international journal of organiszational innovation final issue vol 7 num 2 october 2014

8/18/2019 International Journal of Organiszational Innovation Final Issue Vol 7 Num 2 October 2014

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The International Journal of Organizational Innovation Vol 7 Num 2 October 2014 1

THE INTERNATIONAL JOURNAL of

ORGANIZATIONAL INNOVATION

VOLUME 7 NUMBER 2, OCTOBER 2014

Table of Contents

Page: Title: Author(s):

3. Information Regarding IAOI, ICOI and IJOI

4. 2014 IJOI Board Of Editors

6. A Conceptual Framework For Guiding Business Transformation And OrganizationalChange In Innovative ICT Projects

G. A. De Waal, A. Maritz, H. Scheepers, S. Mcloughlin & B. Hempel

18. Empirical Study On The Relationship Between Coffee Tasting Quality AndRecreation Specialization, Product Involvement, And Country Of OriginImage

Yueh-Hsin Wu, Ya-Hui Kuo, Chih-Yun Yang

27. Model Of State-Owned Enterprise (SOEs) Privatisation Through New CommonStock And Its Implication Towards Financial Performance Period 2005-2012

Ibnu Khajar

38. U.S. Banks: Can They Improve? A Deming Analysis Of Internal Operations

Bryan Epps, Sergey Ivanov

48. The Communication Effects Of Internet Rumor On College StudentsDong Jenn Yang, Wan Ting Chung

63. A Case Study Of The Corporate Turnaround StrategiesWei-Hwa Pan, Yih-Lang Chen

79. Job Insecurity And Other Leadership Issues In OrganizationsEddie D. Lawton Jr., Fikru Taye, Sergey Ivanov


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87. Innovation Strategies Of Local Intermediary Organizations For EnvironmentalProtection: A Case Study Of Green Island, Taiwan

Ren-Fang Chao

98. Mapping The Intellectual Structure Of Education Management

Chin-Hsiu Tai, Che-Wei Lee, Yender Lee

116. An Analysis Of Optimization Design Of High-Speed Connectors Heat-Sink And TheDesign Improvement Technique

Hsu Ming-Chun, Shu-Lung Wang, Hung-Wen Lin


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Information Regarding:

The International Journal of Organizational Innovation (IJOI),The 2014 International Conference on Organizational Innovation, andThe International Association of Organizational Innovation (IAOI).

The International Journal of Organizational Innovation (IJOI) (ISSN 1943-1813) is an inter-national, blind peer-reviewed journal, published quarterly. It may be viewed online forfree. (There are no print versions of this journal; however, the journal .pdf file may bedownloaded and printed.) It contains a wide variety of research, scholarship, educationaland practitioner perspectives on organizational innovation-related themes and topics. Itaims to provide a global perspective on organizational innovation of benefit to scholars,educators, students, practitioners, policy-makers and consultants. All past issues of the

journal are available on the journal website. Submissions are welcome from the mem-bers of IAOI and other associations & all other scholars and practitioners. Student pa-pers are also welcome.

For information regarding submissions to the journal, go to the journal homepage:http://www.ijoi-online.org/ To Contact the IJOI Editor, email: [email protected]

The International Association of Organizational Innovation (IAOI) is the publisher of this journal. It also holds an Annual Conference (See Below). For more information on theInternational Association of Organizational Innovation, go to: http://www.iaoiusa.org

The International Conference on Organizational Innovation (ICOI):

The 2015 International Conference on Organizational Innovation will be held August 4-6,2015 in Yogyakarta. Indonesia. It will again be hosted by Airlangga University whichdid such a great job hosting our 2012 Conference in Surabaya, Indonesia. The confer-ence location will be at the Royal Ambarukmo Hotel, Yogyakarta. Indonesia. Plan on

joining us there! The conference website is: http://www.iaoiusa.org/2015icoi/index.html

To see an introduction to the conference hotel and region, see the following video - it willconvince you to attend!!

https://www.youtube.com/watch?feature=player_embedded&v=MfnsB31RFgc

For more information on the conference location, please visit http://www.yogyes.com/

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THE 2014 BOARD of EDITORS

Position: Name - Affiliation:

Editor-In-Chief Frederick L. Dembowski - International Association of Org. Innovation, USA

Associate Editor Chich-Jen Shieh - International Association of Org. Innovation, Taiwan R.O.C.Associate Editor Kenneth E Lane - Southeastern Louisiana University, USAAssociate Editor Sergey Ivanov - University of the District of Columbia, USA

Assistant Editor Ahmed M Kamaruddeen - Universiti Utara, MalaysiaAssistant Editor Alan E Simon - Concordia University Chicago, USAAssistant Editor Alex Maritz - Australian Grad. School of Entrepreneurship, AustraliaAssistant Editor Anton de Waal - Swinburne University of Technology, AustraliaAssistant Editor Asma Salman - American University in the Emirates, DubaiAssistant Editor Barbara Cimatti - University of Bologna, ItalyAssistant Editor Ben Hendricks - Fontys University of Applied Sciences, the NetherlandsAssistant Editor Bettina Stevanovic, University of Western Sydney, AustraliaAssistant Editor Carl D Ekstrom - University of Nebraska at Omaha, USAAssistant Editor Catherine C Chiang - Elon University, USA

Assistant Editor Chandra Shekar - American University of Antigua College of Medicine, AntiguaAssistant Editor Chung-Hung Lin - I-Shou University, Taiwan, R.O.C.Assistant Editor Dafna Kariv, College of Management Academic Studies, IsraelAssistant Editor Davorin Kralj - Institute for Cretaive Management, Slovenia, Europe.Assistant Editor Denis Ushakov - Northern Caucasian Academy of Public ServicesAssistant Editor Eloiza Matos - Federal Technological University of Paraná - BrazilAssistant Editor Earl F Newby - Virginia State University, USAAssistant Editor Fernando Cardoso de Sousa - Portuguese Association of Creativity

and Innovation (APIC)), PortugalAssistant Editor Fuhui Tong - Texas A&M University, USAAssistant Editor Gloria J Gresham - Stephen F. Austin State University, USA

Assistant Editor Hassan B Basri - National University of Malaysia, MalaysiaAssistant Editor Heather Farmakis – Academic Partnerships, USAAssistant Editor Henry T Burley - La Trobe University, AustraliaAssistant Editor Hong-Cheng Liu - I-Shou University, Taiwan R.O.C.Assistant Editor Hsin-Mei Lin - National Chi Nan University, Taiwan R.O.C.Assistant Editor Chun-Ming Hsieh - Tongji University, ChinaAssistant Editor Ilias Said - Universiti Sains Malaysia, MalaysiaAssistant Editor Ileana Monteiro - Portuguese Association of Creativity and Innovation, PortugalAssistant Editor Ismael Abu-Jarad - Universiti Utara MalaysiaAssistant Editor Janet Tareilo - Stephen F. Austin State University, USAAssistant Editor Jeffrey Oescher - Southeastern Louisiana University, USAAssistant Editor Jian Zhang - Dr. J. Consulting, USAAssistant Editor John W Hunt - Southern Illinois University Edwardsville, USA


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Assistant Editor Julia N Ballenger - Texas A & M University - Commerce, USAAssistant Editor Julius Ndumbe Anyu - University of the District of Columbia, USAAssistant Editor Jun Dang - Xi'an International Studies University, P.R.C. ChinaAssistant Editor Jyh-Rong Chou - I-Shou University, Taiwan R.O.C.Assistant Editor Kai-Ping Huang - University of Technology, Sydney, Australia

