IJCBS Vol 2 No 2 Feb 2011 ISSN 2156-7506

International Journal of Contemporary Business Studies Vol: 2, No: 2 .February, 2011 ISSN 2156-7506

Copyright © 2011. Academy of Knowledge Process

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International journal of Contemporary Business Studies

ISSN 2156-7506

VOLUME 2 NUMBER 2 FEBRUARY 2011

IN THIS ISSUE:

An International Journal Published by Academy of Knowledge Process

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Intellectual Capital Disclosures between a Developing and Developed Nation Dr. Madan Bhasin Factors influencing Employee performance in the organization: An exploratory study of private organization in Bangladesh Ahasan ul Haque, Sabbir Rahman, Mehdi Hussain A Study on Customer Delight in selected Commercial Banks in India Sathya Swaroop Debasish, Sarmistha Sarma, Nikhil Chandra Shil Effect of perceived corporate brand on customers’ attitude towards Islamic banking Javid A.Malik, Iftikhar Ahmed Bhatti, Shagufta Parveen, Samreen Arshad



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International journal of Contemporary Business Studies A journal of Academy of Knowledge Process



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Contents

Intellectual Capital Disclosures between a Developing and Developed Nation Dr. Madan Bhasin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Factors influencing Employee performance in the organization: An exploratory study of private organization in Bangladesh Ahasan ul Haque, Sabbir Rahman, Mehdi Hussain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5 A Study on Customer Delight in selected Commercial Banks in India Sathya Swaroop Debasish, Sarmistha Sarma, Nikhil Chandra Shil. . . . . . . . . . . . . . . . . . . . . . . . . . . 4 0 Effect of perceived corporate brand on customers’ attitude towards Islamic banking Iftikhar Ahmed Bhatti, Shagufta Parveen, Samreen Arshad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4

International journal of Contemporary Business Studies VOLUME 2, NUMBER 2 FEBRUARY 2011



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Intellectual Capital Disclosures between a Developing and Developed Nation

Dr. Madan Bhasin

Professor in Accounting College of Business, Hospitality and Tourism Studies,

Fiji National University, P.O. Box 7222, Valelevu, Nasinu,

Fiji Islands

ABSTRACT

At present, disclosure of IC information across the globe is done by very few leading corporations, purely on a “voluntary” basis. Unfortunately, the omission of IC information may adversely influence the quality of decisions made by shareholders, or lead to material misstatements. This study attempts to provide an insight into the style of IC disclosures done by the top IT-sector corporations from India (a developing country) and Australia (a well-developed nation). In order to survey the recent IC disclosure practices, we conducted a comparative study of 16 Indian and 20 Australian corporations in which the “content analysis” was performed on their annual reports. The results of this study confirmed that IC disclosure by the corporations from these countries are found to be low, mostly reported in a narrative form, and IC disclosure had not received any preference from the mentors of these corporations. Knowledge, innovation, information technology, and people are key contributories in the future of any organization and IC is the key driver of market value in the knowledge economy. A major recommendation for corporations is to develop strategic and tactical initiatives that provide for ‘voluntary’ disclosing of IC. These initiatives may initially be used for internal management purposes, but an external stakeholder-focus IC report should be the ultimate long-run goal.

Keywords: Intellectual Capital, Disclosures, Developing, Developed Nations, Information Technology Corporations, India, Australia.

INTRODUCTION Business dynamics of the 21st century are increasingly determined and driven by the Intellectual Capital (IC) elements. The future drivers of any economy will no longer be capital, land or equipment, but the “people” and their “knowledge” reservoir. A knowledge-intensive corporate, therefore, leverages their know-how, innovation and reputation to achieve success in the marketplace. Market participants, practitioners and regulators alike had argue that there is an important need for greater investigation and understanding of IC disclosure (or reporting) as the usefulness of financial information in explaining firm profitability continues to deteriorate. For example, Bukh asserts that traditional disclosure mechanisms are not able to cope adequately with the disclosure requirements of new economy firms. He observed an increasing dissatisfaction with traditional financial disclosures and its ability to convey to investors the wealth-creation potential of firms. Despite growing interest and demand for IC information, prior research



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suggests a persistent and significant variation in the ‘quantity’ and ‘quality’ of information reported by firms on this pivotal resource. As existing economic and business metrics track a declining proportion of the real economy, the deficiency and inconsistency in the disclosure of IC-related information is creating growing information “asymmetry” between informed and uninformed investors. This provides a fertile ground for informed investors to extract higher abnormal returns. Thus, IC is increasingly being recognized as having much greater significance in creating and maintaining competitive advantage and shareholder value. This clearly calls for a refreshed understanding of business principles, information disclosure, and decision-making processes.

The concept of IC measurement, management and disclosing is relatively new. Accountants, business managers and policy makers have still to grapple with its concepts and detailed application. As expected, definition of IC varies substantially. According to Stewart: “It has become standard to say that a corporation’s intellectual capital is the sum of its human capital (talent), structural capital (intellectual property, methodologies, software, documents, and other knowledge artifacts), and customer capital (client relationships).” Thus, IC is a combination of human capital—the brains, skills, insights, and potential of those in an organization—and structural capital—things like the capital wrapped up in customers, processes, databases, brands, and IT systems. It is the ability to transform knowledge and intangible assets into wealth creating resources, by multiplying human capital with structural capital. Sveiby, in fact, first proposed a classification for IC into three broad areas of intangibles, namely, Human capital, Structural capital and Customer capital—a classification that was later modified and extended by replacing customer capital by relational capital. Some examples of IC are shown in Table-1.

Table-1: Components of Intellectual Capital.

Human Capital Structural Capital Customer Capital

Customer relations

Customer Loyalty

Repeat business...

Relational Capital

Knowledge

Competence

Skills

Individual & Collective

Experiences

Training

Communities of practice...

Business processes

Manuals/ policies

Information systems

Research findings

Trademarks

Brands... Relations with vendors

Investor trust and feedback...

The available literature has identified three sub-phenomena (or categories) that constitute the concept of IC, namely, human, relational, and organizational capital. First, “human capital” represents the knowledge, experience and skills of the employees of the firm. It also reflects the commitment and motivation of the employees as a result of their continuance in the firm. Top Indian conglomerate, Reliance Industries Limited states, “The Reliance’s employee skills are its competitive muscle. Its skills differentiate Reliance from its competitors—whether it be through the speedier implementation of a project or in its implementation at a cost which is significantly lower than that of the competition, or in the ability to extract more out of capital equipment, even when it ages. These skills are germinated in the Reliance culture.” Second, “relational capital” reflects the organizational value that emerges not only



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from a firm’s relations and connections with customers, but also with current and potential suppliers, shareholders, other agents, and the society in general. Finally, “structural capital” shows a firm’s supportive structures for knowledge creation and deployment, as well as, the set of knowledge, skills and abilities embedded in the organizational structure.

One of the most comprehensive definitions of IC is offered by the Chartered Institute of Management Accountants (CIMA): “The possession of knowledge and experience, professional knowledge and skill, good relationships, and technological capacities, which when applied will give organizations competitive advantage.” Similarly, Sveiby suggests that the concept of IC can be categorized into human, structural and organizational capital, while Guthrie et al. offers an alternative categorization: internal structure, external structure and human capital. The various forms of IC disclosure provide valuable information for investors as they help reduce uncertainty about future prospects and facilitate a more precise valuation of the corporate. However, financial reports fail to reflect such a wide-range of value-creating intangible assets, giving rise to increasing information asymmetry between firms and users, and creating inefficiencies in the resource allocation process within capital markets.

When there is a large disparity between a firm’s “market” value and “book” value, that difference is often attributed to “IC”. Market value is, of course, the corporation’s total shares outstanding times the stock market price of each. Book value is the excess of total assets over total liabilities. But what is the value of IC? Measuring the value of IC is difficult, but there are methods that can do it. As per a study conducted by Pike and Ross, they have categorized 12 different approaches to measuring IC, and another researcher has identified more than 30.

The Need to Disclose IC Information in the Annual Reports Disclosure of IC information, in fact, comprises all forms of “voluntary” corporate communications. It is universally accepted that all material issues relating to IC of the enterprise should be disclosed in a timely fashion: the disclosure should be clear, concise, precise, and governed by the substance over form principle. As a matter of principle, all the relevant information should be made available to the users in a cost-effective and timely way.

Corporate managements, thus, recognize that there are economic benefits to be gained from a well-managed IC disclosure policy. A detailed and structured system of disclosure enables investors to understand, and obtain accurate and reliable information of corporations in order to make “better” investment decisions. Some research studies have shown that with increased corporate disclosure, firms experience a reduction in cost of equity capital, as well as, the cost of debt. Similarly, some experts found a beneficial increase in the firm’s stock liquidity and performance. Moreover, information disclosure in itself is a strategic tool, which enhances a corporation’s ability to raise capital at the lowest possible cost. To quote FASB, “the quality of financial and non-financial disclosures depends significantly on the robustness of the reporting standards on the basis of which the financial/non-financial information is prepared and reported.” Disclosure of information enables the shareholder to evaluate the management’s performance by observing, how efficiently the management is utilizing the corporation’s resources in the interest of the principal. However, information and its disclosure are the areas where corporate law and accounting regulating bodies join hands together. It is a key objective of accounting rules, in general, to ensure that users’ have sufficient and timely availability of information in order to participate in the market, on an informed basis.

Published annual reports are used as a medium for communicating both quantitative and qualitative corporate information to shareholders, potential shareholders (investors) and other users. Although publication of an annual report is a statutory requirement, corporations normally voluntarily disclose information in excess of the mandatory requirements. However, the location of IC disclosures within the Annual Report of a Corporation is not generally well-defined, and can vary substantially a cross-country in practice. However, some degree of harmonization of the location of CG disclosures would be



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desirable to make the relevant data more accessible, in the long-run. Two possible approaches include: first, putting all IC disclosures in a “Separate Section” of the Annual Report, and second, in a stand-alone “IC Report”. Where IC disclosures are not consolidated, there should be sufficient cross-referencing to different disclosures so as to improve access to the information. Even where IC disclosure requirements exist, there is usually substantial latitude afforded to managers in relation to the quality and quantity of disclosure about corporate-specific practices.

REVIEW OF LITERATURE

The main IC disclosure studies were typically cross-sectional and country-specific, although some longitudinal studies have been reported too. Some of the leading IC disclosure studies, widely reported in the literature, were conducted in Australia, UK & Ireland, Sweden, Canada, Malaysia, Sri Lanka, New Zealand, Bangladesh and India. While most studies had employed a ‘content analysis’ as the research methodology, other studies have also used questionnaire surveys. Despite the fact that the importance of IC has increased in recent times, there are inadequate disclosures of IC in the financial statements of corporations. In a review of the current state of financial and external disclosure research, Parker identified IC accounting as a major area for further research. However, most of the IC disclosure studies were cross-sectional and country-specific. Examples include studies in Australia (e.g. Guthrie and Petty, 2000; Sujan and Abeysekera, 2007), Ireland (Brennan, 2001), Italy (e.g. Bozzolan et al., 2003), Malaysia (Goh and Lim, 2004), UK (e.g. Williams, 2001), and Canada (Bontis, 2003). Relatively very few longitudinal studies have been reported (e.g. Abeysekera and Guthrie, 2005). Moreover, some studies focused on the specific aspects of IC disclosure, such as human capital disclosure (e.g. Subbarao and Zeghal, 1997), while others conducted international comparative studies (e.g. Vergauwen and van Alem, 2005; Cerbioni and Parbonetti, 2007). Some IC disclosure studies have looked beyond annual reports to examine other communication channels, such as, analyst presentations.

Studies have also been conducted to explore IC related issues from the firm’s perspective. Chaminade and Roberts (2003) investigate the implementation of IC disclosure systems in Norway and Spain. Habersam and Piper (2003) employed case studies to explore the relevance and awareness of IC in hospitals. Studies that looked at possible determinants of voluntary IC disclosures include García-Meca et al. (2005) and Cerbioni and Parbonetti (2007). Guthrie and Petty’s (2004) analysis of IC disclosing practices suggests that disclosure has been expressed in discursive rather than numerical terms and that little attempt has been made to translate the rhetoric into measures that enable performance of various forms of IC to be evaluated.

Both India (a developing country) and Australia (a well-developed country) presents an ideal case for the analysis of IC disclosures made by the information technology (IT) corporations because both the economies have been undergoing rapid economic transformation in the financial services, tourism, information-technology sectors, and the ‘niche’ manufacturing gaining momentum too. In the Indian-context, there has been very limited number of IC disclosure studies, as compared to its European counterparts. However, two recent studies are available on IC disclosures in India using the content analysis methodology, which were done by Kamath (2008), and Joshi et al. (2009). On the other hand, Guthrie and Petty (2000) conducted a study of IC disclosures of the 20 largest Australian listed corporations. The selection of corporations was conducted on the basis of market capitalization, which was a general practice in other contemporary studies as well. They found that “IC disclosures were primarily qualitative and lacked quantitative aspects.” The awareness of IC disclosures was also not systematic and there was loose commitment to report among disclosing corporations. Similarly, in another an Australian study, Sujan and Abeysekera (2007) replicated an earlier study done by Guthrie and Petty and employed content analysis of 20 corporations selected on the basis of market capitalization. They found that IC disclosures were mostly qualitative but there was a significant increase in quantitative



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disclosures, as compared to Guthrie and Petty’s studies. There was 1% increase in internal capital disclosures but human capital disclosures decreased by 9% as compared to previous study. External capital nearly accounted for half of the total IC disclosures, with 48% value. In a study of human capital disclosures of top 30 Sri Lankan corporations, Abeysekera and Guthrie (2004) found that there were considerable differences in disclosures made between developing and developed nations, which was attributed by developing nation’s unique political, social and economic institutional set up. The foregoing discussion suggests that the literature on the determinants of IC disclosures in both these countries is very limited and inconclusive. Thus, our current study builds on the previous literature of IC disclosures practice and overall IC disclosure scenario prevalent in the Indian and Australian corporate sector, especially knowledge-based IT firms. The scope of this study, thus, has been confined to 16 and 20 corporations from the Indian and Australian IT sectors, and a content analysis was performed on their annual reports. RESEARCH METHODOLOGY FOLLOWED

With the rise of the “knowledge economy,” the management of IC is becoming even more important and, therefore, it should be properly disclosed by the corporations in their annual reports. In the knowledge-based economy, most of the organizations have realized that the true potential of creating value for their organizations lies in the measurement, valuation, and disclosing of their IC.

This research study aims at mapping the current state of IC disclosures made by the Indian and Australian corporate sectors. Accordingly, the sample-size of this study consists of 16 top IT corporations from India (shown in Exhibit-1). These corporations were primarily selected on the basis of their total income, as per the 2008 publication of “Dun and Bradstreet,” a premier survey agency of the country. The electronic copies of the annual reports for these selected corporations were obtained for two years, 2007-08 and 2008-09 from their respective corporate Websites. Similarly, this paper also analyzed the annual reports (for the year 2008) of the 20 largest Australian information technology corporations (shown in Exhibit-2), selected on the basis of their market capitalization. These corporations are the largest- listed IT & Software corporations on the Australian Stock Exchange. In order to make a comparative study, “content analysis” was performed on the annual reports of corporations drawn from both these countries. In the past, several research studies have been conducted in various countries, using the “content analysis” of annual reports, to analyze the IC disclosure practices. A list of IC related terms was searched within the annual reports, and yielding a significantly small number of instances in which IC disclosures took place. Therefore, an attempt has been made here to use the same technique (i.e., content analysis) to analyze the extent of disclosures of IC done by these IT corporations. However, research in other countries revealed that disclosure practice stays well behind on a global scale, despite the perceived importance by corporate managers.

IC Disclosure Done by IT Corporations from India and Australia: Findings and Analysis Annual reports are an ideal place to apply an IC framework because they allow us to compare IC positions and trends across different corporations, industries and countries. They are an instrument for communicating issues comprehensively and concisely, and they are produced regularly, so they can be used to analyze management attitudes and policies across disclosing periods.

