, and
national diversity. Virtual teams also suffer due to a lack of shared information, coordination issues, and communication errors
(Gibson & Gibbs, 2006). Virtual teams also can be hindered by diversity or cultural conflicts, technological constraints, logistical
issues, and a lack of trust (Gibson & Gibbs, 2006). To alleviate these issues, managers must ensure that proper expectations
are established up front, allow the team members to get to know each other, have clearly defined roles and responsibilities,
encourage team members to buy into the importance and capabilities of the team or project, and create strong levels of trust.
Understanding how virtual project teams can establish trust and leadership in self-managed atmospheres where a project lead
may not always be evident is important when discussing self-managed virtual employees. Anantatmula and Thomas (2010)
found that global virtual project teams must establish trust and technology and identify leadership from the beginning of the
project, which is not typically the case with collocated teams. Collocated teams typically develop roles and responsibilities and
establish communication lines and methods first (Anantatmula & Thomas, 2010). Anantatmula and Thomas’s findings conflict
with the recommendations of Gibson and Gibbs (2006), who suggested that virtual team leaders should establish roles and
responsibilities, allow team members to get to know one another, and allow team members to understand the importance of
their roles from the beginning of a virtual project. Although researchers do not agree on the order that virtual project start-ups
should take place, it is clear that the beginning of the project is an important aspect to the team’s success. Collocated teams
can recover from a weak foundation, but for virtual project teams, leaders must clearly establish a solid foundation, set
expectations, outline goals and processes, and implement the proper technological structure.
The manner in which virtual teams are established and projects are initiated is yet another difference between virtual teams
and non-dispersed teams. When leading diverse, dispersed, virtual teams, managers or team leaders should focus on
establishing roles and responsibilities first, before looking to build relationships (Gratton et al., 2007). Operating in this order is
counterintuitive for face-to-face teams but necessary for virtual teams, because much of the trust and relationship building will
rely on professional aspects of job performance and less on personal feelings (Gratton et al., 2007). The two main reasons that
diverse, virtual teams fail are a lack of trust and collaboration and the lack of knowledge sharing (Gratton et al., 2007).
Typically, these major contributing factors of failure were linked with subgroups forming within large diverse teams that usually
were aligned according to demographics (Gratton et al., 2007). This discovery reveals how different teams that have various
cultures, different demographics, and professional diversity represented are prone to have subgroups emerge where
Exploring the Essentials of Leveraging Technology to Build Trust and Relationships, While Utilizing High Performing Self-Managed Virtual Teams
individuals on the team cling with others who have similarities to them and ultimately cause friction with the rest of the team as
well as jeopardize the overall success of the project. Gratton et al. (2007) found that leaders had the greatest opportunity to
reduce or eliminate negative subgroup emergence within virtual teams by ensuring that the project focus is task-oriented and
professional and does not focus on cultural differences. However, if relationship building contributes to increased levels of trust
on virtual teams, it seems that the activities should be added into the managerial strategy because trust was found to be a
major contributing factor to virtual team success. Gratton et al.’s results were conflicting because it is hard to understand how
teams can establish trust while also reducing personal relationship-building activities. Gratton et al.’s study supported the
theory that virtual project team members’ levels of trust and respect are positioned on professional performance instead of
personal relationships.
A decrease in personal relationship building and the act of focusing on only professional aspects of the position are the
opposite of what researchers have found while studying collocated teams. Face-to-face teams not only acknowledge but also
can be strengthened by social ties and personal relationships, much more than virtual teams (Hongseok, Lavianca, & MyongHo, 2006). Social ties have even been linked to making teams more effective (Hongseok et al., 2006). The idea of personal
relationship building conflicts with what researchers have found to be the case with virtual teams, which focus on professional
relationships due to distance. Virtual teams are seen as being more professional when personal or social ties are left out of the
equation to reduce levels of offense and distraction and allow team members to focus only on the project or tasks at hand
(Gratton et al., 2007; Hongseok et al., 2006). The teams must learn to collaborate across boundaries by building trust, creating
relationships, learning conflict resolution techniques, and utilizing frequent communication (Gratton & Erickson, 2007). Face-toface groups utilize personal and social ties as a means of networking and building trust, which are two elements typically not as
prominent in virtual teams, but are viewed as key contributors to project success. The information concerning personal
relationship building helps display how virtual and collocated teams can be so different in regard to establishing trust.
Ultimately, many researchers bring the idea of employee engagement and trust establishment back to the manager. Employee
engagement is improved when there are high levels of trust, proper managerial direction, leadership, a conducive
organizational structure, and communication (Lockwood, 2007). One of the most important factors that contribute to employee
engagement and retention has continuously been linked to the manager (Lockwood, 2007). If managers can establish team
cohesion while getting the team members engaged, trustful relationships and collaboration have a better chance of
succeeding. One of the most effective ways to increase collaboration and relationship building is via technology. Thus,
managers have to consider the benefits of leveraging technological advancements, while improving team-building, morale,
trust, and relationships amongst virtual teams. The strategic advantages and implications of doing so have been depicted in the
literature and in practice and organizations should begin embracing the synergistic capabilities of this virtual team solution.
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A. S. Perry and E. Rahim
IHART - Volume 23 (2012)
Alvin S. Perry1 and Emad Rahim2
1Walden University, USA and 2Colorado Technical University, USA
The challenge that start-ups still face in the United States is the high failure rate of entrepreneurs. Approximately 50% of new
businesses fail within the first 5 years of operation (U.S. Department of Commerce, 2009). Boss (2010) concluded that over
60% of entrepreneurs fail within the first 6 years of doing business. The current study will involve examining the factors needed
for start-up and early growth stage entrepreneurial sustainability as understood through a qualitative study. This paper will seek
to address the successes identified by previous studies to broaden the scope and expand to different geographical areas. The
results of the study could support entrepreneurs in the start-up and early growth stages of development and provide new
knowledge that may reduce the number of small business failures.
The driver of commerce in the United States is entrepreneurs and their start-up companies. Entrepreneurs create small
businesses and drive venture growth, which is vital for developing a strong and growing economy. As noted by the U.S. Small
Business Administration (2007), 99% of all employees, 50% of the private workforce, and more than 40% of private sales occur
within small businesses.
The challenge that start-ups still face in the United States is the high failure rate of entrepreneurs. Approximately 50% of new
businesses fail within the first 5 years of operation (U.S. Department of Commerce, 2009). Boss (2010) concluded that over
60% of entrepreneurs fail within the first 6 years of doing business. The current study will involve examining the factors needed
for start-up and early growth stage entrepreneurial sustainability as understood through a qualitative study. Researchers have
not conducted many studies on entrepreneurship failure (Byrd, 2010; Chupp, 2010; Johnson, 2010; Osbourne, 2009; Reaves,
2008; Schorr, 2008; Valdez, 2009; Weinberger, 2009). Research is necessary to address the successes identified by previous
studies to broaden the scope and expand to different geographical areas. The results of the proposed study could support
entrepreneurs in the start-up and early growth stages of development.
The United States is currently experiencing the largest economic downturn since the Great Depression as noted by Semoon
(2010). The government has had to step in and provide public funds to save big banks. The ability for businesses to receive
loans has decreased because of new levels of lending restrictions. In addition, the advent of technology has increased
globalization, which makes it much harder to develop a competitive advantage in business. The current economic environment
is a great opportunity for entrepreneurs to start businesses and sustain them.
The issue addressed in the proposed study is the high failure rate of entrepreneurs or small business owners. The current
qualitative study will involve addressing the factors needed for success as an entrepreneur after 5 years in business. The study
will also include a phenomenological strategy. A need exists for further research to provide a greater understanding of
entrepreneurial successes. The study may provide new knowledge that may reduce the number of small business failures.
Mintzberg and Hunsicker (1988) noted that creative strategies evolve when formulation and implementation merge into a fluid
process. Owners of start-ups in the United States face serious problems within the first 5 years of operations. Despite favorable
research that may have supported small business success, the rate of failure is still considerably high. According to a 2009
report conducted by the U.S. Department of Commerce, 49% of start-ups fail in the first 5 years. Similarly, Boden and Headd
(2002) noted that businesses fail 50% of the time past the 4th year of operations. The problem of small business failure has
negatively affected the U.S. economy. Entrepreneurs account for over 99% of employers, provide over 40% of private sales,
and include 75% of new jobs (U.S. Small Business Administration, 2007). A study that involves investigating entrepreneurship
success using a qualitative research method could remedy the situation.
A. S. Perry and E. Rahim
IHART - Volume 23 (2012)
The phenomenon addressed in the study is the rate of entrepreneurial sustainability past the first 5 years of starting a business.
Schorr (2008) noted researchers do not know what contributes to entrepreneurial success compared to entrepreneurial failure.
The geographical location of the study will be the state of New Jersey. The type of research method will be qualitative with a
phenomenological strategy. The 2009 rate of small business failure at the 2-year mark was 30% and at the 5-year mark was
49% (U.S. Department of Commerce, 2009). Song, Podoynitsyna, van der Bij, and Halman (2008) noted that businesses fail
68% of the time past their 5th year in business. The U.S. Small Business Administration (2007) indicated that small business
owners account for over 99% of all employers, employ approximately 50% of the private workforce, and provide over 40% of
the private sales in the United. In addition, the U.S. Small Business Administration (2008) noted that 75% of new jobs created
come from small businesses. The goal of the proposed study is to understand how to design a solution that provides
entrepreneurs in the start-up and early growth phases of their projects with knowledge that puts them in the best position to be
successful beyond the 2- and 5-year marks. An effective solution has a potential for increasing the number of jobs created and
private sales within the United States. A qualitative phenomenological study that involves investigating entrepreneurial
sustainability could possibly resolve the problem.
The purpose of the study is to affect small business success by providing insight into the skills needed by entrepreneurs to
sustain a business beyond the first 5 years of being in business. The 2009 rate of failure at the 2-year mark was 30% and at
the 5-year mark was 49% (U.S. Department of Commerce, 2009). In the United States, small business owners develop
approximately 75% of the new jobs. The proposed study will include the qualitative research method and a phenomenological
strategy to gain insight into the problem from the viewpoint of the participants’ lived experiences. The targeted participants are
20 salon owners who have been in business more than 5 years in the state of New Jersey. The sample will include both male
and female salon owners. The goal will be to understand entrepreneurial business success of the businesses beyond 5 years
from start-up. Keys may be uncovered that will provide insight regarding why certain small business entrepreneurs are
successful. All participants in the study will provide insight through the answers they provide. A previously developed and
validated instrument will support the study. The researcher will seek permission to use the validated instrument from the
researcher who developed the instrument. The study might bring about social change by decreasing the failure rate of
entrepreneurs in the start-up and early growth stages before the first 5 years of operations. The goal is to bring new knowledge
to the entrepreneurial population.
The proposed research will include a qualitative method. The data will include the lived experiences of the participants. The
phenomenological strategy is the most appropriate for the study. Moustakas (1994) stated that a researcher must first arrive at
a topic that has social meaning and personal significance. Researchers should set aside prejudgments regarding the
phenomenon under investigation and should be free of any preconceptions based on prior experiences (Moustakas, 1994). In
addition, Moustakas described a phenomenological research study as a study viewed from lived human experiences. The
method will consist of previously used questions as instruments. Rudestam and Newton (2001) suggested that the number of
participants for a phenomenological research study should be at least 10 because of the time involvement with each participant
and each participant’s data analysis. Schorr (2008) noted that the qualitative focus requires in-depth involvement by the
researcher with each participant to hear his or her unique voice. The researcher will seek permission from the developer of the
previous study for current use. The data collected will be analyzed to identify trends that align the decisions made with
business performance outcomes.
The research question addressed in the study is important because of the potential positive impact that any solution may have
on the U.S. economy. The central question is as follows: Why are some entrepreneurs able to sustain their business beyond
the first 5 years? The qualitative study will also include the following interview questions prepared by Schorr (2008):
 Tell me about your (professional) path. How did you move into entrepreneurship?
 When did you feel like a successful entrepreneur for the first time? Please describe specific situations and experiences
you tie to this moment.
 Describe your experience of getting where you are now.
 What did you expect from becoming a successful entrepreneur?
Determining the Keys to Entrepreneurial Sustainability Beyond the First Five years: A Qualitative Study
 What has becoming a successful entrepreneur brought into your life? What are the gains? What are the losses?
 What else would you like to share about your experiences of becoming a successful entrepreneur?
Simon (2010) noted that the conceptual framework provides direction on how to plan a particular dissertation or doctoral study.
The conceptual framework includes a set of directions so that the path is clear on how and why to conduct a study.
Entrepreneurship theory provides the conceptual framework for the proposed study. The conceptual framework seeks to clarify,
define, and interpret research on entrepreneurship, entrepreneurship failure, and entrepreneurship sustainability as well as the
experience of the researcher.
The following definitions are for terms and phrases that appear in the proposed study.
Angel investor: An individual who provides capital, his or her own money, to fund a business start-up. James (2010) referred to
an angel investor as an outside investor providing the financing for a new idea for a prototype product or service.
Behavior: The actions or reactions to stimuli as noted by Wilson, Kickul, Marlino, Barbosa, and Griffiths (2009).
Boot strapping: A funding strategy in which an entrepreneur uses his or her own money and resources to start a business
venture. Jones and Jayawarna (2010) noted that there are two forms of bootstrapping: raising capital without using banks
or equity and gaining resources without the need for capital.
Creativity: Something new brought to existence (Fillis & Rentschler, 2010).
Entrepreneur: An individual who organizes, manages, and assumes the risk of a business venture (Stevenson, 2010).
Entrepreneurial failure: A business venture that is no longer in operation (Cardon, Stevens, & Potter, 2011).
Entrepreneurial success: A business that has been in operation for an established length of time. Brush (2008) noted that
entrepreneurs must master three key strategies: clear vision, cash management, and persuasion through developed social
skills. The U.S. Small Business Administration (2007) reported that a successful business has profitability and longevity for
5 years or more.
Entrepreneurship: A key creator of jobs and increased productivity (Wirtz, 2008). Brush (2008) defined an entrepreneur as a
pioneer who innovates, opens new markets, or organizes new industries.
Entrepreneurship education (EE): The process of learning and developing entrepreneurial skills necessary to recognize a
business opportunity and start or sustain a new business (Colin, 2010).
Entrepreneurship risk: The willingness to bear economic risk with uncertainty when skill is included in the equation (Stevenson,
Innovation: The creation of new or better products, processes, services, or technologies that signify a significant positive
change (Carlisle & McMillan, 2006).
Investor: An individual who commits money to investment products or services with an expectation of financial return (Navis &
Glynn, 2011).
Nascent entrepreneur: A person that engages in creating new ventures.
Risk: The possibility of suffering harm or loss, which may include danger (Stevenson, 2010).
Small business: An independently owned and operated entity with less than 500 employees (U.S. Small Business
Administration, 2008).
Sustainability: The capability to endure (Parrish, 2010).
Venture: A business enterprise or speculation in which something is risked in the hope of profit; a commercial or other
speculation (Ankeny, 2010).
Venture capital: Equity financing to early-stage, high-risk entrepreneurial growth start-up ventures (Ankeny, 2010).
The first of several assumptions is that the proposed study will provide value to entrepreneurs through developing a completive
advantage and that its results will contribute to social change. Hamel and Prahalad (2005) noted that developing a competitive
advantage may not be achieved with traditional business strategies. The second assumption is that the type of research
method chosen, qualitative research, will provide the best possible vehicle for researching the phenomenon. The third
assumption is the participants chosen will provide valuable insight to the requirements needed for this doctoral study to be
actionable for a scholarly practitioner. The last assumption is that the participants will be open and honest with the information
that they provide.
A. S. Perry and E. Rahim
IHART - Volume 23 (2012)
Any methodology includes limitations. The results of a phenomenological study depend on the ability of the participants to
recall and articulate events that may not be communicated as accurately as when they originally occurred. Creswell (2007)
described the phenomenological research method derived from the human experience. Humans are not perfect and may
provide information that they think is accurate but may not represent the actions as they actually occurred.
The delimitations of the study will relate to the participants, questions, and geographical area. The expected number of
participants is 20, which might not provide a broad enough view of the phenomenon. The questions are from a previous study
and as such may not provide the scope of researchable information to support the goal of producing work for scholarly
practitioners in the field of business. Finally, the geographical area of Newark, New Jersey, may not be a large enough area to
provide insight other similar areas across the United States.
Reduction of Gaps
As noted by the U.S. Small Business Administration (2007), small businesses owners provide 99% of all employees, hire 50%
of the private workforce, and provide over 40% of the private sales. Statistical data indicates that small business is important to
the U.S. economy. The challenge is to affect the way small business owners perform in a positive manner. The issue is within
the high failure rate of entrepreneurs. The U.S. Department of Commerce (2009) noted that 49% of new businesses fail within
the first 5 years of being in business. The number of small business failures is a significant number in terms of the amount of
startups that start new businesses each year. The potential new knowledge from the study could have a positive effect on
entrepreneurship and decrease the number of failures.
Implications for Social Change
The researcher of the proposed doctoral study may introduce new knowledge to the area of entrepreneurship development.
Stacey (2007) noted that self-organization and emergence could lead to fundamental structural development. The
entrepreneurs directly affected will be those looking to start a new business within New Jersey. Carlisle and McMillan (2006)
reported that people, as individual complex adaptive systems, are adept at learning and adaptation. A positive effect will take
place on social change if the number of small businesses that fail decreases, as this would directly affect jobs and the sales
generated by small businesses. The proposed study may fill the gap between businesses that are successful and businesses
that fail by providing insight into the keys needed to be successful in business beyond the first 5 years.
Ankeny, J. (2010). Venture funding, one dollar at a time. Entrepreneur, 38(7), 70.
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Economics, 37(4), 61. http://www.palgrave-journals.com.ezp.waldenulibrary.org/be/index.html
Boss, A. (2010). Entrepreneurial self-efficacy and the success of subsequent venture startup after failure (Doctoral
dissertation). Available from ProQuest Dissertations and Theses database. (UMI No. 3426367)
Brush, C. G. (2008). Pioneering strategies for entrepreneurial success. Business Horizons, 51, 21-27.
Byrd, W. (2010). The personal leadership practices of successful entrepreneurs (Doctoral dissertation). Available from
ProQuest Dissertations and Theses database. (UMI No. 3412018)
Cardon, M. S., Stevens, C. E., & Potter, D. R. (2011). Misfortunes or mistakes? Cultural sense making of entrepreneurial
failure. Journal of Business Venturing, 26, 79-92. doi:10.1016/j.jbusvent.2009.06.004
Carlisle, Y., & McMillan, E. (2006). Innovation in organizations from a complex adaptive systems perspective. Emergence:
Complexity & Organization, 8, 2-9.
Chupp, B. (2010). An analysis of the learning processes of successful entrepreneurs (Doctoral dissertation). Available from
ProQuest Dissertations and Theses database. (UMI No. 3417060)
Colin, J. (2010). Entrepreneurship education: revisiting our role and its purpose. Journal of Small Business and Enterprise
Development, 17, 500-513. doi:10.1108/14626001011088697
Creswell, J. W. (2007). Qualitative inquiry & research design: Choosing among five approaches (2nd ed.). Thousand Oaks, CA:
Determining the Keys to Entrepreneurial Sustainability Beyond the First Five years: A Qualitative Study
Fillis, I. A. N., & Rentschler, R. (2010). The role of creativity in entrepreneurship. Journal of Enterprising Culture, 18, 49-81.
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James, S. (2010). Private equity and the entrepreneur. Journal of Business & Finance Librarianship, 15, 230-236.
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innovation performance, and success (Doctoral dissertation). Available from ProQuest Dissertations and Theses database.
(UMI No. 3408724)
Jones, O., & Jayawarna, D. (2010). Resourcing new businesses: Social networks, bootstrapping and firm performance.
Venture Capital, 12, 127-152. doi:10.1080/13691061003658886
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Moustakas, C. (1994). Phenomenological research methods. Thousand Oaks, CA: Sage.
Navis, C., & Glynn, M. A. (2011). Legitimate distinctiveness and the entrepreneurial identity: Influence on investor judgments of
new venture plausibility. Academy of Management Review, 36, 479-499. doi:10.5465/amr.2011.61031809
Osbourne, W. (2009). Small business success: The roles planning, location, and government play in the entrepreneurship
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25, 510-523. doi:10.1016/j.jbusvent.2009.05.005
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entrepreneurs (Doctoral dissertation). Available from ProQuest Dissertations and Theses database. (UMI No. 3338362)
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of Product Innovation Management, 25, 7-27. doi:10.1111/j.1540-5885.2007.00280.x
Stacey, R. D. (2007). Strategic management and organizational dynamics: The challenge of complexity. New York, NY:
Prentice Hall.
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D. Singleton
IHART - Volume 23 (2012)
Daniel Singleton
The National Graduate School of Quality Management, USA
Employee engagement is an exceptionally important area for employers to focus on in order to ensure retention, profitability,
and performance (Markos & Sridevi, 2010). This concept paper will provide an introduction to employee engagement and
workplace negativity, a review of relevant literature, and a description of the proposed research methods for this project.
Keywords: Engagement, Business, Management, Workplace Environment, Efficiency, and Productivity.
According to Christian, Garza, and Slaughter (2011), employee engagement has become an important topic in many human
resources departments within organizations all around the globe. Employee engagement has been identified as a key factor in
retaining employees and increasing performance of the organization (Markos & Sridevi, 2010). Several different researchers
have defined employee engagement but done so in different ways. Perrin’s Global Workforce Study (2003) defines
engagement as an employee’s willingness to assist their company in succeeding. The Gallup organization defines employee
engagement as “the involvement with and enthusiasm for work.” (Dernovsek, 2008). Robinson, Perryman, and Hayday (2004),
define employee engagement as a positive attitude possessed by the employee towards the company. The researchers go on
to discuss that an engaged employee is aware of business needs and is willing to work with co-workers to continuously
improve performance. Development Dimensions International (DDI) outlines five things that create an engaged workforce
which are aligning efforts with strategy, empowerment, promoting and encouraging teamwork and collaboration, helping people
grow and develop, and providing support and recognition were appropriate (DDI, 2005).
Today's managers agree that more efficiency and productivity are needed than in any other time in history. To assist managers
in reaching this goal, researchers have studied employee engagement as a function of efficiency, productivity, and profitability
of organizations. After the statement of the problem and hypothesis, the next section will review relevant literature written in
regard to employee engagement and its impact on organizational success.
Many organizations fail to adequately and systematically address the issue of disengaged employees. This failure ultimately
costs the organization efficiency and affects their bottom line.
Employee engagement has been identified as a fundamental component to organizational effectiveness and success.
Additionally, a disengaged employee has been determined to spread negativity and to decrease overall performance and
productivity of other employees. In 1998, the Bureau of Labor Statistic estimated that US companies lose about $3 billion a
year to the effects of negativity (Bureau of Labor Statistics, 2008). Having an engaged staff is key to increasing performance
and profitability. This section will review prominent studies that have been conducted relating to measuring and managing
employee work engagement.
According to Buckingham (1999), only about one in every 5 employees is actively engaged in their work. This is alarming to
many managers and executives, as employee engagement has been identified as such a crucial component to an
organization’s success. More than 20 years ago, researcher W. A. Kahn (1990) was one of the first to conceptualize a
definition for engagement as “the harnessing of organizational members selves to their work roles.” Since then, researchers
have further clarified the definition to include employees being positive toward their work, employees finding their work to be
personally meaningful, employees considering their work load to be manageable, and employees having hope about the future
of their work (Nelson & Simmons, 2003).
Engagement and Workplace Negativity: A Systematic Approach to Improvement
Several studies have been conducted to examine the characteristics of engaged employees. A study conducted in the United
Kingdom of more than 10,000 employees demonstrated that the level of engagement was different depending on work
experiences and personal and job characteristics (Robinson et al., 2004). This study was important in the fact that there were
several key findings in regard to engagement: managers have higher engagement levels, educated workers are more
engaged, engagement levels decrease as the length of time at the organization increases, employees who have an annual
performance evaluation and a development plan are significantly more engaged than those who do not, and individuals who
have had an accident or were experiencing harassment at work have significantly lower engagement levels. Another study
discovered strong correlations between employee engagement and self-reports of perceived health, well-being, and social
relationships. Furthermore, the study found strong negative correlations between engagement and burnout (Shaufeli, Taris, &
Rhenen, 2008).
In addition, there have been several studies conducted by the Gallup Organization to examine the prevalence of engagement
at work. As mentioned previously, the Gallup organization determined that about 20% of US employees are disengaged.
Additionally, about 54% are neutral about their work and only 26% are actively engaged (Fleming, Kaufman, and Harter, 2005).
A similar study conducted by Towers Perrin (2003) and found a strikingly similar profile of engaged individuals across
numerous organizations. This study found that 19% of workers were categorized as disengaged, 54% were moderately
engaged, and only 17% were highly engaged. Finally, a study conducted by consultants at Blessing White (2008) revealed that
19% of employees were disengaged, 52% were only moderately engaged, and 29% were highly engaged. These studies
demonstrate the prevalence of disengaged workers in organizations across North America and allude to the fact that
employers must create and implement effective strategies to increase engagement levels across their organizations or face
decreased productivity and profitability.
According to the Corporate Leadership Council (2002), disengaged employees do not only plague North American companies,
but companies all around the world. The Corporate Leadership Council studied 59 different organizations and more than
50,000 employees from all over the world. This study revealed that approximately 10% of workers were actively disengaged
from their work and not committed to their company's objectives. Another study, conducted by Towers Perrin (2006) revealed
that 24% of employees were disengaged and 62% were moderately engaged. The data from this study was collected from
more than 85,000 employees in 16 different countries. Negativity in the workplace from these disengaged workers is a serious
concern. Disengaged employees actively work to undermine the work of actively engaged employees and spread negativity
through the work place.
The Gallup organization has estimated that employees who are disengaged have cost US companies in the range of $250 and
$350 billion over the past several years (Rath & Conchie, 2009). The Towers Perrin study (2006) showed that 84% of engaged
employees perceive that they can positively affect the quality of their company's products, compared to 31% of disengaged
employees; 59% of engaged employees plan to stay with the organization, with only 24% of disengaged employees planning to
stay with organization; 72% of engaged employees believe they positively affect customer service, with only 27% of
disengaged employees believing they positively affect customer service; finally, employees who are engaged are 20% better in
terms of performance on the job.
Another set of studies linked engagement levels with company profitability. The Gallup organization has provided the most
substantial evidence in the link between employee engagement and company profit. In the Gallup surveys large sample sizes
were used as well as advanced methodologies to collect hard data from company records and archives. Gallup used metaanalysis on dozens of Gallup studies and compared success of certain business units within large organizations and also
compared organizations with other organizations. Their findings indicated that having a conducive work environment that
fosters engaged employees reduced employee turnover, increased company profits, increased employee productivity, and
improved customer satisfaction (Harter, Schmidt, & Keyes, 2003). Another study conducted by Watson Wyatt Worldwide
(2002) examined 51 companies in the United States and Canada. In this study, Wyatt analyzed a company's use of certain
human capital practices and how their use impacted stock performance over time. The results from this study showed very
strong correlations between the “Human Capital Index” and the company's financial performance. Wyatt duplicated the results
of this study in two other studies with an enlarged sample of participants that included companies in Europe (Watson Wyatt,
2004, 2005b). Wyatt also examined the link between communication practices within organizations and how these predict
future financial performance. Findings from this study demonstrated that effective communication with employees is strongly
correlated with financial performance. More concisely, companies who demonstrated more effective communication practices
had a 91% return to shareholders from 2002 to 2006, while only a 62% return to shareholders was demonstrated in
organizations whose communication practices were less effective. Another important finding this particular study was that firms
who had effective communication strategies were 4 times more likely to have higher levels of engaged employees as
compared to organizations who had less effective communication strategies (Watson Wyatt, 2003, 2005a, 2007).
D. Singleton
IHART - Volume 23 (2012)
A study by Mercer's People at Work Survey (2002) examined why communication is so important in regards to employee
engagement. The study examined more than 2,500 employees in the United States and discovered that effective
communication from management with employees strongly correlated with employee loyalty to the company, employee
satisfaction, and job commitment. When executive level managers communicated the organization’s vision more clearly,
compared to organizations that did not communicate their strategy effectively, fewer employees said they were thinking about
leaving the company, fewer employees said that they did not feel a strong sense of commitment to the company, and fewer
employees were dissatisfied.
It is clear from the research that disengaged employees have a significant impact not only on a company's bottom line but also
on productivity, customer service, and on their fellow co-workers. In order for businesses to be as successful as possible, it is
necessary for employers to actively work to engage their workforce and to ensure that initiatives that are put in place are
effective in increasing overall engagement of employees. That being said, it is necessary for further research to be conducted
in order to ascertain the link between employee engagement and negativity and how these factors impact the organization
The proposed research study will utilize a quantitative research methodology. The study will utilize surveys that have been
demonstrated to be reliable and valid measures of employee engagement. More specifically, the study will utilize the Gallup 12
item Worker Engagement Index Survey tool (also known as Q12), which has been identified as an effective tool for measuring
engagement levels. Once this data is obtained, it will be analyzed to determine the three biggest factors that are impacting
employee engagement within the participating organization(s). Once the top areas of opportunity are determined, the
researcher will evaluate the current organizational processes that are in place that would impact said factors. If none exist, the
researcher will work with the organization’s leadership to evaluate best practices for improving employee engagement in the
key areas. Next, the best practices will be implemented within the organization. Finally, follow-up surveys will be administered
to determine the level of success in improving employee engagement within the participating organization(s). Once all data is
collected, the baseline engagement levels will be compared to the post-implementation data to determine if the interventions
and best practices that were selected were effective in improving the engagement levels within the organization.
The researcher proposes the data for the survey be collected from large companies in the northern part of Alabama. Northern
Alabama has a large number of government contractors, high-tech companies, and manufacturing organizations. This area is
being selected due to the wide variety of industries and because the applicability of the findings will apply to organizations all
around the country. The goal of this research will be to determine how improving employee engagement impacts employee
satisfaction and retention. The findings will be beneficial to a wide range of organizations due to the generalizability of the
research findings.
The researcher plans to approach several large organizations to discuss administering the surveys to the staff of the
organizations in order to obtain data for the study. This would benefit companies in that they would have access to the data
that was collected, as well as, receive a copy of the completed research project. The companies would be able to use the data
and the methodology to continuously improve engagement levels within the organization, which would ultimately assist the
organization in becoming a more efficient and effective business. The researcher believes that it will be important to have a
large sample size in order to have the most reliable data possible. Without a large sample size, data would likely be unreliable
and correlation analysis would not be feasible. The researcher proposes a sample size of a minimum of 50 participants,
selected at random, from each participating organization. The participants would consent to follow-up surveys for further
research follow-up studies and additional analysis.
Blessing White. (2008) The state of employment engagement – 2008: north American overview [White Paper]. Princeton, NJ.
Buckingham, M. (1999). First, break all the rules. New York: Simon & Schuster.
Christian, M. S., Garza, A. S. and Slaughter, J. E. (2011), Work engagement: A qualitative review and test of its relations with
task and contextual performance. Personnel Psychology, 64: 89–136.
Corporate Leadership Council. (2002). Biulding the high-performance workforce. [White Paper]. Washington, DC.
Developmental Dimensions International. (2005). Predicting employee engagement. [Online] Available:
http://www.ddiworld.com. (September 20, 2011)
Dernovsek, D. (2008). Creating a highly engaged and motivated employee starts at the top and ends at the bottom line. Credit
Union Magazine, May 2008. Credit Union National Association, Inc.
Engagement and Workplace Negativity: A Systematic Approach to Improvement
Harter, J. K., Schmidt, F. L., & Keyes, C. L. M. (2003). Well-being in the workplace and its relationship to business outcomes: A
review of the Gallup studies. In C. L. M. Keyes & J. Haidt (Eds.), Flourishing: Positive psychology and the life well-lived
(pp. 205–224). Washington, DC: American Psychological Association.
Kahn, W, (1990). Psychological conditions of personal engagement and disengagement at work. Academy of Management
Journal, 33, 692-724.
Markos, S., & Sridevi, M. (2010). Employee engagement: The key to improving performance. International Journal of Business
& Management, 5(12), 89-96
Mercer. (2002). Mercer People at Work Survey 2002 [White Paper]. [White Paper]. New York
Nelson, D. & Simmons, B. (2003). Health psychology and work stress: A more positive approach. In J.C. Quick and L.E. Tetrick
(Eds.), Handbook of occupational health psychology (pp. 97-119). Washington, DC: American Psychological Association.
Towers Perrin. (2003). Working today: Understanding what drives employee engagement: The 2003 Towers Perrin Talent
Report. Retrieved from: http://www.towersperrin.com/tp/getwebcachedoc?
Towers Perrin. (2006). Ten steps to creating an engaged workforce: Key European findings. Towers Perrin global workforce
survey 2005. [White Paper]. Stamford, CT.
Rath, T., & Conchie, B. (2009). Strengths based leadership: Great leaders, teams, and why people follow. New York: Gallup
Robinson, D., Perryman, S., and Hayday, S. (2004). The drivers of employee engagement report 408, Institute for Employment
Studies, UK
Shhaufeli, W., Taris, T., & Rhenen, W. (2008). Workaholism, burnout and engagement: Three of a kind or three different kinds
of employee well being? Applied Psychology: An International Review, 57(2), 173-203.
Watson Wyatt Worldwide. (2002). Watson Wyatt Human Capital Index: Human capital as a lead indicator of shareholder value
[White Paper]. Washington, DC.
Watson Wyatt Worldwide. (2003). Connecting organizational communication to financial performance: 2003=2004
communication ROI study [White Paper]. Washington, DC.
Watson Wyatt Worldwide. (2004). Watson Wyatt Human Capital Index: Replication study [White Paper]. Washington, DC.
Watson Wyatt Worldwide. (2005a). Effective communication: A leading indicator of financial performance: 2005=2006
communication ROI study [White Paper]. Washington, DC.
Watson Wyatt Worldwide. (2005b). Maximizing the return on your human capital investment. The 2005 Watson Wyatt Human
Capital Index report [White Paper]. Washington, DC.
Watson Wyatt Worldwide. (2007). Secrets of top performers: How companies with highly effective employee communication
differentiate themselves: 2007=2008 communication ROI study [White Paper]. Washington, DC.
K. M. James, G. J. Cosgrove and R. W. Hulsart
IHART - Volume 23 (2012)
Kim M. James1, Gregory J. Cosgrove2 and Robyn W. Hulsart3
1Kaplan University, USA, 2St. Thomas University, USA and 3Austin Peay State University, USA
This article chronicles the corporation from a historical perspective, tracing its evolution from the Roman collegia to the highly
regulated and developed contemporary organizational structure we recognize today. The study examines various management
perspectives as they relate to the corporation as an individual including whether there is an ethic one should expect from the
organization. Included in the discussion are questions associated with corporate social responsibility, stakeholder theory, social
democracy and, as an artificial entity, can the corporation can have a social conscience.
Keywords: Corporate History, Ethics, Fraud, Social Responsibility, Stakeholder Theory.
In its broadest definition, the term corporation refers to any group of persons united, or regarded as united, in one body. As
such, corporations have existed as long as humankind has populated the earth. Not surprising, the Roman Empire first codified
the process with the development of the collegia, meaning “joined by law”. The collegia established a method by which an
organization could conduct business over the nearly 6.5 million kilometer Roman Empire. These organized bodies of
businessmen included wine merchants, stone masons, bathroom attendants, and salt miners. (Beets, 2011).
Records of joint stock companies date to the 6th century; in which ventures were created in the short term and often for only
one voyage in which a number of investors would purchase shares in the expedition. Ultimately, the hope was that the ship
would return from its voyage with a valuable cargo and the profits generated flowing back to the investors.
In the Middle Ages, corporations were formed as burial societies, monasteries, towns, and universities (Jennings, 2012).
“Implicitly rooted in the rights of association, the corporation was an instrument of privilege and a kind of exclusive body, tightly
controlled by the state for reasons of its own’” (Novak, 2012, p. 106). At the most basic level, a European corporation had to be
chartered by a governing body: either the King, the church or a guild. An example would be an instance in which the King
would grant a charter to a wine merchant that would include a geographic area. In return, the merchants and their investors
(stakeholders) would pay tribute to the crown and keep their activities within the economic and geographical boundaries
established. Guilds, such as blacksmiths or goldsmiths provided quality control and, at times, a monopoly on certain goods
thus allowing for price and quantity fixing. This effectively permitted the guilds to control both sides of the supply and demand
model. As guilds grew in power, they were perceived in some quarters as a threat to the political power structure since they
were not members of the nobility or religious classes.
The Amsterdam Stock Exchange was formed in 1602 and allowed for the buying and selling of shares of organizations. The
activities of these early organizations were once again governed by royal charters and regulations. Interestingly, the Dutch
Tulip Bubble occurred shortly after the introduction of the first stock market and is considered the first true case of stock fraud,
price inflation, and a bubble market. (Arnold, 2007).
As European adventurers, explorers, merchants, those fleeing from religious persecution, and those who, for a variety of
reasons, simply chose to seek their fortunes elsewhere arrived on the shores of the New World, they brought the custom of the
corporate association with them. What they did not bring, however, was the idea that this association was an instrument of
privilege or that it should be controlled by the state as in the European model. As the American colonies grew, the concept of
the independent corporation took hold. While the European corporations were sanctioned by the crown and subject to strict
rules on ownership, purpose, monopoly, or trust, no such arrangement existed on the western side of the Atlantic. Indeed, the
opposite occurred, corporations were born of necessity in a society that did not recognize titles or social hierarchy. In America,
firms took different forms. The corporation became an instrument of the people, not of the sovereign; this being a radical
departure from the mercantile system that Europe was operating under at the time. As such, these organizations were limited
only by the imagination of the population, which seemed limitless. For example, by 1750, the colonies had six universities while
Corporations Are People, Too: The Maturation Process of the American Corporate Form
England had only two; though the railroad was invented in England, within ten years, there were more miles of track in America
than in all of Europe (Jennings, 2012).
Corporate Rights
The free thinking concept of an open business environment is deeply rooted in the founding of this country. Both James
Madison and Thomas Jefferson weighed in on the discussion of the form and function of corporations in the fledgling
democracy. Jefferson sought constitutional prohibition of monopolies and Madison wanted to ensure common regulations of
firms operating in different states (Beets, 2011). As the country matured so did the relationship between the law and the
corporation bringing about increased rights of the corporation.
In the case Trustees of Dartmouth College v. Woodward (1819), the U.S. Supreme Court sided with the college. Specifically,
the court prevented the state of New Hampshire from forcing the private institution to become public. The charter for the
college had been granted by King George III, and the ruling ensured the contract would be honored. This decision put the
government squarely on the side of the corporation being protected by the Bill of Rights. Specifically, the 5th amendment states
“nor shall private property be taken for public use without just compensation.” With this ruling the court established that nonhuman forms would be protected by law. In addition, the ruling served to warn state governments that corporate charters are
legal contracts. In his decision, Chief Justice John Marshall established the most definitive definition of the American
corporation to date:
A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere
creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly,
or as incidental to its very existence. These are such as are supposed best calculated to effect the object for which it
was created. Among the most important are immortality, and, if the expression may be allowed, individuality;
properties, by which a perpetual succession of many persons are considered as the same, and may act as a single
individual. They enable a corporation to manage its own affairs, and to hold property, without the perplexing
intricacies, the hazardous and endless necessity, of perpetual conveyances for the purpose of transmitting it from
hand to hand. It is chiefly for the purpose of clothing bodies of men, in succession, with these qualities and capacities,
that corporations were invented, and are in use. By these means, a perpetual succession of individuals are capable of
acting for the promotion of the particular object, like one immortal being. But this being does not share in the civil
government of the country, unless that be the purpose for which it was created. Its immortality no more confers on it
political power, or a political character, than immortality would confer such power or character on a natural person. It
is no more a state instrument, than a natural person exercising the same powers would be.
In Santa Clara County v. Southern Pacific Railroad (1886), Chief Justice Waite was recorded as saying “corporations are
persons within the intent of the clause in section 1 of the 14th amendment”. This clause states “nor denies to any person within
its jurisdiction the equal protection under the law”. While this amendment was designed to rectify many issues laid bare by the
War Between the States, it had the unintended effect of granting significant rights to the corporate body. It was noted by
Justice Hugo Black that the 14th amendment, intended to improve the plight of former slaves was instead used at least 50% of
the time in order to protect corporation’s activities.
In a series of decisions over time the court has extended the following rights to the corporation; the 4th amendment (search
and seizure), the 5th amendment (double jeopardy), 6th amendment (jury trial for criminal charges), and the 7th amendment
(jury trial for civil charges).
Fast forward to 2010 and Citizens United v. The Federal Election Commission. The decision in this case so controversial that
President Barak Obama chose to scold the court in person during the 2011 State of the Union Address. In its decision the court
ruled that corporations had the same 1st amendment rights as did individuals. As a result of this decision (considered illconceived by many), organizations no longer face limitations on contributions that can be made in an effort to influence the
outcome of an election (Citizens United v. FEC, 2010).
Ethics and Corporate Responsibility
Ethics, derived from the Greek ethike philosophia, referring to a person’s moral principles, has been a part of our culture since
the dawn of Judeo-Christian culture. Not a natural evolution, but rather the result of the shifting social and political dynamics
that characterized the 1960s, the term ethics has been coupled with business and business organizations. The impetus lies
K. M. James, G. J. Cosgrove and R. W. Hulsart
IHART - Volume 23 (2012)
with the 800-pound gorilla known as the baby boomers. With every milestone, this generation has torn down walls and
remodeled the world around them. They have been the most influential force in the last half century, and in the 1960s, they
were coming into adulthood.
Unlike their WWII generation parents who had experienced what was perhaps the most ethically justified war in history, these
children grew up with the Cold War, the Korean Conflict, Vietnam, Watergate and the Pentagon Papers. They watched as huge
corporations and the first multinationals ascended, marginalizing traditional small- and medium-sized businesses. They
marched in protest of their parents ideals and ignited the civil rights movement. The end result was an overwhelming mistrust
of large organizations, and especially the military-industrial complex.
History is often simply a matter of physics. Perhaps one of the most universal truisms ever articulated is Newton’s Third Law of
Motion: For every action, there is an equal and opposite reaction. In the context of our topic, a perceived lack of accountability
in business led to the development of a field called business ethics. “One might date the birth of business ethics as November,
1974 – the date of the first conference on business ethics at the University of Kansas” (Bowie, 1986, p. 158). This conference
resulted in the first anthology on the topic, and courses in ethics proliferated soon thereafter.
The rise of the field of business ethics was not without its detractors. One of the first contrarians on the scene was a wellrespected economist from the University of Chicago who would, a few years later, win the Nobel Prize: Milton Friedman.
Friedman called social responsibility a “fundamentally subversive doctrine” and argued that the only social responsibility
business has is to increase profit (Friedman, 1970).
Friedman, echoing many philosophers and economists since Adam Smith, focused on the emerging corporate entity, not the
sole proprietor. In this context, the business and the individuals that run the business are separate and distinct entities, and the
issue of social responsibility is purely an individual one. If executives choose to give to charity or take on an environmental
cause, they may do so and consider themselves ethically and socially responsible. In their capacity as corporate executives,
however, these same individuals are no more than agents of their employers. They have a fiduciary duty and their
responsibility is to conduct business in accordance with the desires of their employers. The goal of business is profit. The
desire of the shareholders, who are ultimately the owners of the enterprise, is to increase the profitability of the business.
What does it mean to say that the corporate executive has a “social responsibility” in his capacity as a
businessman?...For example, that he is to refrain from increasing the price of the product in order to contribute to the
social objective of preventing inflation…Or that he is to make expenditures on reducing pollution beyond the amount
that is in the best interests of the corporation or that is required by law in order to contribute to the social objective of
improving the environment…Or that, at the expense of corporate profits, he is to hire “hardcore” unemployed instead
of better qualified available workmen to contribute to the social objective of reducing poverty.” (Friedman, 1970, p. 2)
When viewed from this perspective, corporate responsibility does seem rather nonsensical. If the corporate executives are
doing their jobs and they increase the profits of the corporation, the wealth of the shareholders will increase. If the
shareholders, in turn, choose to use their distributive shares to support socially responsible causes, it becomes a personal
decision that does not affect the corporation. The entity is not socially responsible through the actions of its shareholders, even
though the resources of the corporation may eventually pass through to benefit social causes. The boundaries of each are
defined: the corporate executive must be fiscally responsible in his professional responsibility and may choose to be socially
responsible in his personal life.
More than a decade after Friedman, Peter Drucker, well known and oft maligned author, wrote that business ethics was the
new trend that had grown from, and was replacing the concept of corporate social responsibility. He observed that ethics was
being taught everywhere from theological seminaries to business schools and “there are countless seminars on it, speeches,
articles, conferences and books, not to mention the many earnest attempts to write ‘business ethics’ into the law”
(Drucker,1981, p. 1).
While Drucker (1981), like Friedman, did not believe that corporations could be held to an ethical standard, he arrived at his
conclusion from an entirely different direction. His primary objective was to define the term business ethics. He traced the
history of both ethics and social responsibility through Western philosophy and culture and explored the Confucian approach to
ethical problems. In the end, he came to the concussion that whether we hold corporations to a standard is choice, and if we so
choose, ethics is an inappropriate term for the discourse.
Corporations Are People, Too: The Maturation Process of the American Corporate Form
In exploring the authorities of Western ethical tradition, Drucker (1981) found that Old Testament prophets as well as modern
American ethicists agree that there should be only one set of rules of behavior that should apply to everyone. Business ethics
defies this basic premise. In business ethics, “acts that are not immoral or illegal if done by ordinary folk become immoral or
illegal if done by business” (p. 20). An example he used was the cabinet appointee who was accused of unethical practices and
investigated because his New Jersey construction company paid protection money to self-confessed labor racketeers who
threatened to beat up employees, sabotage trucks, and vandalize building sites if the extortion money was not paid. The ethics
of the business was questioned, not the ethics of the union.
He also argued that business ethics does not consider cultural mores, which true ethics is naturally sensitive to. To illustrate his
position he focused on Japanese and German cultures. These are cultures in which it is customary for senior civil servants to
retire to appointed positions as industry-association executives, thus being taken care of while allowing governmental salaries,
retirement pensions, and the burden on taxpayers to remain low. While considered a moral duty in Japan and Germany,
American business culture would deem it highly questionable, if not outright unethical.
Drucker explored the philosophy of casuistry which assets that rulers need to balance the demands of ethics that apply to them
as individuals with their responsibility to their subjects and their kingdom; in the language of the corporation, their stakeholders.
This philosophy seems have some merit in the argument against Friedman; however, even this concept of ethics fails to
withstand scrutiny, so arguing with Friedman becomes irrelevant rather than simply unproductive. The fault in the argument
relates to the stakeholders. For the ruler of the kingdom, it is a matter of subordinating his interests to those of his subjects. For
the corporate executive, stakeholders include the shareholders, customers, vendors, employees, and governmental
organizations. Often these groups have competing, and mutually exclusive goals. For the casuist executive to rule in favor of
any group other than the shareholders involves a breach of fiduciary duty, regardless of what ethics has to say about it, and is
therefore unethical according to the standard of immoral and illegal.
A final western tradition that Drucker (1981) explored was the ethics of prudence. Simply, it is a lesson we have tried to teach
our children: Never do anything in your life that results in an invitation to appear on the Jerry Springer Show. The ethics of
prudence asserts that with increased power comes increased visibility. This naturally leads to increased scrutiny. “Prudence
thus demands that they shun actions that cannot be easily understood, explained, or justified” (p. 27). While this philosophy
should apply to business, he pointed out that the modern discussion of business ethics rejects authority, and “there can be no
responsibility where authority is denied” (p. 29).
To conclude his study on business ethics, Drucker (1981) turned to eastern philosophy and one of the most pervasive ethics of
all: the Confucian ethics of interdependence. In the ethics of interdependence there is only obligation, and all obligations are
mutual. “Harmony and trust–interdependence– requires that each side be obligated to provide what the other side needs to
achieve its goals and to fulfill itself.” (p. 32)
At the time of his writings on ethics and the corporation, Drucker (1981) was at the peak of his popularity as a management
scholar which in turn allowed for his thoughts to be belief du jour. However, his ideas do not pass the test of time as his
principles do not apply to a contemporary concept of business ethics. Overall, he concluded that in all of its contexts, ethics
deals with the rights and actions of individuals, not organizations. The same conclusion Friedman (1970) had reached
regarding social responsibility. While he rejected the concept of business ethics he did stress that organizations are composed
of individuals and that “society must stress the ethics of prudence and self-development. It must expect its managers,
executives, and professionals to demand of themselves that they shun behavior they would not respect in others, and instead
practice behavior appropriate to the sort of person they would want to see in the mirror in the morning’” (p. 36).
It is easy to compare Drucker and Friedman; both were writing against the same historical backdrop. At that time, the distrust
the population had against corporations and government had just begun. The flotsam and jetsam from Watergate and Vietnam
had not washed up on corporate shores. It was not until the 1988 Savings and Loan scandal that mistrust expanded to
corporate America. Therefore, in a society where companies were only expected to follow the simple rules of the road it is not
surprising that there was little emphasis on social responsibility and ethics. It makes sense to agree with Friedman’s attitude
that the purpose of business is profit and if the company wants to be a social leader than it must do so with the approval of the
stakeholders. These same stakeholders need to realize that they are essentially taxing themselves in a manner that their
competitors’ might not be. Doing this can give an advantage to competing firms. An important lesson to remember was the Ben
and Jerry’ Ice Cream board of directors firing Ben and Jerry for over committing the company to social welfare issues
(Goldman, 2003).
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IHART - Volume 23 (2012)
So far in our discussion of business ethics, we have only shown one side of the equation, obligation: the corporation. The
remaining parties have rights or entitlements. Another Drucker example demonstrates what has become common to corporate
behavior. Every kindergartner is taught not to tattle; however, the current business environment encourages and even rewards
this same behavior, now called whistle-blowing. Rather than recognizing the interdependence of employer and employee,
whistle-blowing sets employer and employee against each other and erodes trust. Twenty years later, Drucker’s opinions have
been somewhat discounted and considered to have not been based on academic research, but scholars still subscribe to his
notions of business ethics.
Public outcry has moved the conversation of business ethics from informative to imperative. Based again on one of Newton’s
Laws, this time the first – every object in a state of uniform motion tends to remain in that state of motion unless an external
force is applied to it – the power-responsibility equilibrium shifted. This concept holds that when power and responsibility are
out of balance, forces (usually government regulation) will bring them into balance (Murphy, 2009). After the wave of corporate
scandals of the early 2000s, the Sarbanes-Oxley Act of 2002 (SOX) did just that. In addition to requiring a level of ethics and
social responsibility from business, SOX also holds CEOs and CFO accountable to the shareholders. The word “ethics” is used
seventeen times in the Act; “responsibility” twenty-five times.
Corporate Social Responsibility
What is “responsibility”? Murphy (2009) took a page from Drucker and explored the concept of responsibility. In an analysis of
seven articles, Murphy attempted to design a model for responsibility. The articles discussed aspects of responsibility across
the spectrum including legal, corporate, managerial, social, stakeholder, and societal. He asserted that responsibility has three
components: Who is responsible, to whom it is responsible, and for what the corporation is responsible. This third component is
extremely broad, addressing economic, social, and environmental responsibilities.
The only common thread Murphy (2009) seemed to find in the articles examined was that all organizations have responsibilities
and are accountable to someone. What complicates the issue was that any decision made by the corporation impacts multiple
stakeholders who may have conflicting needs – remember casuistry? Generally one group will benefit at the expense of
another, which, again, supports Drucker’s (1981) position that business ethics does not contain a code or obey rules that apply
universally and therefore cannot be ethics at all. Murphy reached the same conclusion regarding the term responsibility that
Drucker had come to regarding ethics: the term responsibility is also ill equipped to address the issue and that a “clearer and
more useful understanding of responsibility in business will emerge” (p. 251).
Murphy comes from a different time, a time where it is expected corporations have a social responsibility. A time of Enron and
WorldCom, where the public collapse and worldwide exposure of corporate illegalities is broadcast 24/7 and available
anywhere there is an Internet connection. This is a time when organizations realize the importance of social stewardship such
as support to local charities, collaboration between business and education, and employment opportunities for the
disadvantaged. Murphy’s review discussed levels of responsibility, particularly as it related to size of economic impact. The
point is that the greater the economic impact of an organization then the greater the social responsibility. Of course we expect
Wal-Mart to be more socially responsible then a country store. How is the public supposed to gauge this in order to determine if
the company is meeting its social responsibilities? Perhaps a good metric would be what percentage of profits goes to
corporate social responsibility (CSR)? This would level the playing field among corporations capitalized at different levels. How
does the corporation know if the public and other stakeholders believe they are doing enough? People vote with their feet and
their money. If the latest news reports talk about how much the company is polluting and sales begin to drop, the company has
its answer.
The public expects and the government demands that they be good environmental stewards. Coal companies in West Virginia
spend millions of dollars leveling off and planting trees is areas that were formally stripped mined. Not only is this government
directed, it is also good policy on the part of the coal companies, as it gains them a positive public image in a society that
perceives them as greedy and uncaring, as illustrated by the poor safety records in the mining accidents of the past few years.
However, as the world moves deeper into globalization we will see a trend towards more and more social responsibility, if for
no other reason than to keep bad press at bay. No retail company in the United States wants to be tagged as using sweat shop
labor and will peruse a line of corporate social responsibility that prevents this.
Ethics and moral leadership are good for the organization. In the last thirty years there has been a shift towards corporate
social responsibility. Some companies, such as Starbucks pride themselves on their corporate giving, and in my informal
survey of customers it has become apparent that the social conscious of the company is one of the reasons customers keep
Corporations Are People, Too: The Maturation Process of the American Corporate Form
returning. An added benefit of the strong business ethic is that it makes it easier to attract high quality, internally motivated
employees and investors.
Where does all this emphasis leave the modern corporation? It seems we now expect corporations to act as ethical, moral,
caring people. In fact it seems we are holding corporations to a higher standard of conduct than we hold ourselves. Have we
reached the point where a corporation is a living entity? With rights and responsibilities that used to belong only to humans?
The United States Supreme Court in the case of Citizens United v. Federal Election Commission. The court ruled that
corporations and unions can use general treasury funds to exercise their 1st amendment right to free speech (Citizens United
v. FED, 2010). The case was brought forward based on a political movie depicting Senator Hillary Clinton in an unflattering
light. At the time she was a candidate for the democratic nomination to the Presidency. In other words, the court ruled that
companies and unions can purchase advertising in support of or opposed to any particular candidate or issue. This case so
radically changed the political landscape that President Obama chastised the court in his 2011 State of the Union Address. The
fallout from this decision is frightening. Any corporation, whether ethical or not, can now influence the outcome of an election
through extensive marketing and advertising. What is to prevent an unethical organization from running a campaign in support
of a candidate, that candidate being elected and the company demanding its own tax exemptions? This goes so far beyond
normal lobbying that it could lead to a new form of government, the “corptocracy”, a self selecting economic cabal that runs this
nation. Perhaps even worse than the current gridlock in Washington DC would be a government ruled by competing economic
interests with virtually unlimited money.
Ethics in business has evolved across cultures and time and will continue to do so. There appears to be no universal standard
that can be established, however, with the rapid globalization brought in part by the Internet it is possible to see some kind of
standard evolving. There is a trend towards more corporate responsibility and an increase in ethics by both the organization
and the individuals that work in it. There is a sense that embracing corporate social responsibility and a strong ethical position
will enhance market share, attract high value employees and improve the bottom line. The establishment of the legal precedent
in Citizen’s United v. FEC could prove fatal to the movement towards more corporate accountability and increased social
As T.S. Eliot (1888-1965) wrote, “The last temptation is the greatest treason: to do the right deed for the wrong reason.”
While profit still remains the primary purpose of business, it is clear that ethics and social responsibility need to be high on any
corporate agenda and in many industries have become a significant line item on the budget. The baby boomer generation has
effectively accomplished this. Whatever terms are used, they have reshaped the business world into one that requires business
to concern itself with the welfare of more than just the owners/shareholders.
In a natural progression, the same generation that decades ago spawned this movement through their mistrust of large
organizations, have now grown into the adults that command these very same organizations. It is perhaps ironic that some of
the greatest corporate scandals in history were perpetrated by these same baby boomers: Jeffrey Skilling of Enron, Richard
Scrushy of Health South, Dennis Kozlowski of Tyco, and Ponzi-schemer Scott Rothstein.
The question now becomes, has social responsibility become just another tool in the arsenal of corporate success tactics?
Does corporate responsibility have a line item in the budget right under advertising as a tool to develop business? If a company
that is perceived as environmentally insensitive loses sales as a result of that impression, whether true or not, does the inverse
also hold true: that if they are not environmentally insensitive, will sales increase? Does this provide an incentive to promote an
image of ethics and social responsibility, whether true or not? Or if the company does adopt socially responsible policies with
the goal of improving their image and increasing sales, does this not corrupt the entire concept of ethics? Does social
responsibility not become unethical?
Stakeholder Theory
A stakeholder is a person, group, or organization that has direct or indirect stake in an organization because it can affect or be
affected by the organization’s actions, objectives, and policies. Key stakeholders in a business organization include creditors,
customers, directors, employees, governments and their agencies, owners and shareholders, suppliers, unions, and the
communities from which the business draws its resources.
Novak defined stakeholder from two perspectives. The first derives from the Homestead Act when Americans heading West
could stake out claims on parcels of land, thereby establishing ownership. This view acknowledges the stakeholder as a risk
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IHART - Volume 23 (2012)
taker. “The stakeholder society in this sense is the very foundation of the free society. Maintaining it entails investment, hard
work, responsibility, risk, and earned reward, or, often enough, personal failure. Freedom is tied to risk and responsibility”
(Novak, 2012, p. 107). The other draws from the social democratic viewpoint. From this perspective, stakeholders are those
“who deem themselves entitled to make demands on the system and to receive from it” (Novak, 2012, p. 107).
While it is the former model that built this country, it is the latter notion that is coming to dominate. According to Agle,
Donaldson, Freeman, Jensen, Mitchell, and Wood (2008), a review of the mission, vision, philosophy, and values statements of
a random sample of 100 Fortune 500 companies revealed that only ten focused on value maximization for stockholders.
“Twenty-two espoused a ‘legally and ethically bounded’ stockholder focus, while sixty-four embraced approaches to ‘maximize
the well-being of all stakeholders,’ and yet another two aimed at solving ‘social problems while making a fair profit’ (Agle &
Agle, 2007)” (p. 154).
Novak discussed the danger of perpetual demand without responsibility. As Drucker (1981) noted, “in today’s American – and
European – discussion of business ethics, ethics means that one side has obligations and the other side has rights, if not
‘entitlements’” (p. 32). If individuals, deeming themselves entitled, continue to make demands on the system and receive from
it, without any investment in the system, the system will fail. According to Novak, “these needs are infinitely expansive;
however, so perpetual dissatisfaction is guaranteed. No conceivable amount of security or health care can satisfy human
beings; our longings are infinite, beyond all earthly satisfaction” (Novak, 2012, p. 107). If the corporation works to provide for
those who do not contribute, they are in bondage to the stakeholders and that was hardly the intention of corporate formation.
Personal responsibility is a prerequisite for a free society. Responsibility literally means to “pledge back.” This notion
acknowledges that stakeholders share a common fate and recognizes the web of relationships among stakeholders. To be
mutually beneficial and sustainable over time, any relationship requires that the parties honor certain responsibilities to each
other (Goodstein & Wicks, 2007). The idea that business and ethics are at odds is the first hurdle that must be overcome.
Closely related is that maximizing value for shareholders is at odds with the success of the company. Neither of these
statements is necessarily true and, according to Agle et al. (2008), responsibility is a place to start: responsibility must be
integrated into the fabric of business. Gooodstein & Wicks (2007) point to a breakdown in stakeholder responsibility as a major
cause for the business ethics disasters called WorldCom, Enron, Parmalat, and Arthur Anderson.
Capitalism has proven to be the most efficient way to organize the resources of an economy and free markets, and produce the
most benefit for all; however, adding to the corporate burden the task of alleviating societal woes is a challenge. Corporations
were established based on self-interest and, to a large extent, they remain self-focused. Their immortality, however, should
come at a price: the pledge-back. Agle et al. (2008) goes so far as to say that “corporations that cannot earn profits legally,
ethically, and responsibly do not deserve to survive, nor can our planet afford for businesses to continue to treat their
stakeholders as just another ‘environmental factor’ to be ‘managed’” (p. 161).
The question is no longer if or even when. This shift is occurring through several mechanisms. While government intervention
is one method to force compliance – ethics reduced to a set of rules – it does not foster cooperation. The corporation has
proven to be a dominant force. If the corporation takes on the cause willingly, the accomplishments will far exceed what any
government organization could possibly mandate. Companies with broad shareholder focus do exist and include such names
as Starbucks, Southwest Airlines, Home Depot, and eBay, which proves that success does not have to be sacrificed in the
name of ethics.
Social Democracy
It seems easy to agree with Dr. Novak’s assessment of social democracy, believing that a fondness for this type of structure
will result in a two class society; the producing class and the receiving class. A class made up of owners, investors and workers
that will continually see the erosion of their financial security for the social welfare of the receiving class. Margret Thatcher put it
brilliantly while Prime Minister of England when she stated “The problem with socialism is that sooner or later you run out of
other people’s money” (Evens,1997). Is that not the case across Europe today? We have been witness to one debt crisis after
another over the last four years.
Portugal provides several lessons. The modern social democratic state of Portugal was born out of the revolution of 1974.
Following the revolution a new constitution was written guarantying such key items as free education, health care, low cost
housing, and employment, loss of income from a divorce or death of a spouse, and support for the arts. While this appears
Utopian on paper it has proven to be unsustainable in practice (Bragues, 2011).