Assistant Editor Ken Kelch - Alliant International University, USAAssistant Editor Ken Simpson - Unitec, New ZealandAssistant Editor Kerry Roberts - Stephen F. Austin State University, USAAssistant Editor Krishnaswamy Jayaraman, Universiti Sains MalaysiaAssistant Editor Madeline Berma - Universiti Kebangsaan, MalaysiaAssistant Editor Marius Potgieter - Tshwane University of Technology, South AfricaAssistant Editor Mei-Ju Chou - Shoufu University, Taiwan R.O.C.Assistant Editor Melissa Kaulbach - Sarasota UniversityAssistant Editor Michelle Williams - Stephen F. Austin State University, USAAssistant Editor Michael A Lane - University of Illinois Springfield, USAAssistant Editor Muhammad Abduh - University of Bengkulu, Indonesia

Assistant Editor Nathan R Templeton - Stephen F. Austin State University, USAAssistant Editor Noor Mohammad - Faculty of Law, Universiti Kebangsaan, MalaysiaAssistant Editor Nor'Aini Yusof - Universiti Sains Malaysia, MalaysiaAssistant Editor Olivia Fachrunnisa, UNISSULA, IndonesiaAssistant Editor Opas Piansoongnern - Shinawatra University, ThailandAssistant Editor Pawan K Dhiman - EDP & Humanities, Government of IndiaAssistant Editor Ralph L Marshall - Eastern Illinois University, USAAssistant Editor Ray Thompson - Texas A&M University-Commerce. USAAssistant Editor Richard Cohen - International Journal of Organizational Innovation, USAAssistant Editor Ridong Hu - Huaqiao University, P.R. ChinaAssistant Editor Shang-Pao Yeh - I-Shou University, Taiwan R.O.C.Assistant Editor Shanshi Liu - South China University of Technology, Taiwan R.O.C.Assistant Editor Sheng-Wen Hsieh - Far East University, Taiwan R.O.C.Assistant Editor Siriwan Saksiriruthai - Suan Sunandha Rajabhat University, ThailandAssistant Editor Stacy Hendricks - Stephen F. Austin State University, USAAssistant Editor Thomas C Valesky - Florida Gulf Coast University, USAAssistant Editor Tung-Yu Tsai - Taiwan Cooperative Bank, Taiwan R.O.C.Assistant Editor Wen-Hwa Cheng - National Formosa University, Taiwan R.O.C.Assistant Editor Yung-Ho Chiu - Soochow University, Taiwan R.O.C.Assistant Editor Yulun Hsu - Nan Jeon Institute of Technology, Taiwan, R.O.C.Assistant Editor Zach Kelehear - University of South Carolina, USA


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A CONCEPTUAL FRAMEWORK FOR GUIDING BUSINESSTRANSFORMATION AND ORGANIZATIONAL CHANGE

IN INNOVATIVE ICT PROJECTS

G. A. De Waal*, A. Maritz, H. Scheepers, S. McLoughlin & B. HempelSwinburne University of Technology, Melbourne, Australia

* Corresponding author: [email protected]

Abstract

Through innovation, Information and Communication Technologies (ICT) are constantlyevolving and changing industries and paradigms, necessitating a fast paced and integratedtransformation of organizations to sustain competitiveness. Existing frameworks and modelsexist but do not appropriately link technical, innovation and organizational implementation.This paper reviews existing literature on managing change of ICT, innovation processes andrelated fields and combines findings into one unified conceptual framework that visualizes

the process of implementing change of ICT process successfully within organizations.

Key Words: Business Process Reengineering, Information and Communication Technology,Change Management, Organizational Change, Innovation, Conceptual Framework

Introduction

The globalized business world is afast-paced setting that requires organiza-tions to continuously sense market changes

and adapt their resources in order to staycompetitive (van Reijsen et al., 2014). In-formation and Communication Technol-ogy (ICT) is one of the fasted evolvingtechnologies and innovations worldwide,offering new approaches, products and ser-vices, making individual, organizationalchange and innovation in the use of ICT anongoing topic in research (Huang et al2012; Cameron and Green 2012).

ICT also plays a vital role in modernorganizations; quite often it is the actual

core of business, and it is what makes theorganization operates efficiently and effec-tively (O’Neill 2011). ICT processes touchand influence nearly every other processwithin an organization and has significant

potential to impact productivity and busi-ness transformation for increased competi-tiveness. ICT systems are often managedand improved from a purely technical per-spective despite the huge impact evensmall changes can make in this field, be-cause they affect everyone in an organiza-tion (Pugh, 2007, Orlikowski and Barley,2001, Orlikowski and Yates, 2006).

Models such as the Information Tech-nology Infrastructure Library (ITIL) sumup the best practices from a technical point


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of view (Pollard and Cater-Steel, 2009).Thereby this and other models and frame-works supply a good starting point forbusiness transformation and organizationalchange.

On the other hand, there exist severaldifferent approaches on the topic of how tomanage the change induced by these newprocesses to organizational culture. Eachhas its own methodologies, methods andtools. Some of the most known examplesinclude Carnall’s change managementmodel (Carnall, 1990), Kotter’s eight stepmodel (Kotter, 1995), and Senge’s sys-tematic model (Senge, 1999).

These examples, however, lack un-derstanding and integration of each other’sparadigms and approaches. Frameworksand models focus either on best practiceson how to implement the technical parts oreither on how to implement these changesin the organization itself (Mumford andBeekman, 1994). This paper aims to bringthese models and frameworks together,thereby leading to a successful transfor-mation of the business and organizationalchange. In order to increase chances ofsuccessful implementation of change inICT in businesses, a framework that in-cludes previously benchmarked para-digms, visualizes the full process. It linksthe established foundation by methodolo-gies such as ITIL to the appropriate changemanagement tools and recommends ac-tions that will facilitate and reinforce the

change.Methodology

Following the post-positivism para-digm a deductive and exploratory study ofexisting literature for best practice in Bus-iness Process Reengineering (BPR), Busi-ness Transformation and OrganizationalChange (BT&OC) management has beenconducted. Relevant research fields are

Change Management, implementation of

Quality Management, Safety Managementand Sustainability as well as managementof ICT projects. An online research withappropriate search keywords in the Web ofScience as well as Google Scholar served

as a starting point for the review, follow-ing forward and backward citations to se-lect references of key interest. A compre-hensive search using bibliometric analysis(based on citation impact) was conductedacross the above disciplines. From this, wedeveloped a conceptual framework inte-grating the various paradigms and con-cepts.

Development of the Conceptual

Framework

ICT is predominantly process basedand the literature guides BPR as an appro-priate starting point. Hammer and Champy(1993) viewed business transformation inthe three phases defined by Davidson(1993) (BPR, Enhancement and Redefini-tion), and further enriched it with thechange management alignment frameworkof Williams and Williams (Williams andWilliams, 2007). Here the focus is onaligning organizational change to technicalparts, but with no emphasis on the tech-nical side in this paper. Sauer et al. (1997)postulate the high risks involved whenreengineering mainly addresses ICT pro-cesses in companies and place emphasison the importance of prior strategic plan-ning. Hence a guiding principle in the de-sign of the framework is to firstly focus on

transformational issues that relate to busi-ness processes and infrastructure (in thiscase ICT processes) and secondly on or-ganizational structures and systems(Davidson, 1993). The aim is to redesignor introduce new ICT systems for perfor-mance gains, and then to respond with ap-propriate organizational change activitiesto support the business transformation ef-forts.


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Figure 1. Proposed Conceptual Framework


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Our developmental approach of the pro-posed conceptual framework is provided inFigure 1. What follows is a narrative of thedevelopment from a business transfor-mation perspective depicted in the left side

of the framework, influencing organiza-tional change dynamics in the right side.Three phases of initiation, implementationand institutionalisation are introduced(Williams and Williams, 2007). We in-clude innovation as an all-encompassingcomponent and process in any ICT changeprocess (Crossan and Apaydin, 2010).