The main objective of the present study was to survey the prevailing practices of IC disclosures in the annual reports made by the information technology sector corporate houses in India and Australia. The sample-size of this study accordingly consists of 16 corporations from India and 20 from Australian IT sector, respectively. Indian corporations were selected on the basis of their total income as per the 2008 publication of Dun and Bradstreet. Australian Corporations, however, were the largest listed corporations on their stock exchanges. The annual reports of these selected corporations were obtained directly from



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their Websites, and the annual reports for two years (2008 and 2009) were examined. The “content analysis” of the annual reports involves ‘codification’ of qualitative and quantitative information into pre-defined categories in order to derive patterns in the presentation and disclosing of information (Joshi et al., 2010). The coding process, in fact, involved reading the annual report of each corporate and coding the information according to some pre-defined categories of IC. Over the last decade, the content analysis has been used by several leading researchers to study the IC performance and disclosures. Therefore, as part of the present study, “content analysis” has been used to analyze the extent of IC disclosure made by the IT corporations. By looking at the disclosures of terminology within their annual reports, one can examine the extent to which Indian and Australian corporations publicly document the presence (or importance) of IC. In identifying corporations disclosing IC, a list of related terminology was compiled. A survey and review of several IC books and articles was also conducted. The panel of researchers from the “World Congress on Intellectual Capital” finalized the list of IC items into a collection of 39 terms that encompassed much of the IC literature. The list used by Bontis was considered comprehensive for this type of research on knowledge-based information technology corporations. The final list of IC terms is shown in Table-2. Each of these terms was “electronically” searched individually in the annual reports to find out the presence or absence of the said terms. By and large, most of the IC terms were reported only once in each annual report, and there was lack of consistency about the terms disclosed. However, results were tabulated on the basis of the number of corporations disclosing these terms in their annual reports. Corporate-wise analysis, along with testing the degree of variance, has also been undertaken. The corporate-wise analysis has been shown in Table-3, and the variation in disclosing has been presented in Table-4.

Table-2: Intellectual Capital--39 Search Terms

Business Knowledge Employee efficiency Intellectual property Corporate reputation Employee skill Intellectual resources Competitive intelligence Employee value KM Corporate learning Knowledge assets Expert networks Corporate university Expert teams Knowledge management Cultural diversity Knowledge sharing Human assets Customer capital Knowledge stock Human capital Customer knowledge Management quality Human value Economic Value added IC Organizational culture Employee expertise Information systems Organizational learning Employee know-how Relational capital Intellectual assets Employee knowledge Intellectual capital Structural capital Employee productivity Intellectual material Superior knowledge (Source: Bontis, Nick, “Intellectual Capital Disclosure in Canadian Corporations,” Journal of Human Resource Costing and Accounting, 2003, page 7).

The Indian Corporations: Analysis of the Results It may be noted at the outset that only 18 items, out of the total list of 39 IC-terms, were reported in the annual reports of the 16 Indian IT corporations. Most of the IC-terms (viz., business knowledge, employee productivity, employee skill and value, knowledge assets, management quality, KM, human value, organizational learning, and intellectual assets) were reported only “once” in the annual reports, and there was utmost “lack of consistency,” across-time, about the terms disclosed. Our findings are very much similar to the findings of other studies done in the past. Surprisingly, the most popular term reported in our study was “intellectual property rights” (IPR), which represents such intangibles as



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patents, brands valuations, and the outcomes of R&D investment. This is quite obvious due to the vital role played by the “intangible assets (or IC)” in the case of knowledge-intensive IT corporations. However, this term has a very specific legal connotation from an accounting and legal perspectives. Therefore, the term “intellectual property” (IC term no. 27) had the maximum disclosure done by all the 16 IT corporations, followed by the disclosure of the term “information systems” (IC term no. 23). This was not surprising due to the nature of knowledge-based IT corporations under study. Unfortunately, the term “intellectual capital (IC),” was specifically disclosing by just 2 out of the 16 corporations, namely, Moser Baer India Limited, and Patni Computer System Limited. A closer examination of both these corporations clearly revealed that the presence of “IC” term was generally used in the “management discussion & analysis (MD&A)” section of the annual reports. It is very strange, there is no evidence at all in any of the firms identified, that an actual IC statement/report was developed, or that any other IC metrics were being published. Moreover, our survey and subsequent analysis of the IC disclosure practices suggests that disclosure has been vaguely expressed in very “discursive,” rather than “numerical” terms, and that little or no attempt has been made to translate the rhetoric into measures that enable performance of various forms of IC to be evaluated.

For instance, Moser Baer India Limited declared in its annual report, under the MD&A section, for the year 2007-08 as: “Quality of our human resources charts the success and growth potential of our business. The Corporate has managed to keep attrition rates well in control by imbibing a sense of ownership and pride, and strong HR initiatives geared to nurturing latent talent, and unlocking the power of IC. The Corporate continues to drive organization development and also build management resources for a multi-business enterprise.” Recently, Moser Baer had stated in its 2008-09 annual report, as follows: “Your Corporate continuously benchmarks HR policies and practices with the best in industry and carries out necessary improvements to attract and retain best talent and build intellectual capital.”

Similarly, another IT corporate, Patni Computer Systems Limited makes a “casual” mention of its IC in its annual report for the year 2007-08 as under: “The global sourcing market has matured from those days when India was considered to be a source of ‘low-cost manpower’. Today, it has earned the distinction of being a ‘preferred destination for intellectual capital’ that accelerates the trend—globalization of services. Going ahead, Indian corporations are bracing up for the challenge of providing end-to-end business domain-focused solutions, leveraging intellectual property (IP) in form of solution accelerators, frameworks and service delivery technologies.”

The term “knowledge management (KM)” (IC term no. 31 & 29), which is supposed to occupy a place of prominence in the knowledge-based IT corporations of India, was disclosed by a meager 6 corporations. However, most of the terms relating to the employees (except employee productivity, skill, value), and customers could not find any worth-mentioning space in the annual reports of the selected corporations. The most important and crucial constituents of IC—relational capital, structural capital and customer capital—did not figure even once in any of the annual reports of the corporations under study.



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Table-3: Corporate-wise Analysis of Intellectual Capital Terms, Count of Disclosure

S. No. Name of Corporation No. of IC Terms Disclosed 1 Infosys Technologies Limited 13 2 Moser Baer India Limited 05 3 Patni Computer Systems Limited 03 4 Tata Consultancy Services Limited 05 5 Wipro Limited 01 6 HCL Infosystems Limited 01 7 MphasiS Limited 03 8 CMC Limited 02 9 Polaris Software Lab Limited 03

10 Siemens Information System Limited 02 11 Financial Technologies (India) Limited 03 12 I-Flex Solutions Limited 03 13 Satyam Computer Services Limited 01 14 Tech Mahindra Limited 01 15 HCL Technologies Limited 02 16 Larsen &Toubro Infotech Limited 06

(Source: Compiled by the author from the Annual Reports of Corporations).

Table-3 very clearly highlights that Infosys Technologies Limited, a corporate-house acclaimed widely by the international community and the media too, had reported the maximum number (13) of IC-related items from the total list of 39 items. It is worth mentioning here that Infosys was the “first” Indian corporate to win the ‘Most Admired Knowledge Enterprise in Asia’ award in the year 2002. However, it is surprising to note that this corporate did not make any mention of term “IC” in its annual reports for the years 2007 to 2009. Perhaps, Infosys is the only IT-corporate in India, which has been regularly disclosing its “Intangible Assets Score Sheet,” as a measure of intangible assets (or IC). For example, the corporate in its 2008-09 annual report makes the following remarks: “We published models for valuing two of our most important intangible assets—human resources and the “Infosys” brand. This score sheet is broadly adopted from the intangible asset score sheet provided in the book titled, ‘The New Organizational Wealth,’ written by Dr. Karl-Erik Sveiby and published by Barrett-Koehler Publishers Inc., San Francisco. We believe such representation of intangible assets provides a tool to our investors for evaluating our market-worthiness.”

Based on the “content analysis” of this study, Larsen & Toubro Infotech Limited disclosed the second-highest 6 out of 18 IC-terms, which were followed up by Tata Consultancy Services and Moser Baer India Limited, respectively, both with a disclosing score of 5 out of 18 IC-terms. However, we are surprised to note that Patni Computers Limited, MphasiS Limited, I-Flex Solutions Limited, Polaris Software Lab Limited and Financial Technologies (India) Limited, by far comprising the largest segment of the IT corporations having 6 corporations from the sample size of 16 corporations, disclosed just 3 out of 18 IC-related terms in their annual reports for the period of study. Rest of the 7 corporations, forming a big chunk of our study, disclosed in the range of just 1 to 2 terms, as for as the disclosure of IC-terms are concerned. For example, CMC Limited, Siemens Information System Limited and HCL Technologies Limited disclosed just 2 items, while only 1 item was disclosed by Wipro Limited, HCL Infosystems Limited, Satyam Computer Services Limited, and Tech Mahindra Limited. It is also important to note that the IC items disclosures have been shown at widely “scattered-places” in the annual reports, and there appears to be a “lack of consistency” over time regarding the terms disclosed. The “mean” disclosure, as shown in Table-4, comes to be as low as 3.9 items. There is a variation of 3.12 items, on average, as



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suggested by the value of “standard deviation”. The “coefficient of variation” comes to be as high as 80%, which indicates a significant variation in item-wise disclosure in the annual reports of the corporations. However, there is no “specific” disclosure of IC as a special part or content of the annual report, despite its very high relevance in the knowledge-intensive IT industries.

Table-4: Variation in Item-wise Disclosures No. of Corporations

Number of Items Covered 2007 to 2009

No. of Disclosing Corporations

0-3 3-6 6-9

9-12 12-15

7 6 1 0 1

Mean Disclosure 3.9 Standard Deviation 3.12

Coefficient of Variation 80% (Source: Compiled by the author from the Annual Reports of Corporations).

Mr. Nandan Nilekani, the CEO, President and MD of Infosys Technologies remarked: “At Infosys, we are effectively transforming enterprise knowledge into wealth-creating ideas, products and solutions. We are building portfolios of intellectual capital (IC) and intangible assets, which will enable them to out-perform their competitors in the future. We consider KM as a powerful medium for creating sustainable networks of people across intra-organizational boundaries. It also provides a symbolism for aligning individual initiative and creativity with organizational growth.” Thus, Infosys has been duly recognized for its organizational learning and for transforming enterprise knowledge into shareholder value. It is worth mentioning here that Infosys is regularly disclosing in its annual report details about the “Intangible Assets Score-Sheet,” as developed by Dr. Seveiby, human resources accounting, brand valuation, etc. (see Appendix--1 for details).

Similarly, Mr. Sambuddha Deb, Chief Quality Officer, Wipro Technologies, observed: “Our knowledge management initiative continues to be one of the most strategic initiatives and our knowledge portal, “Knet,” provides an effective and efficient means of capturing knowledge, both tacit and explicit across the organization, distilling it through a review process and making it available in a form which is ready to use. Our conscious and significant investment in the KM initiative is providing an important edge that the business needs.” No doubt, comprehensive IC disclosing would not only help in retaining the competitive advantage in the long-run, when other firms start emulating such pioneering practices, but it would also prove as an added information available, which can also be used to measure the link between the performance, growth and stability of the firm with its IC.

The Australian Corporations: Analysis of the Result For the purposes of having a comparative study, we have examined the annual reports (FY 2008) of the top 20 Information Technology corporations listed on the Australian Stock Exchange, and used the “content analysis” method. The list of 39 IC terms had already been shown earlier in Table-2. Each of these terms was “electronically” searched individually in the annual reports of Australian IT Corporations to find out the presence or absence of the said terms. By and large, most IC terms were disclosed only once in each annual report, and there was lack of consistency about the terms disclosed. Finally, results were tabulated on the basis of the number of corporations disclosing these terms in their annual reports.



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Corporate-wise analysis, along with testing the degree of variance, has also been undertaken. The content-wise analysis has been shown in Table-5, corporate-wise analysis in Table-6, and the variation in disclosing has been presented in Table-7. Table-5 shows the item-wise disclosures made by the Australian Corporations in their annual reports for the year 2008.

Table-5 : Disclosure of Intellectual Capital Items by Australian Corporations Sr. No. Item of Intellectual Capital No of Australian Corporations

Disclosing 1 Business Knowledge 2 2 Corporate reputation 9 3 Competitive intelligence 3 4 Corporate learning 2 5 Customer knowledge 1 6 Employee knowledge 1 7 Employee value 1 8 Knowledge sharing 1 9 Information systems 3 10 Intellectual capital 2 11 Intellectual property 16 12 Knowledge management 1 13 Human assets 1 14 Organizational culture 7


Table-5 highlights that out of the list of 39 items only 14 items were found in the annual reports of the Australian IT corporations. The term “intellectual property” has been disclosed by 16 corporations, and it was the maximum disclosure of any item by the corporations under study. This was followed by the disclosure of “corporate reputation” having been disclosed by 9 corporations, and “organizational culture,” which was disclosed by 7 corporations. Unfortunately, the term “intellectual capital,” the main theme term of this paper, was disclosed by just 2 corporations. These corporations include SMS Management and Technology Limited, and ASG Group Limited.

SMS Management and Technology Limited describe the importance of its IC in its annual report (2008) by stating as follows: “The Corporate continued to invest in developing its intellectual capital during the year. This included: Extension to our Knowledge Management portal ‘Magellan’ and Enhancement of our Customer Relationship Management System.” Similarly, it further reports that “SMS invests heavily in the development of our intellectual capital and the growth of our staff through open and collaborative forums, coupled with industry best practice. Throughout 2008, SMS has made considerable inroads in the continued codification of its intellectual capital and knowledge into reusable tools, templates, methods and processes.” Moreover, the ASG Group gives importance to its IC in its annual report for the year 2008 by stating as follows: “Health is also the subject of a buildup of capability to assist clients who are increasingly being driven by efficiency and client coverage objectives. Again, ASG has spent considerable time building on its client relationships and its intellectual capital in this area. The client base recognizes the strategic focus that the Corporate is placing on this area.”



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The term “knowledge management,” which must be an item of prime importance for disclosure at least by knowledge based IT corporations was disclosed only by SMS Management and Technology Limited. The term “business knowledge,” which reflects the capability of any corporate was disclosed by two corporations only. ASG Group Limited shares this information in its annual report of 2008 which states: “Because this is done over the long term, our role as prime contractor, our business knowledge and our ability to offer a complete solution through our own resources and through access to our subcontractors, ASG adopts a strong incumbency position.” It is widely accepted that knowledge sharing is the key to betterment, and the same has been disclosed by just one corporate, (viz, DWS Advanced Business Solutions Limited) as: “To stay ahead of our competitors, DWS has invested in a culture for capturing and sharing knowledge, enabling a cycle of continuous improvement. This has been done through: Showcasing innovative solutions at monthly meetings; Rewarding staff based on their involvement in encouraging best practice; and sharing information through the DWS internal employee portal.”

Employees are the real reservoir of knowledge and the success or failure of any corporate depends to a large extent on the value of its employees. It is shocking to note that employee value has been disclosed by merely one corporate (viz., Melbourne IT Limited), which reports it as: “Talented and dedicated employees are key to Melbourne IT’s continuing success and growth, and we recognize the importance of rewarding, developing and retaining our staff.” Unfortunately, most of the terms relating to the employees and customers could not find any worth-mentioning place in the annual reports of the selected IT corporations from Australia. It is shocking to note that the three most important constituents of intellectual capital—relational capital, structural capital and customer capital—did not figure in any of the annual reports of the corporations under study.

Table-6 highlights the corporate-wise analysis of the IC disclosures made by the Australian IT corporations. It very clearly shows that DWS Advanced Business Solutions Limited has disclosed the maximum number of items (06) from the total list of 39 items. The disclosure of 6 items out of 39 is very low and reflects that the corporate has not considered IC disclosures as an important subject. This is followed up by the Technology One Limited, Melbourne IT Limited, ASG Group Limited, and ITX Group Limited with a disclosure score of 5 items, and SMS Management and Technology Limited with disclosure of 4 items. Disclosures by the remaining IT corporations from Australia were in the range of 1 to 3 items. Unfortunately, the two Australian corporations, namely, the ISS Group Limited and Dark Blue Sea Limited did not bother to disclose even a single item of IC in their annual reports for the year 2008.

Table-6: Corporate-wise Analysis of Intellectual Capital Disclosure S. No. Name of the Corporation No. of IC Terms Disclosed

1 ASG Group Limited 5 2 Bravura Solutions Limited 2 3 DWS Advance Business Solutions Limited 6 4 Dark Blue Sea Limited 0 5 GBST Holding Limited 2 6 Hansen Technologies Limited 1 7 ISS Group Limited 0 8 ITX Group Limited 5 9 Melbourne IT Limited 5

10 Objective Corporation Limited 1 11 Oakton Limited 3 12 Prophecy International Holdings Limited 2 13 QAMASTOR Limited 2 14 Reckon Limited 1 15 Rubik Financial Limited 1



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16 Stratatel Limited 1 17 SMS Management & Technology Limited 4 18 Technology One Limited 5 19 UXC Limited 1 20 3Q Limited 1


Table-7: Variation in Item-wise Disclosure by Australian Corporations Disclosing Corporations

Number of Items Covered 2008

No. of Disclosing Corporations

0 1 2 3 4 5

2 7 4 1 1 5

Mean Disclosure 2.35 Standard Deviation 1.76

Coefficient of Variation 74.89%

It is apparent from Table-7, the mean disclosure score for the items disclosed by the corporations comes to be as low as 2.35 items. However, there is a variation of 1.76 items on average as suggested by the value of standard deviation. Also, the coefficient of variation comes to be as high as 74.89%, which indicates a significant variation in item-wise disclosure in the annual reports of the corporations. Unfortunately, there is no specific disclosure pattern of IC as a special part or content of the annual report in spite of its high relevance in the knowledge intensive corporations.