Corporations Are People, Too: The Maturation Process of the American Corporate Form
As the receiving class in Portugal expanded, the producing class shrank. As the cost of doing business increased and
government regulations soared, capital investment fled to other countries. Yet throughout all of this there has been a steady
increase in social services, funded by ever increasing debt. In 1973, the public debt in Portugal was 13.6 % of Gross Domestic
Product, rising to 90% in 2007 (Bragues, 2011). In 2011, it reached what some economists believe to be the tipping point,
Portuguese government bonds crossed the 8% interest threshold, thus moving them squarely into “junk bond” territory.
Alexis De Tocqueville writing in 1831, prior to the Communist Manifesto of Karl Marx, predicted the modern social democracy
that came to pass in Europe and was rapidly approaching American shores (note that our public debt is 105% of GDP).
His points were reinforced by the classic economic text, The Road to Serfdom, by Nobel Laureate Friedrich Van Hayek. Written
150 years later, Van Hayek provided ample warning regarding the dangers of a social democracy. Dr. Van Hayek believed that
economic freedom is achieved by freedom of economic activity, which carries both risk and reward (Van Hayek, 1945).
“A cold meteor fallen from the sky” (Novak, 2012, p. 108) in no way describes the development and role of the corporation in
the United States. Corporations have been critical to our settlement as a nation. The Erie Canal project lowered shipping costs
by 50% in less than a year. The railroads that opened up nationwide transportation systems were not conceived by the
government but instead by free thinking people eager to improve their own financial positions (Gordon, 2004). Entrepreneurs
like Edward Link invented the first flight simulator, solicited investors and built a multi-million dollar industry. Corporations and
the ideas that they represent have been as critical to American success in the world as our constitution. Without the energy,
design, and ideas of corporations this country would not have enjoyed its unparalleled success as the most powerful economic
forces in history.
This article has focused on the evolution of the corporation and selected management theories as they pertain to organizational
or business ethics and corporate social responsibility. What has been left to be answered is the notion of whether a corporation
can indeed possess a conscience and if so, can corporate conscience be related to a contemporary definition of good
Utilizing definitions from Black’s and Webster’s dictionaries, conscience can be: “the moral sense of right or wrong; especially a
moral sense applied to one’s own judgment and actions” (Black’s Law Dictionary, 2004, p. 322), or “knowledge or feeling of
right and wrong; the faculty, power, or principle of a person which decides on the lawfulness or unlawfulness of his actions, with
a compulsion to do right; moral judgment that prohibits or opposes the violation of a previously recognized ethical principle”
(Webster’s, 2007, p. 240). These definitions infer that conscience is a uniquely human trait in which we can tell the difference
between right and wrong based on intuition, feeling or some since of morality. Since “corporations are special kinds of people;
people created not by God but by laws and humans” (Marks, 2008, p. 1152), Marks argued that as a nonhuman enterprise and
given the subjective nature of right and wrong, a corporation can only be viewed as soulless. If the corporation is soulless then
we have to rely on the idea that although it may not have the traditional view of a conscience, it has the collective conscience of
those running the organization. That being said, the corporation does, without question, make choices that impact society.
Agle, B. R., Donaldson, T., Freeman, R., Jensen, M. C., Mitchell, R. K., & Wood, D. J. (2008). Dialogue: Toward superior
stakeholder theory. Business Ethics Quarterly, 18(2), 153-190.
Arnold, R.A. (2007). Economics, New Ways of Thinking Too Good to be True (p. 100-101), St. Paul, MN, EMC Publishing,
ISBN 0-8219-3401-5
Beets, S. (2011). Critical events in the ethics of U.S. corporation history. Journal of Business Ethics, 102(2), 193-219.
Black’s Law Dictionary. (2004). St. Paul, MN: West Group, 322.
Bowie, N. (1986). Business Ethics. In J.P. DeMarco & R. Fox (Ed.), New Directions in Ethics (pp. 158-172). New York, NY:
Routledge & Kegan Paul.
Bragues, G. (2012). Portugal’s Plight, The Role of Social Democracy. Independent Review, 16(3), 325-349
Citizen’s United v. FEC, 588 U.S. 2, (2010)
Congress of the United States of America. (n.d.). One hundred seventh Congress of the United States of America: Short title Sarbanes Oxley Act 2002 (H.R. 3763). Retrieved from http://taft.law.uc.edu/CCL/SOact/soact.pdf
Drucker, P. (1981). What is business ethics? Public Interest, 63, 18-36. Retrieved from http://www.nationalaffairs.com/doc
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Evens, E. (1997). Thatcher and Thatcherism, Florence, KY: Routledge Publishing
Friedman, M. (1970, September 13). The social responsibility of business to increase its profits. New York Times, New York,
N.Y. 32-33, 122-124, 126. Retrieved from http://www.colorado.edu/studentgroups/libertarians/issues/friedman-so
Goodstein, J. & Wicks, A. (2007). Corporate and stakeholder responsibility: Making business ethics a two-way conversation.
Business Ethics Quarterly, 17(3), 375-398.
Gordon, J. S.(2004) An Empire of Wealth (pp.8-15), NY, Harper Collins Publishing, ISBN 0-06-009362-5
Jennings, M. (2012). Business ethics: Case studies and selected readings 7th Ed. Mason, OH: South-Western Cengage
Marks, C. (2008). Jiminy Cricket for the corporation: Understanding the corporate "conscience”. Valpariso University Law
Review, 42(4), 1129-1168.
Murphy, P. (2009). The relevance of responsibility to ethical business decisions. Journal of Business Ethics: Supplement, 90,
245-252. Retrieved from http://search.proquest.com.proxy1.ncu.edu/docview/365453640?accountid=28180
Novak, M. (2012). Capitalism of the corporation. In M. Jennings (pp. 105-108). Business ethics: Case studies and selected
readings 7th Ed. Mason, OH: South-Western Cengage Learning.
Santa Clara County v. Southern Pacific Railroad, 118 U.S. 394 (1886)
Trustees of Dartmouth College v. Woodward, 17 U.S. 518 (1819).
U.S. Constitution, 4th, 5th, 6th, and 7th amendments.
Van Hayek, F., (1945). The Road to Serfdom, London, UK: Rutledge Press, 45.
Webster’s New Collegiate Dictionary. (2007). Springfiled, MA: G. C. Merriam, 240.
T. J. Gibson
IHART - Volume 23 (2012)
Terry John Gibson
Marylhurst University, USA
Case studies analysis through the lens of a literature review allow the use of evaluation and assessment approaches to explore
big picture connections, implications, and useable frameworks that can function as useful insightful guideposts to future
scholarly inquiry. Sustainable development strategies for Harmony Station are explored through a review of academic literature
for this private conservation project located in the Maya Biosphere Reserve Buffer Zone of northern Guatemala. The social,
natural and economic environments are analyzed using an original approach to the research literature by coding them into an
environmentality framework matrix. The literature is briefly reviewed by the subsequent eco-economic, socio-ecological and
socio-economic categories generated by the framework matrix, revealing implications for conservation driven agro-forestry
design. Eco-tourism in general and bird-watching activity in particular, is discussed as an income source that is supportive of
agro-forestry. The conclusions drawn from the review of literature are reviewed, along with implications for the broader
application of the methodology. Comments on the process for further synthesis to form a Strategic Sustainability Plan (SSP),
which is not included due to length, follow the review. Process includes three forms business analysis and development of
goals and objectives. Concluding remarks include discussion of sustainable development metrics, and the further applicability
of the environmentality framework matrix.
Keywords: Sustainable Development, Conservation, Environmentality Framework Matrix, Eco-Tourism, Agro-Forestry.
Figure 1: Map of Guatemala showing Lago Petén Itzá by Cartographer Paul Jance. From “Conservation encounters:
Transculturation in the 'contact zones' of empire,” by J. Sundberg, 2006, Cultural Geographies, 13(2), p. 244.
T. J. Gibson
IHART - Volume 23 (2012)
Business development of all types and scales typically benefit from strategic planning. Sustainability as a concept and
sustainable development as practice is becoming more main stream. As mitigation costs rise, strategic sustainability planning
becomes more attractive than rearguard, clean-it-up after-the-fact reclamation projects. While the typical strategic plan usually
focuses on maximizing long-term efficiency, the strategic sustainability plan (SSP) transforms the quest for efficiency into the
synergistic conservation of social, environmental and economic capital.
This is increasingly important because as populations multiply, the competition for natural resources ratchets up accordingly.
The SSP synthesizes results from multiple internal and external scanning models to create recommended goals and objectives
that clearly lead from the present moment to the future achievement of the mission and vision statements of an organization.
This is particularly critical for proposed sustainable development projects in the rapidly populating frontier regions of Central
America, where present day decisions germinate into a future somewhere between the continuance of downward spiraling
boom-and-bust cycles, and the creation of multiple renewing avenues for sustainable development discourse. This case
studies analysis through the lens of a literature review allow the use of evaluation and assessment approaches to explore big
picture connections, implications, and useable frameworks that can function as useful insightful guideposts to future scholarly
Harmony Station is a 65-acre agro-forestry project on the northern shore of Laguna Salpetén, which is located east of Lago
Petén Itzá in the Buffer Zone of the Maya Biosphere Reserve (MBR), a conservation area managed by the government of
Guatemala, see Figure 1. Among other nearby attractions, Tikal National Park, a UNESCO World Heritage Site, is located 30
kilometers north of Harmony Station. Because of the great loss of native forest in this department over the last few decades,
there has been much foreign attention in the form of externally-funded conservation projects that sought to disconnect the
standard of living from the consumption of the forest to a meaningful degree. Although already under enormous pressure by
modern society, the subtropical forest of the Petén remains a valuable reserve for many flora and fauna, and contains
countless ancient Mayan archaeological sites.
The three-decade conflict that began when Guatemala became a pawn early in the Cold War resulted in massive internal
upheaval, causing a rapidly increasing population in the northern frontier region, commonly referred to as the Petén after its
departmental designation. As neoliberal agro-export models become more popular with consolidating international agribusiness giants, native environments that support native flora and fauna are shrinking under constant modern development.
Therefore, the redevelopment of Harmony Station into a sustainable agro-forestry operation is under not only local scrutiny, but
scrutiny from powerful outside actors. Although there is little evidence of ancient Maya remains on the site so far, post-Classic
ruins were found on a nearby peninsula of Laguna Salpetén and in the neighboring villages of Ixlú and El Remate.
Until modern times Harmony Station was part of a sub-tropical rainforest that has had millennia of use, and nearby Lake
Macanché was still occupied by the Maya when the Spanish arrived in the Americas (Rice, 1987, p. 50). In modern times, in
typical land use progression the site was logged for export timber, then slash-and-burned to grow basic grains for local
consumption for a few years until the soil played out, and then was fenced off and planted in exotic grass for raising cattle.
Since changing ownership in 2004, there has been a modest but on-going reforestation effort. The site is steeply sloped with
elevation ranging from lake level at approximately 360 feet above sea level up to 659 feet. The current owner, Sr. Danny Diaz,
a Guatemalan native with a residence in the U.S., is dedicated to creating a sustainable, habitat-rich environment that has
abundant fruits to support a diverse wildlife population. Having left Guatemala during the civil conflict as a political refugee, this
project is a manifestation of the owner’s self-repatriation as he seeks to find balance between the rapid consumption rates he
discovered here in the U.S. and the traditional consumption model common to rural Central America. The name itself speaking
the owner’s heart, Harmony Station seeks to heal the land and the people in a synergetic manner that utilizes natural symbiotic
relationships. Sr. Diaz intends for the project to be self-sustaining by developing a modest income stream that will eventually
support his occupation on-site without degrading the natural environment. Furthermore, Mr. Diaz plans to capitalize on the
lessons learned at Harmony Station by extending educational outreach to local community schools, other local agriculturalists,
and the conservation industry (Diaz, 2010).
A previous attempt at commercial reforestation of the property, under guidance from a Guatemalan conservation advisor, was
disappointing on many levels. The advisor insisted on planting an exotic species of tree that was not adaptable to the site,
resulting in very low survival rates. Furthermore, the workers imported from out of the region had insufficient experience
working in the environment of the Petén, and many valuable naturally regenerating native species were destroyed in the
planting process. Thus the misguided investment was largely lost, and the natural re-vegetation was set back as well.
An Applied Case Assessment of the Development of Harmony Station 2011 Strategic Sustainability Plan
The owner has expressed that his three sustainability goals are: a zero waste policy, generating sufficient funds for annual
conservation and reforestation activity, and leaving a living legacy for those that follow. This approach emerged from his
experiences developing this property, concern about the management of adjoining properties, and dismay at the continuing
general consumption of the natural environment in the Petén.
The project can be separated into three categories of focus: general reforestation of the property, development of the farm and
eco-tourism area, and educational outreach. Specific development proposals include a rainwater reclamation system, an
aquaculture production system, and eco-tourism cabins (Diaz, 2010).
Rainwater collection is necessary because the adjacent lake is mineralized so as to inhibit the growth of nursery seedlings.
There is not a potable water system, and even small scale water treatment requires equipment, chemicals, and replacement
parts. Aquaculture protein alternatives to bush meat and livestock are highly desirable for economic and environmental reasons
that are further explained later, but also for the social benefits that are conferred when subsistence based families can produce
inexpensive nutritious food for themselves and excess for the local/regional market. Eco-tourism is a low-impact income
alternative that leverages the managed biodiversity that characterizes an agro-ecology project into opportunity for external
capital to enter the local market pool, instead of onerous external loans that ultimately extract capital from the local market.
The recent academic research that has been conducted in the Petén not only helps inform how agro-forestry approaches
proposed by Mr. Diaz compare to conventional local practices, but also speaks to the nested research question: What are the
optimal types, amounts, and areas of agro-forestry efforts that could be considered sustainable? Furthermore: Are there
alternatives to doing nothing that would create sustainable income opportunities that enhance the reforestation efforts?
Answering these questions supplies the greater level of organizational focus that this project needs.
The format chosen to accomplish this task was the Strategic Sustainability Plan (SSP), an outline format that was developed
by Marylhurst University curriculum designers, as one option for the Master’s Thesis in their MBA of Sustainable Business
program, referred to as the Capstone Project. The author determined that the SSP was most appropriate for Harmony Station
because the comprehensive reach of the format allowed for the documentation of the investments already made in the project,
scanning existing conditions in multiple formats, exploring alternatives including doing nothing, and recommending future
actions that stand the best chance of success. While the author became associated with Harmony Station project site in 2004
in the capacity of Landscape Architect, it was not until April of 2011 that the author began gathering specific academic literature
and preparing data for the three types of business model analysis included in the SSP, as part of the accelerated on-line
program (AOP) at Marylhurst University. The 2011 Harmony Station SSP was accepted by the Marylhurst University School of
Business Sustainability Chair, Paul Ventura, in August, 2011.
There has been much recent research on social, environmental and economic topics of interest in Central America and specific
to the Petén which provide a broad perspective of neo-tropical America. The debate regarding “enterprise-oriented solutions”
(Langholz, 1999, p. 140) to conservation issues in developing economies has led to a plethora of studies that explore
neoliberal top-down globalism mandates in contrast to community-developed projects that attempt to engage globalism on their
own terms. Langholz (1999) reminds us that more income in subsistence economies does not necessarily conserve natural
resources, and rather may only empower the uninformed milpero who formerly only had a machete, but can now afford a
chainsaw. It is hoped that the research and results regarding the optimal mix of development for Harmony Station will add to
the academic discussion, as well as provide practical advice to the owner. The SSP discovers middle ground between
conservation mega-group proposals for conservation globalization and community-based traditional ecological knowledge
practices that appear to be more sustainable.
While by no means exhaustive, the literature reviewed for this research provides a sufficiently well-rounded perspective of the
pertinent issues so that the following analysis will help to develop a deeper understanding of the social, environmental and
economic factors that have bearing on the Harmony Station 2011 SSP. In order to insure validity, the articles were all from
peer-reviewed journals that were carefully chosen to include a range of views rather than overwhelming support for one
perspective over another. Furthermore, where primary and/or previous research was referred to and the primary/previous
research was available, that also was included in the present research.
To establish a reliable research methodology, a philosophical perspective, or ethic, that can be consistently applied to the
research literature was followed. This ensured that the analysis was reliably repeated as the author worked through the
bibliography collected for the project. When casting a wide net for such a comprehensive analysis as the SSP, one discovers
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more than enough interesting but sometimes marginally applicable material. Additionally, because this analysis is based wholly
on review of the articles published on the field research of others, the intrepid analyst must deploy some type of filtering
mechanism that either rejects or accepts an article, and if accepted, by sorting the research for appropriate analysis. Due to the
increasing dominance of conservation-oriented non-governmental organizations (NGO’s) by commercial interest funding, it
behooves the researcher to determine what the underlying message is in any particular journal article. Sundberg (2006)
documents that the conservation NGOs are largely responsible for the considerable scientific research that has been
performed in the Petén over the last twenty years. This provides support for the need of some sort of filtering mechanism such
as the environmentality matrix. Because of his lucid observations to this point, the philosophical basis for the review of the
literature was derived from Fletcher’s (2010) discussion of Foucault’s (2008) The Birth of Biopolitics, a recent translation of
lectures the latter gave in 1977-8. Fletcher (2010) proposed a novel environmentality framework, see Figure 2, from the
building blocks provided by Foucault (2008), who eloquently traced the evolution of government, economy, and
governmentality from the sovereign prince model of the eighteenth century to the nascent anarcho-capitalism of the late
twentieth century. That latter movement, which originated in the North Atlantic economic zone, subsequently globalized into
what is now commonly referred to as neoliberalism.
Fletcher (2010) argues that many critics and proponents of neoliberalism apply the term differently and contrarily to his
interpretation of Foucault’s (2008) intent. Fletcher (2010) proposes a six category system based on Foucault’s (2008) historical
dynamic of government economic policy: “In the framework proposed here then, governmentality, biopower, discipline,
sovereignty, neoliberalism and truth would all be viewed as distinct yet interrelated concepts that may alternately merge, divide,
compete, conflict or coexist within any given context” (p. 177).
Truth (art of government)
Generic mode of ‘conducting subjects’ conduct’
Exercise of power in the interest of nurturing and sustaining ‘life’
Governance through encouraging internalization of norms and values
Governance through top-down creation and enforcement of regulations
Governance through manipulation of external incentive structures
Governance in accordance with particular conception of the nature and order of the universe
Figure 2: Fletcher’s key environmentality framework terms defined. From “Neoliberal environmentality: Towards a
poststructuralist political ecology of the conservation debate,” by R. Fletcher, 2010, Conservation & Society, 8(3), p.
The literature was filtered through the Fletcher definitions as objectively as possible and scored into a matrix using these terms,
which confirmed Biopower as the anchor topic of the literature (see Appendix A). Biopower, the exercise of power in the
interest of nurturing and sustaining ‘life’, was chosen because it corresponds closely with the Sr. Diaz’s intent for the project.
Many articles only synthesized Biopower with Neoliberalism or perhaps Truth, and others scored all across the matrix. Because
the SSP was designed to be a document with practical application to the promotion of sustainability in general, the next task
was to relate the complex relationships that were revealed in the matrix to the most basic concept of sustainable development:
achieving balance of social, environmental, and economic factors (Rogers, Jalal, and Boyd, 2008, p. 42).
Taking the cue from the overlapping relationships illustrated by the environmentality matrix, the author devised a categorization
scheme that more accurately reflected the synergy of ecological, economic, and sociological factors. Thus, three combination
categories were chosen as a sorting mechanism: Eco-economic, socio-ecological and socio-economic. The author knows of no
other researcher that has taken this approach, so this appears to be an original strategy. For the purposes of the Harmony
Station SSP, eco-economic topics include land use, assessment protocol, and economic development. Socio-ecological topics
include agro-forestry practices and efforts to increase biodiversity. Socio-economic topics include policy-making, marketing,
tourism, and payment for ecosystem services (PES). To illustrate this synergy, the review begins with eco-economic literature.
In a thorough overview of the eco-economics of the Petén, Nations (1999) edits a compilation of monographs discussing
various economic, environmental and social aspects of the Petén and their impact on the Maya Biosphere Reserve (MBR). The
attraction of Fletcher’s environmentality matrix becomes clear because Thirteen Ways of Looking at a Tropical Rainforest:
Guatemala’s Maya Biosphere Reserve (Nations, 1999) was produced by Conservation International. Fletcher (2010) argues
that CI and other similar NGOs broadly straddle the fuzzy border between legitimate holistic conservation efforts on one side
and on the other appear to enable multinational corporate neoliberalism by providing a ready supply of high profile projects that
provide a veneer of corporate social responsibility (CSR) over the mitigation necessary for natural resource extraction projects
An Applied Case Assessment of the Development of Harmony Station 2011 Strategic Sustainability Plan
that are non-sustainably developed. As such, Nations (1999) scored in every category across the environmentality matrix,
proving that it remained pertinent to the present research. The most critical point Nation (1999) raises was that while
subsistence agriculture and hunting/gathering are still the mainstays, the rapidly swelling population has increasingly turned to
the tourism industry for income. So far, locally-based tourism has struggled to tap into the traffic that agencies based in the
capital and Antigua tour through the region on their way to and from Tikal National Park, Guatemala’s most popular destination.
Tourism in general and eco-tourism in particular is at odds with the non-sustainable development of the native forest into
conventional agriculture models because of the net reduction in habitat and biodiversity. By tapping into tourism revenue within
the local market, less pressure is placed on the natural environment for the hunting and gathering of food, or the conversion of
forest into cropland, thus preserving or enhancing the draw for national and international tourism.
The next three authors illustrate another common juxtaposition in the matrix: Carr’s (2004) report scores every category, while
Shriar (2005) focuses on Neoliberalism and Truth. Carr’s (2004) document of land use patterns among different cultural groups
that have migrated into the Petén, along with Shriar’s (2005) study of determinants of agricultural intensity in the Petén, found
use of the velvet bean (Mucuna puriens) particularly interesting. This strategy reduces forest loss by the nature of its ability to
fix nitrogen in established agricultural fields. Shriar’s (2005) study further leads to the supposition that even though Harmony
Station may seem remote to the outsider, market development of agriculture and income alternatives is not out of the question.
Market opportunities for agriculture produce include the nearest villages of El Remate and Ixlú, which are located on the main
road to Tikal, and so provide access to non-guided tourists passing through that buy fresh food from home-based store fronts
or patronize the restaurants that cater to the tourist trade. In the event there is excess production for the immediate local
market, the regional market also has venues for distribution and/or direct sales. Income alternatives include guiding tourists by
horse, boat, or foot through the jungle; the making and selling of handicrafts; providing room and board for budget travelers,
and the relatively new trend of agri-tourism.
Even though the study by Corzo Márquez and Schwartz (2008) scored the same in the matrix as Shiar’s (2005) perspective on
the opportunities afforded by adapting to external market forces, their hypothesis was that home gardens in the Petén were
more diverse and of greater value than had been proposed by foreign conservation organizations. They surveyed twenty-three
gardens in four communities for numbers of plants by species and use. Their data on garden size, income, and plant
composition allow the users of the SSP to estimate the rate of return on a home garden, based on the size and diversity of the
garden. The above studies provide an example of how differing perspectives of sustainable development in the same
geographic location help to flesh out the eco-economic canvas. Furthermore, they illustrate that one cannot speak about
economics in the Petén without bringing ecology into the discourse as an equal discussant, validating the approach by the
present research.
Grundel and Pavlovic (2008) correlated conservation index and species diversity negatively across five landscape types
associated with oak woodlands in Indiana, illustrating that management strategies typically face a trade-off between
maximizing bird species diversity with habitat necessary for a particular endangered species. Harvey et al. (2008) postulates
the necessity for the Harmony Station SSP most clearly: “Protecting biodiversity while sustaining agricultural productivity,
indigenous cultures, and rural livelihoods, requires a new approach to conservation, particularly in regions such as
Mesoamerica, where substantial habitat conversion has already occurred” (pp. 8-9). This research implies that in order to
maximize biodiversity, agricultural development plans for Harmony Station should be geared towards the local market. The
simple aspects of plans include: Replacing pasture grass with native fruit trees both to attract wildlife for reasons discussed
later and to produce fruit for personal consumption and commerce; conservation of secondary forest areas for building
materials and habitat regeneration; and consolidating hard development and exotic production species to the most disturbed
and accessible area of the project site. These strategies increase the diversity of environmental, social and economic
opportunity rather than depending on a conventional neoliberal mono-crop agro-export scheme. By concentrating on self-need
first and then the local or regional market, Harmony Station can respond to local market demand with agility not possible if
linked to a volatile global market by a single product that has sequestered limited resources.
Oldekop, Bebbington, Brockington, and Preziosi (2010) performed a meta-analysis of 116 case studies found in 19 different
research papers that focused on forest user groups. Their discussion regarding the controversy between strict environmental
protectionism and economic development led to the premise that cooperative management of the immediate area around
Harmony Station would have some advantages. If Harmony Station stood alone as the only remaining natural habitat
surrounded by monoculture, the pressure by poachers would soon escalate to armed conflict as machete and chainsaw
wielding hunter-gatherers descended on the last natural resource reserve in the area. Cooperatively managing surrounding
land use can perhaps provide a buffer to pressure from hunter-gatherers. Tucker et al. (2007), included in the meta-study,
indicate that forest resources managed under strict rules had better ecological conditions, but that local property rights regimes
had to be considered when developing new institutions. This applies to Harmony Station as the owner seeks to expand natural
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IHART - Volume 23 (2012)
resources which have traditionally been attractive to poachers that use the site without permission when the owner is not
present to defend the property.
Figure 3: Sustainable aquaculture system concept. From “Sustainable aquaculture in the twenty-first century,” by W. A.
Wurts, 2000, Reviews in Fisheries Science 8(2), p. 149.
Wurtz (2000) discusses some evolutionary ideas on aquaculture design, such as the concept of nested sequential filtration,
(Figure 3), that provide some guidance in avoiding critical mistakes that could negatively impact the lake adjacent to Harmony
Station, arguably one of its primary assets. Besides developing protein alternatives to bush meat and livestock, the waste water
from aquaculture is a valuable fertilizer/irrigation source for the agro-forestry operations.While there is evidence that human
activity has had affects on the lake for a few thousand years (Anselmetti, Hodell, Ariztegui, Brenner, & Rosenmeier, 2007), it
has yet to approach the pollution levels associated with contemporary urban development on the southern basin of Lake Petén
Itzá (Rosenmeier, Brenner, Kenney, Whitmore, & Taylor, 2004), the lake just to the west of Laguna Salpetén. Maintaining or
improving the water quality of the lake would appear to be a fundamental concern of any sustainability efforts.
Socio-ecological literature on agro-forestry is introduced by Atran et al. (1993), with a thorough discussion of agro-forestry
practices of the local Itza Maya, which have centuries of experience in the Petén and thus provide critical insights into longterm agro-forestry strategies. Itza-Maya multi-cropping strategies include the prohibition of clear-cutting, the maximization of
edge condition, and the husbandry of biodiversity not because it is less work, but because it works with the forces of nature,
provides high quality and quantity of food choices, and diversifies economic efforts such that when natural or man-made
disasters strike, recovery options are maximized. Nigh (2008) also discusses traditional forest husbandry and soil building
techniques by the Lancandon Maya in adjacent Mexico. In contrast to the Spanish introduced slash-and-burn which clear-cuts
and reduces the biomass to ash, the Lancandon use smaller, cooler fires that are managed to produce charcoal, which fixes
nutrients that are then available to plants even under the high rainfall conditions of the Petén. These articles provide
documentation of successful traditional alternatives to modern imported agricultural practices that are based on unsustainable
fossil fuels and genetically modified seeds.
Nesheim, Halvorsen, and Nordal (2010) conducted a floristic study of the Petén comparing differences between three
categories of area: undisturbed, disturbed, and developed, noting the different plant communities that followed the succession
patterns of each type of area. Because of the many symbiotic associations of certain fauna to specific flora, the study reveals
that in order to maximize fauna diversity, associated plant diversity must also take place. Since undisturbed, disturbed and
developed areas all have only overlapping plant succession groups at best, and many species are unique to the type of area, a
blend of these conditions will be required at Harmony Station to achieve a balance of full restoration and sustainable capacity.
This point is supported by Ferguson, Vandermeer, Morales, and Griffith (2003) study of post-agricultural succession in the
Petén finding that natural reforestation (such as at Harmony Station) will be faster near existing mature trees, and very slow in
treeless pasture areas. Doing nothing just means it will take a lot longer. Ponce-Santizo, Andresen, Cano, and Cuarón (2006)
An Applied Case Assessment of the Development of Harmony Station 2011 Strategic Sustainability Plan
articulate that natural forestation is highly dependent on the relationship between primates and dung beetles, thus controlling
poaching for bush meat takes on a critical importance for reforestation efforts. Other similar symbiotic relationships are also
likely to have an impact on the development of biodiversity at Harmony Station.
Rotenberg (2007) survey of upland bird populations on a 7,000 ha white teak (Gmelina arborea) plantation located in the
department of Izabal, just south of the Petén border; Nájera and Simonetti (2010) report on their meta-study of over 200 case
studies on the response of bird diversity and species richness to various levels of habitat complexity; and Medina, Harvey,
Merlo, Vílchez, and Hernández (2007) survey of bat species in agricultural areas of Nicaragua all document how more complex
plant communities and forest structure lead to more diverse types and more numbers of birds and bats.
The socio-economic literature is more widely focused on other Central American countries since the frontier economy of the
Petén is primarily subsistence agriculture. Ceballos et al. (2009) survey of the membership of the Austral and Neotropical
section of the Society for Conservation Biology identified deforestation and forest fragmentation as the greatest threats to
biodiversity. Since these threats are driven by socio-economic and political factors that are typically introduced into underdeveloped areas by neoliberal agro-export schemes, natural resource extraction projects, and/or subsequent conservation
NGO mitigation projects, the opportunity to redirect misguided policy seems apparent. The most obvious question is whether
policy makers are listening to prestigious scientific groups or not.
Niesenbaum, Salazar, and Diop (2004) assessed the success of a community-based forestry concession in the MBR. This
study provides valuable data on the sustainability of the polycyclic harvest of commercial hardwood based on a rolling twentyyear reserve scheme, stressing the opportunity and economic importance of self-renewing non-timber forest products such as
xate leaves (Chamaedorea spp.), chicle resin (Manilkara zapota), and allspice berries (Pimienta dioica), which was also
expressed by Nations (1999). This policy was adopted because of the large number of indigenous and migrant Ladino
communities that were established in the MBR prior to the establishment of the MBR regime in 1990 (p. 11). The polycyclic
harvest concessions were proposed as a sustainable strategy that allowed communities to remain embedded within the MBR,
preventing further escalating social unrest as the three decade civil conflict wound down.
The forest concessions were inextricably tied to the peace accords of 1996, the use of the term concession illustrating the
dynamics of social and economic forces that must be analyzed in the context of socio-economic synergy. Clearly, in order to
lay claim to sustainability Harmony Station must take advantage of renewable products that are part of the natural forest
community and can be harvested at modest levels over longer time periods, rather than those whose extraction schedule
drastically alters the environment and displaces both fauna and flora habitat.
Since Harmony Station is a start-up organization with designs on agricultural and agro-forestry development, some idea of how
the local and global markets interact is crucial. Under neoliberal reform pressure to open up its markets and increase the export
of natural resource extractions, Guatemala must walk a delicate balance between subjugation to international pressure and the
benefits of making empowering decisions that place the interests its own citizens before those of powerful outside actors.
Pérez Sáinz (2003) presents a bottom-up approach to globalization from the perspective of small enterprise in Costa Rica and
Guatemala, noting the significant barriers a small enterprise must overcome to enter and maintain a presence in the global
market. Krznaric (2006) points out that even though agriculture is a significant portion of the Guatemalan economy (24% GDP),
and agricultural exports have risen sharply, the rural poor are being left behind due to inadequate education, health, market
access, and access to credit. Stanley and Bunnag (2001) analysis of export diversification strategies of Costa Rica, Honduras,
El Salvador, and Guatemala over a twenty year period suggests that demand for even traditional agricultural products is not
stable and that manufacturing or some other alternative shows more promise for generating long-term economic growth. These
studies also demonstrate the synergy of social and economic factors.
Conservation based non-governmental organizations (NGOs) are obvious players in this arena. NGO funding remains an
option and past local experiences can inform recommendations regarding partnerships and stakeholder inclusivity. Sundberg
(2004) examined the relationships that developed between U.S.-based conservation NGOs (Nature Conservancy,
Conservation International, CARE International) and an indigenous women’s cooperative based on the north shore of Lake
Petén Itzá, the same place that Atran et al. (1993) and Langholz (1999) studied. She demonstrates how the NGOs’ method of
top-down conservation practices has caused considerable consternation among various local groups. Another example of a
foreign program that misfired in the coffee-growing Antigua region of Guatemala is discussed by Kiser, Trevino, and McVicker
(2009), who discovered that the Fair-Trade scheme there fell far short of locally-developed world market prices for specialty
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coffee growers, illustrating that not all foreign sustainability schemes are successful or fully embraced. What is evident is that a
relationship with a conservation-oriented NGO should be considered and developed with caution.
Nevertheless, consideration of opportunities posed by conservation-based tourism is warranted due to Harmony Station’s
proximity to the only road leading to Guatemala’s premier tourist attraction, Tikal National Park. Background on the birdwatching sub-culture will be informative to any strategy suggestions. Scott and Thigpen (2003) survey of participants of a birdwatching festival in Texas; Stoll, Ditton, and Eubanks (2006) finding of significant willingness-to-pay to view the sandhill crane
(Grus canadensis) migration in Nebraska; and Weaver and Lawton (2011) visitor loyalty survey at the Francis Beidler Forest
Audubon Centre and Sanctuary in South Carolina all discovered heterogeneity. Furthermore, Connell’s (2009) Australian
perspective of worldwide bird watching culture confirms that the growth of bird watching is primarily because of the increasing
heterogeneity of the participants and posits the activity as the most sustainable form of eco-tourism because of its extremely
low impact.
Marketing for potential bird-watching tourism will need to be targeted. The growth of eco-labeling practices around the world
and the increased use of them by consumers to differentiate various destination properties is discussed by Kozak and Nield
(2004), who noted that there were seventy such schemes worldwide as of 2001 (p. 147). Labeling and branding are strategies
for targeting that seem to offer opportunity, including NGO iconography.
Perspective now turns to greater Central America. Villalobos-Céspedes, Galdeano-Gómez, and Tolón-Becerra (2010) study of
demand indicators for adventure tourism in the Valle Central of Costa Rica, confirmed bird-watching as a core eco-tourism
activity and identified establishing connections to existing touring operations as important to the development of eco-tourism
activity providers, such as Harmony Station. However, Himmelgreen, Daza, Vega, Cambronero, and Amador (2006) study
indicated that food insecurity increased because increasing dependence on tourism in rural Costa Rica had accelerated the
switch from subsistence agriculture to tourism opportunities. As more people became dependent on the external food chain
that supported the seasonal tourism industry, local people, who could no longer participate in traditional home-based
agricultural activities because of the time constraints, were forced to buy from the few higher-priced sources that serviced the
better-paying tourist, or go hungry. Clearly there is a balance to be achieved between tourism and agriculture.
Uddhammar’s (2006) commentary on “the relationship between conservation, tourism and development” in Africa and India
and valuation of megafauna-tourist interaction in Africa, using the gorilla as an example, illustrates the trade-off that must take
place in the minds and hearts of residents to cause them to place more value with European-style conservation practices than
traditional subsistence practices. The howler monkey (Alouatta pigra), a Petén equivalent to the gorilla, is a key tourism
element at Tikal and as of yet has only a minor presence at Harmony Station, due to hunting. However, not all hunting is bad.
Baur, McNab, Ramos, Strindberg, and Williams (2008) document the benefits of an extraction-for-pay conservation project that
helps support a subsistence community embedded in the MBR: the ocellated turkey hunt in Uaxactún (pronounced: wa-shockTOON).
Finally, Pagiola, Zhang, and Colom (2010) describe the state of payment for ecosystem services (PES) in Guatemala as
embryonic, while Costa Rica, on the other hand, has “forestry legislation [that] includes incentives for the establishment and
management of plantations and agroforestry (sic) systems, especially on abandoned pastures and other deforested lands”
(Montagnini et al., 2005, p.55). Van Hecken and Bastiaensen (2010) took a critical view of the effects of a PES program in
Nicaragua, cautioning that PES should be part of a strategy for social transformation, not a market replacement for lack of
good governance. This is echoed by Wittman and Caron (2009), who studied a carbon sequestration project located in the
western highlands of Guatemala, which through a partnership ended up neglecting both the carbon sequestration project and
the mission to alleviate rural poverty there.
However, Grossman (2007) found that native tree plantations and agro-forestry systems had the best chance of complying with
the strict requirements mandated by the international carbon markets. Furthermore, the mixed species strategy found to
promote biodiversity by previously mentioned studies also appeared to sequester more carbon at a faster rate. So while the
international market for eco-system services is far from certain, it appears that many researchers are in agreement that a
diversity of development strategies leads to more biodiversity, which is one of the main intentions of Harmony Station. This
concludes the review of the literature.
The conclusions drawn from the review were summarized so that they would be more easily synthesized with the following
sections. From the eco-economic category the author determined that:
An Applied Case Assessment of the Development of Harmony Station 2011 Strategic Sustainability Plan
Tourism is highly competitive, but market development is not out of the question;
There are common strategies for sustainable agriculture, notably the velvet bean;
Home gardens can be highly productive, diverse, and economically significant;
Higher resource levels at Harmony Station will require higher protection strategies;
Diversity of land uses will lead to biodiversity if commercial production is limited;
Cooperative conservation of the surrounding area is advantageous to all;
Aquaculture must be approached with caution, but can be sustainable.
Conclusions drawn from the socio-ecological category support some of those previous and include:
Documented traditional practices exploit developed, disturbed, and undisturbed areas;
These areas types must all be present to maximize both floral and faunal diversity;
Flora/Faunal relationships are factors that are critical to the pace of reforestation;
Management for forest structure complexity will promote biodiversity.
Conclusions drawn from the socio-economic category round out the findings:
Concentrate production on incrementally extracted native renewable resources;
Production for the local market is more sustainable than production for export;
Third-party funding for conservation is a possible form of alternative income;
Conservation groups are heterogeneous, so targeted messaging is critical;
Staying on-mission while relying on third-party funding might be difficult;
Relationships with many other tourism operators will be necessary;
Agriculture and agro-forestry must remain primary elements, tourism secondary;
Eco-labeling and environmental branding are common strategies worth trying;
Developing protein alternatives to bush meat is critical to supporting reforestation;
Payment for ecosystem services is possible, but most likely off-market and negotiated;
Diversity of strategies leads to diversity of options that support greater bio-diversity.
The implications provided by these conclusions are broad. It seems obvious that the spectrum of agricultural strategies
produces a spectrum of impacts on biodiversity. Because the complexities of key symbiotic relationships are supported by
increasing diversity in environmental, social, and economic spheres, it appears that consolidation, standardization, and
monoculture are less attractive strategies. Sustainable development solutions seem to best evolve from site-specific resourcebased community-friendly origins. The degree of sustainability of the strategies is dependent on the synergy of environmental,
social, and economic factors, and it is difficult if not impossible to analyze one factor in isolation from the others. There is not a
one-size-fits-all template for sustainable development, and adaptive management practices will yield more return than rigid
This practical part of the SSP, not included in this presentation, subjected the conclusions from the literature review to three
forms of business analysis: Stakeholder, SWOT, and the Business Model Canvas (Osterwalder & Pigneur, 2010). This yielded
recommended goals and objectives that intended to be SMART: specific, measurable, achievable, results-oriented, and timefixed (Williams, Szaro & Shapiro, 2009). Through a technique identified as backcasting by Holmberg (1998), sustainability
criteria pertinent to Harmony Station were drawn from the mission and vision statements. Goals were identified from those
criteria, and objectives written that support the achievement of those goals. The goals and objectives were rated as immediate,
short-term, mid-term or long-term, with the ratings summarized in appendix.
For example, Goal One, re-establishment of a healthy rainforest ecosystem, was supported by the objectives: creating maps of
existing conditions and designs for projected changes, protection of existing forest fragments, husbandry of existing
reforestation plantings, develop and maintain diversity of plantings, creating natural forest structure, and new reforestation
plantings. The maps listed in Objective 1.1 correspond in order to the ratings: the 5-year map shows immediate goals and
objectives, the 10-year map reflects the short-term, the 15-year the mid-term, and the 20-year map the long term goals and
objectives. Pie chart figures of proposed land use percentages that corresponded to these ratings, as well as multi-lingual lists
of plant species that were identified as culturally significant in the literature, were also included in the appendices.
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IHART - Volume 23 (2012)
The listing of goals and objectives set up the discussion regarding the Timeline for Implementation which included Kubert
(2010) who argues convincingly that the measuring and reporting of hard data are critical functions of any organization that
hopes to become sustainable. A system of metrics should be implemented to generate data to be presented in report, annually
at least. Those metrics should be a simple yet broad measurement of readily identifiable and meaningful data items along the
lines of those discussed by Gable (2007) in her presentation of ShoreBank Enterprise Cascadia’s sustainable loan program.
The SBEC metric set included economic outcomes: number of full time jobs created, amount in dollars of leveraged
investment, number of value-added businesses; environmental outcomes: lineal feet of functioning riparian zone, acres in
sustainable management, gallons of water diverted from the waste stream; and social equity outcomes: numbers of women
and other minorities assisted, number of low income families assisted, and dollar amount in local land tenure. Following this
model, some metrics for establishing a baseline at Harmony Station were suggested. Economic outcomes for Harmony Station
would include setting up an accounting record (income amount, amounts spent on each activity, and the balance forward),
number of employees, and some estimation of the amount of money brought into the community by actions directly attributable
to Harmony Station (i.e. the number of eco-tourists that participated at Harmony Station). Environmental outcomes include
number of trees planted by specie, amount of pasture eliminated in area measurement, and gallons of rainwater storage
capacity added. Social equity outcomes include the numbers of eco-tourists that were hosted and presumably enlightened,
how many fellow agriculturalists were contacted and what the level of contact was, and how many field trips by local school
children have been accomplished. Combining these metrics with the twenty-year planning system proposed in the SSP would
provides a fairly comprehensive look at the state of affairs both on the ground and in the hearts and minds of the management
Development of the project maps, recording metrics, and record-keeping protocols are the most apparent avenues for future
research and effort. This is a ripe opportunity for adaptive management, often used in natural resource management
relationships where the proposition of various strategies from different members of the stakeholder group may be at odds with
each other. Metrics are agreed upon to test the efficacy of the initial strategy, with adaptations made in subsequent years in
response to the achievement (or not) of the agreed upon goals and objectives (Williams, Szaro & Shapiro, 2009). Indeed, the
basic metrics may become insufficient over time as operations become more complicated and the complex relationships that
affect the sustainability of Harmony Station are further revealed.
On a purely academic level, more discourse on the use of Fletcher’s environmentality framework should be pursued. While this
researcher found it helpful in the review of the literature, the environmentality framework is far from being robustly tested. This
study has illustrated one particular sustainable development project where governmentality, biopower, discipline, sovereignty,
neoliberalism and truth do alternately merge, divide, compete, conflict or coexist, as Fletcher (2010, p. 177) proposes.
However, through the sustainability lens there is further discourse on the theory that Governmentality/Discipline is social,
Sovereignty/Neoliberalism is economic, and Biopower/Truth is environmental.
Future scholarly inquiry should focus on continued analysis of academic literature that explores big picture connections to
discrete projects such as Harmony Station. Expanding the field of inquiry to include analysis of the flow of information into and
around the Petén from regional, national, and international sources through the matrix filter would help determine the answers
to some of the many questions that remain. What sustainability message is being sent to the indigenous milpero living in the
Petén, perhaps now via his or her cell phone? What are the implications of Neoliberal development strategies over those that
favor Truth, and vice versa? What is the relationship between Sovereignty and Discipline in the Petén? By viewing the
messaging through the environmentality framework, insightful guideposts to the future of the Petén, and perhaps all of Central
America, will reveal themselves. Economic development and agro-forestry practices policy-making must find balance with
efforts to maintain biodiversity, and marketing will continue to impact everyday decisions made by everyone, everywhere.
Anselmetti, F. S., Hodell, D.A., Ariztegui, D., Brenner, M., & Rosenmeier, M.F. (2007). Quantification of soil erosion rates
related to ancient Maya deforestation. Geology, 35(10), 915-918. doi: 10.1130/G23834A.1
Atran, S., Chase, A. F, Fedick, S. L., Knapp, G., McKillop, H., Marcus, J., Schwartz, N. B., & Webb, M. C. (1993). Itza Maya
tropical agro-forestry. Current Anthropology 34(5), 633-700. Retrieved from http://www.jstor.org/stable/2744279
Baur, E. H., McNab, R. B., Ramos, V. H., Strindberg, S, & Williams, L. E. (2008). Case Study: Community Based Ocellated
Turkey (Meleagris ocellata) Sport Hunting in the Petén, Guatemala. USAID. Retrieved from
An Applied Case Assessment of the Development of Harmony Station 2011 Strategic Sustainability Plan
Carr, D. L. (2004). Ladino and Q'eqchí Maya land use and land clearing in the Sierra de Lacandón National Park, Petén,
Guatemala. Agriculture & Human Values, 21(2/3), 67-76. Retrieved from EBSCOhost.
Ceballos, G., Vale, M. M., Bonacic, C., Calvo-Alvarado, J., List, R., Bynum, N., Medellín, R. A., Simonetti, J. A., & Rodríguez,
J. P. (2009). Conservation challenges for the Austral and Neotropical America Section. Conservation Biology, 23(4), 811817. doi:10.1111/j.1523-1739.2009.01286.x
Connell, J. (2009). Birdwatching, twitching and tourism: Towards an Australian perspective. Australian Geographer, 40(2), 203217. doi:10.1080/00049180902964942
Corzo Márquez, A.R., & Schwartz, N.B. (2008). Traditional home gardens of Petén, Guatemala: Resource management, food
security, and conservation. Journal of Ethnobiology 28(2), 305-317.
Diaz, D. (2010). Harmony Station homepage. Retrieved from http://harmonystation. wordpress.com
Ferguson, B. G., Vandermeer, J., Morales, H., & Griffith, D. M. (2003). Post-agricultural succession in El Petén, Guatemala.
Conservation Biology, 17(3), 818-828. doi:10.1046/j.1523-1739.2003.01265.x
Fletcher, R. (2010). Neoliberal environmentality: Towards a poststructuralist political ecology of the conservation debate.
Conservation & Society, 8(3), 171-181. doi:10.4103/0972-4923.73806
Foucault, M. (2008). The birth of biopolitics. New York: Palgrave Macmillan.
Gable, C. (2007). Measure what matters: Shore Bank Enterprise Cascadia's commitment to triple-bottom-line metrics.
Environmental Quality Management, 16(3), 25-40. doi:10.1002/tqem.20129
Grossman, J. (2007). Carbon in terrestrial systems: a review of the science with specific reference to Central American
ecotypes and locations. Journal of Sustainable Forestry, 25(1/2), 17-41. doi:10.1300/J091v25n0102
Grundel, R., & Pavlovic, N. (2008). Using conservation value to assess land restoration and management alternatives across a
degraded oak savanna landscape. Journal of Applied Ecology, 45(1), 315-324. doi:10.1111/j.1365-2664.2007.01422.x
Harvey, C. A., Komar, O., Chazdon, R., Ferguson, B. G., Finegan, B., Griffith, D. M., & ... Wishnie, M. (2008). Integrating
agricultural landscapes with biodiversity conservation in the Mesoamerican Hotspot. Conservation Biology, 22(1), 8-15.
Himmelgreen, D. A., Daza, N., Vega, M., Cambronero, H., & Amador, E. (2006). “The tourist season goes down but not the
prices.” Tourism and food insecurity in rural Costa Rica. Ecology of Food & Nutrition, 45(4), 295-321.
Holmberg, J. (1998). Backcasting: A natural step in operationalising sustainable development. Greener Management
International, 23(Autumn), 30-51. Retrieved from EBSCOhost.
Kiser, A. I. T., Trevino, N. A., & McVicker, M. (2009). An economically and environmentally sustainable business model
initiative for micro enterprise in Guatemala: Observations from field research. Business Education & Accreditation, 1(1),
121-130. Retrieved from EBSCOhost.
Kozak, M., & Nield, K. (2004). The role of quality and eco-labelling systems in destination benchmarking. Journal of
Sustainable Tourism, 12(2), 138-148. Retrieved from EBSCOhost.
Krznaric, R. (2006). The limits on pro‐poor agricultural trade in Guatemala: Land, labour and political power. Journal of Human
Development, 7(1), 111-135. doi:10.1080/14649880500502144
Kubert, J. (2010, July 1). Why all companies should track sustainability metrics. GreenBiz.com. Retrieved from
Langholz, J. (1999). Exploring the effects of alternative income opportunities on rainforest use: Insights from Guatemala's
Maya Biosphere Reserve. Society & Natural Resources, 12(2), 139-149. doi:10.1080/089419299279803
Medina, A., Harvey, C. A., Merlo, D., Vílchez, S., & Hernández, B. (2007). Bat diversity and movement in an agricultural
landscape in Matiguás, Nicaragua. Biotropica, 39(1), 120-128. doi:10.1111/j.1744-7429.2006.00240.x
Montagnini, F., Cusack, D., Petit, B., & Kanninen, M. (2005). Environmental services of native tree plantations and agroforestry
systems in Central America. Journal of Sustainable Forestry, 21(1), 51-67. doi:10.1300/J091v21n01_03
Nájera, A., & Simonetti, J. A. (2010). Enhancing avifauna in commercial plantations. Conservation Biology, 24(1), 319-324.
Nations, J. D. (Ed.) (1999). Thirteen ways of looking at a tropical forest: Guatemala’s Maya Biosphere Reserve. Washington,
D.C.: Conservation International.
Nesheim, I., Halvorsen, R., & Nordal, I. (2010). Plant composition in the Maya Biosphere Reserve: natural and anthropogenic
influences. Plant Ecology, 208(1), 93-122. doi:10.1007/s11258-009-9691-3
Niesenbaum, R. A., Salazar, M. E., & Diop, A. M. (2004). Community Forestry in the Mayan Biosphere Reserve in Guatemala.
Journal of Sustainable Forestry, 19(4), 11-28. doi:10.1300/J091v19n04•02
Nigh, R. (2008). Trees, fire and farmers: Making woods and soil in the Maya Forest. Journal of Ethnobiology 28(2), 231-243.
Oldekop, J. A., Bebbington, A. J., Brockington, D., & Preziosi, R. F. (2010). Understanding the lessons and limitations of
conservation and development. Conservation Biology, 24(2), 461-469. doi:10.1111/j.1523-1739.2010.01456.x
Osterwalder, A., & Pigneur, Y. (2010). Business Model Generation. Hoboken, New Jersey: John Wiley and Sons.
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Pagiola, S., Zhang, W., & Colom, A. (2010). Can payments for watershed services help finance biodiversity conservation? A
spatial analysis of highland Guatemala. Journal of Natural Resources Policy Research, 2(1), 7-24.
Pérez Sáinz, J. P. (2003). Globalization, upgrading, and small enterprises: a view from Central America. Competition &
Change, 7(4), 205-221. doi:10.1080/1024529042000197686
Ponce-Santizo, G., Andresen, E., Cano, E., & Cuarón, A. D. (2006). Dispersión Primaria de Semillas por Primates y Dispersión
Secundaria por Escarabajos Coprófagos en Tikal, Guatemala. Biotropica, 38(3), 390-397. doi:10.1111/j.17447429.2006.00144.x
Rice, P. M. (1987). Macanché Island, El Petén, Guatemala: Excavations, pottery, and artifacts. Gainesville, Florida: University
Presses of Florida.
Rogers, P. P., Jalal, K. F., & Boyd, J. A. (2008). An introduction to sustainable development. London: Earthscan.
Rosenmeier, M. F., Brenner, M., Kenney, W. F., Whitmore, T. J., & Taylor, C. M. (2004). Recent Eutrophication in the Southern
Basin of Lake Petén Itzá, Guatemala: Human Impact on a Large Tropical Lake. Hydrobiologia, 511(1-3), 161-172.
Retrieved from EBSCOhost.
Rotenberg, J. A. (2007). Ecological role of a tree (Gmelina arborea) plantation in Guatemala: An assessment of an alternative
land use for tropical avian conservation. Auk (American Ornithologists Union), 124(1), 316-330. Retrieved from
Scott, D., & Thigpen, J. (2003). Understanding the birder as tourist: Segmenting visitors to the Texas hummer /bird celebration.
Human Dimensions of Wildlife, 8(3), 199-218. Retrieved from EBSCOhost.
Shriar, A. J. (2005). Determinants of agricultural intensity index “scores” in a frontier region: An analysis of data from northern
Guatemala. Agriculture & Human Values, 22(4), 395-410. doi:10.1007/s10460-005-3395-7
Stanley, D. L., & Bunnag, S. (2001). A new look at the benefits of diversification: lessons from Central America. Applied
Economics, 33(11), 1369-1383. doi:10.1080/00036840010007498
Stoll, J. R., Ditton, R. B., & Eubanks, T. L. (2006). Platte River birding and the spring migration: Humans, value, and unique
ecological resources. Human Dimensions of Wildlife, 11(4), 241-254. doi:10.1080/10871200600802939
Sundberg, J. (2004). Identities in the making: conservation, gender and race in the Maya Biosphere Reserve, Guatemala.
Gender, Place & Culture: A Journal of Feminist Geography, 11(1), 43-66. doi:10.1080/0966369042000188549
Sundberg, J. (2006). Conservation encounters: Transculturation in the 'contact zones' of empire. Cultural Geographies, 13(2),
239-265. doi:10.1191/1474474005eu337oa
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Tucker, C. M., Randolph, J. C., & Castellanos, E. J. (2007). Institutions, biophysical factors and history: An integrative analysis
of private and common property forests in Guatemala and Honduras. Human Ecology: An Interdisciplinary Journal, 35(3),
259-274. doi:10.1007/s10745-006-9087-0
Uddhammar, E. (2006). Development, conservation and tourism: conflict or symbiosis? Review of International Political
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work? Development & Change, 41(3), 421-444. doi:10.1111/j.1467-7660.2010.01644.x
Villalobos-Céspedes, D., Galdeano-Gómez, E., & Tolón-Becerra, A. (2010). Demand indicators for adventure tourism
packages in Costa Rica: An exploratory analysis. Tourism & Hospitality Research, 10(3), 234-245. doi:10.1057/thr.2010.7
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Guide, Chapter Three, 21-47. Adaptive Management Working Group, U.S. Department of the Interior. Retrieved from
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An Applied Case Assessment of the Development of Harmony Station 2011 Strategic Sustainability Plan
Fletcher’s Framework from Foucault (F4) environmentality matrix of literature
Generic mode of ‘conducting subjects’ conduct’
Exercise of power in the interest of nurturing and sustaining ‘life’
Governance through encouraging internalization of norms and values
Governance through top-down creation and enforcement of regulations
Governance through manipulation of external incentive structures
Truth (art of government)
Governance in accordance with particular conception of the nature and order of the universe
Material not directly related to development or conservation
Anselmetti (2007)
Atran, et al. (1993)
Baur, et al. (2008)
Carr (2004)
Ceballos et al. (2009)
Connell (2009)
Corzo Márquez & Schwartz (2008)
Diaz, D. (2010)
Ferguson et al. (2003)
Fletcher (2010)
Foucault (2008)
Grossman (2007)
Grundel & Pavlovic (2008)
Harvey et al. (2008)
Holmberg, J. (1998)
Himmelgreen et al. (2006)
Kiser, Trevino & McVicker (2009)
Kozak & Nield (2004)
Krznaric (2006)
Langholz (1999)
Marsh (1983)
Medina et al. (2007)
Montagnini et al. (2005)
Nájera & Simonetti (2010)
Nations (Ed.) (1999)
Nesheim, Halvorsen & Nordal (2010)
Niesenbaum, Salazar & Diop (2004)
Nigh (2008)
Oldekop et al. (2010)
Pagiola, Zhang & Colom (2010)
Pérez Sáinz (2003)
Polansky & Waller (2011)
Ponce-Santizo et al. (2006)
Rogers, Jalal, & Boyd
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IHART - Volume 23 (2012)
APPENDIX A (Continued)
F4 matrix of literature
Rosenmeier (2004)
Rotenberg (2007)
Scott & Thigpen (2003)
Shriar (2005)
Stanley & Bunnag (2001)
Stoll, Ditton & Eubanks (2006)
Sundberg (2004)
Sundberg (2006)
Tucker, Randolph & Castellanos (2007)
Uddhammar (2006)
Van Hecken & Bastiaensen (2010
Villalobos-Céspedes et al. (2010)
Weaver & Lawton (2011)
Williams, Szaro & Shapiro (2009)
Wittman & Caron (2009)
Wurts (2000)
Note: The epistemological framework shows that the literature represents a wide range of perspectives while consistently including
biopower as an anchor topic. The Other category represents general information helpful for framing the discussion but is not
necessarily directly related to the development/conservation debate, and may not be included in the present work.
T. Jordan and C. Lawrence
IHART - Volume 23 (2012)
Tiffany Jordan and Claudette Lawrence
Keiser University, USA
Historian Daniel J. Boorstein notes, “The greatest obstacle to discovery is not ignorance, but the illusion of knowledge”
(Boorstein, 1985, p. 85)
We have gone from personnel management to Strategic Human Resource Management, which is no longer about pushing
papers to staff and benefits. Globalization has changed the way in which we conduct and operate business. Developing human
resources management structures is no longer a technical issue either, where this department is outsourced with a link for
employees to log on and ask questions or review and update information. Today, human capital placed in expatriate positions
need language skills, knowledge, and the ability to adapt to cultural environments to be on a fast track for these international
opportunities in global organizations. HR is a very complex issue that can center on not just economics to improve the bottom
line, but political, environment, social, and cultural variables, playing a critical role in the development of a host nation and the
home organization – whether as a subsidiary or branch office. Global competitiveness of cross-border mergers and
acquisitions has been receiving significant attention. The ethnocentrism approach no longer meets the needs of diverse
communities. According to recent research, aligning global HR strategies, organizational capabilities, and people (staff) are
increasingly meshed to attract and retain talent. Current data available to staffing potential expatriates highlights the
advantages and disadvantages to each approach. The purpose of this conceptual (theoretical framework) analysis is to
examine the growing trends in human resource approaches and practices to international human resources management
staffing approach at the ethnocentric, geocentric, polycentric, and region-centric levels, as strategic considerations for effective
communication with expatriate managers and local staff. It attempts to understand which strategy/strategies are being
effectively adopted to global firms, to improve the staffing and retention process with a framework for best practices.
Keywords: International Human Resources Management (IHRM), Human Resources Trends, HRM, Human Capital, Staffing
Approaches, Staffing Policy, Hiring Strategies, Ethnocentric Approach, Geocentric Approach, Polycentric
Approach, Region-Centric Approach, Multicultural Workplace, International Business, Cross-Cultural Training,
Global HR Practices, International Business Enterprises.
The modern day search for competitive advantage has businesses beginning to emphasize the playing of a global game. “We
are living in times of great change with the emergence of global and international organizations, which are pursuing strategies
for the expansion of their markets as a means to reach new opportunities for their goods and services” (Trudel, 2009). “This
worldwide aspect is also growing with medium and small companies that are recognizing their development outside their
national borders an important activity for survival” (Pantin, 2006). Today, serious organizations wishing to internationalize their
businesses must count on top management to develop its employees with a global thinking principle and relevant intercultural
competencies as members often come from different cultures. According to Morris, Snell, & Wright (2005), the international
human resources management (IHRM) practices should build the unique human capital and suggest utilizing a combination of
human, social, and organizational capital in a creative and integrative manner as a source of competitive advantage. Questions
that come to mind are: what are the staffing trends in human resources transformation practices in multinationals with
subsidiaries and branch offices globally? What is the current and future scope in hiring the best talent? In which way(s) have
recent global migration of human capital affected the HR process?
It is to analyze and examine the merits of secondary research that currently exists in international human resources staffing
practices. The content covered is relevant internationally and among different industries. The materials presented apply theory
to practical situations. It focuses on human resources and the international business audience, to provide a better
understanding of the issues involved in staffing process for international assignments, where knowledge can be transferred
T. Jordan and C. Lawrence
IHART - Volume 23 (2012)
from the domestic HR to the international context - the roles and duties performed by expatriate workers, thereby lending to the
body of knowledge to make key decisions.
Because so little attention and information is focused on the internationalization of human resources management, the authors’
attempt to reignite the issues to keep it in the literature as an important topic to be furthered studied.
This secondary research gathered data based on information from studies previously performed on the topic, to gain initial
insight into the problem(s) for completing this project. The advantage is time and cost savings but presented in a sequential
manner; the downside of this research is that it is not customized by interviews or sample questionnaires to be as useful as
primary market research, presenting pertinent statistics to the research topic. This is the limitation, which will be pursued in
This theoretical paper will focus on factors of ethnocentric, geocentric, polycentric, and region-centric approaches to
international human resources management, where geographical mobility constitutes fundamental principles. Schneider (2003)
points out “one of the barriers preventing the HR function from fulfilling its role is its own lack of international experience. HR
managers have very few transfer opportunities outside their home country and do not get the international exposure they need,
and companies seem to make little effort to leverage the knowledge gained from operating in a different cultural environment.
Hence, HR departments are also missing the opportunity to learn from the experiences of retuning expatriate and loses the
very knowledge and skills needed for developing long term international competence of the firm” (Schneider, 2003).
Faced with unprecedented levels of foreign competition at home and abroad, firms are beginning to recognize not only that
international business is high on management's list of priorities but that finding and nurturing the human resources required to
implement an international or global strategy is of critical importance (Dowling & Welch, 2005, 1999). Attracting and retaining
the best talented minds have become as challenging. The authors stress that every HRM model must be critically assessed in
the particular setting in which it is being used, and then adopted, adapted or abandoned. Human Resources Management
(HRM) has continually been enlarging its sphere of inclusion, as competition increases and intensifies at the international and
global levels, to amplify the importance of recruitment, selection, training, management and evaluation of employees. “The
complexities of operating in different countries and employing different national categories of workers are key variables that
differentiate domestic and international HRM, rather than any major differences between the HRM activities performed.”
