Vol. 8 No. 2 / 2017 ISSN: 1847-9375

Vol. 8 No. 2 / 2017ISSN: 1847-9375

Business Systems Research | Vol. 8 No. 2 | 2017

i

Impressum

Focus and Scope

Business Systems Research Journal (BSR) is an international scientific journal focused on

improving competitiveness of businesses and economic systems. BSR examines a wide variety

of decisions, processes and activities within the actual business setting and the systems

approach framework. Theoretical and empirical advances in business systems research are

evaluated on a regular basis. Special attention is paid to educational, social, legal and

managerial aspects of business systems research. In this respect, the BSR journal fosters the

exchange of ideas, experience and knowledge between regions with different technological

and cultural traditions, in particular in transition countries.

Papers submitted for publication should be original theoretical and practical papers. The

journal also publishes case studies describing innovative applications and critical reviews of

theory.

Abstracted/indexed in: Cabell's Directory, CEJSH (The Central European Journal of Social Sciences and Humanities),

Celdes, CNKI Scholar (China National Knowledge Infrastructure), CNPIEC, DOAJ, EBSCO -

Business Source, ERIH PLUS (European Reference Index for the Humanities and Social

Sciences), Google Scholar, Hrcak, Inspec, J-Gate, JournalTOCs, Naviga (Softweco), Primo

Central (ExLibris), ProQuest (relevant databases), ReadCube, Research Papers in Economics

(RePEc), Summon (Serials Solutions/ProQuest), TDOne (TDNet), TEMA Technik und

Management, Clarivate Analytics’ The Emerging Sources Citation Index (ESCI) Web of

Science, Ulrich's Periodicals Directory/ulrichsweb, WorldCat (OCLC)

Editor-in-Chief Mirjana Pejić Bach, University of Zagreb, Faculty of Economics & Business, Department of

Informatics, Croatia

Associate Editors Ksenija Dumičić, University of Zagreb, Faculty of Economics & Business, Department of

Statistics, Croatia

Josip Stepanić, University of Zagreb, Faculty of Mechanical Engineering and Naval

Architecture, Department of Non-destructive Testing, Croatia

Nataša Šarlija, University of Osijek, Faculty of Economics in Osijek, Croatia, Croatia

Advisory Board Sarunas Abramavicius, ISM University of Management and Economics, Lithuania

David Al-Dabass, Nottingham Trent University, School of Computing & Informatics, United

Kingdom

Jakov Crnkovic, University at Albany, School of Business, USA

Martin Fieder, University of Vienna, Rector's Office, Austria

Anita Lee Post, University of Kentucky, School of Management, Decision Science and

Information Systems Area, United States

Gyula Mester, University of Szeged, Hungary

Matjaž Mulej, International Academy of Cybernetics and Systems, Austria, University of

Maribor and IRDO Institute for development of social responsibility, Slovenia

Olivia Par-Rudd, OLIVIAGroup, United States

Ada Scupola, Department of Communication, Business and Information Technologies,

Roskilde University, Denmark

Tadas Šarapovas, ISM University of Management and Economics, Lithuania

Ajay Vinze, Arizona State University, WP Carey School of Business, United States


i

Editorial Bord Nahed A. Azab, School of Business, American University in Cairo, Egypt

Sheryl Buckley, University of South Africa, School of Computing, South Africa

Terence Clifford-Amos, Université Catholique de Lille, France

Josef Basl, University of Economics, Prague, Czech Republic

Nijaz Bajgorić, University of Sarajevo, School of Economics and Business, Bosnia and

Herzegovina

Rajeev Dwivedi, Institute of Management Technology, India

Inês Dutra, Universidade do Porto, Portugal

Francisco Garcia, Universidad de Salamanca, Spain

Mojca Indihar Štemberger, Computer Science Department, Faculty of Economics, University

of Ljubljana, Slovenia

Božidar Jaković, University of Zagreb, Faculty of Economics & Business, Department of


Mira Krpan, University of Zagreb, Faculty of Economics & Business, Department of Economic

Theory, Croatia

Helmut Leitner, Graz University of Technology. Institute for Information Systems and Computer

Media (IICM), Austria

Sonja Sibila Lebe, Faculty of Economics and Business, Maribor, Slovenia

In Lee, School of Computer Sciences, Western Illinois University, USA

Olivera Marjanović, University of Sydney, Faculty of Economics & Business, Department of

Business Information Systems, Australia

Marjana Merkač Skok, Faculty of Commercial and Business Sciences, Celje, Slovenia

Sanja Pekovic, University Paris-Dauphine, France

Markus Schatten, University of Zagreb, Faculty of Organization and Informatics, Croatia

Ivan Strugar, University of Zagreb, Faculty of Economics & Business, Department of Statistics,

Croatia

Ana Šafran, Zagreb School of Economics and Management, Croatia

Vanja Šimičević, University of Zagreb, Croatian Studies, Department of Sociology, Croatia

Ilko Vrankić, University of Zagreb, Faculty of Economics & Business - Zagreb, Croatia, Croatia

Jovana Zoroja, University of Zagreb, Faculty of Economics & Business, Department of


Zhang Wei-Bin, Ritsumeikan Asia Pacific University, Japan

Berislav Žmuk, University of Zagreb, Faculty of Economics & Business, Department of Statistics,

Croatia

Language Editors Abstract Editing: Andrea-Beata Jelić, Poliglossa Language Centre, Croatia

Managing Editors Karmen Abramović, University of Zagreb, Faculty of Economics & Business, Croatia

Ljubica Milanović Glavan, University of Zagreb, Faculty of Economics & Business, Department

of Informatics, Croatia

Publisher IRENET, Society for Advancing Innovation and Research in Economy

ISSN Business systems research (Online) = ISSN 1847-9375

Editorial Office e-mail: [email protected]

Web:

http://www.bsrjournal.org; http://hrcak.srce.hr/bsr; http://www.degruyter.com/view/j/bsrj


iii

Business Systems Research

A Systems View across Technology & Economics

Special Collection: "Statistical Modelling for Response to Crisis and

Economic Growth in Western Balkan Countries"

Special Collection Editors

Ksenija Dumičić, Faculty of Economics & Business, University of Zagreb

Emina Resić, School of Economics and Business of University of Sarajevo

Vesna Bucevska, Faculty of Economics, University St. Cyril and Methodius - Skopje

The Regression Analysis of Individual Financial Performance: Evidence from Croatia

Vlasta Bahovec, Dajana Barbić, Irena Palić.................................................................... 1

Motivation and Satisfaction of Employees in the Workplace

Maja Rožman, Sonja Treven, Vesna Čančer................................................................... 14

Are Publicly Available Online Businesses Lists Appropriate to be used as Sampling

Frames in Croatian Business Surveys?

Berislav Žmuk......................................................................................................................... 26

The Impact of Reputation on Corporate Financial Performance: Median Regression

Approach

Silvija Vig, Ksenija Dumičić, Igor Klopotan………............................................................. 40

Presence of Banks on Social Networks in Bosnia and Herzegovina

Mirela Mabić, Dražena Gašpar, Damir Lucović.............................................................. 59

Information Systems Research Articles

Process-Based Information Systems Development: Taking Advantage of a

Component-Based Infrastructure

José Luís Pereira, Jorge Oliveira e Sá………………………............................................... 71

Best Value Approach (BVA): Enhancing Value Creation in Construction Projects

Amin Haddadi, Agnar Johansen, Svein Bjørberg………................................................. 84

Case Study in Interdisciplinary Scientific Communication: A Decade of the INDECS

Journal

Josip Stepanić, Jovana Zoroja, Vanja Šimičević……….................................................. 101

Digitalisation of Enterprises Brings New Opportunities to Traditional Management

Control

Krister Bredmar………………………..………………………................................................... 115

Economic and Business Systems Research Articles International Experience in Upper Echelon Theory: Literature Review

Dino Đerđa.........................................…………………...................................................... 126


1

The Regression Analysis of Individual

Financial Performance: Evidence from

Croatia

Vlasta Bahovec, Dajana Barbić, Irena Palić

Faculty of Economics and Business, University of Zagreb, Croatia

Abstract

Background: A large body of empirical literature indicates that gender and financial

literacy are significant determinants of individual financial performance. Objectives:

The purpose of this paper is to recognize the impact of the variable financial literacy

and the variable gender on the variation of the financial performance using the

regression analysis. Methods/Approach: The survey was conducted using the

systematically chosen random sample of Croatian financial consumers. The cross

section linear regression model is estimated in order to assess how gender as a

dummy variable and financial literacy as an ordinal categorical variable impact

financial performance. Results: The results indicate that the average value of

financial performance for men is higher than the average value of financial

performance for women at the same financial literacy level. Furthermore, a higher

level of financially literacy is related to a higher level of financial performance.

Conclusions: Both gender and financial literacy have a statistically significant impact

on individual financial performance. Increasing financial literacy and understanding

gender differences in terms of financial literacy and financial well-being should be of

interest to financial educators in their struggles to improve financial situation of

citizens and for educators to create financial education programs intended for men

and women.

Keywords: financial literacy; financial performance; gender; regression analysis

JEL classification: C30, C83, J16, I22

Paper type: Research article

Received: Apr 26, 2017

Accepted: Jul 16, 2017

Citation: Bahovec, V., Barbić, D., Palić, I. (2017), “The Regression Analysis of Individual

Financial Performance: Evidence from Croatia”, Business Systems Research, Vol. 8,

No. 2, pp. 1-13.

DOI: 10.1515/bsrj-2017-0012

Acknowledgments: This work has been supported by the Croatian Science

Foundation under the project STRENGTHS no. IP-2013-9402.

Introduction The research of individual financial behavior has been very important subject in

economic literature in the past decade. Moreover, it gained in importance after the

latest financial crisis, which emphasized the potential risks of individuals’ poor


2

financial decisions. Findings of the relevant literature point to the fact that financial

performance of individuals is strongly determined by different variables where some

of them were given to the individuals by their birth, such as demographic variables,

and other were acquired through their life, such as social and psychological

variables (Hilgert et al., 2003; Lusardi and Mitchell, 2007; Cvrlje, 2014).

There is extensive evidence both in a Croatian and international literature that

financial education of individuals is unsatisfactory since individuals are unfamiliar with

elementary financial definitions, which affects their financial well-being but also the

prosperity of the overall society (Bahovec et al., 2015). People who engage more in

financial education should possess higher level of financial literacy and therefore

demonstrate better financial behaviour and be more financially successful as

opposed to those with lower level of financial literacy (Hilgert et al., 2003; Lusardi,

2008; Collins, 2010; Cvrlje et al., 2015; Barbić, 2017, etc.).

Unlike financial education which primarily depends on individual life choices and

his will to acquire new knowledge and skills, there are other variables that also might

determine individual financial performance but he has no power over affecting

those variables. One such variable is gender. According to the empirical results of

some studies, when it comes to financial literacy and financial performance, women

are the especially vulnerable group. Large body of empirical literature points to the

significance of gender in explaining both financial performance and literacy (see,

for example, Goldsmith et al., 1997; Hira and Mugenda, 2000; Barber and Odean,

2001; Chen and Volpe, 2002; Xiao, et al., 2006, 2009; Shim, et al., 2009; Lusardi and

Mitchell, 2011; Atkinskon and Messy, 2012; Vehovec et al., 2015). These findings imply

that women, in comparison to men, have a lower level of reported financial

knowledge and skills, they are less prone to risk and their financial decision-making

process is characterized by lower confidence (Wagland and Taylor, 2009).

In this paper, the financial literacy and financial performance of Croatian citizens

are examined with the purpose of empirically testing the financial literacy impact as

well as gender differences. The research assesses the compliance of the impact of

financial literacy and gender on individual financial performance in previous

theoretical and empirical research with the estimated impact in Croatia, using cross

section linear regression modeling. The study concentrates on the analysis of

financial literacy of both genders and assessment of the relationship between

financial literacy and gender on the one side and financial performance on the

other.

Understanding gender differences in terms of financial literacy and financial

prosperity are important for financial educators and policy makers. The financial

literacy policy creators are inclined to strengthen the financial position of individuals,

and the recognition the need of financial education curriculum designed

specifically for men and women is essential for good policy-making. Through

dissemination of the test results, this research is intended to raise the general level of

public awareness of the need to conduct more active financial education among

women in Croatia.

Literature review

Financial literacy is a rather "young" topic, and therefore most of the articles

investigating its incidence are published in the past decade. Regarding the

relationship between financial literacy and various forms of individual financial

performance, evidence suggests that highly financially literate individuals

demonstrate the more successful financial behavior. Hilgert et al. (2003) suggested

that financial literacy might be an important predictor of successful decision making.


3

Lusardi (2008) showed that financial literacy influences financial decision-making.

Collins (2010) found evidence of positive effect of financial literacy on successful

financial behavior.

Regarding Croatia, Barbić (2017) analyzed the impact of financial knowledge

and skills on individual financial performance. The mentioned research point to a

significant positive correlation of both financial knowledge and financial skills with

personal financial performance.

Vehovec (2011) assessed the financial literacy of elderly population in Croatia

and concluded that groups of financially literate and illiterate respondents do not

differ significantly concerning gender. The possible explanation is that older people

did not succeed to acquire knowledge and individual responsibility for planning

retirement savings during the transitional period. The possible reason is that the whole

form of financing third age relied almost exclusively on public sources of pension

insurance until recently.

However, in the later comprehensive research on financial literacy in Croatia,

Vehovec et al. (2015) pointed out that female exhibit lower level of financial literacy

when compared to male respondents. Many other authors came to the same

conclusion in other countries (Boyce and Danes, 1998; Staten et al. 2003; Ameriks et

al., 2003; Bernheim and Garrett, 2003; Lusardi, 2004; Lusardi and Mitchell, 2007; Banks

and Oldfield, 2007; Bell et al., 2008, 2009; Grinblatt and Keloharju, 2009; Stango and

Zinman, 2009; Hung et al., 2009; Lusardi and Tufano, 2009; Banks et al., 2010; Christelis

et al., 2010; Gerardi et al., 2010; Smith et al., 2010; Gale and Levine, 2010; van Rooij

et al., 2011; van Rooij et al., 2012; Cvrlje et al., 2015) and confirmed the existence of

positive relationship between financial literacy and various forms of improved

personal finance management practices (for ex. planning for retirement, saving,

accumulating wealth etc.).

However, results of financial literacy results, as well as its effectiveness in terms of

the financial behavior of individuals, differ substantially among genders. When

compared with men, women on average live longer, work shorter and have lower

income and lower pensions which make them more vulnerable to the risk of financial

problems (Weir and Willis, 2000). The relevant empirical literature points to the lower

level of financial literacy of women in relation to men. However, empirical research

on that matter is rather scarce. Leach et al. (1999) indicated that research of the

effect of gender on financial performance is limited (Falahati and Paim, 2011).

Bajtelsmit and Bernasek (1996) point to the conclusion that women and man have

different capacity and tendency to use available financial information. Goldsmith

and Goldsmith (1997) indicated that men are more self-confident and have higher

knowledge regarding financial investment in relation to women (Falahati and Paim,

2011). Hira and Mugenda (2000) pointed to the significant influence of gender on

financial perception, behavior, and satisfaction. Their findings suggested that

women feel they know less on financial topics such as money management,

financial analysis, and investments. Chen and Volpe (2002) presented a similar

conclusion, confirming the lower level of financial knowledge of women. Looking at

the pattern of responses across gender, Lusardi and Mitchell (2007) concluded that

women commonly exhibit lower financial knowledge than men do, and the

probability of correct answer in financial literacy questionnaire is lower for women

than for men. Moreover, the probability that women will not know the answer is

shown to be higher than the probability of answering incorrectly. They confirmed

their results in later studies where they found that lower level of knowledge is more

often present at women and minority communities (Lusardi and Mitchell, 2007; 2011).

Similarly, Zisimopoulos et al. (2008) found that 20% of middle-aged highly educated


4

women accurately answered the basic questions related to simple interest, while at

the same question correctly answered 35% of highly educated men of the same

age. According to Alessie et al. (2011), women reported a lower level of financial

literacy, and the gender differences were found to be statistically significant. Van

Rooij et al. (2011) in their research confirmed the existence of differences in the level

of financial literacy with respect to sociodemographic variables, where women

showed a lower level of financial literacy than men. Mahdavi and Horton (2014)

concluded that the financial literacy even among highly educated and talented

women was at the very low level when compared to men. They implied that even

highly-educated women were not at the high level of financial literacy. Results of

Vehovec et al. (2015) confirmed the assumption of a higher level of financial literacy

of men when compared to women. Furthermore, several studies showed that

women are less secure in their financial capabilities (Niederle and Vesterlund, 2007;

Niederle and Yestrumkas, 2008), which results in different financial outcomes for both

genders. Results of the research conducted by Cheng et al. (2011) suggested that

there are significant differences in preferences for the use of loans in relation to

gender and that woman on average pay higher costs of credit use than men.

Several studies went one step further and even explored the reasons that might

cause the gender segregation. Hsu (2011) confirmed that the aforementioned

differences in financial literacy are caused by different specialization within the

household which resulted in the late adoption of financial knowledge and skills by

women. Fonseca et al. (2012) and Bucher-Koenen et al. (2012) concluded that the

cause of low financial literacy of women could be the low confidence regarding

financial decision making. Fonseca et al. (2012) study confirmed Cheng et al. (2011)

findings. They concluded that most of the gender differences are determined by the

"creation" of financial literacy. One explanation is the division of household chores,

where men are dominant in financial activities, while women engage more in other

activities within the household.

World Bank (2010a, 2010b) pointed out that effective campaigns are necessary to

promote awareness or consumer literacy with a view to better understanding of

banking products and services and avoidance of individual financial problems. On

the basis of the National Strategic Consumer Financial Literacy Framework for the

period 2015-2020 (Official Gazzete, 2015), the Action Plan for Improving Consumer

Financial Literacy for 2015 (Official Gazzete, 2015) was adopted by the Government

of the Republic of Croatia in 2015.

The Action Plan contains an overview of identified measures and activities in

raising the level of consumer literacy, and the Ministry of Finance is responsible for

the coordination process and preparation of the Action Plan's implementation.

The measures are defined by the stakeholders in the implementation of financial

education as defined by the National Strategic Consumer Financial Literacy

Framework. The public institutions and other institutions designated by the individual

measures of the Action Plan have the responsibility to carry out the measures and

activities within their respective competencies (Croatian Chamber of Commerce,

2017).

Croatian National Bank also has a great role in the process of promoting financial

literacy in Croatia. Croatian National Bank (2016) conducted the financial literacy

survey in cooperation with the Croatian financial services supervisory agency

(Hanfa) and Ministry of Finance. The representative sample comprised over 1 000

respondents.

The conducted survey research indicated that individuals with both lower income

and education level show lower financial knowledge. They administer manage


5

household budgets less often, have inadequate pension planning and are not very

familiar with the use of financial products.

Methodology The data used in this study is obtained from a survey conducted by Cvrlje (2014). The

data consists of 640 randomly chosen respondents living in Croatia, aged 20-79 who

are interviewed using telephone survey. Based on data from the survey it is

systematically chosen a random sample of 120 respondents (equal number of male

and female respondents) living in Croatia, 25-50 years old. Measurement scales used

in this study (financial literacy and financial performance) are also adopted from

Cvrlje (2014) and the author reported adequate reliability (above 0.8) and

convergent validity of the measurement scales (factor loadings 0.6 and above).

Financial literacy measure is composed out of seven questions relating to inflation,

compound interest, exchange rate, risk awareness, and loans. Financial

performance scale is comprised out of 23 items relating to six categories of financial

behaviour: (1) consumption management; (2) Securing your future; (3) Informing on

personal finances; (4) Attitude and awareness on the necessity of responsible

individual finance management; (5) Financial planning; and (6) Financial stability.

In the next step, the linear cross-section regression model with two independent

variables is estimated. The dependent variable in the model is financial

performance, denoted by y. The first explanatory variable is dummy variable

gender, denoted by G, where G=0 for female gender and G=1 for the male gender.

Financial literacy (denoted by FL) is ordinal categorical variable with 4 levels:

Completely financially illiterate, financially illiterate, moderately financially literate

and highly financially literate. To investigate if financial literacy affects financial

performance, the following three dummy variables are chosen for four levels of

financial literacy: 1) FL2=1 if FL= financially illiterate, FL2=0 else; 2) FL3=1 if FL=

Moderate financially literate, FL3=0 else and 3) FL4=1 if FL= High financially literate,

FL4=0 else.

Results The multiple regression analysis is conducted using SAS Enterprise Guide 4.3. The

cross-section linear regression model is estimated using ordinary least squares

method. For an explanation of the model see, for example, Kennedy (2008),

Maddala and Lahiri (2010), Greene (2012) and Pejić Bach et al. (2009).

Table 1

Parameter Estimates

Variable Parameter

estimate

Standard

error

t-statistic p-value Tolerance Variance

inflation

Intercept 64.685 2.904 22.27 0.0000 - -

G 5.287 2.300 2.30 0.0234 0.956 1.046

FL2 7.237 3.279 2.21 0.0293 0.490 2.040

FL3 7.568 3.558 2.13 0.0355 0.522 1.917

FL4 10.266 3.898 2.63 0.0096 0.577 1.734

Source: Authors’ calculation


6

Table 1 shows regression model parameter estimates, as well as corresponding

standard errors, t-statistics, and p-levels, tolerance and variance inflation. The

estimated regression model with t-statistics in parentheses is:

(3.898) (3.558) (3.279) (2.300) (2.904)

FL410.267 + FL37.568 + FL27.237 +5.287 + 64.685 = y iiii iG

(1)

Since empirical significance levels are less than 0.05, it can be concluded that all

independent variables are significant at 5% significance. The intercept of equation

(1) is 64.68539 and it means the average value of financial performance for the

group of women (G=0) at the reference category (Completely financially illiterate)

of variable FL. The first regression coefficient 287.5ˆ1 measures the difference in the

two intercept terms for man (G=1) and women (G=0). The average value of financial

performance for man (G=1) at the reference level of variable FL is 69.972 points, or it

is 5.287 points higher than the average value of financial performance for women at

the same FL level.

Parameters432ˆ,ˆ,ˆ in the equation (1) have positive values, and they indicate an

average increase in the average value of financial performance for persons who

have reached the second, third, or fourth level of FL with respect to persons who are

financially completely illiterate. For example, the second regression coefficient

23689.7ˆ2 means that financially illiterate person is on average 7.23689 points

financially more successful than the completely financially illiterate persons.

The analysis of variance for the estimated cross-section linear regression model is

shown in Table 2.

Table 2

The analysis of variance

Variation

source

Degrees of

freedom

Sum of

Squares

Mean

Square

F-statistic

p-value

Model 4 2314.04 578.51 3.81 0.0060

Error 115 17453 151.76

Corrected

Total

119 19767

Source: Authors’ calculation

The F-statistic from Table 2 equals 3.81, with a corresponding empirical

significance level of 0.006. Therefore, the overall regression significance test shows

that the regression model is significant at 1% significance.

Moreover, the summary of the model fit is assessed. The standard error of the

estimate is equal to 12.319 points. The associated relative measure is the coefficient

of variation, which is equal to 16.65% and points to the satisfactory

representativeness of the estimated regression model. The coefficient of

determination equals to 0.1171, what is not unusual in regression models with

categorical explanatory variables.

In the next step, the regression model diagnostics are examined. In this paper,

White's LM test is conducted in order to test for heteroskedasticity. The LM test

statistics equals 4.120614, with the p-value of 0.7658. Therefore, at 5% significance,

heteroscedasticity is not present. Moreover, the normality of the model residuals is


7

tested using Jarque-Bera test. Figur1 shows the Jarque-Bera test statistic, which is

equal to 2.5537 and its p-value equals 0.2789, what points to residual normality.

Furthermore, the histogram of the residuals is shown in Figure 1.

Figure 1

The descriptive statistics and histogram of the residuals and Jarque-Bera test statistics

Source: Authors’ work (E Views 8)

The existence of multicollinearity is assessed using Variance Inflation Factors (VIF),

which are shown in Table 1. Since VIF is less than 5 for all four explanatory variables,

the can be concluded that there is no multicollinearity problem in the estimated

regression model.

The robustness of obtained estimations to the addition of new explanatory

variable is examined estimation of the multiple regression model using age as

additional independent variable. The result of the estimation is provided in equation

(2). The model diagnostics is also conducted and there is no violation of regression

model assumptions. Although age is not significant in explaining financial

performance, the signs of other explanatory variables in estimated regression

equation remain the same, what points to the fact that previously estimated model

robust to the addition of variable age.

(3.954) (3.615) (3.301) (2.380) (0.211) (7.493)

9.604FL4FL36.929 + FL26.862 + G5.896 +0.21 - 71.571= y iiiii iAGE

(2)

Discussion This research investigates the relationship among financial literacy, gender and

financial performance in the sample of 120 Croatians. The conducted research has

shown that financial literacy and gender are both statistically significant in explaining

individual financial performance. The findings of this research confirm results of the

previous studies regarding the positive impact of financial literacy on individual

financial performance and lower level of financial performance of women when

compared to men at the same level of financial literacy. As expected, results of the

analysis indicate that financial performance increases for each level of improved

financial literacy. Similar results were also found in Hilgert et al. (2003), Lusardi, 2004;

2005; 2011; Lusardi and Tufano, 2009; Gerardi et al., 2010; van Rooij et al., 2012, etc.

Furthermore, examining gender differences, we find that on average women

perform worse than men in the context of personal finance. The average value of

financial performance for man is 5.287 points higher than the average value of

financial performance for women at the same financial literacy level. These results

are in line with the previous research on this subject (Goldsmith and Goldsmith, 1997;


8

Chen and Volpe, 2002; Lusardi and Mitchell, 2007; Zisimopoulos et al., 2008; Lusardi

and Mitchell, 2011; Falahati and Paim, 2011, etc.) and confirm the existence of

gender segregation in terms of financial performance in Croatia.

The results emphasize the significance of financial literacy for individual financial

performance and raise concerns on women’s ability to reach financial security. As

poor financial management problem is found among women, it is necessary for the

educators and policy makers to engage in providing an adequate financial

education program that should target explicitly women. This may be better suited to

address their inclinations, wants, needs, financial knowledge, and skills and the way

women acquire and use financial literacy. Moreover, educators should take

effective measures in refining and improve people’s financial knowledge and skills in

order to ensure their enhanced financial performance. The obtained results can be

explained by different specialization within the household which resulted in the late

adoption of financial knowledge and skills by women, what is outlined in Hsu (2011)

as the possible reason of the worse financial performance of women. Moreover, as

mentioned earlier, Fonseca et al. (2012), Bucher-Koenen et al. (2012) indicate that

women exhibit a low level of self-confidence regarding financial decision making.

Also, Cheng et al. (2011) pointed out that most of the gender differences are

determined by the different "creation" of financial literacy, whereas men are

governing mostly financial activities, while women engage more in other activities

within the household.

Conclusion This research assessed the importance of financial literacy and gender in achieving

financial performance. The results imply that both financial literacy and gender are

important variables forming and affecting the financial performance of individuals

and thus should be attended with special attention. The results obtained in this

research may be a good reference for future research related to personal financial

behavior and individual performance in managing personal finances. However,

additional research is needed to further advance the current understanding of this

area. A challenge for future studies is to examine other variables both those given by

birth (as gender) and acquired through life (as financial literacy) that might

influence overall individual financial performance. Also, it is necessary to conduct

additional research to comprehend why the differences in financial performance

among women and men exist and which factors contribute to mentioned

differences. The main limitations of this study concern self-reported data which

includes the risk of some individuals giving false or desirable answers. However, this

concern is present in every research based on survey. Further limitations concern the

sample size and the fact it included people aged 25-50 years. Therefore it is

advisable to repeat the investigation on a larger sample to make sure the findings

are applicable to other age groups as well.

References 1. Alessie, R., Rooij, M., Lusardi, A. (2011), „Financial Literacy, Retirement Preparation

and Pension Expectations in the Netherlands“,NBER Working Paper No. 17109.

2. Ameriks, J., Caplin, A., Leahy, J. (2003), „Wealth accumulation and the

propensity to plan“, Quarterly Journal of Economics, Vol. 118, No. 3, pp. 1007-

1047.

3. Atkinson, A., Messy F. A. (2012), „Measuring Financial Literacy: Results of the

OECD/International Network on Financial Education (INFE) Pilot Study“, OECD


9

Working Papers on Finance, Insurance and Private Pensions, OECD Publishing,

No. 15, pp. 1-72.

4. Bahovec, V., Cvrlje, D., Palić, I. (2015), “Testing the effects of financial literacy on

debt behavior of financial consumers using multivariate analysis methods”,

Croatian Operational Research Review, Vol. 6, No. 2, pp. 361-371.

5. Bajtelsmit, V. L., Bernasek, A. (1996), “Why do women invest differently than

men?”, Journal of Financial Counselling and Planning, Vol. 7, pp. 1-10.

6. Banks, J., O'Dea, C., Oldfield, Z. (2010), „Cognitive function, numeracy and

retirement saving trajectories“, Economic Journal, Vol. 120, No. 548, pp. 381-410.

7. Banks, J., Oldfield, Z. (2007), „Understanding Pensions: Cognitive Function,

Numerical Ability and Retirement Saving“, Fiscal studies, Vol. 28, No. 2, pp. 143-

170.

8. Barber, B. M., Odean, T. (2001), „Boys Will be Boys: Gender, Overconfidence, and

Common Stock Investment“, Quarterly Journal of Economics, Vol. 116, No. 1, pp.

261-292.

9. Barbić, D. (2017), “Investigating the role of financial knowledge, financial skills

and behavioral control in explaining individuals’ performance in managing

personal finances: The case of Croatia”, in Ogutveren, U., Frydkova, E., Pomazan,

V. M. (eds), 3rd International Conference on Humanities, Social Sciences and

Education, Dubai, pp. 244-249.

10. Bell, C., Gorin, D., Hogarth, J. M. (2008), „Financial education – Does it work and

how do we know? Research findings from a study of financial education among

soldiers“, Community Investments, Vol. 21, No. 2, pp. 15-16.

11. Bell, C., Gorin, D., Hogarth, J. M. (2009), „Does financial education affect soldiers’

financial behavior?“, Networks Financial Institute Working Paper 2009-WP-08, pp.

1-50.

12. Bernheim, B. D., Garrett, D. M. (2003), “The effects of financial education in the

workplace: Evidence from survey of households”, Journal of Public Economics,

Vol. 87, No. 7-8, pp. 1487-1519.

13. Boyce L. B., Danes, S. M. (1998), “Evaluation of the NEFE high school financial

planning program”, National Endowment for Financial Education.

14. Bucher-Koenen, T., Lusardi, A., Alessie, R., van Rooij,M. (2012), “How financially

literate are women? Some new perspectives on the gender gap”, available at:

http://arno.uvt.nl/show.cgi?fid=126935 (21 September 2017).

15. Chen, H., Volpe, R. P. (2002), „Gender differences in personal financial literacy

among college students“, Financial Services Review, Vol. 11, pp. 289-307.

16. Cheng, P., Lin, Z., Liu, Y. (2011), „Do Woman Pay More for Mortgages?“, Journal

of Real Estate Finance and Economics, Vol. 43, No. 4, pp. 423-440.

17. Christelis, D., Jappelli, T., Padula, M. (2010), „Cognitive abilities and portfolio

choice“, European Economic Review, Vol. 54, No. 1, pp. 18-38.

18. Collins, J. M. (2010), “The impacts of manadatory financial education: evidence

from a randomized field study”, Working Paper, Center for financial security, pp.

1-13.

19. Croatian Chamber of Commerce (2017), “Pilot-projekt Financijske pismenosti

2017”, available at: http://www.hgk.hr/pilot-projekt-financijske-pismenosti-2017-

2018 (21 September 2017).

20. Croatian National bank (2016), “Results of the financial literacy survey in the

Republic of Croatia”, available at: https://www.hnb.hr/en/-/predstavljeni-

rezultati-istrazivanja-mjerenje-financijske-pismenosti- (21 September 2017).

http://arno.uvt.nl/show.cgi?fid=126935

http://www.hgk.hr/pilot-projekt-financijske-pismenosti-2017-2018

http://www.hgk.hr/pilot-projekt-financijske-pismenosti-2017-2018

https://www.hnb.hr/en/-/predstavljeni-rezultati-istrazivanja-mjerenje-financijske-pismenosti-

https://www.hnb.hr/en/-/predstavljeni-rezultati-istrazivanja-mjerenje-financijske-pismenosti-


10

21. Cvrlje, D. (2014), “Povezanost koncepta financijske pismenosti s uspješnošću u

upravljanju osobnim financijama”, Doctoral thesis, University of Zagreb, Faculty of

Economics and Business.

22. Cvrlje, D., Bahovec, V., Palić, I. (2015), “Exploring the Effects of Financial

Education: Analysis of Saving Behavior of Croatian Consumers”, in Jovancai

Stakic, A., Kovsca, V., Bendekovic, J. (eds), Book of Proceedings of the Economic

and Social Development (ESD), 5th Eastern European Economic and Social

Development Conference on Social Responsibility, Belgrade, Serbia, pp. 241-250.

23. Falahati, L., Paim, L. H. (2011), “Gender differences in financial well-being among

college students”, Australian Journal of Basic and Applied Sciences, Vol. 5, No. 9,

pp. 1765-1776.

24. Fonseca, R., Mullen, K. J., Zamarro, G., Zissimopoulos, J. (2012), “What Explains the

Gender Gap in Financial Literacy?”, The Journal of Consumer Affairs, Vol. 46, No.

1, pp. 90-106.

25. Gale, W., Levine, R. (2010), “Financial literacy: What works? How could it be

effective?”, available at: https://www.brookings.edu/wp-

content/uploads/2016/06/10_financial_literacy_gale_levine.pdf (21 September

2017).

26. Gerardi, K., Goette, L., Meier, S. (2010), “Financial literacy and subprime

mortgage delinquency: evidence from a survey matched to administrative

data”, Federal Reserve Bank of Atlanta Working Paper Series, No. 2010-10, pp. 1-

54.

27. Goldsmith, R. E., Goldsmith, E. B. (1997), “Gender differences in perceived and

real knowledge of financial investments”, Journal of Psychological Reports, Vol.

80, No. 1, pp. 236-238.

28. Goldsmith, R., Goldsmith, E., Heaney, J. (1997), “Sex Differences in Financial

Knowledge: A replication and Extension”, Psychological Reports, Vol. 81, No. 3,

pp. 1169-1170.

29. Greene, W. H. (2012). Econometric analysis, Upper Saddle River, Pearson Prentice

Hall.

30. Grinblatt, M., Keloharju, M. (2009), „Sensation Seeking, Overconfidence, and

Trading Activity“, Journal of Finance, Vol. 64, No. 2, pp. 549-578.

31. Hilgert, M. A., Hohart, J. M., Beverly, S. G. (2003), “Household Financial

Management: The connection between knowledge and behavior”, Federal

Reserve Bulletin, Vol. 2003, No. 7, pp. 309-322.

32. Hira, K. T., Mugenda, O. (2000), “Do men and women differ in their financial

beliefs and behaviors?”, Proceedings of the Eastern Family Economics Resource

Management Association.

33. Hsu, J. W. (2011), “Aging and Strategic Learning: The Impact of Spousal

Incentives on Financial Literacy”, Indiana State University Networks Financial

Institute Working Paper, 2011-WP-06.

34. Hung, A. A., Parker, A. M., Yoong, J. K. (2009), “Defining and measuring financial

literacy”, RAND Working Paper Series WR-708, pp. 1-28.

35. Kennedy, P. (2008). A guide to Econometrics, New Jersey, Wiley Blackwell.

36. Lusardi, A. (2004), “Savings and effectiveness of financial education”, Pension

Research Council, WP2003-14, pp. 1-45.

37. Lusardi, A. (2005), „Financial Education and the Saving Behavior of African-

American and Hispanic Households“, available at:

http://www.dartmouth.edu/~alusardi/Papers/Education_African&Hispanic.pdf

(21 September 2017).

https://www.brookings.edu/wp-content/uploads/2016/06/10_financial_literacy_gale_levine.pdf

https://www.brookings.edu/wp-content/uploads/2016/06/10_financial_literacy_gale_levine.pdf

http://www.dartmouth.edu/~alusardi/Papers/Education_African&Hispanic.pdf


11

38. Lusardi, A. (2008), “Financial Literacy: Essential Tool for Informed Consumer

Choice?”, Bulletin on Aging and Health, No. 14084, pp. 1-30.

39. Lusardi, A., Mitchell, O. S. (2007), „Financial Literacy and Retirement Planning:

New Evidence from the Random American Life Panel“, available at:

http://www.dartmouth.edu/~alusardi/Papers/American_Life_Panel.pdf (21

September 2017).

40. Lusardi, A., Mitchell, O. S. (2011). Implications for retirement security and the

financial marketplace, Oxford University Press.

41. Lusardi, A., Tufano, P. (2009), „Debt literacy, financial experiences, and

overindebtedness“, NBER Working Paper Series, Working Paper 14808.

42. Maddala, G. S., Lahiri, K. (2010). Introduction to Econometrics, New Jersey, Wiley

Blackwell.

43. Mahdavi, M., Horton, N. J. (2014), “Financial Knowledge among Educated

Women: Room for Improvement“, The Journal of Consumer Affairs, Vol. 48, No. 2,

pp. 403-417.

44. Niederle, M., Yestrumskas, A. (2008), „Gender differences in seeking challanges:

The role of institutions“, NBER Working Paper No. 13922.

45. Niederle, M.,Vesterlund, L. (2007), „Do woman shy away from competition? Do

men compete too much?“, Quarterly Journal of Economics, Vol. 122, No. 3, pp.

1067-1101.

46. Official Gazzete (2015), National Strategic Consumer Financial Literacy

Framework for the period 2015-2020, available at: http://narodne-

novine.nn.hr/clanci/sluzbeni/2015_01_11_224.html (10 April 2017).

47. Pejić Bach, M., Posedel, P., Stojanović A. (2009), “Determinante profitabilnosti

banaka u Hrvatskoj”, Zbornik ekonomskog fakulteta u Zagrebu, Vol. 7, No. 1, pp.

81-92.

48. Shim, S., Xiao, J. J., Barber, B. L., Lyons, A. (2009), “Financial socialization of first-

year college students: The roles of parents, work, and education”, Journal of

Youth Adolescence, Vol. 39, No. 12, pp. 1457-1470.

49. Smith, J., McArdle, J., Willis, R. (2010), „Financial decision making and cognition in

a family context“, Economic Journal, Vol. 120, No. 548, pp. 363-380.

50. Stango, V., Zinman, J. (2009), “Exponential Growth Bias and Household Finance”,

Journal of Finance, Vol. 64, No. 6, pp. 2807- 2849.

51. Staten, M. S., Elliehausen, G., Lundquist, E. C. (2003), „The impact of credit

counseling on subsequent borrower credit usage and payment behavior“,

Credit Research Center, pp. 1-36.

52. Van Rooij, M. C. J., Lusardi, A., Alessie, R. J. M. (2011), „Financial literacy and

retirement planning in the Netherlands“, Journal of Economic Psychology, Vol.

32, No. 4, pp. 593-608.

53. Van Rooij, M. C. J., Lusardi, A., Alessie, R. J. M. (2012), „Financial literacy,

retirement planning and household wealth“, The Economic Journal, Vol. 112, No.

560, pp. 449-478.

54. Vehovec, M. (2011), "Financijska i mirovinska pismenost: međunarodna iskustva i

prijedlozi za Hrvatsku", Privredna kretanja i ekonomska politika, Vol. 21, No. 129,

pp. 65-85.

55. Vehovec, M., Rajh, E., Škreblin Kirbiš, I. (2015), “Financijska pismenost građana u

Hrvatskoj”, Privredna kretanja i ekonomska politika, Vol. 24. No. 1, pp. 53-75.

56. Wagland, S. P., Taylor, S. S. (2009), “When it comes to financial literacy, is gender

really an issue?”, Australasian Accounting Business and Finance Journal, Vol. 3,

No. 1, pp. 13-25.

http://www.dartmouth.edu/~alusardi/Papers/American_Life_Panel.pdf

http://narodne-novine.nn.hr/clanci/sluzbeni/2015_01_11_224.html

http://narodne-novine.nn.hr/clanci/sluzbeni/2015_01_11_224.html


12

57. Weir, D. R., Willis, R. J. (2000), „Prospects for Widow Poverty in the Finances of

Married Couples in the HRS“, in Mitchell, O. S., Hammond, P. B., Rappaport, A. M.

(eds), Forecasting Retirement Needs and Retirement Wealth, University of

Pennsylvania Pres, pp. 208–234.

58. World Bank (2010a). Hrvatska – Dijagnostički pregled zaštite potrošača i

financijske pismenosti, Svezak I: Glavni nalazi i preporuke, veljača, Zagreb, World

Bank.

59. World Bank (2010b). Hrvatska – Dijagnostički pregled zaštite potrošača i

financijske pismenosti”, Svezak II: Usporedba s dobrim praksama, Zagreb, World

Bank.

60. Xiao, J. J., Sorhaindo, B., Garman, E. T. (2006), „Financial behavior of consumers

in credit counseling“, International Journal of Consumer Studies, Vol. 30, No. 2,

pp. 108-121.

61. Xiao, J. J., Tang, C., Shim, S. (2009), “Acting for Hapiness: Financial Behavior and

Life Satisfaction of College Students”, Social Indicator Research, Vol. 92, No. 1,

pp. 53-68.

62. Zissimopolus, J., Karney, B., Rauer, A. (2008), „Marital histories and economic

wellbeing“, MRRC Working Paper, WP2008-645, pp. 1-30.


13

About the authors

Vlasta Bahovec graduated from the Faculty of Science in Zagreb in 1972, majoring in

practical mathematics. In the same year, she was elected at the Faculty of

Economics and Business, the University of Zagreb as an assistant in statistical

disciplines. She gained her MSc degree in 1979, and Ph.D. in economics at the

Faculty of Economics and Business, the University of Zagreb in 1987. In 1990 she

became an assistant professor, in 2003 full professor and in 2010 full professor tenure

at Department of statistics. Her scientific and professional papers are from the field of

regression analysis and analysis of time series. In academic year 1996/97, she held

the position of the head of the Department of Statistics at the Faculty of Economics

and Business, the University of Zagreb From 2006 to 2009 she was the Vice-Dean for

Teaching and Students at the Faculty of Economics and Business, University of

Zagreb. She has been retired since 2015. She actively publishes scientific papers after

retirement. She can be contacted at [email protected].

Dajana Barbić graduated in 2008 at the Faculty of Economics and Business,

University of Zagreb, majoring in Finance. During the study, she has been awarded

Dean’s Award four times for great success during her study and Rector’s Award.

Also, she received The City of Zagreb scholarship. She post-graduate in Managing

Financial Institutions and gained a Ph.D. degree in Business Economics at Faculty of

Economics and Business, University of Zagreb. She is currently employed as Assistant

Professor at the Department of Finance, Faculty of Economics and Business,

University of Zagreb. From 2008 she teaches following courses: Personal finance,

Public finance, Monetary policy and Tax Systems in Croatia. Her main research fields

include financial literacy and personal finances, public finance, tax literacy and

taxation, and income inequality. She has published many scientific papers and

participated in international scientific conferences. As part of the Erasmus program

for professional training in March 2014 she stayed at Wirtschaftsuniversitat in Vienna

and in 2013 she visited Universita del Salento in Lecce, Italy. She is dedicated to the

financial education of citizens, especially young, and she is a member and co-

founder of the Institute for financial education – Štedopis. She can be contacted at

[email protected].

Irena Palić graduated in 2008 at the Faculty of Economics and Business, University of

Zagreb, majoring in Finance. During the study, she has been awarded Dean’s Award

four times for great success and results achieved. Also, she received The City of

Zagreb scholarship and the State Scholarship of the Ministry of Science, Education,

and Sports. She post-graduate in Statistical Methods for Economic Analysis and

Forecasting and gained a Ph.D. degree in Economics at Faculty of Economics and

Business, University of Zagreb. She is currently employed as Assistant Professor at the

Department of Statistics, Faculty of Economics and Business, University of Zagreb.

From 2008 she teaches following courses: Statistics, Sampling methods, Business

Statistics, Statistical methods in professional and scientific work, Statistical methods of

research in tourism. Her main research fields are the application of statistics and

econometrics in business, finance and economics, multivariate methods and

dynamic stochastic general equilibrium models. She has published 29 scientific

papers and participated in 17 scientific conferences. As part of the Erasmus program

for professional training in March 2014, she stayed at Wirtschaftsuniversitat in Vienna.

She can be contacted at [email protected].


14

Motivation and Satisfaction of Employees in

the Workplace

Maja Rožman, Sonja Treven, Vesna Čančer

Faculty of Economics and Business, University of Maribor, Maribor, Slovenia

Abstract

Background: The aging of the European population is a demographic trend

reflected in the ever-growing number of older employees. This paper introduces the

importance of motivation and satisfaction in the workplace among age diverse

employees in Slovenian companies. Objectives: The goal is to investigate the

differences between the motivation and satisfaction of employees from different

age groups in the workplace. Methods/Approach: The paper is based on research

including a survey of two age groups of employees in Slovenia. We employed the

Mann-Whitney U test to verify differences in the motivation and satisfaction in the

workplace between the two groups. Results: Older employees are more motivated

by flexibility in the workplace; autonomy at work; good interpersonal relationships in

the workplace; the possibility of working at their own pace; respect among

employees; equal treatment of employees regardless of their age. They are more

satisfied with interpersonal relationships in the company; their work; working hours

and the distribution of work obligations; and facilitation of the self-regulation of the

speed of work performed. Conclusions: Motivation and satisfaction change as

individuals age. Using this information, managers and employers can apply

appropriate measures to contribute to employees’ well-being and better workplace

performance, better working relationships with colleagues, higher productivity, and

greater creativity.

