focus 2015 10.2 issue

ISSN: 0973-9165OCTOBER 2014 - MARCH 2015 Vol: 10. No: 2

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IMPACT OF MANAGEMENT AUDIT SYSTEM ON ORGANISATIONAL EFFECTIVENESSA STUDY OF

SELECT PUBLIC

AND PRIVATE SECTOR

COMPANIES IN INDIA

Dr. K. Nirmala

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2

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IFIM International Journal of Management FOCUS October 2014 - March 2015|

Editorial Board:

1. Mr. Sanjay Padode, Secretary, Centre for Developmental Education, Bangalore

2. Dr. Madhumita Chatterji, Director & Professor, Chairperson - Centre for Social

Entrepreneurship and Management, IFIM B-School Bangalore

3. Dr. R. Satish Kumar, Chief Editor, Professor, Marketing and Dean (Research & International

Relations), IFIM B-School Bangalore

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5. Dr. Prakash Apte, Ex. Director, IIM Bangalore

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7. Dr. S. Sadagopan, Director IIIT-Bangalore

8. Dr. C. Jayachandran, Professor & Director, Center for International Business, School of

Business, Montclair State University, Montclair, NJ 07043

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University, Seoul, 133-791, Korea

10. Prof. John Bicheno, Reader of Operations Management Department, Business School,

University of Buckingham, U.K.

11. Dr. Paul Swamidass, Director of Thomas Walter Center for Technology Management, Auburn

University, USA

12. Dr. R. Balachandra, Professor, Information, Operations and Analysis Group, College of

Business Administration, Northeastern University, Boston, USA

Dr. Soumendra K. Dash, Ph.D. – African Development Bank, HQs, Tunisia

14. Prof. Chowdari Prasad, Dean (Academics), IFIM Business School, Bangalore

Editorial Representative Outside India

1. Dr. R. Nat Natarajan, Asst Dean, W.E. Mayberry Professor of Management, 407B, Johnson

Hall, College of Business, Tennessee Technological University, Cookeville, TN 38505, USA.

Editorial Committee (Operations):

1.

2.

3. Prof. Chowdari Prasad, Dean (Academics), IFIM B-School Bangalore

4. Dr. Sridevi, Professor of Finance & Associate Dean (Academics), IFIM B-School Bangalore

Referee Panel:

13.

Dr. R. Satish Kumar, Chief Editor, Professor, Marketing and Dean (Research & International

Relations), IFIM B-School Bangalore

Dr. M.R. Gopalan, Member of Board of Governors, IFIM B-School Bangalore

1. Prof. Ramesh Kumar, Professor of Marketing, IIM Bangalore

2. Dr. Nat Natarajan, Tennessee Technological University, USA

3. Dr. Rishikesh Krishna, Director, IIM Indore

4. Dr. Mathew Manimala, Chairperson, Organisational Behaviour and Human Resources

Management Area, IIM Bangalore

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6. Dr. Ravi Anshuman, Professor of Finance & Editor IIMB Management Review, IIM Bangalore

7. Dr. R. Srinivasan , Professor of Finance & Control, IIM Bangalore

8. Dr. Madhumita Chatterji, Director & Professor, Chairperson - Centre for Social

Entrepreneurship and Management, IFIM B-School Bangalore

9. Dr. R. Nargundkar, Professor of Marketing, IIM Indore

10. Prof. Rahul Gupta Choudhury, Associate Professor- Marketing, IFIM B-School Bangalore

11. Dr. Gunjan Mohan Sharma, Assistant Professor - HRM, IFIM B-School Bangalore

12. Prof. M H Sharieff, Associate Professor, IB & Strategy Area, IFIM B-School Bangalore

Published by Dr. R. Satish Kumar

on behalf of Institute of

Finance and International

Management, No-8 (P) & 9 (P),

KIADB Industrial Area,

Ist Phase, Electronics City,

Bangalore - 560100.

Email:

[email protected]

3IFIM International Journal of Management FOCUS October 2014 - March 2015|

From the Editor's Desk

Chief Editor - FOCUS

Dr. R. Satish Kumar

4 IFIM International Journal of Management FOCUS October 2014 - March 2015|

The Focus Journal was launched in the year 2005 and is completing ten years now. This is the Volume: 10, No. 2 issue of Focus. Thanks to all the Editorial Board Members, Referee panel members, Subscribers, and Authors who have supported us during these ten years.

Management Institutes need to encourage their faculty in writing quality research papers and publishing in National and International Journals of repute. This requires the management institutes to invest a considerable amount of money on various researh ativities such as organising Case Workshops, and FDPs to facilitate the faculty members in achieving their research goals.The management institutes must enhance their infrastructure in terms of Library, Computer Labs and Electronic Databases such as Ebsco, J-Gate and Emerald. Subscription of Harvard Case Studies will help the faculty members to update their curriculum and include Case Discussions and Presentations in their classroom teaching.

Need of the hour is to collaborate with the industry practitioners and invite them for guest lectures, make them part of Board of Studies to upgrade the management curriculum on a continuous basis.

Management Institutes need to organise Management Conferences/ Seminars which will provide the opportunities for the faculty members to connect with both the academia and industry pratitioners.

Management Institutes need to get certified by both national and international accreditation bodies such as NBA, NAAC, AACSB, etc. This will help them in streamlining their pedagogy, learning goals and the academic delivery processes so as to meet everchanging needs of the students and the industry.

These initiatives will definitely make our MBA graduates placeable and help them to become future corporate leaders.

IMPACT OF MANAGEMENT AUDIT SYSTEM ON ORGANISATIONAL EFFECTIVENESS

A STUDY OF THE PERFORMANCE MEASUREMENT TOOLS IN SOCIAL ENTERPRISES WITH SPECIAL REFERENCE TO BLENDED VALUE ACCOUNTING

IMPACT ON CUSTOMER SATISFACTION THROUGH CRM AT BIG BAZAAR (MPM MALL)

APPLICABILITY OF THE LINEAR CVP MODEL IN THE INDIAN CEMENT SECTOR

PREDICTORS OF WORK-FAMILY CONFLICT & FAMILY-WORK CONFLICT

CREATIVE ACCOUNTING-CONCEPT, PRACTICES AND MEASURES

A STUDY ON RURAL YOUTH'S SHOPPING PREFERENCES TOWARDS MOBILE PHONES AND PERSONAL COMPUTERS

USE OF SOCIAL NETWORKING WEBSITES AS AN EMERGING MARCOM TOOL

CONVERGENCE OF AS 14 AMALGAMATION TO IND AS 103 BUSINESS COMBINATION AND CARVE OUTS FROM IFRS 3.

SHOE POLISH- CASE SUDY

A SELFMADE MARKETING PROFESSIONAL-PROFILE STUDY OF MR. RAMACHANDRAN R.V

BOOK REVIEW- JUGAD INNOVATION

IMPLICATIONS OF IFRS IMPLEMENTATION IN INDIA

Index

S.No. Title and Name of the Author Page No.

1

2

3

4

5

6

7

8

9

10

11


12

13

01-18

19-29

30-43

44-51

52-55

56-66

67-75

76-83

84-90

91-97

98-100

101-105

106-107

Dr. K. Nirmala

Aparna R Hawaldar | Dr. Manita D Shah

DR. Y. Vinodhini

Dr. P.Paramshivaiah | Mr. Puttaswamy | Ms. Ramya S.K

Mihir Dash

Nita Choudhary | Shikha Ojha | Niranjan Kumar Singh

Poonam Dugar | Neha Desai

Kavitha R Gowda | Dr.Soney Mathews

Charu Bharti

Vibha Tripathi

Dr. Pankaj Jain | Prof. (Dr.) V. S. Dahima

Dr. Hari Krishna Maram

Dr. Pankaj Jain

Cover Story

ABSTRACT:

To meet the global challenges companies have to adopt

appropriate strategies and structure for enhancing the

organizational efficiency. Management Audit is one such tool to

evaluate the performance of business organizations. The paper

focuses on Management Audit System implementation and its

impact on Organisation Effectiveness in both Public and Private

sector companies. Empirical and analytical method is adopted

for the study. Sample companies selected are ten each from

public and private sectors. The statistical test like t-test,

correlation and Ratio analysis are conducted to evaluate the

impact and implementation of Management Audit System. The

outcome of the analysis revealthat Organisational Effectiveness

is better in Public sector companies as compared to Private

companies. The authors state that Management Audit System

helps in examining managerial decisions which have a strong

impact on the performance of business organizations.They

further opine that this method of evaluation doesnot need

specialized knowledge or tool like operation research etc. The

paper concludes that Management Audit System is must for

every enterprise to be successful and compete in global

competition.

IMPACT OF MANAGEMENT AUDIT SYSTEM ON ORGANISATIONAL EFFECTIVENESSA STUDY OF SELECT PUBLIC AND PRIVATE SECTOR

COMPANIES IN INDIA

*Associate Professor, Department of Commerce, Bangalore University, Bangalore,India | E-Mail: [email protected]

Dr. K. Nirmala*

Key words: Management Audit System, Organization Effectiveness, Public sector,

Private sector, Ratio analysis.

1. INTRODUCTION

The management of business is becoming more and more

complex because of globalization of economies. Almost all the

countries are liberalizing for the entry of foreign operators. This

had resulted in a competitive environment in which the business

organizations have to function very effectively and efficiently

for their survival and to stay as a potential competitor in the

global socio-economic ambience (Khan. A. Q. 1996).

Today's mantra of business is “survival of the fittest”. To be in

the competition they have to evaluate their weaknesses, utilize

their strengths and improve their performance. In other words,

they have to undergo a broad examination of their managerial

decisions, achievements, failures delays, etc. and provide all

findings, favorable or unfavorable, which have a bearing on their

performance. All this calls for the conduct of “Management

Audit” in these 0rganisations.

Management audit therefore, is future oriented, independent

and systematic evaluation of the activities at all levels of

management for the purpose of improving Organizational

effectiveness through the attainment of the Organizational

objectives (Anil. B. Roy Chowdhury, 1996).It is considered as a

comprehensive and constructive examination of an


Organization, its plans, objectives and means of operations, and

an investigation from top level to lower level of management. It

is a critical review of all aspects or processes of management and

reviews the performance of various managers and systematically

examining, analyzing and appraising the management's overall

performance.

The Indian companies are growing both organically and

inorganically. Many companies are competing with global

companies in offering goods and services. The concept of

management audit is quite novel in the Indian context.

(Satyanarayana Chary T, et.all. 2004) in their study conducted

regarding the implementation of Management Audit System,

indicates that it is still in nascent stage and some companies

having foreign collaborations have attempted to implement

Management Audit in all their activities and some are in the

process of implementing. (Khan A Q,1996) in his study indicate

that the accomplishment of systematic Management Audits are

very often caused by major changes in the business such as

change in the top management, mergers and acquisitions,

succession planning and restructuring/strategic alignment .

Some companies conduct Management Audit only to those

activities or functional areas where the performance is poor or

needs immediate improvement to maintain a proper rate of

growth of business and returns.

To assess the Organizational effectiveness few measures such as

return on sales, return on equity, market share change and

customer satisfaction are considered. (Rodsutti M.C, &

Swierczek F.W., 2002) indicated organizational effectiveness,

capabilities-managerial skills, organization culture, organization

communication and perceived organization reputation are

other parameters considered in assessing organizational

effectiveness.

Even though, there is theoretically and logically a clear positive

linkage between Management Audit System and Organizational

effectiveness, it is still observed that all the companies from both

public and private sectors are not very keen in introducing

Management Audit System. What could be the reason for this?

Is Management Audit System a sound concept? Is there any

problem in the introduction of Management Audit System? Or

is there a doubt of who is the right person to do this type of

audit? and so on. All these research questions needed an

empirical study on different aspects of Management Audit

System in the existing scenario relating to implementation of

Management Audit System and its impact on organizational

effectiveness.

1.1 MANAGEMENT AUDIT IN INDIA

2. STATEMENT OF THE PROBLEM

3. REVIEW OF LITERATURE

The literature review on Management Audit and Organizational

Effectiveness indicates a mixed result. Some companies which

have adopted Management Audit System have fared remarkably

better, whereas, in case of some companies, in spite of having

Management Audit System, these companies have failed to

improve their Organizational Effectiveness. This leads to the

necessity of studying important issues and problems relating to

linkage between Management Audit and Organizational

Effectiveness.

One of the basic issues relates to the question that, if

implementation of Management Audit System is going to

improve the Organizational Effectiveness, then why it is not

made mandatory like financial audit.Is it because of the

experience of some companies where in spite of introduction of

Management Audit System the organizational effectiveness has

not improved. Does it mean that Management Audit System

does not have any value? Are there problems which make

implementation of Management Audit difficult or is

Management Audit still not accepted as measurement of

management performance tool for improving the organizational

effectiveness? Or is it that the cost and time factor which has

come in the way of implementing Management Audit System in

all Organizations or is it because of the non-feasibility in

ensuring the co-ordination in the entire Organization? Or is it

because Management Audit covers non-financial parameters

which could be theoretical concept requiring some more

validation and authentication. The other issues could be failure

of many companies in not having clear-cut idea about their

vision, mission and objectives,Organizations feel that the

internal audit system automatically takes care of Management

Audit and there is no need to have separate Management Audit.

These are some of the question which requires an in-depth

study. This study is a humble attempt in this direction.

As noted by the authors not much of literature review is available

on Management Audit System and its adoption in enhancing

Organizational Effectiveness by Indian Companies.

Management Audit System seem to be in the infancy stage due

to many reasons like no rules governing the system as in the case

of financial audit, who is the right person to do the audit and so

on. The literature review relates to Management Audit System

and Orgnisational Effectiveness is given below-

Management Audit is a “procedure for systematically analyzing

and appraising a management's overall performance”. An

effective management audit will induce constructive thinking

and reveal the firm's strong and weak points and it will also


increase the firm's effectiveness and efficiency and thereby,

increase the firm's profit (Brown, J R. &Cooper, W. D.,1988).

To ensure the effectiveness of Organizational activities in any

Organization syntheses among three different things needs to be

established. They are – individual, group and organizational

effectiveness. The causes of individual effectiveness includes

physical attributes, personality traits, motivation and morale

etc., the causes for group effectiveness comprise of leadership,

communication and socialization etc., and the causes of

organizational effectiveness include technology, environmental

conditions, competence and many other variables (Lawless

D.,1972).Flesher D.L. (1993) in his paper claims that the small

businesses today could probably benefit from a management

audit of the firm's long-term financial affairs. Management

Audit by articulating the missions, objectives and expected

results along with the methods of performance evaluation goes a

long way towards improving the performance of public

enterprises Batra GS (1997). Management Audit helps in

examining managerial decisions which have a bearing on the

performance of business Organizations. The evaluation is more

suited as the management of a business enterprise need not be

equipped with specialized knowledge of tools such as operations

research,advanced statistics etc. they further indicate procedure

to conduct management audit and conclude that management

audit is a must for every enterprise (T.Satyanarayana Chary

&et.all2004). Similarly Cann J.M.,(2004)says while

organizational agility is certainly essential, so is organizational

resiliency. Further he suggests that academics and practitioners

must work even more closely together to understand the trends

and to translate theory into usable and practical

recommendations for managing highly dynamic Organizational

environments.

Wang Z. (2005) presents general frame work for understanding

the Organizational Effectiveness which includes three-strategy

model for global technology innovation and organizational

development. The frame work discussed personnel strategy,

system strategy, and organizational strategy. He concludes that

the personnel strategy could play a crucial role in enhancing the

effects of human resources management and entrepreneurship

by supporting the main dimensions of HRM. The system

strategy was use to facilitate technology innovation through

knowledge management while the organizational strategy was

adopted to create positive organizational culture and high

performance system. Burton J.C., (1968) reveals how the

auditors in future would attest the effectiveness of the

management's performance. According to the author there are

four areas in developing a frame work for Management Audit.

First, the criteria for a management audit must be considered.

Second, standards of managerial performance must be

developed, if the evaluation of management stewardship is to

have meaning. Third, a method of reporting must be

established, so that the auditor can have a structured means of

disclosing the results of his examination, finally, it will be

necessary to develop management auditing procedures and

standards of documentation to support the report given. The

methods of critical path and PERT analysis could be used in

office management as well as to other activities. Picketh T. R.

(1968).

Based on the research gap found from the literature review on

Management Audit and Organizational Effectiveness and

problem statement, the following objectives have been

formulated for this study-.

To compare the implementation of Management

Audit System between public and private sector

company

To assess the impact of implementation of Management

Audit system on Organizational Effectiveness between public

and private sector companies:

To achieve the above objectives the following Hypothesis

havebeen formulated.

H1= There is a significant extent of implementation of

Management Audit System in functional activities between

public and Private Sector Companies.

H2= There is a positive impactof Management Audit Systemon

Organizational effectiveness reflected in Management Process

between public and private sector companies.

H3= There is a positive impact of Management Audit System on

Organizational effectiveness reflected in Production between

public and private sector companies.

H4= There is a positive impact of Management Audit System on

Organizational effectiveness reflected in Marketing between

public and private sector companies.

H5= There is a positive impact of Management Audit Systemon

Organizational effectiveness reflected in Accounting and

Finances between public and private sector companies.

This study is based on empirical and analytical method. There

are 245 central government and 160 state government public

sector companies of which 50 percent are not performing well.

For present study Bangalore based Ten public sector companies

were selected. Similarly Ten private sector companies were

selected from 282 companies which were listed in Bangalore

4. OBJECTIVES OF THE STUDY

>

>

5. HYPOTHESES

6. METHODOLOGY

Cover Story


stock exchange. The criteria followed for choosingpublic and

private sector companies were minimum of ten years in business

and having 500 employees, existence of all functional

departments., clear organization structure with regular meeting

of Board of Directors, head office in Bangalore and

implementation of Management Audit System partially or fully

for at least last 3 years. Ten public and private sector companies

selected for the study shown in (Annexure Table- 1)

Organizational effectiveness was measured through financial

ratios like Net Asset Ratios, profitability ratios, net sales ratios

(Annexure Table -2). Ten years data was taken for calculating

financial ratios i.e. from 2003 to 2012. For analysis, the ten years

data was divided into two parts pre-implementation period and

post-implementation period. The variables chosen for

management process were objectives, planning, organization,

control and systems, and procedures. The functional activities

were Production, Marketing, Research and Development,

Accounting and Finance, Human Resource Management and

Information Technology.The data collected was been analyzed

using statistical tools such as , analysis of variance, Ratio

Analysis.

7. DATA ANALYSIS AND DISCUSSIONS

The above table reveals the level of implementation of

Management Audit System overall variable wise mean scores in

public and private sector companies. It shows that when public

and private sector companies are compared, in public sector

management process(77.02 percent), production(80.10

percent), marketing(75.76 percent), financial accounting(79.02

percent), human resource(79.38 percent), and information

technology(80.51 percent) which are greater than the private

sector companies. In private sector research and development

which is 74 percent is greater compared to public sector with

71.13 percent. It is evident from the statistical results that the

mean response on Management Audit System between public

and private sector companies for all the seven different aspects

of study are found to be non-significant (P<0.05). It further

reveals the data subjected for statistical test indicate the mean

response under different variable of Management Audit for the

Public sector (F=0.48NS), private sector (F=0.16NS) and

combined (F=0.41NS).

Public Sector Companies have implemented Management

Audit System to the extent of 77.9 percent and private to the

extent of 74.51 percent. The 't' Test (0.47NS) indicates the

difference is not significant. Hence, H1 is rejected i.e there is no

significant difference in the extent of implementation of

Management Audit System across public and private sector

companies.


Table 2 indicates company wise the degree of implementation of

Management Audit System with regards to management

process, production, marketing, research and development and

accounting in public and private sector companies.

The Karl Pearson's coefficient of correlation for public

companies between the level of implementation of

Cover Story


Management Audit System on management process,

production and the number of ratios which indicate positive

impact as shown in Table 2 indicates -0.14 and -0.20 this reveals

that there is insignificant negative correlation i.e the level of

implementation of management audit has not impacted

Organizational Effectiveness, where as in case of marketing it is

+0.55, R&D +0.14(not impacted) and accounting +0.14.

The Karl Pearson's coefficient of correlation for private

companies between the level of implementation of

Management Audit System on management process,

production and accounting the number of ratios which indicate

positive impact as shown in Table 2 indicates 0.603,

0.27(moderately positive correlation) and 0.74, this reveals there

is positive correlation, where as in case of R&D it is -0.026

showing negative correlation.

Table-3

Impact of Implementation of Management Audit System on the Organisational Effectiveness

Table indicates the impact between implementation of

Management Audit System on the Organizational Effectiveness

through Ratio Analysis. This table reveals that there is

significant impact of Management Audit System on Accounting

and Finance in both public and private sector companies and

hence accept the Hypotheses(Hyp-5)and Management process

in the case of Private Sector companies (p<0.05-Hyp 2). Apart

from these, there is no impact of Management Audit System on

Management Process in public sector companies (Reject Hyp -

2), production and marketing in both the sectors (Reject Hyp 3,

Hyp 4)

.

< The result of empirical data reveal that there was no

significant difference in the extent of implementation of

Management Audit System on functional activities like

management process, production, marketing, R&D and

accounting.

< The extent of implementation of Management Audit

System is found highest in IT(80.51) and production(80.10) in

public sector where as in private sector only in IT the impact was

high(80.34).

< Implementation of Management Audit System on

Organizational Effectiveness is moderately positive across public

n private sectors.

< There is a significant impact of Management Audit

8. SIGNIFICANT FINDINGS OF THE STUDY

System on accounting and finance in both public and private

companies, in case of management process there is significant

impact only in private sector companies.

< There is no impact of Management Audit System on

management process in public sector companies and

productionand marketing functions in both the sectors.

< The vertical analysis indicates implementation of

Management Audit System has created positive impact in the

case of net profit to fixed assets in eight of ten companies.

Similar is the case with cash from operations to fixed

assets.Management Audit has impacted net sales to fixed assets,

net profit to capital employed and cash from operations to total

assets in case of six out of 10 companies. Further analysis

indicate implementation of Management Audit has impacted

net sales to capital employed, net profit to total assets and cash

from operations to capital employed in the case of five out of ten

companies. The least impact is seen in the case of net sales to

total assets. The above analysis indicates the Management Audit

System has impacted significantly using of fixed assets compared

to other variables. (AnnexureTable-3)

< Vertical analysis indicates implementation of


case of Cash from operations to Fixed Assets ratio in eight out of

ten companies. Similarly in the case of Net Profit to Total Assets

and Net Profit to Fixed Assets there is positive impact in seven

out of ten companies. Further analysis indicate that Net Sales to

Capital employed, Net Sales to Total Assets and Net Profit to


Capital employed and Cash from operations to Capital

employed reveal six out of ten companies having been impacted

after the implementation of Management Audit System.

(Annexure Table-4)


audit system has created positive impact in the case of inventory

turnover ratio in seven of ten companies. Management audit has

impacted Cost of production to Net profit, Cost of production

to Cash from operations, Cost of raw materials to Net profit

and Cost of raw materials to Cash from operations in case of six

out of ten companies. Further analysis indicates

implementation of management audit has impacted Cost of

production to Net sales five out of ten companies. The least

impact is seen in the case of Asset utilization ratio and Cost of

raw materials to Net sales. The above analysis indicates the

Management Audit System has impacted significantly using of

inventory compared to other variables. (Annexure Table-5)


management audit system has created positive impact in that

case of Cost of production to Net profit and cost of raw materials

to Net profit in seven out of ten companies. Similarly in the case

of Cost of production to Cash from operations, Cost of raw

materials to net sales, Cost of raw materials to Cash from

operations and inventory turnover ratio impact in five out of ten

companies. (Annexure Table-6)


audit system has created positive impact in case of debtor's

turnover ratio out of ten companies. Management audit has

impacted selling and administration expenses to net sales,cost of

production to net sale in case of five out of ten companies.

Further analysis indicate implementation of Management

Audit has impacted selling cost to net sales and debtors velocity

in case of two out of ten companies, which indicates the least

impact. The above analysis indicates that the Management

Audit System has impacted significantly debtor's turnover ratio

compared to other variables. (Annexure Table 7)


Management Audit System has created positive impact in case of

debtor's turnover ratio in seven out of ten companies. Similarly

in case of selling and administration expenses to net sales there

is positive impact in six out of ten companies. Further analysis

indicates that cost of production to Net Sales reveal four out of

ten companies having been impacted after the implementation

of Management Audit System (Annexure Table-8)


audit system has created positive impact in case of total research

expenditure to Net Sales and capital expenses on research to Net

sales in three out of seven companies. Management Audit has

impacted recurring expenses on research to Net Sales on two out

of seven companies. Further analyses indicate implementation

of Management Audit has impacted capital expenses on

research to Net profit on one out of seven companies, which

indicates the least impact. The above analysis indicates the

Management Audit System has impacted total expenditure to

net sales and recurring expenditure to net profit. (Annexure

Table-9)

< Vertical analysis indicates Implementation of

Management Audit System has createdpositive impact in the

case of all ratios selected i.e Total research expenditure to Net

profit, Total research expenditure to net sales, capital expenses

on research to net profit, capital expenses on research to Net

sales and Recurring expenditure to Net sales reveal two out of

s e ve n c o mp a n i e s h av i n g b e e n i mp a c t e d a f t e r

theimplementation of Management Audit System. (Annexure

Table10)


audit system has created positive impact on EPS, nine out of ten

public sector companies. In the case of capital employed to net

worth, interest coverage ratio, profit before interest and tax to

Net sales and Debt-Equity ratio, the positive impact is eight out

of ten public sector companies selected. Similarly in the case

with Net profit to Net worth, where Management Audit has

impacted seven out of ten companies. Further analysis indicate

the least impact is seen in the net sales to capital employed,

Profit before interest and tax to Net Sales, Current ratio on five

out of tem companies. The above analysis indicates the

Management Audit System has impacted significantly on

earnings per share to other variables. (Annexure Table-11)



case of net sales to capital employed, Capital employed to Net

worth and interest coverage ratio in six out of ten companies.

Similarly, in the case of profit before interest and tax to Net sales,

net profit to Net worth, Debt-Equity ratio, current ratio and

earnings per share, there is positive impact in five out of ten

companies. Further, analysis indicates that profit before interest

and tax to capital employed has shown the least impact

compared to other ratio. (Annexure Table-12)

Further research shall be looked into measuring the

organizational effectiveness on implementation of Management

Audit System with pre-determined measurable Financial and

Non-financial parameters. The study can be extended to service

sectors like Educational Institutions , IT Companies, Health

care, Law and Order and Government Organizations.

9. SCOPE FOR FURTHER RESEARCH

Cover Story


CONCLUSION

The present study noted that the Management Audit System is

still at the infancy stage in India, because not even one company

out of twenty sample companies have implemented

Management Audit System fully. The process of liberalization

and globalization has gained momentum in India, hence,

foreign investors, non-resident Indians and multi-national

companies are showing keen interest in establishing joint

venture, independent enterprises and investments through

capital market. Today, the changes that take place in the

Organizations reflect only the attitudes and perspectives of the

individuals who make isolated decisions. How the decision will

affect the organizations overall performance is not assessed, very

few Organizations having foreign collaborations have attempted

to implement Management Audit System. It is high time that

Management Audit System is used for assessing the managerial

efficiency and thereby enhancing the Organisational

Effectiveness.

As such, the authors conclude that the parameters such as

management process which consists of objectives, planning,

organization, control, systems and procedures and functional

activities relating to production, marketing, research and

development, accounting and finance, human resource

management and information technology are to be thoroughly

examined under Management Audit System and its impact

should be measured through effectiveness of Organization. It

was found that there is a positive impact of Management Audit

System on Organizational Effectiveness in both public and

private sector companies, but it is not significant. When the

implementation of Management Audit System is compared

among public and private sector companies, public sector

companies are better. Further the impact of implementation of

Management Audit System is seen on the functional activities

except on research and development in both public and private

sector companies. Authors conclude by suggesting Management

Audit System helps in evaluating managerial decisions which

have a strong impact on the performance of business

organizations. Companies have to implement this system for

their success and to compete in the global market.


Cover Story


Bibliography

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Cover Story


A STUDY OF THE PERFORMANCE MEASUREMENT TOOLS IN SOCIAL ENTERPRISES WITH SPECIAL REFERENCE TO BLENDED VALUE ACCOUNTING

FOCUS Research Papers

*Research Scholar, Tumkur University, Email: [email protected], Ph. 94484 66953

Aparna R Hawaldar*

Professor, Alliance School of Business, Alliance University**

Dr. Manita D Shah**

ABSTRACT

Over the past five to ten years, there has been an explosion of

interest around social entrepreneurship, strategic philanthropy,

sustainable development, corporate social responsibility,

socially responsible investing, and other social investing. Scores

of organizations have been launched to advance these issues,

many business articles addressing these topics have been

published, and new programs have been cropping up at

conferences, business schools and universities. All these efforts

have in common the pursuit of more than simple economic

value and more than basic social impact. They all are advancing

what may be viewed as a shared agenda of simultaneously

valuing social equity, environmental sustainability and

economic development.

This paper presents an exploratory analysis of the emergent

performance reporting practices used by social entrepreneurs in

terms of their institutional settings and strategic objectives.

These reporting practices not only account for financial

performance but also disclose more nuanced and contingent

social and environmental impacts and outcomes. Furthermore,

they act as symbolic objects expressing the market orientation of

many socially entrepreneurial organizations in that they aim to

provide more complete and transparent disclosure of a variety

of performance impacts. Conceptually, this paper draws upon

approaches developed within the sociology of accounting as

institutional practice.

Keywords: social impact, blended value accounting, social enterprises

INTRODUCTION

In the present global scenario, the investors are divided between

doing well and doing good. They invest in either for-profit

organisations or not-for-profit organisations.

In reality, the core nature of investment and return is not a tradeoff

between social and financial interest but rather the pursuit of an

embedded value proposition composed of both (Emerson, 2003).

One of the unique features of Social Entrepreneurs is that they

are a diverse group. Most of them may be involved in tackling

any comprehendible issue in any country in the world. Their

pioneering ideas often make them cross the divide between

traditional disciplines, and the solutions that they nurture are

habitually unique to the culture and circumstances of the

communities in which they work.

The funders of social enterprises also adopt an assortment of

approaches: while some funders invest only in debt or equity,

others use charitable grants. Some funders support the Social

Entrepreneur as an individual at her earliest stages of

experimentation, while others concentrate more on the growth

and efficiency of the organization at later stages of

development.

Despite this diversity, there is a shared viewpoint that

differentiates the field of Social Entrepreneurship from other

approaches to philanthropy and evaluation. The funders of

social enterprises think in a different way. Unlike a corporate


investor who is interested in rate of financial return, the social

investor seems to focus more on social impact and returns.

There are around thirty contemporary social impact

measurement methods used worldwide. These methods have

been developed to meet the changing needs of management

information because of the increased awareness in socially

responsible activities worldwide.

Similar to financial accounting methods, the social accounting

methods intend to measure the impact of corporate activities

on society. In majority of the cases, social impact is not

expressed by the market, hence do not have a market value and

are consequently ignored by corporations (Elkington 1999,

Schaltegger and Burritt 2000, Lamberton 2005). However,

accounting methods provide crucial information for

managerial decision-making and for internal and external

reporting (Zimmerman 2009).

Conventionally, it is understood that value can either be

economic or social.

The Triple Bottom Line (TBL) concept focuses on value

creation across the three dimensions of sustainability; the

economic, social and environmental dimensions. Although

this concept has been widely used, the interpretation of value

creation differs among users; some interpret TBL as a zero-sum

game while others interpret TBL as an optimisation game of

blended value (Emerson 2003). The idea behind the blended

value is that all corporations, whether for-profit or not, create value

that consist of economic, social and environmental value components;

and this value is itself non-divisible and, therefore, a blend of these three

elements (Ann et al. 1999, Elkington et al. 2006).