First Phase: Investment in ICT and

Initiation of Organizational Change

This phase is concerned with begin-ning work, and involves developing com-mitment to investing in the ICT project(Williams and Williams, 2007). A thor-ough assessment of the existing and likelyfuture technical capabilities as well as ofthe internal and external Business Driversfeed into a SWOT analysis to make it clear‘Why’ business transformation and organi-zational change are required. A focus ofthis analysis should be on which areas ofICT need to be reengineered as well as onthe user habits linked to existing ICT pro-cesses (Orlikowski and Yates, 2006). TheBPR approach will help identify what isrequired in terms of improving key effi-ciency drivers of the ICT system, the en-hancement of offered products and ser-vices (product/service innovation) withinthe system as well as a redefinition of the

ICT processes itself by adding new corecompetencies (Davidson, 1993). These arethen put into a technical ICT project planwith appropriate specification and antici-pated benefits from a technical point ofview. This plan is then combined with theOrganizational Change Plan that sums upthe needed organizational changes withinthe organization to fully utilize the in-creased efficiencies of the ICT process. Todraft this into a complete plan of imple-

mentation, negotiations and compromises

have to be reached between technical ca-pabilities and the adaptability of the organ-ization to change.

Strategic Level

This part of the OrganizationalChange Plan answers ‘What’ has to bechanged and ‘Why’; it gives the generalstrategy for transforming the organization.

Overall Impact Analysis: High im-portance is given to this analytical level,especially into forecasting benefits cor-rectly, assessing the potential risks as wellas barriers. Leading top managers and IT

experts assessed this activity as a criticalsuccess factor (Sauer et al., 1997). The an-ticipated cultural barriers as well as corpo-rate culture implications are key to suc-cessfully start transforming the organiza-tion (Schein, 1999, Kotter, 1995, Kotter,1996). The aforementioned SWOT analy-sis provides a good starting point andshould be refined further, anticipating dif-ferent scenarios as well as using a futurestudy method like Delphi for HorizonScanning as well as part of a Risk Man-agement Strategy (Huang et al., 2012, Idenand Langeland, 2010). It also delivers ma-terial for later decision making and estab-lishing a sense of urgency as suggested inKotter’s eight step model (Kotter, 1996,Kotter, 1995) for successfully stimulatingorganizational change.

Grounded Vision and Goals: Goals of

what has to be attained first in order to besuccessful as well as how success is meas-ured have to be negotiated and agreed on.These should be quantified in order to givea reliable answer for the BPR initiative,Critical Success Factors (CSFs) as well asKey Performance Indicators (KPIs)(Blackburn and Rosen, 1993, McCarthyand Blumenthal, 2006, Pande et al., 2000,Pugh, 2007). Benchmarking is a great toolto develop KPIs, either using external re-

sults from world class companies or inter-nal results from top performing groups


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(Camp and Camp Robert, 1989). Once thisstep of decision making is finished resultshave to be translated into a guiding vision,that helps all people involved to under-stand what is going to be achieved with the

new process and how the transition withinthe organization might affect them (Car-nall, 1990).

Communication Strategy: In order foreveryone to understand (1) the need forchange; (2) each single step in the pro-posed change process; and (3) how it is af-fected, an appropriate communicationstrategy has to be formulated. Kotter’seight step model gives good guidance for

achieving this and highlights the im-portance of open communication of thenew vision and goals to every member ofthe organization as well as the stakehold-ers (Kotter, 1995, Kotter, 1996). The strat-egy has to facilitate fast feedback loops be-tween subordinates and managers as it isessential to react fast to unanticipated bar-riers that appear (Stopford and Baden‐Fuller, 1994). Storytelling provides a good

method to help all members of the organi-zation to identify with the changes and un-derstand the need for change (Jassawallaand Sashittal, 2002).

Strategy Alignment : Established or-ganizations often operate a number of ex-isting methods for ICT process or qualityimprovement such as Continuous Im-provement, TQM, Lean Six Sigma or simi-lar with related change management proce-

dures. Executive leaders often challengedto align current operating projects withlong-term visions and strategies(Davidson, 1993). While developing thestrategic part of the Organizational ChangePlan, these already existing parts should beleveraged to achieve higher acceptancefaster as well as to save time and money toimplement new processes when alreadyexisting ones are also suitable (Bansal,2003, Carnall, 1990, Pande et al., 2000,

Pugh, 2007, Willard, 2009). An examplewould be to show similarities between the

proposed change management processes tothe Lean Six Sigma DMAIC approach inorder for organization members to graspthe needed actions better. Several authorsprovide overall guidance as well as step-

by-step instructions to achieve this (Cam-eron and Green, 2012, Pugh, 2007).

Tactical Level

This part of the OrganizationalChange Plan focuses on the ‘How’, ‘Howmuch’, ‘When’, ‘Where’ and ‘Who’ forthe change in the organization. It sums uptimeframes, responsibilities, effects andsimilar to support implementation of above

mentioned change strategy.

Sponsors and Champion Identifica-

tion: Change comes with high costs, espe-cially if significant parts of the ICT systemin an organization require change. In orderto get this costs covered and achieve sup-port from the rest of the business, sponsorsin the high management and executivelevel have to be identified and convincedof the urgency to change (Manley, 2000,Kotter, 1995). In addition, a so-calledchampion for change should be identifiedand announced. It is recommended thatthis role be only given to a limited numberof individuals to increase visibility of theseindividuals’ actions and to provide a cen-tral point for feedback. Champions have tobe familiarized with change managementand be highly trained in the required newprocess so to lead by good example (Ban-

sal, 2003, Beck, 1987, Harris and Crane,2002, Molnar and Mulvihill, 2003). Beck(1987) recommends using indiv-iduals insenior positions that can leverage theirposition to positively impact change.

Attain Leadership Commitment &

Building the Change Team: From thispoint onwards the main role of the spon-sors is also to spread motivation inside thecompany and attain leadership commit-

ment at all levels within the organization.Implementing change is nearly impossible


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if the different leadership individuals donot act as catalysts towards their subordi-nates (Cameron and Green, 2012, O'Neill,2011). The champion(s) will select addi-tional individuals that form a change team

together with themselves. This teamshould be diverse, interdisciplinary, inter-departmental and highly motivated tomove the change project forward to spreadit into the full organization (Manley, 2000,Molnar and Mulvihill, 2003). Similar tothe champion, team members should enjoyfirst priority when it comes to training forthe changes to be implemented. To in-crease diversity in the team and to get indi-viduals to acquire skill sets that are not

available inside the company, externalteam members have proven to be helpful.They however also increase the risk of al-ienation and should be kept low in relativenumber (McCarthy and Blumenthal,2006). A CSF that has to be attained is em-powerment of the change team and mem-bers have to be given resources as well asthe power to use them to implementchange without being burdened by organi-zational barriers such as bureaucratic pro-cesses in order to be successful (Kotter,1995).

Incentives and Rewards: In order torecruit individuals to become sponsors,champions or members of the change teamin the first place there has to be a motiva-tional cause (Handfield and Ghosh, 1994).Especially later on when change is spread-ing into each part of the organization, there

has to be a motivation for people tochange. A good illustration of this is pro-vided by Beckhard and Harris´ (1977)change formula:

In this formula ‘C’ represents Change thatonly happens if the combined factors ofLevel of Dissatisfaction ‘A’, Desirabilityof proposed change or end stage ‘B’ and

Practicality of change ‘D’ are higher thanthe cost of changing ‘X’. The eight step

model provides the necessary stimulus orpush factor for ‘A’; it is urgent and disas-trous not to change. Practicality of changeD is achieved by using a thorough strategyand use of best practises that have been

shown to be successful. In order to in-crease the motivation to change, pull fac-tors for ‘B’ like incentives and rewardsshould be put into place (Beckhard andHarris, 1977). Since the people directly in-volved in the change processes in ICT aremost likely Knowledge Workers, thesehave to be adapted to the needs of thesespecific class of employees as highlightedby Herzberg (1993) and Davenport (2005).

Training Requirements: In order toenable all individuals in the organizationto successfully implement change, bestpractice suggests compiling a check list oftraining and required qualifications. Man-agers must then check the skill sets of theirsubordinates and plan for appropriatetraining to bring them up to speed withwhat is required. Effectiveness in this re-gard increases the aforementioned practi-cality of change ‘D’; standardized trainingreduces miscommunication and increasesself-confidence within the new processes(McCarthy and Blumenthal, 2006, Molnarand Mulvihill, 2003, Carnall, 1990).