Dowling and Welch (2006) argue that the complexity of IHRM can be attributed to six factors:
1. More HR activities – to operate internationally, HR must engage in activities not necessary in a domestic environment.
2. The need for a broader perspective – international HR managers face the problems of managing more than one national
group of employees.
3. More involvement in employees’ personal lives – housing arrangements, health care, and compensation packages
4. Changes in emphasis as the workforce mix of expatriates and locals varies – foreign operations mature and therefore HR
activities change.
5. Risk exposure – human and financial consequences of failure in the international arena are more severe than in domestic
6. Broader external influences – the type of government, the state of the economy and the accepted policies and
procedures of the host countries laws.
“One of the greatest challenges facing international organizations lies in their capacity to adapt their human resources
management to the norms and values of different cultures. Organizations often confuse international human
resources management and expatriate management. In doing so, they involuntarily block out scores of employees
who are also active in the organizations. Country of origin, locations of recruitment and work, and geographical
mobility constitute the fundamental elements of a complete managerial system. In essence, the communication and
exchange capacities between the various groups - some of which are more sedentary and others mobile - are main
considerations of international human resources” as described Huault (1998).
Changing Trends in International Human Resources Management: Managing Approaches for Effective Global Operations
The demand to do more with less and faster has grown exponentially for most HR functions. Additionally, many organizations
are calling for HR to become a "strategic partner" in transforming the function from a low-level expense center to a more visible
and responsive investment center (Dyer & Holder, 1998). There are also compliance that refers to law and regulation.
For human resources management (Manolescu, 2004; Noe at al, 2008), the development plays an important role in advancing
the skills of workers in organizations in order to improve productivity and international competitiveness. This necessity is
resulting more in complexity, particularly, to manage cultural, economical, and internal influences on HR activity. Today and
futuristically, we are faced with international human resources management (IHRM).
One of the greatest challenges facing international and global organizations today rests on their capacity to adapt their human
resources management to the norms and values of different cultures (Hill, 2011). Global human resource management
(GHRM) in international business activities include human resource strategy, staffing, performance evaluation, management
development, compensation, and labor relations. None of these activities is performed in a vacuum; all must be appropriate to
the firm's strategy. Since the beginning of globalization, cross-cultural management has been debated whether a localization or
internationalization practice is best for multinationals. Horizontal job enlargement adds more challenges or new responsibilities
to an individual's current job from simple tasks (De Cieri, Kramar, Noe, Hollenbeck, Gerhart, & Wright 2008).
Forces for change are global competition, growth in mergers, acquisitions, restructuring, and advances in technology and
telecommunication. Some of the challenges and complexities of operating in different countries with varied nationalities are:
cross-cultural management orientation in different cultural environments and attitude of senior management, diversity
workforce, hyper-competition, expansion to host and third national countries from parent country type employees, family
adjustment, homeland security, taxation, and government regulations. Multinational management now requires .1 the need for
flexibility, 2. Local responsiveness, 3. Sharing knowledge and, 4. Transfer of competencies.
According to Gankema, Snuif, & Zmart (2000), there is a noticeable shortage of sound international practices, as most
research explains best practices related to management of expatriates and the training of employees. This limitation is largely
due to cost and time constraints (Schuler, Budhwar, & Florkowski, 2002). However emerging markets such as Brazil, Russia,
India, and China (BRICs) countries could change this profile in years to come. Morris, Snell, & Wright (2006) suggest that
multinational corporations (MNCs) able to replicate best practices among subsidiaries more effectively than their competitors,
and typically gain a competitive advantage.
In the last decade or so, there has been a surge of interest in international human resources management (IHRM) issues
(Kirkman and Law, 2005). We have witnessed a growth of interest in strategy and human resources management as
organizations and academics (Boxall and Purcell, 2003) have been increasingly exploring ways in which HRM is strategic to
business success.
The ability to outsource certain functions in technology, manufacturing, and information to other parts of the world means that
even small companies can interact with people from different countries. Therefore, there has been a rapid increase in
international business. Clearly, these opportunities will lead to greater challenges.
Katz & Darbishire (2000) find that traditional national systems of employment are being challenged by cross-national patterns;
these changing employment patterns are closely related to the decline of unions and growing income inequality. Employee
development is key to lean operations of the lean production system in Japan (Morishima, 1995b: 12). As firms continue to
become internationally minded, the role of international HR professionals is becoming increasingly the foreground of business.
Budwar & Sparrow (2002) pose the following questions:
 How do different countries manage their human resources process in order to compete in dynamic global markets?
 Is there a best human resource management international approach and can the best resource practices be transferred
across nations?
 What drives international HRM, how effective and important it is for prosperity?
An examination of Human Resource policies and practices among multinationals operating in three different multinational
organizations provides insights about the nature of the intervening variables that explain how Human Resource policies affect
performance (Sparrow & Brewster, 2002).
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To begin, a definition of globalization that made IHRM possible is defined! Because businesses are engaging in cross-border
commercial transactions with individuals, private firms, and/or public sector organizations (Hill, 2011; Griffin & Pustay, 2010;
Wild, Wild, & Han, 2009) activities must be set at attracting, developing and maintaining the effective workforce necessary to
achieve a firm’s objective.
According to Hill (2011), "globalization refers to the shift toward a more integrated and interdependent world economy” (p.6).
Over the years globalization has become very popular; companies are strategizing and forming affiliates with different countries
to move free flow of goods by creating infrastructure and communication so businesses can be sustainable and successful in
today’s competitive economy. It is the trend towards greater economic, cultural, political, and technological interdependence
among national institutions and economies – with increasingly freer flow of goods, services, money, people, and ideas across
national borders” (Wild, Wild, & Han, 2009).
There are two main forces that underlie globalization: 1. falling barriers to trade and investment, and 2. Technological
innovation. Thomas Friedman’s (2005) examination of the influences shaping business and competition in a technology-fueled
global environment is a call to action for governments, businesses and individuals who must stay ahead of these trends in
order to remain competitive as the world flattens.
Dyck and Neubert (2010) refer to “changes in dimensions of the external environment that result in increased and
interdependence and integration among the people and organizations around the world.” Griffin & Pustay (2010) note, “the
increasing integration of the world economy and the world’s countries;” and Wild, wild, & Han (2009) state that “technology is
perhaps the most remarkable facilitator of societal and commercial changes today.” Hence, globalization ultimately creates
positive and negative impacts when the people of different nations interact in order to achieve the objectives.
Globalization can be credited with bringing many societies closer together. The world’s marketplace is becoming one giant
market rather than various individual domestic markets. Through technological advancements such as the Internet and other
innovations, people are able to communicate more effectively and have much more information available to them. However,
globalization has caused many social problems for the world today. Reddy and Vyas (2004, p. 170) point this out through
Globalization of individual companies and capital markets over the past two decades has changed the business landscape.
Many firms have expanded operations overseas as domestic businesses are facing competition from abroad” (Wright, 2008, p.
8). Any multinational company with a good human resources management team will put out every effort to getting the right
people for the right cost. As business expands, we recognize greater human interaction at many levels and intensified
exposure to the many outcomes of current global business practices (Betther & Lee, 2002). Multinational organizations can
enjoy greater profit and a larger consumer base by expanding operations all over the globe. Osland (2003, p. 141) makes
reference to globalization having a negative impact on social equality. For example, the poor becoming poorer, people who are
technologically unskilled have seen their wages diminish, and domestic businesses having to close their operations due to their
inability to compete against MNEs that have shifted their manufacturing operations to countries that offer lower cost labor or
favorable regulatory policies.
Similarly, developing countries can take advantage of opportunities to develop their own domestic economies through
collaboration with large businesses, offering jobs in areas where employment has been scarce (Eddy & Vivarelli, 2006). It is the
responsibility of the human resource management to ensure that qualified internal employees are readily available to occupy
any vacancies. Workers on managerial assignment in other countries or even those managers that are working on international
assignments are faced with challenges that can either rise to success or failure.
First, it is necessary to briefly examine the evolution of the field in order to make a distinction between human resources
management (HRM), strategic human resources management (SHRM), and international human resources management
(IHRM). We can all credit Elton Mayo, Frederick Taylor with the management craze (Morgan, 1998); then came personnel
management after World War II into the 1970s of human resources management and strategic human resources management,
to the recent international human resources management (Schuler, Budhwar, & Florkowski, 2002). We are living in times of
rapid change. The development of ever-evolving technology is growing economies and changing the interface of traditional
business. For some time, human resources management has been undervalued, but the shift in paradigm is highlighting the
Changing Trends in International Human Resources Management: Managing Approaches for Effective Global Operations
importance of its creative capital as one of the greatest assets in order to compete within the dynamic and unstable global
The main functions of the HRM are: (1) Workforce Function, (2) Personnel Management Function, (3) Compensation Function,
(4) Orientation and Development Function, (5) Labor Relationship Function, and (6) Social Services Function (Noe, 2009). The
HRM functions grow in complexity while the company grows in size. Small enterprises may not have a structured area for the
HRM, but to the extent that these companies grow, the HR activities need to be within a HR department that develops all the
HR functions. The globalization has brought the necessity to design a way of managing the HR in a global manner, due to
different approaches in various places in the world, to develop the same activities, and to compensate and motivate the HR.
The global strategy used to manage HR could be the reason for an organization to become a truly global enterprise ((Hill,
2011, p. 604). The staffing policy of the human resource management is to make sure that the right staff is hired to achieve
organizational goals. “Staffing is the HRM process of identifying , attracting, hiring, and retaining people with the necessary
knowledge, skills, abilities, and opportunities (KSAOs) to fulfill the responsibilities of current and future jobs in the
organization”(Dyck & Neubert, 2010, p. 360). The human resource function is a crucial function in any organization and
therefore requires qualified workers.
Having the right people in the right positions with sufficient training and knowledge to perform effectively and outstanding, their
skills and cultural desire, behavior, and incentives that motivate and empower them to develop correctly their function and
participation within the organization must be a clue to the difference to succeed in a global market. The multinational
companies may decide for one of the following strategies: (1) Localization, in which the strategy is to create value by giving the
responsibility to the local business; (2) Internationalization, in which competencies and products are transferred overseas; (3)
Globalization, the strategy is realizing location economies and experience curve; and (4) trans-nationalization, by doing
everything simultaneously. Through its functions, HRM develops an important role implementing the business strategies. The
selecting task is a main function that has to ensure the correct skilled people that meet the behavior, the values and the beliefs
defined for an organization. International companies have developed different types of staffing policies: ethnocentric,
geocentric, polycentric, regiocentric and geographic approaches (Hill, 2011, p. 606). This paper focuses on these four primary
models associated with international human resource management strategies.
Human Resource Management (HRM) means that companies use methods to improve the efficiency of human resources (Hill,
2010, p.626). Human is the key point of development. All the companies try to earn more profits and decrease the cost and
they use different management methods. Human Resource Management can help companies achieve their strategic goals
(Hill, 2010, p.626). According to the processes of recruiting and training, companies can choose fit employees and improve
their skills. As a result, companies can improve the efficiency. At the same time, globalization became the trend of our world
and the competition is getting more and more intense. Managers pay attention to the multinational development and
international human resources (Rivera, 2008). International market contains great potential and resources including cheap
labor force and raw material. However, international companies have to face the different cultures and environments, which
would lead to problems. In addition, different cultures and policies can influence human resource management directly (Stehle
and Erwee, 2007). Therefore, the strategy of international human resource management is of great importance.
When companies choose to expand their business to other countries, they have to decide their strategy because the different
cultures would influence the perceptions of managers. Managers who come from different countries would have different value
systems (Stehle and Erwee, 2007). As a result, the managers of the multinational companies would play an important role.
Different managers would choose different strategies and the differences can lead to different results.
Staffing strategies for any organization is the key to success, appointment of staff, and key positions is a matter of concern.
Organizations around the world draw their concern on hiring their employees especially when the posting is global, because
the companies have vision and mission and the founder of the organization might have strong moral values or principles, which
are important to be followed no matter what the destination is. Therefore, to carry forward these same values, the easy formula
is to put in charge a person who is from same culture, same country, have learnt and practiced same principles. This trend is
followed by organizations around the world. Each style of human resource management has its advantages and
According to Armstrong (2009), "International human resource management is the process of employing, developing and
rewarding people in global organizations". The author further notes that, “however, nowadays, one of the most complex
challenges for a multinational corporation (MNC) across the globe is the management of human resources because of
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diversity, culture, belief. Furthermore, firms with international operations can only be successful in their business with an
effective HRM function which, needs to have a culturally sensitive program, an international manager can also be an
IHRM is a field in the organization pursuing global strategy, explores the challenges confronting organizations as they seek to
develop effective resourcing strategies in a global environment (Scullion & Lineham, 2005). Broadly defined, international
human resource management (IHRM) is the process of procuring, allocating, and effectively utilizing human resources in a
multinational corporation [MNC] (Schuler, Budhwar, & Florkowski, 2002). Although some argue that IHRM is not unlike HRM in
a domestic setting, others point out that there are significant differences. “Specifically compared with domestic HRM, IHRM (I)
encompasses more functions, (2) has more heterogeneous functions, (3) involves constantly changing perspectives, (4)
requires more involvement in employees’ personal lives, (5) is influenced by more external sources, and (6) involves a greater
level of risk than typical domestic HRM.” International human resource management (IHRM) addresses the added complexity
created by managing people - probably the most nationally specific resource (Rosenzweig and Nohria, 1994) - across a
diversity of national contexts of operation and the inclusion of different national categories of workers (Tung. 1995). Human
Resource Management (HRM) involves all management decisions and practices that directly affect the people who work for the
organization. Human Resources are the people who work for the organization (Hill, 2011).
Historically, much attention has been focused on financial capital of tangible assets of the labor force but the knowledge
management revolution created a brand of specialists paying attention to individuals within an organization, that must be
measured, developed, and preserved.
International Human Resources Management (IHRM) has been defined by (Schuler, Budhwar, & Florkowski, 2002) as “the
world-wide management of human resources to enable multinationals enterprises (MNEs) to become globally successful by
being: (1) competitive throughout the world; (2) efficient; (3) locally responsive; (4) flexible and adaptable within the shortest of
time periods; and (5) capable of transferring knowledge and learning across their globally dispersed units” (Schuler, Budhwar,
& Florkowski, 2002).
Thomas (2002) states, “an international human resources program takes into account the environment – such as human
resources and ideas – transforming them, and returning the output into the environment in the form of services or knowledge.”
Local performance and foreign performance potentials are not the same things – based on perceptual and cultural ability as
well as self-orientation and orientation to host country nationals.
A major challenge facing an international human resources firm is how to internationalize HRM polices and function. First, it
requires an understanding of human resources management. Second, it needs a complete understanding of the cross-cultural
management, which prevails in local subsidiaries. Third, all staff have to be ready and willing to accept that they may have
something to learn from their foreign subsidiaries and partners (Schneider & Barsoux, 2003). In relation to these four
management strategies, the authors examine global organizations to compare and contrast.
Geert Hofstede’s Dimension of Culture (1980) Uncertainty Avoidance, Power Distance, Masculinity-Femininity, IndividualismCollectivism, and Confucian Dynamism enable managers to quickly see how similar or different countries or regions are. These
are essential patterns of thinking, feeling, and acting that are well-established by late childhood to highlight cultural differences,
which manifest themselves in a culture's choices of symbols, heroes/heroines, rituals, and values. However, a culture can
change by internal or external influence over time.
According to Hill, researchers have identified three types of staffing policies or approaches in the global international arena; the
ethnocentric approach, the polycentric approach and the geocentric approach (2010). It appears as well that each of the four
management practices has both positive and negative elements
The Ethnocentric Approach
The ethnocentric approach as “staffing policy is one in which parent-country nationals (PCN) fill all key management positions
to sustain a unified corporate culture” defined by (Hill, 2010, p. 628). Companies such as Procter & Gamble, Matsushita, and
Philips NV originally follow it. Griffin & Pustay (2010) “the firm operates internationally the same way it does domestically,
primarily using the parent country nationals (PCNs) to staff upper-level positions. According to how to choose managers and
Changing Trends in International Human Resources Management: Managing Approaches for Effective Global Operations
employees, expatriate managers would know more about the policies of the companies and can transfer the policies to foreign
companies. It potentially helps the organizations to overcome a lack of qualified employees and create a more unified culture.
However, they would face language, culture and law problems. Foreign managers know about the environment but it is difficult
for them to know about the companies’ policies (Stehle and Erwee, 2007). An ethnocentric approach may be especially likely
when managers believe that their home country is more developed or more advanced than the foreign country in which they
are working (Dyck, 2010, pp. 104-105). Ethnocentrism is evident when managers enter a foreign country with the belief that
their own home country offers the best way to manage in a foreign country.
However, there is an increased risk in producing resentment in the host country or possibly cultural myopia. In today’s world,
experts believe that the least likely management strategy for success would be ethnocentrism. Inherent in this ideology is that
the organization’s home-based country offers the best way to manage. This type of management practice was prevalent in the
past. However, Chinese food restaurants follow this staffing structure. It is rare in this country to find a Chinese restaurant that
is managed or operated by anyone other than Chinese nationals. Hill, (2010) states firms pursue an ethnocentric staffing for
three reasons:
1. The home company may believe the host country does not have individuals to fill senior management positions. This
certainly is a good argument for companies operating in less developed countries.
2. The home company may use the ethnocentric staffing policy to produce a unified corporate culture across international
3. The home company may believe that the best way to transfer core competencies and a coordinated international strategy
is to transfer parent country nationals who have knowledge of core competencies relative to the foreign operations.
Ethnocentric behavior is an international strategic approach of staffing where key/senior management positions are filled by
parent country nationals. This approach should be used when the organization believe that the host country lacks qualified
individuals to fill senior management positions, to maintain unity and corporate cohesiveness and when firms is trying to create
value by transferring core competencies to foreign operations. Some advantages and disadvantages according to Hill (2011)
 Unified corporate culture
 Helps transfer core competencies
 Provide skilled manager in host country
 Limits advancement opportunities for host country nationals; can lead to resentment, low productivity and high turnover.
 It can lead to cultural myopia, top management may not understand the cultural differences in the host country (2010, p.
A study conducted on Japanese ethnocentric behavior regarding the rice market, has challenged other countries to develop
strategies to open the market. Rather than showing ethnocentric behaviors, perhaps what Japan needs to do now is to cultivate
friendship in dealing with national food security. The most effective approach to national security, rather than self-imposed
isolation, is to work hard at getting along with other countries amicably and cultivate friendship with as many countries as
possible. At the same time, measures should be devised to deal with developments beyond our control. For example, shipping
stoppages caused by harbor strikes, bad harvests in grain-exporting countries, and political crises like the War. We need a
viable and comprehensive blueprint for national crisis control. In times of peace, what we need is not self-sufficiency based on
the premise that war could break out any time, but really efficient use of land and an accurate plan for feeding the populations
should a crisis occur (Chinen, 2010).
When multinational companies send expatriate managers to foreign countries, it means that the companies send their policies
to foreign countries no matter if the policies are proper to the area (Harry and Nakajima, 2007). Some western countries would
use ethnocentric approach in order to keep their own culture but cultural and environment barriers could be an obstacle the
development of the companies. There would be serious if companies fail to use diversity policies. When it comes to the
recipients of the policy, they would consider that the multinational companies force them to accept different views and cultures
(Harry and Nakajima, 2007). Therefore, multinational companies would meet many challenges when they use ethnocentric
approach. Culture, local laws and language play significant role in business. Different areas have different preferences,
customs and special situations. However, it would take a long time for expatriates to know about the differences. For example,
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Japanese is one of the countries which prefer ethnocentric policy. “Japanese department stores take more than half of the total
market share of department stores in Hong Kong” (Wong, 2007). Hong Kong has a special situation experienced by political
changes. Hong Kong went from a British colony but was returned to China in 1997. Therefore, the environment of Hong Kong
would be more complicated because Japanese increases investment in Hong Kong. However, the main policies are still the
same. As a result, Japanese retail stores faced a different environment and culture, complicating the external environment to
hinder the development of investment.
Euro Disney: An Ethnocentric Approach
After the success of Disney in couple of destination around the world, Disney launched in Europe which, motivated the human
resources department to follow the ethnocentric pattern. For many reasons, an American flavor and culture had global
attraction especially when it comes to entertainment and fun. Headquarters took the America ethnocentric approach of Disney
America to Euro Disney. Euro Disney saw the success of Disney Japan copying the same formula from the headquarters.
Senior managers in America brought the chairman for Euro Disney from United States, stating they will use the same strategy,
same culture, and same practices along with a good relationship with France. As soon as Euro Disney put into practice an
ethnocentric approach by staffing key position with Americans, bringing the same conditions to the French location without
understanding the new and diversified culture (tradition, habits, manner), it was doomed for failure in cultural imperialism. The
organization had copied the formula to food, drinks, decision making, and the American view that brought the great Disney to
big failure (Price, 2000). There were several mistakes made: understanding French culture, calculation of vacation period, local
spending habits, and French Labor Laws. The ethnocentric approach did not yield good results.
Although many advantages exist to an ethnocentric staffing policy, the policy provides a limited opportunity for advancement for
host country nationals, and it does not allow the home country nationals to understand host-country cultural differences that
require different approaches to marketing and management (Hill, 2010, pp. 628-629).
The Geocentric Approach
A geocentric approach is defined as “A staffing policy that seeks the best people for key jobs throughout the organization
regardless of nationality, who are talented, skilled, and have a proven track record” (Hill, 2011 pp. 620-621). Griffin & Pustay
(2010), note a geocentric management approach is one “which a firm analyzes the needs of its customers worldwide and then
adopts standardized operating practices for all the markets it serves. Staffing uses a mix of Parent Company Nationals (PCN)
Host country Nationals (HCN) and Third country nationals (TCN).” With this method, the organization is making the best
decision to help build the firm cadre of international executives” (Hill, 2011).
The process of Geocentric is more practical and considers current trend in market, financial situation, marketing strategy,
production policies, staffing issues, etc. The management makes decision in which both sector global and local scenarios are
taken care; appropriate rules and regulations are brought into effect. Pricing is an important factor, which is taken care and
adjusted for different region as per the condition. By developing a pool of executives that can operate in different cultures, the
transnational corporation builds a flexible management staff. It would seem that while each of these staffing strategies each
have advantages and disadvantages, a geocentric strategy develops a flexibility that would allow an international corporation to
be best able to cover their senior management needs. Although it may have higher costs, the long term benefits are strong
(Hill, 2011).
The authors collective opinions detail companies who choose a geocentric approach to benefits from different aspects (social,
cultural, etc.), and open doors to a better relations between countries. Managers can learn different ways to manage a
company and obtain this knowledge’s and implemented in an efficient and effective way in order to maximize the profit and the
well-being of the organization and their employees. It is believe that the fall and rise of a company depends on the ways that
managers operate the business and the ways that they implement the approach that most benefits their interests and
necessities. Managers have to seek ways to internationalize their business in a successful ways, taking into account the
weaknesses and strengths of the companies and procedures combine together to the development of geocentric organizations
(Calof & Beamish, 2008).
The geocentric policy is a staffing approach used by multinationals when they are engage on global standardization and are
pursuing a transnational strategy. According to Hill, the geocentric staffing policy seeks the best people for key jobs throughout
the organization, regardless of nationality (2011). See Exhibit 1
Changing Trends in International Human Resources Management: Managing Approaches for Effective Global Operations
Exhibit 1
(Borrowed from Cooper, Doucet, & Pratt, (www.interscience.wiley.com))
 *The organization is enabled to use the best human resources.
 Enables the firm to build a cadre of international executives, who feel at home working in a number of cultures,
 *Enable the organization to create a diversify team of managers that understand cultural differences and can create an
informal global management network. This would be necessary for global standardization and transnational business
strategies (Hill, 2011, pp. 620- 621).
 Government policies on immigration can be time consuming.
 It is very expensive. The organization has to pay relocation cost for the manager and his/her family. Also multinationals
may need a new compensation structure for each manager depending on the country and base on international
standards (2011, p.6).
 May require a comprehensive standardized international pay base.
 One drawback that seemed not to be mentioned is that most people tend to want to migrate back to the country or region.
This would naturally put a time restraint on deploying expatriates for international management duty.
Take for example Compass Group plc. that has businesses in 98 countries and owns 460,000 employees. In addition, this
company prefers a geocentric human resource management, which gained great success in Europe. Compass wants to
expand its business to Asian (Doherty, Klenert, and Manfredi, 2007) which has great potential and rich materials. Many
multinational companies focus on Asian but the geocentric approach, however, it is difficult to implement because of different
background and values that can hinder consensus in the company. Although the geocentric approach has many advantages
for multinational companies, this too have disadvantages.
Lenovo Geocentric Approach
Lenovo entered the globalization arena to compete with other enterprises trying to do the same. Lenovo, a Chinese based
company, acquired IBM, a United States firm and all of its assets in 2004. According to the case study, Lenovo is now the third
largest PC firm. How will Lenovo compete with other companies in the market as a global leader? The study shows the
executives at Lenovo appear to be well-informed of HR policies that can make the company a success. Lenovo is pursuing a
geocentric staffing policy which takes into account the best “person” for a position rather than their cultural heritage or national
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origin. Proof of Lenovo’s approach is apparent in the case study which emphasizes that Lenovo’s top leadership is made up of
various members of various countries and the Chief Executive Officer, Stephen Ward is from the United States while the
Chairman, former CEO of Lenovo, is from China. Lenovo also protected the former IBM employees by allowing them the same
benefits that they had with their former employer. Perhaps the most surprising move was the corporate headquarters location
which is now stationed in New York. A geocentric approach to HR will show investors and consumers that Lenovo is serious
about spreading its wings to become an international empire (Hill, 2011; Lenovo.com).
Further research shows that good human resource practices will enhance overall “organizational effectiveness” (Dyer &
Reeves, 1994). This research goes on to discuss the idea of “bundling” various human resource activities to make up the
performance and productivity enhancement system specifically for global companies. While Reeves research is a bit outdated,
it is still relevant due to the nature of a company’s commitment to individual performance (1994). Lenovo would most likely be
no exception to this rule. It is clear that Lenovo’s executives show the utmost confidence in their existing work force, by the way
the acquisition was handled with incentives such as compensation to keep key personnel intact. This is a tell-all sign that
Lenovo is committed to expanding the geocentric approach to include all individuals qualified ,possessing the skills necessary
to perform the functions regardless of where they are from. Lenovo looks more at where its employees are going. Further
research shows that Lenovo is combining its product lines in order to achieve the maximum effectiveness in customer service
relations, operational efficiency and innovation and bring it to local leading markets. (O’Sullivan,Liu, & Marwaha, 2005). By
integrating this global strategy into the various markets, Lenovo is making the most use of its geocentric approach in HR to
place individuals strategically across the globe to achieve the most enhanced productivity levels for this new wave of
innovation. This will create a domino effect into the customer satisfaction criteria which Lenovo is trying to pursue as well. Once
these two goals are achieved, operational efficiency will be at its peak for the company showing great returns on investment
and great promise for a very prosperous future.
Lenovo is on the right track to becoming one of the most prosperous global leaders in technology ever in this country or
abroad. The strategy of the HR department is a solid one for a global enterprise. Mixing the executive board with half Chinese
and half Americans allows for a better sense of cultural diversity.
The Polycentric Approach
On the other hand, a polycentric approach envisions that members of management in the host country know the best way to
manage an organization in the host country (Dyck & Deubert, 2010, p. 104). Furthermore, Gravil suggests a progression to
polycentric strategies “As firms become more committed to overseas markets they realize that individual countries may require
a degree of customization, which the ethnocentric approach does not permit. Firms then frequently move to the other end of
the spectrum and become polycentric in orientation” (2007, p. 1). Unilever’s shift from a multi-domestic strategic posture to a
transnational posture was very difficult.
In contrast, a polycentric staffing approach is defined as follows, “one that requires host-country nationals to be recruited to
manage subsidiaries, while parent-country nationals occupy key positions at corporate headquarters” (Hill, 2011, p. 620); While
Griffin & Pustay (2010) suggest “the firm customizes its operations for each market it serves, and primarily uses the host
country nationals to staff upper-level management.” Polycentrism is evident when there is an assumption that manager in a
host countries know the best way to manage an organization in their country. Managers with a polycentric approach believe
that the best way to maximize the firm profits is to adapt to the practices found in foreign countries.
 The organization is less likely to suffer from cultural myopia, meaning that local managers will make fewer mistakes
because they understand the local culture, norms and traditions.
 The polycentric approach may be less expensive to implement.
 Limit opportunities for host country nationals to get experience outside their own country; this also may cause resentment
among senior local management.
 Can create a big gap between host country managers and parent country managers in terms of language barriers and
loyalties. This can isolate the corporate headquarters from their subsidiaries
 This tends to be limits to career upward mobility
 Managers believe the foreign market to be too difficult to understand (Hill, 2011).
Changing Trends in International Human Resources Management: Managing Approaches for Effective Global Operations
In the polycentric approach, the host-country managers and parent-country managers would have different culture, knowledge
and background. As a result, they would have different ideas and belief. The differences would lead to disagreement.
Managers coming from different countries may not understand each other management style and that could decrease
A Case of Citibank, Unilever and McDonald’s Polycentric Approach
Citibank and Unilever are also trying to implement a global brand and polycentric strategy (Lake, 2010). During the past period,
Unilever had great success. We can’t deny the truth that host-country managers make great contribution to that success.
Unilever is powerful in China and its products are popular. Unilever would use Chinese managers who know about the Chinese
market and preference. Chinese market is special because of different social structure and culture. Therefore, many
multinational companies had failed in this market. Chinese managers and help companies avoid the culture shock and make
proper decisions.
Polycentric approach is getting more and more popular as the businesses become globalized; many multinational companies
around the world are adopting this practice, where in we see the organizations’ headquarters U.S. based and the top position
are filled with the American and the back offices others (example: India called the call centers). In these call center, the working
hours are parallel to the US timing, which means that in India, the call centers are working at night when its day in America. At
call center the staff are trained and molded in a manner to handle the day to day activities in America all rules and regulation
including local laws are brought up in a package while the staff are in training the Team leader or the middle manager who
would be an Indian so that it’s easy to handle as per local needs in market and the senior manager would be an American who
handles the key position, (Citibank, 2010).
In 2001, the McDonald’s Corporation began the process of revamping its human resource management strategies
internationally to focus upon cultural and ethnic diversity (James & Crosby, 2006, p. 1). From 1955 through the turn of the new
century, the McDonald’s Corporation expanded to 118 countries that include 30,000 restaurants and more than 1.6 million
employees worldwide. Globally, McDonald’s serves 58 million people on a daily basis. The company boasts that more than 60
percent of the international home office and U.S. company workforce are of a racial or ethnic minority, or are women.
McDonald’s is a good example of a polycentric approach. McDonald’s allows host country nationals to manage and own
franchises, adjusting their menus to suit the local market. They remain host country centered. Basically, they bring individuals
from other countries to the U.S., train them, and allow them to work however they choose to accomplish the goals of the
company. In this orientation, the company probably finds this approach easier and safer, but they fail to learn much about other
cultures, or grow in their knowledge of world diversity” (Karadjova and Mujtaba ,2009. P. 70).
Most impressive, today about 80% of the restaurants worldwide are independently owned and operated by local businessmen
and women, representing the vast majority of all religions, cultures, and ethnic groups (Harris, 2009, p. 3). McDonalds seems
willing to find the ‘right’ person wherever they live, and move them when necessary. The top-level positions remain dominated
by U.S. based citizenship, but the company’s long-term focus on international diversity at the top also appears to be a goal.
After studying the demographics and philosophy of the company’s strategy on human resources management, the authors
concluded that McDonald’s may perhaps be the closest example of the perfect ‘poster child’ on how to management correctly
in the new world economy. Of the four management styles addressed earlier, McDonalds appears to most closely resemble a
polycentric approach to human resources management. It could also perhaps be defended that McDonald’s is a combination of
both polycentric and geocentric management strategies (McDonald’s. )
The Regiocentric (Region-Centric) Approach
The regiocentric staff can be promoted within a region, but usually never to headquarters. Regiocentric management systems
are used to hire and promote employees based upon specific regional factors where the satellite group(s) is located. This
approach selects management from a combination of personnel within a region of the world, which most closely looks like that
of the host country and also from a third country. Behind the selection and combination of managers is the idea that nationals
of the region are better able to deal with language and cultural problems while those from a third country are able to ensure the
local area’s commitment to the corporate philosophy from the home base. This approach helps to improve career prospects at
the national level but does not tend to help nationals advance to positions at the parent headquarters (Padala &
Suryanarayana, 2011).
T. Jordan and C. Lawrence
IHART - Volume 23 (2012)
A restructuring of the organizations in the current crisis, marked by acquisitions and mergers, layoffs and restrictions on
activities, will have to change their staffing policy. The researchers sketch out several key changes that can help to influence
the human resources decision in the staffing process for better efficiency. Our focus centers on the four approaches –
ethnocentric, geocentric, polycentric, and region-centric. It would appear that geocentric is the most widely and effective
approach for successful international human resources practices. Research shows a geocentric staffing policy finds the best
workforce for key jobs throughout the organization, regardless of nationality, which offers various advantages. Besides, it can
build a cadre of international executives in a number of cultures, adding to multicultural diversity success. Applying geocentric
policy can create value from the pursuit of experience, skills, and from the multi-directional transfer of core competencies as
well as location economies. The least likely of the four approaches is ethnocentric – which is a “one size fit all” policy.
Therefore, the ultimate multistream practice with a root-emphasis upon geocentric strategies is suggested. The geocentric
approach ignores nationality in favor of ability and competence needed in a global market, and integrated business strategy.
However, it must be noted that different scenarios call for different approaches. Where host country – parent country –and third
country nations decide where firms expand and operate, the intent is to:
Reduce the risk of IHRM
Avoid cultural risks
Avoid regional disparities
Manage diversified human capital
The international human management strategies will need an eclectic modus operandi approach with the global manager being
grounded in:
A. Developing a global mindset,
B. Fostering horizontal communication and,
C. Use cross-border and virtual teams for international assignments (Blosi, 2007; Sheehan and Sparrow, 2012; Crowley &
Warner, 2007; Brewster, Sparrow, & Vernon (2007); Brewster, Sparrow, Vernon, and Houldsworth, (2011).
Limitations of Research
The use of external secondary use of data has the obvious benefit of information that has already been gathered. This has cut
cost and time! The limitations of secondary assume the information gathered is accurate, complete, and used for the purpose
intended. Although data fit the requirements for the problem, much were vague and ambiguous and content evidence findings
in statistics were outdated.
The are several challenges that can affect International Human Resources Management which include immigration policies
that can hinder management from implementing policies or even attaining goals that will be beneficial to the organization. “A
prominent issue in the international staffing literature is expatriate failure – the premature return of an expatriate manager to his
and her home country” (Hill, 2011). Cultural shock is another disadvantage to the employee that can create poor performance
or failure for an expatriate and family, which is very expensive. The cost of living can be even higher than the home country. All
of the human resource management approaches have merits and defects, but the external environment plays a critical role in
human resource management. Human resource management has become one of the most important areas in an organization.
Companies have to consider how to use it human talent and human capital efficiently
This study draws two practical conclusions: International human resource management issues involve both domestic and
international recruitment, selection, training, placement, compensation and vital, management approaches. “If the basic
exercise of getting, keeping and growing a company’s talent is done well, the other HR functions will reflect this excellence”
(Peterson, 2005). In all, “those companies that get good people, keep good people, and grow good people will be around to
celebrate their successes” (Peterson, 2005). Lenovo is on the right track to becoming one of the most prosperous global
leaders in technology ever in this country or abroad. The strategy of the HR department is a solid one for a global enterprise
(Sullivan, Jun, Frances, Liu, & Marwaha, 2005).
Changing Trends in International Human Resources Management: Managing Approaches for Effective Global Operations
International businesses hiring based on citizenship or locality is fundamentally flawed in the 21st century with the elimination of
national borders. The most significant factor in hiring should be merit, which would include education, work experience,
knowledge, skills, talent, and most importantly the ability to perform the job.
Globalization is falling borders and cross-border trade making it easier toward worldwide movement of economic, financial,
trade, and communications integration. It is the system of interaction among the countries of the world in order to develop the
global economy (Hill, 20112).
Home Country Nationals
Company sent home country employees abroad. Usually, headquarters from the home country makes decisions, employees
from the home country hold important jobs, and the subsidiaries follow home country resources management practice.
Host Country Nationals
The employee's nationality is the same as the location of the subsidiary. A company that applies this approach is under the
assumption is that each country is different from all the others and that the subsidiaries in each country should develop locally
appropriate practices. To impart knowledge of business techniques, the company may set up in-house training programs in the
host country subsidiary, or send host county employees to home country business schools’ training programs (Ball, 2003).
The growing tendency of corporations to operate across national boundaries, designing products and services that are easily
adaptable to different cultures and languages. The internationalization process is sometimes called translation or localization
Staffing Policy
Involves the recruitment of employees for each individual job, and considers the skills required to do particular jobs.
Third Country Nationals
Hiring employees who are citizens of neither the home country nor the host country is often advantageous. Organizations try to
combine the best from headquarters and the subsidiaries to develop consistent worldwide practices (Treven, 2006).
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Granville King III
Indiana University Southeast, USA
Who blows the whistle and why is a question that has intrigued whistle-blowing scholars for years. In order to address this
significant question, much attention has been devoted to examining the personality of whistle-blowers and potential whistleblowers. This study sought to expand the whistle-blowing personality literature by examining the effects of narcissism on
whistle-blowers’ behavior. Using the literature from the American Psychiatric Association, the paper explores how
characteristics associated with narcissism, and narcissistic whistle-blowers, may interact with the complaint recipient,
coworkers, and members of upper-management. The paper concludes by offering areas of future research and suggestions for
handling organizational narcissists.
Keywords: Whistle-Blower, Narcissist, Personality, Narcissism, Behavior.
Reports of organizational and individual wrongdoing have become common practice in today’s global market. From Enron to
Brown and Williamson, inappropriate behavior by personnel within an organization has become headline news. Employees
who observe these incidents must make a strategic decision either to report the wrongdoing or to remain silent. Those
individuals who chose to speak-out about such incidents are called whistle-blowers.
Whistle-blowing has become a common term used to describe the act of reporting activities and offenses deemed to be illegal
or inappropriate within an organization. In order to gain a better understanding of this phenomenon, scholars within the field
have examined numerous topics related to whistle-blowers and whistle-blowing behavior; these include, but are not limited to
retaliation issues (Near & Jensen, 1983; Near & Miceli, 1986; Rehg, Miceli, Near, & Van Scotter, 2008), anonymous whistleblowing (Elliston, 1982; Miceli, Roach, & Near, 1988), whistle-blowing and issue seriousness (Miceli & Near, 1985), whistleblowing and types of wrongdoing (Near, Rehg, Van Scotter, & Miceli, 2004), whistle-blowing and group opposition
(Greenberger, Miceli, & Cohen, 1987),whistle-blowing and effective communication (Stewart, 1980), individual characteristics
associated with whistle-blowers (Miceli & Near, 1988; Miceli, Dozier, & Near, 1991), organizational culture and whistle-blowing
(Baucus, Near, & Miceli. 1985), and ethical characteristics associated with whistle-blowers (Brabeck, 1984). Yet, despite the
enormous amount of literature that has been produced over the years, we are still intrigued as to why some members of an
organization chose to blow the whistle, and others remain silent.
In order to address this issue, scholars have focused their attention on the personality of whistle-blowers versus nonwhistleblowers. For example, Trevino and Youngblood (1990) examined the issue of internal locus of control and ethical
behavior among MBA students. As predicted, the authors (i.e., Trevino & Youngblood) found internal locus of control was
related to ethical behavior, which was also related to whistle-blowing. In a similar vein, Chiu (2003) examined how internal
locus of control would affect whistle-blowing behavior among Chinese managers and professionals. Chiu’s results found that a
person’s internal locus of control does moderate the relationship between ethical judgment and whistle-blowing behavior.
Despite the research that has been published on whistle-blowers’ personality, one personality variable that has yet to be
examined is narcissism.
Narcissism as a personality disorder can affect whistle-blowers’ behavior. We have always assumed that whistle-blowers who
report organizational wrongdoings do so because of corporate and public interest; however, we can also assume there might
exist the possibility a person may blow the whistle for self-interest. According to Miceli and Near (1997), eliminating a
wrongdoing from occurring may not be the central motive for reporting a wrongdoing. In some situations, a whistle-blower may
report a wrongdoing for personal interest. For example, a whistle-blower may report a wrongdoing to enhance his or her
opportunity of obtaining a promotion within an organization. In such circumstances, the actions of a whistle-blower lean more
towards self-interest, than the interest of the organization.
The Other Side of Whistle-Blowing: Examining the Effects of Narcissism on Whistle-Blowers’ Behavior
As a powerful personality disorder, narcissism may affect whistle-blowing and responses to reports of wrongdoing. A person
possessed with a narcissistic personality has a ‘grandiose sense of self-importance, a preoccupation with fantasies of unlimited
success, power or love, and an exhibitionist orientation’ (Sanskowsky, 1995, p. 64). In other words, a person with a narcissistic
personality is concerned with his or her own self-interest. From a whistle-blowing perspective, the narcissist who reports the
wrongdoing is more concerned with how he or she can benefit from the report. Sanskowsky notes, narcissists ‘act as if they are
entitled to receive the service of others and tend toward exploitative and manipulative behavior’ (p. 64) of others within the
organization; similarly, Kernberg (1979) notes, narcissist seek positions of power within an organization; positions that will put
him or her (i.e., narcissist) in the lime-light. In gist, a person with a narcissistic personality is a self-centered creature, whose
focus is to participate in those activities that will highlight and exhibit their remarkable abilities. Their organizational activities
focus on seeking praise and admiration, often at the expense of others within the corporation.
The purpose of this paper is to examine how a whistle-blower with a narcissistic personality might affect whistle-blowing and
responses to reports of wrongdoing; specifically, how might a whistle-blower with a narcissistic personality interact with a
complaint recipient, coworkers, and members of upper-management? This paper will contribute to the scholarship on whistleblowing by examining a personality variable that has not received any attention within the literature; likewise, we will gain a
better understanding of how narcissism may affect whistle-blowers’ behavior. Finally, by eliminating this void in our literature,
whistle-blowing scholars will continue to gain a better understanding of factors that may predict whistle-blowing and whistleblowers’ behavior. We begin our study by defining whistle-blowing.
Over the years, there have been several definitions used to describe the term whistle-blowing; however, the most commonly
accepted definition is ‘the disclosure by organizational members (former or current) of illegal, immoral, or illegitimate practices
under the control of their employers, to persons or organizations that may be able to effect action’ (Near & Miceli, 1985, p. 4).
This definition comprises three significant points; first, Near and Miceli note that whistle-blowers may be current or former
employees of the organization. Depending upon the power of and the organization’s dependence upon, some whistle-blowers
may be active members of their organization during an on-going investigation; however, some whistle-blowers may also be
involuntarily removed from their organization (i.e., fired), or voluntarily leave due to retaliatory actions of the organization and its
Second, the focal activity or wrongdoing must be perceived as illegal, immoral, or illegitimate under the control of the employer.
The whistle-blower must perceive that a wrongdoing or some form of questionable activity has occurred. According to Miceli
and Near (1992), ‘The triggering event is an activity that is considered wrongful, rather than simply an acceptable but not
optimal organizational activity. If no organization member has observed the activity and defined it to be questionable, then the
activity does not serve as a triggering event for whistle-blowing...’ (p. 17).
Finally, the whistle-blower reports the activity to an individual(s) or office that can bring about effective change in the
wrongdoing. The whistle-blower must decide who will be the recipient of the complaint. Parties internal to the organization must
possess the power to eliminate the wrongdoing. According to Miceli and Near (1992), the ‘complaint recipient could be one’s
immediate supervisor, a co-worker, [or] a member of top management…’ (p. 184). On the other hand, the complaint recipient
could hold an official title within the organization such as an internal auditor or ombudsperson. Finally, parties external to the
organization may also be the recipient of the complaint. Whistle-blowers may elect to report the questionable activity to
members of the media, law enforcement officials, or state and federal agencies.
This far, this paper has provided an overview of the term whistle-blowing. We now turn our attention to examining narcissism.
Over the years, narcissism has become a psychological construct that has received considerable attention by scholars in
various academic fields; for example, researchers have examined narcissistic behaviors in organizations (Blair, Hoffman,
Helland, 2008; Lubit, 2002), its effect on leadership (Kets de Vries & Miller, 1985; King, 2007; Sankowsky, 1995), its effect on
interpersonal contact (Carroll, Hoenigmann-Stovall, & Whitehead, 1996; Kernis & Sun, 1994), and a host of other topics that
have aided in our understanding of this personality disorder.
Before addressing how narcissism may affect whistle-blowing behavior, we need to gain a better understanding of this disorder
by examining its characteristics. According to the American Psychiatric Association (2000), there are nine traits associated with
narcissism. First, individuals who have this personality disorder have a grandiose sense of self-importance. Narcissist will over100
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IHART - Volume 23 (2012)
exaggerate their achievements and expect others to recognize their talents as well. They expect praise from others, but will not
extend praise. Second, narcissists are preoccupied with fantasies of being successful, powerful, having beauty, or possessing
the ideal love; that is ‘they may ruminate about ‘long overdue’ admiration and privilege and compare themselves favorable with
famous or privileged people’ (American Psychiatric Association, p. 714).
Third, narcissists believe they are superior and special, and expect others to recognize their superiority. They will only
associate with individuals that are of high status, believing these are the only people who truly understand them. Fourth,
narcissists require excessive admiration from others. According to the American Psychiatric Association, the self-esteem of a
narcissist is extremely fragile. Narcissists are preoccupied with the perceptions of what others may or may not be thinking
about them.
Fifth, narcissists expect a sense of entitlement. In other words, narcissists expect to be catered to, and if not, will become
angry with those around them. Sixth, narcissists will exploit others in order to gain or achieve a specific goal. They expect to be
given what is needed at the time, regardless of the impact it may have upon others. Seventh, narcissists lack empathy for
others. These individuals will discuss their own concerns and issues, but lack interest and attentiveness in others with similar
Eight, narcissists are envious of others, and believes others are envious of them. They will often not congratulate the success
and achievements of others, but expects others to perform such behavior towards them. Finally, ninth, narcissists will often
display behaviors associated with being arrogant, haughty, snobby, disdainful, patronizing, condescending, egotistical, and
conceited when working or conversing with others.
Now that we have examined the characteristics associated with narcissism, we now turn to how these items may affect whistleblowers’ behavior.
Using the characteristics associated with narcissism, whistle-blowers with this personality disorder could disrupt officials in
bringing about prompt and effective change in a wrongdoing. In the context of whistle-blowing, effectiveness has been defined
as ‘the extent to which the questionable or wrongful practice (or omission) is terminated at least partly because of whistleblowing and within a reasonable time frame’ (Near & Miceli, 1995, p. 681). According to Miceli, Near, and Dworkin (2008),
effectiveness indicates that an authority figure or agency has taken some form of corrective action to eliminate the wrongdoing.
Effectiveness, however, does not signify that the wrongdoers have been punished, but only that the offensive action has
ceased to occur.
Whistle-blowing effectiveness is contingent upon multiple factors, such as the characteristics of the whistle-blower and
characteristics of the complaint recipient (Near & Miceli, 1995). Since the focus of this paper is on whistle-blowers as narcissist,
it reviews not only interactions with the complaint recipient, but also interactions with coworkers and members of uppermanagement. We begin with the complaint recipient.
Interactions with the Complaint Recipient
Following the observance of a wrongdoing, the whistle-blower will report the questionable activity to a complaint recipient. The
complaint recipient must decide how he or she will respond to the complaint and to the whistle-blower (Miceli & Near, 1992).
The reactions of the complaint recipient perform a significant role in eliminating the wrongdoing. According to Miceli and Near
(1992), the private reactions of a complaint recipient may be quite different than those of the general public; that is, even the
most trivial issues must be investigated once a report has been filed. Miceli and Near (1992) note, ‘Her or his private reactions
may be that the complainant should be disciplined and that the investigation is a waste of time. But she or he may be forced to
investigate, by procedures, directives from the supervisor, formal role prescriptions (such as in the case of internal auditors), or
by a concern that other would-be whistle-blowers with legitimate concerns would be discouraged from reporting if the present
complainant were ignored’ (p. 73).
The power and credibility of a complaint recipient are significant when addressing the effectiveness of whistle-blowing.
According to Miceli and Near (1992), a complaint recipient may possess the power to correct or eliminate the wrongdoing,
especially if the recipient is a member of the dominant coalition (i.e., upper-management). Near and Miceli (1995) note that
when the complaint recipient is a powerful member within the organization, the probability of an effective change in a
wrongdoing is heightened, especially if the complaint recipient believes the wrongdoing should be halted.
The Other Side of Whistle-Blowing: Examining the Effects of Narcissism on Whistle-Blowers’ Behavior
Closely related to power is the credibility of the complaint recipient. Typically, the complaint recipient is someone in an official
capacity, whose credibility is likely to be high, due to his or her position within the company (Near & Miceli, 1995). A credible,
powerful complaint recipient is more likely to take corrective action in bringing about effective change in a wrongdoing, if the
wrongdoing is found to be legitimate. Therefore, a powerful and credible complaint recipient strengthens the likelihood that an
investigation will occur, with the possible elimination of the wrongdoing.
Narcissism may affect the social relationship and communication that may occur between a whistle-blower and a complaint
recipient. That is, narcissism may affect the complaint recipient’s promptness in bringing about prompt and effective change in
a reported wrongdoing. Research has suggested that the ‘interpersonal relationships of narcissists are regularly and
characteristically disturbed. Close relationships tend to vacillate between extremes of over-idealization and devaluation’ (Post,
1993, p. 103) of those with whom they communicate. Morf and Rhodewalt (2001) extend this line of reasoning by noting that
narcissist focus on the idea of exploiting and using others to increase their self-worth, with little or no regard for the other
person’s feelings or interpersonal conflict that he or she (i.e., narcissist) may be creating. From a whistle-blowing perspective,
the complaint recipient will sense the negative attitude of the narcissist, which might impinge future communication with the
whistle-blower. As a result, any additional information regarding the observed wrongdoing might be constrained, due to the
personality issues related to the whistle-blower.
The communication process might also be hampered should any information surface that places the whistle-blower in a
negative light. Due to their fragile self-esteem, and the need for admiration, if a whistle-blower’s practices come into question, it
might produce negative reactions towards the investigator, or in this case, the complaint recipient. Researchers reported that
aggressive behavior became more apparent when a narcissist’s actions or practices were rated as poor or were questioned by
others (Bushman, & Baumeister, 1998; Rhodewalt & Morf, 1998). Researchers (Kernis & Sun, 1994) also found that narcissism
was related to ‘interpersonal feedback in a way that provides for the protection and maintenance (even enhancement) of one’s
self-regard’ (p.10-11). In Kernis and Sun’s study, narcissist rated evaluators as less competent when information was negative;
however, when the information was positive, the narcissist rated the evaluator as more competent. From a whistle-blowing
perspective, narcissists may not deny the accuracy of the negative information, but will despise the complaint recipient that
communicated the information.
One can easily perceive the constrained relationship that may ensue over the period of time between a narcissistic whistleblower and a complaint recipient. With the consciousness of narcissist being dominated by self-interest (Post, 1993),
communication between the two parties may become limited over time. In communicating with a narcissist, the complaint
recipient must take into account the hostile reactions and lines of verbal attack that may be produced by a whistle-blower.
Therefore, we can assume that prompt and effective change in eliminating a wrongdoing may be hampered due to the
personality of a narcissistic whistle-blower. Based upon this information:
Proposition One:
Proposition Two:
Narcissistic whistle-blowers may have difficulty in establishing a social relationship with a complaint
Narcissistic whistle-blowers may have difficulty in communicating effectively with a complaint recipient.
Narcissistic whistle-blower may not only interact with a complaint recipient, but also with coworkers within the organization. We
now turn our attention towards examining the interactions with coworkers.
Interactions with Co-Workers
Coworkers may react to the whistle-blower by either agreeing or disagreeing with the report. When coworkers disagree with the
report, the whistle-blower is often faced with the possibility of retaliation. Coworker retaliation may take on many forms, for
example, ostracism, verbal assaults, harassment, and threats may all be employed as methods to get a whistle-blower to drop
a complaint. Miceli and Near (1992) note retaliation may come as a result of the whistle-blower violating clearly established
norms within the group. In some groups, norms against finking are clearly established among group members. Individuals who
violate the norm are perceived as outsiders by group members. By blowing the whistle on a perceived wrongdoing, the whistleblower violates group norms, as well as challenges or threatens the cohesiveness of the group members. As such, group
members will retaliate against the whistle-blower as a means of forcing him or her to drop to the report (Miceli & Near, 1992).
In a group setting where norms against whistle-blowing are clearly enforced, whistle-blowers are often perceived as deviants
(Miceli & Near, 1992). According to Greenberger, Miceli, and Cohen (1987), ‘… whistle-blowing can be one of the most
important deviant actions in which an organizational member can engage. If the group is a dynamic entity that attempts to
preserve itself as a cohesive and unified force where norms against the reporting of a wrongdoing exist, then the work group
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can neither risk whistle-blowing nor allow it to continue once it occurs’ (p. 528). In conditions where norms against whistleblowing are not clearly established, or where norms encourage such behavior, one would expect a different picture to emerge;
that is, the whistle-blower would not be perceived as deviant, and overt forms of retaliation would be absent (Miceli & Near,
1992). Thus, one can sense that depending upon the dynamics of the group, coworkers can either encourage or discourage
whistle-blowing by enforcing norms against tattling on perceived wrongdoings (Greenberger, Miceli, & Cohen, 1997).
As noted earlier, whistle-blowers who report wrongdoings perceive their actions as benefiting the institution, its employees, and
various constituencies external to the organization. By blowing the whistle on a wrongful activity, the whistle-blower’s actions
are an attempt to correct and prevent any damage to the organization. However, coworkers and team members may be
benefitting from the wrongdoing, and find such interruptions by the whistle-blower as unacceptable. For example, if a company
is saving money due to an unlawful practice, and is sharing that money with staff and coworkers, coworkers are more likely to
pressure the whistle-blower to conform and go along with the activity. Whistle-blowers who refuse to cooperate with the status
quo (i.e., coworkers) may face daily interruptions in his or her normal work activities.
When whistle-blowing occurs within a group, the dynamics within the group are interrupted due to the report. For example,
Greenberger, et al., (1987) posit that ‘When whistle-blowing does occur, changes in the group structure, composition, and
attitudes may follow’ (p. 534). Miceli and Near (1992) note group members will attempt to restore the equilibrium within the
group by changing the behavior of the whistle-blower, rejecting the whistle-blower, or by altering their own behavior and
attitudes in agreement with the whistle-blower. Miceli and Near further note, ‘While rejecting the whistle-blower may not
squelch the complaint itself, it may achieve the group’s objective of restoring harmony among group members. It may also
follow unsuccessful attempts to change the behavior of the whistle-blower. Changing the behavior and rejecting the whistleblower essentially represent a strategy of attempting to maintain and enforce group norms in resisting the whistle-blower’s
influence attempts, while self-alteration by the group represents an accommodation of the whistle-blower’s views’ (p. 82).
Reactions to the whistle-blower might take the form of agreeing with the complaint. According to Miceli and Near (1992), ‘the
reason why some groups allow whistle-blowers to change them rather than exert influence is essentially that co-workers agree
that the whistle-blower is right and the norms are not’ (p. 83). This coincides with Greenberger, Miceli, and Cohen (1987) who
noted the more competent a whistle-blower appears to be, the more likely co-workers will align themselves with the whistleblower. Miceli and Near note more often team members will accommodate or agree with the whistle-blower’s complaint. Miceli
and Near posit that ‘….the group may lack the power to change the whistle-blower or it may not feel sufficiently threatened by
the complaint to reassert itself, that is, it may not be sufficiently cohesive’ (p. 83).
Research has explored the issue of narcissistic individuals in a team or group setting. Whistle-blowers, who display
characteristics associated with narcissism, may find associating with coworkers in a team environment somewhat challenging.
According to Volkan (1982), in a team or group setting, the narcissist will activate what he or she perceives as a plastic or
glass-bubble. The analogy of the glass-bubble might be perceived as a ‘transparent enclosure [which] would permit its owner
[narcissist] constant assessment of the world outside without his [her] being encroached upon’ (Volkan, 1980, p. 132). Volkan
goes on to state,
The narcissistic person activates his [her] “glass bubble” fantasy regularly in his [her] behavior, as he [she] would do
in analysis. On the surface he [she] seems aloofly above others, as though shunning any involvement with them and
having no feeling for the human processes inevitably occurring all around him [her]. Paradoxically, he [she] is, on
another level, continuously engaged with those whose adulation he [she] hungers for, valuing those who yield him
[her] praise and honor and rejecting detractors. (p. 135)
In essence, team members might be displaced by the behavior of the narcissist, perceiving his or her behavior as noninteractive; however, the narcissist is constantly watching, and assessing events that might have significant impact on his or
her character.
Much of the research on narcissism and team interaction focuses on the narcissist as leader (Kets de Vries, & Miller, 1985;
Nevicka, De Hoogh, Van Vianen, Beersma, & Mcllwain, 2011; Sankowsky, 1995). Volkan (1982), for example, acknowledges
two types of leadership that a narcissist may adopt within a group, namely reparative and destructive. According to Volkan, the
reparative leader perceives his followers as an extension of him or herself. They [narcissists] idealize their followers, focusing
on them to excel in all tasks. Volkan notes,
If he [she] does not fuse them into his [her] grandiose self, he [she] at least feels gratified at the evident superior
quality of his [her] disciples, who may come to regard him [her] with some ambivalence. He [she] himself [herself]
The Other Side of Whistle-Blowing: Examining the Effects of Narcissism on Whistle-Blowers’ Behavior
may adopt the destructive mode as time goes on, because the more narcissistic he [she] is, the harder it will be for
him [her]to give credit to followers who excel and grant them unspoiled pleasure in their success.
The destructive leader shuns, from the outset, engagement in the give-and-take of his [her] associates and considers
himself [herself] above their critical discussions. He [she] may in fact try to inflict injury on them or on some other
group, in order that by comparison he [she] will remain superior. (p. 345)
Surveying the above information, both style of leadership will affect coworkers who are following a narcissistic whistle-blower.
When a whistle-blower acknowledges a wrongdoing and encourages co-workers to support the complaint, he or she is
displaying reparative leadership. All the coworkers understand the significance of the report and acknowledge the report is
benefiting not only them, but also, the other audiences external to the organization. Volkan notes the situation will only become
complicated if a coworker decides to publically acknowledge his or her contribution to the report. At this point, the whistleblower will become envious of the coworker and perceive the coworker as being a rival team member. The attitude of the
narcissist, consciously or unconsciously, would change from that of reparative to destructive, which leads to an attitude of
humiliation and denigration of that coworker (Volkan, 1982). Therefore, we can assume:
Proposition Three: Narcissistic whistle-blowers may exhibit acts of destructive leadership when coworkers acknowledge
their participation in bringing about effective change in a wrongdoing.
Proposition Four: Narcissistic whistle-blowers may exhibit acts of reparative leadership when coworkers agree with the
whistle-blower’s position regarding a wrongdoing.
Now that we have examined both individual and coworker interactions to narcissistic whistle-blowers, we turn our attention to
the last category, upper-management.
Interactions with Upper-Management
Research has suggested that upper-management’s reaction to whistle-blowing may depend upon the power of and the
organization’s dependence upon the whistle-blower, and the wrongdoing (Miceli & Near, 1992). According to Miceli and Near
(1991), power performs a significant role in reference to whistle-blowers’ behavior. Miceli and Near note whistle-blowers who
lack power within an organization might refrain from disclosing questionable behavior. The dominant coalition (i.e., uppermanagement) may be more like to retaliate against a person who lacks power within the organization. The organization’s
expressed forms of retaliation (e.g., ostracism, threats, character defamation, involuntary exiting, coercion, and so forth) would
send a clear signal to other potential ‘powerless’ whistle-blowers of the likely outcome of reporting a wrongdoing (Parmerlee,
Near, & Jensen, 1982).
Whistle-blowers can possess power within an organization due to their position or rank. Whistle-blowers who possess power
may be more likely to report questionable behavior to officials within their organization (Miceli & Near, 1992). The whistleblower perceives that due to his or her organizational position and unique company skills, retaliation by the company is less
likely to occur. A research study has supported this claim. Near and Miceli (1986) found that ‘organizations would avoid
retaliation when whistle-blowers were relatively powerful, by virtue of their position in the organizations, or by their having
strong evidence of wrongdoing’ (p. 141). Therefore, whistle-blowers who possess power within their organization perceive their
actions as being immune from threats or possible retaliation from senior officials.
However, in another study, whistle-blowers who possessed power were just as likely to receive retaliation, as powerless
whistle-blowers. For example, Parmerlee, Near, and Jensen (1982) found that whistle-blowers who were credible and
possessed power were just as likely to receive retaliation as were less powerful whistle-blowers. Due to their position within the
organization, whistle-blowers that possessed power were more likely to receive retaliation than powerless whistle-blowers.
Researchers have acknowledged this claim by noting, ‘Perhaps, for older individuals and those at high job levels and with more
experience, greater organizational loyalty is expected. When such individuals blow the whistle, other organizational members
may feel a greater sense of betrayal, thus paving the way for more retaliatory behaviors’ (Mesmer-Magnus & Viswesvaran,
2005, p. 282).
A second factor that may enhance retaliation is the organization’s dependence on the wrongdoing. One would assume the
more the organization is dependent upon the wrongdoing for it survival, the more likely the organization will retaliate against
whistle-blowers that attempt to disrupt that practice. Near and Miceli (1985) note ‘the organization’s response to the whistleblower is likely influenced by the criticality of the questioned method of operation (i.e., whether it is necessary for survival) and
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IHART - Volume 23 (2012)
the available methods of operation’ (p.12). Therefore, organizations that are highly dependent upon the current operation, may
be more likely to retaliate against would be offenders (Near & Miceli 1986).