Keywords: motivation; satisfaction; employees; human resource management

JEL classification: J24


Received: May 13, 2016

Accepted: Mar 11, 2017

Citation: Rožman, B., Treven, S., Čančer, V. (2017), “Motivation and Satisfaction of

Employees in the Workplace”, Business Systems Research, Vol. 8, No. 2, pp. 14-25.

DOI: 10.1515/bsrj-2017-0013

Introduction Due to demographic changes in society, which present various challenges in the

management of human resources, the percentage of employees older than 50

years is increasing. This results in the changes in frequency and size of age diversity in

companies (Baltes et al., 2011).

On the other hand, Hertel et al. (2013) suggested that age diverse workers have

different experience and background; age diversity of workers in companies could


15

increase creativity, innovation, and problem solving. Diversity in role expectations,

working styles, and general values causes various needs for communication,

coordination and conflict management. Wiley (1997) argued that employers must

understand what motivates employees; they must also emphasize employees'

satisfaction. This is essential to improve productivity and ensure companies success

(UK Essays, 2015). Furthermore, Lange et al. (2006) asserted that aging influences

biological, psychological and social functions over time, thereby affecting each

individual’s organizational, societal and personal levels. This also means that

employees' age diversity has different effects on work-related attitudes.

The research of Kooij et al. (2011) clearly showed a significant negative

relationship between age and growth-related motives, and positive relationship

between age and positive affect at work, and between age and personal needs

and job characteristics. Organizations should therefore emphasize the management

of human resources and age diversity.

This article presents the importance of human resource management in the

context of motivation and satisfaction of older and younger employees. The goal is

to investigate the differences between the motivation and satisfaction of employees

from different age groups in the workplace. In the article, we answered the following

research questions: RQ1: Are there statistically significant differences in motivation in

the workplace between older and younger employees? RQ2: Are there statistically

significant differences in job satisfaction in the workplace between older and

younger employees? This research presents descriptive statistics and a Mann-

Whitney test for answers about motivation and satisfaction between two groups of

employees in companies in Slovenia. Based on our results, we found differences in

motivation and satisfaction between younger and older employees.

The article presents a review of the literature on employees' motivation and

satisfaction, a description of methodology, results about the motivation and

satisfaction of younger and older employees, and finally a discussion of the findings.

Literature review Motivation in the workplace In order to compete effectively in the global marketplace, companies should design

jobs so that stress can be reduced, and the motivation and satisfaction of

employees and their performance can be increased (Garg and Rastogi, 2006).

According to Bartol and Martin (1998), motivation “energizes behavior, gives

direction to behavior, and underscores the tendency to persist”. Islam and Ismail

(2008) suggested that motivation is an important aspect by leading function in

influence on others to work toward companies’ goals.

The motivation of older employees to work and remain active in the workplace

has been examined in a few studies. Empirical research has often focused on young

employees (Kooij et al., 2008). Stamov-Roßnagel and Biemann (2012) explained that

the stereotypical beliefs of older employees having a lower ability, less productivity,

and less motivation at work reduce work-friendly environments for older workers.

Such a working environment puts motivation on the line. Further, authors Stamov-

Roßnagel and Biemann (2012) argued that it is crucial to understand age-related

changes in work motivation. According to Stamov-Roßnagel and Hertel (2010),

maintaining a high level of motivation at different ages, and for older workers in

particular, is a prerequisite for successful management when dealing with changes

in work capabilities.


16

Satisfaction in the workplace Today's companies operate in a competitive environment at a global level and are

forced to do everything on the market to become and remain competitive. In view

of such a situation, it is crucial that management takes care of employee

satisfaction, which is a key factor for organizational effectiveness and efficiency and

for the successful implementation of the corporate strategy (Bigliardi et al., 2012).

According to Jex and Britt (2008), satisfaction in the workplace is crucial for

organizational success. Jex and Britt (2008) also argued that satisfied employees

commit to work more and have higher rates in retention and productivity. The

authors also assert that high satisfaction often means lower level of absenteeism

while improving mental and physical health. Harrison et al. (2006) argued that

workplace satisfaction can also be linked to other key factors of employees in the

context of workload, stress and supervision at work, and the balance in domestic

activities and work enviroment.

However, Goetz (2001 in Aghazadeh, 2004) concluded that poorly managed

diversity can have long-term effects on employee productivity and satisfaction;

employees who view themselves as more respected also work harder and are more

innovative and involved in work environment.

On the other hand, some employees, due to the existence of stereotypes and

prejudices, feel less important for the organization; therefore, their working capacity

is reduced. Poor management of diversity can have negative consequences: the

reduction of skills, motivation and employee satisfaction, which means less

efficiency. If company does not take into account the existence and importance of

the diversity of the workforce, it may come to situation that the company and the

employees will not achieve their goals or exploit their potential (Aghazadeh, 2004).

Therefore, Aghazadeh (2004) emphasized the importance of human resources

and their role considering proper management of age diversity in the organization.

Thus, according to Lawrence (2001 in Aghazadeh, 2004), in today’s competitive

environment, diversity is the norm of successful organizations

Methodology Sample and data The motivation and satisfaction in the workplace between different age groups of

employees were examined in the empirical study based on a quantitative method

of data gathering. We sent 525 questionnaires to both private and public, randomly

selected companies in Slovenia in January 2016. According to business activity, the

survey included capital goods, basic industries, consumer services, consumer non-

durables, consumer durables, healthcare, finance, public utilities, transportation, and

technology. Small, medium sized and large companies participated in this survey.

The response rate was 76%. The research includes 400 companies and one

employee in each company. The employees were divided into two groups: younger

employees were classified into the group of under 50 years of age, and older

employees were classified into the group from 50 to 65 years of age. Definitions of

older employees vary in the literature. Mostly, the lower age limit defining older

employees are 45 years (Brooke, 2003) or 50 years (Ilmarinen, 2001). Ghosheh et al.

(2006) argued that the term "older employees" includes workers between 40 and 50

years of age. As there are different theoretical principles, we decided to use 50 years

old as the boundary for our research. Our sample consists of 400 employees; 174

young employees and 226 older employees answered the questionnaires. Table 1


17

shows the profile of respondents of Slovenia and control variables. The distribution is

representative for Slovenia.

Table 1

Profile of Respondents and Control Variables

Characteristic of respondents

Number of

respondents

Percentage

Age

18 to 49 years 174 43.5%

50 to 65 years 226 56.5%

Level of

achieved

education

Primary school 2 0.5%

Vocational or

secondary school

64 16%

High school 137 34.3%

University education 180 45%

Master's degree or

doctorate

17 4.2%

Region where

respondents

performs their

job

Pomurje 45 11.3%

Podravje 95 23.8%

Koroška 17 4.2%

Savinjska 16 4%

Zasavska 15 3.8%

Posavska 8 2%

South-east Slovenia 46 11.5%

Central Slovenia 120 30%

Gorenjska 21 5.2%

Primorsko-notranjska 10 2.5%

Goriška 3 0.7%

Coastal-Kras 4 1%

Size of

companies of

employees

Large company 102 25.5%

Medium-sized

company

226 56.5%

Small company 72 18%

Source: Authors’ work

Instrument of research We used various theoretical concepts and research to design the instrument for

measuring the motivation and satisfaction of employees in the workplace.

Table 2 shows the research instrument that was developed bysed on several

previous researches (Rad and Yarmohammadian, 2006; Monk, 1996; Claes and

Heymans, 2008; Shacklock and Brunetto, 2011; Moore, 2007; Gellert and Kuipers,

2008; Peeters and Emmerik, 2008; Stamov-Roßnagel and Biemann, 2012: Kooij et al.,

2008; Claes and Heymans, 2008; Templer et al., 2010; Origo and Pagani, 2008; Artz,

2010; Shacklock and Brunetto, 2011; Koc‐Menard, 2009; Shacklock and Brunetto,

2011; Gellert and Kuipers, 2008; van Dick et al., 2008; Groot and Brink, 1999; Robson

et al., 2006; Henkens and Leenders, 2010; Stamov-Roßnagel and Biemann, 2012)

To determine the motivation and satisfaction of employees in the workplace, the

employees indicated on a 5-point Likert scale their agreement to the listed

statements, where 5 = completely agree and 1 = strongly disagree. Likert scale was

used for this type of research because we wanted to know the strength of

agreement with statements in the questionnaire.


18

Table 2

Research instrument

Dimension Items Source

MOTIVATION

For better performance at my work it motivates me:

m1: Higher salary.

m13: Good interpersonal relations in the workplace.

Rad and

Yarmohammadian (2006)

m2: Compliments from the employer for good work. Monk (1996)

m3: The possibility of flexibility in the workplace.

m9: Possibility for training and education.

Claes and Heymans (2008)

m4: The possibility of autonomy at work.

m6: The possibility of working at my own pace.

m7: The possibility of working from home.

m15: The possibility of extended holidays.

Shacklock and Brunetto

(2011); Moore (2007)

m5: The possibility of diverse work. Gellert and Kuipers (2008)

m8: The possibility of advancement.

Peeters and Emmerik

(2008); Stamov-Roßnagel

and Biemann (2012)

m10: The possibility of equal treatment of employees by

age.

m12: Respect between employees.

Kooij et al. (2008); Claes

and Heymans (2008)

m11: The possibility of cooperation with other employees

and the allocation of work.

m14: Intergenerational cooperation, thereby reducing

the burden on the workplace.

Templer et al. (2010)

SATISFACTION

At my workplace I am satisfied:

s1: With working hours and distribution of work obligations.

s4: With enabled self-regulation of speed of work

performed.

Origo and Pagani (2008)

s2: With flexible working hours.

s5: With the quantity of programs of active aging and

healthy lifestyles.

s8: With flexible work.

Artz (2010); Shacklock and

Brunetto (2011)

s3: With the balance between work and private life. Koc‐Menard (2009);

Shacklock and Brunetto

(2011)

s6: With intergenerational cooperation and, thus, the

distribution of work.

Gellert and Kuipers (2008);

van Dick et al. (2008)

s7: With the working conditions, such as better light, air

conditioning, and bigger inscriptions.

s10: With my work.

s11: With the interpersonal relationships in the company.

s12: With the leadership in the company.

Groot and Brink (1999)

s9: With the providing of job-sharing, thereby reducing

the burden on the workplace.

Robson et al. (2006);

Henkens and Leenders

(2010)

s13: With ways of motivating in the company for better

work.

Stamov-Roßnagel and

Biemann (2012)


Statistical analysis Arithmetic means and medians were used for answers considering the motivation

and satisfaction of younger and older employees. To verify the normality of the data

distribution, Kolmogorov-Smirnov and Shapiro-Wilk tests were used. We found that the

data were not normally distributed (p < 0.001) for any statement describing the

satisfaction and motivation of employees. According to Milenovic (2011), the Mann-

Whitney U test is used to compare two independent groups when the dependent


19

variable is either ordinal or continuous, but not normally distributed. Therefore, we

verified the differences between younger and older employees with the use of non-

parametric Mann-Whitney U test, which is a substitute for the parametric t-test of

independent samples.

Results In Table 3 we present the medians, means, and results of the Mann-Whitney U test for

answers about the motivation of the age groups of employees.

Table 3

Descriptive Statistics and Mann-Whitney Test for Answers about the Motivation of

Younger and Older Employees

For better

performance at my

work it motivates me:

Mann-

Whitney U

Asymp

. Sig.

(2-

tailed)

18 to 49 years 50 to 65 years

Total

Mean Median Mean Median Mean Median

m1: higher salary. 1180.500 .000 4.97 5.00 3.66 4.00 4.23 4.00

m13: good

interpersonal

relations in the

workplace.

12562.500 .000 4.35 4.00 4.76 5.00 4.58 5.00

m2: compliments

from the employer for

good work.

18404.500 .220 4.45 5.00 4.35 4.00 4.39 4.00

m3: the possibility of

flexibility in the

workplace.

10404.000 .000 4.34 4.00 4.83 5.00 4.61 5.00

m9: the possibility for

training and

education.

595.500 .000 4.93 5.00 3.20 3.00 3.95 4.00


autonomy at work.

13985.000 .000 4.49 5.00 4.76 5.00 4.64 5.00


working at my own

pace.

14478.000 .000 4.47 5.00 4.73 5.00 4.62 5.00


working from home.

5397.000 .000 2.82 3.00 4.04 4.00 3.51 4.00


extended holidays.

11049.000 .000 3.83 4.00 3.29 3.00 3.53 3.00


diverse work.

4833.500 .000 4.22 4.00 3.00 3.00 3.54 3.00


advancement.

544.000 .000 4.94 5.00 3.14 3.00 3.92 4.00


equal treatment of

employees by age.

18254.000 .104 4.60 5.00 4.68 5.00 4.65 5.00

m12: respect

between employees.

12954.000 .000 4.36 4.00 4.73 5.00 4.57 5.00


cooperation with

other employees and

the allocation of

work.

17700.500 .060 3.86 4.00 3.99 4.00 3.93 4.00

m14:

intergenerational

cooperation, thereby

reducing the burden

on the workplace.

18820.000 .413 3.93 4.00 4.00 4.00 3.97 4.00



20

Table 3 shows the means for answers about the motivation of younger and older

employees. The results indicate that, on average, older employees, for better

performance at work, highly agree with following motivating factors: the possibility of

flexibility in the workplace (Mean: 4.83); the possibility of autonomy at work (Mean:

4.76); good relationships between employees (Mean: 4.76); the possibility of working

at their own pace (Mean: 4.73); respect between employees (Mean: 4.73); and the

possibility of equal treatment of employees by age (Mean: 4.68). The means for the

answers considering these motivating factors are higher for older employees than for

younger ones. Younger employees, however, showed the highest agreement on

average with the following motivating factors: higher salary (Mean: 4.97); the

possibility of advancement (Mean: 4.94); and the possibility for training and

education (Mean: 4.93). In these cases, the values of the observed measures of

central tendency are higher for younger employees than for older ones. The results

of the Mann-Whitney U test (Table 3) showed that the observed differences were

statistically significant in most (i.e., 73.3%) statements. Table 4 presents the medians,

means and results of the Mann-Whitney U test for answers about the satisfaction of

different age groups of employees.

Table 4

Descriptive Statistics and Mann-Whitney Test for Answers about the Satisfaction of

Younger and Older Employees

At my workplace I am

satisfied:

Mann-

Whitney U

Asymp. Sig.

(2-tailed)

18 to 49 years

Mean Median

50 to 65 years

Mean Median

Total

Mean Median

s1: With working hours

and distribution of work

obligations.

19220.500 .652 3.74 4.00 3.72 4.00 3.73 4.00

s4: With enabled self-

regulation of speed of

work performed.

16665.000 .002 3.90 4.00 3.67 4.00 3.77 4.00

s2: With flexible working

hours.

18396.000 .165 3.26 3.00 3.29 3.00 3.28 3.00

s5: With the quantity of

programs of active aging

and healthy lifestyles.

10510.500 .000 3.44 3.00 2.81 3.00 3.09 3.00

s8: With flexible work. 19301.500 .683 3.25 3.00 3.21 3.00 3.23 3.00

s3: With the balance

between work and

private life.

11885.000 .000 2.62 2.00 3.13 3.00 2.91 3.00

s6: With intergenerational

cooperation and thus

distribution of work.

18873.000 .375 3.20 3.00 3.21 3.00 3.21 3.00

s7: With the working

conditions, such as better

light, air conditioning,

bigger inscriptions.

14802.500 .000 3.77 4.00 3.46 3.00 3.60 4.00

s10: With my work. 18102.000 .133 3.72 4.00 3.78 4.00 3.75 4.00

s11: With the interpersonal

relationships in the

company.

15789.000 .000 3.63 4.00 3.83 4.00 3.74 4.00

s12: With the leadership in

the company.

17453.500 .038 3.26 3.00 3.38 3.00 3.33 3.00

s9: With the providing of

job-sharing, thereby

reducing my burden in

the workplace.

17818.500 .028 3.06 3.00 3.15 3.00 3.11 3.00

s13: With ways of

motivating employees in

the company for better

work.

14023.500 .000 2.71 3.00 3.05 3.00 2.90 3.00



21

Table 4 shows that the means for answers about the satisfaction of younger and

older employees indicate that, on average, older employees had the highest

agreement with: I am satisfied with the interpersonal relationships in the company

(Mean: 3.83) and I am satisfied with my work (Mean: 3.78). In the other cases, older

employees on average neither agreed nor disagreed. Younger employees showed

the highest agreement on average with the following: I am satisfied with facilitating

self-regulation of the speed of work performed (Mean: 3.90); I am satisfied with

working hours and distribution of work obligations (Mean: 3.74); and I am satisfied

with the working conditions, such as better light, air conditioning, and bigger

inscriptions (Mean: 3.77).

The results of the Mann-Whitney U test (Table 4) show that the differences are

statistically significant in most (i.e. 61.5%) statements.

Discussion and conclusion In this paper we demonstrated that both older and younger employees are

motivated and satisfied in the workplace, but in different ways. Based on their

answers, we arranged motivational factors from largest to smallest. On average,

older employees are motivated by flexibility in the workplace; autonomy at work;

good interpersonal relationships in the workplace; the possibility of working at their

own pace; respect among employees; equal treatment of employees by age;

compliments from the employer for good work; the possibility of working from home;

intergenerational cooperation, thereby reducing burdens on the workplace;

cooperation with other employees; and the allocation of work by higher salary. On

the other hand, younger employees are on average more motivated by higher

salary; possibilities of advancement; the possibility for training and education; equal

treatment of employees by age; the possibility of autonomy at work; the possibility of

working at their own pace; compliments from the employer; respect among

employees; good interpersonal relationships in the workplace; flexibility in the

workplace; the possibility of diverse work; intergenerational cooperation, thereby

reducing the burden on the workplace; the possibility of cooperation with other

employees and the allocation of work; and the possibility extended of holidays. The

results show that both younger and older employees are satisfied, but the level of

satisfaction differs. We sorted satisfaction from the highest to smallest mean values.

On average, older employees are more satisfied with interpersonal relationships in

the company; their work; working hours and the distribution of work obligations; and

facilitation of the self-regulation of the speed of work performed. In the other cases,

older employees on average neither agreed nor disagreed with satisfaction with the

working conditions, such as better light, air conditioning, and bigger inscriptions; the

leadership in the company; flexible working hours and flexible work;

intergenerational cooperation and thus distribution of work; the provision of job-

sharing, thereby reducing the burden on the workplace; the balance between work

and private life; ways of motivating people in the company for better work; or the

quantity of programs of active aging and healthy lifestyles. On the other hand,

younger employees are on average more satisfied with facilitating self-regulation of

the speed of work performed; the working conditions, such as better light, air

conditioning, and bigger inscriptions; working hours and distribution of work

obligations; their work; and interpersonal relationships in the company. In the other

cases, younger employees on average neither agreed or disagreed with satisfaction

with the balance between private life and work; the quantity of programs of active

aging and healthy lifestyles; flexible working hours; leadership in the company;

flexible work; intergenerational cooperation and thus distribution of work; the


22

provision of job-sharing, thereby reducing the burden on the workplace; or ways of

motivating people in the company for better work. As with older employees, we

ranked younger employees’ satisfaction, from highest to smallest in the workplace.

Motivated and satisfied employees in the workplace are the most complex topic of

any modern company. Some important factors have undoubtedly affected

employees’ level of motivation and satisfaction in the workplace. It is important that

the employees feel well at their work and that they are motivated for it or satisfied at

work.

Overall, Linz (2004) reported that no major differences were found in the ranking of

job motivators of older and younger employees, although older employees placed

higher value on pay and security as well as the respect and friendliness of co-

workers. According to Claes and Heymans (2008), the motivation of older employees

differs from younger employees, as reflected, for example, in the fact that older

employees are more motivated by good relationships with employees and

employers than younger ones. Older employees are also motivated by the possibility

of training, autonomy, and flexibility in the workplace and the possibility of mentoring

for newly employed or younger employees. Other studies have also found that, for

older employees, monetary incentives are not the primary motivation for the work,

while younger employees are motivated by monetary rewards (Noonan, 2005).

Various other studies have shown that older employees are more closely connected

with internal motivational factors than younger employees. Thus, younger employees

are more motivated by external motivation (Kanfer and Ackermann, 2004). Chileshe

and Haupt (2010) found that older workers were slightly more satisfied with their jobs

than younger ones. Both older and younger workers ranked personal development

and quality of life as the two most important job satisfaction factors. Both groups

ranked relationship with supervisors and workmates as poor. Chileshe and Haupt

(2010) also summarized that age affects the satisfaction derived from work and is

directly correlated to motivation. Older workers become less motivated over time.

Groot and Brink (1999) found that job satisfaction decreases with hours of work.

The basic condition for successful management of employees in the organization

is reflected in the support for high motivation and satisfaction of employees at

different ages. Positive changes for age-diverse employees in the workplace will

increase work performance. Motivated and satisfacted employees tend to retain a

high level of innovation, higher-quality work, and a higher level of efficiency. For

older employees, high motivation and satisfaction in the workplace could be

essential for dealing with changes in working capabilities and have a significant

impact on the well-being of age-diverse employees. Motivation and satisfaction are

very important for an organization because they improve the level of efficiency and

productivity of age-diverse employees. Motivated and satisfacted employees also

build friendly relationships and effectively cooperate with each other. Benefits for the

organization are reflected in lower presenteeism, lower absenteeism, lower

fluctuation, increased productivity, and higher loyalty of age-diverse employees.

Our study is limited to the field of employees in Slovenia. Another limitation of our

research isthe lack of the literature, systematically and comprehensively based on

studies and theoretical knowledge about the management of different age groups.

For further research we propose the examination of differences in motivation and

satisfaction in the workplace between different age groups in various countries.

Possibilities for further research also include studies relating to the examination of

different measures used in different countries to increase motivation and satisfaction

in the workplace among younger and older employees.


23

References 1. Aghazadeh, S. M. (2004), "Managing workforce diversity as an essential resource

for improving organizational performance", International Journal of Productivity

and Performance Management, Vol. 53, No. 6, pp. 521-531.

2. Artz, B. (2010), "Fringe benefits and job satisfaction", International Journal of

Manpower, Vol. 31, No.6, pp. 626-644.

3. Baltes, B.B., Finkelstein, L.M., Kunze, F., Boehm, S.A., Bruch, H. (2011), "Age

diversity, age discrimination climate and performance consequences-a cross

organizational study", Journal of Organizational Behavior, Vol. 32, No. 2, pp. 264-

290.

4. Bartol, K. M., Martin, D.C. (1998). Management, McGraw-Hill, New York.

5. Bigliardi, B., Dormio, A.I., Galati, F., Schiuma G. (2012), "The impact of

organizational culture on the job satisfaction of knowledge workers", VINE, Vol.

42, No. 1, pp. 36-51.

6. Brooke, L. (2003), "Human resource costs and benefits of maintaining a mature-

age workforce", International Journal of Manpower, Vol. 24, No. 3, pp. 260-283.

7. Chileshe, N. Haupt, T. C. (2010), "The effect of age on the job satisfaction of

construction workers", Journal of Engineering, Design and Technology, Vol. 8, No.

1, pp. 107-118.

8. Claes, R., Heymans, M. (2008), "HR professionals views on work motivation and

retention of older workers: a focus group study", Career Development

International, Vol. 13, No. 2, pp. 95-111.

9. Garg, P., Rastogi, R. (2006), "New model of job design: motivating employees

performance", Journal of Management Development, Vol. 25, No. 6, pp. 572-587.

10. Gellert, F. J., Kuipers, B. S. (2008), "Short‐ and long‐term consequences of age in

work teams: An empirical exploration of ageing teams", Career Development

International, Vol. 13, No. 2, pp. 132-149.

11. Ghosheh Jr., N. S., Lee, S., McCann, D. (2006). Conditions of work and

employment for older workers in industrialized countries: understanding the issues,

International Labour Organization, Conditions of Work and Employment Series.

12. Groot, W., Brink, H. M. (1999), "Job satisfaction of older workers", International

Journal of Manpower, Vol. 20, No. 6, pp. 343-360.

13. Harrison, D. A., Newman, D. A., Roth, P. L. (2006), "How important are job

attitudes? Meta-analytic comparisons of integrative behavioral outcomes and

time sequences", Academy of Management Journal, Vol. 49, No. 2, pp. 305-325.

14. Henkens, K., Leenders M. (2010), "Burnout and older workers intentions to retire",

International Journal of Manpower, Vol. 31, No. 3, pp. 306-321.

15. Hertel, G., Van der Heijden, B. I. J. M., de Lange, A. H., Deller J. (2013),

"Facilitating age diversity in organizations – part II: managing perceptions and

interactions", Journal of Managerial Psychology, Vol. 28, No. 7/8, pp. 857-866.

16. Ilmarinen, J. (2001), "Aging workers", Occupational and Environmental Medicine,

Vol. 58, No. 8, pp. 546-552.

17. Islam, R., Ismail, A. Z. H. (2008), "Employee motivation: a Malaysian perspective",

International Journal of Commerce and Management, Vol. 18, No. 4, pp. 344-

362.

18. Jex, S. M., Britt, T. W. (2008). Organizational Psychology: A Scientist-Practitioner

Approach, John Wiley & Sons, New York.

19. Kanfer, R., Ackerman, P. L. (2004), "Aging, adult development, and work

motivation", Academy of Management Review, Vol. 29, No. 3, pp. 440-458.

20. Koc‐Menard, S. (2009), "Flexible work options for older workers", Strategic HR

Review, Vol. 8, No. 2, pp. 31-36.


24

21. Kooij, D., de Lange, A., Jansen, P., Dikkers, J. (2008), "Older workers motivation to

continue to work: five meanings of age", Journal of Managerial Psychology, Vol.

23, No. 4, pp. 364-394.

22. Kooij, D., De Lange, A., Jansen, P., Kanfer, R., Dikkers, J. (2011), "Age and work-

related motives: results of a meta-analysis", Journal of Organizational Behavior,

Vol. 32, No. 2, pp. 197-225.

23. Lange, A. H., de Taris, T. W., Jansen, P. G. W., Smulders, P., Houtman, I. L. D.,

Kompier, M. A. J. (2006), "Age as a factor in the relation between work and

mental health: results from the longitudinal TAS study", in Houdmont, J., McIntyre,

S. (eds), Occupational Health Psychology: European Perspectives on Research,

Education and Practice (Vol. 1), ISMAI Publications, Maia, Portugal, pp. 21-45.

24. Linz, S. J. (2004), “Motivating Russian workers: analysis of gender and age

differences”, Journal of Socio-Economics, Vol. 33, No. 3, pp. 261-289.

25. Milenovic, Z. M. (2011), “Application of Mann-Whitney U test in research of

professional training of primary school teachers", Metodički obzori, Vol. 6, No. 1,

pp. 73-79.

26. Monk, R. (1996), "The motivation of managers for training", Management

Development Review, Vol. 9, No. 3, pp. 26-32.

27. Moore, F. (2007), "Work‐life balance: contrasting managers and workers in an

MNC", Employee Relations, Vol. 29, No. 4, pp. 385-399.

28. Noonan, A. E. (2005), "At this point now: Older workers reflections on their current

employment experiences", International Journal of Aging and Human

Development, Vol. 61, No. 3, pp. 211-241.

29. Origo, F., Pagani, L. (2008), "Workplace flexibility and job satisfaction: some

evidence from Europe", International Journal of Manpower, Vol. 29, No. 6, pp.

539-566.

30. Peeters, M.C.W, Emmerik, H. (2008), "An introduction to the work and well‐being

of older workers: From managing threats to creating opportunities", Journal of

Managerial Psychology, Vol. 23, No. 4, pp. 353-363.

31. Rad A. M. M., Yarmohammadian, M. H. (2006), "A study of relationship between

managers leadership style and employees job satisfaction", Leadership in Health

Services, Vol. 19, No. 2, pp. 11-28.

32. Robson, S. M., Hansson, R. O., Abalos, A., Booth, M. (2006), "Successful aging:

criteria for aging well in the workplace", Journal of Career Development, Vol. 33,

No. 2, pp. 156-177.

33. Shacklock, K., Brunetto, Y. (2011), "A model of older workers intentions to

continue working", Personnel Review, Vol. 40, No. 2, pp. 252-274.

34. Stamov-Roßnagel, C., Biemann, T. (2012), "Ageing and work motivation: a task-

level perspective", Journal of Managerial Psychology, Vol. 27, No. 5, pp. 459-478.

35. Stamov-Roßnagel, C., Hertel, G. (2010), "Older workers motivation: against the

myth of general decline", Management Decision, Vol. 48, No. 6, pp. 894-906.

36. Templer, A., Armstrong‐Stassen, M., Cattaneo, J. (2010), "Antecedents of older

workers motives for continuing to work", Career Development International, Vol.

15, No. 5, pp. 479-500.

37. UK Essays, (2015), “Employee Motivation in Tourism Industry”, available at:

https://www.ukessays.com/essays/business/employee-motivation.php (10 april

2016).

38. Van Dick, R., van Knippenberg, D., Hagele, S., Guillaume, Y.R., Brodbeck, F.C.

(2008), "Group diversity and group identification: the moderating role of diversity

beliefs", Human Relations, Vol. 61, No. 10, pp. 1463-1492.

https://www.ukessays.com/essays/business/employee-motivation.php


25

39. Wiley, C. (1997) "What motivates employees according to over 40 years of

motivation surveys", International Journal of Manpower, Vol. 18, No. 3, pp. 263-

280.

About the authors

Maja Rožman, after finishing high school, continued her studies at the Faculty of

Economics and Business, University of Maribor, and successfully graduated from

Finance and Banking in 2011. In 2013, she acquired her master's degree and is

currently earning her PhD at the Faculty of Economics and Business in Maribor at the

Department of Management and Organization. She can be contacted at

[email protected].

Sonja Treven, PhD, is a professor employed at the School of Business and Economics

at the University of Maribor in Slovenia in the field of human resource management

and organizational behavior. She is the head of the Department of Management

and Organisation. She is the author of three books and co-author of more than

twenty books as well as more than eighty scientific articles. She has participated in

more than 100 domestic and international conferences with her papers as an author

or co-author. She can be contacted at [email protected].

Vesna Čančer holds a PhD in Economic and Business Sciences and is an associate

professor of quantitative methods in business science at the University of Maribor’s

Faculty of Economics and Business (UM FEB). Her research focuses primarily on

decision analysis, creative problem solving, and research methods, together with

their interdisciplinary applications. She is head of the Department of Quantitative

Economic Analysis at UM FEB and editor-in-chief of a journal of contemporary issues

in economics and business entitled Naše gospodarstvo/Our Economy. She can be

contacted at [email protected].


26

Are Publicly Available Online Businesses

Lists Appropriate to be used as Sampling

Frames in Croatian Business Surveys?

Berislav Žmuk


Abstract

Background: In order to conduct a probability business survey, a high quality

sampling frame of enterprises is needed. Objectives: The goal of the paper is to

investigate publicly available online businesses lists which can be used as sampling

frames in business surveys in Croatia and to find out whether they have a satisfactory

quality level. Methods/Approach: Publicly available businesses lists in Croatia are

examined and their appropriateness for use in different modes of data collection as

business sampling frames is inspected. The advantages and disadvantages of

businesses lists are discussed and compared. Results: Overall 11 online businesses lists

are considered as business sampling frames in the paper. The comparison analysis

has shown that businesses lists from the government institutions are the best choice

when business surveys are conducted face-to-face, by mail and/or by telephone.

However, none of the observed businesses lists is good enough to be used in a

business web survey. Conclusions: The research has shown that the publicly

available online businesses lists are of a satisfactory level of quality only if traditional

data collection modes are used. Unfortunately, they are not appropriate in business

web surveys. Therefore, the development of a business register in Croatia is a

prerequisite for conducting probability and representative business web surveys in

the future.

Keywords: business register; business survey; Croatia; mode of data collection;

population coverage; sampling frame

JEL classification: C83


Received: Apr 25, 2017

Accepted: Jun 24, 2017

Citation: Žmuk, B. (2017), “Are Publicly Available Online Businesses Lists Appropriate to

be used as Sampling Frames in Croatian Business Surveys?”, Business Systems

Research, Vol. 8, No. 2, pp. 26-39.

DOI: 10.1515/bsrj-2017-0014


Foundation under the project STRENGTHS no. IP-2013-9402.

Introduction The survey process consists of many different steps (Bethlehem, 2009). The earlier

steps in the survey can be considered as more important ones. The reason for that


27

can be found in the fact that if a researcher makes a mistake in a very early step

that mistake will have a certain (negative) impact on all further steps. Consequently,

such a mistake will be very hard to correct unless it is spotted at the right time.

At the very beginning of the survey process, a researcher is dealing with a

problem of choosing an appropriate sampling frame (Ross, 2005). A sampling frame

is a list or a procedure which is used for identification of all elements of a target

population (Groves et al., 2004). Target population consists of elements which are an

object of researcher’s interest. Elements can be individuals, households, enterprises,

schools, and similar (Martirosyan et al, 2010). A researcher uses the sampling frame to

select a certain number of elements which are going to be invited to participate in

the survey. The answers and characteristics of elements which participated in the

survey are used for making an inference about the whole population.

Researchers have two options: they can use already prepared sampling frames or

they can make their own sampling frames. There are some advantages and

disadvantages of both options. Generally speaking, own sampling frames are time

and costs demanding whereas already prepared sampling frames could be

inaccurate, not up to date, or the definition of elements could be different from the

definition in the research. In this paper, focus will be given to publicly available

online businesses lists that can be used as sampling frames in business surveys.

Business surveys are specific due to the fact that a researcher selects enterprises in

the sample, but the answers are provided by an employee or more of them (Cox et

al., 1995). Enterprises, without any doubt, have a very important role in each

economy. Consequently, it is important to make research about businesses because

certain weak spots and possible difficulties can be detected that way. Furthermore,

business surveys can result in recommendations which enterprises can use for

improving their business further and achieving better business results.

However, in order to be able to make a valid inference about enterprises the

probability sampling approach must be used. In probability sampling, each element

needs to have a known probability which is higher than zero to be selected in the

sample. Consequently, the sampling frame has the main role in probability sampling.

A sampling frame which cannot ensure that each element of interest has a known

probability to be chosen in the sample is considered not to be of high quality and

should not be used to make an inference about all elements. If an inference was

made by using low quality sampling frames, the possibility of making misleading

conclusions is fairly high.

Although Croatia is the European Union member state, some reports show that it is

falling behind in economic development in comparison to the other European Union

member states (see World Bank, 2017). Because of that significantly more business

surveys should be conducted first to identify the problems with which they must

cope. After that some recommendations could be brought to increase the

competiveness level of Croatian enterprises. Such survey research should be

conducted promptly because otherwise Croatia could lag behind too much.

Consequently, already prepared sampling frames should be used in conducting

business surveys. However, the main research question is whether publicly available

online businesses lists, which can be observed as already prepared sampling frames,

of Croatian enterprises have a satisfactory level of quality or not. In order to start

business operations, an enterprise must be registered and get permissions for work

from different government institutions. Consequently, government institutions should

have a lot of data about enterprises. Because of that, the research hypothesis of the

paper is that business sampling frames based on publicly available online businesses

lists which are provided by government institutions are of higher quality than those


28

which are based on publicly available online businesses lists provided by other

institutions or persons. Unfortunately, in the present literature the possibility of using

publicly available online businesses lists as sampling frames in business surveys has

not been considered yet. Consequently, this original paper is of great importance for

further development of business surveys.

The paper is organized as follows. After the brief introduction, in the second

chapter sampling frames are observed in detail from the theoretical perspective. In

the third chapter, the way of selection of publicly available online businesses lists

which are going to be observed in the paper is described. In the fourth chapter, the

selected publicly available online businesses lists having the role of business sampling

frames are inspected and their differences are discussed. Chapter five presents final

conclusions and recommendations for further research.

Sampling frames characteristics

If a sampling frame provides some probability of selection for each element in the

population, a probability sample can be drawn from the population (Warnecke,

2005). However, regardless of whether researchers use an already prepared

sampling frame or they make their own sampling frame it is very hard to get a totally

perfect sampling frame. A sampling frame should include only the elements of the

target population but it is problematic or, in some cases, impossible, to get a

complete list only of elements which are of interest. Consequently, some differences

between the target population, elements which are of interest, and the survey

population, elements which are included in the sampling frame, are expected

(Stoop, Harrison, 2012). The smaller the difference between the target and the survey

population is, the higher the quality of the sampling frame is. At the same time the

probability of making a valid inference about the population is increasing.

The following reasons can be observed as the basic reasons which lead to

imperfect frames: missing elements, blanks or foreign elements, duplicate elements,

clusters of elements, many-to-many matching elements (Kish, 1995). The problem of

missing elements or the non-coverage problem is present when some target

population elements are not listed in the sampling frame. This problem can be solved

by using supplemental and additional sampling frames that cover non-covered

elements. Furthermore, if the effect of non-coverage is known, non-coverage

weighting adjustments can be used to take into account the missing elements

problem. The problem of blanks or foreign elements is present when elements in the

sampling frame do not have corresponding population elements. In other words, the

sampling frame can contain elements which are not a part of the target population.

Consequently, some screening is necessary to omit and delete such elements from

the sampling frame. The problem of duplicate elements is present when the target

population element is linked to two or more sampling frame elements. In that way,

an element has a higher probability to be chosen in the sample and it can be

sampled more than just once, also. To solve this problem, the screening process

needs to be performed. The problem of clusters of elements is opposite to the

duplicate elements problem. The problem involves the fact that more than just one

target population element can be selected by a sampling frame element. The final

problem, the many-to-many matching elements problem, incorporates the

duplicate elements and the clusters of elements problem.

All sampling frame problems caused by previous reasons can be solved. However,

the real question is whether it is reasonable to do that taking into account the

required time and money. Some problems can be solved very easily, e.g. duplicate

elements can be found very fast and deleted from the sampling frame by using


29

modern computers. On the other hand, in order to include some missing elements in

the sampling frame a lot of resources could be needed, i.e. field work should be

conducted to find out contact addresses of some enterprises. No matter which

problem is present at the used sampling frame, a researcher should strive to use the

best sampling frame. However, that does not mean that a researcher should use just

one sampling frame per survey. They can combine more of them but the

advantages and disadvantages of all the used sampling frames must be taken into

account. A researcher must keep in mind that with the use of more sampling frames

the complexity of analysis rises and the problems can get bigger than in case of

using just one sampling frame.

Kish (1995) recommends three general ways of avoiding sampling frame

problems. The first recommendation is just to ignore and disregard the problem.

However, this can be done only if the consequences of ignoring a problem are

insignificant and if the costs of solving the problem are too high. The second

recommendation is to redefine the target population to fit the sampling frame. So,

instead of fitting a sampling frame to the target population, the reverse is done.

However, the aims of the research should be kept in mind because too much target

population redefinition could result in an inability to reach research goals. In order to

avoid sampling frame problems, sometimes the best approach is to sit down and

manually correct the entire sampling frame by deleting all blanks, splitting each

cluster, and so on. This third recommendation requires more time and money than

the first two recommendations but it is preferred over the previous ones.

Business sampling frames have certain special characteristics which make them

different from other sampling frames. First of all, contact information about

enterprises can be found in the business sampling frames because they are the

target population. However, respondents are not enterprises but people who are

connected with enterprises in a certain way. So respondents can be owners,

managers and other employees. Depending on research aims, it can be decided

that sales managers, accountants, or other specific employees will be contacted

and asked to participate in the survey. This ensures that competent employees

provide answers about an enterprise and its processes. However, it is very difficult to

know what each person in an enterprise is competent for and whether they should

be contacted or not. Furthermore, the list of all employees and the organisation of

business processes in enterprises is unknown to a researcher. Because of that, in most

cases, a general invitation to an enterprise is sent and the recipient is asked to

forward survey information and the survey invitation letter to the most appropriate

person in the enterprise.

The same as individuals, enterprises can also decide whether to participate in the

survey or not. However, the situation with enterprises is somewhat different than with

individuals. Namely, enterprises have to deal with competition on the market.

Because of that enterprises unwillingly share information about their business

processes. Consequently, some enterprises have a strict policy on participation in

surveys. Furthermore, because of sensitive topics, enterprises are more likely to

participate in surveys conducted by private institutions than by government

agencies. The reason for that lies in the fact that a higher level of confidentiality can

be reached in surveys conducted by private institutions (World Bank, 2013).

Data and methods In order to investigate the quality level of publicly available online businesses lists in

the role of sampling frames in business surveys in Croatia, a selection of publicly

available online businesses lists was made. Because we live in the digital age, the


30

search for businesses lists or sampling frames which can be used in business surveys

was conducted by using the Internet sources. In other words, only digital businesses

lists were considered. The reason for observing only digitalized businesses lists is their

easiness of use. Furthermore, if needed, corrections in a digitalized sampling frame

can be made easily and very fast. The same is valid for selecting enterprises which

will be contacted and asked to participate in the survey.

The publicly available online businesses lists which could serve as sampling frames

were found by using Google search and keywords such as “sampling frame”,

“business sampling frame”, “list of enterprises”, “Croatian enterprises” and similar. This

procedure simulates the searching process that would be done by a researcher

whose intention is to conduct a business survey by using already prepared publicly

available online businesses lists or business sampling frames. The search of publicly

available online businesses lists was conducted in December 2016.

As expected, the search gave (too) many results. Unfortunately, only a small

number of results led to businesses lists. Furthermore, only businesses lists that include

Croatian enterprises and are in the Croatian language are observed. An additional

requirement is that the access to the businesses lists is free of charge and without any

restrictions. Finally, overall 11 businesses lists as business sampling frames were taken

into account and analysed in the paper. The list of the observed businesses lists as

sampling frames and their hyperlinks are provided in Table 1.

Table 1

Selected businesses lists

Businesses list Hyperlink

Bisnode http://www.bisnode.hr/

Creditreform http://secure.creditreform.hr/

Croatian Bureau of Statistics http://www.dzs.hr/Hrv/important/Roj/roj.asp

Croatian Chamber of Economy http://www1.biznet.hr/HgkWeb/do/extlogon

Department of Justice https://sudreg.pravosudje.hr/registar/f?p=150:1

Energetika-net.com http://www.energetika-net.com/korisno/baze-

podataka/tvrtke

Fininfo http://www.fininfo.hr/

IRENA http://www.irena-istra.hr/index.php?id=3416

Kompass http://hr.kompass.com/

Tvrtke.com https://www.tvrtke.com/

Yellow Pages http://www.zutestranice.com/

Source: Author’s work

The characteristics of the selected businesses lists will be inspected in detail and

tested. The advantages and disadvantages of each businesses list as a business

sampling frame for conducting mail surveys, telephone surveys, personal interviews

and web surveys will be emphasized. The observed businesses lists will be compared

and their overall quality level will be estimated.

Results and discussion Before a business sampling frame can be used in a survey, a researcher should

check whether the observed business sampling frame meets all expected

requirements. In the paper, the characteristics of the observed businesses lists are

going to be inspected. It will also be checked whether they can be used in a


31

business survey as sampling frames. Firstly, business sampling frames are expected to

include a complete list of enterprises. Furthermore, it is expected that the business

sampling frame is updated. That is especially important when small enterprises are

under the research because they appear, disappear and change basic information

almost on a daily basis. A researcher expects that a business sampling frame has a

user friendly interface and that enterprises can be easily selected. Not only is it

assumed that enterprises can be easily sampled, but it is assumed that necessary

data about enterprises are also available and can be easily accessed. Depending

on the survey method of data collection, additional information about enterprises

might be needed. For example, if a web survey is conducted, e-mails of enterprises

are needed, and if a mail survey is conducted, postal addresses of enterprises are

necessary. So, in addition to inspecting main characteristics of the observed

businesses lists, their appropriateness for the use as sampling frames in different

survey data collection methods will also be observed.

The observed businesses lists are going to be inspected in alphabetic order.

Therefore, Bisnode businesses list is studied first. After the web page of Bisnode is

loaded, the option of searching enterprises from Croatia and from other countries is

given. Unfortunately, at the same time the main disadvantages of this businesses list

can be noticed. Namely, there are no additional options for searching and filtering

enterprises according to their characteristics such as their size or legal form.

Furthermore, the complete list of enterprises is not available. However, once an

enterprise is chosen, basic information about it is shown. The following information is

shown: full and short name of the enterprise, address, county, VAT number,

identification number, legal form, date of establishment, enterprise’s representatives,

and the main activity. There is an additional option to get a credit report for the

observed enterprise but this service must be paid. Finally, it can be concluded that

this businesses list can be used as an additional source of information about

enterprises. So, this businesses list cannot be used as a sampling frame on its own.

Creditreform is the following businesses list under inspection. Creditreform has the

same disadvantage as Bisnode. Namely, there is a search bar in which a name of an

enterprise must be written first. So, the names of enterprises must be known in

advance. However, unlike Bisnode, after typing an enterprise name Creditreform

gives enterprises which have the typed name included in their names and offers

some options to search these enterprises according to their VAT number, address or

the main activity. Unfortunately, the complete list of enterprises is not presented to a

researcher. After an enterprise is selected the following information is available: date

of establishment, VAT number, identification number, registered activities,

enterprise’s representatives, address, telephone number, e-mail, web page, and the

number of employees. However, in order to get more information, a researcher

should pay. The same as Bisnode, Creditreform could be used as a supportive

business sampling frame only.