Set up Performance Measurement

Systems: To successfully link KPIs to ac-tual performance of the organization, ap-propriate Performance Measurement Sys-tems (PMS) have to be set up (Blackburn

and Rosen, 1993). Depending on the na-ture of the measured variables these can,for example, be based on the Lean SisSigma Statistical Process Control (SPC)method for lead and runtimes in ICT pro-cesses (Neely, 1999, Pande et al., 2000),Balanced Scorecard for financial impactsof ICT processes (Kaplan et al., 1996) orthe Performance Prism that focuses on in-dividual value delivered to the stakehold-ers (Neely et al., 2001). In order to reduce

complexity, already existing PMS shouldbe considered first if they are suitable or


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adoptable for use and if there are PMSavailable that are compatible to these. Inaddition, setting up external audits byagencies or consultants to get objectiveand out-of-the-box performance feedback

increases the likelihood of successfulmeasurement and thereby reliability ofchanging successfully (McCarthy andBlumenthal, 2006).

O’Neil (2011) provides a comprehen-sive definition of what each role in thechange team is and what different types ofsponsors and champions exist, while Pugh(2007) outlines in a step by step guide howto prepare and plan for implementation on

a tactical level.

Second Phase: Implementation of new ICT

Processes and Organizational Change

After successfully completing the In-vestment and Initiation stage, the new orreengineered ICT business processes areready to be implemented. Implementationis concerned with putting the innovation(ICT project) into action, and with a majorchange this phase often occupies a periodof between two and three years (Williamsand Williams, 2007). Individuals withinthe organization are informed and con-fronted with the change and expected tobegin the adaptation process. The ChangeTeam and Leadership bear main responsi-bility to support successful business trans-formation and organizational change. Thisphase requires managing problems and

conflicts proactively, providing in-betweensolutions for the time of transition andadapting planned actions to actuallyneeded ones. The ICT Project Manage-ment Team as well as the ImplementationTeam of the ICT process must activelysupport these activities by implementingfeedback from the actual users into the re-quired way of working.

Communicate Leadership Commit-

ment: At the start of the implementationphase, ongoing leadership commitment

must constantly be communicated to eve-rybody in the organization to increase mo-tivation for change and demonstratingleadership by example. Following Kotter’s(1995) eight step model, the motivational

factors defined by Herzberg (1993) as wellas the factors highlighted for motivation ofknowledge workers (Davenport, 2005)should be kept in mind when communi-cating change messages to avoid creatingnew barriers by unclear communication.Leadership commitment can be best ex-pressed if training and team activities aredone with higher leaders present. Lan-guage, as well as the communication me-dium should be adapted to the number, job

role and group of individuals relevant toeach situation (Cameron and Green, 2012),following a frequently updated step-by-step process (Tuckman, 1965, Tuckmanand Jensen, 1977).

Identify and Manage Actual Barriers:

Anticipated barriers to change are oftendifferent to the actually barriers thatemerge as change plans are implemented.In order to identify emerging barrierstimely and approach them coherently, fastiterative loops should be implemented atmiddle and team management levels; bestpractices should then be communicated toother entities within the organization(Cameron and Green, 2012, Kotter, 1996,Pugh, 2007). If there is a huge gap be-tween the anticipated and actual barriers, afull review of the plan and strategy shouldbe conducted.

Conduct Training: Ongoing traininghas to be conducted to fill gaps in know-ledge and skills that were identified as es-sential in the organizational change plan.Motivation for change can be increased inthese sessions by conducting them in mix-ed groups with people from different lev-els in the organizational hierarchy, back-grounds and groups (McCarthy and Blum-enthal, 2006). Stressing the importance of


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training into the overall storytelling pro-vides additional motivation for change(Jassawalla and Sashittal, 2002).

Manage Conflict: Conflict is an es-

sential part of change. Old ways of doingwill be challenged, individuals have toadapt to new behaviour which might leadto conflict and challenging the new pro-cesses. Conflict situations provide an im-portant opportunity to improve and adoptnew processes provided an open mentalityand change resilient approach are used(Bridges and Mitchell, 2000, Cameron andGreen, 2012). Weinberg (1997) offers auseful conflict management model based

on the psychodynamic approach to illus-trate the critical conflict points in thechange process that have to be accommo-dated.

Organizational Innovation: This ac-tivity describes the required innovationthat has to take place to successfully trans-form the organization itself in order to suc-cessfully facilitate the technical chan-ges.The changes are getting integrated afterthe initial conflict, fostering new ideas andinnovation (Stopford and Baden‐Fuller,1994).

Stakeholder Communication: Asbusiness transformation takes place, com-municating this change to internal and ex-ternal stakeholders acts as confirmation ofthe change. It provides reassurance that therecent effort in business transformation is

not just a fad, but a fact that is positivelychanging the organization. It motivates in-dividuals by showing the importance ofwhat has been done and draws attention tothe organization (Davenport, 2005,Stopford and Baden‐Fuller, 1994). It al-soloops back the output obtained from in-vested resources to the stakeholders.

Performance Measurement: The pro-posed and planned PMS are put into place

and actual measurement is being con-

ducted. Supervision of this process - pref-erably by an external party - is importantto avoid individuals cutting corners andmaking mistakes due to ‘institutionalblindness’ (Blackburn and Rosen, 1993,

McCarthy and Blumenthal, 2006).

Third Phase: ICT Payoff and Institutional-

ization of Organizational Change

In this phase the ICT project has beenimplemented according to a set of goalsand timeframes; ideally the new ICT sys-tems pay off and add value to the organi-zation which had to find ways to adapt tothe new way of working. The emphasis

during institutionalisation or continuationis on “seeing the innovation integrated intodaily life, and no longer considered assomething new” (Williams and Williams,2007). In this phase evaluation of success(or failure) is done, positive outcomes arereinforced and negatives ones analysedand assessed. Knowledge is captured andmanaged to provide learning to presentand future members of the organization.

Analyse Organizational Changes &

Post-Impact Analysis: The measured per-formance as well as achieved goals arecompared to the planned KPIs. Answeringwhy some were achieved and especiallywhy some were not achieved will provideimportant learning for the organizationwhich has to be captured and handled in anappropriate way as described below. Sur-veys as well as interviews could provide

feedback on the stage of change the organ-ization is in and what has to be done to re-inforce the desired change (Cameron andGreen, 2012, Kotter, 1995, Kotter, 1996,Pande et al., 2000).

Reinforcement of Positive Change &

Reduction of Negative Change: In order toreinforce the initial desired change, themeasured change to the ICT process aswell as perceived organizational changes

should firstly be categorized as positive ornegative change (Blackburn and Rosen,


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1993, Cameron and Green, 2012). Shorterlead times, faster processing of jobs orhigher employee motivation are good ex-amples of positive change that should bereinforced through effective communica-

tion that focus on the successes and not onthe negative aspects of change. Examplesof negative change are a loss in motivationdue to confusion with the new systems, anincrease in defects and errors or higheremployee turnover because of dissatisfac-tion with the new system (Blackburn andRosen, 1993). Whatever the case, the rea-sons for negative change should be closelyanalysed and measured so to be able to re-duce or even reverse these changes. Com-

municating these problems should be doneopenly, but not be the main subject ofcommunication (Blackburn and Rosen,1993, Cameron and Green, 2012, Herz-berg, 1993, Kotter, 1995). Celebration ofsuccesses of the implemented change is akey success factor (Pugh, 2007).