Dependence on a wrongdoing may be related to the seriousness of the activity. According to Miceli and Near (1992), ‘the
seriousness of the perceived wrongdoing may suggest the extent to which the organization may depend on the perceived
wrongdoing, and consequently, its resistance to changing the objectionable practice’ (p. 139). In assessing the severity of a
wrongdoing, one examines the extent to which an activity recurs, and if the activity involves substantial consequences for the
organization (Miceli & Near, 1992). Severity of the wrongdoing has been associated with external disclosure and organizational
retaliation. Researchers have suggested that observers of a serious wrongdoing may be more inclined to use external
disclosure channels (e.g., media, law officials) rather than internal channels to report questionable behavior (Miceli & Near,
1992). Members outside the organization might be more responsive to a serious wrongdoing, and more likely to bring about
prompt and effective change in the event. In a study, researchers (Near & Miceli, 1986) found that whistle-blowers were more
likely to receive retaliation if the wrongdoing was a serious offense, and the whistle-blower reported the incident using external,
rather than internal channels. Therefore, based upon this information, whistle-blowers are more likely to experience overt forms
of retaliation if the organization is dependent upon the wrongdoing, the wrongdoing can be defined as a serious activity, and
the whistle-blower reports the offense to sources external (rather than internal) to the organization.
Narcissistic whistle-blowers may also reciprocate with retaliation towards members of upper-management. For the narcissistic
whistle-blower, retaliation towards members of upper-management might be perceived as a form of revenge for threatening or
hurting his or her self-esteem or ego for reporting the wrongdoing. Brown (2004) follows this same line of reasoning by noting,
‘the narcissist’s inflated social confidence and the narcissist’s sense of entitlement could underlie this revenge tendency;
specifically, these characteristics could produce a desire to retaliate…’ (p. 582).
The characteristics associated with narcissism could perform an instrumental role in understanding and in addressing this issue
of retaliation. Recalling the characteristics associated with narcissism, researchers note each of the ‘traits seems quite possibly
linked to aggression and violence, especially when the narcissist encounters someone who questions or disputes his or her
highly favorable assessment of self’ (Baumeister, Bushman, & Campbell, 2000, p. 27). From a whistle-blowing perspective, an
organization or its members that threaten these traits may be more prone to receive acts of violence and aggressive behavior
from a narcissist. In this case, when an organization is trying to undermine the wrongdoing presented by a narcissistic whistleblower, because of its wide-scale impact, the narcissist may be more aggressive in reacting to the threats produced by senior
In a similar vein, research has suggested that narcissistic individuals are more likely to respond with interpersonal aggression
towards individuals perceived as being unfair or abusive towards them (Burton & Hoobler, 2011). This might be caused by the
narcissist’s high perceptions of him or herself, and the belief that people should share and confirm in this belief (Baumeister,
Bushman & Campbell, 2000). Baumeister, et al., further note ‘When other people question or undermine the flattering selfportrait of the narcissist, the narcissist turns aggressive in response, but only toward those specific people. The aggression is
thus a means of defending and asserting the grandiose self-view’ (pp. 27-28). Therefore, due to the actions taken by the
members of the dominant coalition to retract the whistle-blowers claims, a narcissistic whistle-blower is more likely to respond
with aggressive behavior against those members of the organization. Thus, we can assume:
Proposition Five:
Proposition Six:
Narcissistic whistle-blowers may be more prone to aggressive behaviors towards members of uppermanagement when threatened with retaliation.
Narcissistic whistle-blowers are more likely to respond with aggressive behavior towards individuals
that are perceived as unfair or abusive towards them.
Although this paper has presented a dark side of whistle-blowers, the information presented is deemed worthy of consideration.
This paper has demonstrated that the personality of a narcissistic whistle-blower can affect how he or she interacts with a
complaint recipient, coworkers, and members of upper-management, once an incident of wrongdoing has been reported. Much
of the information presented is speculative and is in need of statistical testing; such measures will validate or contradict many
of the assumptions presented in the paper.
In closing, it is hoped readers are not inclined to consider that this paper is suggesting that all whistle-blowers are narcissist or
possess characteristics associated with narcissism. That would be an untrue statement and was not the intent of this paper.
The Other Side of Whistle-Blowing: Examining the Effects of Narcissism on Whistle-Blowers’ Behavior
This paper sought to demonstrate that whistle-blowers, even though their actions are ethical, some can possess a personality
that can undermine the effectiveness of the process. As was demonstrated in this manuscript, narcissism represents a
personality that can have serious ramifications on whistle-blowing. It is hoped this topic provides scholars interested in
narcissism and whistle-blowing the basic foundation to explore new and significant areas of research.
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Burton, J.P., & Hoobler, J.M. (2011). Aggressive reactions to abusive supervision: The role of interactional justice and
narcissism. Scandinavian Journal of Psychology, 52, 389-398.
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Executive, 16(1), 127-138.
Mesmer-Magnus, J.R., & Viswesvaran, C. (2005). Whistleblowing in organizations: An examination of correlates of
whistleblowing intentions, actions, and retaliation. Journal of Business Ethics, 62, 277-297.
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A. Finch and D. N. Burrell
IHART - Volume 23 (2012)
Aikyna Finch1 and Darrell Norman Burrell2,3,4
1Strayer University, USA, 2Walden University, USA, 3George Mason University, USA
and 4A.T. Still University, USA
This paper is a case study that explored campus dean’s use of social media as a tool to recruit new adjunct faculty for degree
programs geared towards working adult students in Business, Public Health, and Information Technology. The goal paper is to
influence the world of practice in academic administration and faculty recruiting.
Keywords: Adjunct Faculty Recruiting, Faculty Hiring.
Several factors have created faculty shortages in many new degree and certificate programs for working adult professions in
business, health care, and information technology related areas. These factors include:
1. A shortage of faculty due to retirement;
2. a boom in new college degree programs for working professionals;
3. an increase in college enrollments
All of these factors have combined to make for an administrative challenge in higher education: the need to quickly hire
competent faculty to teach an ever-increasing number of students. A thorough discussion of faculty replacement issues is
contained in “Faculty Replacement Needs for the Next 15 Years: A Simulated Attrition Model,” by McGuire and Price (1989).
This analysis also notes the boom in the size of the national professoriate and notes that “this large group has moved through
the life span together and will soon be approaching another developmental transition, retirement (p. 1). McGuire and Price
paint a rather daunting scenario when they note that . . . . most of higher education may experience a dramatic increase in
faculty need simultaneously. Under normal circumstances, a college that usually hires 10 new faculty annually should be able
to recruit 15 in a peak year without great difficulty. If every other college in the country experiences a 50% growth in faculty
need at the same time, however, a shortage of qualified faculty is almost inevitable. (p. 2)
Providing proficient teachers in the classroom has been established as a critical piece in attempting to improve education. And
providing new research to the extant literature and practices can only continue to improve the important work already being
done on teacher hiring, as well as other areas associated with new teacher hiring such as retention. Lui (2003) provided the
following thoughts in regards to the importance of hiring and retention: Schools that organize the hiring process well can utilize
it as the first step to teacher induction, setting expectations centered around the standards, norms, pedagogical approach, and
school culture (Liu, 2003). Hiring and retention of teachers sets the ground work for providing the best tools and resources for
our students. This, of course, is obvious on its face. What is not obvious is the relative effectiveness of practice and
circumstances that have resulted in securing what are considered the best teachers in a school.
In today’s high tech world traditional practices such as recruiting faculty have to eventually catch up with the times. As
universities are tightening their purse strings and downsizing numbers of full time and tenure track faculty due to budgetary
constraints. In this market, recruiters and jobseekers are working hard to go beyond the normal CV that got an applicant hired
five years ago. The hiring official wants to see a professional profile in advance of an interview. This is now possible through
the use of social media. Many academics have profiles on LinkedIn, Facebook and Twitter to help advertise themselves. These
profiles can include recommendations, references, publications, academic credentials, and work experience (Anand, 2010).
Overall, the Internet can be used to increase communication outlets and influence potential employees. Using the Internet for
communication purposes can lead to an increase in the number of job applicants a company can receive. In addition, an
applicant can develop a lasting positive impression of the organization through the university’s official web page. Although
these studies address traditional Internet websites, the forms of communication mentioned are exercised on social networking
sites (Anand, 2010).
A. Finch and D. N. Burrell
IHART - Volume 23 (2012)
Examples of social media include Facebook, LinkedIn,and Twitter. While there are design differences between these sites, the
basic components are the same (Smith, 2010). LinkedIn and Facebook, however, stand out as recruiting tools since they both
include job-posting features for recruiters. Facebook and LinkedIn are most popular among young professionals. In a study
conducted on 430 employees, LinkedIn and Facebook use is highest among the employees who are aged 26 to 45. In addition,
52% of the people surveyed use LinkedIn,49% use Facebook, 31% use MySpace, and 6% use Twitter (Skeels, 2009).
Employers who use LinkedIn and Facebook, as a result, have the highest potential of reaching young professionals in the
Social media is a two-way street that gives you the ability to communicate too. They are websites that don't just give you
information, but interact with you while giving you that information (Nations). This is how the world is connecting, networking
and doing business. (Allen, Mahto, & Otondo, 2007). Facebook, LinkedIn and Twitter are being used as promotion and
recruiting tools for universities that are trying to reach out to prospective faculty.
Facebook is a site where universities can set up a fan page or group so that they can post information about the university;
connect with people that attend and network with people who work for the school. The prospective faculty can look at active
links, postings and clips to help them decide if that is the university is a good fit. Most of the traditional market has targeted
Facebook, being that the 18-24 age group spends most of their time there and it is the most user friendly site that doesn’t have
a content restriction for the pages. This is a great marketing tool for faculty as well because they can set up their page to
include anything that they have done and they can make it interactive and eye catching.
LinkedIn is a site where universities can post their company information and prospective faculty member can get a glimpse at
what the school has to offer and they would fit in the institution. Many universities use LinkedIn to post jobs, highlight their
faculty and make professional connections. This is a great tool for recruiters to scan prospective faculty because a complete
profile consists of the person’s work and educational background in addition to samples of their publications and presentations.
Twitter is a site where universities can post information and links so that prospective faculty member can follow to do research
on the institution. Many higher education professionals also use it to exchange information about teaching, positions, jobs, etc.
If the university has a twitter page then all of the links can be used to filter people back to the website and potentially to the
human resources department. Faculty members can use Twitter to market themselves through the links that they post. Form
Recruiting adjunct faculty in Business, Public Health, and Information Technology Using Social Media
the links on the page a recruiter can see that the person is sharing information in their field, if they are publishing or presenting,
if they have a strong network and if they are in touch with the technology of the time.
There are many other social media sites that can help in the promotion of university recruiters and faculty members. These are
the ones that are most used. The important part of the social media connection is that universities’ information gets out to the
prospective faculty and/or administration members.
As educational institutions are downsizing many fulltime and adjunct faculty are looking for new teaching opportunities. This is
now a recruiter’s market. People certain schools couldn’t get to entertain their offers are now beating down the doors to the
human resources departments. Recruiters now know that they can be more selective in their choices and they are looking for
the next great thing. They are not just looking for instructors they are looking for the wow factor. They want someone that will
go above and beyond the call of duty to impress them. That is where social media comes into play.
By using LinkedIn and Facebook the recruiters should be able to do keyword, demographic and Area of Interest searches in
order to find a qualified pool of faculty to choose from in any field of study (Anand, 2010). The recruiter is then looking through
the list of titles and headers that come up on the screen. They are looking for the creative header and the impressive title. The
winning combination will be the one that leaves the recruiter wanting more. Once the recruiter has clicked on the profile of
choice they are then looking for completeness. If the jobseeker cannot put 100% into something that represents them then why
would they put 100% into the organization. Recruiters are looking for anything to eliminate a person from the running don’t let
an incomplete profile be the deciding factor (Anand, 2010).
The dean was newly hired to the campus. The university was planning to start new programs in the next quarter. To support
these programs there was an absence of qualified faculty. The normal hiring processes of posting job openings on the
university website was not very effective. Posting the positions on the University’s website took time and did not generate the
response necessary for the situation. This study examined the value of differing hiring practices and decisions by looking at
teacher hiring practices “from the other end” – by starting with the most recent hired faculty members and having a focus group
of quick and cost effective ways of recruiting new faculty and “working backwards” to learn about their characteristics and to tap
into their ideas on recruiting the brightest and best faculty members. The intent with this approach was to tap into their ideas
and find a network of new and young faculty members that could be effective. By surveying effective faculty members
approach sought to determine which type of innovative recruiting and hiring practices brought these “great teachers” and what
are their recommendations of approaches that could be feasible to bring in new effective teachers. Faculty members were
considered to be great teachers based scores of 3.6 or higher on a 4.0 scale on their student opinion poll course evaluation
responses. The group consisted of 12 faculty members.
The focus group brainstorming sessions recommended that with limited resources the most effective tools were social media.
Of all the existing tools, the group agreed on the use of Linkedin as the most effective approach. LinkedIn is a great tool for
finding qualified faculty candidates. Job listings often return dozens of responses from people who are only marginally qualified
for a job with specific requirements. Recruiting time could be better spent searching for candidates whom the dean knew were
qualified based on their experience (listed on LinkedIn). Plus, it expands the field to people who might not be actively looking
A. Finch and D. N. Burrell
IHART - Volume 23 (2012)
for a job but are open to “career opportunities,” an interest that a LinkedIn member can display on his or her profile. The
LinkedIn approach got the dean talking to a lot of high-quality candidates who otherwise might not see or respond to a job
The following steps have been effectively used by the dean as developed the from the focus group.
The use of linked-in groups- Linked-in has groups of professionals in the areas of university teaching. The dean used her
own linked-in profile to become a group member. This allowed for the posting of job opportunities to group members and the
review of profiles of candidates for faculty positions.
E-mail Your Network. Linked-In allows members to export their contacts to an Excel file. From this the dean used a
customized mass personalized email their linked-in contacts.
Direct recruiting- The dean did a free area search and reach out to faculty candidates individually.
Three qualified faculty members were reached out to in the areas of English, Marketing and Accounting. Two of the candidates
came in for interviews and they were hired and trained in the allotted timeframe of three months. The faculty members ended
up being versatile and were chosen as in class and online instructors for the university.
As the economy continues to be a problem many qualified faculty members are finding themselves with less and less teaching
opportunities. So if faculty members are going to get hired they have to make themselves marketable. The ideal candidate for a
recruiter is the person that comes with the most to offer the learning institution. This is done by people who have the capability
to teach many subjects and disciplines and can do it in an innovative way. Faculty members have to come out of their comfort
zones and start marketing themselves with the same passion that they pursued their degrees. In addition to having a strong
academic presence there needs to be a strong internet and networking presence. Recruiters are hiring in two ways through
referrals and Internet (Light, 2011). As any job seeker should know only 20 percent of the positions that are available are
posted via print and internet job boards. Most of the positions are filled by internal sources.
Many faculty members have a complex towards technology that is the reason why many are being passed over. In the era of
Google it is important to have a strong internet and networking presence. The internet shows you are not adverse to
technology and networking shows that you can build alliances necessary in academia. Having a professional presence on
LinkedIn and Facebook will do just that. It is a way to display your skills and abilities in a creative and dynamic way that will
make recruiters take a second look (Anand, 2010). Sometimes faculty members will have to come out of their comfort zone to
get back in the mainstream of teaching.
By using LinkedIn to locate and initially screen candidates it cut much time out of the hiring process. Because LinkedIn lets the
person put their resumes as their profiles it is easy to see the degrees and qualifications that are needed for an adjunct faculty
member. The key also is using social media approaches can be cost effective ways at reaching qualified candidates without
Recruiting adjunct faculty in Business, Public Health, and Information Technology Using Social Media
the expense of employment advertising. With the insights of the most effective teachers on campus the new dean effectively
used Linkedin to recruit new faculty members and in a manner that was more effective and quicker than using the university
website of employment listings.
Allen, D. G., Mahto, R. V., & Otondo, R. F. (2007). Web-based recruitment: Effects of information, organizational brand, and
attitudes toward a web site on applicant attraction. Journal of Applied Psychology, 92(6), 1696-1708.
Anand, R. (2010). Recruiting with Social Media: Social Media's Impact on Recruitment and HR. San Francisco, CA: Amazon
Light, J. (2011, January 18). Recruiters rethink online Playbook. The Wall Street Journal, B7.
Liu, E. (2003). New Teachers’ Experience of Hiring: Preliminary Findings from a Four-State Study. Harvard Graduate School of
Education. Project on the Next Generation of Teachers.
McGuire, Michael D. and Jane A. Price. (1989, May) Faculty Replacement Needs for the Next 15 Years: A Simulated Attrition
Model.” Proceedings of the Annual Forum of the Association of Institutional Research.
Nations, D. (n.d.). What is Social Media? Retrieved June 20, 2011, from About.com: http://webtrends.about.com/od/web20/a
Skeels, M. & Grudin J. (2009). When social networks cross boundaries: a case study of workplace use of Facebook and
LinkedIn. Proceedings of the ACM 2009 International Conference on Supporting Group Work. 95-103.
Smith, W, & Kidder, D. (2010). You've been tagged! (then again, maybe not): employers and Facebook. Business Horizons,
53, 491-499.
R. Hulsart and V. McCarthy
IHART - Volume 23 (2012)
Robyn Hulsart and Vikkie McCarthy
Austin Peay State University, USA
As we continue to identify ethical misconduct that leads to financial crisis, it becomes apparent that a new leadership model
should emerge specifically for a such case. Although having a “one size fits all” crisis leadership model is not possible, the
authors present a flexible model that can be used to turn a bad situation into one that transforms an organization. Looking to
organizational learning theories and utilizing relevant cases, this article explores ethical misconduct that has been instrumental
in resultant financial crises and searches for opportunities and strategies from which to build stronger organizations.
Keywords: Crisis Management, Financial Crisis, Fraud, Leadership, Organizational Learning Theory.
In his now infamous New York Times op-ed piece, “Why I Am Leaving Goldman Sachs”, Greg Smith speculated: “When the
history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein,
and the president, Gary D. Cohn, lost hold of the firm’s culture on their watch” (2012). He further stated that it is his belief the
loss of the firm’s moral fiber is a major threat to the firm’s ability to survive in the long term. Smith’s methods of resigning and
the public flogging of the firm’s leadership may be considered by many as inappropriate behavior, but a review of Securities
and Exchange Commission (SEC) charges levied against the organization and its employees lends at least some credibility to
Smith’s reflections (SEC v. Goldman, Sachs & Co, 2003; SEC v. Sonja Articevic et al., 2006; SEC v. Kevan D. Acord, Philip C.
Growney, Alberto J, Peres, Jose G. Perez, Sebastian de la Maza, &Thomas L. Borell, 2009).
According to the 2011 National Business Ethics Survey conducted by the Ethics Resource Center, ethics in American business
is in transition. The survey reflects on the one hand, “misconduct has reached an historic low and observers of wrongdoing are
more willing to report than ever”, while on the other hand, “ethics cultures are eroding and employees’ perceptions of their
leaders’ ethics are slipping. Additionally, pressure from employers to compromise standards is at an all-time high and
retaliation has reached an alarming rate” (ERC, 2011, p. 6).
In times of crisis, stakeholders of organizations expect leaders to minimize the impact of the crisis at hand. But what happens
when leadership is the cause of a crisis? When the captain runs his ship aground and runs for the first life raft, who will step in
to manage the sinking ship? Leadership must emerge from somewhere to establish a sense of normalcy and foster collective
learning from the crisis (Boin, 't Hart, & Sundelius, 2005). Most ships have first mates and most organizations have multiple
layers of leadership that will hopefully step in to fill this void.
Ethical misconduct and financial fraud within organizations can be debilitating and are often the undoing of an organization
(e.g. Arthur Anderson, Enron). Leadership cannot claim ignorance and are culpable for such conduct regardless of knowledge
and /or participation in the conduct. For this reason it is imperative that organizations create a crisis leadership plan specifically
for ethical misconduct and financial fraud. In an ideal world, creation of such a plan will include preventative measures and safe
guards to head off such a disaster. However, a plan must take into account that prevention does not always work. The
responsibility for crisis management in an organization ultimately lies with top leadership. However if top leadership is the
cause ethical misconduct and a financial crisis, crisis leadership must emerge from somewhere else in the organization. This
paper will address the execution of such a plan when preventative measures fail and top leadership is involved in ethical
In any discussion that focuses on crisis management, the natural assumption is that the organization has a plan that, when
implemented, will minimize the disruption to the entity. However, it is not unheard of for businesses to avoid the expense of
developing a comprehensive management plan in favor of employing an “it won’t happen to us” attitude. Organizations
choosing to defer development and implementation of a plan erroneously rely on the fact that there are no current laws
specifically requiring crisis management plans. What these businesses fail to realize is that the courts are now looking at the
failure to plan under the heading of liability. This means that an employer can potentially face negligence charges in the event it
can be shown that they failed to “take reasonable steps to eliminate or diminish known or reasonably foreseeable risks that
Learning to Lead Through an Ethical and Financial Crisis
could cause harm.” (Blythe & Srivarius, 2003, p. 1) The negligence claim is sometimes ignored in the instance of crisis because
the law does not directly speak to the issue. Rather, the claim is directed at the employer’s duty under the law. This duty
requires the employer to provide employees with a safe workplace and failure to do so results in a breach of duty by
Interestingly, with no legal guidance on the issue, the courts have deferred to the federal Occupational Safety and Health Act
(OSHA) and the U.S. Department of Labor to define the employer’s responsibility pertaining to the standard of care required to
protect employees. Current thinking suggests since most crises are the result of industrial accidents, terrorism, workplace
violence, or product tampering; organizations should be aware of pending crises and should plan accordingly. Since these are
known possibilities or probabilities, failure to plan is failure meet the standard of care requirements expected in the workplace.
It is this failure to plan-failure to meet the standard of care relationship that has judges and juries siding with the plaintiffs in
these suits. Lacking specific law, it is solely their responsibility to determine whether the organization exercised the appropriate
care expected by the reasonable person in the circumstance and then determine any damages that may have been sustained
by the breach of duty or, lack of reasonable care. Judges and juries are looking at businesses through a critical lens and are
asking whether or not a plan that minimizes risk for the employees has been prepared, implemented, tested and trained for.
Simply having a plan is not good enough to remove an employer from the potential liability of negligent liability. As a result of
this level of scrutiny, no longer is management allowed the “unforeseen” defense. In days past, one could remove themselves
from liability by merely claiming a crisis to be an event that could not be anticipated or prepared for. The tragedy of 9/11
disrupted this thinking and organizations are now tasked with meeting the standard of reasonable expectation: there is a
reasonable expectation that a crisis will occur and therefore, the actions of the entity will be measured against what is
considered to be standard reasonable care given the circumstances.
No doubt crisis planning and being prepared to act when a crisis occurs is difficult. There are instances in which an
organization had a plan in place and was still found guilty of negligence to plan. How can this happen? The simple answer is
that crisis management is an evolving, continuous process. Plans that are written and shelved are plans that are ineffective and
do little to protect the employees or the public from risk.
Consistent leadership involvement before, during and after a crisis is key for navigating the perils of a financial crisis caused by
ethical misconduct. Leadership has been defined as the ability to see what others cannot see (Bass, 1990). This includes the
ability to anticipate problems and plan properly. In the event of a crisis situation, it is leadership's responsibility to execute crisis
management plans. A crisis has three primary phases: prevention, response and recovery. Crisis prevention, as defined by
Fink (1986) is the act of avoiding and/or averting potential crises. The response phase begins when efforts to avoid a crisis
have failed and the crisis begins. Leaving recovery, that point in the crisis at which the organization can look at the event and
determine lessons to be learned.
In their book Transforming the Crisis-Prone Organization, Pauchant and Mitroff (1992) presented an onion model of crisis
management in which the inner layer is characterized by the individuals within the organization. Within this layer lies leadership
which if effective is responsible for socializing individuals in the organization (Bass, 1990) and creating organizational climates
with the ability to effectively manage a crisis (Pauchant & Mitroff, 1992). Melding effective theories of leadership including
situational leadership, transformational leadership, and social learning theories one can easily see a model of crisis leadership
We question how, over the past few decades, there have been a number of public companies that have been victims of fraud
perpetrated by top levels of management. While these frauds have primarily been the result of errant financial reporting, the
impact on the U.S. capital markets, loss of shareholder value and corporate confidence has been widely felt. In some instances
this fiscal malfeasance has been the cause for companies to be forced into bankruptcy.
Created as part of the Securities Exchange Act of 1934, the SEC’s primary responsibility to the public is to monitor the
securities markets. In addition to this governmental oversight, the collection of management, boards of directors, audit
committees, internal auditors, and external auditors are expected to work together to insure the validity and reliability of
financial reporting used by the investing public. Included in the roles played by the overseers of the entity’s finances, each
group in the fiscal process also has a responsibility to deter and detect fraud.
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IHART - Volume 23 (2012)
Reasonable person theory suggests that with the level of oversight in place, such financial frauds as Enron, WorldCom, and
others should not be allowed to occur. However, they did. A result of the public mistrust created by the high profile financial
frauds of the late 1990s led to the implementation of the Sarbanes-Oxley Act of 2002 (SOX).
The rules of fair play set out by governmental organizations and regulations include the Securities and Exchange Commission
and anti-trust laws that are set up to prevent bad behavior by organizations. Other governmental interventions such as
Sarbanes-Oxley were established to protect good behavior by individuals within organizations. Ethical misconduct of an
organization’s leadership is not a new concept. However, with the increased responsibility placed on executives by requiring
written statements attesting to the accurateness of the financial reporting, the law is placing the burden on the shoulders of
management. SEC chairperson (January 2002 until July 2006), Cynthia Glassman when speaking to the American Society of
Corporate Secretaries in September 2002 said that the intent of Sarbanes-Oxley is to make “CEOs ultimately be responsible
for the quality of a company’s disclosure controls and financial reporting” which in turn should “make clear that a company’s
senior officers are responsible for the culture they create, and must be faithful to the same rules they set out for other
employees” (Glassman, 2002).
SOX is clear that a CEO/CFO cannot delegate responsibility for the correctness of the financial reporting, however, Title III in
its reference to corporate responsibility allows for a company to have an officer with ownership of compliance and ethical
issues. Chairman Glassman suggests this person:
 Should have such authority or seniority to undertake any actions necessary given the circumstances.
 Should have complete access and support of the CEO, CFO and senior management. This support must be constant in
both theory and practice as the officer should report routinely to the highest levels of senior management.
 Should have free and total access to report to the board of directors (i.e., the audit committee chairperson) on matters of
considerable importance to the company or matters that may involve misconduct perpetrated by senior management.
Whenever the discussion turns to organizational fraud and, in particular, fraud perpetrated at the highest levels of
management, corporate giants Enron, WorldComm, Adelphia, Tyco International, Peregrine Systems, and HealthSouth seem
to dominate the conversation. Unregulated accounting activity cost investors billions of dollars. When these companies
collapsed, the antics of top management not only unsettled the public confidence, they also shook the nation’s confidence in
the securities markets in general.
In a move aimed to restore the confidence of American investors, Senator Paul Sarbanes (D-MD) and Representative Michael
Oxley (R-OH) co-sponsored acts that would make public company boards, management, and public accounting firms follow
strict federal requirements for financial reporting. The Public Company Accounting Reform and Investor Protection Act (Senate
version) and Corporate and Auditing Accountability and Responsibility Act (House version) combined are more commonly
referred to as Sarbanes-Oxley or SOX. The law consists of eleven titles that address such issues as auditor independence,
corporate responsibility, enhanced financial disclosure, analyst conflicts of interest, and corporate and criminal fraud
accountability. For the purpose of this discussion we will concentrate on those sections specifically relevant to the
responsibilities of the organization’s top management team:
SOX Section 302: Corporate Responsibility for Financial Reports: This section of the Act was enacted to hold
top levels of management responsible for the accuracy of the financial statements by requiring CEOs and CFOs to
personally certify their firm’s accounting records. (Regulation App A)
SOX Section 303: Improper Influence on Conduct of Audits: This section of the Act prohibits “any officer or
director of an issuer, or any other person acting under the direction thereof, to take any action to fraudulently
influence, coerce, manipulate, or mislead any other person acting under the direction thereof, to take any action to
fraudulently influence, coerce, manipulate, or mislead any independent public or certified accountant engaged in the
performance of an audit of the financial statements of that issuer for the purpose of rendering such financial
statements materially misleading” (www.sec.gov).
SOX Section 404: Management Assessment of Internal Controls: Clearly the most controversial provision of the
Act, Section 404 requires management to perform an assessment of their operations in the context of top-down risk
assessment and report any findings of potential risk. Of the auditors, Section 404(a) requires an internal control report
by the auditor which will “state the responsibility of management for establishing and maintaining an adequate internal
Learning to Lead Through an Ethical and Financial Crisis
control structure and procedure for financial reporting,” including an assessment of the effectiveness of the structure.
Section 404(b) requires “each registered public accounting firm that prepares or issues the audit report for the issuer
shall attest to, and report on, the assessment made by the management of the issuer” (www.sec.gov).
SOX Section 409: Real Time User Disclosures: Widely regarded as the most challenging requirement of the Act,
Section 409 mandates issuers disclose to the public, within 48 hours, “information on material changes in their
financial condition or operations” (www.sec.gov).
SOX Section 802: Criminal Penalties for Altering Documents: Considered to have been included in the Act in
response to the Enron and Arthur Andersen document destruction events, Section 802 states “whoever knowingly
alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible
object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter … shall
be fined under this title, imprisoned not more than 20 years or both.” (Cornell) this section also burdens accountants
by imposing fines and/or penalties of up to 10 years in prison for knowingly and willfully violating the requirement to
maintain all audit or review papers for no less than 5 years (www.sec.gov).
SOX Section 906: This section details the CEO’s personal responsibility (“each periodic report containing financial
statements … shall be accompanied by a written statement by the chief executive officer and chief financial officer”)
to include written statements in the financial reports certifying the report “fairly presents in all material respects, the
financial condition and results of operation of the issuer." Criminal penalties for an omission under Section 906
include up to $1 million or imprisonment for not more than 10 years or both. In the event it is deemed an executive
officer willfully submitted incorrect or falsified the certification, possible fines of up to $5 million and imprisonment not
to exceed 20 years or both may be levied (www.sec.gov).
In a study conducted by the Deliotte Forensic Center similar results were found. In their analysis of Accounting and Auditing
Enforcement Releases (AAERs) issued by the SEC in 2008, they found that in 81% of the cases, company officers were
named (Bishop & Hydoski, 2009).
In their 2010 study, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) examined nearly 350
alleged accounting fraud cases investigated by the SEC. In 89 percent of the fraud cases, the SEC named the CEO and/or
CFO for involvement; within two years of the completion of the SEC investigation, about 20 percent of CEOs/CFOs had been
indicted; over 60 percent of those indicted were convicted (Beasley, Carcello, Hermanson, & Neal, 2010).
While the Association of Certified Fraud Examiners (ACFE) 2010 Report to the Nations found, in their study of 968 US cases,
different results as to the position of the perpetrators, they did discover that these high-level perpetrators cause the greatest
damage to their organizations. The AFCE study reported that 46.2% of the fraud cases were perpetrated by employees, 36.7%
by manager, and only 17.1% by owner/executives; however, the owner/executive perpetrated frauds proved nine times more
costly than the employee frauds and three times more costly than the manager frauds. This level of fraud also took much
longer to detect (ACFE, 2010).
This is a complex question to answer but a good start would be with the charade or hoax that had been perpetrated by the
management of the Enron Corporation. At the time, reporting to be the largest corporate bankruptcy in history having imposed
more than $60 billion in losses on shareholders alone, Enron executives blamed the fall of the company on falling natural gas
prices and an overall weakness in the national economy. Skeptics were doubtful that the seventh largest company in the
country could go from prosperity to insolvency in a matter of months. When the now infamous email to CEO Kenneth Lay from
whistleblower Sherron Watkins was discovered and eventually shared with the press, any reservations held were quickly put to
rest. Selected excerpts from Watkins email alleges the highest level of management of knowingly and willfully perpetrated a
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IHART - Volume 23 (2012)
Dear Mr. Lay,
Has Enron become a risky place to work? For those of us who didn’t get rich over the last few years, can we afford to
I am incredibly nervous that we will implode in a wave of accounting scandals. My eight years of Enron work history
will be worth nothing on my resume, the business world will consider the past successes as nothing but an elaborate
accounting hoax. Skilling is resigning now for "personal reasons" but I would think he wasn't having fun, looked down
the road and knew this stuff was unfixable and would rather abandon ship now than resign in shame in two years.
I firmly believe that executive management of the company must have a clear and precise knowledge of these
transactions and they must have the transactions reviewed by objective experts in the fields of securities law and
accounting. I believe Ken Lay deserves the right to judge for himself what he believes the probabilities of discovery to
be and the estimated damages to the company from those discoveries and decide one of two courses of action:
1. The probability of discovery is low enough and the estimated damage too great; therefore we find a way to quietly
and quickly reverse, unwind, writes down these positions/transactions.
2. The probability of discovery is too great, the estimated damages to the company too great; therefore, we must
quantify, develop damage containment plans and disclose.
I firmly believe that the probability of discovery significantly increased with Skilling's shocking departure. Too many
people are looking for a smoking gun. (Watkins, 2002).
The Wall Street Journal article title said it all: “Firm's Own Employees Sniffed out Cryptic Clues and Followed Hunches”. After
Cynthia Cooper and her team of internal auditors stumbled onto one irregular $500 million accounting entry they made the
decision to investigate several tips and corporate rumors that the management at WorldComm was cooking the books (2002).
In less than three months, Cooper’s team had uncovered one of the largest fraud and bankruptcies in history. WorldComm was
found to have more than $11 billion worth of fraudulent entries and misstatements which in total represented 28.9 percent of
their 2002 total revenue (Nilsen, 2010).
Bernie Madoff, perpetrating an investment fraud for some thirty years is the personification of the adage, “if it sounds too good
to be true, it is”. Whenever discussing fraud against an individual, this mantra seems to come up. Madoff was a legitimate
success buying and selling over-the-counter stocks not listed on the New York Stock Exchange. Former Chairman of the
National Association of Securities Dealers (NASD), co-founder of the Nasdaq, founder and owner of Madoff Securities, Bernie
Madoff was a trusted player in the Wall Street financial community. Appearing in federal court March 12, 2009, Madoff stated,
“I operated a Ponzi scheme” (Levisohn, 2009, p. 38) and although his account of the workings of the scheme and information
discovered by law enforcement are in conflict, the fact that the fraud cost customers some $64 billion is unquestioned.
According to the Securities and Exchange Commission Office of Investigation, “between June 1992 and December 2008 when
Madoff confessed, the SEC received six substantive complaints that raised significant red flags concerning Madoff’s hedge
fund operations and should have led to questions about whether Madoff was actually engaged in trading” (Levisohn, 2009, p.
22). While the SEC now believes the elaborate Ponzi scheme started as early as 1982, Madoff’s recollection is it started out
innocently enough during the recession of early 1990.
His claim of not wanting to disappoint clients of returns on investments he had promised supposedly was the trigger for what
became a long con. Believing he would make money in the future, Madoff paid the promised returns with cash infused by new
investors. In court proceedings, he explained that he moved money around accounts in an effort to create the illusion of
conducting the client’s business and perpetuated the farce by mailing falsified verification of non-existent trades. He also pled
guilty to lying to the Securities and Exchange Commission stating, “Clients would have no way of knowing the statements were
false” (Levisohn, 2009, p. 38). Madoff has refused to implicate anyone else in his scam and has doggedly protected his
legitimate businesses managed by his brother and sons.
While Madoff’s claim that clients would not know he was defrauding them, Harry Markopolos, having been asked by his firm to
decipher Madoff’s strategies in an effort to mirror them, found enough red flags to ascertain the returns promised by Madoff
could not be legitimate. Markopolos sent the SEC a 21-page memo entitled “The World’s Largest Hedge Fund is a Fraud.” In
the memo Markopolos wrote: “Bernie Madoff is running the world’s largest unregistered hedge fund. He’s organized this
business as [a] hedge fund of funds privately labeling their own hedge funds which Bernie Madoff secretly runs for them using
Learning to Lead Through an Ethical and Financial Crisis
a split-strike conversion strategy getting paid only trading commissions which are not disclosed” (Fox, 2008). Markopolos
concluded with, “If this isn’t a regulatory dodge, I don’t know what is” (Fox, 2008).
Despite the governmental attempts to prevent and/or punish ethical misconduct and financial fraud instances that cause
organizational crises still occur. Some of these crises can be far reaching and impact the global economy.
Crisis leadership has been characterized as “the need to manage crisis types, mechanisms, systems and stakeholders before
during and after a crisis” (Pauchant & Mitroff, 1992, p. 5). Leadership's ability to do this depends on five key leadership
behaviors and traits: communication, power, influence, task orientation and relationship orientation. We suggest that key
leadership theories that meld into effective "crisis leadership" include charismatic, transformational, situational and social
learning theories (Bass, 1990; Elliot, 2009; Pearson & Clair, 1998; Smits & Ally, 2003; Tannebaum, Weschler, & Massarik,
"Emergency (crisis) management as practiced in the United States covers the periods of time before, during and after an
emergency” (Becraft, 2011, p. 29). In many organizations, preparation of crisis management plans falls on multiple
departments (e.g. public relations, finance, and personnel). This may result in fractured plans removed from top leadership.
Ideally, the leader of an organization is not only directly involved but is also open to the expertise of each department.
Prepared Plans
Execution of Plans
Figure 1: Steps in a Crisis Management Process
James McGregor Burns (1978) defined power as leadership's use of resources to secure change. These resources are both
tangible and intangible. In a crisis situation leadership's power is reflected in the use of all resources for successfully navigating
the event so that the organization is able to continue with operations. Influence is leadership's ability to appeal to followers'
values and raise consciousness when there are contradictions between values and practice (Burns, 1978). In the case of crisis
management, influence plays an important role when bridging the gap between preparing plans and implementing them
effectively during a crisis.
Once a crisis occurs leadership is responsible for executing management plans regardless of whether the current leadership
was involved in the planning. Tools that are essential for successful crisis leadership include communication, power, and
influence. Leadership uses these tools for focusing management of stakeholder relationships and the completion of tasks. In
order to be an effective leader it is important to focus on both relationships and tasks (Ashkanasy, Wilderom & Peterson, 2000;
Bass, 1990). We will present a crisis leadership model that illustrates leadership's role in executing a crisis leadership plan in a
financial crisis caused by ethical misconduct.
Communication in a crisis situation is important for disseminating information about the crisis plan, steps that need to be taken
for implementing a solution as well as progress being made toward the final desired outcome (Dawkins & Ngunjiri, 2008).
Effective communication eases tensions amongst stakeholders because it reduces uncertainty (Lalonde, 2007; Moll, 2003;
Ulmer, 2001).
Power and influence are used by leaders for completing tasks and managing relationships amongst individuals that are needed
for carryout plans. Leadership cannot implement and execute crisis plans alone and needs multiple sources of human capital.
Sources of influence and power are leadership tools needed for the completion of tasks. Leadership possesses legitimate,
designated within organizational structure, power for planning and executing crises management. However, legitimate power
alone is not sufficient especially when plans are dependent on stakeholders outside of the organization. For this reason, it is
R. Hulsart and V. McCarthy
IHART - Volume 23 (2012)
essential that organizational leaders consider all sources of power when creating plans. Sources to consider that influence
stakeholders outside of the organizational structure include referent, based on attraction, and expert, based on perception of
knowledge (Bass, 1990). Consideration of power bases must be build into crisis management plans in order for the execution
of plans to be successful (Eriksson, Stern, & Sundelius, 2001).
Leadership has been defined as "interpersonal influence" and the ability to influence others to cooperate towards a goal (Bass,
1990; Tannebaum, et al., 1961). The ability to influence stakeholders in a crisis management situation is grounded in basis of
power. Leaders use legitimate, referent and/or expert power to influence internal stakeholders to work toward the executing a
crisis management plan. Referent and expert power are essential foundations for influencing external stakeholders (Boin, ‘t
Hart, & Stern, 2005). Involving internal and external stakeholders in the planning process helps to increase this influence and
buy in where there are agreed upon outcomes. Successful execution is dependent on buy in that leads to building relationships
(Coombs, 2000) and completing necessary tasks in the crisis management process (Elliott, 2009). Cooperation amongst
leaders and stakeholders is the facilitating ingredient that results in the crisis management plan being an asset (Jerome &
Rowland, 2009).
The crisis management model presented below illustrates leadership's role in executing a crisis plan. Communication, power
and influence all impact relationship and task orientation.
Figure 2: Leadership through Crisis Model
In summary, communication, power and influence in both the planning and the execution of a crisis, influences the
relationships and tasks necessary for creating a management asset. Management asset is defined as successful outcomes
(e.g. completed tasks outlined in the plan or identified in the process) (Carmeli & Sheaffer, 2008). This successful outcome is
then applied to the crisis situation. As seen in the module above the asset in action results in the crisis being effectively
In their 2009-2010 report, Deterring and Detecting Financial Reporting Fraud—A Platform for Action, the Center for Audit
Quality (CAQ) identified three consistent themes that could lead to mitigating the risk of financial fraud. As with CAQ, we do not
see these as “silver bullets” but rather as practices that can be employed daily within the organization to preclude the
implementation of a crisis management plan (2010):
1. Tone at the top. Management is instrumental in establishing the ethical culture of the organization. It is their responsibility
to not only talk the talk, but walk the walk. Employees hearing a consistent message from their supervisors are more
likely to mirror the ethical judgments of management.
Learning to Lead Through an Ethical and Financial Crisis
2. Skepticism. This concept requires we get to the answer by asking questions, critically evaluating evidence and paying
attention to anomalies or inconsistencies. A healthy dose of skepticism throughout the financial reporting process
“increase not only the likelihood that fraud will be detected, but also the perception that fraud will be detected, which
reduces the risk that fraud will be attempted” (CAQ, 2010, p. vii).
3. Communication throughout the financial reporting process. As stated earlier, there are many moving parts in the financial
process of the organization: external regulatory bodies, management, boards of directors, audit committees, internal
auditors, and external auditors. Fraud is easier to perpetrate when only one individual has the information. Working
together and exchanging information creates a platform on which inconsistencies can be brought to the forefront quickly
which in turn, will minimize the opportunity for a financial crisis to be instigated by anyone at any level of the process.
It is a potential liability not to plan for crisis in general, if you have a crisis management plan in place that does not address the
lack of leadership in a top down event, there should be an even greater liability because of the "reasonable care" doctrine and
the "duty to provide a safe, secure workplace" being breached if management knowingly defrauded the organization.
Regardless of who prepared the crisis leadership plans, the burden for execution falls on current leadership. It is possible,
although highly undesirable, that current leaders were not a part of formulating existing plans. One reason for this may be that
there was a recent turnover in leadership because the removal for ethical misconduct.
Ahmed, P., Nanda, S., & Schnusenberg, O. (2010). Can firms do well while doing good? Applied Financial Economics, 2(11),
Ashkanasy, N.M., Wilderom, C.P., and Peterson, M.F. (2000). Handbook of organizational culture & climate. Thousand Oaks,
CA: Sage Publications.
Association of Certified Fraud Examiners (2010). Report to the nations. Retrieved from http://www.acfe.org.
Bass, B.M. (1990). Bass & Stogdill’s handbook of leadership theory, research, and managerial applications. New York, NY:
The Free Press.
Beasley, M.S., Carcello, J.V., Hermanson, D.R., & Neal, T.L. (2010) Fraudulent financial reporting 1998-2007: An analysis of
US public companies. Committee of Sponsoring Organizations of the Treadway Commission. Retrieved from
Bishop, T., & Hydoski, F. (2009). Corporate resiliency: Managing the growing risk of fraud and corruption. New York, NY: John
Wiley and Sons.
Blythe, B., & Srivarius, T. (2003, January). Negligent failure to plan: the next liability frontier? Executive Action. Retrieved from
Boin, A., 't Hart, P., & Stern, E. (2005). The politics of crisis management: Public leadership under pressure. New York:
Cambridge University Press.
Burns, J.M. (1978). Leadership. New York, NY: Harper Collins.
Carmeli, A., & Sheaffer, Z. (2008, January 1). How learning leadership and organizational learning from failures enhance
perceived organizational capacity to adapt to the task environment. Journal of Applied Behavioral Science, 44(4), 468-489.
Center for Audit Quality. (2010). Deterring and detecting financial reporting fraud: A platform for action. Retrieved from
Coombs, W. T. (2000). Crisis management: Advantages of a relational perspective. Public relations as relationship
management: A relational approach to the study and practice of public relations. Ledingham, J. A., & Bruning, S. D.
Mahwah, (Eds). New Jersey: L. Erlbaum
Dawkins, C., & Ngunjiri, F. (2008). Corporate social responsibility reporting in South Africa. Journal of Business
Communication, 45(3), 286-307.
Elliott, D. (2009). The failure of organizational learning from crisis - A matter of life and death? Journal of Contingencies and
Crisis Management, 17(3), 157-168.
Eriksson, J., Stern, E.K. & Sundelius, B. (2001). Bridging theory & practice in crisis management: The Swedish experience. EU
Civilian Crisis Management Conflict Studies Research Centre.
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Fink, S. (1986). Crisis management: Planning for the inevitable. New York, NY: American Management Association.
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IHART - Volume 23 (2012)
Fox, J. (2008). Harry Markopolos really did have the goods on Bernie Madoff. Time Magazine. Retrieved from
Glassman, C.A. (2002). Speech by SEC Commissioner: Sarbanes-Oxley and the idea of "good" governance. US Securities
and Exchange Commission. Retrieved from http://www.sec.gov
H.R. 3763 (107th): Sarbanes-Oxley Act of 2002. Retrieved from http://www.govtrack.us.
Jerome, A., & Rowland, R. (2009). The rhetoric of inter-organizational conflict: A subgenre of organizational apologia. Western
Journal of Communication, 73(4), 395-417.
Lalonde, C. (2007). Crisis management and organizational development: Towards the conception of a learning model in crisis
management. Organization Development Journal, 25(1), 17-26.
Levisohn, B. (2009). Madoff pleads guilty to Ponzi scheme. Business Week. Retrieved from htttp://www.businessweek.com.
Moll, R. (2003, August 1). Case Studies: Ford Motor Company and the Firestone tire recall. Journal of Public Affairs, 3(3), 200211.
Nilsen, K. (2010). FRAUD - Keeping fraud in the cross hairs. Journal of Accountancy, 209(6), 20-24.
Paine, L.S., Deshpande, R., Margolis, D. and Bettcher, K. (2005). Up to code: Does your company's conduct meet world-class
standards? Harvard Business Review, 83(12), 122-134.
Pauchant, T.C. & Mitroff, I.I. (1992). Transforming the crisis-prone organization: Preventing individual, organizational, and
environmental tragedies. San Francisco, CA: Josey-Bass Publishers.
Pearson, C.M. & Clair, J.A. (1998). Reframing crisis management. The Academy of Management Review, 23(1), 59-76.
Pullian, S., Solomon, D. (2002, October 30). How three unlikely sleuths exposed fraud at WorldCom: Firm’s own employees
sniffed out cryptic clues and followed hunches. The Wall Street Journal. Retrieved from http://www.online.wsj.com.
Securities and Exchange Commission (2002). Sarbanes-Oxley. Retrieved from http://www.sec.gov.
Securities and Exchange Commission (2003). SEC v. Goldman, Sachs & Co. 03Civ.2944 (WHP)(S.D.N.Y.). Retrieved from
Securities and Exchange Commission (2009). SEC v. Kevan d. Acord, Philip C. Growney, Alberto J, Peres, Jose G. Perez,
Sebastian de la Maza, and Thomas L. Borell. 09-21977CIV-McAlkey. Retrieved from
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Sherron Watkins email to Enron chairman Kenneth Lay. (2002). Retrieved from http://www.itmweb.com.
Smith, Greg (2012, March 14). Why I am leaving Goldman Sachs. [Op-ed]. The New York
Times. Retrieved from http://www.nytimes.com.
Smits, S. J., & Ally, N. E. (2003). "Thinking the unthinkable"- Leadership's role in creating behavioral readiness for crisis
management. Competitiveness Review, 13, 1-23.
Tannenbaum, R, Weschler, I.R., & Massarik, F. (1961). Leadership and organization. New York: McGraw-Hill.
Ulmer, R. R., (2001). Effective crisis management through established stakeholder relationships: Malden Mills as a
case study. Management Communication Quarterly, 14, 590-615.
R. Chavez, M. Holloway and R. Perez
IHART - Volume 23 (2012)
Ruth Chavez1, Madison Holloway1 and Rocio Perez2
1Metropolitan State University of Denver, USA and 2Definitive Marketing, USA
Substantial evidence suggests inadequate access and consumption of nutritious foods such as fresh fruits and vegetables
combined with a poor diet of convenient processed fast foods lead to obesity and present a myriad of serious health
consequences that impair an individual's quality of life. In the United States, the prevalence of obesity and overweight is
significantly higher for some racial and ethnic groups. Hispanics and Blacks are disproportionately affected by obesity and its
related risk factors (Flegal et al., 2012). Today, cardiovascular diseases, diabetes, and other chronic diseases are increasing at
alarming rates in underserved consumer populations such as racial and ethnic residents of low income neighborhoods. It is
also evident that mainstream food marketing practices have only exacerbated the nation's epidemic health problem by
intentionally targeting these vulnerable populations. Yet public policy concern and academic inquiry has been remarkable slow
to address the subject of health disparities as it relates to predatory advertising and marketing promotion. Concerned about the
health and economic costs of obesity, The Institute of Medicine (IOM) in 2012, assessed the influence of marketing within the
food and beverage industry on obesity. Multicultural marketing, the IOM concluded, is a high priority for this industry because
ethnic consumers segments are growing, their buying power is increasing and there has been an increase in their cumulative
lifetime spending potential (Grier, 2012). Furthermore, Hispanic and Black children have significantly higher media use and
exposure than their white peers (Rideout, 2012). Youth and children are readily influenced by the media and may not have fully
developed cognitive decision skills to decipher fact from fiction. To address the problem of inadequate access to healthy food in
consumer constrained neighborhood environments, community-based interventions are emerging to alleviate the impact on
vulnerable populations. Increasing neighborhood corner store participation in improving access to fruits and vegetables is
proving to be a promising approach to promoting consumer well-being. This article describes such a multicultural intervention
as part of a broader Health Corner Store Initiative (HCSI) designed to address the lack of commercial grocery stores in lowincome urban neighborhoods. The intervention incorporates student service learning in multicultural marketing education
through an academic-community partnership. Along with implications of reducing health disparities within these neighborhoods,
this paper underscores the importance of embedding cultural competence in multicultural marketing practice and education.
Keywords: Multicultural Marketing, Hispanics, Consumer Well Being, Food Deserts, Academic-Community Partnerships,
Cultural Competence, Service Learning.
Marketing has played an important role in the determination of quality of life as consumers are affected directly and indirectly
by marketing factors, such as product quality and safety, price, product availability, distribution, and promotion, etc. For food
products, such impact could be even more obvious as research has documented how the marketing of these products has
affected general health of consumers. Considerable attention has been given to the importance and effect of nutrition
information, health claims, and food labeling (Andrews, Netemeyer and Burton 1998 & 2009; Golodner 1993; Ippolito and
Mathios, 1993; Nestle 2002).
One of the urgent issues is found in the cumulative research evidence that points to the effect of food marketing on obesity in
the U.S. (Crister 2003; Ford and Calfee 2005; Moore 2007; Seiders and Petty 2004 &, 2007). More alarming is the effect on
children as childhood obesity has become a serious social and public policy issue and many children are victims of food
marketing by major food companies and restaurants (Descrochers and Holt 2007; Nestle, 2006; Robinson, Bloom, and Lurie,
2005). Research also shows that there is a significant disparity between well-to-do consumers and disadvantaged consumers
(Teisl, Levy, and Derby 1999); between socioeconomic groups (Brinberg and Axelson 2002; Mathios, 1996), and between
ethnic groups (Grier, et al., 2007). Among ethnic groups, Hispanic and Black populations have been reported being insidiously
targeted by food marketers due to their higher level of media exposure and increased population growth. Consequently, both of
these populations are most likely to be negatively affected by obesity-causing food products (Ogden et al. 2006). Recent
studies suggest that obesity and other dietary related diseases such as type II diabetes are directly related to the food
environment found in low-income communities (Gittelsohn and Sharma, 2009; McKinnon, et al., 2009, Wilkie, 2007). As obesity
and related chronic diseases in the U.S. reach epidemic proportions, there is an unprecedented opportunity for marketing to
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IHART - Volume 23 (2012)
positively influence public policy and change, by becoming a major contributor in accelerating obesity prevention and
advancing consumer well being.
Facing an obesity epidemic due in part to profit maximization food marketing practices, a community health initiative was
developed and implemented by a public health agency to make healthy food alternatives, such as fruits and vegetables
available to food desert (i.e. communities with limited access to affordable and nutritious foods) neighborhood areas. The
public health agency is a part of an integrated healthcare system that is the primary public healthcare safety net organization
for an urban city in the Southwest United States. The urban public health agency initiated a number of programs and
collaborative efforts to better serve vulnerable populations.
The primary aim of the initiative discussed in this article was to modify food purchase and consumption patterns and to
enhance consumer well-being by increasing exposure and availability of alternative healthier products through multiple
interventions to create a sustainable and beneficial marketing environment for both stores and shoppers. The present article
describes a multicultural marketing intervention as part of a broader Healthy Corner Stores Initiative (HCSI) designed to
address that lack of commercial grocery stores in low-income urban neighborhoods. The intervention incorporates student
service learning in multicultural marketing education through an academic-community partnership. The paper underscores the
importance of embedding cultural competence (e.g. culture and language appropriate promotional material) into multicultural
marketing and offers suggestions and implications for future academic and community-based collaborative strategic alliances.
Multicultural America has prompted scholars and practitioners to explore a new set of marketing opportunities. The multicultural
boom is creating profound changes in social and marketing priorities affecting our society. More than ever, minority growth
rates and spending power are capturing the attention of marketers. Fostering cultural competence (awareness and
responsibility) within organizations has now become a critical imperative to responsibly serve ethnic consumer markets. These
recent statistics from the U.S. Census Bureau (Humes, Jones and Ramirez, 2011), and other secondary sources substantiate
the relevance of these emerging markets:
 The combined Hispanic Asian and African American population growth represents approximately 88 percent of the
growth in the last 11 years.
 In 2010, there were nearly 51 million Hispanic residents in the United States, accounting for more than half—nearly 52
percent—of the population growth in the last decade.
 By the year 2016 the U.S. ethnic composition will represent over half of the overall population.
 Aggregate consumer spending for 2012 was estimated to be approximately $538 billion for Hispanics, $437 billion for
African Americans and $253 billion for Asian Americans and Pacific Islanders (Melgoza, 2012).
 Due in part to larger family household size Hispanic consumer spending is more than the average household in the food
and apparel category (Melgoza, 2011).
The data above indicates that multicultural America represents significant opportunities for marketers. As the population in the
United States becomes ever more diverse, there are unprecedented opportunities to increase understanding of the needs of a
multicultural marketplace and foster the appropriate responsible relationship between major social issues and consumer
behavior strategies.
Simultaneously, human and economic costs of health disparities pose significant challenges for society at large. Obesity
surreptitiously represents one of the most urgent health threats as well as one of the leading causes of morbidity and mortality
throughout the world. In a global marketplace where many people die each day from nutrition deprivation related causes,
problems associated with excess weight are often overlooked. Yet, in the United States, racial and ethnic differences in health
outcomes are emerging as indisputable disparities. As the Hispanic population within the U.S. represents the highest growth
ethnic group with a large number of newly arrived immigrants often at lower socioeconomic ladders, below average education,
and above average household size, the high prevalence of obesity for this segment is particularly disconcerting.
Given that low fruit and vegetable consumption is an important risk factor, substantial evidence-based research demonstrates
that low-income consumers living in poor food environments disproportionately bear the burden of higher rates of chronic
disease and health disparities (Hall, et al., 2009). According to the Center for Disease Control (2009), during 2006-2008,
obesity prevalence was 21% higher for Hispanics, compared to their non-Hispanic white counterparts. The latest data from the
Multicultural Marketing and Consumer Well- Being in UnderServed Hispanic Neighborhoods
National Health and Nutrition Examination Surveys during 1999-2010, indicates that Hispanics continue to be at greater risk for
obesity. Among adults aged 20 or older, the combined prevalence of obesity and overweight was nearly 79 percent for
Hispanics as compared to almost 67 percent for non-Hispanic whites (Flegal et al., 2012). This epidemic also applies to
children and adolescents. Among children and adolescents aged 2 through 19, nearly 39 percent of Hispanics were either
obese or overweight compared with almost 26 percent for non-Hispanic whites (Ogden et al., 2012). These racial and ethnic
health disparities take a toll on the entire household. Hispanic children and youth are particularly vulnerable exhibiting
disproportionately higher childhood hunger and food insecurity than their non-Hispanic white peers (Johnson, 2008). Hence,
effective strategies and policies that promote healthy eating and active lifestyles are needed for this to change.
As mentioned earlier, Hispanic consumers are heavily influenced by the media and many are not making health appropriate
food choices. Furthermore, low-income Hispanic residents are often under-served by mainstream grocery chains and rely on
neighborhood corner stores to provide basic daily grocery needs. Such corner stores fail to provide enough healthy food
alternatives, partially because they are often restrained by space and economies of scale. Consequently, many corner stores
opt to carry high-margin, heavily advertised processed food and limit the availability of healthy alternatives, such as fruits and
In resolving the problem of inadequate access to healthy food in consumer constrained neighborhood environments, public and
private entities have considered community-based intervention alternatives to alleviate the impact on underserved populations.
Health promotion and change requires multiple levels of influence to develop and implement effective interventions for
underserved consumers. As researchers are discovering, consumer attitudes and behaviors are often a function of the
environment. While individual and situational variables also play an important role, the neighborhood food environment is the
focus of this article. From this perspective, building adequate capacity in small neighborhood corner stores could be a
promising intervention that might change the food environment of these communities. With the right intervention program,
neighborhood communities could simultaneously sustain business performance and promote consumer well-being. Moreover,
Braveman (2006) suggests that health disparities can also be shaped by public policy altering the systematic exposure to
products with health risks for economically disadvantaged social groups.
Both past and present marketing interests and the field of consumer behavior in particular, has derived benefit from a
continuously improved understanding of consumer well-being. Various theories have contributed to marketing knowledge about
consumer-well being (See Sirgy, 2008 an extensive review). Although the development of a consumer well-being approach to
marketing may have been impeded by the discipline's economic traditions of production, distribution and institutional
organizational management, additional concerns of marketing, inevitably required more consideration for consumer and
societal issues. In a recent article, Pander and Handelman (2012) traced the defining impact of macro-economic theory on
marketing, concluding that consumer sovereignty and choice, wherein, the welfare of society accrues the most benefit when
consumers can decide what is best for their own well being continues to be an important part of contemporary marketing
Similarly, Peterson (2006) in the marketing orientation conceptual framework suggests fundamental dimensions of consumer
quality of life are related to choices for goods, the cultural context, and physical environment. Scholars and practitioners share
a common belief that the positive effect on business profitability and sustainability is derived from a market orientation that
delivers customer value. To date marketing orientation studies of small businesses in underserved ethnic consumer
neighborhoods are sparse. With an important social issue, such as obesity among vulnerable populations, it is necessary to
incorporate social responsibility into market orientation to achieve the desired effects of delivering superior customer value.
Furthermore, it is essential for consumer demand to be sufficiently strong in order for corner stores to be sustainable. By
creating or increasing a desirable demand with intervening influential product exposure and availability, the connection between
business enterprise and an overall sustainable neighborhood market environment emerges as a significant point of reference
for value-based marketing and societal welfare.
Although space does not permit a thorough discussion of the evolution of marketing and its relationship to society, it is worth
mentioning that the traditional dominant view is characterized by an organizational function perspective (See Pancer and
Handelman, 2012 and Wilkie and Moore, 1999 & 2003 for comprehensive reviews). While this remains the dominant approach,
greater interest in societal issues and consumer well being is emerging. Wilkie (2005) points out in the Journal of Marketing, "I
assert that it is time for a new marketing academic summit, perhaps as a task force on thought development, with the goal of
enhancing the participation in and quality of marketing scholarship. In addition to addressing what should be studied and how, I
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IHART - Volume 23 (2012)
suggest that serious attention should be given to how research quality of life can be improved "(p. 10). Later, in 2007, Wilkie
once again advances the plea to the American Marketing Association to enlarge the definition of marketing beyond an
organizational function view. In a subsequent issue of the Journal of Public Policy and Marketing (2007), devoted to childhood
obesity, a number of others provide support for his argument (Lusch, 2007; Sheth and Uslay, 2007; Wilkie and Moore. 2007;
Zinkham and Williams, 2007). The improved version by the American Marketing Association defines marketing as…“the
activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for
customers, clients, partners, and society at large” (Approved October 2007). The new definition incorporates "society at large"
and is both social and managerial in nature and broadens the field for the inclusion of consumer well being.
Deliberative democracy, an innovative and inclusive community-based marketing approach engages multiple participants (e.g.
local schools, and universities, local organizations, consumers, public agencies, private enterprise, the media and public policy
makers) as key stakeholders who take part in resolving issues and risks that affect their local communities. In this new
formulation, multiple stakeholders take part in the marketing function. Ozanne and her colleagues (Ozanne, Corus, and
Saatcioglu, 2009) introduced this emerging marketing paradigm in order to account for the interplay between business, policy
and consumer interests. Distinct from "Social Marketing", where downstream and upstream strategies attempt to change
human behavior through traditional marketing techniques, the deliberative democracy approach is specifically designed to
engage all stakeholders as equal participants in the decision making process.