CONCLUSIONS AND RECOMMENDATIONS MADE

Leading IT corporations, both from India and Australia, which were applying IC measures have found that it gives them better understanding of the drivers of value, and helps them in improving the management and growth of these vital assets. Unfortunately, IC disclosures made by these firms in their annual reports, in both the countries, during the period of this study, is seen to be almost negligible and partial in tune with the European Union. Only 18 out of the 39 IC search terms of the total firms studied actually disclosed them. However, the disclosure of IC was not at all uniform, and there was lack of specific evidence regarding the usage of the IC measurement, management techniques, and tools by these firms.

As part of the current study, we have examined the annual reports of the IT corporations from Australia (20) and India (16), and applied the “content” analysis method. The findings of this study very clearly indicate that the level of IC disclosures are found to be low, and they are disclosed in ‘qualitative’ rather than ‘quantitative’ form. The analysis of the disclosure patterns of both the Indian and Australian corporations, shows low-level (18 and14 items, respectively, out of 39 IC-search items) of IC disclosures by the sample corporations. Surprisingly, out of 39 IC search terms, more than half, were not reported by the Indian (21) and Australian (25) corporation, respectively (see Table-8). Among the items not reported at all, 15 items were common to corporations from both the countries. The findings also exhibit that IC disclosures are not given a priority, both by the Indian and Australian IT-sectors. The average number of items reported by the sample corporations is very low, which suggests that there is low awareness and a



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lack of interest in recording and disclosure of IC variables by the corporations. However, 2 Australian corporations did not disclose even a single IC item in their annual reports.

Unfortunately, the term “intellectual capital (IC),” the main theme term of this paper, was specifically disclosing by just 2 out of the 16 corporations (namely, Moser Baer India Limited, and Patni Computer System Limited). Very similar was the situation with respect to the Australian corporations: just two corporations (viz., SMS Management and Technology, and ASG Group) disclosing it. The mean disclosure of items reported by the sample corporations from both the countries is also very low (India 3.9, Australia 2.35), which suggests that there is low awareness and a lack of interest in disclosing of IC variables by the corporations. The coefficient of variation comes to be as high as 75-80%, which indicates a significant variation in item-wise disclosure in the annual reports of the corporations from both countries.

Table-8: Content-wise Analysis of IC Terms Disclosed by Indian & Australian Corporations

S. No.

Items of Intellectual Capital

No. of Corporations Disclosing in India

No. of Corporations Disclosing in Australia

1. 2. 3. 4. 5. 6. 7. 8. 9.

10. 11. 12. 13. 14. 15. 16 17. 18 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32.

Business Knowledge Corporate reputation Competitive intelligence Corporate learning Corporate university Cultural diversity Customer capital Customer knowledge Economic Value added Employee expertise Employee know-how Employee knowledge Employee productivity Employee efficiency Employee skill Employee value Knowledge assets Expert teams Knowledge sharing Knowledge stock Management quality IC Information systems Relational capital Intellectual capital Intellectual material Intellectual property Intellectual resources KM Expert networks Knowledge management Human assets

1 Nil Nil Nil Nil Nil Nil Nil 3

Nil Nil Nil 1

Nil 1 1 1

Nil 3

Nil 1

Nil 8

Nil 2

Nil 15 Nil 1

Nil 5

Nil

2 9 3 2

Nil Nil Nil 1

Nil Nil Nil 1

Nil Nil Nil 1

Nil Nil 1

Nil Nil Nil 3

Nil 2

Nil 16 Nil Nil Nil 1 1



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33. 34. 35. 36. 37. 38. 39.

Human capital Human value Organizational culture Organizational learning Intellectual assets Structural capital Superior knowledge

6 1 2 1 1

Nil Nil

Nil Nil 7

Nil Nil Nil Nil


A large segment of the IT corporations, both from India and Australia, have not even disclosed some of the principal “IC” terms, such as, intellectual capital, knowledge management, and employee skills and quality. In addition to this, the disclosure practices for IC items by these corporations were not consistent at all, and they lacked an appropriate measurement approach. Unfortunately, there is an absence of a well-defined guideline for the IC disclosures in the annual reports, both from the national or international accounting bodies, and local professional accounting associations. Accordingly, both the Australian and Indian corporations are lagging behind in the disclosure of IC in their annual reports. However, the average number of items disclosed by the Indian and Australian IT corporations is very low, which suggests that there is neither awareness nor any interest to record and report IC variables by these corporations. Even the few items which were just reported were expressed in “discursive” rather than in “numerical” terms. Moreover, it has also been found that there exists no clear-cut pattern or system of IC disclosures in the annual reports. The disclosure was not uniform and no evidence of its well-defined measurement basis (except for the Infosys “Intangible Score-Card”) was found in the annual reports. It is very surprising to note that the IT corporations, which are most dominating group in the knowledge sector, have failed to disclose IC in their annual reports. Undoubtedly, corporations from both the countries are far lagging behind in the field of measurement, management and disclosure of IC, as compared to the Scandinavian and/or European corporations. Thus, there is an urgent need to highlight the importance of IC disclosures to these knowledge-based IT firms and encourage them to provide “voluntary” IC disclosures. The low-level of disclosure of IC by the IT corporations, whose very basis of existence is knowledge and innovation, may be partly because of the fact that disclosure of IC are done by corporations purely on a “voluntary” basis.

Not surprisingly, the findings of this study are very much similar to various other studies conducted by researchers in different countries on different corporate groups (viz., Abeysekera and Guthrie, 2005; Brennan, 2001; Bontis, 2003 and Pablos, 2003) and the studies on IT-sector (Joshi and Ubha, 2009; Kamath, 2008), which also signify very low-level of IC disclosures. Indeed, corporations in the European Union are way ahead of their counterparts elsewhere when it comes to the measurement, disclosure and management of their IC.” While there is some evidence that Australian enterprises are engaging in the process of identifying their stock of IC, overall Australian corporations do not compare favorably with their overseas counterparts in their ability to manage, develop, support, measure and report their IC”. Similarly, Bontis concludes: “There is no evidence at all that IC disclosure has garnered any traction for the Canadian corporations. Only a small percentage of Canadian corporations (68 out of 10,000) even used the terms in their annual reports. Obviously, using the language of IC is an important antecedent to developing IC statements, but Canada seems to be significantly behind its Scandinavian counterparts.”

A brief summary of the present research study reveals the following aspects:

• Both India and Australia presents an ideal case for the analysis of IC disclosures made by the IT corporations because both the economies have been undergoing rapid economic transformation in the financial services, tourism, information-technology sectors, and the ‘niche’ manufacturing gaining momentum too.



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• The “key” components of IC are poorly understood, inadequately identified, inefficiently managed, and are not reported within a consistent framework.

• The extent of disclosure is generally ‘minimum’ but the types of IC that tend to be most often reported include human resources, technology and intellectual property rights, and organizational and workplace structure.

• A review of IT industries from India and Australia, as a part of this study suggests that no individual country-specific IT industry is significantly ahead of any other in its IC disclosure practices.

• By and large, most corporate representatives believe that the management of IC is an important factor in determining future corporate success and facing competitiveness. However, few executives are able to identify initiatives within their organization that are designed to assist in managing IC.

• IC disclosures made by the Indian and Australian firms are very “negligible, partial, and descriptive, lack of consistency in disclosing etc.,” in sharp contrast with the developed countries. A very small number of the total firms studied actually reported IC-related terms, but disclosure was not uniform, and there is lack of evidence regarding the usage of the measurement, management techniques, and tools by these firms.

So far, published guidelines represent good initiatives undertaken by the academics based on the experience of some pioneer firms in developed countries that build the IC report. They provide practical guidelines on how to measure and report IC. However, firms are not enforced to follow these guidelines, and therefore, they just offer an orientation. The development of a set of homogeneous norms, principles, indicators and structure is a high priority in the IC report agenda. The following recommendations are made

• Even though, IC has a very strong impact on the drivers of future earnings, but unfortunately, it is largely ignored in the financial disclosure. We strongly recommend that corporations must create a culture that emphasizes the importance of IC in achieving business advantage.

• Those corporations that are concerned with their relationship with the capital markets should develop ‘strategic’ and ‘tactical’ initiatives that provide for ‘voluntary’ IC disclosures.

• The IC reports may initially be used for “internal” management purposes but an “external” stakeholder focus report should be the long-term ultimate goal.

• The professional accounting bodies, at the global level, should join hands to develop an internationally accepted valuation system, and standardized and harmonized approaches for disclosure of IC.

• The regulatory bodies should establish “key” parameters for the disclosure of IC in a similar fashion, as have been defined in the EU in order to make a beginning in the field.

• To adopt “voluntary” IC disclosure practices, especially for all IT firms in the knowledge-sector, where competitiveness of the firms are determined by their intangible assets.

Indeed, the whole field of IC disclosure is still relatively ‘new’ and slowly evolving. Therefore, accountants, business managers, and policy makers have all to grapple with its concepts, philosophy, and detailed methodologies for IC applications. Real-life corporate experience suggests that rushing into the details of IC measurement before understanding the fundamentals is going to prove counter-productive. Now, we feel the time is ripe for international professional bodies to develop that understanding and to develop new measures that will guide them more clearly to a prosperous future. Moreover, the professional accounting bodies at the global level should also join hands to develop an internationally accepted valuation system, and standardized and harmonized approaches for disclosing of IC. We strongly recommend that corporations must create a culture that emphasizes the importance of IC in achieving business advantage.



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REFERENCES Annual Reports: The Annual Reports of 16 Indian and 20 Australian IT corporate-sector corporations

were collected by the author, from their respective Websites.

Abeysekera, I. (2007). ‘Intellectual capital disclosing between a developing and developed nation’ Journal of Intellectual Capital, Volume 8, No. 2, pp. 329-345.

Andriessen D. (2004), ‘Intellectual capital valuation and measurement: classifying the state of the art’ Journal of Intellectual Capital, Vol. 5, No. 2, pp. 230-242.

Beattie, V, and Thomas, S.J. (2006) ‘Lifting the lid on the use of content analysis to investigate intellectual capital disclosure’ Discussion Paper Series in Accounting & Finance, Heriot-Watt University, School of Management and Languages, September, URL: http//www.sml.hw.ac.uk/research/discussion/DP2006-AF01. Pdf.

Bernard, M, Dina, G. and Andy N. (2003) ‘Why do firms measure their intellectual capital?’ Journal of Intellectual Capital Vol. 4, No. 4, pp. 441-464.

Bukh, P. N., Nielsen, C., Gormsen, P. and Mouritsen, J. (2005) ‘Disclosure of information on intellectual capital in Danish IPO prospectuses’ Accounting, Auditing and Accountability Journal, Volume 18 no. 6, pp. 713-732.

Brennan, N. (2001) ‘Disclosing intellectual capital in annual reports: evidence from Ireland’ Accounting, Auditing Accountability Journal, Volume 14, No. 4, pp. 423-36.

Bontis, Nick (2003) ‘Intellectual capital disclosure in Canadian corporations’ Journal of Human Resource Costing and Accounting, Volume 7, No. 1, pp. 9-20.

Bruggen, A., Vergauven, P., and Dao, M., (2009) ‘Determinants of intellectual capital disclosing: evidence from Australia’ Management Decision. Volume 47, No. 2, pp. 233-245.

Cuganesan, S., Petty, R., and Finch, N. (2006) ‘Intellectual capital disclosing: a user perspective’ Academy of Accounting and Financial Studies, Spring International Conference, New Orleans, USA, pp.

CIMA (2001) ‘Understanding corporate value: managing and disclosing intellectual capital’ Cranfield University, Publisher: Chartered Institute of Management Accountants (CIMA), pp. 1-28.

Chiucchi M.S. (2008) ‘Exploring the benefits of measuring intellectual capital’ The Aimag case study, Human Systems Management, Vol. 27, No. 3, pp. 217-230.

Daniel Andriesen (2004) ‘IC valuation and measurement: classifying the state of the art’ Journal of Intellectual Capital, Volume 5, No. 2, pp. 230 – 42.

Danish Agency for Development of Trade and Industry (DATI) (2001) ‘A Guideline for Intellectual Capital Statements: a key to knowledge management’ Danish Agency for Development of Trade and Industry, Stockholm.

Financial Accounting Standards Board (FASB) (2001) ‘Improving business disclosing: insights into enhancing voluntary disclosure,’ Business Disclosing Research Project, Steering Committee Report, Financial Accounting Standards Board.



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Financial Technologies (India) Limited ‘Annual reports for the year 2007-08 and 2008-09.’ Available at the Corporate Website.

Guthrie J., Petty, R. Yongvanich, K. and Ricceri, F. (2004) ‘Using content analysis as a research method to inquire into intellectual capital disclosing’ Journal of Intellectual Capital, Volume 5, No. 2, pp. 282-293.

Guthrie, J., Petty, R. M., and Ricceri, F. (2006). The Voluntary Disclosing of Intellectual Capital: Comparing Evidence from HK and Australia. Journal of IC, Volume 7, no. 2, pp. 254-271.

Gibbins, M., Richardson, A., and Waterhouse, J. (1990) ‘The management of corporate financial disclosure: opportunism, ritualism, policies and processes’, Journal of Accounting Research, Volume 28, no. 1 pp. 121-143.

Holmen, J. (2005) ‘Intellectual capital disclosing’ Management Accounting Quarterly, Summer, Volume 6, No. 4, pp.1-9.

ICM. (2009). ‘Intellectual capital management’ Comprehensive Intellectual Capital Management, visited: July 2009. [Online] Available: <http://www.wdc-econdev.com/>

Infosys Technologies Limited: Annual Reports for the year 2007-08 and 2008-09, available at corporate Website.

Jing, Li, Richard Pike and Roszaini Haniffa (2007) ‘IC disclosure in knowledge rich firms: The impact of market and CG factors’ Bradford University Working paper series no. 07/06 April, pp. 1-29.

José G. Vargas-Hernández and Mohammad Reza Noruzi (2010) ‘How intellectual capital and learning organization can foster organizational competitiveness?’ International Journal of Business and Management Vol. 5, No. 4; April pp. 1-11.

Joshi, M. and Ubha, D.S. (2009), ‘Intellectual capital disclosing: The Search for a new paradigm in financial disclosure by the knowledge sector of Indian economy’ Electronic Journal of KM, Volume 7, Issue 5, pp. 575-582.

Joshi, M., Ubha, D.S., and Sidhu, J. (2010) ‘Disclosing intellectual capital in annual reports from Australian S/W & I/T corporations’ Journal of Knowledge Management Practice, Volume 11, No. 3, September, pp. 1-19.

Kamath, B. (2008) ‘Intellectual capital disclosing in India: content analysis of teck firms’ Journal of Human Resource Costing and Accounting, Volume 12, No. 3, pp. 213-224.

Li, Jing, Pike, R. and Haniffa, R. (2008) ‘Intellectual capital disclosing and corporate governance structure in UK firms’ Volume 38, No. 2, Accounting and Business Research, pp. 137-59.

Marr, B., Gray D., and Neely, A., (2003) ‘Why do firms measure their intellectual capital?’ Journal of Intellectual Capital, Volume 4, No. 4, pp. 441-464.

Meritum Project (2002) ‘Guidelines for managing and disclosing on intangibles’ (Intellectual Capital Report), Fundación Airtel Móvil, Madrid.

Nielsen C., Bukh P.N., Mouritsen J., Johansen M.R., Gormsen P. (2006) ‘Intellectual capital statements on their way to the stock exchange’ Journal of Intellectual Capital, Vol. 7, No. 2, pp. 221-240.



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OECD report (1999) ‘Symposium on measuring and disclosing IC: experience, issues, and prospects’ Organization for Economic Cooperation and Development.

OECD Report (2006) ‘Principle of Corporate Governance’, The Organization for Economic Cooperation and Development, Paris, pp. 1–69 available at http://www.oecd.org.

Ordóñez de Pablos, P. (2001) ‘Relevant experiences on measuring and disclosing intellectual capital in European pioneering firms’ in Bontis, N., Chong, C. (Eds) World Congress on Intellectual Capital Readings, Butterworth-Heinemann, Oxford.

Ordóñez de Pablos, P. (2002) ‘Evidence of intellectual capital measurement from Asia, Europe and Middle-east’ Journal of Intellectual Capital, Vol. 3 No.3, special issue, pp.287-302.

