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GLOBAL BUSINESS AND MANAGEMENT
RESEARCH
An International Journal
Volume 2, No. 2 & 3 ● 2010
Universal-Publishers
Boca Raton
JOURNAL NAME: Global Business and Management Research: An International Journal
JOURNAL TYPE: Electronic Journal
PUBLISHER: Universal Publishers - Boca Raton, Florida, USA
FREQUENCY: Quarterly
EDITORS-IN-CHIEF: Mehran Nejati, Mostafa Nejati
WEBSITE: http://www.gbmr.ioksp.com
_______________________________
Global Business and Management Research: An International Journal
Email: mehran@gbmr.ioksp.com
© 2010 by The Journal of Global Business and Management Research

All rights reserved
ISSN 1947-5667/ ISBN978-1-59942-581-8
Published by Universal-Publishers.com, Boca Raton – 2010
www.universal-publishers.com
Content
The Evolution of Capital Productivity in Greek Manufacturing 141
Anastasia Paris
Role of Organisation Structure in Facilitating Marketing 162

Chandana Goswami and Sinmoy Goswami
Factors Affecting Firms’ Performance: The Case of Greece 184

Panagiotis G. Liargovas and Konstantinos S. Skandalis
Market Volatility & Proactive Risk Management Practices for Mutual Fund 198
NidhiWalia and Ravi Kiran
Framework for Implementing Flexible Automation in Indian Industries 208

Durgesh Sharma and Mohammad Ali
Critical Environmental Indicators Used to Assess Environmental Performance of 224

Business
Richa Gautam and Anju Singh
Augmented Reality: A Sustainable Marketing Tool? 237

Marius Bulearca and Daniel Tamarjan
Investors Preference on Financial Services 253

K.C. John Sasi Kumar and P. Vikkraman
Vertical Decomposition Approach for Two Stage Capacitated Warehouse 275

Location Problems
Priyanka Verma and R. R. K. Sharma
A New Lagrangian Relaxation Based Approach to Solve Capacitated Lot-sizing 285

Problem with Backlogging
Mayank Verma and R.R.K. Sharma
The Evolution of Capital Productivity in

Greek Manufacturing
Anastasia Paris
Hellenic Military Academy, Greece
Abstract
Purpose - This paper focuses on comparing the Energy Consumption and Carbon
Footprints of two major Movie Rental service models: Offline or traditional (brick and
mortar) and Online or E-Commerce Movie Rental services.
Design/methodology/approach - For this study the Life Cycle Assessment (LCA)
approach was selected, the functional unit of all deliveries is renting three Movie
Discs at one time, which are high-density (HD) optical discs (with DVD or Blu-ray
format). The research was conducted in Canada. We used data received from a major
Movie Rental service company. In this study we exclude processes that are common to
the two distribution channels (Offline and Online). We analyzed the portions of the
logistics chains that differed between traditional Movie Rental service and E-
Commerce version, such as Movie Disc delivery. We used the Economic Input Output
Life Cycle Assessment (EIO-LCA) model to measure and compare the Offline and
Online Movie Rental services and their environmental performances regarding Energy
Consumption and Carbon Footprint.
Findings - Our analyses indicate that the Online Movie Rental Service has a lower
Carbon Footprint and Energy Consumption regarding real estate, packaging,
transportation and power consumption compared to the Offline version.
Practical implications - We provide future steps that policy makers, government,
businesses and consumers should take in order to make informed decisions and thus
reduce the environmental impact of Movie Rental services.
Originality/value- Our paper will thus contribute to the previous studies in this
domain and enhance the understanding the Carbon Footprinting of Movie Rental
services by employing data procured from major Offline and Online Movie Rental
services in Canada. Moreover our study is robust compared to the previous studies
because it exploited data directly from a major Movie Rental service company.
Keywords: Capital Productivity, Capital Stock, Gross Value Added, Forecast
Paper type: Research Paper
Introduction
Measures of productivity growth establish major indicators for the analysis of
economic growth. There is a variety of different approaches to productivity
measurement and their calculation and interpretation demands careful
consideration, in particular when undertaking international comparisons.
A general definition is that productivity is the association between the output
generated by a production or service system and the input provided.
Productivity is the best general estimate of a country’s ability to establish a
high and rising standard of living for each of its citizens. Productivity increase
is both the cause and the consequence of technical progress, accumulation of
human and physical capital, institutional arrangements and development of
dynamic forces operative in an enterprise and economy (Prokopenko, 1987). GBMR
The objectives of productivity measurement incorporate: technology, Vol. 2, No. 2 & 3, 2010
pp. 141-161
efficiency, real cost savings, benchmarking production processes and living
standards.
141
Vol. 2, No. 2 & 3 Global Business and Management Research: An International Journal
A frequently stated purpose of measuring productivity growth is to trace technical development.

Technology has been described as “the currently known way of converting resources into outputs
desired by the economy” (Griliches, 1987) and becomes evident either in its disembodied form
(such as new blueprints, scientific results, new organisational techniques) or embodied in new
products (advances in the design and quality of new vintages of capital goods and intermediate
inputs).
The search for acknowledging changes in efficiency is conceptually different from identifying
technical change. Full efficiency in an engineering sense means that a production process has
attained the maximum amount of output that is possible with current technology, and given a
fixed amount of inputs (Diewert and Lawrence, 1999). Hence, technical efficiency gains are a
movement towards “best practice”, or the elimination of technical and organisational
inefficiencies. It must be added that when productivity assessments concern the industry level,
efficiency improvements can either be due to improved efficiency in individual establishments
that make up the industry or to a shift of production towards more efficient establishments (Fried
2008).
A pragmatic way to explain the essence of measured productivity change is real cost savings
(Harberger, 1998). In the field of business economics, benchmarking production processes help
to pin down inefficiencies. Productivity measurement is vital for assessing standards of living
(Vrat, 2009).
Firstly, this article will consider the meaning of Capital Productivity (CP). Different approaches
of calculating CP are discussed. The methodology followed for the estimation of CP is
highlighted. Capital productivity for 18 manufacturing sectors will be calculated across the
period 1963-2006.
The eighteen industries that are examined are: (1) food and beverage industries; (2) tobacco
manufactures; (3) textiles; (4) manufacture of footwear, other wearing apparel and made-up
textile goods; (5) manufacture of wood and cork, except manufacture of furniture; (6)
manufacture of paper and paper products; (7) printing and publishing industries; (8) manufacture
of leather and leather and fur products, except footwear and other wearing apparel; (9)
manufacture of rubber and plastic products; (10) manufacture of chemicals and chemical
products; (11) manufacture of products of petroleum and coal; (12) manufacture of non-metallic
mineral products, except products of petroleum and coal; (13) basic metal industries; (14)
manufacture of metal products, except machinery and transport equipment; (15) manufacture of
machinery, except electrical machinery; (16) manufacture of electrical machinery, apparatus,
appliances and supplies; (17) manufacture of transport equipment; and (18) miscellaneous
manufacturing industries that include the manufacture of furniture.
Capital productivity “relatives” will be estimated for all 18 industries. Regression analysis will
take place for all 18 manufacturing sectors as well as the total industry for the periods 1963-
1973, 1974-1984, 1985-1995 and 1996-2006. The purpose is to exhibit the factors that have
mainly affected capital productivity.
The average annual growth of capital productivity will be studied over the periods 1963-1973,
1974-1984, 1985-1995, 1996-2006 and 1963-2006.
Finally, the forecast of capital productivity for all eighteen industries and total manufacturing is
looked at for the years 2007-2011.
The purpose of the present study is threefold:

First, the calculation of CP and “relatives” of eighteen Greek manufacturing sectors and
total industry over the period 1963-2006.
Second, the undertaking of regression analysis in order to evaluate the contributors to CP
of eighteen Greek manufacturing industries as well as the total manufacturing sector over
the periods 1963-1973, 1974-1984, 1985-1995 and 1996-2006.
142
Thirdly, the estimation of forecast of the Greek CP of all manufacturing industries over
the years 2007-2011.
The outline of this paper is as follows:

Section 2 highlights the meaning and measurement of CP.
Section 3 exhibits capital productivity of all manufacturing sectors across the period
1963-2006.
Section 4 studies the “relatives” of all 18 manufacturing sectors in relation to total
industry over the entire period examined.
Section 5 undertakes regression analyses for all industrial sectors between 1963-1973,
1974-1984, 1985-1995 and 1996-2006. The goal is the evaluation of factors influencing
capital productivity.
Section 6 estimates the average annual percentage growth of CP for all industries over
1963-1973, 1974-1984, 1985-1995, 1996-2006 and 1963-2006. In addition it looks at the
forecast of CP for all industries during 2007-2011.
Section 7 emphasizes the conclusions
Review of Meaning and Measurement of Capital Productivity

The role of productivity in increasing national welfare is now universally acknowledged. In
every country whether it is developed or developing, with a market economy or a centrally
planned economy, the main source of economic development is an expansion in productivity.
Inversely, drop of growth, stagnation and decline entail or are accompanied by a slow down in
productivity acceleration (Prokopenko, 1987).
Productivity in economics refers to metrics and measures of output from production processes,
per unit of input (Wikipedia, 2009).
There are various productivity measures. The choice between them depends on the purpose of
productivity estimates and, in many cases, on the availability of data. In general, productivity
measures can be classified as single factor productivity measures (relating a measure of output to
a single measure of input) or multifactor productivity measures (relating a measure of output to a
bundle of inputs). Another distinction, of particular relevance at the industry or firm level is
between productivity estimates that associate some measure of gross output to one or several
inputs and those which use a value-added concept to capture movements of output (OECD,
2001).
The most frequently used productivity measures are of labour and capital productivity, and
multifactor productivity measures (MFP), either in the form of capital-labour MFP, based on a
value-added concept of output, or in the form of capital-labour-energy-materials MFP (KLEMS),
based on a concept of gross output.
Among those measures, value-added based labour productivity is the single most frequently
computed productivity statistic, followed by capital-labour MFP and KLEMS MFP.
OECD (2001) defines capital productivity as:
Quantity index of value added

Quantity index of capital input
The capital productivity index exhibits the time profile of how productively capital is used to
generate value added. Capital productivity demonstrates the joint influence of labour,
intermediate inputs, technical change, efficiency change, economies of scale, capacity utilisation
and measurement errors.
143
In addition, capital productivity measures can be based on a gross-output or a value-added

concept. Value-added based capital productivity estimates tend to be less sensitive to processes
of substitution between intermediate inputs and capital than gross output based measures.
When capital input is calculated in its theoretically preferred form, i.e. as a flow of services
adjusted for changes in the quality of investment goods, the capital measure translates embodied
technical change (rising or falling quality of capital goods) into a larger or smaller flow of
constant-quality capital services. Hence, rising quality of capital goods indicates a larger amount
of capital services. For the same rate of output growth, this signifies a fall in capital productivity.
Capital productivity must be distinguished from the rate of return on capital. The former is a
physical, partial productivity estimate; the latter is an income estimate that associates capital
income to the value of the capital stock.
Changes in capital productivity signify the extent to which output growth can be attained with
lower welfare costs in the form of foregone consumption. Ease of readability is a major
advantage of capital productivity. On the other hand, capital productivity is a partial productivity
measure and exhibits the joint influence of a host of factors. There is sometimes confusion
concerning rates of return on capital and capital productivity.
Methodology and Estimation of Capital Productivity of Greek Manufacturing Industries

Capital productivity is defined as gross value added (GVA) per unit of capital stock (OECD,
2001). The data for GVA were taken from the National Statistical Service of Greece. They were
deflated into 2000 constant prices in Drachmas using gross value added deflator and then
converted into Euros.
The datasets on gross fixed capital stock (CS) were obtained from the Federation of Greek
Industries. All data were modified into 2000 constant prices in Drachmas applying gross fixed
capital stock deflator and then expressed into Euros.
Table 1 shows the capital productivity for all eighteen industries as well as total manufacturing
covering the period 1963-2006.
Table 1: Capital Productivity of Greek Manufacturing

Food - Footw. Wood - Paper - Print.
Tobacco Textiles
Bev. Wear. Cork Prod. Publ.
1963 0,85 2,80 0,82 26,59 7,12 0,42 6,11
1964 0,87 2,93 0,79 19,37 3,71 0,40 2,03
1965 0,86 2,70 0,81 29,21 3,25 0,37 1,80
1966 0,96 2,49 0,82 28,82 2,66 0,39 2,05
1967 0,96 1,85 0,91 30,45 2,77 0,36 1,91
1968 1,02 1,56 0,97 18,80 2,27 0,37 2,11
1969 0,94 1,27 0,92 13,90 1,90 0,36 1,86
1970 1,00 1,25 0,97 15,16 2,36 0,31 2,66
1971 1,02 1,39 0,99 14,25 1,99 0,31 2,19
1972 1,00 1,42 1,00 11,13 1,83 0,32 1,97
1973 1,03 1,43 1,12 10,17 2,09 0,43 1,86
1974 1,04 1,69 1,04 8,81 1,55 0,56 1,95
1975 1,06 1,83 1,00 8,21 2,05 0,43 2,34
1976 0,98 1,83 1,05 7,05 1,66 0,34 1,95
1977 1,05 1,76 0,96 5,96 1,67 0,33 2,02
1978 1,16 1,80 1,02 6,21 1,88 0,37 2,23
1979 1,21 1,93 1,13 6,56 2,07 0,46 2,49
1980 1,16 1,55 1,13 6,21 2,01 0,50 2,77
1981 1,14 1,38 1,09 4,71 1,70 0,56 2,55
144
1982 0,89 1,15 0,88 3,71 1,29 0,48 1,82

1983 0,91 1,26 1,02 3,68 1,36 0,63 2,04
1984 1,06 1,21 1,22 4,02 1,34 0,65 2,08
1985 1,31 1,25 1,41 4,50 1,47 0,86 2,64
1986 1,48 1,38 1,57 4,84 1,96 1,19 2,33
1987 1,18 0,83 1,20 3,62 1,74 1,52 1,55
1988 1,08 1,29 0,85 5,84 2,43 0,71 1,45
1989 1,24 1,26 0,88 6,55 3,07 0,69 2,23
1990 1,01 1,28 0,94 6,05 2,21 0,72 1,98
1991 1,25 2,40 1,00 6,28 2,10 0,92 1,93
1992 1,16 1,05 1,05 5,45 1,66 0,72 2,42
1993 0,84 0,73 0,66 4,84 1,61 0,74 1,35
1994 0,80 0,59 0,68 4,69 1,31 0,77 1,39
1995 0,69 0,65 0,63 3,36 1,31 0,62 1,29
1996 0,66 0,56 0,57 2,88 1,23 0,46 1,42
1997 0,58 0,62 0,50 2,70 1,15 0,38 1,15
1998 0,49 0,54 0,53 2,67 1,18 0,46 0,98
1999 0,41 0,37 0,40 2,19 1,16 0,42 0,62
2000 0,32 0,18 0,29 1,29 0,77 0,45 0,40
2001 0,35 0,34 0,39 1,78 0,67 0,42 0,43
2002 0,33 0,33 0,34 1,84 0,49 0,32 0,47
2003 0,35 0,28 0,29 1,59 0,37 0,26 0,43
2004 0,33 0,26 0,26 1,24 0,35 0,21 0,37
2005 0,37 0,20 0,24 1,10 0,33 0,22 0,39
2006 0,40 0,17 0,18 1,01 0,31 0,18 0,37
Source: Calculations based on information taken from “The State of Greek Industry”, different years,
Federation of Greek Industries and National Statistical Service of Greece.
Table 1 (Continued): Capital Productivity of Greek Manufacturing

Petrol - Non Met.
Leather Rub. Plastics Chemicals Basic Metals
Prod. Min.
1963 3,05 0,72 0,23 6,67 0,56 0,18
1964 1,57 0,45 0,24 1,19 0,57 0,10
1965 1,39 0,27 0,20 0,36 0,57 0,06
1966 1,61 0,26 0,19 0,47 0,56 0,12
1967 3,02 0,76 0,19 0,60 0,56 0,14
1968 3,74 0,63 0,21 0,71 0,51 0,16
1969 3,74 0,66 0,27 0,57 0,50 0,23
1970 3,80 0,78 0,32 0,59 0,58 0,31
1971 4,23 0,81 0,37 0,46 0,25 0,77
1972 5,63 0,85 0,41 0,18 0,45 0,26
1973 5,54 0,97 0,44 0,42 0,47 0,43
1974 6,07 1,03 0,46 0,32 0,49 0,48
1975 6,38 1,12 0,53 0,35 0,47 0,46
1976 4,58 0,96 0,49 0,38 0,44 0,49
1977 3,73 0,94 0,48 0,40 0,50 0,40
1978 3,19 0,95 0,57 0,45 0,55 0,51
1979 2,85 0,98 0,60 0,57 0,71 0,59
1980 2,16 0,95 0,69 0,59 0,66 0,61
1981 1,86 0,95 0,63 0,49 0,60 0,50
145
1982 1,39 0,75 0,44 0,46 0,44 0,34

1983 1,81 0,79 0,48 0,47 0,42 0,35
1984 2,34 0,81 0,51 0,43 0,45 0,39
1985 2,28 0,91 0,61 0,48 0,49 0,42
1986 2,79 1,01 0,70 0,39 0,62 0,46
1987 3,76 0,83 0,57 0,36 0,58 0,40
1988 9,68 0,70 0,63 0,44 0,50 0,60
1989 10,60 0,75 0,61 0,49 0,56 0,70
1990 11,43 0,69 0,73 0,29 0,53 0,51
1991 14,38 0,71 0,78 0,68 0,54 0,42
1992 9,38 0,76 0,97 0,68 0,60 0,42
1993 8,39 0,68 0,84 0,54 0,40 0,29
1994 10,14 0,65 0,83 0,47 0,39 0,30
1995 8,40 0,58 0,75 0,52 0,39 0,38
1996 7,89 0,51 0,61 0,41 0,34 0,31
1997 7,31 0,43 0,61 0,56 0,38 0,33
1998 8,68 0,39 0,56 0,32 0,41 0,30
1999 7,00 0,31 0,44 0,30 0,34 0,22
2000 2,96 0,39 0,48 0,38 0,37 0,30
2001 1,17 0,41 0,45 0,39 0,41 0,20
2002 1,01 0,35 0,45 0,38 0,38 0,23
2003 0,74 0,30 0,37 0,25 0,31 0,17
2004 0,59 0,21 0,29 0,28 0,27 0,13
2005 0,48 0,21 0,35 0,33 0,26 0,15
2006 0,37 0,21 0,23 0,33 0,25 0,19
Table 1 (Continued): Capital Productivity of Greek Manufacturing

Metal Prod. Machinery Electrical Transport Eq. Miscellaneous Total
1963 1,44 3,67 1,47 0,92 5,73 0,93
1964 1,39 3,69 1,55 0,85 7,17 0,83
1965 1,18 3,59 1,36 0,83 5,64 0,67
1966 1,07 2,24 1,41 0,89 5,98 0,69
1967 0,78 2,21 1,62 0,78 6,41 0,73
1968 0,75 2,22 1,45 0,70 6,61 0,73
1969 0,85 2,29 1,28 0,67 4,73 0,73
1970 0,91 2,04 1,29 0,98 5,15 0,82
1971 1,03 2,00 1,47 0,98 4,70 0,82
1972 1,08 1,84 1,44 0,90 4,76 0,81
1973 1,21 2,02 1,53 0,92 4,92 0,91
1974 0,83 2,52 1,02 0,95 4,39 0,88
1975 0,67 2,56 0,77 0,86 4,58 0,88
1976 0,73 2,13 0,79 0,81 3,45 0,86
1977 0,77 1,78 0,79 0,77 3,26 0,86
1978 0,73 1,82 0,80 0,68 3,34 0,92
1979 0,75 1,75 0,93 0,82 3,23 1,02
1980 0,80 1,61 1,08 0,82 2,91 1,01
1981 0,62 1,80 1,30 0,79 3,14 0,93
146
1982 0,55 1,32 0,98 0,61 2,54 0,73

1983 0,58 1,47 1,07 0,52 2,03 0,74
1984 0,60 1,43 1,02 0,48 2,28 0,78
1985 0,60 1,84 1,32 0,50 2,95 0,90
1986 0,63 1,75 1,69 0,60 2,85 1,02
1987 0,44 1,43 1,17 0,63 2,31 0,87
1988 0,44 4,05 0,65 0,34 4,23 0,91
1989 0,61 3,97 0,79 0,45 4,45 1,04
1990 0,64 3,81 0,66 0,41 3,45 0,95
1991 0,73 3,65 0,78 0,46 3,14 1,07
1992 0,72 3,34 0,75 0,50 0,39 0,91
1993 0,64 2,57 0,64 0,40 3,33 0,83
1994 0,59 2,82 0,61 0,44 3,31 0,81
1995 0,49 2,29 0,47 0,43 2,68 0,75
1996 0,46 2,63 0,41 0,43 2,40 0,68
1997 0,38 1,97 0,38 0,43 1,64 0,63
1998 0,36 2,04 0,43 0,44 1,46 0,58
1999 0,30 1,53 0,29 0,35 1,19 0,46
2000 0,24 1,51 0,29 0,29 0,91 0,39
2001 0,54 0,51 0,42 0,39 1,04 0,42
2002 0,41 0,42 0,38 0,43 0,81 0,40
2003 0,33 0,56 0,37 0,30 0,54 0,35
2004 0,28 0,30 0,37 0,27 0,42 0,30
2005 0,26 0,33 0,43 0,24 0,53 0,32
2006 0,24 0,30 0,74 0,22 0,42 0,32
Table 1 exhibits capital productivity of all eighteen industrial sectors as well as total
manufacturing covering the period of 1963-2006. In the period 1963-1973 capital productivity of
total manufacturing was between 0,93 and 0,91. In this period the rate of growth of capital stock
was higher in relation to the rate of acceleration of gross value added that affected the outcome
of capital productivity.
Between 1974 and 1984 CP of total manufacturing continued to fall. Within this span of time,
CP increased in the years 1978 and 1979 due to fall of investments on capital stock affected by
the second oil crisis (Federation of Greek Industries, 1981).
During 1985-1995 CP of the entire industry dropped. There was a slight raise of CP in 1989
because of fall of investments on capital stock due to political uncertainty in Greece.
Furthermore, in 1991 CP increased due to decrease of capital stock influenced by the crisis in the
Gulf that pushed oil prices up as well as interest rates (Federation of Greek Industries, 1991).
In the span of time 1996-2006 capital productivity continued to decrease. The reason being that
the rate of expansion of gross fixed capital stock is by far greater than the rate of gross value
added. In the last decade manufacturing investments have greatly increased and affected gross
fixed capital stock of Greek industries that have been going through a process of expansion and
modernisation in order to be more competitive in the international and mainly European
environment.
Since 2005 the investment law 3299 /2004 is applied that gives incentives and provides subsidies
that reach up to 60% of investments. In recent years the Greek government has been reducing
taxation. In December 2006 the second phase of tax reform was voted. The reduction of taxation
for all the citizens, progressively in three-year period 2007-2009, is henceforth law of state.
147
Furthermore, in 2007 the first phase of tax reform will be completed that concerns the reduction
of tax rates for all the enterprises. In addition the Greek Government is after the better use of
European funds as well as continuation of privatization of state companies (Alogoskoufis, 2007).
These factors influenced the increase of gross fixed capital stock that caused the fall of capital
productivity in the period 1996-2006.
Capital Productivity “Relatives” in Greek Manufacturing Industry

