ekansh journal

JOURNAL OF ENGINEERING, ICT & MANAGEMENT 2015

ISSN 2230-9756 GNIOT–COLLEGE OF MANAGEMENT

ISSN 2230-9756

GNIOT –COLLEGE OF MANAGEMENT

ISSUE-10 July-September, 2015

JOURNAL OF ENGINEERING,

ICT & MANAGEMENT

GNIOT GROUP OF INSTITUTIONS

_____________________________________________________

*GREATER NOIDA INSTITUTE OF TECHNOLOGY

*GNIOT-MANAGEMENT SCHOOL

* GNIOT –COLLEGE OF MANAGEMENT



ISSUE- 3

OCTOBER, 2015

PATRONS

SHRI KISHAN LAL GUPTA - CHAIRMAN

SHRI BISHAN LAL GUPTA -VICE CHAIRMAN

SHRI GAURAV GUPTA - MEMBER OF MANAGEMENT

SHRI DEEPAK GUPTA - MEMBER OF MANAGEMENT

EDITOR – IN - CHIEF

PROF. (DR) SANJAY YADAV

MANAGING EDITOR

MR VIVEK SRIVASTAVA

EDITORIAL MEMBERS

DR HIMANSHU MITTAL

MR PRASHANT DEV YADAV

MS NEETI SHARMA

MS JYOTI SINGHAL



Being the Editor In chief of the GNIOT College of Management, E journal it

gives me great pleasure to bring to you this issue. It was quite inspiring to

watch and witness the potential of our students unfolding at various stages

and situations each day. It is designed to present to its readers the various

events, methods and applications related with new developments and

perspectives in the field of management and business.

With a sense of pride and satisfaction I would like to say that with the active

support of the management, faculty and students, this journal has come alive.

With all the efforts and contributions put in by the students, I hope the journal

will bring creative talents of the students of the institute.

Congratulations to the editorial team for their determined efforts in bringing

out this journal.

Dr.SANJAY YADAV

(Editor –In –Chief)



Dear Readers,

I feel privileged in presenting the nine issue of our institute e-journal. I would

like to place on record my gratitude and heartfelt thanks to all those who have

contributed to make this effort a success. My special thanks is to Dr Sunjay

Yadav, Director - for his guidance which enabling me to bring out this volume.

It is my moral duty to thank him for giving support and encouragement and a

free hand in this endeavor. The journal also showcases the talents of our

faculty members and students. With a sense of pride and satisfaction I would

like to say that with the active support of the management, faculty and

students, e –magazine has come alive .With all the efforts and contributions

put in by the students, I truly hope that the pages that follow will make some

interesting reading.

Last but not the least I am thankful to all the authors who have send their

articles and readers who made this journal so popular.

VIVEK SRIVASTAVA

MANAGING EDITOR



Guidelines for Contributors The JOURNAL OF ENGINEERING, ICT & MANAGEMENT invites original

unpublished research papers, review articles, short communications and book

reviews on the topics of management subjects. General guidelines for

contributors are enumerated below: 1. Manuscripts should be sent along with the authorization letter in favour

of the

[email protected] that it may be published after

necessary editing and the copyright shall remain with the GNIOT-College

of Management, Greater Noida. Manuscript should be accompanied by a

brief resume of the author on a separate sheet. 2. Manuscripts should normally be around 6,000 words (6 to 8 A-4 size

pages, typed double space). Manuscripts should be submitted in

triplicate with the cover page bearing only the title of the paper and

author(s)‟s name(s), designation(s), official address(es), phone/fax

number(s), and e-mail address(es). 3. Abstracts : All the manuscripts should include an abstract of about 100

to 200 words. No. abstracts is required for review essay or case studies. 4. Footnotes: All footnotes should be indicated by serial numbers in the

text and the literature cited should be detailed under „Notes‟ at the end of

the paper bearing corresponding numbers. 5. Tables and Figures: Table should approximate the appearance of

printed tables. Tables / figures should be placed at the end of text, after

footnotes, appendices and references. Tables should contain the source

and the unit of measurement. All figures and tables must have a caption

that is intelligible without reference to the text. Their location in the text

should be indicated as follows:

Table1.1 about here 6. References: Place the references at the end of the manuscript following

the footnotes and they must be arranged in alphabetical order. The list

should mention only those sources actually cited in the text or notes.

Author‟s name should be the same as in the original source. For more

than one publication by the same author, list them in a chronological

order, with the older item first. For more than one publication in one

year by the same author, use small lower - case letters to distinguish

them (e.g., 1999a & 1999b).



7. No stops after abbreviations (UK, USA, MBBS, MBA, etc.). Use stops after

initials (Dr. S.D. Sharma).

8. Use double quotes throughout. The use of single quotes should be

restricted for use within double quotes, e.g., “According to Plato, „Poetics

deals with different forms of comedy and tragedy’.” Quotes should

be cited accurately from the original source, should not be edited, and

should give the page numbers of the original publication.

9. Books reviews must provide the following details, and in this order: Name

of author/ title of book reviewed/ place of publication/ publisher/ year of publication/ number of pages, in Roman and Arabic figures to include

hardbound. Fox example; Sharma, S.D. Scientific & Technical Writing, 2008, Sarup & Sons,

Delhi, pp. xxii+ 567, Rs.1000/- hardbound. 10. Manuscripts should be double spaced typed on A- 4 size paper, in 12-

point font in Microsoft word. The main text should bear only the title of

the paper and then the text content should follow.

12. Tables, Charts, Maps and Diagrams should be properly numbered and

titled. Photos must be sharp and exhibit good contrast.

13.

End notes should be numbered and detailed literature should be stated

in the text (using point font - < 10) in an identified block below the text

with the reference of literature wherever applicable.

14. Reference should mention only those sources that have relevance (i.e.,

cited ) to the manuscript and should be numbered. Author(s) name

should be the same as in the original source. 16 Manuscripts will be considered for publication in the Journal based on

the feedback of the referee.

17 Manuscript not considered will not be sent back. 18 Use a single column layout with both left & right margins justified. 19 The paper should start with an introduction and end with a conclusion

summarizing the finding of the paper.

20 Fact of the paper presented / submitted to a conference /seminar must

be clearly mentioned at the bottom of the first page of the manuscript

and the author should specify with whom the copyright rests.



CRITICAL SUCCESS FACTORS FOR EFFECTIVE IMPLEMENTATION OF

SIX SIGMA PROJECT

1. Dr. K.K.Garg, Lingaya’s Lalita Devi Institute Of Management &

Sciences, Mandi, New Delhi-110047 Email:-

[email protected]

2. Mr, Pranav Mishra, Lingaya’s Lalita Devi Institute Of Management &

Sciences, Mandi, New Delhi-110047 Email:- [email protected]

3. Prof Jivan Choudhary, Lingaya’s University, Faridabad Email: -

[email protected]

Abstract: Six-Sigma is a popular approach to drive out variability from

processes using powerful statistical tools and techniques. This paper

reviews the literature related to the critical success factors and also analyze

of case for critical success factors implementation in selected organizations

of Indian auto component industry and find, except „linking Six Sigma to

employees and „linking six sigma to suppliers, all other CSFs were found to

be significant.

Introduction:

Six Sigma* has taken the corporate world by storm and represents the

thrust of numerous efforts in manufacturing and service organizations to

improve products, services, and processes.

*Six Sigma is federally registered trademark and service mark of Motorola,

Inc.

„Six Sigma‟ is a quality matrix that counts the number of defects per million

opportunities (DPMO) at six levels. Critical Success Factors are those factors

which are critical to success of any organization. Motorola Corporation that

received Malcolm Baldrige National Quality Award (MBNQA) in 1988 based

its major efforts on “6-Sigma”. A critical part of six sigma work is to define

and measure variation with the intent of discovering its causes and to

develop efficient operational means to control and reduce the variation. The

expected outcomes of six sigma efforts are faster and more robust product

development, more efficient and capable manufacturing processes, and more

confident overall business performance). In order to reduce the variation to a

mailto:[email protected]





very low level, the first step is to “design for productivity”. This means that

designers configure a product in such manner that its performance is

“shielded” against variation. By doing this, the organization can be sure that

it‟s specified levels; i.e., all of the product will be on target with minimum

difference between units of product. When Indian auto component sector

rejection is compared with sigma conversion table1 , it provides lot of

opportunities for the Indian auto component sector make improvement to

match with the performance of world class organizations (Table1)

Table 1 Sigma conversion table

Quality

Level

(Yield)

Defects per million

Opportunities(DPMO)

Sigma Cost of

poor

Quality(%of

Sales)

Types of

Companies

30.9 690,000 1.0 >40 Non-

Competitive

69.2 308,000 2.0 30-40 Industry

Average 93.3 66,800 3.0 20-30

99.4 6,210 4.0 15020

World Class 99.98 320 5.0 10-15

99.9997 3.4 6.0 <10

10.3.1 Introduction: „Six – sigma‟ is a quality matrix that counts the

number of defects per million opportunities (DPMO) at six levels. Higher the

„sigma level‟, better is the quality with lower DPMO. To illustrate this point, a sigma level of 3.5 means that a process has the chance for 22,700 DPMO,

whereas a sigma level of 4.5 would mean only 1,350 DPMO. A perfect sigma

level of six would mean a DPMO of just 3 (Three) per million! What at

signifies is that it is possible to continually stretch the capability of a

process by systematically eliminating and changing the process deterrents and environment. It is obvious that this quality improvement initiative must

be driven by a high degree of creativity and innovation in the organization.

Six – Sigma practice is interwoven with many TQM principles, such as

customer – focus, data based management and decision, improved design



and manufacturing capability, and a supportive work culture and

employees. The efforts aim to drastically reduce defect levels to only a few DPMO for strategic products and processes.

10.3.2 Six-Sigma Practice: General approach for this daunting task is to

work in terms of reduction of variations and defects by following a four –

phase approach: 1. Measure: Select critical quality characteristics, determine the

frequency of defects, define performance standards, validate

measurement system, establish process capability and evaluate

current performance. 2. Analyse: Understand what, when, where and why of defects and

causes by analyzing sources of variation vis – a – vis target objectives.

The process of analysis includes process mapping, identifying root

cause, establishing cause – and – effect relationships.

3. Improve: Brainstorm and generate ideas, narrow the list of potential solution and then select the best solution, validate the solution

validate the solution (use mathematical modeling, if necessary), and

develop implementation strategy.

4. Control: Maintain improvements by revalidating measurements determining improved process capability and implementing statistical

process control system to monitor performance.

Since the pioneering work at Motorola, many companies have benchmarked

this practice from Motorola and intensely practiced by setting up many Six – Sigma teams. The technique has been recognized as a strong business

driver due its high potential to reduce the Cost by drastically lowering COPQ

(cost of poor quality). A company operating at a higher Sigma level would be

saving a tremendous amount of money that would otherwise be incurred in inspection, sorting, correction, cost of delay and customer grievance

handling.

Six – Sigma practice involves measuring large numbers of process

data, statistical analysis of those data for identifying defects and their

causes, determining their impact in cost, delivery delay and customer satisfaction levels, and finally taking effective measures to plug the source of

errors. In the ultimate analysis, it is more of a business initiative than

quality initiative in a company.

10.3.3 Six-Sigma and Process Capability: Six-Sigma is a statistical term and derived from parameters related to the process capability. Therefore, its

implication should be understood in terms of process capability (Cp).

Process capability (Cp)

Upper specification limit - Lower specification limit

= 6 (@~)

Reference to Figures 9.10 and 9.13 will make it clear that a process to be

capable must be able to produce the part with tolerance range narrower than the specification range. Since Six times the spread of the process is



taken as standard deviation, capability to produce with narrower tolerance

range would mean lower standard deviation of the process. This is what Six – Sigma practice attempts to achieve, by trying to reduce the standard

deviation to a bare minimum and get the dispersion of process outputs all

around the target or process average value.

Assuming that the required Cp of the process for a given USL and LSL

is 1.50, it can be hypothetically worked out as per 'Six – Sigma' Level concept that: (for qualitative illustration only)

@~ x L =1.50, where L = Sigma level between 1 to 6

1.50 …..(a)

Thus, When L = 3.50

And When L=6, @~ = 1.50

…..(b) 6.0

From (a) and (b) it can be deduced that Standard deviation (a) of

process (b) is lower than the process (a). Alternatively, it can be said that for

a given process, working for higher sigma level (L) would result in lower standard deviation and higher process capability (Cp). In fact, process

capability index (Cpk) of Six – Sigma level process is equal to 2. As against

Cpk value of 1.0 to 1.33 for a standard acceptable process.

Therefore, Concept of Six – Sigma level would physically mean that the

dispersion of a process output will become more centered around the process average or target value with increasing Sigma level, dispersion being

closest with level of Sigma reaching Six.

The programme of Six – Sigma, developed at Motorola, has a goal of

reducing process variation such that the spread between process specification limits is 12 times the standard deviation, with process mean

centered on the specification target. This means that the specification limits

are 6 sigma form the target, and Sigma (the standard deviation) value is low

enough to ensure that the probability of the process producing outside the

specification limits is only 3.4 DPMO for perfect Six – Sigma level, they have to be improved by steps mentioned in section 10.3.2 earlier. The

improvement may be brought in stages from lower sigma level to higher

sigma level, but the spirit is the pursuit for relentless improvement. Six –

Sigma level operation translates into a Cpk value of 2.0 for the process.

10.3.4 Six-Sigma Practice of Motorola: Six – Sigma practice was pioneered

by Motorola, and ever since their practice has evoked lots of interest.

Outline of their Six – Sigma movement will be briefly presented here; for

more details, readers may directly contact the company or any agencies having access to Motorola's system.

Motorola started the Six – Sigma movement with an aim of achieving

near zero – defect level of manufacturing competence. They defined the zero

– defect as 99.999% defect – free manufacturing capability, which was

translated to DPMO at six different Sigma – levels. At a perfect Six – sigma



level, this meant DPMO of 3.4, an astonishingly low figure compared to what

was prevent in manufacturing industries. Second phase of Motorola‟s Six – Sigma movement was called „second

– generation‟ quality programme, aiming for another tenfold quality

improvement. Objective of the second – generation quality programme was

not only to move closer towards zero defect, but also to improve all levels of

customer satisfaction called „Total Customer Satisfaction (TCS)‟ movement. TCS is a comprehensive scheme, which provides for continuous

improvement in price, delivery, performance, quality and total customer

satisfaction. Motorola set up „six steps to six – sigma practice‟ which was

more deal with quality aspects of non – manufacturing and areas of subjective decisions. Purposes of these steps are:

Steps I & II: This is the process of determining the products to be

made, customer segment to be served, and „how‟ to do it.

Step III: This makes the organization look at the needs for suppliers‟ support to make the product as per target quality, and developing suppliers‟

quality programmers.

Step IV: Mapping out of all related processes by the workers and the

process needs for fulfilling the mission. Step V: This is the step for evaluating the processes and elimination

all non – value added steps, activities‟ and sources of errors.

Step VI: This step is for establishing measurement criteria, analysis of

data and the drive for continuous improvement.