Therefore, the task for any organisation, whether non-profit,

nongovernmental or for-profit, is to optimize the impacts on

several dimensions rather than maximizing impacts against any

one dimension. At this point, it becomes important to note that

the involvement of varied constituents within the corporation

does not promise socially responsible behaviour.

Regardless of the standpoint, it is realistic to assume that

organisations are interested in social impact measurement for

reporting and decision making purposes.

There is no consensus on the definition of social impact which

is causing confusion. Major dissimilarities are in the usage of

Social Impact Measurement Tools

Defining of social impact

words such as ‘impact’, ‘output’, ‘effect’ and ‘outcome’.

Furthermore, the term social impact is often interchanged by

terms such as ‘social value creation’ (Emerson et al. 2000) and

‘social return’ (Clark et al. 2004).

Burdge and Vanclay (1996) have defined social impact as “By

social impacts we mean the consequences to human

populations of any public or private actions that alter the ways

in which people live, work, play, relate to one another, organise

to meet their needs and generally act as a member of society.”

Latane (1981) defines social impact as “By social impact, we

mean any of the great variety of changes in physiological states

and subjective feelings, motives and emotions, cognitions and

beliefs, values and behaviour, that occur in an individual,

human or animal, as a result of the real, implied, or imagined

presence or actions of other individuals”. According to

Emerson et al (2000) “Social value is created when resources,

inputs, processes or policies are combined to generate

improvements in the lives of individuals or society as a whole”.

Freudenburg (1986) defines social impact as” Social impact

refers to impacts (or effects, or consequences) that are likely to

be experienced by an equally broad range of social groups as a

result of some course of action”.

From an economic viewpoint, the aim of economic behaviour is

understood to be the maximisation of wealth or profit, which is

realized by the efficient management of scarce resources. Thus,

managers always to seek to achieve efficient outcomes.

The traditional performance measurement is often based on

the goal-attainment approach and usually do not consider social

or environmental questions. One of the assumption that lie

beneath the goal-attainment approach is that the goals of an

organisation are identifiable and unambiguous (Forbes 1998).

The effectiveness of an organisation is measured by the progress

made towards the attainment of these goals. Conventional

performance measures are used to measure this progress.

However, including the other dimensions of environmental

and social impact becomes slightly complicated.

To develop an integrated blended value outlook, the traditional

accounting methods will have to integrate all three dimensions-

economic, social and environmental. In 1991, Eccles (1991)

predicted the beginning of a change in performance

measurement and predicted that ‘within the next five years, every

corporation will have to redesign how it measures its business

performance’ (p. 131). Corporations have habitually relied always on

financial measures of performance. The present newer competitive

Developments in performance measurement


realities mandate new measurement systems for integrating

social dimensions of corporate performance.

Generally the corporations assess their success or failure on the

basis of targets achieved – the amount of money invested,

quantity of products distributed, and so on – rather than on

how their economic activities have impacted the society and

environment. Such impacts can be measured at the individual

level, the corporation level, and the societal level. An innovative

and interdisciplinary approach is needed for the integration of

social impact into the processes of management.

Many methods have been developed to measure social impact

since the 1990s. the literature research and internet search have

resulted in thirty quantitative (social) impact measurement

methods. These have been listed in Table 2. Quantitative

Measurement of Social impact - an overview of methods

methods are more apt for the corporations to make the

intangible results more tangible and to use social impact

measurement for decision-making and control issues.

There are several methods have been developed by, or for, non

profit or governmental corporations like the SROI, OASIS,

SCBA, and LEM while there are other methods which are

mainly developed for, and used by, for-profit corporations like

SRA, ACAFI, TBL, MIF, and BACO. Even though a method

may have firstly been developed for a certain kind of

organisation, the method can be adapted by other kinds of

organisations. The SROI method is a good example of this

phenomenon. SROI was developed primarily for non-profit

organisation but is currently very popular among profit

corporations.

(Social) Impact measurement methods

1. Acumen Scorecard

2. Atkinsson Compass Assessment for Investors (ACAFI)

3. Balanced Scorecard (BSc)

4. Best Available Charitable Option (BACO)

5.

BoP Impact Assessment Framework

6.

Center for High Impact Philanthropy Cost per Impact

7.

Charity Assessment Method of Performance (CHAMP)

8.

Foundation Investment Bubble Chart

9.

Hewlett Foundation Expected Return

10.

Local Economic Multiplier (LEM)

11.

Measuring Impact Framework (MIF)

12.

Millennium Development Goal scan (MDG- scan)

13.

Measuring Impacts Toolkit

14.

Ongoing Assessment of Social Impacts (OAS IS)

15.

Participatory Impact Assessment

16.

Poverty Social Impact Assessment (PSIA)

17.

Public Value Scorecard (PVSc)

18.

Robin Hood Foundation Benefit- Cost Ratio

19.

Social Compatibility Analysis (SCA)

20.

Social Costs - Benefit Analysis (SCBA)

21.

Social Cost- Effectiveness Analysis ( SCEA)

22.

Social e - valuator

23. Social Footprint

24. Social Impact Assessment (SIA)

25. Social return Assessment (SRA)

Social return on Investment (SROI)

Socio-Economic Assessment Toolbox (SEAT)

Stakeholder Value Added (SVA)

Toolbox for Analysing Sustainable Ventures in

Developing Countries

26.

27.

28.

29.

Wellventure Monitor30.

Table 1: Overview of social impact measurement methods

The measurement methods have been developed based on the diverse purposes for which they are used and also depending on what

they are intended to measure.



DESCRIPTION OF SOCIAL IMPACT

MEASUREMENT METHODS

1. Acumen Scorecard

2. Atkisson Compass Assessment for Investors

(ACAFI)

3. Balanced Scorecard (BSc)

Developed in 2001 by: Acumen Fund in association with

McKinsey, a non-profit enterprise that invests in and grants to

both non-profit and for-profit ventures in its portfolio.

'The system was developed to assist both for profit businesses,

and not-for-profit corporations focus on actions that deliver

both immediate results and improve an corporations long term

competitive positioning in changing and dynamic

marketplaces.’

'The system assesses the social ventures investments in

Acumen's portfolio of for-profit and non-profit corporations. It

entails tracking progress on short- and long term outcomes,

which is assessed in terms of outcome milestones and

benchmarks.’

This system is developed by AtKisson Inc.in 2000. 'This

method builds on AtKisson's Compass Index of Sustainability,

a tool for assessment of the sustainability of communities. The

framework for investors is designed to integrate with the

reporting guidelines of major CSR standards, particularly the

Global Reporting Initiative (GRI) and the Dow Jones

Sustainability Index (DJSI), as a venture matures. The method

incorporates a structure with five key areas: N = nature

(environmental benefits and impacts) S = society (community

impacts and involvement) E = economy (financial health and

economic influence), and W = well-being (effect on individual

quality of life), and a fifth element, + = Synergy (links between

the other four areas and networking), and includes a point-scale

rating system on each of the five areas. Each area has several

indicators each of which has specific criteria. The method has

been peer reviewed by corporate executives, economic

academicians, and investment professionals.’

The Balanced Score Card is developed by Robert Kaplan and

David Norton in 1992.

'The Balanced Scorecard proposes that corporations measure

operational performance in terms of financial, customer,

business process, and learning-and-growth outcomes, rather

than exclusively by financial measures, to arrive at a more

powerful view of near term and future performance. It

advocates integration of these outcomes into corporations'

strategic planning processes. The scorecard is a framework for

collecting and integrating the range of metrics along the Impact

Value Chain, and is adaptable to an organisation's stage. It

helps coordinate evaluation, internal operations metrics, and

external benchmarks, but is not a substitute for them. Recently

Kaplan has adapted the Balanced Scorecard for nonprofits,

suggesting that such institutions adopt strategic performance

measures that focus on user satisfaction (Clark et al. 2004).’

This system is developed by Acumen Fund in 2006. 'Rather

than seek an absolute standard for social return across an

extremely diverse portfolio, Acumen Fund looks to quantify an

investment's social impact and compare it to the universe of

existing charitable options for that explicit social issue.

Specifically, this tool BACO helps inform investors where their

philanthropic capital will be most effective—answering “For

each dollar invested, how much social output will this generate

over the life of the investment relative to the best available

charitable option?” The BACO ratio (for best available

charitable option), must be seen as a starting point for assessing

the social impact and cost-effectiveness of investments. The

point of the analysis is to inform our portfolio decision-making

with a quantifiable indication of whether our social investment

will “outperform” a plausible alternative.’

The Bottom of the Pyramid Impact Assessment Framework is

developed by Ted London in 2007. 'The aim of the BoP Impact

Assessment Framework is to understand who at the base of the

pyramid is impacted by BoP ventures and how they are affected.

The framework is developed to evaluate and articulate impacts,

to guide strategy and to enable better investment decisions.

Next to this the system contributes to a deeper knowledge of the

relationship between profits and poverty alleviation and to

recognize the poverty alleviation implications of different types

of ventures. It builds upon the different well-being constructs as

developed by 1998 Nobel Prize winner Amartya Sen.’

This tool is developed by the Center for High Impacts

Philanthropy from the University of Pennsylvania in 2007.

High impact philanthropy means getting the most good for your

philanthropic buck. It is the process by which a philanthropist

makes the biggest difference possible, given the amount of

capital invested. In order to assess cost per impact,

philanthropists must be able to assess, to the extent possible, its

two components: 1) social impact, as measured by specific,

objective criteria for success; and 2) cost, as measured by the

investments made by philanthropists or other sources to realise

4. Best Available Charitable Option (BACO)

5. BoP Impact Assessment Framework

6. Center for High Impact Philanthropy Cost per

Impact


the impact. Assessment requires objective, reliable information

on what's effective, what's not, and how much capital is required

to achieve a given impact. The Center for High Impact

Philanthropy aims to deliver the information and analytic tools

required to answer these questions.’

The CHAMP method is developed by the Dutch charities test

(nationale goede doelen test) in 2006. 'The performance of

charity's ADT are determined by effectiveness - What did we

achieve? - And efficiency - how fast and in a cost-effective way?

Effectiveness and efficiency can be measured on five distinct

levels:

1. Impact on society: how is society is affected by the effect of the

charity on their target group?

2. Impact on the public: in what way is the situation of the target

group demonstrably improved by the output of the charity?

3. Output: what concrete results are produced by the core

activities of the charity using the input factors (money,

volunteers, etc.)?

4. Activities: how effective are the core activities of the charity?

5. Input: how effective and efficient are the activities related to

the input factors such as fundraising and recruiting volunteers?'

'The CHAMP method provides indicators to measure the

performance on all different levels. This tool is developed to

help donators, and volunteers to choose between a wide range

of nonprofit corporations.’

'This form of analysis is more of a visualization tool that plots

the quantifiable impact on the x-axis, the percentage of

implementation on the y-axis, and the relative size of a

foundation's grant in a given field. This results in an easy

comparison of the performance of corporations across a

portfolio and can have different variables for the x-axis, y-axis

and bubble relativity for flexible data display. Foundation board

of directors and senior management teams could use the bubble

chart to assess the relative performance and cumulative

foundation investment (or total philanthropic investment)

against the indices of performance they care about most. The

analyses can be used to discuss performance, explore why one

program or a group of programs are positioned where they are,

and inform future investments.'

This tool is developed by the William and Flora Hewlett

Foundation. This foundation was founded in 1966 to solve

7. Charity Assessment Method of Performance

(CHAMP)

8. Foundation Investment Bubble Chart

9. Hewlett Foundation Expected Return

social and environmental problems at home and around the

world.

'The method calculates the expected return of investments and

is developed to enable foundations To ask and answer the right

questions for every investment portfolio: what's the goal? How

much good can it do? Is it a good choice? How much difference

will we make? What's the price tag? The method is purely

prospective. The expected return provides a systematic,

consistent, quantitative process for evaluating potential

charitable investments, and is based heavily on cost-

effectiveness analysis and cost-benefit analysis.’

“The Economic Multiplier is an central concept in Keynesian

and post-Keynesian economics. A multiplier is a factor of

proportionality that measures how much an endogenous

variable changes in response to a change in some exogenous

variable.”

“The local economic multiplier is based on the idea that dollars

spend in locally-owned stores will impact the local economy

two or three times more in comparison to dollars spend in

national retailers. The basics of the local multiplier

methodology are the identification of income in three rounds.

The first round measures direct income of the study group, the

second round measures indirect income, i.e. local spending of

the study group, the third round measures induced income, i.e.,

local spending by local recipients of study group spending. The

local multiplier is the sum of direct, indirect and induced

income divided by direct income.'

The Measuring Impact Framework is developed in 2008 by the

World Business Council for Sustainable Development. The

Measuring Impact Frameworkis designed to help corporations

understand their contribution to society and use this

understanding to inform their operational and long-term

investment decisions and have better-informed conversations

with stakeholders. The framework is based on a four-step

methodology that attempts to merge the business perspectives

of its contribution to development with the societal

perspectives of what is important where that business operates.

Step one, set boundaries: determine the scope and depth of the

overall assessment in terms of geographical boundary (local

versus regional) and types of business activities to be assessed.

Step two, measure direct and indirect impacts: Identify and

measure the direct and indirect impacts arising from the

corporation's activities, mapping out what impacts are within

the control of the corporation and what it can influence

10. Local Economic Multiplier (LEM)

11. Measuring Impact Framework (MIF)



through its business activities. Step three, assess contribution to

development. Assess to what extent the corporation's impacts

contribute to the development priorities in the assessment

areas. Step four, prioritise management response: based on

steps two and three extract the key risks and opportunities

relative to the corporation's societal impact, and based on this,

develop an appropriate management response. There is no

“one size fits all” way to use this methodology. In order to

appropriately tailor the methodology to the business and its

operating context, as well as ensure follow-up actions are taken,

corporations are encouraged to make the assessment as

participative as possible, consulting people both within and if

possible external to the corporation.’

The MDG-scan is developed in 2009 by the Dutch National

Committee for International Cooperation and Sustainable

Development (NCDO) and Dutch Sustainability Research

(DSR). 'The MDG Scan is a tool designed for corporations to

measure the positive contribution tot the Millennium

Development Goals (MDGs) and demonstrate their role in the

global initiative to reach these eight MDGs. The MDG Scan

measures each corporation's MDG impact by entering key data

in a secured environment. Once the corporation approves the

publication of its results, they will be visible for everyone. The

MDG Scan is a practical tool for corporations. Without

spending much time or effort, corporations can gain insight in

their MDG Footprint. Based on key data on core business and

community investment activities that can be entered after

registering, the MDG scan estimates your corporation's

contribution to each of the MDGs. Real time results generation

quickly provides easy-to-understand insights, globally, per

country or per sector / industry. Each corporation can

download a personalized MDG impact results report, which

facilitates internal discussions and in-depth analysis of its MDG

impact.’

'The Volunteering Impact Assessment Toolkit was developed in

2004 by the Institute of Volunteering Research (IVR) with

input from the London School of Economics, The University of

East London and Roehampton University. It is widely

recognised that volunteers make a difference to the work of

many social economy corporations, but this is mainly

supported by anecdotal evidence. The Toolkit is a way of

changing this. It is easy to use, comprehensive and adaptable. It

allows corporations to look at the impact of volunteering on the

volunteer, the service user, the corporation and the wider

community. It can help corporations gain a greater

understanding of how and why volunteering works in the

12. Millennium Development Goal scan (MDG-scan)

13. Volunteering Impact Assessment Toolkit

corporation as well as gather evidence to support funding bids.'

‘This new toolkit will enable corporations to assess the impact

of volunteering on all key stakeholders: the volunteers, the

corporation, the beneficiaries, and the broader community.

Results over time can be compared. Corporations will be able to

use it to assess a wide range of impacts, from the skills

development of volunteers to the economic value of

volunteering corporations. Positive and negative results,

intended and unintended impacts can be explored.’

Developed in 1999 by REDF (formerly The Roberts Enterprise

Development Fund) a nonprofit enterprise that creates job

opportunities through support of social enterprises that help

people gain the skills to help themselves.

'REDF developed this system for its internal use and that of the

nonprofit agencies in its portfolio to assess the social outputs

and outcomes of the agencies overall, including the social

enterprises they each operate. The system is a customised,

comprehensive, ongoing social management information

system (MIS). It entails both designing an information

management system that integrates with the agency's

information tracking practices and needs, and then

implementing the tracking process to track progress on short- to

medium term (two years) outcomes.’

‘The Feinstein International Center has been developing and

adapting participatory approaches to measure the impact of

livelihoods based interventions since the early nineties.

Participatory Impact Assessment (PIA) takes the participatory

methodology of these processes and applies it to the original

corporational objectives in asking the critical questions “what

difference are we making?” PIA offers not only a useful tool for

discovering what change has occurred, but also a way of

understanding why it has occurred. The framework does not

aim to provide a rigid or detailed step by step formula, or set of

tools to carry out project impact assessments, but describes an

eight stage approach, and presents examples of tools which may

be adapted to different contexts. A guide for practitioners is

available to demonstrate how PIA can be used to overcome

some of the inherent weaknesses in conventional humanitarian

monitoring evaluation and impact assessment approaches, such

as; the emphasis on measuring process as opposed to real

impact, the emphasis on external as opposed to community

based indicators of impact, and how to overcome the issue of

weak or non-existent baselines.’

This system has been developed by the World Bank in 2000.

14. Ongoing Assessment of Social Impacts (OASIS)

15. Participatory Impact Assessment

16. Poverty Social Impact Assessment (PSIA)


'PSIA is a systematic analytic approach to “the analysis of the

distributional impact of policy reforms on the well-being of

different stakeholder groups, with a particular focus on the

poor and vulnerable…” (PSIA User's Guide). It is not a tool for

impact assessment in and of itself, but is rather a process for

developing a systematic impact assessment for a given project.

Its components are not new, but PSIA has been formally

articulated as a systematic approach by the World Bank in 2003.

The method emphasises the importance of setting up the

analysis by identifying the assumptions on which the program is

based, the transmission channels through which program

effects will occur, and the relevant stakeholders and

institutional structures. Then program impacts are estimated,

and the attending social risks are assessed, using analytical

techniques that are adapted to the project under study.'17

Public Value Scorecard (PVSc)

The Public Value Scorecard is developed in 2003 by Prof. M.H.

Moore, Director of the Hauser Center for Non-profit

Corporations at the John F. Kennedy School of Government at

Harvard University.

‘The Public Value Scorecard is based on the concept of the

Balanced Scorecard. All the basics of the Balanced Scorecard–

that non-financial measures are important, that process

measures are important as well as outcome measures, that a

measurement system ought to support the execution of an

agreed upon strategy – are used but put to work through the use

of strategic concept that seems more appropriate to nonprofits.

The ultimate goal of non-profits is not to capture and seize value

for themselves, but to give away their capabilities to achieve the

largest impact on social conditions that they can, and to find

ways to leverage their capabilities with those of others. There are

three crucial differences between the BSc and the PVSc. First, in

the public value scorecard, the ultimate value to be produced by

the organisation is measured in non-financial terms. Second,

the public value scorecard focuses attention not just on those

customers who pay for the service, or the clients who benefit

from the organisation's operations; it focuses as well on the

third party payers. Third, the public value scorecard focuses

attention on productive capabilities for achieving large social

results outside the boundary of the organisation itself.’

The Robin Hood benefit-cost ratio was developed by the Robin

Hood Foundation in 2004.

'In 2004, we determined that for truly effective grant making, we

needed to know the value of similar and dissimilar programs.

For example, is a certain job training program a better

18. Robin Hood Foundation Benefit-Cost Ratio

investment than a particular education program? To answer this

question, Robin Hood developed an innovative methodology

of evaluation, or metrics. First, a common measure of success

for programs of all types is applied: how much the program

boosts the future earnings (or, more generally, living standards)

of poor families above that which they would have earned in the

absence of Robin Hood's help. Second, a benefit/cost ratio is

calculated for the program—dividing the estimated total

earnings boost by the size of Robin Hood's grant. The ratio for

each grant measures the value it delivers to poor people per

dollar of cost to Robin Hood—comparable to the commercial

world's rate of return.’

This tool has been developed in 2003 by the Institute for

Sustainable Development at the Zurich University of Applied

Sciences Winterthur (ZHW), Switzerland.

'The Social Compatibility Analysis (SCA). This method defines

objective criteria according to which social compatibility is

evaluated. First, the user of the SCA-tool divides a system into a

number of subsystems, i.e. a product could be divided into

subsystems according to the life cycle phases preproduction,

production, use and disposal. Second, relevant evaluation

criteria are selected. Finally, subsystems should be assigned to

classes A (highly relevant social problems), B (of medium

relevance), C (of low relevance) or 'not relevant' for all the

chosen criteria. The SCA is useful when the social dimension of

a project is concerned, when the clarification of differing

stakeholder opinions is needed or when sets of solutions are to

be negotiated.’

This is a general economic tool for performance measurement.

Since the 1990s the traditional cost-benefit analysis has been

extended to include impacts upon the society.

‘Social cost-benefit analysis is a type of economic analysis in

which the costs and social impacts of an investment are

expressed in monetary terms and then assessed according to

one or more of three measures: (1) net present value (the

aggregate value of all costs, revenues, and social impacts,

discounted to reflect the same accounting period; (2) benefit-

cost ratio (the discounted value of revenues and positive

impacts divided by discounted value of costs and negative

impacts); and (3) internal rate of return (the net value of

revenues plus impacts expressed as an annual percentage return

on the total costs of the investment.’

The term cost-effectiveness analysis refers to the economic

19. Social Compatibility Analysis (SCA)

20. Social Costs-Benefit Analysis (SCBA)

21. Social Cost-Effectiveness Analysis (SCEA)



analysis of an intervention. This is a general economic tool for

performance measurement. Since the 1990s the traditional

cost-effectiveness analysis has been extended to include impacts

upon the society.

'For example, one measure of cost-effectiveness is the cost per

HIV infection averted. This is affected by many factors:

intervention cost, number of people reached, their risk

behaviors and HIV incidence, and the effectiveness of the

intervention in changing behavior. The purpose of cost-

effectiveness analysis is to quantify how these factors combine

to determine the overall value of a program. Cost-effectiveness

analysis can determine if an intervention is cost-saving (cost per

HIV infection averted is less than the lifetime cost of providing

HIV/AIDS treatment and care) or cost-effective (cost per HIV

infection averted compares favorably to other health care

services such as smoking cessation or diabetes detection).’

Cost-effectiveness analyses also break down the costs and

resources needed to implement interventions—personnel,

training, supplies, transportation, rent, overhead, volunteer

services, etc.

The social e-valuator is developed in 2007 by the d.o.b.

Foundation and the Noaber Foundation and Scholten

Franssen, a Dutch consultancy corporation. The social e-

valuator is a web-tool based on the SROI methodology.

'The social footprint is a measurement and reporting method

that corporations can use to manage, measure and report the

sustainability of their impacts on people and society in a broad

range of areas. It is a context-based measurement tool that takes

actual human and social conditions in the world into account as

a basis for measuring the social sustainability performance of

corporations. The Social Footprint might be seen as an

adaptation of the concept of ecological footprint. Both

footprints are alike in the sense that both are about measuring

gaps, but the similarity ends there. In the case of the Ecological

Footprint, the gaps of interest to us are between resources we

need and resources we are stuck with; in the case of the Social

Footprint, the gaps of interest to us are between resources we

need and resources we have decided to produce. Ecological

resources are fixed and limited, social resources are not. The

sustainability metrics make it possible to measure non-financial

organisational performance (e.g., the triple bottom line) against

standards of performance. Numerators express actual impacts

on vital capitals in the world, and denominators express norms

for what such impacts ought to be in order to ensure human

well-being.’

22. Social e-valuator

23. Social Footprint

24. Social Impact Assessment (SIA)

25. Social return Assessment (SRA)

26. Social return on Investment (SROI)

'The concept of SIA is understood to include adaptive

management of impacts, projects and policies (as well as

prediction, mitigation and monitoring) and therefore needs to

be involved (at least considered) in the planning of the project

or policy from inception. The SIA process can be applied to a

wide range of interventions, and undertaken at the behest of a

wide range of actors, and not just within a regulatory

framework. It is implicit that social and biophysical impacts

(and the human and biophysical environments) are

interconnected. The overall purpose of all impact assessment is

to bring about a more sustainable world, and that issues of

social sustainability and ecological sustainability need to be

considered in partnership. SIA is also understood to be an

umbrella or overarching framework that embodies all human

impacts including aesthetic impacts (landscape analysis),

archaeological (heritage) impacts, community impacts, cultural

impacts, demographic impacts, development impacts,

economic and fiscal impacts, gender assessment, health

impacts, indigenous rights, infrastructural impacts,

institutional impacts, political impacts (human rights,

governance, democratisation etc), poverty assessment,

psychological impacts, resource issues (access and ownership of

resources), tourism impacts, and other impacts on societies.’

This system was developed in 2000 by Pacific Community

Ventures (PCV), a nonprofit organisation that manages two for-

profit investment funds that invest in corporations that provide

jobs, role models, and on-the-job training for low-income

people, and that are located in disadvantaged communities in

California.

‘PCV developed the method for its own use in assessing the

social return of each investor and of its portfolio overall. The

system entails tracking progress specifically on the number and

quality of jobs created by PCV's portfolio corporations. It helps

the fund target and improve its services to its investors and to a

group of corporations to which it provides business advisory

services. The method is separate from financial performance

assessment.’

Developed in 1996 by REDF (formerly The Roberts Enterprise

Development Fund) a nonprofit enterprise that creates job

opportunities through support of social enterprises that help

people gain the skills to help themselves.

‘REDF developed social return on investment (SROI) analysis

to place a dollar value on ventures in its portfolio with social as


well as market objectives. The approach combines the tools of

benefit-cost analysis, the method economists use to assess non-

profit projects and programs, and the tools of financial analysis

used in the private sector. Conceptually, the approach differs

from these established types of analysis, notably in what is

considered a “social” benefit. Practically, it is more accessible to

a broad range of users, substituting readily understood terms

and methods for technical jargon and complicated techniques.’

The Socio-Economic Assessment Toolbox was first launched in

2003 by Anglo American plc. 'The toolbox builds on several

steps. (1) profiling our own operations and our host

community, (2) identifying and engaging with key stakeholders,

(3) assessing the impacts of our operations – both positive and

negative – and the community's key socio-economic

development needs, (4) developing a management plan to

mitigate any negative aspects of our presence and to make the

most of the benefits our operations bring, (5) working with

stakeholders and communities to help address some of their

broader development challenges they would face even without

our presence, (6) producing a report with stakeholders to form

the basis for ongoing engagement with and support for the

community.’

'Stakeholder value analysis is based on the stakeholder

approach or standard-setting and strategic management of

corporations, which is used to analyse relations between

stakeholders (interest groups) and corporations. Measuring the

contribution to corporation value due to stakeholder relations

(stakeholder value) is done in four steps. In the first two steps,

the return on stakeholder (RoSt) is calculated for the

corporation in question and the reference corporation

(e.g.market average). The RoSt represents the stakeholder's

relative contribution to the value of the corporation. In the

third step the RoSt of the reference corporation is subtracted

from the RoSt of the corporation in view. In the final step this is

multiplied by the corporation's stakeholder costs to obtain the

stakeholder value added.’

The toolbox for analysing sustainable ventures in Developing

Countries is developed by UNEP (United Nations

Environmental Programme) in 2009.

'The toolbox is developed to answer questions related to the

identification of opportunities, the understanding of the

determinants of success and the assessment of costs and

benefits appear repeatedly. It addresses initiatives that support

27. Socio-Economic Assessment Toolbox (SEAT)

28. Stakeholder Value Added (SVA)

29. Toolbox for Analysing Sustainable Ventures in

Developing Countries

sustainable ventures including donor programmes, award

schemes, private and public investors, professional education

programs and policy makers. They can use the tools to

systematically identify, evaluate, advice, and promote

sustainable ventures. The tools respond to three questions that

appear over and again in the process of building and managing a

sustainable venture:

< Where are opportunities to create value by meeting

needs better and more efficiently?

< What factors determine the success of the venture?

< What are costs and benefits of the venture for the

business, society and the environment?”

The Wellventure Monitor™ is developed in 2006 by the Fortis

Foundation Netherlands (FFN) and the Erasmus University

Rotterdam (EUR). 'The Wellventure Monitor™ measures the

effects of community investment on several aspects. It makes

clear what the target group benefits from the project.

The idea of blended value is credited to Jed Emerson (Emerson,

2004). The blended value approach extends the idea of

economic value to combined social and economic value created

by an organisation or activity. Social Return on Investment

(SROI) was also devised by Jed Emerson and is a way of

measuring this blended value.

Blended value accountingConventional wisdom and legal definitions clearly separated

“doing well” from “doing good.” Corporations were for-profit

entities that sought to maximize economic value, while public

interest groups were nonprofits that sought to maximize social

or environmental value. It is clear, however, that nonprofit

organizations create economic value and for-profit companies

have social impact and worth. Consider, for example, the

economic value of 170 million boxes of Girl Scout cookies sales

or the social impact of Wal-Mart providing employment for 1.4

million people. While not the primary purpose of these

organizations, a growing group of practitioners, investors and

philanthropists are advancing strategies that intentionally

blend social, environmental and economic value.

Organizations operating in this middle ground of commercial

and social enterprise (regardless of their legal status) have

differing aspects of both social and commercial value creation.

There were many reasons such as these cited as to why it is more

difficult to successfully function in this middle ground, but the

30. Wellventure Monitor™

Blended value and SROI



most pervasive responses either had to do with issues of

accountability or the lack of a supporting capital market and

policy environment infrastructure for creating and investing in

blended value.

While there are accepted models regarding value creation in the

for-profit marketplace, many organizations in the nonprofit

sector do not articulate or track their social outcome goals, let

alone hold themselves accountable to particular performance

objectives. Creating and investing in blended value presents

unique challenges for practitioners and investors alike. The

inefficiency of raising capital, the lack of accountability and the

current policy and tax structure all present barriers to pursuing

blended value. The research suggests that there is promising

work being done to address these issues, but that more needs to

occur.

The research presented here has provided a theoretical analysis

of social impact reporting in social entrepreneurship. It has

suggested that social entrepreneurs use social impact reporting

in a number of strategic ways to enhance their performance,

access resources, and build organizational legitimacy. A new

conceptual model of social impact reporting has been

established – the Blended Value Accounting spectrum. The

Blended Value Accounting spectrum explicitly suggests that

Conclusion

there are a range of reporting practices available to managers

that can be used creatively and adaptively in different contexts

and to different strategic ends. From this perspective, the

function and value of such reporting is fluid, contingent, and

dynamic: but not passive or unstrategic. This emphasis on

diversity and contingency is in contrast to the

institutionalization of many reporting practices across all three

sectors of society that are static and resistant to reform. Given

the recent history of standardized accounting systems proving

unfit for purpose as risk management/control systems in

finance either at the micro- (the Enron scandal of 2001) or

macro-levels (the global financial crisis), introducing increased

diversity of reporting systems into organizations seems an

urgent objective (Power, 2007) The use of SROI by

corporations such as Philips in the Netherlands demonstrates

the broader applications of reporting practices first developed

in the social sector

We hope that the research presented here constitutes the start

of a larger project to both understand the field-level reality of

social impact reporting innovation and to learn wider lessons

from the social entrepreneurs that are pushing forward the

boundaries of such action. The 'moral obligation' to use

reporting practices strategically to drive improved internal

performance and better external accountability surely applies to

all organizations social, commercial, and public sector.