Table 2 demonstrates the ratios of gross value added to gross fixed capital stock as “relatives”
following the pattern of National Economic Development Organization (NEDO, 1976). This is
gross value added to gross fixed capital stock in an industry as a percentage of gross value added
to gross fixed capital stock in total manufacturing. It must be said that using “relatives” rather
than straight forward data makes it easier to distinguish the industries that have been more
capital productive than others. Furthermore, the figures can be compared directly as they are
independent of units of measure.
Table 2 shows that in the entire period examined 1963-2006 the industries with high capital
productivity in relation to capital productivity of total manufacturing were: footwear and
wearing; wood and cork; printing and publishing; leather; machinery and miscellaneous. The
reason being that gross fixed capital stock of those sectors was very limited in relation to gross
fixed capital stock of total manufacturing that affected the outcome of the ratio of capital
productivity.
148
149
150
Table 2 (Continued): Capital Productivity “Relatives” in Greek Manufacturing Industry

INDUSTRIES 2000 2001 2002 2003 2004 2005 2006
Food - Bev. 83 84 83 103 111 115 125
Tobacco 46 79 85 81 87 62 53
Textiles 75 93 85 84 86 74 56
Footw. Wear. 334 418 465 461 413 344 312
Wood - Cork 199 157 123 108 117 103 96
Paper - Prod. 117 98 81 74 70 67 55
Print. Publ. 104 101 120 123 123 122 113
Leather 766 275 255 213 196 150 116
Rub. Plastics 100 97 89 85 71 67 65
Chemicals 123 106 115 108 96 109 72
Petrol - Prod. 98 92 95 73 92 104 102
Non Met. Min. 95 98 97 90 88 82 78
Basic Metals 77 48 58 49 44 47 57
Metal Prod. 61 128 103 96 93 80 73
Machinery 391 120 106 163 101 102 93
Electrical 74 99 97 106 123 133 230
Transport Eq. 76 92 108 86 90 75 67
Miscellaneous 235 244 204 156 141 164 130
TOTAL 100 100 100 100 100 100 100
Source: Table 1
Regression Analysis
Capital Productivity is regressed against gross value added and gross fixed capital stock for all
eighteen manufacturing sectors as well as total industry covering the periods 1963-1973, 1974-
1984, 1985-1995 and 1996-2006.
In order to test the significance of the parameters, t statistic analysis must be undertaken. The
coefficient of determination R2 measures the proportion of the total variation in the dependent
variable that is explained by the variation in the independent variables in the regression
(Salvatore, 2007).
To take into consideration that the number of degrees of freedom declines as additional
independent or explanatory variables are included in the regression, the adjusted R2 is calculated
(Salvatore, 2007).
The overall explanatory power of the entire regression can be tested with the analysis of
variance. This uses the value of the F statistic.
Table 3: Regressing CP against GVA and CS (1963-1973)

CP = 0,997 + 1,887GVA - 1,892CS F = 109,34 _
Food - Beverages
t statistic (8,54) (-7,39) R2 = 0,96 R2 = 0,96
CP = 3,06 + 9,469GVA - 34,164CS F = 165,37 _
Tobacco
t statistic (2,24) (-17,26) R2 = 0,98 R2 = 0,97
CP = 0,86 + 1,168GVA - 1,011CS F = 55,97 _
Textiles
t statistic (3,78) (-2,58) R2 = 0,93 R2 = 0,92
CP = 21,081 + 38,288GVA - 651,98CS F = 15,46 _
Footwear - Wearing
t statistic (1,12) (-2,74) R2 = 0,79 R2 = 0,74
CP = 2,541 + 21,248GVA - 48,491CS F = 14,62 _
Wood - Cork
t statistic (2,6) (-3,59) R2 = 0,81 R2 = 0,75
CP = 0,399 + 3,524GVA - 1,417CS F = 124,64 _
Paper - Products
t statistic (13,4) (-15,7) R2 = 0,97 R2 = 0,96
151
CP = 2,884 + 51,644GVA - 120,065CS F = 7,96 _

Printing - Publishing
t statistic (3,01) (-3,76) R2 = 0,66 R2 = 0,58
CP = 3,361 + 55,251GVA - 186,749CS F = 591,63 _
Leather
t statistic (34,06) (-7,61) R2 = 0,99 R2 = 0,99
CP = 0,64 + 8,301GVA - 5,974CS F = 24,3 _
Rubber - Plastics
t statistic (4,14) (-2,77) R2 = 0,86 R2 = 0,82
CP = 0,231 + 1,072GVA - 0,248CS F = 4796,8 _
Chemicals
t statistic (91,5) (-37,9) R2 = 0,99 R2 = 0,99
CP = 0,492 + 3,189GVA - 1,424CS F = 17,75 _
Petrol - Products
t statistic (4,74) (-5,93) R2 = 0,85 R2 = 0,81
Non Metallic CP = 0,581 + 0,468GVA - 0,336CS F = 91,12 _
Minerals t statistic (3,94) (-10,7) R2 = 0,96 R2 = 0,95
CP = 0,306 + 1,693GVA - 0,502CS F = 22,56 _
Basic Metals
t statistic (6,71) (-4,42) R2 = 0,85 R2 = 0,81
CP = 1,283 + 4,339GVA - 5,385CS F = 76,43 _
Metal Products
t statistic (10,3) (-12,3) R2 = 0,95 R2 = 0,94
CP = 2,068 + 49,806GVA - 100,91CS F = 25,4 _
Machinery
t statistic (2,95) (-3,91) R2 = 0,86 R2 = 0,83
CP = 1,478 + 7,011GVA - 10,347CS F = 34,67 _
Electrical
t statistic (8,26) (-8,32) R2 = 0,89 R2 = 0,87
Transport CP = 0,881 + 4,422GVA - 3,971CS F = 141,48 _
Equipment t statistic (15,6) (-13,9) R2 = 0,97 R2 = 0,96
CP = 5,562 + 39,737GVA - 208,486CS F = 44,32 _
Miscellaneous
t statistic (5,05) (-6,33) R2 = 0,91 R2 = 0,89
CP = 0,86 + 0,223GVA - 0,192CS F = 42,32 _
TOTAL
t statistic (9,09) (-8,54) R2 = 0,91 R2 = 0,89
where CP = capital productivity, GVA = gross value added and CS = gross fixed capital
stock
Source: Table 1
Table 3 exhibits the regression equations conducted for the period 1963-1973. All estimated
OLS regression equations show that capital productivity is directly related to gross value added
and inversely associated to gross fixed capital stock.
Table 1 demonstrates that an increase of GVA of total manufacturing by € 1 billion brings a raise
of CP by 0,223 while keeping gross fixed capital stock stable. A raise of gross fixed capital stock
of total manufacturing by € 1 billion brings a fall of CP by 0,192 while keeping GVA stable.
Furthermore, table 3 shows that in most industries the value of the calculated t statistic exceeds
the critical value of 2,306. This means that both parameters are statistically different from zero at
the 5 percent level of significance. In Tobacco as well as Footwear and Wearing industries the t
statistics of GVA appear insignificant. Hence, only gross fixed capital stock has a significant
relationship with capital productivity in these two industries.
The coefficient of determination R2 and the adjusted R2 are very high in all manufacturing
sectors. Considering total manufacturing, R2 is 0.91. This means that variations in total industry’s
GVA and CS explain 91 per cent of the variation in total industry’s capital productivity.
Since the value of F exceeds the tabular value of F = 4,46 at the 5% level of significance and
with df = 2 and 8, the hypothesis is accepted that the estimated OLS regression parameters are
jointly significant at the 5 % level.
Graph 1 and Table 3 exhibit that the fall of capital productivity between 1963 and 1973 was due
to higher rate of growth of gross fixed capital stock than gross value added. Cheap labour force
and surge of investments caused an increase of capital stock at a greater extent than gross value
added.
152
Graph 1: Contributors to Capital Productivity of Total Greek Manufacturing Industry (1963-

1973)

CP = 1,003 + 0,64GVA - 0,634CS F = 364,27 _
Food - Beverages
t statistic (23,73) (-26,78) R2 = 0,99 R2 = 0,99
CP = 1,528 + 9,96GVA - 14,782CS F = 252,53 _
Tobacco
t statistic (12,33) (-21,01) R2 = 0,98 R2 = 0,98
CP = 1,026 + 0,675GVA - 0,689CS F = 392,53 _
Textiles
t statistic (24,48) (-26,08) R2 = 0,99 R2 = 0,99
CP = 9,869 + 2,512GVA - 42,76CS F = 110,15 _
Footwear - Wearing
t statistic (1,73) (-14,76) R2 = 0,96 R2 = 0,96
CP = 1,609 + 5,556GVA - 8,815CS F = 206,62 _
Wood - Cork
t statistic (17,42) (-15,43) R2 = 0,98 R2 = 0,98
CP = 0,51 + 2,454GVA - 1,243CS F = 1015,2 _
Paper - Products
t statistic (41,4) (-21,5) R2 = 0,99 R2 = 0,99
CP = 2,026 + 9,36GVA - 18,809CS F = 215,94 _
t statistic (19,33) (-20,27) R2 = 0,98 R2 = 0,98
CP = 0,396 + 44,18GVA - 43,47CS F = 95,18 _
Leather
t statistic (4,75) (-2,98) R2 = 0,97 R2 = 0,96
CP = 1,098 + 2,343GVA - 2,696CS F = 190,96 _
Rubber - Plastics
t statistic (5,53) (-15,4) R2 = 0,98 R2 = 0,97
CP = 0,473 + 1,104GVA - 0,52CS F = 545,76 _
Chemicals
t statistic (20,33) (-28,5) R2 = 0,99 R2 = 0,99
CP = 0,392 + 2,009GVA - 0,778CS F = 340,04 _
Petrol - Products
t statistic (19,99) (-16,78) R2 = 0,99 R2 = 0,98
Non Metallic CP = 0,469 + 0,772GVA - 0,358CS F = 227,50 _
Minerals t statistic (19,28) (-18,19) R2 = 0,98 R2 = 0,98
CP = 0,373 + 1,068GVA - 0,397CS F = 314,80 _
Basic Metals
t statistic (13,81) (-23,54) R2 = 0,99 R2 = 0,98
CP = 0,681 + 1,353GVA - 0,895CS F = 142,88 _
Metal Products
t statistic (8,03) (-14,66) R2 = 0,97 R2 = 0,97
153
CP = 1,889 + 9,963GVA - 18,27CS F = 102,69 _

Machinery
t statistic (8,44) (-12,14) R2 = 0,96 R2 = 0,95
CP = 0,924 + 2,979GVA - 2,722CS F = 449,52 _
Electrical
t statistic (19,5) (-18,54) R2 = 0,99 R2 = 0,99
Transport CP = 0,874 + 0,73GVA - 0,669CS F = 87,54 _
Equipment t statistic (4,42) (-11,41) R2 = 0,96 R2 = 0,94
CP = 4,354 + 8,026GVA - 36,374CS F = 102,19 _
Miscellaneous
t statistic (5,37) (-14,19) R2 = 0,96 R2 = 0,95
CP = 0,81 + 0,095GVA - 0,077CS F = 689,39 _
TOTAL
t statistic (26,45) (-36,75) R2 = 0,99 R2 = 0,99
where CP = capital productivity, GVA = gross value added and CS = gross fixed capital stock
Source: Table 1
Table 4 demonstrates the regression analysis conducted covering the period between 1974 and
1984. There is a positive association between CP and gross value added and negative between
CP and gross fixed capital stock as economic theory indicates.
An increase of GVA of total manufacturing by € 1 billion brings an augmentation of CP by
0,095 while holding gross fixed capital stock stable. A raise of gross fixed capital stock by € 1
billion causes a drop of CP by 0,077 while keeping GVA stable.
In addition, table 4 exhibits the t statistics, the coefficient of determination R2 and the adjusted
R2. In most industries the value of the calculated t statistic exceeds the critical value of 2,306.
This means that both parameters are statistically different from zero at the 5 percent level of
significance. In Footwear and Wearing industry, the t statistics of GVA appears insignificant.
Therefore, only gross fixed capital stock has a significant association with capital productivity in
this industry.
industries. Studying total manufacturing, R2 is 0.99. This demonstrates that variations in total
industry’s GVA and CS explain 99 per cent of the variation in total industry’s capital
productivity.
with df = 2 and 8, the hypothesis is accepted that the calculated OLS regression parameters are
Graph 2 and Table 4 show that the fall of capital productivity between 1974 and 1984 was due to
higher rate of increase of gross fixed capital stock than gross value added. Capital productivity
increased in the years 1978 and 1979 due to drop of investments on capital stock influenced by
the second oil crisis (Federation of Greek Industries, 1981).
Table 5 shows the regression analysis that was run covering the period 1985-1995. There is a
positive link between CP and gross value added and negative between CP and gross fixed capital
stock as economic theory supports.
A raise of GVA of total manufacturing by € 1 billion brings an increase of CP by 0,077 while
holding gross fixed capital stock stable. An increase of gross fixed capital stock by € 1 billion
causes a fall of CP by 0,068 while keeping GVA stable.
Furthermore, table 5 demonstrates the t statistics, the coefficient of determination R2 and the
adjusted R2. In most industries the value of the calculated t statistic exceeds the critical value of
2,306. This means that both parameters are statistically different from zero at the 5 percent level
of significance. In Rubber and Plastics as well as Miscellaneous Industries, the t statistics of
GVA appears insignificant. Hence, only gross fixed capital stock has a significant link with
capital productivity in those industries.
industries. Looking at total manufacturing, R2 is 0.98. This demonstrates that variations in total
154
productivity.

1984)
Source: Table 1

CP = 1,281 + 0,3GVA - 0,39CS F = 57,056 _
Food - Beverages
t statistic (2,43) (-8,96) R2 = 0,93 R2 = 0,92
CP = 0,944 + 5,72GVA - 4,835CS F = 67,40 _
Tobacco
t statistic (9,11) (-9,85) R2 = 0,94 R2 = 0,93
CP = 0,98 + 0,80GVA - 0,774CS F = 443,61 _
Textiles
t statistic (27,42) (-16,33) R2 = 0,99 R2 = 0,99
CP = 4,211 + 3,425GVA - 13,9CS F = 96,48 _
Footwear - Wearing
t statistic (13,35) (-12,11) R2 = 0,96 R2 = 0,95
CP = 1,610 + 5,625GVA - 8,785CS F = 111,57 _
Wood - Cork
t statistic (12,44) (-12,85) R2 = 0,96 R2 = 0,96
CP = 0,62 + 3,542GVA - 2,272CS F = 756,37 _
Paper - Products
t statistic (22,39) (-12,03) R2 = 0,99 R2 = 0,99
CP = 1,615 + 5,25GVA - 7,975CS F = 56,29 _
t statistic (4,23) (-9,31) R2 = 0,93 R2 = 0,92
CP = 9,52 + 33,28GVA – 313,51CS F = 499,96 _
Leather
t statistic (31,58) (-10,62) R2 = 0,99 R2 = 0,99
CP = 1,079 + 1,129GVA - 1,568CS F = 74,57 _
Rubber - Plastics
t statistic (1,09) (-6,38) R2 = 0,95 R2 = 0,94
CP = 0,755 + 1,016GVA - 0,75CS F = 199,98 _
Chemicals
t statistic (10,23) (-16,88) R2 = 0,98 R2 = 0,98
CP = 0,497 + 1,286GVA - 0,637CS F = 910,99 _
Petrol - Products
t statistic (42,17) (-19,87) R2 = 0,99 R2 = 0,99
CP = 0,687 + 0,496GVA - 0,369CS F = 863,89 _
Non Metallic Minerals
t statistic (7,82) (-21,77) R2 = 0,99 R2 = 0,99
CP = 0,435 + 0,826GVA - 0,351CS F = 218,45 _
Basic Metals
t statistic (14,87) (-9,86) R2 = 0,98 R2 = 0,98
CP = 0,683 + 0,956GVA - 0,66CS F = 232,01 _
Metal Products
t statistic (5,11) (-18,26) R2 = 0,98 R2 = 0,98
155
CP = 2,257 + 8,977GVA - 20,88CS F = 361,49 _

Machinery
t statistic (26,64) (-13,15) R2 = 0,99 R2 = 0,99
CP = 0,326 + 4,317GVA - 2,045CS F = 84,45 _
Electrical
t statistic (6,88) (-8,76) R2 = 0,96 R2 = 0,94
CP = 0,504 + 0,84GVA - 0,419CS F = 912,24 _
Transport Equipment
t statistic (22,99) (-17,35) R2 = 0,99 R2 = 0,99
CP = 2,519 + 1,722GVA - 1,763CS F = 14,52 _
Miscellaneous
t statistic (2,28) (-5,33) R2 = 0,78 R2 = 0,73
CP = 0,89 + 0,077GVA - 0,068CS F = 269,88 _
TOTAL
t statistic (14,94) (-23,15) R2 = 0,98 R2 = 0,98
where CP = capital productivity, GVA = gross value added and CS = gross fixed capital stock
Source: Table 1
Graph 3 and Table 5 indicate that the fall of capital productivity between 1985 and 1995 was
caused by higher rate of growth of gross fixed capital stock than gross value added. There was a
slight increase of CP in 1989 due to fall of investments on capital stock caused by the political
uncertainty in Greece. In addition, in 1991 CP grew due to decrease of capital stock affected by
the crisis in the Gulf that pushed oil prices as well as interest rates up (Federation of Greek
Industries, 1991).

1995)
Table 6 highlights the regression analysis that took place covering the period 1996-2006. The
findings show that there is a positive link between CP and gross value added and negative
between CP and gross fixed capital stock as economic theory supports.
A raise of GVA of total manufacturing by € 1 billion brings an increase of CP by 0,036 while
holding gross fixed capital stock stable. An increase of gross fixed capital stock by € 1 billion
causes a fall of CP by 0,014 while keeping GVA stable.
In addition, table 5 exhibits the t statistics, the coefficient of determination R2 and the adjusted
R2. In most manufacturing industries the value of the calculated t statistic exceeds the critical
value of 2,306. This means that both parameters are statistically different from zero at the 5
percent level of significance. In the industries Wood and Cork, Chemicals, Basic Metals,
156
Machinery, Miscellaneous as well as Total Manufacturing, the t statistics of GVA appears

insignificant. Only gross fixed capital stock has a significant link with capital productivity in
those industries.

CP = 0,467 + 0,14GVA - 0,06CS F = 52,934 _
Food - Beverages
t statistic (6,33) (-8,89) R2 = 0,93 R2 = 0,91
CP = 0,326 + 2,06GVA - 0,653CS F = 470,14 _
Tobacco
t statistic (28,86) (-10,5) R2 = 0,99 R2 = 0,99
CP = 0,53 + 0,39GVA - 0,211CS F = 353,98 _
Textiles
t statistic (8,66) (-19,05) R2 = 0,99 R2 = 0,99
CP = 1,819 + 1,57GVA – 2,74CS F = 427,47 _
Footwear - Wearing
t statistic (15,96) (-8,53) R2 = 0,99 R2 = 0,99
CP = 1,503 + 0,529GVA - 1,79CS F = 102,38 _
Wood - Cork
t statistic (0,37) (-4,21) R2 = 0,96 R2 = 0,95
CP = 0,43 + 0,847GVA - 0,372CS F = 208,67 _
Paper - Products
t statistic (7,4) (-18,6) R2 = 0,98 R2 = 0,97
CP = 0,424 + 1,76GVA - 0,721CS F = 27,07 _
t statistic (2,48) (-5,36) R2 = 0,87 R2 = 0,84
CP = 1,13 + 23,21GVA – 18,99CS F = 116,12 _
Leather
t statistic (5,28) (-2,12) R2 = 0,97 R2 = 0,96
CP = 0,42 + 0,479GVA - 0,21CS F = 48,22 _
Rubber - Plastics
t statistic (3,03) (-9,03) R2 = 0,92 R2 = 0,90
CP = 0,686 + 0,14GVA - 0,17CS F = 115,39 _
Chemicals
t statistic (1,72) (-14,12) R2 = 0,97 R2 = 0,96
CP = 0,40 + 0,39GVA - 0,149CS F = 12,88 _
Petrol - Products
t statistic (3,32) (-4,48) R2 = 0,76 R2 = 0,70
CP = 0,351 + 0,23GVA - 0,078CS F = 112,37 _
Non Metallic Minerals
t statistic (7,84) (-13,29) R2 = 0,97 R2 = 0,96
CP = 0,315 + 0,146GVA - 0,05CS F = 54,18 _
Basic Metals
t statistic (2,06) (-7,52) R2 = 0,93 R2 = 0,91
CP = 0,375 + 0,53GVA - 0,18CS F = 77,65 _
Metal Products
t statistic (4,04) (-12,45) R2 = 0,95 R2 = 0,94
CP = 3,45 - 2,674GVA – 1,41CS F = 25,87 _
Machinery
t statistic (-0,63) (-6,93) R2 = 0,87 R2 = 0,83
CP = 0,40 + 0,618GVA - 0,25CS F = 601,24 _
Electrical
t statistic (34,49) (-22,42) R2 = 0,99 R2 = 0,99
CP = 0,39 + 0,43GVA - 0,166CS F = 126,48 _
Transport Equipment
t statistic (6,66) (-15,72) R2 = 0,97 R2 = 0,96
CP = 0,36 + 1,97GVA - 0,904CS F = 18,07 _
Miscellaneous
t statistic (1,68) (-4,47) R2 = 0,82 R2 = 0,77
CP = 0,43 + 0,036GVA - 0,014CS F = 43,88 _
TOTAL
t statistic (1,54) (-4,28) R2 = 0,92 R2 = 0,90
industries. Looking at total manufacturing, R2 is 0.92. This means that variations in total
productivity.
157
Graph 4 and Table 6 demonstrate that the fall of capital productivity between 1996 and 2006 was
due to higher rate of growth of gross fixed capital stock than gross value added. In the last
decade manufacturing investments have greatly increased and influenced the growth of capital
stock. The Greek industries have been going through a process of expansion and modernisation
in order to be more competitive in the international and mainly European environment. The 2004
Olympic Games as well privatization programs caused the increase of capital stock and therefore
fall of capital productivity (Alogoskoufis, 2007).