The improvement drives involve all the traditional tools of total

quality, maintaining focus on the means of redacting the process variability

to bare minimum and establishing consistency of the new process. Six –

Sigma technique identifies faults, tracks them back to the origin, makes the process or system more capable by reducing process dispersion, and then

provides for consistency. It is not just a simple statistical tool, it is a

revolution in quality culture. It is a tool for ensuring total customer

satisfaction, minimizing cost of poor quality, gaining extra revenues, and

adding competitive edge in the fiercely competitive market.

Critical success factors for six sigma project

In order to determine the CSFs for six sigma, the step was to carry out an

exploratory study on the topic as similar studies were performed by authors

such as Pande et al. (2000), Henderson and Evans (2000) and Eckes(2000).

Training

Training is a crucial factor in the successful implementation of six sigma

projects. The belt system must be applied throughout the organization

starting with top management and should be cascaded down through the

organizational hierarchy.



Linking six sigma to customer

Six Sigma should begin and end with the customer. Projects should begin

with the determination of customer requirements.

Project Prioritization and Skills

The projects are selected in such a way that they are closely tied to the

business goals or business objectives of the organization (Ingle and Roe,

2001). Every project should be selected so it will help organization improve

profitability, cycle-time, competitive advantage etc.

Management Involvement and Participation

Any successful initiative like six sigma requires top management

commitment and provision of appropriate resources and training (Hollidyay,

2001). Without the top management commitment and support, the

importance of the initiative will be doubt and energy behind it will be

weekend.

Understanding of Six Sigma Methodology

There are two different methodologies (1) the problem solving methodology

which can be either MAIC or DMAIC ( D stands for define, M stands for

measure, A stands for analyse, I stands for improve and C stands for

control), and (2) preventive methodology known as design for six sigma,

which consists of four stages: identify, design, optimize and validate (IDOV).

These two six sigma methodologies have strong bases in the use of

statistics.

Linking Six Sigma to Business Strategy

In every single project, the link between the project and the business

strategy should be identified. It should also demonstrate in money figures,

the benefits of the project in financial terms and in which way it will help

the business strategy.

Organizational Infrastructure

In order to implement six sigma within any organization, it is highly

desirable to have some degree of communication skills, long-term

focus/strategy and teamwork. Moreover it should have enough resources

and investment to embark on six sigma. Some of the most important budget

items include direct payroll, indirect payroll, training and consultancy and

improvement implementing costs.

Linking Six Sigma to Employees



Truly changing behavior over the long term requires six sigma goals be

internalized on the individual level. Six sigma accomplished a key measure

for employee‟s performance and compensation, which is a useful way to

encourage successful selection and completion of six sigma projects.

Cultural Change

Six sigma is considered a breakthrough management strategy, because it

involves adjustments to the firm,s values and culture for its introduction.

Usually when important change occurs, the people in the organization are

afraid of the unknown and they do not understand the need for change. It is

important as well to get as much practical feedback as possible from

employees, plan the change through a detailed six sigma implementation

milestone, delegate responsibilities and empower people to make their own

decisions.

Linking Six Sigma to Suppliers

The traditional approach is to have different suppliers in order to maintain

reduced costs, however under six sigma , new way to reduce variability is to

have few suppliers with six sigma projects.

RESEARCH METHODOLOGY

To obtain an insight on the awareness of Six Sigma practices in the Indian

Automobile Component Sector, a sample of 25 respondents (20 suppliers

and 05 sub-contractors) were obtained while 52 organizations were

requested to participate in the study. The study indicated a comparative

level of awareness and practice of Six Sigma in the Auto Component Sectors.

The questionnaire was checked for reliability and validity by expert and

practiceners. The questionnaire was validated by sample data from original

equipment manufactures (OEMs), suppliers (Tier-I), sub-contractors (Tier-II).

In the global scenario, the automobile components manufacturing

companies are classified as Tier-I and Tier-II suppliers. The Tier-I Suppliers

are those which supply components to the original equipment manufactures

(OEMs). Tier-II suppliers are those which supply components to Tier-I

suppliers. The survey reported here was conducted from March, 2013 to

May, 2013 and was restricted to companies located in NCR region of India.

Data Analysis, Results and Discussion



Out of 20 tiers –I companies surveyed, only six have implemented Six

Sigma.

The six sigma companies were asked to rank the 11 CSFs on a scale of 1 to

5. The CSFs used in this research were derived from the existing literature

of sixsigma.

S.No. Critical Success Factors Mean SD t-value

1. Training 4.67 0.52 7.91

2. Linking Six Sigma to Customers 4.67 0.52 7.91

3. Project Prioritization and Skills 4.67 0.52 7.91

4. Project Management Skills 4.33 0.52 6.32

5. Management Involvement and Participation 4.00 0.63 3.87

6. Understanding of Six Sigma Methodology 4.00 0.63 3.87

7. Linking Six Sigma to Business Strategy 3.67 0.52 3.16

8. Organizational Infrastructure 3.33 0.52 1.58

9. Linking Six Sigma to Employees 3.17 0.41 1.00

10. Cultural Change 3.83 0.41 5.00

11. Linking Six Sigma to Suppliers 2.67 0.82 -1.00

As per table 2, training, linking six sigma to customer, and project

prioritization and Skills topped the list of CSFs, followed by project

management skills, and then cultural change came. Linking six sigma to

employees and suppliers were rated as not significant. This shows that

companies have not linked their six sigma program to their employees and

suppliers.

To be globally competitive, it is essential for the Indian auto component

sector to follows Sigma” as an effective continuous improvement tool to

deploy TQM philosophy. The foremost reason for low implementation of Six

Sigma tool in the Indian auto component sector has been identified as lack

of top management commitment. Seventy percent of the top management



team has not shown interest in implementation of this tool because of high

cost involved in training the people for green belt, black and master black

belt. For the Indian automobile sector, “6-sigma” implementation is not well

adopted as a tool for making continuous improvement. Only 5% of

respondent organizations claim to follow “6-sigma” tool. That is the reason

why Indian automobile sector in general have not been able to achieve

consistent level of quality based on + - Sigma, which means that the parts

falling outside the normal process range will be around 2700 parts-per-

million (2700ppm) where as rejections in automobile sector is more than

4%(40,000ppm).

References

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organisations", Measuring Business Excellence, Vol. 4 No. 4, pp. 7-10.

2. Antony, J. and Banuelas, R. (2001), "A strategy for survival",

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6. Dedhia N S (2005), “Six-Sigma basics”, Total Quality Management and

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New York, NY

8. Haliday, S. (2001), “So what is exactly…six sigma?”, Works

Management, Vol. 54 No. 1, p. 15.

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management strategy revolutionizing the World‟s top corporations,

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implementation of six sigma: benchmarking general electric

company”, Benchmarking and International Journal, Vol. 7 No 4,pp.

260-81

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sigma way: How GE, Motorola and other top companies are honing

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corporations", Currency Publishers.

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Management, Vol. 54 No. 1, p. 15.

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Sigma Way: How GE, Motorola and Other Top Companies are Honing

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http://www.ge.com/annual99/letter/



MARKETING INNOVATION-CONSUMER BANKING EDUCATION IN RURAL AREAS

*Mr.Vivek Srivastava

**Mr Mridhul Dharwal

***Santosh Yadav

****Dr M L Maurya

Abstract

Indian Banks have recorded a phenomenal growth in the past decade with

the initiation of Economic Reforms. The banks, both Public and Private,

have transformed themselves into profit-oriented business organizations

besides playing a developmental role in the economy. In an attempt to be more profitable, the banks have become competitive and more customer-

oriented. This new orientation has compelled them to take a more pragmatic

approach for conducting the business. Innovation is the key to success for

any activity and technology has become the fuel for rapid change. Innovative

banking is possible only when we have innovative people in banking. Moreover, innovative ideas of such people have to be heard at the right time

by the right people. Only then the needed encouragement and support is

given to convert innovative ideas into reality. Indian banking is also

changing its shape rapidly by adopting innovative technology products and services,The new technology has radically altered the traditional ways of

doing banking business. Technology plays a prime role in improving the

internal working of a bank and ensuring customers‟ satisfaction .It has

accelerated Customer –Centric delivery channels services round the clock.

The paper focus on new and upcoming technology in baking sector, trends

in technology development, tools applicable in banking, impact on service

quality of banks etc.

Introduction: - Today banking is known as innovative banking. Information technology has given rise to new innovations in the product designing and their delivery in the banking and finance industries, customer services and

customer satisfaction are their prime work. One of the most significant

areas where IT has had a positive impact so on substitutes for traditional

funds movement services. With the advent of electronic banking electronic

funds transfer and other Similar products funds transfer within time frames which would have appeared impossible a few years age. With networking

and inter connection new challenges are arising related to security privacy

and confidentiality to transactions. Finally the banking sector will need to

master a new business model by building management and customer

services with a variety of products and controlled cost to stay in the long run. The traditional functions of banking are limited to accept deposits and

to give loans and advances. Today banking is known as innovative banking.

Information technology has given rise to new innovations in the product



designing and their delivery in the banking and finance industries, customer

services and customer satisfaction are their prime work. Current banking sector has come up with a lot of initiatives that oriented to providing a better

customer services with the help of new technologies. Banking sector mirrors

the larger economy its linkages to all sectors make it proxy for what is

happening in the economy as a whole. Indian banking sector today has the

same sense of excitement and opportunity that is evidence in the Indian Economy. The going development in the global markets offers so many

opportunities to the banking sector. In the competitive banking word

improvement day by day in customer services is the most useful tool for

their better growth. Bank offers so many changes to access their banking and other services. Banks plays an important role in the economic

development of developing countries. Economic development involves

investment in various sectors of the economy. The banks collect savings for

investment in various projects. In normal banking the banks perform agency

services for their customers and helps economic development of the country. The purchase and sales securities, shares, make payments, receive

subscription funds and collect utility bills for the Government department.

There for banks save time and energy of busy peoples. Bank arranges

foreign exchange for the business transactions with other countries. Banking sector are not simply collecting funds but also serve as a guide to

the customer about the investment of their money.

Historical Background: - Bank of Hindustan was set up in 1870; it was the earliest Indian Bank. Later, three presidency banks under Presidency

Bank's act 1876 i.e. Bank of Calcutta, Bank of Bombay and Bank of Madras

were set up, which laid foundation for modern banking in India. In 1921, all

presidency banks were amalgamated to form the Imperial Bank of India.

Imperial bank carried out limited number of central banking functions prior to establishment of RBI. It engaged in all types of commercial banking

business except dealing in foreign exchange. Reserve Bank of India Act was

passed in 1934 & Reserve Bank of India (RBI) was constituted as an apex

body without major government ownership. Banking Regulations Act was

passed in 1949. This regulation brought RBI under government control. Under the act, RBI got wide ranging powers for supervision & control of

banks. The Act also vested licensing powers & the authority to conduct

inspections in RBI. In 1955, RBI acquired control of the Imperial Bank of

India, which was renamed as State Bank of India. In 1959, SBI took over control of eight private banks floated in the erstwhile princely states, making

them as its 100% subsidiaries. It was 1960, when RBI was empowered to

force compulsory merger of weak banks with the strong ones. It significantly

reduced the total number of banks from 566 in 1951 to 85 in 1969. In July

1969, government nationalised 14 banks having deposits of Rs. 50 crores & above. In 1980, government acquired 6 more banks with deposits of more

than Rs.200 crores. Nationalisation of banks was to make them play the role

of catalytic agents for economic growth. The Narasimha Committee report

suggested wide ranging reforms for the banking sector in 1992 to introduce internationally accepted banking practices. The amendment of Banking

Regulation Act in 1993 saw the entry of new private sector banks. Banking



industry is the back bone for growth of any economy. The journey of Indian

Banking Industry has faced many waves of economic crisis. Recently, we have seen the economic crisis of US in 2008-09 and now the European

crisis. The general scenario of the world economy is very critical. It is the

banking rules and regulation framework of India which has prevented it

from the world economic crisis. In order to understand the challenges and

opportunities of Indian Banking Industry, first of all, we need to understand the general scenario and structure of Indian Banking Industry.

Challenges Facing By Banking Industry:-The banking industry in India is

undergoing a major transformation due to changes in economic condition and continuous deregulation. These multiple changes happening one after

other has a ripple effect on a bank trying to graduate from completely

regulated sellers market to completed deregulated customers market.

Deregulation:-This continuous deregulation has made the banking

market extremely competitive with greater autonomy, operational

flexibility, and decontrolled interest rate and liberalized norms for

foreign exchange. The deregulation of the industry coupled with decontrol in interest rates has led to entry of a number of players in

the banking industry. At the same time reduced corporate credit off

thanks to sluggish economy has resulted in large number of

competitors battling for the same pie.

New rules:-As a result, the market place has been redefined with new rules of the game. Banks are transforming to universal banking,

adding new channels with lucrative pricing and freebees to offer.

Natural fall out of this new players, new channels squeezed spreads,

demanding customers better service, marketing skills heightened competition, new rules of the game pressure on efficiency missed

opportunities. Need for new orientation diffused customer loyalty.

Bank has led to a series of innovative product offerings catering to

various customer segments, specifically retail credit.

Efficiency:-This in turn has made it necessary to look for efficiencies in the business. Bank need to access low cost funds and

simultaneously improve the efficiency. The banks are facing pricing

pressure, squeeze on spread and have to give thrust on retail assets.

Diffused customer loyalty:-This will definitely impact customer

preferences, as they are bound to react to the value added offerings. Customers have become demanding and the loyalties are diffused.

These are multiple choices; the wallet share is reduced per bank with

demand on flexibility and customization. Given the relatively low

switching costs; customer retention calls for customized service and hassle free, flawless service delivery.

Misaligned mindset:-These changes are creating challenges, as

employees are made to adapt to changing conditions. There is

resistance to change from employees and the seller market mindset is

yet to be changed coupled with fear of uncertainty and control

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orientation. Acceptance of technology in but the utilization is not

maximized.

Competency gap:-Placing the right skill at the right place will

determine success. The competency gap needs to be addressed

simultaneously otherwise there will be missed opportunities. The

focus of people will be doing work but not providing solutions, on

escalating problems rather than solving them and on disposing customers instead of using the opportunity to cross sell.

Strategic options with banks to cope with the challenges: - Leading

players in the industry have embarked on a series of strategic and tactical initiatives to sustain leadership. The major initiatives include:

Investing in state of the start of the art technology as the back bone of

to ensure reliable service delivery.

Leveraging the branch network and sales structure to mobilize low

cost current and savings deposits.

Making aggressive forays in the retail advances segments of home and

personal loans.

Implementing organization wide initiatives involving people, process

and technology to reduce the fixed costs and the cost per transaction.

Focusing on fee based income to compensate foe squeezed spread.

Innovating products to capture customer „mind share‟ to begin with

and later the wallet share.

Improving the asset quality as Basel II norms.

Innovative Marketing approach: - The new marketing approach becomes an imperative for businesses to formulate their Marketing activities and to

build relationships, networks, and interactions with, a number of different,

but often equally important markets. The customer market is the key

market and the importance for a business of retaining its customers, with evidence suggesting that retention of customers leads to increased market

share and eventually bigger profits. Marketing tools that businesses can

employ for retaining customers may provide for a competitive advantage.