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http://www.wellventuremonitor.nl



INTRODUCTION

“CRM Guru”, explains the definition of CRM: in big business,

even if it consists of only several persons, there is no collective

mind till all information is not saved by different media; and

having saved it, it should be presented to “appropriate people”

“at appropriate time”.

Customer relationship management (CRM) can help to select

the most useful clients for an enterprise. Enterprises most

frequently feel who their main customers are, but only some use

systematized media of customers’ stimulation, loyalty

development. Collected data about consumers later become

knowledge, and the latter determines profit for an enterprise.

However the enterprise’s activity can be based on such

knowledge only when the data are processed and on their basis

motivated decisions to attract or sustain customers are taken. Of

course, it is necessary to possess special media, by means of

which it is possible to perform the mentioned actions and which

simplify the very decision-making. At present most

organizations recognize evident benefit of CRM and almost

every enterprise either use certain CRM technologies,

supporting their business, or evaluate specific benefit of CRM

technology and plan its future realization.

IMPACT ON CUSTOMER SATISFACTION

THROUGH CRM AT BIGBAZAAR (MPM MALL)

*DR. Y. Vinodhini

*Professor & Principal, Al-Qurmoshi Institute of Business Management, Hyderabad, Email: [email protected]


-An empirical study


Research design:

1.2 Sample Design

1.21 Sampling Area

1.22 Sample population:

The type of research is a descriptive research where we are trying

to describe the levels of satisfaction of customers of Big Bazaar,

and also to identify various factors which play important role in

deciding the level of satisfaction of customers of Big Bazaar.

Research design is a framework or blueprint for conducting the

market research project. It specifies the details of the procedures

necessary for obtaining the information needed to structure

and /or solve marketing research problem.

Research design is descriptive for this project which comes

under conclusive research design. Conclusive research design is

to assist the decision maker in determining, evaluating and

selecting the best course of action to take in a given situation.

And a descriptive research has its major objectives the

description of something- usually market characteristics or

functions. It is used to determine the perceptions of people

toward product.

Big Bazaar MPM store , Abids, Greater Hyderabad city is the

sampling area.

Research mainly subjected to customers visiting Big Bazaar,

which were including all middle and lower middle class people.

CRM

Key Customer

Focus

CRM

Organization

Knowledge

Management

Technology

-based CRM

Research Methodology

1.23 Sample size

Our sample size was 100 people

Our sampling technique is convenience sampling, which was

that we took into consideration the customers we were willing to

respond easily. Sampling technique is used for this project is

non probability sampling because of time and resource available

for the project is limited. So, convenience sampling is used

Research instrument was questionnaires with structured set of

questions which were to measure satisfaction levels of customers

on various terms as if like on brands purchased, quality, price

etc.

The sources of data used mainly primary, with help of

questionnaires.

The technique has been used for summarization of some useful

data to meet the objectives.

1.24 Sampling technique

Data collection

Data collection instrument:

Data sources

Data analysis

Demographic analysis



Factor analysis

Chi-square analysis: -

REVIEW OF LITERATURE

This technique is usually used for the data summarization. With

the help of this technique we can arrange some correlated sets of

variables under one factor. This helps in saving time and cost.

here factor analysis technique has been used to identify the

prominent factors responsible for the satisfaction level towards

the customer relationship management of insurance industry.

Chi square technique is usually used to find the dependency of

different variables or in other words we can say that it is used to

find out the whether there exist a relationship between two

variables or not.

Keng and Ehrenberg, 1984 specified that Since the origin of

organized retail itself is very ne win India, there is not enough

literature, which studies the factors that govern consumer

choice of retail outlets and their relative positions. However,

studies in the west have found out that though consumers buy

products from the same supermarket in multiple occasions, they

are not 100% loyal i.e., they buy similar products form other

outlets in different occasions Although most literature has

found out that consumer choice of retail outlets follow a non-

hierarchical process.

Fotheringham , 1988 studied that consumer choice may follow

a hierarchical model at times. Most studies have focused on the

relation between store choice and price formats.

Tang, Bell and Ho, 2001 specified in their study that Price

formats have an impact on store choice. There have been studies

which found out that store choice is also related to perceive ed

shopping utility which may depend on Service Quality (Parking

space, friendliness of employees, billing time), Assortment of

products (popular brands), Purchase Flexibility etc. (Tang, Bell

and Ho, 2001) Lastly, unplanned time spend in store and

unplanned purchases have been found to be linked with factors

like perceived quality, variety, specials and value for money.

Oxenfeldt (1974) and Martineau (1958). Mentioned that

various definitions about a retail store image have been given by

scholars form time to time. The oldest and most basic one can

be credited to who defined a store's personality as:…. the way in

which the store is defined in the shopper's mind; partly by its

functional qualities and partly by an aura of psychological

attributes.” Later on, defined it as:“ an image is more than the

sum of its parts…..it represents interaction among

characteristics and excludes extraneous elements… It has some

emotional contents… a combination of factual and emotional

material.”

Ditcher 1985 emphasized on the image being something

complete.“It describes not individual traits or qualities, but the

total impression an entity makes on the minds of others… an

image is not anchored in just objective e data and details. It is the

configuration of the whole field of the object.”

All over the world there has been a considerable amount of

research to find out retail store image. However, most of the

studies can be divided into three different categories based on

the methodology used which are semantic differential scales,

multidimensional scaling and qualitative techniques.

Dodd's et al., 1991 & Rao and Monroe, 1989 specified that

most of the research on controllable cues has focused on price,

brand name, store name and level of advertising). However, the

focus has been almost exclusively on the perceived price-quality

relationship, even though it has been demonstrated that the

availability of other cues typically reduces the importance of

price as a cue (Bonner and Nelson, 1985; Dodd's et al., 1991).

Based on Monroe and Krishnan (1985), a positive relation

between the perceived price and perceived quality can be price-

sensitive, it is expected that price play a very important role in

determining the quality of the merchandise. In order to avoid

confounding the price and value constructs, price perceptions

were operational zed as perception of price within the range of

known prices of equivalent products in the product category.

Hence it can be posited that: “There exist a positive relationship

between relative price and goods quality.”


Smith and Barclay, 1997 mentioned that Satisfaction with the

relationship is regarded as an important outcome of

buyer0seller relationships). We define relationship satisfaction

as “a consumer's affective state resulting from an overall

appraisal of his relationship with a retailer” .

Anderson and Narks, 1984 in business as well as consumer

markets customers tend to be more satisfied with sellers who

make deliberate efforts towards them. Consequently, we posit

the following hypothesis:“A higher level of customer retention

orientation of the retailer leads to a higher level of relationship

satisfaction.

Yim(2005); it presents four elements groups consumers

Data analysis and interpretation

Factor Analysis: KMO and Bartlett's Test

(customers) characteristics, management of knowledge/data

(information about customers), CRM structure (organisation

structure, organisation obligations, sources, human resources,

etc.) and CRM substantiation by IT technologies.

Jason(2004), According to each customer is a unique

personality, thus it is necessary to analyze his or her needs and

features. It means that it is necessary to accumulate at least little

information about a customer, to possess his or her contact

information, work profile and main wishes he also assumes that

certain reorganization of an enterprise is necessary. If the level

of customer service is not developed sufficiently, customer

relationship cannot be managed effectively.



Extraction Method: Principal Component Analysis.

Interpretation : According to above table we can see that,out of the total variance,695 of the variance is explained by 5

factors,20.885%,17.713%,11.602%,10.084%,9.653.

Extraction Method: Principal Component Analysis.

Rotation Method: Varimax with Kaiser Normalization.a.

Rotation converged in 11 iterations.

Interpretation:

Out of the total factors above the factors can be divided into 5

factors namely,

Factor 1(physical characteristics of the store)

Physical facilities

Presentation

Store layout

Factor 2(hygiene)

Cleanliness

Hygiene

Factor 3(monetary requirements)

Billing procedures

Cards acceptance

Offer schemes/discounts)

Factor analysis 4(Store's support)

Service

Employee behaviors

Home brands quality

Price/quality justification in case of home brands

Factor 5(store reputation(quality)

Brands available sufficient or not

Product availability

Quality of product



Interpretation:

From cross tabulation we can see that in food bazaar quality stated by maximum of our respondents is stated as highly statisfied, and

in non food section it is also highly statisfied,as per our table we can see there were only 9 & 5 respondents in big bazaar who sopped

electronic or furniture respectively from big bazaar and most of them stated quality as highly dissatisfactory ,So , it is adviced to the

management to increase the quality of products in electronic and furniture section to increase sales there



Interpretation:

We can see from the table itself that in food bazaar there is high satisfaction level in

customers as per as brands availability is concerned, but in, electronic and furniture section the more frequency is in highly

dissatisfied (6)and dissatisfied(3)respectively, and for

clothes(7)highly dissatisfied

So, according to the research if Big Bazaar wants to increase its sales and level of satisfaction in customers in electronic clothes

and furniture section go on increasing brands or no. of brand

Cross tabulation( income group and overall satisfaction)


Interpretations

We can infer from above data that in low income groups such as>10,000 or say 10,000-20,000 satisfaction level is highest 5 in highly

and 19 in highly satisfied again respectively , while in high such as 30,0000-40,000 and >40,000 the satisfaction level is 3 in

dissatisfied and 4 in dissatisfied respectively so we can infer there is relationship or association between income group and

satisfaction level.

Interpretation

We can infer since the value of chi square is less than 0.05

therefore the H0 hypothesis is rejected hence we can say that

there is association in income and overall satisfaction, and

how we have seen in above cross tabulation

Hence it is suggested the management that yes, though the

lower income groups are more satisfied from big bazaar , but

to increase the overall profitability we have to target high

income groups because they are dissatisfied , hence we cans

say that from the one before the previous cross tabulation

,that to make high income group satisfied increase brands in

furniture ,electronic section. And target high income

groups.



Cross tabulation (distance from the store and frequency of visits)

Case Processing Summary


Interpretation

We can directly see that if distance is less 0-5

example say kms then frequency of visit is highest

in >4times(59) and if distance more >20 it is most

in once a month(5)

And as, the chi square coefficient is less than our

level of significance so,H0 rejected hence, there is

association between frequency of visit and

distance from the store i.e inversely proportional.

Interpretation

The pie chart shows that out of our 100

samples 6%,13%,19%,20%,42% are

highly satisfied, satisfied neutral,

dissatisfied ,highly dissatisfied Hence

management should increase the

employee support and knowledge to

increase customers satisfaction ,and

thereby sales.

Interpretation

The chart shows that out of 100 samples

,15%,25%,26%,9,25% say brands available as

highly satisfied , satisfied , neutral, dissatisfied

,highly dissatisfied respectively so to increase

customer satisfaction and we know that is from

higher income groups management should

increase brands in all sections.

Interpretation

Out of total 66%,18%,7%,6% and 3% are

highly dissatisfied, dissatisfied, neutral,

satisfied , highly satisfied.



CONCLUSIONS

RECOMMENDATIONS

Customer relationship management (CRM) is first of all it is business strategy meant for development of customer relationship; and its results optimize

profitability, income and meeting the needs of customers

1. Summarizing the functionalism and validity of researched elements of different models, it would be possible to highlight

that in order to successfully implement CRM, it is necessary for Big Bazaar store that they must balance and integrate technologies, processes and

people. These elements are closely related to enterprise's strategy, processes of technologies, and processes of integration of overlapping functions

as well as orientation to basic customers.

2. Model's formation has to appeal to certain continuity of actions (a situation is evaluated, CRM strategy is formulated, investments are

determined, anticipated profit is calculated), and creation of the system can be successful when the following elements of the system are analyzed

and related: customers, relationship interaction, information sources and data bases, processes and employees.

3. Customer relationship management cannot be only the illustration of the relationship, it is much more important to understand the

management and development of relationship. CRM integrates new strategic initiatives of communication with customers or their groups, it

creates common platform of communication with customers. Thus the Big Bazaar store managers must consider the above mentioned factors in

order to effectively implement the CRM.

4. In the end we conclude from our analysis that though the overall satisfaction level as mentioned by the customers was low in Big Bazaar but there

are several ways also to increase their satisfaction level and hence sales of select 5 Big bazaar stores .The customers had less confidence on quality

of products, authenticity of billing procedures i.e all went wrong every time, their schemes were not updated at cash counters or even at the

different sections too. So, the managers should take some strict and constructive measures to ensure all such modifications to be done correctly

by time.

5. Customers also wanted more brands in different section especially in electronic section for they relied less on products or brands sold by Big

Bazaar stores currently at that time. They should also improve quality of their brands as stated by the customers as almost dissafactory.

6. These could also some methods to increase customers foot fall and sales in different or specially electronic or clothes section of Big Bazaar as per

our research and findings.

7. Employees behaviors and support was also not satisfactory as per the customers so managers should take some serious training methods for the

store sales force. Lastly, higher income groups were less satisfied from the store which signaled the store management to target higher groups with

some appropriate kind of strategy. Promotional activities as carried during the study has provided a good way success which increased the overall

foot fall in the store day by day. Hence in the end we can state though overall customer stated their satisfaction level as dissatisfactory but yet there

are ways to make them satisfied as well as loyal customers of Big Bazaar

. Diversity of CRM model and its structure shows that CRM as system is forming and thus preparation of typical model, which would enable its

successful implementation, is possible.

. Though gifts like bags, magazines were good to attract customers but more good offers should be inculcated to increase customer buying

activities.

. The store should increase its product line and for this it should contact to many distributors so they can provide a huge amount of products so

that they can find every product according to their need.

. The space should be increased in the store for the customers to move to find every products of their choice. The employees should be trained in

this way so that they can answer the questions of the customers regarding their problems in services efficiently.

. Number of brands in various sections specially clothes and clothes to be increased especially the quality of Home brands to be improved.

. Employees should be given proper training about knowledge and support to customers and billing softwares to be updated and improved.


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p.335



Implications of IFRS implementation in IndiaImplications of IFRS implementation in India

Dr. P.PARAMSHIVAIAH* Mr. PUTTASWAMY** Ms. RAMYA S.K.***

A Perceptual study

ABSTRACT:Financial reporting is an information system of business and it

should be presented in an understandable language to all the

stakeholders. In the era of globalization, India has become an

economic force. To be a leader globally, India has to adopt many

changes required to interface the stakeholders of India and of

abroad and also comply with financial reporting standard. In

this backdrop a uniform international accounting system

(International Financial Reporting Standards) has emerged.

Many countries have adopted IFRS and India, planned to

implement in phased manner to bring about accounting quality

improvement through uniform standards. However, accounting

quality is a function of the firm's institutional setting within the

legal and political system of the economy in which it exists. IFRS

implementation involves technical complexities and legal

hurdles.

This paper aims to understand the complexities and issues

concerned with the delay in implementation process. The

primary data from 198 respondents from academicians,

professionals and business people, was collected with five point

Likert scale and factor analysis, Kruskal Wallis tests were applied

after the validation test.

The test results that there is no significant difference in the

perception of the respondents. It was found that the experts

view is to implement and make necessary changes for adoption

and gain its benefits. The paper suggests training and removing

legal hurdles soon.

Key words: IFRS, India, implementation, Implications

INTRODUCTION:Accounting is considered as the language of business. Financial

reporting is the medium through which the language is

communicated to the parties interested in business

information. Accounting and financial reporting are regulated

by Generally Accepted Accounting Principles (GAAPs)

comprising of accounting standards, company law, stock market

regulations, and so on. The global GAAPs that is seeking to

harmonize accounting and financial reporting world is the

International Financial Reporting Standards (IFRS) issued by

the International Accounting Standards (IASs; International

Financial Reporting Standards (IFRSs); Standing

Interpretations Committee (SICs) pronouncements; and

International Financial Reporting Interpretations Committee

(IFRICs) guidelines. Accounting Framework has been shaped

by International Financial Reporting Standards (IFRS) to

provide for recognition, measurement, presentation and

disclosure requirements relating to transactions and events that

are reflected in the financial statements. IFRS was developed in

the year 2001 by the International Accounting Standard Board

(IASB) to facilitate a single set of high quality, understandable

and uniform accounting standards. Users of financial

statement would require sound understanding of financial

statement but this can only be made possible if there is General

Accepted Accounting Practice (GAAP). With globalization of

finance the unified GAAPs enable the world to exchange

financial information with more meaningful and credible.

Investors from all over the world rely upon financial statements

before taking decisions while different countries adopt

*Dean & professor, Department of studies and Research in commerce, Tumkur University, TUMKUR, Mobile:- 94485 33326, E-mail:- [email protected]

**Assistant professor of commerce & Research Scholar, Governement First Grade College HIRISAVE, HASSAN-573211, Mobile:- 9741836197.,E-mail:[email protected]

***Assistant Professor of Commerce, Govt.Womens College Holenarasipura, HASSAN



STATEMENT OF ORIGINALITY

We the authors of the present paper hereby affirm and declare that the research paper entitled “Implications of IFRS implementation in India:

A Perceptual study” is our original research paper. No part of the information in the body of the text has been reproduced from any of the other source

without prior permission. We also declare that the present research paper has not been presented / published anywhere before this submission.

With Regards: Dr. P. PARAMASHIVAIAH, Prof. PUTTASWAMY, Ms.RAMYA. K.S

accounting treatments and disclosure practices in respect of the

same economic event. This certainly makes the investors

confused and puzzled while interpreting financial statements.

Therefore, to have uniformity in a presentation of financial

results and position of business entity almost all the countries

have agreed upon to adopt one single common accounting

language i.e. IFRS. Precisely, “Convergence can be considered

to design and maintain national accounting standards in way

that financial statements prepared in accordance with National

Accounting standards drawn unreserved statement to

compliance with IFRS”. The convergence with IFRS in India is

perceived to be a milestone decision leading to significant

benefits to Indian corporate in terms of easier access to

international capital markets, lower cost of capital, improved

comparability, elimination of complexities of multiple

reporting and many others.

IFRS can be defined as “A single set of high quality,

understandable and enforceable global accounting standards

that require high quality, transparent and comparable

information in financial statements and other financial

reporting to help participants in the world's capital markets and

other users make economic decisions”

The difficulty in converging Indian Accounting Standards with

IFRS requires the preparers and practitioners to understand the

magnitude and complexity.

India originally decided to implement IFRS from 1st April 2011

in a phased manner but it was postponed. The Ministry of

Corporate Affairs (MCA), in January 2013, sought the opinion

of ICAI about the time of implementing IFRS convergence.

ICAI gave its recommendations in February 2013 suggesting

that companies with net worth above Rs 1000 Crore should

implement IFRS from 1st April 2015; those with Rs 500 Crore

to Rs 1000 Crore by 1st April 2016 and all others by 1st April

2017. ICAI has not recommended a time frame for banking and

insurance companies to embrace IFRS. However, experts are of

the view that the banking and insurance companies also should

start converging IFRS from 1st April 2015. It is argued that IFRS

is not a new concept now and no additional time is required to

adjust to IFRS. MCA has not made any announcement as

regards the recommendations of ICAI up till now.

More than 100 countries have already adopted IFRS, including

1.1. What is IFRS?

1.2. RATIONALE OF THE STUDY

China, Canada, and Australia. US is considering moving from

US GAAP to IFRS. India is one of the few countries in the world

which has yet to adopt IFRS. BRICS countries have also

implemented the IFRS- China (some years back), Brazil (in

2008) and Russia (in 2012). Japan is one of the few developed

countries that have not yet implemented IFRS. The whole

Europe is already in the IFRS mode. India has not yet converged

even after three years of its announcement. FICCI was

apprehensive about India's ability to adopt IFRS in 2011 and

opined it was highly unfair and impractical due to shortest

possible time frame. There is good number of examples of

benefits perceived for gaining advantages of international

accounting. Many research studies also have discussed the

important issues and challenges of adopting IFRS in India.

India is not going to adopt altogether IFRS. In fact India is

about to converge Indian GAAPS with IFRS. While IFRS is

still not compulsory in India, a few companies have already

adopted it, such as Bharti Airtel, Dabur, Infosys and Noida Toll

Bridge.

The debate amongst the experts and practitioners is on as to why

it is delayed up till 2015. The most important question that

arises during this debate is that why India is cut a sorry figure

when it announced the date, but did not make itself ready to

implement the same in 2011? Under this rationality the

researcher made an attempt to understand the perception on

the implications of implementing the convergence of Indian

GAAPS to IFRS soon. It was thought considerably relevant to

study the views of professionals and academicians and business

community on the issue. We limit the scope of present study to

understand the perception of professionals-who actually

practice with converged standards; Academicians-who deal with

education and training in accounting and reporting standards;

Business people-whose business is affected due to

implementation of IFRS. Thus, the statement of the problem is

recognized as “Implications of IFRS implementation in India: A

Perceptual study”

Considerably a good number of research studies thrown light

on the various issues with respect to IFRS adoption across the

globe.

Joseph (2000) has studied the importance of the uniformity in

reporting in an environment of technology up-gradation and

political reorganization of nations across the globe. He

identifies that consistency in reporting enables to attract global

I. LITERATURE REVIEW


entrepreneurs and investors by increasing the rate of investment

and also lead to the integration of individual economy to the

international economy.

conducted a study regarding international

standards with respect to banking operations and importance of

corporate financial reporting in corporate governance and

documentation of the changes occurred in corporate reporting

practices. He has given justifiable suggestions for their gradual

introduction in the Indian Banking sector.

in his study observed some

interesting issues with regard to the financial reporting of

banking companies in India and finds that the quality of

financial reporting enables the banks to capitalize their

underlying strengths, disclosure practices and social viability.

focuses on the impact of convergence on auditing

firms and concludes that achieving true convergence of

accounting standards is a costly and time-consuming objective,

and will require a huge investment of money and a significant

change in the training of accounting students in the near future.

studied the convergence of Domestic

Accounting Standards and IFRS and also exhibits that

influence of Multinational Enterprises and large international

accounting firms can lead to transfer of economic resources in

their favor, wherein the public interests are usually ignored

find that the level of

earnings management for firms that report their results under

US GAAP is significantly lower, while the level of earnings

management under German GAAP and IAS is roughly equal.

Based on the evidence, they concluded that the different

accounting choices embedded in different accounting

standards influence the level of earning management.

critically examined the change in accounting treatment for

goodwill pursuant to international financial reporting

standards (IFRSs) by reference to the Australian reporting

regime.

undertook a study of financial data in 21

countries and examined whether application of IAS/IFRS is

associated with higher accounting quality and the findings of

the study confirmed that firms applying IAS/IFRS evidence less

earnings management, more timely loss recognition and more

Kannan (2003)

Dangwal and Singh (2005)

Tokar (2005)

Chand & White (2007)

Goncharov and Zimmermann (2007)

Graeme Wines, Ron Dagwell, Carolyn Windsor (2007)

Barth et al (2008)

relevance of accounting numbers. The study also found that the

firms applying IAS/IFRS experienced an improvement in

accounting quality between the pre-adoption and post

adoption.

analyzed whether

mandatory introduction of IFRS standards had an impact on

earnings quality, and more precisely on earnings management

and concluded that frequency of earnings management did not

decline after the introduction of IFRS.

has analyzed the impact of mandatory

change in financial reporting standards in European union and

found that the transition from local GAAP to IFRS had a small

but statistically significant impact on total assets, equity, total

liabilities and among assets the most pronounced impact on

intangible assets and property and equipment.

analyzed the development of reporting

standards for both financial reporting and for corporate social

responsibility (CSR) reporting. It aims to argue that both

International Financial Reporting Standards and US Generally

Accepted Accounting Principles are vehicles of colonial

exploitation and cannot be sustainable. This can be contrasted

with the voluntary approach to the development of CSR

reporting standards.

examines whether IFRS

improved the usefulness of accounting information in a code

law country that has a strong system of legal enforcement and

high quality domestic accounting standards. They found that

IFRS have improved the relevance of accounting information in

Finland but they also highlighted the concern about reliability

of those items of financial statement that are prepared using

judgment.

They aslo undertook study of key financial rations of companies

of Finland and later found that the adoption of IFRS changes

the magnitude of the key accounting ratios and also showed that

the adoption of Fair Value Accounting rules and stricter

requirements on certain Accounting issues are the reasons for

the changes observed in Accounting Figures and Financial

ratios.

studied Economic effects of IFRS adoption by

emphasizing on the fact that universal financial reporting

standards will increase market liquidity, decreases transaction

costs for investors, lower cost of capital and facilitate

international capital flows.

Jeanjeana and Herve stolowya (2008)

Capkun et al. (2008)

Armstrong C. (2008)

Lantto & Sahlstrom (2007) (2009)

Epstein (2009)



Alfred Wagenhofer (2009)

Dennis W. Taylor (2009)

Rudy A. Jacob, Christian N. Madu (2009)

Robyn Pilcher, Graeme Dean (2009)

Susana Callao, Cristina Ferrer, Jose I. Jarne, Jose A. Lainez

(2009)

Siqi Li (2010)

Cai & Wong (2010)

analyzed the challenges that arise

from political influences and from the pressure to sustain a

successful path in the development of standards. It considers

two strategies for future growth which the International

Accounting Standards Board (IASB) follows the work on

fundamental issues and diversification to private entities.

compared the costs to financial

statement prepares of making the transition to International

Financial Reporting Standards (IFRSs) relative to the benefits

to financial statement users from receiving “higher quality”

IFRS-based information (measured as incremental value-

relevance for listed companies in the UK, Hong Kong and

Singapore). These countries had different approaches to

harmonization leading up to IFRS adoption.

examined the

academic literature on the quality of International Financial

Reporting Standards (IFRS), formerly International

Accounting Standards (IAS), which are poised to be the

universal accounting language to be adopted by all companies

regardless of their place of domicile.

determined the impact

financial reporting obligations and, in particular, the

International Financial Reporting Standards (IFRS) have on

local government management decision making. In turn, this

will lead to observations and conclusions regarding the research

question: “Does reporting under the IFRS regime add value to

the management of local government?”

discovered the quantitative impact of International

Financial Reporting Standards (IFRS) on financial reporting of

European countries and evaluate if this impact is connected

with the traditional accounting system in which each country is

classified, either the Anglo-Saxon or the continental-European

accounting system.

carried out a study on 1084 European Union

firms during the period of 1995-2006. He concludes that on an

average, the IFRS mandate significantly reduces the cost of

equity for mandatory adopters and reduction is present only in

countries with strong legal enforcement. He also concludes that

increased disclosures and enhanced information comparability

are two mechanisms behind the cost of equity reduction.

conducted a survey of global capital

markets and summarized that the capital markets of the

countries that have adopted IFRS have higher degree of

integration among them after their IFRS adoption as compared

to the period before the adoption.

carried out a study of financial data of publicly

listed companies in 15 member states of European Union

before and after the full adoption of IFRS in 2005, thereafter

found that the majority of Accounting Quality indicators

improved after IFRS adoption in the EU and after there is loss

of managing earning towards a target, a lower magnitude of

absolute discretionary accruals and higher accruals quality.

They also proved that the improved accounting quality is

attributable to IFRS, rather than changes in managerial

incentives, institutional features of capital markets and general

business environment.

As evident from the literature review, good number of studies

carried out in different countries in different perspectives. They

have highlighted the benefits of having single set of financial

reporting standards across the globe. Most of the above

mentioned studies are post-convergence period researches. In

India IFRS still not implemented, post adoption impact and

implications cannot be studied. However, a few research studies

have been carried out recently in India, on conceptual basis.

Most of the studies explain advantages, issues and challenges on

theoretical background. Hence the research gap exists in India

and no research works studied the perception of Professionals,

academicians and business people. Furthermore, since the

government has not adopted IFRS yet, studies on post

implementation impact and implication would be controversial

and irrational. Therefore we have carried out perceptual study

on issues and challenges of implementation of IFRS in India.

The major utility of this study is that it signals the major issues

and practical vulnerability in the process of IFRS

implementation. It will also guide the policy makers to take

necessary precautions and to calibrate legal framework that suits

the compatibility of IFRS in corporate reporting practices.

1. To study the perception of professionals,

academicians and business people on IFRS

implementation

2. To identify the major contributing factors on issues

and challenges in IFRS implementation

Chen et al (2010)

.2.1. RESEARCH GAP

2.2. OBJECTIVES OF THE STUDY


3. To know whether there is an association between

different groups of respondents

4. To offer pertinent suggestions based on the research

findings

H01: there is no significant difference in the perception of

respondents

H11: there is a significant difference between the mean

perceptions of respondents

This study is exploratory in nature. It also yields empirical

results. The study relied both on primary data and secondary

source of information. The primary data consists of socio-

economical status as well as qualitative information consists of

perceptions of three category of respondents- chartered

accountants and finance professionals, academicians who teach

both graduate and post-graduates students in the relevant

subject, and also business people. The secondary source consists

of published information from journals, books, compendiums

of ICAI, research papers, thesis and government records, and

extensive literature survey. The primary data was collected by

distributing structured questionnaire.

We identified the respondents by multi-stage random sampling

method and also adopted judgmental random sampling and

Purposive sampling method for data collection. In the first

stage, the registered chartered Accountants in the southern

region were identified from the directory of members of

chartered accountants. There are 192513 chartered

accountants are the members of all the regions in India as per

the directory, as on 1st April 2012 out of which 18700 are

practicing chartered accountants from southern region.

Purposive sampling method was followed to collect data from

Business people and college teachers and university teachers.

Questionnaires were distributed through e-mails to 70 members

in each group, totally 210 structured questionnaires were sent to

the population in Mysore, Bangalore, Belgaum, Chennai and

Thrissur. Judgment sampling method was adopted. In all 198

completed questionnaires were finally considered for the study.

2.3. Hypothesis:

II. RESEARCH METHODOLOGY

3.1. DATA

3.2. SAMPLING

3.3 TOOLS OF ANALYSIS

III. RESULTS AND ANALYSIS

Data collected, edited, codified and analyzed by applying SPSS

version 16. Factor analysis was applied. The data failed to test

the normality assumption. However, the data fulfills the

homogeneity test. Hence, Krsuskal-Wallis test was adopted for

testing the hypothesis.

The table 1 shows the demographic details of the population

considered for survey. Of the total 230 respondents 87 were

academicians, 95 were accounting and finance professionals-

practicing Chartered Accountants, and 48 were Business

people.

All these respondents are considered as preparers and

practitioners. Among the academicians 49 percent are educated

up to post graduation and 46 percent of the academicians have

doctoral degrees, and only 4.6 percent have professional

degrees. Majority of the professionals have professional degree

and more than 50 percent of the business people are studied up

to post graduation and doctoral degree. The table shows that

more than 60 percent of the respondents have up to 30 years of

experience in their respective field. Age-wise analysis shows that

more than 50 percent of the population aged below 40 years and

the rest aged above 40 years. The respondents considered for

survey have enough experience and practice in their relevant

field of accounting and reporting and obviously more suitable

sample for data collection.

For data analysis and testing the hypothesis, we have tested the

reliability through Cronbach's Alpha (Table 2). The value more

than 0.50 which is considered to be reliable and value of the

data in the present study is 0.577, which is more than 0.50,

shows the homogeneity of items.

4.1. TESTING THE VALIDITY



4.2. FACTOR ANALYSIS

Factor analysis through which various factors of statements

asked to the respondents are reduced to find out the important

factors determine the issues and challenges as perceived by the

respondents. Before that, Kaiser-Meyer-Olkin measure of

sampling and Bartlett's test of Sphericity (Table3 ) was applied.

Bartlett's test of sphericity was significant, supporting the

factorability of the correlation matrix and the associated

significance level was extremely small (0.000). A high value

which is above 0.5 to 1.0 generally indicates that a factor analysis

may be useful with the data. As here KMO value is 0.659 on

factors of issues and challenges perceived is more than 0.50, we

found that the results of factor analysis are useful with the

present data.