2006)
Growth of Capital Productivity and Forecast

Growth of Capital Productivity
Table 7 shows the average annual percentage change of capital productivity of all eighteen
manufacturing industries as well as total industry across the periods 1963-1973, 1974-1984,
1985-1995, 1996-2006 and 1963-2006.
Table 7: Percentage Change of Capital Productivity in Greek Manufacturing Industries

INDUSTRIES 1963-1973 1974-1984 1985-1995 1996-2006 1963-2006
Food - Beverages 2,09 0,75 -2,33 -4,12 -0,97
Tobacco -5,84 -0,88 1,84 -6,41 -2,75
Textiles 3,23 1,37 -4,07 -9,42 -2,35
Footwear - Wearing -6,38 -7,47 0,74 -8,61 -5,41
Wood - Cork -9,42 -2,48 1,96 -11,51 -5,27
Paper - Products 1,08 5,39 3,52 -9,77 0,03
Printing - Publishing -6,25 2,04 -0,70 -9,33 -3,50
Leather 11,17 -5,58 19,42 -21,24 0,70
Rubbber - Plastics 13,77 -1,27 -2,43 -7,82 0,25
Chemicals 7,59 2,38 4,52 -8,82 1,28
Petrol - Products -3,97 1,19 8,46 -1,16 1,25
Non Metallic Minerals 3,51 0,44 0,02 -3,24 0,10
Basic Metals 28,27 0,49 2,34 -3,97 6,28
Metal Products -0,81 -5,24 -0,33 -1,09 -1,89
Machinery -4,86 -2,06 12,50 -11,79 -1,48
Electrical 0,83 -1,97 -3,60 7,50 0,69
158
Transport Equipment 1,11 -5,23 1,38 -4,64 -1,91

Miscellaneous -0,35 -6,03 65,16 -14,01 11,46
TOTAL 0,24 -1,00 0,28 -7,01 -1,92
Source: as Table 1
Forecast of Capital Productivity

Forecasting is the way of estimation in unknown situations. Forecasting is frequently utilized in
discussion of time-series data. The categories of forecasting methods include:
Time series methods
Causal / Econometric methods
Judgmental methods
Other methods
One of the most frequently used forecasting methods is time-series analysis or the analysis of
time-series data (Salvatore, 2007). Time series methods use historical data as the foundation of
calculating future outcomes. It must be mentioned that time series analysis deals with a variable
that is altered with time and which can be said to depend on the current time and the previous
values that it took (i.e. not dependent on any other variables or external factors). Therefore, if Yt
is the value of the variable at time t then the equation for Yt is:
Yt = f(Yt-1, Yt-2, ..., Y0, t)
i.e. the value of the variable at time t is entirely some function of its previous values and time, no
other variables/factors are of relevance. The objective of time series analysis is to figure out the
nature of the function f and hence allow us to forecast values for Yt.
Table 8: Forecast of Capital Productivity in Greek Manufacturing Industries

INDUSTRIES 2007 2008 2009 2010 2011
Food - Beverages 0,40 0,40 0,39 0,39 0,38
Tobacco 0,17 0,16 0,16 0,15 0,15
Textiles 0,18 0,17 0,17 0,16 0,16
Footwear - Wearing 0,95 0,90 0,85 0,81 0,76
Wood - Cork 0,29 0,28 0,26 0,25 0,24
Paper - Products 0,18 0,18 0,18 0,18 0,18
Printing - Publishing 0,35 0,34 0,33 0,32 0,31
Leather 0,38 0,38 0,38 0,38 0,39
Rubbber - Plastics 0,21 0,21 0,21 0,21 0,21
Chemicals 0,24 0,24 0,24 0,24 0,25
Petrol - Products 0,33 0,34 0,34 0,35 0,35
Non Metallic Minerals 0,25 0,25 0,25 0,25 0,25
Basic Metals 0,20 0,21 0,22 0,24 0,25
Metal Products 0,23 0,23 0,22 0,22 0,21
Machinery 0,29 0,29 0,29 0,28 0,28
Electrical 0,75 0,75 0,76 0,76 0,77
Transport Equipment 0,21 0,21 0,20 0,20 0,20
Miscellaneous 0,47 0,52 0,58 0,65 0,72
TOTAL 0,32 0,31 0,30 0,30 0,29
Source: as Table 1
Table 8 demonstrates the forecast of capital productivity of eighteen industries as well as total
manufacturing between the years 2007 and 2011. Time series analysis and the average annual
159
percentage change of the period 1963-2006 were used in order to undertake the calculations.
Furthermore, Graph 5 demonstrates the evolution of capital productivity of total manufacturing
across the entire period examined as well as its forecast between the years 2007 and 2011.
Graph 5: Evolution of Capital Productivity of Total Greek Manufacturing Industry (1963-2011)
As it can be seen in the graph, during 1963-2006, capital productivity of total industry has fallen
and is not expected to grow between 2007 and 2011, since capital stock is increasing faster than
gross value added.
Conclusions
The meaning and measurement of capital productivity was looked at. Capital productivity of
eighteen industries as well as total manufacturing was estimated covering the period 1963-2006.
Regression analyses were undertaken in order to see the factors that influenced most capital
productivity of all industries over the periods 1963-1973, 1974-1984, 1985-1995 and 1996-2006.
Finally, the forecast of all manufacturing sectors was calculated following time series analysis
between the years 2007 and 2011.
References
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(Eds), Taseis-Ediki Etisia Ekthosi, Athens, pp. 68-70.
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Usher (ed.), The Measurement of Capital, University of Chicago Press.
Diewert, Erwin W. and Denis Lawrence (1999), “Measuring New Zealand’s Productivity”,
Treasury, available at: http://www.treasury.govt.nz/workingpapers/99-5.htm.
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Federation of Greek Industries (2004), “Exelixeis kai Prooptikes stous Kladous tis Metapeisis”
Federation of Greek Industries (Ed), The State of Greek industry in 2004, Athens, pp. 85-
120.
Federation of Greek Industries (1991), “H Elliniki Biomichania”, Federation of Greek Industries
(Ed), The State of Greek Industry in 1990, Athens, pp. 31-43.
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Biomichanias” Federation of Greek Industries (Ed), The State of Greek Industry in 1980,
Athens, pp. 22-29.
Federation of Greek Industries, The State of Greek Industry, editions 1963-2009, Federation of
Greek Industries, Athens.
Fried O. Harold, C. A. Knox Lovell and Shelton S. Schmidt (2008), The Measurement of
Productive Efficiency and Productivity Growth, Oxford University Press, USA, ISBN-10:
0195183525.
Georgakopoulos Th. (2002), “Macroeconomikes Exelixis tis Ellinikis Economias” Allmedia A.E
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Georgakopoulos Th. (2007), “E Ellada stin EE: Axiologisi tis Protis 25etias”, Allmedia A.E
Griliches, Zvi (1987), “Productivity: Measurement Problems”, in J. Eatwell, M. Milgate and P.
Newman (eds.), The New Palgrave: A Dictionary of Economics.
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Manufacturing Industry 1954-72, NEDO Monograph 5, March, Panic, M. (Ed).
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http://www.oecd.org/dataoecd/59/29/2352458.pdf (accessed 17 May 2009).
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Industries” University of Bath (Ed), Comparative Performance between Greek and U.K.
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Corresponding Author
Anastasia Paris can be contacted at: kinshasa@otenet.gr
161
Role of Organisation Structure in

Facilitating Marketing
Chandana Goswami and Sinmoy Goswami
Department of Business Administration, Tezpur University, India
Abstract
Purpose - This study involved an analysis of the role played by organisation structure
in facilitating marketing.
Design/methodology/approach - The research is both exploratory and descriptive in
nature. Survey method of research was applied to collect the primary data by
interviewing employees of the companies /organisations and some of their customers
with the help of a structured interview schedule. Convenience and Judgemental
sampling has been employed in this survey.
Findings - There exists a relationship between the four components of organisation
structure (namely effective communication, effective coordination,
speed/responsiveness to the customers and empowerment of employees throughout the
organisation) and the seven components of the marketing mix (namely product,
promotion, price, place, physical evidence, people and process).
Research limitations - This study is limited to three organisations only keeping in
view convenience and accessibility for data collection. The findings cannot be
generalized.
Practical implications - The findings of this study would facilitate understanding of
the components of the organisation structure that is seen to have greater impact on
marketing components. Organisations can then focus on these aspects of the
organisation structure.
Originality/value - This study tests the role played by organisation structure in
facilitating marketing in case of three organisations in the FMCG, Life insurance and
Banking sectors in Guwahati city (Assam, India).
Keywords: Organisation Structure, Marketing, Effective Communication, Effective
Coordination, Speed/Responsiveness to the Customers, Empowerment of Employees
Introduction
Organisation structure refers to the pattern of relationships among the various
components or parts of an organisation. As these positions are held by the
various persons of an organisation, organisation structure signifies the
relationship existing among them (Weihrich et. al., 2007). It determines task
allocation, reporting lines, and formal coordination mechanisms and interaction
patterns (Holtzhausen, 2002). Organisation structure plays a profound role in
facilitating marketing and can be clearly suggested from the works of Piercy
(1985). He has proposed an information-structure-power theory of corporate
marketing through the tools of organisational behaviour, drawn particularly
from information processing theories of organisation and models of
organisational power and political behaviour. The various components of
organisation structure are as follows on the basis of its role in facilitating
marketing (Peng and Litteljohn, 2001; Proctor and Doukakis, 2003; Walters
and Lancaster, 1999): GBMR
Vol. 2, No. 2 & 3, 2010
i. Effective Communication pp. 162-183
ii. Effective Coordination
iii. Speed/Responsiveness to the customer (both internal & external)
162
iv. Empowerment (of employees) throughout the organisation

Marketing can be defined as the process of planning and executing the conceptualization,
pricing, promotion and distribution of ideas, goods and services to create exchange and satisfy
individual and organisational objectives (Grönroos, n.d.). Marketing Mix involves use of a set of
marketing tools utilised by a firm to pursue its marketing objectives in the target market (Kotler,
2005). Marketing Mix consists of four P’s namely product, place, promotion and price.
However, later it was extended to include people, physical evidence and process (Grönroos,
n.d.).
Statement of the Problem

The success of marketing strategies in most companies depends on many factors. One of these
factors is organisation structure. Organisation structure, through differentiation and integration of
activities and authority, role and relationship in an organisation facilitates proper performance of
various activities which in turn leads to greater efficiency and effectiveness. As such all activities
including marketing are being immensely affected by the organisation structure. This study is
focused around the role played by organisation structure in facilitating marketing, which is an
essential part of every organisation keeping in view the growth of competition and customer
expectations.
Background of the Problem

Various components of marketing viz. product, promotion, price, place, physical evidence,
people, and process are likely to be affected by the organisation structure of a company. It is to
be noted that the latter three components of marketing namely physical evidence, people and
process are mainly applicable in service sector and to a minimal extent in the product based
sector. The various components of organisation structure that play a major role in facilitating
marketing include effective communication, effective coordination, speed/responsiveness to the
customer (both internal & external) and empowerment (of employees) throughout the
organisation. This study focuses on the degree of impact of these components of organisation
structure on the various components of the marketing mix.
Theoretical Framework of the Study
ORGANISATION STRUCTURE: Components-

i. Effective communication
ii. Effective coordination
iii. Speed/Responsiveness to the customer (both internal & external)
iv. Empowerment (of employees) throughout the organization
PRODUCT PRICE PHYSICAL

EVIDENCE
PROMOTION PLACE
OTHER
COMPONENTS OF
PROCESS PEOPLE MARKETING MIX
RESULTS OF THE STUDY
Figure 1: Theoretical Framework of the Study
163
Objectives of the Study

i. To determine the impact of organisation structure on product life cycle.
ii. To determine the impact of organisation structure on promotion.
iii. To determine the impact of organisation structure on price.
iv. To determine the impact of organisation structure on place.
v. To determine the impact of organisation structure on physical evidence.
vi. To determine the impact of organisation structure on people.
vii. To determine the impact of organisation structure on process.
viii. To determine the impact of organisation structure on other components of the marketing
mix.
Research Methodology
The research was conducted mainly to determine the objectives of this study as discussed earlier.
So the research is both exploratory and descriptive in nature. Survey method of research was
selected to collect the primary data by interviewing employees of the companies /organisations
and some of their customers. It was done with the help of a structured interview schedule (see
Annexure-I) in order to maintain uniformity of information collection. Secondary data was
obtained from organisations’ website, literature, brochures and leaflets etc.
Convenience and Judgemental sampling has been employed in this survey. The following three
companies have been covered during this survey:
i. Dabur India Limited (in the FMCG sector)
ii. Tata AIG Life Insurance Company Limited (in the Life Insurance sector)
iii. Allahabad Bank (in the Banking sector).
The organisation structures of these companies are at Annexure-II. The study was conducted
within a time period of one (1) month (from 6th April, 2009, to 6th May, 2009) within the
Guwahati city of the state of Assam (India) alone.
All the three organisation structures of the above companies given in Annexure-II are based on
departmentation by territory. However at the individual office or branch level departmentation
by enterprise function is followed.
Limitations of the Study

This study is limited to three organisations only keeping in view convenience and accessibility
for data collection. As discussed earlier, these included Dabur India Limited (in the FMCG
sector), Tata AIG Life Insurance Company Limited (in the Life Insurance sector) and Allahabad
Bank (in the Banking sector). Besides none of these organisations are representative of their
respective sectors. The study therefore limits itself to making a preliminary understanding
whether organisation structure is seen to play a role in marketing or not.
Analysis and Findings

Impact of Organisation Structure on Product
The product life cycle of products or services consists of Introduction Stage, Growth Stage,
Maturity Stage, Decline Stage and Withdrawal Stage. As per the responses obtained from the
survey, the impact of organisation structure on product life cycle in case of the three
organisations is given in Table 1.
164
Table 1: Impact of Organisation Structure on Product Life Cycle

Impact of organisation structure on product life Total presence of
Stages of the cycle impact of
Sr.
Product Life Tata AIG Life organisation
No. Dabur India
Cycle Insurance Co. Allahabad Bank structure on
Ltd.
Ltd. product life cycle
Introduction
1 No Impact Impact present Impact present 2
Stage
Impact
2 Growth Stage Impact present Impact present 3
present
3 Maturity Stage No Impact No Impact Impact present 1
4 Decline Stage No Impact No Impact No Impact 0
Withdrawal
5 No Impact No Impact No Impact 0
Stage
Findings: With reference to Table 1, it is noticed that organisation structure only plays its role in
the growth stage (and not in the other stages) in case of Dabur India Limited (in the FMCG
sector). Organisation structure plays a significant role in the introduction stage, growth stage and
maturity stage (and not in the other stages) of Tata AIG Life Insurance Company Limited (in the
life insurance sector) and Allahabad Bank (in the banking sector). It is interesting to note that all
three organisations agreed on the impact of organisation structure at the growth stage.
Impact of Organisation Structure on Promotion

As per the responses obtained from the survey, the impact of organisation structure on the
following aspects of promotion in case of the three organisations covered is given in Table 2.
Table 2: Impact of Organisation Structure on Promotion

Impact of organisation structure on elements
Elements of Total presence of
of the promotional mix
Sr. the impact of organisation
Tata AIG Life
No. promotional Dabur India Allahabad structure on elements of
Insurance Co.
mix Ltd. Bank promotional mix
Ltd.
Personal Not
1 Impact present Not applicable 1
Selling applicable
Sales Impact
2 Not applicable Not applicable 1
Promotion present
Public Not
3 Impact present Impact present 2
Relations applicable
Not
4 Direct Mail Impact present Not applicable 1
applicable
Trade Fairs & Not
5 Impact present Not applicable 1
Exhibitions applicable
Impact
6 Advertising Impact present Impact present 3
present
Not
7 Sponsorship Impact present Impact present 2
applicable
Findings: It is clear from Table two that the impact of organisation structure on promotion
varies on the basis of different elements of promotion. In case of the service sector, the role of
organisation is significant as far as public relations and sponsorship is concerned. In the life
insurance sector organisation structure also plays a significant role in activities related to
165
personal selling, direct mail and trade fairs and exhibitions. In case of the FMCG sector, the role
of organisation is significant in case of sales promotion. Organisation structure seems to have an
impact on advertising in all the three sectors.
Impact of Organisation Structure on Price

following types of pricing applicable in case of the three organisations (companies) covered are
discussed in Table 3.
Table 3: Impact of Organisation Structure on Different Types of Pricing

Impact of organisation structure on different
Total presence of
types of pricing
Sr. Different types of impact of organisation
No. pricing Tata AIG Life structure on types of
Dabur India Allahabad
Insurance Co. pricing
Ltd. Bank
Ltd.
Impact Not
1 Premium Pricing Impact present 2
present Applicable
Impact Impact
2 Economy Pricing Impact present 3
present present
Market-
Impact Impact
3 Penetration Impact present 3
present present
Pricing
Market-Skimming Impact Impact
4 Impact present 3
Pricing present present
Findings: It is clear from Table 3 that the impact of organisation structure on pricing varies on
the basis of the various types of pricing in different organisations. In the FMCG and life
insurance sector, the role of organisation structure is significant in case of premium pricing. It is
interesting to note that all the three organisations agreed on the impact of organisation structure
on almost all the types of pricing except in case of premium pricing (in case of Allahabad Bank).
Impact of Organisation Structure on Place

Presence of Distribution Channels: As per the responses obtained from the survey, distribution
channel is present in the FMCG and life insurance sectors and not in the banking sector (in case
of public sector banks).
Impact of Organisation Structure on Types of Distribution Channels Utilised: As per the

responses obtained from the survey, the impact of organisation structure on the following types
of distribution channels applicable in case of the three organisations are discussed in Table 4.
Findings: It is clear from Table 4 that organisation structure has an impact on various types of
distribution channels utilised in different organisations. In the FMCG and life insurance sector,
organisation structure plays an important role in case of indirect and multiple channels of
distribution. In case of the service sector, the role of organisation structure is significant in case
of direct and single channels of distribution. It is interesting to note that only one organisation
(Tata AIG Life Insurance Co. Ltd) agreed on the impact of organisation structure on all the types
of distribution channels as far as their applicability is concerned.
166
Table 4: Impact of Organisation Structure on Types of Distribution Channels Utilised

Impact of organisation structure on types of
distribution channels Total presence of impact
Types of
Sr. Tata AIG of organisation structure
distribution
No. Dabur India Life Allahabad on types of distribution
channels
Ltd. Insurance Bank channels
Co. Ltd.
Not Impact Impact
1 Direct Channel 2
Applicable present present
Impact Impact Not
2 Indirect Channel 2
present present Applicable
Not Impact Impact
3 Single Channel 2
Multiple Impact Impact Not
4 2
Channel present present Applicable
Impact of Organisation Structure on Types of Distribution Channel Intermediaries: As per the

of distribution channel intermediaries applicable in case of the three organisations are discussed
in Table 5.
Table 5: Impact of Organisation Structure on Types of Distribution Channel Intermediaries

Impact of organisation structure on types of Total presence of
Types of
distribution channel intermediaries impact of organisation
Sr. distribution
Tata AIG Life structure on types of
No. channel Dabur India Allahabad
Insurance Co. distribution channel
intermediaries Ltd. Bank
Ltd. intermediaries
1 Wholesalers Impact present Not Applicable Not Applicable 1
2 Retailers Impact present Not Applicable Not Applicable 1
3 Agents Not Applicable Impact present Not Applicable 1
4 Internet Not Applicable Not Applicable Not Applicable 0
Findings: It is clear from Table 5, that organisation structure has an impact on the various types
of distribution channel intermediaries in different organisations. In the FMCG sector,
organisation structure plays an important role in case of wholesalers and retailers. In case of the
life insurance sector, the role of organisation structure is significant in case of agents. The
banking sector does not involve any type of distribution channel intermediary on account of
face-to-face interactions needed with the customers. It is noticed that all the three organisations
did not agree to the impact of organisation structure on internet as a distribution channel
intermediary.
Impact of Organisation Structure on Physical Evidence

following types of physical evidence in the form of distribution aids applicable in case of the
three organisations are discussed in Table 6.
167
Table 6: Impact of Organisation Structure on Physical Evidence (Distribution Aids Utilised)

Impact of organisation structure on types of Total presence of
distribution aids impact of
Sr. Types of
Tata AIG Life organisation
No. distribution aids Dabur India Allahabad
Insurance Co. structure on types of
Ltd. Bank
Ltd. distribution aids
1 Packaging Impact present Impact present Impact present 3
2 Signage Impact present Impact present Impact present 3
3 Internet Not Applicable Impact present Impact present 2
4 Uniforms Not Applicable Not Applicable Not Applicable 0
5 Paperwork Not Applicable Impact present Impact present 2
6 Business cards Impact present Impact present Impact present 3
7 Brochures Not Applicable Impact present Impact present 2
The building
8 Not Applicable Impact present Impact present 2
itself
9 Furnishings Not Applicable Impact present Impact present 2
Other types of
10 Not Applicable Not Applicable Not Applicable 0
distribution aids
Findings: It is clear from Table 6 that the impact of organisation structure on physical evidence
varies on the basis of the various types of distribution aids in different organisations. In the
service sector, organisation structure plays an important role in case of packaging, signage,
internet/web pages, paperwork, business cards, brochures, the building itself (office building)
and furnishings. In case of the FMCG sector, the role of organisation structure is significant in
case of packaging, signage, and business cards. Organisation structure seems to have an impact
on packaging, signage and business cards in case of all the three organisations as far as their
applicability is concerned.
Impact of Organisation Structure on People