CRM-oriented businesses market their products and services through

relationships and interactions with multiple markets, most notably the customer market. The bank has chosen to combines external and internal

information in order to build an effective and efficient segmentation. The

important elements to consider for segmentation are the consumers' attitude

and needs; socio- demographic situation; actual and potential profitability;

and behavior in terms of distribution channel use and products. An excellent segmentation will also enable the bank to find and focus on

consumer who will be considered as referrals by others. Their

recommendations of the bank will be taken seriously, and the potential

future client base widens. The bank has identified five groups according to their risk level, distribution use, revenues, interest in insurance, and socio-

demographics. Few banks have already started marketing aggressively for



retail business loans by tying up with a select-reputed builders and

conducting road shows in India and abroad to lure the salaried people and professionals. This role is intermediation of the banker between the builders

and salaried people and professionals can be further extended to cover other

areas as well. For example banks can connect the manufacturers of goods

and services with the ultimate buyers. The process is very simple. Banks are

required to have a common agency with which the entire database of all the banks should be shared. This data should be analyzed and classified into

various segments say- according to activity, age, place, income, education,

etc., of the organizations and people who constitute this data. Few

relaxations in the existing banking laws are required for this purpose. Banks can also play an active intermediary role in connecting the organizations

and people at various segments, thereby facilitating the process of

movement of goods and services from the manufacturers/producers to the

ultimate users (of course through other intermediaries where they are not

dispensable). Banks can finance the manufacturers/producers or the ultimate users while tying up them with one another thereby increasing

their lending portfolio and in the process ensuring the end use of funds.

Collection of data from rural places is one area where banks can boast of

possessing rich information, especially the public sector banks that have almost more than one third of the network of branches located at rural

areas. Banks can play a dynamic role in the delivery and purchase of

consumer durables to the rural sector by using their rural database.

Therefore, instead of acting as financing intermediaries to some of the

parties in the total chain as at present, banks can bring all the parties in the chain under their ambit. Banks can thus transform themselves into

aggressive marketing intermediaries from mere financial intermediaries.

This innovative approach can also be used with regard to NPAs where the

products manufactured by such sick or loss-making units are of good quality but the units have become sick due to financial indiscipline or

mismanagement or lack of marketing skills. Buyers for such products can

be scouted by the banks by using the above mentioned database and in

deserving cases buyers can be given bank finance or their own merits to buy

the products of sick units. A portion of the funds thus given can be again routed back into the banks for their working capital requirements. Similarly,

banks can play an active marketing role in venture capital financing with

the above modus operandi, thereby taking part in not only financing the

venture capital but also in marketing functions. Micro finance is yet another

area where banks can play an active role .The objective of micro finance is to deliver a wide range of financial services say, deposits, advances, insurance

and other related products to people engaged in agriculture, small

enterprises and poor people in order to increase their standard of living.

Finance is extended to SHGs or NGOs, which is basically institutional/group finance instead of lending to individual beneficiaries

unlike in the case of other priority sector/rural lending. Moreover, there are

no subsidies or interest concession and the basic concept in micro finance is

to give a timely finance to the needy people. Therefore, transaction costs are

cheaper and profitability is better under micro finance when compared to the conventional rural lending. In view of these factors in the long run micro



finance is likely to replace the conventional and concessional rural lending.

Ample scope is available for private and foreign banks to venture into this activity due to the above-mentioned advantages. Similarly, banks in rural

sector should actively market products like Kisan Credit Cards, Forward,

Futures, and Option markets of commodities. While Kisan Credit Cards

serve as an instrument of credit, Forward, Futures and Options markets

ensure a fair price to the farmers eliminating uncertainty. However, this require an effective network that is one regulated as well as a matured

financial market in rural areas for the growth and development of these

products. Rural India and its economy mainly depend upon Monsoons.

Famine and Floods both occur at the same time in the different parts of the country causing damage to the crops. Therefore, rural insurance has to be

an effective tool in hedging these risk factors. Government, banks and

insurance have to together evolve a more proactive and vibrant measures to

deal with this issue, both at macro and micro level. There is a vast untapped

potential in this area and lot of scope for developing new and innovative insurance linked financial products. Merger of developmental financial

institutions like ICICI and IDBI with their commercial banking wings lays

emphasis on universal banking offering wide range of financial products

under one umbrella. Similarly, SIDBI and NABARD are having a strategic alliance with few commercial banks to expand the reach of their products

and services.

Marketing approach for rural areas:-Prior to nationalization of banks, the rural areas were virtually without banking facility. After nationalization of

banks in 1969, branches of the banks were started gradually in the rural

areas also. In different state the extent of rural banking is different. Some of

the states have good performance in the rural banking but in spite of that

unorganized sector is still dominating in the rural banking. It means the nature of competition is different. Here banks have to face competition with

the unorganized sector. Under such environment different marketing

approach is required. For effective rural marketing, Product development,

Promotion and Communication play an important role. All these parameters

banks have to balance with socio-economic factors prevailing in the rural areas. Here bank need to innovate product that could attract the depositors.

Various loan schemes that are suitable for them for getting funds at right

time and also they find convenient to repay. For loans and advances

products which are suitable to farmers, small traders, small scale agro based rural industries are already in existence. Banks need to see that how

value addition can be made to these existing schemes. Banks also needs to

tie up with Non Government Organizations (NGO) and Self Help Groups

(SHG) for different types of loans, micro financing etc. This will help the

bank for building good image and reputation in the rural areas. Marketing through customer services in rural areas is different from that of urban

areas. Because of high level of illiteracy people prefer to undertake banking

transaction themselves. For effective marketing in rural areas bank should

have staff with right soft skill like concern for customers‟ problem, positive attitude, good communication and negotiation skill. At every level of dealing



with the customer bank need to educate them for banking activities and

processes.

Bank Marketing Strategies:-The marketing research considered being a systematic gathering, recording and analysis of data makes ways for making

and innovation the marketing decisions. The information collected from the external sources by conducting surveys helps bank professional in different

wants. In the bank services, the formulation of overall marketing strategies

is considered significant with the view point of tapping the potentials,

expanding the business and increasing the marketing share. The increasing

domination and gaining popularity banks, the popularity banks, the profitable schemes of the non-banking organization mounting craze among

the customers for private banks have made the task of influencing the

impulse of customers a bit difficult. The marketing research simplifies the

task of studying the magnitude of competition by opinion surveys and the feed back customers, the multi-dimensional changes in the services mix can

be made productive if it is based on marketing research.

Customer Service Strategies in Banking Sector:-Today, banking sector is

seen as a catalyst in economic growth of a country and, lot is expected from

the banking fraternity. The recognition of banking, as a tool for all inclusive growth by economists, financial planners, reformist etc has made it an

important sector in the Government‟s planning of economic growth. The

banking sector in India is therefore witnessing tremendous changes because

of political, social and economic changes that are taking place domestically and internationally. ATMs of the larger banks are either fully out sourced by

the individual banks or handed over to an autonomous agency by most of

the banks collectively. Small players in ATMs are also trying to be a part of

this shared network with regard to clearing operations, Reserve Bank of

India has already initiated the required steps to gradually dispense with the physical presentation of chques and replace the same with electronic

clearing in major cities. Similarly the audit and inspection of the

computerized branches is now being done in many cases by transfer of data

files to the supervisory and inspecting authorities. Qualitative inspection

and supervision of the banks by Reserve Bank of India is made possible by the technology, leaving the routine audit work to the concerned internal

audit departments of the individual banks. With the automation of the

routine work process and rapid technological developments, a host of

customer friendly banking products with flexibility are now available to one and all. Few departments of the government (e.g. customs, income tax,

central excise, commercial taxes and sales tax) have already initiated the

process of EDI (Electronic Data Interface) there by reducing the manual

tasks in the preparation of documentation and enhancing the levels of

automation. This also facilitates standardization in documentation with uniformity. This will also ensure submission of such standard data in

electronic form and scanning the physical documents where required. In the

long run, this enables e-commerce to gain momentum. Therefore, banks can

also equally look forward to submission of commercial documents by the trade industry through EDI in the near future. Once this is done, the need



for the business segment to personally visit the bank branches to submit

the documents will be eliminated. When ATMs on one side have reduce the depends of individuals customers on the bank branches to conduct their

routine banking operations, the EDI when gains momentum will reduce the

dependence of corporate customers on the bank branches in a similar

fashion. These developments taking place mainly on account of automation

will reduce the differentiation in the service delivery systems, as they are mostly standardized. Therefore, banks have to be innovative to maintain

their brand values. The concept of banking, which was earlier restricted to

accepting of deposits from public for the purpose of, has also undergone sea

change. Today the banking sector is seen as a vehicle for all inclusive economic growth, social responsibility and equiv-distribution of national

resources. Today banks are wooing existing customers, prospective

customers by offering new facilities, products, and services in order to

retain/increase their base in market. The way the banking has changed, so

has the customer changed. The customer of today is not what he was yesterday. Today the customer is more knowledgeable, demanding,

analytical and aware of his rights. It is therefore a challenging task before

the banking sector to revisit their entire working modules, up gradation of

skills, technology, and policies so that they are competent to withstand the international competitive environment in future. All customers from different

backgrounds have different expectations. Unless the service standards fit to

each person‟s expectations, he will not be satisfied. Therefore one has to

understand each type of customer thoroughly to be able to provide customer

specific services. The entire process of customer service is dependent on following.

1. Human resources:-Any organization‟s success or failure is the result of

success or failure of its employees collectively. Here the employee doesn‟t

mean only the staff working down the ladder, but also includes people right up to the top. All the functions in an organization are undertaken by

humans, whether it is selection of staff, development of product, making

software, formulating policies, devising systems, procedures, defining

processes, delivery channels, undertaking market studies etc. Humans may

be assisted by the technology for arriving at the decisions. In all the functions enumerated above, different departments do the work separately

but the same are ultimately linked to each other to achieve the corporate

goal. It is just like gears though rotating independently, move the entire

structure in the desired direction. If any gear malfunctions, it brings the

entire process to halt. Thus the human beings working in an organization are very important. Handling of humans by humans is a very complex job

also.

The job requirements of HRD are to select, train, develop, deploy, and

motivate the human resources in the organization so as to get optimum results for the organization.

2. Products/services:-Banks do not provide physical goods to its

customers. The products which a bank offers are mostly financial products

and along with these products also provide other services which are not

financial in nature, like safe deposit vaults, Locker facilities etc.



In financial products there are basically two types of activities, namely

deposit procurement and its deployment profitably. These two activities constitute more than 80% of banking business in all the banks.

I. Deposits: Basic structure of deposit is to attract the customer by

offering interest on funds or some facility in lieu of interest. However

depending upon the needs of different set of customers various types

of deposit schemes are formulated. For example, savings bank accounts are for those who want short term savings with liquidity and

to make regular deposits and withdrawals etc. Term deposits are for

those who want to invest for longer duration having surplus funds not

needed immediately. Some may want savings to grow gradually by contributing smaller amounts at set intervals. The ultimate goal of

depositor is to keep his money safely in the bank and be able to use

when needed. Likewise there are various combinations of deposit

schemes based on liquidity, returns and safety.

II. Advances: Banks, in a similar way deploy deposits by lending to those who need it at a cost in the shape of interest. Here again the products

differ depending upon the need of the customer. It may be overdraft

facility, working capital finance, term loan, etc for business or

personal needs. III. Other products/ services: Apart from deposit and advances, banks

offer various other facilities/services to their clients, like remittances,

investment services, fund management, financial advisory services,

tax collections, bill payment services etc. to earn fee based

incomes.The flexibility of banks to adopt changing needs and expectation of customers and bring out products/ services to suit

customers is an important area in banking services. A robust

Research and Development department which can effectively and

efficiently bring out newer products/ services based on market feel and futurist visualization of customer preferences is an important

aspect in banking services.

3. Processes:-Today‟s customer is short of time and feels uncomfortable

when the process involved in getting the product or service is lengthy and

cumbersome. The customer wants very simple processes to get his work done. The processes for any product or service should be at the minimum

and at one go. Frequent back references and repeated information and

excessive documentation dissatisfy the customer. The processes devised for

getting the services should be very customer friendly, easy to understand

and complete. The forms, applications, documents should be simple, easy to understand with proper column and space to write. Sometimes it is

observed that the space provided for writing is very small. The quality of

paper, the font size and the language should be proper.

4. Delivery channels:-Customer satisfaction is also dependent upon the delivery channels used by banks in providing the services. Today‟s customer

wants effortless, efficient, secure, simple and dependable channels of

delivery, whether it is through humans or technology driven channels. To

quote an example, suppose a customer uses internet banking and made a

third party payment. He would like to know what happened to his payment instructions. He should be able to track the payment on line till it reaches



the beneficiaries account. If this facility is not available, he may not be

comfortable with the internet banking. Another thing mostly observed in Public sector banks is that their websites are not updated regularly and

navigation is very tardy. The forms/ applications are scanned and cannot be

filled on line. The information/ forms etc. are outdated and not properly

tagged.

5. Customer feedback and complaints:-Feedback from customers is of immense help in formulating products, fine tune services and plug the

loopholes. However most of the time, feed backs are generally not available

and public sector banks are normally not enthused about taking feedback

on their services. Rather wherever a customer gives his feedback (read complaint), it is not taken in right spirit by the bank/ concerned staff.

Instead of looking into the real cause an effort is made to provide alibis or

blame the staff. It may be possible that that the procedure itself is the cause

of complaint or it is because of reasons which are not under control of the

branch. Customers may be of three types. One type of customer never complains

and continues the relationship. Second type of customer does not complain

but changes the bank silently and third type of customer complains. First

and second type of customers does not give an opportunity to bank to improve upon its services. Third type of customer however gives opportunity

to the bank to improve the service though he may not be preferred over the

other two types of customers.

Today no bank is willing to accept complaints from the customers and

normally effort is made to somehow get the complaint withdrawn or resolved without analyzing why the complaint has originated. It becomes very

difficult for field level staff to get the complaint redressed when the cause or

reason of complaint is not because of them. However they are made to beg

the customer to give satisfaction letter. Each complaint when made may be because of so many factors, not necessarily the fault of the person or branch

against which it is made. It may be due to system lapse, procedural

deficiency, inapt technology, poor in-house work allocation, work flow

module etc. Sometimes the complaints are frivolous and made to harass the

person concerned. Though in customer oriented markets, customer is always right but care should be taken that the staff is also protected from

frivolous complainants. Each complaint of the customer should be properly

analyzed, assessed. It may be possible that route cause may be somewhere

else which should be rectified rather than the concerned staff or branch

made the scapegoat. 6. Grievances Redressal Mechanism:-Improving upon the services is an

ongoing process. The essential inputs are customer feedback, market

surveys and the complaints received by an organization. No organization can

say that they have zero customer complaints. However an organization which has robust mechanism to redress the complaints and resolve problem

of the customer gets recognition as a customer friendly organization.

Accepting the mistake and offering compensation goes a long way in

retaining the customer. Most of the banks have come out with their

compensation policies and customer grievances cells. However they are mostly on paper and seldom followed in the spirit in which they are framed.



Even where the compensation policy provides automatic payment of

compensation, interest in case of delays etc., it is seldom paid unless the customer demands it.