The Croatian Bureau of Statistics has developed its own businesses list. This

businesses list can be considered as an administrative one because the Croatian

Bureau of Statistics collects data about enterprises according to law, decisions and

regulations on the National Classification of Activities (see Official Gazette, 1994,

2007a-c). Consequently, enterprises are obligated to send information about their

registered activities to the Croatian Bureau of Statistics and, naturally, pay for this

service. Due to that this businesses list can be considered as up to date. Furthermore,

enterprises also send the following information: name, address and legal form. The

Croatian Bureau of Statistics can provide other available information about an

enterprise but upon a request and after the payment was made. However, in order


32

to get any information about an enterprise, the correct identification number must

be known. The next drawback of this businesses list is the fact that a complete list of

enterprises is not available and visible to a researcher (without any charge). So, this

businesses list cannot be used as a business sampling frame without additional

business sampling frames.

The Croatian Chamber of Economy has developed its businesses list by using data

from the Commercial Court. Consequently, it can be observed as an administrative

one because enterprises are obligated to give certain information to the

Commercial Court. This list provides a lot of information to a researcher: identification

number, short and full name, county, municipality, address, telephone number, e-

mail, the size of the enterprise, the main activity, the legal form, the responsible

persons, the number of employees, bank account. Unfortunately, it has to be

emphasized that not all those data are known for all enterprises (in most cases e-mail

is missing). However, enterprises can be filtered according to different characteristics

(main activity, size, and similar). What is more, after selecting certain characteristics,

in the next step, a full list of enterprises which have these characteristics is shown.

There are some limitations when a list of enterprises is observed. The first limitation is

that only 15 enterprises can be listed on the screen. The second limitation is that the

process of enterprises filtering according to certain characteristics will result in 500

enterprises at most. In other words, nevertheless the fact that more than 500

enterprises have given characteristics, the business sampling frame will provide only

the list of the first 500 enterprises with those characteristics. Despite these drawbacks,

this businesses list can be used as a sampling frame alone without other additional

sampling frames.

Unlike the Croatian Chamber of Economy, the Department of Justice uses data

from the Commercial Court directly. However, in order to get any information about

an enterprise, a researcher should know its identification number, VAT number or the

name of an enterprise in advance. Because of that this business sampling frame

cannot be used alone. After an enterprise is selected, the following information can

be obtained: identification number, VAT number, the information whether the

enterprise is in the dispute at the Commercial Court, name, address, location on the

map, the legal form, registered activities, the list of persons in the supervisory board

and persons who represent the enterprise, selected information about the legal

relations, a hyperlink to the latest financial statements. Various legal documents

which were given to the Commercial Court are also available.

Energetika-net.com is a businesses list that is oriented towards enterprises from the

energetics sector only. Consequently, a full list of Croatian enterprises is not provided

but the list of energetic enterprises is. So, if a researcher observes only enterprises

from the energetics sector, they can consider using this businesses list as a sampling

frame. However, if other enterprises are also a subject of researcher’s interest, other

businesses lists and business sampling frames must be used as well. Energetika-

net.com is not an administrative businesses list, which additionally raises the question

whether the information about enterprises is up to date. After an enterprise is

selected, the following information is available: address, telephone number, e-mail,

web page, activity.

In order to start using Fininfo as a business sampling frame, a researcher should

know the identification number, the VAT number or the name of an enterprise. After

selection of an enterprise, the following information is given: address (but not full!),

identification number, VAT number, registered activities, size, web page, telephone

number, the lists of owners, persons in the supervisory board and persons who

represent the enterprise. The location of the observed enterprise is shown on a map


33

also. If researchers would like to know something more about the observed

enterprise, they should pay a certain amount. After such a payment, a researcher

gets different accounting indicators and financial statements.

IRENA stands for Istrian Regional ENergy Agency and it was founded by the

County of Istria. Consequently, this list focuses on enterprises from Istria whose activity

is related to energy. Because of that IRENA includes only 40 enterprises. The short list

of enterprises is the main disadvantage of this businesses list. However, the list of all 40

enterprises is available and visible to a researcher at the very beginning. The

following information about enterprises is available: name, activity, address, web

page, name of a contact person, telephone number, e-mail. However, not all those

data are available for each listed enterprise.

In order to get a list of enterprises, in Kompass a researcher must search

enterprises according to their activity. After an activity is typed in, a preliminary list of

enterprises which are somehow connected with that activity is shown. After that the

list of enterprises can be reduced by adding some additional characteristics such as

the number of employees. The following information is usually given for an enterprise:

address, telephone number, VAT number, web page, bank account numbers,

memberships in associations, number of employees, initials of the names of owners,

persons in the supervisory board and persons who represent the enterprise, the main

and secondary activities. In case a researcher wants to have a complete list of

enterprises with different business indicators included, an additional payment is

required.

Tvrtke.com also requires some information about enterprises before it can provide

a list of them. An advantage is that in addition to the search based on enterprise’s

name, a researcher can search enterprises according to products and services,

activity, county and place. The main disadvantage of this businesses list is the user

unfriendly design. Namely, Tvrtke.com includes too many ads. Furthermore, some

privacy issues could be also present (i.e. Tvrtke.com for some reason wants to know

the location of its user). The provided list of enterprises is hard to export because of

many figures, also. The following information is available after an enterprise is

selected: address, telephone number, VAT number, identification number, main

activity, contact person, number of employees. This businesses list is free of charge to

use by researchers, but enterprises can buy a “service package” which grants them

some advantages over other enterprises. For example, enterprises which have paid

for additional services appear on the top of the list. This fact must be taken into

account when enterprises are sampled.

Yellow Pages offers an option to search enterprises according to their name,

activity or address. There are also some ads but not so many as at Tvrtke.com. Yellow

Pages does not include all enterprises but only those enterprises which users have

included. Because of that it is questionable whether the information about

enterprises is regularly updated. However, the following information about an

enterprise is usually given: address, telephone number, contact person, web page,

activities. However, if an enterprise pays an additional charge it can include more

information about itself, such as an e-mail address.


34

Table 2

Main characteristics of the observed businesses lists

Businesses list Admin.

source

Free

access

Limited

access

Visible

full list

of

enter.

All types

of enter.

included

All

Croatian

enter.

included

User

friendly

interface

Bisnode – + + – +/– +/– +

Creditreform – + + – +/– +/– +

Croatian

Bureau of

Statistics

+ + – – + + +

Croatian

Chamber of

Economy

+ + – + + + +

Department of

Justice

+ + – – + + +

Energetika-

net.com

– + – + – – +/–

Fininfo – + – – +/– +/– +

IRENA – + – + – – +

Kompass – + + + – – +

Tvrtke.com – + – – +/– +/– –

Yellow Pages – + – + – – –


Table 2 briefly presents main characteristics of the observed businesses lists. Only

three out of eleven observed businesses lists clearly and undoubtedly use an

administrative source for their database. Consequently, such businesses lists are more

likely to be up to date, to include all enterprises and to have more information about

enterprises than the other businesses lists. All the observed businesses lists can be

used free of charge, which is important taking costs into consideration. However,

some businesses lists require additional payment for additional information and

services. From the sampling point, the best solution would be that all enterprises are

listed on one page which would make the process of sampling much easier.

Unfortunately, less than half of the observed businesses lists provide a fully visible list of

enterprises. It has to be emphasized that none of the observed businesses lists had an

option of automatic export of the list of enterprises. The quality of the observed

businesses lists as business sampling frames differs very much. There are businesses lists

for which we can be sure that they include all types of enterprises and all Croatian

enterprises but there are also businesses lists for which we can be sure that they do

not include all enterprises. However, for some businesses lists it is questionable

whether they include all enterprises or not (they are marked with “+/-“ sign in Table

2). Generally speaking, all the observed businesses lists are user-friendly and easy to

use. Still, some of the observed businesses lists have overextended use of ads which

has a negative impact on users’ experience.


35

Table 3

Information about enterprises available in the observed businesses lists

Businesses list Name Address VAT

number

Telephone

number

E-

mail

Web

page

Additional

contact

information

Bisnode + + + – – – +

Creditreform + + + + + + +

Croatian

Bureau of

Statistics

+ + – – – – –

Croatian

Chamber of

Economy

+ + + + +/– +/– +/–

Department

of Justice

+ + + – – – +

Energetika-

net.com

+ + – + + + –

Fininfo + +/– + + – + +

IRENA + + – + +/– +/– +

Kompass + + + + – + –

Tvrtke.com + + + + – – +

Yellow Pages + + – + +/– +/– +/–


Table 3 summarizes main information about enterprises which are available in the

observed businesses lists and which can be useful in the research. The enterprises’

name is the obligatory part of each business sampling frame and all the observed

businesses lists have it. However, one or more enterprises might have a very similar

name. Because of that it is useful to know the VAT number which is unique for each

enterprise. However, some observed businesses lists do not have this information. All

the observed businesses lists have provided information about addresses of

enterprises. However, Fininfo does not provide the full address because it omits the

postal code. A majority of the observed businesses lists have information about

official telephone numbers of enterprises. However, the availability of information

about e-mails and web pages is not so widespread. The enterprises themselves could

hold responsibility for that as well. Namely, there are a lot of enterprises which do not

use an e-mail address and a web page as a way of business communication.

Furthermore, there are enterprises which have an e-mail address but they do not use

it. Consequently, some of the observed businesses lists have information about e-

mails and web pages for only a certain number of enterprises. Researchers would

appreciate if a business sampling frame had additional information which would

help them in the research. For example, it would be great if businesses lists would

have lists of managers who are responsible for a certain part of business, direct e-

mail address of the main manager, and similar. Some of the observed businesses lists

give such information but their accuracy is questionable.


36

Table 4

Applicability of the observed businesses lists as business sampling frames in different

survey data collection methods

Businesses list Face-to-

face

survey

Telephone

survey

Mail survey Web

survey

Bisnode +/– – +/– –

Creditreform +/– +/– +/– +/–

Croatian Bureau of Statistics +/– – +/– –

Croatian Chamber of Economy + + + +/–

Department of Justice + – + –

Energetika-net.com + + + +

Fininfo + + +/– –

IRENA + +/– + +/–

Kompass +/– + + –

Tvrtke.com + + – –

Yellow Pages + + + +/–


The applicability of the observed businesses lists as business sampling frames in

different survey data collection methods is inspected and final conclusions are

shown in Table 4. Almost all the observed businesses lists provide enough information

which enables a researcher to conduct a face-to-face or a mail survey. There are

some businesses lists which do not include information about official telephone

numbers of enterprises. Consequently, some businesses lists cannot be used in a

telephone survey. Unfortunately, many of the observed businesses lists cannot be

used in web surveys as a business sampling frame.

If the observed businesses lists are observed individually it can be concluded that

the Bisnode businesses list can be used as a business sampling frame in face-to-face

and mail surveys. However, its use as a business sampling frame is questionable

because Bisnode does not include all types of enterprises and all Croatian

enterprises. Furthermore, the full list of all enterprises in this businesses list is not

available. Creditreform could be used as a business sampling frame in face-to-face,

telephone, mail and web surveys. However, Creditreform has the same

disadvantages as Bisnode. Because of that it is questionable whether the

Creditreform businesses list can be used as a sampling frame in probability sampling.

The same is true for the use of the Fininfo businesses list as a sampling frame. Its use

in probability sampling is arguable and it cannot be used in web surveys. The

Tvrtke.com businesses list has even worse properties than Fininfo, Namely, Tvrtke.com

cannot be used as a sampling frame in mail surveys because all the disadvantages

mentioned above are present there also.

The main disadvantage of Energetika-net.com and IRENA businesses lists is their

orientation towards enterprises with certain characteristics only. Nevertheless, it is

arguable whether all enterprises with emphasized characteristics are included in the

first place. Because of that their usefulness in face-to-face, telephone, mail and web

survey should be considered very limited.

On the other hand Kompass and Yellow Pages businesses lists do hide the fact

that they do not include all enterprises. However, an advantage is that a list of all


37

listed enterprises is available at both businesses lists. Still, that does not change the

fact that their use in probability sampling is very limited.

All the above mentioned businesses lists are considered to be non-administrative.

In other words, they do not use data from one or more administrative sources. The

Croatian Bureau of Statistics, the Croatian Chamber of Economy and the

Department of Justice businesses lists are considered to be administrative ones. Their

main advantage over the other observed businesses lists is the fact that they really

include all types of enterprises and all Croatian enterprises. This advantage is so

huge that it leads to the acceptance of the research hypothesis of the paper. So, it

can be concluded that business sampling frames based on publicly available online

businesses lists which are provided by government institutions are of higher quality

than those which are based on publicly available online businesses lists provided by

other institutions or persons. However, if these three administrative businesses lists are

observed, some disadvantages can be found also. The main disadvantages of the

Croatian Bureau of Statistics businesses list are a lack of all enterprises and additional

contact information. Consequently, the Croatian Bureau of Statistics businesses list

cannot be used in a survey on its own. The Department of Justice businesses list also

suffers from a lack of all enterprises but it ensures more information about enterprises

than the Croatian Bureau of Statistics sampling frame. However, the Department of

Justice businesses list can be used as a sampling frame only in face-to-face and mail

surveys.

From all the observed businesses lists, the Croatian Chamber of Economy

businesses list has the best properties and it can be used as a sampling frame at all

survey data collection methods. However, the Croatian Chamber of Economy

businesses list has certain disadvantages when a web survey is conducted but only

enterprises can be blamed for that. Namely, not at all enterprises use e-mails or the

Internet.

An unambiguous answer to the research question cannot be given. If the

capability of the observed businesses lists to be used as business sampling frames in

different survey data collection methods is considered, it can be concluded that the

existing businesses lists could be used in face-to-face, telephone and mail surveys.

Those survey data collection methods can be considered as traditional ones.

However, when modern data collection methods are observed, the situation is not

so good. Namely, the observed businesses lists, with the exception of the Croatian

Chamber of Economy sampling frame, offer very weak support for conducting web

surveys. It is expected that with the increase of computer literacy, appropriate

businesses lists will be developed also. However, in order to speed up this process, the

government should also be involved. The potential positive effects of increased

computer literacy and availability of direct and instant access to information about

the situation in enterprises should not be neglected.

Conclusion Survey results can indicate certain serious problems in enterprises. In that way,

certain solutions can be recommended and, consequently, enterprises can achieve

better business results. However, survey conclusions have a greater significance if a

probability business survey is conducted. One of the main requirements for

conducting such as survey is having an appropriate business sampling frame.

In the paper overall 11 publicly available businesses lists and their adequacy for

use as sampling frames were inspected. There are far more available businesses lists

but it is assumed that those 11 can very well describe the present situation and point

out the most important problems with widely available businesses lists. Furthermore,


38

those 11 businesses lists have some basic characteristics which make them different

from other lists. For example, certain businesses lists are oriented towards a specific

group of enterprises, other businesses lists give additional information if a researcher

pays for additional service, while some businesses lists have user friendly interface,

and so on.

The characteristics of all the 11 businesses lists have been discussed and

compared. The comparison has shown that businesses lists which use administrative

sources as a source of information are more likely to be appropriate to be used as

sampling frames in probability sampling.

However, there are some problems when a web survey is intended to be

conducted because not all enterprises use e-mail and the Internet. In order to

improve this situation, an increase in computer literacy in enterprises is expected.

The main limitation of the paper is that only 11 publicly available online businesses

lists were considered. In the future research online businesses list available at

specialized organizations should also be taken into account.

It has to be emphasized that nowadays the nonresponse problem in surveys is

becoming increasingly important (Dale et al., 2007). In the further research it would

be interesting to investigate to which extent imperfect sampling frames have an

impact on the response rates. If it were shown that perfect and imperfect sampling

frames result in statistically similar response rates, that would result in a completely

new view on investing additional efforts in improving imperfect sampling frames.

However, the level of sampling frames imperfectness also has an important role here.

References 1. Bethlehem, J. (2009). Applied Survey Methods: A Statistical Perspective,

Hoboken, John Wiley & Sons.

2. Cox, B. G., Binder, D. A., Chinnappa, B. N., Christianson, A., Colledge, M. J., Kott,

P. S. (eds) (1995), Business Survey Methods, Hoboken, John Wiley & Sons.

3. Dale, T., Erikson, J., Fosen, J., Haraldsen, G., Jones, J., Kleven, Ø. (2007),

“Handbook for Monitoring and Evaluating Business Survey Response Burdens”,

available at: http://ec.europa.eu/eurostat/documents/64157/4374310/12-

HANDBOOK-FOR-MONITORING-AND-EVALUATING-BUSINESS-SURVEY-RESONSE-

BURDEN.pdf (15 December 2016).

4. Groves, R. M., Fowler, F. J., Couper, M. P., Lepkowski, J. K., Singer, E., Tourangeau,

R. (2004). Survey Methodology, Hoboken, John Wiley & Sons.

5. Kish, L. (1995), Survey Sampling, New York, John Wiley & Sons.

6. Martirosyan, L., Arah, O. A., Haaijer-Ruskamp, F. M., Braspenning, J., Denig, P.

(2010), “Methods to identify the target population: implications for prescribing

quality indicators”, BMC Health Services Research, Vol. 10, No. 137, pp. 1-8.

7. Official Gazette (1994), Law on the National Classification of Activities, No. 98.

8. Official Gazette (2007a), Decision on the National Classification of Activities 2007

- NKD 2007., No. 58.

9. Official Gazette (2007b), Decision on the National Classification of Activities 2007

- NKD 2007., No. 72.

10. Official Gazette (2007c), Regulation on the classification of business entities by

National Classification of Activities 2007 - NKD 2007., No. 80.

11. Ross, K. N. (2005), “Sample design for educational survey research”, available at:

http://www.unesco.org/iiep/PDF/TR_Mods/Qu_Mod3.pdf (15 December 2016).

12. Stoop, I., Harrison, E. (2012), Classification of Surveys. In Handbook of Survey

Methodology for the Social Sciences (Gideon, L. ed.), New York, Springer.

http://ec.europa.eu/eurostat/documents/64157/4374310/12-HANDBOOK-FOR-MONITORING-AND-EVALUATING-BUSINESS-SURVEY-RESONSE-BURDEN.pdf



http://www.unesco.org/iiep/PDF/TR_Mods/Qu_Mod3.pdf


39

13. Warnecke, R. B. (2005). Sampling Frames. In Encyclopedia of Biostatistics. John

Wiley & Sons.

14. World Bank (2013), “G20 Financial Inclusion Indicators: Methodology”, available

at:

http://databank.worldbank.org/data/download/g20fidata/G20%20Set%20Meth

odology.pdf (9 December 2016).

15. World Bank (2017), Doing Business 2017: Equal Opportunity for All, Washington,

World Bank.

About the author

Berislav Žmuk, PhD, graduated with a major in Accounting, post-graduated in

Statistical Methods for Economic Analysis and Forecasting, and gained his PhD

degree in Business Economics at the Faculty of Economics and Business, University of

Zagreb. Currently he is an Assistant Professor at the Department of Statistics, Faculty

of Economics and Business, University of Zagreb where he teaches the following

subjects: Statistics, Business statistics and Business forecasting. In 2013, he successfully

completed Sampling Program for Survey Statisticians (SPSS) at the Survey Research

Center (SRC), Institute for Social Research (ISR), University of Michigan in Ann Arbor,

Michigan, USA. In 2015, he completed several survey methodology courses

(Introduction to Web Surveys, Introduction to Questionnaire Design, Mixed-Mode

and Mixed-Device Surveys) at Gesis - Leibniz Institute for Social Research in Cologne,

Germany. In 2016, he completed two survey methodology courses (Introduction to

Survey Data Analysis, Advanced Survey Data Analysis and Survey Experiments) at

Essex Summer School in Social Science Data Analysis in Colchester, United Kingdom.

In 2017, he completed Survey Research: Statistical Analysis and Estimation course at

Utrecht Summer School in Utrecht, the Netherlands. His main research fields include

applications of statistics in business and economy, survey methodology and

statistical quality control. The author can be contacted at [email protected].

http://databank.worldbank.org/data/download/g20fidata/G20%20Set%20Methodology.pdf

http://databank.worldbank.org/data/download/g20fidata/G20%20Set%20Methodology.pdf


40

The Impact of Reputation on Corporate

Financial Performance: Median Regression

Approach

Silvija Vig

Polytechnic of Međimurje, Čakovec, Croatia

Ksenija Dumičić

Faculty of Economics & Business, Zagreb, Croatia

Igor Klopotan

University North, Varaždin, Croatia

Abstract

Background: In recent years, reputation has become an important risk concern for

companies around the world. Deloitte Global Survey highlights the reputation risk as

the top strategic business risk in 2014. This is also proven by a research conducted by

AON Global Risk Management Survey in 2015 and Allianz Risk Barometer Survey in

2016 which finds a loss of reputation as one of the biggest risks for business

executives. Furthermore, the importance of reputation is confirmed by the fact that

reputation accounts for more than 25 percent of a company’s market value and the

total market capitalization of the S&P500 companies. Objectives: To investigates the

relationship between corporate reputation and financial performance.

Methods/Approach: The survey of the paper was conducted in 2015 in Croatia. The

questionnaire for assessing corporate reputation contained three reputational

dimensions: products and services, corporate integrity, and organizational

performance while the financial dimensions contained indicators of EVA, ROCE,

ROA, ROE and the financial stability coefficient. Hierarchical regression methods

were applied in the analysis. Results: This research leads to the conclusion that some

dimensions of corporate reputation can be important predictors of financial

performance. Conclusions: Results of the research could be a valid motivation for

business executives to consider reputation risk as a critical issue of corporate business

strategy.

Keywords: business ethics; corporate reputation; financial performance; hierarchical

regression; reputation risk

JEL classification: M




Citation: Vig, S., Dumičić, K., Klopotan, I. (2017), “The Impact of Reputation on

Corporate Financial Performance: Median Regression Approach”, Business Systems


DOI: 10.1515/bsrj-2017-0015

Acknowledgment: This work has been partially supported by the Croatian Science

Foundation within the project STRENGTHS (project no. 9402).


41

Introduction In today's fast-changing world and in the uncertain and complex business

environment, companies that are oriented on exclusively short-term financial

business results are exposed to increasingly larger business risks which they have to

manage often and with new ways of doing so. Hence, numerous companies besides

financial indicators also include non-financial ones in their strategic goals which

predict sustainable long-term business. One of the most significant ones but also a

very sensitive non-financial construct is the corporate reputation that already today

represents one of the key intangible assets for creating an added value of a

company. On one hand, reputation represents value, but on the other, it creates a

company’s value. However, because of its sensitive nature, although it takes years to

create it, it can be destroyed in a heartbeat. It is for this reason that business

executives of numerous companies list it as one of the biggest business risks, and this

is confirmed by numerous research papers.

The Deloitte Global survey stated reputation risk as the top strategic business risk in

2013, and in the survey conducted in 2014 they emphasize the importance of

managing reputation risk as a problem of strategic business issues which in current

conditions becomes an imperative in business (Deloitte, 2014). Furthermore, the

Allianz Risk Barometer (2015, 2016) states that the loss of reputation is one of the ten

most significant business risks and the “main cause of a company's economic loss

after a cyber incident, stopping of business or damage that was caused because of

loss of client data“. Also, AON Global Risk Management Survey 2017 considers the

destruction of reputation as the greatest risk of business in 2017. Also, the above-

mentioned research emphasizes the importance of the influences of new

technologies on the speed of news proliferation that can destroy a reputation in a

very short time, especially of global companies because bad news in one part of the

world today via the Internet and social networks is available only moments after in all

other parts of the world. The fact the other risks like ethics risk and harmonization

amidst possible frauds, corruptive activities or discriminations; security risk including

cyber risk, protection of personal data; product risk and services and third party risk

which companies do not directly influence, also point to the sensitivity of reputation

risk.

Reputation represents an intangible asset that is very difficult to copy, that has

been created on the basis of former events and activities of companies and

something that creates a company’s perception in public (Fombrun and van Riel,

1997). Numerous researches confirm its positive effects on financial and non-financial

success of the business of a company (De la Fuente Sabaté and De Quevedo

Puente, 2003; Turban and Cable, 2003; Sobol and Farrelly, 1988). The analysis of the

current literature has shown that most research (Orlitzky, 2005; De la Fuente Sabaté

and De Quevedo Puente, 2003; Brown, 1998; Griffin and Mahon, 1997) measures the

influence of the total company reputation which consists of various dimensions on

certain aspects of the business including financial performance indicators.

The aim of this research is to measure the impact of individual dimensions of

reputation on financial business performance. Also, it has been noted that current

research on the influence of reputation on financial indicators is mostly based on

traditional financial indicators. In contemporary business conditions, traditional

financial indicators as instruments of measuring and evaluating business

performance are exposed to critiques that are connected to “insufficient risk

acknowledgement, insufficient time value of money acknowledgement, influence of

the balance politics and that are insufficiently connected to the shifts on the capital

market, or that the traditional indicators do not sufficiently reflect growth of value in


42

the market” (Sever Mališ, 2017, p. 424). So, this research besides traditional financial

indicators also includes a contemporary measure of a company's business

performance. Except that, there is another fact which, from our point of view, needs

to be explained and it refers to the definition of the term and the variables that

make up corporate reputation for which there is still no unified attitude. Therefore,

the goal of this paper is to explain reputation as a construct of three interconnected

variables. Besides that, this work analyses the correlation between individual

dimensions of corporate reputation and financial performance in Croatian

companies. The paper will significantly contribute to the understanding of corporate

reputation and its importance in the business activity of a company. The results of

the research can be used in practice, executive directors as guidelines for making

business decisions and in the scientific community to the researchers as a basis for

some future comparable research in Croatia, in the region as well as outside of it.

Literature review Corporate reputation In numerous dictionaries there is a clear definition of the term reputation, so the

Oxford dictionary states that reputation is “the beliefs or opinions that are generally

held about someone or something” (Oxford dictionary online, 2017), Cambridge

dictionary considers reputation “the opinion that people in general have about

someone or something, or how much respect or admiration someone or

something receives, based on past behavior or character” (Cambridge dictionary,

2017), Merriam-Webster dictionary defines reputation as an “overall quality or

character as seen or judged by people in general” (Merriam-Webster

dictionary, 2017). However, its meaning in the business world is still not unified.

Different authors state numerous definitions of corporate reputation that

differ in interpretation but also its characteristics. Wartick states that the term

like identity, as well as image and corporate reputation are often used

interchangeably (Barnett et al., 2006). So, we think it is important that before we

define the term of corporate reputation to explain the terms like identity and image

that in literature and practice are often used as synonyms or interrelated

phenomena so we could make their meaning and interrelationship clearer. In this

paper terms like identity, image and corporate reputation are seen as different but

also as interrelated phenomena.

Corporate identity represents the basic character of a company which

determines what the company really is. In other words, the identity reflects the

philosophy of the business activity of a company, its values, behaviors and activities

towards all of its stakeholders. Corporate identity is formed by a “merging of

strategy, structure, communication and culture and it is manifested through

multifarious communications channels encapsulating product and organizational

performance, employee communication and behavior, controlled communication

and stakeholder and network discourse” (Bendixen and Abratt, 2007:70-71). The

organizational structure plays a large role in the forming of the corporate identity

which through its formal and informal systems implements the founding values in a

company's business activity. Since the organizational culture defines values and

standards of behavior in the company, it affects the behavior of management and

employees. If a company strives for a good reputation and long-term sustainable

performance, it is important that the organizational culture is based on ethical values

which then make up the ethical identity of a company.

http://dictionary.cambridge.org/dictionary/english/opinion

http://dictionary.cambridge.org/dictionary/english/people

http://dictionary.cambridge.org/dictionary/english/general

http://dictionary.cambridge.org/dictionary/english/respect

http://dictionary.cambridge.org/dictionary/english/admiration

http://dictionary.cambridge.org/dictionary/english/receive

http://dictionary.cambridge.org/dictionary/english/base

http://dictionary.cambridge.org/dictionary/english/behaviour

http://dictionary.cambridge.org/dictionary/english/character


43

Whereas corporate identity says who we are as a company, or rather shows what

the company claims it is, corporate image represents how others perceive a

company. “Corporate image is the mental picture of the company held by its

audiences—what comes to mind when one sees or hears the corporate name or

sees its logo” (Gray and Balmer, 1998). Since the image depends on the observer

perception it is often seen as the same thing as reputation. Gotsi and Wilson (2001) in

their research reveal that there are two different views connected to image and

reputation. The first view states that image and reputation are almost identical, or

rather that both terms can be used as synonyms. Numerous authors agree with the

premise of the synonymity of the terms of image and reputation (see Gotsi and

Wilson, 2001). Secondly, image and reputation are not the same terms but are

interrelated in a way that: a) reputation affects or b) that image affects reputation

(Gotsi and Wilson, 2001). Although there are authors in the literature that support the

view that reputation affects image (Barich and Kotler, 1991; Mason, 1993), there are

still slightly more of them that lean towards the presupposition that image affects

reputation (see Gotsi and Wilson, 2001). According to Fombrun and van Riel (1997)

identity and image represent the basic elements of reputation.

This construct can be shown through the views of self-psychology that was

developed by Heinz Kohut. The self represents a “mental system that organizes a

person’s subjective experience in relation to a set of developmental needs” (Wolf,

1988 cited in Banai et al., 2005), and since a company is an economic,

technological, legal and sociological system that represents the community of

persons, Kohut's views could be applied in the context of reputation management.

“The Self is an experience of itself” (Gruden, 2003), or rather what we are, which in

the context of a company would represent corporate identity. The subjective

experience of the self as an object forms self-representation which in the context of

a company would be image. The problem occurs because self-representation, as

well as image can be real or if there is no congruence between the self and the self-

representation, the self-representation becomes false. In line with that, in a business

context if the identity and image of a company are congruent it creates a positive

reputation and if they are not, or there is too much distance between identity and

image, the reputation is as bad in the long-term as the false self is false.

It is important to point out that a company can affect and control its identity,

which represents a very stable variable, but even though it creates its image, the

company has no control over its image or its reputation because of external factors

that affect them. The media or some sudden events can be triggers in the

perception of a good or bad reputation for eternal stakeholders. Since the

reputation consists of “the knowledge and emotions held by individuals” (Hall, 1992,

p. 138), or rather “the combination of affective and cognitive components” that

determine the “reputation as an attitudinal construct, where attitude denotes

subjective, emotional, and cognitive based mindsets” (Schwaiger, 2004, p. 49), it

represents a delicate and “a fragile resource; it takes time to create, it cannot be

bought, and it can be damaged easily” (Hall, 1993, p. 616).

Business ethics as a premise for good corporate reputation Corporate reputation is the reflection of a company's past procedures and activities

in the eyes of the stakeholders which based on their affective and cognitive

perceptions evaluate them as being good or bad. Ethics as a science on morality

gives answers to the questions of what is good, bad, right or wrong while business

ethics gives these answers in a business context. It encompasses the values,

principles and standards that direct behavior and activities in the business world and


44

is seen as the basis of all business relationships. Even though in the nineties, when it

was started to be implemented into business systems, it was considered a fad

(Treviño and Nelson, 2011), today it is unthinkable to realize long-term sustainable

performance without its implementation. Furthermore, Fombrun and Foss (2004)

prove that business ethics affect the reputation, image and competitiveness of a

company.

As the impression that company's leave in the public eye has gotten ever more

important and the demands of the stakeholders have risen, many companies have

realized that they have to implement ethical business standards, most often defined

by programs of business ethics, which consist of: (1) values and mission, (2) codes of

ethics, (3) ethics officers, (4) ethics helpline, (5) ethics training programs, (6)

communicating ethical values, (7) rewarding policy for ethical behavior, and (8)

ethics audit (Vig and Dumičić, 2016). The value and mission on which a company

bases its business activity make up an ideological core, or rather, identity, the so

called, character of a company (Collins and Porras, 2002). They determine how a

company presents itself, how it works and what kind of impression it makes on the

public. To be able to leave a positive impression, companies need to base their

business activity on ethical values that are embedded in the mission and vision of

the company so it can continuously remind the employees that their current and

future behavior and activities are right.

Reputation measuring Reputation, as was mentioned earlier, represents a valuable and intangible asset. To

prove its value, reputation needs to be measured. However, because of its

intangible characteristic and affective-cognitive component of the observer, it is

hard to measure. So, till this day there is still no standardized instrument only individual

authors and institutions that create rating lists with different numbers of variables.

Although looking into reputation started in the fifties of the last century, it was only

at the start of the eighties that reputation was first measured (Grgić, 2008a). The most

known measurement till today was performed by Fortune magazine during the fall of

1983 (Ponzi et al., 2011), and in 1984 the list of „America’s Most Admired Companies“

(Fombrun et al., 2000) was published for the first time. Reputation was rated by

managers and business analysts in their respective branches of industry based on

eight criteria from investment value, product quality and services to social

responsibility (Ponzi et al., 2011). Since 1997 the list has grown into the “Global Most

Admired Companies” (Fombrun et al., 2000), today known as the “World Most

Admired Companies” and it is based on nine criteria that are measured in 51

different branches of industry: “innovation, quality of products and services, quality

of management, people management, use of corporate assets, long-term

investment value, financial soundness, global competitiveness and social

responsibility” (Fortune, 2017). In time also other magazines and institutions in the

world started to rate the companies that had the best reputation, according to their

own criteria, like “Management Today (Britain’s Most Admired Companies), Financial

Times (World’s or Europe’s Most Respected Companies), Corporate Branding LLC

(Corporate Branding Index), Asian Business (Asia’s Most Admired Companies) and

others” (Schwaiger, 2004, p. 56). Year after year, the number of lists grew so that

already in 2007 the Reputation Institute identified 183 public lists that rate companies

according to their reputation in 38 countries (Fombrun, 2007), so that number is

today surely even greater.

Since the above-mentioned lists are mainly based on the perception and views of

the managers and analysts, Charles Fombrun in together with the market research


45

company Harris Interactive 1999 developed a new instrument of measurement the

Reputation Quotient (RQ) to be the standard in reputation measuring of companies,

in order to see what the perception of different stakeholders is. Fombrun et al. (2000,

p. 242) state that corporate reputation is a “collective construct that describes the

aggregate perceptions of multiple stakeholders about a company’s performance.

Since corporate performance is a multi-dimensional construct, reputation would be

expected to be multi-dimensional as well, reflecting the unique dimensions on which

individuals stakeholders base their judgments of the company’s performance.”

Reputation Quotient consists of 20 items divided into six criteria (Fombrun et al., 2000,

p. 252): “(1) Emotional Appeal, (2) Products and Services, (3) Financial Performance,

(4) Vision & Leadership, (5) Workplace Environment, and (6) Social Responsibility”.

By noticing the importance of a company's relationship to its stakeholders, Grgić

(2012) added relationships, as one of the fundamental dimensions that affect the

creation of a company's positive reputation, in the Reputation Quotient and creates

the Index of company reputation (IRP). As opposed to measurements till then that

measured relationships separately, this instrument of measurement includes

relationships as one of the dimensions of reputation (Grgić, 2012).

According to Ponzi et al. (2011) numerous other authors developed their own

instruments of measurement with different numbers of criteria, like a 28-item

customer-based reputation measure (Walsh and Beatty, 2007), 15-items scale, a ten-

item scale (Helm, 2005), a six-item corporate reputation measure (Schwaiger, 2004),

a four-item scale (Hammond and Slocum, 1996) or a three-item scale (Highhouse et

al., 2003).

Since in their paper, Highhouse et al. (2009) suggest that “stable estimates of

global reputation can be achieved with a small number of items”, Klopotan (2016)

reduces the instrument of reputation measurement to three dimensions which consist

of a total of nine questions: (1) Company reputation: Products and services

(Guarantee for products and services, development of innovative services, quality of

products and services, level of products and services for the given price – value for

money); (2) Company reputation: Vision (Company management, vision for the

future, quality of leadership); and (3) Company reputation: Working condition

(Company quality as a job provider, Quality of the employees) which are the subject

of research in this paper.

Impact of reputation on corporate financial performance By analyzing the current literature the conclusion is that there are two types of

research for corporate reputation and financial performance indicators. The first

group, which is also less rare, is research on the effect of financial performance

indicators on corporate reputation (Hamond and Slocum, 1996; Sobol and Farrelly,

1988). The second, also the bigger group is opposite research, or rather that that

measures the effect of reputation on the financial performance of a company.

When looking into this second group of research the conclusion is that there are

more positive relationships compared to the research with no relationships or even

negative relationships between reputation and financial indicators or even negative

relationships. Added difficulties in the implementation of the results are created

because of the use of different instruments of measurement of a company’s

reputation by individual authors and the use of different accounting-based or

market-based measures.

Ugoji et al. (2007) by analyzing key scientific research by Orlitzky et al. (2003),

Roman et al. (1999) and Griffin and Mahon (1997) summed up the research that

measured the relationships of financial indicators and indicators of business


46

ethics/social responsibility. The results show that of a total of 80 research papers, 38

display positive relationships, 18 display no significant relationships, 7 display negative

relationships and display 17 mixed relationship (Ugoji et al., 2007). Out of the 80

above-mentioned research papers, 16 of them for measuring reputation use the

Fortune magazine instrument of measurement, and are for the purposes of this paper

shown in table 1 so the relationship of reputation, measured with the same instrument

of measurement and financial performance indicators, which in the above-

mentioned research differs from one author to the next.

Table 1

An overview of research papers that include an instrument of measurement of

reputation by the Fortune magazine and financial indicators

Studies Measures of Social Performance Measures of financial

performance

Positive relationship

Brown (1998) Fortune Reputation Ratings Market measures

Brown and Perry (1995) Fortune’s ratings of “responsibility to

the community” (Reputational

indices)

Composite of Return on

Asset, Market/Book Value,

log of sales and risk

Connie and Madden

(1986)

Fortune Reputation Ratings Perception of the reliability

of financial position and of

value as long run

investment

Cottrill (1990) Fortune Reputation Ratings Market share

Griffin and Mahon (1997) Fortune Reputation Survey, index

score, KLD, Corporate Philanthropy,

Toxics Release Inventory (TRI),

ROS, ROE. ROA. SIZE (log of

total assets) and Asset age

Herrmans’ Akathaporn

and Mclnnes (1993)

Fortune Reputation Ratings Abnormal Market Returns

McGuire, Sundgren and

Schneeweis (1988)

Fortune Reputation Ratings ROA, alpha, asset growth,

operating income growth

and sales growth

Preston and Sapienza

(1990)

Fortune Reputation Ratings Market measures

Riahi – Belkaoui (1991) Fortune Reputation Ratings 10 years’ EPS growth and

P/E Ratio

Simerly (1994) Fortune Reputation Scores,

dichotomized

Share price, EPS, ROE,

market value, sales rate,

sales/equity and ROI

Spencer and Taylor

(1987)

Fortune Reputation Ratings ROA and ROS

Tichy, McGill and St.

Clair (1997)

Fortune Reputation Ratings Accounting measures

Wokutch and Spencer

(1987)

Fortune Reputation Ratings,

charitable contributions and

corporate crime

ROA and ROS

Mixed relationship

Brown (1997) Fortune Reputation Ratings Market measures

McGuire, Schneeweis

and Branch (1990)

Fortune Reputation Ratings Accounting and Market

measures

Source: Ugoji, et al. (2007)

From the above-mentioned table the conclusion is that reputation is in a positive

relationship with numerous accounting-based and market-based measures. This is


47

supported with the claim that “the greatest reasons for a positive effect on a social

performance of a company on its financial results is because of reputation“ (Orlitzky,

2005). De la Fuente Sabaté and De Quevedo Puente (2003) in their study mentioned

similar theses, or rather that reputation has a positive effect on financial indicators

but they also mention research in which no effect has been noticed (Schultz et al.,

2000 cited in De la Fuente Sabaté and De Quevedo Puente, 2003). Roberts and

Dowling (2002) think that a great corporate reputation helps companies to achieve

exceptional financial performance. However, Fombrun and Shanley (1990) agree

with authors that support the opposite relationship of variables and think that “it may

be more fruitful to consider financial performance as a variable

influencing…(reputation) than the reverse” (Fombrun and Abrahamson, 1988 cited in

Fombrun and Shanley, 1990, p. 237). On these grounds, we argue that a great

reputation represents an important resource that has a positive effect on financial

performance of a company. Based on that, we pose the following hypotheses:

H1: There is a significant impact of products and services as a dimension of

corporate reputation on financial performance.

The hypothesis stems from the fact that the buyers are very important

stakeholders, so managing their expectations and perceptions is the key of the

success of any company (Delloitte, 2014). So, the products and services quality as

one of the basic dimensions of reputation management (Grgić, 2012) is an important

predictor of financial performance.

The leadership of a company plays a large role in creating and implementing the

organizational culture that affects the identity, image and in the end the corporate

reputation. Often corporate reputation is evaluated precisely by the behavior and

performance of the leaders of that company (Grgić, 2012). So, their performance

based on the adopted values as well as on the vision of a company, significantly

affects the overall reputation which in the end can affect the financial performance

of a company. In line with that, we pose the second hypothesis in this paper:

H2: There is a significant impact of vision and leadership as a dimension of corporate

reputation on financial performance.

The working environment climate affects decision making and behaviors and

performance of the employees. Companies with a good reputation mostly have an

ethical organizational climate which determines the atmosphere inside the

company and causes employees to behave and perform ethically (Treviño et al.,

1998). Such a working environment has a positive effect on moral, dedication and

productivity of the employees (ISO, 2014) and their satisfaction with the working

environment and the company in which they work (Peterson, 2004 cited in Grgić,

2008b). Companies with a good reputation represent quality job providers for which

employees want to work. Based on that:

H3: There is a significant correlation between working conditions as a dimension of

corporate reputation and financial performance.

Methodology Sample The analysis of a company's reputation is based on measuring three dimensions of

reputation: product and service, vision and leadership and working environment.

The primary empirical research was carried out on the Croatian population, where

the reported unit was citizens from ages 18 to 65 who were asked to evaluate the

reputation of 100 selected companies. The examinees were contacted by e-mail

and they received a digital questionnaire. Companies that the examinees were


48

asked to evaluate were randomly selected out of a list of 400 biggest companies

that is published by the Privredni vjesnik, based on the data of the Croatian

Chamber of Economy (HGK). The research was done in 2015 and a total of 400 filled

out questionnaires were collected. The research instrument used in this research is

one developed by Klopotan (2016) based on the Index of company reputation

(Grgić, 2012), and consists of three dimensions of reputation: product and service

reputation, vision and leadership reputation and working conditions reputation, as is

shown in table 2. The questions are posed in a way that the examinees should

express their agreement with a certain assertion on the Likert scale (7-point).

Table 2

Research instrument of company reputation (Likert scale 1-7)

Variable code

Company reputation: Products and services

P1 Guarantee of products and services

P2 Development of innovative services

P3 Quality of products and services

P4 Level of products and services for a given price (Value for

money)

Company reputation: Vision and leadership

V1 Company management

V2 Vision for the future

V3 Quality of leadership

Company reputation: Working conditions

W1 Quality of a company as an employer

W2 Quality of employees

Source: Klopotan (2016) according to Grgić (2012)

The financial indicators of performance of the selected companies have been

gathered from the database of the Financial Agency (FINA), the leading company

for business information in Croatia, for 2016, and include the traditional indicators of

performance: ROA, ROE, ROCE and the current measure of performance, also the

most significant, Economic value added (EVA), as is shown in table 3.

Table 3

Company performance measurement

coefficient

ROCE

ROA

ROE

EVA


Statistics The characteristics of the examinees, like gender, age, level of education and

current status, were gathered in the scope of the research. According to the data

shown in table 4, 45.40% were female and 52.50% were male. The largest number of

examinees were until the age of 25 (22.50%), then from 26 to 30 (22%), and from 31 to

35 (16%). The least number of examinees were in the age group that is older than 61


49

(4.25%). The most examinees were high school graduates (36.40%) or college

graduates (35.44%) and most of the examinees were employed (38.50%).

Table 4

Participant characteristics

Number of examinees Structure in % Cumulative %

Gender

No answer 8 2,00 2.00

Male 182 45.50 47.50

Female 210 52.50 100.00

Age

No answer 2 0.50 0.50

Until 25 90 22.50 23.00

26-30 88 22.00 45.00

31-35 64 16.00 61.00

36-40 52 13.00 74.00

41-45 43 10.75 84.75

46-50 26 6.50 91.25

51-60 18 4.50 95.75

More than 61 17 4.25 100.00

Education

No answer 5 0.25 0.25

High school graduate 144 36.4 36.65

Vocational school 94 23.63 60.29

College graduate 140 35.44 95.73

Masters or doctorate 17 4.27 100

Status

Student 104 26.00 26.00

Unemployed 98 24.50 50.50

Employed 154 38.50 89.00

Company owner / manager 28 7.00 96.00

Retired 16 4.00 100.00

Source: Klopotan (2016)

Since a standard linear regression gives only a partial view of an average

relationship between independent and dependent variables (Baum, 2013), we used

a median regression in this research. The median is a 50 percentile or a 0.5 quantile

of the empirical distribution or rather „the quantile q ∈ (0.1) is that y which splits the

data into proportions q below and 1−q above: F(yq) = q and yq = F−1(q): for the

median, q = 0.5” (Baum, 2013, p. 2).

The linear median regression model is used when there is an assumption that “the

conditional median of the dependent variable y is a linear function of the vector x of

independent variables“ and is “particularly suitable if the conditional distribution of

the y variable is fat-tailed, or if the lowest and/or highest values of y are truncated or

misreported” (Bierens and Ginther, 2000).

Table 5 shows the calculation of the middle value and the median for dependent

variables of financial performance indicators of a company.


50

Table 5

Company performance from the sample

N Minimum Maximum Mean Std.