Impact of Organisation Structure on Types of Value Addition by the Employees: As per the
of value addition by the employees applicable in case of the three organisations are discussed in
Table 7.
Table 7: Impact of Organisation Structure on Types of Value Addition by the Employees

value addition by the employees Total presence of impact
Types of value
Sr. Tata AIG of organisation structure
addition by the
No. Dabur India Life Allahabad on types of value addition
employees
Ltd. Insurance Bank by the employees
Co. Ltd.
Impact Impact Impact
1 Training 3
present present present
Not Impact Impact
2 Personal Selling 2
Customer Impact Impact Impact
3 3
Service present present present
Findings: It is clear from Table 7, that organisation structure has an impact on various types of
value addition by the people (employees) in different organisations. In both the FMCG and
service sector, organisation structure plays an important role in activities related to training and
168
customer service. In case of the service sector, the role of organisation structure is significant in
case of personal selling. Organisation structure seems to have an impact on training and
customer service in case of all the three organisations as far as their applicability is concerned.
Impact of Organisation Structure on Types of Training Imparted: As per the responses obtained
from the survey, the impact of organisation structure on the following types of training imparted
as applicable in case of the three organisations are discussed in Table 8:
Table 8: Impact of Organisation Structure on Types of Training Imparted

Impact of organisation structure on types Total presence of
of training imparted impact of
Sr. Types of training
No. imparted Dabur Allahabad
Insurance Co. structure on types of
India Ltd. Bank
Ltd. training imparted
Impact Impact
1 On-the-Job Training Impact present 3
present present
Impact Impact
2 Off-the-Job Training Impact present 3
present present
Impact Impact
3 Other types of training Impact present 3
present present
of training imparted to people (employees) in different organisations. It is interesting to note that
all the three organisations agreed on the impact of organisation structure on all the types of
training.
Impact of Organisation Structure on Types of Salespersons Employed: As per the responses

obtained from the survey, the impact of organisation structure on the following types of
salespersons applicable in case of the three organisations are discussed in Table 9.
Table 9: Impact of Organisation Structure on Types of Salespersons Employed

Total presence of
Types of salespersons employed
Sr. impact of organisation
salesperson Tata AIG Life
No. Dabur India Allahabad structure on types of
employed Insurance Co.
Ltd. Bank salesperson employed
Ltd.
Product
Impact Not
1 delivery Impact present 2
present Applicable
salesperson
Impact Impact
2 Order Takers Impact present 3
present present
Not Impact
3 Missionary Impact present 2
Applicable present
Technical Not Not
4 Not Applicable 0
salesperson Applicable Applicable
Not
5 Creative sellers Impact present Applicable 2
Applicable
Other types of Not Not
6 Not Applicable 0
salesperson Applicable Applicable
of salespersons employed in different organisations. In both the FMCG and life insurance sector,
169
organisation structure plays an important role in case of product delivery salespersons. In case of
the service sector, the role of organisation structure is significant in case of missionaries and
creative sellers. In both the FMCG and service sector, organisation structure has a significant
impact on order takers as salesperson.
Impact of Organisation Structure on Types of Customer Service Utilised: As per the responses
obtained from the survey, the impact of organisation structure on the following types of customer
service (utilised) applicable in case of the three organisations are discussed in Table 10.
Table 10: Impact of Organisation Structure on Types of Customer Service Utilised

Total presence of impact
Types of customer service utilised
Sr. of organisation
customer Tata AIG Life
No. Dabur Allahabad structure on types of
service utilised Insurance Co.
India Ltd. Bank customer service utilised
Ltd.
Face-to-Face Impact Impact
1 Impact present 3
customer service present present
Customer service
Impact Not
2 through Impact present 2
present Applicable
telephone
Customer service Not Not
3 Impact present 1
through internet Applicable Applicable
Other types of Not Not
4 Not Applicable 0
customer service Applicable Applicable
of customer service utilised in different organisations. In both the FMCG and service sector,
organisation structure plays an important role in case of face-to-face customer service. In both
the FMCG and life insurance sector, the role of organisation structure is significant in case of
customer service through telephone. In the life insurance sector, organisation structure also plays
prominent role in case of customer service through telephone and through internet.
Impact of Organisation Structure on Process

following types of customer service utilised as applicable in case of the three organisations are
discussed in Table 11.
Table 11: Impact of Organisation Structure on Process

Impact of organisation structure on types of jobs Total presence of
performed impact of
Sr. Types of jobs
No. performed Dabur India Allahabad
Insurance Co. structure on types
Ltd. Bank
Ltd. of jobs performed
1 Delivering value Impact present Impact present Impact present 3
2 Taking feedback Not Applicable Not Applicable Impact present 1
Retaining
3 Not Applicable Impact present Impact present 2
customers
Other types of jobs
4 Not Applicable Not Applicable Not Applicable 0
performed
Findings: It is clear from Table 11, that organisation structure has an impact on process
depending upon the types of job performed in different organisations. In both the FMCG and
170
service sector, organisation structure plays an important role in case of delivering value as a type
of job performed. In the banking sector, the role of organisation structure is significant in case of
taking feedback as a type of job performed. In the service sector, organisation structure plays a
prominent role in activities related to retaining customers.
Impact of Organisation Structure on Other Elements of the Marketing Mix

As per the responses obtained from the survey, there were no other elements of the Marketing
Mix that were influenced by organisation structure.
Perception of Respondents
The perception of respondents regarding role played by different components of organisation
structure on the various components of the marketing mix have been calculated in a 5-point scale
as follows:
Here,
Number of respondents who perceive the role played by organisation structure in facilitating
marketing to be highly significant, significant, of average significance, of low significance and
of no significance at all, are denoted by A, B, C, D and E respectively.
Number of respondents covered during the study is denoted by N.
Then the score for each component of organisation structure is given by the formula:
S = {(5×A) + (4×B) + (3×C) + (2×D) + (1×E)} / (5+4+3+2+1)
Then average score for all components of organisation structure is given by the formula:
AS = Σ S / 7 (Here “7” denotes all the seven components of the marketing mix namely Product,
Promotion, Price, Place, Physical Evidence, People and Process).
Role of Effective Communication
Table 12: Calculation of the Average Score of the Role of Effective Communication in
Components of Highly Average Low Not
Significant
the Marketing Significant Significance Significance Significant Score
(4)
Mix (5) (3) (2) at all (1)
Product 2 1 0 0 0 0.93
Promotion 1 2 0 0 0 0.87
Price 1 2 0 0 0 0.87
Place 0 1 2 0 0 0.67
Physical
0 2 1 0 0 0.73
Evidence
People 2 0 1 0 0 0.87
Process 0 2 1 0 0 0.73
Average Score 0.81
171
Figure 2: Role of Effective Communication in Facilitating Marketing
Findings: With reference to Table 12 and Figure 2, the findings are as follows as per the
perception of the respondents regarding the average score of the role of effective communication
in facilitating marketing:
The average score in case of the impact on product is the highest.
The average score in case of the impact on promotion, price and people comes in the second
position followed by that on physical evidence and process in the third position.
The average score in case of the impact on place comes in the last position.
Role of Effective Coordination
Table 13: Calculation of the Average Score of the Role of Effective Coordination in Facilitating
Marketing
Significant
(4)
Mix (5) (3) (2) at all (1)
Product 2 1 0 0 0 0.93
Promotion 0 3 0 0 0 0.80
Price 1 0 2 0 0 0.73
Place 0 1 2 0 0 0.67
Physical
0 2 1 0 0 0.73
Evidence
People 2 0 1 0 0 0.87
Process 0 2 1 0 0 0.73
Average Score 0.78
172
Figure 3: Role of Effective Coordination in Facilitating Marketing
perception of the respondents regarding the average score of the role of effective coordination in
facilitating marketing:
The average score in case of the impact on product is the highest.
The average score in case of the impact on people comes in the second position followed by
that on promotion in the third position and that on price, physical evidence and process in
the fourth position.
The average score in case of the impact on place comes in the last position.
Role of Speed/Responsiveness to the Customer (Both Internal & External)
Table 14: Calculation of the Average Score of the Role of Speed/Responsiveness to the
Customer (Both Internal & External) in Facilitating Marketing
Significant
(4)
Mix (5) (3) (2) at all (1)
Product 2 1 0 0 0 0.93
Promotion 0 2 1 0 0 0.73
Price 0 3 0 0 0 0.80
Place 0 3 0 0 0 0.80
Physical
2 1 0 0 0 0.93
Evidence
People 2 1 0 0 0 0.93
Process 2 0 1 0 0 0.87
Average Score 0.86
173
Figure 4: Role of Speed/Responsiveness to the Customer (Both Internal & External) in

perception of the respondents regarding the average score of the role of speed/responsiveness to
the customer (both internal & external) in facilitating marketing:
The average score in case of the impact on product, physical evidence and people is the
highest.
The average score in case of the impact on process comes in the second position followed by
that on price and place in the third position.
The average score in case of the impact on promotion comes in the last position.
Role of Empowerment (of Employees) throughout the Organisation
Table 15: Calculation of the Average Score of the Role of Empowerment (of Employees)
throughout the Organisation in Facilitating Marketing

Significant
(4)
Mix (5) (3) (2) at all (1)
Product 1 1 1 0 0 0.80
Promotion 0 1 2 0 0 0.67
Price 0 0 3 0 0 0.60
Place 0 1 2 0 0 0.67
Physical
0 2 1 0 0 0.73
Evidence
People 2 0 1 0 0 0.87
Process 0 0 3 0 0 0.60
Average Score 0.70
174
Figure 5: Role of Empowerment (of Employees) throughout the Organisation in Facilitating

Marketing
perception of the respondents regarding the average score of the role of empowerment (of
employees) throughout the organisation in facilitating marketing:
The average score in case of the impact on people is the highest.
The average score in case of the impact on product comes in the second position, followed
by that on physical evidence in the third position and that on promotion and place in the
fourth position.
The average score in case of the impact on price and process comes in the last position.
Major Findings
i. Organisation structure makes an impact on the introduction stage, growth stage and
maturity stage of product life cycle of products or services.
ii. Organisation structure was felt to have facilitated advertising in all the three
organisations.
iii. Organisation structure plays a prominent role in economy pricing, market-penetration
pricing and market-skimming pricing in all the three organisations.
iv. Organisation structure appeared to have an impact on all the four types of distribution
channels of Tata AIG Life Insurance Co. Ltd. Overall it had low impact on channel
intermediaries.
v. Organisation structure plays a prominent role on physical evidence depending upon its
various types of distribution aids in different organisations. It was found to have
facilitated packaging, signage and business cards in all the three organisations.
vi. Organisation structure plays a prominent role on people (employees) in different
organisations depending on the various types of value addition by the employees, types of
training imparted, types of salespersons employed and types of customer service utilised.
175
viii. Organisation structure played a prominent role in one aspect of job performed in different
organisations, i.e., delivering value.
ix. As per the responses obtained from the survey, there were no other elements of the
marketing mix that are affected by organisation structure.
x. As per the perception of the respondents, the role of effective communication in
facilitating marketing by its impact on product is the highest, followed by that in
promotion, price and people, then in those of physical evidence and process. The impact
on place is the lowest.
xi. As per the perception of the respondents, the role of effective coordination in facilitating
marketing by its impact on product is the highest, followed by that in people, then in
those of price, physical evidence and process. The impact on place is the lowest.
xii. As per the perception of the respondents, the role of speed/responsiveness to the customer
(both internal & external) in facilitating marketing by its impact on product, physical
evidence and price is the highest, followed by that in process. The impact on promotion is
the lowest.
xiii. As per the perception of the respondents, the role of empowerment (of employees)
throughout the organisation in facilitating marketing by its impact on people is the
highest, followed by that in product. The impact on price and process is the lowest.
Conclusion
This study involved an in-depth analysis of the role played by organisation structure, more
specifically departmentation by territory/geography, in facilitating marketing. It was noticed
through the study of the organisation structures of three organisations (namely Dabur India
Limited, Tata AIG Life Insurance Company Limited and Allahabad Bank) that organisation
structure was felt to play a supportive role in marketing. In fact a proper understanding of this
relationship will facilitate a deeper knowledge of the concept of marketing thereby enabling
proper utilization of its components. This would in turn help in proper marketing of the products
and/or services of any organisation / company.
Based on these findings it can be proposed that a similar study can be conducted to cover a larger
sample so that generalizations can be done and impact of other structures can also be studied.
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International Editions, Singapore.
Stoner, J.A.F.; Freeman, R.E. and Gilbert Jr., D.R. (2007), Management, Prentice Hall of India
Pvt. Ltd., New Delhi.
Tull, D.S. and Hawkins, D.I. (2000), Marketing Research, Prentice Hall of India Pvt. Ltd., New
Delhi.
Appendix
Appendix-I: Interview Schedule
Name of the organisation: …..………………………………………………………………..

Address: …………………………………………………………………………………..........
1. In which of the following stages of the product life cycle of the product and/or service does
organisation structure play a role in facilitating marketing in your organisation?
Introduction Stage Maturity Stage Withdrawal Stage
Growth Stage Decline Stage

2. Which of the following elements are applied in case of promoting products and/or services in
your organisation?
Personal Selling Trade Fairs and Exhibitions Sales Promotion
Advertising Public Relations Sponsorship
Direct Mail Any other (Please specify)

………………………….
3. In which of the above elements of promotion of products and/or services does organisation
structure have an impact in your organisation?
Personal Selling Trade Fairs and Exhibitions Sales Promotion
Advertising Public Relations Sponsorship
Direct Mail Any other (Please specify)

………………………….
4. Which of the following types of the pricing strategies are applied in case of the products
and/or services in your organisation?
177
Premium Pricing Economy Pricing
Market-Penetration Pricing Market-Skimming Pricing

5. In which of the above types of the pricing strategies of products and/or services does
organisation structure have an impact in your organisation?
Premium Pricing Economy Pricing
Market-Penetration Pricing Market-Skimming Pricing

6. Does your organisation involve any distribution channel (or intermediary) while distributing
its product and/or services?
Yes No
If Yes, kindly answer the following questions:

a. Which of the following types of distribution channels are applied in case of distributing
the products and/or services in your organisation?
(A) Direct Channel, OR Indirect Channel
(B) Single Channel, OR Multiple Channel
b. In which of the above types of distribution channels applied in case of distributing the
products and/or services does organisation structure have an impact in your organisation?
(A) Direct Channel, OR Indirect Channel
(B) Single Channel, OR Multiple Channel
c. Which of the following types of distribution channel intermediaries are applied in case of
distributing the products and/or services in your organisation?
Wholesalers Agents Retailers Internet
d. In which of the above types of distribution channel intermediaries applied in case of

distributing the products and/or services does organisation structure have an impact in
your organisation?
Wholesalers Agents Retailers Internet
7. Which of the following items are applied in case of distributing the products and/or services
in your organisation?
Packaging Brochures Uniforms
Internet Furnishings Business cards
Paperwork Signage The Building itself
Any other (Please

specify)……………..
8. In which of the above items applied in case of distributing the products and/or services does
organisation structure have an impact in your organisation?
178
Packaging Brochures Uniforms
Internet Furnishings Business cards
Paperwork Signage The Building itself
Any other (Please

specify)……………..
9. Through which of the following means do employees in your organisation add value to their
job?
Training Personal Selling Customer Service
10. In which of the above means of value addition of employees to their job does organisation
structure have an impact in your organisation?
Training Personal Selling Customer Service
11. Which of the following types of training are normally provided in your organisation?
On-the-Job Training Off-the-Job Training
Any Other (Please Specify) ……………………………………………….
12. In which of the above types of training provided does organisation structure have an impact
in your organisation?
On-the-Job Training Off-the-Job Training
Any Other (Please Specify) ……………………………………………….
13. Which of the following types of salespersons are normally employed in your organisation?
Product delivery salesperson Order Taker
Missionary Technical salesperson
Creative sellers Any other (Please specify)

………………………………..
14. In which of the above types of salespersons employed does organisation structure have an
impact in your organisation?
Product delivery salesperson Order Taker
Missionary Technical salesperson
Creative sellers Any other (Please specify)

………………………………..
15. Which of the following types of customer service are normally utilised in your organisation?
Face-to-Face Customer Service Customer Service through telephone
Customer Service through internet Any other (Please specify)

…………………………………….
179
16. In which of the above types of customer service utilised does organisation structure have an
impact in your organisation?
Face-to-Face Customer Service Customer Service through telephone
Customer Service through internet Any other (Please specify)

…………………………………….
17. Which of the following types of jobs are performed by the all the processes in creation and
delivery of the products and/or services in your organisation?
Delivering Value Taking Feedback
Retaining Customers Any other (Please specify)

…………………………………….
18. In which of the above types of jobs performed by the all the processes in creation and
delivery of the products and/or services does organisation structure have an impact in your
organisation?
Delivering Value Taking Feedback
Retaining Customers Any other (Please specify)

…………………………………….
19. Is there any other element that plays an important role in marketing of the products and/or
services in your organisation? (Please Specify)
……………………………………………………………………………………….....
………………………………………………………………………………………….
20. In which of the above other important element of marketing of the products and/or services
does organisation structure have an impact in your organisation? (Please Specify)
……………………………………………………………………………………….....
………………………………………………………………………………………….
21. What is your opinion regarding the role played by the following components of organisation
structure in facilitating marketing in terms of the following components of the Marketing
Mix in the given table?
180
Please rate in accordance with the following scale:
Components of the Marketing Mix
………………….
(Please specify)
Promotion
Components
Any other
Evidence
Physical
Product
Process
People
of Organisation
Place
Price
Structure
Effective Communication
Effective Coordination
Speed/Responsiveness to the Customer (both internal
& external)
Empowerment (of employees) throughout the
organisation
Any other (Please specify)…………………………….
Appendix-II: Organisation Structures of Different Organisations Covered During the Survey
Organisation Structure of Allahabad Bank
HEAD OFFICE
Board of Directors headed by
Chairman and Managing Director (CMD)
Executive Directors
Administrative Officers
ZONAL OFFICE
(Total 44 Zones)
Headed by Assistant General Mangers
BRANCH OFFICE
Figure A-1: Organisation Structure of Allahabad Bank
181
GUWAHATI ZONAL OFFICE

Assistant General Manager
Chief Manager
Senior Manager
Manager
Assistant Manager
38 BRANCH OFFICES SPREAD

OVER LOWER ASSAM, MANIPUR
AND MEGHALAYA
Figure A-2: Organisation Structure of Allahabad Bank (Guwahati Zonal Office)
Organisation Structure of Dabur India Limited
Figure A-3: Organisation Structure of Dabur India Limited
182
Organisation structure of Tata AIG Life Insurance Company Limited
Figure A-4: Organisation Structure of Tata AIG Life Insurance Company Limited
Sinmoy Goswami can be contacted at: sinmoy_goswami@rediffmail.com
183
Factors Affecting Firms’ Performance: The

Case of Greece
Panagiotis G. Liargovas1 and Konstantinos S. Skandalis2
1
Department of Economics, University of Peloponnese, Greece
2
Department of Economics, University of Athens, Greece
Abstract
Purpose - The purpose of this paper is to empirically implement a comprehensive
analytical framework of financial performance in the case of Greek industrial firms
during the period 1997-2004.
Design/methodology/approach - The paper examines the impact of key determinants
of firms’ performance. It distinguishes between financial and non financial drivers of
firm performance. Three measures are used in order to evaluate firm performance:
return on sales or profit margin, return on assets and return on equity. We run three
panel least squares regression, one for each dependent variable, with a time series
component of 8 (eight) years.
Findings - Results show that leverage, export activity, location, size and effective
management significantly affect firm performance in Greece. Further, it is shown that
profitable firms in Greece are large, young, exporting firms with a competitive
management team, which have an optimal debt-equity ratio and use their liquidity to
finance their investments.
Practical implications - Our approach can be used as a useful tool to understand
practical problems that arise when managers consider strategies to improve firm
performance.
Originality/value - The paper provides useful information on the importance of
management in firm’s performance in Greece.
Keywords: Financial Performance, Greek Firms, Panel Data, Management
Competence
Introduction
In the era of globalization, competition has become fiercer than ever. Reduced
trade barriers, spread of technology and lower costs for communication and
transportation have sharpened international competition. The economic
changes in Eastern European countries, the completion of the European Union
and the appearance of new economic powers in the global market have initiated
specific discussion of production structures and the competitiveness of national
industries. Intense competition in global and local markets requires firms to
improve their financial performance. This is especially true for smaller
countries, like Greece where profitability can allow firms to overcome the
limitations of their small home markets in order to achieve their maximum
potential. This improvement not only benefits the firms themselves, but also
has a direct impact on the competitiveness of an economy as a whole. The
international business literature is replete with empirical and conceptual works
pertaining to competitiveness. However, there is still debate among several
disciplines regarding how the performance of these firms should be measured
GBMR
and what factors affect business success. Vol. 2, No. 2 & 3, 2010
pp. 184-197
184
The purpose of this paper is to empirically implement a comprehensive framework of firm

financial performance in the case of Greece. The specific research question is: “What are the
factors which affect the financial performance of Greek industrial firms during the period 1997-
2004?” The structure of this paper is as follows: Section 2 provides a literature review and
presents an analytical framework. Section 3 discusses the data used and describes the
methodology. Section 4 provides the estimation and the empirical results, while section 5 offers
some conclusions.
Literature Review and Analytical Framework

A large body of previous theoretical and empirical research has tried to investigate various
factors affecting firms’ financial performance. Theoretical research is based on microeconomic
theory and more specifically on the firm’s theory of production (see for example Penrose, 1995).
Empirical research has been developed around two areas of interest. First a number of
researchers investigate how to measure firms’ financial performance. There have been various
measures of financial performance. For example return on sales reveals how much a company
earns in relation to its sales, return on assets determines an organization’s ability to make use of
its assets and return on equity reveals what return investors take for their investments. The
advantages of financial measures are the easiness of calculation and that definitions are agreed
worldwide. Traditionally, the success of a manufacturing system or company has been evaluated
by the use of financial measures (Tangen, 2003). Table 1 presents an overview of the reviewed
measures of financial performance.
Table 1: Measures of Financial Performance