7. Market Studies:-Market studies are effective tools to study the behavior

of customers and their response to present standard of services. It also

helps to understand future trends and requirements as needs of the

customer‟s keeps of changing with change of times. Market research gives way to innovations in products and services. Market studies may be done

in-house, or assigned to outside expert agencies or both depending upon the

vision of the bank.

Conclusion: - In the present scenario of competitive banking, excellence in customer service is the most important tool for sustained business growth.

Customer complaints are part of business life of any corporate entity.

Customers, who take time to complain, still have some confidence in the organization. As a service organization, customer service and customer

satisfaction is the prime concern of the bank.

References:-

1. Johari and Jauhari(1994) Role of computers in banking Operation

System, Himalaya Pub. House ,New Delhi 2. Kalakota ,R.(2000)E-Business ,Pearson Education ,Asia

3. http://www.iibf.org.in

4. http://www.rbi.co.in

5. Avasthi,G.P.M(2000),Information Technology in Banking :Challenges for regulators,prajnam,Vol.XXIX,No.4

6. Bajaj,KK ,(2000)Ecommerce Issues in the emerging Hi –Tech Banking

Enviorment ,The Journal of the Indian Institute of Banker ,Jan-March

7. Audrey Gilmore, (1990), ″Services marketing and Management″, TMH

8. D. Ghosh Roy (Dec2002), ″Service Quality Management in Banks″. BDP Publishers

9. B.R.Parthasarathi (Nov.2005), ″Customer Service in Banks and its

importance″, Excel publisher

10. Shyam Ji Mehrotra (April 2006), Bank Marketing, Phb publisher

11. www.nabard.org 12. www.financialexpress.com

*Vivek Srivastava, Associate Professor, GNIT College of Management,

Greater Noida

**Mr Mridhul Dharwal,Faculty,ShardhaUniversity, Greater Noida.,

***Santosh Yadav, Assistant Professor, ,department of commerce, igtms

university ,ziro, arunachal pradesh

****Dr M L Maurya, Professor, Bundelkhend University, Jhansi

http://www.financialexpress.com/



RESEARCH PAPER ON PROBLEMS OF EDUCATED UNEMPLOYMENT IN

INDIA AMONG MEN AND WOMEN

Jyoti Singhal

( Assistant Professor

Shobhit University Meerut)

Email Id: [email protected]

Contract No: 91-9897920122

Abstract

This research paper focuses on the problems of unemployment among the

educated people in India among men and women. This paper reveal the

reason of unemployment among the educated youth is lack of skills, talent

and practical knowledge in the institutions. The rate of unemployment is

increasing day by day. This might cause a serious problem for our country.

this young youth are the future of the country and the problem of

unemployment can have negative reaction on the individual and the society

in general. young youth due to lack of jobs are committing suicide. So the

problem of unemployment should be taken seriously and the appropriate

steps such as increasing production , using labour intensive technology,

industrialization, encouragement to self- employment/entrepreneurship and

the most important element imparting some practical knowledge and skills

which are used in the companies to the students is quite essential to solve

the problem of unemployment.

Key words: unemployment rate, education system, money, economy, society

1. Introduction

India has been one of the fastest growing countries in the world since the

mid-1980s, but there is concern that this growth has not translated into

adequate reduction in poverty (Kotwal et al. 2011; Motiram and Naraparaju

2014). A crucial link that has been highlighted is the inadequate creation of

good jobs, particularly in labor-intensive manufacturing, which can absorb

the poor from rural areas and the urban informal sector. The spectre of a

large unemployed population in India, particularly among the younger

generations, has been haunting the world recently. Consequently, it is

important that the issues of unemployment and employment in India be

adequately and properly understood. Our focus on India is due to the global

attention garnered by the issues of employment, unemployment and job-




creation in India among academics, policy makers and intelligent lay

persons.

What is unemployment:

Unemployment is defined as a situation where someone of working age is

not able to get a job but would like to be in full time employment.

Note:If a Mother left work to bring up a child or if someone went into higher

education, they are not working but would not be classed as unemployed as

they are not actively seeking employment.

2.Types of Unemployment

Summary of Unemployment Types

Demand Deficient Unemployment. – Lack of AD in economy (e.g.

Recession)

Structural Unemployment – workers lack necessary skills or

geographical immobility

Real Wage Unemployment – wages above equilibrium

Frictional unemployment – workers in between jobs

Voluntary Unemployment. – workers prefer not to work

(1)Demand Deficient Unemployment. Demand deficient unemployment

occurs in a recession or period of very low growth. If there is insufficient

Aggregate Demand, firms will cut back on output. If they cut back on output

then they will employ less workers. Firms will either cut back on

recruitment or lay off workers. The deeper the recession, the more demand

deficient unemployment there will be. This is often the biggest cause of

unemployment, especially in a downturn. This is also known as cyclical

unemployment – referring to how unemployment increases during an

economic downturn.



Diagram showing fall in AD and lower Output – which leads to higher

unemployment

(2)Structural Unemployment

This is unemployment due to inefficiencies in the labour market. It may

occur due to a mismatch of skills or geographical location. For example

structural unemployment could be due to:

Occupational immobility. There may be skilled jobs available, but

many workers may not have the relevant skills. Sometimes firms can

struggle to recruit during periods of high unemployment. This is due to the

occupational immobility.

Geographical immobility. Jobs may be available in London, but,

unemployed workers may not be able to move there due to difficulties in

getting housing e.t.c.

Technological change. If an economy goes through technological

change some industries will decline. This is likely to lead to structural

unemployment. For example, new technology (nuclear power) could make

coal mines close down leaving many coal miners unemployed.

(3)Real Wage Unemployment / Classical Unemployment

This occurs when wages are artificially kept above the equilibrium. For

example, powerful trades unions or minimum wages could lead to wages

above the equilibrium leading to excess supply of labour (this assumes

labour markets are competitive) Keynesian analysis suggests a fall in AD



can lead to real wage unemployment as wages are sticky downwards and a

fall in AD doesn‟t lead to wages clearing.

(4)Frictional unemployment

This occurs when workers are in between jobs e.g. school leavers take time

to find work. There is always likely to be some frictional unemployment in

an economy as people take time to find a job suited to their skills.

(5)Voluntary Unemployment.

This occurs when workers choose not to take a job at the going wage rate.

For example, if benefits offer a similar take home page to wage – tax, the

unemployed may feel there is no incentive to take a job.

Other Concepts about Unemployment

Seasonal Unemployment. In certain regions, unemployment may be

seasonal e.g. unemployment rises in winter when there are no tourists.

Disguised / Hidden unemployment. Often unemployment statistics don‟t

include certain types of workers. For example, those put on incapacity

benefit may not be counted as unemployed, but, it may really be a type of

structural unemployment.

Natural Rate of Unemployment. This is the level of unemployment when

the labour market is in equilibrium. It is the difference between the labour

force and those willing and able to accept a job at going wage rate. It

encompasses the different supply side unemployment like frictional and

structural unemployment.

Under Employment. This is when people have a job but it is part time or

temporary. They would like to work full time, but only have a part time

income.



Source: www.tradingeconomics.com/india/unemployed-persons

The number of unemployed persons in India increased to 44.79 Million in

2012 from 40.17 Million in 2011. Unemployed Persons in India averaged

29.45 Million from 1971 until 2012, reaching an all time high of 44.79

Million in 2012 and a record low of 5.10 Million in 1971. Unemployed

Persons in India is reported by the Ministry of Labour and Employment,

India.

Employment/unemployment status of the civilian population 25 years

and over by educational attainment in the year 2015

Bachelor's degree and

higher degree Mar-15

Apr-

15 May-15 Jun-15 Jul-15

Civilian labour force 51,272 51,156 51,938 51,855 52,361

Participation rate 74.3 74.6 75 74.6 74.5

Employed 50,007 49,758 50,518 50,548 51,021

Employment-population ratio 72.5 72.5 73 72.7 72.6

Unemployed 1,265 1,399 1,419 1,307 1,339

Unemployment rate 2.5 2.7 2.7 2.5 2.6

Source: NSS 66th Round (2014-15), Schedule 10 - Employment and

Unemployment

It has been interpreted in this table that the rate of unemployment in the

month of march was 2.5 , which was increased to 2.7 in the month of April

2015. This rate of unemployment remain stable in the month of may 2015.

it then reduced to 2.5 in the month of June 2015 and in the month of July it



reached to 2.6. so this shows an upward situation in the rate of

unemployment in india.

3. REASON BEHIND EDUCATED UNEMPLOYMENT

Unemployment means that while the people are willing to work, they have

no work to do. The most important reasons of India's poverty and

backwardness are their problem of unemployment.

Rapid Changes in Technology

With rapid changes of technology, the need for numerous workforces also

diminished. Many manufacturing plants today have minimal employees,

caused largely by machines and computers doing the entire job for them.

Recessions

A recession is defined as a period of general economic decline; specifically, a

decline in the country's GDP for two or more consecutive quarters. During a

recession the company would either: 1. reduce unnecessary expenditure

(cost optimization) 2. reduce unnecessary work force(resource optimization).

Both the situations would ultimately result in unemployment.

Inflation and Unemployment

Inflation and Unemployment go hand in hand. For every country,

maintaining a low unemployment rate is the main objective. It is usually

believed that inflation and unemployment are inversely proportional. There

are many economists, who hold the opinion that low rate of unemployment

together with low inflation rate may be a source of concern.

Educational Institutions

Education has just become a profession. Colleges are being set up not to

give quality education but to earn money. Every year our educational

institutions are producing thousands of graduates and post graduates.

These people refuse to under taking any manual work. Even agricultural

graduates refuse to go to villages and work in fields. Engineers crave for

government jobs rather than establishing their own industries. Hence our

educational system needs a drastic change. Opening of more private

engineering colleges are fuel to the unemployment problem.



List of universities /colleges in india

Sou

rce:

UGC Report 2015

Pressure from Parents

Another factor for increased unemployment is the pressure from parents.

Educated unemployment is due to a mismatch between the aspirations of

graduates and employment opportunities available to them. It is seen in

Indian community that parents put his son after getting 95% in science

stream in view to make him an Engineer or a Doctor. Parents hardly think

what his child wants to study., what are his wishes.

Running behind the Trend

Some time back there was a high demand of management courses, each one

wanted to be a manager. Now a day craze of engineering has gone sky high.

Students move to any private colleges and take admission. They feel

Engineering is the way to earn quick money. In spite of knowing their

capabilities they are blindly running behind the trend. According to latest

report by NASSCOM only 25% engineering graduates in India are

employable, this is because of poor quality of education in engineering

colleges. Maximum students in this country are from middle class. Parents

spend lakhs of rupees on them in a view that he will get a job after

completing his graduation. But when the student fail to get a job, his mental

position detoriates and gets depressed.

Some Other Reasons behind Educated Unemployment

a) Increasing Population

b) Disability to do the job

Name of university 2008 2009 2014 2015

Central university 25 40 39 45

State university 228 234 254 290

State private university 14 21 58 23

Institution established though

legislation 5 5 5 5

Institution deemed to be university 103 128 130 132

Institution of national

importance 33 39 40 73

Total 408 467 481 568

Colleges 23,206 25,951 35500 37,204



c) Nepotism

d) Demand of highly skilled labour.

e) Undulations in the business cycles

f) Unsatisfied incomes or salaries of the employees

g) Young people are not ready to take jobs which are considered to be

socially degrading or lowly

h) Extensive Automation and use of IT which has replaced man power.

i) Use of capital intensive technology

j) Lack of practical knowledge to the students in the institutions

Effect of Unemployment:

4.EFFECTS OF EDUCATED UNEMPLOYMENT

It has been observed that one year of unemployment reduces the life

expectancy by five years. Hypertension, cardiac problems, psychoneurosis,

depression, suicide are rising among youth as also other behaviors including

joining anti-social groups. Alcoholism, drug addiction, smoking, and rash

driving behaviours have increased. These behaviours are to take revenge

against the society which has made the youth develop low self-esteem due to

unemployment or not being able to be a productive member of the society.

The suicide rate in the high school going children has been increasing

steadily.

Some Other Effects

a) Low economic growth.

b) Unemployment can lead to emotional and mental stress.

c) A person can also get demoralised, he can do wrong things like he can

indulge in the habits like alcohol and drug abuse or even may commit

suicide.

d) Higher income inequalities and disparities leading to nothing but poverty.



5.EFFORTS TOWARDS REDUCTION OF EDUCATED UNEMPLOYMENT

Efforts made by individual

After 10+2 comes a very crucial period where we almost get puzzled to what

stream to go into. This is the time we should sit down and think what will

best for us. We will not find carpenters, shoemakers, tailors or even barbers

in this queue of employment searches. This clearly shows the failure of

modern educational system and insolvency of our policy makers. So if we

really want to solve the unemployment problem educational system must be

made job oriented. Now our country does not need only clerks, it is in need

of persons who can serve her by their physical and mental skill.

Remedies and Solutions to Educated Unemployment

a) The main remedy lies in the rapid industrialization.

b) The need of faster economic growth to generate more jobs.

c) The need of improvements in the education and training provided to the

youths with a greater focus on vocational skills and self employment.

d) The Government support to struggling is necessary to try to save jobs.

e) Promoting education especially female education and motivating people to

have small families.

f) Enhanced focus on entrepreneurial, communication, and inter-personnel

skill development.

g) Increased cross-talk between public-private, formal/informal educational

enterprises.

h) Integrated counseling, evaluation, and guidance initiatives.

Efforts Made By Government

a) Prime Minister's Rozgar Yojana (P.M. R.Y) for educated unemployed

youth.

b) Scheme for Educated Unemployed for employment generation in urban

localities(SEEGUL)

c) Scheme of Self-Employment for Educated Unemployed Youth(SEEUY)

d) Schemes for the State Governments(Educated Unemployed Youth)

e) Scheme for" New Initiative in Skill Development through PPP" by Planning

Commission of India.

f) Swaranjyanti Gramin Swrajogar Yojana (SGSY)

g) Swaranjyanti Sheri Rojgar Yojana



h) Swaranjaynti Credit Card

i) Programme for Adi-Davidar through Padco. (Pududucharry Adi-

Development Corporation.)

j) Rural Employment Generation Programme of KVIC

6.Conclusion

The employability, however, is a more serious problem and is a major

challenge to the entire educational system and the content of the curriculum

as well as the emphasis on the theoretical as distinguished from practical

applied training. The efforts made by the Indian state and policy-makers in

this area need to be reviewed carefully; but it is widely believed that these

efforts have been inadequate. The international commission on education,

UNESCO report says, education must be organized around four pillars of

knowledge i.e. learning to know, learning to do, earning to live together and

learning to be.

In the Indian context, significant emphasis has been placed on skills

development. In this regard, the National Skills Development Policy (2009)

sets a target of training 500 million skilled individuals by 2022, which will

be reached by expanding public institutions in rural areas; using innovative

delivery models; using skill development centres in rural areas to provide

training information, guidance and delivery; involving panchayats and local

government in skill delivery; improving access to apprenticeships and

raising female participation in training (Ministry of Labour and Employment

2009). Moreover, the role of the Industrial Training Institutions (ITIs) is

important in imparting technical skills to the youth and helping them access

better sources of livelihood. Also, a quality education can counteract the

social factors that hinder women‟s labour market participation. Therefore

The Government at central, state, local level and the civil society should take

effective steps in collaboration with one another to solve the problem of

widespread unemployment in India and make full utilization of idle

resources and idle manpower for better and prosperous future of the Nation.