Deviation

Median

ROCE 100 -1.088 5.643 0.111 0.636 0.033

ROA 100 -82.383 29.902 2.646 13.567 3.801

ROE 100 -396.938 188.255 3.317 54.277 4.452

EVA 100 -1.8E+09 3.71E+08 -8.1E+07 2.79E+08 -2.0E+07


For the dependent variable ROCE, the median of 0.033 indicates where the

center of the data is located. Thus, the typical ROCE is 0.111 (mean value). The

median for ROA is 3.801 and the mean is 2.646, which determine the typical ROA.

The median for ROE is 4.452 and the mean is 3.317, which determine the typical ROE

and the median for EVA is -2.0E+07 where the center of the data is located and the

mean of -8.1E+07 determine the typical EVA. The histograms of this data are shown

below.

Figure 1

Comparison between ROCE, ROA, ROE and EVA median



51

Since the mean is slightly lower than the median, as is the case with the ROA, ROE

and EVA, the histogram is slightly skewed in a negative direction and vice versa, and

in our research this is the case with the ROCE.

Findings The research goal is to investigate the influence of each individual dimensions of

corporate reputation, as the dependent variable on the financial performance of

Croatian companies, as presented in table 6. The median regression with a

dependent binomial variable was used, which takes on the values: (a) 0 for 50% of

companies that have values of variables ROCE, ROA, ROE and EVA less than the

median and (b) 1 for 50% of companies that have values of variables ROCE, ROA,

ROE and EVA greater or equal to the median.

Table 6

Estimation of statistical parameters of the median regression model

ROCE ROE ROA EVA

=0.5 =0.5 =0.5 =0.5

const −0.066 −5.474 −4.949 −5.579e+06

P1 0.036 0.941 −2.202 −7.656e+06

P2 0.001 1.729 0.939 1.819e+07**

P3 −0.024 −4.358* 0.540 −1.604e+07

P4 −0.018 0.436 0.339 3.397e+06

V1 0.034 1.003 0.741 1.256e+07

V2 −0.067 −5.197* −1.601 −1.148e+07

V3 0.081* 8.729*** 3.682 9.884e+06

W1 0.033 5.220*** 3.909*** 2.753e+06

W2 −0.046 −5.325*** −3.827 −1.084e+07


The data in table 6, shows that the 0.50 median of ROCE raises by 0.036 for every

single unit rise in variable P1.

It is possible to find out data for the rest of the variables in the same way, so 0.50

median of ROE decreases by about 5.197 for every one unit increase in variable V2

or raises by 5.220 for every single unit rise in variable W1.

Figure 2 shows that the linear regression gives a good estimation of the ROCE,

ROE, ROA and EVA when variables P1, P2, P3, P4, V1, V2, V3, W1 and W2 is close to 0.

But as variables P1, P2, P3, P4, V1, V2, V3, W1 and W2 increase, the mean of the

ROCE, ROE, ROA and EVA given P1, P2, P3, P4, V1, V2, V3, W1 and W2 become less

meaningful.

Furthermore, the more uniform dispersion around a plotted line is, the more

accurate estimation of 0.50 medians can be made for each increase of P1, P2, P3,

P4, V1, V2, V3, W1 and W2 despite the increasing variability.


52

Figure 2

Comparison between ROCE, ROA, ROE and EVA median regression models


Table 7 shows regression coefficients sign and statistical significance in the

following way: (a) if an independent variable significantly impact a dependent

variable, the level of significance is stated, which can be from 1%, 5% or 10%, and is

marked with the prefix (+) or (-), which determines the direction of the impact; (b) if

there is no significance of the independent the marking is used.

Table 7

Regression coefficients sign and statistical significance

ROCE ROE ROA EVA

=0.5 =0.5 =0.5 =0.5

P1

P2 (+) 5%

P3

P4

V1

V2 (-) 10%

V3 (+) 10% (+) 1%

W1 (+) 1% (+) 1%

W2 (-) 1%



53

In our research a company's reputation is measured in three dimensions, where

every dimension contains a certain number of variables, so the first dimension of

corporate reputation: Products and services includes the variables P1 – Guarantee

of products and services; P2 – Development of innovative services; P3 – Quality of

products and services and P4- Level of products and services for a given price

(Value for money). By using median regression analysis we have confirmed that out

of the four variables of product and services reputation one of the variables has a

significant impact on financial indicators in Croatian companies. However, P2 -

development of innovative services, as one of the four variables that describe a

dimension of product and services reputation, is statistically significant in one of the

financial indicator. The analysis confirms that P2 - development of innovative services

has a significantly positive impact on EVA (5%). It has been proven that innovation

contributes to better company performance (Lumpkin and Dess, 1996 cited in Rosli

and Sidek, 2013) as well as to the overall performance (see Rosli and Sidek, 2013).

Also, Rosli and Sidek (2013) in their research state that product and process

innovation significantly affect company performance especially product innovation

which has a greater impact than process innovation. Furthermore, Lin (2011) claims

that service innovation, directly and indirectly, affects company performance where

the quality of service presents an important mediator, which also supports our

research. It can be concluded that since one of the four variables of product and

services reputation has a more significant impact, that our first hypothesis H1: There is

a significant impact of products and services as a dimension of corporate reputation

on financial performance, is partially accepted.

The dimension of vision and leadership reputation which includes the variables V1

– company management; V2 – vision for the future and V3 – quality of leadership,

was also investigated. Our research confirms that V2 – vision for the future has a

negative impact on ROE (significant at 10%) as a dependent variable of financial

performance, and variable V3 – quality of leadership has a positive impact on ROCE

(significant at 10%) and ROE (significant at 10%), as a measure of financial business

performance. The quality of leadership depends on how much the leadership has

adopted the fundamental values of a company's business activity. The more ethical

the values are the more quality leadership there is. The impact of such a quality of

leadership can be seen in the positive economic results, like an increased

productivity, efficiency or a higher share price (see Storr, 2004) which supports our

findings. The negative impact of the variable V2 – vision for the future on ROE may

be explained with the assumption that the examinees think that if the leadership is

too focused on vision or that if the vision is unrealistic that this demands additional

investment of capital to achieve that it, that it has a negative impact on ROE. As

with the variable V1 – company management no significant impact has been

registered, the second hypothesis H2: There is a significant impact of vision and

leadership as a dimension of corporate reputation on financial performance is

partially accepted.

Our research confirms that the working conditions as a dimension of corporate

reputation significantly affect financial performance. This may indicate that the

working conditions could be an important factor of corporate reputation in Croatian

companies. However, variable W1 – quality of a company as an employer, as one of

the dimensions of working conditions has a significantly positive effect on ROE, ROA,

as on the financial business performance. The working conditions are a result of the

organizational culture and climate. Whereas the organizational culture affects the

ethics in decision making, the organizational climate affects job satisfaction and

company loyalty (Trevino, 1986). The more the culture and climate are based on


54

ethical values, the better the working conditions are, the productivity of the

company is better and in the end more successful (Orlitzky et al., 2003; Verschoor,

1998; Webley and More, 2003) which supports our research.

Furthermore, variable W2 – quality of employees has a negative significant impact

on ROE which is opposite than the results of the other authors (Huselid, 1995; Becker

and Huselid, 1998). Such a result can be justified by the assumption that the

examinees thought that quality workers are also more expensive, have bigger

salaries, so they cost more and have a negative impact on ROE. Consequently, the

results of the research confirm our third hypothesis H3: There is a significant impact of

working conditions as a dimension of corporate reputation on financial

performance, and it is fully accepted.

Conclusion This article gives a comprehensive overview of corporate reputation, the dimensions

that determine it and their impact on financial performance of a company. The

authors have researched the correlation between individual dimensions of

reputation and the financial performance of a company. The research confirms that

all three dimensions that make up corporate reputation: product and services

reputation, vision and leadership reputation and working conditions reputation have

a complete or partial impact on financial performance which proves their

importance in the management of the total corporate reputation. The analysis

confirms that the impact of the development of innovative services, quality of

leadership and the quality of a company as an employer have a significantly

positive effect on the financial performance of a company whereas the vision for

the future and quality of employees have a negative impact. The contribution of this

research is that we measured the impact of each individual dimension of corporate

reputation on each separate financial measure.

A closer look at the data also suggested that quality of leadership, as a variable

of vision and leadership reputation and quality of a company as an employer, as a

variable of working condition reputation have the greatest impact on the financial

performance measure. Both variables have an impact on two measures, quality of

leadership on ROCE and ROE and quality of a company as an employer on ROE

and ROA, and from this we can see that both variables have the greatest influence

on the financial performance of a company, and based on the research that has

been carried out we consider them the most important variables that make up an

overall corporate reputation. Consequently, the role of the leaders is to create an

organizational culture and climate that is based on ethical values and that with their

behavior and activity serve as a good role model for the employees. The leaders

need to support ethical working conditions that have a positive impact on moral,

dedication and employee productivity (ISO, 2014) which makes the company as an

employer a better quality one, and this is the only way for a company to realize a

long-term successful, sustainable and social responsible business activity.

In the research certain limitations can be registered. First, the data was collected

on the basis of the citizen's personal estimations and did not include other

stakeholders. Interviewing managers, investors, subcontractors and other

stakeholders would give a wider and more realistic picture of each company.

Second, the research is geographically focused on the territory of Croatia which

creates certain limitations. The economic, legal, cultural and social make up of a

country certainly has an impact on a company's business activity. So, it would be

justified to research the reputation of companies in countries with a similar or

completely different make up and to compare the acquired results with the ones


55

acquired in Croatia. Finally, the third limitation is connected to the choice of the

instrument of measurement, which is a common problem when researching

corporate reputation. If we add to that the fact that there is still no unified definition

of reputation in a business context or a unified instrument for measurement with the

same type and number of variables, the possibility of comparison of the results of

research of corporate reputation of companies in different countries is still made

difficult.

References 1. Allianz Risk Barometer (2015), „Top Business Risks 2015“, Allianz SE and Allianz,

available at: http://www.agcs.allianz.com/assets/PDFs/Reports/Allianz-Risk-

Barometer-2015_EN.pdf (10 July 2017).

2. Allianz Risk Barometer (2016), „Top Business Risks 2015“, Allianz SE and Allianz,

available at:

http://www.agcs.allianz.com/assets/PDFs/Reports/AllianzRiskBarometer2016.pdf

(10 July 2017).

3. AON (2017), „Global Risk Management Survey 2017“, available at:

http://www.aon.com/2017-global-risk-management-survey/download-

reports.jsp (10 July 2017).

4. Banai, E., Mikulincer, M., Shaver, P. R. (2005), "Selfobject Needs in Kohut's Self

Psychology: Links With Attachment, Self-Cohesion, Affect Regulation, and

Adjustment“, Psychoanalytic Psychology, Vol. 22, No. 2, pp. 224-260.

5. Barich, H., Kotler, P. (1991), „A framework for marketing image

management“, MIT Sloan Management Review, Vol. 32, No. 2, pp. 94-104.

6. Barnett, M. L., Jermier, J. M., Lafferty, B. A. (2006), „Corporate reputation: The

definitional landscape“, Corporate reputation review, Vol. 9, No. 1, pp. 26-38.

7. Baum, C. F. (2013), “Quantile regression, EC 823: Applied Econometrics”, Boston

College, available at: http://fmwww.bc.edu/EC-

C/S2013/823/EC823.S2013.nn04.slides.pdf (12 July 2017).

8. Becker, B. E., Huselid, M. A. (1998), „Human resources strategies,

complementarities, and firm performance“, available at:

http://mgt2.buffalo.edu/files/faculty/ohr/becker/Publications/HumanResourcesS

trategies.pdf (10 July 2017).

9. Bendixen, M., Abratt, R. (2007), „Corporate identity, ethics and reputation in

supplier–buyer relationships“, Journal of Business Ethics, Vol. 76, No. 1, pp. 69-82.

10. Bierens, H. J., Ginther, D. K. (2000), „Integrated Conditional Moment Testing of

Median Regression Models“, available at:

https://www.researchgate.net/profile/Herman_Bierens/publication/228391525_In

tegrated_Conditional_Moment_Testing_of_Median_Regression_Models/links/0046

3515b1fcb39775000000.pdf (12 July 2017).

11. Brown, B. (1998), „Do stock market investors reward companies with reputations

for social performance?“, Corporate Reputation Review, Vol. 1, No. 3, pp. 271-

280.

12. Cambridge dictionary (2017), „Reputation“, Cambridge dictionary online,

available at: http://dictionary.cambridge.org/dictionary/english/reputation (05

July 2017).

13. Collins, J. C., Porras, J. I. (2002). Built to Last. Successful Habbits of Visionary

Copanies, New York, HarperCollins Publishers.

14. De la Fuente Sabaté, J. M., De Quevedo Puente, E. (2003), „Empirical analysis of

the relationship between corporate reputation and financial performance: A

survey of the literature“, Corporate Reputation Review, Vol. 6, No. 2, pp. 161-177.

http://www.agcs.allianz.com/assets/PDFs/Reports/Allianz-Risk-Barometer-2015_EN.pdf

http://www.agcs.allianz.com/assets/PDFs/Reports/Allianz-Risk-Barometer-2015_EN.pdf

http://www.agcs.allianz.com/assets/PDFs/Reports/AllianzRiskBarometer2016.pdf

http://www.aon.com/2017-global-risk-management-survey/download-reports.jsp

http://www.aon.com/2017-global-risk-management-survey/download-reports.jsp

http://fmwww.bc.edu/EC-C/S2013/823/EC823.S2013.nn04.slides.pdf

http://fmwww.bc.edu/EC-C/S2013/823/EC823.S2013.nn04.slides.pdf

http://mgt2.buffalo.edu/files/faculty/ohr/becker/Publications/HumanResourcesStrategies.pdf

http://mgt2.buffalo.edu/files/faculty/ohr/becker/Publications/HumanResourcesStrategies.pdf

https://www.researchgate.net/profile/Herman_Bierens/publication/228391525_Integrated_Conditional_Moment_Testing_of_Median_Regression_Models/links/00463515b1fcb39775000000.pdf



http://dictionary.cambridge.org/dictionary/english/reputation


56

15. Deloitte (2014), „2014 global survey on reputation risk Reputation@Risk“, Deloitte

Touche Tohmatsu Limited, available at: www.deloitte.com/reputationrisksurvey

(10 July 2017).

16. Fombrun, C. J. (2007), „List of lists: A compilation of international corporate

reputation ratings“, Corporate Reputation Review, Vol. 10, No. 2, pp. 144-153.

17. Fombrun, C. J., Gardberg, N. A., Sever, J. M. (2000), „The Reputation QuotientSM:

A multi-stakeholder measure of corporate reputation“, Journal of brand

management, Vol. 7, No. 4, pp. 241-255.

18. Fombrun, C. J., Van Riel, C. B. (1997), „The reputational landscape“, Corporate

reputation review, Vol. 1, No. 2, pp. 5-13.

19. Fombrun, C., Foss, C. (2004), “Business ethics: Corporate responses to

scandal”, Corporate Reputation Review, Vol. 7, No. 3, pp. 284-288.

20. Fombrun, C., Shanley, M. (1990), „What's in a name? Reputation building and

corporate strategy“, Academy of management Journal, Vol. 33, No. 2, pp. 233-

258.

21. Fortune (2017), „World’s Most Admired Companies“, available at:

http://fortune.com/worlds-most-admired-companies/ (10 July 2017).

22. Gotsi, M., Wilson, A. M. (2001), „Corporate reputation: seeking a

definition“, Corporate Communications: An International Journal, Vol. 6, No. 1,

pp. 24-30.

23. Gray, E. R., Balmer, J. M. (1998), „Managing corporate image and corporate

reputation“, Long range planning, Vol. 31, No. 5, pp. 695-702.

24. Grgić, D. (2008a), „Instrumenti mjerenja reputacije poduzeća“(„Measuring

Instruments of Corporate Reputation“), Tržište, Vol. 20, No. 2, pp. 231-249.

25. Grgić, D. (2008b), „Teorijski okviri reputacije poduzeća” („The theoretical frame

of the corporate reputation“), Ekonomski pregled, Vol. 59, No. 5-6, pp. 266-288.

26. Grgić, D. (2012), „Indeks reputacije poduzeća: Empirijsko istraživanje u

bankovnom sektoru“ („Corporate Reputation Index: Empirical Research in

Banking Sector“), Tržište, Vol. 24, No. 1, pp. 23-45.

27. Griffin, J. J., Mahon, J. F. (1997), „The corporate social performance and

corporate financial performance debate: Twenty-five years of incomparable

research“, Business & society, Vol. 36, No. 5, pp. 5-31.

28. Gruden, Z. (2003), „Pravi self – preduvjet stvaralaštva“ („The True Self –

Prerequisite to Creativity“), Nova prisutnost, Vol. 1-2, pp. 295-299.

29. Hall, R. (1992), „The strategic analysis of intangible resources“, Strategic

management journal, Vol. 13, No. 2, pp. 135-144.

30. Hall, R. (1993), „A framework linking intangible resources and capabiliites to

sustainable competitive advantage“, Strategic management journal, Vol. 14,

No. 8, pp. 607-618.

31. Hammond, S. A., Slocum, J. W. (1996), „The impact of prior firm financial

performance on subsequent corporate reputation“, Journal of Business

Ethics, Vol. 15, No. 2, pp. 159-165.

32. Helm, S. (2005), „Designing a formative measure for corporate

reputation“, Corporate reputation review, Vol. 8, No. 2, pp. 95-109.

33. Highhouse, S., Broadfoot, A., Yugo, J. E., Devendorf, S. A. (2009), „Examining

corporate reputation judgments with generalizability theory“, Journal of Applied

Psychology, Vol. 94. No. 3, pp. 782-789.

34. Highhouse, S., Lievens, F., Sinar, E. F. (2003), „Measuring attraction to

organizations“, Educational and psychological Measurement, Vol. 63, No. 6, pp.

986-1001.

http://www.deloitte.com/reputationrisksurvey

http://fortune.com/worlds-most-admired-companies/


57

35. Huselid, M. A. (1995), „The impact of human resource management practices on

turnover, productivity, and corporate financial performance“, Academy of

management journal, Vol. 38, No. 3, pp. 635-672.

36. ISO (2014), „Discovering ISO 26000“, International Organization for

Standardization, Genève, available at:

https://www.iso.org/files/live/sites/isoorg/files/archive/pdf/en/discovering_iso_26

000.pdf (12 July 2017).

37. Klopotan (2016), “Utjecaj komunikacije društvene odgovornosti putem web

stranica i društvenih mreža na reputaciju poduzeća” (“Impact of Corporate

Responsibility Communication over the Company Web Site and Social Networks

to Business Reputation”), doctoral thesis, Celje, Fakultete za komercialne in

poslovne vede.

38. Lin, L. (2011), „The impact of service innovation on business performance:

Evidence from firm-level data in Chinese tourism sector“, in Service Systems and

Service Management (ICSSSM), 8th International Conference on, IEEE, pp. 1-5.

39. Mason, J. C. (1993), „What image do you project?“, Management Review, Vol.

82, No. 11, pp. 10-16.

40. Merriam-Webster dictionary (2017), “Reputation”, Merriam-Webster

Dictionary Online, available at: https://www.merriam-

webster.com/dictionary/reputation (05 July 2017).

41. Orlitzky, M. (2005), „Social responsibility and financial performance: Trade-off or

virtuous circle“, University of Auckland Business Review, Vol. 7, No. 1, pp. 37-43.

42. Orlitzky, M., Schmidt, F. L., Rynes, S. L. (2003), „Corporate social and financial

performance: A meta-analysis“, Organization studies, Vol. 24, No. 3, pp. 403-441.

43. Oxford dictionary (2017), “Reputation”, Oxford dictionary Online, available at:

https://en.oxforddictionaries.com/definition/reputation (05 July 2017).

44. Ponzi, L. J., Fombrun, C. J., Gardberg, N. A. (2011), „RepTrak™ pulse:

Conceptualizing and validating a short-form measure of corporate

reputation“, Corporate Reputation Review, Vol. 14, No. 1, pp. 15-35.

45. Roberts, P. W., Dowling, G. R. (2002), „Corporate reputation and sustained

superior financial performance“, Strategic management journal, Vol. 23, No. 12,

pp. 1077-1093.

46. Roman, R. M., Hayibor, S., Agle, B. R. (1999), „The relationship between social and

financial performance: Repainting a portrait“, Business & Society, Vol. 38, No. 1,

pp. 109-125.

47. Rosli, M. M., Sidek, S. (2013), „The Impact of Innovation on the Performance of

Small and Medium Manufacturing Enterprises: Evidence from Malaysia“, Journal

of Innovation Management in Small & Medium Enterprises, Vol. 2013, pp. 1-16.

48. Schwaiger, M. (2004), „Components and parameters of corporate reputation-an

empirical study“, Schmalenbach Business Review, Vol. 56, pp. 46-71.

49. Sever Mališ, S. (2017), „Povezanost financijskih i nefinancijskih pokazatelja u

funkciji ostvarivanja kvalitete poslovanja poduzeća“ („Relationship between

financial and non-financial indicators in the function of achieving the quality of

business operations“), in Žager, L. (ed.), “Analiza financijskih izvještaja”,

(„Financial reports analysis“), Zagreb, Masmedia.

50. Sobol, M. G., Farrelly, G. (1988), „Corporate reputation: A function of relative size

or financial performance?“, Review of Financial Economics, Vol. 24, No. 1, pp.

45-59.

51. Storr, L. (2004), „Leading with integrity: A qualitative research study“, Journal of

Health Organization and Management, Vol. 18, No. 6, pp. 415-434.

https://www.iso.org/files/live/sites/isoorg/files/archive/pdf/en/discovering_iso_26000.pdf

https://www.iso.org/files/live/sites/isoorg/files/archive/pdf/en/discovering_iso_26000.pdf

https://www.merriam-webster.com/dictionary/reputation

https://www.merriam-webster.com/dictionary/reputation

https://en.oxforddictionaries.com/definition/reputation


58

52. Trevino, L. K. (1986), „Ethical decision making in organizations: A person-situation

interactionist model“, Academy of management Review, Vol. 11, No. 3, pp. 601-

617.

53. Treviño, L. K., Butterfield, K. D., McCabe, D. L. (1998), „The ethical context in

organizations: Influences on employee attitudes and behaviors“, Business Ethics

Quarterly, Vol. 8, No. 3, pp. 447-476.

54. Treviño, L. K., Nelson, K. A. (2011). Managing Business Ethics: Straight Talk about

How to Do it Right, Hoboken, John Wiley & Sons.

55. Turban, D. B., Cable, D. M. (2003), „Firm reputation and applicant pool

characteristics“, Journal of Organizational Behavior, Vol. 24, No. 6, pp. 733-751.

56. Ugoji, K., Dando, N. Moir, L. (2007). Does Business Ethics Pay? – Revised, The value

of ethics training”, London, Institute of Business Ethics.

57. Verschoor, C. C. (1998), „A study of the link between a corporation's financial

performance and its commitment to ethics“, Journal of Business Ethics, Vol. 17,

No. 13, pp. 1509-1516.

58. Vig, S., Dumičić, K. (2016), „Impact of commitment to business ethics to

nonfinancial business performance“, Interdisciplinary Description of Complex

Systems, Vol. 14, No. 2, pp. 165-181.

59. Walsh, G., Beatty, S. E. (2007), „Customer-based corporate reputation of a

service firm: scale development and validation“, Journal of the academy of

marketing science, Vol. 35, No. 1, pp. 127-143.

60. Webley, S., More, E. (2003). Does business ethics pay. Ethics and financial

performance, London, Institute of Business Ethics.

About the authors

Silvija Vig is a Lecturer at the Polytechnic of Međimurje, Čakovec and at the

Academy of Dramatic Art – Zagreb. Now she attends post-graduate doctoral study

at the Faculty of Economics & Business – Zagreb. Her main research fields include

business ethics, ethical organisational culture and leadership. The author can be


Ksenija Dumičić is a Full Professor Tenured at the Department of Statistics, Faculty of

Economics & Business, University of Zagreb. Her main research fields include

sampling, statistics, statistics for business and economics, sampling for social and

business surveys, statistical quality control. The author can be contacted at:

[email protected].

Igor Klopotan is a Lecturer at University North, Varaždin. He completed post-

graduate doctoral study at the Faculty for Commercial and Business Sciences in

Celje, Slovenia. His main research fields include management, customer loyalty,

employee loyalty, socially responsible business. The author can be contacted at:

[email protected].


59

Presence of Banks on Social Networks in

Bosnia and Herzegovina

Mirela Mabić, Dražena Gašpar, Damir Lucović

University of Mostar, Faculty of Economics, Bosnia and Herzegovina

Abstract

Background: Social networks allow real-time interaction that enhances a bank’s

ability to respond to customers in a timely, intuitive and personalized manner. By

using social networks, banks can improve the understanding of their clients and

bank’s products they need. Also, banks can enhance relations with clients and

strengthen their brand through raising client loyalty. Objectives: The paper explores

and analyses the current presence of banks in Bosnia and Herzegovina on social

networks. Methods/Approach: The paper studies the presence of 24 banks in Bosnia

and Herzegovina on social networks and analyses the basic characteristics of

profiles/pages of the banks on the most popular social networks. Results: A half of

the banks have their profiles/pages on different social networks (mostly on Facebook

and YouTube). They use the profiles/pages mainly for content marketing, i.e. for

presenting their business operations. Unfortunately, banks do not encourage

interaction with clients, except through likes. Conclusions: The analysis does not show

that banks have a systematized and planned appearance on social networks. There

is a plenty of room for improvement, and it is necessary primarily to address the

interaction between clients and banks through social networks.

Keywords: bank; social network; Facebook; YouTube

JEL classification: D83, G21, L86


Received: Nov 11, 2016

Accepted: Aug 03, 2017

Citation: Mabić, M., Gašpar, D., Lucović, D. (2017), “Presence of Banks on Social

Networks in Bosnia and Herzegovina”, Business Systems Research, Vol. 8, No. 2, pp.

59-70.

DOI: 10.1515/bsrj-2017-0016

Introduction The Economic situation, business conditions and rules, interpersonal and interstate

relations, as well as other factors that affect business, change at an amazing rate in

the last decades. If a company or its management does not follow and adjust to all

changes in the market and new situations fast enough, it is bound to fall out of

competition for a sufficient market share and for the company to survive and

operate at a profit.

The biggest change that has been significantly affecting a company's business is

the very emergence of the Internet and all the services that it provides. It is primarily

the company management, but also all other employees, that have the task of


60

exploring, identifying and mastering all the possibilities that the Internet provides and

integrating them into the company's business in a proper, systematic and continuous

way. That is the task of all industries, without exception.

The banking industry is specific because this industry significantly depends on its

customers, their engagement and commitment to a bank. To enrich the customer

experience, banks are therefore faced with the demand for continuous

improvement of business, especially the communication aspect of it, by applying

new valuable information and communication technologies, the most important

today being Web 2.0 technologies, especially social networks.

Social networks are a very powerful channel through which banks can reach out

to their customers in order to find out what products their customers want, what

decisions they can make to improve relations with customers and what they may be

doing that annoys their customers. Further, social networks allow real-time

interaction, which enhances a bank’s ability to respond to customers in a timely,

intuitive and personalized manner – thus enhancing the overall customer

experience. Besides, they also allow individuals to learn about a bank’s products

and services by visiting some of the bank’s social networking profiles/pages – while

also asking friends within their network for recommendations. The literature generally

states that banks can use social networks, among other things, to conduct targeted

marketing and reduce their marketing costs, get more detailed information on their

customers, foster commitment and loyalty of their customers, get feedback on their

products and services, build and strengthen their brand, act proactively to prevent

negative connotations associated with the bank, to improve their services for

sending money through different online platforms, and to humanize their brand

(Chanda and Zaorski, 2013; Eldridge, 2016; Doman, 2015).

Banks can create interactive communication with their clients by using the

familiar user-friendly interface of social media (Crowe, 2010). The use of social media

platforms offers many potential benefits to financial services organizations and their

customers. Social media foster transition from enterprise to social CRM, educating

the customer, gaining customer insight, expanding the customer base, achieving

customer delight, improving customer service, resolving issues through

crowdsourcing, facilitating internal collaboration, and managing risk efficiently

(Hazarika and Nag, 2014). The companies like a credit card, debit card, and banks

are examples of companies in which the use of social media, especially Facebook

and Twitter is growing rapidly (Shao and Shao, 2012).

However, the use of social networks in the banking business should be measured,

systematic and methodical. Otherwise, it will not yield quality and valuable results.

The four main social media process areas are influencing banking (Veenswyk, 2013):

1. Pre-Approval of Social Content – refers to preparation of the content and

defining the date of its publishing on social media.

2. Observing Social Content – refers to monitoring of the activities related to the

client complaint, inadequate reply to client requests and fraudulent

activities..

3. Investigating Social Content – it is a part of eDiscovey that enables additional

support for audits, legal cases, governance and complex analytics of a client

or employee.

4. Responding to Social Content – means adequate and formal reply to clients

that use social media for communication with bank.

According to Groenfeldt (2014) over the last five to 10 years banks have done

enough to keep customers satisfied, but not enough to go further. Banks are usually

pretty good on the first move, like internet banking, but then they are slow to fully

https://www.spredfast.com/social-marketing-blog/author/[email protected]


61

expand upon it because consumer expectations are high, and that is a very big

problem for banks. Information technologies rapidly expand and develop, and it is

no surprise that clients have their wishes and appetites and want to integrate them

into all their activities. It is especially indicative that the generation Y is becoming

bank clients who expect to be serviced in the branch, by the Internet, mobile and

they are also starting to expect banking services over social networks.

The extent to which Web 2.0 technologies, particularly social networks, are used in

the banking business in the world is indicated by the fact that software vendors have

offered solutions for management of accounts on social networks - Social Media

Dashboard. These control panels (Dashboard) are user-friendly, and their main

purpose is to enable monitoring, managing and archiving all of banks' social media

conversations from one place. They provide monitoring bank’s brand, managing

multiple social networks and analyzing social data, scheduling posts and content,

archiving social activity, streamline review/approval process for compliance, etc.

Kumar and Devi (2014) emphasize that social media, in the context of financial

institutions, empower the following dimensions of business: communication, content

and knowing the customers (Chanda and Zaorski, 2013).

Additionally, social networks should be observed in the context of risk reduction

(Kumar and Devi, 2014). They claim that financial institutions should use the social

graph as one of tool to evaluate credit rating, so social media can impact customer

ability to get a loan. According to them, the social graph can identify if potential

clients are linked with individuals or communities with a good credit history so the

financial institutions can evaluate if the client is trustworthy partner or not. As Eldridge

(2016) stated, new financial technology companies, that offer potential cilents

access to credit or opening a bank account based on social media data, are

emerged.

Further, financial institutions should use posts on social networks to analyze their

client location. Sentiment analysis of social media content can be helpful in

discovering banks’ clients thinking, as well as in foresight of stock market activity for

stock movement prediction (Nguyen et al., 2015; Bukovina, 2016a; Bukovina, 2016b;

Sprenger et al., 2014a; Sprenger et al., 2014b; Joseph, 2011; Karabulut, 2013; Sul et

al., 2017).

King (2010) explored how customer behavior and technology change financial

services. He stated that further development of web technologies and innovations in

ICT would, not just make doing business easy, but they will significantly change the

way of living. It means that new ICT solutions will become “must have,” both in

business and privately.

Although social media proved to be very powerful communication channel for

crisis communication (Auer, 2011; Jin et al., 2014; Pang, et al., 2014; Wendling, et al.,

2013), the experiences showed (Black, 2016) that the banks should be very careful in

using social media for this purpose. The reason for caution lies in the fact that banks

built their relationships with clients on trust so any hint of insecurity could have a

negative consequence for the brand. Social media adds speed, transparency, and

complexity to crisis communication (Dougherty, 2015). Namely, once started,

conversation on social media will not stay limited just to media used by the bank,

and it can quickly get out of control. Hence it is important that banks integrate social

media into their crisis communication plans as a collaborative tool (Dougherty,

2015).

Mucan and Özeltürkay (2014) explored how Turkish banks use social media for

creating competitive advantages. Their study showed a low level of use of social


62

media in Turkish banks. The Turkish banks that use social media mostly use Facebook,

Twitter, and LinkedIn.

Aasheim and Stensønes (2011) explored how Danske Bank deliver traditional

financial Service in new channels: Facebook. In this case study, they concluded the

usage of social media could have been more strategically because the banks do

not manage to use the potential of Facebook fully.

However, it seems that banks in Bosnia and Herzegovina are still not fully aware of

the potential of the social networks. They mostly use social networks as an additional

marketing channel, instead of as a tool for interactive communication with their

customer. Therefore, the aim of the paper is to explore and analyze the current

engagement of banks in Bosnia and Herzegovina on social networks. The authors

started research with the hypothesis that banks in Bosnia and Herzegovina did not

use the social network potential similar to the major banks worldwide. As the authors

know, the research of this type has not been conducted in Bosnia and Herzegovina

previously. Hereafter is explained the research methodology, the results of research

are presented and briefly discussed, and at the end is the conclusion with further

guidelines.

Methodology A list of banks that currently have a banking license was taken from the Central Bank

of Bosnia and Herzegovina's website, which publishes a list of banks operating in

Bosnia and Herzegovina. On 30/10/2016 the list included 24 banks (16 in the

Federation of Bosnia and Herzegovina (F BiH) and 8 in the Republic of Srpska (RS)). If

a bank operates in both entities (F BiH and RS), the two branches are considered as

two banks. Table 1 shows an overview of banks included in the analysis.

Table 1

Banks currently operating in Bosnia and Herzegovina

Code Bank Head office Web site (http//…)

F B

iH

B1 BOR banka dd Sarajevo Sarajevo http://www.borbanka.ba

B2 Bosna Bank International d.d. Sarajevo Sarajevo http://www.bbi.ba

B3 Addiko Bank https://www.addiko-fbih.ba

B4 Intesa Sanpaolo Banka d.d. Bosna i

Hercegovina Sarajevo http://www.intesasanpaolobanka.ba

B5 Investiciono-komercijalna banka d.d.

Zenica Zenica http://www.ikbze.ba/

B6 Komercijalno-investiciona banka d.d.

V.Kladuša

Velika

Kladuša http://www.kib-banka.com.ba

B7 NLB Banka d.d., Sarajevo Sarajevo http://www.nlb.ba

B8 ProCredit Bank Sarajevo Sarajevo http://www.procreditbank.ba

B9 Raiffeisen Bank d.d. BiH Sarajevo http://www.raiffeisenbank.ba

B10 Razvojna banka Federacije BiH Sarajevo http://www.rbfbih.ba/

B11 Sberbank BH d.d. Sarajevo Sarajevo http://www.sberbank.ba

B12 Sparkasse Bank d.d. BiH Sarajevo http://www.sparkasse.ba

B13 UniCredit Bank d.d. Mostar Mostar http://www.unicreditbank.ba

B14 Union banka d.d. Sarajevo Sarajevo http://www.unionbank.ba

B15 Vakufska banka d.d. Sarajevo Sarajevo http://www.vakuba.ba

B16 ZiraatBank BH d.d. Sarajevo http://www.ziraatbosnia.com

RS

B17 Addico Bank Banja Luka https://www.addiko-rs.ba/

B18 Komercijalna banka AD Banja Luka Banja Luka http://www.kombank-bl.com

B19 MF banka a.d. Banja Luka Banja Luka http://www.mfbanka.com

B20 NLB Banka a.d. Banja Luka Banja Luka http://www.nlbbl.com

B21 Nova banka ad Banja Luka Banja Luka http://www.novabanka.com

B22 Pavlović International Bank a.d. Bijeljina http://www.pavlovic-banka.com

B23 Sberbank a.d. Banja Luka Banja Luka http://www.sberbankbl.ba

B24 Unicredit Bank a.d. Banja Luka Banja Luka http://www.unicreditbank-bl.ba

Source: Central Bank of Bosnia and Herzegovina (2016)


63

Activities of banks on social networks were analyzed through two aspects. It was

investigated whether the links to social networks were available on official websites

and whether these links were valid and active. If the links were not found on the

home page, it was checked whether they were available on the contact page.

Availability of the banks' profiles/pages on social networks was also checked directly

by searching on the social networks.

Basic characteristics of official profiles/pages of the banks (numerical indicators

available on the social network and published content) were analyzed on the most

common social networks. The analysis used personal user accounts (profiles) of

authors on selected social networks, and it was conducted in October 2016.

Results As indicated in the methodology, for the beginning we accessed the official

websites of the banks and analyzed if they contained links to social networks, which

social networks, where the links were located and the order in which the links are

listed. Table 2 shows the results of this analysis.

Table 2

Links to social networks available on official web sites of the banks

Code FB TW YT in G+ INST tot

%

(n=6)

link on the

home page

Order on the

web page

F B

iH (

n=

16

)

B1 ● ● ● ● 4 66.7 + (bottom) FB, TW, in, YT

B2 ● 1 16.7 + (top) FB

B3 ●? ●? ●? ● 1 16.7 + (bottom) FB, INST, in, YT

B4 ● 1 16.7 + (bottom) FB

B5

B6 ● 1 16.7 + (bottom) FB

B7 ● ● ● ● 4 66.7 + (bottom) in, YT, g+, FB

B8

B9 ● ● 2 33.3 + (bottom) FB, YT

B10

B11 ● ● ● 3 50 + (bottom) FB, YT, in

B12 ● ● ● 3 50 + (bottom) FB, in, YT

B13 ● ● 2 33.3 + (bottom) FB, YT

B14 ● ● + (top) In, FB

B15

B16

RS (

n=

8)

B17 ●? ●? ●? ● 1 16.7 + (bottom) FB, INST, in, YT

B18 ● ● 2 33.3 + (bottom) FB, TW, RSS

B19

B20

B21

B22 ●? ●? ●? + (bottom) FB, TW, g+

B23 ● ● 2 33.3 + (bottom) FB, YT

B24 ● ● ● ● 4 66.7 + (bottom) FB, in, g+, YT

Note: Analysis completed on 29/10/2016; Abbreviations: FB - Facebook, TW - Twitter, YT –

YouTube, in - LinkedIn, G+ - Google plus, INST - Instagram; tot – total; ● – social network link

exist; ? – social network link exist, but it is broken.


As shown in Table 2, out of 24 analysed banks, eight banks have no links to

profiles/pages on social networks in their websites. These should also include the

bank Pavlović International Bank a.d. whose website provides links, but clicking them


64

reloads the bank's home page or loads the message “Sorry, this page isn't available.

The link you followed may be broken, or the page may have been removed.”. A

total of 15 (62.5%) banks have integrated social media in their business. If the number

of social networks on which the banks have their profiles/pages were analyzed, it is

evident that three (18.75%) banks use four social networks each, two (12.5%) banks

use three social networks each, four (25%) banks have profiles/pages on two social

networks, and five (31.25%) use only one social network.

On most banks’ websites, links to social networks are located on the bottom of the

page, for two banks they are found on top, except that for one bank these are not

links that open the bank's profiles/pages on social networks but offer the option like

on Facebook and follow on LinkedIn (Union banka d.d. Sarajevo). According to the

order in which these links are arranged on official websites, it is obvious that

Facebook dominates in the first place, only in the case of NLB Banka d.d, Sarajevo it

is in the last place, and the order of links on social networks is significantly different

from other banks.

Although the availability of mobile applications is not the subject of analysis, it

was noticed that three banks have the options to download the mobile application

from App store or Google play - these are the banks UniCredit Bank d.d. Mostar,

Nova banka ad Banja Luka, Unicredit Bank a.d. Banja Luka. This supports the fact

that banks want to become closer to their clients and be available to them

24/7/365. It should be noted, it is possible that the mobile applications are available

for other banks too, but these three banks particularly stood out because these

options were literally eye-catching on home pages of their official websites.

Another thing that is observed for the majority of banks is that profiles/pages on

social networks load in a new tab, not in the existing; different loading was found

only with Sberbank BH d.d. Sarajevo and Sberbank a.d. Banja Luka. It is possible that

for most users, this is not an important issue, but loading in new tab greatly facilitates

research on the official website - otherwise, every time should again look for the link

to the website. Table 3 shows a summary analysis of the results from Table 2.

Table 3

Use of social networks across banks

Social network FB TW YT in G+ INST

BiH

(n=24)

N 12 2 8 5 2 2

% of row 50.0 8.33 33.3 20.83 8.33 8.33

F BiH

(n=16)

N 9 1 6 4 1 1

% of row 56.25 6.25 37.5 25 6.25 6.25

% of column 75.0 50.0 75.0 80.0 50.0 50.0

RS

(n=8)

N 3 1 2 1 1 1

% of row 37.5 12.5 25.0 12.5 12.5 12.5

% of column 25.0 50.0 25.0 20.0 50.0 50.0

Note: Analysis completed on 29/10/2016; Abbreviations: FB - Facebook, TW - Twitter, YT –

YouTube, in - LinkedIn, G+ - Google plus;


As it was expected, Facebook is the most common social network among the

banks. A half of the analyzed banks have a profile/page on that social network; it is

slightly more prevalent among the banks operating in F BiH. The second most

common social network is YouTube, again more prevalent among the banks in F BiH.

They are followed by LinkedIn, which is used by 5 banks in BiH, while Twitter, Google+


65

and Instagram are in the last place, used by one bank from the Federation BiH and

one bank from RS.

The following is a more detailed analysis of profiles/pages on social networks,

especially Facebook pages and YouTube channels because these networks are the

most prevalent among the banks.

Table 4 presents the results of the analysis of likes and reviews on banks' Facebook

pages, while Table 5 shows which informative components banks’ Facebook pages

include.

Table 4

Likes and reviews analysis on banks' Facebook pages

Likes Reviews

Co

de

s People

Talking

About

This

People

Checked

In Here

Total

Page

Likes

from last

week New Page Likes

Stars

(*)

5 stars

(5*)/

1 star

(1*)

Reviews

F B

iH

B1 3 42 2 082 0% 1 ▼50% 5.0 4/0 4

B2 763 80 26 303 ▲0.3% 75 ▲141.9% 4.7 101/4 117

B4 473 29 66 894 ▲0.1% 62 ▲72.2% 4.0 36/10 50

B6 43 4 1 656 ▲0.1% 1 ▼75%

B7 323 4 822 ▲0.3% 14 ▲100%

B9 267 177 34 767 ▲0.1% 40 ▲48.1% 2.9 43/46 106

B11 308 16 320 ▲0.3% 50 ▲38.9%

B12 1 933 26 30 678 ▲1.4% 411 ▲165.2% 4.3 62/13 79

B13 1 236 37 957 ▲0.3% 102 ▲70%

RS B18 1 211 5 944 ▲3.5% 201 ▲1 575%

B23 268 1 648 ▲7.3% 44 ▼29% 5.0 34/1 34

B24 145 5 917 ▲0.1% 3 ▼50%

Note: Analysis completed on 29/10/2016


As results in Table 4 show, the number of friends and likes varies widely. The

number of friends or people who liked the bank Facebook page ranges from 648

(Sberbank a.d. Banja Luka) to 66 894 (Intesa Sanpaolo Banka d.d. Bosna i

Hercegovina). Six banks have more than 10 000 likes, and only one bank has less

than 1K likes.

Although it is quite inappropriate to use New Page Likes as a popularity indicator

because its variations are unlikely to be based on the bank's activities, it is was

noticed significant variations in results - the highest increases are recorded in

Sparkasse Bank d.d. BiH, UniCredit Bank d.d. Mostar, Komercijalna banka AD Banja

Luka, and the lowest in BOR banka dd Sarajevo and Komercijalno-investiciona

banka d.d. Velika Kladuša. In order to use the results to make any specific

conclusions and business decisions based on them, the analysis should certainly

include bank age (how long the bank operates), the number of its branches, the

number of active clients and population in its target market.

Table 5 can provide an instant conclusion on the commitment of the banks to

their clients. The frequency of posts is naturally a much better indicator, but

information components also indicate the extent to which banks want to become

closer to their clients. Almost all of the banks have standard components, but it is

necessary to highlight the banks Bosna Bank International d.d. Sarajevo, Raiffeisen

Bank d.d. BiH, Sberbank BH d.d. Sarajevo, Sparkasse Bank d.d. BiH and Komercijalna


66

banka AD Banja Luka which offer "real" banking options on their Facebook pages,

like savings calculator, credit calculator, currency converter, information on credits,

savings, cards, etc.

Table 5

Informative components on banks' Facebook pages

Co

de

Ho

me

Ab

ou

t

Ph

oto

s

Re

vie

ws

Lik

es

Po

sts

Vid

eo

s

No

tes

Ev

en

ts

Additionally

F B

iH

B1 + + + + + + + Invite Your Friend, Welcome

B2 + + + + + + + BBI Offices, Financing Calculator, Questions and

Answers, YouTube link, BBI Etiquette, BBI Quiz

B4 + + + + + + + + Mastercard

B6 + + + + + +

B7 + + + + + + + Welcome

B9 + + + + + + + +

Virtual Office, Offices, ATM Network, Credit

Calculator, Infographics, Savings Calculator,

Create your XXL smile, Current Campaign

B11 + + + + + + + Currency Converter, Credits, Savings, Cards

B12 + + + + + + + + +

Sign up and win, Debit Cards, OsamoSTANite se

(Become APARTMENT independent), Welcome,

PhotoPay, Calculator, Instagram fees

B13 + + + + + + + Statement of Rights, Welcome, e-educate

yourself, Special Offer

RS B18 + + + + + +

YouTube link, Restricted Use Credits, Cards, Visa

Gift Card, Agricultural Loans

B23 + + + + + + +

B24 + + + + + + +

Note: Analysis completed on 29/10/2016


Through an analysis of the information aspect of Facebook pages, it was

established that all the banks have a link to the bank's website and their address

published on their of Facebook pages, while only a part of the banks was found to

have a map "how to find us" too. It is stated in Facebook pages descriptions that

they are banks or financial institutions. Most of the banks use their logo as the profile

picture, while cover photo is unstandardized (picture of the bank's headquarters -

building, logo, something else - handshake as a sign of partnership, etc.).