Study Financial performance measures
Cochran,Wood and Jones,1985 Return on assets (ROA), Return on Equity (ROE),
Net profit margin, Firm’s assets
Kesner,1987 ROA, ROE and lagged total returns to investors
Mallette and Fowler,1992 ROE
Opler and Titman, 1994 Growth in sales, Growth in profitability and stock
returns
Klassen and McLaughlin,1996 Stock market returns
Hart and Ahuja,1996 Return on sales (ROS), ROA, ROE
Konar and Cohen,1997 ROA, ROE
Majumdar, 1997 ROS
Thomas and Tonks,1999 Monthly excess stock market returns over the risk
free rate.
Becker-Blease et al., 2005 EBITDA margin, EBIT margin, EBITDA as a
percent of total assets, EBIT to total assets.
Skandalis et al., 2008 Sales growth, Growth in profitability, Stock
returns annual percentage change
Agiomirgiannakis et al., 2006 ROA
Bobillo et al., 2006 Sales, Net profit margin
A second strand of the empirical literature examines how financial and non-financial factors,
such as debt leverage, liquidity, capitalization, investment, size, age, location, export
performance and managerial efficiency have an influence on the firms’ financial performance
and growth.
185
Debt leverage is measured by the ratio of total debt to equity (debt/equity ratio). It shows the
degree to which a business is utilizing borrowed money. Companies that are highly leveraged
may be at risk of bankruptcy if they are unable to make payments on their debt; they may also be
unable to find new lenders in the future. Leverage is not always bad, however; it can increase the
shareholders’ return on their investment and make good use of the tax advantages associated
with borrowing. The trade-off theory (TO) (Bradley, Jarrell and Kim, 1984; Harris and Raviv,
1991) suggests that every firm has a specific optimal debt-to-equity ratio determined by
balancing the present value of expected marginal benefits of leverage (ex. tax savings due to paid
interests) against the present value of expected marginal costs of leverage. According to this
theory, each company borrows in order to gradually move towards its optimal debt-equity ratio,
which in turn maximizes its market value (given by the present value of the sum of the expected
costs and benefits of debt). Furthermore Jensen (1986) and Zwiebel (1996) support that
increased debt can reduce the probability of a firm’s takeover by committing managers to a more
efficient business strategy. Thus, there is either a negative or positive influence of leverage on
firms’ performance.
Liquidity refers to the degree to which debt obligations coming due in the next 12 months can be
paid from cash or assets that will be turned into cash. It is usually measured by the current assets
to current liabilities (current ratio). It shows the ability to convert an asset to cash quickly and
reflects the ability of the firm to manage working capital when kept at normal levels. In financial
economics a standard argument to justify the decision of a firm to maintain excess liquidity in its
assets relates to both speculative and precautionary motives. A firm can use liquid assets to
finance its activities and investments when external finance is not available or it is too costly. On
the other hand, higher liquidity would allow a firm to deal with unexpected contingencies and to
cope with its obligations during periods of low earnings (Opler et al., 1999, Myers, 1977, Kim et
al., 1998). In contrast to the above reasoning, Hvide and These (2007), based on a theoretical
model by Evans and Jovanovic (1989), suggest that a moderate amount of liquidity may propel
entrepreneurial performance, but that an abundance of liquidity may do more harm than good.
Therefore, the effect of liquidity on firms’ financial performance is ambiguous.
The capitalization rate or the ratio of fixed assets to total assets, measures the extent to which
fixed assets are financed with owners’ equity capital. A high ratio indicates an inefficient use of
working capital which reduces the firm’s ability to carry accounts receivable and maintain
inventory and usually means a low cash reserve. This may often limit the ability of the firm to
respond to increased demand for products or services. The fixed assets to total assets ratio affects
firm’s profitability negatively (Notta O. and Vlachvei A., 2007; Agiomirgiannakis et al., 2006).
This can be attributed to the reduced level of current assets which could lead to a lower level of
sales, since the firm will be short of the necessary materials, stocks, etc., with a reduced level of
activity overall.
Net investment (ratio of the net investment to the total assets) refers to an activity of spending,
which increases the availability of fixed capital goods or means of production. Net investment is
the total spending on new fixed investment minus replacement investment, which simply
replaces depreciated capital goods. This ratio helps to give a sense of how much money a
company is spending on capital items used for operations (such as property, plants and
equipment). Continued investment in the capital of a firm is crucial because the useful life of
existing capital diminishes over time. The amount of net investment compared to such things as
revenue will differ between industries and between businesses depending on how capital
intensive the business is. This ratio is positively related to firm performance since new
investments expand the production and the cash flow generating capacity of the firm.
The size of the firm affects its financial performance in many ways. Large firms can exploit
economies of scale and scope and thus being more efficient compared to small firms. In addition,
small firms may have less power than large firms; hence they may find it difficult to compete
186
with the large firms particularly in highly competitive markets. On the other hand, as firms
become larger, they might suffer from x-inefficiencies, leading to inferior financial performance.
Theory, therefore, is equivocal on the precise relationship between size and performance
(Majumdar, 1997, p.233)
Regarding firm age, older firms are more experienced, have enjoyed the benefits of learning, are
not prone to the liabilities of newness (Stinchcombe, 1965), and can, therefore, enjoy superior
performance. Older firms may also benefit from reputation effects, which allow them to earn a
higher margin on sales. On the other hand, older firms are prone to inertia, and the bureaucratic
ossification that goes along with age; they might have developed routines, which are out of touch
with changes in market conditions, in which case an inverse relationship between age and
profitability or growth could be observed. Older firms are unlikely to have the flexibility to make
rapid adjustments to changing circumstances and are likely to lose out in the performance stakes
to younger, and more agile, firms (Marshall, 1920). Thus the results may reveal bidirectional
interactions between age and firm performance.
With the rapid advancement in transportation and communications, the role of location in
determining firm performance may decrease, with respect to factors that can be easily sourced
across regions in free-market economies, such as capital, goods, and technology (Li, 2004).
However, the enduring competitive advantages in a global economy lie increasingly in local
things--knowledge, relationships, and motivation that distant rivals cannot match (Porter, 1998).
Such advantages are specific to a particular location and thus immobile. In order to access such
advantages, a firm must locate in their proximity.
Export performance is the relative success or failure of the efforts of a firm or nation to sell
domestically-produced goods and services in other nations. There are two views concerning
international exchange. The first, (classical theory) recognizes the benefits of trade. The second
concerns itself with the possibility that some industries can be harmed and others can be
benefited by foreign competition (new trade theories).
The adoption of best management practices is a source of competitive advantage, positively
related to firms’ performance, growth and survival. According to Timmons (1994) entrepreneurs
who succeed possess not only an innovative behavior but also solid general management skills.
Bird (1995) and Ronstadt (1984) conclude that entrepreneur’s management skills were
conducive to business performance and growth. Successful firms will be those that have
developed a core competence in entrepreneurship where a core competence refers to ‘a
combination of complementary skills and knowledge bases embedded in a group or team that
results in the ability to execute one or more critical processes to a world-class standard (Cayne,
Hall and Clifford, 1997).
From the above variables, the first four could be categorized as financial drivers, the next four as
non-financial drivers and the last one as a combination of financial and non-financial drivers. In
summary, all the previous theoretical and empirical investigation can be incorporated in an
analytical framework that includes a comprehensive set of links between financial performance
indicators and drivers, shown in Figure 1.
187
Figure 1: A Generic Approach of Firm Performance
Management competence index, a combination of financial and non financial drivers, is

connected with indicators and co-drivers by a specific way in order to underline the unique
relation between effective management and firm financial performance factors.
Data and Methodology

The purpose of this paper is to identify the factors which affect firm performance in Greece.
We used ICAP[1] database for 102 firms listed on the Athens Stock Exchange during the
period 1997-2004.[2]Firms are assigned to an industry group if more than 60% of their annual
sales are from activities within that industry. Our initial sample consisted of 150 firms. The
following firms were excluded from the sample:
Firms belonging to industries with too few firms listed at the stock market (less than
four firms).
Firms involved in different activities as they could not be assigned to a particular
industry.
Banks, other financial institutions, and insurance companies, because of their special
financial structure.
Investment companies, because their incomes mainly results from the value of their
holding portfolios. This value depends on the financial structure and business
conditions of the firms whose stocks are included in the portfolio rather than the
financial structure of the investment companies.
The resulting sample for the eight year period 1997-2004 consisted of 102 firms in 15
industries.
188
Table 2: Firms by Industry

INDUSTRY No. OF FIRMS
Construction 13
Printing-publishing 6
Computers 7
Transport 3
Retailing 6
Food and drink 16
Basic metals 10
Elastics& plastics 5
Non-metallic ore &cement 5
Clothing 2
Machines-equipment 3
Metallic products 2
Refineries 1
Private hospitals 1
Wholesaling 22
Total number of Firms 102
We collected data for each firm from two sources; First, from the ICAP Hellas database and
second on the basis of a questionnaire. Furthermore, we validated questionnaires’ financial data
and export activity of firms from the ICAP data base and the “Greek Export directory 2004-
2005” respectively.
Information was compiled on the following areas:

Financial data of the firm
Level of education of the management team members
Shareholding percentage of the management team members
Existence of innovation in the firm
Average years of experience of the management team members
Average age of the management team members
Number of employees
Number of employees having tertiary education
Location of the firm
Age of firm
Export activity of the firm
It appeared that 102 of these 150 firms have management teams fulfilling at least three out of
five criteria that are described below:
1) The average number of experience of the members of the management team is twenty
(20) years.
189
Figure 2: Average Years of the Management Team in the Company
2) The management team holds on average 34% of the company’s shares.
Figure 3: Stock Ownership of Management Team
3) Most of the management team’s members hold a university degree in finance or in

engineering.
190
Figure 4: Higher Education of Management Team (dummy) (1= tertiary, 0=secondary)
4) The average age bracket of the management team is 50-60 years old.
Figure 5: Average Age of the Management Team (dummy) (1= 30-50 years old, 2= 50-60 years
old, 3= 60+ years old)
5) All management teams implement innovation practices. Innovation, according to

Schumpeter (1934) and other more recent researchers (Lumpkin and Dess, 1996;
West & Farr , 1990), refers to the introduction of a new product or a new technique in
production or a new market or a new organization structure in the firm. If any of the
above has taken place within the last four years the management team is an innovator.
We use three measures to evaluate the financial performance:[3] (a) Return on sales (ROS) or
profit margin: ROS reveals how much a company earns in relation to its sales. These measures
determine the company’s ability to withstand competition and adverse rising costs, falling
prices or declining sales in the future. (b) Return on assets (ROA): ROA is one of the most
widely used financial models for performance measurements and it was developed by Dupont
in 1919. ROA determines a firm’s ability to make use of its assets. (c) Return on equity
191
(ROE): ROE measures what return investors (i.e. stockholders) are getting for their
investments in the firm. In other words it tells how well the company is doing for the investor
(Tangen, 2003). We use three empirical models, one for each depended variable of the firm’s
performance.
Based on the analytical framework presented in the previous section, we make the hypothesis
that the following independent variables might affect the firms’ performance:
1. Leverage (lev) as measured by the ratio of total debt to equity (debt/equity ratio)
2. Liquidity (liquid), as measured by the ratio of current assets to current liabilities
3. Capitalization ratio (capital) as measured by the ratio of fixed assets to total assets
4. Investment (net_inv), as measured by the ratio of net investment to the total assets
5. Size (size), as measured by the total number of the firm’s employees
6. Age (age), as measured by the number of years since establishment
7. Location (loc). We test if the location of firms established in the two biggest Greek cities
(Athens and Thessalonica) affects their competitiveness. Location is a dummy variable
with two values, 1 for Athens and Thessalonica and 0 otherwise. We expect that firms
located in Athens or Thessalonica could be better positioned (i.e. closer to their markets)
to take advantage of changes in market conditions.
8. Export (export), which is a dummy variable taking the value 1, if the firm is an exporter
and 0 otherwise.
9. Management efficiency (mc_index), as measured by the following management
competence index used by Skandalis et al. (2008):
profit
management competence index =
number of professionals
Profits are calculated before taxes for each consecutive year, between 1997-2004. As number
of professionals, we keep the same number for all years (even though it is the actual figure of
2003) because we consider that there are small changes of this number over the years. If there
are any changes, then these changes will have little effect to the final result of the index. As
“professionals” we consider the personnel which fulfil two criteria: (a) It processes a
university degree (tertiary education) and (b) It is under the direct control or part of the
management team.
Estimation and Empirical Results

The relationship between competitive sources and performance were tested using panel
regression analysis for the following reasons: First, because panel data suggests that firms are
heterogenous and therefore do not run the risk of obtaining biased results. Second, because
panel data gives more informative data, more variability, less collinearity among the variables,
more degrees of freedom and more efficiency. Finally, panel data are able to identify and
measure effects that are simply not detectable in pure cross section or pure time-series data.
The panel regression model consists of three separate regressions on the same set of
explanatory variables. The regression model is:
Financial performance = b0 + b1(lev(-1)) + b2 (liquid) + b3 (capital) + b4 (net_inv) +b5 (lnsize)

+ b6 (lnage) + b7 (loc) + b8 (export) + b9 (lnmc_index) + ut (1)
Financial performance is measured by either ROA or ROE or ROS and “u” denotes a random
disturbance term. The regression coefficient (bj) represents the expected change in the
performance indicator associated with one-unit change in the z’th independent variable, i.e.
competitive sources. Lev(-1), Liquid, Capital, Net_inv, Lnsize, Lnage, Loc, Export, Lnmc_index,
192
represent leverage, liquidity, rate of fixed to total assets, net investment ratio, size, age, location,
export activity and management competence index respectively.
We run three panel least squares regression, one for each dependent variable, with a time
series component of 8 (eight) years, 1997-2004. The cross sectional observations were 102.
The method of estimation was panel least squares and the effects specification was random[4],
while for the covariance matrix cross section weights (PCSE) and White cross section weights
were used with no d.f correction. In all three regressions, we used the lagged value of leverage
(lev(-1)), the natural logarithm of age (lnage), size (lnsize) and management index
(lnmc_index). All three dependent variables were expressed in their natural logarithm form
(lnroa, lnroe, lnros), so the final estimation involved unbalanced panel data. Tables 3, 4 and 5
show the estimated coefficients with their t-ratios.
Table 3: Determinants of Return on Assets

LnROA-random
Coefficient t-Statistic
Lev(-1) 0.0713*** 3.8018
Lnsize 0.0337 0.6340
Lnage -0.0803 -0.5087
Loc 0.3135*** 3.1855
Liquid -0.0686** -2.4969
Capital -1.8373*** -5.1722
Export 0.3674*** 3.8265 R-squared: 0.296
Net_inv 1.5694*** 4.1038 F-statistic : 32.298
Lnmcindex 0.1453*** 15.7439 Prob(F-statistic): 0.000
* Significant at the 10% level, ** Significant at the 5% level, *** Significant at the 1% level
Table 4: Determinants of Return on Equity

LnROE-random
Lev(-1) 0.1652*** 5.2380
Lnsize 0.2208*** 4.9347
Lnage -0.2102* -1.6869
Loc 0.2022* 1.9507
Liquid -0.1140*** -3.5793
Capital -2.4808*** -5.5286
Export -0.0957** -2.2658 R-squared: 0.593
Net_inv 1.2038*** 2.9577 F-statistic : 112.54
193
Table 5: Determinants of Return on Sales

LnROS
Lev(-1) 0.0408 *** 3.2900
Lnsize -0.0088 -0.1811
Lnage -0.2332** -2.3486
Loc 0.2171*** 2.9416
Liquid 0.0125 0.9803
Capital 0.2996** 2.5206
Export 0.1251 0.9575 R-squared: 0.067
net_inv 0.2662** 2.0391 F-statistic : 5.536
According to the results obtained, the panel regression models with dependent variables
leverage, liquidity, fixed to total assets, net investment ratio, firm size, firm age, firm location,
firm export activity and management competence index are all significant at p<0.01.
An interesting result is the positive and significant impact that an increase in the leverage of
firms has on their competitiveness when it is measured by Return on Assets (ROA), Return on
Equity (ROE) and Return on Sales (ROS). This result is in line with the trade-off theory
presented in the previous section. It is also similar to the results obtained by Majumdar (1997)
for the case of India, but it is different to the ones obtained by Agiomirgiannakis et. al (2006)
for the case of Greece during the period 1995-99. It seems that in the more recent period,
greater reliance on debt makes Greek managers more stringent regarding the monitoring of
their firms which then become more competitive.
As we can see from Tables 3-5, liquidity negatively influences performance. More specifically
liquidity is negative and significant when performance is measured by ROA and ROE. In other
words, when liquidity is excessive the effect on profitability is negative. Our result is in line
with the theoretical work of Evans & Jovanovic (1989) and with the empirical result of
Majumdar (1997).
Ratio of Fixed Assets to Total Assets (capitalization) is negatively related to financial
performance in two out of three cases.[5] This can be attributed to the reduced level of current
assets which could lead to a lower level of sales, since the firm will be short of the necessary
materials, stocks, etc., with a reduced level of activity overall. In other words this relationship
indicates that when this ratio is high there is an inefficient use of working capital which limits
Greek firms’ ability to carry accounts, to maintain inventory, and to respond to an increased
demand.
Net investment ratio has positive influence in all three measures of competitiveness. It is very
significant (sig. at the 1% level) for ROA and ROE but not so for ROS (sig. at the 10% level).
This positive influence means that the amount of money a Greek firm spends on capital items
used for operations is vital because the useful life of existing capital diminishes over time. In
other terms new investments influence positively Greek firms’ performance.
The variable of size is positive and very significant for ROE and insignificant in the other two
cases. The positive relationship between size and performance indicates that larger firms are
more profitable, according to theory and other empirical findings (e.g. Voulgaris et al., 2005).
The age of firm is negatively related to all three measures of financial performance. This
relation agrees with the findings of Agiomirgiannakis et al. (2006).
194
As we can see from the tables, variables for location are positive and significant in all three
regressions. Companies located in Athens or Thessalonica are benefited from their position
(i.e. they are closer to their markets). This result is in line with the result found in Fotopoulos
and Louri (2004), according to which location in greater Athens vs the rest of Greece affects
survival of firms positively.
The results from the panel regression analysis show that exports positively relate to Return on
Assets. This result is in the opposite direction to the findings of Agiomirgiannakis et al.
(2006) where exports relate negatively to firm profitability. The positive influence can be
explained by the fact that in the more recent period Greek firms have found an easy outlet of
their activities to South Eastern European markets (Balkans). Within the Balkans, the Greek
export share has a significant increase in the last fifteen years and has reached one of the first
places in the ranking of region’s leading exporters. Thus firms involved in such export
activities are more profitable compared to non-exporting firms.
It also appears that management competence index is significant (sig. at the 1% level) in all
three regressions and has the correct sign. More specifically it is shown that professionals who
are managed by a team which carries all the attributes we specified influences positively Greek
firms’ financial performance. It should be noted that management competence is very
important for Greek firms since the management team decides for the location of the firm, for
its size and its net investments.
Concluding Remarks
In our study we examined the factors affecting financial performance of Greek industrial firms,
using a sample of 102 listed firms in the Athens Stock Exchange over the period 1997-2004.
Financial performance of firms was measured with the use of three indicators; return on assets,
return on equity and return on sales. An econometric approach allows the data to determine the
functional relationship and the impact of leverage, size, age, location, export activity, net
investment and management effectiveness on economic performance, while taking into
account the heterogeneity among firms. Summarizing the results, it is found that debt leverage,
export activity, location, size and the index for management competence are significantly
correlated, as expected, with the economic performance of firms. Our results indicate that
profitable firms in Greece are large, young, exporting firms with a competitive management
team, which have an optimal debt-equity ratio and use their liquidity to finance their
investments. Finally, our approach can be used as a useful tool to understand practical
problems that arise when managers consider strategies to improve firm performance.
Endnotes
1
ICAP Hellas is a Greek private research company.
2
We have chosen firms which are listed in the Athens Stock Exchange because these firms are large
firms and they have more accurate data.
3
As it was discussed before, the suggested variables are very common and have been used by many other
researchers. See among others Hart and Ahuja (1996); Konar and Cohen (1997); Agiomirgiannakis et al.
(2006).
4
Panel EGLS (Cross-section random effects)
5
Agiomirgiannakis et al. (2006) also found a negative effect, verifying the assumption that capital
intensive Greek firms do not operate on an efficient scale
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197
Market Volatility & Proactive Risk

Management Practices for Mutual Fund
NidhiWalia1 and Ravi Kiran2
1
Department of Management Studies, Punjabi University Regional Campus,
India
2 School of Management & social Sciences, Thapar University, India
Abstract
Purpose - Financial markets are luring more investors by offering them promising
solutions, but sometimes the non-professional investors are trapped in this
phenomenon without the pre hand knowledge about presence of acute risk. The main
objective behind presenting this paper is to verify the random behavior of stock price
movements and then portray systematic approaches of proactive risk management
aspresence of risk in stock market trading is a normal feature.
Design/methodology/approach - As this paper suggest systematic strategies which
even a common investor from non-finance background can apply, thus, for easy
understanding both qualitative and quantitative measures have been presented. Initial,
part of this paper discusses empirical results that verify the random behavior of stock
market and in the forthcoming section certain methodologies have been presented for
risk management.
Findings - Empirical research on stock prices behavior has supported Efficient Market
Hypothesis (EMH) and given a clue that no pattern in the stock market movement are
identifiable, so no accurate forecast of future market behavior can be anticipated. This
conclusion has fostered a need to identify exceptional strategies that mutual fund
Asset Management Companies (AMCs) may adopt to limit their decision in accepting
calculated risk.This paper presents systematic approaches of proactive risk
management strategies which mutual fund managers may adopt for defining their
boundaries of assuming calculated risk. A proposal of Market volatility Risk Analysis
(MvRA) will also enable AMCs to use their professional skills in quantifying the risk
that will signal the need of portfolio diversification.
Originality/value - Presence of rationality in human behavior always allows
accepting minimum risk whereby Random Walk Hypothesis (RWH) suggests that
markets have random movements. Thus, in an attempt to look systematic approaches
that can guide investors to assume calculated risk this paper provides detailed
methodical strategies which are generic in nature.
Keywords: Asset management Companies (AMCs), Efficient Market Hypothesis
(EMH), Market volatility Risk Analysis (MvRA), Value at Risk (VaR), Portfolio
Return, Diversification
Introduction
Global financial markets have been bestowing additional complexities with
deregulation of legal constraints that expect mutual fund AMCs to be updated
with anticipated changes and realign themselves with the new market
conditions. Growth of alternative investment avenues is luring more investors
who look for the organized professionals with whom their savings can be
entrusted. Ultimate objective of mutual fund AMCs is to balance between risk GBMR
and return. AMCs job of portfolio management deals with untapped future Vol. 2, No. 2 & 3, 2010
opportunities through stock market mechanism that require very high degree of pp. 198-207
precision in identifying the scope to predict market movements.
198
Nanda et al. (2000) provide that open end fund investors receive not only valuation expertise but
also diversified equity position that limits risk. The key issues of risk management require fund
managers to define the boundaries of their operational activities. This study provides a deep
insight into aligning the investor’s risk tolerance and AMCs risk exposure. AMCs decision on
stock selection should be consistent with their disclosure practices and vision with which fund
was created.
Study by Goetzmann (1997) found about 50% of growth funds were misclassified whereas Kim
et al. (2000) provided that on an average only 46% of mutual fund performs as per stated
objectives.. Consequence of this misclassification results in creating a huge gap between
investor’s expectations and AMCs perception.
Fund managers face acute dilemma of estimating the direction of market moves to meet the
targeted return. Further the empirical evidence on understanding stock market behavior has been
quite controversial as Fama (1970) argued that in frictionless market, with random information
flow prices reflect all available information whereby DeBondt (1985) concluded that price
movements are driven by overreaction of investors and accordingly investors forecast of prices is
adaptive rather than rational. Thus, fund managers have to be very cautious in expressing their
views on market movement and finally selecting stock based on their estimations. Recent crisis
that embraced the global financial markets has once again touched a genetic issue of risk
estimation for various investment avenues. Most of unsatisfied investors have argued on the
failure of mutual fund AMCs and questioned the expected role of these managers which was
most desirable when financial markets were facing acute bearish trend. Poor performance of
fund managers in recent crisis has gained highly negative opinions for their so called well
diversified portfolio.
Empirical Test on Efficient Market Hypothesis (EMH)