Knowledge Management: In order tosucceed in institutionalizing change intothe organization, individual as well as or-ganizational learning has to be shared withothers on a need-to-know basis. In order tonot only provide information, but actualknowledge that supports sustained change,Knowledge Management (KM) is an es-sential part of this step. Effective sharingof information is achieved via an appropri-ate Knowledge Management System(KMS). A KMS is a system that supportsan individual’s own learning by providing

appropriate knowledge in a timely mannerand allows the sharing and storing of per-sonal knowledge for later reviews and re-use (Alavi and Leidner, 2001).

Review Strategy: Lastly, after thetechnical and organizational impacts havebeen assessed a review of the overall strat-egy is to be done. In this review the posi-tive and negative impacts of implementedstrategies, tactics, methodologies and tools

are assessed. The needed changes are doc-umented in order to prepare the ground for

the next business transformation and or-ganizational change effort (Kotter, 1995,Pugh, 2007).

Practice Implications

In this paper we have presented a ge-neric and comprehensive BT&OC processframework designed as a basis for imple-menting major ICT projects as part of anorganizational change strategy. This inte-grative framework goes further than previ-ous attempts, which by the nature of theirdesign do not provide sufficient balancebetween technical (transformational) andcorresponding organizational (soft) issues.

Managers in all types of organizations canuse and adapt this blueprint to their spe-cific contingency to effectively guide theirplanning and implementation of major ICTprojects. It provides a chronologicalchecklist that ensures that proper attentionis paid to the right activity at the rightpoint in time.

Research Implications

The integrating process frameworkbrings together research from both tech-nical and organizational perspectives. Thiswill enable researchers to understand howeach perspective relates to the other andcontributes to organizational performanceas a whole. Hence it will enable ICT andmanagement research to address the riskthat emphasizing a limited number of per-spectives or factors may compromise the

others, and as a result may inadvertentlycompromise the performance of the newICT project, the organization, or both.

The framework, however, needs prac-tical validation. For example, to what ex-tent is it compatible with ITIL and otheralready existing ICT Management ap-proaches? This identifies an avenue forfurther research, plus identifying limita-tions that the proposed framework requires

rigorous empirical validation to enhanceits legitimacy.


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Conclusions

Existing frameworks and models ex-ist but do not appropriately link technical,innovation and organizational implementa-

tion. In this paper the identified best prac-tices in business transformation and organ-izational change have been obtained frompeer reviewed sources and have success-fully been used in companies and organi-zations all over the world. Bearing in mindthe unique situation of ICT processes, thedifferences between implementers as wellas users and how ICT affects the organiza-tion overall, a conceptual framework forbusiness transformation and organizational

change was developed to fill the gap in theliterature. The various constructs in theframework do not only stem from researchin ICT environments, but from change pro-

jects relating to all areas of business. In the

context of this paper the framework wasdeveloped specifically for implementationof ICT projects, such as the ITIL approach,but in all likelihood its application can bemuch broader in terms of the scope ofchange projects. In the ICT domain, imple-mentation involves mobilising the tech-nical implications and enhancing themwith matching best practices from the fieldof organizational change.

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EMPIRICAL STUDY ON THE RELATIONSHIP BETWEEN COFFEE TAST-ING QUALITY AND RECREATION SPECIALIZATION, PRODUCT IN-

VOLVEMENT, AND COUNTRY OF ORIGIN IMAGE

Yueh-hsin WuDept. Industrial Engineering and Management

Cheng Shiu University, Taiwan, [email protected]

Ya-Hui KuoDept. of Business Administration

Cheng Shiu University, Taiwan, [email protected]

Chih-Yun YangDept. of Hospitality and M.I.C.E. Marketing Management

National Kaohsiung University of Hospitality and Tourism, Taiwan, [email protected]

Abstract

For modern people, drinking coffee is part of their lifestyle, as coffee tasting has become asynonym for leisure. In previous studies, most of the research on recreation specialization tar-geted the outdoor recreational activities for market research, but little work had been done onthe indoor recreational activities. In this study we select coffee tasting from among other rec-reational activities as the research subject for investigating the involvement of coffee drinkersin coffee tasting and coffee products, and for testing whether their involvement may affectcountry of origin image of coffee products. This research is supplemented by questionnairesurvey. The participants in the survey are members of the coffee association who have re-

garded coffee tasting to be their main recreational activity. 890 questionnaires are issued,from which 302 are collected, with 288 questionnaires considered as effective samples afterthe deletion of 14 invalid samples. The research results show that the level of product in-volvement will be increased if the recreational specialization of coffee tasting is augmented,and that the cognition of country of origin image for coffee products will be improved if cof-fee drinkers’ recreation specialization and product involvement are augmented.

Keywords: Coffee, Recreation specialization, Product involvement, Country of origin image


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Introduction

Coffee, cocoa, and tea are the threemost popular leisure drinks in the world.Coffee beans are the second most im-

portant bulk commodity following crudeoil. Under the globalization trend, drinkingcoffee has become a daily habit for themajority of modern people. In recentyears, there is a growing demand for vari-ous recreational activities, as people turnto recreational activities as a way to reducework pressure (Westmen et al., 2001).More and more people have found coffeetasting to be their main recreational activ-ity. Part of the reasons for the increasingly

popularity of coffee tasting is because thiskind of creational activity can help peopleliberate their work pressure, and at thesame time, coffee tasting has also becomean important social event. Furthermore,many people even boast coffee tastinghabits as a symbol of personal taste.

The prevalence of coffee and the cof-fee tasting culture has gone through sev-eral hundred years of development andevolution. Factors such as coffee variety,produced region, year of product, bakingtechniques, preservation and grindingmethod, as well as selection method, allhave an influence in determining the finalflavor of coffee products. Nowadays,many related books and articles introduc-ing coffee tasting are available on the mar-ket, which allow people to easily under-stand coffee drinking and brewing meth-

ods. In the past, most of the studies on rec-reation specialization were based on out-door activities, while little research workhad been done on indoor recreational ac-tivities. From all recreational activities,this study has chosen coffee tasting as ourresearch topic for investigating the in-volvement of coffee drinkers in coffee tast-ing and coffee products, and also for test-ing whether their involvement may affectcountry of origin image of coffee products.

Literature Review

Recreation Specialization

The theory of recreation specializa-

tion was first introduced from Bryan in1977. The term “recreation specialization”refers to the continuous upgrading of con-sumer involvement from general recrea-tion with no specific purposes at the begin-ning to become highly interested in a spe-cific activity, and then getting highly in-volved in such recreation activity. Thisgradual process corresponds with contin-ued changes in habitual behaviors of theconsumers (Bryan, 1977). The majority of

subsequent researchers recognized Bryan’sdefinition, concept, and action-oriented re-search results.

However, some scholars suggestedthat the recreation specialization theoryproposed by Bryan only covered cognitiveaspects and behavioral aspects, lackingconsideration on emotional aspects (McIn-tyre and Pigram, 1992). Thus, these schol-ars proposed other variables, such as cen-trality to living style and continuous in-volvement as additional measurementscales of recreation specialization (Brickerand Kerstetter, 2000). In this study, wehave selected coffee tasting from amongother types of recreational activity for in-vestigating whether increase in recreationspecialization will bring about more re-finement in coffee tasting, such that coffeedrinkers will further produce special pref-

erences for space and utensils in coffeetasting.

Level of Involvement

Krugman (1965) extended the con-cept of involvement to the field of market-ing, which formed the basis of his con-sumer behavior research. In his work, hebelieved that if the consumers’ attention toinformation, products, services, or demand

is changed, their involvement or approach


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will also be different (Laurent and Kap-ferer, 1985; Schiffman and Kanuk, 2000;

Blackwell, Miniard and Engel, 2001). Inexploring the level of consumer involve-ment in coffee products, we use the in-

volvement construct of Zaichkowsky(1985) for investigating the level of in-volvement of coffee drinkers in coffeeproducts, and testing whether the degree ofconsumer involvement will have any bear-ing on the coffee drinkers’ attitude towardsvarious coffee products.