Pictures and statuses are the most common contents, while videos and

announcements of events are slightly less frequent.

The activity of banks on their Facebook pages also varies significantly - every day,

at least once in 10 days to the page on which the last post was in 2014.

The activity of customers on banks' Facebook pages is primarily reduced to liking

banks' posts. In the comments that customers leave on social networks, there was

not a single comment that would indicate an attitude expressed by a customer, one

that would represent for the bank a valuable information that could guide future

activities of the bank. As for ratings of the Facebook pages, a relatively small number

of customers expressed their ratings considering the number of clients who liked the

Faceook pages.

Analysis of Youtube channels gives results similar to Facebook. Variations in the

characteristics of the channel were significant (Table 6) - 1 subscriber (Bor Banka) to

180 subscribers (Raiffeisen Bank d.d. BiH), posts fairly frequently to once a year or less


67

often. Data on characteristics of the channel on YouTube are not available for 6 out

of 8 banks, which is in part an indication of how the profiles/pages on social networks

are created and maintained.

Table 6

Number of banks’ YouTube subscribers and views

Code B1 B7 B9 B11 B12 B13 B23 B24

Number of subscribers 1 6 180 19 75 91 4 9

Number of views 370 304 302 244

Note: Analysis completed on 29/10/2016;


State on Twitter follows the previously described social networks. Certainly, it

should be kept in mind that significantly fewer banks use Twitter, but what was found

on their channels does not show a particular engagement. The number of followers

varies from only a few to several hundred, while the frequency of posts again is not

at desirable level - the latest posts on some Twitter channels were 3 months ago. Due

to the very low use of other social networks among the studied banks, these were

not analyzed in more detail.

Discussion As expected, most banks use social networks as a marketing channel, but

unfortunately, there is no continuity in that activity. The contents posted by banks do

not encourage their clients to any significant response. Facebook is the most

common social network among the banks. Some banks have published on YouTube,

while Twitter, Google+ and Instagram are rather a little used. There are differences

among banks related to the number and quality of information posted on their

Facebook page. The number of friends and likes are also different from bank to bank

(from 648 friends of Sberbank a.d. Banja Luka to 66894 friends of Intesa Sanpaolo

Banka d.d. Bosna i Hercegovina). There are differences in posted content, its format,

and frequency of posting. Pictures and statuses are the most common contents,

while posts vary from few posts in one day to one post in 10 days. The analysis of

YouTube channels gave the similar results. Even a detailed analysis of active

profiles/pages of the banks on social networks has not shown that banks take

advantage of all the benefits of social networks in the process of communicating

with their customers. Namely, based on these results, it can be assumed that not a

single bank studies its customers on social networks (what users want, what they may

find wrong with the bank, etc.), but use the social networks primarily to present

themselves – their services, campaigns, charitable activities, etc. The said assumption

is based on the proportion of banks that have profiles/pages on social networks, the

frequency of their activities on their profiles/pages, frequency, and methods of

interaction of customers with the banks.

The results indicate that there is no continuous plan for posting materials on social

networks in terms of both quality and content of published material and in terms of

frequency of posting. This only indicates that although a part of the banks follow

trends and embrace innovations in the IT sector, they do not address innovations

and trends strategically and systematically, which certainly has a significant effect

on their results.


68

Conclusion The results show that there is a lot of room for improvement in the use of social

networks in banks in Bosnia and Herzegovina. As it was expected, banks are most

present on Facebook and YouTube, while LinkedIn and Twitter are significantly less

used. Twitter is especially underutilized although this social network is quite popular

among business entities in neighbouring countries.

The results of the conducted research confirmed that banks in Bosnia and

Herzegovina do not use the potential of social networks similar to the banks

worldwide. Banks in Bosnia and Herzegovina have not any systematic and strategic

approach to social networks. Management structures in banks should realize as soon

as possible that social networks are today very popular and actively used among

different age groups not only as a means of communication but also as a means of

primary information. Bearing in mind that almost all financial transactions are

implemented through financial institutions, it is clear that they have to keep abreast

with the times and keep up with trends and shifts in the IT sector and their impact on

overall operations. Therefore, it is necessary for all banks to conduct their

engagement and "duration" on social networks, as stated, strategically and

systematically.

As for further research in this context, it is important to point out several issues.

Namely, a presence analysis is not sufficient to make generalized conclusions,

especially if the period of observation is very short. Therefore, future research should

analyze the activity of banks on social networks during a certain period of time and

quantify it through a series of indicators. In addition, it should be explored historically

how the profiles/pages on social networks were created - specifically it should be

investigated what the reasons of opening (creating) the profiles/pages on social

networks were, on whose initiative they were opened, and whether the data of

customers who are in active interaction with the bank are analyzed and how.

Similarly, attitudes of both bank employees and customers on the importance of

social networks in their mutual interaction should also be explored.

It is only a systematic and integrated analysis of results of the recommended

studies that would yield clues about the effectiveness of the use of social networks in

the banking system. It is up to the banks to take advantage of them as soon as

possible, following examples of major global banks.

References 1. Aasheim, H., Stensønes, I. (2011), “Financial Institutions in Social Media, Deliver

Traditional Service in New Channels; A Case Study of Danske Bank”, master's

thesis, Copenhagen Business School, available at:

http://studenttheses.cbs.dk/bitstream/handle/10417/2961/hege_aasheim_og_in

grid_stensoenes.pdf?sequence=1 (27 May 2016).

2. Auer, M. R. (2011), „The Policy Sciences of Social Media“, The Policy Studies

Journal, Vol. 39, No. 4, pp. 709-732.

3. Black, E. (2016), „Using Social Media During a Crisis“, available at:

http://ababankmarketing.com/insights/using-social-media-during-a-crisis/ (16

July 2017).

4. Bukovina, J. (2016a), “Social media and capital markets. An overview”, Procedia

- Social and Behavioral Sciences, Vol. 220, pp. 70–78.

5. Bukovina, J. (2016b), “Social media big data and capital markets - An

overview”, Journal of Behavioral and Experimental Finance, Vol. 11, pp. 18-26.

http://studenttheses.cbs.dk/bitstream/handle/10417/2961/hege_aasheim_og_ingrid_stensoenes.pdf?sequence=1

http://studenttheses.cbs.dk/bitstream/handle/10417/2961/hege_aasheim_og_ingrid_stensoenes.pdf?sequence=1

http://ababankmarketing.com/insights/using-social-media-during-a-crisis/


69

6. Central Bank of Bosnia and Herzegovina (2016), “Banks operating in Bosnia and

Herzegovina”, available at: http://cbbh.ba/index.php?id=7&lang=bs (25

October 2016).

7. Chanda, R., Zaorski, S. (2013), “Social Media Usage in the Financial Services

Industry: Toward a Business-Driven Compliance Approach”, Journal of Taxation &

Regulation of Financial Institutions, Vol. 26, No. 5, pp. 5-20.

8. Crowe, A. (2010), “The Social Media Manifesto: A Comprehensive Review of The

İmpact of Social Media on Emergency Management”, Journal of Business

Continuity & Emergency Planning, Vol. 5, No. 1. pp. 409-420.

9. Doman, C. (2015), “6 Big Social Media Opportunities for Financial Services (and

One Gap)”, available at: https://www.spredfast.com/social-marketing-blog/6-

big-social-media-opportunities-financial-services-and-one-gap (27 July 2016).

10. Dougherty, J. (2015), “6 Social Media "Musts" for Crisis Communication“,

available at: http://www.cision.com/us/2015/06/6-social-media-musts-for-crisis-

communication/ (16 July 2017).

11. Eldridge, R. (2016), “How Social Media Is Shaping Financial Services”, available

at: http://www.huffingtonpost.com/richard-eldridge/how-social-media-is-

shapi_b_9043918.html (23 May 2016).

12. Groenfeldt, T. (2014), “Bank Clients Want Social Media Account Access”,

available at: http://www.forbes.com/sites/tomgroenfeldt/2014/04/25/bank-

clients-want-social-media-account-access-capgemini/#24cd13c5f98a (11

October 2016).

13. Hazarika, D., Nag, S. (2014), “How Banks can use Social Media Analytics to drive

Business Advantage”, publisher Cognizant, available at:

https://www.cognizant.com/InsightsWhitepapers/How-Banks-Can-Use-Social-

Media-Analytics-To-Drive-Business-Advantage.pdf (20 May 2017).

14. Jin, Y., Liu, B. F., Austin, L. L., (2014), „Examining the Role of Social Media in

Effective Crisis Management: The Effects of Crisis Origin, Information Form, and

Source on Publics’ Crisis Responses“, Communication Research, Vol. 41, No. 1,

pp. 74-94.

15. Joseph, K., Wintoki, M. B., Zhang, Z. (2011), “Forecasting abnormal stock returns

and trading volume using investor sentiment: Evidence from online search”,

International Journal of Forecasting, Vol. 27, No. 4, pp. 1116-1127.

16. Karabulut, Y. (2013), “Can Facebook Predict Stock Market Activity?”, available

at:

https://www.ecb.europa.eu/events/pdf/conferences/140407/Karabulut_CanFac

ebookPredictStockMarketActivitiy.pdf?902eb04ceaa17187b7353be87992b83a

(18 May 2017).

17. King, B. (2010). Bank 2.0: How customer behavior and technology will change

the future of financial services, Singapore, Marshall Cavendish Business.

18. Kumar, K. S. V., Devi, Dr. V. R. (2014), „Social Media in Financial Services - A

Theoretical Perspective“, Procedia Economics and Finance, Vol. 11, pp. 306-313.

19. Mucan, B., Özeltürkay. E. Y. (2014) “Social Media Creates Competitive

Advantages: How Turkish Banks Use This Power? A Content Analysis of Turkish

Banks through Their Webpages”, Procedia - Social and Behavioral Sciences, Vol.

148, pp. 137-145.

20. Nguyen, T. H., Shirai, K., Velcin, J. (2015), “Sentiment Analysis on Social Media for

Stock Movement Prediction”, Expert Systems with Applications, Vol. 42, No. 24,

pp. 9603-9611.

http://cbbh.ba/index.php?id=7&lang=bs

https://www.spredfast.com/social-marketing-blog/author/[email protected]

https://www.spredfast.com/social-marketing-blog/6-big-social-media-opportunities-financial-services-and-one-gap

https://www.spredfast.com/social-marketing-blog/6-big-social-media-opportunities-financial-services-and-one-gap

http://www.cision.com/us/2015/06/6-social-media-musts-for-crisis-communication/

http://www.cision.com/us/2015/06/6-social-media-musts-for-crisis-communication/

http://www.huffingtonpost.com/richard-eldridge/how-social-media-is-shapi_b_9043918.html

http://www.huffingtonpost.com/richard-eldridge/how-social-media-is-shapi_b_9043918.html

http://www.forbes.com/sites/tomgroenfeldt/2014/04/25/bank-clients-want-social-media-account-access-capgemini/#24cd13c5f98a

http://www.forbes.com/sites/tomgroenfeldt/2014/04/25/bank-clients-want-social-media-account-access-capgemini/#24cd13c5f98a

https://www.cognizant.com/InsightsWhitepapers/How-Banks-Can-Use-Social-Media-Analytics-To-Drive-Business-Advantage.pdf

https://www.cognizant.com/InsightsWhitepapers/How-Banks-Can-Use-Social-Media-Analytics-To-Drive-Business-Advantage.pdf

https://www.ecb.europa.eu/events/pdf/conferences/140407/Karabulut_CanFacebookPredictStockMarketActivitiy.pdf?902eb04ceaa17187b7353be87992b83a

https://www.ecb.europa.eu/events/pdf/conferences/140407/Karabulut_CanFacebookPredictStockMarketActivitiy.pdf?902eb04ceaa17187b7353be87992b83a

http://www.sciencedirect.com/science/journal/09574174

http://www.sciencedirect.com/science/journal/09574174/42/24


70

21. Pang, A., Hassan, N. B. B. A., Chong, A. C. Y. (2014), „Negotiating Crisis in the

Social Media Environment: Evolution of Crisis Online, Gaining Credibility Offline“,

Corporate Communications: An International Journal, Vol. 19, No. 1, pp. 96-118.

22. Shao, D., Shao, L. P. (2012), “The Effect of Social Media on the Financial Services

Industry”, Journal of International Finance Studies, Vol. 12, No 4, pp. 109-114.

23. Sprenger, T. O., Sandner, P. G., Tumasjan, A., Welpe, I. M. (2014b), “News or

Noise? Using Twitter to Identify and Understand Company-specific News Flow”,

Journal of Business Finance & Accounting, Vol. 41, No. 7-8, pp 791-830.

24. Sprenger, T. O., Tumasjan, A., Sandner, P. G., Welpe, I. M. (2014a), “Tweets and

Trades: the Information Content of Stock Microblogs”, European Financial

Management, Vol. 20, No, 5, pp. 926-957.

25. Sul, H. K., Dennis, A. R., Yuan, L. I. (2017), “Trading on Twitter: Using Social Media

Sentiment to Predict Stock Returns”, Decision Science, Vol. 48, No. 3, pp. 454-488.

26. Veenswyk, M. (2013), “Leveraging Social Media in the Banking Industry”,

available at: http://www.smcapture.com/documents/SMC4%20-

%20Banking%20Social%20Media%20Overview.pdf (27 May 2016).

27. Wendling, C., Radisch, J., Jacobzone, S. (2013), „The Use of Social Media in Risk

and Crisis Communication“, OECD Working Papers On Public Governance, No.

24, OECD Publishing, available at: http://dx.doi.org/10.1787/5k3v01fskp9s-en (27

July 2016).

About the authors

Mirela Mabić works at the Faculty of Economics, University of Mostar, at the

Department for Business Informatics. Her research interests include Business

Information Systems, Practical Application of Software and Web Technologies both in

Business and in Education, Quality of Higher Education and Applied Statistics. Author

can be contacted at [email protected].

Dražena Gašpar is full time professor of Database Systems and Accounting

Information Systems at the Faculty of Economics, University of Mostar. Her research

interests include Databases, Data Warehouse, Business Information Systems and

Software Application in Business and Education. She is co-founder of a “Hera”

software company in Mostar and has almost two decades of experience in

developing and implementing business information systems. Author can be


Damir Lucović works at the Faculty of Economics, University of Mostar, as an assistant

at the Department for Business Informatics. His research interests include Business

Information Systems, the practical application of Software and Web Technologies

both in Business and Education, e-Business, Computer Security and Networks, Cloud

Computing Solutions with a lot of real-life experience in IT Management. Author can

be contacted at [email protected].

http://www.smcapture.com/documents/SMC4%20-%20Banking%20Social%20Media%20Overview.pdf

http://www.smcapture.com/documents/SMC4%20-%20Banking%20Social%20Media%20Overview.pdf

http://dx.doi.org/10.1787/5k3v01fskp9s-en

mailto:[email protected]




71

Process-Based Information Systems

Development: Taking Advantage of a

Component-Based Infrastructure

José Luís Pereira, Jorge Oliveira e Sá

Information Systems Department and Algoritmi Research Centre, University of

Minho, Portugal

Abstract

Background: Owing to the highly competitive business environment in which

contemporary organizations have to operate, a quick and effective way of

developing and maintaining information systems is of utmost importance to their

success. Obviously, the computerized information systems that support the everyday

operations and management of organizations play a critical role in their

competitiveness. For that reason, nowadays, more than ever, information systems

have to be quickly developed, rapidly reconfigured, and easily maintained.

Objectives: We aim to define a technological infrastructure, accompanied by a set

of methodological development requirements, which might help to fulfil those

needs. Methods/Approach: In this work, we followed a Design Science Research

(DSR) approach. Results: We propose a specific IT infrastructure, inspired by the

concept of a business process and using the functionalities provided by

collaborative and workflow technologies, which allows the development of

distributed IT solutions, Process-Based Information Systems (PBIS), in a component-

based fashion. In the context of PBIS, we also propose a set of development

requirements. Conclusions: We claim that Process-Based Information Systems allow

organizations to evolve quickly and smoothly in face of changing business

requirements, facilitating the integration of existing and future IT artefacts, while

simplifying the overall development and maintenance effort of information systems.

Keywords: business process; BPMS; workflow technology; collaborative applications

JEL classification: O33


Received: March 12, 2017


Citation: Pereira, J.L., Sá, J.O. (2017), “Process-Based Information Systems

Development: Taking Advantage of a Component-Based Infrastructure”, Business

Systems Research, Vol. 8, No. 2, pp. 71-83.

DOI: 10.1515/bsrj-2017-0017

Introduction The turbulent and increasingly competitive markets in which modern organizations

have to operate and do business requires from their computerized information

systems the ability of being quickly developed, rapidly reconfigured, and easily


72

maintained (Pereira, 2014). These qualities are of extreme importance as IT solutions

play a critical role in the competitiveness of organizations. In fact, everyone agrees

that, in the global and knowledge intensive society we live in, organizations

compete, more and more, in terms of their agility in reacting timely and adequately

to the market pressures and opportunities (Rosemann and vom Brocke, 2015).

Obviously, the computerized information systems that support the everyday

operations and management of organizations play a critical role in this environment.

In addition to these demanding market conditions, organizations also have to

deal with an increasingly complex IT environment, where new technologies are

continually appearing on the landscape. Of course, it is necessary that organizations

make a creative use of the new technological possibilities in their information systems

development efforts, so that they can remain competitive.

Still in the technological domain, due to the widespread use of personal

computers and the so-called commodity hardware, associated to the huge

advances in the data communications field, the monolithic data processing

solutions of the past, based on expensive computer platforms, are being quickly

replaced by sets of powerful and cheap computers (Pereira, 2014). These,

associated with a myriad of computer peripherals, interconnected by data

networks, originate highly distributed solutions (Liao and Tu, 2007).

For that reason, technological complexity, distribution and rapidly changing

requirements are the fundamental keywords in the Information Systems

Development (ISD) arena of the present days. Therefore, additionally to using

suitable ISD methodologies, organizations have to create the technological

infrastructure that will allow them to develop and maintain, timely and effectively,

their information systems, making use of all the technological possibilities that arise

(Pereira and Sá, 2016).

In this paper we describe a specific IT infrastructure, inspired in the concept of

business process, and largely built on the functionalities provided by

collaborative/workflow technologies, which will facilitate the development of

distributed IT solutions in a component-based fashion. Furthermore, we argue that

this specific kind of IT solution allows organizations to evolve quickly in face of

changing business requirements, and facilitates the integration of existing and new IT

artefacts, simplifying the overall development and maintenance effort of

information systems. In the following, we identify the major limitations of conventional

ISD methodologies regarding this particular kind of systems and, therefore, we

describe a set of development requirements associated to our specific proposal.

Finally, we make some comments and conclude.

Background In the next subsections the three main technologies are briefly described, which are

underlying our IT infrastructure proposal.

Collaborative technologies Because of the remarkable developments in the hardware and data

communications fields, a set of technologies, globally known as collaborative

technologies, has emerged. These technologies are primarily intended to support

the communication and collaboration needs of people working together (Li et al.,

2015). Electronic mail, videoconference, team rooms, group editors, discussion

groups and workflow systems are just some examples of collaborative technologies.


73

Different collaborative technologies have distinct characteristics regarding the

time and space dimensions. A commonly used classification for the various

collaborative technologies is Johansen’s Time/Space Matrix (Johansen, 1991). This

classification tries to distinguish among the different collaborative technologies,

classifying them in a synchronous/asynchronous (time) and centralized/distributed

(space) framework (see Figure 1).

Figure 1

Collaborative Technologies and the Johansen’s Time/Space Matrix

Source: Author’s illustration

Workflow technology Although workflow systems are normally considered collaborative systems, there is a

subtle but very important difference between workflow and the other types of

collaborative technologies. While all of them intend to facilitate the communication

and collaboration among a group of people, the workflow systems aim, more

specifically, to coordinate their interactions according to a particular

business/organizational process (Aalst and Van Hee, 2004).

The Workflow Management Coalition (WfMC), a non-profit international body

created for the development and promotion of workflow standards, defines

workflow as “The automation of a business process, in whole or part, during which

documents, information or tasks are passed from one participant to another for

action, according to a set of procedural rules” (Workflow Management Coalition,

1999). Therefore, the notion of business process is central to workflow technology.

A widely accepted classification of workflow products distinguishes among four

categories: ad hoc, collaborative, administrative and production workflow

(Hollingsworth, 2004). The differences among them consist, very broadly speaking, in

the more or less rigidity of the process enactment. Thus, in one extreme, we find

production workflow, which aims to support the enactment of completely pre-

defined business processes, executing them in a very rigid and strict way. Obviously,

these workflow systems are adequate to support mission-critical business processes,

where nothing can fail and everything must be executed according to the pre-

defined process models. In the other extreme, we find collaborative workflow, where

the focus is not so much the process per si, but the sharing of information among the

people (actors) involved in the process (Becker et al., 2002).

Same

time

Different

time

Same

place

Different

place

Email

Video

Conf erence

Workflow

Group

Editors

Electronic

Meeting

Sy stems

(...)


74

Business Process Management Systems Business Process Management Systems (BPMS) are the modern software systems that

implement the workflow concept by managing the execution of business processes,

according to their specification models.

During the execution of a business process, the BPMS delivers work to actors

(humans or machines) according to the correspondent process model and the

execution context of each particular process instance. In doing this, the workflow

engine of the BPMS invokes the suitable available applications with the

corresponding data involved, thus creating the adequate execution context for

each process activity (Dumas et al., 2013).

The success of the business process paradigm has led to the development of

many commercial BPMS. These include Oracle Business Process Management Suite,

TIBCO ActiveMatrix, AuraPortal, Bizagi BPM Suite, and so on. In the open source

community BPMS products like jBPM, Bonita BPM, Camunda or Intalio are also very

successful in the market.

One of the main characteristics of current BPMS is the implicit assumption that

each process activity is an individual activity. In other words, each activity is

executed by a single actor (human or machine) during a time interval. Obviously,

we can think of many situations in which two or more actors have to collaborate at

the same time (being in the same or different places) in the execution of the same

process activity (e.g., a meeting to make a group decision). The general idea here is

to relax the former constraint and be able to see a process activity also as a group

activity, supported by some kind of collaborative technology.

Methodology Among the various research methodologies used in the Information Systems field,

more recently the Design Science Research (DSR) has gained wide popularity in the

organizational context, due to the tangible and significant results that usually are

achieved using DSR.

According to Adomavicius et al. (2008) DSR “involves the construction and

evaluation of IT artefacts, constructs, models, methods, and instantiations, by which

important organizational IT problems can be addressed”.

The DSR approach focuses on the utility of the results, i.e., the results of the

research effort have to contribute to the solution or to the improvement of a real

organizational problem or, at least, have to add knowledge to the research field.

Given the nature of the problem addressed in this work, it was decided to use the

Design Science Research (DSR) approach.

Thus, according to the six phases of the DSR approach (Peffers et al., 2007), first

we recognised a clearly significant problem, showing its relevance to organizations

and the importance of a suitable solution; then we identified a set of technologies

whose functionalities may help to solve/improve the situation; after that we

conceive and propose a solution (Process-Based Information System) that is

described in the following section.

This paper represents one of several other initiatives we are engaged in trying to

“communicate” to relevant audiences the results of our work, which is the last step

of the DSR approach.


75

Results and Discussion The Process-Based information System Concept In the past there were several attempts to develop the so-called enterprise-wide

information systems. These are large systems, almost inevitably distributed, which try

to create a cohesive whole from dispersed components. The first serious systems

integration efforts began with the advent of Data Base Management Systems

(DBMS). Since the construction of a centralized repository, containing all the

organizational data, was not always possible or even feasible, different solutions

were engineered, such as distributed databases, in which the data was physically

dispersed by several databases, but could be seen by the application level as a

unique, logically integrated, repository.

This kind of systems integration may be called integration-via-data (i.e., the

systems are interconnected at the data level). Other distributed solutions involve

Transaction Processing Monitors to interconnect dispersed systems in the execution

of distributed transactions and distributed objects interconnected by middleware

technology such as web services (Chiang, 2014). Owing to the facilities provided by

the collaborative technologies and, in particular workflow technology, a new

possibility of systems integration has emerged, much more promising than integration

via data: the integration-via-processes.

In the heart of the integration-via-processes approach are the BPMS. In fact, a

BPMS may be regarded as a very sophisticated form of middleware, which more

than allowing a passive interconnection between different systems allows their

active interconnection, making them cooperate explicitly in the execution of a

business/organizational process. Thus, a BPMS may be seen as a coordination level,

which, if placed over the conventional and collaboration systems of the

organization, is able to control their cooperation (Pereira, 2014). To this global

solution we call Process-Based Information System (PBIS) (Figure 2).

Figure 2

The PBIS Concept


In the PBIS context we make a distinction between conventional systems,

collaboration systems and coordination systems (Pereira and Sá, 2016). By

conventional systems we mean all sorts of computer systems used to support

Coordination Systems(BPMS)

Collaborative Systems Conventional IT Systems

Process-Based Information System

Coordination

Level

Operation

Level


76

individual work, such as Transaction Support Systems (TPS), Data Processing Systems

(DPS), as well as Management Information Systems (MIS), Decision Support Systems

(DSS), Executive Information Systems (EIS), expert systems, personal productivity tools

(word processors, spreadsheets, personal databases, etc.) and, in a generic way, all

the legacy information systems still in operation in organizations.

By collaboration systems we mean all sorts of computational systems used to

support people working together in groups, such as videoconference systems,

electronic meeting systems, electronic mail systems, etc. Conventional systems and

collaboration systems are used in organizations to support people doing work in an

individual or group setting, respectively. In the PBIS context, we classify these two

kinds of system as operation level.

By coordination systems we mean a special kind of systems intended to control

the way work flows among participants in a business process. In this group, the

workflow engines of BPMS are a notorious example. In the PBIS context, these systems

are used to implement the coordination level.

BPMS, besides supporting directly the process concept, have a fundamental and

distinct characteristic. They allow the explicit separation between the process logic

and the applications that implement the activities in the process model. Therefore,

just by using this technology we are able to separate and manipulate, in an

independent way, the organizational/business processes (coordination level), and

the applications used to do the work (operation level).

Concerning the PBIS operation level, we distinguish among three types of work

activities (Pereira and Sá, 2016)(see Figure 3):

Automated activities, executed entirely by a machine actor, without human

intervention;

Individual activities, handled by a human actor, eventually supported by

some kind of IT artefact;

Collaborative activities, which require the collaboration of at least two human

actors, in a synchronous or asynchronous way, being in the same space or

geographically distributed.

Figure 3

The Three Types of Work Activities in a PBIS


Activity

Automated

Activity

Human

Activity

Individual

Activity

Collaborative

Activity


77

The first two types of activities are good candidates to be supported by

“conventional” IT. The last one (group activities) implies the use of suitable

collaborative IT tools, adequate to the needs of the specific situation.

By integrating coordination systems with conventional and collaborative systems,

PBIS stand as a powerful technological framework with potential to unify all the

computational resources of an organization into a single global infrastructure, under

the concept of business process (see Figure 4).

Figure 4

The PBIS Solution


PBIS may be viewed as a key technological infrastructure for the development of

information systems in modern organizations. It is also important to mention that the

PBIS infrastructure is able to support all the dimensions of organizational work, from

the more formal, routine and established work practices to the more unpredictable,

social and informal ones. The PBIS infrastructure supports all these facilities in an

integrated and transparent way.

The production workflow that we have mentioned earlier allows the development

of typical distributed information systems (i.e., structured or formal distributed

systems, where the allowed interactions among components are all predefined).

With the addition of dynamic modification and collaborative facilities to BPMS, we

can develop enriched kinds of distributed systems, which might be able to deal with

unexpected situations, and where the informal component may be present.

PBIS Development as a (Macro-) Component-Based Approach As we have seen before, BPMS is simultaneously a coordination technology (it allows

to control the execution of other applications) and an integration technology (it

behaves like a middleware technology that interconnects different systems).

Coordination

Level

Operation

Level

Activity

Activity

Activity Activity

Activity

Activity

Activity

Workflowspecificationmodel

Individual Activity

Automatic ActivityGroup Activity


78

In a very simplistic way, we can identify two levels of component-based

development:

The common component-based software development, largely based on the

Object-Oriented paradigm, used to develop software applications;

The higher-level component-based systems development where complete,

discrete and autonomous blocks of functionality (e.g. entire IT applications)

are glued together, in a specific way, in order to build a larger system.

In the PBIS context, we call those complete IT applications macro-components.

The interconnection of those macro-components is conceptually based on the

notion of business process and implemented by way of BPMS (see Figure 5).

Figure 5

The Component-Based Nature of the PBIS Approach


This approach promotes the incremental development of computer based

information systems in a component-based fashion, trying to maximize the reuse of

large software building blocks (IT applications). In fact, a PBIS is developed, piece by

piece, in a very modular way, by adding successive process models to the

coordination level, and reusing or, if not available, developing/buying new IT

applications in the operation level. As time goes by, as new business processes are

added to the PBIS, the level of applications’ reuse will increase and, in the limit, the

coordination level will be a fair representation of the corporate process model,

where “all” the business processes of an organization are represented (Pereira and

Sá, 2016).

Due to the component-based style of the PBIS framework, it is easier to deliver

quick solutions, which are easily maintainable, thus increasing the productivity of the

information systems development professionals. On the one hand, the PBIS

approach promotes the concurrent development of the different components of

Coordination System (BPMS)

Conventional Systems

Collaboration Systems

and

Process-Based

Information

System


79

the system, which certainly very much contributes to a faster development of the

whole system. On the other hand, the clear separation between the coordination

level and the operation level, which is a distinct characteristic of the PBIS framework,

makes it possible to change or redefine the organizational processes without

affecting the existing applications, and vice-versa. Therefore, the PBIS approach

results in easily maintainable and highly configurable and flexible systems.

PBIS Development Requirements The PBIS concept embodies the integration of two distinct “worlds” that are typically

used apart in organizations: the conventional computer-based information systems

developed in order to support and/or automate the work of individuals; and the

more recent collaborative systems, still often viewed as mere “toys” by a large

number of IS/IT professionals, and frequently employed by the majority of

organizations simply as a lateral and secondary work support infrastructure.

Due to the low importance that IS/IT professionals typically attribute to

collaborative technologies, they almost never participate in groupware

development projects. This is the reason why the introduction of collaborative

technologies into organizations has been characterized by a total unplanned and

mostly amateurish approach (Li et al., 2015). Obviously, this kind of practice prevents

organizations from taking full advantage of the rich functionalities and high potential

offered by these technologies.

We claim that collaborative technologies, in the same way as the more

conventional information technologies, are going to be part of the global

information systems technological infrastructure and so, they should be involved in

the overall Information Systems Development (ISD) effort right from the beginning

(Pereira and Sá, 2016).

Obviously, the ISD methodologies should be adapted, at every moment, to the

characteristics and requirements of the organisations in which it is going to be

applied, and to the emerging functionalities made available by IT. In other words,

ISD methodologies must be continuously aligned with the organisational and

technological circumstances.

What organizations need today, to succeed in the challenging conditions of the

new markets, is an integrated approach to ISD. One which makes full use of all the IT

and computational resources available, both the conventional and the emerging

ones, under the concept of business process.

Bearing those issues in mind, we can depict a division of a PBIS Development

project in a series of smaller and mostly independent subprojects: a workflow

development project, corresponding to the PBIS coordination level; and, depending

on the types of activities that appear in the PBIS operation level, several

collaborative application development projects and conventional application

development projects. A final project corresponds to a systems integration project,

which making use of the facilities made available by BPMS, integrates the different

subsystems into a global solution – the PBIS (see Figure 6).

The transformation of business process models into information systems

specifications, adequate to the development of computer artefacts, is a complex

process that requires a strong involvement and commitment of all stakeholders – the

business agents and the IS/IT experts. As practice has shown, this is an essential

prerequisite for the latter acceptance of the developed systems. In the PBIS

approach, excluding the systems integration, which is a rather technical phase,

business agents need to be present at all phases.


80

Figure 6

The PBIS Development Approach


The first PBIS step (PBIS Analysis and Design) transforms a business process model

into a set of models adequate to the development of the various PBIS components.

According to Curtis et al. (1992), there are four essential modelling perspectives

embodied in a process model:

The functional perspective (what needs to be done);

The informational perspective (which data is involved);

The behavioural perspective (when it is done);

The organizational perspective (who does it).

While the functional and informational perspectives are crucial to develop the

conventional application systems and so, must be present in the individual and

automatic activity models, the behavioural and organizational perspectives

represent the coordination dimension of a PBIS and thus, will be present in the

coordination models. To these four perspectives, we add three others, which

represent the PBIS collaboration dimension and so, will be present in the group

activity models (Pereira and Sá, 2016):

The group perspective (who interacts with whom);

The interaction perspective (what facilities are needed for the interaction);

The responsibility perspective (who is responsible for the interaction).

The individual/automatic activity models represent the requirements

specifications of the applications needed to automate work procedures or to

support the work of individuals, respectively. Those models are used as a basis to

develop the corresponding IT applications, reuse applications already existent in the

organization, or select and acquire commercially available software packages

(usually known as COTS – Common of the Shelf packages)

Regarding the modelling language used to express those specifications, we claim

that UML (Unified Modelling Language) is a convenient requirements specification

language. The principal reason is that, today, UML is viewed as the standard

modelling language for software development. Another reason is that the UML set of

models are methodology-neutral and so, they may be used subsequently in any

PBISAnalysis and

Design

Process-BasedInformation System

(PBIS)

Business Process Models

WorkflowDevelopment

SystemsIntegrationGroupware

Development

ApplicationDevelopment

CoordinationModels

Group Activity Models

Individual/Automatic

Activity Models

Workgroup Systems

Conventional Application

Systems

Workflow System

Specifications


81

methodology context, allowing organizations to choose freely their software

development approaches (OMG, 2015).

The group activity models represent the requirements specifications of the

collaborative systems intended to support group activities. It is important to note that

collaborative systems are general-purpose systems, which can be employed in a

multitude of situations. The contribution of PBIS Development at this level consists in

the appropriate specification of the collaborative facilities needed for each work

situation. These specifications will be subsequently used to select the suitable

collaborative tools.

In the case of a group activity requiring the synchronous collaboration among

several human actors (e.g., a meeting between two or more people to make a joint

decision) it is necessary to find a moment in which the required participants (each

one with his/her own agenda) can meet together, in geographically co-located or

distributed fashion (Uahi and Pereira, 2016). Several criteria to select the group

participants can be envisaged (e.g., the quicker group formation, manual group

formation done by the participant responsible for the meeting, etc.). Although the

internals of the group activity are not under the control of the coordination system,

the start and end conditions are their responsibilities.

Concerning the coordination models, these are used to develop the workflow

specifications. Once again, we recommend the use of a standard modelling

language for specifying coordination models, independent of any specific BPMS. In

this regard, the BPMN (Business Process Model and Notation), as today’s de facto

standard for process modelling, stands as the suitable option (OMG, 2013).

Conclusion In this paper, we describe an innovative approach to the development of

Information Systems in which the concept of business process acquires particular

relevance. To the overall solution, we call Process-Based Information System (PBIS).

The PBIS approach promotes the incremental development of Information Systems,

in which the whole solution is developed piece by piece, in a very modular way, by

adding successive workflow models to the coordination level, and reusing or, if not

available, developing/acquiring new applications and groupware facilities in the

operation level. In a general view, the PBIS approach might be regarded as a kind

of component-based Information System Development (ISD), by analogy with the

component-based software development in the software engineering domain. A

kind of “programming in the large”, where complete software components,

corresponding to autonomous applications and groupware facilities, are combined

and put to work together according to some business process specification.

It is widely recognized that organizations have always complained about their ISD

projects. Usually, solutions were delivered too late, too costly and sometimes lacking

important requirements, which triggered several research efforts in the past, in order

to conceive new ISD methodologies. Today, more than ever, organizations need to

use agile approaches to ISD. Indeed, due to the rapid pace at which things change

today, to maintain Information Systems continuously aligned with the needs of the

business, modern ISD methodologies have to be fast at delivering suitable solutions.

The PBIS approach, because of its component-based style, may quickly deliver

suitable and easily maintainable solutions. On the one hand, the PBIS promotes the

concurrent development of the different components of the system, which certainly

very much contributes to a faster development of the whole solution. On the other

hand, the clear separation between the coordination level and the operation level,

which is a distinct characteristic of the PBIS approach, makes it possible to change


82

or redefine the business processes without affecting the existing applications, and

vice-versa. Therefore, PBIS stand easily maintainable and highly configurable.

The PBIS approach also considerably facilitates the management of large ISD

projects. Indeed, by dividing a large system into a set of subsystems, which may be

independently developed or acquired, an otherwise complex project will result in a

series of small (sub)projects, much more easily managed. In fact, the activities

included in the process models are treated as independent components (“black

boxes”), specified and developed or acquired independently from each other,

eventually by distinct teams, and at different moments. Obviously, this will greatly

simplify the management of ISD projects.

This paper proposes PBIS as a contribution to fulfil the need of more agile

approaches to the development of Information Systems, which is fundamentally

based in the concept of business process, making use of the functionalities available

in BPMS/workflow and collaborative technologies. While our experience in the field

has already showed us the potential of the PBIS approach, we need more work that

is empirical in order to consolidate the proposal. That is what we intend to do in the

future.

References 1. Aalst, W. V., Van Hee, K. M. (2004). Workflow Management: Models, Methods,

and Systems, The MIT Press.

2. Adomavicius, G., Bockstedt, J. C., Gupta, A., Kauffman, R. J. (2008), “Making

sense of technology trends in the information technology landscape: A design

science approach”, MIS Quarterly, Vol. 32, No. 4, pp. 779-809.

3. Becker, J., zur Muehlen, M., Gille, M. (2002), “Workflow application architectures:

classification and characteristics of workflow-based information systems”, in

Layna Fischer (Ed.), Workflow Handbook 2002, Future Strategies, Lighthouse Point,

pp. 39-50.

4. Chiang, C. C. (2014), “Software development concerns in the building of service-

oriented based enterprise systems”, in Proceedings of the 15th IEEE/ACIS

International Conference on Software Engineering, Artificial Intelligence,

Networking and Parallel/Distributed Computing, Las Vegas, USA.

5. Curtis, B., Kellner, M., Over, J. (1992), “Process modeling”, Communications of the

ACM - Special issue on analysis and modeling in software development, Vol. 35,

No. 9, pp. 75-90.

6. Dumas, M., La Rosa, M., Mendling, J., Reijers, H.A. (2013). Fundamentals of

Business Process Management, Berlin Heidelberg, Springer.

7. Hollingsworth, D. (2004), “The Workflow Reference Model: 10 Years On”, in

Fischer, L. (Ed.), Workflow Handbook 2004, Future Strategies Inc.

8. Johansen, R. (1991), “Groupware: Future Directions and Wild Cards”, Journal of

Organizational Computing, Vol. 1, No. 2, pp 219-227.

9. Li, L., Guo, R., Zheng, J. (2015), “Assessing and Promoting Groupware for Effective

Team Collaboration – A comprehensive Study”, in Proceedings of the Southern

Association for Information Systems Conference, Hilton Head Island, SC, USA.

10. Liao, K., Tu, Q. (2007), "Leveraging automation and integration to improve

manufacturing performance under uncertainty: An empirical study", Journal of

Manufacturing Technology Management, Vol. 19, No. 1, pp. 38-51.

11. OMG (2013), “Business Process Model and Notation 2.0.2 (BPMN 2.0.2.)”,

available at: http://www.omg.org/spec/BPMN/2.0.2/PDF (10 April 2017).

12. OMG (2015), “Unified Modeling Language 2.5 (UML 2.5)”, available at:

http://www.omg.org/spec/UML/2.5/PDF (10 April 2017).

http://www.omg.org/spec/BPMN/2.0.2/PDF

http://www.omg.org/spec/UML/2.5/PDF


83

13. Peffers, K., Tuunanen, T., Rothenberger, M., Chatterjee, S. (2007), “A Design

Science Research Methodology for Information Systems Research”, Journal of

Management Information Systems, Vol. 24, No. 3, pp. 45–78.

14. Pereira, J. L. (2014), “Process-based Information Systems: A Component-based

Systems Development Infrastructure”, in Proceedings of the 3th International

Conference on Virtual and Networked Organizations, Emergent Technologies

and Tools, Póvoa de Varzim, Portugal.

15. Pereira, J. L., Sá, J. O. (2016), “The Development of Process-Based Information

Systems: Methodological Requirements”, in Proceedings of the 27th International

Business Information Management Association Conference, Milan, Italy.

16. Rosemann, M., vom Brocke, J. (2015), “The six core elements of business process

management”, In vom Brocke, J., Rosemann, M. (eds.), Handbook on Business

Process Management, Vol. 1, Berlin Heidelberg, Springer, pp. 107-122.

17. Uahi, R., Pereira, J. L. (2016), “Task Allocation in Business Process supported by

BPMS: Optimization Perspectives”, in Proceedings of the 11th Iberian Conference

on Information Systems and Technologies, Gran Canaria, Spain.

18. Workflow Management Coalition (1996), “Terminology & Glossary”, available at:

http://www.aiai.ed.ac.uk/project/wfmc/ARCHIVE/DOCS/glossary/glossary.html

(20 September 2017).

About the authors

José Luís Pereira has a PhD in Information Systems and Technology and an MSc in

Information Systems Management from the University of Minho (UMinho), in Portugal.

Currently, he is an Assistant Professor in the Information Systems Department of the

UMinho Engineering School. As a researcher, he is a member of the ALGORITMI

Research Centre, working in the Simulation, Business Process Management (BPM)

and Big Data fields, with specific interests in Decision Support, Business Process

Improvement and Big Data solutions. He can be contacted at [email protected].

Jorge Oliveira e Sá is an Assistant Professor in the Information Systems Department of

the University of Minho (UMinho), in Portugal, and a researcher at ALGORITMI

Research Centre. He has a PhD in Information Systems Technologies from UMinho in

2010. His research interests include Business Intelligence, Data Warehousing, Big Data

Warehousing, Business Process Management and Corporate Process Management.

He can be contacted at [email protected].

http://www.aiai.ed.ac.uk/project/wfmc/ARCHIVE/DOCS/glossary/glossary.html



84

Best Value Approach (BVA): Enhancing

Value Creation in Construction Projects

Amin Haddadi

Norwegian University of Science and Technology (NTNU), Norway

Agnar Johansen

Foundation for Scientific and Industrial Research (SINTEF), Norway

Svein Bjørberg

Norwegian University of Science and Technology (NTNU), Norway

Abstract

Background: Research has revealed an inadequate understanding of the owners’

and users’ strategic objectives and a lack of methodology for translating these

objectives into functional buildings. Fulfilment of owners’ and users’ objectives is

fundamental in creating value through a project. Management and design

processes can be decisive in achieving the desired objectives. Hence, knowledge

about what creates value applied into a management framework will enable higher

value creation. Objectives: Providing a framework to enhance value creation in

projects by addressing: i) what means and principles should be considered in the

front end of a project to secure value creation?; and ii) how can these principles be

structured in a framework to maximize the project’s value creation?

Methods/Approach: A literature study, two questionnaires, a focus group workshop,

8 interviews, and two case studies. Results: Fulfilment and alignment of users’ needs

and owners’ strategies combined with innovative thinking is required for value

creation. Challenges and obstacles for value creation are identified, and a

framework is suggested. Conclusions: The framework suggests principles that

contribute to value creation in each phase of a project. Implementing this

methodology will help decision makers towards a better understanding of the

objectives and translating them to functional solutions.

Keywords: value creation; conceptual framework; value management; construction

project management; life cycle thinking

JEL classification: L74




Citation: Haddadi, A., Johansen, A., Bjørberg, S. (2017), “Best Value Approach (BVA):

Enhancing Value Creation in Construction Projects”, Business Systems Research, Vol.

8, No. 2, pp. 84-100.

DOI: 10.1515/bsrj-2017-0018

Acknowledgments: We would like to express our gratitude to Professor Bjørn Andersen

for fruitful discussions and comments and suggestions. We also like to thank Norwegian

research projects Oscar and Speed Up for providing the arenas for discussions,

workshops and the network of resources for questionnaires and interviews.


85

Introduction Various stakeholders in a project have different views on what is valuable. The

differences are a consequence of particular knowledge, goals, context and

conditions that influence the conception of the value and how the value assessed

by each stakeholder. Different stakeholders may also have colliding interests and

preferences on what is valuable (Lepak et al., 2007). However, according to Coenen

et al. (2012), perceived value and value creation are the result of cooperation

among all stakeholders and success in collaboration between actors contributing to

value creation for all stakeholders.

In the European research project, Value Driven Procurement in Building & Real

Estate (VALPRO), a lack of understanding of the project owner's/users strategic

objectives and lack of methodology for translating them into functional buildings

under traditional project management is stressed (Arge and Hjelmbrekke, 2012). The

new findings from that research show a development towards moving the main

project target from finished building to achievement of the desired effects of owning

and using it over its lifetime (Bjørberg et al., 2015). We believe that value creation of

a building is directly associated with the effect that owning and using that building

has over its lifetime. These effects define how successful the building has been as a

product, but does not say anything about the effectiveness of the project

management process or the design process on the front end. Considering this, we

will be able to contribute to higher value creation by developing a process where

knowledge about what creates value after the building is delivered is applied into

the design phase to optimize the design of our buildings. The ultimate goal of the

research is to offer a framework for understanding owner’s and users’ strategic

needs and translating them into buildings that create value, by addressing i) What

are the principles that need to be considered in the front end of the project to

secure maximum value creation for stakeholders in a project life time perspective? ii)

How can these principles be structured in a framework in order to maximize the

project’s value creation?