The multicultural marketing intervention discussed in this article is consistent with the deliberative democracy approach in that
is attempts to build interdependence among various stakeholders to achieve a fundamental goal of making underserved
neighborhood deserts more sustainable.
HCSI was a community driven intervention based on an earlier comprehensive needs assessment of underserved
neighborhoods. In response to the issues and problems identified in the assessment, a community wide strategy was
developed to address the needs of the defined neighborhoods. Access to healthy food was identified as a top priority for the
residents of the selected neighborhoods who live in a food desert without a major supermarket to meet their basic needs. As
has already been mentioned, the term “food desert” describes neighborhoods and communities that have limited access to
affordable and nutritious foods. In the United States, those who live in urban and rural low-income neighborhoods are less
likely to have access to supermarkets or grocery stores that provide healthy food choices (Whitacre, Tsai, and Mulligan, 2009).
Using a deliberative democracy orientation, the initiative was designed to provide coaching and outreach to store owners in
order to create a sustainable community model and enhance consumer wellbeing. The program sought to increase the
consumption of healthy fruits and vegetables by the low-income residents while increasing business performance of the corner
stores. To increase consumers' consumption of fruits and vegetables, the initiative built relationships with the participating
corner stores, distributors, as well as the local community. As store space was limited, the corner store owners were given
incentives in the form of a free supply of fruits and vegetables in exchange for shelf space allocated for such products. With
greater exposure to healthy alternatives consumers would increasingly modify their purchases to include fruits and vegetable.
As intake of healthy food alternatives was built into consumer routine purchases, incentives for stores would gradually
decrease to a sustainable level.
The HCSI utilized multiple channels to increase demand, sales, and consumption of fruits and vegetables. The effort included
community-wide marketing and promotion strategies utilizing school nutrition programs, health clinics, community
organizations, city agencies, local media and an academic partnership to help integrate and reinforce the message that healthy
food can be accessible and available locally.
Cultural competence was a critical part of this initiative in that the majority of the store owners were Koreans serving a
predominately Hispanic consumer base. The multicultural marketing agency assisted storeowners with the coordinate, price
product placement and other promotion elements of the community-based strategy. In the course of this initiative a partnership
was established between the multicultural agency and a marketing faculty member at a local college. The college is in an urban
setting and situated near the neighborhood corner stores. Students who attend are from the greater metropolitan area, the
majority of who continue to reside in the state after graduation. As such, the college places emphasis on experiential
community-based learning. The next section discusses the partnership and its impact on the local community and students.
Multicultural Marketing and Consumer Well- Being in UnderServed Hispanic Neighborhoods
The multicultural marketing agency provided culturally competent marketing and program assistance for the Healthy Corner
Stores Initiative. Representative community outcomes over the period were as follows:
 Increased understanding by store owners of product placement, marketing, purchasing, and media as it relates to the
sale of fruits and vegetables.
 The hosting of culturally appropriate seasonal open house events as well as the creation and distribution of promotional
 Increased understanding by consumers of the importance of the consumption of fruits and vegetables.
The marketing faculty member provided culturally competent research dissemination strategies and multicultural education.
Indicative student learning outcomes over the period were as follows:
 Increased understanding of marketing theory and practice within a multicultural context.
 Community service to both corner store owners and consumers through the development and implementation of culturally
relevant promotional strategies and tactics.
 Client-based experiences and practice in communicating orally and in writing, marketing strategies and decisions using
appropriate technologies.
The multicultural marketing agency principal and academic faculty partner implemented culturally appropriate strategies to
reach three specific neighborhood stores and consumers in the community. They met with funding source representatives,
community organizations, corner store owners and the local district councilman, to better understand the needs of consumers
from various stakeholder perspectives. Informal interviews were conducted at the corner stores to inform each phase of the
multicultural marketing intervention. Service-learning projects were assigned to students and various sessions were facilitated
by the partnership to educate the students on how marketers and companies impact the community as a whole—especially the
most vulnerable members of the community. Cultural competence was provided to students, along with consumer related
learning. Understanding consumption as a function of ethnicity was a core element of the learning objectives. Working together
the consultant and faculty member provided a level of awareness for the students to include in their future work. Figure 1 below
presents a high level overview of the key HCSI stakeholders including the role of the academic partner and students.
To build on a participative multicultural marketing strategy, an academic-community partnership was established. Students
developed civic engagement team projects to promote health and well-being. The marketing faculty member and multicultural
marketing agency principal jointly guided students on best practices in working with underrepresented communities and on how
to unlock the potential of these communities to take responsibility for their own health. At the onset the creative agency
principle advised students about guidelines, requirements and the expected outcomes for every phase of the project. Students
were expected to learn and apply multicultural marketing concepts and principles. Through a multiphase approach students
developed and implemented culturally relevant promotional strategies and tactics.
R. Chavez, M. Holloway and R. Perez
IHART - Volume 23 (2012)
Figure 1: Healthy Corner Stores Initiative Program Structure
Phases of the Community Academic Partnership
Phase I Background Research and Analysis:
 Conducted a needs assessment of the project to identify purpose and scope.
 Strategized on the best course of action and recommendations for Phase II.
Phase II Strategy Stage:
Developed a vision statement for the partnership.
Established priorities and created an action plan.
Co-facilitated student presentations, community partner and key stakeholder meetings.
Guided and assisted in the implementation of the student action plan.
Worked with students to create a multicultural marketing plan, marketing message, and creative work.
Phase III Strategic Assistance:
Developed and presented findings to key stakeholders.
Discussed future opportunities created by the joint strategies.
Examined sales strategies, impact and marketing outcomes.
Identified elements of the community-based model for future projects.
Multicultural Marketing and Consumer Well- Being in UnderServed Hispanic Neighborhoods
Implications for Multicultural Marketing: Practice, Academia and Service Learning
Practice: The need to improve community and individual consumer well-being continues to be an urgent issue. The stakes are
high for all concerned. Given the scope of the problem, consumers in underserved consumer communities face an uncertain
future as the burden of economic, education and health disparities continues to place an undue burden on their well-being.
From a practitioner's perspective health corner stores initiatives are proving to be powerful tools for community-based
interventions. On the one side, consumers must be reached in culturally competent ways and have a voice to co-create healthy
solutions in their particular neighborhood environments. On the other hand, value-based partnerships such as the one
discussed in this article can make an impact.
Academia: Unfortunately, in higher education, racial and ethnic minority issues continue to receive relatively little attention in
the study of consumer behavior. For example, a recent comprehensive analysis of major marketing journals found that over a
ten year period (1995-2004), only 2.5 percent of consumer research articles addressed race or ethnicity (Williams, Lee, &
Henderson, 2008). Similarly, an earlier review of the literature, Gilly (1993) found that from 1987 to 1992, only one article in the
Journal of Consumer Research examined Hispanics and none addressed the needs of African-Americans or Asian-Americans.
Such a lack of education and research is perplexing given that taken individually, or collectively, groups of color represent a
lucrative consumer market.
To address this gap marketing curriculum should assign higher priority to the development and delivery of multicultural
marketing courses that concentrate on consumer behavior as an expression of race, ethnicity and gender. The course
discussed in this article was designed by the marketing faculty partner to cultivate an awareness and appreciation of consumer
diversity in the United States. In the multicultural marketing course students develop an understanding of marketing
management strategy and practice within a diverse consumer society. As an extension of the social science and marketing
literature, the academic-community partnership broadened student knowledge of consumer behavior and well-being in
underserved Hispanic neighborhoods.
Service Learning: It is important to build rapport with current key stakeholders involved prior to inviting others to participate.
Successful service-learning projects include: 1) setting a clear vision with detailed expectations and project outcomes, 2)
working with storeowners to participate in service-learning projects, 3) establishing a working relationship with academic
partners with clearly defined timelines, roles and responsibilities, 4) create a plan of action with detailed outcomes between
academic-community partnerships, 5) co-facilitate sessions with students, 6) review and follow through during the
implementation process and 6) at the end of the project: discuss findings and decide on a course of action for future
partnership opportunities.
Future community-based interventions should include local academic institutions as viable partners to address health
disparities in underserved communities. As multicultural marketing evolves, academia can effectively play a stronger role in
determining the health and well-being of ethnic consumer segments.
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Desrochers, D. M. and Holt, D. (2007). Children's exposure to television advertising: implications for childhood obesity, Journal
of Public Policy & Marketing, 26 (Fall), 182-201.
Flegal, K. M., et al., (2010). Prevalence and trends in obesity among U.S. adults, 1999-2010. Journal of the American Medical
Association, 307(5), 491-497.
Ford, G. T. and Calfee, J. E. (2005). Food politics, Journal of Public Policy & Marketing, 24 (Spring), 174-77.
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Grier, S. A., et al. (2007). Fast-food marketing and children's fast-food consumption: exploring parents' influences in an
ethnically diverse Sample, Journal of Public Policy & Marketing, 26 (Fall), 221-235.
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low-income populations, American Journal of Preventative Medicine, 36 (4), S161-165.
Golodner, L.F. (1993). Healthy confusion for consumers, Journal of Public Policy & Marketing, 12 (Spring), 130-134.
Hall, J., Moore, S., Harper, S., & Lynch, J. (2009). Global variability in fruit and vegetable consumption, American Journal of
Preventative Medicine, 36 (5), 402-409.
Humes, K. R., Jones, N. A. and Ramirez, R. R. (2011). Overview of Race and Hispanic Origin: 2010, U.S. Census Briefs,
Retrieved April 10 from www.census.gov/prod/cen2010/briefs/c2010br-02.pdf
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Academies Press.
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Klein, T.A. (2004). The nature and scope of macromarketing, Journal of Macromarketing, 24 (2), 190-196, DOI:
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Journal of Macromarketing, 26 (45), 45-58.
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S. Shetty
IHART - Volume 23 (2012)
Sadu Shetty
Nova Southeastern University, USA
Corporate boards are today expected to adhere to more stringent guidelines and supervision. Multinational corporations
through globalization or internationalization of firm resources/assets can create competitive advantages through absolute,
comparative advantages, and technological innovations. Globalization has created a demand for leadership skills to match the
changing competitive landscapes and may to a great degree influence the compensation structure in MNCs. It is expected that
a firm’s performance, the degree of globalization, or the degree of multi-nationality, innovation, or research intensity play an
important role in the determination of the CEO’s compensation. The purpose of this study is to determine a) whether the firm’s
performance impacts executive compensation in multinational enterprises, and b) whether globalization and innovation strategy
have any impact on executive compensation in multinational enterprises. The results will help develop a better understanding
of how CEO compensations are determined.
The global financial crisis and the economic recession that started in early 2008, brought forth important questions in terms of
corporate governance, executive pay packages, globalization trends, sustainability, and competitive strategy in the
interconnected world economy. The crisis intensified the transformation of ongoing trends in the underlying drivers of global
business conditions within the global business environment (Laudicina, 2010).
Researchers at MIT found that if executives could pay attention to global trends, it could significantly impact the performance of
global companies and ultimately contribute towards international progress and development. However, relatively few
companies often tried to optimize global attention (Allen & Cyril, 2011).
In 2010, China took over as the second-largest economy in the world, moving ahead of Japan, thereby representing the
changing global economic landscape. Innovation was also determined as a key factor in the long-term success and
sustainability of an organization given the fast changing globalization trends (Nye, 2010).
Another Most-Favored Nation (MFN), India, and China have has also surfaced and become amongst the most favorite
countries for people, global investors, corporate moguls and many other people can come across the globe to make way for
the purpose and objective of progressing international businesses and contributing towards both internal and external
performance of countries.
It was therefore, imperative to realize that as long-term strategy and execution was led by top executives in an organization,
understanding the key factors impacting the pay packages of top executives would be equally critical. The initial years of the
21st century saw several corporate scandals and breaches in corporate social responsibility from companies such as Enron,
WorldCom, AIG, Goldman Sachs, and others.
These scandals of misconduct and unreasonable executive compensation along with the financial crisis and global recession,
led to general public mistrust and anger being directed at the leaders of these companies. These examples of breakdowns in
public confidence in the executives and the breach of understanding between the shareholders and the Board of Directors led
to the expectation that the latter were expected to oversee management so that the potential for conflict of interest between
owners and managers could be policed (Conference Board, 2003).
Public scrutiny of executive compensation resulted in increased involvement of regulatory and governmental agencies,
especially when success and pay packages of foreign, particularly American companies, came into consideration (Nishizawa,
2007). These changes in public and governmental perceptions and scrutiny resulted in stakeholder desires to understand the
relationships between organizational strategy and firm performance and the levels of executive compensation.
Impact of Firm Performance, Multi-Nationality and Innovation in MNCs
This study therefore, attempts to determine
1. What is the impact of performance of a multinational company on the executive compensation for the CEO of that
2. What is the impact of internationalization on executive compensation of CEOs in multinational companies?
3. Is there any relation between the expenditure on R&D and executive compensation in multinational companies?
4. What is the relation between the compensation of a CEO’s and size of the firm?
5. Does the age and experience of the CEO make an impact on the executive compensation of the CEO?
Background and Justification
Global competition is continuing to increase at the speed of light. This stresses managers to have an understanding of the
international context as it pertains to the business environment. There has been an explosive growth in the size and number of
American and foreign international enterprises.
One variable used to measure this growth is the increase in total foreign direct investment (FDI). The world stock of outward
FDI is estimated to have risen from US$ 510 billion in 1980 to US$ 9.7 trillion in 1998—a seventeen (17)-fold increase in just
24 years. The volume of international trade in goods and services was US$ 7.9 trillion in 2000 and US$ 17 trillion in 2007.
In the same period, the total assets of multinational foreign affiliates increased to US$ 26.5 trillion, generating US$ 17.5 trillion
in sales and over 53.1 million jobs. The cross-border mergers and acquisitions (M&A’s) also increased at a rapid rate, and it
was estimated at US$ 567 billion in 2006 (Ball, 2009).
Mergers and Acquisitions (M&A’s), which have occurred across the globe, particularly in the form of cross-border, are the
driving force behind the growth of FDI flows. According to the United Nations Conference on Trade and Development
(UNCTAD), in 2004, there were more than 70,000 companies with 69,000 foreign affiliates that accounted for 25% of global
output and two-thirds (almost 66%) of world trade.
The foreign affiliates’ sales (US$ 19 trillion) exceeded global trade (US$ 11trillion). The rapid growth of international firms both,
in size and number increased their significance in the economies of many nations. Governments have now realized that
important segments of their industry have gradually come under the control of foreigners whereas previously, the local citizens
had been the principal owners.
This has led to a fear that the absentee owners may follow policies, which are in conflict with government objectives (Ball,
2009). Executives in multinational companies have expanded their scope in terms of stakeholder management. The changes in
scope and challenges in executive roles are expected to be considered in the executive pay packages.
There have been studies analyzing the relationship between firm performance and Chief Executive Officer (CEO)
compensation in specific industries like aerospace, banking and automobile but the results have not been conclusive (Jensen &
Meckling, 1976; Jensen & Murphy, 1990; Daily, Johnson, Ellstrand, &Dalton, 1998; Chambers, 2008).
There was a study of the relationship between CEO compensation and firm performance in the United States’ airline industry
(Marlino, 2008), and there were several essays on executive compensation analyzing the pay gap and total factor productivity
in American firms (Sharma, 2009).
But there are not many studies analyzing the executive compensation in multinational firms based on the impact of the level of
globalization and the intensity of innovation on the executive pay packages. The bulk of empirical CEO compensation research
has taken place within the Agency Theory framework (Devers et al., 2007).
This theory states that CEOs and shareholders have an agency relationship, defined as “a contract under which one or more
persons (the principal(s)) engage another person (the agent) to perform some service on their behalf which involves delegating
some decision making authority to the agent” (Jensen & Meckling, 1976, p. 310).
According to the Agency Theory, the goals of the principal and the agent may tend to conflict and the agent cannot be counted
on to act in the best interests of the principal. Compensation contracts transfer the risk of failure, toward goals that are aligned
with the principal’s interests. These contracts tend to incentivize the risk averse, self-interested agent (Jensen and Meckling,
S. Shetty
IHART - Volume 23 (2012)
High performing managers are in demand and are rewarded in the form of higher compensation compared to their poor
performing counterparts (Fama, 1980). According to the Agency Theory, executive opportunism and risk aversion could be
controlled by incentive pay and good pay contracts are expected to lead to pay-performance sensitivity.
The proposition of executive pay as being highly sensitive to a firm’s performance has been tested extensively. However,
results have not been conclusive (Tosi et al., 2000). Jensen and Murphy (1990) in their primary study concluded that no
substantial sensitivity existed between pay and performance.
The findings by other researchers have varied widely (Devers et al., 2007). Some scholars started examining factors external
to the firm, when internal factors failed to provide adequate explanations of CEO compensation offered by the Agency Theory.
Efforts to integrate this theory with constructs, such as behavioral, strategic, and contingency theories resulted in a substantial
body of work.
However, this work has failed to adequately examine the importance of the international context in the setting of CEO
compensation. Gomez-Mejia and Wiseman (1997) and Devers et al.’s (2007) study has suggested the use of new contexts:
International, industry and market in future research. Hall and Kelly (2009) studied the industry context in 2009, but not many
researches incorporate the international context into CEO compensation research.
Understanding the link between a firm’s performance, strategy, and executive compensation in MNCs will help one understand
the compensation drivers in a broader and with an international strategy-related perspective. A study at MIT (Morison, 2011)
concluded that global orientation by top executives would play a key role in organizational performance. But, it has been found
that insufficient attention is being paid to the international context.
Major MNCs have substantial investments in host countries; for example 22% of Wal-Mart Stores’ net income, 73% of Exxon
Mobil’s net income, 37% of Toyota’s net income, 68% of Chevron’s net income (Ball, 2009) comes from foreign operations. An
analysis of these global contexts by executives is thus becoming much more important (Cyril, 2011).
An analysis of the compensation structure in multinational firms will extend the body of knowledge in the area of the Agency
Theory, the firm’s strategy theory, and compensation literature for MNCs whose stakeholders are in multiple countries and the
firm’s strategy, performance, and compensation has global implications.
Purpose of the Study
The purpose of this study is to determine a) whether the firm’s performance impacts executive compensation in multinational
enterprises, and b) whether globalization and innovation strategy have any impact on executive compensation in multinational
enterprises. The results will help develop a better understanding of how CEO compensations are determined.
With the increase in global competition, there have been many initiatives to improve organizational performance in an effort to
make a business enterprise more competitive in the global market. The rate of executive compensation increased substantially
in the United States while the same could not be held true for executives at the foreign firms (Kathuria & Porth, 2003).
Businesses tend to analyze operation expenses in an effort to become more competitive. Executive compensation is usually
part of this analysis. As the global competition increases and businesses attempt to improve their organizational performance
to be competitive, there will be an increasing need to relate executive compensation to organizational performance (Nicely,
There is some empirical support suggesting that international strategy exercises some influence on organizational efficacy and
compensation decisions (Hall, 2009) but the proposition suggesting that international and innovation strategies influence
executive compensation has not been adequately explored. This study seeks to fill this gap in the compensation literature,
albeit partially.
Research Questions
There five research questions addressed in this study.
1. What is the impact of performance of a multinational company on the executive compensation for the CEO of that
Impact of Firm Performance, Multi-Nationality and Innovation in MNCs
What is the impact of internationalization on executive compensation of CEOs in multinational companies?
Is there any relation between the expenditure on R&D and executive compensation in multinational companies?
What is the relation between the compensation of a CEO’s and size of the firm?
Does the age and experience of the CEO make an impact on the executive compensation of the CEO?
Significance of the Study
This study is significant to a number of stakeholder constituencies. CEOs and their compensations are of major importance to
corporations, which are an integral part of the world’s economy. The logic behind the CEO’s compensation is not understood
thoroughly, despite the decades-long research. This study seeks to advance the understanding of CEO compensation by
focusing on the globalization and innovation variables that have been under-investigated.
This study will fill the gap in understanding the influence exerted by a firm’s performance, globalization, and innovation strategy
in multinational enterprises. This study will fill the knowledge gaps existent in the Agency Theory, the impact of globalization,
and compensation literatures.
Past research in this field has typically centered on a particular industry in the domestic arena, such as aerospace and banking.
This study will fill a gap by providing empirical evidence that advances the field of research into multinational business
1. One of the first assumptions in the study is related to the integrity of the data examined. This study relies exclusively on
secondary data published by firms and data sources.
2. The second assumption is related to compensation disclosure. This study relies on compensation details provided in the
statistical sources. However, any intangible benefits or undisclosed compensation will be not included in the analysis.
The current research has its limitations in addition to these assumptions. This study uses reliable secondary data. Data
integrity is high and researcher bias is eliminated. As the MNCs tend to be large corporations, generalization can be extended
only to the large corporations.
The Agency Theory predicts correlations between contracting, agent behavior, and principal welfare. It is important to note that
correlation does not equal causation. This study is cross-sectional, not longitudinal. The study only examines a few years,
which may not be long enough for pay-performance sensitivity to manifest itself. Further, findings from couple of years may not
be generalizable over the long term (Hall, 2009).
Literature to be Reviewed
The literature to be reviewed for this study will include past studies that have examined the components of executive
compensation, globalization theory, and innovation-related literatures. This will consist of study of seminal research in the field
of executive compensation, firm performance, innovation and multi-nationality as seen by MNCs.
Conceptual Empirical Design
Through a review of the literature, this study will develop a comprehensive quantitative approach to examining the research
questions. The study will use total compensation (salary, bonus, and stock options) of executives in the MNCs as the
dependent variable and examine the firm’s performance using (revenue-expense), performance ratios, and level of
globalization using percent assets outside the home country, percent sales outside the home country, and innovation intensity
measured by percent investment in R&D as the independent variables. A sample of publicly traded MNCs as listed in the
Fortune Global 500 organizations from the Global Edge database will also be examined. Here, is a conceptual framework.
S. Shetty
IHART - Volume 23 (2012)
Firm Size
Executive compensation
(Total Compensation)
Figure 1: Conceptual model
Research analysis like the Pearson Product Moment Correlation (PPMC) regression analysis, step wise regression analysis,
variance and linear multiple regression analysis, or any other advanced analysis techniques, like the Path Model will be
explored to test the relation between a firm’s performance, innovation intensity, level of globalization, and executive
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J. Turkvant, C. Cleveland and L. T. Banks
IHART - Volume 23 (2012)
James Turkvant1, Craig Cleveland2 and LaQue Thornton Banks2
1Argosy University, USA and 2Saint Leo University, USA
In the last decade, public accounting firms have faced rapidly changing regulations, rules, new legislative measures, a fast
changing business world in which they were faced with re-examining their core services, ethics, highly competitive environment
and even independence. Due to this environment, CPA firms are responding to challenges such as declining revenue, retention
of key personnel, intense competition, and unethical behavior of personnel and changing demands for financial information.
Prior research indicates that leadership styles can have a positive influence on subordinate outcomes. This study examines the
relationship between leadership style and subordinate outcomes in medium CPA firms in the Southeast. The leader substitutes
(LST) and transformational leadership theories (TLT), predict the leader’s influence on subordinate outcomes.
Keywords: Leadership, Trait & Behavioral Approach, Transformational.
In the last decade, public accounting firms have faced rapidly changing regulations, rules, new legislative measures, a fast
changing business world in which they were faced with re-examine their core services, ethics, highly competitive environment
and, even, independence (Berton 1994a, 1994b; Fisher 1994; Martin 1994; Prior, 2001; Silva 1994). Not to mention Arthur
Anderson going out of business, one of the big five accounting firms (The CPA Letter, 2003). CPA firms are responding to
several challenges such as declining revenue in the auditing industry, retention of key personnel, intense competition, and
unethical behavior of personnel and changing demands for financial information. These pressures resulted in declining profits
in auditing, which forced firms to seek other competitive advantages in order to remain viable such as consulting services,
merging with other CPA firms, financial planning services, estate planning and employee benefits services to stock advice and
insurance purchase (Journal of Accountancy, 1997; Prior, 2001), change marketing strategies (Boress, 1995; Molinar, 2001;
Trugman and Person, 1995; Wolf, 2001) and expand partnership opportunities to include non-CPA partners (CPA Journal,
1994; Larson and Holdeman 1994; Pustorino and Rabinowitz, 1998). A potential competitive advantage is effective leadership.
In the twenty-first century leadership is a balanced and inclusive use of key ethics, theories and their subordinated cognate
theoretical resources in the analysis and resolution of individual and/or collective ethical issues that demonstrate the moral
soundness of leadership judgment. Leadership theories also predict that effective leadership facilitates achievement of
objectives through the leader’s influence on employee behaviors and attitudes, such as motivation, performance, satisfaction
and ethics (Hall, Johnson, Wysocki and Kepner, 2002).
Accounting firm characteristics use more of a leader-subordinate structure type relationship (partner-manager, manager-senior,
senior-staff), which includes the nature of the task performed, the development of the subordinate and the progression of the
subordinate through the firm hierarchy (Jiambalvo and Pratt, 1982; Satava, 2005). Because of the special structure of
accounting firms, the findings of generic leadership studies may not be applicable to include accounting firms.
Two studies (Kelly and Margheim 1990, Otley and Pierce 1995) examine the effect of leadership behaviors on dysfunctional
audit behaviors (either under reporting time or audit quality reduction acts). In a follow-up study, the Public Oversight Board
(2000) found that these same dysfunctional behaviors still exist (Behavior Research Accounting, 2003). In another study
performed by DeZoot and Lord (1997), they identified the presence of many pressures in the audit environment and the ability
of some to severely undermine the auditor’s control environment (McNamara, Dunedin, and Liyanarachchi, 2005; Otley and
Pierce, 1996; Pierce and Sweeney, 2004; Sweeny and Pierce, 2004). Higher initiating structure correlates with the decrease in
the number of audit quality reduction acts performed by staff accountants (Kelly and Margheim, 1990). Whereas Otley and
Pierce (1995) found that seniors who work for considerate managers, that impose little initiating structure report the lowest
number of incidents of dysfunctional behaviors. Otley and Pierce (1995) also discovered that perceived environmental
uncertainty strengthens the relationship between leader behaviors and the reduction of dysfunctional acts.
J. Turkvant, C. Cleveland and L. T. Banks
IHART - Volume 23 (2012)
Characteristics of the subordinate include professional orientation that refers to the value an individual places on peer approval
and the influence of professional group membership on his/her attitudes and behaviors (Kerr and Jermier, 1978). The majority
of accountants who stay in public accounting become licensed professionals by passing the CPA exam and fulfilling their
experience requirements. Therefore, this project recognizes the accountant’s professional orientation as a potential gobetween leader behaviors and subordinate outcomes.
The theories that surfaced repeatedly throughout the literature review relating to leadership theories were divided into four
sections for purposes of this study. The first section focuses on the major theories of leadership. The second section
summarizes the contributions of earlier leadership research in public accounting firm. The third and fourth sections review the
leader substitutes and transformational leadership theories, respectively. These two theories will served as the theoretical
support for this paper. This will provide the context and relevancy of leadership theories to the business environment while
examining leadership styles and the effect on subordinates’ outcome in CPA firms.
Trait Approach
Early in the 20th century the trait approach was used to study leadership, which focuses on the personal traits (attributes) of
leaders. The underlying assumption is that researchers thought they could identify traits that distinguish a great leader from
ordinary leaders (Bass, 1990a). After researchers were unable to identify a group of traits that consistently improved
organizational effectiveness, this led to the demise of the trait approach during the 1940s.
There are three broad types of trait which researchers and literature has address. The types of traits are (1) physical factors,
(2) ability characteristics, and (3) personality (Bryman, 1986). There are physical factors such as height, weight, age and
physique and appearance. Researchers also examined ability characteristics such as intelligence, knowledge and scholarship.
The most widely studied of all the traits was personality, which include conservatism, dominance, emotional control, personal
adjustment and self-confidence.
Behavior Approach
In the 1940’s and 50’s researchers turned their attention to behaviors of leaders, after failing to identify the traits
(characteristics) that make up a great leader. The behavior approach to leadership observes the actions of the leader in
relation to leader effectiveness. The main areas of focus in the behavior approach include the Ohio State University, and the
University of Michigan studies, and participative leadership study.
Ohio State Leadership Scales
Research using the Ohio State leadership scales (Leader Behavior Description Questionnaire and Supervisory Description
(LBDQ)) and (Bryman, 1986) continues to be widely used in research. The results were that behaviors were classified into two
categories initiating structure and consideration. Initiating structure includes activities that define and organize or structure and
making task related decisions and maintaining standards of work performance. For example, in accounting initiating structure
occurs when managers provide staff accountant with the audit program detailing the tasks that need to be completed in order
to audit that particular part of the company records. Consideration is relationship-oriented and the leader is friendly and
encouraging and shows concern for the well being of the subordinates. For example, managers that are open to seniors and
staff accountants that are open to and encouraging of seniors and staff accountants’ questions are demonstrating
consideration traits.
However, there are some limitations of the LBDQ. According to Yukl (1989a) the only consistent relationship shown by
empirical research is consideration’s positive effect on satisfaction. Another limitation is that the scales contain biases on errors
(Yukl, 1989a). Despite concerns leadership theories still rely on the LBDQ to classify leader behaviors. Consequently, most
accounting firm leadership studies have utilized the LBDQ (Jiambalvo and Pratt, 1982; Kelly and Margheim, 1990; Kida, 1984;
Otley and Pierce, 1995; Pratt and Jiambalvo, 1981 and 1982).
University of Michigan Behavioral Studies
The Michigan studies focused on the relationship behaviors between group processes and group performance. The results
from this line of research found that successful leaders exhibited patterns of behaviors that could be referred to as taskoriented, relationship-oriented and participative leadership (Yukl, 1989a). Task-oriented behaviors are the same as initiating
structure and relationship-oriented behaviors is similar to the consideration construct in the Ohio State studies.
The Relationship Between Leadership Styles and Subordinate Outcomes in Medium Size CPA Firms in the Southeast
The conclusion of the Michigan study strongly favored the leaders who were employee-oriented in their behavior. Employeeoriented leaders were related to higher group productivity and job satisfaction. Whereas production-oriented leaders tended to
be related with low group productivity and job satisfaction. The Michigan studies emphasized employee-oriented or
consideration over production-oriented or initiating structure, (Robbins and Judge, 2007).
Leadership Research in Public Accounting Firms
Not many studies have investigated leadership issues in public accounting firms. Authors, Pratt and Jiambalvo focus on the
leadership of audit teams in three studies conducted in the early 1980s (Jiambalvo and Pratt, 1982; Pratt and Jiambalvo, 1981
and 1982). There were two additional studies completed on the influence of auditor leadership style on staff performance
appraisals (Kida, 1984), and the relationship between dysfunctional audit behavior and audit team leadership style, time budget
pressure, and personality type (Kelly and Margheim, 1990). The influence of leadership on staff satisfaction, audit efficiency,
and audit effectiveness was examined by Pasewark et al. (1994). Otley and Pierce (1995) used the manager-senior
relationship to study dysfunctional behaviors of audit seniors. All these studies relied on the Ohio State leadership scales
(LBDQ) to classify leader behaviors, except for Pasewark et al. (1994). They used Yukl’s (1989) taxonomy of leader behaviors.
Overall, these studies provide limited results. This project focused on the studies that find significant relationships between
leader behaviors and either performance or satisfaction, particularly, considerate leader behaviors’ positive influence on audit
team performance (Pratt and Jiambalvo, 1981; Pasewark, Strawser, and Wilson, 1994). On the other hand, Pratt and
Jiambalvo, (1981) did not find this relationship to exist on an individual level, between individual staff accountant’s performance
and leader behaviors. Whereas, Jiambalvo and Pratt (1982) and Pasewarl et al., (1994) find a relationship between
considerate leader behaviors and staff accountant satisfaction. Although, these studies provide some evidence of leadership
behaviors’ effect on subordinate outcomes, but many aspects of the leadership, such as types of leadership behaviors and
moderators are unknown.
The second study by Jiambalvo and Pratt (1982) uses path-goal theory (House and Mitchell, 1974) to provide the framework
for linking leader behavior to subordinate motivation and satisfaction. The path-goal theory identifies leader’s behaviors that
affect subordinates expectancies and valences, which affect subordinates attitudes, such as satisfaction and motivation. Their
study recognizes leader effectiveness through the subordinate’s levels of satisfaction and motivation.
Jiambalvo and Pratt (1982) also include a potential moderating variable, task complexity, which may impact the leader’s
influence on the subordinate’s behaviors. They consider task complexity as a moderating variable because the senior is
responsible for assigning tasks to subordinates. In other words, while completing the audit the senior should be able to
consider how well the task complexity was matched with the subordinate’s experience. For example, when making
assignments the senior may assign a more complex task to an inexperienced staff accountant or a simple task to an
experienced staff accountant. In either situation the senior may choose to influence the subordinate’s ability to complete the
task by either ignoring the lack of fit or by using leader behaviors, such as consideration or initiating structure.
Thirty six staff accountants from 23 audit teams completed the LBDQ, responded to questions about the complexity of
assigned audit tasks, and showed their level of satisfaction and defined motivation. Jiambalova and Pratt (1982) define
satisfaction as satisfaction with supervision and motivation as the staff’s perception of how time passed and how involved the
individual became in the task.
The first hypothesis states that there are positive relationships between leader consideration and outcomes of either staff
motivation or satisfaction, and that these relationships would be stronger when the task is simple. A simple task is boring to the
assistant causing additional leader consideration to compensate for the lack of stimulation. The results indicate that more
consideration behavior is associated with satisfaction with the supervisor (satisfaction), passage of time (motivation) and
greater task involvement (motivation). Regarding the task, results suggest that consideration have a significant impact on task
involvement when the task is simple. Contrary to the hypothesis, task complexity does not moderate the effect of consideration
on satisfaction with the supervisor or on perceived time passage.
In the second hypothesis staff motivation and satisfaction are positively (negatively) related to the senior’s degree of initiating
structure when task complexity is high (low). For example, when task complexity is high, a higher level of initiating structure is
required to raise the subordinate’s expectations of successfully completing task, which should increase motivation and
satisfaction. Whereas, when the task complexity is low, a lower level of initiating structure is associated with lower levels of
motivation and satisfaction. The results show a significant interaction between initiating structure and task complexity when
time passage is the dependent variable. However, the same interaction term is not significant for either satisfaction with the
supervisor or for task involvement.
J. Turkvant, C. Cleveland and L. T. Banks
IHART - Volume 23 (2012)
Overall, the results provide support for contingency leadership theory for two of the examined relationships. Task complexity
does appear to moderate (1) consideration’s influence on task involvement and (2) initiating structure’s structure on time
passage. In addition, one result of the study provides support for the leader substitute’s theory (Kerr and Jermier, 1978): under
high task complexity, leader’s behavior had less effect on task involvement, which suggests that task complexity moderates the
leader’s influence. Regardless, of the leader’s behaviors, a staff accountant get more involved (motivated) with a highly
complex task.
In summary, the Pratt and Jiambalvo (1981, 1982 and 1982) provide evidence that senior leadership behavior influences audit
team performance. Task complexity does moderates the relationship between (1) consideration and task involvement and (2)
initiating structure and time passage (Jiambalvo and Pratt, 1982). As with other leadership research, consideration appears to
be the only leader behavior that consistently relate to subordinate outcomes (Bass, 1990a; Yukl, 1994). Pratt and Jiambalova
attribute their limited results to potentially omitted variables and limitations of the theories tested.
Table 1-1: Definitions of Leader Behaviors Hypothesize d Directions of Relationships, and Significant Results for PJ82*
Staff intolerance of
C-E Match
Leader Behaviors
Hypothesized Result
Leader Dominance
Hypothesized Result Hypothesized Result
Initiating structure which clearly defines what the goals are and identifies the
methodology and mean that should be used to attain the goals. Structuring behaviors
and the need for dominance both attempt to exert control over subordinate behaviors.
Consideration provides emotional support when individual staff are experiencing high
C-E match. Additional, highly dominant seniors will use consideration to influence
subordinates’’ behaviors.
Providing feedback reduces uncertainty and ambiguity by allowing the staff members
to evaluate the work they are doing as they do it.
Designing the task allows subordinates to be creative in completing assigned tasks.
The leader uses fewer designing the task behaviors when there is a situation with high
C-E match or if staff members have low tolerances for ambiguity.
Time pressure emphasis requires the staff to finish the task in difficult-to-achieve time
Audit team membership refers to the attempts made by the senior to make the staff
members feel like a part of the team.
Task facilitation refers to the efforts the senior makes to help get the staff member
started on his/her assigned task.
Advising personnel involves the senior’s ability to make the staff comfortable in
seeking advice from the senior.
*NS = not significant; lightly shaded boxes indicates significant results in expected direction, darker box is significant, but opposite of expected results.
In order to attain insight into leadership styles and subordinates outcomes, it was determined a qualitative study would be most
appropriate. The intent of the research is to better understand the relationship between leadership styles and subordinate
outcomes in medium CPA firms in the Southeast. First, we discuss the procedures for data collection and describe the desired
This project uses an electronic survey format to gather data. The use of questionnaire is very common in leadership research
even though there are some known disadvantages (Yukl, 1989a). In general, these disadvantages include the time and
expense involved lack of in-depth information and the potential for sampling error (Kerlinger, 1986). A non-representative
sample occurs when surveys are completed by someone other than the intended respondent or are not returned by
respondents of interest (Birnberg, Shields, and Young, 1990). In addition, two criticisms for questionnaire use in leadership
research were identified by Yukl. The first is that questionnaires usually ask respondents to recall how often he/she has
observed a particular behavior in the past, which may be a difficult judgment for the respondent to make. Next, questionnaires
do not address the direction of causality. It is implied that leader behaviors influence subordinate outcomes and questionnaire
cannot prove or disprove the direction of causality.
The Relationship Between Leadership Styles and Subordinate Outcomes in Medium Size CPA Firms in the Southeast
The MLQ Short Form
Although, other surveys were considered and reviewed from prior research on leadership studies, they did not meet the needs
or particular measurement of this study. Some were too broad and did not measure transactional and transformational
leadership behaviors. However, the MLQ utilize a multifactor approach which reach across the lines and blended both
transactional and transformational leadership behavior. The MLQ (5X-Short) consisted of 45validated items for organizational
survey and research purposes. The factor structure of MLQ (5X) has been validated by both the discriminatory and
confirmatory factor analysis described later. Additional correlated items of behavior are provided in the MLQ Report for
counseling and development purposes. In addition, other survey questions were added to address job satisfaction (Survey of
Organization, Taylor and Bowers (1972)), job performance, (Performance Questionnaire, Choo, (1986)), professional
orientation, (Leader Substitutes Scale, Podsakoff and MacKenzie, (1994) and demographic/background.
In CPA firms it is not unusual for an accountant, in particular an auditor, to have several supervisors during the course of the
year. For that reason, the questionnaire asks the respondent to identify as his/her referent supervisor the supervisor recently
worked with or the supervisor the respondent knows best. Next, the questionnaire asks for information about the number of
jobs worked with the referent supervisor, plus the total number of supervisors worked under in the past year in order to provide
evidence about how well a subordinate knows his/her referent supervisor.
The sample includes respondents from two levels in the hierarchy. Twenty-one percent come from audit and the other 64
percent come from tax.
Finding 1
Greater use of contingent rewards by leaders increases subordinate satisfaction, while more reliance on management-byexception (active) leadership behaviors decreases subordinate satisfaction. The satisfaction hypotheses testing for area or
level effects are not significant. The findings indicate that subordinate partners have a direct positive relationship to level of
Finding 2
The higher the employee’s professional orientation the higher their satisfaction, but professional orientation also increases
contingent rewards’ positive effect on their satisfaction in medium CPA firms.
Finding 3
The results provide evidence that professional orientation does provide a positive influence on the relationship between leader
behaviors and subordinate outcomes. In particular professional orientation reduces: management-by-exception (active) leader
behaviors’ positive influence on self-oriented performance.
In the last decade, public accounting firms have faced rapidly changing regulations, rules, new legislative measures, a fast
changing business world in which they were faced with re-examine their core services, ethics, highly competitive environment
and, even, independence. As a result of this environment, CPA firms are seeking ways to remain viable by exploring new
management techniques and market areas.
The current environment in public accounting calls for new innovation and use of competitive advantages. A potential
advantage may come from understanding how subordinate outcomes are influence by leadership styles. The purpose of this
project was to examine that potential advantage by using two leadership theories, the leader substitutes (LST) and
transformational leadership theories (TLT), to explore the influence of leaders on subordinates. In particular from LST, the
subordinate’s professional orientation may moderate the effect of leadership style, which could explain the inconsistency of
results of the previous accounting leadership studies. Additionally, the rapidly changing competitive environment of public
accounting lends itself to the potential development of transformational leaders. Therefore, this project examines the theory of
both TLT and professional orientation.
J. Turkvant, C. Cleveland and L. T. Banks
IHART - Volume 23 (2012)
The model represents the combination of situational variables (characteristics of: individual, organization, and external
environment) in which transactional behaviors were most effective. This project did not specifically test the situational variables
in the model, but to some extent controls for its effect by using a sample fairly homogeneous on external and organizational
Recommendations for Future Research
First, additional research is needed to explore more thoroughly for the variables that moderate the leader-subordinate
relationship. LST proposes 12 other moderating variables, not tested in this project that may influence the leader-subordinate
relationship in medium and small accounting firms.
Second, other outcome variables currently of interest to CPA firms could be considered (for example, number of dysfunctional
audit acts, and level of skepticism, recruitment, retention and ethics). With small accounting firms performing more services,
subordinate attributes such as professional skepticism and ethics seem to be important in servicing clients.
Finally, additional insights into the leader-behavior relationship may be discovered by using other theories of leadership instead
of TLT.
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H. C. Hartman
IHART - Volume 23 (2012)
Harrison C. Hartman
Emory University, USA
This study investigates whether a change in the relationship between total reserves held by banks, the M1 money supply, and
real GDP (all in natural log form) has occurred. To address this issue, the study uses the Johansen (1991 and 1995) method of
cointegration testing. Cointegration test results indicate that (of the cases considered) with a sample period beginning in 1959
but ending no later than the first quarter of 1995, the variables are cointegrated at the five per cent level. However, if the
sample period begins in 1959 but ends later than the third quarter of 1995, cointegration is no longer found at either the five per
cent or ten per cent levels, at least for the cases considered. The end of the cointegration between the natural logs of total
reserves, M1, and real GDP occurred more than a decade before the recent financial crisis in the United States. Thus, what
are some of the possible causes for the cointegrating relationship to cease? Could it be that as technology has improved and
as some of those improvements have impacted the financial system, it became possible to finance a greater level of real GDP
with a smaller number of dollars (and a smaller quantity of total reserves)? Did an increase in leveraging and off-balance-sheet
transactions contribute to a change in the relationship between the variables? These possible explanations and other potential
explanations could have caused a change in the ratios of currency to checkable deposits held by the public, excess reserves to
deposits chosen by banks, and required reserves to deposits. A breakdown in the stability of any one of these ratios could end
cointegration between total reserves, M1, and real GDP. Additionally, the study finds cointegration between the natural logs of
the monetary base, M1, and real GDP in the United States for a sub-sample period ending with the second quarter of 2008.
However, the study fails to find cointegration between the natural logs of the monetary base, M1, and real GDP in the U.S. if
the sample period ends with the fourth quarter of 2011. Events related to the recent financial crisis could have caused a
breakdown in the cointegration between the natural logs of total reserves, M1, and real GDP in the U.S.
Keywords: Total Reserves, Monetary Base, Financial Crisis, Macroeconomics, Real GDP, M1, Cointegration, Money
Recent Data and Initial Questions
Krugman (2011) and likely others have noted an approximate tripling of the monetary base recently in the United States. As
Mishkin (2004, pp. 358-9) and Burton and Lombra (2006, p. 484) point out, the monetary base is often defined as total reserves
(held by banks) plus currency held by the general public. Data from economagic.com show and the author’s calculations show
that the monetary base roughly tripled in size from August 2008 through May 2011. The majority of the increase in the
monetary base is attributable to a rapid increase in total reserves. Data from economagic.com imply that in May 2011, total
reserves were nearly twenty-four times their size in August 2008. (Much of this increase in total reserves was very likely due to
an increase in excess reserves, as shown in Baumol and Blinder (2011, p. 255).) For reasons to follow shortly, the present
study uses total reserves rather than the monetary base for most of the econometric analysis presented.
The money multiplier process, as in Mishkin (2004, pp. 375-7), Burton and Lombra (2006, pp. 483-6) and elsewhere; suggests
a relationship between the monetary base and the money supply. Given that data from economagic.com also show that the M1
money supply in the United States has increased by less than sixty per cent from August 2008 through January 2012, this
raises the question of whether a change in the relationship between M1 and the monetary base has occurred in the United
States. Likewise, has a change in the relationship between total reserves and M1 also occurred? Additionally, did a change in
the relationship between total reserves and M1 in the U.S. occur earlier than the year 2008? Given the relatively slow pace of
the recent recovery of the U.S. economy based on data from economagic.com and the author’s calculations, has the
relationship between these variables and real GDP changed? An improved understanding of the relationship between the
variables in this study could be help in the implementation of monetary policy. Cointegration tests will serve as the means for
searching for a change in the relationship between variables.
Questions About the Changing Relationship Between Total Reserves (or the Monetary Base), M1, and Real GDP in the U.S.
Overview of Cointegration and Total Reserves Versus the Monetary Base in Cointegration Testing
Cointegration between two or more non-stationary variables integrated of the same order exists if a linear combination of the
cointegrated variables produces a new time series variable that is stationary. Cointegration is often interpreted as an
equilibrium relationship between the cointegrated variables in the long term. Early references for cointegration include Engle
and Granger (1987). See Hamilton (1994, pp. 571-82) for more on cointegration.
According to Hamilton (1994, pp. 571-2), Davidson et al. (1978) found that consumption represented a fraction of income that
was approximately constant. Thus, according to Hamilton (1994, p. 572), a linear combination of those two variables is likely
Because (1) currency as a fraction of M1 has increased from approximately 20.5 per cent in 1959 to more than fifty per cent
from April 2002 through November 2010 (and still amounted to more than forty-five per cent of M1 in February 2012, and (2)
currency ranged from sixty-nine to ninety-three per cent of the monetary base from 1959 (the beginning of the sample period)
through October of 2008 (and was more than thirty-six per cent of the monetary base through February 2012); the finding of
cointegration between total reserves, M1, and real GDP would be more noteworthy than the finding of cointegration between
the monetary base, M1, and real GDP given that currency was a significant percentage of both M1 and the monetary base over
much of the sample period. Moreover, using total reserves rather than the monetary base for cointegration testing in the
majority of cointegration tests in the current study reduces concern over any possible questions of the validity of testing for
cointegration between variables that are excessively similar.
The Remainder of the Paper
This next section presents a literature review, including the algebraic relationship between total reserves and the money supply
based on the relationship between the monetary base and the money supply. Afterward, the study provides a brief description
of the data used for cointegration testing. The next section offers cointegration test results and briefly discusses some
limitations of the current study. That is followed by some possible explanations for the results. Finally, the study concludes.
Contributors to the Money Multiplier
It may be appropriate to view the present study as an extension of the modified money multiplier. Burton and Lombra (2006, p.
482) list John Law, Alexander Hamilton, James Pennington, Robert Torrens, Thomas Joplin, Alfred Marshall, Milton Friedman,
Anna Schwartz, James Meade, Phillip Cagan, and Chester Phillips as contributors to the theory of the money multiplier.
According to Burton and Lombra (2006, p. 482), the contributions of John Law and Alexander Hamilton date back to the 1700s.
For more, see Burton and Lombra (2006, p. 482). Sahinbeyoglu (1995) lists Brunner (1961) and Brunner and Meltzer (1964) as
contributors to the modified money multiplier.
The Relationship Between Total Reserves and the Money Supply
The modified money multiplier as in Mishkin (2004, pp. 375-7) and Burton and Lombra (2006, pp. 483-6) shows a linkage
between the monetary base (MB) and the money supply (M), defined as deposits plus currency. The modified money multiplier
relationship is listed below, where c represents currency divided by deposits, r represents the required reserves ratio, e
represents excess reserves divided by deposits, and M and MB are as defined above.
(1) M = [(1 + c)/(r + e + c)]*MB
After substituting currency plus deposits for the money supply and substituting total reserves plus currency for the monetary
base, equation (1) above becomes
(2) (C+D) = [(1 + c)/(r + e + c)]*(TR + C).
One can rearrange equation (2) above to show a relationship between total reserves and the money supply in equation (3)
(3) M = [(1 + c)/(r + e)]*TR
H. C. Hartman
IHART - Volume 23 (2012)
The author is unclear whether others have derived equation (3). A somewhat similar equation is in Sahinbeyoglu (1995).
However, if my understanding is correct, the equation in Sahinbeyoglu (1995) relates the monetary base to the money supply
and fractions in the denominator distinguish between banks and non-banks. The inclusion of equation (3) here is to show that if
it is reasonable to test for cointegration between the monetary base, the money supply, and other variables (as in Baghestani
and Mott (1997)), then it is reasonable to test for cointegration between the monetary base, the money supply and other
Whether cointegration exists between either the monetary base and M1 or between total reserves and M1 could depend on the
stability of c, r, and e. Less volatility in c, r, and e would likely imply a greater likelihood of finding cointegration between total
reserves and M1. A similar point is made by Sahinbeyoglu (1995).
Other Studies With Cointegration Tests Using Reserves or the Monetary Base
Other recent works seeking cointegration between bank reserves and other important variables include Mustafa and Rahman
(1999), who search for cointegration between excess reserves and the difference between the federal funds rate and the
discount rate in the United States. Baghestani and Mott (1997) find cointegration between money supply, the monetary base,
and an interest-rate differential.
The data for this study were found on the economagic.com web page as of April 5, 2012 except for real GDP, which was found
April 7, 2012. All of the variables are seasonally adjusted, and the monetary base is adjusted for changes in reserve
requirements. The Bureau of Economic Analysis compiles data on real GDP. The Board of Governors of the Federal Reserve
Bank compiles data on M1. The Board of Governors compiles data on the monetary base, and the Federal Reserve Bank of
Saint Louis may also compile data on the monetary base. To make the variables more linear, the variables in cointegration
tests in this study appear in natural log form. Total reserves are calculated as the monetary base less currency before applying
the natural log transformation. One of the reasons why real GDP is included is to consider explicitly a possible change in the
relationship between real GDP, M1, and total reserves in the 1990s. Phillips-Perron (1988) unit root tests (results not included
here) verify that the natural logs of M1, the monetary base, total reserves, and real GDP are all I(1).
To convert the monthly M1 and total reserves data to quarterly series for the purpose of cointegration testing with real GDP,
the present study uses the observed value from the middle month of each quarter. Thus the study uses in cointegration tests
values of M1 and total reserves from February (for the first quarter), May (for the second quarter), August (for the third quarter),
and November (for the fourth quarter).
Full Sample
Figure 1: The Natural Logs of Real GDP, M1, and Total Reserves
Figure 1 offers a graph of the natural logs of real GDP (LN_Y), M1 (LN_M1), and total reserves (LN_TR) over the full sample
period. After viewing Figure 1, it seems reasonable to think that a change in the relationship between total reserves and M1 in
the United States may have occurred in 2008 during the financial crisis due to the rapid increase in total reserves. Results to
follow, however, suggest that another change in the relationship between the variables may have occurred more than a decade
Questions About the Changing Relationship Between Total Reserves (or the Monetary Base), M1, and Real GDP in the U.S.
earlier. After presenting evidence suggesting that a change in the relationship between the variables may have occurred in the
1990s (or possibly earlier), this study will begin to list some of the possible causes for the change in the relationship.
The study uses the Johansen (1991 and 1995) method of cointegration testing as in EViews. In the cointegration tests in this
paper, the study uses both a constant and a time trend in the cointegrating equation. The time trend appears statistically
significant in many cases based on t-statistics.
For reasons to follow, the study seeks cointegration between the natural logs of total reserves, M1, and real GDP with the
sample period ending (and sometimes beginning) at different points in time. Some of the ending points prior to the second
quarter of 2008 were chosen at least partially at random.
The current study considers VEC models with one lag through thirteen lags. The use of one lag of previous changes in total
reserves, M1, and real GDP minimizes the Schwarz (1978) criterion (the SC) with a sample period ending with the fourth
quarter of 2011 and ending with the second quarter of 2008. (Technically, the rapid growth in total reserves did not begin until
September 2008 (in the third quarter of 2008), and growth in total reserves accelerated in October 2008 (part of the fourth
quarter of 2008). In light of the fact that the rapid growth in total reserves started in the third quarter of 2008 (albeit in
September rather than in August (the latter of which provides the value for third quarter total reserves in this study), the sample
period ends in the second quarter of 2008 in cointegration tests in Table 2.) The use of one lag usually, if not always, also
minimizes the SC over the shorter sample periods that are considered in this study.
Tables below summarize the cointegration test results. The Johansen (1991 and 1995) procedure first tests the null hypothesis
of zero cointegrating equations between the variables. Then, if the null hypothesis is rejected, the next test is for at most one
cointegrating equation between the variables. The procedure continues to test for cointegrating equations (each time adding
one cointegrating equation to the test) until the null hypothesis is no longer rejected. The tables below include tests for at most
one cointegrating equation if either the study finds cointegration at the ten per cent level (or lower) or if the study would find
cointegration at a level close to the ten per cent level.
The Johansen (1991 and 1995) cointegration testing procedure as in EViews includes two tests, the trace test and the
maximum eigenvalue test. Results for both of these tests are included in the current study. In the tables below, T represents
the trace test, while ME refers to the maximum eigenvalue test, and 0.05 Critical Value refers to the five per cent critical value.
These critical values and the probabilities associated with the test statistics are from MacKinnon, Haug, and Michelis (1999).
The sample periods for cointegration tests begin at the beginning of the sample period (less two quarters due to differencing
data and lags) unless noted otherwise. The reader may have expected not to find cointegration between the natural logs of
total reserves, M1, and real GDP over the full sample period ending with the fourth quarter of 2011 but find cointegration
between those variables if the sample period began in 1959 but ended in the second quarter of 2008. Clearly, though, Tables 1
and 2 show that neither the trace test nor the maximum eigenvalue test find cointegration at either the five per cent level or the
ten per cent level over the full sample period (in Table 1) or over the sub-sample period (ending with the second quarter of
2008). Does cointegration between the three variables exist over a shorter sub-sample period? If so, when does such a subsample period end?
Table 1: Cointegration Test Results for the Natural Logs of TR, Y, and M1
Sample Ending 2011q4
Cointegrating Equations
Test Stat
0.05 Critical Value
Table 2: Cointegration Test Results for the Natural Logs of TR, Y, and M1
Sample Ending 2008q2
Cointegrating Equations
Test Stat
0.05 Critical Value
H. C. Hartman
IHART - Volume 23 (2012)
Tables 3 and 4 display cointegration test results for sub-sample periods ending in the fourth quarter of 1999 and the first
quarter of 1996. Although neither sub-sample period produces evidence of cointegration, note that in Table 4, with the subsample period ending with the first quarter of 1996, the probabilities from MacKinnon, Haug, and Michelis (1999) associated
with the test statistics, both provided by EViews, are much closer to the ten per cent critical values than the results from Table
3 (with the sub-sample period ending with the fourth quarter of 1999).
Table 3: Cointegration Test Results for the Natural Logs of TR, Y, and M1
Sample Ending 1999q4
Cointegrating Equations
Test Stat
0.05 Critical Value
Table 4: Cointegration Test Results for the Natural Logs of TR, Y, and M1
Sample Ending 1996q1
Cointegrating Equations
Test Stat
0.05 Critical Value
Table 5: Cointegration Test Results for the Natural Logs of TR, Y, and M1
Sample Ending 1995q4
Cointegrating Equations
Test Stat
0.05 Critical Value
At Most One
At Most One
Table 6: Cointegration Test Results for the Natural Logs of TR, Y, and M1
Sample Ending 1995q3
Cointegrating Equations
Test Stat
0.05 Critical Value
At Most One
At Most One
Table 7: Cointegration Test Results for the Natural Logs of TR, Y, and M1
Sample Ending 1995q2
Cointegrating Equations
Test Stat
0.05 Critical Value
At Most One
At Most One
Table 8: Cointegration Test Results for the Natural Logs of TR, Y, and M1
Sample Ending 1995q1
Cointegrating Equations
Test Stat
At Most One
At Most One
0.05 Critical Value
Questions About the Changing Relationship Between Total Reserves (or the Monetary Base), M1, and Real GDP in the U.S.
Table 9:
Cointegration Test Results for the Natural Logs of TR, Y, and M1
Sample Ending 1991q3
Cointegrating Equations
Test Stat
0.05 Critical Value
At Most One
At Most One
Table 10: Cointegration Test Results for the Natural Logs of TR, Y, and M1
Sample Ending 1989q1
Cointegrating Equations
Test Stat
0.05 Critical Value
At Most One
At Most One
Table 11: Cointegration Test Results for the Natural Logs of TR, Y, and M1
Sample Beginning 1995q4 and Ending 2008q2
Cointegrating Equations
Test Stat
0.05 Critical Value
At Most One
At Most One
In Table 5 with the sub-sample period ending with the fourth quarter of 1995, both the trace test and the maximum eigenvalue
test find one cointegrating equation at the twelve per cent level but not at the ten per cent level. If the sub-sample period ends
just one quarter earlier with the third quarter of 1995, both the trace test and the maximum eigenvalue test find one
cointegrating equation at the ten per cent level but not at the five per cent level (although the maximum eigenvalue test is
somewhat close to the five per cent level). With the sub-sample period ending in the second quarter of 1995, the maximum
eigenvalue test finds one cointegrating equation, and the trace test finds one cointegrating equation at the 5.5 per cent level but
zero cointegrating equations at the five per cent level. In Tables 8, 9, and 10, both the trace test and the maximum eigenvalue
test find one cointegrating equation at the five per cent level. In Table 8, the sub-sample period ends with the first quarter of
1995. In Tables 9 and 10, the subs-sample periods end with the third quarter of 1991 and the first quarter of 1989, respectively.
Table 11 displays cointegration test results from a sub-sample period beginning with the fourth quarter of 1995 and ending with
the second quarter of 2008. The fourth quarter of 1995 is the last quarter in the cointegration tests in Table 5 and is the earliest
ending quarter of the cases in Tables 1 through 10 where neither the trace test nor the maximum eigenvalue test find
cointegration at either the five per cent or ten per cent levels.
The trace test and the maximum eigenvalue test in Table 11 yield conflicting results. With the sub-sample period 1995q42008q2, the trace test finds no cointegration at either the five per cent or ten per cent levels, while the maximum eigenvalue
test would find one cointegrating equation at the five per cent level. However, the trace test would find one cointegrating
equation at the 10.5 per cent level. Thus, the present study concludes that it is ambiguous whether cointegration between the
natural logs of total reserves, M1, and real GDP exists in the U.S. from 1995q4 through 2008q2.
If the sample period were divided into several shorter sub-sample periods, it is possible that cointegration could be found for
the shorter periods. However, the estimated cointegrating relationships could possibly show instability in the estimated
cointegrating equations.
H. C. Hartman
IHART - Volume 23 (2012)
Table 12: Cointegration Test Results for the Natural Logs of MB, Y, and M1
Sample Ending 2011q4
Cointegrating Equations
Test Stat
0.05 Critical Value
Table 13: Cointegration Test Results for the Natural Logs of MB, Y, and M1
Sample Ending 2008q2
Cointegrating Equations
Test Stat
0.05 Critical Value
At Most One
At Most One
Tables 12 and 13 present cointegration test results for the natural logs of the monetary base (instead of total reserves), M1,
and real GDP in the United States. Table 12 shows results from the full sample period, while the sub-sample period in Table 13
ends with the second quarter of 2008. Neither the trace test nor the maximum eigenvalue find evidence of cointegration over
the full sample period ending with the fourth quarter of 2011 in Table 12. However, both the trace test and the maximum
eigenvalue test find one cointegrating equation at the five per cent level with the sample period ending with the second quarter
of 2008, as in Table 13. The rapid rise of the monetary base beginning in September of 2008 as one of the reactions to the
recent financial crisis in the United States could have brought an end to the cointegration between the monetary base, M1, and
real GDP.
Limitations of the Study
This study is in the early stages of analysis. Thus, the reader must interpret the empirical findings of this study and any
inferences drawn with caution. Serial correlation could be present in the VEC models used for cointegration testing. For more
on serial correlation and VEC models, see Hamilton (1994, pp. 225-7, 571-81). An additional limitation is that, being in the early
stages, the study cannot reach firm conclusions about any of the possible explanations that follow.
What could have caused the change in results with total reserves in the cointegration tests from one cointegrating equation at
the five per cent level for the cases considered with a sample period ending no later than the first quarter of 1995 to no
cointegration in the cases considered where the sample period begins in 1959 and ends after the third quarter of 1995? One
possible explanation involves financial innovation, which could have caused a fundamental change in the relationships between
macroeconomic variables. M1 began to trend downward by early 1995 and continued to trend downward through the second
quarter of 1997. The cumulative decrease in M1 over this time was more than seven per cent from the local maximum to the
local minimum using monthly data. Additionally, total reserves began to trend downward starting February of 1994 going
through July of 1998, with cumulative losses of roughly twenty per cent. However, real GDP continued to increase over these
time intervals.
The beginning of the decrease in total reserves and M1 roughly coincided with an increase in the ratio of currency to M1. This
ratio reached a local minimum in December 1992 but was never greater than 0.305 from 1959 through September 1996.
Beginning in January 1993, the ratio of currency to M1 increased from less than 0.29 to more than 0.50 by April 2002. This
could be evidence of a decrease in the deposits component of M1. Did the advent of new financial instruments lead to the
removal of some funds that were deposited in accounts that are part of M1 and the subsequent re-depositing of those funds
into assets not part of M1 such as money market deposit accounts and small time and small savings accounts? Bank liabilities
that are not part of M1 are probably not subject to reserve requirements and could have led to a decrease in total reserves.
Thus, the decrease in M1 and total reserves could have been at least in part due to financial innovations leading to funds
flowing out of assets part of M1 (and not subject to reserve requirements). Yet as technology advanced, could it have been
possible to finance a larger level of real GDP in the economy with fewer dollars part of M1 and fewer total reserves?