Country of Origin Image

Country of origin image is defined as

consumers’ subjective impression with re-spect to the country of manufacture of spe-cific products, for which the consumer’scognition, attitude or purchase intentiontoward the products originating from thatcountry will be affected (Nagashima,1970; Han, 1989). Country of origin image

of consumers is influenced by the Haol Ef-fect and Summary Effect, which determineconsumers’ willingness and evaluation re-sult for specific products (Nagashima,1970; Parameswaran and Pisharodi, 2002).

In summary, we propose that, with the en-hancement of the level of specialization ofcoffee tasting and the product involvementof coffee drinkers, they will start to try outdifferent kinds of coffee from differentcountries. In the process, they also begin toproduce preferences for a particular coffeeflavor originating from a particular coun-try. The degree of involvement in coffee

products will affect country of origin im-age by the coffee drinkers.

Discussion over Recreation Specialization,

Product Involvement, and Country

of Origin Image

From previous research results(Bryan, 1977; Virden and Schreyer, 1988),

it can be inferred that if the recreation spe-cialization of coffee tasting is augmented,

coffee drinkers will likely develop specialpreferences for coffee tasting settings, so

they start to actively participate in relatedtasting activities and collect informationconcerning coffee varieties, country oforigin of coffee products, etc. augmentingtheir level of involvement in coffee prod-

ucts. Thus, hypothesis 1 is set as follows:

H1: The level of specialization in cof-

fee tasting will have significant

positive effect on the product in-

volvement of coffee drinkers.

In addition, if the level of recreation spe-cialization in coffee tasting is augmented,country of origin image of coffee productswill be affected (McIntyre and Pigram,

1992). Thus, it can be inferred that, if thecoffee tasting specialization is enhanced,coffee drinkers will be more likely to ac-cept different coffee from different coun-tries. However, after people have gainedmore knowledge on coffee making, and af-ter they have tried different coffee fromdifferent countries, coffee drinkers will de-velop personal liking for certain kinds ofcoffee from specific countries. Thus, coun-try of origin image for certain coffee prod-ucts will be changed, so hypothesis 2 is setas follows:

H2: The level of specialization in cof-

fee tasting will have significant in-

fluence on country of origin image

of coffee products.

From various coffee tasting activities,coffee drinkers may develop special inter-

est in the process of coffee tasting, so thatthey begin to collect related information ofcoffee products. Because coffee growing isdetermined by many special factors thatcannot be replicated, such as climate, soil,water, etc, coffee will have different fla-vors when planted and baked in differentcountries, even by using the same kind ofcoffee beans. However, if coffee drinkershave preference for roasted coffee fromcertain countries, their involvement will

have positive influence on country oforigin image of coffee products (Ahmed,


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d'Astous and Lemire, 1997; Lin and Chen,

2006). From the above reasons, hypothesis3 is set as follows:

H3: The level of product involvement

of coffee drinkers will have signifi-cant impact on country of origin

image of coffee products.

Research Methodology

In this study, our research methodol-ogy has taken reference to related litera-ture, and then our questionnaire is de-signed to suit research needs. The ques-tionnaire is mainly composed of four parts.

The first part is to measure the level ofspecialization of coffee drinkers, with ref-erence to the recreational specializationmeasurement index developed by McIn-tyre and Pigram (1992), with 21 questions;

the second part relates to involvement di-mensions. It is based on the modifiedmeasurement scale proposed byZaichkowsky (1985), with 8 questions; the

third part relates to country of origin im-age, which is based on the analysis of gen-eral attributes of country, general attributesof product, and specific attributes of prod-uct of Parameswaran and Pisharodi (2002),with 17 questions after modification; the

fourth part covers the basic personal dataof survey participants, including gender,age, marital status, education level, profes-sion, and monthly disposable income, with6 questions. In all, a total of 50 questionsare selected for the formal questionnaire.

The overall reliability of the questionnaireis 0.817, so this choice of questions is con-sidered good quality.

Data Analysis

Analyzing the Sample Structure

In this study, our main purpose is toexplore the relationship between “speciali-zation level” in coffee tasting and “product

involvement”, so we choose coffee drink-ers who have regarded coffee tasting as

their main recreational activity. Thus, weuse members of the coffee tasting associa-tion as research samples. Sample data arecollected with paper based questionnaires.A total of 890 questionnaires are distrib-

uted, from which 302 are collected with areturn rate of 34%. 288 (91.8%) are con-sidered effective samples after the deletionof 14 invalid samples (8.1%). The back-ground information of survey participantsare shown in Table 1.

Analyzing the Relationship between

Recreation Specialization and

Product Involvement

Regression analysis is used to testHypothesis 1 with “product involvement”as the dependent variable. The resultsshow that the relationship between “recre-ation specialization” and “product involve-ment” is significantly positive, so Hypoth-esis 1 is substantiated, that means “special-ization level” will have significant impactover “product involvement”, showing sig-nificant positive influence. Please refer toTable 2 (△R2 = .367, P < .01).

Analyzing the Relationship between Recre-

ation Specialization and Country

of Origin Image

Hierarchical regression is used to testHypothesis 2 using “country of origin im-age” (including country image, productimage and environmental background) as

dependent variables. The demographicdata are used as control variables, the re-sults of model 2 analysis show that signifi-cant positive correlation exists between“recreation specialization” and “origin im-age”, so Hypothesis 2 is substantiated, thatmeans “recreation specialization” has asignificant impact over “country of originimage”, showing significant positive influ-ence. Please refer to Table 3 (△R2 = .156,P < .01).


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Analyzing the Relationship between

Product Involvement and Country

of Origin Image

Hierarchical regression is used to test

Hypotheses 3 using three dimensions of“country of origin image” as dependentvariables, namely country image, product

image, and environmental background.The analysis results show that Hypothesis3 is substantiated. Please refer to Table 4(△R2 = .133, P < .001).

Table 1. Distribution of Sample Data

Variablename

Times Percent-age (%)

Variablename

Times Percentage(%)

Gender male 165 57.2 Maritalstatus

married 265 92female 123 42.8 single 25 8

Age under 25 21 3.3 Education Voca-tionalschool

23 7.9

26-35 65 25.7 Univer-sity

213 73.9

36-45 93 50.2 Masters 46 15.9above 46 109 20.8 Phd 6 2.3

Profession service sector 86 29.9 Monthlydisposa-ble in-come

200USD 13 4.6civil servant 123 42.7 400USD 56 19.4manufactur-ing

27 9.3 600USD 113 39.3

teaching 45 15.6 800USD 59 20.4freelance 7 2.5 1000US

D47 16.3

Table 2. Hierarchical Regression between RecreationSpecialization and Product Involvement

Dependent variable: Product involvementIndependent variables: Model 1 Model 2Control variables Β Β Gender .053 -.003Age .-043 -.007Marital status .113 .084Education .-032 .023Profession .032 -.056Monthly disposable income .038 -.064

Predictor variables:Importance of activities .272***


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Skills and knowledge in coffee tast-ing

-.092

Coffee tasting setting .264***Egocentricity .283***R2 .023 .376∆R2 .022 .367F Change 1.131 43.675Sig. of F .354 .004**

Note: *p< .05, **p< .01, and ***p< .001.

Table 3. Correlation between Recreation Specialization and Country of Origin

Image using Hierarchical RegressionDependentvariables

Country image Product imageBackground envi-ronment

Country of originimage

Independent var-iables:

Model 1 Model2

Model1

Model2

Model1

Model2

Model1

Model2

Control variables β β β β β β β β Gender -.041 -.064 .013 -.003 -.005 -.049 -.017 -.048Age .-078 -.053 .-016 .003 .009 -.003 .-050 -.023Marital status .089 .074 .048 .032 .018 .003 .081 .052Education .063 .082 .018 .062 -.117 -.079 .006 .051Profession .123 .051 .119 .079 -.039 -.073 .109 .049Monthly dispos-able income

.1108 .089 .039 .003 -.078 -.131 .051 -.012

PredictorVariables:Importance ofactivities

.101 .176* .293* .232**

Skills andknowledge incoffee tasting

-.099 -.181* .012 -.139

Coffee tastingsetting .178** .192** .048 .198**Egocentricity .237** .176* -.076 .187*R2 .042 .178 .021 .149 .024 .083 .023 .175

∆R2 .042 .129 .021 .127 .024 .060 .023 .156F Change 2.358 12.542 1.212 11.691 1.424 5.018 1.210 14.787Sig. of F .024 .002** .300 .001** .214 .001* . 310 .003**

Note: *p< .05, **p< .01.