A factor analysis was conducted to develop constructs that will

help to evaluate factors that are identified as key issues and

challenges of IFRS implementation. 10 factors were generated,

COMPONENTSa,bTest Statistics

TABLE 4: FACTOR ANALYSIS AND KRUSKAL WALLIS TEST

which explained 69.311 percent of the variance with the loss of

only 30.681 percent of information. The extracted factors were

then rotated using

Variance maximizing method (Varimax). These rotated factors

with their variable constituents and factor loadings are given in

Table 5. Of the 10 factors identified adoptability is the first

factor emerged as an important component with the highest

factor scoring and the total variance of 12.45 percent, the

second factor is understandability with the total variance of

11.48 percent, then follow preparedness, flexibility, problem of

reporting, transitional problems, reliance, Technological issues,

regulatory issues. However, inferential ambiguity as scored more

than 80 percent and emerged as

Technological issues, regulatory issues. However, inferential

ambiguity as scored more than 80 percent and emerged as a vital

component though the total variance is 3.17. Answers to the

questions with five point Likert scale was analyzed with factor

analysis. Majority of the respondents are of the view that proper

training to the preparers, practitioners and users is the very

important thing that should happen before we go for

convergence.


a. Kruskal Wallis Test, b. Grouping Variable: OCCUPATION

Regulatory bodies need to streamline the legal issues concerned

with taxation and disclosure norms to the corporations on the

basis of total turnover or total capital as the case may be. The

experts view is that the recent companies Bill 2012 should have

been postponed or the compulsory rotation of auditors should

have been delayed until the IFRS issues are properly settled

down. Unless we are prepared internally for the convergence,

unless the ambiguities are wiped out, without any clarity in the

norms it is highly difficult to converge, even in a phased

manner, in the country like India filled with too many Laws and

Acts. It will also be difficult on the part of the users of

accounting information to read and understand and take

decisions based on the financial reporting unless there is

awareness among all the parties.

Initiatives and preparedness on the part of regulatory bodies

ICAI and advisory Committees for the IFRS implementation is

much necessary. It builds confidence of the preparers and users

of IFRS reporting system through its supportive function. In

the light of this the statements were included in the data

instrument about the said supportive functions. Based on the

4.3. TESTING OF HYPOTHESIS

4.3.3 Hypothesis (H01)

frequencies of the responses we calculated mean, standard

deviation, Chi-Square Test for testing another null Hypothesis

(H01) which states that there is no association between the

perceptions about the supportive functions. Table (8) below

shows the mean and standard deviation of the perception

among the three groups of population- professionals,

academicians, and Business people.

Since IFRS is principle-based approach and have limited

implementation and application guidelines, it requires the

preparers; especially, initial period learning and subsequent

revisions form the implementation. There are technical

complexities, manual work stress, management problems. As

the time frame for implementation of IFRS has been changed

there arose a great amount of debate among the people as to

what complexities involved IFRS implementation. In the light

of repeated postponement of IFRS convergence process it was

thought necessary to understand the reasons behind the delay.

To understand the issues and challenges concerned with the

IFRS implementation in India as perceived by the appropriate

groups of the population we served questionnaires to respond

to the statements prepared on the basis of widely available

literature and conceptual background about the Indian GAAPs

and IFRS. The data was tested and found valid. Factor analysis

I. SUGGESTIONS AND CONCLUSION



resulted in ten dimensions and the most important issues

concerned with this phenomenon is adoptability,

understandability and preparedness. Majority of the

respondents strongly agree that there is a talent crunch and

speedy academic training and professional guidance is sought

among the practitioners. And also the expert view is that there

are transitional issues to be tackled with the necessary changes

in the legal environment that is compatible to the taxation and

other relevant interdisciplinary issues.

The problem of flexibility and inferential ambiguity between

the preparers and users, particularly investors share value

measurement and dividend issues are quite unique in the

country. Hypothesis testing shows that there is no significant

difference in the perception among the population. But as the

respondents believe the steps taken by the governing body and

the advisory committees towards the speedy process of

convergence is not much sufficient. Only thing required is that

highly influential new company law Bill must clear the obstacles

and the compulsory rotation of auditors must be delayed until

the convergence process completes and everything is settled.

Moreover, the academic inputs to the professional regions are

not at all satisfactory. A sound theoretical and practical training

in the light of international GAAPs, industry-academia

integration is very much necessary. The results suggest that the

accounting and finance professionals, academicians and

business people more or less carry the same perception towards

IFRS convergence. With this background we conclude that

practitioners and experts view it necessary to converge Indian

GAAPs with IFRS by arranging necessary rooms for universal

adoptability.

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Accounting): 183-223. (JSTOR link)

2. Barth M.E., Landsman W.R. and Lang M.H.,(2008) ? International Accounting Standards and accounting quality? , Journal of Accounting Research, Vol. 46, No. 3, 2008 pp. 467-498.

3. Ankarath, N., K. J. Mehta, T. P. Ghosh and Y. A. Alkafaji.(2010). Understanding IFRS Fundamentals: International Financial Reporting Standards. Wiley. pp:- 50-54

4. Cai, Francis, and Wong Hannah,(2010) ? The Effect of IFRS Adoption On Global Market Integration? International Business & Economics Research Journal, Vol. 9, No 10, 2010, pp. 25-34.

5. Banerjee, B. (2001) Corporate Financial Reporting Practices in India. Indian Journal of

Accounting, Vol. XXXII, Dec. 2001.

6. Bhattacharjee, Sumon, Islam, Zahirul, Muhammad, (2009). Problems of Adoption of International Financial Reporting Standards (IFRS) in Bangladesh, International Journal of Business and

Management, 4 (12). Pp 165-175

7. Callao, Susana, Jarne, I, José, Laínez, A, José,(2007), Adoption of IFRS in Spain: Effect on the comparability and relevance of financial reporting, Journal of International Accounting Auditing

& Taxation, 16 (2) Pg 148.

8. Chand, Pramod, White, Michael,(2007). A critique of the influence of globalization and convergence of accounting standards in Fiji, Critical Perspective on Accounting, 18 (5) pg 605.

9. Chandra, G. (2003). Convergence of Global Accounting Standards. Indian Accounting

Review, Vol. 7, No. 2, Dec. 2003.

10. Chen, Huifa, Tang, Qingliang, Jiang, Yihong, Lin, Zhijun,(2010). The Role of International Financial Reporting Standards in Accounting Quality: Evidence from the European Union, Journal

of International Financial Management & Accounting, 21, (3) pg 220.

11. Chen, Francis, and jiang (2005) , Investor Learning about analyst Predictive Ability, Journal of Accounting and Economics, Vol. - 39, pp. 3-24.

12. Capkun V. Jeny A.C Jeanjean T. and Weiss L.A (2008) ? Earnings management and value relevance during the Mandatory Transition from Local GAAP to IFRS in Europe? ; available at

http://ssrn.com/abstract=1125716, retrieved on 5 August 2010

13. Dangwal, R.C. and Kashmir Singh,(2005)? Financial Reporting of Banking Companies in India – An Evolutionary Stage? , The Journal of Banking, Information Technology and

Management, Vol. 2, No. 2, 2005, pp. 11-23.

14. Epstein, and J, Barry,(2009). ? The Economic Effects of IFRS Adoption? , The CPA Journal, Vol. 79 (3), 2009, pp 26-31.

15. Goncharov.I, and Zimmermann.J.,(2007) ? Do Accounting Standards Influence the Level of Earnings Management? Evidence from Germany? , Die Unternehmung: Swiss Journal of Business

Research and Practice, Vol. 61, 2007, pp. 371-388.

16. Hung, M., & Subramanyam, K. (2007). Financial statement effects of adopting international accounting standards: The case of Germany. Review of Accounting Studies, 12(4): 623-657.

17. http://en.wikipedia.org/wiki/International_Financial _Reporting_Standards

18. http://www.caclubindia.com/news/print_this_page.asp?news_item_id=11298(2012, Dec.), Delay in Implementation of IFRS

19. http://www.ohioscpa.com/Content/40298.aspx International Financial Reporting Standards.

20. http://www.taxguru.in/accounting/ifrs-may-be-fine-tuned-to-Indian-needs.html(August 2013)

21. IFRS may be fine tuned to Indian needs.http://www.taxguru.in/accounting/new-ifrs-norms-may-hit-indian-companiesvaluation.

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Challenges (World Journal of Social Sciences, Vol.1 No.1 March 2011, Pp 125-136),

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Policy, 27,80http://dx.doi.org/10.1016/j.jaccpubpol. Retrieved on 2008.09.008.

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607-636.

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RESEARCH, 8 (1) pp31-55.

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34. Poria, Saxena, Vandana,(2009). IFRS Implementation and Challenges in India, MEDC Monthly Economic Digest.

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36. Sovani, S. (2009-10) IFRS – A New Inning in the Global Accounting. Journal of Accounting and Finance, Vol. 24, No. 1, Oct. 2009 to March 2010.


Applicability of the Linear CVP Model in the Indian Cement Sector

ABSTRACT

INTRODUCTION

The Cost-Volume-Profit (CVP) model is a model for analyzing a

firm's cost and revenue structure, and it is widely used in

practice to examine the possible impacts of a range of strategic

decisions. In spite of its theoretical appeal, however, the CVP

model has had very little application empirically.

This study examines the applicability of the CVP model

empirically for the Indian cement sector using linear regression.

The results of the study indicate that though the simple CVP

model with linear cost and revenue functions does offer some

interesting insights, there are anomalies in several cases. Thus,

the CVP model with nonlinear cost and revenue functions may

be more appropriate in explaining the cost and revenue

structure for companies in the Indian cement sector.

Keywords: Cost-Volume-Profit (CVP) model, cost and revenue

structure, linear regression.

The Cost-Volume-Profit (CVP) model is a model for analyzing a

firm's cost and revenue structure, summarizing the consequence

of changes in sales volume on the firm's costs, revenues, and

profits. The simple CVP model was introduced by Hess (1903)

and Mann (1903-07), with linear cost and revenue functions.

Even though it is relatively simplistic, it is a very versatile

technique for profit planning, and it is extensively used in

practice to examine the possible consequences of a range of

strategic decisions, including pricing policies, product mixes,

Mihir Dash*

*Alliance University Bangalore, India

market expansions/contractions, outsourcing, plant

utilization, and so on (Brealey and Myers, 1991; Horngren et al,

1994).

The simple linear CVP model has several inadequacies. The

model assumed linear cost and revenue functions, which

prevented it from capturing some significant nonlinear

phenomena, such as the range of profitability and the optimal

point. Several studies have incorporated nonlinear costs and

revenues in the CVP model (Guidry et al, 1998). Also, the CVP

model was a deterministic model, and was thus not effective in

the case of decision-making under uncertainty. Several

extensions to the CVP model were proposed to include

uncertainty conditions (Jaedicke and Robichek, 1964; Hilliard

and Leicth, 1975); and Adar et al (1977) and Kottas et al (1978)

proposed general models for CVP analysis under uncertainty.

Further, Kottas and Lau (1978) applied simulation techniques

for stochastic CVP analysis. Also, the CVP model was essentially

a single-variable model, applicable only in the case of a single

product or a fixed product mix. González (2001) proposed an

extension of the CVP model for multiproduct firms. Some

other extensions of the CVP model are: learning effects

(McIntyre, 1977), capital structure (Guidry et al, 1998; Kee,

2007; Prihadyanti, 2011), cost stickiness (Banker et al, 2013),

and several others.

In spite of its theoretical appeal and its several extensions, the

CVP model has had very little application empirically. Xishuan

and Huifang (2008) employed a linear regression model to

empirically test the CVP model, with profit as the dependent



variable, and sales volume, variable costs, and fixed costs as the

independent variables; however, this specification clearly

suffers from multicollinearity. The present study analyses the

applicability of the linear CVP model empirically for the Indian

cement sector using linear regression.

The study considers the simple CVP model with linear cost and

revenue functions. The model assumes a linear cost function

TC=FC+vx and a linear revenue function TC=px. The viability

condition for the firm (i.e. the condition for the firm to be

profitable at some level of production) is that P>V, and, under

this assumption, the break-even point is given by BEP=

A simple sustitution yields the equation TC=

implying a linear relationship of TR on TC, with a negative

intercept, and, under the assumption of viability, a slope greater

than one. On the other hand, a similar substitution yields the

equation also implying a linear

relationship of TC on TR, with positive intercept, and, under

the assumption of viability, a slope lying in the unit interval, i.e.

between zero and one.

In particular, the regression coefficients above are linked with

the percentage contribution margin, 1 - v/p, which is equivalent

to the rate of change of contribution margin with respect to total

revenue, and thus would be closely related with profitability.

The regression coefficients can thus be used as a basis for

comparison of profitability performance between companies in

the same industry, and between different sub-segments of an

industry.

Model Specification

Methodology

Findings

The objective of the study is to explore the applicability of the

linear CVP model as discussed in the preceding section in

explaining the cost and revenue structure in the Indian cement

sector. The data for the study was collected for a sample of

twenty-two large cement companies and seven small/medium 1cement companies from the Capitaline database, based on data

availability. The sample companies were further classified into

region (North and South India). The study period was 2003-

2012. The data pertaining to the costs and revenues for each

company was obtained from the income statement. The costs

included raw materials costs, power & fuel costs, employee

costs, other manufacturing expenses, selling & administrative

expenses, and miscellaneous expenses, while the revenues

included the sales turnover.

The cost-revenue relationship was analysed using linear

regression in accordance with the models specified in the

preceding section. The regression results are presented in Table

1. The regression coefficients were used to compare the

profitability performance of North and South India based

companies as well as large and small/medium companies using

two-way ANOVA without interaction. The results of the two-

way ANOVA tests are presented in Tables 2 and 3.

The results in Table 1 show that all of the regressions were

statistically significant, with a coefficient of determination of at

least 85%, except for Cement Corporation of India, with a

coefficient of determination of 61.0%.

Table : results of regression of TR on TC and TC on TR


1www.capitaline.com

First considering the linear regressions of total revenues on total

costs, it was found that all of the regression coefficients were

greater than one, except for Kalyanpur Cements and Sainik

Finance & Industries, both of which had incurred losses during

the study period. The regression coefficients of Barak Valley

Cements, Gangotri Cement, and Prism Cement were relatively

low, less than 1.10, indicating that these companies may be at

risk of loss. On the other hand, the regression coefficients of JK

Lakshmi Cement and Chettinad Cement Corporation were

relatively high, greater than 1.70, indicating higher profitability.

However, the regression constants were negative only for ten of

the sample companies, and significant only for Gangotri

Cement; for the remaining nineteen sample companies, the

regression constants were positive, and significant for six of

these. This could have resulted from the slump in demand in

the construction sector during the study period. Another

possibility could be that some of the sample companies have

undertaken expansion strategies, which could increase the fixed

costs without an immediate increase in sales.

Similarly for the linear regressions of total costs on total

revenues, it was found that all of the regression coefficients were

less than one, except for Kalyanpur Cements and Sainik

Finance & Industries, and were relatively high (greater than

0.90) for Barak Valley Cements, Gangotri Cement, and Prism

Cement, corresponding with the linear regressions of total

revenues on total costs. Once again, the regression constants

were positive for only thirteen of the sample companies, and

significant for three of these; for the remaining sixteen of the

sample companies, the regression constants were negative, and

significant for three of these.

In summary, the linear CVP model seems to be appropriate only

for the following sample companies (i.e. only fourteen of the

twenty-nine sample companies): Burnpur Cement, Gujarat

Sidhee Cement, JK Cements, Madras Cements, Mangalam

Cement, Prism Cement, Shree Cement, Shree Digvijay

Cement, Ultra Tech Cement, Gangotri Cement, Barak Valley

Cements, Sainik Finance & Industries, Anjani Portland

Cement, and Bheema Cements.

The results of the ANOVA tests indicate that South India based

cement companies were significantly more profitable than

North India based cement companies, and that large cement

companies were significantly more profitable than

small/medium cement companies.

The results of the study indicate that the simple CVP model

with linear cost and revenue functions is applicable for only a

Discussion

section of companies in the cement sector, and there are

anomalies in several cases. The results of the study suggest that

nonlinear cost and revenue functions may be more appropriate

than the simple linear CVP model in explaining the cost and

revenue structure of cement sector. This may be investigated

further by considering quadratic cost and revenue functions,

extending the simple CVP model.

Despite the anomalies, the regression coefficients were found to

be in conformance with CVP theory. In particular, the



regression coefficients from the model can be used to compare

company profitability performance within the sector, and

between sub-segments of the sector. Of course, the relationship

of the regression coefficients with company profitability needs

to be empirically validated.

The results of the study indicate that South India based cement

companies were significantly more profitable than their North

Indian counterparts. This could be due to cost efficiencies of

the South Indian cement companies, particularly in terms of

lower distribution costs. This needs to be investigated further.

The results of the study also indicate that large cement

companies were significantly more profitable than

small/medium cement companies. This could reflect an

economy of scale, with larger companies perhaps having a more

efficient distribution network. This also needs to be analysed

further.

There are some limitations inherent in the study. The sample

size used for the study was limited, and based on data

availability. Thus, the results of the study may not be

generalisable for the entire cement sector, particularly for small,

regional players. The study period also poses some difficulties,

mainly due to unfavorable market conditions during the global

financial crisis of 2008-09; on the other hand, there is a need to

study the applicability of the CVP under these unfavorable

market conditions. Another limitation is that the models used

in the study assume a constant product mix.

There is great scope for further research in this area. Broader

models can be developed, bringing in additional variables,

including the product mix. The analysis can also be performed

in other sectors. Also, specific models can be developed for CVP

analysis for service sectors.

References. Adar, Z., Barnea, A. and Lev, B. (1977), “A Comprehensive Cost-Volume-Profit Analysis under Uncertainty,” The Accounting Review 52(1), 137-149.

. Banker, R.D., Basu, S., Byzalov, D., and Chen, J.Y.S. (2013), “Asymmetries in Cost-Volume-Profit Relation: Cost Stickiness and Conditional C o n s e r v a t i s m , ” S S R N

Working Paper Series, available at SSRN: http://ssrn.com/abstract=2312179 or http://dx.doi.org/10.2139/ssrn.2312179.

. Basu, O.N. and Conrad, E.J. (1994), “Cost-Volume-Profit Analysis: Uses and Complexities in a Bank,” The Journal of Bank Cost & Management

Accounting 7(2).

. Brealey, R.A. and Myers, S.C. (1991), Principles of Corporate Finance, 4th ed., New York: McGraw-Hill

. González, L. (2001), “Multiproduct CVP analysis based on contribution rules,” International Journal of Production Economics 73(3), 273 284.

. Guidry, F., O'Horrigan, J., and Craycraft, C. (1998), “CVP Analysis: A New Look,” Journal of Managerial Issues 10.

. Hess, H. (1903), “Manufacturing: Capital, Cost, Profit and Dividends,” Engineering Magazine, 892–898.

. Hilliard, J.E. and Leitch, R.A. (1975), “Cost-Volume-Profit Analysis under Uncertainty: A Log Normal Approach,” The Accounting Review 50(1), 69-80.

. Horngren, C.T., Foster, G., and Datar, S.M. (1994), Cost Accounting: A Managerial Emphasis, 8th ed., Englewood Cliffs, NT: Prentice-Hall

. Jaedicke, R.K. and Robichek, A.A. (1964), “Cost-Volume-Profit Analysis under Conditions of Uncertainty,” The Accounting Review 39(4), 917–926.

. Kee, R. (2007), “Cost-Volume-Profit Analysis Incorporating the Cost of Capital,” Journal of Managerial Issues 19(4), 478-493.

. Kottas, J.F. and Lau, H.-S. (1978), “Direct Simulation in Stochastic CVP Analysis,” The Accounting Review 53(3), 698-707.

. Kottas, J.F., Lau, A.H.-L., and Lau, H.-S. (1978), “A General Approach to Stochastic Management Planning Models: An Overview,” The Accounting Review 53(2), 389-401.

. Mann, J. (1903-07), “On cost or expenses,” in Encyclopedia of Accounting 5, 199-225, G. Lisle, ed., Edinburgh: William Green & Sons.

. McIntyre, E.V. (1977), “Cost-Volume-Profit Analysis Adjusted for Learning,” Management Science 24(2), 149-160.

. Prihadyanti, D. (2011), “CVP Analysis incorporating the Cost of Capital on R&D Investment,” International Journal of Engineering Science and Technology 3(4), 3446-

3449.

. Xishuan, Z. and Huifang, C. (2008), “Empirical Study on Company Financial Performance with CVP Analysis,” presented at International Conference on Management

Science and Engineering at California State University, Long Beach, California, USA.


WO

RK

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MIL

Y

Predictors of Work-Family Conflict & Family-Work Conflict

An exploratory study among officers of defence manufacturing companies in India

ABSTRACT

Work-Family conflict (WFC) occurs when work-role activities

interfere with family responsibilities and family-work conflict

(FWC) occurs when family-role responsibilities impacts

performance at work. The purpose of the paper is to explore

how work demands like impact the family domain and home

demands like impact work domain. The role of support type in

the form of spousal support and self management in the

relationship between work demands and work-family conflict

was also investigated. The study is carried out in a different

sector – defence Central Public Sector Enterprises (CPSEs) as

limited study has been conducted in this sector. The sample was

comprised of 338 respondents from three public defence

manufacturing companies and all of them were officers at

various levels. The research instrument was a questionnaire

comprising five parts. The variables were measured under four

categories – work demands, self management, individual use of

company support policies and work-family conflict & family-

work conflict. The findings showed that work demands, self

management, number of dependents and total experience were

significant predictors of work-family conflict. Multiple

regression analysis showed that support type in the form of

spousal support and self management did not show any

moderator or mediator effect between work demands and work-

family conflict.

Nita Choudhary* Shikha Ojha** Niranjan Kumar Singh***

*Research Scholar, CMS Business School, Jain University, Bangalore, India, E-mail: [email protected]

**Faculty, CMS Business School, Jain University, Bangalore, India, E-mail: [email protected]

***Research Scholar, CMS Business School, Jain University, Bangalore, India, E-mail: [email protected]

Keywords: Work demands, Central Public Sector Enterprises

(CPSEs), Work-family conflict (WFC), Family-work conflict

(FWC), Stressors

Traditionally balancing of work and family roles was focused on

conflicts or interference between these roles (Eby et al, 2005).

The mutual interference of work and family domains has been

identified as one of the major stressors in the workplace. Work-

family conflict occurs when pressures from the work and family

domains are mutually incompatible in some respect (Greenhaus

and Beutell, 1985). Different types of stress models have been

studied that have negative impact on both work and family

outcomes like work stressors (eg. no. of hours worked, work

deadlines), non-work stressors (eg. no. of dependent children/

dependent parents, strain in marital relationships) and

interaction between work and family (eg. inter-role conflict),

(Greenhaus and Parasuraman, 1986; Frone, Yardley and

Markel, 1997). Work constraints may force employee to work

longer and harder to make up for inadequate supply of work

resources like information, training, manpower and

equipment, thus augmenting work-family conflict (Lu et al.,

2010).

Thus Greenhaus and Beutell, (1985) defined work-family

conflict as “A form of interrole conflict in which the role

INTRODUCTION



FAM

ILY-

WO

RK

pressures from the work and family domains are mutually

incompatible in some respect” and divided work-family conflict

into three categories: time-based, strain based and behavior

based. Literature is enriched by Gutek et al. (1991); Frone,

Russell & Cooper (1992), who stated that work-family conflict is

bidirectional and found that work stress increased work-to-

family conflict, while family stress increased family-to-work

conflict. Both work-to-family conflict and family-to-work

conflict contributes to stress for employees. Rothbard (2001)

reported that participating in multiple roles can be detrimental

and working parents and dual family earners are negatively

affected by simultaneously handling work and family roles.

Grant-Vallone and Donaldson (2001) stated that work-family

conflict is not restricted to employees with traditional

responsibilities but extends to higher level positions and

employees with all types of family circumstances experience

high levels of work-family conflict.

Combining work and family is the major challenge for the

current generation of workers today (Halpern, 2005). This has

given rise to different types of work-family conflicts: “Work –

Family Conflict” (WFC) and “Family – Work Conflict”, (FWC)

(Frone, Yardley and Markel, 1997; Netemeyer et al., 1996;

Byron, 2005). Work-Family Conflict (WFC) occurs when work-

role activities interfere with family responsibilities (eg. long

working hours interfering with home roles). Family-Work

Conflict (FWC) occurs when family-role responsibilities

impacts performance at work (eg. attending a sick child on a

busy work day). Although many researchers have recognised the

bidirectional influences and have assigned similar processes to

family-work conflict, but the greatest amount of focus has been

given to work-family conflict (Eby et al;, 2005).

This study is designed to investigate the presence of work-family

conflict and family-work conflict among officers of defence

manufacturing companies in Bangalore and the variables

associated with them. The aim of the study is to examine the

common predictors of WFC and FWC in a different

occupational setting – public defence CPUs. The study will also

examine the moderating or mediating role of support type

(Spousal support and self management) in the relationship

between work demands and work-family conflict.

The majority of research on work-family conflict has been

conducted on various occupational sectors like IT/ITES, BPOs,

Need of the study

healthcare, academics, banking and finance. But very few

studies on work-family conflict have been conducted on defence

sector in India. In India there is a general perception among

people that employees of defence CPSEs, state and central

government usually have balanced life. But results of this study

shows that even in CPSE, officers work for longer hours, face

tight deadlines, weekend work, work pressures etc. The study

also aims to find whether spousal support and self management

moderates the relationship between work demands and work-

family conflict. In literature the beneficial nature of spousal

support and self management is studied as separate entities but

not as a moderator or mediator. Also stringent security

guidelines in these companies impart a very different paradigm

for any researcher to conduct a survey investigating the work life

of employees of defence CPSEs.

Several variables will be related to WFC and FWC as per the

model proposed like: work demands, total experience, marital

status, age and number of children, number of dependents and

individual use of company support policies. Literature provides

evidence that experience of work-family conflict is more

prevalent than family-work conflict (Pleck, 1977; Greenhaus

and Beutell, 1985; Gutek et al., 1991). As per Pleck (1977), work

is permitted to interfere with family domain to a greater degree

than family is allowed to interfere with work domain. Based on

this motive, the present study aims to study work-family conflict

among officers of defence manufacturing companies in

Bangalore.

H1: Work-family conflict (WFC) is more prevalent than Family-

work conflict (FWC) among the officers.

Work demands. Literature has confirmed negative impact of

work-stressors like no. of hours worked, work deadlines and

overload on both work and non-work domains (Greenhaus and

Parasuraman, 1986; Frone, Yardley and Markel, 1997). Work

demands are the strongest predictor of work-family conflict and

are an important factor in exacerbating WFC. Research showed

that work demands like number of hours worked per week,

work overload, work schedule and overtime work were positively

related to WFC (Burke and Greenglass, 1999; Voydanoff, 1988;

Duxbury and Higgins, 2003; Hammer, et al., 2005; Yildirim

and Aycan, 2008). Work constraints may force employee to

work for longer, irregular hours and harder to make up for

Theoretical background and hypothesis

Variables predicting WFC/FWC


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inadequate supply of work resources like information, training,

manpower and equipment, thus augmenting work-family

conflict (Lu et al., 2010).Working for longer hours, weekends

and holidays restricts the time that an individual has allotted for

fulfilling family responsibilities. In the current study, the

researcher is expecting that higher work demands in the form of

longer work hours per week and working on weekends/holidays

would be associated with higher work-family conflict among the

officers.

H1a: A higher level of work demands will be positively related to

WFC.

Total experience. With experience a person acquire skills and

strategies to cope with the conflicting demands. Experience in

job helps to juggle effectively between work and home demands

(Cohen and Liani, 2009).

H1b: Total experience in job will be related to WFC. Longer

experience will reduce WFC.

Marital status. Literature provide evidence that work demands

can undermine marital quality and family responsibilities can

undermine job satisfaction (Frone, Russell & Cooper, 1992;

Parasuraman et al., 1996). A study conducted by Byron (2005),

Yildirim and Aycan, (2008); Mjoli et al. (2013) revealed that

marital status is weakly related to work interference with family

(WIF) and family interference with work (FIW), thereby

suggesting that marital status alone is poor predictor of work-

family conflict. A study conducted by Cohen and Liani (2009)

on female employees of hospitals found that marital status is not

related to any of the conflict variables, thereby concluding that

being married does not automatically add to more work

demands. Moreover marital status and quality is an important

buffer for work-related stress, especially for men because of more

resources to draw upon ie. spouse and more financial resources

(Barnett, Marshall, and Pleck, 1992; Grzywacz and Marks, 1999;

Grandey and Cropanzano, 1999 and O'Neil and Greenberger,

1994).

H1c: Being married will be related to higher levels of FWC.

Age and number of children. Parental role is the most

demanding non-work role demanding commitment and time

(Gutek et al., 1991). Age of the oldest child is an important

predictor of the work-family experience (Voydanoff,

1988).Young, dependent and number of children still living at

home (in contrast to having no children) is the primary

determinant of work-family conflict for working parents (Lewis

and Cooper, 1998; Lundberg, Mardberg and Frankenhaeuser,

1994; Grzywacz and Marks, 1999; Quick et al., 2004; Cinamon

and Rich, 2002; Eby et al., 2005; Cohen and Liani, 2009; Mjoli

et al., 2013). Moreover Mjoli et al. (2013) found that parents

with children under the age of six had the highest levels of work-

family conflict, followed by parents with school-age children.

The number of children living at home increases the difficulty

of meeting work and family demands and therefore decreases

satisfaction with work-family balance (Grandey and

Cropanzano, 1999; Valcour, 2007). Those who are having more

children under 18 have to devote more time to family rather

than career success. Thus, Goff, Mount and Jamison (1990)

advocate that supportive supervision and satisfaction with child

care arrangements (regardless of location) result in less work-

family conflict.

H1di – Children under the age of 5 will be related to higher

levels of FWC.

H1dii – Number of children will be related to higher levels of

FWC.

Number of dependents. There are basically three groups of

dependents – children, adults with disabilities and elders.

Home demands like lack of spousal support and presence of

dependents in the family exacerbate work-family conflict and

family-work conflict. Literature has confirmed that with the

increase in family size and complexity with children/ elders or

with sick children/elders, the work-family conflict increases

(Quick et al., 2004). People who are single and those with

smaller families and/or with grown children experience less

work – family tensions than those who are married, have larger

families and young children or elder care. Increase in the

number of children or elderly persons lead to more competition

for resources at home in the form of medical care and financial

security (Preston, 1984).

H1e: Number of dependents will be related to higher levels of

FWC.

Individual use of company support policies. There are various

types of family-friendly workplace supports provided by the

organizations. Neal et al. (1993) categorizes family-friendly

workplace supports into three types – policies (eg. flexitime, job

sharing), services (eg. resources and information about

dependent care and benefits (eg. childcare care options). For an

employee these family-friendly supports are meant to mitigate



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the difficulty faced in balancing multiple life roles. Only mere

implementation of workplace support policies is not important,

but its actual utilization is important. Though literature has

confirmed that use of such supports by the employees will be

associated with reduced work-family conflict and improved

balance (Kossek and Ozeki, 1998; Thomas and Ganster, 1995;

Allen, 2001), little research has been carried to examine this

relationship.