Burton and Lombra (2006, p. 135) note that in early 1993, the yield curve for U.S. Treasury securities was upward-sloping,
implying higher interest rates for securities with longer terms to maturity. Did the increasing slope of the yield curve in the early153
Questions About the Changing Relationship Between Total Reserves (or the Monetary Base), M1, and Real GDP in the U.S.
to-mid 1990s give depositors a substantial reward for the loss of liquidity associated with the removal of funds from M1
Did an increase in off balance sheet transactions occur, and if so, could that have been a factor? Off balance sheet
transactions would probably not be subject to reserve requirements. Thus, if off balance sheet transactions increased, could
that have possibly led to a reduction in total reserves (and also M1 if the liabilities (from the perspective of financial
organizations) part of the off balance sheet transactions were not counted as components of M1)? If off balance sheet
transactions increased in the 1990s, was that accompanied by an increase in leveraging? If that combination existed, could
that have increased aggregate demand and real GDP, at least in the short term?
Changes in the ratio of currency to deposits, the required reserves ratio, and the ratio of excess reserves to deposits could help
to explain the results found in the present study.
According to Baumol and Blinder (2012, p. 270), the required reserves ratio last changed in 1992. Could this change in the
required reserve ratio help to explain the ending of cointegration found between the natural logs of total reserves, M1, and real
GDP with sample periods beginning in 1959 and ending after the third quarter of 1995?
Did the increase in the monetary base that was a response to the recent financial crisis cause the cointegration between the
natural logs of the monetary base, M1, and real GDP in the U.S. to end? Were there possibly other causes?
This study finds cointegration at the ten per cent level (and often at the five per cent level) between the natural logs of total
reserves, M1, and real GDP in the United States with sample periods ending no later than the third quarter of 1995 of the cases
considered if the sample period begins in 1959. Some possible explanations for these potential changes in relationships
between variables are briefly discussed. Future work could verify the robustness of the empirical results found. Future work
could also further investigate possible causes for the results.
The author gratefully acknowledges comments and suggestions from attendees of the Macroeconomics/Econometrics
Workshop of the Department of Economics at Emory University.
Baghestani, H. and Mott, T. (1997) ‘A cointegration analysis of the U.S. money supply process’. Journal of Macroeconomics,
vol. 19, iss. 2, pp. 269-83.
Baumol, W. J. and Blinder, A. S. (2011) Macroeconomics: Principles and Policy, 12th ed. South-Western Cengage Learning,
Mason, Ohio, p. 255, 270.
Brunner, K. (1961) ‘A schema for the supply theory of money’, International Economic Review, p. 79-109.
Brunner, K. and Meltzer, A. H. (1964) ‘Some further investigations of demand and supply functions for money’, Journal of
Finance, pp. 240-83.
Burton, M. and Lombra, R. (2006) The Financial System and the Economy: Principles of Money and Banking., 4th ed.
Thomson-Southwestern, Mason, Ohio, pp. 135, 482-6, 537.
Davidson, J. E. H., Hendry, D. F., Sbra, F., and Yeo, S. (1978) ‘Econometric modeling of the aggregate time-series relationship
between consumers’ expenditure and income in the United Kingdom’, Economic Journal, vol. 88, pp. 661-92.
Economagic.com, Retrieved April 5, 2012 and April 7, 2012.
Engle, R. F. and Granger, C. W. J. (1987) ‘Co-integration and error correction: representation, estimation, and testing’,
Econometrica, vol. 55, pp. 251-76.
Hamilton, J. (1994) Time Series Analysis. Princeton University Press, Princeton, New Jersey, pp. 225-7, 571-82
Johansen, S. (1991) ‘Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models’,
Econometrica, vol. 59, pp. 1551-80.
Johansen, S. (1995) Likelihood-based Inference in Cointegrated Vector Autoregressive Model, Oxford University Press,
Krugman, P. (2011) Way Off Base, available at krugman.blogs.nytimes.com /2011/10/07/way-off-base-2 Retrieved May 3,
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IHART - Volume 23 (2012)
MacKinnon, J. G., Haug, A. A. and Michelis, L. (1999) ‘Numerical distribution functions of likelihood ratio tests for cointegration’,
Journal of Applied Econometrics, vol. 14, pp. 563-7.
Mishkin, F. (2004) The Economics of Money, Banking, and Financial Markets, 7th ed. Pearson Addison Wesley, Boston, pp.
358-9, 375-7.
Mustafa, M. and Raham, M. (1999) ‘Excess U.S. bank reserves and the short-term interest rate differentials: evidence from
bivariate cointegration analysis’, Applied Economics Letters, vol. 6, iss. 6, pp. 333-6.
Phillips, P. C. B. and Perron, P. (1988) ‘Testing for a unit root in time series regression’, Biometrika, vol. 75, pp. 335-346.
Sahinbeyoglu, G. (1995) ‘The stability of money multiplier: a test for cointegration,’ Central Bank of the Republic of Turkey
Research Department Discussion Paper No. 9603, available at www.tcmb.gov.tr/research/discus/9603eng.pdf, Retrieved
May 3, 2012.
Schwarz, G. (1978) ‘Estimating the dimension of a model’, Annals of Statistics, vol. 6, 461-4.
J. Cappa and E. Rahim
IHART - Volume 23 (2012)
Joseph Cappa and Emad Rahim
Colorado Technical University, USA
This paper examines the topics of economic history, economic theory, and the microeconomic concept of monopoly, and Major
League Baseball (MLB). Economic history includes institutional economics, neoclassical economics, and behavioral
economics. Economic theory includes macroeconomics and microeconomics. The discussion of monopoly includes structure,
characteristics, and pricing strategies. The MLB discussion covers economic and operational structure and ticket pricing. The
chapter ends with a summary.
Keywords: Major League Baseball (MLB), Macroeconomics, Microeconomics, Monopoly.
Economic history is about the performance of economies through time. The evolution of an economy is shaped by the
interactions between institutions and organizations, where the institutions are the rules of the game and the organizations are
the players (North, 1994, 2005). Institutions exist in markets that have different level of competition. In a monopoly market,
there is less competition between firms than in a competitive market. Two types of monopolies can exist in an industry or in
organizations within an industry. A regulated monopoly is a legal monopoly that exists within the provisions of sections 1 and 2
of the Sherman Act. An unregulated monopoly is also a legal monopoly; however, it has either limited or exempt status from
sections 1 and 2 of the Sherman Act (Troesken, 2002).
Institutional Economics
Walter Hamilton (Hodgson, 2003; Rutherford, 2001) introduced the term institutional economics in 1919. An early definition of
institutional economics (IE) included the study of economic theory as it relates to institutions, processes, and human behavior
(Hodgson, 2000). In the recent literature, there has been much debate among economists over the concept of institutional
economics. The debate stems in part on how to categorize IE. As a result, the terms old institutional economics (OIE) and new
institutional economics (NIE) have been developed (Coase, 1998; Colander, 1996; Fusfeld, 2000; Hodgson, 1998, 2000;
Rutherford, 2001; Stanfield, 1999; Stevenson, 2002). A common theme that has emerged from the literature is that IE has
three main areas of focus: the institution, the economy, and society.
Institutionalism presents economics as a policy-driven combination of the study of institutions and empirical facts about the
economy (Colander, 1996). The institutionalist approach moves from the general idea of the evolutionary nature of the
economic process to the specific idea of theories related to institutions or markets (Hodgson, 1998). Coase (1998) defines
institutional economics as the study of how institutions interact with the economy. Institutional Economics (IE) examines the
productivity and welfare of an economic system. The welfare of an economic system is dependent on the efficient flow of goods
and services, which in turn determines the productivity of that system (Hodgson, 1998). Stevenson (2002) presents the idea
that ethics is a necessary foundation for IE. IE is about problem solving, and effective problem solving proceeds with a clear
statement of purpose well grounded in beneficial values and value systems (Stevenson, 2002).The changes in wants and
resources and the social process from which they derive form part of the variables of institutional analysis (Stanfield, 1999).
The core ideas of institutionalism are institutions, habits, and rules. Institutional economic analysis has been used to explain
both the failings o f unfettered markets and the need for a greater degree of government intervention. Additionally, IE attempts
to explain the failings of government interventions and the need for a greater degree of market freedom (Rutherford, 2001).
Fusfeld (2000) posits that the future of IE lies within a humanistic economy based on understanding institutional change and its
widespread impact on the social order.
J. Cappa and E. Rahim
IHART - Volume 23 (2012)
Neoclassical Economics
Neoclassical economic (NE) theory is based on the tenet that self-interested individuals will rationally pursue opportunistic
behavior that maximizes their pleasure and minimizes their pain (Swanson, 1996). NE theory is centered on the individual and
the pursuit of self-interest (Pressman, 2004). A focus of NE theory is on the effects of the decisions made by individuals with
respect to their property. The underlying idea is that if one knows how individuals respond to various stimuli, it will be easier to
understand how the society composed of these individuals will respond (Lebowitz, 2004).
NE theory begins with rational agents who have fixed preferences defined from the outset (Jackson, 2003). Demsetz (1997)
presents an objective of NE theory, which is to understand price-guided resource allocation between the firm and the
household. There is mutual dependency between the two, with production taking place in the firm and consumption taking
place in the household (1997). NE theory attempts to explain the aggregate behavior of the economy from the basic principles
of the rationality between firms and individuals to the complex behaviors of markets, firms, and economic systems (Greenwald
& Stiglitz, 1987).
In NE theory, the interactions of the markets are of primary importance. The markets consist of consumers, producers, and the
government. The transactions that take place in these markets involve exchanges of goods, services, and/or money that both
parties find advantageous to achieve their goals (Simon, 1991). The market behaviors of NE theory would suggest that rational
self-interest is expressed in markets that allocate material benefits so that economic efficiency and the greatest social
satisfaction are served (Swanson, 1996). The market behaviors of NE theory would suggest that rationality is expressed in
markets that allocate material benefits to satisfy both economic efficiency and social mores (Swanson, 1996).
Social structures are either absent or have a subordinate place as market imperfections that are explained through individual
behavior (Jackson, 2003). Davis (2005) posits that NE theory requires a significant value judgment in that people’s well-being
and welfare satisfaction are subjective in nature. What is satisfying or contributes to the well-being of an individual is different in
every situation.
Behavioral Economics
A defining characteristic of behavioral economics (BE) is its attempt to explain the irrationality of consumer behavior. Consumer
behavior consistently deviates from patterns that would maximize or optimize outcomes (Rachlin, 1995, p. 397). Consumer
behavior is often characterized as “irrational.” As an example, sometimes when making a purchase consumers will be
motivated more by brand name than by price. Oftentimes consumers will pay a higher price for identical items because they
associate a satisfied need with the item’s brand name. Quinones, Hayes, and Hayes (2000) posit that making a purchase is
only one act in a larger pattern of activity in which the brand name of a product figures prominently. This type of irrational
consumer behavior is a component of behavioral economics.
Berry (2001) defines BE as the study of individual behavior in the practical world aided by statistical techniques. BE is a brand
of economics that recognizes and emphasizes the departure from strict rationality (Cox, 2005). Another definition of BE from
Shiller (2005) is the application of methods from other social sciences to the issues of economic behavior. Kahneman and
Tversky (2000) state that the main principle of BE is framing; human actions are heavily influenced by frames of reference.
Thaler (1997) posits that three characteristics of BE are rational choice, individual behavior, and integrated lessons from the
social sciences. Sunstein (2003) posits that BE has two principal factors that explain consumer behavior.
The first factor, the availability heuristic, states that when information is lacking, people will use past examples that come to
mind. The second factor, probability neglect, occurs when people are highly responsive to the outcome of a situation and when
variations in the outcome do not significantly affect thought and behavior. A key component of BE is the “herd” behavior pattern
of consumers. Banerjee (1992, p. 798) posits that herd behavior refers to the phenomenon of people following a crowd for a
given period, regardless of information that would suggest an alternative action. Shiller (1995) defines herd behavior as the
tendency of people who interact with each other on a regular basis to think and behave similarly.
Rook (2006) suggests that a mixed methodology approach to herd behavior (economic/psychological) could better help
determine the “why and when” of herd behavior. Consequently, this could lead to a better understanding of “how much” can be
gained from herd behavior. Cohen and Dickens (2002) argue the effectiveness of BE. These researchers posit three
challenges to the effectiveness of BE. First, BE demonstrates the inadequacies of mainstream economic theory; however, it
does not provide useful alternatives. Second, without a coherent theory it is difficult for BE to provide new applications. Third,
BE is limited is its ability to predict circumstances in which anomalous behavior will arise or how it will respond to policy
changes (Cohen & Dickens, 2002).
Macro and Microeconomic Concept of Monopoly in Major League Baseball
Macroeconomics is the study of the aggregate growth and fluctuations of a market economy (Varian, 1999). Mankiw (1998)
defines macroeconomics as the study of economy-wide phenomena; some examples include inflation, unemployment, and
economic growth. Frank and Bernanke (2004) define macroeconomics as the study of the performance of national economies
and of the policies that governments use to try to improve that performance. Macroeconomic analysis is concerned with an
overall view of economic life, focusing on the inner workings of the total economic experience as opposed to the individual
parts (Vogel, 2004). Macroeconomic principles attempt to explain the global factors that influence the economy.
Macroeconomics attempts to understand the determinants of such things as the national unemployment rate, the total value of
output (GNP/GDP), and the overall price level (CPI/PPI) (Frank & Bernanke, 2004). Underwood (2004) posits that the main
organizing principle of macroeconomics is the business cycle, and specifically how this cycle interacts with the other (lifedriven) cycles. One of the objectives of macroeconomics is to let the economy follow its “natural paths,” with the government
taking a neutral stance on fiscal and monetary policy (Knoedler & Underwood, 2003).
Taylor (1997) suggests five key macroeconomic relationships. The first relationship is between economic growth (long-term)
and the supply side of the economy. The second relationship is between the rate of inflation and the rate of unemployment
(long-term trade-off). The third relationship is the short-run trade-off between inflation and unemployment. The fourth
relationship is the impact of monetary and fiscal policy on the economy. The fifth relationship is the systematic process of
change and fiscal/monetary policy decisions. Akerlof and Yellen (1987) and Akerlof (2003) posit that the study of
macroeconomics should have a behavioral focus. These authors state that the concepts of reciprocity, fairness, identity, loss
aversion, herding, and procrastination necessitate a behavioral approach to the study of macroeconomics (Akerlof, 2003;
Akerlof & Yellen, 1987).
Mankiw (1998, p. 25) defines microeconomics as the study of how households and firms make decisions and how they interact
in specific markets. Microeconomic analysis is concerned with the relative prices of particular goods and the problem of income
distribution (Vogel, 2004).
A focus of microeconomics is that of individual choice under scarcity and its implications for the behavior of prices and
quantities in individual markets (Frank & Bernanke, 2004). The study of microeconomics is concerned with individual
participants in the market economy; these include households, consumers, and the firm. The interrelated behaviors of the
decisions made by these units on how they affect the price and quantity of available goods and services are a key factor in
understanding microeconomic behavior (Brummer, 1985). Becker (1993) posits that microeconomic analysis assumes that
individuals maximize welfare as they conceive it.
Consumer behavior is forward looking and is consistent over time. The actions of consumers are constrained by income, time,
capacity, and opportunity. The production and consumption of durable goods represent a challenge for microeconomic
analysis. Durable goods producers are not monopolists; however, in most cases, they do have significant power.
Microeconomic analysis of durable goods can answer the questions of planned obsolescence, pricing and marketing strategy,
and the timing of information (Waldman, 2003).
Microeconomic theory can also examine the isolated and interactive behaviors of the small, individual units that make up the
economy, namely consumers, firms, markets, or industries (Katzner, 2001). A focus of microeconomic theory is the efficient
utilization of scarce resources to maximize production of wanted goods and services (Hosmer, 1984). One aspect of
microeconomic theory is the study of market failures, specifically why markets do not provide the proper kinds of goods or how
they are provided inadequately (Maurice, Phillips, & Ferguson, 1982, p. 542). The study of microeconomics can be divided into
three distinct subcategories: the behavior of individuals or groups of consumers, the behavior of firms and industries with
regard to goods and services, and the theory of distribution (Maurice, Phillips, & Ferguson, 1982, p. 9).
As the term indicates, one who participates in or has a monopoly will attempt to “monopolize” all of the available resources in
its industry (e.g., profits, market shares, consumers, etc.). Vogel (2004) defines a monopoly as a situation in which there are no
close substitutes for a single firm’s output, whereby the firm sets prices and there are significant barriers to entry. A monopoly
J. Cappa and E. Rahim
IHART - Volume 23 (2012)
exists when a firm is the sole seller of a product without close substitutes and there exist significant barriers to entry (Mankiw,
1998, p.304). A pure monopoly is one in which there is only one supplier of a unique product with no close substitutes (Frank &
Bernanke, 2004).
The degree to which a firm exerts monopoly power is determined by its ability to increase prices without losing sales. A
monopoly recognizes its influence over price and chooses the level of price and output that maximizes overall profits (Varian,
1999, p. 414). A high price elasticity of demand indicates a small degree of monopoly power. A high price inelasticity of
demand indicates a large degree of monopoly power (Maurice, Phillips, & Ferguson, 1982). A monopoly firm attempts to
achieve market dominance by controlling the market for its inputs and outputs (Adams & Brock, 1997). The monopoly firm will
choose one or two options with regard to price and quantity. First, the firm will select a price and let consumers decide how
much they purchase at that price. Second, the firm will choose a quantity and let consumers decide what price they will pay for
that quantity (Varian, 1999, p. 414).
A key difference between a monopoly firm and a competitive firm is the monopoly firm’s ability to influence the price of its
output (Mankiw, 2006, p. 292). By controlling price, the monopoly firm is able to achieve its main goal. The main goal of a
monopoly firm is to maximize profit. Profit maximization occurs at the point where marginal revenue equals marginal cost (MR =
MC). The monopolist’s profit-maximizing rule states that profit maximization occurs at the level of output for which marginal
revenue equals marginal cost (Frank & Bernanke, 2004; Mankiw, 2006).
In a monopoly industry, firms will operate at a point where price is greater than marginal cost. Thus, the behavior of monopoly
firms causes price to be higher and output to be lower, causing a negative impact for the consumer but a positive impact for the
firm (Varian, 1999, p.420). The effect on the social welfare of the economy from a monopoly firm is twofold. First, the monopoly
firm produces and sells below the level that maximizes output. Second, the monopoly firm produces an inefficiently low quantity
of output (Mankiw,2006, p. 302).
Monopolistic Competition
The monopolistically competitive market is a hybrid market combining the competitive market with the monopoly market. There
are three characteristics of the structure of a monopolistically competitive industry. First, firms are faced with a downwardsloping demand curve for their products, which allows for market power over price. Second, there are no restrictions against
barriers to entry for new firms. Third, firms compete in terms of price and product differentiation (Varian, 1999, p. 449).
The balance of a monopolistically competitive market is based on two conditions: profit maximization and market entry. An
existing firm in a monopolistically competitive market operates at the MR = MC level of output. A new firm entering a
monopolistically competitive market initially will operate at the level where average revenue equals average cost (AR = AC)
until it becomes established (Dixit & Stiglitz, 1993). Once the firm is established, it will operate at the profit-maximization (MR =
MC) level of output. Matsuyama (1995) defines monopolistic competition as having the following characteristics: product
differentiation, unrestrained entry, and a limited number of firms. The main difference between monopolistic competition and
perfect competition is product differentiation (Maurice, Phillips, & Ferguson, 1982). In a monopolistically competitive market, the
firm sets price above marginal cost and attempts through aggregate demand management to stimulate aggregate economic
activity. The net result is to improve the overall welfare of the economy (Matsuyama, 1995).
Monopolistic competition is a market structure that lies between the extreme cases of competition and monopoly in which many
firms sell products that are similar but not identical (Mankiw, 1998, 2006). A monopolistically competitive firm is one of a large
number of firms that produce slightly differentiated products that are reasonably close substitutes for one another (Frank &
Bernanke, 2004). In a monopolistically competitive market, there are many sellers of somewhat differentiated products that
have some control over pricing and competition (Vogel, 2004). Monopolistic competition provides the conceptual framework in
which to think about pricing decisions and appears to describe many markets more accurately than perfect competition
(Blanchard & Kiyotaki,1987).
A cartel is a group of oligopolistic firms that agree to act collectively as a monopolist in some industrial or economic enterprise
(Mixon, 1996). Maurice, Phillips, and Ferguson (1982) define a cartel as a combination of firms whose objective is to limit the
competitive forces within the market. Three defining characteristics of cartel firms are collusive interests, restriction of output,
and profit maximization (Varian, 1999, p. 449). In a cartel, profit maximization is achieved in several ways, one of which is strict
price controls.
Macro and Microeconomic Concept of Monopoly in Major League Baseball
Frank and Bernanke (2004) state that a cartel is a coalition of firms that agrees to restrict output in order to earn an economic
profit. One of the incentives for a cartel is increased profits through monopoly control of its market. The main goal of a cartel
and its members is profit maximization. A cartel achieves profit maximization though a joint agreement between its members
(Forrest, Simmons, & Szymanski, 2004).Vogel (2004) presents the following characteristics of a cartel. The characteristics of a
cartel are its abilities to prevent new competitors from entering the market, produce outputs that are substitutes for the outputs
produced by other firms, divide the market into territories controlled by the members, establish production quotas, enforce
structural rules, and defeat incentives to cheat. A cartel attempts to exercise control over price and prevent entry of
competitors. Two main goals of a cartel are profit maximization and internal stability. These goals are achieved by controlling
price through collusive efforts and establishing rules for all cartel members to follow (Harrington, 2004). A cartel operates in a
market where demand is relatively inelastic (Adams & Brock, 1997). When a cartel attempts to exercise monopsony power over
its market, it tends to lower its costs and reduce output, thus causing a reduction in the welfare of the consumer (Blair &
Romano, 1997). Grossman (1996) states that the two most important factors for a cartel to maintain long-term stability are
proficiency at deterring new entrants and the ability to prevent defection among its members. Mixon (1996) posits that the two
central stability problems of a cartel are agreement on a social contract and the policing of all cartel members to prevent
cheating. Epstein (2005) states that the pricing behaviors of a cartel lead to lost sales of units priced below the cartel
agreement but above the competitive market price. These behaviors shift the economic welfare from the consumer to the cartel
firm and foreclose any positive transactions that would have transpired.
Howard (1954) posits three types of collusive behaviors: perfect collusion, effective collusion, and limited collusion. Perfect
collusion is a pattern of behavior that can yield maximum group profits. Effective collusion requires close collusion on price,
either openly or tacitly, but it allows for nonprice competition. Limited collusion is characterized by serious internal dissension
and price fixing through mutually recognized interdependence. Collusion is a form of oligopoly behavior whereby firms choose
not to compete against each other; instead, they jointly agree to set price and quantity to achieve profit maximization (Varian,
1999). Collusion is a balancing act between the short-term temptations of a firm to cut its price and the expected long-term
costs of the price war that such an act might instigate (Bagwell & Staiger, 1997).
The pricing behavior of a firm that engages in collusion is exhibited through raising prices in the face of decreasing demand
and falling marginal costs. The purpose for this price increase is to maintain a profit-maximizing strategy. A price increase in
the presence of both falling demand and marginal costs is consistent with the theory of collusion.
A monopolist will raise, lower, or maintain its price in response to falling demand and cost, whereas a competitive firm would
never raise price in response to falling demand (Potiowsky, Smith, & Vaughan, 1988).
Athey and Bagwell (2001) posit that private information possessed by collusive firms influences their behavior. Specifically,
these authors present three challenges faced by collusive firms with private information. First, how does the presence of private
information affect profits? Second, how does the presence of private information affect conduct? Third, how do antitrust policies
affect collusive profits and conduct? (Athey & Bagwell, 2001). Tyagi (1999) posits that increased product substitutability makes
it easier for a firm to tacitly collude. The effect of the degree of product substitutability on a firm’s ability to tacitly collude
depends upon whether the firm competes on price or on quantity (Tyagi, 1999). When buyers behave independently of the
forces of supply and demand will typically lead to a price and quantity that maximizes social welfare (Blair & Romano, 1997).
Monopoly History
There has been one example of a monopoly where the Court has given unlimited monopoly power to the firm. In Federal
Baseball Club v. National League (1922), Major League Baseball was charged with violating sections 1 and 2 of the Sherman
Act. The U.S. Supreme Court ruled that the playing of baseball games between states was not a monopolistic act. The court
reaffirmed Major League Baseball’s status as a monopoly. As a corporation, MLB is not responsible for reporting any public
financial data, nor is it obligated to follow any standard business practices or economic policies.
Profit Maximization
Primeaux and Stieber (1994) define profit maximization as a set of conditions under which the marginal revenue of the firm is
equal to its marginal cost (MR = MC). The basic principles of profit maximization state that a firm will engage in the following
behaviors. First, the firm will increase an activity so long as the additional revenue from the activity exceeds the additional cost.
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Second, the firm will decrease an activity at the point where the additional cost is greater than the additional revenue (Maurice,
Phillips, & Ferguson, 1982). Duska (1997) posits that organizations that have a designated purpose for profit should focus all of
their actions toward that purpose. If the purpose is profit maximization, then it is the responsibility of those running the business
to do what is necessary to maximize profits.
When a profit-maximizing firm makes a decision about its output and pricing goals, two key factors are revealed. First, the
inputs and outputs chosen represent the most feasible production plan. Second, these chosen inputs and outputs are more
profitable than other feasible choices the firm could have made (Varian, 1999, p. 336). A monopoly firm maximizes profit by
finding the price point and quantity where marginal revenue equals marginal cost (MR = MC). The firm will then plot this point
on a demand curve to find the price that consumers will pay to buy that quantity (Mankiw, 1998, 2006).
In the case of the bilateral monopoly firm, there is a joint profit-maximization agreement between the two parties. Truett and
Truett (1993) posit that for the joint profit- maximizing relationship to be successful, one of two patterns of behavior needs to be
present. First, the firm could choose to have a dominant partner that has a degree of power over the other. Second, one of the
partners could exhibit non-profit-maximizing behavior.
There are three types of demand patterns that durable, nondurable, service, and performance goods can have. Demand for
these types of goods can be either elastic, inelastic, or unit elastic. The elasticity of demand describes the effect of a change in
price on quantity demanded, or the extent to which quantity “stretches” when price changes (Friedman, 1976). Demand is
inelastic if total revenue rises with a price increase and falls with a price decrease (Maurice, Phillips, & Ferguson, 1982). When
demand for a good is inelastic, a significant change in price is required to cause a small change in its purchase (Vogel, 2004).
Demand is unit elastic if quantity demanded changes in exact proportion to an increase in price (Mankiw, 1998, 2006).When
measured in terms of absolute value, demand for a good is elastic at absolute value of greater than one, inelastic at absolute
value of less than one, and unit elastic when the absolute value is equal to one (Varian,1999, p. 268).
Consumers demand several different types of goods. Some examples are nondurable, durable, service, and performance
goods. With each of these types of goods, consumers exhibit different demand patterns. Both durable and nondurable goods
are tangible goods that have distinct physical attributes, whereas service and performance goods are nontangible and can
have mixed attributes. In recent times, consumers have exhibited a greater level of product knowledge and a greater propensity
to switch brands when dissatisfied. Bristow and Sebastian (2001) posit that all factors being equal, if a consumer has a choice
between two competing brands, the consumer will often choose the brand that outperforms the competition. There are certain
products that act as substitutes in the market, and firms will want to measure the strength of their goods versus viable
DeGraba (1995) states that consumers do not know their true valuation of a good until they become informed and that most
consumers would prefer to make their purchase decisions after they become informed. One of the strategies that a monopoly
firm can choose is to hyper-inflate the demand and convince the consumer to make a purchase decision on a new item before
receiving all of the pertinent information. The monopoly firm can earn more profits from a wider base of consumers if it can
convince consumers to make uninformed purchases. DeGraba (1995) describes this behavior as creating a buying frenzy
whereby the monopolist makes fewer units available for sale than the number of potential consumers.
Under conditions of inelastic demand, price theory states that the firm will set price to achieve the goal of marginal revenue
equal to marginal cost (MR = MC) (Hirsh, 1951). Price theory deals with the allocation of resources among different users,
relating the price of one item to another. The general structure of the pricing system consists of the price of the product and the
price of resources (Friedman, 1976). Price theory refers to basic economic principles and techniques such as consumer theory,
production theory, and partial equilibrium (Chiappori & Levitt, 2003). The price elasticity of demand for a good is the measure of
how responsive the quantity demanded of that good is to changes in its price (Frank & Bernanke, 2004).
Specifically, price elasticity is a measurement of the percent change in price in relation to quantity demanded (Varian, 1999, p.
266). The price elasticity of demand is a solid measure of the willingness of consumers to move away from a good as its price
rises (Mankiw, 2006, p. 90). There is a difference among the demand behaviors of repeat and new customers with regard to
changes in price. These differences present a unique choice to firms with regard to pricing strategies. Repeat customers will
exhibit a low elasticity of demand, while new customers hold a relatively higher value of price elasticity of demand.
Macro and Microeconomic Concept of Monopoly in Major League Baseball
Firms can either choose to maximize profits by exploiting the inelastic demand of repeat customers or increase future profits by
attracting the more elastic new customer to increase market share (Field & Pagoulatos, 1997). Advanced purchase discounts
are a profit-maximizing response to conditions of demand uncertainty. It can be observed that price discrimination is common
in highly competitive industries. A common feature of highly competitive markets is higher than normal costs of holding
capacity; the advantage of using inventories to smooth production is not feasible. Examples include airlines, car rental
companies, movie theaters, sporting events, and restaurants (Dana, 1998, 2001). Several economists have studied monopoly
pricing (Barro, 1972; Mankiw, 1985; Primeaux & Bomball, 1974; Rotemberg, 1983; Salop, 1977; Simon, 1969; Stigler, 1947). A
common theme from these researchers is that a monopoly firm will change its prices less frequently than an oligopoly firm will.
Rotemberg and Saloner (1987) posit that one reason for the reduced frequency of the monopolist to change its price is the
inverse relationship between profit and demand. A monopoly firm already operates at the profit- maximization level (MR = MC);
therefore, the main concern is on maintaining a high level of demand. Wilson (1988) states that it is not necessary for a
monopolist to charge more than two prices; a single price should be sufficient as long as marginal cost remains constant.
Monopolies in Today’s Business World
There are unique situations where a corporation, public or private, has a monopoly over a particular industry. Microsoft and
AT&T are two popular examples of public corporations that hold or held monopolies over their respective industries. The four
professional sports leagues of North America (MLB, NBA, NFL, and NHL) are well-known examples of private corporations that
hold monopolies within their industry. These corporations effectively illustrate the struggles experienced by monopolies.
As of 2005, Microsoft had not been broken up but continued to undergo legal battles to remain solvent. AT& T was broken up
through government intervention in 1984, the main reason cited being a violation of antitrust laws. The NHL cancelled its entire
2004-2005 season over labor/management issues. One would think that the ideal situation for a monopoly corporation, private
or public, would be to have complete exemption from antitrust law. On the surface, it would appear that antitrust exemption is
the equivalent of free reign where profit margins are in constant equilibrium (MR = MC) and the overall industry thrives from
fiscal year to fiscal year. However, a closer look at monopolies demonstrates that often being bigger is not always better. Once
a monopoly corporation has dominated its market and effectively shrunk its competition, it only has itself left to cannibalize.
Most consumers will bend beyond rationality when it comes to purchasing decisions; however, in every situation there is a
breaking point. Monopoly corporations eventually lose consumers through arrogance rather than superior substitutes.
Professional Sports Leagues
There are four main professional sports leagues in North America: the NFL, the NBA, the NHL, and MLB. Each of these
leagues is similar in economic and operational structure. The leagues operate under differing levels of antitrust exemption, with
MLB having almost complete antitrust exemption. In addition to their antitrust status, each league has monopoly broadcasting
rights under the Sports Broadcasting Act of 1961 (Scully, 1995). There have been several studies (Demmert, 1973; El-Hodiri &
Quirk, 1971; Noll, 1971; Quirk & Fort, 1997; Scully, 1989) on the economic structure of professional sports leagues.
Professional sports leagues emulate cartel-like behaviors by restricting economic competition in their input and output markets
(Scully, 1989).
Each league has three types of restrictions: the reserve system, territorial rights, and broadcasting rights (Demmert,1973; Noll,
1971). Scully (1995) posits that all professional sports leagues collude on a revenue-sharing formula due to lenient public policy
agreements. Each league has a different level of latitude in antitrust exemption, with MLB being almost completely exempt.
However, the four leagues have equal participation in the Sports Broadcasting Act of 1961, which allows complete antitrust
exemption in the sale of league broadcasting rights (Scully, 1995).
The economic structure of a professional sports league consists of three areas: the reserve system, territory rights, and
broadcasting rights. The original concept of the reserve system was to allow league owners to have pure monopoly/monopsony
power over the labor market. New players that entered the league were drafted by a team and remained the property of the
team for their entire career. The territorial rights of a professional sports franchise allow for a monopoly on the product market.
A team cannot enter another team’s territory without its permission. Territory rights also determine gate- sharing arrangements,
with the “home” team and the “visiting” team receiving a disproportionate share of single-game gate revenue. The broadcasting
rights of each league are such that professional sports leagues exhibit cartelist behavior when bidding and securing National
Broadcasting Agreements (Scully, 1995).
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The basic operational structure of the leagues is a franchisor/franchisee relationship. Each league is the primary operating
source (franchisor) with the teams being secondary sources (franchisee). The differing levels of antitrust exemption in each
league have created difficulties in these relationships. Oftentimes the league attempts to control the teams with regard to
revenues and expenses, creating monopolistic as opposed to win-win relationships. Quirk and Fort (1997) posit that
professional sports leagues often misuse their monopoly power by restricting competition, overcharging on ticket prices, and
undervaluing player salaries.
There are five sources of revenue for professional sports leagues. The three main sources of revenue for a professional sports
league are gate revenue, broadcasting rights, and player contracts. Two other sources of revenue for the leagues are
concessions and merchandising (Noll, 1971). Each league can choose its own agreements for sharing these sources of
revenue. Gate revenue is a unique source of revenue for each league due to different agreements for gate revenue sharing.
The gate revenue sharing agreements for the leagues have significant effect on a team’s performance, free agent signings, and
market size (large, medium, or small). In the NBA and the NHL, the home team receives 100% of the gate revenue. In the NFL,
80% of the gate revenue is given to the home team and 20% is given to the visiting team. In MLB, the overall gate revenue
sharing agreement between the American League (AL) and the National League (NL) has 85% given to the home team and
15% given to the visiting team (Scully, 1995).
The majority of the gate revenue for a professional sports team is not realized until almost two-thirds of the regular season has
been played. The lengths of each professional league regular season are as follows: the NBA has an 82-game season (NBA
league standings, n.d.), the NHL has an 82-game season (NHL league standings, n.d.), the NFL has a 16-game season (NFL
league standings, n.d.), and MLB has a 162-game season (MLB league standings, n.d.). There is a positive relationship
between gate revenue and team performance. If a team is in close contention for or has made the playoffs at the two-thirds
point in the season, maximization of gate revenue will be positive. Conversely, if a team is in last place or out of playoff
contention at the two- thirds point in the season, gate revenue maximization will be negative.
Sports Monopolies
The four largest professional sports leagues (NBA, NFL, NHL, and MLB) each have monopoly status in the sports
entertainment industry. Each of these leagues as corporations has attributes similar to those of monopolies such as Microsoft
and AT&T. Where these leagues differ is in the legalized antitrust exempt status that they have been granted. Each league has
differing levels of antitrust exemption, with MLB almost completely exempt. The exempt status of these leagues has allowed
them to develop and cultivate a culture of perceived dominance over the sports consumer. Most professional sports team
owners are oblivious to the point where they believe that the majority of sports consumers (fans) cannot conceptualize or are
not willing to accept product substitutes and therefore have unquestionable loyalty.
Of the four professional sports leagues, MLB is unique in that it has the greatest level of legal antitrust exemption and the
highest perceived level of corporate arrogance. As an industry, MLB has operated at the profit-maximization level (MR = MC)
for many years. The key to MLB’s profitability is therefore dependent only on maintaining a healthy level of consumer demand.
As computer users demand Microsoft operating software, and as telecommunication consumers demanded phone services
from AT&T, baseball consumers demand the live baseball game.
Sports Consumer Behavior
Sporting events are considered both performance and service goods, exhibiting both tangible and nontangible characteristics.
One of the challenges for professional sports league owners is to satisfy multiple types of consumer demand. Borland and
Macdonald (2003) have identified two types of demand that sports consumers will have: direct demand and derived demand.
Consumers who attend live sporting events fulfill a direct demand, while those consumers who watch a sporting event on
television or buy a team jersey fulfill derived demand. In order to attend a live sporting event, the consumer needs to purchase
an admission ticket. The admission ticket allows the consumer to satisfy his or her direct demand by attending the event.
However, the behaviors of sports fans (consumers) often deviate from rational consumer behavior. Mason (1999) posits that
sports consumers have multiple levels of demand, some of which can include uncertainty of outcome of the game, attending a
live game, watching a televised game, and purchasing sports apparel. As an example, in 1999 the Chicago Cubs and the
Minnesota Twins, two MLB teams, experienced polar opposite consumption patterns. Each team exhibited subpar performance
throughout the entire season and was excluded from any chance of postseason play by midseason. However, the Chicago
Cubs had a regular-season attendance of nearly 3 million fans, whereas the Minnesota Twins had a regular-season attendance
of slightly over 1 million fans (Bristow & Sebastian, 2001).
Macro and Microeconomic Concept of Monopoly in Major League Baseball
This pattern of consumer behavior could be explained in several ways. First, the Chicago Cubs could have sold more season
tickets than the Minnesota Twins. Second, a higher percentage of Cubs season ticket holders attended games versus Twins
season ticket holders. Third, “die-hard” Cubs fans are more loyal than “die-hard” Twins fans and attended more games. Fourth,
the demand for game tickets in the secondary market is greater for the Cubs; therefore, more fans want to attend a Cubs
game. Fifth, fans like the social surroundings of Wrigley Field versus the Metrodome. Underwood, Bond, and Baer (2001) posit
that sports organizations often focus more on maintaining image, loyalty, and awareness and less on the on-field product.
Sports teams will often be able to achieve higher levels of attendance through loyalty than on-field performance as indicated by
a subpar win-loss record.
The discussion of consumer demand patterns for sporting events would not be complete without the exploration of an event
that could cause the sports fan (consumer) to behave in a rational manner. Each of the four professional sports leagues (NBA,
NFL, NHL, and MLB) experienced work stoppages in the last twenty years. The most recent work stoppage occurred in the
NHL during 2004-2005 and caused the cancellation of the entire regular season and postseason. The idea to be discussed is
whether a work stoppage has a strong enough effect on consumer behaviors to cause changes in consumption patterns.
Schmidt and Berri (2004) examined attendance levels in the NFL, the NHL, and MLB to see how quickly each would rebound
after a work stoppage. They conclude that the cost of a work stoppage is limited to the strike period. Additionally, they posit that
labor management conflicts in professional sports do not have permanent effects on attendance and that consumer demand
returns in force after the work stoppage ends (2004). Recent work stoppages in two of the professional sports leagues have
generated a great deal of attention from economists, the media, and sports fans (consumers). The MLB strike in 1994-1995
and the NHL strike in 2004-2005 are the two most recent work stoppages in professional sports. The MLB strike in 1994-1995
was in effect during the last third of the 1994 regular season, the entire 1994 postseason, and the first 18 games of the 1995
season (Staudohar, 1997). The NHL strike in 2004-2005 caused the cancellation of the entire regular season, postseason, and
Stanley Cup finals, and 1,230 games were lost (NHL league standings, n.d.). If what Schmidt and Berri (2004) posit is correct,
there would be increased attendance for both leagues the year following the work stoppage.
In 1996, the first full MLB season after the strike, total attendance increased by 19% from the previous season. After the
complete league shutdown in 2004-2005, total NHL attendance figures for the 2005-2006 season increased by 2.5% from the
last full NHL season in 2003-2004.
The increase in attendance for MLB could support Schmidt and Berri’s claim; however, the NHL data does not appear to. A
possible reason for NHL attendance not rebounding as quickly after the strike could be due to a change in the consumer
demand pattern of hockey fans. During the 1994-1995 season, the NHL experienced a strike that cancelled a portion of the
season; attendance increased the year after the strike, in the 1995-1996 season, by 84%. This is in a sharp contrast to what
happened after the strike in 2004-2005, leaving open the possibility that NHL fans were less interested in satisfying their
demand for hockey as quickly.
Ticket Pricing Strategies for Events
An entertainment event (game, show, concert, play, performance, etc.) is a nontangible good; the consumer views the event.
The event ticket is a tangible good. The event ticket allows the consumer the right to view the event. The consumer obtains the
ticket, possesses it, and exchanges it at the time of the event. The physical ticket acts as a temporary rental agreement
between the producer (event coordinator) and the consumer. The economic theories of the two-party exchange and Pareto
optimality serve to explain consumer behavior toward purchasing event tickets (Bruggink, 1993). One of the challenges faced
by a monopoly firm when determining the pricing strategy for event tickets is how to maximize the revenue from a fixed stock of
perishable products (Anjos, Cheng, & Currie, 2004).
The tickets for most events expire after the event begins unless the producer (event coordinator) grants an extension. DeSerpa
(1994) posits that the consistent underpricing of tickets is the result of rational behavior based on consumer interest, which is
the fundamental source of demand for tickets. DeSerpa and Faith (1996) studied excess demand for tickets for events such as
rock concerts and sports playoff games. They define these events as “mob goods” due to the excess demand for and limited
supply of tickets.
In their study they demonstrate the possibility of excess demand for tickets even when sellers charge what the market will bear.
They posit that ticket sellers are driven by pure profit motive with no allowance for demand uncertainty. Demand uncertainty
plays an important role in the event ticket market because consumers typically do not know with certainty the value of the ticket
until just before they use it (Courty, 2003). There is a certain percentage of consumers who have a degree of uncertainty
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regarding the timing of purchasing tickets for an event. Some consumers will purchase tickets during the designated pre-sale
period or after the pre-sale period. A certain percentage of consumers will purchase tickets after the event is sold out via the
secondary resale market. Event promoters try to discourage ticket purchase via the resale market by limiting bulk ticket
purchases and enforcing purchase quantity limits (Courty, 2003).
Several economists have posited that inelastic ticket pricing is consistent with a profit-maximization strategy (Fort, 2004;
Marburger 1997; Scully, 1989; Zimbalist,2003). Welki and Zlatoper (1999) examined game-day attendance in the NFL during
the1986 and 1987 seasons. They posit that ticket price decisions affect game-day attendance, with an inverse relationship
between ticket prices and attendance. Some researchers (Krueger, 2001; McCloskey, 1982; Salant, 1992; Swofford, 1999)
argue that ticket resale increases efficiency because it channels tickets to consumers who value them the most. Happel and
Jennings (2002) and Courty (2003) disagree with this point and argue that the resale market erodes profits and is an uneven
entry point into the event ticket market. Ticket promoters earn reduced profits because they are forced to share profits with
brokers. Ticket brokers gain quick access to the ticket market via the resale market, where higher than normal profit margins
exist (Courty, 2003).
Current Financial State of the Game
In 2001, MLB was summoned before the U.S. House of Representatives Judiciary Committee to discuss what the league
described as the current, rather dismal “state of the game.” In July 2000, the MLB Commissioner’s Blue Ribbon Panel on
baseball economics released the results of a study on the economic and competitive balance issues that exist in MLB. The
report examined the first five seasons (1995-1999) after the strike- shortened season of 1994 (Levin, Mitchell, Volker, & Will,
2000). In December 2001,the Blue Ribbon Panel released a supplemental study that included the 2000 and 2001 seasons
(Levin, Mitchell, Volker, & Will, 2001).
These researchers concluded that significant economic and operational problems exist in MLB. The economic issues consist of
increased revenue disparities among teams (possibly resulting in the demise of the weaker teams), escalating player salaries,
and increased ticket and concession prices. The current economic structure of the league can no longer sustain current and
future growth (Levin et al., 2001). Revenue and expense data available from the 1995 season through the 2001 season
showed that as an industry, MLB had yearly revenue increases. Total industry revenue increased 2.5 times from 1996 to 2001.
Total industry operating losses during this time averaged 170 million dollars per year, with the highest loss of 326 million dollars
occurring in 1995 and the lowest loss of 85 million dollars occurring in 2000 (Levin et al., 2001).
Economic History
Economists have studied several aspects of MLB including monopoly, monopsony, and antitrust exemption. Rottenberg (1956)
was the first to examine monopsony practices in the baseball labor market. Scoville (1971) and Zimbalist (1992) examined the
labor market, labor relations, and public policy issues. Eckard (2001) examined the reserve clause, which he posited was the
first type of labor market restriction. The owners created the reserve clause in 1890 for the purposes of limiting player
movement. Eckard (2001) posits that behind the reserve clause was a monopolistic collusion among the owners. Zimbalist
(2004), updating his previous research, further examined monopoly power, behavior, and consumer exploitations in MLB.
Noll (1974) examined MLB operations having the characteristics of a cartel. Adams and Brock (1997) expanded on Noll’s
(1974) work by examining the cartel behaviors of the players as well as the owners. These authors posit that the cartelist
behaviors of both of these groups can only succeed through vertical combination or collusion. Scully (1978, 1989) examined
salary arbitration, scarcity of resources, and managerial decision making. Bruggink (1993) and Bruggink and Eaton (1996)
have examined the economic principles of product consumption, revenue/expense decision making, opportunity costs, and
marginal revenue product and their impact on the league.
Fizel, Gustafson, and Hadley (1996) examined productivity (individual and team), decision making, and incentive structures and
compared baseball to general business behaviors. Vrooman (1997) explored the relationship between the labor market,
escalating player salaries, and free agency.
Quirk and Fort (1997, 1999) examined the monopoly behaviors of the owners and the players and the impact of these
behaviors on the league (the producer) and the fans (the consumer). Sanderson and Siegfried (2006) revisited and updated
Rottenberg’s (1956) theory on the baseball player’s labor market. These authors posit that Rottenberg (1956) was ahead of his
time and correctly anticipated several key economic ideas that currently exist in the league today.
Macro and Microeconomic Concept of Monopoly in Major League Baseball
Legal History
In 1890, MLB created the player reserve rule, known as the reserve clause. The reserve clause allowed MLB to operate as a
closed economic system (Miceli & Scollo, 1999). In 1922, the Supreme Court ruled in Federal Baseball Club v. National League
that MLB was exempt from the main antitrust statutes of the Sherman Act. The Court ruled that holding baseball games across
state lines did not constitute interstate commerce; rather, the game was the property of the state in which the game was being
played (Federal Baseball Club v. National League, 1922). Additionally, the Court ruled that any changes to the antitrust status
of MLB would have to come from the legislative branch, specifically Congress. The ruling by the Court was challenged in
Toolson v. New York Yankees (1953) and Flood v. Kuhn (1972). In both of these rulings, the Court affirmed its earlier ruling of
1922 citing that any change to MLB’s antitrust status would need to come from Congress.
Prior to 1976, MLB owners had majority monopolistic and monopsonistic control of the league (Miceli & Scollo, 1999). The main
source of this control was the reserve clause, which allowed a team to own a player’s service for the duration of his playing
career. The owners had complete control of both the inputs and outputs of the league. The relationships and behaviors that
exist between MLB owners and MLB players can be described as having both monopolistic and monopsonistic characteristics.
The nature of these relationships at times has become rather complex. MLB operates as a monopoly, competing with firms who
supply baseball, and is part of the oligopoly structure of the four professional sports leagues. Adams and Brock (1997) posit
that MLB owners exercise monopoly power in the product market and monopsony power in the input market; through the
collective bargaining process, the players attempt to countervail this power.
Noll (1974) examined MLB operations having the characteristics of a cartel. Adams and Brock (1997) expand on Noll’s (1974)
work by examining the cartel behaviors of the players as well as the owners. These authors suggest that the cartelist behaviors
of both of these groups can only succeed through vertical combination or collusion. Fort and Quirk (2004) and Vrooman (1997)
posit that if MLB owners are viewed as sportsmen as opposed to solely as profit maximizers, their behaviors and decision
making will reflect as such. Owner decisions will be linked to making the highest amount of revenue while simultaneously
fielding the best team.
These relationships cannot be rationally resolved unless both parties agree to enter into a vertical combination or conspiracy
(Vrooman, 1997). Quirk and Fort (1997, 1999) have examined the monopoly behaviors of the owners and the players and the
impact of these behaviors on the league (the producer) and the fans (the consumer).
Ticket Pricing in Major League Baseball
A live baseball game is consumed in coexistence with the production of the game. A baseball game is comparable to an airline
seat or a hotel room in that it is a noninventoried good. As a result, ticket prices can be subject to second-degree price
discrimination (Haupert, 2003). Alexander (2001) suggests that MLB owners set ticket prices as profit-maximizing monopolists,
because they are in competition for the consumer’s entertainment dollar in a broad entertainment services market. Popular
events often have ticket sellouts within minutes of going on sale, causing the resale market to offer tickets in excess of the
face-value price. Conversely, waiting until a few minutes before the event starts will produce tickets priced at face value or
under face value.
Rosen and Rosenfield (1997) posit that price discrimination tends to be observed in activities where inventory or capacity
constraints make the marginal costs of providing a service to any one user smaller than the average cost. The stadium capacity
of a MLB team is known before the season starts; therefore, the inventory of tickets available is known as well. The main
objective of a sports team owner is to maximize revenue and minimize costs. The first step in maximizing revenue is to
completely satisfy consumer demand by selling all available admission tickets. Sports team owners are allowed to set their own
ticket prices for their respective teams without prior approval from the league. Demmert (1973), Noll (1974), and Scully (1989)
have examined ticket pricing in MLB for various times. These researchers posit that the pricing of tickets can occur between
unitary elastic and inelastic points on the demand curve. Fort (2004), commenting on this research, states that sports ticket
pricing in the unitary elastic to inelastic regions of demand has been a remarkably consistent finding. In his own study, Fort
(2004) examined MLB ticket prices from 1975 to 1988.
Fort (2004) concluded that ticket pricing was in the inelastic range of demand and noted a relationship between ticket prices,
local TV revenues, and the marginal cost of talent. Marburger (1997) and Fort (2004) examined demand and pricing patterns of
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MLB tickets; these authors posit that, in general, ticket prices fall in the inelastic range of demand. In concluding the discussion
on ticket pricing, two related areas need mention: the ticket resale market and subsidized funding. Often, consumers are
unsure of when they will purchase tickets for an event. Some consumers will purchase tickets during the designated pre-sale
period or after the pre-sale period. A certain percentage of consumers purchase tickets after the event is sold out via the
secondary resale market. Event promoters try to discourage the sale of tickets by ticket brokers via the resale market. Two
ways in which this is done are by limiting bulk ticket purchases and enforcing purchase quantity limits (Courty, 2003).
Williams (1994) examined ticket pricing and the secondary resale market in the NFL for one season. Williams (1994) concludes
that where antiscalping laws are present, ticket prices tend to be lower, and where they are not present, ticket prices tend to be
higher. Ticket scalping is the practice of buying tickets at one price and reselling them at a higher one. In markets where there
are not any laws preventing ticket scalping, both consumers (fans) (by reselling season tickets) and owners have control over
ticket prices (Williams, 1994).
Some researchers (Krueger, 2001; McCloskey, 1982; Salant, 1992; Swofford, 1999) argue that the sale of tickets in the resale
market increases efficiency, because it channels tickets to consumers who value them the most. In his research, Courty (2003)
disagrees with this point, stating that ticket promoters cannot capture any profits earned by brokers and that promoters are
unable to keep brokers from entering the market. Happel and Jennings (2002) support Courty’s (2003) point. DeSerpa (1994)
states that the consistent underpricing of tickets is the result of rational behavior based on fan interest, which he states is the
fundamental source of demand for tickets. The objective of an MLB owner beyond profit maximization is fan participation,
through uncertainty of outcome. Regardless of whether a team makes the postseason or not, keeping games close the entire
season will hold the consumers’ (fans’) interest. Postseason or World Series attendance, which is a temporary occurrence, is
separate from maintaining a consistent level of attendance for the entire season.
A significant factor in capturing the loyalty of a sports fan (consumer) is the atmosphere and experience of attending the game
or contest. In certain situations, the stadium of the team has a greater influence in retaining fan (consumer) loyalty than the onfield performance of the team. In most cases, sports team owners claim that to build a new stadium or upgrade a current
stadium is outside of their financial means. Sports owners will emphatically appeal to the legislators of the municipality in which
their team resides for a stadium subsidy.
There have been several studies (Coats & Humphreys, 2005; Fort, 2004; Kinnard & Geckler, 1999; Mondello, 2003) examining
the economic impact of a sports team’s leaving or entering a city or municipality. In general, it can be said that the greater loss
from a sports team’s leaving is an emotional one rather than a financial one. Likewise, when cities overinflate bids for new
sports franchises, it is mainly for the experience of having a sports team in the city as opposed to a significant increase in
MLB owners have monopsony power over league inputs (players, franchise locations, etc.) and league outputs (regular
season, postseason, and World Series games). Frasco and Jung (2001) posit that when a monopsony exists in one or more
input markets, producer surplus will not equal the sum of the rents paid to the factor of production. One conclusion from the
monopsony power of MLB owners is that there is a dependent relationship between the host city and the respective team. MLB
owners cannot operatein a city autonomously, nor can a city afford to start up its own franchise (team).
A subsidy payment is a form of monopoly rent; a firm receives this payment to help secure its monopoly status. When cities bid
for MLB teams, they are in a sense competing for the right to secure a monopoly franchise and receive monopoly rent
payments. When a positive monopoly rent is secured under government protection, firms compete with one another to win the
monopoly and incur opportunity costs by expending resources (Baik, 1999). Most professional sports teams have various
agreements and arrangements whereby the city they reside in subsidizes a portion of their existence. During the 1990-2003
period, there were several new stadiums built in each of the leagues (NL and AL) with the assistance of municipal subsidies.
Ticket prices will tend to increase after a stadium is built even though a subsidy has been given. One reason for the ticket price
increases in each league is due to these subsidies. The increase in ticket price can be thought of as one of the social costs of
the MLB monopoly. Fort (2004) posits that as long as subsidy payments more than offset the revenue reduction associated
with lower ticket prices, owners will lower ticket prices because a source of revenue for each of the four professional sports
leagues is gate receipts, a portion of which includes attendance.
In concluding the discussion on stadium subsidies, two additional points need mention. First, there is an independent
relationship between the price of a sporting event ticket and the complementary demand for concessions. One of the purposes
of a stadium subsidy is to help offset costs and provide an opportunity to lower ticket and/or concession prices. However, the
Macro and Microeconomic Concept of Monopoly in Major League Baseball
nature of the relationship between tickets and concessions and the behaviors of MLB owners would suggest that this does not
The demand for tickets is not dependent on the number of concessions sold. An increased level of tickets sold does not
necessarily correlate to an increased level of demand for concessions (Blair & Romano, 1993; Segal, 2003). Industry input
supply functions have an independent relationship. The quantity supplied of one input depends not only on its own price but
also on the price paid for one or more inputs (Frasco, 2002). Second, MLB teams use financial and emotional leverage in
obtaining stadium subsidies. MLB owners either claim that the team cannot afford to build or renovate the stadium or that the
team in is competition with other forms of entertainment and therefore needs assistance. Shaanan (2006) presents two
hypotheses that attempt to explain the positive relationship between concentration and profitability. The market power
hypothesis (MPH) states that this positive relationship reflects higher prices resulting from the exercise of market power. The
efficiency hypothesis (EH) states that this relationship can be explained by the superior efficiency of the largest firm in the
industry. MLB teams and owners tend to align with the MPH. MLB teams and owners create local monopolies in their
respective markets, while controlling both the input and output markets. It is inaccurate to assume that MLB teams align with
the EH. The success and profitability of the largest team have less of an influence on the rest of the teams in the league.
In summary, the purpose of this literature review is to enhance our understanding of the behavioral phenomenon of firms in an
unregulated monopoly industry. This paper examined the industry of MLB as an unregulated monopoly industry and its impact
to the industry of major league sports as business. The intent of this paper was to increase the understanding of the behaviors
and characteristics of firms in an unregulated monopoly industry. While the paper discussed macroeconomic and
microeconomic of Monopoly in MLB from s national perspective (USA), major league sports has gone global with MLB
franchises opening up in Japan, China and in countries throughout Latin America. The findings discussed by this paper could
lead to further discussion and research on the topic of MLB regulations, business development in major league sports and
corporate social responsibility from a global perspective.
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D. N. Burrell, M. Dawson, A. Finch and W. Quisenberry
IHART - Volume 23 (2012)
Darrell Norman Burrell1,2,3, Maurice Dawson4,1, Aikyna Finch5 and William Quisenberry6
1Walden University, USA, 2George Mason University, USA, 3A.T. Still University, USA,
4Alabama A & M University, USA, 5Strayer University, USA and 6Mid-Continent University, USA
Consider the amounts of important and sensitive data government public health oriented agencies like the Center for Disease
Control, National Institutes of Health, The Department of Health and Human Services, and the Environmental Protection
Agency must analyze and protect from data theft and cyber attack. Federal agencies reported 43,889 cyber intrusions to the
Department of Homeland Security fiscal year 2011 (Johnson, 2012). This paper uses applied research methods to explore the
most innovative methods for recruiting and retaining cyber security talent in the public health oriented US Federal Government.
Keywords: Cyber Security Employee Retention, Information Assurance Staff in Public Health Government Agencies.
Consider the amounts of important and sensitive data government that public health oriented agencies like the Center for
Disease Control and National Institutes of Health must analyze and protect from data theft and cyber attack. These
organizations have important public health oriented missions and require information technology and cyber-security expertise
to carry out these missions effectively.
“The mission of the Center of Disease Control (CDC) is to collaborate to create the expertise, information, and tools
that people and communities need to protect their health – through health promotion, prevention of disease, injury
and disability, and preparedness for new health threats.
CDC seeks to accomplish its mission by working with partners throughout the nation and the world to:
monitor health,
detect and investigate health problems,
conduct research to enhance prevention,
develop and advocate sound public health policies,
implement prevention strategies,
promote healthy behaviors,
foster safe and healthful environments,
provide leadership and training.
Those functions are the backbone of CDC′s mission. Each of CDC′s component organizations undertakes these
activities in conducting its specific programs. The steps needed to accomplish this mission are also based on
scientific excellence, requiring well-trained public health practitioners and leaders dedicated to high standards of
quality and ethical practice.”
(Centers for Disease Control, 2012)
“National Institute of Health’s mission is to seek fundamental knowledge about the nature and behavior of living
systems and the application of that knowledge to enhance health, lengthen life, and reduce the burdens of illness and
The goals of the agency are:
1. to foster fundamental creative discoveries, innovative research strategies, and their applications as a basis for
ultimately protecting and improving health;
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IHART - Volume 23 (2012)
2. to develop, maintain, and renew scientific human and physical resources that will ensure the Nation's capability
to prevent disease;
3. to expand the knowledge base in medical and associated sciences in order to enhance the Nation's economic
well-being and ensure a continued high return on the public investment in research; and
4. to exemplify and promote the highest level of scientific integrity, public accountability, and social responsibility in
the conduct of science.
5. In realizing these goals, the NIH provides leadership and direction to programs designed to improve the health
of the Nation by conducting and supporting research:
6. in the causes, diagnosis, prevention, and cure of human diseases;
7. in the processes of human growth and development;
8. in the biological effects of environmental contaminants;
9. in the understanding of mental, addictive and physical disorders; and
10. in directing programs for the collection, dissemination, and exchange of information in medicine and health,
including the development and support of medical libraries and the training of medical librarians and other
health information specialists.”
(National Institutes of Health, 2012)
Public health oriented government agencies collect personal medical information, store information, and analyze personal
health related data. The damage from cyber attack on these public health oriented organizations is real. Last year, the
Departments of Defense, State, Homeland Security, and Commerce, NASA and the National Defense University all suffered
major intrusions by unknown foreign entities (Markoff, 2008). Federal agencies reported 43,889 cyber intrusions to the
Department of Homeland Security fiscal year 2011 (Johnson, 2012). The US federal government employment market for
information assurance and cyber security professionals represents both significant stability and opportunity for those currently
in the field. Highly trained and experienced information assurance and cyber security professionals already in federal jobs say
they are experiencing nearly full employment, coupled with career advancement opportunities and salary increases in 2011.
Conversely, those responsible for hiring are finding it difficult to locate new recruits with the right skills to meet their agencies’
cyber security needs, presenting a continued challenge for the cyber security workforce (ISC2, 2012)
The Career Impact Survey, now in its third year and conducted by (ISC)2 (2012), which has over 80,000 members in 135
countries, tracks the impact of the economic climate on cyber security salaries, hiring outlook, budgets, threats and more. More
than 2,250 information security professionals worldwide participated, including 545 information security professionals in U.S.
federal government agencies.
Other key federal-specific findings from (ISC)²’s 2012 Career Impact Survey include:
 83 percent of federal hiring managers say that it is extremely difficult to find and hire qualified candidates.
 The top three skills federal hiring managers are looking for are certification and accreditation (68 percent), operations
security (55 percent), and telecommunications and network security (53 percent).
 Federal respondents rated the following initiatives as the least successful when measuring the success of the
government’s hiring methods: dedicated programs such as the US Cyber Corps, recruiting from specific colleges and job
 Federal respondents reported the top three security risks in 2011 as attacks against an agency’s systems/infrastructure
(39 percent), increased risk due to mobile devices (27 percent), and targeted attacks against personnel (13 percent).