Concept of Efficient market Hypothesis (EMH) always disturb the stock market forecasters and
contradicts the opinion of researchers who consider that stock market has got any pockets for
predictability which can be used to get above average return. The Efficient Market Hypothesis
(EMH) evolved from Samuelson (1965) and became more functional with study conducted by
Fama (1970) who applied this idea to financial studies of estimating securities prices, which
generated a functional insight into price discovery practice. Critics of the EMH oppose the view
of researchers about short term predictability in stock market. Roberts (1959) argued that if the
stock market behaved like a mechanically imperfect roulette wheel, people would notice the
imperfections and, by acting on them, remove them.
Empirical analysis of 12 fund schemes taken for four mutual funds with their respective Net
Asset Values (NAVs) for past 36 months over a period of January 2007 to December 2009 and
their relationship with Sensex has revealed the fact that stock market has random movement.
Results of this study has also shown that there exist a high degree of correlation between equity
based funds and Sensex. Results provided by Run test (Table I) validate that high degree of
randomness exist among almost all the mutual fund schemes except Reliance Income-Growth
fund (R= 2) and SBI Balanced- Growth fund (R=3). For rest of the fund scheme R=6 or R=4 has
been validated by run test for randomness which is significant at 1% level. Z score< 1.96 of the
entire fund scheme indicates that high degree of randomness prevails in the movement of NAVs
and Sensex during 36 months study period. Empirical analysis presented here has supported the
EMH and given a clue that no pattern in the stock market movement are identifiable, so no
accurate forecast of future market behavior can be anticipated. This conclusion has fostered a
need to identify exceptional strategies that AMCs may adopt to limit their decision in accepting
calculated risk. In the forthcoming sections, few methodologies have been suggested which fund
managers can adopt along with their professional skills and updated market information to rule
the market.
199
200
Forecasting Risk and Investor’s Sentiments

Severity of financial market crash during 2007 and 2008 has raised an important question for
financial intermediaries whereby they need to understand investor’s sentiments and design new
measures that can limit their action towards accepting risk. Huge literature on estimating risk for
market volatility have endeavored these estimations using different time series models (Akgiray,
1989), (West and Cho, 1995), (Taylor, 1999). However, broad conclusion of these studies has
suggested GARCH model for forecasting volatility. Practical application of majority of methods
has been questioned for their recent failure to anticipate a major crisis that recently hit global
markets. Participating investors in stock market are more disturbed when they rely on
professional skills to manage their funds carefully and expected returns do not match with
realized returns. Although different literature available on risk define it variedly but in common
the word risk refers to situations in which a decision is made whose consequences depend on the
outcomes of future events having known probabilities (Lopes,1987). Extreme risk posed by
market turmoil of 2008 has once again challenged the forecasting abilities of fund managers and
realized a need to move beyond existing measurement methodologies that believe in
approximations or note down the after effects of havoc.
Proactive Risk Management: Suggested Practices

Expected role of mutual fund AMCs is to closely watch the market movements and
understanding the investor’s sentiment before constructing a well- diversified portfolio. Ultimate
aim of constructing diversified portfolio is to make a balance between investor’s expected return
and market related return (Rm). Elmiger and Kim (2003) elucidate risk as .the trade-off that every
investor has to make between the higher rewards that potentially come with the opportunity and
the higher risk that has to be borne as a consequence of the danger. Thus, risk management being
the most significant pre-requisite of investment decision should not be limited to after the fact
reporting but require the fund managers to be highly proactive in complete investment
management process. Here, few systematic approaches have been presented that can ensure
better risk management on the part of mutual fund managers.
Systematic Diversification
Diversification is the most accepted practice that portfolio managers use to reduce portfolio risk.
Markowitz (1952) pioneered Modern Portfolio Theory (MPT) where he emphasized on
identifying the relationship between market performance of a portfolio and number of stock held.
Further, study by Evans and Archer (1968) examined how the portfolio risk for randomly
selected funds can be reduced as a function of number of securities in the portfolio. Fisher and
Lorie (1970) evaluated the return distributions for the year between 1926-1965 and concluded
that holding an eight stock portfolio can reduce the diversifiable risk by approximately 80% than
holding a single stock. Similarly study by De Wit (1998) suggested that diversification can
provide benefit of risk reduction even to portfolios already containing large number of securities.
Related studies on international diversification have also revealed that investors get benefit by
investing some part of their portfolio in foreign equities. (Grubel, 1968) (Levy, 1970) (Lessard,
1973) (Cavaglia et al, 2000). However, Jacquillat (1978) provided that share price behavior of
MNCs is indistinguishable from that of share price of purely domestic companies. Although
huge literature in the area of reducing portfolio risk suggests diversification but the question of
concern is optimal number of securities that should be added to the portfolio in order to diversify
risk. Excess diversification may not only result in increasing the fund management cost
(including transaction cost for switching) but will also misalign the investor’s objectives and
fund manager’s working philosophy. Many researchers endeavored to identify the optimal
number of securities that should be included in the securities so that overall risk could be
reduced (Shawky, 2005; Statman, 1987).
201
Mutual funds offer a wide variety of choice even to small investors along with professional
management. Edelen (1999) concluded that open end mutual funds investors receive the benefit
of fund manager’s specialized skills through diversification that eventually reduces risk. Further,
study by Moultrup (1998) provided that number of funds to be included in a hypothetical
portfolio depends on risk profile of a typical subscriber and on the covariance between different
sectors and geographical areas.The number of funds must be defined considering the pay-off
between risk diversification and trading costs reason being more number of securities
determinate high performance stability but it also encourage increased transaction costs that
ultimately result in negligible net gains (Statman, 2004). A simplified approach on decision of
diversification demands comparing additional costs along with expected return that may accrue
by including more number of securities in the portfolio. Diversification can contribute only if the
marginal return provided by the added securities is more than marginal cost that accrue due to
adding more number of securities in the portfolio. Return on mutual fund portfolio (Rp) at time
(t) is proportionate weighted combination of various assets in the portfolio that can be expressed
as:
E (Rp, t) = ∑ iE(Ri,t) (Eq 1)
Expected portfolio Return is a sum total of risk free return () and weighted market related
returns (Rm) that can be expressed as:
E(R p, t) = ∑
, ∑ , } (Eq.2)
Additional marginal return that can be obtained from the portfolio by adding more number of
securities in the portfolio can be expressed as
, δ ∑
, ∑ , }/δp (Eq. 3)
Mutual fund portfolio construction is highly professional activity which we cannot separate from
charges involved in managing these fund schemes. Overall expected costs E(C p,) associated with
mutual fund portfolio management at time (t) include entry /exit load (El / E’l), management fee
(Mf) and other cost (uncertainty) i.e.
E(C p, t) = El+ E’l+Mf +ε (Eq.4)
Addition in the portfolio management cost as a result of adding additional securities in the
portfolio will be referred as expected marginal cost of portfolio E(MCp) where (4) will be
expressed as
, = δ E(C p, t)/ δp (Eq.5)
Issue of deciding about diversification and adding new securities in the portfolio can be resolved
by comparing Equation (3) with (5) that will help portfolio managers in taking proactive decision
to mitigate risk which is possible because of addition in the number of securities held in the
portfolio. Comparing expected marginal return from the portfolio and expected marginal cost, a
fund manager may decide where he need to stop for adding more number of securities in the
portfolio. A simple decision rule to guide fund managers if they should go on adding more
number of securities in the portfolio is that , EMC!," # $ 0. Until the additional
benefit gained by diversifying the portfolio with more number of securities are more than
additional cost that will be incurred to include these securities, more number of securities can be
added.
202
Market volatility Risk Analysis (MvRA)

AMCs most crucial decision to invest in a particular security is intended towards alignment of
investor’s investment objective and constraints in front of market intermediaries. However, no
unique strategy has been identified till yet that can be adopted to consistently beat the stock
market. But the challenge in front of mutual fund managers is to make it a win -win game so that
the twin objective of both participants can be satisfied. Andrew Lo (1999) introduced this fact
that any complete story of risk management must cover three P’s to cover sensible risk profile of
individual investors and accordingly proposed a systematic approach to rational decision making
in uncertain world by focusing on Probability, Price and preferences. Here, we introduce a new
philosophy of understanding the market tactics that will demand highly professional skills and
proficiency on the part of mutual fund AMCs.
Market volatility risk = [P v * S v * P c]
Where, P v is probability of volatile market [0≤ P v ≤1]

S v is severity of volatility [1≤ S v ≤5]
P c is possibility to control the effect [1≤ P c≤5]
Score obtained by using this particular methodology will give an indication to mutual fund
organizations whether to continue with the same portfolio or innovate some new fund scheme by
diversifying their funds towards securities in the safe mode. Mutual fund managers are expected
to be highly professional and informed with updated market movements as they have to use their
specialized skills in managing the trusted funds. Market Volatility Risk Analysis (MvRA)
provides an insight into considering the probabilities in estimating the direction of future course
of action. In this methodology we suggest allocating weights to the different aspects of
investment management decision whereby AMCs based on their skills and available information
track the various securities in which funds are invested and realize the need to review existing
portfolio with induced innovation. Three basic aspects that have been covered in this
methodology are estimating the probable volatility (Pv) in a security based on forecasting ability
of fund managers and anticipation of some announcement by the concerned organization.
Allotted weights to probability have been taken in the same way as defined by the range of
probability whereby 0 will indicate complete absence of volatility and 1 will indicate completely
volatile market. However, there are rare chances of (Pv= 0) as most of the time stock prices do
not show any consistency. Further, the next aspect in this methodology will consider an
estimation of severity of this volatility (S v) with allotted weights ( ≥ 1,≤5) whereby lowest range
(1) indicate the least effect of volatility and highest score (5) will indicate a heavy impact due to
volatility of security. Finally, the last parameter of this methodology demands introspection on
the part of fund managers whereby based on the earlier discussed two parameters they will
realize the possibility to control (Pc) or manage this volatility in the security. As if fund
managers realize their ability to control (Pc=1) even a heavy volatile security will be tackled
whereby a sudden severe shift in security prices that are not anticipated (Pc=5) will put a deep
impact on portfolio returns and will enhance the severity of volatility.
As a decision tool MvRA guides the fund manager to take instant action whenever the
boundaries pertaining to their action are about to cross the boundaries defined by mutual fund
investors. Based on the different combination of weighted scores (Table 2) of three parameters
we identify that quantitative interpretation will be between 0 and 25 [0≤MvR≤25]. Different
interpretation for all the scores have been clubbed under three categories which shows that in the
first category [0≤MvR≤5] lowest degree of risk is involved either because of no possibility of
downtrend in the security prices or because of high possibility of anticipating the change in
security prices that will be controlled. These types of securities are suitable particularly for
conservative/risk averse investors who don’t wish to assume high degree of risk. Future course
203
of action suggested in situation where securities MvR≤5 are to continue with the existing
securities only. Category II [6≤MvR≤15] indicate that although possibility of extreme fall in
prices cannot be witnessed but a careful diversification in the safe or risk free securities is
required depending upon the investors risk appetite. Last category [16≤MvR≤15] suggests that
uncertainty prevails in the stock behavior and any unexpected fall in prices can be expected. This
particular security should not be carried on even for aggressive investors and immediate
diversification is required for such kind of securities in the portfolio by replacing them with
completely risk free securities.
Table 2: Decision rules for MvRA

Score Degree Description Investors Future Action
Continue with the
Safe security with
Conservative/Risk existing portfolio
0≤MvR≤5 Low negligible possibility
Averse (Balancer) with track over the
to loose
market volatility
Aggressive
investors may shift
Reasonable indication Aggressive to debt and
6≤MvR≤15 Moderate of bearish trend in investors with high conservative
stock prices degree of tolerance investors to
completely risk
free securities
Possibility to witness Immediate shift to
16≤MvR≤25 High extreme situation None low risk profile
towards lower edge security
Risk Estimation through Value at Risk (VaR)

Uncertainty in investment decision prevails when Mutual fund AMCs skills and knowledge fail
to have proper access of decision relevant information due to complexity of financial markets.
The best practice to assume calculated risk requires understanding the complexities of financial
markets not only with risk estimation but also involve continuous monitoring. Doubt concerning
the outcome in a given situation before the event occurs implies that there is something about the
present situation that will be different in the future. Tolerance Zone (figure I) depicts the
minimum and maximum specifications as described by investor for his willingness to assume
risk represented by Upper Specification Limit and Lower Specification Limit. Investors based on
his knowledge about the market volatility, accepts the minimum risk which he will have to bear
on his investment. AMCs design these specification limits and maximum level of risk is assumed
depending upon his risk appetite and his willingness to maximize his Return on Investment
(ROI). (Walia N, 2009). However, Lack of management’s commitment for services performance
may deviate AMCs to come up with different performance standards. This deviation if less than
the expected specification as proposed by investor will result in indifferent attitude of investors
but in case the controllable limit as performed and delivered exceeds the upper specification
limit of investors, it will certainly result in great dissatisfaction among the investors as AMCs
will be held liable for the loss that will accrue to investors and that will lead investors think over
incompetent professional management of mutual funds.
Analysis of mutual fund schemes under study have revealed the fact that adopting Value at Risk
(VaR) may be used by mutual fund AMCs to estimate and compare their performance with
defined risk that investors are willing to assume. Whereby risk tolerance zone define and direct
204
Global Business
siness and Management Research: An International Journal
that in any case fund performance

erformance in terms of assuming risk should not go beyond that specified
limit. VaR will indicate the maximum possibility of risk in extreme worst situation.
Figure 1: Risk Tolerance Zone
Calculated VaR (Table 3)) for equity based schemes of four mutual funds show that most risky
growth oriented mutual fund is not expected to decrease beyond 23%-35%
23% 35% (99% confidence )
and almost 13%-20% 20% (95% confidence). Further comparison of four mutual fund under study
reveals that almost VaR of all the funds is in the same range except Reliance equity-Growth
equity fund
with extreme risk of -35.93%
35.93% (99% confidence) and -24.18%
24.18% (95% confidence). Analysis of
VaR of Balanced schemes reveal the fact that estimated risk lies in the range of 22-24%
22 (99%
confidence) and 14-15%
15% (95% confidence) except SBI balanced –Growth
Growth scheme assuming very
peculiar investment style with VaR -1.62% (99% confidence) and -0.56% 0.56% (95% confidence).
Finally the estimated VaR of income funds reveal the least extreme of losing investment with
range of 0.02%- 0.05% (99% confidence) and around 0.01% (95% confidence). VaR supports
AMCs investment decision process whereby they will be able to define the boundaries of
portfolio for different
ifferent category of investors.
Table 3: Value at Risk (VaR)

VaR (Historic
toric Simulation)
Mutual Fund Schemes 99% Confidence 95%Confidence
ICICI Aggressive Growth -23.44% -13.41%
SBI Equity Growth -35.93% -24.18%
reliance Equity Growth -25.54% -20.53%
UTI Equity Growth -27.52% -16.32%
ICICI Balanced Growth -22.53% -14.91%
SBI Balanced Growth -1.62% -0.56%
Reliance RSF Balanced Growth -21.04% -15.15%
UTI Balanced Growth -23.69% -15.56%
ICICI Income Growth -4.34% -1.35%
SBI Income Growth -0.02% -0.013%
Reliance RSF Income Growth 0.002% -0.001%
UTI Bond fund growth -0.046% -0.01%
205
Conclusion
While it has already been proved that stock market movements have random walk, the broad
focus of mutual fund managers should be on proactive risk management practices that can guide
them to mitigate risk if complete elimination of risk is not possible. Mutual fund AMCs need to
realize that success of their sophisticated skills lie in the fact that their proficient market
knowledge should yield additional return which a common investor cannot earn with his
unprofessional knowledge. Investors entrust their savings to them and AMCs have responsibility
to make it a win-win game. This paper has proposed some proactive risk management strategies,
which are generic in nature and any mutual fund AMC may use them to get a deep insight on
calculated risk.
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207
Framework for Implementing Flexible

Automation in Indian Industries
Durgesh Sharma1 and Mohammad Ali2
1
Mechanical Engineering Department, IMS Engineering College, India
2
Mechanical Engineering Department, Aligarh Muslim University, India
Abstract
Purpose - This paper attempts to build a unique framework for assessing and
improving the shop-floor capabilities of SMEs in India.
Design/methodology/approach - Extensive literature has been reviewed for the
source of Flexibility, Automation, Integration, FMS, AMT, manufacturing strategies
and various maturity grids. The essential capabilities needed at the shop-floor for the
SMEs are identified and Crosby’s maturity grid is applied to arrive at a four-level
maturity model.
Findings - The findings indicate that the adoption of advanced manufacturing
technologies especially in the Indian SMEs is inadequate to meet the global
requirements. This is a serious limitation and is hindering the growth of the
manufacturing sector in the country. Though a lot of studies have been carried out for
improving the competitiveness of the large manufacturing organization, very little
research effort has been devoted for SMEs in India. The existing frameworks and
models are not sufficient in the context of SMEs the unique challenges and problems
faced by them.
Practical implications - The paper will be helpful to the SME managers to assess the
capabilities of their shop-floor and take an incremental approach to go to the next
level. The framework will guide them to identify the right focus areas for investment
and improvement in the overall quality of their products and the performance of their
processes.
Originality/value - A framework for assessing and improving the shop-floor
capabilities of SMEs by incrementally introducing the required manufacturing
infrastructure in the most cost effective manner is presented for the first time in
literature.
Keywords: Manufacturing Capability, Capability Maturity, Flexible Manufacturing
System (FMS), Automation, Flexibility, Production System
Paper type: Conceptual Paper
Introduction
Over the last twenty years, powerful developments globally as well as within
the country had a considerable impact on Indian manufacturing sector. First is
the substantial reduction in trade barriers across the globe and in India,
particularly in respect of manufactured goods. Second is the technology
revolution that is taking place impacting on productivity and lowering of costs
and the third is the emergence of low cost manufacturing hubs - China and
other South East Asian countries. All these meant that the Indian economy and
the manufacturing sector in particular, have to necessarily adjust to these
challenges. The overall contribution of manufacturing to the GDP is
approximately 17% which is much below its potential (National Manufacturing
Competency Council, 2006). The primary reason for inadequate growth of this GBMR
sector in India is insufficient capability and capacity needed for global Vol. 2, No. 2 & 3, 2010
pp. 208-223
competitiveness.
208
The Small and Medium Enterprises (SMEs) form the backbone of manufacturing sector. In
India, the SME Sector contributes to 40% of total manufacturing output.
It is estimated that there are over 500,000 SMEs in manufacturing (MSME, 2009). While large
organizations have made notable investments in setting up robust manufacturing technology
infrastructure, the deployment rate of technology is considerably low among most SMEs. Given
that SME’s own a significant portion of India’s manufacturing output, they need to be
strengthened for competitiveness and sustainable growth. A survey by Agarwal(Agarwal, 2005)
indicates that internationalization of competent SMEs is more of a necessity and technology
capacity building is a prerequisite for their growth, competitiveness and sustainable
development.
To achieve global competitiveness, National Manufacturing Competitiveness Council (NMCC)
has identified following improvement areas in manufacturing capabilities of Indian SMEs
(National Manufacturing Competency Council, 2006).
1. Technology infrastructure
2. Production management
3. Design / Innovation expertise
4. Quality Management
Numerous frameworks have been created worldwide to address the problem of building
competitiveness in the manufacturing industry. However, most of them cater to large enterprises
who can afford big investments. The problem of building capability and capacity in Indian SMEs
has its unique challenges and needs.
The proliferation of Advanced Manufacturing Technologies (AMT) in Indian SMEs is very less
as compared to the large manufacturing enterprises. Dangayach and Deshmukh (G.S.
Dangayach, S.G. Deshmukh) have done an extensive survey on four competitive parameters ie
quality, delivery, flexibility and cost. They concluded that Indian companies are giving the
highest priority to quality and the least priority to flexibility, in contrast to USA and Japan where
highest priority is given to the flexibility dimension. Flexibility is the competitive priority,
which is realized by adoption of AMT. However, many core strategic and operational questions
in the form of flexibility an organization must acquire in order for it to remain competitive in the
market, and the type of technological and organizational systems needed to achieve these
flexibilities still remain unanswered.
A study by Jain (Jain, 2008) finds the top six AMTs currently adopted in India are plant
certification, computer aided design, local area network, quality circle, MRP/ERP, and wide area
network. Clearly, four of these top six are directly in the IT area (CAD, LAN, WAN) or directly
dependent on it (MRP/ERP systems), indicating a strong IT adoption rate as well as its
underlying supportive role in the overall AMT adoption in India. However, tests in their survey
also reinforce the hypothesis that larger companies are more likely to adopt AMT than the
smaller ones and also that the adoption of advanced manufacturing technologies at the shop-floor
is very low and it in turn directly affects the competitiveness of the manufacturing enterprise.
Literature Survey
Manufacturing strategies contains various issues in the literature such as order winners, order
qualifiers, manufacturing capabilities, speed of new product development, and development of
infrastructural issues, etc (Skinner, 1969) (Ward P. a., 2000). However, there is general
agreement in literature that the content of manufacturing strategy can be divided into two areas
(Weir, 2000). The first is the performance objectives; cost, quality, flexibility, delivery, and the
second, strategic decision areas; process technology, capacity, facilities and vertical integration,
quality systems, production and inventory control systems, workforce management,
209
manufacturing organization(Miller J. a., 1994); (Mills, 1995); (Kathuria, R. and Partovi, F. Y.,
2000); (Brown, 1998)). Performance objectives within the manufacturing strategy content
embody the choice of the most beneficial set of manufacturing capabilities for a company. These
capabilities indicate the degree of strategic intent which provide a basis for testing the whether
the business strategy and manufacturing strategy choices are consistent with this intent (Ward P.
B., 1996).
Several researchers, by supporting this idea, claim that there must be a proper fit or congruence
between the manufacturing strategies and business strategies for achieving superior performance
for the firms ((Miller J. a., 1994),(Mills, 1995), (Papke-Shields, 2001)). However, firms which
are practicing new manufacturing practices can accomplish several manufacturing capabilities,
such as lower cost, higher quality, faster product introduction and greater flexibility all at the
same time (Hayes, R.H., Pisano, G.P., 1994). For this reason, some researchers defined this
capabilities as a manufacturing strategy goals (Narasimhan, 1998), competitive priorities (Hayes,
R.H., Pisano, G.P., 1994), (Skinner, 1969), or competitive manufacturing capabilities Ward
(Ward P. a., 2000) included additional indicators such as “lead times” (Skinner, 1969), “time and
customer service”(Kathuria, R. and Partovi, F. Y., 2000), “innovation and value” (Vickery,
1997); “after-sales service aspects” (Spring, 2000); (Dangayach, G.S., Deshmukh, S.G., 2003),
“technology and profit”(Krause, 2000), “broad distribution and broad line” (Miller J. R., 3,
1994).
Building Manufacturing Capabilities