The first part of this article reflects the literature study, which embodies the

theoretical background used for this research. The second part of the article will

present the research methodology and details for the design of this research. A

description of the methods of data collection, case studies that are conducted, and

how the framework is developed are included in this chapter. Results, findings and

the developed conceptual framework will be presented in part 3; and finally, the

conclusions, reflections and thoughts for moving forward are presented in part 4.

Theoretical background The ultimate goal of this research is to offer a framework for understanding owners’

and users’ objectives and translating these objectives into functional buildings. In

many cases, especially for public projects, it can be hard to identify the project

owner (Olsson et al., 2007). The rights and responsibilities of the project is carried by

the owner (Olsson et al., 2008) and the project owner should accept the risk for to

the cost and future value of the project (Olsson and Berg-Johansen, 2016).

As Womack and Jones (1996) stress, “The real value of goods or services can only

be defined by the ultimate customer”. Although this leads us to focus on the

individuals who use the building as the end users, the fact that every stakeholder has

their own value perspective cannot be ignored (Haddadi et al., 2015).

According to Samset (2003), owners focus on the long term perspective, users

focus on the effects of using the products, and suppliers focus on deliverables or

outputs from the project that are needed for the project to be successful. Users need


86

to have their functional and hedonic value fulfilled. Owners should be able to fulfill

the users’ value while experiencing a profitable/optimal operation, and suppliers

must fulfill users’ value and produce effective and efficient outcomes (Haddadi et

al., 2015).

In construction projects, different stakeholders define value from their own

perspective. However, value creation depends on how needs are satisfied for the

different stakeholders. Accordingly, we need to know how “value” and “Value

creation” is defined. In addition, aspects of value management, as a tool for

creating value, should be studied to include existing knowledge on how to identify

value creating elements and how to steer the project towards achieving them.

Value and value creation The discussions and pursuit of defining value has been ongoing since Aristotle.

Aristotle was the first documented philosopher who differentiated between two

meanings: “use-value” and “exchange value” (Fleetwood, 1997). Since then, Adam

Smith and Henry Ford brought the discussion forward in the 18th and 19th/20th

centuries. Adam Smith focused on “productive activities” that contribute to

exchange value through the manufacturing and distribution of goods (Vargo et al.,

2008). Henry Ford brought the consumer focus into the discussion by claiming that

focusing on organization of industry to serve people is not in conflict with the

profitability of the industry (Ford and Crowther, 1926). A growing number of

companies seem to have adopted value generation models since the beginning of

the 1980s through various initiatives such as customer-driven company, customer

orientation, mass customization and value-based management (Koskela, 2000).

Value and value management have particularly been discussed in management

and marketing literature during the last decades, especially since 1980s (Kelly et al.,

2015; Holbrook, 1999; Kaufman, 1998; Woodruff, 1997; Parasuraman, 1997; Holbrook,

1994; Babin et al., 1994; Dodds et al., 1991; Zeithaml, 1988). Although different

theories and research streams have been applied in different contexts to

conceptualize “value”, the common ground is the focus on the customers and users

(Haddadi et al., 2015).

The reason for existence of the projects should be based on an organization’s

business strategy and goals (Arge and Hjelmbrekke, 2012). The trigger for any project

is a predicted or existing customer need. The focus on the customer’s definition of

value in order to create value reveals the importance of aligning corporate

strategies with customer needs in order to maximize value creation. According to

Hjelmbrekke et al. (2015), the missing link in project planning and execution is clear

project strategies and objectives. Hence, there is a need for clarifying all these

requirements for value creation by performing a systematic approach to prioritizing,

measuring and monitoring the fulfillment of these requirements throughout and even

after the project.

Value management models Numerous models and approaches to deliver best value in construction projects

have been attempted (Kelly et al., 2015; Gransberg and Shane, 2015; Thyssen et al.,

2010; Male et al., 2007; Green, 1994). Value Management in construction is

explained as “the term used to describe the total process of enhancing value for

client in a project from the phases of concept to operation and use” (Kelly et al.,

2015, p. 31).

Green (1994) differentiates between Value management and Value engineering

and points out two primary concerns in Value Management (VM) when he

introduces the SMART Value Management approach. The primary concerns are the


87

need to enhance the communication and to establish a common understanding of

the requirements. Green suggests two VM workshops in his approach. VM1 contains

six stages (identifying the stakeholders, identifying the objectives of design, establish

the value tree, creativity, evaluation, and development) and is supposed to be

performed after the concept phase. VM2 consists of seven stages (redefine design

objectives, reconstruct, assign importance weights, evaluation, sensitivity analysis,

cost/value reconciliation, and marginal value improvement) that should be

conducted after the feasibility phase.

Austin and Thomson (2005) introduces a simplified approach for delivering value in

building design. This approach breaks down the process into 3 phases. First,

understanding values for stakeholders and the project so that compromises can be

made in reaching solutions. Second, defining value by outlining criteria and targets

for delivering value such as benefits, sacrifices and resources. Finally, assessing value

proposition for delivering value throughout the project life cycle from inception to

obsolescence. Kelly et al. (2015) refers to the North American value engineering

process modified in accordance with construction projects and summarizes it in a 7-

phase process.

Orientation, where the initial project team communicates with the client to clarify

what is expected to be achieve, what the client needs and/or wants, and which

characteristics should be adhered. Information, is the phase where all the

information about client needs, project constraints, budgetary limits, time and more

are discussed and clarified. Creativity is the phase where the team puts forward

suggestions to answer the required functions, normally a few cost dominant ones.

Evaluation is the phase where the created ideas are verified. This stage reduces the

generated ideas into a manageable number of scenarios for further study.

Development phase investigates the selected ideas from phase 4 in detail for

technical feasibility and economic viability. At the end of this phase, the team will

verify the ideas that have been developed and dismiss the ones that don’t comply

with the value creation philosophy. Presentation consists of displaying the refined

ideas supported by drawings, descriptions and calculations. Feedback is developing

an understanding of how the ideas that are utilized are performing and providing the

arena for testing the design.

Besides what is found in literature within academia, UK, USA and Australia, among

others, have introduced Value Management standards to construction projects with

practitioners focus approach. Value management is defined as a style of

management by the European standard for value management (British Standards

Institution, 2000). The European standard argues that the intention and goals of

Value Management is to reunite the differences among the stakeholders and

costumers as to what creates value. However, the Australian/New Zealand standard

defines VM as “a structured, systematic and analytical process that seeks to achieve

value for money by providing necessary functions at the lowest cost with required

quality and performance” (Male et al., 2007).

Project success The evaluation of the success/failure of construction projects has been essentially

based on assessment of the extent of achieving the client’s objectives such as cost,

time and quality (Ward et al., 1991). These three elements can provide an indication

of success or failure of a project. Despite that they do not, by themselves, provide a

proper picture of the performance of the project. Success can be measured in terms

of achieving the objectives; however, there is ambiguity in determining whether a

project is a success or a failure. Every project has a set of goals to accomplish. There


88

is a need for criteria to compare the goals against the project performance. Project

success consists of attaining project goals and project partner’s satisfaction. Criteria

such as profitability and productivity, functionality, technical performance,

environmental sustainability, health and safety are important elements in the

assessment as well. Attainment of goals such as abstaining conflicts, professional

image, user satisfaction, and social, aesthetical and educational aspects are also

considered to indicate how successful the project is (Chan et al., 2002). Müller and

Turner (2010) suggest that the measurement of success needs to focus on factors

such as end user and owner’s satisfaction with the project’s results, other

stakeholder’s satisfaction, meeting the project’s performance goals, and fulfilling the

project’s purpose. Rolstadås et al. (2014) argue that there should be clear links

between need, result and the achieved effect and that both short-term goals and

long-term objectives need to be considered when the success of a project is

determined.

Figure 1

Success Matrix

Source: Rolstadås et al., 2014

Although there are numerous models, approaches and standards for Value

Management, the common ground seems to be an attempt to create structure to

identify the necessary functions for creating value and optimizing the cost to obtain

these functions.

Methodology and research design This chapter provides an overview on how the research has been designed in order

to develop the conceptual framework (Best Value Approach).

Developing a conceptual framework Jabareen (2009) provides a 7-step procedure for developing a conceptual

framework. A modified version of this procedure with the following five steps was

used in developing our conceptual framework:

1. Identifying the concepts

2. Mapping the data source that are chosen, reading and categorizing of selected

data

3. Deconstructing and categorizing the concepts

4. Synthesis, resynthesize to achieve an understanding

5. Validating the conceptual framework.

The interlinked concepts in this article are the concept of value and value

creation, together with value management as a tool and success in projects as an

outcome. These concepts are investigated through literature review. Sources are

selected by using search engines and databases for literature such as Google


89

Scholar, SCOPUS, Emerald, Science direct and NTNU (Norwegian University of

Science and Technology) university library database. Sources that are chosen have

either been in English or Norwegian language, and from 1988 to recent years. All

sources that are references and citations in papers, articles and books have been

further investigated for relevant data and information.

The result of the literature study was deconstructed and categorized, and the

concepts were linked together. Thereafter, the results were synthesized and

analysed by authors and experts and the initial conceptual framework was

developed and presented in Projman conference in 2016 (Haddadi et al., 2016).

Although this approach can constitute a reasonable insight and understanding of

the concepts, it was essential to anchor the theory into reality by validating the

framework.

Data Collection The initial data collection method to develop the first draft of the conceptual

framework was the abovementioned literature study. The drafts are verified in two

iterations. The first draft was verified using methodological triangulations by using

data from questionnaires, interviews and focus groups. The second draft was thereby

developed, and thereafter verified, using data from two case studies. Figure 2

illustrates the design of this research.

Figure 2

Research design


The first questionnaire had its focus on the front end and early phase of the

projects in order to map the elements that contribute to value creation in

construction projects. The questionnaire had 837 respondents where approximately


90

half (49.6%) were working at private sector and the other half at public sector.

Almost 70% of the respondents had engineering or technical educational

background while 11% had their background within organizational, management or

economy. Almost 30% were answering the questions from a user’s perspective while

70% were answering from owner’s perspective. The questions were based on

characteristics and means for value creation in construction projects provided by

Bjørberg et al. (2015) which divides the characteristics that contribute to value

creation into four major groups; i) Economic value (core business cost, investment

cost, economic value), ii) Social value (people and organizations) iii) Environmental

value iv) Physical value (space and infrastructure). The respondents were asked to

express in which extend (scale of 1 to 4) they agree on each characteristic’s

contribution to value creation in a project they participated in. The qualitative part

involved an in-depth study of the results from the questionnaires through a workshop

with a group of 6-8 practitioners and researchers. A mind map, developed based on

the results from the first questionnaire, was presented to the group. The presented

mind map divided the elements that the first questionnaire indicated as value

creating, into four categories of “user’s perspective”, “owner’s perspective”,

“suppliers’ perspective” and “authorities’ perspective”. The group was then asked to

evaluate the presented elements and provide their suggestions. Then they were

asked to present their opinions regarding the tools and means needed to fulfill the

suggested value creating elements.

The second questionnaire investigated the execution models and their effects on

projects in order to identify how the management processes and a project’s

execution model influence the outcome of the project. The questionnaire had 1034

respondents with a similar distribution of educational background as the first

questionnaire. The majority of the respondents were owner’s project managers,

designers/consultant engineers and property owners. The questions were concerning

what kind of execution models were used in projects that the respondents were

involved in at that moment, why the particular model is chosen, what the owner’s

requirements have been focused on, and what the obstacles for and contribution to

value creation has been. Eight semi-structured interviews, with duration of

approximately an hour each, were conducted to verify the results from the second

questionnaire. The second draft of the framework was thereby developed. This step

of the process including the questionnaires, the interviews, and the workshop was

part of the Norwegian research project Oscar. The second version of the framework

was then advanced further using two cases as data sources. The two cases gave

more empirical insight to the value process and provided and arena for testing,

synthesis, resynthesize and validation of the conceptual framework.

Case studies Two major hospital projects have been used as cases in this research. These cases

are used to investigate what challenges the projects encounter during the early start

and production phases. The data collection methods include interviews and studies

of reports, plans and documents that could shed light on the design, engineering

and execution phases. In total, eleven key resources were interviewed during the

case study. The resources included the owner’s, designer’s, users’ and contractor’s

perspectives. The interviews had duration of 1-1.5 hours each and were semi-

structured. Interview guides were prepared so the questions could be responded to

and followed up as discussions. The interviews were audio-recorded while the

researchers took notes. The recordings were later used to transcribe the interviews,


91

and the results were discussed and analysed qualitatively in meetings with the

authors.

Case 1 Van Ness and Geary Campus (VNGC) project is a hospital project in San

Francisco. With a total cost of over $1 billion and total area of approximately 92 000

m2, the project is considered as one of the largest hospital projects in the Bay Area.

The project was executed by following the principles of Integrated Project Delivery

(IPD). During this research, the project was going through its execution phase. Seven

key resources of the project were interviewed throughout the study. The resources

included the owner’s, designer’s and contractor’s perspectives. The interviewees

were asked different questions based on their areas of expertise. The main objective

of the interviews was to identify which challenges were encountered during the

project, how the goals and priorities were set and how they were steering towards

them, how effective the involvement of different stakeholders has been, what they

would do differently, and what the success factors were considered to be in the

project. Relevant findings from the interviews were used to improve the framework.

Case 2 "Tønsberg Sykehus" A Norwegian hospital in town of Tønsberg is the first

major public project in Norway executed as an IPD project. The hospital is planned

to have a total area of 42 000 m2 with a total cost of 2.5 billion NOK (approximately

300 million US dollars). During the research, the project successfully completed the

concept phase. The contractor and design team was procured, and early stages of

the design/feasibility phase had already started. The main focus in interviews for this

case was on challenges that the team has encountered in the early phase, how

they evaluated the results from the concept phase and feasibility phase so far. Four

resources including the head of the architecture team, the head of the design

team, the owner’s project manager and a user’s representative were interviewed.

The head of the general contractor team was unfortunately not available for

interview. However, a major part of the interviewees in case 1 represented the

general contractor. Hence, it is reasonable to conclude that the contractor’s point

of view is highly taken into consideration through this research.

Results and findings Projects and non-projects are distinct by the fact that all projects, regardless of their

complexity, go through a common development sequence in their life cycle (Morris,

2004). Hence, the research has focused on what can contribute to value creation in

each phase of a project’s life cycle.

Concept The questions that were asked at the interviews and questionnaires for this stage

mainly focused on which challenges the projects have encountered during this

phase and what they would do differently in the next project.

Inadequate or unclear project order is among the considerable obstacles for

creating value in early phases of the project. According to management theories,

project strategies are among the main weaknesses in project planning and

execution. Unclear project strategy includes flawed procurement model, execution

model, contract model and goals and objectives. Findings also indicate that a

significant amount of information is lost due to weak communication between the

owner and the project team during the initial phases of the project. This challenge

can lead to inconsistent interpretation of what the expectations are and what the

output should be. These misinterpretations are mainly around the goals, objectives

and priorities of the project as well as the project’s procurement model, execution

model and contract model.


92

The ambition level for different value characteristics like esthetic, architectural

character, environmental issues and quality also often seem to be ambiguous. A

guidance tool such as a “value menu” would be helpful for owners to make the right

decisions and choose the appropriate ambition level from the start. The findings

indicated the importance of a profound and extensive strategic analysis in order to

develop a project strategy with clear objectives, priorities and ambitions.

Feasibility The research reveals that collaborative type of projects where the project team is

formed early and the execution competences are involved in the design phase

have better chances of delivering successful projects. All the interviewees who were

involved or had been involved in collaborative projects claimed that the

collaboration and engagement of all competences in early phase was positive for

the project’s success. Result from both case 1 and 2 also showed that the team

needs to be able to verify the project documents and project strategies before

identifying value creating elements. Procurement of the team increases the

information and knowledge in the project and the team can look into the

documents with a new perspective with more information. This can provide an

opportunity to improve the underlying documents and decisions before the

feasibility phase starts.

Literature showed that value creation was dependent on fulfilling owner’s

strategies and users’ value/needs. At the same time, it was mentioned during

interviews that in many cases it is difficult for the users and owners to express their

needs and strategies. It was also a challenge that user involvement processes during

the concept phase happened sometimes to have contrasting results from the

processes that the design team conducted. Architects, design teams and

contractors can have a great contribution to identifying value creating elements

using their experience from earlier projects. Hence, the team’s competency

combined with the identified user needs and owner strategies will form the best input

to the value identification process. In this way, the value identification process will

result in a better understanding of value for the project as well as creation of

legitimate ideas that underpin the expected long-term effects for satisfying needs

and strategies.

Definition Through this step, the project team develops a design that describes the feasible

solutions on how the identified value elements can be achieved. The input to this

step would be the ideas created from the previous phase combined with innovation

and eventual value-adding suggestions. The expected output of this step would be

the descriptions and solutions through design. The major challenge at this step of the

project is that solutions and descriptions were not always validated before

implementation and the design team was not properly aligned with the contractor

team.Results from both the questionnaire 1, the workshop and Case 2 indicated that

innovation is not emphasized enough in the early phase of construction projects.

Furthermore, both case studies confirmed that new thinking and innovation

contribute to higher value creation in projects. The case studies also revealed that

validation study is a requirement to align the team before the ideas are

implemented in a production system in order to verify the functions, requirements

and needs that the owner and users have.

Execution This phase is defined in our framework as the activities from plan verification and

approval to product delivery. This phase includes implementing the plan for action,


93

the production phase and commissioning. Interviews and questionnaires revealed

that commissioning is an underrated step in existing project models. Inadequate

involvement of FM competences in early phases of projects has been identified as

one of the reasons why the commissioning step is challenging. Meanwhile, those

involved in the case project that included this type of knowledge in early phases of

the project acknowledged that FM has been a great contribution to streamlining the

commissioning process and training the operation team.

Operation and Review The literature study revealed that achievement of owner’s and users’ tangible and

intangible objectives as well as the positive effects brought by the project will

contribute to value creation. On the other hand, results from the interviews after

questionnaire 2 indicated that the knowledge and experience after product delivery

is inadequately structured and transferred to other projects. There is a clear need for

a structure around the timing of reviewing different effects and aspects. Evaluation

of the results should be defined in different periodic terms. Some effects can be

evaluated right after project delivery while other aspects are expected to have short

term or long-term effects.

Discussions and development of Best Value Approach Regarding the first research question, the results of the research revealed a wide

range of principles that should be considered in order to create value in

construction projects as well as constraints and challenges that can limit the value

creation. In early phase of the projects, the need for better communication with the

owner, a value menu that helps decision makers in choosing the ambition level and

the necessity of a clear project strategy indicates a profound need for a thorough

strategic analysis in early phase. The research has also revealed that collaborative

projects where the team is organized and assembled early and contractors are

involved in design phase have better chances of success. Engaging the team as

early as possible can have benefits such as their involvement in defining what

creates value for the project and the opportunity to verify the project strategy and

concept phase documents.

The research also indicated that value is created when owner’s strategies are

aligned with users’ needs and they both are fulfilled. On the other hand users are

often not aware of their own needs. Project team’s competences and experience

can have a positive contribution in identifying needs and value creating elements.

Innovation and new ideas is also a requirement for proposing better solution and

descriptions to fulfil the identified needs and thereby create value.

The second research question was pursuing to structure these principles in a

framework to maximize the value creation. The research indicated, among others,

that the framework should consider identifying and understanding what creates

value for user and owner in the operation phase of the project and exploit this

knowledge in the design phase (Feasibility and Definition). In addition to indicating

the need for a step to identify the needs, this also reveals the need for a systematic

evaluation of the projects after delivery. The framework should also contain a

process for assessing the value propositions and value delivery so that the identified

elements are evaluated and implemented as intended through the whole life cycle

of the project from idea creation to obsolescence.

Best Value Approach (BVA) uses the mind-set behind existing value management

models described in chapter “Theoretical background”, together with findings from

collected data to describe a model for identifying the needs, creating ideas and


94

solutions to fulfil the needs, implementing the ideas into actions and evaluating the

results. BVA consists of eight major steps (Figure 3).

Figure 3

Best Value Approach

Strategic Analysis The main question at this step is what is needed before the design team and

contractors (the value team) are engaged. Although the research revealed that this

step is different in every project, there is an agreement on what the minimum

expected output from this step should be. The indisputable output is the owner’s

business case, including priorities and objectives. It is also expected that the owners

have a clear strategy for procurement model, execution model and contract model

before the value team is engaged. In Case 2 (Norway) the value team has been

involved in major parts of developing the contract. The results indicates that the

team expected that the owner had progressed the contract to a clear stage before

engaging the value team.

The lack of satisfactory communication with the owner in order to identify the

owner’s strategies and users’ needs is suggested as one of the major obsticles in

achieving desired outputs of this stage. Owners need a tool to obtain a holistic


95

picture of what can create value in their projects. Glanville and Nedin (2009) suggest

a framework for the provision of a sustainable healthcare estate. The framework is

generic and its application is not limited to healthcare buildings. Questionnaires from

the Oscar projects resulted in identification of certain basic value creating elements

in projects (Bjørberg et al., 2015). These elements are used in developing a “Value

Menu” that is going to be available for projects in near future. In addition, there are

existing methods for analysing the project opportunities and life cycle cost, setting

proper goals, analysing uncertainty and identifying the project’s focus points. These

can all be a part of the strategic analysis of a project in early phase.

Choosing the Value Team This step is extensively emphasized as a crucial prerequisite for success and value

creation. What type of competences should be involved and at what point of the

project are the most significant questions here. The research has revealed that there

is no framework to answer these questions. How the projects handle value team

selection depends on factors such as the extent of management’s prior experience,

the project’s strategies, contract models, procurement models, owner’s strategies

and of course project’s needs. However, there are some findings that indicate what

successful projects have in common in order to handle this challenge. First, the

research shows that the sooner the team is assembled the better it is for project’s

outcome. The respondents who had been through collaborative type of projects,

e.g., IPD (Integrated Project Delivery), claimed that engaging all the necessary

partners and competences early in the project resulted in better identification of the

value creating elements, improved the accuracy of design, motivated better

collaboration in the team and entailed outcomes that even exceeded the

expectations. Another interesting finding was the need for resources with profound

knowledge around operation phase during the early design phase and throughout

the project. This type of resource can contribute to functional design of the systems,

verification of the design, implementation of the design, deployment of the

commissioning phase and training the operation crew.

Value Identification As the literature has revealed, value creation is a result of satisfaction of needs and

fulfilment of expected effects. In order to effectively create value, users’ value must

be aligned with owner’s strategies. These elements must be identified in order to

understand value for the project. This understanding is necessary for creating ideas

for how to fulfill the needs and strategies. Identification of users’ needs and owner’s

strategies is a challenging task. One of the most common methods for identifying

user’s needs is the user involvement process. One of the major issues in user

involvement processes is the users’ inadequate ability to recognize, formulate and

balance their needs and demands. The research also implies that too early

involvement of users’ might not be advantageous. Users should be actively involved

when the project team is formed. The project team, including the owner, can

significantly contribute to identifying and aligning users’ needs and owner’s

strategies based on their experience and knowledge. This involvement is notably a

requirement for life-cycle thinking within project development. Value management

processes offer approaches such as different types of workshops for identifying users’

needs and owner’s strategies.

Value Proposition/Design Development This step is directly associated with the “definition” phase of a project. During this

step, the ideas created in the previous step, together with the innovative thinking of

the project team, are transferred into specific descriptions, drawings and solutions.


96

The outcome of this step is basically a plan of action that defines how the ideas

should be executed and implemented through a production system in order to

deliver the outlined product. The significance of innovation in order to increase value

creation is one of the major findings of the research regarding this step. Another

discovery through the case projects was the items and ideas that can contribute to

higher value creation but are not a requirement for value creation. These are so-

called “added value” elements. Both case projects operated with “an added value

list” or “predefined options” which essentially is a directory for featured added value

elements. Elements from these lists can be promoted and actualized if the financial

situation of the project allows it.

Validation The design is developed by proposing descriptions and solutions. At this stage, there

may be more than one alternative solution for a particular function. Validation will

be necessary in order to choose the right alternative. Throughout this step, the

suggested solutions would be validated against the identified values in the “value

identification” step. The proposed design should be verified by focusing on feasibility

and whether it satisfies the owner’s strategies and users’ needs. The proposed

descriptions and solutions define a plan for action. This plan is the input to the next

step, which includes implementation of the suggested and verified descriptions and

solutions in order to start the production.

Implementation The execution phase is the phase where the plans, solutions, descriptions and

drawings are implemented and transformed into the product. This step contains a

complicated production system that attempts to conduct this transformation in an

efficient and productive way. As literature suggested, users need to have their

functional and hedonic value fulfilled. Owners should be able to fulfill the users’

value while experiencing a profitable/optimal operation, and suppliers must fulfill

users’ value and produce effective and efficient outcomes. The supplier’s have

thereby a responsibility to have focus on what creates value for both end users and

the owner, while their production system focuses on reducing waste and increased

productivity and efficiency. Principles of lean production can, among others, be

beneficial throughout this step

Commissioning and Transition By the end of the execution phase, the commissioning and transition starts. The

technical facilities are tested and the operation phase starts in this step. The research

reveals that in hospital projects, in particular, this transaction is demanding and

seldom seamless. One of the measures in order to improve the process is to involve

those with operations knowledge in the project in an early phase. The case project in

San Francisco has so far experienced a smoother commissioning process partly

because they dedicated a resource with operations competence to the project.

The resource has been involved in testing the design solutions, testing the execution

of the design and in training the operations team who will be in charge of the

operation phase. This step is considered to be an important step within the holistic

value creation of a project and should be subject for further research in the future.

Value Evaluation

The frequent omission of structuring and transferring knowledge and experience

after product delivery to other projects leads to the need for a final step after

product delivery that contains an evaluation and assessment of the project. The

interviews after questionnaire 2 also revealed that evaluation of the results should be

defined in different periodic terms. Some aspects and effects can be assessed and


97

evaluated shortly after project delivery while some outcomes might take time before

they can be detected and assessed. Further research is needed in order to provide

a holistic methodology for measuring the effects and evaluating projects.

Conclusion: Reflections and ideas for moving forward This research intended to offer a framework to enhance value creation in projects by

addressing: i) which principles should be considered in the front end of a project to

secure value creation? ii) How can these principles be structured in a framework to

maximize the project’s value creation? A comprehensive research design

containing data collection methods such as questionnaires, workshops, interviews

and case studies was composed in order to collect data, develop theories and

verify them.

Identifying the required means and principles to maximize value creation was the

first research question of this research. Value is created when needs are fulfilled and

strategic goals are achieved. The literature study revealed that value creation in a

life cycle perspective of a building depends mainly on two factors; i) fulfilment of the

users’ needs ii) fulfilment of owner’s corporate strategy. Further research revealed

that these two factors need to be combined with innovative thinking in order to add

value to the project. Project success in a lifetime perspective depends on meeting

objectives (both tangible, such as time, cost, and quality, and less tangible criteria),

as well as achievement of the long-term effects brought about by the project. This

requirement implies that identifying the needs and strategic goals, intangible criteria

and achievement of the long-term effects are fundamental contributions to value

creation in a project. A systematic evaluation of the value creation and

achievement of the objectives after project delivery is necessary for transferring the

knowledge of what creates value in operation phase and exploit that knowledge in

design of the future projects. In addition, the need for a competent team and early

involvement of the key resources to define value characteristics is clear. The team

should be able to verify the project strategy and documents from the concept

phase as well as contributing to identification of value creating elements for the

project.

The second research question regarding structuring the identified principles to

value creation in order to maximize value creation led us to BVA, which was

developed with a focus on solving some of the practical challenges that projects

encounter and obstacles for value creation. The framework suggests a structure

using the principles that need to be considered in order to increase value creation in

each phase of a project, including the operations phase. The framework also

presents a method that enables the project to move the focus from the building

completion perspective to the building lifetime perspective. Implementing such a

methodology will help decision makers to move the focus from what is best for the

project to what is best for the users and owner.

Many Value management models have been developed during the past

decades to improve the accuracy of identification of appropriate objectives for

projects and choosing the best solutions. However, we acknowledge that there is a

lack of a holistic methodology for transferring objectives and the chosen solutions

into functional buildings with a life-time perspective beyond existing value

management models. Yet, value management and its underlying processes can be

used as a tool within the BVA. Although BVA is developed based on research

conducted in Norway and USA, it follows a management mind-set that is

independent from culture and country. We hope and believe that BVA can be

beneficial in construction project, especially in projects with complex user picture


98

with unclear and contrasting needs and objectives. Although BVA is a holistic

approach to the whole project lifetime, this part of the research had its focus on

early phase up until implementation/execution. Consequently, further research is

required, especially regarding commissioning, transition and value evaluation.

Commissioning and transaction was mentioned as an underestimated stage of the

projects. Our case study gave us an indication of how complicated this stage can

be. Further research is needed to establish an understanding of where the

challenges are and how they can be addressed.

Further research is also required to develop necessary tools for each step of BVA.

Acknowledging that Value Management, Lean, and many other fields provide

tremendous tools and methods that can be adopted into BVA, there is still a lack of

structure around where and when these tools should be utilized and how well they

function. This deficit includes methods for project evaluation and measurement of

the effects after project delivery.

References 1. Arge, K., Hjelmbrekke, H. (2012), “Value enhancing processes in building and real

estate”, Proceedings of the joint CIB W, 70, W092.

2. Austin, S., Thomson, D. (2005), “Briefing: Delivering value in construction design - a

new approach”, Proceedings of the ICE - Civil Engineering, Vol. 158, No. 4, p. 148.

3. Babin, B. J., Darden, W. R., Griffin, M. (1994), “Work and/or fun: measuring

hedonic and utilitarian shopping value”, Journal of consumer research, Vol. 20,

No. 4, pp. 644-656.

4. Bjørberg, S., Larssen, A. K., Temeljotov Salaj, A., Haddadi, A. (2015), “Optimizing

building design to contribute to value creation”, IPMA world congress 2015.

5. British Standards Institution (2000). BS EN 12973. Value management.

6. Chan, A. P. C., Scott, D., Lam, E. W. M. (2002), “Framework of Success Criteria for

Design/Build Projects”, Journal of Management in Engineering, Vol. 18, No. 3, pp.

120-128.

7. Coenen, C., Alexander, M., Kok, H., Jensen, P. (2012). FM as a value network:

exploring relationships amongst key FM stakeholders. The added value of facilities

management: concepts, findings and perspectives, Lyngby, Denmark,

Polyteknisk Forlag.

8. Dodds, W. B., Monroe, K. B., Grewal, D. (1991), “Effects of price, brand, and store

information on buyers' product evaluations”, Journal of marketing research, Vol.

28, No. 3, pp. 307-319.

9. Fleetwood, S. (1997), “Aristotle in the 21st Century”, Cambridge Journal of

Economics, Vol. 21, No. 6, pp. 729-744.

10. Ford, H., Crowther, S. (1926). Today and tomorrow, Doubleday, Page &

Company.

11. Glanville, R., Nedin, P. (2009), “Sustainable design for health”, in Rechel, B.,

Wright, S., Edwards, N., Dowdeswell, B., McKee, M. (eds.), Investing in hospitals of

the future, pp. 229-246.

12. Gransberg, D. D., Shane, J. S. (2015), “Defining Best Value for Construction

Manager/General Contractor Projects: The CMGC Learning Curve”, Journal of

Management in Engineering, Vol. 31, No. 4.

13. Green, S. D. (1994), “Beyond value engineering: smart value management for

building projects”, International Journal of Project Management, Vol. 12, No. 1,

pp. 49-56.


99

14. Haddadi, A., Johansen, A., Andersen, B. (2016), “A Conceptual Framework to

Enhance Value Creation in Construction Projects”, Procedia Computer Science,

Vol. 100, pp. 565-573.

15. Haddadi, A., Temeljotov, A. S., Foss, M., Klakegg, O. J. (2015), “The Concept of

Value for Owners and Users of Buildings - A literature study of value in different

contexts”, IPMA world congress. Panama.

16. Hjelmbrekke, H., Hansen, G. K., Lohne, J. (2015), “A Motherless Child–Why do

Construction Projects Fail”, Procedia Economics and Finance, Vol. 21, pp. 72-79.

17. Holbrook, M. B. (1994), “The nature of customer value: an axiology of services in

the consumption experience”, in Rust, R. T., Oliver, R. L. (eds.), Service Quality:

New Directions in Theory and Practice, Sage, Thousand Oaks, pp. 21-71.

18. Holbrook, M. B. (1999). Consumer value: a framework for analysis and research,

Psychology Press.

19. Jabareen, Y. R. (2009), “Building a conceptual framework: philosophy, definitions,

and procedure”, International Journal of Qualitative Methods, Vol. 8, No. 4, pp.

49-62.

20. Kaufman, J. J. (1998). Value management: Creating competitive advantage,

Thomson Crisp Learning.

21. Kelly, J., Male, S., Graham, D. (2015). Value management of construction

projects, Chichester, England, Wiley Blackwell.

22. Koskela, L. (2000). An exploration towards a production theory and its application

to construction, VTT Technical Research Centre of Finland.

23. Lepak, D. P., Smith, K. G., Taylor, M. S. (2007), “Introduction to Special Topic

Forum: Value Creation and Value Capture: A Multilevel Perspective”, The

Academy of Management Review, Vol. 32, No. 1, pp. 180-194.

24. Male, S., Kelly, J., Gronqvist, M., Graham, D. (2007), “Managing value as a

management style for projects”, International Journal of Project Management,

Vol. 25, No. 2, pp. 107-114.

25. Morris, P. W. (2004), “Science, objective knowledge and the theory of project

management”, Civil Engineering, Vol. 150, No. 2, pp. 82-90.

26. Müller, R., Turner, R. (2010), “Leadership competency profiles of successful project

managers”, International Journal of Project Management, Vol. 28, No. 5, pp. 437-

448.

27. Olsson, N., Johansen, A., Langlo, J. A., Torp, O. (2007), “Who owns a project?”,

EURAM Conference.

28. Olsson, N. O., Berg-Johansen, G. (2016), “Aspects of project ownership in theory

and practice”, Procedia Computer Science, Vol. 100, pp. 790-795.

29. Olsson, N. O., Johansen, A., Alexander Langlo, J., Torp, O. (2008), “Project

ownership: implications on success measurement”, Measuring business

excellence, Vol. 12, No. 1, pp. 39-46.

30. Parasuraman, A. (1997), “Reflections on gaining competitive advantage through

customer value”, Journal of the Academy of Marketing Science, Vol. 25, pp. 154-

161.

31. Rolstadås, A., Olsson, N. O. E., Johansen, A., Langlo, J. A. (2014). Praktisk

prosjektledelse : fra idé til gevinst, Bergen, Norway, Fagbokforl.

32. Samset, K. (2003). Project evaluation: making investments succeed, Trondheim,

Tapir Academic Press.

33. Thyssen, M. H., Emmitt, S., Bonke, S., Kirk-Christoffersen, A. (2010), “Facilitating

Client Value Creation in the Conceptual Design Phase of Construction Projects: A

Workshop Approach”, Architectural Engineering and Design Management, Vol.

6, No. 1, pp. 18-30.


100

34. Vargo, S. L., Maglio, P. P., Akaka, M. A. (2008), “On value and value co-creation:

A service systems and service logic perspective”, European Management

Journal, Vol. 26, No. 3, pp. 145-152.

35. Ward, S. C., Curtis, B., Chapman, C. B. (1991), “Objectives and performance in

construction projects”, Construction Management and Economics, Vol. 9, No. 4,

pp. 343-353.

36. Womack, J. P., Jones, D. T. (1996), Lean Thinking: Banish Waste and Create

Wealth in Your Corporation, Touchstone.

37. Woodruff, R. (1997), “Customer value: The next source for competitive

advantage”, Journal of the Academy of Marketing Science, Vol. 25, pp. 139-153.

38. Zeithaml, V. A. (1988), “Consumer Perceptions of Price, Quality, and Value: A

Means-End Model and Synthesis of Evidence”, Journal of Marketing, Vol. 52, No.

3, pp. 2-22.

About the authors

Amin Haddadi is a PhD candidate at Norwegian University of Science and

Technology (NTNU). He has a Master degree in Civil Engineering. Haddadi has

experience as a consultant, project manager and researcher. He has been involved

in different fields of management such as Uncertainty analysis and management,

cost estimation, project start up, property development and Facility management

during the past 10 years. His PhD concerns value creation in construction projects

with focus on owners and users of buildings. He can be contacted at

[email protected].

Agnar Johansen holds a Dr. Philos and works as a senior scientist at Foundation for

Scientific and Industrial Research (SINTEF). He has authored/co-authored more than

40 papers for international journals and conferences on cost estimation, project start-

up, uncertainty analyses and management, stakeholder analyses, and learning in

organizations. He has more than 20 years of experience as a consultant, researcher

and lecturer in the field of project management. He has led several development

projects, start-up processes and uncertainty analyses within the field of project

management, in both public and private sectors. He can be contacted on

[email protected].

Svein Bjørberg is a Professor for rehabilitation, maintenance and life cycle cost at the

department of civil engineering and transportation, and appointed professor at

faculty of Architecture within property and building development, both at

Norwegian University of Science and Technology (NTNU). He has initiated and

participated in several research- and development projects. Building failures,

maintenance, Life Cycle Cost, Sustainable Refurbishment and Value for owner and

end users (OSCAR project) are among his field of research. Professor Bjørberg is a

widely acknowledged expert within his field, in both academia and the construction

industry, in Norway. He can be contacted on [email protected].


101

Case Study in Interdisciplinary Scientific

Communication: A Decade of the INDECS

Journal

Josip Stepanić

Faculty of Mechanical Engineering and Naval Architecture, Department of

Quality, Zagreb, Croatia

Jovana Zoroja


Vanja Šimičević

Center for Croatian Studies, University of Zagreb, Croatia

Abstract

Background: Interdisciplinary scientific areas regularly develop unique

methodologies, yet utilise the conventional communication modes to disseminate

results of their researches. Objectives: This paper analyses whether a novel,

interdisciplinary communication mode can be found in a gradually developing

interdisciplinary journal. Methods/Approach: The content of the journal was

categorised based on the characteristics attributed to the published papers.

Statistical tests were performed to check for the overlapping categories. Results: A

number of indicators, related to papers or to their authors, are introduced and

quantified. Conclusions: Methodology utilised and data collected serve, on the one

hand, as a referent set for treating the content of other interdisciplinary or

disciplinary scientific journals, and, on the other hand, as a set for comparison and

extraction of universalities or specificities of the journals. Fluctuations accompanying

a gradual rise of the considered journal content prevent a definite answer to the

question whether there are some emerging interdisciplinary communication

novelties.

Keywords: interdisciplinary journal, communication, text mining

JEL classification: D83


Received: Nov 09, 2016

Accepted: Aug 05, 2017

Citation: Stepanić, J., Zoroja, J., Šimičević, V. (2017), “Case Study in Interdisciplinary

Scientific Communication: A Decade of the INDECS Journal”, Business Systems


DOI: 10.1515/bsrj-2017-0019


Foundation under the project number IP-2014-09-6963.


102

Introduction Scholarly publishing is regular yet prevalently ubiquitous process accompanying

innovations, development of scientific theories, methods and overall achievements.

That very fact makes opportune, first to try to extract and eventually quantify the

contribution of scientific journals, as a part of dissemination of research results and of

scholarly publishing, to emerging scientific models, methods and results. Secondly,

since there is a large number of scientific journals it would be interesting to analyse

whether there are regularities in “scientific journal life”, that is in the way how

scientific journals are initiated, published, modified, extinct, etc. One can argue that

the contribution of the scientific journals is the greatest in interdisciplinary fields, since

other ways of scholarly related dissemination of ideas (e.g. formal education,

professional societies) are represented below average or do not exist for such areas.

Regarding stated points, initial steps toward stated, rather general approaches to

interdisciplinary scientific journals (ISJ) and to development of scientific ideas, are

collections of corresponding results, such as Butzer (2009) and Kirchler and Hölzl

(2006), to list recent ISJ analyses that cover first 35 and 25 years, respectively. Butzer

(2009) notes gradual development of quantitative and qualitative indicators of the

journals, as well as unique changes induced by the change of covered

interdisciplinary scientific discipline. Along with specifics of the discipline, the author

notes that some general, contemporary problems in science are represented in that

journal, such as is a validity of peer-reviews. Kirchler and Hölzl (2006) state that the

journal they analysed clearly contributed to the development of the corresponding

interdisciplinary discipline. In listed sources, the content analysis was adopted. That

method is not specific to extracting the interdisciplinarity, such as is the entropy-

based measurement of diversity (Silva et al., 2013). Before proceeding, it is in order to

note that importance of interdisciplinarity is seen not just in scientific publishing but

also in professional and other disciplines since interdisciplinary research essentially

causes innovations (Thorleuchter and Van den Poel, 2016).

Journal Interdisciplinary Description of Complex Systems – INDECS is a scientific

journal. There is online and printed edition of the journal (during first several years also

the CD-ROM edition was published). The first year of publishing was 2003 with one

issue, from 2004 to 2011 the journal was published two times per year and starting

from 2013 INDECS is published four times per year, in January, April, July and

October. INDECS is indexed in several scientific data base such as: EBSCO

Academic SearchTM Complete, EconLit and Ulrich's and IndexCopernicus.

We have searched Hrčak for the Croatian journals which are represented in more

than ten areas. Table 1 presents Croatian journals from Hrčak base according to

number of scientific areas. We can conclude that the highest number of the journals

is oriented only from one to five research areas. There are 54 journals which are

oriented only to one research area and 132 journals oriented toward 2 research

areas. Only one journal covers 55 research areas.

We found 17 journals which are represented in 10 or more areas, and among

them is INDECS. Interdisciplinary Description of Complex Systems is the only journal

which starts publishing in 21st century and which is cited in several scientific

databases. Only journals which were published in 1985 and earlier are cited in

relevant scientific database. Other journals which were published in 21st century,

with two exceptions (1952 - Anali Zavoda za povijesne znanosti Hrvatske akademije

znanosti i umjetnosti u Dubrovniku and 1981 - Anali Zavoda za znanstveni i umjetnički

rad u Osijeku) have not yet been cited in scientific database.

The goal of the paper is to investigate the dynamics and interdisciplinary scope of

publications.


103

Table 1

Croatian journals in base Hrčak according to number of scientific areas

Number of areas Number of Croatian journal %

1 54 15.61%

2 132 38.15%

3 46 13.29%

4 33 9.54%

5 16 4.62%

6 21 6.07%

7 12 3.47%

8 6 1.73%

9 9 2.60%

10 8 2.31%

11 3 0.87%

13 1 0.29%

14 2 0.58%

20 1 0.29%

31 1 0.29%

55 1 0.29%

Total 346 100%

Source: Authors’ survey; October, 2014

The paper consists of four parts and has following structure. After Introduction,

methodology and data are defined. Results are presented in the third section with

several subsections related to author and paper analysis, review process analysis,

indexation and topics analysis of the selected papers. The last, four part, concludes

the paper.

Methodology

In order to take a look to the past 10 years of INDECS, we have made several

analyses to get a bibliometric review of ten year publishing an INDECS journal. Data

are collected through web page of the journal during the last ten years (2003-2013).

We investigated published volumes and issues and classify them through number of

issue by volume, number of pages by volume and by issues, number of authors,

affiliation of the authors, categorization of the papers, and length of the review. Text

mining was also used for the topic analysis, in order to detect if titles of the paper

reflect the interdisciplinary systems focus of the journal. Text mining methodology of

titles was used to identify the topics that mostly appeared (Yoon and Park, 2004).

There are different approaches like filtering, lemmatization or stemming which can

be used. In our research we used Statistica Text Mining software focused on

stemming method. Stemming method implied removing “ing” from verbs and “s”

from nouns, in order to build stems which could have similar or equal meaning.

Program named Statistica Text Mining uses singular value decomposition algorithm in

order to handle the usually very large input matrices. The advantages of this method

is that offer accurate values for relatively large singular values while disadvantage

present lower accuracy on small singular values. Scree plot can be used to select

the number of singular values which are useful for subsequent analysis.


104

Results Paper analysis: Timeline and type of paper Table 2 presents an average number of issued papers by each year. According to

the data in Table 2 number of issues by volume, number of papers by volume,

number of pages by volume is increasing every year. The first volume, published in

2003, had only one issue and six papers. From 2004 to 2011 the journal was published

two times per year and starting from 2013 INDECS is published four times per year which

means that there is higher number of papers by volume and higher number of pages by

volume. Average number of papers by volume difference is statistically significant at

10% (F = 1.461, p-value = 0.093) and the average number of pages difference by paper

is statistically significant at 10% (F = 1.866, p-value = 0.052).

Table 2

Average number of issued papers by year

Year of

publishing

Vol. # of issues

by vol.

#r of

papers by

vol.

Avg. #of

papers by

vol.

# of pages

by vol.

Avg. #of

pages by vol.