The federal results from our latest Career Impact Survey validate the persistence of our national cyber security workforce
challenges: information security professionals with the right mix of knowledge and experience remain in high demand by
government hiring managers, but qualified candidates are hard to come by as agencies try to build their security teams. When
it comes to information assurance and cyber-security, professional organizations are stealing each other's talent. Organizations
looking for a quick fix with their information assurance and cyber-security personnel shortage are just hiring employees from
their competitors. The challenge to this strategy is that these employees may commit more to the paycheck then they will to the
organization. Employees in the information technology field have the ability to jump from company to company raising their
salaries by as high as 20% with each job jump (Adamsky and Mullen, 2001; Computerworld, 1998). Organizations are engaged
in a process of trading people around, which drives up salary costs in the information assurance and cyber-security field. The
situation is compounded by the general increase in the use of technology, cyber-security threats, and e-business models
across industries. The challenge for organizations today is not just finding new information assurance and cyber-security talent;
it is also about retaining existing information assurance and cyber-security professionals that currently exist in the company
(Adamsky and Mullen, 2001).
Innovative Practices for Recruiting and Retaining Information Assurance and Cyber-Security Employee Talent in Public Health Oriented U.S. Federal Government Agencies
It is generally believed that high levels of employee satisfaction translate into increased employee commitment, productivity
and retention for organizations. However, if employees are dissatisfied with their jobs, trouble lies ahead. Low job satisfaction is
associated with higher levels of absenteeism, decreased productivity and increased turnover-three conditions that
organizations can ill afford in today's highly competitive search for talent (Daniels 2000). A successful employee talent
management strategy is about more than just keeping existing employees satisfied, it also includes being able to grow and
develop entry level professionals and provide promotional opportunities for experienced employees (Allen and Meyer 1997).
Those companies that manage to not only recruit but also increase employee organizational commitment and retain scarce,
information technology (IT), information assurance and cyber-security talent have a competitive advantage because the costs
of turnover in terms of recruiting dollars and lost project continuity are high. The purpose of this study, therefore, was to
investigate the talent management initiatives that US government agencies are doing to recruit and retain scarce information
assurance and cyber-security employees. The hope is to develop a framework to address the problem that can be used in
international corporations and other business enterprises. The questions to be asked and answered are: What processes could
be influential in information assurance and cyber-security employee recruiting? What initiatives can influence information
assurance and cyber-security employee retention? How can leadership initiatives and organizational retention strategies
increase organizational commitment?
It has been seen that organizational commitment has a powerful impact on employee turnover and performance within an
organization. Employee recruiting and rention activities can have a tremendous influence in employee commitment
(Parasuraman 1994). It has been theorized that job satisfaction, tenure, and leadership behaviors can be correlated with
organizational commitment among employees in a generalized sense. Organizational commitment is defined as the extent to
which an individual commits to an organization. The three major types of organizational commitment include:
 Affective Commitment- The individual strongly identifies with the goals of the organization and wishes to remain a part of
the organization.
 Continuance Commitment: The individual believes that he/she has invested a great deal of effort/time into the
organizations and feels compelled to stay with the organization.
 Normative Commitment: The individual remains with an organization because of a feeling of obligation.
HR practitioners can learn more about determining the level of employee commitment, factors influencing it and benefits of
improving it in their organization. In 2003, Aon Consulting, which claims to be the first organization to quantify commitment,
surveyed 3,571 American workers of all types to determine their level of commitment by measuring the degree to which
 Work hard to improve and make personal sacrifices to help their group's success.
 Would recommend their organization as a good place to work and their employer's products and services as the best a
customer can buy.
 Intend to stay with their organization for the next several years.
 Would stay, even if offered a similar job with slightly higher pay elsewhere.
 Feel responsible to help their supervisor and the organization succeed.
 Trust their leaders and share the same values with the organization.
Since 2002, four factors have registered as key drivers of commitment every year:
Building a sense of spirit and pride (most impact)
Direction of the organization
Opportunities for personal growth
Supportive co-workers (Aon 2004).
The benefits of increased commitment include reduced turnover and increased customer satisfaction. International Survey
Research surveyed 362,950 U.S. employees between 1999 and 2001 to determine their level of commitment. The company
measured this level by determining "whether employees intend to stay with their organization and whether they would
recommend it to others as a good place to work." Their survey of 40 global clients revealed the four most important factors in
determining commitment levels as:
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IHART - Volume 23 (2012)
Quality of company leadership
Professional developmental opportunities
Work-empowerment opportunities
People-management skills of immediate supervisor (International Survey Research 2002).
Parasuraman (1994) assessed the commitment of 464 professionals and managers in the IT field and addressed how it
influences the quality of work life and job commitment. Interestingly the results show variation in the level of job commitment
based on the extent to which they have influences over their job. Not surprisingly, research illustrates that commitment serves
as a predictor of positive work experiences and can be an important factor in employee retention. In some instances, high
levels of commitment tend to enhance the quality of work life and have a tendency to reduce stress related conditions.
Parasuraman’s (1994) study illustrates that IT personnel can be divided into three categories based on their job commitment:
low, medium, and high. Those with a high job commitment differ significantly from those with low and/or moderate commitment
which supports the findings performed by Innes and Clarke (1985), Saleh and Desai (1990) and Wiley (1987) (Parasuraman,
1994). The profile of IT workers with high commitment is characterized by higher salaries, longer tenured employees, and
expansive job promotion opportunities.
Those with low to medium job commitment tend to have lower salaries, less autonomy, and routine to menial job functions
Wiley (1987) and (Parasuraman, 1994). Career advancement potential and salary seems to be a characteristic that aids in job
commitment, particularly for those with a low to medium commitment level Saleh and Desai (1990). Employees with low to
medium involvement are subject to continuance or normative commitment. Employees with continuance commitment believe
their investment in the organization is too great to leave, while those with normative commitment feel obliged to stay with the
organization (Friedman, Hatch, and Walker 1998).
Parasuraman’s (1994) research shows a correlation between autonomy, higher salaries, expansive job duties and high levels
of organizational commitment, while Harrison’s (1998) research shows other components associated with affective
Parasuraman’s findings indicate that higher salaries, autonomy, expansive job duties influences the affective commitment of IT
workers toward their organization. When these characteristics exist, IT employees have a stronger tendency to identify with the
goals of the organization and remain a part of the organization. A high level of affective commitment also leads to a higher level
of work life. Parasuraman’s research complements the results addressed in studies by Batlis (1978), and Blau and Boal (1987)
concerning the beneficial effects of job involvement on the quality of work life.
Harrison (1998) illustrates that there is a strong correlation between commitment and the characteristics of job satisfaction,
age, participative decision making, seniority, length of employment, and leadership were predictors of strong organizational
The research presented in this review outlines that organizations can use to recruit and retain information assurance and
cyber-security talent if they use employee centered and proactive strategies. Transactional strategies can be developed to
improve working conditions, leadership, professional development, and employee mobility in organizions. Organizations that
wish to substantially increase affective commitment, should consider how the implimentation of innovative recruiting and
retention strategies can get the most and best from its workforce, particularly the information assurance and cyber-security
workforce. This may require a shift in thinking and organizational culture but is required in order to retain critical information
assurance and cyber-security talent.
A focus group was used as the methodology for this study because the authors wanted to gain in-depth insights into various
recruiting and retention strategies, as well as specific examples of successful (and relatively unsuccessful) practices that are
influential in increasing organizational commitment. In addition, alternative contact methods such as phone and mail
questionnaires, while more generalizable, are often regarded as having suspect motives (i.e. perceived as competitive spying).
It was reasoned that in work environment, where participants are encouraged to share practices with a small group of their
known peers, they might be more willing to be candid in their remarks.
Participants in the focus group were selected from a random selection of cyber-security and human resources employees with
IT backgrounds that had extensive experience recruiting and training cyber-security professionals from public health oriented
Innovative Practices for Recruiting and Retaining Information Assurance and Cyber-Security Employee Talent in Public Health Oriented U.S. Federal Government Agencies
agencies in the US Federal Government. All participants had previously indicated their interest in attending a forum on
recruiting and retention strategies. The tenure of the focus group employees were as follows:
9 employees had over 10 years of experience in IT and Public Health.
21 employees had 5 years of experience in IT and Public Health.
20 employees had 3 years of experience in IT and Public Health.
The focus group consisted of 50. The group facilitator was an organizational development university faculty member, with over
20 years of leadership experience in government, academia, and private industry. All participants and the name of the
organization were promised anonymity due to the national security nature of the organization and the fact that the employees
had clearances. The session was for a half day. Participants were asked the following questions:
What are the most important factors that Cyber-Security recruits would want in a new job or employer?
What are the key initiatives that organizations can do to retain new employees?
What retention strategies have you found to be particularly successful?
What kind of activities and initiatives can improve organizational commitment on the part of employees?
Responses to each of these four questions are summarized in the next sections, followed by discussions points developed
from the focus group qualitative interview sessions.
After participants’ brainstormed responses to each question, they were encouraged to prioritize them from "most-to-least"
important. In descending order of importance, participants listed the following as being important to Information Assurance and
Cyber-Security professionals related to employee recruiting, retention, and increased organizational commitment.
Interesting work
Access to the newest technologically advanced equipment
Working conditions (positive and low stress work environments- work/life family balance)
Empowerment or input about how their work is done
Upward mobility
Supportive and competent boss
Professional development and training (chance to learn new skills i.e. those that the market values)
Recognition and respect
Access to career and skills mentors
When Asked to Elaborate in More Detail About the Rankings Fascinating Data was Expressed
Interesting Work
Participants stated that challenging and varied work is critical in keeping employees engaged, excited, and committed. The
availability of interesting work projects helps attract, keep, and challenge top-notch staff.
Access to ‘Up to Date’ Technology
Participants said that professionals that work in technology do not value an organization that skimps on technology equipment.
Technology people want to use leading-edge technology and they want the best tools at their disposal. The better the tools
employees have; the more productive and happier they will be.
Working Conditions (Positive and Low Stress Work Environment - Work/Life Family Balance)
Participants said that they liked to work in a place where people are treated well. Participants said that they know they can go
somewhere else but they also know there is potentially a price to pay for that in either increased stress or pressure or how
people treat their employees. Most organizations grossly underestimate the contribution of bigger cubicles and offices, better
lighting, more meeting spaces, better food, nicer furniture, exercise facilities and other workplace improvements toward
genuine employee satisfaction (Foote 1998). Finally, participants identified flexible work schedules as the other major
difference between today's recruits and those of their counterparts in the past. Flexible work schedules could take many
different forms including flextime, 4 day/10 hours a day shortened workweeks, job sharing and telecommuting.
D. N. Burrell, M. Dawson, A. Finch and W. Quisenberry
IHART - Volume 23 (2012)
Participants said that they appreciated a work environment where they can participate in decision-making and have an ability to
be creative with how they do their work.
Upward Mobility
Participants felt that they wanted to be part of an environment that promoted employees from within in an aggressive fashion.
Participants felt that this could be an incentive for employees to work hard the knowledge that they could be promoted.
Supportive and Competent Boss
One participant made a point that "employees do not quit companies, they quit bad supervisors. "A quality boss can be a
mentor and can be a role mode for professionalism, ethics, and accountability. The other key point mentioned was the
importance of managing managers. Bad managers are often catalyst for employee turnover. Participants talked about the value
of employees being able to provide performance reviews on their supervisors in the form of 360-degree feedback analysis.
These kinds of programs can be conducted by outside consultants. 360 feedback programs ask peers and subordinates to
assess the performance. In these programs staff submits a written performance review of the employee.
Professional Development and Training
According to participants, training and the opportunity to learn new skills was very important. These training options included
the pursuit of graduate education, graduate certificate, an executive doctorate degree, the ability to attend professional
conferences, and the ability to participate in certification programs. Lifelong training is part of the embedded technology culture
and work challenge, but it is also perceived as a means of making oneself more marketable, presumably at a higher salary.
This training also included the ability to do job rotations in other departments within the organization. There was a clear
recognition that real job security comes with the acquisition of new, market-valued skills, not with the longevity of a company. A
demonstrable commitment to training (Tunick, 1997a) is perceived as a means to future employment at a higher salary.
Recognition and Respect
Participants said that they appreciated and valued a work environment where they were respected and their work contribution
was respected. People-sensitive executives and managers make sure that no meritorious work goes unrecognized. They thank
staffers personally at staff meetings and with notes, post praise on bulletin boards, print compliments in newsletters and
provide rewards. Participants talked about using personal achievement awards, public recognition for achievements, and things
like gift certificates for dinners, lunches, or hotel stays for work well done. Participants even talked about time off awards
bonuses. Participants mentioned that most people need a vacation break sooner or later to prevent job stress and burnout,
especially after schedule-driven IT projects are successfully completed. One participant indicated that his company used a form
of contingent time off as a reward, whereby a team of employees earned X number of days off for completing a project on
schedule with appropriate quality control checks. Such contingent time-off practices may be particularly useful in organizations
where salary and bonus incentives are more difficult to obtain (Foote 1998).
Pay and Money
Money, defined as base salary offering, was still identified by participants as not being the single most important factor in a
decision to join an organization or stay at an organization. It was stated that pay could not compensate for an unhealthy work
environment or a bad supervisor.
Participants stated that having mentors was beneficial in career development and job skills development.
Discussion of Successful Recruiting Practices
Participants in the focus group were asked to identify successful recruiting practices which they had used in their own
organizations, or which they knew that other employers had used successfully. "Successful" was loosely defined as "getting a
good applicant pool and hiring the people you wanted to hire on a relatively consistent basis". Participants brainstormed a list of
practices and then prioritized them as a group in descending order from most to least successful. The following eight strategies
were identified:
1. Student Loan Repayment
2. Professional Internship/Leadership Development programs
Innovative Practices for Recruiting and Retaining Information Assurance and Cyber-Security Employee Talent in Public Health Oriented U.S. Federal Government Agencies
Scholarship Programs
Employee referral programs
Employee hiring
Speed hiring
Social Media
College recruiting
Job fairs.
Student Loan Repayment
The Federal student loan repayment program permits agencies to repay federally insured student loans as a recruitment or
retention incentive for candidates or current employees of the agency. Although the student loan is not forgiven, agencies may
make payments to the loan holder of up to a maximum of $10,000 for an employee in a calendar year and a total of not more
than $60,000 for any one employee. An employee receiving this benefit must sign a service agreement to remain in the service
of the paying agency for a period of at least 3 years.
Professional Internship/Leadership Development Programs
The Presidential Management Fellows Program recruits students that are recent graduates of graduate degree programs. This
highly paid internship program provides a fast track development and promotions process highlighting leadership and business
skills through experiential learning and training. This Program is one of the recruitment tools used by the US Office of
Personnel Management to hire exceptional interns with a variety of backgrounds for the effective analysis and execution of
programs including those in public health that require information assurance and security professionals.
The Program is intended to provide valuable work experience and a least two 90-day rotations within the different office
divisions. Formal training and leadership development job experiences are the foundation of this two-year internship resulting
in a cadre of well-trained, well-qualified employees for leadership roles in over 80 participating government agencies.
This program serves a key role in hiring, development, and growing organizational talent. Participants are hired through a job
announcement that has on-line questions that are evaluated. Those applicants that past that initial application stage are invited
in for a formal all day interviews. This interview includes various aspects of problem solving. First, applicants are given a case
study with 30 minutes to review the scenario and write a two-page solution, which is intended to assess that applicant’s writing
skills. Second, the participant is given an additional case to review for 30 minutes and develop a 5-minute oral presentation to a
3-person panel that outlines their solution. Third, applicants are put in a group of 6 other applicants. As a group, the applicants
are given 30 minutes to individually read the case and develop an individual solution and then convene collectively in a group.
The group must develop a collective solution. As the group debates their course of action, a panel observes how the team
members demonstrate an ability to lead, follow, participate, collaborate, and support other members in the group. All those that
meet a pre-determined minimum score are invited in for a final traditional job interview to be selected to participate in the
Scholarship Programs
Participants talked about the “US Federal Cyber Service: Scholarship for Service” is a unique program designed to increase
and strengthen the cadre of federal information assurance professionals who protect the government's critical information
infrastructure. Available at approved universities, it provides students with scholarships that fully fund the costs they pay for
books, tuition, and room and board for up to two years. Participants also receive stipends of up to $8,000 for undergraduate
and $12,000 for graduate students. In exchange, the recipient must have an internship for ten weeks during the summer and
work for the federal government for a period equivalent to the length of the scholarship or one year, whichever is longer.
The Federal Cyber Service is not the only program that provides scholarships for school in exchange for some form of work
commitment to the federal government. Others include the U.S. Department of Homeland Security Scholars and Fellows
Program and the National Security Education Program Boren Fellowship. Not only do these scholarship programs help develop
individual relationships with future leaders, they also provide greater awareness of federal opportunities through word of mouth
among associates of the recipients and develop direct ties to universities and colleges.
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IHART - Volume 23 (2012)
Employee Referral Programs and Recruiting Bonuses
Participants talked about the use of recruiting bonuses. The example mentioned was if the applicant is hired then the
recommending employee is paid a typical bonus of $2,000 for high-level professionals, $1,000 for mid-level, and $500 for
entry-level, with the recommending employee receiving half upon the new employee's first day, the remainder six months later.
Tunick (1997b), however, identifies a couple of caveats associated with employee referral programs. First, some organizations,
especially midsize enterprises, are seldom equipped to handle the influx of employee referrals. They often fail to update the
recommending employee and candidate about what is going on, thus creating disappointment. There is also a potential of poor
follow up on referral applications. These applications, if qualified should be given priority in the hiring process. A good process
should be in place, which acknowledges the referral (through e-mail) and keeps the employee informed about the candidate's
progress, which could counter the problem. Second, and perhaps even more important, is the necessity to clearly define job
requirements and the criteria for "qualifying" leads.
Let Employees Participate in Hiring
Participants talked about benefits of including all employees in hiring. Team hiring is a process where everyone the potential
hire will work with, including future subordinates, to sit in on the interview if possible. A participant said, “It builds cohesiveness
when people have some control over the team-building process.”
Speed Hiring
Participants agreed that "time is of the essence" in successful recruiting. That is, employers often require applicants to make an
acceptance/rejection decision within one week from the date of the initial job offer.
Social Media
Using tools like LinkedIn and Facebook to recruit and hire new talent.
Organization Job Application Website
Participants said that the website should support the hiring process by allowing professional to research the organization and
apply for a job. Participants also talked about the importance of having a user-friendly employment application site. They
mentioned that a frustrating system could make a poor impression on potential employees. Employment advertising should
drive applicants to the website. The website should also provide information to candidates about the hiring process in a timely
manner or should allow applicants to check where their application is in the review process.
College Recruiting and Job Fairs
Responses of participants were mixed when asked about the relative success of college recruiting and job fair employment
strategies. Participants agreed that the success of college recruiting really depends on the strength and reputation of local
education programs and that good candidates can be found in smaller universities including local regional colleges and
universities that serve women, African-Americans, Native Americans, and Latino Americans that might often the focus of
college recruiting efforts. National recruiting from "top name" US universities was usually shunned because of stiff competition
and salary inflation. College internship programs targeted to specific jobs, on the other hand, were perceived by participants to
be a useful "look-see" approach for both parties. Summer employment and CO-OP programs are considered as viable
strategies to grow employee talent.
Results of this focus group study, in general, confirm Foot (1998) and (Allen and Meyer 1997) perspectives on employee
organizational commitment and employee retention, which suggests that a combination of activities and strategies that engage
employees and respond to their needs are critical to retention success. Money is not the most important factor for employees.
They conclude employees report that they stay committed to an employer for the following reasons:
 They feel valued: their concerns, ideas, and suggestions are genuinely sought and listened to.
 They enjoy a feeling of connection and that they make a difference: they know how the work they do helps the library
accomplish its mission.
 They have opportunities for personal and professional growth: formal education, workshops, on-the-job training, new
assignments, job rotation, and attendance at conferences.
 The work environment promotes continuous learning: growth opportunities, jobs that are designed to be interesting and
stimulating, and the opportunity to participate on committees and task forces.
Innovative Practices for Recruiting and Retaining Information Assurance and Cyber-Security Employee Talent in Public Health Oriented U.S. Federal Government Agencies
 Good management: a bad supervisor is often cited as the reason employees leave an employer.
 Fair pay and benefits: Employees must receive fair pay and benefits that allow them to live a reasonably comfortable life.
Results of this focus group study must be tempered by a couple of factors. First, while focus groups afford the opportunity to
explore responses in rich detail, the goal is to influence the world of practice. Nevertheless, results of this study are generally
consistent with survey method results using larger samples reported by industry research groups such as Gartner Group,
Forrester, and Computerworld. The relative success of particular recruiting and retention practices could be expected to vary
with such factors as demographics of potential information assurance and cyber-security recruits, geographic locale, and local
cost of living conditions. It would be interesting for future research to replicate this focus group study in different countries for
comparative purposes. Future research should investigate if the perceptions of recruiters, as to the importance attached to
various recruiting and retention strategies, would be consistent with those reported by actual recruits.
In conclusion, the purpose of this study was to describe the innovative talent management recruiting and retention practices
that have the potential to increase employee organizational commitment of information assurance and cyber-security
professionals through the experiences of focus groups participants in the US Federal Government public health orientated
agencies. Their in-depth insights offer prescriptive practices that international enterprises may want to explore further when
they examine their recruiting and retention strategies in the world of practice. It is critical have IT staff with expertise in cybersecurity because these public health oriented agencies that deal the collection, storage, and evaluation of very sensitive and
personal medical data and records. Protecting this information is critical to the public.
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Kaufman, J. (1998, January 8 ) US recruiter goes far a field to bring in high-tech workers. Wall Street Journal, p. 1.
Lahiry, S. (1994). Building Commitment Through Organizational Culture. Training & Development, Apr94, Vol. 48 Issue 4, p50,
Markoff, J. (2008, December 8). Panel Presses to Bolster Security in Cyberspace. New York Times.
Mastracci, Sharon (2009, June). Evaluating HR management strategies for recruiting and retaining IT professionals in the U.S.
federal government. Public Personal Management
Mercer Human Resource Consulting. (2005). Employee Opinion Survey case Study: Firm Understands Basis of Employees'
Nakache, P. (1997, September, 29), Cisco's recruiting edge. ComputerWorld, p. 275.
National Institutes of Health (2012) www.nih.gov
Nguni, S., Sleegers, P., Denessen, E. (2006). Transformational and transactional leadership effects on teachers' job
satisfaction, organizational commitment, and organizational citizenship behavior in primary schools: The Tanzanian case.
School Effectiveness & School Improvement, Jun2006, Vol. 17 Issue 2, p145-177, 33p.
Saleh, S.D. and Desai, K. (1990, July)An Empirical Analysis of Job Stress and Job Satisfaction of Engineers," Journal of
Engineering and Technology Management (7:1), pp. 37-48.
Tunick, D. (1997a), Is your enterprise really serious about IT recruiting?Gartner Group Research Note, December 18, pp. 1-5.
Tunick, D. (1997b), IT staff recruiting: thinking outside the box, Gartner Group Research Note, October 29, pp. 1-4.
Wiley, D. (1987, Fall) The Relationship between Work/Non-work Role Conflict and Job-Related Outcomes: Some
Unanticipated Findings, Journal of Management (13:3), pp. 467-472.
H. H. Cochran Jr. and J. D. Plummer
IHART - Volume 23 (2012)
Howard H. Cochran Jr.1 and Jerry D. Plummer2
1Belmont University, USA and 2Austin Peay State University, USA
Foreign owned agricultural land within the United States has been on the rise. The percent of privately held agricultural land by
foreign entities varies by state with the highest concentration in excess of two percent of all privately held land along the west
and southern coastlines.
The presentation will explore potential explanations for the rise in foreign ownership of agricultural land such as land
speculation, investment by major trading partner countries, forward integration of agricultural produce for export to meet rising
foreign domestic demand, sovereign debt hedging, coincidence with foreign direct investment in other commercial sectors,
portfolio diversification, commodity price fluctuations and the foreign exchange value of the dollar. Potential risks of foreign
ownership of agricultural land such as national security, less intensive land use, less factor income and therefore taxable
income and speculative bubbles will be reviewed.
E. Rahim, G. Batchelor, E.-J. Abdul-Qadir, A. Perry, C. Abel, D. N. Burrell and M. Dawson
IHART - Volume 23 (2012)
Emad Rahim1, Grady Batchelor1, El-Java Abdul-Qadir2, Alvin Perry3, Curtis Abel4,
Darrell N. Burrell3,5,6 and Maurice Dawson1,7
1Colorado Technical University, USA, 2Syracuse University, USA, 3Walden University, USA,
4Mercy College, USA, 5George Mason University, USA, 6A. T. Still University, USA
and 7Alabama A&M University, USA
Teaching entrepreneurship to new college students can be extremely rewarding, but also challenging. The curriculum must
integrate a balance of theory and practice. Keeping a new breed of Generation Y students engaged in the classroom and
interested in the curriculum requires real-life entrepreneurial examples. David Boje (2008) believes that storytelling is an
important part of development and contributes to their learning process. This panel presentation will cover best practices and
lessons in entrepreneurship storytelling teaching. Six international faculties and entrepreneurs from different universities,
disciplines, and programs will facilitate the discussion, including examples that the audience can use in the classroom.
Teaching entrepreneurship to new college students can be extremely rewarding, but also challenging. The curriculum must
integrate a balance of theory and practice. If these things are done correctly in the classroom, the faculty will be rewarded with
successful students and future entrepreneurs. Keeping a new breed of Generation Y students engaged in the classroom and
interested in the curriculum requires real-life entrepreneurial examples that go beyond the traditional lecturing, case study
method, and Power Point presentations. Students learn the nuts and bolts of starting, financing, and operating a new venture
through engaging stories of life experiences and hands-on, in-class assignments. The students can taste the rewards of victory
and the crushing blows of defeat, which is far better than any movie or documentary.
David Boje (2008), scholar and author of Story Organization, believes that storytelling is an important part of organizational
strategy, leadership, development and contributes to their learning process. There is an art to effective entrepreneurship
storytelling teaching. The potential benefits for students are far reaching, including a deepened reflection as well as an
increased capacity for understanding and managing complexity (Tyler, 2004).
This panel presentation will cover best practices and lessons in entrepreneurship storytelling teaching. Six international
faculties and entrepreneurs from different universities, disciplines, and programs will facilitate the discussion, including
examples that the audience can use in the classroom.
Teaching entrepreneurship to new college students can be extremely rewarding, but also challenging. The curriculum must
integrate a balance of theory and practice. If these things are done correctly in the classroom, the faculty will be rewarded with
successful students and future entrepreneurs. Keeping a new breed of Generation Y students engaged in the classroom and
interested in the curriculum requires additional real-life entrepreneurial examples that go beyond the traditional lecturing, case
study method, and Power Point presentations. They respond better to a practitioner’s approach that integrates real-world war
stories with hands-on learning. Generation Y students embrace these life stories, their key learnings, and best practices.
Walk into any entrepreneurship classroom during a storytelling session given by a seasoned entrepreneur and you will find a
captivated audience of students. We are not talking about a traditional lecture conducted by a local business owner. Students
learn the nuts and bolts of starting, financing, and operating a new venture through engaging stories of life experiences and
hands-on, in-class assignments. As the speaker tells their entrepreneurial journey, students lean forward as their eyes light up
with curiosity when the entrepreneur shares their excitement for discovering a new product or service, getting their first client or
investor, and starting a new venture from the ground up. The students can taste the rewards of victory and the crushing blows
of defeat, which is far better than any movie or documentary.
David Boje (2008), scholar and author of Story Organization, believes that storytelling is an important part of organizational
strategy, leadership, development and contributes to their learning process. There is an art to effective entrepreneurship
Igniting a Venture Spirit Through Entrepreneurship Storytelling
storytelling teaching. The potential benefits for students are far reaching, including a deepened reflection as well as an
increased capacity for understanding and managing complexity (Tyler, 2004). The curriculum should resemble an experiential
classroom and the storyteller must reflect the student population. The type of business venture, the age of the entrepreneur,
and the start-up journey are also extremely important in authentically connecting with the students. If students cannot find a
connection with the presenter’s story, personality, and type of business, the lesson will become another boring lecture to them.
The entrepreneur must be a passionate storyteller and exhibit personable leadership presence. Their stories must be
compelling and include examples of success and failures so that students can receive a realistic viewpoint of the
entrepreneurship process. It is the journey, the trials and tribulations, the emotional attachment, and the self-discovery of the
entrepreneur that ignites the imagination and excitement of Generation Y students.
This panel presentation will cover best practices and lessons in entrepreneurship storytelling teaching. Six international
faculties and entrepreneurs from different universities will facilitate the discussion. The panel will include faculty that teach
entrepreneurship in different disciplines (business, environmental, technology, social science, arts, etc.), and made up of
traditional (in-class) and nontraditional programs (online, hybrid, executive). The panel will discuss curriculum, program
structure, partnerships, course materials, and the art of successful entrepreneurship storytelling teaching. The program will also
include a 20-minute storytelling example from an international entrepreneur from Latin America, who is also an author,
educator, and entrepreneurship mentor.
The “so what” of the proposed panel is to demonstrate and to offer guidance in how to best utilize entrepreneur storytelling in
teaching entrepreneurship courses. And if entrepreneurship is good for the classroom then it can be good for research as well.
Connections to research and how that can be enhanced to help close the loop between practice and theory.
Boje, D. (2008). Story Telling Organizations. SAGE Publications, Thousand Oaks, CA.
Tyler, Jo Anne (2004). Strategic Storytelling: The development of a guidebook for HRD practitioners implementing storytelling
as a business strategy for learning and knowledge transfer (Ph.D. dissertation). Teachers College, Columbia University.
Retrieved from UMI Microform (UMI number 3135386).
S. Barat
IHART - Volume 23 (2012)
Somjit Barat
Pennsylvania State University, USA
Faculty at higher education institutions are expected to perform teaching, research and service as part of their promotion and
tenure (P&T) requirements, the relative importance of each component varying depending on the position of the faculty and/or
the university. However, for most practical purposes, the teaching and research components are given the maximum weight,
when it comes to evaluation for P&T. Community and social service are relegated to a footnote even as the incumbent, on
his/her part, attempts to put up a good show.
The faculty can render service to the university as well as to the immediate community in which the university is located, and
collectively, such service is also known as ‘outreach’. Even though outreach activities typically gain a backseat in the larger
scheme of things, there is considerable literature on individual outreach and community programs that are often pioneered by
universities. The current paper argues that in the present economic scenario characterized by budget cuts, declining enrolment
and unforeseen competition in the higher education market, such outreach activities are not only important but absolutely vital
to the survival of the faculty’s institution. First, the author discusses the context in which such services should be encouraged
by the institution. Second, the author presents a cost-benefit model of pursuing service activities and/or outreach programs.
The author believes that this approach is unique because it provides an opportunity for university administrators to objectively
weigh the pros and cons of encouraging outreach programs. Specifically, the model fills the gap for a nifty tool using which,
faculty can optimally allocate their resources between the two most important components of P&T (i.e. teaching and research)
on one hand, and the ‘less important’ (but nonetheless inevitable) component of service, on the other hand. Moreover, the
current research opens up avenues for further investigation in this field.
The benefits of outreach are multipronged, and assume an even more important role in a rural or small-town setting. The local
community gains knowledge and insight into the benefits of higher education through interaction with the faculty, who are
typically more capable of providing such intellectual support.
Data suggests that communities who have a strong base in education (e.g. schools, colleges and universities etc.) eventually
have the potential to typically exhibit higher literacy rates, lower school-dropout rates and eventually higher employment rates
as compared to communities who do not have such an environment. Identified as ‘community visioning’ in extant literature,
such benefits can also lead to improvement of local infrastructure such as the library, health care centers, community halls etc.
Moreover, many larger universities are more capable of providing financial support to such outreach endeavors than the
communities and local governments themselves. From an even longer term perspective, universities can collaborate with local
schools to target students at risk, especially kids of single parents, first-time school-goers and those from low-income families
to expose them to the benefits of higher education, because such efforts have been shown to have increased interest in
University education from at-risk kids.
On the other hand, there are several costs, direct and indirect, associated with outreach activities. Direct costs involve
resources the university has to expend for such efforts, such as administrative costs, faculty down time, transportation and
setup costs etc. Indirect and opportunity costs involve (but not necessarily limited to) time that the faculty could have utilized
towards classroom teaching and/or research. Often the university has to deal with community politics and bureaucracy in
accomplishing outreach goals, which further add up to the opportunity cost of delivering outreach programs.
In the context of the current research, the author defines ‘outreach activities’ as those that lead to the enrichment of the
community which the university serves, and include activities such as offering community education, university preparation
classes, job market workshops, free access to library materials and resources etc.
The author defines the ‘benefits of outreach activities’ as the tangible, measurable components of the local community
enrichment, such as increase in student enrolment and/or visitors, guest speakers, donations, endowments, and inquiries for
course offerings and/or admissions etc.
Faculty Promotion and Tenure - Quest for an Optimal Model?
The author defines the ‘costs of outreach activities’ as both direct (such as faculty and administration downtime, facility set up,
materials, refreshments and transportation expenses etc.) and indirect (opportunity costs such as the man hours lost,
resources that other departments have had to sacrifice etc.). Further, the author defines returns on investment (ROI) from
outreach activities as the ratio between the benefits achieved from and the costs accrued due to the conduct of outreach
activities. Obviously, the university embarks on the path towards outreach when the benefits outweigh the costs. In such cases,
the university would undertake more outreach activities and vice versa. However, beyond a certain ‘threshold’ point, because of
economies of scale, the benefit achieved gradually decreases as more resources are invested in outreach activities. The
author presents a mathematical model derived from the law of diminishing returns to show that ROI from outreach activities is
maximized when marginal benefit equals marginal cost of providing outreach activities. In other words, this can be considered
the ‘optimal’ point from the faculty member’s perspective.
To the best of the author’s knowledge, this is first attempt to apply the laws of economics to faculty P&T guidelines. The
implications are noteworthy not just because this research fills a major void in extant literature, but also because this model
provides a handy tool both to the faculty member and the administrator. On one hand, it gives the faculty member a better
picture of how to allocate his/her resources between teaching, research and services. This is important because often the
guidelines are vague in such matters. On the other hand, the administrator can use this tool to more objectively evaluate the
faculty member’s standing when it comes to granting tenure to him/her. Thus, there is more transparency in the P&T system,
and less vulnerability on the part of the faculty member.
Keywords: Promotion, Tenure, Outreach, Resource Allocation, Administration.
Beringer, A. (2006), “Campus sustainability audit research in Atlantic Canada: pioneering the Campus sustainability
assessment framework”, International Journal of Sustainability in Higher Education, Vol. 7 No. 4, pp. 437-55.
Cole, L. (2003b), “Campus sustainability assessment framework (CSAF)”, Sierra Youth Coalition(2005), GITP Toolkit – CSAF
(CD-Rom), Sierra Youth Coalition, Ottawa.
Cole, L. and Wright, T. (2005), “Assessing sustainability on Canadian university campuses: the development of a campus
sustainability assessment framework”, in Leal Filho, W. (Ed.), Handbook of Sustainability Research, Peter Lang, Frankfurt,
pp. 705-25.
Leal Filho, W. (Ed.) (1999), Sustainability and University Life, Peter Lang, Frankfurt.
J. Mirabellla and R. M. Covell
IHART - Volume 23 (2012)
Jim Mirabella and Renee M. Pasco-Covell
Jacksonville University, USA
The life sciences marketplace is competitive. Pressures to find new contacts to begin the sales process with life sciences
organizations are mounting in today’s economic volatility, and organizations must find the most effective and productive ways
to generate new sales to be successful. The prospecting process, the first element of selling, is a “time consuming and
expensive” but critical component of a company’s marketing and sales efforts. The challenge of this study is to find the most
effective method for a clinical research organization (CRO) to elicit a response from prospective clients in order to know where
to channel a company’s marketing and sales efforts; particularly, response rates to mail versus email versus telephone
prospecting techniques will be compared. In addition, the analysis will break down the comparison of success rates between
company types (private versus public), contact titles, region of contact, therapeutic focus of the contacted firms, source of
contact information and gender. This study will utilize 15 months of data provided by a CRO’s marketing department, noting
that the sales personnel were required to maintain a database of all prospecting activity. The results of this study will enable
firms marketing in the life sciences industry to modify their marketing and sales strategies so as to get the best response in the
least amount of time and for a reasonable cost, and may ultimately lead to alternative marketing channels such as the use of
social media tools, fax blitzes and web-based (non-email) solicitations.
N. M. T. Huynh, T. L. Le and V. H. Le
IHART - Volume 23 (2012)
Ngoc Minh Thu Huynh1, Thanh Lan Le2 and Van Huy Le3
1University of Economics Ho Chi Minh City, Vietnam, 2Vietin Bank, Vietnam
and 3Danang University of Economics, Vietnam
In order to expand overseas market, enterprises should base on a reliable payment system. One of safe and effective channel
of payment so far is settling via commercial banks, and especially the vital role of Vietnamese overseas commercial counselors
in providing valuable information for local banks and businesses. However, there is still another intermediary who can approach
and control merchandise, monitor clearly and thoroughly cargo situation as well as routine and transit time in specific. They are
forwarding companies and logistics companies. While carrying out their business, they can know exactly the delivery date, the
cargo and they even can act as a reliable representative on behalf of the importer or exporter in specific cases. With
remarkable advantages, forwarding and logistics companies can participate and perform very well the role of a key chain in
international payments. Settling via international freight forwarding and logistic companies is a remarkable payment method
which is safer, quicker, cheaper, and especially suitable for small lots, samples, or shipment of particular goods. The objective
of this article is to find out the new appropriate mode of international payment that is more suitable and convenient to import
and export enterprises in Vietnam, especially for small and medium ones.
Keywords: International Payment, Freight Forwarding and Logistics Companies, Vietnam, CAD, COD.
H. H. Cochran Jr. and J. D. Plummer
IHART - Volume 23 (2012)
Howard H. Cochran, Jr.1 and Jerry D. Plummer2
1Belmont University, USA and 2Austin Peay State University, USA
Private ownership of international high frequency broadcasters has increased greatly since the early 2000’s, in part due to
formerly government owned and operated stations leaving the air because of cost constraints, increased usage of the Internet
for broadcasting and the lack of a recognizable profit motive.
This new market for the for-profit international broadcaster requires a heuristic that incorporates both revenue and expense
constraints to maximize profit. A more algorithmic approach can inform professional judgment in managing the financial
performance of shortwave radio stations.
Assumptions regarding revenue and cost for block versus spot approaches to revenue management will be identified and
modeled in a linear programming model to determine the spot to block ratio that will optimize net revenue as well as profit.
Load capacity factors along with socioeconomic indices will also be incorporated into the model. A range of spot to block ratios
will be estimated under alternating assumptions, something that practitioners may find useful in setting benchmark guides to
improve financial performance.
J. Mirabella, N. V. Harris and R. Murphy
IHART - Volume 23 (2012)
Jim Mirabella1, Nicole V. Harris2 and Richard Murphy1
1Jacksonville University, USA and 2Kinetics Concepts, Inc., USA
Emotional intelligence (EI) is an area of research that has gained popularity, specifically in examining EI and its relationship to
sales performance. One popular definition of emotional intelligence is, “[a]n array of non-cognitive capabilities, competencies,
and skills that influence one’s ability to succeeding coping with environmental demands and pressures” (Bar-On, 2004, p. 16).
There has not been a tremendous amount of research that addresses the specific area of medical sales. The medical sales
industry was chosen for this study to measure emotional intelligence because sales representatives are rewarded by
commissions based on achieving monthly objectives. Medical sales organizations hire representatives to generate revenue and
achieve goals. The medical sales organizations spend a substantial amount of time and money on training and compensation,
and having a method to screen for successful sales performance potential could be beneficial. If management could screen
sales representatives and predict sales performance success by emotional intelligence scores, the medical sales organizations
could be more successful. To better understand the relationship between emotional intelligence and sales performance, an EI
instrument was used to assess the emotional intelligence of 38 sales representatives with 12 months tenure from a durable
medical equipment sales organization in the Midwest, as well as 98 sales representatives that work for a variety of different
pharmaceutical and medical device organizations located across the United States. This quantitative study was designed to
reveal relationships between emotional intelligence as represented by indices on the Emotional Quotient Inventory (EQ-i), and
actual sales performance of medical sales representatives. The sales performance measure used was actual performance rank
reported by the sales representatives. The research hypothesized that a positive relationship exists between emotional
intelligence and sales performance, and further tested whether any such relationship varies by gender or tenure within an
K. T. Smith, J. Huang and L. M. Smith
IHART - Volume 23 (2012)
Katherine Taken Smith1, Jun Huang2 and L. Murphy Smith1
1Murray State University, USA and 2Texas A&M International University, USA
A major objective of advertising is to generate higher corporate revenues, but the relationship between advertising, revenues,
and market performance is complex, subject to myriad factors associated with a specific company, a particular industry, or the
overall economy. This paper uses Tobin’s q ratio to measure the correlation between advertising expense and market
performance in the pharmaceutical and IT industries. A review of literature is given regarding the impact of advertising on brand
image, company earnings, stock prices, and customer satisfaction. Using regression analysis, results show that advertising
expenditure has a positive correlation with revenue. Thus, the more a firm spends on advertising, the more revenue is
generated. There is also a significant correlation between advertising expenditures and stock market performance.
Keywords: Market Performance, Advertising Expense, Tobin’s Q Ratio.
J. Nketiah
IHART - Volume 23 (2012)
Javis Nketiah
University Of Oslo, Norway
Human resource(labour) plays a pivotal role towards the development of every nation. A country with less or no human
resource base is said to be fragile and vulnerable to economic disequilibrium. There is a clear cut case as to why a country
needs to train people being native or migrant to boost the labour force base. This calls for labour regimes and associations that
protect the welfare and interest of workers so as to maintain a formidable labour force base. This paper would highlight on the
implications or relevance of migrant workers towards the socio- economic development of every Nation and their working
M. Singhania
IHART - Volume 23 (2012)
Monica Singhania
University of Delhi, India
Purpose – To highlight the economic, fiscal and strategic consequences arising from implementing the Direct Taxes Code
2010. The paper will focus on:
I. Critically examine the salient features of DTC,
II. Tabulate a comparative analysis of the Income Tax Act, 1961 and Direct Taxes Code 2010.
III. Analysis of DTC proposed investment-based deductions as against the current profit-based deductions
IV. Is DTC really going to simplify the Indian tax structure?
Design/methodology/approach – The present paper is an exploratory study highlighting the long-term strategic perspective
for India as far as Direct Taxes Code 2010 is concerned. Every effort will be made to collect information from multiple sources
to undertake a questionnaire study and to carry out a statistical analysis.
Findings – The findings include analysis of the various proposed sections of the Direct Taxes Code 2010 and possible
recommendations so as to conclusively comment on the possible impact of Direct Taxes Code 2010 on various stakeholders.
Research limitations/implications – Lack of detailed data makes quantitative analysis rather difficult. To overcome this
limitation, we focus on undertaking a questionnaire based study for meeting the stated objectives of the study.
Practical implications – All stakeholders including citizens, corporate, Income Tax Department and Foreign Institutional
Investors need clarity on the various aspects related to Direct Taxes Code 2010.
Originality/value – In India, there is dearth of research in area of taxation. This paper aims at highlighting various provisions of
the present Indian Income Tax Act 1961 and also the proposed Direct Taxes Code 2010.
Keywords: Taxation, Direct Taxes Code, Income Tax Act.
J. Mirabella, R. McClary and R. Murphy
IHART - Volume 23 (2012)
Jim Mirabella1, Rachel McClary2 and Richard Murphy1
1Jacksonville University, USA and 2EMC Corporation, USA
The era of highly differentiated laptops in the consumer industry is over. No longer does one vendor dominate the market,
enjoying their product being seen as exceedingly superior to its competition. What once served to distinguish a laptop provider
has now been equalized across the field, and so laptop vendors are constantly looking for new ways to differentiate themselves
among consumers, but the commoditization of the market has diminished a vendor's ability to do so. What is it that makes a
consumer choose one brand of laptop over another? Do certain product or brand attributes serve as the final decision criteria
in the purchase process? What is compelling between laptop brands to drive selection? The purpose of this study was to
determine if a relationship exists between the brand of laptop consumers selected and a variety of demographic and evaluative
buying criteria considered in the process. Using an email survey of 775 respondents who recently purchased a popular brand
of laptop, it was apparent that different consumers purchase different laptops for different reasons. The results provide laptop
vendors a unique perspective on the consideration and selection phase of purchase, and enables useful segmentation of the
population to better target messaging and promotions that will resonate with the appropriate audience. There is tremendous
business value in vendors gaining insight into the consumers' minds around this topic, as it can drive better marketing activity
to influence awareness, consideration, preference and ultimately purchasing campaigns. Marketing the wrong product features
to the wrong audience results in a low marketing Return on Investment (ROI). Customer insight is powerful and can properly
navigate the vendor toward the right direction in developing message and value propositions that hit the mark, resulting in
higher sales and higher returns on their investment.
F. W. Agbola
IHART - Volume 23 (2012)
Frank W. Agbola
The University of Newcastle, Australia
This study examines the determinants of worker’s remittances to Ghana. Until recently, the role of remittances in promoting
economic growth and development in Ghana has received little attention in policy debates because remittances were perceived
as supporting the consumption behaviour of households rather than being used for productive investment. In recent times,
given that remittance flow to Ghana has soared quite substantially, there is growing interest in understanding the determinants
of remittance flow to Ghana. A simple short-run remittance model is specified within the context of a time-series theoretic
framework and estimated using data spanning the period 1960-2008. The empirical results indicate that, in the short run, the
key determinants of remittance flow to Ghana are domestic economic growth, domestic inflation, economic condition prevailing
in host economies, and exchange rate. The policy implications of the results are discussed.
Keywords: Remittances, Economic Growth, Error Correction Mode, Ghana.
P. A. Kuban
IHART - Volume 23 (2012)
Paul A. Kuban
University of Southern Indiana, USA
Programmable Logic Controllers (PLC) are used extensively for automation and control. In many training courses and
laboratories, programming of a traffic signal is a common assignment, in which lights are switched on and off based on timer
conditions. The typical programming approach is to define output values based on a relationship to input conditions, which
often results in complicated code that is difficult to understand and maintain. This paper presents an alternative approach by
applying finite state machine concepts and a system-level perspective to the traffic signal ladder logic problem.
Keywords: PLC, Traffic, Finite State Machine.
Programmable Logic Controllers are ubiquitous problem solvers in the manufacturing industry. Virtually all modern factories
employ the PLC to automate processes ranging from crude oil refining to vehicle construction. Originally developed to replace
complex hard-wired electrical relay panels with a software equivalent, the PLC is a robust, reliable computer with dedicated
analog and digital I/O ports. Some PLCs can also be outfitted for handling specialty signals such as thermocouple voltages and
pulsed inputs from high speed counters [1]. PLCs were initially designed to automate discrete batch processes, but have
evolved to include the ability to execute advanced process control algorithms, manage detailed operator displays, and
communicate over various networks.
This paper presents an overview of the PLC ladder logic programming language and an introduction to the concept of the finite
state machine. A common laboratory exercise, the programming of traffic signal lights, is reviewed and a alternative solution is
presented using finite state machine techniques with ladder logic implementation.
The use of electromechanical relays was prevalent in the automation systems of the mid-twentieth century. In documenting the
functional operation of these systems, a method called ladder logic was used. As shown in Figure 2.1, a relay ladder diagram
consists of a hot rail, a ground rail, and a series of “rungs,” which contain the electrical components. In order for a component
to be energized, electrical current must have a path to flow from the hot rail to ground through the component. Electrical
switches and relay contacts (inputs) control the flow of the current, and hence the operation of the components (outputs).
Figure 2.1: Electrical Relay Ladder Diagram
Because the PLC was created to replace electrical relay racks, one of the first PLC programming languages developed made
use of the relay ladder logic concept. A key difference, however, is that PLC ladder diagrams do not include special symbols,
such as those used for float switches, lights, and motors typical shown in an electrical relay diagram. An example of a PLC
ladder logic diagram is shown in Figure 2.2. Early PLC ladder diagrams contained only the symbols to indicate contacts and
coils. Modern PLC ladder diagrams can incorporate dozens of additional symbols to indicate timers, counters, and complex
control functions such as PID blocks. It should be noted that several other languages can be used for PLC programming, such
A Finite State Machine Approach to the PLC Traffic Light Problem
as Function Block Diagrams and Sequence Charts. However, ladder logic remains a popular choice for many engineers and
Figure 2.2: PLC Ladder Logic Diagram
An accepted problem solving approach in many computer programming courses involves the following steps: 1) List all inputs
and outputs, 2) re-write the problem statement in the form of Boolean equations which include all input and output variable
names, and 3) convert the Boolean equations into the appropriate programming language syntax. This method is easily
adapted to ladder logic, as the rungs can be configured to operate in a manner consistent with logic gates. Figure 2.3 shows an
example PLC ladder logic solution to the Boolean equation Z = AB'(C'+D). While the Boolean approach has merit and is quite
useful on straightforward control problems, it can become increasingly cumbersome as the number of inputs and outputs
increases, and when the complexity of control problem grows to include timers and counters.
Figure 2.3: PLC Ladder Logic Boolean Example
The Finite State Machine concept is used often in the design of sequential digital systems [2]. In an FSM, an event triggers the
traversal of operation from the currently occupied system state to some other unique state. Diagrams of FSMs are typically
drawn using either the Mealy or the Moore model. In the Mealy model, system output values are associated with events,
leading to potential ambiguity in some cases. With the Moore model, outputs are associated with states, as shown in Figure
P. A. Kuban
IHART - Volume 23 (2012)
Figure 3.1: FSM State Transition Diagram
The illustration demonstrates a 3-state system (A, B, C) with two output lights (Red, Blue) and two inputs (X, Y). The directed
arcs include the event which causes the system to move from one state to another. The system is analyzed assuming an initial
event of XY = 00, which commences operation in state A, where the red light is on and the blue light is off. If the event XY = 01
occurs, the system enters state B, the red light is turned off and the blue light is turned on. While in state B, if Y becomes 0, the
system returns to state A. Otherwise, it remains in state B unless the event XY = 10 occurs, which drives the system to state C,
where the red light is on and the blue light is on. For simplicity in this example, the event XY = 11 is ignored and thus will have
no effect on the state machine.
One realization of the FSM system described in Figure 3.1 can be determined using Boolean algebra, in which equations are
written for the outputs in terms of the inputs:
Red = X'Y' + XY' = Y'
Blue = X'Y + XY'
This solution produces the ladder logic shown in Figure 3.2. Although correct, and fairly simple in this example, changes to the
operational requirements would probably necessitate some additional analysis, another application of Boolean algebra
theorems, and modifications to most of the PLC ladder logic rungs, due to the output components' dependence on the input
conditions. The addition of another state would prove even more tasking.
Figure 3.2: Outputs Energized by Inputs
A Finite State Machine Approach to the PLC Traffic Light Problem
Figure 3.3: States via Inputs, Outputs via States
In the alternative approach presented in Figure3.3, separate equations are written for the states:
A = X'Y'
B = X'Y
C = XY'
and for the outputs:
Red = A + C
Blue = B + C
The benefit to this approach is the decoupling of the outputs from the inputs, which inherently leads to simpler code which is
more easily modified when changes are required [3]. Note the organization of the PLC ladder in logic in Figure 3.3. The code
includes a state section, followed by an output section, in which the outputs are determined not by the inputs directly, but by the
operational state. If the system requirements for the outputs change, the state equations remain unchanged, and changes to
the Boolean equations for the outputs are minimal, requiring only a simple change in an existing output rung, or the addition of
an output rung at the end of the code.
P. A. Kuban
IHART - Volume 23 (2012)
A common laboratory exercise in PLC courses is that of a traffic light system [4,5,6]. An excellent simulation is provided in
LogixPro [7], in which the student begins with the relatively simple problem of a single traffic signal with 3 lights (red, yellow,
green), and traffic traveling in only one direction. The top diagram in Figure 4.1 shows a typical timing sequence for single
traffic light.
Figure 4.1: Traffic Signal Timing Segments
Invariably, students tackle the simple “one signal” problem with a simple solution of “if-then” constructs:
if Timer_A is timing then red is on
else if Timer_B is timing then amber is on
else if Timer_C is timing then green is on
which results in the simple Boolean solution:
red = Timer_A
amber = Timer_B
green = Timer_C
This is indeed a valid solution for the single traffic signal case. However, the problem becomes increasingly more difficult as
cross-street traffic is introduced, with delay times needed on red lights in order to avoid collisions. The bottom diagram in
Figure 4.1 indicates the timing requirements for a complete system. When varying delay times are introduced, programs written
with the Boolean approach become almost unmanageable, or at the very least, unreadable, as the student attempts to handle
multiple input and output conditions and the overlapping of the timing requirements.
When the FSM concept is employed, the solution for the complete system requires only a few additional steps after solving the
single signal problem. The single light problem can be realized in FSM form by assigning states to the timers (inputs),
State_A = Timer_A
State_B = Timer_B
State_C = Timer_C
and then associating the lights (outputs) to each state:
R1 = State_A
G1 = State_B
Y1 = State_C
Again, while this exercise appears trivial for the single light case, it becomes more demanding for the real-world problem, in
which six lights are operating with varying delay times. A well-organized solution hinges on selecting the states as shown in
Figure 4.2.
A Finite State Machine Approach to the PLC Traffic Light Problem
Figure 4.2: State Assignments to Timing Segments
By assigning each of the timed segments to a unique state, the operational state is entered based on the associated timer. The
outputs, decoupled from the timers, are activated based on the operational state. This results in the following set of equations
for the states:
State_A = Timer_A
State_B = Timer_B
State_C = Timer_C
State_D = Timer_D
State_E = Timer_E
State_F = Timer_F
and for the outputs:
R1 = State_A + State_D + State_E + State_F
R2 = State_A + State_B + State_C + State_D
G1 = State_B
Y1 = State_C
G2 = State_E
Y2 = State_F
The PLC ladder logic is easily implemented as shown in Figure 4.3. In the first section of code, Figure 4.3a, timers are
configured to operate independently, with each having a selectable delay time. This allows for changes to delay times without
any reconsideration of input-output dependencies. In the code shown in Figure 4.3b, an individual state is activated only when
its associated timer is timing. This ensures that only one state is operational at any time. Lastly, as shown in Figure 4.3c, the
output lights are controlled based on current state.
P. A. Kuban
IHART - Volume 23 (2012)
Figure 4.3a: State Input Logic (Timers)
A Finite State Machine Approach to the PLC Traffic Light Problem
Figure 4.3b: State is Active While Timer is Timing
P. A. Kuban
IHART - Volume 23 (2012)
Figure 4.3c: Outputs Energized During Appropriate State
The traffic signal problem is a common PLC training exercise. In most cases, the problem is solved using a Boolean approach
in which outputs are controlled based on input conditions. This paper has proposed an alternative finite state machine solution,
A Finite State Machine Approach to the PLC Traffic Light Problem
in which the outputs are decoupled from the inputs, and are controlled based on the operating state of the system. This method
generally results in an increased number of PLC ladder logic rungs. However, the organization of the code is systematically
straightforward, containing an input section, state section, and an output section. The code is also quite readable, and more
easily maintained and modified than that of the typical Boolean input-output solution. Furthermore, the FSM approach
encourages the programmer to conceptualize the problem from a systems perspective, rather than viewing it as a series of
distinct input and output relationships.
1. Lawrence Pfleeger, Shari. Software Engineering: Theory and Practice (2nd Edition). Upper Saddle River, NJ: Prentice
Hall, 2001. Print.
2. Mirman, Clifford and Otieno, Andrew “A Laboratory Based Programmable Logic Controller (PLC) Course for a
Manufacturing Curriculum.” Proceedings of the 2003 American Society for Engineering Education Annual Conference &
3. Purdy, A., Barrett, S.F. and Wright, C. H. G. "Hands on Programmable Logic Controller (PLC) Laboratory for an Industrial
Controls Course," Computers in Education Journal, Volume 2, Number 4, October - December 2011, pp. 28-36.
4. Rehg, James A. and Glenn J. Sartori. Programmable Logic Controllers (2nd Edition). Upper Saddle River, NJ: Prentice
Hall, 2008. Print.
5. Rider, Michael J. “A Unique, Undergraduate PLC Course.” Proceedings of the 2004 American Society for Engineering
Education Annual Conference & Exposition.
6. Simspon, Bill. LogixPro Allen-Bradley RSLogix Simulator. <www.thelearningpit.com>.
7. Wakerly, John F. Digital Design Principals and PracticesDigital Design: Principles and Practices Package (4th Edition).
Upper Saddle River, NJ: Prentice Hall, 2005. Print.
S. A. Lamp and K. M. Hargiss
IHART - Volume 23 (2012)
Sandy A. Lamp and Kathleen M. Hargiss
Capella University, USA
There is information available in the literature that discusses information technology (IT) governance and investment decision
making from an executive-level perspective, yet there is little information available that offers the perspective of process
owners and process managers pertaining to their role in IT process improvement and investment decision-making. This article
is derived from a qualitative multicase study with two settings that explored the way decisions are made in two IT organizations
regarding process improvement initiatives by using face-to-face semi-structured interviews with 20 IT process owners and
process managers. The two participating organizations are a healthcare insurance company and a manufacturer of electronic
interconnects. The study sought to uncover (a) how IT process improvements are prioritized and how approvals are attained,
(b) how senior leadership is involved in decision making, (c) how security and risk are considered, (d) if and how formal
process improvement methodologies are used, (e) if and how estimated and actual cost benefit analysis are conducted
associated with decisions, and (f) how alignment with organizational goals is attained. The significance of the study is that the
broad topic of IT governance was narrowed to explore precisely the perspective of IT process owners and process managers,
and their approaches and methodologies used with IT process improvement initiatives. The study found that pre-decision
stages do take place in IT investment decision making, and that process owners and process managers, and organizational
actors other than senior leadership and executive level decision makers, are involved in these pre-decision stages. The study
also found that organizational actors other than senior leadership are often involved in the final decision stages.
Keywords: Process Owner, Process Manager, Investment Decision Making, IT Process Improvements, Agile, Waterfall, Six
Sigma, Lean.
Over the past few decades, technology has become pervasive in all organizations. Information technology (IT) and information
systems (IS) professionals are in high demand, and the demand continues to increase with time (Lee & Mirchandani, 2010).
Organizational dependence on technology highlights the need to employ talented IT professionals to protect these systems,
and adds pressure on IT leadership to ensure that there are well-defined IT governance processes in place to ensure
compliance with regulatory requirements and industry standards, as well as to optimize IT investments (Calder & Moir, 2009).
Firms seeking to optimize asset utilization try to find the right balance between governance for profitability and governance for
innovation (Weill & Ross, 2005). IT governance is the process by which decisions are made pertaining to IT investments, which
includes (a) who makes decisions, (b) how decisions are made, (c) how outcomes are measured, and (d) how decision makers
are held accountable (Symons, Cameron, Rasmussen, & Orlov, 2006).
The economic turmoil that arose during the last few years has increased the importance of corporate and IT governance.
Organizations that are well-governed and prudent in expending limited investor funds have a competitive advantage over
competitors (Calder & Moir, 2009. As organizations continue to be faced with rapid changes in technology and business
environments, more and more IT managers and project teams are advocating agile methods in their software development
processes to add flexibility and speed to market (Xu, 2009). Lean and Six Sigma utilization is also on the rise within
organizations, including service industry firms, to further streamline IT processes and projects (George, 2003).
While the organizations discussed in this article represent different industries, each organization is considered to be a top
performer in its own industry. The diversity of the organizations posed an opportunity to compare and contrast information
during data collection from participants, and during and after data analysis. The research was conducted on site where study
participants worked. This provided an opportunity to observe and engage with participants at the operational level resulting in
an embedded case design (Yin, 2009).
This article narrows the broad topic of IT governance to focus on IT investment decision making, particularly in regard to
process improvement initiatives, and explores the perspective of process owners and process managers, and their
Information Technology Process Improvement Decision-Making: An Exploratory Study from the Perspective of Process Owners and Process Manager
organization’s decision-making. Process owners are responsible for ensuring that processes deliver results, and have the
authority to make needed process changes (Hammer, 2007). Process Managers are typically closer to the front-line operation
and the performers who execute the processes, and are charged with meeting the requirements of relevant stakeholders
(Hammer; Zwikael, & Globerson, 2006).
Organizational processes should be designed to achieve key goals, such as, cost/risk control, alignment of activities across the
organization, and predictability (Tarr, Williams, & Halpern, 2008). Williams (2001) noted that IT governance is emerging as an
integral part of enterprise governance with a goal of ensuring (a) there is IT alignment with the enterprise to maximize benefits,
(b) resources are used responsibly, and (c) related risks are managed appropriately. In most organizations, no one person or
area is in charge of the organization’s key processes because the organization is divided into functional pieces, or
departmentalized by products (Vanhaverbeke & Torremans, 1999). IT decisions are expected to have substantial impacts on
the enterprise as a whole (Ranganathan & Sethi, 2002). This drives IT decision-making processes to involve a consideration of
a wide range of technical and organizational issues (Sabherwal & King, 1992).
Xue, Liang, & Boulton (2008) encouraged researchers to look beyond the final decision makers in the pre-decision stage
activities of investment decision making by focusing on other organizational actors, and discussed the implied responsibility
and accountability for major participants in the decision making process. Xue et al. used a multiple-case design with six stateowned hospitals in China with executive level participants. The Xue et al. study provided a framework for the investigation
discussed in this article as they proposed that there are three broad factors that can affect an organization’s IT governance: the
external environment, the internal context, and an organization’s IT investments characteristics. External environment factors
impact IT governance patterns based on resource and capability requirements they impose on organizations (Xue et al.).
Internal context as referenced in this study pertains to organizational centralization and IT function power. IT function power
refers to the leverage the IT department has in an organization to influence other organizational units based on its hierarchical
positioning (Xue, et al., 2008). Organizational centralization specifies a concentrated level of decision-making rights and
activities (Fredrickson, 1986). Organizational decision making includes the structural and functional areas listed above, as well
as the political processes (March, 1962). Thompson (1967) identified structure as an organization’s internal pattern of
relationships, authority, and communication
Components of IT process improvement decision making are discussed in the next few paragraphs to help build context for this
article, and include (a) corporate and IT governance, (b) security, (c) regulatory requirements and industry standards, (d)
organizational decision making and investment processes, (e) corporate culture, and (g) process improvement methodologies.