Only a few studies have studied the impact of actual utilization

of workplace supports on work-family conflict (Kossek and

Ozeki, 1999; Hammer et al., 2005). Hammer et al. (2005), in

their study focused on impact of variety of supports like

alternative work arrangements and dependent care supports on

individual's work-family conflict. In the light of literature, the

present study focus on utilization of only alternative work

schedules by the employees. It is expected that use of alternative

work schedules will reduce work-family conflict.

H1f: Individual utilization of company support policies will be

related to lower levels of WFC and FWC.

Support type. Every person do not face work demands, family

obligations and conflict to the same extent. This implies that

there are factors moderating the effects of work demands and

work-family conflict. Among various factors, the most

important factor that is widely studied is social support. Social

support is defined as information leading the subject to believe

that he is cared for and loved, esteemed, and a member of a

network of mutual obligations (Cobb, 1976). There are four

sources of social support: spouse, relatives and friends,

organisation and colleagues. Social support emanating from

work-related sources plays an important role in reducing

occupational stress than does non-work related sources (Daalen,

Willemsen and Sanders, 2006). Among non-work related

sources the prominent social support comes from family

members and family members provide both emotional and

instrumental support to individuals outside work environment.

As per the 'buffering hypothesis proposed by Cohen and Wills

(1985), social support has been treated as a buffer between life

stress and well being (Cobb, 1976). In the light of literature, the

current study takes the same theoretical concept and proposes

that social support in the form of spousal support would

moderate the relationship between work demands and work-

family conflict.

The present study considers spousal support as an important

component of social support. Spousal support is defined as the

help, advice, mutual understanding that spouses give each

other. There are two components of spousal support –

emotional and instrumental (Frone, Yardley and Markel, 1997).

Emotional support is emphatic understanding, concern,

advice, and affection for well-being of partner whereas

instrumental support from the partner deals with household

chores, child or elderly care (Adams, King and King, 1996;

Frone, Yardley and Markel, 1997). Instrumental support

mitigates an individual with family responsibilities and enables

to devote more time to work. Other researchers opined that

spousal support is associated with management of work-family

conflict (Adams, King and King, 1996; Perrewe and Hochwater,

1999; Aryee et al., 1999, Burke and Greenglass, 1999; Aycan

and Eskin, 2005).

The present study focuses on instrumental support from the

spouse as a major moderator. Studies have found that spousal

support was an important component of social support and was

effective in lowering levels of WFC (Burke and Greenglass,

1999; Anderson, Coffey and Byerly, 2002). If a person gets

support from spouse at home after a hectic day at office, then a

person can balance work and family more easily. The

importance of spousal support is given adequate emphasis in

literature and it is surely going to help employees in a large way.

Many researchers have tried to link work-family conflict with

health outcomes. The moderator role of exercise and leisure

activities between work demands and work-family conflict has

been neglected in literature. Allen and Armstrong (2006)

studied the relationship between both directions of work-family

conflict – WIF and FIW with health related behaviors like

physical activity and diet. Research shows that people who

exercise regularly experience less health problems and

psychosomatic symptoms than those who do not exercise

(Burke, 1994; Ensel and Lin, 2004). Despite importance of

exercise in one's life, individual shouldering work and family

roles restrict exercise (Allen and Armstrong, 2006)

Exercise is considered one of the elements of leisure activities

and is often neglected by individuals with both work and non-

work roles (Nomaguchi and Bianchi, 2004). Person's overall

quality of life is determined by sum of the domains of life –

work, family, community, religion or leisure (Rice, Frone and

McFarlin, 1992). People often report work schedules and

excessive amount of work, time constraints and tiredness to


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interfere with leisure activities (Staines and Connor, 1980; Rice,

Frone and McFarlin, 1992). The role

H1g: Support type in the form of spousal support and self

management act as a moderator between work demands and

work-family conflict.

The conceptual framework including all the study variables is

presented in Fig. 1. Work demands include number of hours

worked per week, working on weekends/holidays, partner's

employment and length and time of commuting and are

expected to be related to work-family conflict. Other variables

that are expected to be associated with WFC and FWC are total

experience, marital status, age and number of children, number

of dependents and individual use of company support policies.

It is also proposed that spousal support and self management

moderates the relationship between work demands and work-

family conflict. It is expected that officers who experience

higher levels of work demands will face less work-family conflict

when they receive support from their spouses and are involved

in self-management.

The sample comprised of 338 officers. The demographic profile

of the respondents has been listed in table 1.

The data for this study were collected during February 2013 to

June 2014 from officers working full time in manufacturing unit

of three public defence manufacturing CPSE at Bangalore. The

sample respondents were selected by using systematic random

sampling. Two days in a week i.e Friday and Saturday was

dedicated to collect the data in a phased manner. 634 nos. of

officers were working in the manufacturing complex of public

defence CPSE at Bangalore. Out of 635 questionnaires

distributed, 370 were returned, yielding a response rate of 58%.

Among the returned questionnaires 32 of them were discarded

due to excessive missing data.

The research instruments comprised of five parts. The first part

consists of questions pertaining to demography of respondents

like gender, age, managerial level, total experience, marital

status, partner's employment, number and age of children,

number of dependents and education.

Demographic variables under study: Total experience was

Research Methodology

Participants and procedures

Measures

measured by the actual years. Marital status was measured as a

dichotomous variable (0 = single, 1 = married). Partner's

employment was measured as (0 = employed, 1 = not employed).

The variable of age of children was measured by actual years and

number of children was measured by actual number of children.

Number of dependents was measured by actual number of

dependents.

WFC/FWC: Data was collected using WFC and FWC scales

developed by Netemeyer, et al., (1996). It is a 10 – item scale with

5 items each under WFC and FWC scales. The instructions that

preceded these items are as follows: “The given sets of questions

are about your work and non-work lives. The word 'Family' may

include your spouse, children, parents, siblings, grandparents,

in-laws or any combination of these”. All items were measured

using a 7-point Likert scale, with 1 meaning strongly disagree

and 7 meaning strongly agree. Higher score mean more conflict.

Work demands: Work hours – The total number of hours

worked per week was assessed through one question: “How

many hours in a week do you normally work?”. This variable was

measured on a scale: 1 = >60, 2 = 56 – 60, 3 = 51 – 55, 4 = 46 – 50

and 5 = <45.

Working on weekends/holidays: This variable was assessed

through one question: “Do you work on weekends/holidays?”.

There were three options to choose from: 3 = No, 0 = Yes and 1 =

Sometimes.

Carrying work to home: This variable was assessed through one

question: “Do you carry office related work at home?”. There

were two options to choose from 3 = No, 0 = Yes and 1 =

Sometimes.

Length and time of commuting: Two questions were designed

to assess commuting of respondents. The questions were “How

far do you stay from your organization's premises?”. This

variable was measured on a scale: 1 = More than 20, 2 = 16 – 20,

3 = 11 – 15, 4 = 6 – 10 and 5 = 0 – 5. The other question was

“How many hours per day do you spend on commuting (To and

fro)?”. This variable was measured on a scale: 1 = others, 2 = 91 –

120 min, 3 = 61 – 90 min, 4 = 31 – 60 min and 5 = 0 – 30 min.

Individual use of company support policies: Two questions

were designed to assess this variable. The questions were “Does

your company take any measures to balance work life?. This

question has two options a) Yes & b) No.

The other question was “Do you utilize measures taken by your



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company to balance work and family?”. There were two options

to choose from 3 = Yes, 0 = No.

Support type: There are two types of supports:-

Spousal support:. One question was designed to assess the

spousal support. The question was “Does your spouse help you

in household chores/ child or elderly care?”. There were two

options to choose from 3 = Yes, 0 = No.

Self management: Two questions were designed to assess this

variable. “Do you exercise?. There were three options to choose

from: 3 = Yes, 0 = No and 1 = Sometimes and “Are you involved

in any leisure activities?”. There were two options to choose

from 3 = Yes, 0 = No.

Table 2 & 3 presents descriptive statistics and intercorrelations

among all respective study variables. The correlation matrix

showed some significant relationship between WFC/FWC and

study variables. Work demands were strongly related to both

WFC and FWC, thus supporting hypothesis H1a. Total

experience was positively related to WFC but not related to

FWC, thus contradicting previous findings. The result of H1b,

showed that as experience in job increases, WFC also increases.

This finding of H1b was not expected in this study. H1c, which

expected that being married would increase the levels of FWC,

was not supported by the data. Instead FWC did not depend on

marital status, as evident from table 4 a, b and 5 a, b. In case of

H1c, WFC was more significant among married officers than

FWC. This means that work-role activities interfere with family

responsibilities.

H1di, which expected that children under the age of 5 would

increase the levels of FWC, was supported by the data. For

H1dii, the data did not support hypothesis. The number of

children is not related to either WFC or FWC that contradicts

previous findings. H1e, which expected that number of

dependents would increase the levels of FWC, was supported by

the data. Number of dependents was positively related to both

FWC and WFC i.e. as number of dependents increases both

FWC and WFC increases.

H1f, which expected that individual utilization of company

support policies will be related to lower levels of WFC and

FWC, was not supported by the data. Individual utilization of

company support policies was not related to either WFC or

FWC. The moderating effect of support type between work

Results

demands and work-family conflict was not supported by the

data, thus rejecting hypothesis H1g. Finally the main hypothesis

– H1, which expected that Work-family conflict (WFC) is more

prevalent than Family-work conflict (FWC) among the officers,

is supported by the data. Table 4a, b; 5a and 6 provide evidence

to this hypothesis.

While correlation analysis provided adequate support for the

hypothesis, regression analysis is more suitable to quantify the

dependent variables of the given hypothesis.

Regression Analysis: Work-Family Conflict versus Work

Demands.

The regression equation is

Work Family Conflict = 32.76 - 0.7736 Work Demands

The regression analysis between work-family conflict and work

demands in table 7 showed that these two variables are strongly

related, thus supporting H1a.

Regression Analysis: Work-Family Conflict versus Self

Management.

The regression equation is

Work Family Conflict = 23.31 - 0.7693 Self Management

Regression analysis in table 8 showed positive relationship

between work-family conflict and self management.

Regression Analysis: Work Family Conflict versus Support

type, Work Demands

Regression Equation.

Work Family Conflict = 33.74 - 0.422 Self Management - 0.682

Work Demands

- 0.0151 Self Management*Work

Demands

H1g, which expected that support type in the form of spousal

support and self management act as a moderator between work

demands and work-family conflict, was not supported by the

data as in table 9. Spousal support was not related to either

WFC or FWC as per correlation analysis. Self management was

related to WFC as per both correlation and regression analysis.

But the role of support type as a moderator between work

demands and work-family conflict was not supported by

multiple simultaneous regression analysis. Thus buffering


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hypothesis, H1g was rejected by the data of study. Support type

is not the moderator between work demand and WFC. Support

type is not the moderator between work demand and WFC.

The findings of the study supported the conclusion of Pleck,

(1977); Greenhaus and Beutell, (1985) and Gutek et al., 1991

that experience of work-family conflict is more prevalent than

family-work conflict among the officers. Work interference

into family domain to a greater extent than family is allowed to

interfere into work domain. The model tested here explained a

significant amount of variance in the two conflict variables. The

model explained that variance of WFC is more (61%) than the

FWC (38%), supporting the distinctiveness of the two conflict

variables in the study.

Other findings of the study are worth mentioning. Work

demands in the form of hours worked per week, working on

weekends/holidays, carrying work to home, length and time of

commuting and partner's employment were the strongest

predictor of work-family conflict and are an important factor in

exacerbating WFC. In this study work demands were positively

related to both WFC and FWC and confirmed the studies done

by Burke and Greenglass, (1999); Voydanoff, (1988); Duxbury

and Higgins, (2003); Hammer, et al., (2005); Yildirim and

Aycan, (2008). As for the relationship between total experience

and WFC, it seems that as experience in job increases, WFC

also increases. This finding contradicts the findings of Cohen

and Liani, (2009). This unexpected finding may be due to fact

that experience add on more responsibilities and complexities

to job.

With regard to home roles, being married was not associated

with higher levels of FWC. Instead married officers were facing

more WFC. That means work demands was interfering with

family responsibilities for married respondents. Barnett,

Marshall, and Pleck, 1992; Grzywacz and Marks, 1999; Grandey

and Cropanzano, 1999 and O'Neil and Greenberger, 1994).

Their finding concluded that marital quality is an important

buffer work related stress due to more resources to draw upon.

Children under the age of 5 were related to higher levels of

FWC. This relationship support the contention that more time

one spends in one role, the more likely he/she perceives the

other role to interfere with the first (Byron, 2005; Pleck, 1977).

This finding was in coherence with the findings of Quick et al.,

(2004); Cinamon and Rich, (2002); Eby et al., (2005); Mjoli et

Discussion and conclusion

al. (2013). The lack of significant relationship between the

number of children and FWC contradicted previous findings

that there exists stronger relationship between the two. Grandey

and Cropanzano, (1999); Valcour, (2007). Number of

dependents is significantly related to both WFC and FWC. This

signifies that increase in the number of children or elderly

persons lead to more competition for resources at home.

The insignificant relationship of individual utilization of

company support policies with either WFC or FWC

contradicted previous findings that actual utilization of

workplace supports reduces work-family conflict (Kossek and

Ozeki, 1999; Hammer et al., 2005). This finding emanate from

a study conducted among Israeli teachers that found no

relationship between non-work organizational support and the

two conflict variables (Cohen et al, 2007).

The present study hypothesized that support type would

moderate the relationship between work demands and work-

family conflict. However multiple regression analysis did not

provide evidence to the moderating effect of support type.

Thus, buffering hypothesis was rejected by the data of this study.

This finding echoed from another study conducted on nurses

that found supervisory support to play no moderating role

between work demands and work-family conflict (Yildirim and

Aycan, (2008). Future research should examine the direct effect

of support type on work-family conflict.

The study has some practical implications for human resource

professionals. The findings showed that both work and non-

work roles are more strongly related to WFC rather than FWC.

It is necessary for employers to assist employees in coping better

with pressures from work and family. It is inevitable to create

positive attitudes among employees regarding their job and

work environment, to reduce WFC and FWC. This strategy

would be more effective than investing in support policies for

coping with work and family pressures.

Finally limitations of this study need to be mentioned. First, the

study is based on a sample from one occupation i.e. defence

manufacturing consisting of officers working in three defence

CPSEs in Bangalore. In these public sector enterprises,

everybody is assigned to work for six days in a week for eight

hours daily. Here employees get extra remuneration or leave

benefits for working overtime, but officers are deprived of such

benefits. Thus the findings cannot be generalized to other

Limitations of study



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occupations or to private sector where people have different

work settings and culture. Second, the female constitute a small

percentage of the sample (15.4%). Thus, the study could not

compare findings from gender point of view as the proportion

of female was too low to have any comparison. Third, in India

conducting research on defence PSUs is quite difficult due to

security issues. These companies come under Ministry of

defence and the data are kept very confidential. Even the

employees working in these companies are restricted to carry

laptops, pen drives and mobile phones inside the companies.

Any external visiting or conducting research on these

companies has to relinquish all electronic gadgets at the

reception and all the documents are thoroughly checked on

entering and leaving the premises.

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Concept, Practices and MeasuresCreative Accounting

Poonam Dugar* Neha Desai**

*Lecturer, Department of Accountancy, ADDRESS FOR CORRESPONDENCE: 36, Green Park, Gokuldham, Near Shantipura Circle, Sanand Road, Ahmedabad-380009

CONTACT: 91-9825000940, EMAIL: [email protected]

**Lecturer, Department of Accountancy, ADDRESS FOR CORRESPONDENCE:16, Rajpath Row Houses, Opp. Rajpath Club, Ahmedabad -380015.

CONTACT: 91-9227290686, EMAIL: [email protected], AFFILLIATION: H.L. Institute of Commerce, Amrut Mody School of Management, Ahmedabad University

OFFICE ADDRESS: H.L. Campus, Prin. S. V. Desai Road, Navrangpura, Ahmedabad- 380009

ABSTRACT

Accounting, though known as a science, can be considered to be

an art more than a science. An art in which creativity flourishes.

It would not be wrong to say that accounting starts when science

meets art where accountants use their flair to be creative.

Accounting, for the choices it offers, often gives companies the

frill of deviating from the stated rules when it is not practical to

stick to the rule of law. Creative Accounting refers to the use of

accounting knowledge to influence the reported figures, while

remaining within the jurisdiction of accounting rules and laws,

so that instead of showing the actual performance or position of

the company, they reflect what the management wants to tell the

stakeholders.

Creative accounting practices resulting into major accounting

frauds are evidence to the fact that “the science of conduct is

swayed in large by human greed, ambition, hunger for power,

money, fame and glory.” The devastating effects of creative

accounting practices on the truthfulness and fairness of

financial reports pose a serious threat to the accounting and

auditing profession. In turn, the users of accounting

information and their investment decision-making

effectiveness are also affected adversely.

In support stands an organizational ecosystem as a checkpoint

which includes the auditors, analysts, and regulators to measure

whether the departure from rules was within the permissible

limits. The accounting and auditing professionals hence, driven

by the intention to curb manipulations in financial reporting

must take into account the circumstances that allow its

expression under close supervision.

The paper focuses on nature and incidence of creative

accounting practices in financial reporting, the causes and

motivations behind their application, and the consequences of

creative accounting practices in corporations. The study also

highlights the incidences of Indian companies indulging in

creative accounting practices. It also identifies various measures

to prevent the practice of creative accounting in financial

reporting by companies.

Quoting Griffiths' assertion “Every company in the country is

fiddling its profits. Every set of published accounts is based on

books which have been gently cooked or completely roasted.

The figures which are fed twice a year to the investing public

have all been changed in order to protect the guilty.”

A company's financial statements publishing the accounting

information, providing information on the financial position,

performance and cash flows of a company, widely affect the

economic decisions of the users of financial statements.

The published accounts have an angle of information

perspective. It is presumed that the accounting disclosures

provide an information content that is of value to stakeholders.

But often, the privileged management for various reasons

INTRODUCTION:



misleads the remote body of stakeholders by creating

information asymmetry.

Companies and managers are tempted to resort to nifty

methods, often debatable, in order to improve the presentation

of financial statements. Overall, there is a trend and a fierce

desire to perform certain activities so as to manipulate the

figures, financial statements and performance reports, to distort

the true image (“true and fair view”). Consequences and

negative impact come quickly, first on investors who are misled

about the true overall situation of the company, as well as on

companies that actually carry out the economic activities.

The assault on a company's bottom line in such cases is harsh

and unrelenting. The devastating effects of creative accounting

practices on the truthfulness and fairness of financial reports

and hence the users of accounting information and their

investment decision-making effectiveness pose a serious threat

to the accounting and auditing profession. It is important for

the accountants and auditors to closely supervise the

circumstances that enable manipulations in financial reporting.

The paper discusses

> Nature and incidence of creative accounting practices

in financial reporting

> Reasons that drive the managers to indulge in these

practices

> Highlights the incidences of Indian companies

indulging in creative accounting practices

> Identifies various measures to prevent the practice of

creative accounting in financial reporting by

companies

Financial accounting reports are produced to show the true and

fair state of affairs of business entities so that stakeholders and

other users of such information can take informed decisions. In

order to ensure uniformity in preparation and presentation of

such reports, Generally Acceptable Accounting Practices

(GAAP) are prescribed within the accounting profession.

Accounting Standards leave room for discretionary judgments

by the accountant. This involves resolving conflicts between

competing approaches to the manner in which results of

Concept of Creative Accounting

financial events and transactions are presented. While the

tention may be good, this flexibility provides opportunities for

manipulation, deceit and misrepresentation. These activities as

negatively practiced by the less scrupulous elements of the

accounting profession are popularly referred to as creative

accounting (Jameson, 1988).

The act is characterized by excessive complication and the use of

novel ways of characterizing income, assets, or liabilities

(Ghosh, 2010) with the intent to influence readers towards the

interpretations which are desired by the authors of the reports.

Though called creative accounting in the UK, it is known as

Earnings management in the USA.

Creative Accounting refers to the use of accounting knowledge

to influence the reported figures, while remaining within the

jurisdiction of accounting rules and laws, so that instead of

showing the actual performance or position of the company,

they reflect what the management wants to tell the stakeholders.

Creative accounting practices cover a wide range of areas,

especially premature recognition of and over- or

underestimation of revenue, aggressive capitalization and

extended amortization policies, misreporting of assets and

liabilities, and getting creative with the income statement and

cash flow reporting. If an organization wishes to practice

creative accounting, there is plenty of scope for the

manipulation of accounting information. Such manipulation

may well leave external or other interested parties confused as to

what is real or unreal, or true or false, in a published set of

financial statements. This may lead to unnecessary risk taking

or wrong decision-making on part of various stakeholders,

posing a threat to the long-lasting healthy relation between

them.

Playing the number game is often and widely practiced by the

managers of corporations for a variety of expected rewards.

Companies having weak internal controls; or a family

relationship between directors and officers; or BOD dominated

by individuals with substantial equity stakes or inadequate

experience; or absence of audit committee often indulge in

reporting the financial statements creatively.

Drivers / Motivations to Practice Creative

Accounting


Figure1: Factors facilitating 'creativity' within company's accounts (Adapted from [13])

Avenues / Opportunities to practice Creative Accounting

The incentives for fraud are similar to that of creative accounting, but they are more extreme. It can be said that where the managers

trying to use flexibility provided by the accounting to increase its assets or increase its profits, we can speak of creative accounting,

while what goes beyond accounting flexibilities can be transformed into fraud.

Hence, creative accounting involves working within the regulatory framework, fraud involves working outside it.



Idris, et al. in a study in 2012 under the title “The Nature,

Techniques and Prevention of Creative Accounting: Empirical

Evidence from Nigeria” have done an exploratory research

from both primary and secondary information. Under primary

research the expert opinion survey method was used whereby

the views of the experts in the accountancy profession were

sought on 10 identified variables as the reasons for creative

accounting practices. The responses indicated the level of

importance attached to each variable.

The top five variables which received the highest ranking

according to the study are summarised below:

1. Tweaking accounting numbers to personal advantage

using the existing rules

2. Gap in the GAAP promotes creativity

3. Exceptional Rewards motive of management

4. Misleading stakeholders for personal gains

5. To adjust to the economic condition of the country

Exploiting the Loopholes

Accounting standards cannot cover every aspect of business

transactions. These standards offer choice of methods for

various accounting treatments where the discretion on the

choice of method lies with the management. E.g. there is more

than one method of valuation of inventory or method of

depreciation. This provides ample opportunities to companies

to play within the legal ring. Although GAAP requires

consistency in the adoption of an accounting method, some

companies may exploit the opportunity to use more than one

over the years.

Whether creative accounting practices result in fraudulent

financial reporting depends on the intentions of the managers.

Although not all creative accounting practices amount to fraud,

it is sometimes hard to distinguish between fraud and creative

window-dressing in financial statements.

The practices of creative accounting can be summarized under

five main categories, as shown in Table:


Practicing Creative Accounting

In good times, high profits keep all stakeholders happy, and in

bad times, accounting policy tweaks come to the rescue. Today's

business environment is uncertain, because input prices are

high, interest costs are ballooning and demand is slowing.

Keeping profitability intact, then, is a challenge. Some

companies are responding by passing up the best practices in

favour of more convenient options under India's Generally

Accepted Accounting Principles.

What motivates this behaviour? Nick Paulson Ellis, country

head of investment bank Espirito Santos, offers an explanation.

“Analysts like a company to show steady growth in profits,” he

says. “Aggressive accounting is often a way for companies to

hide any unexpected bumps in that trend.”

So some companies spread a huge gain over several accounting

periods, put off recognising losses for as long as legally possible

and, in some cases, selectively ignore accounting conventions

that might show their numbers in a less rosy light.

Creative Accounting Application Study 1: Creatively handling

Rupee vulnerability using High Court's approval for the terms

of amalgamation:



Companies are getting creative in using the Company's Act and

Accounting Standards to avoid the loss inclined impact of

foreign currency fluctuations on their Profit and Loss

Statement. In 2008-09, the rupee depreciated over 25 %, and

corporate India's external debt went up by 20 %. Within the

legal ring the depreciation losses could either be charged to the

profit and loss account or spread it over a few years, but then the

balance sheets would have looked vulnerable. Reliance

Communications (RCom) chose the former option. But

through another entry, it neutralised the adverse effect on its

profit by transferring an equal amount from its General Reserve

(accumulated profits earned in past years).

In the following year when the exchange rate appreciated

RCom gained, and that increased its profits directly.

Setting off exchange losses against the General Reserve is by no

means allowed; the General Reserve also includes other

restricted reserves, in particular, those that have been created by

the purchase of another group company. The profits of one

company were used to adjust the losses of another. This is an

accounting standards violation.

So how did RCom manage to get past its auditors? The company

used a much-loved clause in the Companies Act — get an

approval from a High Court for all the terms of amalgamation.

Companies often use this route to slip in accounting changes

that would otherwise earn the disapproval of its auditor.

Companies often use amalgamations that have been approved

by the court to write off losses against reserves or the share

premium account. The practice has vexed the ICAI because in

the end it exposes accounting standards to abuse. “The ICAI

has been crying itself hoarse about this kind of abuse for years,”

says Y.H. Malegam, 2013, former chairman of the National

Committee for Accounting Standards.

When questioned, RCom said that it was in compliance with

the applicable accounting standards, as well as the provisions of

the Companies Act. “The company, in compliance with

relevant accounting standard, viz., Accounting Standard 5,

charges all expenses to its statement of profit and loss in order to

arrive at net profits for the reporting year and does not directly

charge any operating losses against its 'General Reserve'.”

Excerpt from the auditor ' s repor t in Rel iance

C o m m u n i c a t i o n ' s a n n u a l r e p o r t o f 2 0 0 8 - 0 9

...as approved by the Hon'ble High Court of Judicature at

Mumbai, the Company has withdrawn from General Reserve

III and credited to the Profit and Loss Account Rs 4,464.57

crore in respect of loss on account of change in foreign exchange

r a t e r e l a t i n g t o l o a n s / l i a b i l i t i e s .

Precautionary Measure:

Market regulator Securities and Exchange Board of India

(SEBI) now wants listed companies seeking court approval for

M&A transactions to get an auditor's certificate that the

proposed accounting complies with standards (does not apply

to unlisted companies).

Creative Accounting Application Study 2: Treatment of IPO

Expenses differently:

Following are the three possible options to treat IPO expenses

in the financial statements of the company:

1. Charge the expenses to the Share Premium Account

– No effect on profitability

2. Amortise them equally over five years – Marginally

affects bottom line

3. Setting off against current year's profits – Reducing

current year's profit

Bajaj Corporation, in late 2010, when floated its Rs.297 crore

IPO, was considering the appropriate treatment of its Rs.20

crore IPO expenses in the books. Given the slowdown in the

domestic economy and the sluggish stock market, the first

option seemed the best. Bajaj Corp's stock, which debuted in

August 2010 at Rs 800 per share - the offer price was Rs 665 - was

already showing signs of weakness. The Board was in favour of

the third option as it would save on taxes and improve liquidity

within the company. Amortisation would yield similar results,

but over five years. By January 2011, Bajaj Corp's stock had

dipped to around Rs 500, down almost 40 per cent from its

debut. The Sensex actually gained two per cent in the same

period. Had Bajaj charged its IPO expenses to the share

premium account, profits for 2010/11 would have crossed Rs

100 crore, and the stock would almost certainly have

outperformed the Sensex.

In another case, Indosolar, a Delhi-based solar cell

manufacturer, which had a Rs 357-crore IPO about a month

after Bajaj Corp's issue the company already had a policy of

amortising preliminary expenses. Some of the preliminary

expenses already stood outstanding at the time of IPO. But


post the IPO the company decided to change its accounting

policy and decided to charge the Rs.33.58 crore IPO expenses

to Share Premium account. This resulted in increasing

outstanding expenses to be set off in the Balance Sheet without

affecting the Profit and Loss Account of the current year. The

company was neck-deep in losses (Rs 57 crore in March 2011).

The decision to charge IPO expenses to the share premium

account prevented losses of a few more crores from going on the

books.

Chameleon-like policies make a company's accounts harder to

understand, and confuse investors and shareholders.

Creative Accounting Application Study 3: Creatively

smoothing the income:

Biocon, an Indian bio-pharma company, received upfront

payments from Pfizer when the deal between them was called

off. Instead of showing the amount as a one-time gain in its P/L

Account, Biocon sought to capitalise it. Biocon justified this

choice mentioning that the sum received was for long term

development and that the clinical trials of the drug would still

continue. The company points out that deferring revenue

recognition is a permitted accounting practise.

Espirito Santo raised a red flag pointing out that actually, when

this shall be used to set off their R&D costs in future, R&D

costs shall be removed from P/L Statement which will smooth

Biocom's earnings over the next three to four years and inflate

the earnings to that extent. Ideally, keeping in mind the

Matching principle of recording transactions, such revenue

must be recognised in year 1 as a one-off revenue item, as

revenue from a terminated deal should not be matched against

costs of other deal/activity.

Creative Accounting Application Study 4: Treatment of

Debenture Redemption Premium

Sometimes, though, the rules allow certain departures; the

redemption premium to be paid on debentures can be set off

against the share premium account. The treatment vexes

analysts but cannot be technically faulted.

But companies stretch that technicality. In 2011, Suzlon did not

provide for the redemption premium on its Foreign Currency

Convertible Bonds (FCCB) that were to mature in 2012 (the

company eventually defaulted). It treated it as a contingent

liability (off the balance sheet). The company's argument was

that since it wasn't clear how many bondholders would convert,

making a provision for it was difficult.

“But Suzlon's share price was a sixth of its redemption value

then,” says an expert. “It was likely that bondholders would

choose to redeem.”

“The general practice of treating redemption premium as a

contingent liability cannot be justified,” says Malegam. “As long

as the bond is convertible at the option of the holder, the

company must still treat it as a redeemable bond and provide for

the redemption premium.”

Suzlon says that if the bonds are called for redemption, it has

adequate share premium reserve to cover payments. Analysts

say given the company's finances, it would have been inclined to

present a favourable debt-equity ratio. A company

spokesperson denied this, saying, “We are of the firm view that

a degree of leverage does not — and should not — lead to a

substantially different accounting practice”.

From the auditor's report in Suzlon's annual report of 2010-11

The Phase I, Phase II, Phase I New, Phase II New, and Phase III

bonds are redeemable subject to satisfaction of certain

conditions.... The Company has not provided for the

proportionate premium... aggregating Rs 579.21 crore (Rs

377.22 crore)...

Measures preventing Creative Accounting (CA) practises:

The major threats of practising Creative Accounting (PCA) is

that the financial records become deceitful and over a long run

the management of the company may feel competent enough to

commit a financial fraud successfully. So, the organisations

must have an urgency approach to curb it at an early stage. If an

attempt is made to eliminate the factors facilitating / pressuring

the managers to indulge in such activities, measures of

preventing them can be thought of and put into practice.

It is well understood that to carry out recording of the

transactions creatively, accounting entries are played with

staying within the legal territory, but this does not enable the

practitioners to juggle the cash of the organisation. Therefore,

the financial statements should always include the Cash Flow

Statement. Such inclusion must be made mandatory for all

organisations, irrespective of their size, scope, and turnover. If

the revenues are properly recognised, the cash flow should

closely follow the revenue recognition patterns. So any CA

1. Mandatory reporting of Cash Flow Statements:



technique practiced can be detected from the discrepancy

observed here.

Simultaneously, there must be heavy emphasis on following the

Consistency Principle of Accounting. This shall ensure that the

areas where CA can be implemented are kept well-checked.

Valuation methods, revenue recognition norms etc. must be

consistently followed for a reasonably long period of time.

Frequent switch over of methods must not be allowed by the

management/auditors. Proper reasoning and retrospective

effect along with explanations on how will such a change affect

the numbers should be a made a mandatory disclosure.