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Table 4. Correlations between Product Involvement and Country of OriginImage using Hierarchical Regression

Dependentvariables

Country image Product image Environmentalbackground

Country of originimage

Independentvariables

Model1

Model2

Model1

Model2

Model1

Model2

Model1

Model2

Control variables β β β β β β β β

Gender -.042 -.064 .009 -.009 -.006 .006 -.017 -.037

Age .-080 -.067 -.019 -.008 .010 .010 -.044 -.033

Marital status .096 .045 .051 .008 .023 .022 .078 .031

Education .057 .073 .021 .035 -.120 -.120 .005 .020

Profession .111 .099 .124 .114 -.035 -.035 .106 .095

Monthly disposa-

ble income.102 .085 .040 .026 -.074 -.074 .048 .033

Predictor variables

Productinvolvement

.408** .342** .006 .368**

R2 .044 .207 .022 .137 .026 .026 .022 .155

∆R2 .044 .163 .022 .115 .026 .000 .022 .133

F Change 2.469 65.354 1.212 42.321 1.424 .010 1.210 49.956

Sig.of F .024 .018* .300 .012* .205 .919 . 301 .009**

Note: *p


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cause changes in individual consumer’sbehavior. Besides, our research shows thatcoffee drinkers’ “involvement in coffeeproducts” has significant positive correla-tion with “country of origin image”, that

means if coffee drinkers are getting moreinvolved with coffee products, the countryof origin image of coffee products will beimproved. However, our research resultscontradict with the conclusions of Ahmedet al. (1997), in which the scholars be-lieved that “level of product involvement”and “country of origin image” is an inverserelationship. Since coffee produced in dif-ferent countries carry different flavors, wesuggests that coffee drinkers will likely de-

velop special preferences for specific cof-fee flavors in the process of coffee tasting,so they start to collect related informationwith regard to the coffee originated fromspecific countries. For example, they startto understand the climate, soil conditions,and geographical locations of specificcountries, so that their interest in coffeeproducts will help create a positive countryof origin image for particular coffee prod-ucts.

Summing up the above findings, wecan see that if the level of specialization

and product involvement in the coffee tast-ing are augmented, coffee drinkers’ “coun-try of origin image” for particular coffeeproducts will be improved. Thus, we sug-gest that coffee producers not only have to

host regular coffee tasting activities to en-hance coffee drinkers’ recreation speciali-zation and product involvement, they alsohave to pay special attention to the selec-tion of venues and the overall atmosphereof coffee tasting when they plan coffeetasting activities. Given considerable im-provements in the overall layout of exhibi-tion and background music, coupled withthe culture, humanities, and folk customs,coffee drinkers can feel the atmosphere of

the coffee producing country. These pro-motional ideas can strengthen consumers’product impression, and also allow coffeedrinkers to feel at home facing the cultureof the coffee producing country. Throughpromotional activities, coffee drinkers willgain deeper understanding with regard tocoffee producing countries, so the countryof origin image will be further enhanced.Finally, since coffee tasting is a very sub-

jective idea, perhaps in the future, more in-depth research could be supplemented withpersonal interviews, so that new perspec-tives may be discovered in the process.

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MODEL OF STATE-OWNED ENTERPRISE (SOEs) PRIVATISATIONTHROUGH NEW COMMON STOCK AND ITS IMPLICATION TOWARDS

FINANCIAL PERFORMANCE PERIOD 2005-2012

Ibnu KhajarDepartment of Economics

Sultan Agung Islamic University (UNISSULA), Indonesia

e-mail: [email protected]

Abstract

Megginson, Nash, and Randenborgh, 1994 confirmed that there had been an improvedfinancial performance. The performance of State-owned enterprise (SOEs) was influenced bythe basic model of privatization. This research was intended to acknowledge and analyze;how was the model of privatization of State-Owned Enterprises (SOEs) in Indonesia?; whatwas the new common stock or divestment?; how was the price of stock of IPO in SOEs inIndonesia?; What were over-value or under-value?; and how was the financial performance

(return on sales, return on equity) of SOEs in Indonesia pre-privatization and post - privat-ization? The research employed paired sample T Tes of statistic analysis. It aimed to seek forthe difference of the financial performance pre-privatization and post-privatization. Theresearch showed that (1) All SOEs were privatized by issuing new stock; (2) four privatizedSOEs experienced under-value, and the other one had over-value; (3) two SOEs had betterfinancial performance at post-privatization compared to pre-privatization.

Keywords: IPO, privatization, over and undervalue, return on sales and return on equity.

Introduction

State-Owned enterprises (SOEs)(in Indonesia namely BUMN) is a businessentity in which partly or all ownershipowned by government of Republic ofIndonesia (Indonesian Language Encyclo-pedia). Government of Indonesia has madesome fundamental regulation changerelated to ownership of some SOEs inIndonesia. It means that the shares can beowned by public.

Critics appeared related to the

existing monopoly or certain regulationsfor supportive competition (Act. No. 51999). The government was considered tobe business actors as well as regulator.Therefore, privatization was meant to copewith such problem. It was meant toimprove efficiency and also profitability.Currently, there were thirteen industrialcompanies which have been privatized(listed in Table 1.2)


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Table 1. Privatized BUMN PERIOD 2005 – 2011

NO INDUSTRY LISTING1 PT Wijaya Karya (WIKA) 29-10-20072 PT Jasa Marga (JSMR) 12-11-2007

3 PT Bank BTN (BBTN) 17-12-20094 PT Krakatau Steel (KRAS) 10-11-20105 PT Garuda Indonesia (GIAA) 11-02-2011

Source: BUMN (SOEs) on-line Directory

SOEs, either a business or non-business one, have similar features withother kinds of companies. Their success onachieving the objective is mostly influ-enced by their internal conditions such asmarketing, production, resource, andcapital. External factor also plays import-ant role for the success of SOEs such ascompetition, macro economy, technology,and global issue. However, external factorhas less influence irrespective of the typeof the company either public or privatesector. Meanwhile, the internal factor willbe highly influenced by the change ofcompany control from government to

private sector. Megginson, Nash, and Ran-denborgh (1994) mentioned that State-owned enterprises (SOEs) often experi-enced loss. Mostly, they focused onmaximazing the labours and developingremote areas. These enterprises were oftenunprofitable. However, due to their visionand mission which is non-market oriented,they tried to keep running. To overcomethis challenge, government providedsubsidies for inputs or all losses. In the

long run, if this continuously happened,and these SOEs were unprofitable, thisbecame burden for government. To solvethis problem, privatization and divestmentwere considered to be done. Having thecompanies privatized, it was intended toimprove the performance of the enter-prises. It was expected that the manage-ment of the companies could be controlledbetter by non-government bodies. Thestudy showed that the performance of

companies were improved after theprivatization.

The concept of privatization wasfocused on the interest of the company forits development. To develop the company,capital was required. One of the ways tohave the capital was through gaining newstock. Privatization model in the form ofdivestment only resulted on the transfer ofstock from government to private sector. Itis due to the stock purchasing would bedelivered to APBN (Nation’s BudgetRevenue Expenditure) and would be usedfor yearly budgeting. In the short run, thisbecame the treasury. However, in the longrun, this would give APBN loss due to theless demand for deviden.