Parker, L. D. (2007) ‘Financial and external disclosing research: the broadening corporate governance challenge’ Accounting and Business Research, volume 37, no. 1, pp. 39–54.

Petty R., Ricceri F., Guthrie J. (2008) ‘Intellectual capital: a user’s perspective’ Management Research News, Vol. 31, No. 6, pp. 434-447.

Pike S., Fernström L. and Roos G. (2006) ‘Intellectual capital: origin and evolution’ International Journal of Learning and Intellectual Capital, Volume 3, No 3, pp. 233-248

Rodriguez Perez, J.M., Ordóñez de Pablos, P. (2002) ‘Strategic resources management: an organizational learning perspective’ International Journal of Human Resources Development and Management, Vol. 2 No.3/4, pp.249-63.

Singh, I.P. and Van der Zahn (2008) ‘Determinants of intellectual capital disclosing in prospectuses of initial public offerings’ Accounting and Business Research, Volume 38, No. 5, pp. 409-31.

Stewart, Thomas A., 2002 ‘The wealth of knowledge: intellectual capital and the twenty-first century organization’ Currency Doubleday, 2002, 320 pages (ISBN: ISBN: 0385500718)

Sveiby, K.E. (2004) ‘Methods for measuring intangibles,’ available at< www.sveiby.com>.

Exhibit-1: The Indian IT Corporations Selected for Study: 2008

S. No. Name of the Corporate 1 Infosys Technologies Limited 2 Moser Baer India Limited 3 Patni Computer Systems Limited 4 Tata Consultancy Services Limited 5 Wipro Limited 6 HCL Infosystems Limited 7 Mphasis Limited 8 CMC Limited 9 Polaris Software Lab Limited

10 Siemens Information System Limited 11 Financial Technologies (India) Limited 12 I-Flex Solutions Limited 13 Satyam Computer Services Limited 14 Tech Mahindra Limited



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15 HCL Technologies Limited 16 Larsen &Toubro Infotech Limited

Exhibit-2: The Australian IT Corporations Selected for Study: 2008

S. No. Name of the Corporate 1 ASG Group Limited 2 Bravura Solutions Limited 3 DWS Advance Business Solutions Limited 4 Dark Blue Sea Limited 5 GBST Holding Limited 6 Hansen Technologies Limited 7 ISS Group Limited 8 ITX Group Limited 9 Melbourne IT Limited

10 Objective Corporation Limited 11 Oakton Limited 12 Prophecy International Holdings Limited 13 QAMASTOR Limited 14 Reckon Limited 15 Rubik Financial Limited 16 Stratatel Limited 17 SMS Management & Technology Limited 18 Technology One Limited 19 UXC Limited 20 3Q Holdings Limited



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Factors influencing Employee performance in the organization: An exploratory study of private

organization in Bangladesh.

Ahasanul Haque

Faculty of Economics and Management Sciences, Department of Business Administration, International Islamic University Malaysia

Box No. 10, 50728 Kuala Lumpur Malaysia

Sabbir Rahman

Graduate Research Student, Department of Business Administration

Faculty of Economics and Management Sciences, International Islamic University Malaysia, Box No. 10, 50728 Kuala Lumpur

Malaysia

Mehdi Hussain

Senior Lecturer Faculty of Business Administration North South University, Dhaka.

Bangladesh

ABSTRACT

The purpose of this paper was to examine the main factors that are influencing employees’ performance in the organization, like in the case of Bangladesh. The study also highlighted some propositions to guide future empirical research. A total of 250 questionnaires initially were distributed to the employees of private organization for measuring the factors influencing their performance in the organization in Dhaka city, Bangladesh. Finally, 180 questionnaires became validated and tested for further statistical analysis through exploratory factor analysis (EFA) and later confirmatory factor analysis (CFA). Furthermore, structural equation modeling technique (SEM) was applied for testing the hypotheses. Among all the important variables, diversified workforce and training and development plays the most significant factor among our respondents followed by employee’s reward and work environment. The results suggested that a significant proportion of employees’ in private organization in Dhaka city were perceived that application of rewards, diversified workforce, training and development program and surrounding work environment have significant influence on performance. The outcome of this research showed a comprehensively integrated framework for researchers and mangers to understand the vibrant relationships among several dimensions that are influencing employee performance in the private organization. The added value of this paper is to link between theory and practice, and explore the area of employee’s performance under the perspective of private organization in Bangladesh. Few researches have conducted over the years under the



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private organizations employees’ in Bangladesh. Moreover; this is a relatively new issue that remains largely undiscovered by researchers under the circumstances of developing country like Bangladesh. Keywords: Reward, Diversified Workforce, Work Environment, Training & Development, Employee’s Performance.

INTRODUCTION For many years it has been said that capital is the bottleneck for a developing industry. Academicians and researchers do not think this is any longer holds a true fact. Rather researchers believe that it is the work force and the company’s inability to recruit and maintain a good combination of workforce that does constitute the bottleneck for production. Meanwhile, achieving organizational goals cannot be done without human resources. It is been stated that only thing that remains constant during our lifetime is change. And most of the time it is true. So individual must prepare themselves for events that have a significant impact on their lives. Many events helped shape peoples fields; and continue to do so. Some of the more obvious include globalization, work force diversity, changing skill requirements, corporate retrenchment and empowering employees (Decenzo, 1994). The modern workforce is becoming more and more diverse in terms of gender, ethnicity, age, and so forth. Although it is important to treat people fairly and to avoid any form of discrimination, it is also important for organizations to recognize and appreciate differences among people. According to Griffin (2001) a number of changes in the workforce continue to emerge and affect human resource management. Gender differences in the workforce also play an important role. More and more women have entered the workforce, and their presence is felt in more and more occupational groupings that were traditionally dominated by men. On the other hand High performance work systems and practices have identified as playing a key role in the achievement of business goals and improved organizational effectiveness (Becker & Huselid, 2006; Macky & Boxall, 2007).

So that workforce diversity and employees performance has become a very important issue in many organizations, both within Bangladesh and abroad. The present study dedicate for the research of what is known about employee performance and how researchers can enhance it through individual differences that basically exist in every organization. As recently 1960s, the work force was comprised of relatively homogenous group- predominately white males. This typical white male had a wife who stayed home and cared for their children. The work force composition has changed considerably over the past 30 years. Meanwhile the work force composition of the 1990s is comprised of a mixture of women, minorities, immigrants and males from different religious background Decenzo (1994).

Factors influencing employees’ performance in the private organization in a developing or transitional country context have thus far been largely explored. Bangladeshi private companies’ employees’ provide an interesting subject perspective on this topic, as their workforce is largely staffed by international origins, but currently under pressure to admit citizens into its ranks in Bangladesh. Review of literature reveals that in spite of its broad appeal there had been no developments in studying the variables and the factors that may potentially affect the employees’ performance under the perspective of private enterprise in Bangladesh. Accordingly, the current research aspires to provide more insight into the fundamental perceptions of how employee performances are affected by the various human resource factors in the private organization in Bangladeshi work environment. Principally, this paper also draws some propositions in order to direct future empirical research in this area. Information on such novel perspectives may open the door for local and international companies to measure their current and future practices to retain their employees for the long term to remain competitive in the market.



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LITERATURE REVIEW There is a lack of recognition that different groups or individual employees may be motivated by different factors to become involved, for example, or have different training or information requirements. Yet, as the literature has begun to suggest, the needs and aspirations of diverse individuals and groups of employees may impact on the ability of firms to achieve improvement objectives (Ahlbrandt et al., 1992; James, 1991; Ketchum and Trist, 1992). In an attempt to fill this gap, the following section traces the development of organizational approaches to managing employee performances and how those key indicators affects their performance level.

Diversity of Workforce and Employees’ Performance: The literature review will start by studying the main points of research into this area. The basic intention of our literature review is to give a comprehensive review of previous works on the area of diversity of workforce and employees performances. Cox (1993) define diversity is the representation, in one social system, of people with distinctly different group affiliations of cultural significance. According to Griffin (2001) indicate organizations with diverse workforces will be better able to understand different market segments than will less diverse organization. Many managers and researchers agree that diversity is a positive factor in organizations (Von Bergen et al., 2005). Moreover, diversity proponents argue that a culturally diverse workforce is economically beneficial (Ferley et al., 2003) and leads to better performance (Barney & Wright, 1998; Cox & Blake, 1991; Johnson, 1999; Richard, 2000). According to Alder (1997) company with a diverse workforce has greater chances for building an innovative working environment. White (1999) states that creativity thrives on diversity. These benefits can be derived from the proper implementation of diversity-promoting policies (Jamrog, 2002). According to Coil and Rice (1993).Many firms today seem to be increasingly embracing racial, ethnic and gender workforce balance, not for legal or ethical obligations, but as a matter of taking a progressive perspective on economic self-interest. Besides this Saji (2004) points out the fact that with time the culturally diverse groups did perform better on task elements – identifying problem perspectives and generating solutions and alternatives. Likewise Kundu (2003) indicates the reasons for valuing diversity are: to respond to competition, labour shortage, changing demographics and changing workforce values; to show that the organization is strategically driven, well-managed and quality-focused to its employees, stockholders, customers, and community; to prepare, train and develop company employees to manage and motivate a multi-cultural workforce; to gain competitive edge by identifying, attracting and retaining highly qualified and productive employees (Jackson et al., 1992); and To justify itself as a true representative of the society (Kundu, 2001).

Furthermore Boyar et al (2004) examines diversity in top management teams and the potential impact of TMT diversity upon firm performance. Upper echelon theory (Hambrick and Mason, 1984) posits that the demographic characteristics of top managers and organizational decision makers have a substantial effect on firm performance. Research has also shown that workforce diversity or heterogeneity can provide for positive organizational outcomes such as increased morale, higher satisfaction, intent to remain, greater commitment, and improved performance (Wright et al., 1995; Jehn et al., 1999; Gilbert et al., 1999). Even though performance is broadly understood as the purpose of teamwork. Performance, in general, can be determined by three factors (Stott and Walker, 1995): ability; work environment; and motivation. However, it is similarly argued by Peters (1992) that the influence, for instance, of the working environment, is of high importance. Because of that diversity in gender, race, and age on senior management teams is correlated with superior business performance in worker productivity, net operating profits, gross revenues, total assets, market share, and shareholder value (Bureau of National Affairs, 1998). Diversity drives creativity and performance, insists diversity expert Robert Hayles. “On complex tasks, with equally skilled leadership, diverse teams will outperform teams that aren’t diverse” (Ideas and Trends in Personnel, 1997, p. 179). Promoting diversity attracts talented workers, reduces turnover, and



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unleashes creativity (Silverstein, 1995; Diversity Inc., 2002). Meanwhile Well communication is very important for an effective use of diversify workforce that’s why, Hoa (2002) agrees that managing diversity is the most appropriate strategy and adds to the literature in this area by proposing that improvements in supervisor-subordinate communication will assist organizations toward this goal.

Rewards and Employees’ Performance Griffin (2001) mentioned that An organization must be able to demonstrate, beyond reasonable doubt, that a given individual employee was sanctioned, rewarded, punished, terminated or remanded for training on a basis of performance related reasons rather than non performance related factors such as sex or race. Besides that human performance is dependent upon a chain of mechanisms, beginning with the sensory systems which receive stimulation from the external and internal environments and ending with neuro-muscular systems which effect responses to stimulation (Welford, 1985). Reward is the most common human resource management practice used to acknowledge and compensate sales associates for good performance (Anderson and Chambers, 1985; Jaworski, 1988; Brown, 2005). Reward systems consists of both incentive and recognition programs. It has been well demonstrated that different types (financial/non-financial) and targets (individual/group) of rewards encompass different outcome utility, informative content and mechanisms for regulating behaviours (Yap et al., 2009). In a meta-analysis, Stajkovic & Luthans (1997) demonstrated that different types of rewards have different effects on employee behaviour and performance. While many practitioners acknowledge the motivational effects of both formal and informal rewards (Brown, 2005; Heathfield, 2008a, 2008b), the aforementioned studies focused solely on the effectiveness of formal reward programs, namely pay-for-performance structures and opportunities for promotion. Training and Development and Employees’ Performance: On the other hand for a better performance of employees training and development is essential activities; training and development represent fundamental investment in the employees who work for an organization, with the overall goal of improving their ability to make contributions to the firm’s effectiveness. According to Griffin (2001) employee training can be defined as a planned attempt by an organization to facilitate employee learning of job-related knowledge, skills, and behaviours. Cardy et al. (2004) suggests that dimensions of performances are quality of work done, quantity of work performed interpersonal effectiveness. According to Cardy et al. (2004) the causes of performance embraces three factors: ability (talents and skills, such as such as intelligence, interpersonal skills, and job knowledge), motivation and situational factors (quality of materials, quality of supervisor, poor coordination of work activities among workers, inadequate information, poor supervision, uncooperative co-workers, inadequate training, a poor work environment etc). On the other hand, cultural factors not only include ethnicity and nationality, but also race, religion, gender, sexual orientation, age, and disability. Implementing and achieving these goals is very important especially since cultural clashes can be a significant drain on the energy of the people involved, thus bringing down the productivity of the company (White, 1999). When people are brought together to achieve a common goal there is an increase in support for it. People who believe in its success will in turn work harder (Naik, 1999). Work Environment and Employees’ Performance Results from meta-analyses have convincingly shown that stressors in the workplace significantly impact the degree of work interface family (Ford et al., 2007). Key work stressors include: work role ambiguity, work role overload, and heavy responsibilities (Kahn & Byosiere, 1992; Mesmer-Magnus & Viswesvaran, 2005). The presence of these stressors in the workplace has been positively linked to increased feelings of work interface family (Eagle et al., 1997). This positive association is believed to reflect the limited physical and psychological resources of the worker (Mesmer-Magnus & Viswesvaran, 2005). In addition, it is important to note that stressors in the workplace have been linked to a number of mental health outcomes such as psychological distress, emotional exhaustion, and burnout (Bourbonnais



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et al., 1999; Butterworth et al., 1999; Donovan, 2003; Steinhardt et al., 2003) as well as job dissatisfaction (Decker and Borgen, 1993). Alternatively, a supportive work environment is a key component in employees’ satisfaction and well-being at work (e.g. Baltes & Heydens-Gahir, 2003). Supportive work environment includes the presence of adequate and appropriate work/family policies and programs, social support from supervisors and co-workers, as well as good interpersonal relations with co-workers (Mesmer-Magnus & Viswesvaran, 2005). The literature thus far has examined these support variables in a combined fashion (e.g. perceptions of support from any aspect of the workplace (Ford et al., 2007).

THEORETICAL FRAMEWORK:

Based on the literature review; this research concentrates on conceptual framework of factors influencing employee performance in the private organization. This framework emphasizes those variables, which affect employees’ performance. Research framework and conceptualization of the relationship of employees’ performance and affective factors are constructed:

Figure 1.1: Theoretical framework for this study

Hypotheses of the study

H1: Employees reward has a significant influence on employee’s performance in the organization. H2: Diversified workforce in the organization has significant influence on employee’s performance in the organization. H3: Work environment of the employee’s has a significant influence on employee’s performance in the organization. H4: Training and development program for the employees has significant influence on employee’s performance in the organization.

Reward Diversified Workforce Work environment

Training and development program

Employee’s Performance

H1 H3 H2

H4



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METHODOLOGY OF THIS RESEARCH

In this study, primary data was collected through distribution of questionnaires. Primary data collection methods were included survey questionnaires. The initial sample for the present study was comprised with (employees of private company’s) 250 samples of respondents in various part of Dhaka city through convenient sampling procedure. Companies were selected on the basis of some variables like (Number of minority representation factors which includes number of board of directors, corporate officers, manager and supervisor out of total work force). Respondents were also asked the percent of different racial background; different gender employees recruit in the current year, past and present diversity programs the company organize, and the change of their individual performance after the recruitment of different background employees, the amount of charitable contributions that primarily benefit minorities.

These factors were assigned weights with the greatest value to those quantifying diversity programmes and management representation (Urresta & Hickman 1998). Furthermore this paper included with some additional test to proof the hypothesis such as reliability test which is the tendency in a respondent to respond in the same or in a very similar manner to an identical or near-identical question (Burns & Bush, 1998). According to Sekaran (2000) the reliability of a measure indicates the extent to which the measure is without bias (error free) and free hence offers consistent measurement across time and across the various items in the instrument. Besides those test this articles also carried out factor analysis which explains the structure of the interrelationships among a large number of variables to determine a set of common underlying dimensions (factors). In this statistical procedure, researchers went through some phases, including data treatment, test of classical assumption. To handle the missing data, researchers simply replaced the missing data with means of the observation.