Computer Integrated Manufacturing (CIM) and flexible automation are being viewed as a
platform that for the competitive challenges that modern manufacturing was encountering
through rising quality standards, shortened product life cycles, and greater demand for product
variety.
Flexibility, Integration and Automation may be considered as the basic building blocks of a
competitive manufacturing infrastructure.
Flexibility
Flexibility may be viewed as an ability to identify the need for a change and then adapt to the
change in a manner that benefits the manufacturing system performance. The importance of
flexibility has been discussed extensively in the literature (Cox, 1989); (DeMeyer, A., Nakane,
J., Miller, J.G, Ferdows, K., 1989); (Frazelle, 1986); (Gerwin D. , 1983); (Slack, 1987);
(Tombak, 1988). According to Garett (Garett, 1986) and watts (Watts, 1993), among others,
manufacturing flexibility is a necessity, coping with disturbances in both internal and external
organizational environments. The disturbances in internal environments may manifest
themselves in the form of equipment breakdown, variable task times, queuing delays, and rejects
and rework (Buzacott, J.A., Mandelbaum, M., 1985). The external disturbances, on the other
hand, can be attributed to several factors, such as the uncertainty that results from changes or
fluctuations in level of demand, product prices, product mix, and action of competitors.
Despite this recognition, however, Lim (Lim, 1987) suggests that manufacturing flexibility does
not appear to receive adequate attention at the time of decision making with respect to
investment in manufacturing technology, nor does it receive adequate that recognition in the
implementation phase (Jaikumar, 1986)
Definitions and classifications of flexibility
Over the years, flexibility has been defined in various ways. An early definition by
(Mandelbaum, 1990) defines it as “the ability to respond effectively to changing circumstance”,
and characterized flexibility into two different forms: action flexibility and state flexibility.
Action flexibility is defined as “the capacity for taking new action to meet new circumstances”,
210
whereas state flexibility is defined as “the capacity to continue functioning effectively despite
changes in the environment”.
Buzacott (Buzacott J. , 1982) defines flexibility as the ability of the system to process a wide
variety of parts or assemblies, without intervention from the outside to change the system. This is
similar to the concept of state flexibility originally proposed by Mandelbaum. Buzacott further
classified flexibility into two classes – job flexibility and machine flexibility. Job flexibility is
the ability of the system to cope with changes in the jobs to be processed by the system, whereas
machine flexibility is the ability of the system to cope with changes and disturbances at the
machine and workstations. Job flexibility can be achieved either at the machine or at the system
level. At the machine level, job flexibility is achieved by increasing the capability of the machine
by providing for numerical control, tool magazine and automatic tool changing, and the ability to
go from three-axis to five-axis capability. At the system level, job flexibility is achieved by
distributing the required capability among a variety of machines or workstations, each of which
would then be specialized to certain processing tasks.
In defining manufacturing flexibility one has to consider the level at which it is being specified
(Gerwin D. , 1987). The level may be as low as an individual machine or as high as the entire
factory system. Such consideration is necessary, since at each level, the concept of, as well as the
means to reach, flexibility may be different.
In some relatively comprehensive reviews of the literature on flexibility, (Sethi, 1990) and
Ramesesh and Jayakumar (Ramesesh, 1991) have defined numerous types of flexibility in terms
of its purposes – operational tactical, as well as strategic, the means to obtain it – and have
suggested measurements and valuation. A summary of these flexibility classifications is shown
below:
1. Machine flexibility refers to the various types of operations that a machine can perform
without requiring a prohibitive effort in switching from one operation to another.
2. Material handling flexibility is the ability of a material handling system to move
different part types efficiently for proper positioning and processing through the
manufacturing facility it serves.
3. Operations flexibility of a part refers to its ability to be produced in different ways with
alternative process plans by either an interchange or a substitution of certain operations
by others.
4. Process flexibility of a manufacturing system relates to the set of part types that the
system can produce without major set-ups (another preferred term for it is mix
flexibility).
5. Product flexibility is the ease with which new parts can be added or substituted for the
existing parts. In other words, product flexibility is the ease with which the part mix
currently being produced can be changed inexpensively and rapidly.
6. Routing flexibility of a manufacturing system is its ability to produce a part by
alternative routes through the system.
7. Volume flexibility of a manufacturing system is its ability to be operated profitably at
different product overall output levels.
8. Expansion flexibility of a manufacturing system is the ease with which its capacity and
capability can be increased when needed.
9. Program flexibility is the ability of the system to run virtually untended for a long
enough period.
10. Production flexibility is the universe of part types that the manufacturing system can
produce without adding major capital equipment.
11. Material flexibility is the capability to make parts with alternative composition and
dimensions of raw materials.
211
12. Labor flexibility is the ability to change number of workers, tasks performed by
workers, and other worker responsibilities.
13. Market flexibility is the ease with which the manufacturing system can adapt to a
changing market environment.
These various flexibilities can be further classified as being strategic, tactical or operational in
nature (Das S. , 1991), (Gerwin D. K., 1992), (Gustavsson, 1984) (Jaikumar, 1986) (Upton,
1994). Strategic or long-term flexibility (Hyun, 1992) is defined as how well a firm addresses
and adapts its strategic decisions to unexpected changes in competitive environment, such as
drastic changes in product demand, customer tastes, number of competitors and technologies
employed. Tactical or mid-term flexibility is concerned with specific performance features of
manufacturing such as machine utilization, work-in-process inventory, quality, and efficiency.
Operational or short-term flexibility is concerned with unpredictable and sporadic problems such
as machine breakdowns, minor design changes, unreliable raw material supplies, and demand
variations encountered during day-to-day manufacturing operations.
The flexibility types discussed above cover both the actual flexibility, i.e. capabilities to
overcome concrete given changes, and the potential flexibility, i.e. the capability to cope with an
undefined universe of change (Barad, M., Sipper, D., 1988).
Integration
Manufacturing systems integration refers to both the physical connections and information flows
among the manufacturing system components. We can define the integration of manufacturing
enterprises as:
1. Internal Integration
2. External Integration
Internal Integration: This may include co-operation of application systems, consistency of the
information model and continuity of communication through all management and control levels
(Lapalus, 1995). Integration includes physical material flow integration and information flow
integration (Frohlich, M.T., Westbrook, R., 2001) Information integration can improve business
process (Bhatt, 2000) and plays a critical role in a firm (Giachetti, 2004). In the manufacturing
function, information integration implement through utilizing network and other information
technologies (Chikan, 2001) (Dan, B., Li, L., Zhang, X., Guo, F. and Zhou, J., 2005) to share
product and process data (Deng, Y. M., Britton, G.A., Lam, Y.C., Tor, S.B., Ma, Y.S., 2002)
(Gao, J.X., Bowland, N.W. and Sharma, R., 2002) (Cho, J.H., Chor, M.W., Kim, M.K., 2002)
and coordinating process planning and scheduling (Zhang, 2003). Process integration mainly
includes integration of design, manufacturing and inspection systems (Cho, M.W., Seo, T.I.,
2002) and integration of production and logistics functions (Chikan, 2001).
External Integration: Abdul-Nour et al (Georges Abdul-Nour, 1999) discussed the idea of

networking relationship between the large enterprises and their SME suppliers. The advantage of
this politic is that SME, especially those who have many customers, are able to protect their
break-even point and ensure economical and manpower stability. At the same time, this makes
them less vulnerable if one of their large clients loses its market. Furthermore, SME dependency
on each client must be lowered to a level that does not endanger his break-even point with the
loss of a client. Also, SME must urge to develop new market with other network or client. For
SME to succeed in keeping their place in these networks, they have to be flexible, agile and to
develop a long-term agreement with their principal client based on intelligent relationship,
innovation and research and development capability.
212
Automation
Manufacturing systems automation can be defined as substituting labor with automatic facilities
and equipment so that the system can operate with fewer labor hours per unit produced
(Vonderembse, 1997). This usually involves the adoption and implementation of various
advanced manufacturing technologies (AMTs), such as robotics, CNC machines, computer-aided
design/manufacturing (CAD/CAM), and FMS. Thus, in manufacturing management literature,
the level of automation is often represented by the level of AMT usage.
Manufacturing systems automation did offer some localized benefits in terms of quality, cost and
productivity. The traditionally fixed islands of automation had their weaknesses and their lack of
process flexibility became major cause of increasing cost and decreasing productivity. Many
firms now advocates the concepts of “open automation” a standard-based system in which
components can be easily integrated and share data with other systems (Kinsella, 1998). Several
studies have addressed the importance of manufacturing infrastructure element integration on the
benefits attained from use of flexible manufacturing technology (Maffei, 1993)(Lei, 1996). A
series of case studies by (Vonderembse, 1997) indicated that firms operating in the post-
industrial environment should focus first on integration across the value chain, and then
automate those activities that add value to customers. Parthasarthy and Yin (Parthasarthy, 1996)
also empirically verified that organization-wide integration significantly moderates CIM’s
impact on competitive performance.
Liao et al (Kun Liao, 2008) show that if a manufacturer is facing a more predictable market, i.e.
its customer requirements seldom change, product life cycle is long, and technological changes
in the industry are slow, then simple automation of part or all of the manufacturing system will
be enough to give the firm a significant performance improvement. When the firm can always
predict customer needs and does not have to worry about its products getting obsolete, fixed
automation of key processes of the system can surely improve productivity and quality.
However, when the market environment is highly unpredictable, which is often the case for most
manufacturers today; simple installation of automation equipments will not be sufficient. Instead,
manufacturing system integration becomes a more important factor if firms want to reap the full
benefits of automation. This finding is consistent with (Vonderembse, 1997) case study results
that under the chaotic post-industrial environment, firms generally perform better if they focus
first on integration and then on automation.
When firms have to frequently update their products and processes to meet constantly changing
customer needs, the advanced automatic machines may sometimes become useless if the material
and information flow were delayed in other parts of the system due to lack of system integration
and flexibility.
There is a direct correlation between the external environment and the levels of automation and
integration needed in a manufacturing system:
Under relatively more stable environment, manufacturing system automation has significant
positive impact on Manufacturing Performance (MP), while the impact of manufacturing system
integration is not significant. Under turbulent environment, manufacturing system integration has
significant positive impact on MP, while the impact of manufacturing system automation is not
significant. Under environments with high uncertainly, when the degree of system integration is
also high, manufacturing system automation will have significant positive impact on MP; when
the degree of system integration is low, manufacturing system automation will have no
significant impact on MP.
These results provide valuable implications for management efforts directed at improving
manufacturing competitiveness in today’s manufacturing environment.
213
Challenges in Implementation of FIA

India is at the initial stage of adopting flexible automation. To consolidate her position,
manufacturing industries will have to face great challenges like huge investments, technical
skills, sophisticated equipment, etc. Many inputs that go into automated machine tools such as
sensors, cables and connectors, NC code loaders, processors, flexible couplings, drive packages,
special bearings, etc. are still being imported at a high cost.
Rao and Deshmukh (K.V. Sambasiva Rao, 1994) observe that in India organizations are
interested in using computers for administrative purposes rather than the core production work.
Very few companies are using computers for design, planning and control functions.
In addition to this, there are some lessons learnt from the implementation of the flexible
automation worldwide which Indian SMEs can use to their advantage. Some implementations
did not deliver the expected results. Some commentators suggested that the problem lay in the
strategic misuse of the systems. For example, Hayes and Jaikumar (Hayes, R.H., Jaikumar, R.,
1988) suggested that managers using these new technologies in the same manner in which they
used their previous conventional technologies were destined for disappointment. They stressed
the need for a new mindset to experience the revolutionary benefits these new flexible systems
promised. Hayes and Clark (Hayes, R.H., Clark, K.B., 1986) observe that productivity can fall
for significant periods after the introduction of new production technologies, but enlightened
management and reorganization can prevent this. Jaikumar (Jaikumar R. , 1986) observed a
difference in the early usage of these technologies between certain Japanese and American
manufacturers. He noticed that the flexible systems in Japan were used more for their flexible
benefits than in the US. He also noticed that Japanese managers introduced more products every
year than their American counterparts. As a result, Japanese manufacturers also had fewer
problems financially justifying these flexible technologies than American manufacturers. Hill
suggests that a great deal of disappointment resulted from managers investing in flexible
equipment believing that the possession of new flexible technologies would result in a strategic
response to competitive pressures. One lesson appears to be that flexible automation is
appropriate when its capabilities (e.g. producing multiple part types in medium volumes) are
aligned with the company’s needs and defined manufacturing and technology strategies. Much
has been written about the economic justification of flexible technologies. There has been
evidence to suggest conventional justification techniques are inappropriate for flexible
automation and much activity has been directed at attempting to capture the more elusive
benefits of flexible technologies.
Manufacturing flexibility, integration and automation are a multidimensional concept that can be
aggregated in a hierarchical manner (Robert J. Vokurka, 2000). Increasing competition in the
marketplace leaves little room for a trial-and-error approach in decision making.
Development of Manufacturing Capability Maturity Model (MCMM) for SMEs

The concepts of capability maturity are increasingly being applied to many disciplines, both as a
means of assessment and as part of a framework for improvement. Maturity models have been
proposed for a range of activities including quality management, software development, supplier
relationships, R&D effectiveness, product development, innovation, product design, product
development collaboration and product reliability. Although ‘maturity’ can be defined in a
number of ways, it usually implies the adoption of ‘good practice’ within a framework which
encourages repeatable and predictable outcomes (Crosby, 1979; 1996).
The principal idea of the maturity grid is that it describes in a few phrases, the typical behavior
exhibited by a firm at a number of levels of ‘maturity’, for each of several aspects of the area
under study. This provides the opportunity to codify what might be regarded as good practice,
along with some intermediate or transitional stages.
214
One of the earliest maturity models is Crosby’s Quality Management Maturity Grid (QMMG)
which describes the typical behavior exhibited by a firm at five levels of ‘maturity’, for each of
six aspects of quality management (see Table 1). The QMMG had a strong evolutionary theme,
suggesting that companies were likely to evolve through five phases - Uncertainty, Awakening,
Enlightenment, Wisdom, and Certainty – in their ascent to quality management excellence.
It is difficult to make the maturity grid development process completely rigorous and it is
suggested that some compromise is necessary and appropriate in the interests of producing a
useful and usable tool.
Table 1: Crosby’s Quality Management Maturity Grid (QMMG)

Measurement Stage I: Stage II: Stage III: Stage IV: Stage V:
Categories Uncertainty Awakening Enlightenment Wisdom Certainty
Recognizing While going Participating.
No
that quality through quality Understand
comprehension
management improvement absolutes of Consider
of quality as a
may be of program learn quality quality
Management management
value but not more about management. management an
understanding tool. Tend to
willing to quality Recognize essential part of
and attitude blame quality
provide management; their personal company
department for
money or time becoming role in system.
“quality
to make it supportive and continuing
problems”
happen. helpful. emphasis.
Quality
Quality is A stronger manager is an
hidden in quality leader Quality officer of
manufacturing is appointed Department company; Quality
or engineering but main reports to top effective manager on
departments. emphasis is management, status board of
Quality
Inspection still on all appraisal is reporting and directors.
organization
probably not appraisal and incorporated preventative Prevention is
status
part of moving the and manager action. main concern.
organization. product. Still has role in Involved with Quality is a
Emphasis on part of management of consumer thought leader.
appraisal and manufacturing company. affairs and
sorting. or other. special
assignments.
Problems are
Problems are Corrective
Teams are set identified
fought as they action
up to attack early in their
occur; no communication Except in the
major development.
Problem resolution; established. most unusual
problems. All functions
handling inadequate Problems are cases, problems
Long-range are to
definition; lots faced and are prevented.
solutions are suggestion
of yelling and resolved in an
not solicited. and
accusations orderly way.
improvement.
Cost of Reported: Reported:
Reported: 3% Reported: 8% Reported: 2.5%
quality as % unknown 6.5%
Actual: 18% Actual: 12% Actual: 2.5%
of sales Actual: 20% Actual: 8%
215
Implementation
of the 14-step
No organized Trying Continuing Quality
program with
Quality activities. No obvious the 14-step improvement is
thorough
improvement understanding “motivational” program and a normal and
understanding
actions of such short-range starting Make continued
and
activities. efforts. Certain activity.
establishment
of each step.
“Through
management
“Is it
commitment “Defect
Summation of “We don’t absolutely “We know why
and quality prevention is
company know why we necessary to we do not have
improvement a routine part
quality have problems always have problems with
we are of our
posture with quality” problems with quality”
identifying and operation”
quality?”
resolving our
problems”
Although a number of different types of maturity model have been proposed, they share the
common property of defining a number of dimensions or process areas at several discrete stages
or levels of maturity, with a description of characteristic performance at various levels of
granularity.
Wadhwa and Rao (Wadhwa, 2002) proposed flexibility maturity model (FMM) which divides
flexibility maturity into six levels, each level representing a certain level of mastery over
flexibility.
Level 0: State of being aware of nature of flexibility and its relationship with the system
Level 1: State of being able to identify flexibility type already available and estimate their
potential impact
Level 2: State of being able to exploit available flexibility in a relative manner to sustain system
performance
Level 3: State of being able to plan and use available flexibility to sustain the system
performance
Level 4: State of being able to impact the flexibility requirements and its synchronization with
available and exploitable flexibility
Level 5: PFM drive enterprise flexibility
Taking Crosby’s grid as the basis, we built a Manufacturing Capability Maturity Model for
SMEs using the following methodology:
1. Literature survey of the technology capabilities of Indian manufacturing industry
including the SME’s
2. Identify the key shop-floor manufacturing capabilities which are essential for a small
manufacturing enterprise to be globally competitive
3. Prepare a manufacturing capability maturity grid
4. Identify the incremental changes needed in the enterprise to get to the next level
5. Customize the model for an industry sector/domain, if needed.
Manufacturing Capability Maturity Level Details

Manufacturing maturity levels consist of a predefined set of manufacturing capabilities. Based
on the literature on the adoption of advanced manufacturing technologies by the Indian SMEs,
216
Global Business
we have indentified the following capabilities

capabilities needed for the Indian SMEs to be globally
competitive (Figure 1):
1. Machine Tools
2. Material Handling
3. Design / Innovation
4. Quality Management
5. Production Management Processes
6. Human Resources
The maturity levels are measured by the achievement of the specific and generic components
that apply to each predefined set of manufacturing capabilities. The following sections describe
the characteristics of each maturity level in detail.
1 Shop-floor Capability Maturity Model

Figure 1:
Manufacturing Capability Maturity Level 1

At maturity level 1, the manufacturing processes are manual and ad-hoc.ad hoc. The organization
typically does not have the any state-of-the-art
state art manufacturing component to produce products
which meet requirements of the global
g market.
Maturity level 1 typically has low levels of Automation and Integration. It is characterized by the
following manufacturing infrastructure:
- Conventional machines – Lathes, drilling, milling
- Manual material handling
- Manual drafting and designing
desig
- Manual inspection methods for quality assurance using Vernier Calipers, Micrometers,
Gauges
- Manual production management
- Semi-skilled workforce
217
The overall quality of the products output by such organizations may not be predictable and
consistent. Such products often have a local market. The organizations at level 1 are far from
being globally competitive as the technological infrastructure and manufacturing components are
not capable of producing goods of international standards.