7.References

1. A. Mitra and S. Verick, March 2013 “Youth employment and

unemployment: an Indian perspective” ILO Asia-Pacific Working Paper

Series.



2. Ashan A. and C. Pages, 2007, “Are All Labour Regulations Equal?

Assessing the Effects of Job Security, Labor Dispute and Contract Labor

Laws in India”, Policy Research Working, Paper No. 4259, World Bank,

Washington d.c.

3. Agarwal, P., Higher education and the labor market in India, 2007.

4. C. Simon and Oded Stark, May 2007, “International Migration and

Educated Unemployment, Journal of Development Economics, Vol. 83,

Issue 1, Pages. 76 – 87.

5. Education for All Global Monitoring Report, UNESCO 2006

6. Educational planning and unemployed youth, Archibald Callaway,

Unesco: International Institute for Educational Planning, Newsletter of the

institute of Social Science, University of Tokyo ISSN 1340-7155

7. Education for All by 2015: Will We Make It?, United Nations Educational,

Scientific, and Cultural Organization, Paris

8. J. kumar., p.tiwari.,s.k.gupta., p.singh., and h.gupta, educated

unemployment: a challenge before substainable education (ICSM – 2011),

BITS, Pilani, India, November 10-12, 2011.

9. Kochar K., U. Kumar, R. Rajan, A Subramanian and I. Tokatlidis, 2006,

“India‟s Pattern of Development: What Happened, What follows?” Paper

Number. WP/06/22, International Monetary fund, Washington, DC.

10. Mitra A, 2007, “India: Non – Formal Education”, Country Profile

Commissioned for the Education for All, Global Monitoring Report 2008.

11.National Sample Survey Organisation, Socio-economic Survey (Round 60)

January-June 2004. < http://mospi.nic.in/ mospi_nsso_rept_pubn.htm>

12. P. Agrawal, 2007, “Higher Education and Labour Market in India”.



13. R. Shukla, 2006, “India Science Report”, National Council for Applied

Economic Research.

14. Rana Hasan, Devashish Mitra, Priya Ranjan, Reshad N. Ahsan, April

2011, “Trade Liberaziation and Unemployment: Theory and Evidence from

India, Journal of Development Economics.

15. Ray, S. and Chand, R., Socio-Economic Dimensions of Unemployment in

India, NSSO, NewDelhi. 15. Shukla, R., India Science Report, National

Council for Applied Economic Research, 2006.

16. S. Ray and R. Chand, “Socio Economic Dimensions of Unemployment in

India”, NSSO, New Delhi, Page Number. 261 – 274.

17. Selected Educational Statics, 2008-15, MHRD, Government of India.

18. Sarbajit Chaudhuri, May 2011, “Economic Recession, Skilled

Unemployment and Welfare”, Economic Modeling, Vol. 28, Issue 3, Pages

1435 – 1440.

19.Tarlochan kumar, nov 2014, “educated unemployment among the Indian

youth” radix international journal of economics and business

management,vol.3,issue11, pages 1-9.

20. Tirthajyoti Sarkar, December 2007, “Reforming Higher Education to

Enhance Youth Employment Opportunities in India”, Reforming Higher

Education in India, Centre for International Private Enterprise (CIPE).

21. Youth Unemployment –Meeting the Needs of Youth, An Annotated

Bibliography of Research and Related Literature (1998 - 2003), UNESCO-

UNEVOC International Centre Publications



DETERMINANTS OF CSP-CFP RELATIONSHIP: A CONCEPTUAL STRUCTURE

Pinki Singh

Astt. Proff.

Raskhpal Bahadur Management Institute (Affiliated to UPTU, Lucknow)

Greater Noida,

M. No.-9643861272

Mail id- [email protected]

ABSTRACT

To examine CSP and CFP relationship by using contingency viewpoint

derived from the strategic management field is the main objective of this paper. The study will be done by using “Slack resource theory” and “Good

management theory” and is expected to provide a new insight on the relation

between corporate social performance and corporate financial performance

using contingency outlook as recommended in the strategic management and accounting literature which are the area has not been examined in the

previous studies.

The outcome of this study can resolve the existing conflict in the literatures

by developing an integrated model of the relation between CSP and CFP and the idea of corporate performance which, in strategic management, is highly

affected by four factors: business environment, strategy, organizational

structure and control system. The model will enlighten in what state the

relationship of CSP and CFP is convincing and applicable.

Keywords: Corporate social performance, corporate financial performance,

slack resource theory, good management theory, contingency theory, and

moderating effect.

Introduction

The relationship between CSP and CFP has been investigated by researchers

and produced inconsistent results: positive, negative, and inconclusive. The

conflicting results had been caused by two main factors: lack of theoretical

foundation and methodological problem.

Due to the absence of any sound theoretical foundation to explain CSP

structure has contributed to the conflicting result of the relationship

between CSP and CFP. From the theoretical ground perspective, basically theories used in defining CSP construct have been derived from thought of

neoclassical economic theory and stakeholder theory. Those who developed

CSP construct using neoclassical economics paradigm found a negative

result of the CSP and CFP relationship, while proponents of the stakeholder

theory showed the positive result. Furthermore, variation in the stakeholder theory itself in defining CSP such as Carroll‟s and Wood‟s model has



contributed to the conflicting result due to mismatching of the theory in

empirical studies (Wood and Jones, 1995). One of causes for the mismatching is due to the fact that in empirical studies researchers

operationalize the CSP construct based on certain type of industry and it

leads to the contribution to the inconsistent result (Rowley and Berman,

2000). To solve the weakness, it is suggested to operationalize the construct

in terms of company‟s relationship with its stakeholders (Clarkson, 1995a and 1995b; Husted, 2000; Rowley and Berman, 2000; Wood and Jones,

1995). In this regard, Husted (2000) defines CSP as “the ability of the firm to

meet or exceed stakeholder expectations regarding social issues”.

In addition to that some theories have been proposed to explain the relation

of CSP and CFP, but they fail to provide patent answer.One reason is due to

the neglecting of the contingency aspect (Ullman, 1985). Other researchers

also do suggest that variations in the result of the relationship between CSP

and CFP be solved by using contingency theory perspective (Wagner, 2001; Husted, 2000; Margolish et al., 2003; Orlitzky et al., 2003). Due to the fact

that CSP and CFP are not related under all condition, the contingency

perspective needs to be used to examine under which condition the relation

will be valid (Hedesström and Biel, 2008). In addition, Orlitzky et al., (2003) found that strong relationship will be dependent upon contingency such as

reputation and construct operationalization.

2002).

So far the use of contingency perspective in explaining the relationship of CSP and CFP has been argued by some researchers that CSP is the result of

the fit between endogenous organization variables of CSP and exogenous

contextual variables (Russo and Fouts, 1997; Rowley and Berman, 2000;

McWilliam and Siegel, 2001; Husted, 2000). For example, Russo and Fout (1997) found that the type of industry will determine the relationship of CSP

and CFP, while Husted (2000) argues that the relationship of CSP and CFP

depend upon stakeholder issues. Despite the importance of the use of

contingency perspective proposed by previous studies, there is still the

following one major gap. They do not integrate the contingency factors into the important determining variables in corporate performance both in the

conceptual framework level and in the empirical perspective. This effort is

needed because CSP is an extended corporate performance in the context of

Triple Bottom Line (TBL) concept.

Based on the review of accounting and strategic management literatures, it

can be found that corporate performances are matching of business

environment, strategy, internal structure, and control system (Lenz, 1980;

Gupta and Govindarajan, 1984; Govindarajan and Gupta, 1985; Govindarajan, 1988; Tan and Lischert, 1994; Langfield-Smit, 1997). Thus it

can be argued that corporate performances referred to the notion of TBL

should be affected by some important variables: business environment,

strategy, structure, and control system.



In the level of the conceptual framework, some previous studies (Hilman and

Keim, 2001; Husted, 2000; Pos et al., 2002; Orliztky et al., 2003; Neville, 2005) did not clearly relate their contingency variable (strategy) to the

corporate performance in the context of TBL. The variable (strategy)

specifically is focused on handling social issues not integrated into business

strategy. Furthermore in the level of empirical perspective, the contingency

variables used are beyond the TBL factors. Rather, they use industry type and company size as moderating variables, that is, variables affecting other

relationship, to explain the relationship between CSP and CFP (Fauzi, 2004;

Brammer & Pavelin, 2006 and Fauzi et.al, 2007).

Thus, this paper will address the gap by using the variables affecting

(moderating variables) the corporate performance as contingency factors to

explain the relationship of CSP and CFP. More explicitly, how variables such

as business environment, business strategy, organizational structure, and

control system can affect the relationship between CSP and CFP.

Relationship between CSP and CFP

There are two important issues in the relationship between CSP and CFP:

direction and causality of the relationship (Preston and O‟Bannon 1997). The direction of the relationship refers to positive, negative and neutral of

the relationship. The positive direction of the relationship of CSP and CFP is

that increase in CSP results in increase in CFP as well, while the change in

CSP leading to the change in CFP in different way is negative direction of the

relationship. If a change in CSP does not affect the change in CFP, neutral effect direction of the relationship will occur. The causality of the

relationship denotes which one between CSP and CFP will be becoming

independent or dependent variable. In this case, there are two possibilities:

CSP as independent variable and CFP as independent variable. If CSP as independent variable, it come first to affect CFP, while if CSP as dependent

variable, CFP will come first to affect CSP.

Based on the literature review, the relationship between corporate social

performance and corporate financial performance could be positive, negative, or neutral. But most of the result of studies indicated the positive

relationship and very few provided the negative and neutral relationship

The conclusion that can be drawn from the previous findings is that the

relationship between CSP and CFP is not under all condition. The use of contingency perspective is needed to understand under which condition the

relationship will be valid (Hedesström and Biel, 2008). This paper study will

address the gap of unsound theory on the relationship of CSP and CFP by

developing the integrated model derived from accounting and strategic management literature. The model to be developed, derived from Langfield-

Smith‟s (1997) proposition on corporate performance, explains that the

relationship of CSP and CFP will be contingent upon four variables:

business environment, business strategy, organization structure, and

control system.



The second issue that Griffin and Mahon raised is about the causality of the

relationship of CSP and CFP. Waddock and Graves (1997) and Dean (1999) put forward two theories to explain the causality: Slack resource theory and

good management theory.

Under the slack resource theory, a company should have a good financial

position to contribute to the corporate social performance. Conducting the

social performance needs some fund resulting from the success of financial performance. According to this theory, financial performance comes first.

Therefore, CFP is independent variable to affect CSP.

A good management theory holds that social performance comes first. Based

on the theory, CSP is independent variable resulting in CFP and a company perceived by its stakeholders as having a good reputation will make the

company easier) to get a good financial position (through market

mechanism).

The two theories can be diagrammed in the figure 1.

Figure 1: Causality of the Relationship of CSP and CFP

The two theories will be used to model contingency perspective to explain the relationship of CSP and CFP using the variables of business

environment, strategy, internal structure, and control system as contextual

variables or moderating variables (Lenz, 1980; Gupta and Govindarajan,

1984; Govindarajan and Gupta, 1985; Govindarajan, 1988; Tan and

Lischert, 1994; Langfield-Smit, 1997).

Contingency Approach to Study on CSP and CFP Link

Generally contingency theory states that organization‟s effectiveness will be

contingent upon some factors often called contextual variable (see for

example Hamberick and Lei, 1985; Gerdin and Grave, 2004). Furthermore, focus in contingency theory will be on fit between organization

characteristics or management practices and the contextual variable in

achieving the organization effectiveness (see for example Alexander and

Alan, 1985; Doty et al, 1993; Gerdin and Grave, 2004). The organizational effectiveness can include economic or financial performance and other

criteria such social and environmental performance as referred to the



concept triple bottom line (TBL). The use of the contingency view as an

alternative view to extreme view of business in both situations: specific and universalistic view is common and applied in any setting of management

practices (Alexander and Alan, 1985; Gerdin and Grave, 2004) and also in

corporation social performance (see for example Husted, 2000).

One of the reasons of the commonly used contingency approach is due to the focus on the organizational effectiveness, a general and important

organizational goal-related concept. In the context of CSR, there are some

previous studies suggesting the contingency approach (Ullman, 1985;

Husted, 2000; Wagner, 2001; Margolish et al., 2003; Orliztky, 2001). Ullman (1985) argued that one reason of failure of studies on CSP and CFP to

explain the conflict results is due to the neglecting of the contingency

aspect. Other researchers also do suggest that variations in the result of the

relationship between CSP and CFP be solved by using contingency theory

perspective (Wagner, 2001; Husted, 2001; Margolish et al., 2003; Orlitzky et al., 2001 and 2003). Due to the fact that CSP and CFP are not related under

all condition, the contingency perspective needs to be used to examine

under which condition the relation will be valid (Hedesström and Biel,

2008). In addition, Orlitzky et al. (2001 and 2003) found that strong of the relationship will be dependent upon contingency such as reputation and

construct operationalization. Some researchers also have shown that CSP

and CFP relation is positive using resource-based view (strategy) as

contingent variable (Hilman and Keim, 2001; Orliztky et al.,, 2003; Pos et

al., 2002). Concept of Fit in contingency theory in the context of CSP can be traced the in accounting and strategic management literatures. Based on

the review of the literatures, it can be concluded that corporate

performances are matching of business environment, strategy, internal

structure, and control system (Lenz, 1980; Gupta and Govindarajan, 1982 and 1984; Govindarajan et al., 1988; Govindarajan, 1988; Tan and Lischert,

1994; Langfield- Smit, 1997).

Thus corporate performances referred to the notion of TBL should be

affected by some important variables: business environment, strategy,

structure, and control system. Therefore, better attempts to seek explanation of the relationship between CSP and CFP are needed to conduct

using the integrated model as suggested in the accounting and strategic

management literatures and considering the suggestions of Savage et

al.(1991), Husted (2000 and 2001), Orlitzky (2000), Rowley & Berman

(2000), Orlitzky et al. (2003), Itkonen (2003), and Brammer & Pavelin (2006).

Some important studies had been conducted to investigate the relationship

of business strategy, control system, and organizational structure and

environmental and social performance (Gerde, 1998; Pondeville, 2000; Husted, 2000, and Husted, 2001). In an effort to investigate stakeholders

and organization design, Gerde (1998) used business strategy, control

system, and organizational structure as the predictors of corporate social

performance including the environmental aspect. His findings were that the

variables did not increase the social performance. In his deductive study, Pondeville (2000) synthesized that control system and business strategy, as



well as organization design (structure) have contributed to the

environmental performance. In an effort to get good understanding of corporate environmental and social performance, Husted (2000) had

constructed contingency model of corporate social performance. The fit

between social issues and business strategy and structure had been

predicted to affect the corporate social performance. Husted et al. (2001) in

his deductive approach of another study developed a model called integrated view of business and social strategy. In the model, business strategy had

been predicted to affect financial and social performance.