For the purposes of testing the hypothesis and fulfill the objective of this paper, researchers had created a data file that was reproduced some of the findings from the dependent and independent variable analysis. As this study observed, employee’s performance (Y) depends on rewards (X1); diversified work force (X2), work environment (X3); training and development (X4). Respondents were also asked to assess the items on different constructs such as factors viewed as antecedents of reward, significance of diversified work force, work environment, and training and development effect in terms of their performances based on seven point’s scales. The descriptors range from very strongly disagree, strongly disagree, disagree, somewhat agree, agree, strongly agree, very strongly agree.

A total of 250-sample sizes had been found to be valid and eventually distributed among the potential respondents for this study, of which 200 questionnaires were received. Each of the response received was systematically screened for errors, incomplete and missing responses. In some cases where respondents provided their identities, efforts were also taken to contact the subject respondents through e-mail for clarification and corrections, especially for missing or blanks responses. However, those responses that still contained questions in the survey questionnaire that had been remained unanswered or left incorrectly answered were finally discarded from data analysis in order to establish a rationality of analysis through proper representation. After having the screening process completed, only 180 responses were considered complete and valid for data analysis. This represents a success rate of 90%, which is considered to be extremely good in view of time, cost, certainty and geographical constraints.

Exploratory factor analysis was used in this study to identify the salient attributes that have impact on employee’s performances. Since, Factor analysis represents an analytical process of transforming statistical data (as measurements) into linear combinations of variables, it is a meaningful statistical method used for combining a large number of data into a considerably smaller number of factors with a minimum loss of information (Hair, et al., 1992). In addition, SEM (structural Educational Modeling) was carried out to investigate the relationship among the variables which influence the employee’s performance.



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RESULTS AND DISCUSSIONS

Factor analysis Factor analysis has been employed to explore the underlying factors associated with 16 items by using principal component analysis (PCA). Generally, KMO is used to assess which variables need to drop from the model due to multicollinearity. The value of KMO varies from 0 to 1 and KMO overall should be 60 or higher to perform factor analysis. If not then it is necessary to drop the variables with lowest anti image value until KMO overall rise above 60. Result for the Bartlett’s test of sphericity and the KMO reveal that both were highly significant and concluded that this variable was suitable for the factor analysis (Table 1).

Table 1: KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .793 Bartlett's Test of Sphericity Approx. Chi-Square 1588.624 df 120 Sig. .000

The process of factor analysis involves in this research on two stages: factor extraction to make an initial decision on the number of factors underlying asset of measured variables of interest and factor rotation for easy interpretability of factor extraction result and for making final decision about the underlying factors. The underlying structure of 16 items was analyzed using principal component analysis followed by varimax rotation.

Factor matrix showed the factor loadings of different variables. The loadings of all items are observed as satisfactory for further analysis. Reliability alpha also observed as satisfactory. Thus the four factors reward; diversified work force; work environment; training and development are yielded and used as independent variable in the analysis. The factor analyses revealed four dimensions underlying consumer perception toward e-banking transaction. They are: (F1) Reward; (F2) diversified work force; (F3) work environment; (F4) training and development. The total variance explained by factors is indicated in which suggests that the four factors account for 65% of the total variance. Factor one considered as “Reward” as it is strongly associated with certain aspects of perception of employees’ about their performance in the organization. These include; “Promoting the most talented people available” (factor loading of 0.853); “Opportunity for everybody of being promotion” (0.854); and “Everybody support the reward the organization given to the employees” (0.781) “Promoting diversity attracts talented workers” (0.813). All variables had positive loadings in factor two. The sign of the loading indicates the direction of the relationship between the factor and the variable. Factor two named as “Diversified Workforce”. This factor consists: “Group affiliations in organization” (with factor loading of 0.741); “Equal chance to make contributions to the firm’s effectiveness”(0.750), “To prepare, train and develop motivate a multi-cultural workforce” (0.791), “People are brought together to achieve a common goal “(0.801). The third factor is “Work Environment” which consists of items namely: “Well-managed and quality-focused to employees” (with factor loading of 0.781); “Each individual motivate the other members to achieve the task” (0.761); “Creative and innovative environment” (0.751) and “Equal employment opportunity” (0.755). The fourth factor is “Training and Development” which consists of items: “Organization to facilitate employee job-related knowledge”; “Investment for improving worker ability” and “Teaching manager’s professional’s skills”, “Investment in the employees, who work for an organization.



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Confirmatory factor analysis (CFA) This exploratory factor analysis gives confidence to do confirmatory factor analysis (CFA). Confirmatory factor analysis (CFA) can be used to assess unidimensionality. A CFA was conducted for each of the five constructs to determine whether the twenty indicators measured the construct they were assigned to adequately. Maximum likelihood estimation was employed to estimate the five CFA models. The SEM program AMOS was used throughout the study to conduct the analyses. Empirical evidence in CFA (and SEM in general) is generally assessed using criteria such as the comparative fit index (CFI), the root-mean square of approximation (RMSEA), the significance of parameter estimates and the amount of explained variance. Table 2 summarizes the results of these tests. CFI: This index compares a proposed model with the null measures. CFI values close to 1 are generally accepted as being indications of well-fitting models (Raykov and Marcoulides, 2000). A CFI value greater than 0.90 indicates an acceptable fit to the data (Bentler, 1992). The CFI values for the CFAs are displayed in Table2.

Table 2: Reliability Analysis and Factor Loading

Mean Std. Deviation Factor Loading

Reward (Alpha = .8634) Promoting the most talented people available 3.77 1.718 .853 Opportunity for everybody of being promotion 3.45 1.421 .854 Everybody support the reward the organization given to the employees

3.71 1.423 .781

Promoting diversity attracts talented workers 3.61 1.132 .813 Diversified Workforce (Alpha = .8543) Group affiliations in organization 3.31 1.621 .741 Equal chance to make contributions to the firm’s effectiveness

2.73 1.192 .750

To prepare, train and develop motivate a multi-cultural workforce

2.45 1.012 .791

People are brought together to achieve a common goal

2.78 1.045 .801

Work environment ( Alpha = .7651) Well-managed and quality-focused to employees

3.41 1.416 .781

Each individual motivate the other members to achieve the task

3.25 1.781 .761

Creative and innovative environment 3.30 1.051 .751 Equal employment opportunity 3.35 1.158 .755 Training and Development (Alpha = .7451) Organization to facilitate employee job-related knowledge 3.23 1.234 .745

Investment for improving worker ability 3.23 1.134 .745 Teaching managers professionals skills 3.21 1.345 .795 Investment in the employees, who work for an organization,

3.45 1.023 .678



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An analysis of the Table reveals that all the CFI values are very high ranging from 0.99 to 1, which suggests very good model fits. RMSEA: The RMSEA is an index used to assess the residuals. It adjusts the parsimony in the model and is relatively insensitive to sample size. According to Hu and Bentler (1999), RMSEA must be equal to or less than 0.08 for an adequate model fit. Table 3 shows that all the RMSEA values are below 0.08 and indicate adequate model fits. GFI: The goodness of fit index, tells you what proportion of the variance in the sample variance-covariance matrix is accounted for by the model. This should exceed 0.9 for a good model. Our results shows all the models are fit because all the GFI values are exceed 0.9. AGFI: Adjusted GFI is an alternate GFI index in which the value of the index is adjusted for the number of parameters in the model. Few numbers of parameters in the model relative to the number of data points.

Reliability: The degree of consistency of a measure is referred to as its reliability or internal consistency. The reliability coefficient, Cronbach’s a (Cronbach, 1951), is generally used to test the reliability of a scale. A value of 0.70 or greater is deemed to be indicative of good scale reliability (O’Leary-Kelly and Vokurka, 1998). The Cronbach’s a for the five factors range from 0.76 to 0.90, suggesting that they are all reliable (Table 3). Content (internal) Validity:

Content validity depends on how well the researcher created measurement items using the relevant literature to cover the content domain of the variable that is being measured (Bohrnstedt, 1983). The selection of items in this study was based on an extensive review of the literature, giving a strong content validity to the variables being measured.

Convergent Validity: The Bentler-Bonett normed fit index (NFI) obtained from CFA can be used to assess convergent validity. This index measures the extent to which different approaches to measuring a construct produces the same results (Ahire et al., 1996). According to a rule of thumb, NFI values of 0.90 or greater indicate an adequate model fit (Bentler, 1990). Table3 shows that all the NFI values are greater than 0.90 indicating strong convergent validity.

Figure 2: Degree of Relationship of Employee performance in the organization (Reward= RWD; Diversified Work Force = DWF; Work Environment = WE; Training and Development = TDP; Employees Performance = EP)



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Table 3: Fit Measures

Factor Indicator GFI AGFI CFI RMSEA Reward (RWD) .970 .930 .945 .051

Diversified Workforce (DWF) .967 .945 .946 .031 Work Environment (WE) .945 .923 .931 .054

Training and Development (TDP) .955 .937 .913 .052 Employees Performance (EP) .945 .913 .915 .048

Table 4: Standard Estimation of the Main Model

Standardized regression weight S.E. C.R. P value

H 1 Reward Employees

Performance 0.077 4.67 0.000

H2 Diversified

Work Force

Employees

Performance 0.072 6.453 0.000

H3 Work

Environment

P Employees

Performance 0.063 3.543 0.002

H4 Training and

Development

Employees

Performance 0.056 3.146 0.002

Hypotheses Testing The structural equation model was examined to test the relationship among constructs. Goodness-of-fit indicates for this model were chi-square/df = 3.8, GFI = .945, AGFI = .913, CFI = .915, RMSEA = .0481. Figure 2 depicts the full model. Of the four paths hypothesized in the model, where all the paths are significant at 95% confidence interval. All the paths were significant at p < 0.05. Result from table 4 shows significant influence of reward on employee’s performance in the organization. Our results revel that there is a positive direct influence of diversified work force diversity in the organization towards employee’s performance. Our result also revealed that factor work environment has positive effect on employee’s performance in the organization.

Lastly, training and development program in the organization has also positive significant influence on employee’s performance in the organization. Among all the variables, diversified workforce and training and development are the most significant value followed by employee’s reward and work environment. Therefore all the hypothesis have been accepted and can conclude that employee’ s reward, diversified workforce, training and development program and surrounding work environment have significant relationship on employees performance in the organization.

CONCLUSION AND RECOMMENDATION Many organizations today are also confronting the need to understand and manage diversity in their workforce. The modern workforce is becoming more and more diverse in terms of gender, ethnicity, age, and so forth. Moreover it is also mentioned that the Bangladeshi government has recognized the



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importance of developing the human capital in line with Vision of being industrial. Human Resources can influence the economic success of a company, and it can strategically contribute to the success of a nation (Pieper, 1990). Even country like Malaysia, Selvarajah et al. (2003) depicted that the composition of workers is diverse in Malaysia. In recent years, until the Asian financial crisis of 1997, the Malaysian labour market enjoyed a high growth rate of up to 9 percent per annum.

In light of that the government of Bangladesh also encouraged maximizing the utilization of the existing workforce. Managers realized that Human Resource Management had to be effective to bring about organizational stability and harmony. The diversity of the composition of the workforce in Bangladesh requires more appropriate and imaginative HRM (Human Resource Management) solutions. Moreover to survive and prosper in an increasingly heterogeneous society like Bnagladesh, organizations must capitalize on employee diversity as a source of competitive advantage. Today many firms realize that diversity can actually enhance organizational effectiveness. Employee diversity can improve organizational functioning by stimulating greater creativity, better problem solving and greater system flexibility.

Organizations that have capitalized the most on their diversity human resources to gain a competitive advantage tend to have top management committed to valuing diversity; solid, ongoing diversity training programs; support groups that nurture nontraditional employees and policies that accommodate employees’ family needs. Cardy et al. (2004). This study was undertaken to examine and understand the factors influencing Employee performance in the organization of private organization in Bangladesh. As a general notion, employee’s’ perception is widely varied in accordance with the reward, working environment, diversified employees, training and development program. Hence the diversified workforce companies are characterized by the engagement in competition with each other to attract and acquire the potential consumers. Historically, the competition among private companies in Bangladesh is more intense now than ever before. They compete not only for service quality but also for the employees’ superb performance as well.

Overall this study revealed that among all the variables, diversified workforce and training and development are the most significant value followed by employee’s reward and work environment. However, all the hypothesis have been accepted and can conclude that employees’ s reward, diversified workforce, training and development program and surrounding work environment have significant relationship on employees performance in the organization.

LIMITATION OF THE STUDY & DIRECTION TO FUTURE RESEARCH

The outcome of this research shows a comprehensively integrated framework for the researchers and managers to understand the vibrant relationships among several dimensions of employees’ performance in the private organization in Bangladesh. However, this study still predict that further research efforts are being needed to examine these factors in with additional samples with managers and employees’ before generalization can be made. Moreover, it is also needed to extend full-scale behavioural intensions of employees of public and private limited companies in order to match employees’ overall perception about their performance.

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Academy of Management Journal, 43, 164-77. Silverstein, S. (1995). Workplace diversity efforts thrive despite backlash. Los Angeles Times, 5, A1. Sekaran, U. (2000). Research method for Business. New York: John Wiley &Sons. Selvarajah C., Stanley, P., & Gladys, C (2003). The role of human resource management (HRM) in

Australian-Malaysian joint ventures. Journal of European Industrial Training, 27(5), 244-262 Stajkovic, A.D. & Luthans, F. (1997). A meta-analysis of the effects of organizational behaviour

modification on task performance, 1975-95. Academy of Management Journal, (40)5, 1122-49. Steinhardt, M.A., Dolbier, C.L., Gottlieb, N.H. & McCalister, K.T. (2003). The relationship between

hardiness, supervisor support, group cohesion, and job stress as predictors of job satisfaction. American Journal of Health Promotion, 17, 382-9.



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US Department of Labor (1999). Future work: Trends and Challenges for Work in the 21st Century, US

Department of Labor, Washington, DC. Urresta, L, & Hickman J. (1998 August 3). The diversity elite. Fortune pp. 114-123 Yap. J. E ., Bove. L.L. & Beverland, M. M (2009). Exploring the effects of different reward programs on

in-role and extra-role performance of retail sales associates, Qualitative Market Research: An International Journal, (12)3, 279-294.

Von Bergen, C., Barlow, S. & Parnell, J. (2005).Workforce diversity and organizational performance.

Equal Opportunities International, 24(3/4), 1-16. Wright, P., Ferris, S.P., Hiller, J.S. & Kroll, M. (1995). Competitiveness through management of

diversity: Effects on stock price valuation. Academy of Management Journal, 38 (1), 272-87. Griffin, W.R., & Nisi, D.S.A (2001). Human resource management, (1st edn., ). Houghton Mifflin

Company). White, R.D. (1999). Managing the diverse organization: the imperative for a new multicultural paradigm.

Available at: www.pamij.com/99_4_4_white.htm (accessed November 14, 2003). Ahasanul Haque is an Associated Professor of Marketing at Department of Business Administration, International Islamic University Malaysia. He received his PhD at the Graduate School of Management, University Putra Malaysia. He has more than 10 years teaching and research experience and published a text book of Marketing, written several study modules and over 50 papers in international refereed journal in the area of global marketing, e-commerce, internet shopping and internet advertising, Islamic Marketing, consumer behavior. Muhammad Sabbir Rahman has recently awarded PhD in Business Administration from international Islamic University Malaysia from Faculty of Economics and Management Science. He is also co-authors of various article and journal in relating to service marketing. Mehdi Hussain is a senior lecturer of School of Business, North South University. He has more than 15 years teaching and research experience and published numerous papers in international refereed journal in the area of marketing. Corresponding Author: DR. Associate Professor A.K.M. Ahasanul Haque, Department of Business Administration, International Islamic University, Malaysia Box No. 10, 50728 Kuala Lumpur Malaysia.



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A Study on Customer Delight in selected Commercial Banks in India

Sathya Swaroop Debasish

Senior Lecturer, Department of Business Management, Fakir Mohan University, Balasore, Orissa.

Mrs. Sarmistha Sarma

Lecturer in Marketing, Delhi College of Advanced Studies (Affiliated to GGSIP University), New Delhi,

India

Nikhil Chandra Shil (Corresponding Author)

Assistant Professor, Department of Accounting American International University – Bangladesh

Banani, Dhaka – 1213, Bangladesh

ABSTRACT

Banking sector in recent times have been faced by numerous challenges of constantly providing better services towards achieving customer delight. Past research in customer satisfaction and service quality has resulted in increasing research efforts to look at new ways to evaluate these concepts. In the present era, the emphasis is on Customer Delight (CD) so as to exceed customer’s expectations. The objective of this study is to identify the factors that create ‘customer delight’ and to measure the level of such ‘delight’ in the sample banks studied. This study has employed Kano’s model of customer satisfaction in measuring the level of ‘delight’ factors in the Indian banking segment. The total sample size of the study is 200 customers with 50 from each of the 4 selected banks under study and our study area is New Delhi and National Capital Region (NCR) area. The results shows that in case of SBI, factors like quick service, parking space and ‘add on’ facilities like services for senior citizens, differently abled peoples are ‘Must-be’ features whereas in case of Bank of Baroda, it is Quick Service, Parking space and low paper work that are ‘Must-be’. It is found that among the ICICI Bank customers that they are largely indifferent to working hours and add on facilities for senior citizens and differently abled. Further, it is found that prompt reply, branch availability, wide acceptability of debit and credit cards and longer working hours are the delighter factors which when fulfilled delight the customer and on their non-fulfilment dissatisfy them.