Avg. #of

pages by

paper

2003 1 1 6 6 65 65 10.8

2004 2 2 14 7 143 71.5 10.2

2005 3 2 10 5 108 54 10.8

2006 4 2 12 6 151 75.5 12.6

2007 5 2 11 5.5 160 80 14.5

2008 6 2 12 6 131 65.5 10.9

2009 7 2 10 5 116 58 11.6

2010 8 2 11 5.5 147 73.5 13.4

2011 9 2 9 4.5 160 80 17.8

2012 10 3 22 7.33 297 99 13.5

2013 11 4 37 9.2 445 111.25 12.0

Total 66 24 154 67.03 1923 833.25 12.5


Papers published in INDECS journal can be categorized into four groups:

preliminary report, conference paper, regular paper and review (Table 3). Most of

the papers through last ten years were classified as regular paper. Only 13 papers (7

in 2005 and 6 in 2006) were classified as preliminary report. There were only 4 reviews

in 2005, 2012 and 2013. In each year there were several regular papers. Chi-square

indicated these differences are statistically significant by 1% (chi-square = 117.767;

p-value = 0.000).

Table 3

Categorization of the papers

Year Volume Number of papers by

volume

Preliminary

report

Conference

paper

Regular

paper

Review

2003 1 6 0 0 6 0

2004 2 14 2 10 1 1

2005 3 10 0 7 3 0

2006 4 12 0 7 5 0

2007 5 11 0 3 8 0

2008 6 12 0 3 9 0

2009 7 10 0 0 10 0

2010 8 11 0 0 11 0

2011 9 9 0 0 9 0

2012 10 22 0 0 21 1

2013 11 37 0 0 35 2

Total 11 154 2 30 118 4



105

Author analysis Let us analyse the relation between the paper category and the number of authors.

Most of the papers, no matter the categorization type, were written by three authors.

Preliminary reports are mostly written by one author. Average number of authors is

almost the same for the conference (1.8) and regular paper (2.0) while the mean for

the preliminary report and review is lower (1.2). Chi-square indicated that observed

differences are not statistically significant (chi-square = 6.207; p-value = 0.719).

The average number of authors is approximately 1.7 with the lowest standard

deviation of 0.5 for the review category. The highest number of authors is for the

category regular paper (128), while in category review there are only four authors

and for the conference paper only nine authors. In order to determine are there

statistically significant differences for average values of category of the paper and

number of authors we made variance analysis. Conducted analysis showed that

differences in average values for number of authors and category of the paper are

not statistically significant (F = 0.510; p-value = 0.676).

Table 4

Descriptive statistics for number of authors

Category of the

paper

# of

authors

Avg. # of

authors

Std. dev. Confidence interval of estimation

of average number of authors by

paper category (95%)

Lower value Upper value

Preliminary report 13 1.85 1.281 1.07 2.62

Conference paper 9 1.56 0.882 0.88 2.23

Regular paper 128 1.60 0.881 1.45 1.76

Review 4 1.25 0.500 0.45 2.05

Total 154 1.61 0.910 1.47 1.76


Table 5 presents number of authors by year issued and by continent. In 2003,

when the journal was launched, there were only authors from the Europe and

through the next year’s number of authors from other continents increased.

Approximately the same number of authors was in 2008 (30) and in 2012 (32). The

only difference is that in 2012 authors from all over the world except from South

America have written for the journal and in 2008 there were only authors from Asia,

Europe and North America.

Table 5

Number of authors by year issued and continent

Country Year Total

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Africa 0 0 0 0 0 0 0 1 0 1 0 2

Australia 0 0 1 2 1 0 0 0 0 1 1 6

Asia 0 4 3 7 1 2 1 4 1 4 3 30

Europe 12 12 10 13 13 19 10 12 9 22 50 182

South America 0 0 0 0 0 0 1 0 1 0 0 2

North America 0 2 0 2 4 1 0 1 0 2 1 13

Total 12 18 14 24 19 32 12 18 11 30 55 235



106

Review process analysis Table 6 provides information about duration of review process in days. That duration

we calculate as difference in dates of accepting and receiving the manuscript. In

2003, there was only one volume with six papers and the average duration for the

review process was 28.17. It is interesting to compare 2012 and 2013. In 2012 there

were 22 papers and average number of days was 119.55, while in 2013 the average

number of days was 73.86 for the 37 papers. In order to determine are there

statistically significant differences for number of review days and for the number of

papers we made variance analysis. Conducted analysis showed that there is

statistically significant difference at 1% for number of review days and the number of

papers (F = 4.626; p-value = 0.000).

Table 6

Number of review days by year

Year Volume Number of

papers

Average duration of the

review process in days

Std. deviation

in days

2003 1 6 28.17 10.815

2004 2 14 71.14 33.709

2005 3 10 38.60 37.974

2006 4 12 120.75 63.090

2007 5 11 136.82 68.331

2008 6 12 285.33 357.307

2009 7 10 60.10 71.177

2010 8 11 176.91 92.302

2011 9 9 248.33 186.692

2012 10 22 119.55 117.099

2013 11 37 73.86 72.026

Total 11 154 117.36 144.311


Indexation analysis Classification of the papers published in INDECS journal is defined by the authors in

accordance with the instructions. According to Table 7 all papers are classified by

JEL classification (154) and some also by other classifications such as are ACM, PACS

and APA. Besides JEL, there is a large number of papers classified by PACS (71).

Table 7

Number of papers by categorization

Categorization Number of papers %

ACM 25 16%

JEL 154 100%

PACS 71 46%

APA 38 25%


Table 8 presents the number of papers having the ACM classification. In the first 10

volumes there are 38 papers having ACM classification. The highest number of

papers is grouped in J.4 (10), which means Social and Behavioural Sciences. The

lowest number of papers, only one, is found in the following subgroups: H.0, H.1, H.4

and J.8. Other subcategories are represented by two papers: D.1, D.2, G.3, G.4, H.5

and K.4.


107

Table 8

ACM categorization

ACM category Frequency

D.1 2

D.2 2

G.3 2

G.4 2

H.0 1

H.1 1

H.4 1

H.5 2

I.2 5

I.6 4

J.2 3

J.4 10

J.8 1

K.4 2

Total 38


Note: D=Software, G=Mathematics of Computing, H=Information Systems, I=Computing

Methodologies, J=Computer Applications, K= Computing Milieux.

Table 9 presents the number of papers classified by JEL categorization according

to the first categorization. In the first 10 years there are 154 papers which are

classified by JEL classification, altogether in 330 categories. In most cases authors

used classification group D, which is related to Microeconomics topics. The smaller

number of papers is grouped in following subgroups: H – Public economics, N –

Economic History and F – International economics.

Table 9

JEL categorization

JEL categorization Frequency

A - General Economics and Teaching 10

B - History of Economic Thought, Methodology, and Heterodox Approaches 10

C - Mathematical and Quantitative Methods 32

D - Microeconomics 88

E - Macroeconomics and Monetary Economics 11

F - International Economics 6

H - Public Economics 3

I - Health, Education, and Welfare 15

J - Labor and Demographic Economics 10

L - Industrial Organization 13

M - Business Administration and Business Economics • Marketing • Accounting 9

N - Economic History 4

O - Economic Development, Technological Change, and Growth 35

P - Economic Systems 10

Q - Agricultural and Natural Resource Economics • Environmental and

Ecological Economics

21

R - Urban, Rural, Regional, Real Estate, and Transportation Economics 10

Y - Miscellaneous Categories 19

Z - Other Special Topics 24

Total 330


Note: Total of 154 papers are classified in 330 categories, since most of the papers mention

more than one JEL category.


108

Table 10 presents the number of papers classified by PACS categorization. In the

analysed 10 years there are 71 papers which are classified by PACS classification but

some of them used more than one PACS category. In most cases authors used

classification group 80, which means Interdisciplinary Physics and Related Areas of

Science and Technology. The lower number of papers is grouped in following

subgroups: 28 – Nuclear Engineering and Nucelar Power Studies, 43 – Acoustics, 51 –

Physics of Gases.

Table 10

PACS categorization

PACS

categorization

Frequency

01 11

05 12

07 2

28 2

43 2

51 1

62 1

63 1

64 1

81 1

82 2

87 8

88 2

89 56

92 2

96 1


Note: 00=General, 20=Nuclear Physics, 40=Electromagnetism, Optics, Acoustics, Heat

Transfer, Classical Mechanics, Fluid Dynamics, 50=Physics of Gases, Plasmas, Electric

Discharges, 60=Condensed Matter: Structural, Mechanical and Thermal Properties,

80=Interdisciplinary Physics and Related Areas of Science and Technology, 90=Geophysics,

Astronomy and Astrophysics

Table 11 presents the number of papers classified by APA classification. In the last

10 years there were 38 papers which are classified by APA categorization but some

of them used more than one APA categorization. In most cases authors used

following classification groups: 2300 - Human Experimental Psychology (23), 2600 -

Psychology & the Humanities (6), 2900 - Social Processes & Social Issues (13) and 3000

- Social Psychology (9).


109

Table 11

APA classification

APA classification APA

sub-classification

Frequency

2200 - Psychometrics & Statistics & Methodology 2240 1

2260 1

2300 - Human Experimental Psychology 2300 1

2320 1

2326 1

2340 11

2360 1

2380 8

2400 - Animal Experimental & Comparative Psychology 2400 1

2500 - Physiological Psychology & Neuroscience 2510 1

2520 1

2600 - Psychology & the Humanities 2630 6

2700 - Communication Systems 2700 1

2800 - Developmental Psychology 2820 1

2840 1

2900 - Social Processes & Social Issues 2910 6

2920 1

2930 1

2960 4

2990 1

3000 - Social Psychology 3020 3

3040 6

3100 - Personality Psychology 3100 1

3200 - Psychological & Physical Disorders 3260 1

3500 - Educational Psychology 3510 1

4000 - Engineering & Environmental Psychology 4010 5

4050 1

4070 1

4100 – Intelligent systems 4100 2

4120 2

Total frequency 73


Table 12 provides number of papers grouped by one of four categorization

systems (ACM, JEL, PACS and APA). All papers published in the last ten years have at

least one JEL classification, while other categorization it is not represented in all

papers. The first volume had six papers and they all were classified by JEL and PACS

classification and only four of them were classified by APA and ACM classification. In

some volumes, such as volume 6, 7, 8, 9, APA and PACS classification were not

represented at all. In the last, 11th volume, 37 papers were published and all of

them were classified by JEL, 14 and 13 papers were classified by PACS and APA and

only 2 papers were classified by ACM classification.


110

Table 12

Number of papers by classification

Volume Number of papers by

volume

ACM JEL PACS APA

N % N % N % N %

1 6 4 66.67% 6 100% 6 100.00% 4 66.67%

2 14 5 35.71% 14 100% 10 71.43% 5 35.71%

3 10 1 10.00% 10 100% 9 90.00% 5 50.00%

4 12 1 8.33% 12 100% 10 83.33% 2 16.67%

5 11 2 18.18% 11 100% 2 18.18% 1 9.09%

6 12 2 16.67% 12 100% 0 0.00% 0 0.00%

7 10 1 10.00% 10 100% 0 0.00% 0 0.00%

8 11 2 18.18% 11 100% 1 9.09% 0 0.00%

9 9 1 11.11% 9 100% 3 33.33% 0 0.00%

10 22 4 18.18% 22 100% 16 72.73% 8 36.36%

11 37 2 5.41% 37 100% 14 37.84% 13 35.14%

Total 154 25 16.23% 154 100% 71 46.10% 38 24.68%


Topics analysis In order to better understand topics and themes that are presented in the titles of the

papers, a tag cloud analysis was conducted. The results are presented in Figure 1.

The tag cloud analysis is very useful because of its simplicity and visualization of the

most occurring words in selected text (de Spindler et al., 2011). In addition, most

frequently used words are larger and more visible. We have used Wordle program to

create a tag cloud (Feinberg, 2017).

Figure 1 presents that the stems “model”, “system” and “complex” arose most

often in the paper titles. In addition, there are also few other words which are

highlighted: analysis, approach, decision, development, social, research, system,

theory.

Figure 1

Tag cloud of the most often used words in paper titles; most frequent 50 words

Source: Author work, Tag Crowd


111

Table 13

Most commonly used words in titles of papers; => 4 occurrences

Stem / Phrase Number of occurrences in the title Number of papers Examples

model 34 31

system 25 24

complex 20 20

develop 11 11 developed

decis 10 9 decision

research 10 10

social 10 10

approach 9 9

make 8 8 making

process 8 8

theori 8 7 theory

use 8 7

learn 7 5 learning

microeconom 7 7 microeconomic

analysi 6 6 analysis

energi 6 5 energy

global 6 6

human 6 6

product 6 6 products

scienc 6 5 science

base 5 5 based

countri 5 5 countries

croatian 5 4

growth 5 5

manag 5 5 management

network 5 5

thermodynam 5 5 thermodynamic

adapt 4 3 adaptive

agent 4 4

agent-bas 4 4 agent-based

cognit 4 4 cognitive

competit 4 2 competition

distribut 4 4 distribution

dynam 4 4 dynamics

econom 4 4 economic

economi 4 4 economy

educ 4 4 education

environ 4 4 environment

experi 4 4 experience

first 4 4

happi 4 4 happiness

irrevers 4 4 irreversible

measur 4 4 measure

physic 4 4 physics

problem 4 4

resourc 4 4 resource

scientif 4 4 scientific

simul 4 4 simulate

studi 4 4 study

sustain 4 4 sustainable

team 4 4

toward 4 4

virtual 4 4

Source: Author work; Statistica data miner


112

In order to extract most commonly used words in titles of papers, we have

conducted text mining analysis-stemming approach by Statistica Text Miner

program. The results are presented in Table 13. We have examined number of

occurrences of words in the title and number of papers. Following seven words are

used in more than 10 titles of the papers: model, system, complex, develops, decis,

research and social. However, word model is the most often word and it appeared in

31 papers with 34 occurrences in the title. Words system and complex are used in

more than 20 papers. These two words (system and complex) are also part of the title

of journal (Interdisciplinary Description of Complex Systems) which explains their

frequent usage.

According to Cattell (1966) it is possible to plot the eigenvalues which are related

with each component and look for a “break” between them. There is difference

between the components that appear before and after the break. Important and

meaningful components are those appeared before compared to unimportant and

less meaningful components which appear after the break. Figure 2 indicates that

five concepts extracted with Singular Value Decomposition are relevant.

Figure 2

Scree plot of concepts extracted with Singular Value Decomposition

Singular values

0 1 2 3 4 5 6 7 8 9 10 11

Concept

6

7

8

9

10

11

12

13

14

15

16

17

18

Sin

gu

lar

va

lue

% e

xp

lain

ed


Table 14 presents the most relevant five concepts (Energy, Growth, Development,

Microeconomics, Croatian) extracted with Singular Value Decomposition. The first

concept contains words model, system, complex, social, use, approach, energi,

agent-bas, base, network. Based on the words, this concept was called Energy,

since it refers to the group of papers of the energy related research. The second

concept contains words model, agent-bas, agent, simul, base, growth, human,

dynam, product, educ. Based on the words, this concept was called Growth, since it

refers to the group of papers of the growth related research. The third concept

contains words decis, make, theori, team, first, human, global, develop, learn,

problem. Based on the words, this concept was called Development, since it refers

to the group of papers of the development related research. The fourth concept


113

contains words system, use, energi, decis, make, microeconom, analysi, social,

resource, agent-bas. Based on the words, this concept was called Microeconomics,

since it refers to the group of papers of the microeconomy related research. The fifth

concept contains words complex, social, network, croatian, analysi, scientif, base,

approach, environ, dynam. Based on the words, this concept was called Croatian,

since it refers to the group of papers of the Croatian related research.

Table 14

Identification of five most frequent topics with Singular Value Decomposition

Energy Growth Development Microeconomics Croatian

Words SVD Words SVD Words SVD Words SVD Words SVD

model 0,1105 model 0,0873 decis 0,1660 system 0,0487 complex 0,1194

system 0,0582 agent-bas 0,0158 make 0,1304 use 0,0294 social 0,1112

complex 0,0303 agent 0,0146 theori 0,0531 energi 0,0249 network 0,0678

social 0,0203 simul 0,0136 team 0,0248 decis 0,0166 croatian 0,0609

use 0,0184 base 0,0117 first 0,0186 make 0,0139 analysi 0,0480

approach 0,0164 growth 0,0079 human 0,0183 microeconom 0,0122 scientif 0,0340

energi 0,0134 human 0,0072 global 0,0182 analysi 0,0113 base 0,0339

agent-bas 0,0133 dynam 0,0062 develop 0,0174 social 0,0097 approach 0,0217

base 0,0133 product 0,0059 learn 0,0092 resourc 0,0058 environ 0,0216

network 0,0130 educ 0,0048 problem 0,0046 agent-bas 0,0057 dynam 0,0200


Conclusion Presented and analysed data point to the fact that the journal INDECS to

dissemination of scientifically founded pieces of information, related to the broad

number of scientific fields. Quantitatively, both in number of issues and number of

papers per volume, the journal gradually develops. Number of countries from which

the authors are, follows the increase. Moreover, number of topics represented in a

paper spreads through a number of different classifications and their categories and

sub-categories. That contributes to the interdisciplinary character of the journal.

There are no statistically significant variations in number of authors per volume or

per category of the paper. Whether there are significant differences in the number

of paper per discipline (category or sub-category of some classification) cannot be

stated using the available volume of papers.

However, the average time for review within one volume fluctuates significantly,

so one can assume that more time is needed for some gradual effect to emerge.

This represent a possible venue for improving the quality of the journal.

Results of text mining analysis implied that there are 53 words which are most

commonly used. Following seven words are used in more than 10 titles: model,

system, complex, develop, decis, research and social, while word model is the most

often word and it appeared in 31 paper with 34 occurrences in the title. Those 53

words were grouped into five concepts: Energy, Growth, Development,

Microeconomics, Croatian. These five concepts present different research areas and

include papers related to diverse scientific fields, which explain interdisciplinary of

INDECS journal.


114

References 1. Butzer, K. (2009), “Evolution of an interdisciplinary enterprise: the Journal of

Archaeological Science at 35 years”, Journal of Archeological Science, Vol. 36,

No. 9, pp. 1842-1846.

2. Catell, R. B. (1966), “The Scree Test For The Number Of Factors”, Multivariate

Behavioral Research, Vol. 1, No. 2, pp. 245-276.

3. de Spindler, A., Leone, S., Nebeling, M., Geel, M., Norrie, M. C. (2011), “Using

Synchronised Tag Clouds for Browsing Data Collections”, Advanced Information

Systems Engineering, Lecture Notes in Computer Science, Vol. 6741, pp. 214-228.

4. Feinberg, J. (2017), “Wordle”, available at: http://www.wordle.net/ (01

September 2017).

5. Kirchler, E., Hölzl, E. (2006), “Twenty-five years of the Journal of Economic

Psychology (1981–2005): A report on the development of an interdisciplinary field

of research”, Journal of Economic Psychology, Vol. 27, No. 6, pp. 793-804.

6. Silva, F. N., Rodrigues, F. A., de Oliveira Junior, O. N., da Fontoura Costa, L. (2013),

“Quantifying the interdisciplinarity of scientific journals and fields”, Journal of

Informetrics, Vol. 7, No. 2, pp. 469-477.

7. Thorleucter, D., Van den Poel, D. (2016), “Identification of interdisciplinary ideas”,

Information Processing & Management, Vol. 52, No. 6, pp. 1074-1085.

8. Yoon, B., Park, Y. (2004), “A text-mining-based patent network: Analytical tool for

high-technology trend”, The Journal of High Technology Management Research,

Vol. 15, No. 1, pp. 37-50.

About the authors

Josip Stepanić earned his B.Sc. in 1994 and M.Sc. in 1998 from theoretical physics. He

finished Ph.D. in 2003 from mechanical engineering, all from University of Zagreb.

Currently he is Head of the Chair of Non-destructive Testing, part of Department of

Quality – Faculty of Mechanical Engineering & Naval Architecture, University of

Zagreb. His researches include system science, complex adaptive systems and

several specific types of systems. Author can be contacted at [email protected].

Jovana Zoroja, Ph.D. is an Assistant Professor at the Faculty of Economics and

Business, University of Zagreb, Department of Informatics. She received PhD in

Information Systems at the Faculty of Economics and Business Zagreb. She was also

educated at the LSE – Summer School in London in the field of Business Development

and ICT Innovation. Her main research interests are information and communication

technology, e-learning, simulation games and simulation modelling. She is actively

engaged in number of scientific projects (FP7-ICT, bilateral cooperation, national

projects). Jovana Zoroja published several scientific papers in international and

national journals and participated in many scientific international conferences. The

author can be contacted at [email protected].

Vanja Šimičević has PhD in Economics from the University of Zagreb, Faculty of

Economics and Business in the area of quantitative economics. Her major area of

research is focused on applications of quantitative methods in social sciences and

on those topics she published number of papers. She is Associate Professor at the

University of Zagreb Centre for Croatian Studies, Head of Sociology Department,

teaching Multivariate Statistical Methods, and Statistics in Social Sciences. Author

can be contacted at [email protected].

http://www.wordle.net/





115

Digitalisation of Enterprises Brings New

Opportunities to Traditional Management

Control

Krister Bredmar

School of Business and Economics, Linnaeus University, Sweden

Abstract

Background: Advanced information systems have changed the way managers work

with planning and performance measurement. Traditional management control

concepts such as efficiency have changed in meaning due to these information

systems. Objectives: The main purpose behind this paper is to try to understand how

a new managerial context is shaped and re-shaped by new information systems that

constitute a digital enterprise. Methods/Approach: Three different cases are

presented and analysed. Results: The new managerial function of advanced

information systems is presented through the three cases. Conclusions: The

digitalisation debate and agenda need to develop an even deeper understanding

of how digital initiatives affect organisations. This is possible by dealing with concepts

such as the digital enterprise, which integrates digital technical solutions with

organisational challenges and management control intent.

Keywords: information systems; management control; digital enterprise

JEL classification: M15

Paper type: Case Study

Received: Mar 01, 2017


Citation: Bredmar, K. (2017), “Digitalisation of Enterprises Brings New Opportunities to

Traditional Management Control”, Business Systems Research, Vol. 8, No. 2, pp. 115-

125.

DOI: 10.1515/bsrj-2017-0020

Introduction The introduction of new technical solutions usually brings with it opportunities to work

in different ways. This is especially true when it comes to how computers are used in

organisations. Repetitive tasks are automated and transactional-based work, usually

with huge volumes, is run by computerised systems. Through this more extensive

capturing, storing and analysing of data there also comes the opportunity to plan for

and monitor a special section of a larger work process in detail (Alter, 2008), as well

as the ability to manage in automated, micro-managed ways (Davenport, 2013).

Traditionally, such technological solutions have been used in manufacturing contexts

where robots deliver the exact product over and over again. In recent years,

through the advanced use of data analytical tools such as big data analysis and the


116

Internet of things, managerial optimisation has expanded to other sectors where the

bases for decisions have become more extensive (Laudon and Laudon, 2004).

The concept management control is in many ways an elusive phenomenon. It is

hard to find a distinct and all-inclusive definition that grasps the entire meaning of

what managers do. From one point of view, management control deals with all the

techniques used to plan and monitor operations such as budgets and cost

calculations (Emmanuel et al., 1990). From another, it is about the behaviour in an

organisation and how managers motivate workforces to do their best; how the

environments created offer the opportunity to reach organisational goals (Bredmar,

2016). Yet again from another point of view, management control is about

measuring performance in different forms; both when it comes to profitability, but

also when it comes to dimensions such as customer experience, efficient internal

processes and the ability to change (Kaplan and Norton, 1995). Altogether,

management control works as an umbrella concept that includes several different

dimensions which deal with how managers work within an enterprise, especially

when it comes to planning for an operation and monitoring its outcome (Euske,

1984).

One important source of information that is frequently used by managers and

gives them the ability both to plan and monitor a business is double entry

bookkeeping (Belfo and Trigo, 2013). However, the technical support for working with

accounting issues have gone through several phases. At the outset, and one could

say all the way to the 1980-1990s, accounting work was done on paper in large

ledgers. This was the original technical solution that the accountant used to gather,

store and analyse financial data, transforming it into manageable financial

information. When computers entered businesses, one of the first tasks or techniques

they were used for was accounting. Different forms of accounting software ran

volumes of transactional-based accounting material, and through this new

technical solution new forms of analysis could be realised in seconds (Belfo and

Trigo, 2013). In a third phase, the phase that businesses have been in for some years

now, accounting software has been integrated into other forms of corporate

information systems, usually called Enterprise Resource Planning Systems (ERP)

(Bradford, 2010). As such, accounting systems are no longer standalone, operating

and working with one form of data, but are now integrated with several data

sources, one of which is accounting.

The new information systems still do what traditional information systems are

supposed to do; that is, gather, store and analyse data before distributing the

information to those needing it (Alter, 1999). However, in its most extreme form, these

procedures are done in a broader, more detailed, speedier way, making it possible

to manage differently and more effectively with new technical solutions. The new

‘ERP’ systems challenge the way management control is conducted in an

organisation, forcing managers to work in differently if they want to take advantage

of all the possibilities brought by the systems. Traditional accounting tasks are now set

in another context where it is not only the financial dimension, which is interesting to

monitor, but also all the performance dimensions that lead to the financial

statements.

The digital enterprise, in many ways, creates a new context for management

control to operate in. It becomes not only possible to talk about the resources

needed for a specific unit to be able to reach a certain goal, but in a deeper way, it

also becomes possible to talk about translating strategy into discrete actions. As

critical resources can be monitored in what could be described as a micro-

management way, any deviations or unsatisfactory performances can be


117

immediately rectified, in some cases without a management decision. Some of the

new data-analytical based systems could even alter goals and targets as the

organisation learns and has new experiences. Although these examples are currently

rare. The main purpose behind this paper is to try to understand how a new

managerial context is shaped and re-shaped by new information systems that

constitute the digital enterprise. This third phase of accounting information systems

offers both an opportunity and challenge to managers when it comes to the simple

task of management control.

Theoretical frame of reference One of the earliest authors within management control was Robert Anthony (1965).

In his book “Planning and control systems: a framework for analysis” (1965) he

discusses three different, hierarchal levels in an organisation which in different ways

have to do with management. At the highest level, strategic planning objectives are

decided upon, and different policies to govern operations and resources are

established. At the lowest level of operational control, the organisation’s different

operational tasks are in focus, measured through concepts such as effectiveness

and efficiency. In between these levels lies the concept, or phenomena, of

management control which deals with how resources are used. It is described as

having purely planning and control functions; two functions that can be considered

two sides of the same coin (Emmanuel et al., 1990).

In his early definitions, Anthony (1965) described management control as

something that could be understood from three different perspectives. Firstly, there is

a manager who gets things done in collaboration with other organisational

personnel. Thus, from one perspective management control is a social phenomenon

that takes place within an organisation. Secondly, there are some predefined

objectives and policies that have been established at the strategic planning level

which then guide the work occurring at the lower levels, especially at the level of

management control. Thirdly, performance is measured and monitored through

effectiveness and efficiency measures of the critical resources and other planned

factors. Thus, at the centre of management control are resources, the social context,

organisational objectives and performance measures.

Other management control definitions include aspects that are usually associated

with information systems theories. Horngren, Sundem and Stratton (1996), for

example, talk about management accounting as a process that identifies,

measures, accumulates, analyses, prepares, interprets and communicates

information which assists executives. This is close to definitions of information systems

such as Alters (1999, p. 4) where “ … an information system is a work system that uses

information technology to capture, transmit, store, retrieve, manipulate, or display

information, thereby supporting other work system[s]”. Hence, in one way or another,

management control is closely linked to information systems, making information in

general and financial information in particular common denominators of managerial

work. From another perspective, advanced information systems could or should be

understood within a management control context in order to understand their

usefulness or value.

Management control, on the other hand, needs to be understood within an

organisational context (Flamholtz, 1996). Control then becomes something that

could be described as a tool that managers use to get a sense of order or structure.

Even though management control is needed and could be understood as

something technically applicable, at the same time it is elusive and hard to grasp.

This is especially true when it comes to the effects or results it brings to an


118

organisation which have mainly to do with the fact that most organisations are built

on humans who, from time to time, are difficult to both understand and manage.

Flamholtz (1996) concludes that management control is about motivating people,

coordinating efforts and providing information. Through the use of information at the

lower level of operation there is an opportunity to work with control in an autonomic

way, without the constant supervision of what is going on in an organisation.

Methodology This study is based on a multiple-case methodology (Yin, 1994). The empirical

material used for this study comes from case-descriptions that different information

system vendors have presented as the means of showcasing their products. This is

not unproblematic as the purpose behind the case description is to convince the

receiver of the software’s excellence. However, this issue has been taken into

consideration both in the presentation of the results, as well as with regard to the

conclusions and analyses. After reviewing the different case descriptions, those that

closely describe the user perspective were chosen, three in total. This also presents a

deeper understanding of the software’s effects in the studied organisations. Even

though the vendors had different purposes behind the case descriptions, they

clearly illustrate how the advanced systems facilitate new opportunities for

management when it comes to planning and controlling operations. This makes it

possible to talk about the benefits of advanced information systems as tools for

managing the digital enterprise, as well as presents a deeper picture of how the

management control function has evolved and changed in scope through these

systems.

The vendors presented all three cases over promotional videos. Three different

vendors – one ERP, one (radio-frequency identification) RFID and one big data

analyst – were chosen as they somewhat confirmed the same effects on

management control. However, in this paper, these are presented in slightly different

ways in order to gain deeper understandings of the field and its contributions to

management control. Video films as such have been used successfully in describing

and understanding what is going on in a management context (see for example

Jönsson, 2004). The information presented in the videos was transcribed and the text

then became the empirical material used for the analysis and conclusions

(Silverman, 2001). The text thus became transcripts of a conversation which could be

compared to the one generated from an interview, and analysed by interpreting

what was said and comparing it to different theoretical perspectives (Silverman,

2000).

The digital enterprise and traditional management control

issues described through three case studies Digital initiatives can bring new opportunities when it comes to running more agile

and efficient operations. Companies such as Spotify that have developed new ways

of delivering music, or Uber that have made transportation more efficient in several

ways, constitute new types of digital enterprises. Further, companies such as

Caterpillar, with more than 90 years of experience building heavy duty machines,

have installed sensors making it possible to gather information about the machines’

performance, which can then be used to plan for maintenance as well as the

additional features in upcoming models. This study is based on three cases, which in

different ways show how traditional management control functions and tasks have

been remodelled through the use of different forms of digital platforms. A common


119

denominator is that the advanced information systems are adding a new digital

dimension that forms the basis for the digital enterprise. The cases demonstrate that

conventional management control work, such as planning and control, is realised

more efficiently with the help of the digital systems.

American Apparel American Apparel is a company that makes high-quality, fashionable, basic clothes

aimed at the urban youth market. It is the largest clothing manufacturer in US and its

growth has been explosive expanding from 3 stores in 2003, to more than 300 in 2009.

This LA-based company had retail sales worth 341 million dollars in 2008 which was a

62% increase from 2007. As such, American Apparel could be described as a fashion

sensation, comparable to companies such as H&M and Zara. Still, the company

continues its ambitious path and tries to develop all aspects of its business. This is

achieved through an expanded product range, but also through advanced systems

for supply chain and store management, making the American Apparel an

interesting example of a digital enterprise.

American Apparel’s success is often measured through its stores’ performance

and productivity. One example of its development is its boutique style model where

there is only one item of each size and colour in the shop floor. In accomplishing this

model, or way of managing the store space, efficient and swift replenishment

become crucial. From a customer perspective, it is important to know that the size,

colour or style desired is represented and possible to buy. As a consequence of the

boutique style model, American Apparel stores can handle more items per square

metre, thus displaying a wider range of items to the customer. However, on the other

hand, the company can be negatively affected if safety stock cannot be located in

the store.

There were at least two major challenges that this boutique style model offered.

The first regarded tracking the up to 10% of items that were not represented in the

store but were present in the stock. The second regarded finding a way of

communicating to the stockroom personnel the replenishment items needed. These

challenges were solved through the use of RFID tags offering the store an innovative

solution. The system consists of the RFID tags or labels, and printers that print them out

as needed, as well as handheld readers and antennas that scan the tags in store

with inventory tracker software. In step one, each item had an RFID tag attached to

it, and thereafter four inventory tracker stations were established in each store. This

way each item could be traced through its tag and the radio-frequency signal

which it sent to the readers in different locations throughout the store, making it

possible to trace stock deviations and the replenishment needs.

This system is manifested via various stations. In station one – the receiving station –

each item is registered and added into the back stock. In the next station – the filling

station – the employees take items to the sales floor and inform the system through

the RFID tags of any movements. Additionally, the system also informs the employees

what needs to be taken to the sales floor. The items that the employee brings to the

sales floor are validated in the third station to which the system then checks. If there

is a deviation between the store’s needs and the specific items or amounts, the

system tells the employees of this. The final RFID station is the point of sale. Here the

tags are read instead of individually scanned, for example through a barcode. The

system now knows that the items are leaving the store and need replenishment. The

system is designed to tell the employees where the product is at any time in order for

the most efficient store management to be achieved.


120

This way of developing a boutique style model is focused on the process of

replenishment making the store space the critical resource that needs to be used in

an efficient way. Even though handling the items from the back stock to the sales

floor needs more attention, the RFID system also brings more efficient, time effective

handling, for example at the point of sale. As a consequence, the customer is

offered more choices on the shop floor and the system also brings forward the ability

to maximise sales. The old system of replenishment was built on the idea that

employees were counting the items and then replenishing as needed, which of

course was time consuming and could involve around 5-6 employees. With the new

RFID system, the entire store could be counted and replenished in less than two

hours.

As the flow of goods and items is one of a store’s critical factors, the digital version

of the stock and shop management system offers additional favours, including

saved time. The employees could spend more time with the customers and improve

customer service. This is also measured through the increased sales where a RFID

store generally has 14% higher sales then a non-RFID one. The advanced supply

chain and store management systems through the use of RFID have brought more

efficient operations in many dimensions.

Philz Coffee Philz Coffee is a San Francisco based coffee shop that has grown to be rather large.

The company tries to keep the unique feeling of a small coffee shop but continues

to expand by adding newer shops onto the existing portfolio. The founder, Phil

Jabner, has had a passion for coffee since childhood. For him, coffee is a way of

living, it is the natural end to a meal, and it is something included in both professional

and personal meetings. Philz Coffee’s ambition is to present a unique authentic

coffee experience to its customers and whoever enters its coffee shops.

Some years ago, it decided to take some serious steps toward growth and, in line

with that, chose to invest in an integrated information system; an ERP system. One of

the system’s early values was that the previous accounting system had had a limiting

effect on the company, especially when it came to its growth ability. The company

not only needed a traditional accounting function, but too a system that could bring

more information dimensions and better decision support. As such, the new system

supports different business functions. From a supply chain perspective, Philz Coffee

can track what is in its stores and deliver to the shops needing refinement. Further, it

can track the orders coming in from outside the coffee shops. The system gives

management a clear picture of every step from order and fulfilment to billing,

providing a one-stop integrated picture of several critical business dimensions. It also,

in several ways, brings flexibility to the management function in general, and the

management controls function in particular regarding conducting searches and

compiling reports, as well as looking into any deviations from plans. The central

warehouse supplies 13 retail stores with a minimum of two weekly deliveries of the

company’s blends. In this way, the coffee is kept as fresh as possible for the

customers entering a store. Indeed, this is a supply chain challenge, but through the

support of the ERP system, Philz Coffee can maintain a high turnover of goods and

items. When the system was newly installed volume tripled over a two-year period.

Through its e-commerce initiative, the company tries to broaden its customer

base, a feature which is also supported by the ERP system. The vision is to create an

integrated experience with a 360-degree understanding of the customer stored in

the information systems. If a customer enters a coffee shop and registers his or her

purchase at the cashier and at the same time wants to send some to a relative, this


121

should be possible through the system’s stored information. Regarding e-commerce,

it should also be possible to contact Philz Coffee from a distance through computers

and mobile devices, just as easily as if the customer was actually entering the coffee

shop. From one perspective, this transition is about supporting a culture which the

next generation already lives in, where several different organisational interfaces

constitute the entire experience of the enterprise.

Fundamentally, there are problems with planning and agility when firms grow.

However, modern technical solutions such as the ERP system mitigate these, making

growth something that is possible to accomplish. The system is also tailored to scale

up operations when doing the same thing over and over again. From a

management perspective, this is about adding increased transactional volume,

something that computerised information systems are built to handle. Integrating

data from several different parts of an operation also opens up for more advanced

analysis, planning and monitoring, and by doing so, builds the base for more efficient

operations.

Hamburg Port Authority Hamburg Port is the largest in Germany and the second largest in Europe. Its

members try to work with a philosophy of innovation when it comes to sustainability

and growth. From their points of view, traffic flows are intertwined with trade flows,

and making the former work better means creating better opportunities for the

latter, summarised as a logistical solution. As the port is responsible for the

infrastructure – that is the railroad, roads and everything else to do with

transportation within the area – this is an important issue for maintaining efficient

operations. The way of looking at infrastructure also includes access to data and

information about the port’s operations through Bluetooth, hotspots and WLAN, used

as and when needed. In 2011, the authority started a project to increase the

efficiency of the logistical flow named Smart Port Logistics. In this project, it worked

with SAP Hana’s platform for gathering, storing and analysing big data in a

completely new way. Data were integrated from different transporters, and road

data – among others – became the bases for even faster decision-making with the

help of advanced data analytics. As such, the ambition was also to find bottle necks

and estimate possible breakdowns or needs for increased capacities.

Hamburg Port has an annual turnover of 140 million tonnes, which equals 9 million

containers and about 8000 trucks entering through the harbour area daily. By 2030,

these numbers are expected to double. Evidently, as the harbour is located in the

middle of the city, this becomes a huge challenge due to the fact that there is no

land for expansion. One way of dealing with these challenges is to find a way to

turn-over the containers more quickly, making core operations more efficient. The

process of unloading trucks then comes into focus. Through the advanced data

analytics, a smart port logistical service was introduced that was distributed over

mobile devices. Through improved routes, ideal times were minimised and

efficiencies increased.

Due to the intelligent sensors and the work of the Internet of things, optimisation

could be accomplished. Data now come from ships, trucks, traffic lights and people,

to mention a few, bringing new, expanded opportunities for analyses which provide

the bases for more efficient operations. When drivers know precisely when to go

where, the waiting times for ships entering the harbour can be minimised. As the

volumes are huge, any decrease in waiting time of even a few minutes for each

truck would make day-to-day operations far more effective. Estimates say that a

decrease in waiting time of 5 minutes for one driver and one tour gives a total of


122

5000 hours less truck time each day. Through the telematics traffic system, operations

can be planned and controlled in different, novel ways.

An organisation’s needs can be met by intelligent sensors as optimisation is

anticipated and the entire environment around operations becomes responsive.

Further, it becomes easier to respond to arising challenges or opportunities regarding

efficiency, as more is incorporated into the system than when solely taking into

account what happens in the harbour itself. Generally, the efficiency of the business

is also affected as logistical issues such as goods handling in the harbour area affect

many large-scale businesses. The project Smart Port Logistics brings insight into how

the Internet of things can be used for more efficient logistical operations. With the

idea of a smart port, all actors and participants in the harbour can be connected

and micro-managed regarding the flow of goods. Through the information systems,

information is tailored to specific actors at crucial parts of the entire logistical

process.

Discussion – efficiency, uncertainty and information hubs The digital enterprise affects operations in an organisation in general, and how

management control is achieved in particular. One of the simplest observations is

that different forms of digital transformations improve efficiency. This could be about

how much time is used for a repetitive task whereby time becomes a critical

resource within the organisation. In this respect, planning and handling time more

efficiently regard how specific operations can be developed. Another dimension is

that managers consequently have to deal less with uncertainty as critical functions

or tasks are easily monitored and controlled through advanced information systems.

The digital dimension of information systems also provides knowledge about different

parts of an operation instantaneously. As such, an advanced information system

becomes a one-stop hub for information that almost immediately becomes

actionable knowledge for a manager.

At American Apparel, one of the most important key resources is the store area;

the more items presented to the customers, the more revenue potential for the store.

As such, replenishment work is crucial and one of the key tasks to be managed.

Through the initiative with the boutique style model, an advanced RFID based

system offers a more efficient way of working with the floor space and replenishing

the items sold. The system also offers a quicker way of knowing what items are within

the store and corrects deviations. In this way, the system lowers uncertainty when it

comes to the items displayed and presented. Moreover, there is also the possibility

that employees can obtain correct, timely information about any item and its

current volume in both the back store and the shop floor. Hence, the digital initiative

here brings several benefits to operations making them run more smoothly and

quickly.

For Philz Coffee, the ambition to grow and vision to integrate information about

the customer is made possible through integrated data storage and analysis. The

advanced ERP information system in many ways deals with what a traditional

management control function does. It maximises planning and monitors flows of

goods and items, as well as integrates financial issues with other dimensions or

operational perspectives. The old accounting software was not suited for expansion

and growth, but through a more advanced integrated system, volume increases

can be handled. It also offers an integrated information function where different

perspectives, both from internal process and customer perspectives, are presented.

One way of looking at the contribution of the system is that it offers the possibility to


123

add another coffee shop in an agile, swift manner which was one of the purposes

behind installing a new system.

In the third case, there is a clear geographical challenge that the digital initiative

tries to solve; the harbour needs to expand and double operations but there is no

more land to use for this. Therefore, one of the major tasks is to increase efficiency in

a dramatic way which is done through the use of modern data analytics and a wide

range of sensors and data sources. One traditional challenge for decision support, in

order to minimise uncertainty, is to deliver the right information to the right person at

the right time. This is, in many ways, something that is needed in order for an

operation to be efficient. In the case of Hamburg Port, this is realised through the

project Smart Port Logistics and the effects are shown in a more efficient logistical

flow. The smart port, therefore, becomes an information hub of its own where

planning and monitoring is handled with the supervision of different managers.

For a digital initiative there are several different approaches that can be fruitful to

take in order to make the operations run smoothly. In these three cases, three

different technical solutions have been the core of the digital initiative, making them

the core of the digital enterprise. In the first case, the RFID tags communicate with

the system and make management control issues run more efficiently. In the second

case, it is an integrated information system that is at the heart of the operation. And,

in the final case, there is an advanced data analytical function that works with the

enormous volumes of data running through the port’s operations. Common to all

these systems is that they, in one way or another, need sensors or signals from the

operation which are then gathered, stored and presented in different forms. This way

of working with advanced data analysis, developed information and enhanced

knowledge is at the very heart of a modern digital enterprise.

Conclusions – the digital enterprise In this study, it has become obvious that a digital initiative – which forms the basis for

the digital enterprise and is built on advanced data-gathering sensors – advances

data processing and analysis in new and improved ways. Such initiatives advance

interfaces with managers and employees in the organisation, making it easier for the

information to become knowledge for the decision maker. This then adds a new

level of improved performance to what traditionally constitutes an information

system. Here, there is a technical solution that improves something that, from one

perspective, already enters the organisation. The technical imperative is critical and

equals the digital enterprise. As such, the digital enterprise can be concluded as

built upon an advanced information system.

From another perspective, the advanced information system runs in a context.

This context is primarily built on a relatively smooth operation that becomes

improved with regard to performance via the advanced system. Thus, the system in

itself only brings more efficient dimensions of the operation. For the American

Apparel case, this was needed in order for the company to be able to display more

items in its store; for Philz Coffee, to be able to expand and add coffee shops in an

efficient way; and, for Hamburg Port, to be able to increase their operations

dramatically without expanding into new geographical areas. The digital enterprise

then clearly fits into existing operations. Before Spotify, there was a record industry,

and before Uber there were taxi companies. Further, Catterpillar have been building

heavy-duty machinery for 90 years, but through the digital initiative put into the

existing operations, the traditional business then becomes a digital enterprise. The

second conclusion, thus, is that the digital enterprise is built within an established

business to make it run more smoothly.


124

Throughout industrialisation, manufacturing companies massively grew in number

and their core resources were the machines and production lines. These, together

with the employees, became tools that managers used to increase productivity and

improve performance. By doing so, they concurrently improved profitability. In a

similar fashion, modern and advanced information systems have become the tools

for managers and employees to use in order to gain improved productivity,

efficiency, performance and, therefore, profitability. As such, the final conclusion is

that managers must understand how to use the new technological achievements

for improving performance leading to improved profitability in the digital enterprise.

It is not enough to talk about the digital techniques as such, or the context, the

organisation requires the third component of its management to effectively

understand how to use these digital tools for improved management control.

Much of the current debate within the digitalisation agenda needs to develop an

even deeper understanding of how digital initiatives affect organisations, not only on

the surface, but too at the business core. This is possible by dealing with concepts

such as the digital enterprise where technical solutions are integrated with

organisational challenges and management control intent. It is not enough to talk

about these three factors separately anymore, it is crucial for the development of

research fields such as digital enterprises and management control to deepen the

search for additional knowledge into what the digital initiative brings. Its value is

important to understand and is crucial for the next step. Ultimately, the digital

initiatives’ value can only be understood in its context through the eyes of

management.

References 1. Alter, S. (1999). Information systems, a management perspective, Reading, MA,

Addison-Wesley.

2. Alter, S. (2008), “Defining information systems as work systems: implications for the

IS field”, European Journal of Information Systems, Vol. 17, No. 5, pp. 448-469.

3. Anthony, R. N. (1965). Planning and control systems: a framework for analysis,

Boston, Harvard University.

4. Belfo, F., Trigo, A. (2013), “Accounting information systems: Tradition and future

directions”, Procedia Technology, Vol. 9, pp. 536-546.

5. Bradford, M. (2010). Modern ERP: select, implement, and use today's advanced

business systems, North Carolina State University, College of Management.