Business Environment and CSP-CFP Link Investigation on why an organization or corporate has higher performance

than other organization can be found in three bodies of research: industrial

organization, business policy, organization theory research (Lenz, 1980).

Based on review of the bodies of research, it can be found that performance

variation in an organization or corporation can be explained using the variables of environment, strategy, and organization structure used (Lenz,

1980; Gupta and Govindarajan, 1984; Govindarajan and Gupta, 1985;

Govindarajan, 1988; Tan and Lischert, 1994; Langfield-Smit, 1997).

In addition to that accounting literatures also contributed to explanation of the organization‟s performance variation (Gupta and Govindarajan, 1984;

Govindarajan and Gupta, 1985; Govindarajan, 1988; Langfield-Smit, 1997;

Albernetty et al., 2004 and 2005).

As one of the factors affecting the high of organization performance, organization or business environment can be defined as conditions that are

normally changing and unpredictable an organization is facing. Lenz (1980)

included market structure, regulated industry, and other relevant

environments in the concept of the business environment as the factors to be affecting the corporate performance defined as corporate financial

performance (CFP). Jaworski and Kohli (1993) extended the definition of

business environment as including market turbulence, competitive

intensity, and technological turbulence. The market turbulence that is

understood as the rate of change in the composition of customers and preferences can be a predictor of business performance (Jaworski and Kohli,

1993). An organization operating under market turbulence will tend to

modify its product or services continually in order to satisfy its customers.

Adversely, if the market is stable indicated by no change in customers‟

preference, the organization is not likely to change its product or service. Therefore, the market turbulence is expected to relate positively to

organization performance. Competitive intensity is referred to market

condition in which a company has to compete with. In the absence of

competition, a company can perform well with no significant effort as the customers have no choice or alternative to satisfy their need.

However, in the high competition indicated by so many alternatives for

customers to satisfy their want, a company has to devote its best effort to

satisfy the customers. Therefore, the competitive intensity is expected to relate positively to organization performance. The last aspect of business



environment is the technological turbulence that is meant simply as the rate

of technological change. For a company having characteristic of sensitive to technological change, innovation resulting from the technological change

can be alternative to increase the company‟s competitive advantage without

having to focus more on the market orientation. By contrast, for the

company with no innovation in technology, it should strive to focus more on

market orientation. Therefore, the technological change is relating negatively to organization performance. This concept of business environment is in line

with Simons‟ (2000) concept of strategic uncertainty including technological

dependence, regulation and market protection, value chain complexity, and

ease of tactical response. Technological dependence has been close to the technology turbulence, while regulation and market protection can be

referred to competition intensity. The strategic uncertainty variables of value

chain complexity and ease of tactical response parallel the concept of

market turbulence.

Furthermore, based on review of organization environment literature, it can

be found that business environment can be defined in general way as the

source of information (Duncan, 1972; Lawrence and Lorsch, 1967; Tung

1979 and cited in Tan and Lischert, 1994) and as source of scarce resource (Tan and Lischert, 1994).

As source of information, business environment is focused on perceived

information uncertainty and subjective in nature, as source of scarce

resource; business environment is resource dependence (Tan and Lischert, 1994). Based on the understanding, corporate performance can be

controlled by using management ability to control over the resource.

Meanwhile, the concept of business environment can also be viewed as

multidimensional construct including three variables: dynamism, complexity, and hostility (Duncan, 1972; Lawrence and Lorsch, 1967; cited

in Tan and Lischert, 1994). In the last concept, components of dynamism

and complexity have been close to the perceived information uncertainty,

while hostility is similar to the resource dependence (Tan and Lischert,

1994). Following the concept of business environment as multidimensional construct, Scott in Tan and Lischert (1994) and Jauch et al.(1980) had

extended the concept of business environment becoming institutional

environment including larger components similar to stakeholder concept.

The dimensions covered include: (1) competitors, (2) customer, (3) suppliers,

(4) technological, (5) regulatory, (6) economics, (7) social-cultural, and (8) international.

Based on the construct defined in the previous studies, the business

environment will come up with the increase or decrease in corporate performance as suggested by Dill (1958). Organization facing high

uncertainty in business environment has less ability to attain the

organization‟s goal. This argument has been echoed by Simons (2000) by

asserting that the business environment is one of the factors resulting in the

strategic uncertainty and, in turn, decreases the organization‟s ability to achieve the organization‟s goal.



Based on the theory of slack resource, the interaction or fit between business environment and corporate financial performance (CFP) can affect

the corporate social performance due to fact that increase in CFP resulting

from business environment aspect enables the company has more chance to

do the CSP. Thus, it is reasonable to expect from this study that the

business environment can moderate or affect the relationship between CFP and CSP. The proposition for business environment of the relationship of

CSP and CFP is as follows:

P1a: Business environment moderates the relationship between CFP and CSP based on the slack resource theory

In relating to the corporate social performance, Higgin and Currie (2004)

had identified some variables affecting a corporate to be ethical or legal

behavior in running the company resulting in the high of corporate social

performance. The factors are: business climate, human nature, societal climate, societal climate, the competitiveness of the global business

environment, and the nature of competitive organization Performance. Thus,

arguments for business climate or environment discussed above, especially

for the concept of business environment derived from the larger concept similar to stakeholder concept can be applied to the relationship between

business environmental and corporate social performance. Furthermore, in

an effort to seek the relationship between CSP and CFP derived from the

good management theory indicating that conducting CSP can affect CFP,

this variable will be expected to able to moderate the relationship between the link between CSP and CFP.

P2b: Business environmental moderates the relationship between CSP

and CFP based on good management theory.

Strategy and CSP-CFP Link

Concept of strategy is a complex concept and it leads to proliferation of

definition of strategy (Lenz, 1980). Mintzbeg (1987 and cited in Simons,

2000) had classified the views on strategy, including strategy as perspective, strategy as position, strategy as plan, strategy as patterns of action, and

strategy as ploy. Strategy as perspective refers to mission and vision of a

company to be a base for all activities of the company. This will determine

core value of the company. Strategy as position indicates the way a company

will pursue to compete in the market. Strategy as plan suggests short-term plan as series of long term plan in the strategy as position. In this view, a

company can evaluate the success of the implementation strategy. Strategy

as pattern in action is a company‟s action plan to cope with the failure of the

strategy implementation. It is in this view that emerge new strategy called emerging strategy (Simons, 2000). The last, strategy as ploy is a tactic a

company can do to fight with competitor. If the views of strategy can be well

implemented, then strategy can become an important determinant of the

company‟s performance. Practicaly, strategy choice for a company is

depending upon the environment faced by the company. In this regard, Mitzberg (1973) defined the strategy as patterns of stream of decision



focusing on a set of a resource allocation in an attempt to accomplish a

position in an environment faced by the company. Using focus on decision as developed Mistzberg (1973), Ventakraman (1989), Miller and Frieson

(1982), and Tan and Lischert (1994) extended the concept of strategy using

dimensionality approach including: (1) analysis, (2) defensiveness, (3)

futurity, (4) proactiveness, and (5) riskiness.

There are some studies on the fit between strategy and corporate

performance (CFP) identified by Fisher (1995) using the product life cycle as

contingency factor and performance appraisal system as dimension control,

(Simons, 1987) utilizing competitive strategy as contingency factor and budget flexibility as dimension of control system, Govindarajan and Fisher

(1990) employing Porter typology as contingency factor and behavior and

output control as dimension of control system, Govindarajan (1988)

exploiting Porter typology as contingency factor and budget evaluation style

and locus of control as dimension of control system, and Fisher and Govindarajan (1993) applying Porter typology and product life cycle as

contingency factor and incentive compensation as dimension of control

system. Except for Fisher and Govindarajan (1993) proving with conflicting

result, they supported the fit relationship to the performance. In more recent studies, Liao (2005) and Sandino (2005) contributed to the same finding as

the prior studies mentioned above. Using the same fit, but with different

position for the contingency factor, Abernethy and Brownell (1999) also

provided the fit relationship to the performance.

According to slack resource theory, the interaction between strategy and

corporate financial performance (CFP) can affect the corporate social

performance due to fact that increase in CFP resulting from strategy enables

the company has more chance to do the CSP. Thus, it is reasonable to expect from this study that the strategy can moderate or affect the

relationship between CFP and CSP.

P2a: strategy moderates the relationship between CFP and CSP based

on the slack resource theory

The conflicting results from empirical studies into the CSP-CFP relationship

indicate to the need for a contingent perspective to determine the conditions

that affect the nature of the CSP-FP relationship (Rowley and Berman,

2000). Husted (2000), for instance, proposed that the CSP-CFP relationship is a function of the fit between the natures of relevant social issues and the

organization‟s corresponding strategies and structures. Further, McWilliams

and Siegel (2001) proposed that the impact of socially responsible actions on

financial performance would be contingent on the economies garnered from the organization‟s size and level of diversification, product mix, advertising,

consumer income, government contracts and competitors‟ prices. The

products, markets and activities that define organizational strategy also

define the organization‟s stakeholder set. Consequently, a firm pursuing

socially responsible initiatives that lack consistency with its corporate strategy is not likely to meet the particular expectations of its stakeholders.



In an effort to seek the relationship between CSP and CFP derived from the

good management theory, the strategy variable will be expected to able to moderate the link between CSP and CFP. Based on the arguments and

finding from the previous studies, it can be concluded that the link between

CSP and CFP will be contingent upon the strategy.

P2b: strategy moderates the relationship between CSP and CFP based on good management theory.

Organization Structure and CSP-CFP Link

Sandino (2005) found that interaction between control system and organization structure affected company‟s performance. In addition, the

insight regarding this fit relation to the performance can be predicted based

on the direct relationship between organization structure and job

satisfaction variable (Ali and Ali, 2005). If employees feel satisfied it can be

expected to increase the company‟s performance.

Corporate performance is highly determined by how effectively and

efficiently the company‟s business strategy is implemented (Walker et al.,

1987 and cited in Olson, 2005). The success of the company‟s strategy implementation is highly influenced by how well the company is organized

(Vorhies et al., 2003; Olson, 2005) and the use of strategic behavior such as

customer focus, competitor analysis, and innovation (see for example Chen,

1996; Gatignon, 1997; Olson, 2005). The organization structure is needed to

manage the works in organization that are divided into small parts to achieve the intended strategy. It is the management of works leading to the

emergence of variety of alternative of organization structure and, in turn,

can shape the company. The organization structure can be defined using

three constructs: formalization, centralization, and specialization (Walker et al, 1987; Olson et al., 2005). The three components are central points of

Mintzberg‟s analysis of organization structure (Olson et al., 2005).

Formalization refers to the level of formality of rules and procedures used to

govern the works in a company including decision and working relationship (Olson, 2005). The rule and procedure can explain the expected appropriate

behavior in working relationship and address the routine aspect of works. A

company with highly formal rules and procedures is called mechanic

organization, while one with fewer formal rules and procedures is referred to

organic organization (Burns and Stalker in Olson et al., 2005).

P3a1: Formalization moderates the relationship between CFP and CSP

based on the slack theory

Centralization is a condition on whether autonomy of making decision is

held by top manager or be delegated to the lower manager. In management

literature, this construct includes two terms in the opposite ends:

centralized and decentralized organization (Olson, 2005). In centralized

organization, autonomy to make decision is held by top manager. Although fewer innovative ideas can be created in centralized organization,



implementation of the decision is straight forward after the decision is made

(Ullrich and Wieland in Olson, 2005). However, the benefit can only be realized in stable and in noncomplex environment (Olson et al., 1995;

Ruekert, 1985; Olson et al., 2005). In unstable and complex environment

indicated by rapid changes in competition and market, the use of

organization structure providing the lower manager with autonomy of

making decision is needed. In the decentralized organization, a variety of views and innovative ideas may emerge from different level of organization.

Due to the fact that autonomy of making decision is dispersed, it may take

longer to make and implement the decision (Olson et al., 1995; Olson et al.,

2005). However, in the non routine task taking place in complex environment, the use of decentralized organization is more effective to

achieve the organization goal as the type of organization empower managers

who are very close to the decision in question and to make the decision and

implement it quickly (Ruekert et al., 1985).

P3a2: Decentralization moderates the relationship between CFP and

CSP based on the slack resource theory

Specialization is the level of division of tasks and activities in organization

and level of control people may have in conducting those tasks and activities (Olson, 2005). Organization with high specialization may have high

proportion of specialist to conduct a well-defined set of activities (Ruekert et

al., 1985; Olson, 2005). Specialist refers to someone who has expertise in

respective areas and, in certain condition; he or she can be equipped with a

sufficient authority to determine the best approach to complete the special tasks (Mintzberg in Olson, 2005). The expertise is needed by organization to

quickly respond the changes in competition and market in order to meet

organization goal (Walker et al., 1987). Based on theory of slack resource,

the interaction or fit between organization structure and corporate financial performance (CFP) can affect the corporate social performance due to fact

that increase in CFP resulting from organization design enables the

company has more chance to do the CSP.

Thus, it is reasonable to expect from this study that the organization structure can moderate or affect the relationship between CFP and CSP.

P3a3: Specialization moderates the relationship between CFP and CSP

based on the slack resource theory

As mentioned above, another factor affecting corporate financial

performance (CFP) is the use of strategic behaviors in organization. In the

context of corporate social performance, the concept strategic behaviors can

be extended using the stakeholder theory to explain the fit between organization structure and corporate social performance (CSP). According to

Chen (1996); Gatignon et al. (1997); and Olson et al. (2005), the strategic

behaviors can be identified into some components: customer-oriented

behavior, competitor oriented behavior, innovation-oriented behavior, and

internal -cost behavior. The concept can be extended using components of stakeholder as contended by Donaldson et al. (1995).Supplier-focused



behavior, employee-focused behavior, society aspect-focused behavior, and

environment-focused behavior are stakeholder-based strategic behavior to be expected to improve corporate financial performance. Using the

argument, CSP will affect CFP.

In the formalization aspect, typical bureaucratic structures normally may

work well. In the typical structure, Information can be routed to the relevant specialist who can make decisions on the basis of standard corporate

policies (Thompson & Tuden in Husted, 2000). However, Information is not

disseminated widely, but directly to the individual decision maker. For

example, rules in the form of ethics codes can work effectively to resolve problems to the satisfaction of stakeholders where stakeholders and the firm

share similar values and understandings of what happened. To cope with

the problems, companies create organization units (decentralization and

specialization structure) to handle some tasks such as environmental

assessment, corporate philanthropy, and public relations. It is usually the units that assume responsibility of the companies‟ ethics program (Center

for Business Ethics, 1986). According to Reed,Collin,Oberman, and Toy in

Husted, (2000), the presence of such routinized structures can have a

positive impact on corporate social performance.