Agile and Waterfall software development practices are referenced briefly in this article, and Lean and Six Sigma
methodologies are discussed separately in context with process improvement initiatives.
Corporate/IT Governance
Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation is
directed, administered or controlled (Penn, 2008). Corporate governance also includes the relationships among the
stakeholders involved and the goals for which the corporation is governed. “Optimizing people, processes, strategy and
technology all contributes to a corporation's ability to successfully manage the multitude of governance requirements”
(Knighton & Sheth, 2008, p.1). Information technology governance is a key component of overall enterprise governance as IT
governance is concerned with the issues and decisions addressed when considering how IT is applied within the enterprise
(Calder & Moir, 2009). Since most organizations depend on IT applications to deliver on their mission, vision, and strategic
goals, IT is no longer considered a separate corporate function (Cilli, 2003). IT governance reflects the leadership and
organizational structures and processes that ensure IT availability and reliability, as well as sustains and extends the
organization’s strategies and objectives (Raghupathi, 2007). Corporate governance is what aids the firm in making sure that
key decisions are consistent with corporate vision, values, and strategy, and ensure that IT governance matches companywide objectives (Chun, 2005). IT governance aims to ensure that expectations for IT are met and that IT risks are mitigated, or
documented and accepted (Calder & Moir, 2009).
At some point when discussing IT process improvements and project investments, the cost for security and the degree of
acceptable risk must be considered. Security governance is the terminology used to describe business control documentation
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IHART - Volume 23 (2012)
that helps ensure accountability and IT asset protection. Security has become an essential element for all organizations.
Information security encompasses technology, processes, and people (Veiga & Eloff, 2007). IT security plans must support the
evolving IT areas of architecture, technology, processes, governance, tools, systems, size, complexity, the functionality of
applications and packages, and the many new ways in which IT is being used (Sharma & Sharma, 2010). The study discussed
in this article captured information about how security and risks are considered in the IT investment decision-making process
as offered from the process owners and process managers interviewed during the data gathering process.
Regulatory Requirements and Industry Standards
Although not all inclusive, the external environment referenced in this study includes customers, competitors, suppliers,
regulatory constraints, governmental requirements, and industry standards. Pertinent to the external environment, the
Sarbanes Oxley Act (SOX) was enacted in 2002 in response to several large-scale corporate scandals (U.S. Securities and
Exchange Commission [SEC], 2003). The Health Insurance Portability and Accountability Act (HIPAA) requires members
of the healthcare industry who use electronic information systems to protect the privacy of medical information (Breaux &
Anton, 2008). Another responsibility of organizations that utilize credit card transactions is that they must document
compliance with the Payment Card Industry Data Security Standard (PCI DSS). The PCI DSS is a set of comprehensive
requirements for enhancing payment account data security (Security Standards Council, 2009). The regulatory issues and
industry standard described above are just a few of the areas that organizations must consider when making decisions about
information systems and IT governance.
Organizational Decision Making and Investment Processes
IT investments are often categorized according to their complexity or business impact (Maritan, 2001, Weill & Olson, 1989).
Decisions and actions made within any part of an organization have some effect on other parts of the organization, which leads
to the idea that decision makers must identify, consider, and evaluate all potential impacts before acting upon their decisions
(Argyris, 1971, Sabherwal & King, 1992). The business objectives of an organization should be supported by risk analysis,
policies, procedures, and standards, as well as business continuity plans (Peltier, 2005, Tarr et al., 2008). When making IT
process and investment decisions, these support areas must be considered while allocating appropriate dollars to ensure
alignment (Tarr et al.) as the pressure is on organizations today more than any time in the past to have business and IT
processes aligned and methods and metrics in place to adjust them as needed (Tallon, 2007).
The IT investment decision process begins with the identification of an opportunity, problem, or crisis that ultimately evolves
into an IT project or process improvement initiative (Boonstra, 2003). IT investment decisions are often made in multiple
phases beginning with a pre-decision stage based on an initial proposal, interim decisions based on variation in the initial
approach, or estimated cost and time, and then approval later in the process to continue through implementation (Ackerman,
1970; Xue et al., 2008). Participation in the decision-making process also ties actors to accountability with project and process
improvement outcomes (Weill & Olson, 1989).
Corporate Culture
Firm characteristics, such as whether an organization is vertically integrated or diversified, as well as other differentiating
characteristics, impact the investment decision-making process. Organizations that move in the direction of managing with a
process-based perspective typically arrange organizational units around their core processes (Vanhaverbeke & Torremans,
1999). Garvin (1998) categorized processes as either operational or administrative. Operational processes transform inputs
into products and/or services and administrative processes do not create products or services, but are necessary as support to
operational processes (Garvin). Process owners are responsible for the ongoing assessment of their processes and the action
plans to improve them while also making sure they are strategically aligned to organizational strategy. However, Kiraka and
Manning (2005) argued that organizational processes are difficult to identify and analyze because they often have not been
documented, are not on organizational charts, and data and metrics are often not captured at the process level.
Process Improvement Methodologies
Executives use a number of approaches and methodologies to attain improved performance from their operations. Lean and
Six Sigma are two approaches that can be used when working on process improvement initiatives. These initiatives must be
successfully managed and monitored to avoid the risk of program proliferation (Hammer, 2004). Without proper oversight,
resources may be dissipated, and confusion may arise as associates try to understand how various initiatives are related to
others already in flight while possibly driving harmful competition among those involved in the initiatives (Hammer). Capital
investment decisions, financial and other resources, such as people and knowledge, are tied to projects with an expectation of
Information Technology Process Improvement Decision-Making: An Exploratory Study from the Perspective of Process Owners and Process Manager
a future return, and rank among the most critical of managerial decisions made (Maritan, 2001). Innovative ideas can arise
from any level of the organization, but without a process for promoting such ideas, they may not be heard or prioritized as a
possible process improvement. Hammer (2004) posited that if people are already involved in improvement projects, they may
perceive that they are too absorbed to be open to innovation efforts as well. Hammer also offered that an organization focused
on numerous improvement efforts may not be able to distinguish the difference between improvement and innovation. In
contrast, Cole (2001) argued that there can be innovation built into continuous improvement efforts.
Research Design
The research discussed in this article used a qualitative multicase study with two settings to explore and document the way
decisions regarding IT process improvement initiatives are made in organizations from the perspective of process managers
and process owners. Further, the embedded qualitative design used in this study captured how the approval and prioritization
processes consider alignment with the business strategy, and how benefits are estimated and realized as seen through the
eyes, or lenses of process owners and process managers.
Additional information was garnered through written documentation such as meeting minutes, e-mails, certification information,
and other internal communications. A theoretical saturation approach to the sample and data collection strategy was used
(Strauss & Corbin, 1998). Data was coded and entered in ATLAS/ti to gauge trends in the data and to identify when saturation
Two organizations participated in this study. One organization, a healthcare insurance company, is a highly successful
company with health care insurance listed as its core business, and the other business is a manufacturer of electronic
interconnects. The manufacturer of electronic interconnects is a $400,000,000 global electronic connector manufacturer that
has experienced high growth in the last few years.
There were six total interview participants from the manufacturer of electronic interconnects, which included three process
owners and three process managers. Although the organization is a global organization with multiple sites, the IT department
operates flatly with process owners and process managers co-located in the organization’s headquarters location. The
healthcare insurance company has a much larger IT department and is segmented into seven main areas. A process owner
and a process manager from each of the seven areas were included in the study as participants, which included seven process
owners and seven process managers from the healthcare organization. There were a total of 20 participants interviewed, 10
process owners and 10 process managers.
Research Questions
The following research questions were developed to facilitate the investigation. A questionnaire aligned with the research
questions was created to use in the face-to-face interviews at the healthcare insurance company, and at the electronic
interconnects manufacturer.
1. How are process improvement decisions made in IT organizations from the perspective of process managers and
process owners?
SQ1. What process is used to prioritize and approve IT process improvement initiatives in the organizations?
SQ2. What process is used to ensure that process initiatives are/stay aligned with the organization’s business strategy
as well as ensuring security and risk issues are considered?
SQ3. How are benefits of the process improvement initiative projected, and how are actual benefits compared to
projections and documented?
2. What process methodologies and techniques (Lean, Six Sigma, etc.) are used in the organizations?
SQ1. What methodologies are used when software development is involved (Waterfall, Agile, etc.)?
Data Collection
The study discussed in this article involved only one investigator in data collection and data analysis. Process owners and
process managers in the two participating organizations were interviewed using a questionnaire. The interview participants
were contacted in advance by telephone using a telephone script, and then sent a meeting invitation by e-mail to coordinate
the specific location and times of the interviews, which were scheduled at the convenience of the interviewees. There were
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IHART - Volume 23 (2012)
conference rooms available at both of the participating organizations to offer privacy during the sessions. The interviews were
scheduled for one hour increments. The time was adjusted as needed.
Observation of interviewee reaction and body language was noted during the interview sessions. The observation information
was transcribed and stored on a computer outside of the two organizations in the study to aid in protecting anonymity.
Throughout the study, a chain of evidence was maintained to “follow the derivation of any evidence from initial research
questions to ultimate case study conclusions” to increase reliability (Yin, 2009, p. 122).
Coding the Data
Concept-driven coding was used so that when the data was collected, it could be immediately entered in Atlas/ti. Conceptdriven coding refers to codes being developed in advance by the researcher by looking at some of the material being coded
(Kvale & Brinkmann, 2009). The coding was designed so that it forced a tie between the research questions directly to the data
(Miles & Huberman, 1994). Atlas/ti uses four main object types: Primary Documents, Quotes, or Quotations, Codes, and
Memos. Interview documents were coded and entered as Primary Documents.
Raw field notes taken during the interview sessions were transcribed and coded for entry in Atlas/ti. Reflective remarks
captured along with the field notes to improve the usefulness of the field notes (Miles & Huberman, 1994). Reflective remarks
were captured and coded using the observations and memos sections of Atlas/ti. The documentation provided by the
organizations during data collection proved to corroborate and add to the evidence collected from responses received from
interviewees (Yin, 2009). Once the Primary Documents were coded and entered, the questions within the interview documents
were coded for more granular analysis for both single-case and cross-case synthesis and for aggregating findings across the
two cases (Yin).
The data analysis process in this study began with organizing and preparing the data for analysis, using coding, and then
developing the query questions as mentioned in the coding section of this study. Once the data was properly prepared, the
researcher began conducting a variety of analyses, which led to a deeper understanding of the data, and made interpretation of
the larger meaning of the data possible (Creswell, 2003). Creswell (2007) discussed data analysis as a spiral with data
management as the first loop in the spiral, followed by (a) reading and memoing; (b) describing, classifying, and interpreting;
and (c) finally visualizing and representing. Pattern-matching logic is one of the most desirable techniques to use for case study
analysis (Yin, 2009). When the empirically based patterns compare with the predicted ones, the results can help a case study
strengthen internal validity (Trochim, 1989; Yin).
General information about study interviewees as role or title, years in their role and additional information was provided in
Table 2. This information was collected by asking the first two questions on the questionnaire during field interviews.
Additionally, there were 11 males interviewed (55% of the interviewed population) and 9 females interviewed (45% of the
interviewed population). The overall average years of service in the roles identified across both Organization A and B was 5.7
years. However, the average time in the role is different for Organization A and Organization B. Organization A study
interviewees have an average of 11.2 years in their title while Organization B interviewees have an average of 3.4 years in their
title. The difference in years in role was predicted as Organization A has very low turnover and has grown mainly through
acquisitions over time, whereas Organization B experienced rapid growth beginning in 2008, which required numerous
employees to be added to the organization to support this massive growth, including a massive expansion in the IT
Single-Case Analysis
This study looks at Organization A as one case and Organization B as case two. After the demographic information was
analyzed, the next step was to begin analysis within each of the cases, or single-case analysis. “During analysis, a single case
analysis is always performed before any cross-case analysis is conducted” (Cooper & Schindler, 2006, p. 217). Besides
information learned during the literature review to help build the research design and questions, the main sources of
information collected during field interviews were (a) observations of the interviewees and field notes made during the interview
sessions, (b) responses to the interview questions, (c) researcher reflective notations, and (d) relevant organizational
documents collected during field research. By using multiple data sources of evidence, the potential problems of construct
validity were addressed with data triangulation (Yin, 2009).
Information Technology Process Improvement Decision-Making: An Exploratory Study from the Perspective of Process Owners and Process Manager
Themes, Categories, and Patterns in Single-Case Analyses
Each organization, or case, will be discussed separately in this section to present the themes and subthemes that emerged
within each case. Cooper & Schindler (2006) recommended that single-case analysis be performed before any cross-case
analysis is conducted. The themes identified during data analysis were correlated to the research questions, the literature
review, the interview questions, the observation notations, organizational documents collected, and the theoretical framework
of Xue, Liang, and Boulton (2008) regarding IT function power and the pre-decision stages of participants other than the final
decision maker in IT investment decisions. The themes identified are presented below in Table 1.
Table 1: Themes Identified in Organization A
Low senior leader involvement
Aligned with organizational goals
No formal PI methodologies used
Security and R\risk analysis conducted
Measure for initiative success
Retains employees
Areas for improvement identified
Number of Interviewees
Percentage of Interviewees
There were seven themes identified during the data analysis process and four subthemes identified in Organization A. The
number of interviewees and the percentage of interviewees who consistently responded in a particular area are represented in
the table. It is interesting to note that four of the themes identified in Table 4 were consistently answered by four of the six
interviewees. The subthemes are identified in the written description after the Table 1.
All six (100%) of the interviewees acknowledged that there is low involvement of senior leadership in process improvement
decision making. A3 stated, “It is rare when consensus is not reached on decisions as the organization is not a titles/levels
conscious organization. ”Interviewees acknowledged that most decisions are made at a local level and discussed during
informal discussions. A1 stated, “Some decisions are made when passing in the hall.”
All six (100%) of the interviewees responded that everything they do is aligned with the goals of the organization and driven by
their key users. A subtheme that emerged is that employees at Organization A are paid based on the success and profitability
of the organization. As a result, the interviewees expressed that meeting organizational goals is a driving factor for keeping the
organization “flat and efficient.”
All six (100%) of the interviewees agreed that no formal process improvement methodologies, such as Lean or Six Sigma, are
used when working on IT process improvements. The items are listed and compared to the IT strategy and prioritized
accordingly. Key user input also drives the prioritization process for choosing which process improvements to work on.
Four (67%) of the six interviewees responded that risk analysis is conducted as an upfront part of their process. Two of the six
interviewees (33%) responded that they accept potential risks associated with an initiative and turn improvements in production
with known bugs to remain productive and keep things moving. The bugs are documented and fixed once in production. When
discussing risks and security with interviewees, the organization’s ISO 9001 and 14001, and TS 16949 certifications emerged
as a subtheme. All interviewees discussed the certifications and referred to the documentation manuals. Certification
documents were made available and included in both the data collection and analysis processes.
Five (83%) out of six of the interviewees reported that the way they measure the success of their initiatives is by counting and
tracking tickets from users and by analyzing feedback received from users. A subtheme that emerged from interviewee
responses in this area is that project deliverables need better measures and that there is a lack of specific measures in place to
determine return on investment for process improvement initiatives. The organization is planning to develop this type of
governance on process improvements over the next year.
All six (100%) of the interviewees responded that what the organization does well is retain talented employees. Employee
turnover is basically non-existent. The length of time in the roles documented in the Demographics section of Chapter 4 helps
substantiate this claim.
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IHART - Volume 23 (2012)
Four (67%) out of six of the interviewees identified areas that the organization could do better. Two (33%) out of six had no
input in this area. Areas identified included resource constraints and a need for improved follow through on projects. Regarding
resource constraints, because the process owners and process mangers are paid based on the profits of the organization, they
are “slow to bring anyone else on so that they can hold down costs” (Organization A interviewee, 2011). A subtheme
associated with speed to delivery arose in this discussion. “At times, changes are put in production so fast with other process
improvements coming along that proper follow up may be overlooked” stated A5.
There were seven themes identified during the data analysis process and four subthemes identified in Organization B. The
themes identified are presented below in Table 2. The number of interviewees and the percentage of interviewees who
consistently responded in a particular area are represented in the table. The subthemes are identified in the written description
after the table.
Table 2: Themes Identified in Organization B
Low senior leader involvement
Aligned with organizational goals
No formal PI methodologies used
Security and risk analysis conducted
Measure for initiative success
Gap in prioritization of initiatives
Areas for improvement identified
Number of Interviewees
Percentage of Interviewees
The single-case analyses were considered separate and apart from each other during the first cycle of analysis. It was
predicted that many of the emerged themes would be similar since the same questions were used during the interviews to
guide the responses. Once the single-case analyses were complete, the cross-case analysis, cycle two of analysis, was
conducted and is articulated in the Cross-Case Analysis section.
Eleven (79%) of the fourteen interviewees acknowledged that there is low involvement of senior leadership in process
improvement decision making. Interviewees specifically identified their local processes used to identify process improvement
initiatives and how they typically work bottom-up to gain leadership buy-in when needed. B4 stated, “Senior leadership may ask
us to make a few changes before moving forward, but basically we make the decisions and ask for funding.” Most decisions
are made at a local level and communicated in cross-functional forums before communicating bottom up.
Eleven (79%) of the fourteen interviewees responded that everything they do is aligned with the goals of the organization.
Some interviewees referred to “roadmaps” created to drive their process improvements and other initiatives. A subtheme that
emerged during interviews is that there are cross-functional formal meetings established and utilized to help communicate to
others outside of the internal area working on the initiative. These communication forums help local areas stay aligned across
the various process owners’ and process managers’ areas of the organization.
Eight (57%) of the fourteen interviewees agreed that no formal process improvement methodologies, such as Lean or Six
Sigma, are used when working on IT process improvements. One (7%) of the fourteen interviewees responded that they
somewhat use ITIL principles to guide their local initiatives. Three (21%) of the fourteen interviewees use Six Sigma and two
(15%) of the fourteen interviewees responded that they use some Lean techniques when working on process improvements.
Thirteen (93%) of the fourteen interviewees responded that security issues and risk analysis is considered when working on
process improvement initiatives. A subtheme that emerged in the analysis pertains to security considerations and risk being
acknowledged by interviewees as a part of everything they to protect customers’ personal health information and personal
identification information. Also, interviewee responses identified that there is a need to protect vendor information from other
Thirteen (93%) of the fourteen interviewees reported that various metrics are developed to measure and report on the success
of implemented process improvement initiatives. A subtheme from this area is that project deliverables need better measures
and that there is a lack of specific metrics or process controls in place to determine process performance success. The
organization tracks information relative to projects and project performance and have developed “service level agreements and
warranty periods to help provide governance around performance issues, and to improve customer satisfaction at handoff once
a process improvement is transitioned back to the owner” stated B5.
Information Technology Process Improvement Decision-Making: An Exploratory Study from the Perspective of Process Owners and Process Manager
Eight (57%) of the fourteen interviewees responded that there is a gap in how process improvement initiatives are identified
and prioritized. The subtheme identified with this theme is “sometimes we are not working on the right process improvement.”
B2 stated, “Solutions are brainstormed before we are sure we have identified the true problem, or process improvement
All 14 (100%) of the interviewees responded with areas that the organization could do better. The following items were
identified as some of the areas for improvement. Resource constraints often cause roadblocks when trying to work on, or
implement initiatives. Multiple Organization B interviewees made similar comments to B4 who stated, “Senior leadership
communication and involvement is needed and not there on some process improvement initiatives.”
The single-case analyses for Organization A and B were considered separate and apart from each other during the first cycle
of analysis. As predicted, many of the emerged themes were similar since the same questions were used to guide the semistructured interviews and to guide the responses. Once the single-case analyses were complete, the researcher was gaining a
deeper understanding of the cases, which helped in preparing for conducting and articulating findings in the Cross-Case
Analysis section.
Cross-Case Analysis
Cross-case analysis was executed to find similarities among case study perceptions and descriptions, as well as to find
differences to capture and make note of any new themes, patterns, and categories. Using Atlas/ti, information by organization
by question was first queried and reported. Response patterns, themes, and groupings were documented in a separately
coded area of the software. The responses to the first two questions on the questionnaire used in interviews were used to
gather the information presented in the Demographics section above. Although case studies are not intended to make
generalizations towards a population, multiple case studies are intended to promote an understanding of the case studies’
commonalities within and across the cases (Miles & Huberman, 1994; Stake, 1995; Yin, 2003). Another reason for cross-case
analysis is to deepen understanding and explanation (Glaser & Strauss, 1967).
There were seven themes identified during the cross-case data analysis process and three subthemes identified. The number
of interviewees and the percentage of interviewees who consistently responded in a particular area are represented in Table 3.
The subthemes are identified in the written description after in the following paragraphs.
The cross-case themes identified during data analysis are presented below in Table 6.
Table 3: Themes Identified During Cross-Case Analysis
Low senior leader involvement
Aligned with organizational goals
No formal PI methodologies used
Security and risk analysis conducted
Measure for initiative success
Areas the organization does well identified
Areas for improvement identified
Number of Interviewees
Percentage of Interviewees
Seventeen (85%) of the twenty interviewees responded that there is low involvement of senior leadership in process
improvement decision making. Process owners discussed senior leadership involvement as gaining buy-in for their initiatives
and attaining funding for process improvement initiatives. Fast growing companies tend to insist on local accountability and
often rely only on investment processes that identify high priority strategic projects and risk management (Weill & Ross, 2005).
Most decisions at Organization A and B are made at a local level and communicated in cross-functional forums and informal
meetings before communicating bottom up. This finding supports the stage-based view of IT decision processes found by Xue,
Liang, & Boulton (2008) recognizing that IT decisions are impacted by organizational actors who “initiate, develop, and manage
investment proposals” (p. 69).
Seventeen (85%) of the twenty interviewees responded that everything they do is aligned with the goals of the organization.
Some interviewees referred to “roadmaps” created to drive their process improvements and other initiatives. A subtheme that
emerged during data analysis is that process owners and process managers in both organizations stated that they clearly
understand organizational goals and make decisions based on working to support and achieve those goals. Communication
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IHART - Volume 23 (2012)
plans and training, when necessary, were components in process improvement plans to ensure alignment in the organization is
Fourteen (70%) of the twenty interviewees responded that no formal process improvement methodologies, such as Lean or Six
Sigma, are used when working on IT process improvements. Organization A interviewees responded that they use informal
approaches as well as project management techniques when working with their process improvement initiatives. In contrast,
Organization B interviewees were aware of Six Sigma and Lean process methodologies, even if they did not employ them. In
Organization B, six of twenty interviewees use Six Sigma, Lean, or ITIL approaches when working on process improvement
Seventeen (85%) of the twenty interviewees responded that security issues and risk analysis is considered when working on
process improvement initiatives. Organization A interviewees acknowledged concerns for customers’ personal information and
credit card information protection. Organization B has additional security and risk management concerns due to being involved
in healthcare and government regulations related to Medicaid, Medicare, and other specific government compliance areas. A
subtheme that emerged in the data analysis process is that both organizations have acquired other organizations, and during
and after acquisition, security and risk analysis was considered. Also, interviewees responded that there is a need to protect
vendor information from other vendors.
Eighteen (90%) of the twenty interviewees reported that various metrics are developed to measure and report on the success
of implemented process improvement initiatives. A subtheme from this area for both Organization A and B is that better
measures are needed to determine process performance success once projects and initiatives have completed. The
organizations’ interviewees consistently responded that they were not completely comfortable that they were employing
adequate measures and metrics to validate their cost/benefit performance associated with process improvement initiative
investments. These finding are consistent with the findings of Weill & Olson (1989) where interviewees’ organizations used
different methods to calculate return on IT investments, but none of them felt completely comfortable with its approach.
Twenty (100%) of the twenty interviewees provided positive responses to the question “Regarding your organization's
approach to process improvement initiatives, what does your org do well?” Organization A interviewees identified some of their
strengths as (a) they recover quickly, (b) they are flexible, and (c) they adapt quickly. A4 stated, “We have 850 people in our
building. People feel like a family here. There is very little turnover at Organization A.” A2 stated, “People who leave often want
to come back. We have a good leader --he is the culture.” Organization B interviewees identified some of their strengths as (a)
we can change quickly, (b) we analyze well, there is a process improvement team in place, and (c) we communicate changes
well. B4 stated, “We use comments from customers and users to drive the initiatives that we work on.” B14 stated “Roadmaps
are developed and shared with others to keep initiatives aligned with the goals of the organization.” B6 stated, “We use
established cross-functional teams as a sounding board for our initiatives.”
Eighteen (90%) of the twenty interviewees responded with areas that the organization could do better. Both Organization A and
Organization B interviewees identified resource constraints as roadblocks when trying to work on, or implement process
improvement initiatives. Organization A additionally identified better follow up after process improvement initiatives is needed.
Because they turn quickly, they may not follow through to ensure deliverables work as intended before impacting a user or
customer. Organization B interviewees frequently responded that better leadership support and communications were needed.
During the semi-structured interviews, software development was discussed as guided by one of the interview questions. The
interviewees at Organization A responded that both Waterfall and Agile approaches are used, and of the groups using Agile,
Jira is the version of Agile used. Organization B interviewees also responded that Waterfall, Iterative, and Agile approaches are
used during software development. Organization B uses Agile Scrum methodology as opposed to Jira that Organization A
Another area discussed during the semi-structured interviews as a result of one of the interview questions used to guide the
interviews is offshoring and outsourcing. Organization A is a global organization, but does not use offshoring as part of its IT
strategy. In contrast, Organization B does employ offshoring and outsourcing as a significant part of its IT strategy.
Organization B interviewees discussed some of the learning that has taken place over the last few years as more experience
has been gained while coordinating initiatives across different time zones and while working to solve language barriers.
Internal and external validation was completed by member checking, reviewing the synthesis of the data for accuracy,
purposive sampling, and the iterative reviewing of the data to identify exceptions to patterns. Cross checking was used to
Information Technology Process Improvement Decision-Making: An Exploratory Study from the Perspective of Process Owners and Process Manager
provide study information validation. Written transcripts were cross-checked against audio files recorded during sessions, field
notes, and the documentation retrieved from both organizations during the study.
One conclusion in this study is that there is involvement of actors other than senior leadership in IT investment decision making
pertaining to process improvement initiatives. This conclusion supports the theoretical framework offered by Xue, Liang, and
Boulton (2008) regarding the pre-decision stages and participants involved in IT investment decision making other than senior
leadership and final executive level decision makers. The findings in the current study, from the perspective of process owners
and process managers, also point out that IT decision processes can be triggered from the top managers, middle managers, or
front-line level workers and specialists (Weill & Olson, 1989) as is consistent with the pre-decision stages discussed by Xue et
The current study also found that organizations find benefit in using both Agile and Waterfall methodologies in software
development process improvements. This conclusion is consistent with work by Vinekar, Slinkman, and Nerur (2006) that
found that there is a need to maintain utilization of Waterfall and Agile approaches because they both have their own benefits
and it may not be practical to replace either one with the other. IT managers must be cognizant of the potential shortcomings in
both agile and plan-driven methodologies, and it is important to continue to balance the two approaches to take advantage of
their strengths in a given situation (Boehm & Turner, 2003).
Although 85% of the respondents at both organizations responded that effort is made to evaluate and measure actual benefits
of initiatives that make it through their prioritization process, most respondents did not feel that adequate effort was made in
this area. They found it difficult to discuss the quantification process used to compare expected costs noted prior to making a
decision to move a proposed process improvement forward with the actual benefits the effort delivers. All respondents
recognized the importance of pursuing better ways to document and articulate cost justification and cost containment
(Ballantine & Stray, 1998) associated with their IT initiatives. Bannister and Remenyi (2000) went on to state in their work that
“investment decisions are based on perceived value, however measured” (p. 234).
Over the last few years, IT research organizations such as Forrester and Gartner have published articles discussing the
benefits of using Six Sigma and Lean in IT shops. There are four key areas where IT processes may be improved by using
Lean: (a) cycle time, the time it takes to run through an entire process; (b) inventory, or IT backlog; (c) value-added content that
either directly adds value to the final product, or directly meets the customers’ needs; and (d) throughput, the measure of ontime customer delivery on or before the customer's requested delivery date (Spencer and Plenert, 2007). The questionnaire
used in this study to guide the semi-structure sessions included a question to determine if Six Sigma or Lean approaches were
used by interviewees.
The results of the current study found that only 30% of the interviewees at Organization B employed Six Sigma or Lean
approaches when working on IT process improvements. None of the respondents at Organization A positively responded that
Six Sigma or Lean approaches are employed when working on IT process improvements. These results indicate that the two
organizations in the current study may increase the possibility of achieving world-class status by adopting a Lean philosophy
(Spencer & Plenert).
The current qualitative multiple case study was conducted by interviewing 20 IT process owners and process managers at two
organization who are actively engaged with IT processes in their respective organizations. IT process owners and process
managers operate in a fast changing atmosphere with continuous pressure to improve customer experiences while controlling
cost, especially during the current turbulent economy. IT process owners and managers are also concerned on a daily basis
with protecting organizational assets and making sure they have talented, engaged employees who can deliver on their
organizational goals and commitments. The healthcare insurance organization must additionally stay cognizant of Medicare,
Medicaid, and Department of Insurance rules and regulations and ensure compliance is attained.
The process owners and process managers who participated in this study are from two organizations headquartered in small
and middle sized cities in the Mideast area of the United States. While both organizations have locations in multiple states, and
one organization has a presence in multiple countries, all study participants were from the same geographic area. Thus, a
limitation of this study is that the participants were in headquarters locations of their respective organizations, and this study
may not generalize to satellite locations.
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IHART - Volume 23 (2012)
Another limitation of this study is the small sample size of the participants. The current study sought to understand
perspectives of process owners and process managers in relationship to their role in IT investment decisions pertaining to
process improvement initiatives. Although the participants shared their perspectives and provided valuable knowledge about
how IT investment decisions are made in their particular area of their organizations, their interpretations may not be the
equivalent to other IT process owners and process managers located in other parts of the organization, or other roles in the
organization such as senior leaders or front-line workers.
During this study, user or customer satisfaction was not discussed specifically as far as how the IT process owners’ and
process managers’ decisions met or missed the expectations of users and customers. Anecdotal conversation did take place
during some of the interviews. A delimitation in the current study is that questions were intentionally not included in the
research questions, or the in the instrument used during the semi structured interviews to explore user or customer satisfaction
results and how these results are impacted by process owners’ and process managers’ decisions. User and customer
satisfaction specific questions were not asked in order that the scope of the study could be narrowed, even though costs and
benefits were specifically addressed.
Lastly, a limitation to this study is that process owners and process managers from only two types of organizations, an
electronic connector manufacturer, and a health insurance organization, were included in this study. Both organizations are
high-performing organizations. The findings of the current study may not be generalizable across other types of organizations.
Future studies may be enhanced by increasing the sample size of participants of IT process owners and process managers,
and by including other organizational actors over a larger geographic area within and outside of the United States. Researchers
may consider conducting future research using a quantitative or mixed methods research design to provide a more in-depth
analytical understanding of IT decision-making processes. Further understanding of how multiple roles in IT organizations
impact the final decisions associated with IT process improvement decision making would benefit the scientific community as
well as the practicing IT actors in all organizations.
The current study does not consider the value of IT process outputs as perceived by customers and users. IT actors’ decisions
as discussed in this study may or may not include customer or user input regarding process improvement decisions. While
value was discussed from the perspective of generally how costs and benefits are considered, there were no questions asked
and very limited discussions captured during interviews pertaining to user or customer satisfaction regarding the outputs, or
deliverables from process improvement initiatives. Future research studies could include exploration to determine user or
customer satisfaction results associated with IT process improvement initiatives.
The following recommendations are also suggested:
Recommendation 1
To capture varying levels of organizational actors’ perspectives within organizations regarding IT process improvement
decision making, future recommended research would be to include actors from senior leadership to front-line managers within
the organizations studied. Capturing the role of multiple actors within organizations would clarify who the organizational actors
are in the various stages of IT process improvement decision making.
Recommendation 2
To expand the number of responses considered and the impacts of varying locations, including offshoring impacts on decision
making, this study would be enhanced by a larger sample of organizational actors from additional areas within the United
States, and in other countries as appropriate for the studied organizations.
Recommendation 3
To examine how new information technology capabilities affect IT decision-making processes, future research recommended
would be to study the impacts of new technologies on existing IT processes, process owners and process managers, and the
overall IT process improvement decision-making stages and processes.
Information Technology Process Improvement Decision-Making: An Exploratory Study from the Perspective of Process Owners and Process Manager
Recommendation 4
To provide a more in-depth analytical understanding of IT decision-making processes, future recommended research would be
to use quantitative or a mixed method design on IT process improvement decision-making processes.
Recommendation 5
To examine best practices in IT decision-making processes and to explore and understand user or customer satisfaction
regarding the outputs of IT process improvement decision making, future research studies would be to conduct a mixed
method design of analyzing best practice approaches and customer satisfaction results.
The study discussed in this article adds to existing literature as it provides the unique perspective of process owners and
process managers and their perceived roles in IT process improvement decision-making processes. The respondents in the
study reported active involvement in their organizations’ IT decision-making processes. The majority of the respondents in this
study also advised that the role of senior leadership in most IT process improvement decisions pertained to final funding
decisions and bottom up support when initiatives impacted multiple areas of the organization. All of the process owners and
process managers in the study acknowledged the importance of ensuring business and organizational goals were considered
in all decision-making processes.
In relationship to the theory of IT function power and the pre-decision stages of participants other than the final decision makers
in IT investment decisions (Xue et al., 2008), this study confirmed that there are active roles of multiple organizational actors
involved in IT process improvement decision-making processes. Process owners and process managers focused on (a)
ensuring that process initiatives stay aligned with the organization’s business strategy, (b) ensuring security and risk issues are
considered, and (c) implementing new approaches such as Agile to enhance software development processes.
The process owners and process managers who participated in this study acknowledged the importance of measuring the
value of the deliverables from their process improvement decisions. However, the majority of interview respondents voiced a
lack of confidence in the current measures and metrics in place in their organizations to determine how original estimated costs
compare to the actual benefits delivered. These findings were consistent with other study findings in the literature.
Limitations in the current study were identified and documented to help explain how some pertinent areas of the decisionmaking process were not explored. The current study identified and recommended five specific opportunities for future
research. It is expected that further exploration into IT decision making regarding process improvements will continue to attract
other researchers as organizations continue to use information technology solutions for internal processes and customer-facing
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Jorja Wright
Alabama Agricultural and Mechanical University, USA
Smartphones provide a convenient way to access, find and share information, but the availability of this information has caused
an increase in cyberattacks. Currently, cyberthreats range from Trojans and viruses to botnets and toolkits. Presently, 96% of
smartphones do not have pre-installed security software. This lack in security is an opportunity for malicious cyberattackers to
hack into the various devices out on the market. At this time, traditional security software found in personal computers (PCs),
such as firewalls, antivirus, and encryption, is not currently available in smartphones. Moreover, smartphones are even more
vulnerable than personal computers because more people are using smartphones to do personal tasks. Nowadays,
smartphone users can email, use social networking applications (Facebook and Twitter), buy and download various
applications and shop. Furthermore, users can now conduct monetary transactions, such as buying goods, redeeming coupons
and tickets, banking and processing point-of-sale payments. Monetary transactions are especially attractive to cyberattackers
because they can gain access to bank account information after hacking a user’s smartphone. Lastly, smartphones are small
and are easy to carry anywhere. Unfortunately, the convenience of using smartphones to do personal task is the loopwhole
cyberattackers need to gain access to personal data. Thus, this paper examines the importance of developing a national
security policy created for mobile devices in order to protect sensitive, personal data.
Keywords: Cybersecurity, Smartphones, Botnets, Toolkits, National Security Policy.
Currently, smartphones are the preferred device for web browsing, emailing, using social media and making purchases. Due to
their size, smartphones are easily carried in people’s pockets, purses or briefcases. Unfortunately, the popularity of
smartphones is a breeding ground for cyberattackers. Operating systems on smartphones do not contain security software to
protect data. For example, traditional security software found in personal computers (PCs), such as firewalls, antivirus, and
encryption, is not currently available in smartphones (Ruggiero, 2011). In addition to this, mobile phone operating systems are
not frequently updated like their PC counterparts. Cyberattackers can use this gap in security to their advantage. An example
of this gap in security is seen in the 2011 Valentine’s Day attack. Cyber-attackers dispersed a mobile picture-sharing
application that covertly sent premium-rate text messages from a user’s mobile phone (Ruggiero, 2011). Thus, this example
illustrates the importance of having a security policy for mobile phones.
Social Networking and Electronic Commerce (E-Commerce) Applications
Many people rely on their smartphones to do numerous activities, like sending emails, storing contact information, passwords
and other sensitive data. In addition to this, smartphones are the device of choice when it comes to social networking; thus,
mobile applications for social networking sites (Facebook, Twitter, Google+) are another loophole for cyberattackers to gain
personal data from unsuspecting users(Ruggiero, 2011). Social networking sites are host to a surplus of personal data. That is
why malicious applications that use social networking sites to steal data yield severe consequences. Recently, M-Commerce or
“mobile e-commerce” has gained popularity in our society. Many smartphone users can now conduct monetary transactions,
such as buying goods and applications (apps), redeeming coupons and tickets, banking and processing point-of-sale payments
(Ruggiero, 2011). Again, all of these smartphone functions are convenient for the user but advantageous for malicious
cyberattackers. Ultimately, there is a niche in technology for cybersecurity software that is specifically designed for the mobile
operating system.
Hypothetical Consequences of Cyberattacks on Smartphones
The consequences of a cyberattack on a smartphone can be just as detrimental, or even more detrimental than an attack on a
PC. According to Patrick Traynor, a researcher and assistant professor at the Georgia Tech School of Computer Science,
mobile apps rely on the browser to operate (Traynor, Ahamad, Alperovitch, Conti, & Davis, 2012). As a result of this, more
Web-based attacks on smartphones will increase throughout the year. Traynor also states that IT professionals, computer
Cybersecurity and Mobile Threats: The Need for Antivirus Applications for Smart Phones
scientists and engineers still need to explore the variations between mobile and traditional desktop browsers to fully understand
how to prevent cyberattacks (Traynor, Ahamad, Alperovitch, Conti, & Davis, 2012).
Challenges with a Mobile Browser
One cybersecurity challenge for mobile devices is the screen size. For example, web address bars (which appear once the
user clicks on the browser app) disappear after a few seconds on a smartphone because of the small screen size (Traynor,
Ahamad, Alperovitch, Conti, & Davis, 2012). This is usually the first-line of defense for cybersecurity. Checking the Uniform
Resource Locator (URL) of a website is the first way users can insure that they are at a legitimate website. Moreover, SSL
certificates for a website are usually more difficult to find on a mobile phone browser (Traynor, Ahamad, Alperovitch, Conti, &
Davis, 2012). This adds another gap in security for smartphones. Furthermore, the touch-screen attribute of mobile phones can
be cause for concern when dealing with cyberattackers. Traynor states that the way elements are placed on a page and users’
actions are all opportunities to implant an attack. An illustration of this is seen when an attacker creates an attractive display
content (i.e. an advertisement for an app or a link to a social media app) in which the malicious link is carefully hidden
underneath a legitimate image. Unfortunately, once the user clicks the image they can be redirected to the malicious content
via the link(Traynor, Ahamad, Alperovitch, Conti, & Davis, 2012).
Malware Attacks on Smartphone OS
Along with this, malware that targets smartphone operating systems is constantly evolving. An example of this is seen with
“Zeus-in-the-Mobile” (ZitMo), a specific form of malware common to the Android operating system. ZitMo targeted Android
users’ bank apps; it attempted to bypass the banking two-factor authentication, steal credentials and gain access to users’
bank accounts, and ultimately money (Traynor, Ahamad, Alperovitch, Conti, & Davis, 2012). This is just one form of
cyberattacks that IT professionals are trying to prevent from occurring.
Lastly, it is believed that mobile devices will be the new vector for targeting network and critical systems(Traynor, Ahamad,
Alperovitch, Conti, & Davis, 2012). According to the report, smartphones are an excellent way to spread malware because
phones are great storage devices. A hypothetical example of a cyberattack against a company’s network is seen when
malware is implanted in a smartphone. For example, a clever cyberattacker can write code to remotely control wireless
connectivity technology and plant malware on the mobile phone. If that same phone is connected to a corporate network, i.e.
the user is charging the phone on the company’s computer; the malware can now attack the company’s network. IT
professionals want to prevent attacks like that from occurring because the economic consequences of such an event would be
catastrophic. Ultimately, it is imperative that a national security standard is created for mobile devices in order to protect
personal data.
Table 1: Malware Programs commonly used to hack into smartphones
Programs that pose as legitimate applications (Symantec, Inc., 2011).
Android.Pjapps Trojan, Rogue
apps, Hydraq
Software program that can replicate itself and damage files and other
programs on host computer.
A network of infected private computers controlled by cyberattackers
who sell sensitive data to the highest bidder. Social media applications
on smartphones are now a new avenue for botnets to control devices
(Smartphone Users: Not Smart Enough About Security, 2009).
Opt-in botnets, Aurora botnet,
Software programs that can be used to assist with the launch of
widespread attacks on networked computers or mobile devices;
exploits Java vulnerabilities (Symantec, Inc., 2011).
Phoenix toolkit
Authentic looking advertisements that are linked to false sites (Rao,
Malicious Ad on social network
apps, such as TweetMeme
This is a conceptual paper; thus the main scope of this paper is to illustrate the importance of security software for smartphone
operating systems. Case studies in scholarly journals and reports were used in the construction of this paper. Most sources
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IHART - Volume 23 (2012)
contain qualitative information, describing predictions of various cyberattacks on mobile devices that may occur by the end of
2012. Quantitative methods were also used to assess the statistical increase in cyberattacks.
The current smartphone statistics are quite daunting due to the widespread lack of security software for mobile devices. The
result of this void in security software is vulnerable smartphones and tablets that are easily susceptible to cyberattacks.
According to Andy Favell, editor of the website “MobiThinking,” in 2010, 96% of smartphones and tablets do not contain
security software - Figure 1 (Favell, 2011). Moreover, the article states that over 2000 various types of mobile malware have
been identified in the past two years (Favell, 2011). For example, Hydraq and Stuxnet, specific cyberattacks, “leveraged zeroday vulnerabilities to break into computer systems... Stuxnet alone exploited four different zero-day vulnerabilities to attack its
targets” (Symantec, Inc., 2011). Moreover, many enterprises experienced a multitude of targeted attacks against their
collection of corporate data in 2010 (Symantec, Inc., 2011).
Figure 1: Percentage of Mobile Devices with Security Software (Favell, 2011).
Table 2: Various cyberthreats in 2010 (4).
Cybersecurity and Mobile Threats: The Need for Antivirus Applications for Smart Phones
Figure 2: 42% increase in mobile vulnerabilities (4)
Figure 3: Percentage of smartphone users that perceive it is safer to surf the internet via mobile browser (5).
Figure 4: Percentage of smartphone survey respondents that received spam in 2009 (5).
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IHART - Volume 23 (2012)
Thus, the lack of installed security software coupled with the laissez-faire attitude of today’s smartphone users, leads to
advantageous loopholes for malicious cyberattackers. 20% of smartphone users do not think installing security software to their
phone will reduce their chances of malware attacks (Smartphone Users: Not Smart Enough About Security, 2009). Another
20% of users have encountered phishing scams when surfing the internet on their mobile browser(Smartphone Users: Not
Smart Enough About Security, 2009). Phishing scams lure users into supplying ID information, bank account numbers,
usernames and passwords by replying to false email messages (Smartphone Users: Not Smart Enough About Security, 2009).
Lastly, Apple aficionados must take necessary precautions when using the Safari web browser on their iPhone. Apple’s claim
to fame is their stylish hardware, iOS operating system and sleek functionality. Unfortunately, the traits that make Apple
popular are also the same traits that make the iPhone susceptible to cyberattacks (Smartphone Users: Not Smart Enough
About Security, 2009). A recent example of this is seen in a reported SMS vulnerability for the iPhone, in which hackers have
the ability to control the device if the user is on a malicious site or connecting to the internet through unsecured 3G or Wifi
connections (Smartphone Users: Not Smart Enough About Security, 2009).
Various security services project that cyberattacks on smartphones will increase exponentially by 2015. This is obvious based
on the fact that the majority of smartphones have no security software at all. Lookout Mobile Security company analyzed the
current data on smartphone cyberattacks and released their malware predictions for 2011(Rao, 2011). Lookout offers various
security services for many smartphone operating systems, such as Android, Windows Mobile, Blackberry and iOS(Rao, 2011).
Unfortunately, Android users, internationally, had a 36% chance of clicking an unsafe link in 2011(Rao, 2011). An illustration of
these predictions is seen in Figure 5.
Figure 5: Worldwide Annual Mobile Malware Infection Likelihood 2011 (4).
Lookout also identified the first U.S. mobile malware that steals money from Android smartphone users – GGTracker; and
RuFraud, which steals money from Eastern European Android smartphone users(Rao, 2011). Lookout believes that malware
creators will furtively combine thousands of mobile devices into extensive botnet-like networks, such as DroidDream, to spread
spam, steal personal data and install more malware(Rao, 2011). Moreover, Lookout has predicted the likelihood that
smartphone users will click on unsafe links (Rao, 2011). They predict the increase in “malvertising” – malware advertising,
advertisements that link back to counterfeit websites – will continue to increase by the end of this year. Figure 6 illustrates their
Cybersecurity and Mobile Threats: The Need for Antivirus Applications for Smart Phones
Figure 6: Annual Likelihood of Smartphone User Clicking on an Unsafe Link in 2011 (4).
Predictions of the Mobile Security Market
Consistent with this, Canalys, an IT research company that specializes in “mobility services, data centers, networking, security,
unified communications, client PC markets and go-to strategies,” did more research on mobile security. From a business
perspective, they predict that mobile security investment will increase by 44% each year to 2015(Mobile Security Investment to
Climb 44% Each Year Through 2015, 2011). They expect the mobile security market to become a $3 billion investment
opportunity in 2015. Fortunately, by 2015, Canalys believes that 20% of smart phones and tablets will have mobile security
software installed (Mobile Security Investment to Climb 44% Each Year Through 2015, 2011). Canalys also states that device
management will drive the incorporation of security-related products (secured-approved mobile devices) in the business sector
(Mobile Security Investment to Climb 44% Each Year Through 2015, 2011). For example, it is projected that corporate device
management will increase implementation of security-related products. Businesses will use solutions “to track, monitor and
authorize corporate data access, as consumers bring their devices into the workplace” (Mobile Security Investment to Climb
44% Each Year Through 2015, 2011). Canalys recommends that it is advantageous for businesses to link the solutions to
“enterprise app stores” so that only “approved apps” can be downloaded and mobile devices with corporate-approved apps
installed will have the ability to access corporate data(Mobile Security Investment to Climb 44% Each Year Through 2015,
2011). Lastly, Canalys experts predict mobile client security to increase by 54.6% every year until 2015 (Mobile Security
Investment to Climb 44% Each Year Through 2015, 2011). Mobile client security includes: anti-virus, firewall, messaging
security (due to SMS texting capabilities), web threat security, VPN functionality and encryption (Mobile Security Investment to
Climb 44% Each Year Through 2015, 2011).
Presently, the U.S. and Canada are the leaders of mobile security implementation due to their need to adhere with data
compliance policies (Mobile Security Investment to Climb 44% Each Year Through 2015, 2011). Nevertheless, the Western
European market is expected to grow as globalization, “enterprise mobility and consumeriztion trends” increase(Mobile
Security Investment to Climb 44% Each Year Through 2015, 2011). From 2013 to 2015, mobile security investment will sharply
increase in developing countries such as Latin America, Asia, Africa and the Middle East, due to the instant popularity of the
price-sensitive operating system, Android (Mobile Security Investment to Climb 44% Each Year Through 2015, 2011).
Unfortunately, as the steady growth of Android OS increases so does the volume of mobile malware threats because more
consumers can download compromised applications(Mobile Security Investment to Climb 44% Each Year Through 2015,
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IHART - Volume 23 (2012)
Corporations, Cybersecurity and Mobile Devices
Currently, corporations around the world are trying to manage a growing mobile workforce, in which employees are using
multiple devices and operating systems(Mobile Security Investment to Climb 44% Each Year Through 2015, 2011). This
increase in data consumption exponentially increases the amount of vectors open to cyberattacks and leaves corporate data
more vulnerable due to tangible loss of devices(Mobile Security Investment to Climb 44% Each Year Through 2015, 2011).
Ultimately, to counteract the era of cybercrimes, enterprises must have a holistic approach to mobile security – every layer of
security must be analyzed in order to protect sensitive data. Lastly, Canalys urges service providers to provide security from a
“network perspective, regardless of device or operating system type” (Mobile Security Investment to Climb 44% Each Year
Through 2015, 2011). Protecting the network of service providers is a key element in providing top notch security for the
plethora of mobile devices that are currently on the market.
It is a daunting task to establish a national cybersecurity standard to counteract the multitude of cyberattacks that exist today.
There are quite a few limitations that must be addressed in order to move forward.
Legitimate Applications that Can Be Used as Malware
Presently, there is valid spy software available for various smartphones. An example of this is FlexiSpy, a legitimate
commercial spyware program that cost over $300 (United States Computer Emergency Readiness Team, 2010). FlexiSpy can:
Listen to actual phone calls as they happen;
Secretly read Short Message Service (SMS) texts, call logs, and emails;
Listen to the phone surroundings (use as remote bugging device);
View phone GPS location;
Forward all email events to another inbox;
Remotely control all phone functions via SMS;
Accept or reject communication based on predetermined lists; and
Evade detection during operation (United States Computer Emergency Readiness Team, 2010).
The creators of FlexiSpy claim that this application can help protect young children (that have a cell phone) or catch unfaithful
spouses. However, the dangers of this software outweigh the positives once it is in the hands of a malicious cyberattacker. This
example demonstrates the need for a federal implemented cybersecurity act to dictate the types of applications that can be
available to the general public. For parents, FlexiSpy has wonderful attributes in terms of monitoring the whereabouts of
underage children, but these same attributes can be abused by a cyberattacker to gain extremely personal data of a
smartphone user.
Malware Social Network Exploitation
As stated earlier, the popularity of social networking applications can be a limitation in the fight against cyberthreats. The
wealth of personal data that social media applications provide inspire cybercriminals to create malware targeted for these
applications. Twitter and Facebook are the main sources of communication and information for today’s generation of
smarthphone users. Unfortunately, accepting shared information on these websites can compromise the security of a user’s
device. This issue is heightened on Twitter because users are limited to 140 characters when sharing updates or links. So on
Twitter, Uniform Resource Locators, or URLs, are shortened severely in order to adhere to the 140 character rule. This is
unfortunate because shortened URLs make it more difficult for a user to know if the link is legitimate or malicious. In brief,
sharing links via Twitter is an opportunistic way for cyberattackers to lure innocent users into clicking fraudulent links.
Creating a National Cybersecurity Standard
Lastly, another limitation for creating a cybersecurity environment for smartphones is due in part to a lack of national
cybersecurity policies. The internet is a brand new frontier with no physical or political boundries(Brechbuhl, Bruce, Dynes, &
Johnson, 2010). Furthermore, cybersecurity is a concern of everybody – common smartphone users, business and
government officials; also, security issues have normally been the government’s responsibility. Contrasting with this, the
sectors that are best equipped at dealing with cybersecurity issues is private or semiprivate enterprises that operate the
information and communication technology (ICT) infrastructure, in other words the internet (Brechbuhl, Bruce, Dynes, &
Johnson, 2010). Finally, the creation of a national policy is difficult because we currently “lack a feasible policy framework that
Cybersecurity and Mobile Threats: The Need for Antivirus Applications for Smart Phones
systematically arrays the issues and specifies parameters that constrain this development” (Harknett & Stever, 2011).
Ultimately, cybersecurity threats are versatile and constantly changing, we must develop programs to match and counteract the
transient attributes of cybersecurity attacks.
Fortunately, there are possible solutions to the rampant cybersecurity problem with smartphones. Once our society
acknowledges that cybersecurity threats are detrimental not only to one smartphone user, but to the society as a whole; then
the inception of a solution can begin. The value of data is steadily increasing, possibly even more so than actual money. It is
imperative to establish a culture of cybersecurity because this issue is multifaceted and technology is constantly evolving.
Cybersecurity is Multidimensional: Collaboration is Imperative for Its Success
Security concerns are not exclusive to “economists, political scientist, lawyers, business policy or management experts, or
computer specialist” (Brechbuhl, Bruce, Dynes, & Johnson, 2010). In order to establish a policy of cybersecurity, it will take a
collaborative effort from a variety of officials in various disciplines in society. Each official brings a specific set of knowledge to
the issue of cybersecurity, and has a potential role in establishing the different set of functions that are needed to create a
general intra-and international cybersecurity standard (Brechbuhl, Bruce, Dynes, & Johnson, 2010). Ultimately, a decentralized
approach is the best way to make cybersecurity an interconnected, coordinating mechanism that benefits the society as a
whole(Brechbuhl, Bruce, Dynes, & Johnson, 2010).
Cell Phone Attributes as Security Features
CTO Dan Schutzer of BITS, the technology policy division of the Financial Services Roundtable, states that smartphones and
other mobile devices are equipped with biometric security measures(Traynor, Ahamad, Alperovitch, Conti, & Davis, 2012).
Biometric is the statistical analysis of biological data using technology. Schutzer suggests that the cameras that are installed in
mobile phones can be used for facial recognition or iris detection(Traynor, Ahamad, Alperovitch, Conti, & Davis, 2012). This is
actually a great idea because, thanks to DNA, biologically everyone is different. Thus, the authenticated user of a smartphone
will be the only person that can unlock his/her phone. Moreover, Shutzer proposes that the microphones installed in
smartphones can be used for voice recognition(Traynor, Ahamad, Alperovitch, Conti, & Davis, 2012). This is another way to
secure and lock a cell phone; and only the authorized user of the phone will be able to unlock the device. In brief, using
biometric measures to secure mobile devices is one way to prevent theft.
Lastly, IT companies are seeing the niche in the market for security software specifically designed for mobile operating
systems. Recently, a few companies have presented different mobile security software that consumers can purchase.
Bullguard Mobile Security, Kaspersky Mobile Security, ESET Mobile Security, and Lookout Premium are mobile security
software currently available for purchase(2012 Best Mobile Security Software Comparisons and Reviews, 2012). The programs
range in prices from $19.99 to $39.99. These programs are a start; however, it is up to consumers to purchase them to secure
their data. As mentioned earlier, cybersecurity is a multifaceted issue that must be dealt with accordingly. Ultimately, creating a
national standard of cybersecurity is the best way to counteract the increase in cyberattacks.
2012 Best Mobile Security Software Comparisons and Reviews. (2012). Retrieved April 17, 2012, from Top Ten Reviews:
Brechbuhl, H., Bruce, R., Dynes, S., & Johnson, E. (2010, January). Protecting Critical Information Infrastructure: Devloping
Cybersecurity Policy. Information Technology for Development, 16(1), 83-91.
Eeten, M. v., & Bauer, J. (2009, December). Emerging Threats to Internet Security: Incentives, Externalities and Policy
Implications. Journal of Contingencies and Crisis Management, 17(4), 221-232.
Favell, A. (Ed.). (2011, November 2). 96 Percent of Smartphones and Tablets Lack Necessary Security Software. Why It
Matters to Your Business - A Lot. Retrieved April 22, 2012, from MobiThinking: http://mobithinking.com/blog/mobilesecurity-business-implications
Goth, G. (2009). U.S. Unveils Cybersecurity Plan. Government Policy, 52(8), 23.
Harknett, R., & Stever, J. (2011). The New Policy World of Cybersecurity. (N. Roberts, Ed.) Public Administration Review, 455460.
Kaplan, J., Sharma, S., & Weinberg, A. (2011). Cybersecurity: A Senior Executive's Guide. McKinsey Quarterly(4).
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MacWillson, A. (2011, May 9). Rethinking Cybersecurityin a Mobile World. Retrieved March 9, 2012, from Security Week:
Internet and Enterprise Security News, Insights & Analysis: http://www.securityweek.com/rethinking-cybersecurity-mobileworld
Mobile Security Investment to Climb 44% Each Year Through 2015. (2011, October 04). Retrieved April 22, 2012, from
Canalys: http://www.canalys.com/newsroom/mobile-security-investment-climb-44-each-year-through-2015
Rao, L. (2011, December 13). Lookout’s 2012 Mobile Security Threat Predictions: SMS Fraud, Botnets And Malvertising.
Retrieved April 22, 2012, from Tech Crunch: http://techcrunch.com/2011/12/13/lookouts-2012-mobile-security-threatpredictions-sms-fraud-botnets-and-malvertising/
Ruggiero, P. a. (2011). Cyber Threats to Mobile Phones. Pittsburgh: United States Computer Emergency Readiness Team.
Smartphone Users: Not Smart Enough About Security. (2009, August 17). Retrieved April 17, 2012, from Trend Micro:
Symantec, Inc. (2011, April 5). Retrieved April 17, 2012, from Symantec Report Finds Cyber Threats Skyrocket in Volume and
Sophistication: http://www.symantec.com/about/news/release/article.jsp?prid=20110404_03
Traynor, P., Ahamad, M., Alperovitch, D., Conti, G., & Davis, J. (2012). Emerging Cyber Threats Report 2012. Atlanta: Georgia
Tech Information Security Center.
United States Computer Emergency Readiness Team. (2010, April 15). Cyber Threats to Mobile Devices. (TIP - 10-105-01), 116.
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IHART - Volume 23 (2012)
Hongmei Wang
Northern Kentucky University, USA
Most of current GIS don’t support human work effectively because they support only one human-computer interaction mode at
one time by a single user. To address this problem, people proposed multimodal GIS which support multimodal humancomputer interaction with multiple users at the same time. Some experiment multimodal GIS have been developed. We need to
consider the relationship among information, technology and people in order to design a better system. This paper summarizes
how information, technology and people are viewed in the literature of multimodal GIS and draws preliminary findings and
conclusions about common relationships among the three concepts in the literature.
Keywords: Diverse Views, Information, Technology, People, Multimodal GIS.
Geographical Information System (GIS) is a computer-based system for management and processing of geographically
referenced data (Chang, 2011; Heywood, Cornelius, & Carver, 1998 ). It helps manage descriptions of locations and
characteristics of spatial features, such as roads, land parcels, and so forth. GIS is a fast-growing area with a broad range of
applications. For example, it has been an important tool in natural resource management since its beginning. More recently, it
has been used for crime analysis, emergency management, and transportation applications. New applications have resulted
from the integration of GIS with other new technologies, such Global Positioning Systems (GPS) and wireless networks
(Chang, 2011).
Most current commercial GIS do not support human users effectively because they usually support only one human-computer
interaction mode at one time by a single user. To address this problem, people have proposed natural multimodal GIS. This
kind of GIS can support multiple users to communicate with the GIS at the same time through multiple natural interaction
modes, such as natural language, gesture, eye contact etc. Some experimental multimodal GIS have been developed (Bolt,
1980; Cohen et al., 1997; Egenhofer, 1996a, 1996b; Glass et al., 1995; A. M. MacEachren & Cai, 2006; A. M. MacEachren et
al., 2005; Neal & Shapiro, 1991; Neal, Thielman, Funke, & Byoun, 1989; Oviatt, 1992, 1996, 1997; Shapiro, Chalupski, & Chou,
1991; Sharma et al., 2003; F. Wang, 1994, 2003).
In order to further improve design of multimodal GIS, we need to consider various aspects in the system that can affect the
interaction between the user and the system. A full GIS includes five key components: the computer system (hardware and
operating system), the software, spatial data, data management and analysis procedure, and the people to operate the GIS
(Chang, 2011; Heywood et al., 1998 ). So, it is obvious that information (spatial data), technology(computer systems, software
and data management and analysis procedure), and people are three fundamental aspects in a GIS. Therefore, we need to
consider these three aspects, information, technology and people, involved in the multimodal GIS.
The goal of this paper is to study the relationships among the three aspects, information, technology and people, in the
multimodal GIS. Toward the goal, I will review the literature related to multimodal GIS and to see how these three aspects are
viewed in the literature and whether there are some common relationships them.
The following section will review studies about multimodal GIS since the late 1980s. The third section will discuss different
views of information, technology and people the literature. Preliminary conclusions will be given in the final section.
Most current commercial GIS, such as ArcGIS developed by ESRI, GeoMedia developed by Intergraph company, MapInfo and
other commercial GIS products, do not support human work effectively because the human-computer interaction in those GIS
has only one modal through the keyboard and mouse, not so natural like human-human interaction through natural and
multiple modes, such as speech, gestures, gaze, body movement and so on. Additionally, most of them are designed to be
H. Wang
IHART - Volume 23 (2012)
used by only a single user at one time directing the system. This is due to limitations of computer technologies that most
computer systems support single modal interaction between human and the computer systems, that is, the standard windowsicons-menus-pointers (WIMP) mode human –computer interaction. For example, most of the computer software that we often
use in our daily life, such as Microsoft Office, software in the accessories in Microsoft Windows XP/7, are WIMP-based and
supports the interaction between the user and the computer only through the mouse and keyboard.
To address the unimodal interaction problem in GIS, people proposed multimodal GIS several decades ago. For example, one
effort to achieve better human-computer interaction for GIS has been made on design of GIS interface based on natural
language forms (Mark & Gould, 1991; F. Wang, 1994). Frank and Mark (Frank & Mark, 1991) thought that, to be effective,
natural language based GIS interface must support a dialogue. Only partial success was achieved on those speech based
systems (Glass et al., 1995; Lokuge & Ishizaki, 1995). Several scholars have proposed using gesture as an alternative
interface modality, by direct sketching on a map display (Nobre & Câmara, 1995). However, it sometimes is difficult for the user
to express his/her spatial informa