6. Bredmar, K. (2016). Understanding management control and organisational

sense-making, Oxford, Chartridge Books Oxford.

7. Davenport, T. H. (2013). Process innovation: reengineering work through

information technology, Boston, MA, Harvard Business Press.

8. Emmanuel, C., Otley, D., Merchant, K. (1990). Accounting for management

control, London, Chapman and Hall.

9. Euske, K. J. (1984). Management control: planning, control, measurement, and

evaluation, Addison-Wesley.

10. Flamholtz, E. G. (1996). Effective management control Massachusetts, Kluwer

Academic Publishers.

11. Horngren, C. T., Sundem, G. L., Stratton, W. O. (1996). Introduction to

management accounting, Englewood Cliffs, NJ, Prentice-Hall.

12. Jönsson, S. (2004). Product development – work for premium values, Malmö,

Liber.

13. Kaplan, R. S., Norton, D. P. (1995). “Putting the balanced scorecard to work”, in

Shaw, D. G., Schneier, C. E. Beatty, R. W., Baird, L. S. (Eds.), Performance


125

measurement, management and appraisal sourcebook, Amherst, MA, Human

Resource Development Press.

14. Laudon, K. C., Laudon, J. P. (2004). Management information systems: managing

the digital firm, Upper Saddle River, NJ, Pearson Prentice Hall.

15. Silverman, D. (2000). Doing qualitative research, London, Sage.

16. Silverman, D. (2001). Interpreting qualitative data, London, Sage.

17. Yin, R. K. (1994). Case study research – Design and methods, Thousand Oaks, CA,

Sage.

About the author

Krister Bredmar, PhD, is Associate Professor of Business Administration at the School of

Business and Economics, Linnaeus University. His research interests include

Digitalisation, Performance Management and Management Control in general.

Author can be contacted at [email protected].


126

International Experience in Upper Echelon

Theory: Literature Review

Dino Đerđa

Dea Flores d.o.o.

Abstract

Background: The international experience of top managers is an evolving research

within the upper echelon theory; therefore this literature review summarizes

everything made so far. Objectives: The purpose of this paper is to provide a

literature review of international experience within the theory of the upper echelons.

Methods/Approach: We reviewed the literature from the beginning of the theory

formation and tried to understand the direction in which it develops, particularly in

the context of international experience. We conducted a bibliometric analysis in

order to understand the research area better. Results: We have found that 38 papers

were published in 25 different journals by 72 authors. We have concluded that the

area of research is very narrow and that most of the research is concentrated on

finding out the impact of demographic characteristics and international experience

of top managers on internationalization strategy mostly with MNC-s. Conclusions:

After two decades of international experience in the upper echelon theory there is a

significant possibility of uniformity of the theory but only if researchers are able to

prove equal results among different countries.

Keywords: upper echelon theory; international experience; demographic

characteristics; content analysis; top management team

JEL classification: F23, M16

Paper type: Research paper

Received: March 28, 2017


Citation: Đerđa, D. (2017), “International Experience in Upper Echelon Theory:

Literature Review”, Business Systems Research, Vol. 8, No. 2, pp. 126-142.

DOI: 10.1515/bsrj-2017-0021

Introduction The international experience of top managers and their influence within the upper

echelon theory increasingly emerged in the last twenty years. Upper echelon theory

researchers investigated the impact of international experience on several aspects

of the company's functioning, with the different focus: impact to the level of

internationalization, to the form of internationalization, to the internationalization

strategy and others. The purpose of this paper is to summarize the research in this

area in order to find out the main groups of the research and detect the future

research directions.


127

The contribution of this literature review is reflected in the discussion of the

research from the field of international experience within the theory of upper

echelon, in the period from 1984 (when upper echelon theory was established) until

2016. The contribution of this literature review is also reflected in the recognition of

the research gap that has to be overcome in the future.

This literature review is divided into several parts. In the first part, the review of

researches of international experience within the theory of upper echelons is

presented. The second part presents data collection and the method of literature

classification. The third part is devoted to the interpretation of the research results.

Finally, there are sections devoted to the discussion of the research results and the

conclusion.

International experience in upper echelon theory

The theory of upper echelons postulates how the characteristics of top managers

are of crucial importance to the management of the company (Hambrick and

Mason, 1984). The theory attempts to explain the role of managerial characteristics

in company management, through limited rationality, conflict of multiple goals,

different levels of aspiration. It was founded on the behavioural theory of business

(Cyert and March, 1955, Hambrick and Mason, 1984).

In the same period, over the last few decades, expansive internationalization all

over the globe has emerged. Johanson and Wiedersheim-Paul (1975) defined

internationalization as: "The attitude of the company towards foreign activities or a

company that undertakes activities abroad", which has nowadays serious impact on

organizations. Consequently, internationalization is considered increasingly important

for many companies (Rajagopalan and Spreitzer, 1997). Literature about

internationalization highlights a number of advantages for the companies: the

possibility of economies of scale (Kogut, 1985), dispersion of market risk, the capacity

to achieve cheaper components for production and others (Gomes and

Ramaswamy, 1999). Therefore, it has become of great importance for companies

which allows them to operate steadily in the long run (Bartlett and Ghoshal, 1998).

International experience of managers is often related to reducing the risk of

international affairs (Sambharya, 1996) and it helps managers to run business in other

countries. It also has implications for foreign market entry, making it less difficult and

less risky. Due to the variety of target foreign markets, a company is faced with

different characteristics of demand and a greater spectrum of international actors

(Barkema and Vermeulen, 1998). Additionally, moving the barrier of "foreign" and

integrating what the manager has learned about a foreign market at his own, has

profound impact on his psychological characteristics. Top managers with vast

knowledge of foreign cultures possess a unique set of skills that give them greater

confidence in managing foreign markets (Hermann and Datta, 2005). CEOs coming

from other countries and taking over the position of an existing CEO will naturally be

inclined for internationalization of the company (Lin and Liu, 2012). Also, CEOs of

SMEs with international experience positively influence the international involvement

of their companies (Hsu et al., 2013). There is a research linking the demographic

characteristics of the CEO and the strategy of entering the foreign markets with

SME's (Laufs et al., 2016).

Teams of top managers who are diverse will more easily recognize the

opportunities for overseas expansion through scanning of the foreign environment.

Those kinds of managers will use all of their knowledge and business contacts before


128

entering the new markets. Information of that importance is valuable resources for

decision making in the process of internationalization (Nielsen, 2010).

Methodology

In order to select relevant research in the field of internationalization and upper

echelon, we searched the Web of Knowledge. As a database search criteria, we

used "upper echelon" and "international experience" phrases to get a list of papers

that match the criteria. These terms were searched both in the title and in the topic

of the paper. We used the lexeme '*' to get other possible combination of upper

echelon words like "upper echelons". Following this approach we received an initial

list of 45 papers, after which we retained only those papers that are related to

"business", "management" or "economic" topics excluding sociology, psychology and

other categories. Also, we excluded all types of document types except for research

papers published in journals and as book chapters. At the end of the filtration

process we got a list of 38 papers that match our search in the period from 1984

(when upper echelon theory was established) to 2016 (listed in Appendix).

Results

The upper echelon theory has been presented in 1984 by Hambrick and Mason

(1984) and since then it has been the subject of many research papers. One of the

foundations of this theory is demographic characteristics of managers. Sometimes

are managers individually like CEOs, and sometimes is the entire team of top

managers in the focus of research. However, irrespective of the reporting unit, the

demographic characteristics such as ethnicity, gender, age, functional experience

and other, were mostly the subject of research. It is important to emphasize that

international experience as a demographic variable is dynamic, i.e. it is not present

in every manager and it is developing over time.

As a time constraint we took a period from 1984 when the theory was created

until 2016, including December. As shown in Figure 1 from 2009 there is a noticeable

increase in the number of published papers. Also, since 2010 there is also noticeable

jump in the number of citations of these papers within one year (Figure 2). In order to

put the area of international experience in the theory of upper echelons into a wider

context, Figure 3 shows the number of published papers and Figure 4 the number of

citations in the field of upper echelon theory.

It is clear that there has been a significant increase in the number of papers and

citations since 2009 in the field of upper echelon theory as well as international

experience. During ten years there have been 1 to 2 papers in the field of

international experience within the theory of upper echelons while in 2010 that

number was 6 and has been steadily maintained all the way till 2016.

Potential reasons for growing interest in this area of research can be found above

all in globalization. Encouraged by the crisis in 2008 and the fall of the real economy

in almost all parts of the United States, the European Union and the rest of the world,

companies had to find stable income and divergence of foreign business risk. As top

management team needs to be exceptional to run the business so have

internationalization and international experience become the focus of researchers

around the world. All this led to intensifying the research of managers' influence on

organizational processes, primarily their demographic characteristics such as

ethnicity, age, gender, experience, and subsequently international experience.


129

Figure 1 Published papers per year in the

area of internationalization and upper

echelon theory

Figure 2 Number of citations per year of

papers presented in Figure 1

Source: Web of Science (consulted on 12 December 2016)

Figure 3 Published papers per year Figure 4 Number of citations per year


In Table 1 we can see a breakdown by authors' countries. As it is shown,

approximately 50% of papers are written in non-English speaking countries such as

Germany, Switzerland, Taiwan, Denmark, South Korea, China, India and others while

the other 50% of papers are written by authors from English-speaking areas such as

USA, England and Australia.

Table 1

Breakdown of Papers by Author’s Country (top 5)

Countries/Territories Records % of 38

GERMANY 12 31.58

USA 11 38.95

SWITZERLAND 4 10.53

TAIWAN 3 7.90

DENMARK 3 7.90


Table 1 indicates that European Union countries are among the most productive

research areas of the international experience in the upper echelon theory and at

the same time are those who issue the most papers which point to the possible

universality of the theory, i.e. the influence of international experience of managers

on different business segments of the company. To make the theory more plausible it


130

is necessary to increase the number of researches in the coming years from different

countries but also at different organizational levels.

In regards to the main journals in which the papers related to the area of

international experience within the upper echelon theory are published (Table 2.),

we can see that 36,85% of all papers about that topic in the observed period were

published in three journals.

Previous research use Herfindahl Hirschamn's HHI concentration index for analysis

of concentration of research journals (e.g. Dabic et al., 2015). According to

Herfindahl Hirschamn's HHI concentration index, we can conclude that this field has

a small concentration (HHI 687) because this index ranges from 0 to 10,000 (in case

one journal describes the entire area) while 0 is the value that tends to the indefinite

number of journals. Although this index is used to calculate market concentration, it

is widely used in bibliometric analysis literature.

Unlike the Herfindahl Hirschman's index, the Fidessa Fragmentation Index (FFI) is

calculated as an inversion of the Hirschman's H-index. We wanted to know how the

journals are fragmented in the international experience topic, so FFI can provide us

with this information. This index has a history of analysis in sectors like finance, where it

was used to calculate fragmentation of stocks across the market, for example, as

shown by Pierron (2010) and Axioglou and Skouras (2011). Since it is an inversion of

the Hirschman index it can vary from 1 to 38 papers because there are only 38

papers that address the international experience topic. According to the above

stated authors, this index provides the number of papers dealing exclusively with this

topic. In our case the FFI is 3.73, which means that most of the papers are

concentrated in four journals. As shown in Table 2, nearly 36% of all papers are

written in the first three journals or 42% if we include the fourth journal.

Table 2

Top 5 Journals Publishing Papers Related to Upper Echelons and International

Experience

Source: Titles Records % of 38

JOURNAL OF WORDL BUSINESS 6 15.79

MANAGEMENT INTERNATIONAL REVIEW 4 10.53

BRITISH JOURNAL OF MANAGEMENT 4 10.53

STRATEGIC MANAGEMENT JOURNAL 2 5.26

HANDBOOK OF RESEARCH ON TOP MANAGENT TEAMS 2 5.26


Based on presented results we can say that this area is still very young and

represented in a small number of journals. A large number of papers are published in

only one journal so an increase of number of papers in different journals can be

expected, as the research area will expand.

According to Table 3, the top five authors wrote 8 different papers, representing

21.05% of the total number of analyzed papers (38). The top five authors represent a

total of 625 citations, which is more than 72% of the total number of citations (861)

that we have collected and analyzed over a period of time from 1985 to 2016. If we

consider the frequency of the author's citation, as can be seen in column (a) of

Table 3, the three most cited authors are Carpenter (176 citations, 20.44% of the total

number of citations), Sambharya (163 citations, 18.93% of total number) and

Herrmann (144 citations, 16.72% of the total number of citations).

However, if we take the most productive authors in the classification (see Table 3,

column (d) under the number of papers), the top three authors are Nielsen (3


131

papers), Herrmann (2 papers) and the rest of the authors each 1, among them listed

as top three in alphabetical order - Carpenter (1 paper).

Table 3

Top 5 Most Cited Authors

Author

a)

Frequency

of author

citations

b)

Frequency of

author

citations

(n=861)

c)

Average

citations per

paper

d)

Number of

author's

papers

e)

Percentage of

author's

papers (n=38)

Carpenter, M.A. 176 20.44 176 1 2.63

Sambharya, R.B. 163 18.93 163 1 2.63

Hermann, P. 144 16.72 72 2 5.26

Nielsen, S. 93 8.94 31 3 7.89

Ruzzier, M. 49 5.69 49 1 2.63


If we look at column (c) and take into consideration the number of citations per

published papers, top three authors are still the same. These are Carpenter (176

citations on average, 1 paper), Sambhary (163 citations on average, 1 paper), and

Herrmann (72 citations on average, 2 papers). Based on the analysis of the citations

and the number of papers published by the authors, we can conclude that the first

three authors have paved the path for all the others to come. Also, based on

everything said we can conclude that the area is still very young and that new

authors like Nielsen and Ruzzier are coming, which further deepen the theory and

whose topicality will grow.

Table 4 show the top 5 most popular papers published in the period from 1985 to

2016. The years we have taken into consideration are from 2012 to 2016 and we

have analyzed the number of citations per paper. The average number of citations

per year for all the mentioned papers is 45.32.

Table 4

Top 5 Most Cited Papers in the Period 1955. - 2016.

Author Total citations

1955 - 2016

Average

citations per

year

2012 2013 2014 2015 2016

Total number of

papers 861 45.32 58 88 112 132 150

Carpenter (2002) 176 11.00 11 19 17 22 19

Sambharya (1996) 163 7.41 9 14 12 13 13

Herrmann and

Datta (2002) 77 4.81 4 4 7 10 10

Herrmann and

Datta (2005) 67 5.15 3 6 6 8 8

Nielsen and

Nielsen (2011) 53 7.57 2 8 12 12 17


As in the tables before, the first three papers are works of the same authors. Namely,

the first three papers hold almost 50% of the total number of citations. As mentioned

above, the top five papers refer to the influence of the heterogeneity of

demographic characteristics, including international experience, on some sort of


132

organizational performance in accordance with the Hambrick and Mason (1984)

theories. However, in order for the review to be complete in the next paragraphs, we

will devote our attention to the analysis of the topics of all 38 papers in the next

section.

Discussion

The main aim of this paper was to undertake a thorough analysis of the literature on

the international experience of top managers within the upper echelon theory and

to summarize research of over twenty years. Content analysis was made based on

38 papers that dealt with the above mentioned area. The research area was

defined with 38 papers and 76 keywords used in the titles. This literature review has

the task of combining all the researches carried out on international experience in

upper echelon theory and providing insights into potential new directions of

research. Also, the meaning of this literature review is to point to the potential

deficiencies of the theory that would lead to the realization of its universality.

International experience as a demographic characteristic within the theory of

upper echelons was first seen in the work of Sambharya (1996). It is also the base

year when research of this area begins. Subsequently, Carpenter publishes

significant works in 2002, which further deepen the upper echelon theory with an

international perspective. The overall list of the selected research according to the

time development is presented in Table 6.

Table 6

The summarized results of systematic literature review of selected papers

Author(s), year

of publication

Target country

of study

Industry Research objective(s)

Sambharya,

1996

USA Fortune 500 Relationship between TMT international

experience and international diversification Carpenter, 2002 USA Standard &

Poors (S&P)

industrial

index

TMT heterogeneity and firm performance

Herrmann and

Datta, 2002

USA Manufacturi

ng industries

Examines relationship between CEO

successor characteristics and foreign market

entry mode Herrmann and

Datta, 2005

USA manufacturi

ng sector

Relationship between TMT demographic

characteristics and international

diversification Lee and Park,

2006

USA Aerospace,

computer

equipment,

food, etc.

Linkage between TMT demographic

characteristics, based on upper echelon

theory, and firm internationalization

Ruzzier et al.,

2007

Slovenia IPIS Slovenia Impact of human capital on SMEs

internationalization Lee and Park,

2008

USA Stock

exchange

firms

Influence of TMT international experience

and international alliances

Patzelt, H., et al.,

2009

Europe European

Venture

Capital firms

Impact of TMT composition on portfolio

strategy choice

Greve et al.,

2009

Europe Banking and

insurance

Relationship between TMT configuration and

DOI


133

Author(s), year

of publication

Target country

of study

Industry Research objective(s)

Biemann and

Wolf, 2009

EU, Japan, UK

and the United

States

N/A Analyzes career paths of TMTs based on their

international experience

Slater and

Dixon-Fowler,

2009

USA S&P 500 Analyzes if CEO international experience

influence corporative social performance

Nielsen, 2010 Switzerland Stock

exchange

firms

Relationship between TMT international

characteristics and foreign operations ability

Nielsen and

Nielsen, 2011

Switzerland Stock

exchange

firms

This study is concentrated on link between

managers characteristics and foreign entry

mode Chen, 2011 Taiwan TSEC and GTSM

listed firms

This paper examines the effects of TMT

characteristics on internationalization and

the moderating effect of independent

directors on the TMT characteristics -

internationalization relationship Kirca et al., 2012 N/A N/A Research which multilevel characteristics

impact firms multinationality the most Lin and Liu, 2012 Taiwan Stock exchange

firms

Relationship between characteristics of

successor, DOI and performance Rivas, 2012 Europe and

USA

Stock exchange

firms

Relationship between TMT international

experience, CEO characteristics and DOI Hsu et al., 2013 Taiwan TSEC and GTSM

listed SME's

Impact of CEO characteristics on

performance of internationalization in SME's Hutzschenreute,

and Horstkotte,

2013

Germany German stock

exchange

Influence of TMT experience on

performance, effect of added cultural

distance in international expansion process Kaczmarek and

Ruigrok, 2013

Dutch,

Swiss, and

UK

companies

Stock exchange

firms

Examines TMT national diversity and firms

internationalization

Piaskowska and

Trojanowski,

2014

UK Stock exchange

firms

Examines strategic decision-making of TMTs

and how those decisions influence

internationalization Schmid and

Dauth, 2014

Germany Stock exchange

firms

Examines link between international

experience of CEO and stock market Chittoor et al.,

2015

India BSE 500 Link between foreign market entry of Indian

companies and ownership characteristics Agnihotri and

Bhattachary,

2015

India Consumer goods,

automobiles etc.

Relationship between international

experiences and export intensity

Dauth and

Tomczak, 2016

Poland Stock exchange

firms

Impact of upper echelons internationalization

on firms internationalization Laufs et al., 2016 Germany German

SMEs

Impact of CEO characteristics and SMEs

foreign market entry mode Georgakakis et

al., 2016

Switzerland,

the

Netherlands,

Germany

and the UK

Stock

exchange firms

Impact of international experience on career

advancement

Schmid and

Wurster, 2016

Germany Stock

exchange firms

Examines hypothesis that international

experience of TMT influence pay level Source: Author’s work


134

International experience and degree of internationalization There are several studies that are focusing on the impact of international experience

on the degree or model of internationalization. Agnihotri and Bhattacharya (2015)

point out that the international experience of managers positively affects the export

intensity of Indian companies. In addition, Taiwanese companies gain more levels of

internationalization when their managers have more international and work

experience (Chen, 2011).

International experience is also important at distinct levels, either individually in the

form of a CEO or as a group in the form of top management team. In both cases it

has a positive influence on the level of internationalization (Rivas, 2012). Therefore,

research based on the study of demographic characteristics such as years,

experience, education, career development and their impact on

internationalization of business are no longer sufficient. In today's globalized world, it

is necessary to add international experience to these characteristics. Although there

is not much research in the field of upper echelon theory, it is likely that this will

change in the future.

International experience also has an important predictive purpose. It can be the

predecessor of larger international involvement in top managers who run small and

medium-sized companies (Ruzzier et al., 2007).

It is to be expected that teams of top managers with international experience will

lead to higher degrees of international involvement due to their superior ability to

grasp more complex information and to organize various strategies that precede the

entry into the foreign market. Empirical evidence suggests a positive link in this area.

Some of them include the degree of internationalization (Lee and Park 2006,

Sambharya 1996), degree of international diversification (Herrmann and Datta, 2005)

and changes in the international diversification (Wally and Becerra, 2001). Some

research even points out that the international experience of a team of top

managers as well as national diversity can be the answer to the international

strategies (Nielsen and Nielsen 2009; Greve et al., 2009).

International experience and strategic choices

Faced with increasing competition, companies perceive the need for managers

who have the attributes and a set of skills for successful management in increasingly

complex international conditions (Hermann and Datta, 2005). Based on the theory of

upper echelon, most of the available studies stress out the importance of

demographic characteristics of managers as true assessors of their cognitive

orientations, values and knowledge, thus influencing the strategic choices (Hermann

and Datta, 2005). Education, functional career and international experience on

international alliances and models of internationalization also have an important

impact (Lee and Park, 2006, 2008), as well as demographic characteristics on

strategic choices (Michailova, 2011).

International experience and foreign market entry

Researchers like Bartlett and Ghosal (1989) and others highlight the importance of

managers to understand and conduct foreign business. Kobrin (1984) points out that

the manager's knowledge about the foreign market operation and their institution

eases the decision-making. Understanding how top management knowledge

affects internationalization is important for scientists and top managers as well

(Hermann and Datta, 2005). First of all, entry into a foreign market is accompanied

by a high level of uncertainty and risk. Depending on the market entry model - fully

controlled (acquisitions and Greenfield investments) or partially controlled – depends


135

also on the knowledge that the top manager possesses. For example, a top

manager with significant international experience in entering the foreign market will

use the acquisition strategy (Chittoor et al., 2015) and the model of complete control

(Herrmann and Datta, 2002). Some research suggests that companies from the

banking and insurance sectors, when entering a foreign market, will look for

managers with international experience close to their strategies (Greve et al., 2009).

Others emphasize that international experience will reduce the cultural distance and

increase the profitability of companies on foreign markets (Hutzschenreuter and

Horstkotte, 2013). Nielsen (2010) emphasizes that international experience will

moderate the uncertainty and risk of entering a foreign market, will shape its

awareness and the way of processing information that will influence decision-making

about the choice of strategy (Nielsen and Nielsen, 2011; Piaskowska and Trojanowski,

2014).

Additional benefits of international experience

The experience that top managers gain from working on foreign markets is

considered a highly valuable resource for a company that enhances its competitive

advantage. Athanassiou and Nigh (2002) points out that international experience is

excellent for different sources of information. International experience also affects

the salary of the manager. More international experience leads to higher wages, but

with some degree of uncertainty, due to the recent data included in the research

(Schmid and Wurster, 2016).

International experience and firm performance

By entering the foreign market, the advantages of international experience are likely

to be transmitted to corporate results. One of the first researches which

demonstrates how nationally heterogeneous teams of top managers are better at

managing foreign branches and as evidence provide better business performance

for subsidiaries was conducted by Elron (1997). However, there is not much research

that investigates the direct links between the internationalization, international

experience and business performance. Namely, Carpenter (2002) has linked the

positive influence of internationalization to the performance of companies but only

with the high degree of internationalization. On the other hand, Wang et al. (2015)

points out that hiring managers with international IT experience has a positive impact

on both short-term and long-term performance as well as on innovation and

operations in overseas countries. Similarly, Nielsen (2010) argues that at highly

internationalized organizations, senior managers foster better organizational.

However, there are also researches that have not revealed such positive

relationships (Dauth and Tomczak, 2016). Therefore, intensifying research of direct

impact of business operations should be the focus of future research.

Researchers have over the last twenty years supplemented this gap that has

emerged in the literature, but today there is another evident void. The existing

literature in the theory of upper echelon, which is facing toward the international

context, e.g. (Nielsen, 2010, Lee and Park, 2006, Slater and Dixon-Fowler, 2009,

Ruzzier et al., 2007), is mostly based on North American multinational companies.

The overall focus of research is directed at multinational companies, which is

logical, given the number of international strategies they undertake. If we want to

address problem of international experience within small and medium-sized

companies, only two studies are devoted to it (Hsu et al., 2013; Ruzzier et al., 2007).

Given that the SME's are playing important role in the economy of the European

Union, we think this is a topic that needs to be given more attention.


136

Conclusion The paper presents the literature review in the field of international experience of top

managers related to the upper echelon theory. We selected 38 research papers in

the field from the Web of Knowledge database. Based on the time distribution of the

papers, we conclude that the area of research is emerging and it needs to be

further explored in different research directions. First, changing the focus from

multinational companies to small and medium businesses would significantly improve

the theory and contribute to its strength. Second, the influence of the managers'

nationality and culture from which they come on the international experience is one

of the possible directions of research. Third, the theory has the possibility of uniformity;

however, as stated at the beginning, it is necessary to increase the number of

researches from other countries.

The question of international experience is the question of knowledge. In today's

highly globalized world, knowledge of internationalization strategies is a very

valuable resource. If one possesses the knowledge the "psychological" boundaries

(Johanson and Vhalne, 1977) in business are reduced. Customs and traditions that

were distant and unknown are now close and familiar. Also, as Sambharya (1996)

mentions a company recruiting managers with international experience has triple

benefits. It serves as a variable to reduce international business uncertainty; (b) it is

used as a source of knowledge about a foreign culture (c) international experience

is the answer of the company to the growing challenges of market globalization.

Hence, recruiting managers with international experience must be in the focus of

companies that have a more international presence in their strategy. They can

provide greater speed and quality of the internationalization process. Particularly at

a time when there is a great deal of pressure on management and return on

investment, especially in the stages of stagnation and recession (Dabic et al., 2015). The more research-based on small and medium-sized companies is needed,

since the deficit of such research is strikingly obvious. This thought is on the trail of

Schmid and Wurster (2015) research who have studied the differences of

international experience of top managers from Germany and Great Britain. This

research concluded that there are significant differences between the two

countries. Therefore, as Dabic et al. (2015) pointed out a broader geographic

perspective in empirical research is needed to confirm the universality of the theory

of international experience in the theory of upper echelon or to determine its

affiliation to contextual legality of the size of the organization. Practical implications

of this research are primarily directed at managers and business owners. Research

revealed that the international experience significantly contributes to the expansion

of perception, better resonance, easier and safer management of complex

international affairs, and other factors. In addition, international experience, have

also significant implications for managers in terms of higher earnings and faster

career advancement, as some of the research has shown.

However, when taking into account the results of the research several limitations

emerge. First, a large number of researches focus on multinational companies which

may indicate that the aforementioned theory is not applicable to small and

medium-sized companies. Second, almost all of the research comes from

economically developed countries which may indicate that the theory is not

applicable to less developed countries. Third, it is necessary to increase the number

of researches from different countries to determine whether there is a possibility of

unifying the theory. These also represent the fruitful promising topics of future

research in the area of internationalization and upper echelon theory.


137

References

1. Agnihotri, A., Bhattacharya, S. (2015), "Determinants of export intensity in

emerging markets: An upper echelon perspective", Journal of World Business, Vol.

50, No. 4, pp. 687-695.

2. Athanassiou, N., Nigh, D. (2002), “The Impact of the Top Management Team's

International Business Experience on the Firm's Internationalization: Social

Networks at Work”, MIR: Management International Review, Vol. 42, No. 2, pp.

157-181.

3. Axioglou, C., Skouras, S. (2011), “Markets Change Every Day: Evidence from the

Memory of Trade Direction”, Journal of Empirical Finance, Vol. 18, No. 3, pp. 423-

446.

4. Barkema, H. G., Vermeulen, F. (1998), "International expansion through start-up or

acquisition: A learning perspective", Academy of Management Journal, Vol. 41,

No. 1, pp. 7-26.

5. Bartlett, C. A., Ghoshal, S. (1998), "Beyond strategic planning to organization

learning: Lifeblood of the individualized company", Strategy & Leadership, Vol.

26, No. 1, pp. 34-39.

6. Biemann, T., Wolf, J. (2009), "Career patterns of top management team members

in five countries: an optimal matching analysis”, International Journal of Human

Resource Management, Vol. 20, No. 5, pp. 975-991.

7. Carpenter, M. A. (2002), "The implications of strategy and social context for the

relationship between top management team heterogeneity and firm

performance", Strategic Management Journal, Vol. 23, No. 3, pp. 275-284.

8. Chen, H. L. (2011), "Does Board Independence Influence the Top Management

Team? Evidence from Strategic Decisions toward Internationalization”, Corporate

Governance: An International Review, Vol. 19, No. 4, pp. 334-350.

9. Chittoor, R., Aulakh, P. S., Ray, S. (2015), "What drives overseas acquisitions by

Indian firms? A behavioral risk-taking perspective", Management International

Review, Vol. 55, No. 2, pp. 255-275.

10. Cyert, R. M., March, J. G. (1955), "Organizational structure and pricing behavior in

an oligopolistic market", The American Economic Review, Vol. 45, No. 1, pp. 129-

139.

11. Dabic, M., González-Loureiro, M., Harvey, M. (2015), "Evolving research on

expatriates: what is ‘known’after four decades (1970–2012)", The International

Journal of Human Resource Management, Vol. 26, No. 3, pp. 316-337.

12. Dauth, T., Tomczak, A. (2016), "Internationalization of top management teams: A

comprehensive analysis of Polish stock-listed firms”, Journal for East European

Management Studies, Vol. 21, No. 2, pp. 167-183.

13. Elron, E., (1997), "Top management teams within multinational companies: Effects

of cultural heterogeneity", The Leadership Quarterly, Vol. 8, No. 4, pp. 393-412.

14. Georgakakis, D., Dauth, T., Ruigrok, W. (2016), "Too much of a good thing: Does

international experience variety accelerate or delay executives’ career

advancement?", Journal of World Business, Vol. 51, No. 3, pp. 425-437.

15. Gomes, L., Ramaswamy, K. (1999), "An empirical examination of the form of the

relationship between multinationality and performance", Journal of international

business studies, Vol. 30, No. 1, pp. 173-187.

16. Greve, P., Nielsen, S., Ruigrok, W. (2009), "Transcending borders with international

top management teams: A study of European financial multinational

companies", European Management Journal, Vol. 27, No. 3, pp. 213-224.


138

17. Hambrick, D. C., Mason, P. A. (1984), "Upper echelons: The organization as a

reflection of its top managers", Academy of Management Review, Vol. 9, No. 2,

pp. 193-206.

18. Herrmann, P., Datta, D. K. (2002), "CEO successor characteristics and the choice

of foreign market entry mode: An empirical study", Journal of International

Business Studies, Vol. 33, No. 3, pp. 551-569.

19. Herrmann, P., Datta, D. K. (2005), "Relationships between top management team

characteristics and international diversification: An empirical investigation", British

Journal of Management, Vol. 16, No. 1, pp. 69-78.

20. Hsu, W. T., Chen, H. L., Cheng, C. Y. (2013), "Internationalization and firm

performance of SMEs: The moderating effects of CEO attributes", Journal of World

Business, Vol. 48, No. 1, pp. 1-12.

21. Hutzschenreuter, T., Horstkotte, J. (2013), "Performance effects of international

expansion processes: The moderating role of top management team

experiences", International Business Review, Vol. 22, No. 1, pp. 259-277.

22. Johanson, J., Vahlne, J. (1977), "The Internationalization Process of the Firm-A

Model of Knowledge Development and Increasing Foreign Market

Commitments”, Journal of International Business Studies, Vol. 8, No. 1, pp. 23-32.

23. Johanson, J., Wiedersheim‐Paul, F. (1975), “The internationalization of the firm—

four Swedish cases", Journal of management studies, Vol. 12, No. 3, pp. 305-323.

24. Kaczmarek, S., Ruigrok, W. (2013), "In at the Deep End of Firm Internationalization",

Management International Review, Vol. 53, No. 4, pp. 513-534.

25. Kirca, A. H., Hult, G. T. M., Deligonul, S., Perryy, M. Z., Cavusgil, S. T. (2012), "A

multilevel examination of the drivers of firm multinationality: A meta-analysis",


26. Kobrin, S. J. (1984), "Expropriation as an attempt to control foreign firms in LDCs:

trends from 1960 to 1979", International Studies Quarterly, Vol. 28, No. 3, pp. 329-

348.

27. Kogut, B. (1985), "Designing global strategies: Comparative and competitive

value-added chains", Sloan management review, Vol. 26, No. 4, pp. 15-28.

28. Laufs, K., Bembom, M., Schwens, C. (2016), "CEO characteristics & SME foreign

market entry mode choice: The moderating effect of firm’s geographic

experience and host-country political risk", International Marketing Review, Vol.

33, No. 2, pp. 246-275.

29. Lee, H. U., Park, J. H. (2006), "Top team diversity, internationalization and the

mediating effect of international alliances", British Journal of Management, Vol.

17, No. 3, pp. 195-213.

30. Lee, H. U., Park, J. H. (2008), "The influence of top management team

international exposure on international alliance formation", Journal of


31. Lin, W. T., Liu, Y. S. (2012), "Successor characteristics, change in the degree of firm

internationalization, and firm performance: The moderating role of environmental

uncertainty", Journal of Management & Organization, Vol. 18, No. 1, pp. 16-35.

32. Michailova, S. (2011), "Contextualizing in international business research: why do

we need more of it and how can we be better at it?", Scandinavian Journal of

Management, Vol. 27, No. 1, pp. 129-139.

33. Nielsen, B. B., Nielsen, S. (2009), "Learning and innovation in international strategic

alliances: An empirical test of the role of trust and tacitness", Journal of



139

34. Nielsen, B. B., Nielsen, S. (2011), "The role of top management team international

orientation in international strategic decision-making: The choice of foreign entry

mode", Journal of World Business, Vol. 46, No. 2, pp. 185-193.

35. Nielsen, S., (2010), "Top Management Team Internationalization and Firm

Performance", Management International Review, Vol. 50, No. 2, pp. 185-206.

36. Patzelt, H., zu Knyphausen-Aufseß, D., Fischer, H. T. (2009), "Upper echelons and

portfolio strategies of venture capital firms", Journal of Business Venturing, Vol. 24,

No. 6, pp. 558-572.

37. Piaskowska, D., Trojanowski, G. (2014), "Twice as Smart? The Importance of

Managers' Formative-Years' International Experience for their International

Orientation and Foreign Acquisition Decisions", British Journal of Management,

Vol. 25, No. 1, pp. 40-57.

38. Pierron, A. (2010), "Dark Pools: A Significant Element of the European Cash Equity

Ecosystem", Trading, Vol. 2010, No. 1, pp. 101-107.

39. Rajagopalan, N., Spreitzer, G. M. (1997), "Toward a theory of strategic change: A

multi-lens perspective and integrative framework", Academy of management

review, Vol. 22, No. 1, pp. 48-79.

40. Rivas, J. L. (2012), "Board versus top management team international experience:

a study of their joint effects", Cross Cultural Management: An International

Journal, Vol. 19, No. 4, pp. 546-562.

41. Ruzzier, M., Antoncic, B., Hisrich, R. D., Konecnik, M. (2007), "Human capital and

SME internationalization: A structural equation modeling study", Canadian Journal

of Administrative Sciences/Revue Canadienne des Sciences de l'Administration,

Vol. 24, No. 1, pp. 15-29.

42. Sambharya, R. B. (1996), "Foreign experience of top management teams and

international diversification strategies of US multinational companies", Strategic

Management Journal, Vol. 17, No. 9, pp. 739-746.

43. Schmid, S., Wurster, D. J. (2015), "Internationalisation of upper echelons in different

institutional contexts: top managers in Germany and the UK”, European Journal

of International Management, Vol. 9, No. 4, pp. 510-535.

44. Schmid, S., Wurster, D. J. (2016) "Are international top executives paid more?

Empirical evidence on fixed and variable compensation in management boards

of German MNCs", European Journal of International Management, Vol. 10, No.

1, pp. 25-53.

45. Schmid, S., Dauth, T. (2014), "Does internationalization make a difference? Stock

market reaction to announcements of international top executive

appointments", Journal of World Business, Vol. 49, No. 1, pp. 63-77.

46. Slater, D. J., Dixon-Fowler, H. R. (2009), "CEO International Assignment Experience

and Corporate Social Performance", Journal of Business Ethics, Vol. 89, No. 3, pp.

473-489.

47. Wally, S., Becerra, M. (2001), "Top management team characteristics and

strategic changes in international diversification: the case of US multinationals in

the European community", Group & Organization Management, Vol. 26, No. 2,

pp. 165-188.

48. Wang, X., Ma, L., Wang, Y. (2015), "The impact of top management team

functional background on firm performance: Evidence from listed companies in

China’s IT industry", Nankai Business Review International, Vol. 6, No. 3, pp. 281-

311.


140

Appendix List of reviewed papers

1. Agnihotri, A., Bhattacharya, S. (2015), "Determinants of export intensity in

emerging markets: An upper echelon perspective", Journal of World Business,

Vol. 50, No. 4, pp. 687-695.

2. Benson, G. S., Pérez‐Nordtvedt, L., Datta, D. K. (2009), „Managerial

characteristics and willingness to send employees on expatriate

assignments”, Human Resource Management, Vol. 49, No. 6, pp. 849-869.

3. Biemann, T., Wolf, J. (2009), "Career patterns of top management team

members in five countries: an optimal matching analysis”, International Journal

of Human Resource Management, Vol. 20, No. 5, pp. 975-991.

4. Carpenter, M. A. (2002), "The implications of strategy and social context for the

relationship between top management team heterogeneity and firm

performance", Strategic Management Journal, Vol. 23, No. 3, pp. 275-284.

5. Chen, H. L. (2011), "Does Board Independence Influence the Top Management

Team? Evidence from Strategic Decisions toward Internationalization”,

Corporate Governance: An International Review, Vol. 19, No. 4, pp. 334-350.

6. Chittoor, R., Aulakh, P. S., Ray, S. (2015), "What drives overseas acquisitions by

Indian firms? A behavioral risk-taking perspective", Management International

Review, Vol. 55, No. 2, pp. 255-275.

7. Dauth, T., Tomczak, A. (2016), "Internationalization of top management teams: A

comprehensive analysis of Polish stock-listed firms”, Journal for East European


8. Georgakakis, D., Dauth, T., Ruigrok, W. (2016), "Too much of a good thing: Does

international experience variety accelerate or delay executives’ career

advancement?", Journal of World Business, Vol. 51, No. 3, pp. 425-437.

9. Greve, P., Nielsen, S., Ruigrok, W. (2009), "Transcending borders with international

top management teams: A study of European financial multinational

companies", European Management Journal, Vol. 27, No. 3, pp. 213-224.

10. Herrmann, P., Datta, D. K. (2002), "CEO successor characteristics and the choice

of foreign market entry mode: An empirical study", Journal of International

Business Studies, Vol. 33, No. 3, pp. 551-569.







13. Hsu, W. T., Chen, H. L., Cheng, C. Y. (2013), "Internationalization and firm

performance of SMEs: The moderating effects of CEO attributes", Journal of

World Business, Vol. 48, No. 1, pp. 1-12.

14. Hutzschenreuter, T., Horstkotte, J. (2013), "Performance effects of international

expansion processes: The moderating role of top management team

experiences", International Business Review, Vol. 22, No. 1, pp. 259-277.

15. Kaczmarek, S., Ruigrok, W. (2013), "In at the Deep End of Firm

Internationalization", Management International Review, Vol. 53, No. 4, pp. 513-

534.


141

16. Kirca, A. H., Hult, G. T. M., Deligonul, S., Perryy, M. Z., Cavusgil, S. T. (2012), "A

multilevel examination of the drivers of firm multinationality: A meta-analysis",


17. Laufs, K., Bembom, M., Schwens, C. (2016), "CEO characteristics & SME foreign

market entry mode choice: The moderating effect of firm’s geographic

experience and host-country political risk", International Marketing Review, Vol.

33, No. 2, pp. 246-275.

18. Lee, H. U., Park, J. H. (2006), "Top team diversity, internationalization and the

mediating effect of international alliances", British Journal of Management, Vol.

17, No. 3, pp. 195-213.

19. Lee, H. U., Park, J. H. (2008), "The influence of top management team

international exposure on international alliance formation", Journal of


20. Lin, W. T., Liu, Y. S. (2012), "Successor characteristics, change in the degree of firm

internationalization, and firm performance: The moderating role of

environmental uncertainty", Journal of Management & Organization, Vol. 18, No.

1, pp. 16-35.

21. Michailova, S (2010). Upper echelons in the People's Republic of China:

evidence from the 15 largest companies. In Wang Y., Ramburuth, P. (Ed.) Thirty

years of China's economic reform: Institutions, management organizations and

foreign investment, London; Nova Science, pp. 115-138.

22. Miner, A. S., Gong, Y., Baker, T., O’Toole, J. (2011), “How does TMT prior

experience shape strategy? A routine-based framework based on evidence

from founding teams”. In Carpenter, M. A. (Ed.) The handbook of research on

top management teams. Cheltenham: Edward Elgar, pp.189-213.

23. Nielsen, B. B., Nielsen, S. (2011), "The role of top management team international

orientation in international strategic decision-making: The choice of foreign entry

mode", Journal of World Business, Vol. 46, No. 2, pp. 185-193.

24. Nielsen, S., (2010), "Top Management Team Internationalization and Firm

Performance", Management International Review, Vol. 50, No. 2, pp. 185-206.

25. Patzelt, H., Knyphausen‐Aufseß, Z., Nikol, P., (2008), „Top management teams,

business models, and performance of biotechnology ventures: An upper

echelon perspective”, British Journal of Management, Vol. 19, No. 3, pp. 205-221.

26. Patzelt, H., zu Knyphausen-Aufseß, D., Fischer, H. T. (2009), "Upper echelons and

portfolio strategies of venture capital firms", Journal of Business Venturing, Vol. 24,

No. 6, pp. 558-572.

27. Piaskowska, D., Trojanowski, G. (2014), "Twice as Smart? The Importance of

Managers' Formative-Years' International Experience for their International

Orientation and Foreign Acquisition Decisions", British Journal of Management,

Vol. 25, No. 1, pp. 40-57.

28. Rivas, J. L. (2012), "Board versus top management team international

experience: a study of their joint effects", Cross Cultural Management: An

International Journal, Vol. 19, No. 4, pp. 546-562.

29. Ruzzier, M., Antoncic, B., Hisrich, R. D., Konecnik, M. (2007), "Human capital and

SME internationalization: A structural equation modeling study", Canadian

Journal of Administrative Sciences/Revue Canadienne des Sciences de

l'Administration, Vol. 24, No. 1, pp. 15-29.

30. Sambharya, R. B. (1996), "Foreign experience of top management teams and

international diversification strategies of US multinational companies", Strategic

Management Journal, Vol. 17, No. 9, pp. 739-746.


142

31. Sanders, W., Tuschke, A, (2011). Corporate Elite Career Experiences and

Strategic Preferences: The Case of The Chinese Corporate Governance

Reform. In Carpenter, M. A. (Ed.) The handbook of research on top

management teams. Cheltenham: Edward Elgar, pp.214-259.

32. Schmid, S., Dauth, T. (2014), "Does internationalization make a difference? Stock

market reaction to announcements of international top executive

appointments", Journal of World Business, Vol. 49, No. 1, pp. 63-77.

33. Schmid, S., Wurster, D. J. (2015), "Internationalisation of upper echelons in

different institutional contexts: top managers in Germany and the UK”, European

Journal of International Management, Vol. 9, No. 4, pp. 510-535.

34. Schmid, S., Wurster, D. J. (2016) "Are international top executives paid more?

Empirical evidence on fixed and variable compensation in management boards

of German MNCs", European Journal of International Management, Vol. 10, No.

1, pp. 25-53.

35. Slater, D. J., Dixon-Fowler, H. R. (2009), "CEO International Assignment Experience

and Corporate Social Performance", Journal of Business Ethics, Vol. 89, No. 3, pp.

473-489.

36. Villar, C., Linares-Navarro, E., Toral, D. (2010), “New models of internationalization

in small traditional manufacturing firms”, In PlaBarber J., Alegre J. (Ed.) Reshaping

the Boundaries of the Firm in an Era of Global Interdependence. Emerald Group

Publishing Limited, pp. 75-96.

37. Wang, H., Feng, J., Liu, X., Zhang, R. (2011), „What is the benefit of TMT’s

governmental experience to private-owned enterprises? Evidence from China”,

Asia Pacific Journal of Management, Vol. 28, No. 3, pp. 555-572.

38. Wang, X., Ma, L., Wang, Y. (2015), "The impact of top management team

functional background on firm performance: Evidence from listed companies in

China’s IT industry", Nankai Business Review International, Vol. 6, No. 3, pp. 281-

311.

About the author

Dino Đerđa serves as a Board Member of couple of Croatian companies mainly in

pharmaceutical and cosmetics industry. He attends doctoral program at Faculty of

Economics & Business - Zagreb. His main research field is strategic management,

corporate governance, entrepreneurship and SME's internationalization. The author

can be reached at [email protected].

Vol. 8 No. 2 / 2017 ISSN: 1847-9375

Documents

Transcript of Vol. 8 No. 2 / 2017 ISSN: 1847-9375