The scope of choice of accounting methods can be reduced by

reducing the number of permitted accounting methods or by

specifying circumstances in which each method should be used.

Requiring consistency of use of methods also helps here, since a

company choosing a method which produces the desired

picture in one year will then be forced to use the same method in

future circumstances where the result may be less favourable.

Artificial transactions can be tackled by invoking the concept of

'substance over form', whereby the economic substance rather

2. Consistency Principle and Mandatory Reporting of

the Effects of Changes:

3. Reducing the Scope for choice of accounting

methods :

4. Substance Over Form:

than the legal form of transactions determines their accounting

substance.

The timing of genuine transactions is clearly a matter of

discretion of management. However, the scope to use this can

be limited by requiring regular revaluations of items in the

accounts so that gains or losses on value changes are identified

in the accounts each year as they occur, rather than only

appearing in total in the year that a disposal occurs.

There is a very thin line of margin between practising CA and

committing a financial fraud. Successfully PCA for a

consistently long duration may encourage practitioners' to take

the next step ahead and enter into the world of frauds.

Therefore, it is essential to alertly detect and prevent such

practises. We propose a three pronged approach to deal with

CAP to achieve transparency and trustworthy financial

reporting. It is only with combined efforts of the Government,

Professional bodies and the Management of the organisation

that a near full-proof environment ensuring that CA is not

implemented can be developed.

5. Timing of Genuine Transactions:

6. Three Pronged Approach:

Figure 3: Three Pronged Approach


i. Government and Regulatory bodies must try and

limit the choice and options made available to the organisations

for valuation processes and tighten the disclosure requirements.

A bad accounting policy can devastate a company, as the cases of

Enron, WorldCom, and Satyam have shown. By being proactive

regulatory body SEBI did investors a favour by making it

mandatory for listed companies to announce fourth quarter

results along with audited annual results. Some companies had

been conveniently filing only annual results, and not fourth

quarter results - an unhealthy practice that makes it harder for

investors to gauge quarter-to-quarter performance.

ii. Professional bodies imparting education must lay

heavy weightage on the importance of following the ethical code

of conduct within the accounting profession. This approach

shall strengthen the ethical bend of young professionals.

Professional bodies of Chartered Accountants must train their

auditors to have a sharp eye in reading the financial statements

for detection of techniques of CA implemented. The legally

permissible route of deceitfully recording transaction is to

obtain the high court's permission. This route can be drastically

narrowed if the High Court refuses to grant permissions until it

receives a detailed report and a green signal from the team of

auditors.

iii. From the Company's management, the internal

control system of the company must be so designed that it

automatically reduces the scope of implementing CA. The

pressure from Top Level Management to have favourable

balance sheets must not exists/or not be allowed to penetrate

down the employees which is one of the major factors inducing

the use of CA.

The corporate culture plays a major role in shaping the mind-set

of the employees. The culture must be loud and clear about its

stand on practising these techniques.

Conclusion:

The deadly combination of the complex and diverse nature of

the business transactions along with the latitude available in the

accounting standards make it difficult to handle the issue of

creative accounting. Creative accounting practises are not

always wrong. It is the intent and magnitude of disclosures

which determine its true nature and justification.

Creative Accounting respects the words of Law and Accounting

Standards but not their spirit. Fight against Creative

Accounting is actually a fight for true and fair view of the

company's state of affairs and for this the accountants should

pledge to perform without fear and favour.

Since creative accounting techniques are often operated on the

threshold of frauds, there is a risk of them extending to a degree

wherein they become accounting frauds.

To conclude we suggest that creative and fraudulent accounting

can be reduced by:

ü Introducing forensic accounting for white collar fraud

detection and fraud prevention;

ü Reducing the alternative choices of accounting

treatment in accounting standards;

ü Enhancing the quality of corporate governance;

ü Enforcing strong regulation, and

ü Increasing the effectiveness of audit.

When times are good people steal, when times are bad, people

steal more!

Refrences:1. Adhikari, A. (2011, September 18). Camouflage accounting Edition: September 18, 2011. Business Today. Retrieved from http://businesstoday.intoday.in/story/india-accounting-

standards-auditors/1/18354.html

2. Amat, O., & Gowthorpe, C. (n.d.). Creative Accounting: Nature, Incidence and Ethical Issues. Journal of Economic Literature.

3. Dr.Bhasin, M. (2013). CORPORATE ACCOUNTING SCANDAL AT SATYAM: a CASE STUDY OF INDIA'S ENRON. European Journal of Business and Social Sciences, Vol. 1(No. 12), p p 25–47.

4. Gherai1, D. S., & Balaciu2, D. E. (2011). FROM CREATIVE ACCOUNTING PRACTICES AND ENRON PHENOMENON TO THE CURRENT FINANCIAL CRISIS. Annales Universitatis Apulensis Series Oeconomica, 1(13).

5. Idris, A. A., Kehinde, J. S., Ajemunigbohun, S. S. A., & Gabriel, J. M. O. (2012). THE NATURE, TECHNIQUES AND PREVENTION OF CREATIVE ACCOUNTING: EMPIRICAL EVIDENCE FROM NIGERIA. eCanadian Journal of Accounting and Finance, 1(1), Pp.26–31.

6. Madumere, I., & Harcourt, P. (2013). Forensic Accounting: a Relief to Corporate Fraud. Research Journal of Finance and Accounting, Vol.4(No.14), 43.

7. Mathews, A. C. (2013, March 14). Accounting Jugglery - Companies are being creative with numbers to suit their purposes. Is anyone looking? Business World. Retrieved from http://www.businessworld.in/news/finance/markets/accounting-jugglery/806030/page-1.html

8. OKOYE, E. . ., & ALAO, B. B. (2008). THE ETHIOS OF OREATIVE ACCOUNTING IN FINANCIAL REPORTING:THE Challenges OF REGULATORY AGENCIES IN NIGERIA. The Certified National Accountant, VOLUME 16(NO.1).

9. SABÃU, L. I. (n.d.). CREATIVE ACCOUNTING - THE RESULT OF PRESSURES FROM USERS, 636–641.

10. Sanusi, Z. M., & Mat-Isa, Y. (n.d.). Creative Accounting: Auditors' Roles in the Detection of Financial Fraud. Q Finance. Retrieved from http://www.qfinance.com

11. Shah, S. Z. A., & Tariq, Y. B. (2011). Use or Abuse of Creative Accounting Techniques. International Journal of Trade, Economics and Finance, Vol. 2(No. 6).

12. Yadav, B. (2013). Creative Accounting: A Literature Review. The Standard International Journals, Vol. 1(No. 5), 181–193.

13. Moldovan, R. L., Achim, S. A., & Bota-Avram, C. (2010). Fighting The Enemy Of Fair View Principle–Getting To Know Creative Accounting. Scientific Annals of the “Alexandru Ioan Cuza” University of Iasi, Economic Sciences Section, Special Issue, 52-55.

14. Jones, M. J. (2010). Creative Accounting, Fraud and International Accounting Scandals. John Wiley & Sons.



A Study on Rural Youth's Shopping Preferences towards Mobile Phones and Personal Computers

Kavitha R Gowda* Dr.Soney Mathews**

*Research Scholar, Jain University, Asst. Professor, Centre For Management Studies Business School, Bangalore, [email protected], 9845511074

**Ex-HOD Centre For Management Studies, Jain University, Associate Professor, Faculty of Business Communication and Law, INTI International University-

Laureate International University, Malaysia, [email protected], 8861116710

ABSTRACT

1. INTRODUCTION:

A major portion of India that lives in villages has undergone a

remarkable incremental change in many areas like, improved

literacy rates, infrastructure, transportation, increased

industrialization, reformed government policies to enhance

status and livelihood of villagers. As a result of this, even

villager's purchasing power has increased, which can be noticed

from success stories of FMCG providers for the target rural

market. With many technological innovations that have been

noticed in the mobile manufacturer and service provider and a

need for computer in urban areas, rural youth is not an

exception. This study is an attempt to understand the need for

computer and mobile phones in rural youth and thus conclude

on prospective market for the shopping goods.

Government agencies from IRDA & NCAER define 'Rural' as

“a village with a population of less than 5,000 with 75% of the

male population engaged in agriculture etc.”1

The Census of India defines any habitation with a population

density less than 400 per sq.km, where at least 75 per cent of

male working population is engaged in agriculture and where

there exists no municipality or board, as a rural habitation.

Keywords: Mobile Phones, Personal computer, Purchase decision,

Rural market, Youth market.

The rural consumer is evolving from the poverty-stricken,

illiterate stereotype, with a fear of change and reluctance to

spend. Today's rural consumer is value driven. A product is

worth purchasing if it enhances his life in a meaningful way.

Either it should add to his earning capability or it should

enhance his status (like readymade clothing). Literacy is rising,

and exposure to the same commercials as urban consumers has

created a demand for typically urban products and services.

Villagers are willing to adopt new products or services if they can

clearly see the benefits that accrue. Better road infrastructure

has led to increased mobility; with people travelling, more often

further a field in search of entertainment in the form of cinema,

and not just for visiting family or pilgrimages.

The change has been greatest amongst the rural youth. They are

most educated and most savvy of all rural consumers, emulating

their urban cousins and demanding the same high quality in the

products and services they require. They are the key drivers for

expenditure on two wheelers, computers, personal care items

and education in rural areas, leading to an improved quality of

life.

A survey by the National Council for Applied Economic

Research (NCAER), India's premier economic research entity,

recently confirmed that rise in rural incomes is keeping pace

with urban incomes. From 55 to 58 per cent of the average


urban income in 1994-95, the average rural income has gone up

to 63 to 64 per cent by 2001-02 and touched almost 66 per cent

in 2004-05. The rural middle class is growing at 12 per cent

against the 13 per cent growth of its urban counter- part. The

rural consumers search for value in their products as well. As

described by Adi Godrej, Chairman, Godrej Group “the rural

consumer is discerning and the rural market is vibrant. At the

current growth, it will soon outstrip the urban market. The rural

market is no longer sleeping but we are”.

Rural incomes are growing, and consumers are buying

discretionary goods and lifestyle products, including mobile

phones, television sets and two-wheelers.

In 2009, the number of subscribers for mobile services across

the country has increased to 391.76 million in the quarter

ended March 2009, up by 50 percent from 261 million in the

same quarter last year, according to TRAI data.

However, competition and tariff cuts have brought down the

average revenue per user, S.K. Gupta, advisor at TRAI, said on

Tuesday. ARPU has been going down in India since 2003.

Indian mobile service providers are focusing on value added

services, including applications to boost revenue, Gartner's

Bhatia said.

2.1 In a study conducted by Shashi Prabha Singh, 2005, it is

observed that the information and communication has a vital

role to educate Indians in various territories to become an

information society. According to Cawkell (1987, p. 2), an

information society can be defined as a society in which

ultimately most of the people are engaged in “brain work” rather

than “physical work”. In such society, more attention is paid on

information activities (such as acquisition, processing,

generation, recording, transmission, dissemination and

management of information) and more expenditure is incurred

on information. This study further stated the importance of

information in cellular services as an opportunity to be

connected. This research study is focussed more on the need for

ICT to be called as a developed India with the co-operation and

involvement of government of India, but is not focussed

particularly on rural market.

2.2 Pradip Thomas, 2007, in his paper titled; Telecom musings:

public service issues in India, has suggested that in India access

2. LITERATURE REVIEW

and affordability are the important words that define the

provision of ensuring a ''phone in each village''. The availability

of mobile phone would cut the role of middlemen and

gatekeepers so that villagers or farmers can enjoy a better

earnings, computerization as a tool to eliminate corruption and

thus connecting urban-rural India at better pace of

development in many areas.

2.3 Mahavir Sehrawet and Subhash C. Kundu, 2007, in their

study titled: Buying behaviour of rural and urban consumers in

India suggested that rural and urban consumers vary

significantly in various aspects of packaging. The rural

consumers have a stronger opinion on packaging, say better the

packaging, better the quality of the product although they give

less importance to labelling. This study was carried with just one

aspect of product, say packaging which is beneficial to my

current study on 4Ps for rural area with reference to marketing

mix.

2.4 From the study conducted by Jamie Anderson based on

interview with Gurdeep Singh, Operations Director, UP, Hutch

India, in 2008, paper titled “Developing a route to market

strategy for mobile communications in rural India”, suggested

that managers need to go beyond traditional approaches to

serving the rural market in India. Jamie, based on the interview

of Gurdeep Singh further suggested that higher the population,

higher the business.

Primary objective: to understand the need and preference for

mobile phone and personal computer in rural youth.

Secondary objectives:

> To understand the need and preference for mobile

phones in rural youth.

> To analyse the need and preference for personal

computers in rural youth.

> To suggest the marketers for future growth in rural

market.

This study was conducted in Araleri village during September

2014, Malur Taluk, Kolar District, Karnataka, with the objective

of exploring the dynamics of youth buyer behavior towards

mobile phone.

3. OBJECTIVES OF THE STUDY:

4. RESEARCH METHODOLOGY:



The study was conducted through sample survey using

structured questionnaire/scheduling supported by interview

technique and observation.

Malur is at a distance of 43 km from Bangalore City. The places

near Malur are Whitefield, Hoskote, Hosur etc. As of 2001

India census, Malur had a population of 27,791. Males

constitute 51% of the population and females 49%. Malur has

an average literacy rate of 67%, higher than the national average

of 59.5%: male literacy is 73%, and female literacy is 61%. In

Malur, 13% of the population is under 6 years of age. The

economy of Malur is primarily dependent on agriculture,

famous for clay tile-and-brick industry and some small scale

industries. Araleri is a target village around 7 kms from Malur.

To select the samples, a non-probability sampling technique was

used. Non-probability sampling is also known by different

names such as deliberate sampling, purposive sampling and

judgement sampling. In this sampling, items for the sample are

selected deliberately by the researcher; his/her choice

concerning the items remains supreme (Kothari2011:59).i.e.,

the small mass that is chosen will be a typical representative of

the whole. The respondents for the questionnaire were selected

from Araleri village with two different age group, but preferably

youth. Educated or uneducated, married or unmarried were not

the main focus but youth with purchase preference for shopping

goods were considered. The population of Araleri Village is

approximately around 2000, with youth totalling to around

250.

4.3 Sample Size: respondent size of 86 between the age

group 25-34 yrs was considered.

There are several ways of collecting data, particularly in

surveys and descriptive researches. Important ones being:

observation method, through questionnaire, schedules, pantry

audits, mechanical devices, depth interviews, and few more.

With reference to the research objectives, the data was collected

with the help of a structured questionnaire. A questionnaire

comprises of several questions printed or typed in a particular

form supporting the objectives of the research study. It helps in

collecting the qualitative response also.

4.1 Research sight:

4.2 RESEARCH POPULATION AND SAMPLING

4.4 DATA COLLECTION

Sources of data

5. ANALYSIS AND FINDINGS

5.1) To know the occupation of the respondents

5.1 Interpretation:

This study has utilized data from both the primary and

secondary source.

> The primary data was collected by interviewing rural

youth with the help of questionnaire. A sample size of

approximately 123 was considered for the study, of which only

86 belonged to the age group of 25-34 yrs was considered. The

research was conducted on 25-34 yrs, preferably youth with the

focus on few shopping goods, under personal use; personal

computer and mobile phones was considered.

> Secondary data: Since the study is focused at rural

consumers, also due to the availability of several research studies

conducted on rural consumers, several journals have been

referred for finalizing the topic and framing of hypothesis.

A total population of 123 was surveyed, out of which 86

belonged to the age group under study.

With reference to the objectives under study, it becomes very

important to know rural youth, their awareness on mobile

phones and personal computer, its importance in their life and

their willingness to purchase them/own them and thus

concluding if the rural market is open to buy mobile phones and

personal computer, thus a potential market for shopping goods

under study.

This research was conducted for bigger size with chi square test

as a research scholar. For the journal, the analysis(250 pages)

would have been too big, thus, a simple average method for the

topic related to original research was considered.

Table 5.1: Occupation of respondents

> 57% of the respondents in this age group surveyed

were students while 43% were married and housewife/home

Respondent Response

Student 49

Married and House wife

37

Total

86


maker.

5.1 Inference:

> Good percentage of students and women were

surveyed.

5.2) To know the family income of the respondents

Table 5.2: Income per Month

> 57 on 86, i.e., 66% have monthly income between

Rs.5,001 to Rs.8,000., while 43% have monthly income

between Rs.8,000 to 11,000.

5.2 Inference:

> Few of the respondents own Nilgiri plantation, few

mango plantation, few own cows/livestock . Nilgiri plantation

which is cut after a minimum period of time fetches them lakhs

together, selling cow's milk fetched good money, while few of

them worked in brick and tiles factory near to the village. Thus,

any of the above income category, is a potential rural

respondent.

5.3) To know if mobile phones and personal computers were

possessed by rural respondents.

Table 5.3:Ownership of mobile phone and personal

computers

Income per

month

Respondents

Rs.5,001 – 8,000 57

Rs.8,001-11,000 29

Total 86

5.3. Interpretation:

> 100% of respondents own a mobile phone, while

none own a personal computer

5.3. Inference:

> The above table shows that all own a mobile phone

and none owns a personal computer.

5.4) To know the reasons for using mobile phones and

computers:

Table 5.4: reasons for using a mobile phone

5.4 Interpretation:

> It can be noticed that only 3.5% of the respondents

use the phone for education purpose, 3.5% for internet, while

the rest use it for basic purpose like sms, receiving/making calls

and capture images.

5.4 Inference:

> Since only 7% use for education and internet, it can

be noticed that respondents do not have exposure to other

useful benefits like knowing about what is happening in the

world, to be in par with the urban youth.

> Marketers should educate the respondents about the

online market, online complaints, and many more advantages

for using mobile phones in a much more better way. This could

be value added service and hence the potential market for

smartphones.

5.5) To know the kind of brand of mobile phones possessed

(not applicable to computers since none owns it).

Table 5.5: Brand of mobile phones possessed.



Mobile

Brand

Number of

respondents

Mobile Brand Number of

respondents

Samsung

8

Lava

13

Nokia

23

Micromax

7

Karbonn

29

Others

6

Total 86

5.5 Interpretation:

> 34% own Karbonn, 27% own Nokia,15% own Lava,

9% own Samsung, 8% own Micromax, while the rest 7% own

other brands.

5.5 Inference:

> It can be noticed that Karbonn sells the most followed

by Nokia, Lava, Samsung and Micromax and a few of the rest of

the brands.

> Karbonn smart phones are priced relatively low, and

hence sells most in rural market.

> Nokia being a customized product having lifetools

sells due this fact in rural market.

5.6) Criteria for owning a mobile phone:

Table 5.6: criteria for choosing a mobile phone:

5.6 Interpretation:

69% preferred mobiles based on price.

10% preferred mobiles based on brand.

21% preferred mobile phones based on both options.

5.6 Inference:

The youth belonging to this category, preferred buying mobile

phone based on price more than a brand. Thus, they were price

sensitive.

Criteria No. of respondents

Based on Brand 9

Based on Price 59

Both Brand and

Price

18

Total

86

5.7.a) To know the price of the mobile phones possessed by

the respondents?

Table 5.7.a: to know the price of the mobile phones

5.7.a Interpretation: 31% had mobile phones between the

price Rs.2,001 to Rs,3,000, 21% had mobile phone priced

between Rs.3,001 to Rs.4,000, 21% owned mobile phone

priced between Rs.4,001 to Rs.5,000,10% owned mobile phone

between Rs.5,001 to Rs.6,000. 8% owned between Rs.6,001 to

Rs.7,000, while the rest owned mobile phone above Rs.7,000.

5.7. a Inference: For marketers selling mobiles, Araleri is a very

potential market, since the minimum affordability itself is

between Rs.2,000 to Rs,3000. Since many respondents have

mobile phone priced between Rs.3,001 to Rs.5,000, it would

not be difficult to sell smartphones with customized features for

this market.

5.7.b How much satisfied are you about your mobile phone?

Table 5.7.b: Satisfaction level of respondents on existing

mobile phones.

5.7.c To understand the preference in mobile phone due to

dissatisfaction in the existing mobile phone .

Table 5.7.c: Preference due to dissatisfaction of existing

mobile phone.

Price Range No. of

respondents

No. of

respond

ents

Between

Rs.2,001-3,000

27 Between Rs.5,001-6,000 9

BetweenRs.3,00

1– 4,000

18 BetweenRs.6001-Rs.7,000 7

Between

Rs.4,001-5,000

18 Above Rs.7,000 7

Total 86

Degree of satisfaction No. of respondents

Extremely satisfied 10

Very much satisfied 50

Satisfied 12

Not very much

satisfied

14

Total

86


5.7.d To understand the source of awareness and major

influencer in decision-making amongst target market

Table 5.7.d: To understand source of awareness and

influencer in decision-making.

About personal computers in continuation with the 5.3 and

5.4 observations:

5.8) To understand if the respondents wish to have a personal

computer.

Table 5.8: If you do not own a personal computer, would you

wish to have one?

5.8 Interpretation: 16% wished to have a personal computer at

home.

5.8 Inference: this village under study, Araleri, can be a

prospective market for computers. It can be also noticed that in

villages, WOM acts as a biggest influencer. If the few who buy,

are satisfied, that may generate more sales.

5.9 To understand the reason for not having a PC in spite of

wishing to have one.

Table 5.9: Hurdles in having a computer at home.

Preference in

mobile phone

No. of respondents Preference in mobile

phone

No. of respondents

Samsung

10

Nokia ----

Lava

----

Karbonn ----

Micromax

----

others ----

Preference to own a

computer

Yes 14

No

72

5.9 Interpretation: 100% of the respondents gave the reason to

be no encouragement and unconvinced parents to buy a

computer.

5.9 Inference: if awareness is created by the manufacturer of

personal computers through awareness programmes in schools

and colleges, supported by teachers/faculties, computers can

probably be sold in this village.

5.10) To understand if respondents are willing to buy a better

mobile phone or a computer on EMI.

Table 5.10: Response to EMI option

5.10 Interpretation:

> 12% of the total respondents were open to the EMI

option

> 57% on a total of 14 who wished to have a computer

were open to EMI option.

5.10 Inference:

> In spite of possessing a mobile phone few were willing

to have a different one with EMI option. This indicates that

rural market is prospective market for smartphones.

> Even if the demand for computers is comparatively

lesser when compared to the demand for mobile phones, it can

be inferred that through WOM, marketers can benefit if EMI

option is provided.

6. CONCLUSION AND RECOMMENDATIONS:

Araleri is a village rich in power supply compared to many

villages. Since it is just 7 Kms away and well connected by road

from Malur, transportation for marketers will not be a problem.

From the above ten tables we can conclude that:

> All had mobile phones.



> Rural youth is price sensitive, since a majority prefer

spending Rs.2,000 – Rs.3000 on mobile phones. Thus, price

can be considered as a factor influencing purchase decision-

making.

> Most of them had Karbonn, 69% preferred buying a

mobile phone based on price, rest based on price and brand as

well.

> 31% had mobile in the range Rs.2,000 to Rs.3,000,

21% had between the price Rs.3,001 to Rs.4,000, 21% between

Rs.4,001 to Rs.5,000, 10% had between Rs.5,001 to

rs.6,000,8% between Rs.6,001 to rs.7,000, and few above

Rs.7,000. The statistics show that it is a potential market for

smartphones for this age group.

> Since from the table 5.10, it is clear that EMI options

acceptable among rural youth, marketers can customize the

features in the mobile phones and computers to price between

Rs.4, 000 to Rs.6, 000 and Rs.15,000 respectively. EMI options

can also be customized for phones and computers.

· Few from the age group 25-34 yrs preferred owning a

computer. May be due to parents in this category, for the

children's education they were prepared to buy a computer.

RECOMMENDATIONS:

Advantages to marketers:

> Since Malur has literacy rate 67% higher than

national average according to 2001statistics, Araleri being closer

to it, with both the segments showing students (and many were

educated) rate high, will be an effective market to design

promotion mix.

> Well-connected roads.

> Good electric/power supply

> Many factories like tiles, brick, fabrication,

engineering are located in Malur to which many from Araleri

travel to work, thus is an indicator for purchasing /disposable

income. Malur also has Honda and Volvo plant in Malur taluk,

providing employment to many and opportunities for ancillary

industries/entrepreneur.

Recommendations based on research findings:

> Since Araleri is a potential market for mobile phones,

incorporating value added services to the mobile phones and

helping them use it better through retailers or through self-help

easy procedure in mobile phone, can generate good sales.

> Mobile phones designed for 25-34 yrs will be more

productive since all 100% had mobile phones and wished to go

for buying Samsung due to its benefits. Due to the presence of

too many retailers (from observation)selling mobile phones in

Malur , the retailers can be encouraged to sell more by offering

good commission to the retailers and training to their

salesperson. Since entire population was not covered in the

research, due to the observation it can be predicted to be a

prospective market for mobile phones.

> Parents of India being more concerned about their

children's future and wellbeing can be focused by marketers to

sell more of computers. Since institutions have computers,

companies should tie up with schools/colleges/government to

create awareness of computer and internet connectivity. They

can convince the schools/colleges to provide their center as a

venue to conduct a training programme to show the benefits to

be connected to external world and thus create empowerment.

Educating on computer with internet benefits can be taken as a

CSR initiative also.

> Previous studies carried out in various parts of Indian

rural markets have addressed in common the following:

o Rural market is price sensitive

o They also prefer brands with the kind of affordability

they have

o They are influenced through relatives, friends and

neighbor

The same was noticed in Araleri. India may vary in geography,

socio-cultural reasons, but are finally the same on above lines.

Thus, due to the need for mobile phones and personal

computers existing in Araleri, it can be suggested for marketers

to have customized marketing mix programme to enhance retail

opportunities for shopping goods.

7. LIMITATIONS

> Even when a questionnaire was constructed in

Kannada, all the respondents opted to answer verbally.

> Had to spend 15 minutes per respondent while

collecting data thus time consuming.


> 3 to 4 days was spent in travelling and reaching

respondents.

> Few were asked questions through telephone, thus

lack of observations.

> Few of them showed fear while answering

> Questionnaire being too long, taking photocopies of

it was expensive.

> Since one village was considered, the response may

not be valid for entire Kolar District.

8. RESEARCH GAP:

> The study can be further carried out to the entire rural

population or can be categorized into different age group for

overall or better understanding of the respondents.

> The study can further be carried out for different

products under shopping goods.

> The study can further be carried out at different

villages in the same district and the state for further customizing

marketing mix for Karnataka region.

6. REFERENCES:

1. Jamie Anderson, (2008), “Developing a route to market strategy for mobile communications in rural India”, International Journal of Emerging

Markets Vol. 3 No. 4, 2008 pp. 339-347 q Emerald Group Publishing Limited.

2. Sushil Vachani, and N. Craig Smith, 2008, University of California, Berkeley vol. 50, no. 2 winter , cmr.berkeley.edu.

http://www.pcworld.com/article/168354/article.html

3. ,India's Rural Mobile Phone Users Hit 100 Million, Jul 13, 2009 10:50 PM

4. Ajith Paninchukunnath, (2010), “3P framework: Rural Marketing in India”, SCMS Journal of Indian Management, January – March.

5. 6. Praveen K. Kopalle, Donald R. Lehmann, John U. Farley, 2010, Consumer expectations and culture: the effect of belief in karma in India, Journal

of consumer research, vol. 37, august 2010

7. Rajesh K. Aithal, 2011, Marketing channel length in rural India, Influence of the external environment and rural retailer buyer behaviour,

International Journal of Retail & Distribution Management Vol. 40 No. 3, 2012

8. C. Samuel Craig and Susan P. Douglas, (2011), “Empowering rural consumers in emerging markets”, International Journal of Emerging Markets ,

Vol. 6 No. 4,

9. Falguni Vasavada-Oza, Aparna Nagraj and Yamini Krishna(2012) , “Marketing to Rural Women: How Various Leading Brands Are Doing It?”

The IUP Journal of Brand Management, Vol. IX, No. 2.

10. Ali, Thumiki and Khan,2012,Factors Influencing Purchase of FMCG by Rural Consumers in South India, International Journal of Business

Research and Development, ISSN 1929- 0977 Vol. 1 No. 1, pp. 48- 57 , 2012

11. Dr.Ashfaque Ahmed, (2013), “Rural Marketing Strategies for Selling Products & Services:Issues & Challenges” , Journal of Business

Management & Social Sciences Research, Volume 2, No.1, January. http://www.assocham.org

12. Sunday, January 27, 2013, With rural push, FMCG sector set to witness robust growth, says ASSOCHAM EcoPulsestudy .

http://www.rediff.com/money/report/indias-rural-markets-are-a-powerful-economic-engine/20130711.htm

13. India's rural markets are a powerful economic engine', July 11, 2013

http://www.ibef.org/industry/indian-rural-market.aspx

14. Indian Rural Market, IBEF, November 2013

15. 1 http://www.bms.co.in/rural-marketing-notes/,4th June 2014.



Use of Social Networking Websites as an Emerging Marcom Tool

Charu Bharti*

*Research Scholar, Haryana School of Business, Guru Jambheshwar University of Science and Technology, Hissar, Haryana. [email protected]

Keywords: Marcom (Marketing Communication), Promotion,

Social Networking Websites (SNWs)

ABSTRACT

It is no exaggeration to say that that marketing is undergoing a

paradigm shift, in large part, to the Internet and social media

and social networks. The evidence is everywhere, for example,

many consumers no longer look up items in the Yellow pages;

they search for them on the Internet.

Using Social Networking Websites, as marketing tool, is more

than just marketing because it includes requires the

development of relationships based on shared interests.

We are still in early stages of the transformation social media

and social networking is having on marketing. Traditional

marketing is undergoing a transformation due, in large part, to

the Internet and social networks and social media.

While social networking has gone on almost as long as societies

themselves have existed, the unparalleled potential of the

Internet to promote such connections is only now being fully

recognized and exploited, through Web-based groups

established for that purpose.

With two thirds of the world's internet population visiting a

social network or blogging website, and the sector now

accounting for over 10% of all internet time, websites such as

Facebook, LinkedIn and Twitter are channels that marketers

can really tap into.

Social networking can be an excellent way to acquire new

customers and retain existing ones. The real value is the way

marketers can engage with their audience on a personal level.

Instead of simply 'sell sell sell', social networking is about the

kind of two-way communication which helps to build a long

term relationship. Of course, this form of interaction may not

be suitable for all brands, but many organizations are benefiting

from making their brand more personable.

This Paper analyses the opinion of potential consumer who are

the internet users, on their attitude towards Social Networking

Websites (SNWs) to be used as a Marcom tool (Marketing

Communication tool). As the SNWs are the upcoming

platforms that people have started using, to build networks.

How can the marketers take the use of these Internet based

platforms, as the tool for 'Customer engagement, viral

marketing, Word of the mouth promotion, etc'.

The Study is based on Survey conducted where the opinions of

the “Internet users” have been collected, with a Sample Size of

approx. 300, using 'Questionnaire' as a Research Tool. The

Findings are expected to give the conclusion for the marketers,

to look the SNWs as an emerging marcom platform. The

recommendations have been given on the basis of Findings.

A survey commissioned by the American Marketing

Association reveals a positive outlook for likelihood of e-

commerce on social networking sites, in that 47% of consumers

said they would visit social networking sites to search for and

discuss holiday gift ideas, and 29% said they would buy

products there (Horovitz 2006).

Social networks have geared up to provide shopping services.

Facebook added a shopping application that enables users to

search for products they want to buy, and then share their

opinions of those products with other Facebook members

(Forbes 2007).