Keywords: Customer Delight, Banking, Kano’s Model, Factor, Satisfaction, India.



41

INTRODUCTION

Social psychologists, marketing researchers and students of consumer behavior, have extensively studied the concept of consumer satisfaction and dissatisfaction. The increasing importance of quality in both service and manufacturing industries has created a proliferation of research with more than 15,000 academic and trade articles having been published in the past decades (Peterson and Wilson, 1992). Customer Satisfaction is a psychological concept that involves the feeling of well being and pleasure that results from obtaining what one hopes for and expects from an appealing product or service (WTO, 1985). While there are a variety of approaches to the explanation of customer satisfaction/dissatisfaction, the most widely used one is proposed by Richard Oliver who has developed the expectancy disconfirmation theory (Oliver, 1980). According to this theory which has been tested and confirmed in several studies, customers purchase goods and services with pre-purchase expectations about anticipated performance. Once the product or service has been purchased or used, outcomes are compared against expectations. When outcome matches expectations, confirmation occurs. Disconfirmation occurs when there are differences between expectations and outcomes. The results on the research on customer satisfaction have lead to the development of nine theories of customer satisfaction. A majority of these theories are based on cognitive psychology; some have received moderate attention, while other theories have been introduced without any empirical research. The nine theories are Expectancy disconfirmation, Assimilation or cognitive dissonance, Contrast, Assimilation and Contrast, Equity, Attribution, Comparison Level, Generalized Negativity and Value Percept (Oh and Parks, 1997). Satisfaction is not a universal phenomenon and not everyone gets the same satisfaction out of the same hospitality experience. The reason is that customers have different needs, objectives and past experience that influence their expectations. To a student on a limited budget, a lunch composed of fast food items at the crowded and noisy school cafeteria may be highly satisfying experience, while the same experience may be perceived as totally dissatisfying to an affluent executive discussing a business transaction. The same customer may also have different needs and expectations on different meal occasions or at different times of the day (David and Stone, 1985). To recapitulate what we have established by now is that an individual’s satisfaction with outcomes received from a hospitality experience results from a comparison of these outcomes with expectations. Expectations can be described as a mutable interval standard which is based on multiple factors including needs objectives, past personal and vicarious experiences with same establishment restaurant with similar establishments and the available alternatives. Past research in customer satisfaction and service quality has resulted in increasing research efforts to look at new ways to evaluate these concepts. Historically, the assumption has been that a linear relationship exists between satisfaction and dissatisfaction and disconfirmation or performance evaluations. Unlike material products or pure services most services are an amalgam of products and services. Therefore it is possible to say that satisfaction with service experience such as bank or airport is a sum total of satisfaction with the individual elements or attributes of all the products and services that make up the experience.

In service organizations, the assessment of the quality of a service is made during the actual delivery of the service – usually an encounter between customer and a service contact person. Parasuraman et al. (1985, 1988, and 1991) identified the following five generic dimensions of service quality (SERVEQUAL) that must be present in the service delivery in order to result in customer satisfaction:

1. Reliability: the ability to perform the promised services dependently and accurately. 2. Responsiveness: the willingness to help customers and provide prompt service. 3. Assurance: the knowledge and courtesy of employees as well as their ability to convey trust and

confidence.



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4. Empathy: the provision of caring individualized attention to customers. 5. Tangible: the appearances of physical facilities, equipment, personnel and communication

materials.

The companies in the present times have to meet all the above parameters to be able to deliver satisfaction. Thus with ever escalating customer expectations, companies have to offer additional values to make an ever lasting impression in the minds of the customers, because mere delivery of satisfaction as the confirmation of expectations is considered as a minimum threshold. Therefore in the present era, the emphasis is on Customer Delight (CD) so as to exceed customer’s expectations (Yeung, Ging and Ennew, 2002). Delighted customers are those where you anticipate their needs; provide solutions to them before they ask and where you are observing to see if new and/or additional expectations are about ready to be required. What is wrong with providing just customer service? Simply providing customer service is not cost effective. It misses the opportunity to provide the reward. When we create a special “WOW” effect we have planted a very special peg in the memory of the customer that is easy to recall. It creates the possibility of the customer telling the story about their “WOW” experience to many friend associates and strangers. Customer delight brings customers back for more. It causes new customers to come.

For managers deciphering customer delight data is akin to trying to make sense of ancient Egyptian hieroglyphs. The importance of the information is widely acknowledged, but most companies lack a “satisfaction Rosetta stone”. As a result managers struggle to create improvement programs and are provided virtually no help in estimating the returns for their efforts. Many firms have watched their performance improvement in key driver attributes only to discover that their overall delight scores have failed to show a corresponding increase. At other times improvement in overall satisfaction scores has failed to have a demonstrable positive impact on customers’ retention or corporate profits.

Unfortunately there has been no seminal discovery of a single Rosetta stone for interpreting customer satisfaction data. But thanks to the work of many different researchers, the relationship between customer delight and customer behavior is becoming clearer. In effect, we have the “code” for behavior and can now beginning to decipher the hieroglyphics of customer delight.

OBJECTIVES OF THE STUDY

The primary objectives of the study are:

1. To identify the motivating services generally considered by the customers of banking services. 2. To study and analyze the basic, Linear and Delighter factors in banking services 3. To measure the level of such delight factors among the sampled banks. 4. To measure and analyze the degree of co-relation between such ‘delight’ factors.

LITERATURE REVIEW

On a review of literature we have seen that many researchers have studied the fact that one has to go beyond simply satisfying customers to delighting them. Products and services that only satisfy fail to encourage loyalty among purchasers. The concept of customer delight receives a large amount of attention in the business and customer literatures but has received little academic considerations outside psychology. Oliver has conducted several empirical studies into the delight seen in purchasers of services and products. Oliver views delight within an Expectancy Disconfirmation Model, where delight occurs when customer’s expectations are exceeded. Oliver’s approach considers the effects of products performance during ownership on customer delight, whilst delight during product evaluation may be more important in capturing new customers at the point of purchase (Mittle, 1988). Kano (1995) and Macmillan



43

& McGrath (1996) describe models that consider the evaluation of products in terms of customer needs and introduce the idea of delightful or differentiating product attributes. “Delight your customers” is the current Unique Selling Point (USP) of all the business houses. Companies are being advised by the consultancies that to succeed in business they have to adopt delighting customers as the primary objective. Several definitions of delight are used, generally associated with exceeding customer’s expectations to deliver the pleasant surprise that results when a product or service answers an unvoiced need. Various models are presented to help companies evaluate their products in terms of customer needs and these introduce the idea of delightful or differentiating product attributes. The most widely used of these is the Noriaki Kano’s Model of product qualities, as shown in Figure 1.

Figure 1: KANO Model (Adapted) of Customer Delight

The Model was developed by Noriaki Kano through work within various Japanese and American industries; the Kano model categorizes product attributes into three groups according to customer needs. By contrasting customer’s reactions to both the presence and absence of each product attribute Kano describes the following typology of product features (Kano, 1995).

The customer expects “basic” qualities to be present in the product and as such high levels of customer satisfaction are hard to achieve by excelling in these areas. The teller in the bank hands over cash is a basic service and any customer expects from a bank. But if for some reason the teller does not give out cash the customer is bound to be dissatisfied. The presence of a teller does not satisfy a customer but its absence will definitely dissatisfy him. “Linear” qualities are those for which the level of customer satisfaction increases with the level of achievement of these qualities. The handing out of an investment tip by the teller might be a linear quality. The customer is satisfied by the improvement in these benefits but is only excited at extremely high levels of achievement. The delighter feature excites the customer even at low levels of achievement. The absence of the feature does not dissatisfy the customer since it was not expected. “Delighter” feature tends to be novel and as such can differentiate a product from its competitors. The advantages of classifying customer requirements by means of the Kano method are as below:

Satisfaction

Dissatisfaction

Req

uire

men

t Unf

ulfil

led

Requirem

ent fulfilled

Revealed

Expected (Unspoken)

Expected (Unspoken)



44

a) Priorities for product development: The model highlights the fact that it is not very useful to invest in improving must be requirements or basic requirements which are already at a satisfactory level but better to improve “Linear” or one dimensional requirements as they have a greater influence on perceived product quality and consequently on the customer’s level of satisfaction.

b) Product requirements are better understood: The product criteria which have the greatest influence on the customer’s satisfaction can be identified. Classifying product requirements into must be “Basic”, one dimensional “Linear” and attractive dimensions “Delighters” can be used on the focus.

c) Kano’s model of customer satisfaction can be optimally combined with quality function deployment. A prerequisite is identifying customer needs, their hierarchy and priorities (Griffin and Hauser, 1993). Kano’s model is used to establish the importance of individual product features for the customer’s satisfaction and thus it creates the optimal prerequisite for process oriented product development activities.

d) Kano’s model provides valuable help in trade–off situations in the product development stage. If two product requirements cannot be met simultaneously due to technical or financial reasons, the criterion can be identified which has the greatest influence on customer satisfaction.

e) Must be, one–dimensional and attractive requirements differ as a rule, in the utility expectations of different customer segments. From this starting point, customer tailored solutions for special problems can be elaborated which guarantee an optimal level of satisfaction in the different customer segments.

f) Discovering and fulfilling attractive requirements create a wide range of possibilities for differentiation. A product which merely satisfies the must be and one dimensional requirements is perceived as an average and therefore interchangeable (Hinterhuber, Aichner and Lobenwein, 1994).

RESEARCH METHODOLOGY

In the present study we are trying to establish the banking services of two private banks (ICICI and HDFC) and two public sector banks (SBI and BOB) in the backdrop of the Kano’s Model of customer satisfaction. Here we have taken the whole gamut of banking services as the product under study. The study starts with the identification of product requirements. These requirements have been listed by studying the products of the banks and the nature of their services and by conducting focus group interview among the teachers and the students of Delhi College of Advanced Studies. The product requirements identified are:

1. Quick Services 2. Parking Space 3. Prompt Reply 4. Branch Availability 5. ATM availability 6. Acceptability of Debit and Credit Cards 7. Processing Time 8. Involvement of Paper Work 9. Working Hours 10. Add On facilities for senior Citizens and Differently Abled

The second step in the study is the construction of the questionnaire. For each product feature a pair of questions is formulated to which the customer can answer in one of five different ways (Kano, 1994). The



45

first question concerns the reaction of the customer if the product has that feature (functional form of the question), the second concerns customers reaction if the product does not have that feature (dysfunctional form of the question). When formulating the questions, the “voices of the customer” (Hauser and Clausing, 1988) is of prime importance. The “voices of the customer” is a description of the problem to be solved from the customers’ viewpoint. The product features are then evaluated from the findings based on the answers from the following table (Table-1)

Table 1: Kano’s Evaluation Table

Dysfunctional (negative questions)

Customer requirements Like Must Be Neutral

Live With Dislike

Like Q A A A O must be R I I I M Neutral R I I I M live with R I I I M

Functional

(positive questions)

Dislike R R R R Q

If the customer answers for e. g. “I like it that way” for the question “If the services in the bank are very fast and you are very politely dealt with”— the functional form of the question and answers “I dislike it” for the dysfunctional question “If the services in the bank are not fast and you are not politely dealt with how do you feel?” the combination of the question as per the evaluation table is “O” Category. This result indicates that this feature is in “One dimensional characteristic from the customer’s viewpoint”. The customer is having a strong view of the need of this feature. If as per the table the answer of any question is category A the feature is Attractive in nature and can cause delight when fulfilled. If the answer is in category R this feature is not only wanted by the customer but he even expects the reverse.

Study Area In studying the Kano’s Model of Customer Delight in the backdrop of banking sector of India we have studied 4 banks, 2 in private sector (ICICI Bank and HDFC Bank) and 2 in public sector (SBI and BOB). Our study area is the banks in Delhi and NCR.

Sample Size The total sample size of the study is 200 customers with 50 each from each of the banks under study.

Methodology of the Analysis A frequency table is prepared based on the Kano’s evaluation table (as shown in Table-1). To analyze the Attractive, Must-be, one–dimensional, indifferent, reverse and questionable features. After frequency interpretation, the Customer Satisfaction Co-efficient (CS Coefficient) are analyzed. The customer satisfaction coefficient states whether satisfaction can be increased by meeting a product/ service requirement, or whether fulfilling this product requirement merely prevents the customer from being dissatisfied (Berger et al., 1993). The CS Coefficient is indicative of how strongly a product feature may influence satisfaction or in case of its “non-fulfillment” customer dissatisfaction. To calculate the average impact on satisfaction it is necessary to add the attractive and one-dimensional columns and divide by the total number of attractive, one-dimensional, must be and indifferent responses. For the calculation of the



46

average impact on dissatisfaction we should add the must-be and one–dimensional columns and divide by the same normalizing factor (Berger et al., 1993).

Extent of satisfaction: A+O/A+O+M+I

Extent of dissatisfaction: O+M/ (A+O+M+I)*(-1)

A minus sign is put in front of the CS coefficient of customer dissatisfaction in order to emphasize its negative influence on customer satisfaction if this product feature is not fulfilled. The positive CS coefficient ranges from 0 to 1, the closer the value is to 1, the higher the influence on customer satisfaction. A positive CS coefficient which approaches 0 signifies that there is very little influence. At the same time, however, one must also take the negative CS into consideration. If it approaches to -1, the influence on customer dissatisfaction is especially strong if the analyzed product feature is not fulfilled. A value of about 0 signifies that this feature does not cause dissatisfaction if it is not met.

FINDINGS AND ANALYSIS

Following are the analysis for the four sample banks.

a) SBI (State bank of India): The evaluation is done based on the interpretation according to the frequency of answers. In case of SBI, it is seen that quick service, parking space and add on facilities like services for senior citizens, differently-abled are Must-be features. People seem to be indifferent to processing time, prompt reply, easy branch availability, easy ATM availability and easy acceptability of debit and credit card are one–dimensional features i.e. people come to bank thinking that these features are there and they don’t like if they are not available.

b) BOB (Bank of Baroda): In case of bank of Baroda, it is seen that Quick Service, Parking space and low paper work fall under the ‘Must be’ features. Prompt reply, easy branch availability, easy ATM availability and easy acceptance of the Debit/Credit card are one-dimensional features. Low processing time is a reverse characteristic which means that the customer is not worried about the time taken in a bank; he is more concerned about the accuracy of the banking service. Longer working hours are an attractive feature for the customers of BOB i.e. if implemented with keeping the bank open for longer time during the day and open during the weekends the customers are sure to be attracted. It is seen among the customers of BOB that they are largely indifferent to add on facilities for senior citizens, the differently-abled etc.

c) ICICI Bank: In case of ICICI bank quick service, parking space and involvement of less paper work fall under must be characteristics. Prompt reply, branch availability, ATM availability, acceptability of debit and credit cards and low processing time fall under one–dimensional feature i.e. the customers like when it is there and dislike when it is not there. It is found that among the ICICI Bank customers that they are largely indifferent to working hours and add on facilities for senior citizens and differently-abled.

d) HDFC Bank: In case of HDFC Bank it is seen that Quick service, wider ATM availability, involvement of less paper work and less processing time are a must be requirement. Parking space and longer working hours are attractive features. Prompt reply, easy branch availability, acceptability of debit and credit card are one-dimensional attributes. Lastly, the customers of HDFC bank are largely indifferent to add on facilities for customers.



47

CONCLUSION

On analysis of the coefficient of correlation of all the factors of customer delight for the selected banks, it is seen that Prompt reply , Branch availability, wide acceptability of debit and credit cards and longer working hours are the delighter factors which when fulfilled delight the customer and on their non-fulfilment dissatisfy them. It is only working hours that is a delighter factor but does not dissatisfy much when not fulfilled. It is interesting to observe that people are not much satisfied at quick service but are strongly dissatisfied when there is no quick service. It might be that any customer expects for certainty when he walks into a bank. Rest of the features under study does not seem to have strong impact on the level of satisfaction and dissatisfaction.

REFERENCES

Berger, C., Blauth, R., Boger, D., Bolster, C., Burchill, G., DuMouchel, W., Pouliot, F., Richter, R., Rubinoff, A., Shen, D., Timko, M., Walden, D. (1993). Kano’s Methods for Understanding Customer-defined Quality, In: Center for Quality Management Journal, Vol. 4, pp. 3-36.