The existing amount of cash flowin the privatization is influenced by stockprice in the primary market (IPO). Thereare two possibilities. First, the stock priceis exceedingly cheap, namely under-pricing. Second, it is too expensive calledover-pricing. Under-pricing happens dueto the less optimum of the budget gainedfrom privatization. There are many factorsinfluencing under-pricing or over-pricing

at IPO. Febriana (2004) mentioned thatunder-pricing is influenced by auditorreputation, underwriter, company age,solvency, and profitability. It has beenknown that privatized SOEs are those whohave huge asset and reached decades ofage.

Literature Review

State-Owned Enterprises (SOE)


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State-owned enterprises (SOEs) isa business entity in which partly or allownership owned by the government ofRepublic of Indonesia. The firm can be inthe form of non-profit firm aimed to

provide goods or services for community.Some SOEs in Indonesia, the governmenthas significantly changed the ownershipstatus. It means, the company stock can beowned for public. The purpose of this SOEis to give more contribution to nationaleconomy and the national cash flow, earnmore profit, meet the need of society,stimulate business activities and giveassistance and protection for small andsurvival enterprises.

Privatization and Divestment

Privatization focuses on theproperty rights. Private sector has the rightas the owner of the businesses. It means,the stock is sold in the domestic andinternational market, or the privateplacement (Team BEJ, 1996: 335-336).Privatization is often called denational-ization. Kompas (24 March 2002)mentioned that:

Privatization is defined as thetransfer of control of a company tomanagement of the private owners.This means that the majority of theshares owners of the firms arechanged. Hence, there is a gov-ernment control change. Thegovernment has no longer become

the actors, but as the regulatorsand policy makers. Then, themanagers will be responsible tothe new owners.

Privatizing BUMN means thatthe stock purchasing from the gov-ermnent to private sector (dome-stic or foreign)

The placement of the govern-

ment stock is meant not only toearn profit for the sake of

Nations’s Budget RevenueExpenditure (APBN), but also toimprove the performance of theSOEs themselves, to accelerategood corporate governance, to

open better access for internationalmarket, and transfer knowledgeand best practice for SOEs, andalso to have better work culturecondition.

Meanwhile, divestment is theprocess of selling off a portion ofa business unit or corporate asset(Harianto, Sudomo, 1998:779).

The last category of privatization isused by Indonesian government in May1997 to privatize five SOEs. They are PTSemen Gresik, Indosat, Tin Mine, TelkomIndonesia, and PT Bank BNI 1946. Thesefive SOEs shares were sold no more than35% of the total shares (Team BEJ:1996:341).

Go Public

Public Offering or sometimescalled Go Public or IPO (Initial PublicOffering) is an activity of offering orother securities in which executed by theIssuer (the go public company) to the pub-lic based on certain procedures and regu-lations set by the Capital Market Law.Public Offerings include main activities.They are the initial period when the secur-ities market are offered to investors by the

capital owner and Issuer warrantor throughappointed selling agents; allotment ofshares that investors allocate order. Thiseffects the number of available stock avail-able such as recording stock (listings).That is when the stock is began to trade onthe Exchange.

Companies that conduct publicoffering can gain several benefits. Theycan obtain relatively large funds and get

them all at once. Usually, these funds areused to develop the business (expansion),


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improve the capital structure and increasesubsidiary participation or acquire othercompanies, pay off some debts, addcapital, have relatively low cost of goingpublic, have relatively easy process; and

make the issuers easily well-known by thepublic (go public is a promotion media) forfree. Besides beneficial for companies,public offerings also provide benefit forsociety to participate and have thecompany's shares and obtain variousshareholder rights. The same opportunitywill be given to the employees toparticipate in company's own shares.

Overpricing and Underpricing of IPO

Stock price of the initial offer is anindicator of the success of the IPO. If thenumber of shares offered remains steady,then the funds received from the IPO islargely determined by the initial price.There are two possibilities that couldhappen to the stock price after the offering.The IPO price is greater than that of theinitial price traded on the secondarymarket. This share price condition is calledoverpricing. In contrast, if the price islower than that of the secondary market,then the condition is called underpricing(Kusuma, 2001:61).

Underpricing is a condition that thestock price of the IPO is lower that that ofthe secondary market. Basically, the pric-ing share is determined by an agree-mentbetween the issuer with underwriter.

Meanwhile, the stock price in the second-ary market is the result of market mecha-nisms that is based on the existing supplyand demand (Febriana, 2004:13-14).The phenomena of overpricing and under-pricing are an interesting topic in theliterature of finance. The condition shouldnot occur because the IPO price should re-flect all available information prior to theIPO issuers with underwriters whilespreading information prospectus to vari-

ous investors. Prospectus is information

about the issuer's financial and non-finan-cial condition. According to Trisnawati(1999) prospectus information is one ofthe main information resources used by in-vestors to decide whether they want to in-

vest in the listed companies in the stockmarket.

Company Performance

Performance measurement is oneof significant factors for a company. Thesemeasurements can be used to assess thesuccess of the company and be a basis forplanning the company's reward system(Secakusuma, 1997:8).

Kaplan and Norton (1992:14) havetried to measure the company's perfor-mance by considering four aspects. Theyare financial perspective, customer,process of internal business, and learningand development. The idea on balancingthe measurement of the financial and non-financial aspects was then called BalancedScorecard.

This research focused on the finan-cial and operational performance such ashow the performance of the State OwnedEnterprises after the privatization anddivestment. One indicator of financial per-formance is the level of profitability. Thislevel showed whether the company's goalhas been achieved or not. The better the fi-nancial performance is, the better for theshareholder. This condition will determine

the stock price and the subse-quent pros-perity of the shareholders (maximizingstockholder wealth). Husnan (1998:336)stated that fundamental analyst tried topredict future stock prices. It wasconfirmed that there was a strong relationsbetween the company's ability to generateprofits with stock prices, the increase ofprofit and stock price. This means thatthere was a positive impact on stockprices.

Theoretical Framework


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Particularly, enterprises, and

generally, the industry, either as a profit-oriented business organization or asproduction agents are expected to always

have a good performance. This researchdid not specifically discuss how to creategood performance. However, it focused oncomparing the financial perfomances ofenterprises classified in State-Owned En-terprises (SOEs).

The performance measurement inthis study refered to the work resulted bythe work of Megginson, Nash, and Ran-denborgh (1994:422). It was stated that inassessing the performance of companies,

two (2) proxies can be used. For instance,financial performance indicators of profit-ability aspects: (1) return on assets (ROA)which is the ratio of net income to total as-sets; and (2) return on equity (ROE),which is the ratio of net income to equity.Financial ratios are a fundamental variablein the study.

Before Privatization After Privatization

Figure 1. Conceptual Framework

Research Methods

Types of Research

This study is a causal research.Zukmun (1991) mentioned that theobjective of such research is to identifycausal relationship between variables, andto explain its relations. Hence, this study isalso referred to an explanatory researchwhich is aimed to explain the relationshipbetween variables through hypothesis test-ing (Singarimbun, 1989:5).

Population and Sample

The population of this study was

all companies including in SOEs which

were classified as go-public companies.There were 170 companies. The samplingmethod used was purposive sampling.There were:

The Privatized SOEs period 2005 – 2012.

The availability of the financial statementsbefore and after two-year go public.

Based on the above criteria, therewere 5 SOEs which have been privatized.They were T Wijaya Karya Tbk, PT JasaMarga Tbk, PT Bank BTN Tbk, PTKrakatau Steel Tbk, and PT GarudaIndonesia Tbk.

PRIVATI-ZATION

& DI-VEST-MENT

Financial and Operational

Performance

• Return on assets• Return on equity

Financial and Operational

Performance

• Return on assets• Return on equity

POST-PRIVATI-PRE PRIVATIZA-


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Data Collection Techniques

Primary and secondary data wereused in this study. Documentationtechnique was employed to gather the data.

Primary data was gathered by conductinginterview with several officers ofBAPEPAM and Jakarta Stock Exchangean

international journal of organiszational innovation final issue vol 7 num 2 october 2014

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