It is no exaggeration to say that that marketing is undergoing a

paradigm shift, in large part, to the Internet and social media

and social networks. The evidence is everywhere, for example,

many consumers no longer look up items in the Yellow pages;

they search for them on the Internet.

“Social Network Marketing is the use of social media software to

create or maintain connections.”

INTRODUCTION



It is more than just marketing because it includes requires the

development of relationships based on shared interests.

“Social network marketing is the practice of expanding the

number of one's business and/or social contacts by making

connections through individuals.”

It can be undoubtedly said that the Social Media are the

emerging tool for an effective marketing. It has been rightly said

by Matt Dickman, that “Social media is not an island.

It's a high-power engine on the larger marketing ship.”

A c c o r d i n g t o t h e r e c e n t r e s e a r c h b y

www.internetworldstats.com, the total numbers of users on

Facebook, as on June 30, 2011, worldwide are 6,930,055,154,

with a penetration of 10.3%. That is a huge figure. Ready-to-

consume free information in the form of age, likes, email, is

available before the marketer. However, thinking out-of-the box

requires, for leaving a trail of the so-called Word-of-mouth

promotion i.e. the Viral part of the marketing. For instance the

song “Why this Kolaveri Di.”, is the recent example of effective

social media marketing. The Kolaveri number has taken in

people, especially youngsters and though they do not know the

exact meaning and whether they follow the lyrics (which the

promoters of the Video have done in scrolls in English)...the

number is on the lips of all these youngsters and that speaks

volume of its acceptance amongst youngsters converging from

different states. Yes, it is the Viral part that help spread the

leaked video like anything, with the help of Social Media like

Youtube & Facebook.

Social Networking Sites are emerging as a boom for the

marketers. It is being used as an innovative marketing strategy.

Social media has become a platform that is easily accessible to

anyone with internet access, opening doors for organizations to

increase their brand awareness and facilitate conversations with

the customer. Therefore, the Social networking sites, not

initially formed with these objectives, would help marketers to

achieve objectives like better customer understanding,

knowledge sharing, informing about and promoting products.

Social networks and social media are part of a phenomenon that

is changing the way we communicate with our members and

potential members. Consumers are using online tools to take

charge of their own experience and connect with others. They

are using blogs, wikis, pod casts and YouTube, to name only a

few. The real value is the way marketers can engage with their

audience on a personal level. Instead of simply 'sell sell sell',

social networking is about the kind of two-way communication

which helps to build a long term relationship. Of course, this

form of interaction may not be suitable for all brands, but many

organizations are benefiting from making their brand more

personable. Social networking is opening up exciting new ways

of communicating with audiences; like some marketers like

Make my Trip, Yatra etc., have recently used Twitter in

conjunction with their website to document their clients' travels

to many domestic and foreign locations, and gained many new

fans/followers along the way. There is no doubt that the further

development could be seen in this arena in the near future, and

it would be surprising to see just how much of a benefit social

networking can be to so many organizations.

“A study without objectives is like a tree without roots”. In any

area of study, the first and the foremost task is to define the

objectives of the research i.e. the reason why the research study

need to be conducted.

A research study may have many objectives but all these

objectives revolve around one major objective which is the focus

of the study. In this study, the focus is the use of the Social

Networking Websites (SNWs) as a marketing tool.

The Social networking is an innovative marketing tool which is

being adopted by so many marketers now-a-days. And so this

study will be based on studying the emergence of Social

Networking Sites as an efficient marketing tool.

The following are the objectives of this research study:-

1. To study the use of the Social Networking Sites as an

innovative marketing strategy.

2. To study the reactions of potential customers about

marketing through SNWs

3. Review of Literature

Research suggests that consumers rely on two different sets of

values in making their shopping decisions: hedonic and

utilitarian (Babin and Darden 1995; Babin, Darden, and

Griffin 1994). Batra and Ahtola (1990) define these values as

follows: "(1) consummatory affective (hedonic) gratification

from sensory attributes, and (2) instrumental, utilitarian

reasons.”

Online shopping services lack multisensory attributes. The

2. Objectives of the study


Table 5.1 Chart 5.1

5.2. Do you have a profile on any Social Networking Website(SNW)?

Table 5.2Chart 5.2

primary utilitarian values that online shoppers seek include the

convenience of locating and comparing merchants, evaluating

price/quality ratios, and conserving temporal and psychological

resources (Grewal et al. 2003; Mathwick, Malhotra, and Rigdon

2001).

Godes and Mayzlin (2004) suggest that online conversations

(e.g., Usenet posts) can offer an easy and cost-effective way to

measure Word of Mouth. Online conversations offer the firm

an attractive opportunity to learn about its environment by

directly observing the flow of interpersonal communication. By

looking at activity across different online communities, firms

are able to infer measures of social structure.

Online social networks are platforms, which allow individuals

to connect and communicate with others with common

interests termed as friends (Boyd and Ellison, 2007). According

to Urstadt (2008), social networking is the fastest growing

activities on the new user centered Internet, Web2.0, which has

spread to sites of all sizes, and are increasingly intertwined as

platforms open.

A recent US study (Corporate Executive Board, 2008)

categorized five key objectives of social networking strategies,

namely (i) improve customer understanding, (ii) promote issues

of social concern, (iii) promote products and services, (iv)

facilitate internal knowledge sharing, and (v) increase brand

awareness. Leading companies such as Unilever, Xerox, P&G,

Virgin, Toyota, JP Morgan, CISCO, IBM, Burger King and

Honda had successfully utilized social networking websites.

Michael Trusov, Randolph E. Bucklin, & Koen Pauwels (2009)

explained that …Because social network sites record the

electronic invitations from existing members, outbound Word

of Mouth can be precisely tracked. Along with traditional

marketing, Word of Mouth can then be linked to the number of

new members subsequently joining the site (sign-ups).

4. Research Methodology

4.1 Research Design of the study

4.1.1 Data Sources:

o Primary Data Sources : The primary data i.e. the first

hand data was collected from the people who are the member of

one or more Social Networking Website(SNW).

o Secondary Data Sources : The second hand data was

collected from the sources like Books, Journal, Newspapers,

Internet, discussions, etc.

4.1.2 Research Approach: The Research study was

'Exploratory' in nature. The study was based on taking out

insights and ideas into the problem i.e. analyzing the marketing

opportunities on the social networking sites.

4.1.3 Data Collection Tools : The tool that was used for the

data collection was Structured Questionnaire

4.2 Sample Design of the study

The Sample design include the decision of the sample i.e. the

respondents who represent the whole population. The Sample

Design included:

4.2.1 Sample Unit : The sample units were the people who

are the members of one or more Social Networking Websites

like Facebook, Tweeter, LinkedIn, etc.

4.2.2 Sample Size : The Sample Size for this research study

comprised of 300 respondents.

4.2.3 Sample Area : The data was collected from the Delhi

and NCR regions, in India.

4.2.4 Sample Technique : The respondents were selected on

the basis of Probability Sampling technique i.e. Random

Sampling.

5. Analysis

The following is the analysis of the data collected from 300

respondents:-

5.1. Are you aware of any websites where you can make friends

and socialize (Social Network Websites)? A



5.3. How long have you been using the SNW?

Table 5.3Chart 5.3

5.4. Have you ever used SNWs for searching an Internship or Job?

Table 5.4 Chart 5.4

5.5. How many hours do you spend weekly on the SNW?

Table 5.5 Chart 5.5

5.6. Which SNW(s) are you a member of?

Table 5.6 Chart 5.6

5.7. Kindly indicate what information have you included on

your Social Network websites?

Table 5.7 Chart 5.7

5.8. Do you believe companies save money by using SNWs to

market their products?

Table 5.8 Chart 5.8

5.9. Do you notice any offers/Advertisement for the Product/

Services on a SNW?

Table 5.9 Chart 5.9

5.10. Do you think that in this busy lifestyle, the information

received via advertisements on SNWs regarding the new offers

help you keep up-to-date?

Chart 5.10Table 5.10


5.11. Have you ever purchased any product after collecting the

information from any SNWs?

Table 5.11

5.12. If Yes, What category of product have you purchased ?

Table 5.12

5.13. Have you ever switch off from one brand to another after

being influenced by the number of “Likes” on a brand?

Table 5.13

5.14. Do you think SNWs are a good way of providing feedback

to the company regarding its product/service?

Table 5.14

5.15. Have you ever felt like your privacy was violated through

sharing information with marketers on SNWs?

Table 5.15

5.16. Have you ever recommended any specific brand to any

of your friends etc on SNWs?

Table 5.16

5.16. Have you ever recommended any specific brand to any

of your friends etc on SNWs?

Table 5.16

6. FINDINGS

After analyzing the collected data, the followings

interpretations can be made in the form of Findings:-

6.1 With advent in the internet revolution, more and

more number of people are coming into the access of the

same.

6.2 The number of members on various Social

Networking Sites is increasing at a very high pace, day by day.

6.3 2 % of the respondents have been accessing the

Social Networking Sites from 1-6 months, 37 % of the re

respondents have been accessing the Social Networking Sites

from 12-24 months, showing that this is a latest trend amongst

the people.

6.4 57 % of the respondents access the Social

Networking Sites 10-20 hours every week, showing that there

is a lot of time for the marketers to act.

6.5 90 % of the respondents are the members of

Facebook, 33% of them are the members on the YouTube,

67% of them are the members on the Linkedin and 77% of

them are the members on the Twitter, making them most

popular Social Networking Websites.

6.6 24 % of the respondents have searched for a

job/internship through any SNW, explaining the scope of

SNW for HR oriented companies like Recruitment Firms,

Consultancies, etc.

6.7 67 % of the respondents have mentioned their

Email ID, 26% have mentioned their Phone Numbers, 83%

have mentioned their Home Town/City, 38% have



mentioned their Music Interests, 22% have mentioned their

Favourite Movies, 33% have mentioned their interests in

Books, 77% have mentioned about their Passion areas, 20%

have mentioned their Favourite Sport, 29% have mentioned

their Interest Activities, 40% have mentioned their favourite

T.V. Shows, 76% have mentioned their relationship status and

50% of them have mentioned any other information, on their

respective Social Networking Sites.

6.8 63 % of the respondents believe that the companies

can save money by using SNWs as a marketing tool.

6.9 5 5 % o f t h e r e s p o n d e n t s n o t i c e a n y

offer/advertisement for any Product/Service that highlights on

their Social Network Website.

6.10 30 % of the respondents took purchase decision on

the basis of the information that they received on their Social

Network Website.

6.11 Out of 89 respondents(30 %) who purchased any

product after getting information from SNW, 13% (% of total

i.e. 300)purchased FMCG, 9% purchased Daily use item, 3%

purchased Jewellery, 1% purchased Insurance Policy, 2%

purchased Bank A/C, 2% purchased any other product

category item.

6.12 16 % of the respondents agree that they have switch

off from one brand to another after being influenced by the

number of “Likes” on a brand. Therefore, Information search

on SNW plays an important role in consumer decision-making

process.

6.13 74 % of the respondents think that SNWs are a good

way of providing feedback to the company regarding

product/service, stating it clear that SNW are a good source for

the marketers to get involved in to “Interactive Marketing”.

6.14 27% of the respondents agree that the advertisements

are an intrusion on their privacy.

6.15 61% of the respondents agree that due to their busy

lifestyle, advertising on Social Networking Sites can be useful to

them in gaining knowledge about interesting offerings, stating

it clear that SNW can be a good source specially in Urban areas,

where both husband-wife are working.

6.16 30 % of the respondents told that they had

recommended a brand to another person, for use, via SNW.

Therefore, SNWs are a good source of viral marketing &

publicity. The word-of-mouth promotion, which is considered

as the best source of promotion, can be held via SNWs.

7. RECOMMENDATIONS

Based on the findings, the following are my recommendations

to the marketers, who use or would like to use the Social

Networking Websites as a part of their marketing strategy, :-

7.1 The marketers should use Social Networking Sites as

the part of their marketing strategies, as using SNWs is a recent

trend amongst the people and more and more number of

people are coming into the access of the same.

7.2 There should be strategic planning that should be

made before advertising on the Social Networking Sites.

7.3 The users/members mention a large set of their

personal information and interests like Music, Passion,

Relationship Status, etc. So the marketer should use one-to-one

marketing in case of using Social Networking Sites as per the

interest areas of the member of the Site.

7.4 The marketer should create their own communities

in the name of their Brand or Business and attract the members

to join the same.

7.5 A huge quantum of time is being spent by the people

on the Social Networking Sites and so marketers should take

the advantage of the same.

7.6 Marketers' information or offerings etc. should not

prove to be an intrusion to the privacy of the people and so they

should be able to provide compact and relevant information.

7.7 Marketers also need to beware of cheting the

customers, as the communication via SNWs spreads very fast.

7.8 The Marketer should try to increase their online

presence on different SNWs, as the customer prefer it as a good

source of information, while taking a purchase decision.

7.9 The access to the information available on the Social

Networking Sites regarding the marketers' offerings should be

convenient and short on details.

7.10 The marketers can also create their own Blogs, Write-

ups, and communities etc. to communicate regarding their

offerings and also receive feedback.

7.11 The marketers should try to maintain healthy

Customer relationship with the help of Social Networking

Sites.

7.12 Social Networking Sites cost no or very less to the

marketers, but the marketers have to take proper utilization of

the huge opportunity available before them. So they have to

plan strategically and then act.

7.13 Social media strategies must target certain groups in

order for your plan to be successful. The question for your

business is how you manage all of your social media accounts.

You want to streamline, consolidate, and analyze your social

media marketing plan in the most efficient way possible.

Online businesses have originated over the past five years to do

just that.

7.14 With the rapid burgeoning of social media websites,

your business needs to find a way to consolidate social media

marketing efforts to save money and time. Engage Sciences has

developed a platform that allows your business to view

messages, comments, and post replies across all of your

Facebook and Twitter channels.


8. CONCLUSION

In conclusion, it can be said that the Today in the era of globalization and internet revolution, the marketing is undergoing a

paradigm shift from the conventional marketing practices to the online marketing practices.

Social Networking Sites are a boom for the marketers. It could be used as an innovative marketing strategy. SNWs have become the

platforms that are easily accessible to anyone with internet access, opening doors for organizations to increase their brand awareness

and facilitate conversations with the customer. Additionally, SNWs serves as a relatively inexpensive platform for organizations to

implement marketing campaigns. With two thirds of the world's internet population visiting a social network or blogging website,

the Word-of-mouth, which is considered the strongest promoter, is present in case of marketing innovatively through Social

Networking Sites. The Viral part of the SNWs make it more interesting for the marketers to use it as a marketing tool.

9. REFERENCES9.1 Babin, Barry J. and William R. Darden (1995), "Consumer Self Regulation in a Retail Environment," Journal of Retailing, 71 (1), 47-70.

9.2 Batra, Rajeev and Olli T. Ahtola (1990), "Measuring Hedonic and Utilitarian Sources of Consumer Attitudes," Marketing Letters, 2 (2),159-170

9.3 Boyd, D. M., & Ellison, N. B. (2007), “Social Network Sites: Definition, History, and Scholarship.” Journal of Computer-Mediated Communication, 13(1), 210-230.

9.4 Compete.com (2008), “Site Analytics. Profile: MySpace.com and Facebook.com” available at http://siteanalytics.compete.com/facebook.com+myspace.com/ ?metric=uv.

9.5 F o r b e s ( 2 0 0 7 ) , " N e w S h o p p i n g A p p l i c a t i o n A l l o w s U s e r s t o S h o p O n l i n e w i t h F r i e n d s , " J u l y 2 0 , http://www.forbes.com/businesswire/feeds/businesswire/2007/07/20/businesswire20070720005396r1.html.

9.6 Grewal, Dhruv, Gopalkrishnan R. Iyer, R. Krishnan, and Arun Sharma (2003), "The Internet and the Price Value-Loyalty Chain," Journal of Business Research, 56 (5), 391-398.

9.7 Godes, David and Mayzlin Dina (2004), “Using Online Conversations to Study Word-of-Mouth Communication”, Marketing Science, 23, 545–60.

9.8 Horovitz, Bruce (2006), "Survey: Social Network Sites Could Also Lure Shoppers," USA Today, November 23, http://www.usatoday.com/tech/news/2006-11-23-social-shopping_x.htm.

9.9 Market Watch (2008), "Jupiter Research Finds That Social Media Has Emerged as Important Marketing Platform for Retailers During Back-to-School Shopping Season," Market Watch, August 18, http://www.marketwatch.com/news/story/jupiterresearch-finds-social-media-has/story.aspx?guid=%7B5D4FA471-3AB4-453B-A15D-7174BD0D3D93%7D&dist=hppr.

9.10 Trusov Michael, Bucklin E. Randolph, & Pauwels Koen (2009), “Effects of Word-of-Mouth Versus Traditional Marketing: Findings from an Internet Social Networking Site” , Journal of Marketing, 73, 90–102.

9.11 Urstadd (2008), “Social Networking Is Not A Business — But It Might Be Soon”, available at: http://www.rimmkaufman.com/rkgblog/2008/07/14/social-networking-is-not-a-business-but-it-might-be-soon/.

Copy of the Questionnaire1) Are you aware of any websites where you can make friends and socialize (Social Network Websites)? a) Yesb) No

2) Do you have a profile on any Social Networking Website(SNW)?a) Yesb) No

3) How long have you been using the SNW?a) Less than 1 monthb) 6-12 monthsc) 12-24 monthsd) More than 24 months

4) Have you ever used SNWs for searching an Internship or Job?a) Yesb) No

5) How many hours do you spend weekly on the SNW?a) 0-5 b) 6-10c) 10-20d) 20-30e) More than 30

6) Which SNW(s) are you a member of?a) Facebookb) LinkedInc) My Spaced) Orkute) Youtubef) Twitter g) Others

7) Kindly indicate what information have you included on your Social Network websites? a) Emailb) Phone No.c) Home Town/Cityd) Musice) Moviesf) Booksg) Passionh) Sportsi) Activitiesj) TV showsk) Relationship Statusl) Others

8) Do you believe companies save money by using SNWs to market their products?a) Yes

b) No

9) Do you notice any offers/Advertisement for the Product/Services on a SNW? a) Yesb) No

10) Do you think that in this busy lifestyle, the information received via advertisements on SNWs regarding the new offers help you keep up-to-date?a) Strongly Agree b) Agree c) Neither Agree Nor Disagree d) Disagree e) Strongly Disagree

11) Have you ever purchased any product after collecting the information from any SNWs?a) Yes b) No

12) If Yes, What category of product have you purchased ?a) FMCGb) Daily use necessity itemsc) Jewelleryd) Insurance Policye) Bank A/Cf) Any other

13) Have you ever switch off from one brand to another after being influenced by the number of “Likes” on a brand? a) Yes b) No

14) Do you think SNWs are a good way of providing feedback to the company regarding its product/service?a) Yes b) No

15) Have you ever felt like your privacy was violated through sharing information with marketers on SNWs?a) Yes b) No

16) Have you ever recommended any specific brand to any of your friends etc on SNWs?a) Yes b) No



Convergence of AS 14 Amalgamation to IND AS 103

Business Combination and carve outs from IFRS 3.

Vibha Tripathi*

*Lecturer, Department of Accountancy

ADDRESS FOR CORRESPONDENCE: 6, Siddhivinayak Appartment, Nr. Opera Upashray, Opp. Vikas Gruh Paldi, Ahmedabad -380007.

CONTACT: 91-9825058739, EMAIL: [email protected]

AFFILLIATION: H.L. Institute of Commerce Amrut Mody School of Management Ahmedabad University

OFFICE ADDRESS: H.L. Campus, Prin. S. V. Desai Road, Navrangpura, Ahmedabad- 380009

ABSTRACT:

With the integrated global economies and cross border mergers

and acquisitions, the uniformity of financial reporting by Indian

companies is inevitable for the authenticity of their financial

statements worldwide. The emergence of International Financial

Reporting Standards (IFRS) marks the biggest revolution in

financial reporting, though, not without posing challenges of

convergence. In order to harmonise with the Financial Reporting

worldwide the ICAI (Institute of Chartered Accountants of India)

has issued 35 Ind AS –the converged accounting standards which

are in line with IFRS subject to certain carve outs (differences) due

to tax related issues, as notified by the MCA. The paper focuses on

one of these converged IND AS 103 Business Combination. At

present in India, though the AS 14 lays out specific treatment for

Amalgamation it is not matching the global reporting standards

requirements, so ICAI has converged the present standard AS 14 to

Ind AS 103 Business combination which is in line with IFRS 3. The

transition to Ind AS as and when it happens is likely to have impact

on the accounts of companies involved in such acquisitions and

mergers. With reference to this convergence, the study provides an

insight on the treatment of goodwill and its impairment, bargain

purchase, non controlling interests, reverse acquisitions and

identifiable net assets & liabilities at fair value through various

examples. Also, Ind AS 103 is more stringent about the accounting

method to be used. The study also shows the major difference

between IND AS 103 and As 14 Amalgamation with the help of

different case studies. It also focuses on the carves outs of Ind AS

103 from IFRS 3 and its reasons.

INTRODUCTION

WHAT IS IFRS?

IFRS stands for “International Financial Reporting Standards” and

includes International Accounting Standards (IASs) until they are

replaced by any IFRS and interpretations originated by the

International Financial Reporting Interpretations Committee

(IFRIC) or its predecessor, the former Standing Interpretations

Committee (SIC).

Meaning And The Need Of Convergence To IFRS

Convergence can be described as “to design and maintain national

accounting standards in a way that financial statements prepared in

accordance with national accounting standards draw unreserved

statement of compliance with IFRSs.” The ICAI (Institute of

Chartered Accountant of India) realized that full and immediate

adoption of IFRS would be a challenge in the Indian environment

in view of the conflicting legal and regulatory requirements and the

technical preparedness of the industry and the accounting

professionals. Hence India has chosen Convergence to IFRS over

Adoption to IFRS. This gives the standard setters the scope to

modify accounting standards to better reflect the local economic

environment and this flexibility has been utilised by the standard

setters while formulating the Ind ASs. Currently, differences

between IFRS and Ind ASs can be classified into four categories:

(1) Elimination of options provided under IFRS

(2) Addition of options not available under IFRS

(3) Inclusion of additional guidance in Ind AS not found in

IFRS and

(4) Prescription of accounting rules that are different as

compared to IFRS


IFRS in INDIA:

The following are the existing facts about IFRS status in INDIA

ü Convergence to IFRS will be done in a phased manner

from April 1, 2011 as decided by MCA. It will be applicable at

different dates for listed and non listed companies, banking and

insurance companies, medium and small sized companies

(according to their net worth).

ü At present there are two sets of Accounting Standards

1. IFRS Converged Indian Accounting Standards – Ind AS

2. Existing Accounting Standards – AS

ü The effective dates for implementation and applicability

of Ind AS may differ from the dates announced in the original

roadmap and is subject to satisfactory resolution of tax issues.

ü The final Ind AS include several 'carve outs' (deviations)

from IFRS as issued by the (IASB).

As on date: Budget 2014

Finance minister Arun Jaitely has, in his Budget 2014-15 speech

said that the converged accounting standards will become

mandatory from FY 2016-17. However, it can be voluntarily adopted

by companies from FY 2015-16. The convergence will improve

financial reporting by Indian companies which is critical for

attracting foreign capital into the country. "While the details are to

be known, the announcement is in line with the ICAI proposal on

the revised convergence roadmap and would fulfil India's

longstanding commitment to the G 20 nations for convergence

wi th Internat iona l F inanc ia l Repor t ing St andard

(IFRS),"(Source:Economic times)

Need of converged IND AS 103 Business Combination

The necessity of a standard on Business Combinations in India

assumes importance considering the fact that Indian companies are

increasingly stretching their business in foreign countries for best-fit

business combinations. With the global mergers and acquisitions

of companies like Tata Motors acquiring the Jaguars and

Landrovers and Tata steel acquiring the Chorus, the uniformity in

accounting standards and the authenticity of the accounting

reports is inevitable. The compatibility of Indian accounting

standards with the IFRS is challenging but necessary for a true and

fair view of the financial statements worldwide. When Vodafone

took over Hutchison Essar there were a number of tax related issues

in India. Inspite of such complex reporting , it triggered the interest

of small and medium sized companies for such acquisitions.. The

present standard does not give specific treatment for complex

business combinations. The following difference between As 14

Amalgamation and Ind AS 103 Business combination justifies the

convergence and the need to match the global reporting standards.



IND AS 103 Business Combination

1. Objective:

The objective of the Indian Accounting Standard 103 is to improve

the relevance, reliability and comparability of the information that

a reporting entity provides in its financial statements about a

business combination and its effects. To accomplish that, this

Indian Accounting Standard establishes principles and

requirements for how the acquirer:

ü recognises and measures in its financial statements the

identifiable assets acquired, the liabilities assumed and any non-

controlling interest in the acquiree

ü recognises and measures the goodwill acquired in the

business combination or a gain from a bargain purchase

ü determines what information to disclose to enable users

of the financial statements to evaluate the nature and financial

effects of the business combination.

2. Scope:

Ind AS 103 defines business combination which has a wider scope.

It includes both amalgamation and acquisition including common

control transactions

Inclusion of Common Control transactions

• Assume M and N are subsidiary companies that are

owned by the same parent entity O. Does the transaction constitute

a business combination within the scope of IFRS 3 and Ind AS 103?

· Here M and N are under common control of O. Business

combinations involving entities under common control are

excluded from the scope of IFRS 3 but in Ind AS 103, Common

control transactions are included in the scope

Reverse Acquisition

· Reverse acquisition takes place when a private entity

wants to become a public entity but does not want to register its

equity shares. In such case, private entity approaches a public entity,

i.e. the one which is listed, to acquire its (private entity's) equity

interests in exchange for the equity interests of the public entity.

· In a reverse acquisition, the entity issuing equity interests

is legally the acquirer, but for accounting purposes is considered the

acquiree. Accounting for business combination is done from the

perspective of accounting acquirer and not legal acquirer.

· Accounting for reverse acquisition are bit complex but

Ind AS 103 deals with reverse acquisitions unlike AS 14 which is

s i l e n t o n t r e a t m e n t o f r e v e r s e a c q u i s i t i o n s

Exclusions

However, IND AS 103 excludes:

1. Formation of a joint venture

2. Acquisition of an asset or group of assets not constituting

a business combination of entities

3. Business combinationA business combination is a

transaction or other event in which an acquirer obtains control of

one or more businesses

Identifying a Business Combination

If the assets acquired are not a business, the reporting entity shall

account for the transaction or other event as an asset acquisition.

For example, acquisition of a “shell” or “shelf” company is not a

business combination because no business is being acquired.

4. Business:

The Standard defines the business as an integrated set of activities

and assets from which economic benefits are gained by the investor

or other owners. It also explains that, for determining whether a

group of assets and liabilities is a business, one must examine the

three ingredients, viz. Inputs, Process and Outputs. In other words

a business consists of inputs and processes applied to those inputs

that have the ability to create outputs.

5. Acquirer

An acquirer is the entity that obtains control of the entity – the

acquiree.

6. Control


In the above definition control means the power to govern the

financial and operating policies of an entity so as to obtain benefits

from its activities

7. Acquiree

The business or businesses that the acquirer obtains control of in a

business combination

8. Method of Accounting

Under Ind AS 103 only acquisition method is used for business

combination. The Standard eliminates the now- optional pooling-

of-interests method and mandates the Purchase Method in

accounting for a Business Combination.

Purchase method requires the Acquiring Company to fair value all

the identified Assets and Liabilities and also recognise additional

liabilities if any, at fair values on balance sheet. It requires allocating

the Purchase Price to all the items on the balance sheet and also off

the balance sheet i.e. contingent liabilities. Under this method, the

10Acquirer has to recognise various components of business

combination like non-controlling interest, consideration and the

goodwill or bargain purchase on the date of acquisition.

9. Fair value

The International Accounting Standards Board (IASB) defines fair

value as "... an amount at which an asset could be exchanged

between knowledgeable and willing parties in an arms length

transaction".

Steps in acquisition method

10 Step 1: Identifying the acquirer:

For each business combination, one of the combining entities shall

be identified as the acquirer. The entity that issues equity shares in

exchange for the net assets of other entity is usually identified as

acquirer

Step 2: Determining the acquisition date

Measurement of assets, liabilities, intangible assets, non-controlling

interest, recognition of goodwill etc in case of business

combination is acquisition-date sensitive. Hence it is very critical to

determine acquisition date.

Acquisition date is the date on which the acquirer obtains effective

control of the acquiree. Usually, the date on which the acquirer

legally transfers the consideration, acquires the assets, and assumes

the liabilities of the acquiree - the “closing date”. (See CASE

STUDY 2)

Step 3 : Identifying and measuring consideration (See CASE

STUDY 1)

• Consideration is the sum of the acquisition-date fair

values of:

t h e a s s e t s t r a n s f e r r e d

– the liabilities incurred by the acquirer

– the equity interests issued

• Acquisition- related costs

Consideration should be measured at fair value.

Acquisition-related costs are costs the acquirer incurs to effect a

business combination. They are as under:

ü Finder's fees

ü Advisory, legal, accounting, valuation and other

professional or consulting fees

ü General administrative costs, including the costs of

maintaining an internal acquisitions department

ü Costs of registering and issuing debt and equity

securities.

The acquirer shall account for acquisition-related costs as expenses

in the periods in which the costs are incurred and the services are

received, with one exception. The costs to issue debt or equity

securities shall be recognised in accordance with Ind AS 32 and Ind

AS 39.

CASE STUDY 1

Accounting treatment of consideration at fair value, contingent

consideration and acquisition related costs

Entity Manuplastics Ltd. acquired controlling interest in Entity

Autoplastics Ltd and issued 2,00,000 shares to its owners as a

consideration for the acquisition. The fair value of the shares issued

by Manuplastics Ltd was as follows:

ü Rs. 8,00,000 as at the date of the acquisition agreement

ü Rs. 9,50,000 as at the date of the acquisition as identified

by the agreement Manuplastics Ltd incurred the following expenses

in relation with the acquisition:



o Legal and consulting fees of Rs. 60,000

o General administrative costs of Rs. 40,000

o Costs related to issuance of equity Rs. 50,000

ü Entity Manuplastics Ltd also agrees with Entity

Autoplastics Ltd that if it meets certain performance based targets

within next two years, an additional consideration (in cash) of Rs.

1,60,000 will be paid to it.

ü Entity Manuplastics determines the fair value of this

additional consideration as Rs. 1,00,000. Computation of the

a m o u n t o f c o n s i d e r a t i o n p a i d i n t h e a b o v e

transactionParticularsAmt (in Rs.)Fair value of equity issued as at

the date of Acquisition9,50,000Fair value of the contingent

consideration1,00,000Total consideration paid10,50,000

Treatment of acquisition related costs

Other expensesAccounting treatmentLegal and consulting fees

Rs.60,000To be charged to expenses as incurredGeneral costs of

Rs. 40,000To be charged to expenses as incurredCosts related to

issuance of equity Rs. 50,000To be recognized in accordance with

Ind AS 32 and 39.Exceptions:

“The acquirer shall, at the acquisition date, allocate the cost of a

business combination by recognising the acquiree's identifiable

assets, liabilities and contingent liabilities that satisfy the

recognition criteria, at their fair values at that date, except for

noncurrent assets (or disposal groups) that are classified as held

for sale in accordance with IND AS 105, Non-current Assets Held

for Sale and Discontinued Operations, which shall be recognised

at fair value less costs to sell.”

Step 4: Recognising and measuring goodwill (Case Study 2-Table

2)

Goodwill: An asset representing the future economic benefits

arising from the other assets acquired in a business combination

that are not individually identified and separately recognised.