Based on the finding of the concern it is found that the fit between

organization structure and CSP will affect the financial performance. The

proposition can be then developed:

P3b1: Formalization moderates the relationship between CSP and CSP

based on good management theory

P3b2: Decentralization moderates the relationship between CSP and CFP based on good management theory

P3b3: Specialization moderates the relationship between CSP and CFP

based on good management theory

Control System and CSP-CFP Link

An important function of Management Control system or control system is

management tool to implement the organization strategy.In its development

stages, the control system had undergone evolution in terms of approach

used and complexity of environment faced by a company. The evolution included the use of direct control approach focusing on manager‟s

observation of what is going on the company till indirect control approach

relying upon accounting control. For the last evolution, it included using

static and flexible budget till adopting the concept of profit or investment center (see for example Horngren, 1996). The concept of control system

centers on the concept of bottom line (financial performance). Not only did

the concept have some flaws on imbalances due to the domination of

financial aspect, but also it created some paradoxical situation between

control and innovation, opportunity and attention, and short term and long term goal, and human behavior. One reason of the problems is that the old



concept of control had been defined as diagnostic control only. In that

definition of control, the control process had been focused on the matter of routine mechanism or process of comparing some expected and realized

performances.

According to Simons (1995a, 1995b and 2000), to avoid the problem concept

of control should be extended by adding three more levers: belief system,

boundary system, and interactive control system.

The function of belief system is to inspire the people in an organization to

search for new ways and alternatives by providing them with the

organization‟s clear vision, mission, statement of purpose, and credos through using format and informal system. It is expected from the belief

system mechanism, creativity and innovation in the organization will be

continuously updated to meet the expected growth.

The use of boundary system lever is meant to prevent unwanted impact of creativity and innovation by setting some rules limiting people to do in the

form of code of business conduct, strategic boundary, and internal control.

The role of interactive control system is to provide an organization with

solution to cope with emerging strategic uncertainty and with new strategy given that emerging situation.

The careful and consistent use of the control system typology, often called

levers of control, can lead to the improved performance (CFP). The following

is discussion on how the components of levers of control can be associated with the performance and, therefore, the expectation of the impact of the use

of components of the control systems on the relationship between CSP and

CFP can be based upon.

Belief system is the one used in an organization to communicate an

organization‟s core value to inspire people in the organization to search for

new opportunities or ways to serve customer‟s needs based on the core

values (Simons, 1994, 1995, 2000). In an organization the belief system has

been created using variety of instruments such as symbolic use of information. The instruments are used to communicate the organization‟s

vision, mission, and statement of purpose such that people in the

organization can well understand the organization‟s core value. Westly et al.

(1989; cited in Simons, 1995b) supported the use of the instrument by

arguing that great leaders and competent managers understand the power of symbolism and inspiration. The benefit of using the symbolic instrument

especially at individual level is also provided by Feldman et al. (1981) by

delineating that symbols produce belief and belief can stimulate the

discovery of new realities. In this regard, Westley (1990 cited Simons, 1994) contended that managers will not be very eager to participate in search for

opportunities if they do not understand the beliefs of organization and are

not get involved in converting the beliefs into actions and strategies.

There is a need for an organization to formally communicate the core value, especially when it is facing the dramatic change in business environment



such as competition, technology, regulation and other factors. The Change

in the business environment creates a need for strong basic values to provide organizational stability (Simons, 1995b). The importance of

understanding the core is also supported by study of Kotter (in Simons,

1995b) concluding that inspirational motivation can be created by (1)

communicating vision that can address the value of people in an

organization, (2) permitting each individual to be pleased about how he or she can contribute to implementation of that vision, (3) Providing eager

support for endeavor, and (4) promoting public recognition and reward for

all success.

The belief system can make people in an organization inspired to commit to

organization goal or purpose. In this regard, commitment means believing in

organizational value and willing to attempt some efforts to achieve the

organizational goal (Simons, 1995). Therefore, the goal commitment can lead

to improved corporate performance (Locke et al., 1988). The conclusion is consistent with what Klein et al. (1998) found in their study on situation

constraints including goal commitment and sales performance. Chong et al.

(2002) studying the effect of goal commitment and the information role of

budget and job performance provides the same finding.

The resultant of belief system is new opportunities that may contain some

problems. The boundary system concerns on how avoid some risks of

innovation resulting from the belief system (Simons, 1994). The risks that

possibly emerge can be operating, assets impairment, competitive, and franchise risks (Simons, 2000). On the other hands, the boundary system

provides allowable limits for opportunity seeker to innovate as conditions

encouraged in the belief system.

There are two instrument used in boundary system to establish the limit in

order avoid the risks:

a) business conduct and

b) strategic boundaries (Simons, 1995b; Simons, 2000).

The business conduct boundaries are focused on behavior of all employees

in an organization. The source of the boundaries is of three folds: society‟s

law, the organization‟s belief system, and codes of behavior promulgated by

industry and professional association (Gatewood and Carroll, 1991; Simons,

1994). When uncertainty resulting from new opportunities is high or internal trust is low, the business conduct boundary is highly needed

(Kanter in Simons, 1994). In the environment of high uncertainty, Merchant

(1990) found that chances to manipulate the profit figures by managers is

high. The manipulation is one of risks that can endanger the managers‟ company. Therefore, the business conduct boundary will be imposed in that

situation to avoid the risk and, in turn, improve the corporate performance.

The low in internal trust can result in the absence of shared commitment to

the organization goal. No commitment to goal can affect the corporate

performance. The objective of applying the business conduct boundary is to



maintain the employee‟s commitment to organization goal and, in turn, can

improve the performance.

Strategic boundaries are defined as rules and limitation applied to decisions

to be made by managers needing the organization‟s resource allocation as

response of opportunities identified in the belief system (Simons, 1995b and

2000). Application of ROI of 20% as hurdle rate in the capital budgeting decision is one example. Updated of negative list on business area that is

not allowed to go into is another example. In his study using case approach

in UK Telecommunication company, Marginson (2002) found that the

boundary system-strategic boundary can motivate people in that company to search for new ideas or opportunities within the prescribed acceptable

area. Thus, if well implemented, this system can avoid the potential risks

and, in turn, can improve the organization performance.

Diagnostic control system is the one used by management to evaluate the implementation of an organization‟s strategy by focusing on critical

performance variables, which is the ones that can determine the success of

strategy implementation and, at the same time, can conserve the

management attention through the use of management by exception (Simons, 1995b and 2000). As a system relying upon the feedback

mechanism, the diagnostic control system is an example of application of

single loop learning whose purpose is to inform managers of outcomes that

are not meeting expectation and in accordance with plan (Argyris, 1977;

Widener, 2006 and 2007). The single loop learning is a part of organization learning that indicates benefits of implementing management control system

in general.

Organizational learning originates in historical experiences that are then encoded in routines (Levitt and March, 1988; cited Widener, 2006 and

2007). Based on historical experiences, the organization adopts and

formalizes “routines that guide behavior” (Levitt and March, 1998, 320).

Therefore, control system can be said to be a learning tool. To support this

conclusion, Kloot (1997), in his study using case study approach, investigated the link between control system and organizational learning

and found that control system can facilitate organization control. Based on

organization theory literatures, organization learning has impact on

performance (Slater and Narver, 1995; Levitt and March, 1988). The

argument underlying the association is that organization learning is very critical to competitive advantage. Organization with learning orientation will

have improved performance (Tippin and Soha, 2003). Chenhal (2005)

provided support for the finding by investigating the relationship of control

system and delivery service using organization learning as mediating variable.

In addition to providing organization learning aspect, the use of diagnostic

control system also can conserve management attention trough the

application of management by exception tool (Simons, 1995b and 2000). With the tool, the control system reports to management only if the



deviation things happen. Therefore, efficient aspect will be resulted from the

use of the tool. Simons (1991) also provided empirical evidence from the health care industry that managers feel overloaded with information if their

attentions are focused on broad scope of control attributes and concluded

that diagnostic control system could facilitate the efficient use of their

attentions. According to Schick et al. (in Widener, 2006 and 2007), the

information overload occurs when demand for information exceeds its supply of time. To encourage the efficient use of management attentions

(time), the management attentions should be focused on the critical success

factors and core competence that are likely associated with improved

performance.

In an attempt to implement the organization strategy, it is necessary to note

that strategy initially set in strategic planning, often called intended

strategy, in the classification of Mintzberg‟s (1978) typology of strategy, may

not become realized strategy due to the fact that any strategy has inherent strategic uncertainty defined as external factors resulting from market

dynamics, government regulation, and dramatic change in technology

triggering the intended strategy become invalid (Simons, 1995b; Simons,

2000). He proposed the use of Interactive control system to solve the obstacles. The control system will detect the driver of invalidity of intended

strategy and follow them up by working together between top managers and

their subordinates to create dialog and to share information in order to solve

the problems. This process, if well designed, can stimulate double loop

learning in which the search, scanning, and communication process allow the emergence of new strategies, strategy of which, in the Mintzberg‟s (1978)

strategy typology, often called emerging strategy. Levit and March (1988)

echoed that situation by stating that if the structural problems in

organizational learning cannot be eliminated, they can be mitigated. In their study in the hospital area, Abernetty and Brownel (1999) also support the

conclusion that interactive control system can facilitate the organization

learning. Considering the importance of organization learning as mentioned

above, the process in turn can improve the organization performance.

Based on theory of slack resource, the interaction or fit between control

system, including belief system, boundary system,, diagnostic control

system, and interactive control system, as well as the corporate financial

performance (CFP) can affect the corporate social performance due to fact

that increase in CFP resulting from the appropriate use of control system components enables the company has more chance to do the CSP.

Thus, it is reasonable to expect from this study to formulate the proposition

of current study as follows:

P4a1: reliance on belief system moderates the relationship between

CFP and CSP based on the slack resource theory

P4a2: reliance on boundary system moderates the relationship between

CFP and CSP based on the slack resource theory



P4a3: reliance on diagnostic control system moderates the relationship

between CFP and CSP based on the slack resource theory P4a4: reliance on interactive control system moderate the relationship

between CFP and CSP based on slack resource theory

As stated by Ouchi (1977) and Robbin (2002), organization behavior refers to

work related activities of member of organization. That is the behavior of the

organization members. Any company is very concerned about controlling the behavior. That is done using a well designed control system (Snell, 1992).

One instrument to be used in the control system is strategic behaviors that

can lead to the expected organization performance. Chen (1996); Gatignon et

al. (1997); and Olson et al. (2005) listed the strategic behavior including: customer oriented behavior, competitor oriented behavior, innovation

oriented behavior, and internal/cost oriented behavior. The list can be

referred to input-output model of Donaldson et al. (1995). The list can also

be extended using the contingency theory. Thus, corporate social

performance is strategic behavior to be influenced using control system and, in turn, to be expected to improve the corporate financial performance.

Most prior literature considering the motives for socially responsive decision

making derives from the business ethics literature. Considerable attention has been given to determining the factors that influence „ethical‟

organizational decision making (Soutar et al., 1994). For example, models of

ethical behavior have been developed which indicate that there is a set of

situational variables which interact with and influence ethical decision

making processes (Bommer et al., 1987; Stead et al., 1990; Trevino, 1986). One set of situational variables deemed to influence ethical decision making

include work environment and organizational factors (Bommer et al., 1987;

Falkenberg and Herremans, 1995; Singhapakdi et al., 2000; Verbeke et al.,

1996). For instance, employee socialization processes aimed at internalizing socially responsive/ethical standards within individual employees have been

held to influence socially responsive decision-making (Smith and Carroll,

1984; Soutar et al., 1994). Control systems are deemed to form an integral

part of employee socialization (Gatewood and Carroll, 1991). They support

the development of an organization‟s culture, the system of shared beliefs, values, norms, and mores of organizational members (Gands and Bird,

1989), which is deemed to be a primary determinant of the direction of

employee behavior (Robin and Reidenbach, 1987; Trevino, 1986).

Based on the finding and the logic, the concern of this study is that the fit between control system and CSP will affect the corporate financial

performance.

Proposition on the control system of the CSP-CFP link can be then developed as follows:

P4b1: reliance on belief system moderates the relationship between

CSP and CFP based on the good management theory



P4b2: reliance on boundary system moderates the relationship between

CSP and CFP based on the good management theory

P4b3: reliance on diagnostic control system moderates the relationship

between CSP and CFP based on the good management theory

P4b4: reliance on interactive control system moderates the relationship between CSP and CFP based on the good management

theory

Based on the literature review and discussion in the previous section, conceptual framework for explaining the determinants of the relationship of

corporate social performance (CSP) and corporate financial performance

(CFP) under two theories can be diagramed in figure 2.

Figure 2: Theoretical Model of Determinants of the Relationship CSP and CFP

Conclusions and directions for future research

Investigations of the relationship of CSP and CFP have produced the

inconsist results so far. There are some theories that have been developed to

explain the relationship, coming from neoclassical theory of economy and

stakeholder theory. But they failed to clearly and satisfactorily explain. The use of contingency has been highly recommended to explain the

relationship. However, the contextual variables used in the previous studies

are not related to the determinants of corporate performance as identified in

the strategic management and accounting literatures. As discussed in the



previous section, CSP is an extended corporate performance and, therefore,

some aspects affecting the corporate performance should also apply to the CSP. The failure to include the dimensions of corporate performance:

business environment, strategy, organizational structure, and control

system as contextual variables in the relationship of CSP and CFP may add

the reasons of the conflicting results.

Others issues of the conflicting result of the relationship are coming from

methodology aspects, including:

(1) Measurement is mismatching ,

(2) Sampling error, and (3) Measurement error.

Mismatching measurement includes the choice of CSP measurement that

does not fit CFP measurement. If the problem cannot be resolved, the

conflict results will occur. Therefore, for direction of future research, the use

of CSP measurement that can be theoretically linked to the corresponding CFP measurement is highly needed.

Sampling error problem mainly resulted from the limitation of samples used

in the previous studies.

The measurement error of the constructs of CSP narrowly defined can also

lead to the error in the result of the relationship between CSP and CFP.

The construct of CSP can be approached by using four types of measurement strategy:

(1) Disclosure,

(2) Reputation rating,

(3) Social audit; CSP process; and observable outcome, and (4) Managerial CSP principle and value (Orliztky, 2003).

The disclosure approach is conducted by using content analysis method of

documented materials such as annual report. The reputation rating is the

approach to measuring CSP based on the company‟s perception of one of stakeholders using single or multi-dimensions of CSP. In so doing, it is

assumed that the perceived items represent a good reputation of the

company. The next category of measurement strategy for CSP is using social

audit, CSP process, and observable outcome. This is a systematic way by

third party to assess a company‟s behavior of CSP, normally using multi dimension measures to have a ranked index of CSP. The third party

includes KLD (Kinder Lydenberg Domini) and CEP (Council on Economic

Priorities). The final approach to measuring the CSP is using managerial

CSP principle and value. Under this approach survey research has been done to assess a company‟s activities using values and principles of CSR

developed initially by Caroll (1979) and extended by Aupple (1984). The

values and principles of the CSR include four dimensions: economy, legal,

ethics, and discretionary. In the simple way, Cochran and Wood (1984)

contended that there are two generally accepted methods to measure CSP: content analysis and reputation index. Based on their argument, the last



three classifications of Orliztky et al (2003) fall into the reputation index

method.