David, B. and Stone, S. (1985). Food and Beverage Management, 2nd ed., Butterworth-Heinemann,

Oxford. Griffin, A., and Hauser, J. R. (1993). The Voice of the Customer. Marketing Science, (Winter 1993), pp.

1 -27. Hauser, J. R. and Clausing, D. (1988). The House of Quality. Harvard Business Review, (May-June,

1988), pp. 63 -73. Hinterhuber, H. H., Aichner, H. and Lobenwein, W. (1994). Unternehmenswert und Lean Management,

Vienna. Kano, N. (1995). Upsizing the Organization by Attractive Quality Creation. In: Kanji, G. H (Ed), Total

Quality Management: Proceedings of the First World Congress, Chapman Hall. MacMillan, I. C. and McGrath, R. G. (1996). Discover your product's secret potential. Harvard Business

Review, May-Jun 1996. Mittal, B. (1988). The Role of Effective Choice Mode in the Consumer Purchase of Expressive Products.

Journal of Economic Psychology, Vol. 9, pp. 499-524. Oh, H. and Parks, S. C. (1997). Customer satisfaction and service quality: A critical review of the

literature and research implications for the hospitality industry. Hospitality Research Journal, Vol. 20, No. 3, pp. 33-64.

Oliver, R. L. (1980). A Cognitive Model of the Antecedents and Consequences of Satisfaction Decisions.

Journal of Marketing Research, Vol. 17, pp. 460-469. Parasuraman, A., Berry, L. L. and Zeithaml, V. A. (1991). Undertaking Customer Expectations of

Service, Sloan Management Review, Vol. 32, No. 3, p. 44.



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Parasuraman, A., Zeithaml, V. A. and Berry, L. L. (1988). SERVQUAL: a multiple-item scale for

measuring consumer perception of service quality. Journal of Retailing, Vol. 64, No. 1, pp. 12-40. Parasuraman, A., Zeithaml, V. A. and Berry, L. L. (1985). A conceptual model of service quality and its

implications for future research, Journal of Marketing, Vol. 49, pp. 41-50. Peterson, R. A. and William R. W. (1992). Measuring Customer Satisfaction: Fact and Artifact. Journal

of the Academy of Marketing Science, Vol. 20, pp. 61-71. WTO (1985). Identification and Evaluation of those Components of Tourism Services which have a

Bearing on Tourist Satisfaction and which can be Regulated, and State Measures to Ensure Adequate Quality of Tourism Services, World Tourism Organization, Madrid.

Yeung, M. C. H., Ging, L. C. and Ennew, C. T. (2002). Customer satisfaction and profitability: A

reappraisal of the nature of the relationship. Journal of Targeting, Measurement and Analysis for Marketing, Vol. 11, No. 1, pp. 24-33.

APPENDIX A: Questionnaire

1(a) If the services in the bank are very fast and you are very politely dealt with, how do you feel?

a. I like it that way. b. It must be that way. c. I can’t say how I feel. d. I can carry on with banking that way. e. I dislike it that way.

1(b) If the services in the bank are not fast and you are not politely dealt with, how would you feel?


2(a) If there is good parking space, how do you feel?

a. I like it that way. b. It must be that way. c. I can’t say how I feel.



49

d. I can carry on with banking that way. e. I dislike it that way.

2(b) If there is no good parking space, how would you feel?


3(a) If you are given prompt reply to all required information, how do you feel?


3(b) If you are not given prompt reply to all required information, how do you feel?


4(a) If the branches of your bank are easily available, how do you feel?


4(b) If the branches are not easily available, how do you feel?


5(a) If the ATMs of your bank are easily available, how do you feel?

a. I like it that way. b. It must be that way.



50

c. I can’t say how I feel. d. I can carry on with banking that way. e. I dislike it that way.

5(b) If the ATMs of your bank are not easily available, how do you feel?


6(a) If the Debit /Credit Cards of your bank are widely acceptable, how do you feel?


6(b) If the Debit /Credit Cards of your bank are not widely acceptable, how do you feel?


7. How important are following schemes: Unimportant Very Important

Schemes 1 2 3 4 5 6 7

Demand Draft Facility FD Schemes Money Transfer Locker Facility Demand facility Tele banking Mobile banking

Net banking

8(a) If the processing time for the banking services is low how do you feel?



51


8(b) If the processing time for the banking services is high how do you feel?


9(a) If there is little paper work involved in banking operations how do you feel?


9(b) If there is lot of paper work involved in banking operations how do you feel?


10(a) If your bank has long working hours and open on weekends how do you feel ?


10(b) If your bank does not have long working hours and open on weekends how do you feel ?




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11(a) If your bank has add on facility for privileged customers, senior citizens and differently abled how do you feel?


11(b) If your bank does not have add on facility for privileged customers , senior citizens and differently abled how do you feel?


12. How important are following schemes:--

Unimportant Very Important Schemes

1 2 3 4 5 6 7 Car Loan Cheap Home Loan Easy Personal Loan Easy Educational Loan Availability of overdraft Car Loan Cheap Home Loan Easy Personal Loan



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APPENDIX A: Correlation Table

SBI BOB ICICI HDFC

Satis

fact

ion

Dis

satis

fact

ion

Satis

fact

ion

Dis

satis

fact

ion

Satis

fact

ion

Dis

satis

fact

ion

Satis

fact

ion

Dis

satis

fact

ion

Quick Service 0.45 -0.85 0.25 -0.85 0.40 -0.80 0.60 -0.65 Parking Space 0.32 -0.63 0.33 -0.61 0.50 -0.50 0.65 -0.75 Prompt Reply 0.60 -0.70 0.80 -0.65 0.60 -0.75 0.58 -0.55 Easy Branch Availability 0.60 -0.60 0.55 -0.60 0.55 -0.65 0.50 -0.85 ATM Availability 0.65 -0.75 0.50 -0.70 0.65 -0.75 0.55 -0.70 Acceptability of Debit and Credit Card

0.58 -0.63 0.63 -0.58 0.65 -0.55 0.50 -0.80

Processing Time 0.50 -0.63 0.50 -0.50 0.69 -0.85 0.63 -0.50 Involvement of Paper Work 0.22 -0.56 0.41 -0.59 0.55 -0.70 0.33 -0.75 Working Hours 0.71 -0.29 0.61 -0.11 0.56 -0.28 0.80 -0.65 Add On facilities for senior Citizens and differently abled

0.50 -0.50 0.35 -0.35 0.55 -0.40 0.54 -0.63



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Effect of perceived corporate brand on customer`s attitude towards

Islamic banking

Javid A.Malik Hitec University, Taxila Cantt Pakistan

Iftikhar Ahmed Bhatti Head of Department, Faculty of Management Sciences,

Hitec University, Taxila Cantt Pakistan

Shagufta Parveen

Lecturer, Faculty of Management Sciences, Hitec University, Taxila Cantt Pakistan

Samreen Arshad Faculty of Management Sciences,

Hitec University, Taxila Cantt Pakistan

ABSTRACT

The study attempts to find out the effect of perceived corporate brand on consumers’ attitudes towards Islamic Banking. The primary objective of this to identify relation of consumer attitude with Islamic Banking Brand. Regression analysis was conducted using SPSS to identify relation of consumer attitudes towards Islamic Banking and its significance. Through this study, a comprehensive model was identified A total of 183 responses were thus obtained, from different Islamic Banks.

Key words: Brand, Consumer Attitude, Islamic Banking

INTRODUCTION A traditional definition of a brand was: “the name, associated with one or more items in the product line, which is used to identify the source of character of the item(s)” (Kotler 2000, p. 396). According to Anderson and Bennett (1988), a brand is a name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct from those of other sellers. Building brand equity is one method for companies to distinguish its own brand from others. Duncan states that a brand is the “perception of an integrated bundle of information and experiences that distinguishes a company and its products from competition” (Duncan, 2002, p. 13). Kotler (2000) has mentioned branding as “a major concern in product strategy” (p. 404).Ioanna and Demetris (2006) refer to that “Brands vary in the amount of power and value they have in the marketplace. Some brands are mostly unknown to the majority buyers.



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Additional brands have a high degree of consumer brand awareness. Still brand preference is enjoyed by others (buyers select them over the others). Finally, some brands require a high degree of brand loyalty”. In the marketing literature, corporate brand identity assists organizations communicating their differential advantage to the marketplace; however, all such organization specific c attributes are signaled through the brand 37 rather than other means of corporate communications, (Berens, G., van Riel, C. B. M . and van Bruggen , G . H. 2005, Mart í nez, E. and Pina, J. M. 2005)

While research focuses on firms use of corporate brand identity to communicate their distinguishing attributes to potential and existing customers, competitors and / or suppliers, it is also well founded that marketing employees are influenced by such corporate communications as well, (Wheeler, (2006, Stuart, H. 2002,)

Islamic banking has emerged in Pakistan as a response to both religious and economic needs. Efforts it eliminate Riba economically started during 1970s and most of the major and practical steps were taken in 1980s. The attempt in the mid-80s was a significant step in the development of Islamic banking system in the country. However that system did not work as it did not adequately addressed issues such as putting in place an effective Shariah conformity mechanism, giving emphasis to capacity building, and opting for a flexible and evolutionary approach. In any case this effort provided a valuable experience that has been taken into account while formulation of SBP’s current strategy to re-launch Islamic Banking in Pakistan. (Anonymous Resources) Islamic banks have been operating like other traditional banks since four decades. Based on Islamic Law (Shari’ah) they activate deposits and produce loans, which are different from the conventional or commercial banks. The plan to re-introduce Islamic Banking in Pakistan was launched back in 2001 when the government decided to promote Islamic banking in a steady manner and as a parallel and compatible system collaborates with best international practices. The government wished to shift to interest free economy in a phased manner without causing any disruptions. The effort was envisioned to be based on a market driven and flexible approach. Moreover it aims at building a broad based financial system in the country to facilitate all segments of the population to access financial services, (Anonymous Resources). For this purpose, SBP worked on a three branched strategy for promotion of Islamic Banking i.e.

• Allow new full fledged Islamic banks in the private sector, • Allow the conventional banks to set up Islamic banking subsidiaries • Allow the existing conventional banks to open Stand-alone Islamic banking branches.

Now there has been a shift in the approach from the legal & regulatory point of view. They are dealing with the whole affair of introducing Islamic banking in Pakistan as a change management issue. As compared to their past experience, this new approach provides flexibility to the IBIs as regard to products, instruments and Shariah compliance methodology. This new plan has witnessed a very encouraging response. At end of the year 2003, only one bank operated as a full-fledged Islamic bank and only three conventional banks were operating Islamic banking branches. Now in 2010, there are seven full-fledged Islamic banks operating in Pakistan. It is important to establish Islamic banking as a corporate brand because “Islamic banking differs from conventional banking in several ways, such as it involves the prohibition of transactions that are based on interest rate and requires that bank’s operations be carried out according to certain procedures through the use of certain financial instruments. However, Islamic banks can also offer products and services which are similar to those being offered by conventional banks. Generally, we define an Islamic bank as a non-interest based financial institution which complies fully with Islamic Laws and has creative and progressive financial business to offer efficient and competitive banking, investment, trade finance,



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commercial and real estate financing services. There are 180 Islamic Banks and Financial Institutions that are now operating in Asia, Africa, Europe and the USA with more than 8,000 branches”( Ahasanul Haque, Jamil Ahmad Zaki, 2009). Islamic banks face the challenge to sustain the expected growth in a still-developing industry infrastructure environment and in an increasingly competitive banking industry. They face the factors like unmet demand, geographical coverage, product development, new segments and from data collected by different Islamic banks, it is estimated that total assets of Islamic banking industry will reach over one trillion rupees up to year 2012.

The Islamic banking and finance today has emerged as an important component of the overall Pakistani financial system that contributes to the growth and development of the Pakistani economy. The ability of the Islamic banking industry to capture a significant market share in a rapidly evolving and challenging financial environment particularly in a dual-banking system like Pakistan , is dependent on the strategic positioning of the Islamic banking players to maintain their competitive edge and offer services and products that satisfy the needs of their customers.

According to Richins and Dawson (1992), materialistic consumers are characterized by a strong emphasis on possession acquisition. They think about possessions as an essential means in the pursuit of happiness and tend to view success in terms of possessions, too. In effect, materialists "value possessions and their acquisition in addition to other life goals and more than their relationships with other people" (Richins and Dawson, 1992, p. 308).

Martineau (1958) pioneered research into brand image, finding that a favourable image provided an organization with a distinctive competitive advantage. The importance of brand image was again highlighted by Balmer (1998) who asserted that an a priori link exists between an individuals image of the organisation and that persons behaviour towards the organisation. Balmer (1998) has defined corporate brand image as links and meanings connected with an organization. In line with this, Aaker (1997) sees image as the net result of all the experiences, impressions, beliefs, feelings and knowledge that people have about a company. Nandan (2005) provides further support for this view, interpreting image as perception of the brand’s consumer.

“Brand image is created by marketing programs that link strong, favorable, and unique associations to the brand in the memory” Keller (2003a) (p. 70). These associations are not only controlled by the marketing program, but also through direct experience, brand information, word of mouth, assumptions of the brand itself -name, logo-, or with the brand’s identification with a certain company, country, distribution channel, person, place or event.

Successful management of internal brand resources should result in a favorable brand reputation. Adapting Fombrun and Rindova’s (1996) definition of reputation, a brand’s reputation is defined as ``a collective representation of a brand’s past actions and results that describes the brand’s ability to deliver valued outcomes to multiple stakeholders’’. In contrast to a brand’s image, which reflects current, changing perceptions, a brand’s reputation is more stable and represents the distillation of multiple images over time (Fombrun and van Riel, 1997). By encircling the evaluations of all stakeholders, reputation provides a much more representative sign of brand performance. Van Riel and Balmer (1997) also noted that the objective of corporate identity management was the establishment of a favourable reputation among an organisation’s stakeholders. Familiarity with major stakeholders’ perceptions is vital to corporate brand management (Balmer, 1995). De Chernatony’s (1999) model conceptualises the brand building process as revolving around the identification and narrowing of gaps between a brand’s identity and its reputation. Hence, managers need to work with staff to diminish these gaps and eliminate sources



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of inappropriateness. Strategies may then be fine-tuned to achieve a better match between identity and reputation. By including both internal and external components in the process, the model provides a balanced approach to brand building.

LITERATURE REVIEW

Brands are established in every aspect of human life ranging from production and consumption, food and clothing, personality and lifestyle and from pop culture to politics. Branding is now not just about adding value to a product, instead it represents and promotes lifestyles and hence brands themselves become a kind of culture. According to Hazel Kahan (quoted in Hall, 1999), “Brands are now competing for a share of consumers’ inner lives, their values, their beliefs, their politics and their souls. The impact of brands and branding is now far beyond the field of marketing and advertising. Branding is a social as well as an economic construct. Economically, brands have been studied from both marketing and financial perspectives”.A brand is no longer just the boundary between the company and its customers; instead it is the face of the company. No references to branding are available in business ethics books while leading branding texts make no reference to ethics (Aaker, 1991; Kapferer, 1997; Keller, 1998;).

Olins, 1978 and King, 1991, are of view that “A brand may be unethical, but there are ethical issues in branding. Ethical branding, as a subset of ethical marketing, relates to certain moral principles that define right and wrong behavior in branding decisions. A brand needs to be evaluated not just by the economic or financial criteria but also by the ethical ones. An ethical brand should not harm public feelings rather it should be a contribution towards helping and promoting public good”.The focus of this paper is on corporate brand thus it is imperative to distinguish between four analog term used in company as a brand: corporate identity, corporate brand, corporate image and corporate reputation. The meaning of corporate brand identity image and reputation is largely confused. A closer look in the definition of these terms will certainly present reasonable distinction between these terms and uncover the underlying characteristics of corporate brand.

Despite lack of general definition on a theoretical level the most common definition is a mix of characteristics that an organization possesses as a subject (Gylling C. and kirsti Lindberg-Repo, 2005) As mention earlier Kay M.J (2006) describes corporate branding is the way in which an organization communicates its identity.The corporate brand functions as a communication interface between the company and its stakeholders (Hatch and Schultz, 2001). The myriad of stakeholder groups implies more diversity of communication media used and increases the importance of the brand name as transmitter of all kinds of brand information. This implies that corporate brand management is a top management assignment rather than a marketing management assignment (Balmer, 2001; King, 1991).

This difference between corporate and product brand leads to a profound shift of weight and impact of the name factor on the companywide brand management and the desired effects of building brand equity. In case corporate and product brand coincident, the impact of the name on corporate brand management is even stronger. Both assets (corporate brand and product brand) have to converge in order to be summed up in one name. The analogy of corporate and product brand are a common phenomenon in the net economy. This is so for professional brand naming because the entrepreneurs have less room for reassessing any branding mistakes. Entrepreneurs face the need of finding a corporate name that embraces the values for which a company wants to be known. This name eventually becomes the umbrella for the development of a corporate brand and the driver for building brand equity.