CASE STUDY 2

Acquisition in two stages (step acquisition) and resulting in

goodwill

X Ltd acquires Y Ltd in the following two stages:

· On 1st Feb 2009 it purchased 20% of the equity shares

of Y Ltd for Rs. 20 crores

· On 1st Dec 2013 X Ltd purchased 50% of shares for Rs.

200 crores As on the acquisition date :

The carrying amount of net assets is 280 crores and the fair value

of identifiable net assets is Rs. 300 crores. The fair value of the

original investment of 20% equity shares is Rs.80 crores and the

fair value of remaining 30% non-controlling interest is Rs. 120

crores.

Table 1: Acquisition break up

Important conclusions and findings of Table 2

ü The acquisition date is in the year 2013 and not in 2009

ü Goodwill is identified and measured in a different way

under Ind AS 103 compared to AS 14. Under Ind AS 103, the

goodwill of Rs. 100 crores as per first option and Rs.70 crores as

per 2nd option is not amortised but tested for impairment on

annual basis in accordance with Ind AS 36

ü If less than 100% of the equity interests of another

entity are acquired in a business combination, non- controlling

interest is recognised. (In the above example it is 30%)


ü Also there is a choice in each business combination to

measure non-controlling interest The following figure shows

the effect of using two different options for measuring NCI.

Option 1 : NCI measured at fair value

Goodwill

Total charge for goodwill impairment

Option 2: NCI measured at

proportionate share of net identifiable assets

Goodwill

Total charge for goodwill impairment

ü It is clear from the above figure that if NCIs measured at

fair value, goodwill and its impairment will be valued

higher and if NCI is measured by proportionate share

method it shows a downward trend

ü The general measurement principle in the acquisition

accounting is fair value

ü Also, previously held interests are measured at fair

value

Bargain purchase (paragraph 36 of IND AS 103)

Bargain purchase occurs if the fair value of the identifiable net

assets of the acquiree exceeds the aggregate

ü of the consideration transferred

ü the non-controlling interests and

ü the fair value of any previously held equity interest.

Gain on bargain purchase or simply bargain purchase may

arise because of:

· Forced sale

· Recognition or measurement exceptions for particular

items discussed under IFRS 3

· Error in the valuation of identifiable assets, non-

controlling interest and/or equity interest.

Conditions to be fulfilled

In case if bargain purchase arises, then before this gain is

recognized the acquirer must review the calculations

to make sure that everything is arithmetically correct and no

mistakes are made in measurement of differentelements as

bargain purchase does not arise normally and IND AS 103

requires that the reassessment is done to make sure that no

mistakes are made.

The following explanation with case study will clear the treatment

of bargain purchase

CASE STUDY 3

(Based on acquisition at one go and resulting in bargain purchase)

· A pays Rs. 3000 crs to purchase 80% of the shares of B.

· Fair value of 100% of B's identifiable net assets is Rs.

4000 crs.

· Fair value of the non-controlling interest is Rs.1000 crs

Table 3: Treatment of Bargain Purchase

Major carve out of Ind AS 103

Business Combinations from IFRS 3

Carve out: Treatment of bargain purchase

As per Ind As 103 Gain on bargain purchase of Rs.200 crores in

option 2 is recognised in Other comprehensive income (OCI)

and accumulated in equity as capital reserve

ü As per IFRS 3 it is recognized in the profit and loss at

the acquisition date in the books of acquirer.

It is pertinent to note that Ministry of Corporate Affairs has

carved out the treatment of bargain purchase, while converging

Indian Standards towards IFRS 3. It will create a GAAP

difference in which Converged Indian AS 103 will recognise the



bargain purchase in other comprehensive income (OCI) and

accumulated in equity as capital reserve if there is a clear evidence

of the underlying reason for classification of the business

combination as a bargain purchase; otherwise, the resulting gain

is recognised directly in equity as capital reserve.

Reasons for such treatment of bargain purchase in IND AS 103

IND AS 103 recognises it in OCI or as capital reserve because

recognition of such gains in profit or loss would result into

recognition of unrealised gains as the value of net assets is

determined on the basis of fair value of net assets acquired.

ü H i g h l i g h t s o f I N DA S 10 3 B U S I N E S S

COMBINATION

The following apparent conclusions can be made from the above

converged standard Ind AS 103:

ü Ind As 103 requires expensing of acquisition-related

costs whereas the existing practice in India is to capitalize such

expenses as cost of investment.

ü Performance-related consideration paid to the

acquiree, known as contingent consideration, is accounted at fair

value under Ind AS 103, with subsequent changes included in the

profit and loss (P&L) account.

ü Ind AS 103 will require disclosure of information to

assist the users of the financial statements with the understanding

of the nature and financial effect of a business combination

ü Even though IND AS 101 provides exemptions

regarding retrospective application of IND AS 103 for the first

time adopter, the standard will pose many challenges for the

Chartered Accountants.

ü Also IND AS 103 is associated to the measurement of

many other standards like Ind AS 37, 39, 19 individually so, the

understanding and applicability in India will require lots of

deliberation which need to be weighed in view of facts and

circumstances.

17

ü It adopts a “business fair value” measurement approach

a s o p p o s e d t o t h e t r a d i t i o n a l “ c o s t - b a s e d ”

profits under the converged standard.The concept of fair value is

debatable and its implementation will question the financial

statements results.

Lastly, Indian companies are listed on overseas stock exchanges

and have to recast their accounts to be compliant with GAAP

requirements of those countries. Foreign companies having

subsidiaries in India, are having to recast their accounts to meet

Indian & overseas reporting requirements which are different.

Also, Foreign Investors will be attracted to economies where IFRS

compliant financial statements are the norms. So the robust

change of converged IND AS which are in line with IFRS is

probably the most complicated issue for the current Indian

accounting scenario but necessary for the authentic financial

reporting worldwide.

References:

1. IFRS Convergence in India: Some Progress on Implementation. (2011, March 5).Economic Times, Opinion. Retrieved from

http://economictimes.Indiatimes.com/opinion/policy/ifrs-convergence-in-

India-some-progress-on-implementation/articleshow/7631924.cms

2. Bhattacharyya, A. (2010, February 8). IFRS: transition date will be April 1, 2011. Retrieved from http://www.business-standard.com/India/news/ifrs-transition

date-will-be-april-1-2011/384940/

3. http://www.mca.gov.in/Ministry/press/press/press_release_04May2010_06may2010.pdf

4. Bhattacharyya, A. (2011, July 11). India moves towards IFRS convergence. Retrieved from www.business-standard.com › Home › Economy & Policy

5. Concept paper on convergence. Retrieved from www.icai.org/resource_file/12436announ1186.pdf

6. Ind AS-103. http://www.icai.org/post.html?post_id=7543. Retrieved from http://220.227.161.86/23704IndAS-16.pdf

7 Mergers and Acquisitions. Retrieved from http://macabacus.com/accounting/noncontrolling-

interesthttp://www.livemint.com/Opinion/CegExu9wCgfqYmpH4dArFO/How-IFRS-will-impact-financial-

8. statements.h


Shoe Polish Dr. Pankaj Jain* Prof. (Dr.) V. S. Dahima**

*Assistant Professor, Amity Business School, Amity University Rajasthan **Director – Amity Business School, Amity University Rajasthan

Mr. Saura Panigrahi, a post graduate in mass communication,

has been working as Creative Director of a New Delhi based ad

agency – Cocoon Ideas. He is contemplating about the ad

campaign for wax polish account of Shoe Care Ltd who primarily

operates in Northern India. Its shoe polish brand “Easy Care” is

giving a tough time to him as the advertising campaigns had

bring no significant changes in the sales in last five years. For

past five years he has been observing the almost stagnant sales of

Easy Care. He knows that a new entrant would find it difficult to

create brand preference. A company wanting to launch a new

brand must do a good marketing exercise for at least three years to

create brand preference. Now he has been entrusted for more

than five years but could not deliver the results. He is worried

about the flattened sales curve of the brand which may result in

the loss of the account of Shoe Care Ltd. He knows that

consumers have positive attitude towards wearing polished shoes

but their attitude towards polishing shoes was a big concern. He

strongly believes that sales can be increased by improving the

attitude towards polishing shoes. But how is he to achieve that?

The shoe polish industry in India is a small industry worth

around Rs. 110 Crore. It is largely concentrated in Urban India

contributing around 70% of total sales. Though wax polish

constitutes the major share (around 70%) but it is on decline as

liquid polish picking up sales because of the benefit of

convenience it offers to customers. The stagnation in shoe polish

industry was a global phenomenon. In India, although the

category is slow moving, its insensitivity to price allows

manufactures to tide along profitably. While a small five paisa

increase in the bread price impacted every user immediately, any

hike in the price of shoe polish goes unnoticed. The

manufactures know very well that they are operating in an

inelastic price zone and that they can increase the price at will.

That's how they have survived so far.

Leather shoe and shoe polish are complementary products. As

leather shoe industry is facing tough competition from other

Industry Background

kind of shoes in the market. Fifteen years ago, leather shoes were

important parts of a person's attire. But today, there are a lot

more variety available. Apart from the formals, customers have

evening suedes, nubuck, trekking shoes, sports shoes etc. Indian

domestic footwear market is worth around Rs. 15,000 crore and

has witnessed a growth of 8.8% over the last couple of years.

Men's footwear constitutes almost 50% of the total market,

whereas women's shoes accounts for around 40% and kids

footwear for the remaining. Shoes wearing habits were largely

confined to metros and towns in Northern India. In the rural

areas of the north, shoes were worn generally in the winter. The

domestic market is substantially price driven (See Exhibit1 and

Exhibit 2), with branded footwear constituting less than 42

percent of the total market size. While the average spend on the

footwear by urban consumers is Rs 240/annum, consumers in

rural areas spend just about Rs 100/annum. Despite all this shoe

polish remained a relevant product, since those who wore leather

shoes did need to polish them.

Panigrahi knew that shoe polish is not very frequently

purchased product and consumer involvement is very low for

this category. To gain further consumer insights Panigrahi

decided to do some research. He went to his friend, Mr. Somnath

Vyas who specialize in consumer research, for help. Vyas agreed

to help him out and together they planned to conduct a quick

focus group interview. They called up seven participants - two

summer training interns pursuing MBA – Deepak Kumar and

Vivek Singh; a male sales executive in late 20s – Paresh Mishra; a

branch manager of a bank - Nitin Bansal; An entrepreneur in

Shoe Manufacturing – Dev Shetty; a university professor –

Bhawna Sharma; and a house wife - Samreen Abidi.

During the focus group interview, Deepak Kumar commented

on enquiring about the usage of shoe polish, “my tin of wax

generally lasts around six months to one year as I polish my shoes

3 to 4 times a month.” Don't you need to polish your shoe every

day?” inquired Vyas. “I do use duster everyday” He replied

Consumer Research

FOCUS Case Study


promptly. Paresh Mishra responded to this “I used to polish my

shoes every night. Then in the morning I'd take a bus up to the

railway station, take a train, have four dozen people stepping on

my shoes and by the time I reached my client's office, my shoes

looked like rubbish. So I just gave up polishing.” Dev supported

this by saying, “Moreover polishing shoe is drudgery. You sit on

the floor, and then you get a rag, the brush, the tin… A man who

drives a fancy car, lives in a well appointed house and wears

designer labels will not want to sit on the floor and polish his

shoes.” He further added, “People did not even want to bend

down to tie their laces so we had to made pump shoes,”

Panigrahi agreed to this, because that was just why Shoe Care

Ltd. and other manufactures of shoe polishes had come up with

the instant shine and liquid wax polish. Observing the

discussion, Panigrahi thought the real challenge before him was

to make the market grow by making people polish their shoes

more often. If the frequency of shoe polishing could be increased

from once in 12 days to once in seven days, Shoe Care Ltd. could

achieve an 80% jump in sales. One way of doing this was to

mount social pressure on existing consumer and use an

appropriate communication strategy to convert the users of

competitive products. He further focused on the discussion.

“I think polishing shoes daily is necessary, both for

care and as part of overall grooming. Ask a person how he would

judge someone on grooming and many would say “by his shoes”.

That's because if a person puts in that kind of effort on his shoes,

it shows that he cares to that level of detail” said Bhawna – a

university professor. “Then why many people do not polish their

shoes? That's something I just can't understand!” inquired Vyas.

“One reason could be that shoes figure last in the dressing

routine. Shoes are worn at the end of your body which is least

visible or which you have traditionally least cared for. Therefore,

it tends to be the most neglected,” Bhawna reasoned. At this

point, Samreen who was sitting quietly intervened, “but polished

shoes do evoke certain desirable responses. You would all agree

that polishing shoes is a good habit. When I see my son polishing

his shoes, I feel reassured that he is forming good habits. I would

say that it is the ultimate indicator of good habits – discipline.”

Bhawna supported, “yes…research had proved that a person who

polishes his shoes felt happy, confident, encouraged and

cheerful. On the other hand, a person who didn't polish his

shoes felt defensive, guilty and withered.”

“But the response of the wax polish market is totally paradoxical

to the research findings. Though research shows positive attitude

towards polishing shoes yet the use of show polish is far from

being a daily routine. However, if a person has a forewarning that

he will come under scrutiny, like during an interview for a job, or

at a meeting with an international boss, he will certainly polish

his shoes,” said Vivek.

“Yeah…. I remembered those school days where the discipline at

the morning assembly was enough to force me into a habit of

polishing shoes. But after that college began and, all those

pressures were gone. Then one day I was 23 and looking for a job.

Life returned with demands on me to polish my shoes. I was

attending interviews and meeting with people. The mere act of

polishing used to remind me of the drudgery of schools days.

Today my job requires intensive travelling so I use liquid polish or

shoe shiner for quick shine, whenever I have meetings with my

client. I really like the idea of “handy shine” through a sponge

with impregnated silica gel. I need to just dust my shoes and

apply the sponge”, Paresh said.

“But silica gel evaporated very fast and the shine disappeared

with an hour or two. Therefore, the shoe had to be sponged four

to five times a day. That is hardly convenient and so this “handy

shine” failed to click in the market. Moreover other products that

offer convenience are not good for shoes like low wax content of

liquid polishes does not nourish the lather and the topping the

shine with lacquer is damaging for the shoe. Like anybody who

invests couple of thousands rupees on shoes, I also want more

than just handy shine. I am really concerned with shoe care and

when it comes to shoe care there is no getting away from the wax

polish and rag routine.” said Nitin.

Well….we would all agree that when it comes to delivering total

shoe care, there is no replacing the dibbi or the tin of polish.

Everything else is only an attempt to give people handles along

one or two of the attributes while sacrificing the others. And

while the liquid polish had found some acceptance and even

usage, the dibbi or tin is still preferable for those looking for total

shoe care. And despite the fact that polishing shoes is considered

good habit and wearing polished shoes generates positive feeling,

it is an irony that people buy a shoe polish tin once in six months

or a year. Sometime they don't even know when the polish has

finished.

The whole discussion revolved around these issues for some

time.

FOCUS Case Study


Discussion on Message Strategy

After the focus group discussion, Panigrahi and Vyas

decided to discuss the message strategy. Panigrahi told Vyas that

for last five years he has tried on the opportunities that a well

polished shoe offers. But it seems just not enough to convert

consumer habits. He also told him that this time he is thinking

trying the guilt route like showing a man caught unawares on a

public place or social gathering with unpolished shoes….. “That

moment of discovery, when a man finds his shoes are unpolished,

would be the highlight of that ad” exclaimed Panigrahi.

“You need to look at the urban and rural markets differently.

While the liquid polish is more an urban product, it is in small tin

that is relevant to the rural market. That is exactly how the

shampoo sachets cracked open the market, got people to use the

product and served as a bridging pack to get people into the

mainstream purchasing habit”, said Vyas.

“I am not sure if the strategy would work. I think instead of being

able to pioneer a change in the consumer attitudes, the shoe care

industry had become a victim of people's habits. Consumers

spend their lives falling between stools getting their shoes

polished at the railway station, or outside the office by a shoe

shine boy. And sometimes they simply run a cloth over their shoes.

The industry has not been able to pull people back to a

regimented shoe care habit by giving them strong enough

propositions. That's despite the fact that they had so many

emotions to play on competence, guilt, encouragement, good

grooming…even some advertisements have tried the usually

successful sex appeal”, said Panigrahi. He further added,

“Moreover since the category is inherently slow moving, any new

communication strategy had to run consistently for a long period

of time for it to pay off. And I am afraid of losing the Shoe Care

Ltd. account if I did not produce results by the end of three, or

maximum six months.” If sales do not go up within this time

period, I will surely lose this account,”

“Your ad campaign need not trigger off an immediate purchase.

For this product, purchase is on the basis of need. No one even

gets excited for trial or discount deals. Trials are painfully slow in

this category. Trials in a Coke or a Kit Kat can enable a market

penetration of 60% within two months. But in shoe polish, to

penetrate 60% of the market you would take much longer

period”, commented Vyas.

By this time, Panigrahi were clear on two major challenges faced

by the shoe polish market. Firstly, there was a general lack of

interest in polishing among consumers. Secondly, convenience

polishes did not offer total shoe care. He was sure that

consumption had to be increased by improving the attitude to

polishing. But how is he going to achieve that?

Exhibit 2

Exhibit 1


Mr. Ramachandran R.V

In FOCUS Interview

Profile Study of Mr. Ramachandran R.VHead–Marketing, Communications & Customer Care, Tyco India

A selfmade marketing

professional

Interviewer

Dr. Hari Krishna Maram


What is your experience with Tyco India as Head Marketing, Communications and Customer Care?

It has been a great learning journey for me in Tyco. My present assignment gives me a

360 degree preview of marketing and has immensely helped me moving towards

becoming a complete marketing professional. The experience& exposure I have gained

here helps me understand the industrial and commercial B2B industry space and

industrial marketing in depth like customer decision making, Tender processes, key

players in decision making and how to ensure your brand reaches the key personnel /

target group. Security is a very sensitive subject and one needs to be very thoughtful

when you place details in advertisements or marketing materials. One important thing

I learnt over the years in my marketing career is to be very strong in fundamentals and

ensure you personally check the details. The marketing essentials always remain the

same, but the tone, tenor and pace differs from industry to industry.

In FOCUS Interview

How your past marketing experience in other organisations helped you to understand the need of your current role, and bring in the results quickly?

I have been fortunate to work across industry segments. Starting my career in pharma

industry way back in 1997 with Novartis and later moved to a startup marketing Food

Grade Plastic containers – Rubbermaid, even before food grade plastics were

fashionable or norm, before progressing to Godrej with Real Good Chicken brand. All

of my initial organisations helped me enormously as I learnt the market both urban and

rural, understood about consumer behavior across industries and helped me as I

moved ahead in my career. Pharma industry exposed me to various selling techniques

both direct & indirect. It gave me insights in to a salesman's mind when he meets his

customer. I also learnt the role of distribution channel (both urban and rural) in

marketing. To succeed in FMCG marketing you will have to be quick and think on your

feet. You need to be on your toes to exploit every opportunity to showcase your

product/brandto the consumer. It taught me the importance of placement and

positioning both in ATL and BTL segments, especially shop floor. I was able to

enhance my knowledge of shopper preferences and choices. As a marketer of food

products I learnt about the tastes and preferences of the Indian consumer and how

customers make their choices. My assignment with Sony was all about the brand and

how technology plays a very important role in getting a market premium especially in a

fiercely competitive consumer durable industry. I had a great team to work with and

wonderful leaders who not only guided us but opened us to newer aspects of enhancing

our work efficiency. I was guided in my present assignment more from my earlier

relationships be it marketing collaterals, PR, setting up customer care etc. Being

Industry connected helped me bring quick results in getting market coverage, helping

set up quick events and facilitating projection as “Thought leaders” by bring


technology and global profile to the Indian market space. Getting to the consumer be it

any industry is very important and maintaining the customer connect is a very

important aspect of how I enhance efficiency of our works.

What were the challenges and opportunities in a new industry as you changed organisations?

When you change organisations, the fundamental challenge is to understand the

organisation's philosophy, vision and markets they operate. Then comes the product

and market dynamics i.e.

1) In depth understanding of the products & brands belonging to new

organisation

2) Customer perceptions about the brand and its products

3) Key stakeholders in the decision making process

4) Building a top-notch team of business partners who would provide support in

all marketing activities

The key opportunitiesI have had are

1) Setting up customer tough points to enhancing Customer experiences

2) Bringing in International standards in marketing project execution

3) Bringing down costs and enhancing efficiency

4) helping expanding the geographical presence

5) helping build a great team of partners who are willing to go an extra mile to

ensure your team is successful under any conditions

What is the role of your family in your career growth?

Family support and guidance plays a very important role in your career growth. In my

formative years I had the opportunity to interact with world class leaders thanks to my

family's pharma background. I was fortunate to interact with people who were always

ready to guide and help me become a better individual, wanted me to set higher goals

and work towards it. Without family support and guidance from my father I would not

have made it this far. I started my career in pharma thanks to my father's guidance and

later moved up the ladder thanks to his constructive criticism and inputs on how I can

do better. When I started my career, he had asked me to look at a few leaders and be

inspired by their growth story and how they have made it big in corporate world. I

learnt a lot from my Father, the most important being hard work and honesty that goes

a long way in establishing you as an Individual and builds your brand.


How different is to operate in India in comparison with rest of the world?

In my view, marketing or sales in India and rest of the world is no different. The

audience is different but the strategy remains the same. The end goal is making the

name on the top of the mind of the customers. Having said that there are a few priority

items when one looks at the Indian market. India as a market truly defines “Unity in

Diversity”. India is a land of ample opportunities and you have to be careful to choose

what you want and work towards that with confidence. You can be easily distracted by

the enormous opportunities you have in this country and spread thin and be a part of

each or be a leader in your chosen industry and make a mark. The market is a varied mix

of different cultures, tastes, preferences and aspirations. One needs to be extremely

sensitive to the local influences when we design a marketing campaign for Indian

markets. You need to be sure you cater to the local tastes and are able to ensure you

communication reaches them in the manner required to ensure your objective is met.

Each market has to be treated individually within your overall brand ambit and care to

be taken to ensure communication is customised accordingly. Technology is

developing fast and you can reach out to customers across any spectrum in quick time.

We are learning from our global counter parts all the time on enhancing efficiency,

bringing in global quality and adopting to latest processes.

How you are able to continuously monitor and assess the ever changing customers' needs and satisfy them to achieve sustainable growth?

Customer's needs changes with changing times and the situation they are in. Proactive

customer engagement and interactions help us getting key insights into their

requirements and aspirations. Customer feedbacks, channel feedbacks and sales teams'

inputs have to be viewed seriously and understood within the given framework and

responded to at the earliest possible avenue. By being in constant touch with your Sales

staff and channel partners, By keeping your eyes and ears open to the competition and

being present in forums/events relevant to the Industryyou can monitor the market

and customer needs continuously. With changing technology, you have a plethora of

ways to stay in touch with the customer without being intrusive.

What are your major accomplishments in your corporate career?

With hands on experience in various industries, I am sure; I am able to make a mark in

all the responsibilities I have taken in my career. Be it Pharma, FMCG, Lifestyle

Electronics and now B2B marketing, I have given my best and able to meet the

organisational objectives. I had the wonderful opportunity to build teams, develop

marketing organisations and build careers for my team members. Some highlights


include being part of the brand team awarded the outstanding brand award in Godrej,

led the team to Outstanding Team award in Sony and being awarded the “Outstanding

Support & Development award” for two consecutive years for my contribution to

marketing, brand building and sales support in Tyco. The best accomplishment is to

see your team members grow up and lead other teams in their chosen organisations.

What is your view on CSR activities?

It is a very important part of the corporate life. You have an organised way of giving back

to the society in which you are living and helping in community development. In India

still the same is not very prevalent in an organised way, but the new initiative of the

government of India will help it in a big way.

What is your advise to MBA students?

To succeed in marketing today you will have to learn to adapt to changes quickly.

Change is happening around you every day. Your ability to drive the change and deliver

better customer experiences will take you a long way up the corporate ladder. Also be a

good collaborator, expand your skill sets continuously,and look for innovative

solutions. Always be a good student, learn from your surroundings and bring the

learning on board with your knowledge and objective, it will guide you in your way

ahead.

MBA is a challenge. On completion of your MBA, you will become the face of your

organisation in the market place. Selling and marketing gives you more satisfaction as

you will be dealing with a brand or service. Your success is the success of the brand in

the market place.

What is your advise to B-Schools?

The great books in the library help us develop a good foundation, but by developing a

curriculum that is contemporary, relevant to todays and foreseeable future industry's

needs will help students develop their knowledge accordingly It is important to

enhance industry interaction and update students on their expectation from Industry

and vice versa. Inculcate more of case studies rather than regular studies. Case Studies

will make students understand the market dynamics and they will understand the

competitive ness in the market place.

InterviewerDr. Hari Krishna Maram, Director- PR, IFIM Business School, #8P & 9p, KIADB Industrial Area, Electronics City 1st Phase, Bangalore-560100, Karnataka, India. Email: [email protected], Phone:- 080-41432871, Mob: 9845382308


JUGAAD INNOVATION

Navi Radjou, Jaideep Prabhu, Simone Ahuja

“Jugaad”….the word is often used by Indian in many situations. Some time it is used and appreciated as a positive solution in

troublesome situation where as it is also used to refer improper way for getting things done such as bribing and yes….there also exists a

vehicle with the name Jugaad where an engine is fixed on to a cart to create an affordable motorized transport.

However, in this book written by Navi Radjou, Jaideep Prabhu & Simone Ahuja, the word Jugaad is used all in positive way. Authors

define the word Jugaad as "gutsy art of improvising an ingenious solution." The three co-authors, Navi Radjou, Jaideep Prabhu and

Simone Ahuja have diverse backgrounds in innovation, leadership and strategy consulting and two teach business at University of

Cambridge. Unlike most other books on Innovation, which more or less revolves around business process re-engineering, this book

for sure has a different perspective for Innovation.

In FOCUS Book Review

Publisher: Random House India, 2012

ISBN-13: 9788184002058

Think Frugal, Be Flexible, Generate Breakthrough Growth


The book challenges the status quo of traditional way of systematic innovation as practiced

in organizations. The authors argue the need of the time is a frugal and flexible approach to

innovation rather spending mindlessly on R&D to succeed in hypercompetitive market

places. They criticize the tradition innovation process labeling it as “industrialized”,

“standardized”, “homogenized”, “expensive”, “insular”, “resource-consuming” and “elitist”.

They claim that Jugaad Innovation is the most fitting reply to the five realisms i.e. scarcity,

diversity, inter-connectivity, velocity, and breakneck globalization which business leader

across the world are facing today.

They strongly advocate in favor of Jugaad Innovation citing multiple case studies from India,

China, Brazil, Kenya and a whole lot of other places, focusing on six principle of Jugaad

Innovation. These are

i. Seek opportunity in adversity

ii. Do more with less

iii. Think and act flexibly

iv. Keep it simple

v. Include the margin

vi. Follow your heart

To show the applicability of these principles the book has featured many cases from SMEs to

fortune 500 companies. There are examples from Renault – Nissan, Facebook, Siemens,

Google, Philips, 3M, Apple, Yes Bank, Nokia, P&G and Tata Nano among many others as

practitioners of Jugaad Innovation.

The book is forwarded by Kevin Roberts, CEO of Saatchi & Saatchi. First chapter is devoted

to the need and glorifying Jugaad Innovation. Thereafter each of the six principles of

Innovation has been demystified in six different chapters. Each chapter opens up with a real

world example of the principle in operation with descriptions of elements of the principle.

Further authors have also prescribed Do's and Don'ts of Jugaad Innovation emphasizing

that it can't be done in a systematic top down fashion. Multiple solutions are proposed on

how to implement the Jugaad principle and a successful Western implementation is featured

with a conclusion.

As nothing is perfect, this book also has certain limitations. First, Some opinions and

assumptions are presented as facts such as “people in general are worse off than they were in

the prior decades”. In this way, there are other claims with which avid readers may not agree.

Second, as this book has been contributed by many authors, the writing style is different in

different chapters. Some chapters have been written in 3rd person and others in 2nd person.

Third, many readers would find that inferences from certain cases are either “not-

convincing” or “not-apt”. Fourth, if while reading this review, you find the word “Jugaad”

being overused, for sure, while reading book, this word would irritate you. Fifth and the last,

if you consider a new book as innovation, composing and marketing of this book for sure

doesn't represent “Jugaad Innovation” rather traditional way of innovation.

Despite all these limitations, this book offers a different perspective for innovation and

worth reading once by those who are responsible for managing and fostering innovation.

Dr. Pankaj Jain

Assistant Professor – Amity Business School

Amity University RajasthanJU

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IFIM Business School, Bangalore was founded in 1995 with its first batch of students graduating in 1997. It is an

AICTE approved institution which today finds its place among the Top 20 from amongst the 500+ Business Schools

that were started post 1990 in the private sector. Today students from across the country have come to IFIM to go on to

graduate as one of the fine managers at corporate India.

IFIM Business School offers 4 distinct PGDM programs:

1. Two year full time Post Graduate Diploma in Management (PGDM) program

2. Two year full time Post Graduate Diploma in Management- Finance program

3. Two year full time Post Graduate Diploma in Management- International Business program

4. Two year full time Post Graduate Diploma in Management (PGDM) program for working professionals

IFIM Business School has acquired a unique ‘institutional equity’ with all its incumbent attributes: excellent

Curriculum and Faculty inputs, Infrastructure, Industry Internship Program, Academia-Industry interface and

Placements. IFIM Business School is persistent in its endeavour to be the best and therefore has taken many bold and

progressive initiatives to include collaboration with leading academic, research and corporate bodies for conducting

Continuing Education programs, Research, Corporate Training, Consultancy and offering a Ph. D program in

Management.

IFIM Business School has achieved a unique distinction. It has probably become the first management institute in the

country to make sports and wellness a compulsory activity for its students. A certified fitness trainer monitors the

progress of the students. This is supported with a Centre for personality development which works in the holistic

development of the students. Overall, IFIM provides a three pronged platform for its students to excel. The two year full

time Post Graduate Diploma in Management (PGDM) program for working professionals being offered by IFIM is a

unique program. This allows the working professional to continue with their respective jobs whilst they study for a full

time PGDM degree at IFIM Business School. The program is designed to accommodate the job environment of the

professional. The program is designed in a manner in which the working professional can aim to move up the echelons

of management.

The Centre for Developmental Education, under the aegis of which IFIM Business School operates, has a new member-

IFIM College. IFIM College was started in year 2010 and is successfully imparting graduate programs in the areas of

Commerce, Management and Computer Applications. These programs are approved by the Bangalore University.

IFIM Campus is located in the IT hub of Bangalore- Electronics City. With an environment-friendly campus situated

among the top blue chip companies, IFIM has made a steady progress. The placement record of the college has been

very impressive and the students have carved a niche for themselves in the corporate world. The B-School has a strong

alumni network and the illustrious alumni look up to their alma mater for the sound management foundation they

have received.

IFIM Business SchoolAn ISO accredited Institution

#8P & 9P, KIADB Industrial Area, Electronics City 1st Phase, Bangalore-560 100Tel: 91-80-41432888 41102820/ 21/ 22/ 23 Direct: 41432825 Fax: 91-80-41432844

www.ifimbschool.com

Published by Dr. R. Satish Kumar on behalf of Institute of Finance and International Management, No-8 (P) & 9 (P),KIADB Industrial Area,Ist Phase, Electronics City, Bangalore - 560100.

RNI No. MAG/(2) CR/PRB/102/02/05-06KARENG/03083/10/1/04-TCEXCEPT/CO/NO-7&8

focus 2015 10.2 issue

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