Meanwhile, CFP is also measured using three alternative approaches:

(1) Market based measure,

(2) accounting-based measure, and

(3) Perceptual measure (Orliztky et al, 2003). Under the first approach, the market value of a company derived from stock

price of the company is used to measure CFP. This approach reflects notion

that primary stakeholder of the company is shareholder. Accounting-based

measure is one to measure CFP derived from a company‟s competitive effectiveness and a competitive internal efficiency as well as optimal

utilization of assets, for some certain measures. Measures such as net

income, ROA, ROE, and EVA are some examples of this approach. The last

approach to measuring CFP is using perceptual method. In this approach,

some subjective judgments for CFP will be provided by respondents using some perspectives such as ROA, ROE, and financial position relative to

other companies.

As discussed in the previous section, the causality problem of the

relationship between CSP and CFP is which one, between them, is coming first? Whether companies having strong in financial performance can

improve their social performance based on slack resource theory or whether

practices of social activities done by companies can increase the companies‟

financial performance as explained in good management theory. Therefore,

to resolve the problem it is highly needed to use the two theories to be tested.

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CRITICAL REVIEW OF THE COMPANIES ACT, 2013

Dr. Devendra Singh , Professor,Amity University,Noida Dr. Gaurav Aggarwal,Associate Professor, Niet

Abstract: - The new company law has been put in place by the Government

with best intentions and it is now the turn of the corporate sector to

demonstrate that it will play according to the Rules. The Government on its

part must trust the corporate sector to function honestly and also keep a

watch.

What the Government wants the corporate sector to do is to give back a

small portion of the wealth it has created with the help of the resources

drawn from the society and its surroundings to provide succor and relief to

the under-privileged sections of the society. Companies would in fact gain

from such initiatives as they would enhance their reputation and image

among all sections of people.

The Government has rightly reduced the need for companies to seek

approvals for managerial remuneration from the government. Shareholders

must satisfy themselves that the remuneration managerial personnel in

their company wish to draw are in line with the market and they do not

enrich themselves merely because they are serving prosperous companies.

Key Words:- Companies Act, 2013, Good Governance, Corporate Social

Responsibility, Mandatory Disclosure Norms.

INTRODUCTION:-

The new Companies Act, 2013 (the Act) that has already been made partially

effective has been criticized by many for two main reasons; firstly, many

provisions of the Act will get implemented through Rules to be prescribed

(this is seen as excessive delegation that may lend itself to frequent change

of Rules by the Ministry of Corporate Affairs) and secondly, companies

would have to frequently approach shareholders by convening general

meetings or adopting the postal ballot route to seek their approvals.



The first criticism may be unfair because the Ministry of Corporate Affairs

(MCA) has already instituted a practice of consulting the stakeholders while

drafting the Rules. Representatives of industry, industry bodies like

chambers of commerce, investor protection organizations, various

autonomous professional Institute‟s, Company Secretaries, Chartered

Accountants and Cost Accountants in practice, participated as a team in

several meetings over a period of almost a year to review the draft Rules,

consider suggestions based on experience and practical difficulties and

tweak the Rules while ensuring they are aligned with the relevant provisions

of the Act. It is reliably learnt that the Minister of Corporate Affairs, has

strongly advocated and supported the initiative of the MCA in instituting the

consultative process for Rules-making. The MCA is likely to constitute a

formal Committee comprising of representatives of the stakeholders to

discuss amendments or modifications to the existing Rules or prescription of

Rules before being notified.

The second criticism is unwarranted because in the company form of

organization, the shareholders are supreme and the Boards of companies

have to function within the powers and sanctions accorded by them. If a

company needs to convene meetings in addition to the annual general

meeting, why should one complain? Yes, it does involve costs but so do all

activities that company executives and Board members undertake. For

many years, companies have operated (and some of them unfairly) with the

support of a few hundred shareholders who attend general meetings to pay

obeisance to the Chairman and some of the eminent directors rather than to

ask the management critical and relevant questions. We now have a

generation of enlightened shareholders that is conscious of its rights and

wishes to participate more actively. Postal ballot, e-voting, video-

conferencing are new tools that are available to the present generation of

companies to seek the mandate of their shareholders.

GOOD GOVERNANCE



Several measures introduced in the Act are based on the tenets of good

governance. The concept of independent directors introduced by SEBI has

now been incorporated in the Act. Having one third of the strength of the

Board comprising independent directors is no draconian provision. The

candidates would still be people known to either the Chairman or some

members of the Board or their friends. So what is there to complain?

Prescribing a Code of Conduct (Schedule IV of the Act) is a step in the right

direction. A written code and one mandated by law draws the lines for the

conduct of independent directors.

The need to appoint a woman director on the Board is another welcome

step. It is not „reservation‟ for women. If this was not mandated, Boards of

companies would rarely induct women because, by nature women,

especially those educated are independent and would not „play along‟. We

have examples in renowned companies, banks and financial institutions of

women directors, some even occupying the positions of Chairman and/ or

CEO, and their performances have been admirable and laudable.

The provisions enabling a company to have a small shareholders‟ director

are currently not mandatory. This should not be mandated because we have

seen many instances of how some shareholders with vested interests could

„gang up‟ and cause nuisance to the management. The Independent

Directors and a Woman Director would bring about a balance in the policies

and decisions of companies to advance and protect the interests of small

shareholders among other stakeholders.

Increasing the scope of reporting in the annual directors‟ report including

the assessment of the performance of the Board and the remuneration paid

to directors and senior management are welcome measures. The common

refrain that is heard is what would the shareholders do with all the

information contained in the directors‟ report? It is not only the

shareholders but a wide range of people including the government and its

agencies that refer to the directors‟ reports of companies and several



purposes could be served by providing comprehensive information in such

reports.

SHAREHOLDER SUPREMACY

The Act upholds the supremacy of the shareholders of a company and,

therefore, it has vested authority in the shareholders to approve significant

transactions that the management wants to undertake. Investment of a

company‟s funds or providing loans out of the company‟s funds and

furnishing guarantees on behalf of others are all transactions that directly

impact the fortunes of a company. The law recognizes that some leeway

needs to be provided for the Boards of companies to operate based on

opportunities that present themselves and this is reflected the in Act

permitting companies to make investments, give loans or provide guarantees

up to 60% of the net-worth of the company or up to 100% of its free

reserves. It is beyond these limits that the prior approval of shareholders is

mandated. A show-stopper is the removal of the exemption that was

available in respect of wholly-owned subsidiaries but this is also not without

justification.

Companies are known to have created several wholly-owned subsidiaries

and transferred funds to them using the exemption that was available under

the old Act. Once the funds are thus transferred, the management could do

anything with those funds using the wholly-owned subsidiary as a vehicle

they were called „special purpose vehicles‟. The shareholders would only

learn later about what transpired.

Related party transactions have also been entered into by companies many

a times to allow related parties to enrich themselves at the cost of the

company‟s larger interests. By mandating that some of the related party

transactions cannot be undertaken unless approved by the shareholders,

the law has plugged a loophole. The measure is fortified by prescribing that

if a shareholder is the related party, that shareholder would have to abstain

from voting on the resolution. For example, a parent/holding company that



draws out a significant amount from its subsidiary or other promoted

companies in the guise of a royalty would now have to get the

contract/agreement for payment of royalty approved by the shareholders.

The parent/ holding company cannot itself vote on the resolution for

approving such a contract.

Managerial remuneration norms have been significantly liberalized and

shareholders have been vested with power to sanction managerial

remuneration. The Government has rightly reduced the need for companies

to seek approvals in this regard from the government. Shareholders must

satisfy themselves that the remuneration managerial personnel in their

company wish to draw are in line with the market and they do not enrich

themselves merely because they are serving prosperous companies.

AUDITORS’ RESPONSIBILITIES AND TENURE

The Act has introduced several requirements for determining the eligibility of

a person or a firm to be appointed as an auditor. While it is true that actions

of a few professionals who did not do a sincere job or colluded with

managements to perpetrate wrong-doings that affected the interests of

shareholders have turned the heat on chartered accountants working as

auditors, the measures taken by law are in the best interests of all

concerned. In the short run, the new requirements of rotating auditors may

cause some discomfort to managements and auditors who have established

a good rapport. However, we must not forget that auditors are professionals

with responsibilities and are required to act in a professional manner and

not merely in a friendly manner. Auditors would not be starved of

assignments as the economy grows and more companies get established.

They should be happy that they can gain as well as provide better

professional knowledge working with diverse industries.

The provisions which require auditors to act as whistle-blowers are perhaps

not entirely justifiable as the auditors are in any case required to report

instances of fraud or potential fraud to the Audit Committee which is



chaired by an independent director. The auditor is also required to report on

frauds committed by or against the company in his report. The requirement

for auditors to report instances of fraud or potential fraud to the Central

Government would lead to unwarranted consequences. The media which is

news hungry and constantly wanting to „break news‟, would get ready fodder

from sources in the Central Government and even before someone is proved

guilty his or their reputation would be tarnished. A person who is damned

but found not guilty in due course has no means of redeeming his

lost/tarred reputation.

CORPORATE SOCIAL RESPONSIBILITY

The provisions requiring certain class of companies to spend a certain

amount each year on initiatives reflecting the Corporate Social

Responsibility of the companies has been much criticized. Some say that

what the government ought to do is being made a responsibility of the

corporate sector. In addition to paying a huge amount of taxes to the

government which are not spent entirely for the welfare of the people, the

corporate sector now has to spend an additional amount on initiatives which

the government should undertake. Such criticism is not entirely justified.

What the Government wants the corporate sector to do is to give back a

small portion of the wealth it has created with the help of the resources

drawn from the society and its surroundings to provide succor and relief to

the under-privileged sections of the society. Companies would in fact gain

from such initiatives as they would enhance their reputation and image

among all sections of people. There may be concerns and difficulties in the

initial years but this measure would improve the lot of the under-privileged

and backward sections of our population in the years to come. The corporate

sector can then take credit for the transformation brought about by it.

RAISING OF FUNDS AND UTILIZATION THEREOF

The Act has tightened the provisions relating to the raising of funds by

companies through issue of capital either as a public issue or private



placement and through public deposits. The measures have been the result

of several companies which having raised monies from the public on the

promise of fabulous returns have later vanished or lost all the money in

their ventures. Similarly, if a company has raised money on a representation

that the money would be utilized for a specific purpose, it cannot

unilaterally change the purpose to which the money is to be applied. This

would require prior approval of the shareholders and shareholders who do

not wish to support such a change in object are entitled to be bought out at

a fair price.

Fixed deposits or public deposits are invariably placed by individuals out of

their savings or retirement benefits and, therefore, their monies need the

greatest protection. The Act prescribes that deposits must henceforth be

secured partly by assets of the borrowing company and partly by deposit

insurance. This cannot be considered as an onerous measure introduced by

the Act.

NATIONAL COMPANY LAW TRIBUNAL

The creation of the National Company Law Tribunal and the National

Company Law Appellate Tribunal are well-intentioned. They would reduce

the burden on the Courts which have a huge backlog of other cases to deal

with. The measure would be beneficial to the corporate sector and the

Government if the Tribunals are staffed with persons having appropriate

legal and commercial knowledge and experience. The Tribunals would also

have to be housed in convenient locations in all metro cities and other cities

if need be.

PROHIBITION OF INSIDER TRADING AND FORWARD DEALINGS

Provisions dealing with prohibition of insider trading and forward dealings in

the securities of companies have been introduced in the Act. Earlier these

provisions were contained in Regulations framed by SEBI as the capital

markets regulator. By incorporating these provisions in the Act, the



Government has given the subject legislative force. These provisions are

generally relevant for companies whose shares are listed on stock

exchanges.

CROSS-BORDER MERGERS

The Act now permits cross-border mergers, both ways; a foreign company

merging with an Indian company as well as an Indian company merging

with a foreign company. However, there are several factors that need to be

considered before such mergers are undertaken and it seems unlikely that

there would be a flood of mergers happening merely because of the Act

permitting it. The measure is therefore a forward looking one.

CLASS ACTION SUITS

A new tool called „Class action suits‟ has been created which has been in

existence in advanced countries like the US. With shareholders and other

stakeholders becoming more informed, knowledgeable and conscious of

their rights, it was inevitable that this concept would find roots in India as

well.

MISCELLANEOUS

Several new concepts have been introduced such as „total share capital‟ as

the basis for determining the holding company which for all these years

hinged on shareholding of the equity capital. The term „control‟ has also

been defined. „Associate companies‟ and „joint venture companies‟ are

treated on par with subsidiaries causing practical difficulties as well as

accounting difficulties. „Auditing standards‟ are being introduced and the

National Financial Reporting Authority (“NFRA”) is being created to take over

several functions including the setting of accounting and auditing

standards. „Key Managerial Personnel‟ (“KMP”) are identified and onus is on

them to ensure various compliances required under the Act. The company

secretary in employment is a KMP but the fear is that he/she would become

an official with only responsibilities but no authority or power.



CONCLUSION

The introduction of a new Companies Act, after the old Act has served all for

over five decades, is a welcome and a significant step. The intentions of the

Central Government, particularly the

MCA, in drafting this law with several new provisions and concepts and

prescribing extensive Rules to make the law dynamic and responsive to the

needs of the corporate sector are greatly laudable. While the corporate sector

would certainly be expected to conduct its affairs responsibly and

transparently, the government would have to demonstrate that its intentions

are to encourage the corporate sector and not to stifle or strangulate it. If

the corporate sector prospers, society and all its stakeholders will prosper.

The Government and the corporate sector must work together to build

mutual confidence and help advance the economic development of India.

Each one of us may have a different perspective with regard to the new

company law but let us believe for a moment that the new law has been

introduced by the central government with the best intentions and that it is

now the turn of the corporate sector to demonstrate that it will play

according to the Rules. The government on its part must trust the corporate

sector to function honestly but keep a watch!

___________________________________________________________________________

References:

*governance/1184259Companies Bill 2011 – Independent Directors

available at www.mondaq.comAnalysis of *Companies Bill, 2011 – Corporate

Law Update, Dec 2012

* What is Good Governance ? – A report of United Nations Economic and Social Commission for Asia and the Pacific available at

www.unescap.org/pdd

*Companies Act, 2013- A New Wave in Corporate Governance – Saumya

Jain, Narander Kumar Nigam (Indian Streams Research Journal ISSN No.:

2230-7850)



* Companies Bill, 2008 – A comparative Analysis with the Companies act,

1956 – Amarchand Mangaldas (ECB Web Store)

*Guide to Company Law Procedure (Set Of Vol.4) - MC Bhandari (Lexis

Nexis)

* Master Guide to Companies Act 2013 Company rules – Taxmann

*Guide to Compliance Certificate(With Procedures) – Rohini Aggarawal (ECB WebStore)

* Desirable Corporate Governance- A code – Confederation of Indian

Industries ( CII) available at www.ciionline.org

*Companies Act – 2013 New Rules of The game, A Deloitte and ASSOCHAM Report

*Companies Act, 2013 available at mca.gov.in

*Implications of Companies Act , 2013- Governance, Grand Thorton

*Reporthttp://www.financialexpress.com/news/india-inc-performance-

below-par-on-corporate



Call for papers

Next issue of

JOURNAL OF ENGINEERING, ICT & MANAGEMENT

October-December, 2015

ISSUE-11

Last Date for Submission of Papers

31, December, 2015

To

Managing Editor

Mr. Vivek Srivastava

E-mail:[email protected]

For further information contact at:

JOURNAL OF ENGINEERING, ICT & MANAGEMENT

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