Corporate brand is argued as the most sustainable source of competitive advantage (de Chernatony & Harris, 2000). A strong positive corporate brand image not only helps a firm to achieve a competitive advantage but also encourages repeat purchases (Porter & Claycomb, 1997). There is no doubt that loyalty is an important concept for marketers (Rundle-Thiele, 2004). Silva & Alwi (2008) investigated the corporate brand image of a book retailer that sells exclusively online. The research was informed by 511



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responses from experienced customers of the bookstore. The findings show that corporate brand image can have a direct positive relationship with consumer loyalty.

Brand image is an overall impression of the brand obtained by processing information from various sources over time (Anonymous, 1998). Keller (1993) defined brand knowledge in terms of two core components, brand awareness and brand image. Brand image refers to the set of associations linked to the brand that consumers hold in their memory.Corporate branding involves multiple stakeholders interacting with numerous staff across many departments in an organisation (Mitchell, 1997). Effective corporate branding requires consistent messages about a brand’s identity and uniform delivery across all stakeholder groups to create a favourable brand reputation. Internal consistency and congruency are vital to the successful external communication of corporate identity (Abratt, 1989).

The attitude is defined by Schiffman and Kanuk (2000) as “a learned predisposition to behave in a consistently favorable or unfavorable way with respect to a given object”. The attitude toward brands can be associated with beliefs about the attributes and with the product and the symbolic benefits (Keller, 1993). Previous studies reveal the impact of this build and its strong point on choices (Priester et al., 2004 in Ferrandi et al., 2005). The name can create a positive and strong attitude toward the brand. Accordingly, instant non-neutral attitudes will be formed just after a contact with a product name (Zinkhan and Martin, 1987).

Some studies on factors such as, product related attributes and situational factors (Emmelhainz et al., 1991), retail competition and shopping patterns (Verbeke et al., 1998) consumer, situational and perceived store characteristics (Zinn and Liu, 2001) product, consumer and situational characteristics (Campo et al., 2000) are used to explain why consumers respond in a particular way. Fitzsimons (2000) approached differently by measuring consumer responses in terms of both behavioral and evaluative (consumer satisfaction with decision process) responses (Rani and Velayudhan, 2008).

Two things are apparently clear from a survey of the literature: (1) Knowledge level regarding Islamic products seems weak across studies that measured such knowledge. Numerically, Islam is the second-largest religion, with an estimated 1.4 billion followers (after Christianity's 2 billion), and follows the Judaeo-Christian heritage as the third and last of the great monotheistic religions. It requires Muslims to guide their lives in accordance with the Islamic legal code of ‘Shariah’ principles. Commerce is essential to the Islamic tradition (Warde 2000). Islamic banking is built upon the principle of brotherhood and cooperation, which stands for a system incorporated with equity sharing, risk sharing and stake taking. It promotes such sharing and collaboration between the investor and the user of funds entrepreneur (Ahmad, 2000; Iqbal and Molyneux, 2005).Some Western scholars (Volker Nienhaus: 2006),often argue that the Islamic worldview supports a mentality and value system which characterizes little importance to performance and responsibility of individuals as well as little effectiveness and efficiency or material wellbeing. Muslims are more concerned with the life in the hereafter. They believe in a kind of predetermination, and all these components lead, in total, to a laid-back attitude which seriously barricades economic development.

They call Islamic economics as a system similar to social market economic system. Some others refer to it as a form of Universal banking system of Swiss-German model (Iqbal & Ahmad: 2003) which allows individuals to hold equity and also to carry out operations such as trading and insurance, which usually lie away from the sphere of commercial banking. Universal banks are better prepared to deal with information irregularity than their commercial counterparts. Still all of the world economists declare Islam as first social order which made pursuit of knowledge compulsory for its disciples, both men and women (Hasan. Zubair: 1995), a condition of economic growth and development. They also say that Islamic economic teachings imply or plead for a set of institutions (private property, enterprises, capital markets, anonymous markets, labor laws, competition, etc.) considered vital for the rapid economic development which has taken place in the West since the 18th century (Volker Nienhaus: 2006). Most



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astounding is the fact that TFP (Total Factor Productivity i.e., output per units of all inputs) has been described in Islam as a key to economic growth5 through participation not competition among individuals, negating self interest approach of Adam Smith.

In Pakistan, customers’ positive perception towards Islamic banking is far more crucial mainly due to the fact that Islamic banks have to compete with the long established conventional banks in a dual-banking system. Pakistan to date has a dual banking system, whereby the Islamic banking system operates in parallel with the conventional system. The former is currently represented by 54 banking institutions, comprising six Islamic banks and 48 conventional banking institutions (30 commercial banks, eight development financial institutions, four specialized banks, six microfinance bank) offering.

It has always been recognized that Islamic financial institutions face a challenging task in building customers’ allegiance and attracting newcomers, particularly in a dual-banking system country like Pakistan, where competition is fierce with many other conventional financial institutions (Ahmad and Haron, 2002).Nasser, Jamal, and Al-Khatib (1999), surveying 206 bank customers on Jordan, added a bank’s reputation and perceived level of confidentiality to this list of selection criteria noted in the Haron et al (1994) study. Again the researchers have noted a high level of ignorance with regard to specific Islamic products, with 70% of the respondents stating that religion was a very important reason for them in selecting an Islamic bank.

In the marketing of financial institutions, the corporate branding is vital (Develin and Mckenchie, 2008; Moorthi, 2002; Balmer and Wilkinson, 1991). However, compared with the tangible product branding, the research on services branding has remained under-developed (de Chernatony and Segal- Horn, 2003; Grace and O’Cass, 2005; Davelin and Mckenchie, 2008).The brand name represents the relation between what the company is (Balmer, 2001) and which is thought of (Davies and Chun, 2002). According to Turly and Moore (1995), the weight of the brand name is more significant when the product has an intangible nature (service) since it represents a good source of information about the company in consumers’ pre purchase evaluation.

The service brand name is the most important component of the brand and an important source of information to the customer, because service attributes are difficult to communicate via other means (Turly and Moore, 1995).Although there is an extensive literature on branding services, no much of it addresses the issue of branding practice particularly in the financial institutions. The present study is along with the exceptional that focused on this concern.In the financial services sector very few brands have managed to distinguish themselves from their competitors (Jones, 1999; De Chernatony and Dall’Olmo Riley, 1999). Camp (1996) further supports the fact that the financial services industry spends about £1 billion each year on image advertising depicts the difficulties of building a service brand.

Religion is a major constituent to describe a cluster of beliefs. It is more than ecology of themes for social communication rather it is a specific way of communicating. It is not just cultural arbitrariness, but it is also systematic. Religion does not just lie in its capacity for differentiation (of people), it is also lies in its ability to structure and lend meaning to the everyday, to the local world of interaction (Haq and Smithson, 2003). Prior research also showed that reference group often impacts on consumer behavior (Fishbein and Ajzen, 1975; Kotler et al., 1999; Karjaluoto et al., 2002). At the same time, Islamic banking came into existence to satisfy the financial needs of Muslims who have to observe the prohibition of interest-based transactions (Haq and Smithson, 2003).

According to Warde (2000) there is sufficient flexibility to accommodate the additional changes in conventional banking that is needed to support Islamic banking. This removes a long standing argument that Islamic banking is infeasible in a regulatory sense (Warde, 2000). Moreover, all at once Western attitude are also changing, as it can be seen in the recent growth of ‘ethical’ banking, where non-Islamic



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customers refuse to invest in companies engaged in unethical and socially harmful activities (Warde, 2000).

THEORETICAL FRAMEWORK Perceived corporate brand is an important starting point in building a conceptual corporate brand-outcome. Perceived corporate brand refers to the extent to which the Islamic Banks (under investigation) is recognized and regarded as a brand. Also no pervious study explores the impact of corporate brand on consumer’s attitude toward the Islamic Bank. However there could be additional consequences of a corporate brand other than trust worthiness and commitment. This opens scope for testing other variables as an outcome of perceived corporate brand this new variable is stakeholders’ perception of the Islamic Bank. Attitude toward the Banking is the overall evaluations of the Islamic bank. In other word, it is the favorable opinions formed by stakeholder about the Islamic Bank. Stakeholder that recognizes the bank as a brand could develop an attitude toward such brand. Earlier research show attitude is an important determinant of perceived variable. For Example P.M Simpson et.al (1998) has found a relationship between ethicality in ad and attitude toward brand. Building on this finding it is assumed that stakeholders perception of corporate brand impact attitudes toward such brand. Yet another consequence of a corporate brand could be advocacy intentions of the stakeholder. A direct link between corporate brand and word-of-mouth intentions is not demonstrated in earlier research. However, Sichtmann C.(2007) found trust as a mediator of this link. Thus the present study examines the impact of perceived corporate brand on the stakeholders’ intentions to recommend the brand. See figure 1(Model)

Following Hypothesis can be generated based on the model:

H1: Brand Image has significant relation with Attitude of Customers Towards Islamic Banking

H2: Brand Reputation has significant relation with Attitude of Customers Towards Islamic Banking

H3: Perceived Corporate Brand has significant relation with Attitude of Customers Towards Islamic Banking

H4: Attitude of Customers has significant relation with Word of Mouth

H5: Brand image has significant relationship with perceived corporate brand

H6: Brand reputation has significant relationship with perceived corporate brand

METHODOLOGY Research methodology involves use of both primary and secondary sources of data. Primary research method occupied use of questionnaires. Most of the secondary data has been gathered as literature review from published sources and web sources. SPSS has been used for the tabulation and graphic analysis. This research is the replication of the previous studies which identified Islamic Banking as a corporate brand.The purpose of this examination was to empirically inspect how Islamic Banking is perceived as Corporate Brand and how it relates to the attitude of customers. The data for main study was collected using quantitative survey method. Scope of Islamic Banking has increased considerably during past decades. There are now about six Islamic Banks operating in Pakistan, each having numerous branches all over Pakistan. For the purpose of conducting my study, I chose following banks:



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• Bank Al-Islami • Mezan Bank • Al-Baraka Bank • Dubai Islami bank

The customers of these banks were chosen randomly, on the basis of market share that each bank holds. There were total 200 respondents, out of which 184 responded correctly.The data was subject to normality test. When the data was tested for its Skewness and Kurtosis, the results indicated that almost all of the individual variables were well within the acceptable range of +/- 1.00 (see Table 1). Linear Regression was conducted to test the hypothesis. The data is reliable as its Cronbrach’s Alpha is 0.865 (see Table 2)

DATA ANALYSIS AND RESULTS Multiple regression analysis is a statistical tool for understanding the relationship between two or more variables. Multiple regressions involves a variable to be explained—called the dependent variable—and additional explanatory variables that are thought to produce or be associated with changes in the dependent variable. Multiple regression analysis is sometimes well suited to the analysis of data about competing theories in which there are several possible explanations for the relationship among a number of explanatory variables. Multiple regressions typically uses a single dependent variable and several explanatory variables to assess the statistical data pertinent to these theories. Multiple regressions also may be useful (1) in determining whether a particular effect is present; (2) in measuring the magnitude of a particular effect; and (3) in forecasting what a particular effect would be, but for an intervening event. In a patent infringement case, for example, a multiple regression analysis could be used to determine (1) whether the behavior of the alleged infringer affected the price of the patented product; (2) the size of the effect; and (3) what the price of the product would have been had the alleged infringement not occurred. According to Hinkle and Oliver (1986), multiple regression analysis (MRA) has begun to become one of the most widely used statistical analyses in educational research, and it can be assumed that this popularity and frequent usage is still rising. One of the reasons for its large usage is that analysis of variance (ANOVA) techniques can be calculated by the use of MRA, a principle described by Cohen (1968).The results for this study are shown in Table 3. Multiple regression analysis was conducted which showed that all hypothetical paths are significant. Through the analysis it is shown that brand reputation has the greatest effect on perceived corporate brand. The significance of relation in the first hypothesis has R squared value of 78.7%. The greatest strength is shown by the relation between brand reputation and perceived corporate brand, with R squared value of 80.7%. This in turn has positive effect on determination of attitude of customers towards Islamic Banking. Perceived corporate brand has least significant relation with determination of customers towards Islamic Banking, with a significant strength of only 20.1%. This shows that customers do not give much importance to the bank’s brand while their attitudes are determined towards Islamic Banking. Positive attitude of customers, in turn establishes positive word of mouth from the customers for the bank. From previous research studies it has been found that brand image and brand reputation does affect perceived corporate brand. This relationship cause positive word of mouth in the long run for the company.



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CONCLUSION Islamic banks have increased considerably over the decades. Consumers’ preferences have also changed over the years. Although several studies have been conducted separately on Islamic banking and corporate branding, but none has been conducted to see what consequences may be of corporate branding in Islamic banks context and the effect it has in determination of attitude of customers towards Islamic Banking. Brand image and brand reputation have link with perceived corporate brand which affect attitude towards Islamic banking and bring positive word of mouth for the bank. It helps in creating customers for the banks. First hypothesis was ‘Brand image positively affects attitude of customers towards Islamic Banking’. This hypothesis has been proven significant. This shows that building brand image of a brand is very important in retention of customers. This is also a means of gaining customer loyalty. Brand image also shows significant relation with customer’s attitude towards Islamic Banking. This shows that a positive image tends to instill a positive attitude from customers. Second hypothesis was ‘Brand Reputation positively affects customers’ attitude towards Islamic banking’. This hypothesis has been proven highly significant. This shows that a bank’s reputation is highly significant for customer retention. Brand reputation has significant relation with customers’ attitude as well, showing that a positive reputation of bank tend to attract more customers towards Islamic banking.Third hypothesis was ‘Perceived Corporate Brand positively affects attitude toward Islamic Bank’. This also proved to be significant, but not very strongly. This construct shows that corporate branding does not have a very strong relation, neither does it affect greatly the attitude of consumers towards Islamic banking.Fourth hypothesis is ‘Attitude toward the Islamic Bank positively affects word-of-mouth intentions of the stakeholder’. This hypothesis shows a significant relation, hence showing that a consumer attitude towards Islamic banks also affects his word-of-mouth intentions. This relation shows that a positive attitude of consumer will result in positive publicity and vice versa.Corporate brands create micro narratives around their normative core and consumers use these micro narratives for their individual and communal projects of identity reconstruction. In corporate branding, several factors are involved. While studying in Islamic banking context, it has been identified that perceived corporate brand has a moderate relation with consumers’ attitude towards Islamic banking. Word-of-mouth intentions of the consumers are also related with their attitudes towards Islamic banking and hence are indirectly are a consequence of corporate branding.

This study has provided a comprehensive model for further research that may be conducted on studying the consequences of corporate branding in Islamic banking context. In this study, consequences of corporate branding have been discussed in detail. In Pakistan, as Islamic banks are growing rapidly, this study has provided a comprehensive approach relating to consumers attitudes. This study shows that although there are several constructs of corporate branding, but not all of them are significant, when relating to Islamic Banking.

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Brand Image Brand Reputation

Perceived corporate brand

Attitude toward Islamic banking

Word of mouth

Figure: 1 Research Model



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TABLE 1: NORMALITY STATISTICS

TABLE2: RELIABILITY STATISTICS

ITEMS SKEWNESS KURTOSIS PCB1 -.190 -1.179 PCB2 -.132 -1.164 ATIB1 -.597 -.585 ATIB2 -.725 -.321 ATIB3 -.458 -.744 ATIB4 -.742 .297 ATIB5 -.620 .015 ATIB6 -.714 -.031 ATIB7 -.612 -.092 ATIB8 -.590 -.275 ATIB9 -.431 -.947 ATIB10 -.697 .077 ATIB11 -.290 -.793 ATIB12 -.572 -.125 ATIB13 -.494 -.709 WOM1 -.903 -.104 WOM2 -.831 .043 WOM3 -.941 .356

.865 18



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TABLE 3: REGRESSION ANALYSIS

Independent Variables Dependent Variables R Square F ANOVA

Sig. Beta Sig.

Brand Image Perceived Corporate Brand .787 670.994 .000 .887 .000

Brand Reputation Perceived Corporate Brand .807 759.840 .000 .898 .000

Perceived Corporate Brand

Attitude Towards Islamic Banking .201 45.675 .000 .448 .000

Attitude Towards Islamic Banking Word of Mouth .353 99.460 .000 .594 .000

Brand Image ATIB .170 37.195 .000 .412 .000

Brand Reputation ATIB .237 56.516 .000 .487 .000



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IJCBS Vol 2 No 2 Feb 2011 ISSN 2156-7506