At maturity level 2, an organization has all the specific and generic components of the maturity
level 2 manufacturing capabilities. The manufacturing capabilities at level 2 help to ensure that
the quality of end products is consistent and retained.
The maturity level 2 is characterized by islands of automation and moderate flexibility and
integration. Typical manufacturing infrastructure consists of:
- CNC machines
- Semi-automated material handling using Conveyors, Fork-lifts etc.
- Computer-aided drafting and designing using 2D and 3D design tools
- Use of technology tools for Quality Control using digitals measurement tools and partial
interface with the machine tools
- Use of computer aided tools for production planning and scheduling using of CAPP,
Group Technology etc.
- A mix of semi-skilled and skilled workforce
Commitments can be established among relevant stakeholders and are revised as needed. The
work products and services satisfy their specified requirements, standards, and objectives. Figure
2 shows a typical manufacturing unit at maturity level 2.
Figure 2: Shop-floor at Maturity Level 2

At maturity level 3, an organization has achieved all the specific and generic components of the
manufacturing capabilities assigned to maturity levels 2 and 3.
The maturity level 3 is characterized following manufacturing facilities:
- DNC Machines
- Automated material handling
- Computer-aided design and manufacturing (CAD/CAM)
218
- Automated Quality Control processes in-process gauging, CMM

- Measurements of production performance and use of integrated applications and tools for
production planning and scheduling (MRP II, ERP)
- Skilled and trained workforce
At maturity level 3, the manufacturing processes are well characterized and understood, and are
described in standards, procedures, tools, and methods.
A critical distinction between maturity level 2 and maturity level 3 is the scope of flexibility,
automation and integration. As a result, the processes that are performed across the organization
are consistent, efficient and agile.
Another critical distinction is that at maturity level 3, manufacturing processes are typically
described in more detail and more rigorously than at maturity level 2. At maturity level 3,
processes are managed more proactively using an understanding of the interrelationships of the
process activities and detailed measures of the process, its work products, and its services.
At maturity level 3 the manufacturing components are selected that significantly contribute to
overall process performance. These selected components are controlled using statistical and
other quantitative techniques.
Quantitative objectives for quality and process performance are established and used as criteria
in managing processes. Thus, at maturity level 3, the performance of processes is controlled
using statistical and other quantitative techniques, and is quantitatively predictable. At maturity
level 2, processes are only qualitatively predictable.

At maturity level 4, an organization has acquired all the specific components of the
manufacturing capabilities assigned to maturity levels 2, 3, and 4 and the generic components
assigned to maturity levels 2 and 3. At this level organization uses highest levels of flexibility
integration and automation.
Manufacturing processes are continually improved based on a quantitative understanding of the
common causes of variation inherent in processes. At this level the organization focuses on
continually improving process performance through both incremental and innovative
technological improvements.
Quantitative process-improvement objectives for the organization are established, continually
revised to reflect changing business objectives, and used as criteria in managing process
improvement.
Optimizing processes that are agile and innovative depends on the participation of an empowered
workforce aligned with the business values and objectives of the organization. The
organization’s ability to rapidly respond to changes and opportunities is enhanced by finding
ways to accelerate and share learning. Improvement of the processes is inherently part of
everybody’s role, resulting in a cycle of continual improvement.
A critical distinction between maturity level 3 and maturity level 4 is the type of process
variation addressed. At maturity level 3, processes are concerned with addressing special causes
of process variation and providing statistical predictability of the results. Though processes may
produce predictable results, the results may be insufficient to achieve the established objectives.
At maturity level 4, processes are concerned with addressing common causes of process
variation and changing the process (that is, shifting the mean of the process performance) to
improve process performance (while maintaining statistical predictability) to achieve the
established quantitative process-improvement objectives.
Conclusion
A large number of flexible manufacturing systems have been implemented throughout the world.
219
However, in India the overall adoption of flexible automation is not as mature as the developed
countries. The Indian SMEs in particular have challenges in adopting the flexible automation. To
enable the Indian SMEs to build competitiveness in manufacturing and to guide them through a
step-by-step process of adopting flexible automation, we have proposed a manufacturing
capability maturity model. This model is essentially a tool to assesses the shop-floor capabilities
of an SME and provide a guideline to improve them in an incremental manner.
We reviewed a number of maturity grid-based initiatives and explored how such grids are
constructed and applied. In order to avoid excessive complexity, a definition of maturity is
proposed which emphasizes effectiveness and repeatability. To further simplify the
implementation, we have considered the capabilities which are under the direct control of the
SME manager.
Further work might validate the framework for SMEs in certain industry sectors which are
lagging behind in the adoption of flexible automation. It can also be used as a tool to assess the
SMEs in a certain industry sector and help prepare a generic roadmap for these to achieve global
competitiveness.
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223
Critical Environmental Indicators Used to

Assess Environmental Performance of
Business
Richa Gautam and Anju Singh
National Institute of Industrial Engineering (NITIE), India
Abstract
Purpose - Demands on companies to measure, document and disclose environment
related information is becoming invasive due to pressure from internal and external
stakeholders. This paper examines the approach of business towards environmental
performance evaluation and reporting and the indicators used for the purpose.
Design/methodology/approach - Environmental indicators as proposed by various
international agencies were identified and compared. Finally, a set of indicators
selected from the above study were mapped against 16 case companies operating in
India from manufacturing and services sectors.
Findings - Identification and tracking of indicators and compilation of information
generated is crucial for assessing and reporting a company’s environmental
performance. It was observed that for a company to project its environmental
performance, three types of indicators are necessary – global, sector-specific and local.
A set of chosen indicators include management, operational and impact indicators.
Indicators of biodiversity were least reported and indicators of mate-rials, energy,
water and air emissions were some of the most reported environmental indica-tors.
Practical implications - The paper will be helpful to any industry in selecting and
measuring environmental indicators.
Originality/value - The study provides insight into the differences in environmental
indicator sets as designed by indicator developing agencies. It also provides an
understanding of differences in the use of environmental indicators by companies in
India and the limitations of using only global indi-cators to track environmental
performance.
Keywords: Environmental Indicators, Environment Performance Evaluation, Tools,
Indicators
Introduction
During the last decade, there has been an increasingly intensive interest in
assessing, measuring and documenting the environmental performance of
industry. Pressure is increasing on companies to report on the environmental
impact of their activities. While in the previous two or three decades the
behavior of firms in this respect was mainly dictated by government, some
companies have begun to recognize the potential benefits of behaving more
consciously and proactively in this area. In parallel to this, there is an
increasing need for tools that allow for a proper and objective measurement
and benchmarking of the performance of firms with respect to the environment.
In all cases, indicators can provide only partial information that may need to be
qualified with information from other sources. Indicators are deliberately
simple measures that stand as proxies for complex and often diffuse
phenomena.
GBMR
Vol. 2, No. 2 & 3, 2010
pp. 224-236
224
History of Indicators
Companies are facing constantly competitive challenges: low cost was the most competitive
priority of the 1960s, flexibility became the strategic weapon of 1970s, whilst the
implementation of the total quality management (TQM) based programs represented the most
effective perceived managerial solution for achieving good performance in the 1980s (Azzone et.
al 1996). At the beginning of the nineties, corporations considered their environmental
performance and, in particular, the reduction of their impact on the ‘state of the environment’ by
the implementation of environmental efficiency programs (Bloom & Morton, 1991).
An extensive literature search and evaluation about performance evaluation was done and many
different approaches addressing the subject were found such as balanced scorecards (Kaplan and
Norton, 1996), the Baldrige Award, intellectual capital, the triple bottom line (Elkington, 1999),
executive dashboards (GRI, 2000), systems thinking, GEMI- measuring environmental
performance and ISO 14031 were among others. Examples of several initiatives on
environmental indicators are from Association of Chartered Certified Accountants (ACCA)
Report on Environment – Related Performance Measurement (Bennett & James, 1998), Global
Reporting Initiative (CERES, 1996), EU Eco – Management and Audit Scheme, ISO 14031 –
Environmental Performance Evaluation, Guide to Corporate Environmental Indicators by the
German Federal Environmental Agency, WBCSD Report on Eco-efficiency Metrics, National
Round Table on the Environment and the Economy (NRTEE, 1997), EEA Working Paper on
Eco-efficiency Indicators (Gee & Moll, 1998), World Resources Institute (WRI) Report (Ditz &
Ranganathan, 1997).
What are Indicators?

Decision making and management of complex issues requires methods for representing these
issues by simple units of measure known as indicators. Indicators are “specific measurement of
an individual aspect that can be used to track and demonstrate performance. Ideally,
environmental indicators present scientifically based, scientifically defensible, and credible
information on the status of, and trends in, environmental conditions or situations. They are
powerful tools that serve for performance evaluation and public information. These are usually,
but not always quantitative” (GRI 2000). Indicators are used to depict the vast quantity of
environmental data of a firm in a comprehensive and concise manner. They are mostly applied to
set absolute material and energy data in relation to other variables in order to increase the
informational value of quantitative data. Environmental indicators are also concerned with the
measurement and tracking of firm’s output to the physical environment. For example, energy
consumption is a physical indicator, the sum of Greenhouse Gas emissions expressed in Carbon
equivalent is an environmental indicator. They go beyond simple data to show trends or cause
and effect relationships.
Indicators should be objective, understandable, significant (reflect all relevant aspects),
responsive to stakeholder expectations, allow for meaningful comparisons and value judgments,
workable, based on explicit value system, relatively small in number, sensitive to the conditions
they are designed to measure, and readily measurable to minimize the lag time between
information gathering and interpretation.
Why Indicators?
Communication is the main function of indicators; they should enable or promote information
exchange regarding the issue they address. Indicators always simplify a complex reality. They
focus on certain aspects which are regarded relevant and on which data are available. But their
significance goes beyond that obtained directly from the observed properties. External
stakeholders need a set of Environment Performance Indicators (EPIs) on an aggregated scale
that allows them to put pressure on the companies, to make sure that improvements are planned
225
and implemented on a continuous basis. Internal stakeholders need more detailed EPIs to
describe and control environmental performance of their products and individual activities or
processes inside the company.
Environmental Key Performance Indicators (KPIs) provide businesses with a tool for
measurement. They are quantifiable metrics that reflect the environmental performance of a
business in the context of achieving its wider goals and objectives. KPIs help businesses to
implement strategies by linking various levels of an organization (business units, departments
and individuals) with clearly defined targets and benchmarks.
In relation to policy-making, environmental indicators are used for four major purposes: to
supply information on environmental problems, in order to enable policy-makers to value their
seriousness, to support policy development and priority setting, by identifying key factors that
cause pressure on the environment, to monitor the effects of policy responses and as a powerful
tool to raise public awareness on environmental issues.
Objectives of Indicators
The key objectives of an indicator are to simplify a complex reality, quantification,
communication, raising awareness, informed decision making, measuring progress towards
goals, proving information to evaluate, to integrate local and central government policies.
Users of Indicators
Users of environmental indicators include corporate manager, production plant manager, market
manager, purchasing manager, authorities (national), investors & shareholders, and consumers.
Stakeholders use environmental performance indicators in different ways like long term
economic risks, environmental and ethical concerns, evaluate the effectiveness of different
policy instruments, environmental profile of firms, damage their local environment and analyze
patterns and trends.
Building Environmental Indicators

Environmental data is often displayed without known standardization or conversion factors, and
with limited information as to what the data refers to or includes. This makes comparability for
external users difficult and external information users may find it difficult to make sense of such
data. To increase transparency of performance and to increase credibility, it is preferable that all
environmental data be normalized after which step the data can be standardized or aggregated to
suit particular information needs. This sequence should improve comparability of data (through
standardization), as well as reduce data complexity and increase the usability and suitability of
data (aggregation).
Standardization refers to efforts to increase the comparability of environmental data.
Normalization ensures that data is converted to units or to a form which relates it to a chosen
standard or baseline or that it has common units. By contrast, aggregation refers to the
transformation of data into different forms or formats to allow a better understanding or
interpretation of the data. Aggregation of information aims to produce simple, but meaningful
indicators that reflect a firm’s overall environmental performance.
Classification of Indicators
Selecting meaningful and effective indicators for measuring environmental performance is
becoming increasingly important due to the increasing costs of environmental operations;
market, regulatory and public pressures; voluntary initiatives, such as the International Chamber
of Commerce Business Principles for Sustainable Development; and international standards,
such as the International Organization for Standardization (ISO) 14001. Many metrics are
already in use.
226
Classification Type I
Kolk and Mauser summarizing the insights from three initiatives, the ISO 14031, the GRI and
the eco-efficiency guide of the World Business Council for Sustainable Development (WBCSD),
identified the following three distinguished elements of Environmental Performance Evaluation
(EPE) (Diakaki 2006):
Environmental management indicators (EMIs) provide information about the efforts of
the management to influence the environmental performance of the organization’s
operations.
Environmental condition indicators (ECIs) provide information about the direct impacts
of the organization’s operations on the environment and are particularly difficult to
standardize or operationalize. For example, they can highlight the effect of air emissions
on the regional air quality, or the effect of water emissions on waterways in the vicinity
of a production site.
Environmental performance indicators (EPIs) may be further subdivided into operational
and impact indicators. The operational performance indicators (OPIs) provide
information about the environmental performance of specific organization’s operations,
while the impact performance indicators (IPSs) provide information about the outputs of
the organizations’ operations. (Refer to figure 1)
Figure 1: Components for Environmental Performance Evaluation (Source: Kolk and Mauser,
2002)
Classification Type II: Leading Vs Lagging Indicators

Environmental indicators can be broadly classed into two types of measures: end-of process
measures, otherwise known as lagging indicators, or in-process measures, also known as leading
indicators. Most environmental metrics programs will contain both types of measures.
227
Lagging indicators: Lagging indicators are the type of metrics most commonly reported. These
indicators “lag” or measure the results of environmental practices or operations currently in
place. Types of data include tons of waste generated, number of fines and violations, number of
accidents or lost work days, or pounds of packaging produced.
Leading indicators: The implementation of management practices contained in voluntary
industry codes of environmental performance represents a type of leading indicator. Leading
quantitative indicators include number of purchasing reviews completed, number of voluntary
initiatives participated in, raw material use, number of community outreach activities, number of
internal self assessments completed, number of EHS reviews completed and regulatory issues
identified proactively and resolved. Leading qualitative indicators include adoption of a
corporate policy on self assessments, implementation of a program to improve community
outreach efforts and certification under ISO 14001.
Classification Type III
The European Environment Agency (EEA) has classified indicators into 4 simple groups which
address the following questions (Environment indicators: Typology & overview Tech. report 25,
1999):
‘What is happening to the environment and to humans?’ (Type A or Descriptive
Indicators)
‘Does it matter?’ (Type B or Performance indicators)
‘Are we improving?’ (Type C or Efficiency indicators)
‘Are we on the whole better off?’ (Type D or Total Welfare indicators)
Classification Type IV
There are three main types of environmental performance indicators, all of which can be used to
track environmental performance (Envirowise, 2007):
Management (MPI)
Financial (FPI)
Operational (OPI)
MPIs are not designed to help improve resource efficiency directly, but they are important, for
example, in terms of meeting company objectives and in the context of environmental
management systems. MPIs are “a type of EPI that provides information about management
efforts to influence the environmental performance of the organization’s operations. MPIs relate
to the policy, people, practices, procedures, decisions and actions at all levels of the
organization” (Jasch 2000).
FPIs, because they combine resource efficiency and unit costs, FPIs can give misleading results,
e.g. a fall in the value of an FPI may just reflect a drop in material costs.
OPIs are a type of EPI that provides information about environmental performance of the
operations of the organization, and OPIs relate to:
• the design, operation, and maintenance of the organization’s physical facilities and
equipment;
• the materials, energy, products, services, wastes, and emissions related to the
organization’s physical facilities and equipment; and
• the supply of materials, energy and services to, and the delivery of products, services and
wastes from the organization’s physical facilities and equipment.
OPIs evaluate the actual environmental aspects of firms. They are sub-divided into mass and
energy indicators as taken from the input–output analysis, and infrastructure and traffic
indicators. Examples include electricity consumption per production unit, total waste, average
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petrol consumption of the transport fleet. These are the basis of internal and external
communication of environmental data, such as for the EU-EMAS Regulation or for the
education of the workforce. Extending their application to cost analysis also allows for their use
in environmental cost management. The organization’s operations include physical facilities and
equipment, as well as the supply to and delivery from them.
Classification Type V (Refer to figure 2)
Figure 2: Several Categories of Environmental Performance Indicators (Source: Tyteca, 2001)
Trends in Indicators
The last several years have seen the development of several trends in environmental indicators.
(GEMI: Measuring environmental performance - A primer & survey of metrics 1998) including
the globalization of metrics, increasing emphasis on sustainability in its environmental context
(the efficient use of resources) and efforts to develop sustainability metrics, increasing use of
environmental management systems as benchmarks of environmental performance, and
emphasis on the integration of environmental performance with business performance with the
goal of reducing costs and material losses, and improving yield, market share, and profitability.
Organizations Involved in Development of Indicators

There are several organizations which take the initiative to develop indicators or their frame
works to facilitate the business. Some of the important organizations are given below.
Global Reporting Initiative (GRI) - The GRI is a unique, multi-stakeholder organization founded
on the conviction of consistent, regular and comparable reporting provides transparency and can
be a powerful catalyst to improve business performance. The GRI’s vision is that reporting on
economic, environmental, and social performance by all organizations becomes as routine and
comparable as financial reporting.
International Organization for Standardization (ISO) is the world’s largest developer and
publisher of International Standards. ISO is the International Organization for Standardization. It
is made up of national standards institutes from countries large and small, industrialized and
developing, in all regions of the world. ISO develops voluntary technical standards which add
value to all types of business operations. They contribute to making the development,
manufacturing and supply of products and services more efficient, safer and cleaner. They make
trade between countries easier and fairer. ISO standards also serve to safeguard consumers and
users in general of products and services and to make their lives simple.
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ISO 14031 Environmental performance evaluation (EPE) is “an internal process and
management tool designed to provide management with reliable and verifiable information on an
ongoing basis to determine whether an organization’s environmental performance is meeting the
criteria set by the management of the organization”.
It is important to note that this definition explicitly refers to EPE as:

A process, comparable to the environmental management systems process
A tool, dealing with indicator application
Organization for Economic & Cooperative Development (OECD) program on environ-

mental indicators, initiated in 1989, contributes to three major purposes:
Measure environmental progress and performance;
Monitor and promote policy integration, and in particular ensure that environmental
concerns are taken into account when policies are formulated and implemented for
various sectors, such as transport, energy, agriculture;
Ensure a similar integration of environmental concerns into economic policies.
Triple-Bottom Line Reporting (TBL) accounting is a wide-spread concept for firms wishing to
realize broader societal and environmental objectives in addition to increasing shareholder value.
TBL can be viewed as a reporting device (e.g. information presented in annual reports) or an
approach to improving decision-making and the fundamental functions of organizations (e.g. the
provision of tools and frameworks for considering the economic, environmental and social
implications of decisions, products, operations or future plans). A new TBL software tool,
developed at the University of Sydney, has been adapted to the UK economy
(www.bottomline3.co.uk). This software tool was developed in collaboration with the using
organizations, enabling users to create a comprehensive sustainability report solely by importing
their existing financial accounts. This software tool is called Bottom Line 3 or short BL3 (“BL-
cubed”).
The World Business Council for Sustainable Development (WBCSD) is a CEO-led, global
association of some 200 companies dealing exclusively with business and sustainable
development. The Council provides a platform for companies to explore sustainable
development, share knowledge, experiences and best practices, and to advocate business
positions on these issues in a variety of forums, working with governments, non-governmental
and intergovernmental organizations. Its mission is to provide business leadership as a catalyst
for change toward sustainable development, and to support the business license to operate,
innovate and grow in a world increasingly shaped by sustainable development issues.
Eco-efficiency is one of the tools from WBCSD of sustainable development. “Eco-efficiency

harnesses the business concept of creating value and links it with environmental concerns. The
goal is to create value for society and for company, by doing more with less over a life cycle.”
Elements of Eco-efficiency include reducing the material requirement for goods and services,
reducing the energy intensity of goods and services, reducing toxic dispersion, enhancing
material recyclability, maximizing sustainable use of renewable resources, extending product
durability, increasing the service intensity of goods and services and eco-efficiency tool - This
tool was developed to assist small and medium-sized manufacturers.
DEFRA – Department for Environment Food and Rural Affairs: Its aim is to protect and improve
the environment, and to integrate the environment with other policies across government and in
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international fora. DEFRA has given 22 environmental KPIs which act as indicators for
businesses. Sustainable Development Action Plan (SDAP) commits DEFRA to take specific
action to achieve progress towards each of the four priorities (DEFRA, 2008) given below:
Sustainable consumption and production
Climate change and energy
Natural resource protection and environmental enhancement
Creating sustainable communities and a fairer world.
Table 1: Organizations and Their Environmental Indicators

GRI INDICATORS DEFRA ISO CII-ITC
Materials- used GHG emissions- Green Environmental Resource use efficiency
other than water, house gas ,Emissions, CO2 measurement and Stakeholders perception
wastes used gas emission improvement Status of compliance to
Energy- Electricity Prevention of pollution
generation- regulations
consumption & Renewable energy and resource conservation Use of Innovative
sources Resource use-DomesticHazardous material environment tools
Water- total water material consumption,
management/substitution Greening of supply
use Energy consumption,Environmental chain
Biodiversity- land , Waste abstraction communications Policy , management
location & Waste Waste management systems and governance
biodiversity, Impact Natural resources-BirdWater management (e.g., Transparency &
on biodiversity populations, Agricultural waste, storm, ground) reporting
Emissions, inputs, Protected areas, Environmental incident Multilateral
Effluents & wastes- Fish landings, Emissions ofresponse and environment agreements
Green house gas, air pollutants, Environmentpreparedness Awards , recognition &
climate change, equality, Air quality & Air quality management certifications
ODS, Emissions, health, Local environment Environmental awareness Training
Waste handling, quality and training
Effluent Energy management; and
management, Transportation
Significant spills, KPMG WBCSD ACCA
Suppliers Direct & indirect CO2 Environmental audits Ecological footprint
Products & emissions Quarry rehabilitation analysis
Services-Significant SO2 emissions Emissions reduction Approaches to assess
environmental Total energy use Energy consumption environmental Impact-
impacts of principle Water consumption Waste production & LCA- life cycle
products & services, recycling assessment
Recycling & reuse of Waste recovery MAB-mass balance
products Alternative / renewable analysis
Compliance- fuels EMFA- energy &
Environmental Water consumption material flow analysis
compliance status MIPS- Material
Transport- intensity per unit service
GRI: Global Reporting Initiative CII – ITC: Confederation of Indian Industry & Indian
DEFRA: Department for Environment, Food and Rural Tobacco Company
Affairs ACCA: Association of Chartered Certified Accountants
ISO: International Organization for Standardization WBCSD: World Business Council for Sustainable
Development
KPMG is the global network of professional services firms whose aim is to turn understanding of
information, industries, and business trends into value. KPMG was established in India in
September 1993, and has rapidly built a significant competitive presence in the country. The firm
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offers its clients a full range of services, including financial and business advisory, tax and
regulatory, and risk advisory services (KPMG, 2008).
ACCA (Association of Chartered Certified Accountants) is the global body for professional
accountants. We aim to offer business-relevant, first-choice qualifications to people of
application, ability and ambition around the world who seek a rewarding career in accountancy,
finance and management. Many approaches have been proposed by ACCA which can be used by
companies to monitor their house keeping practices (ACCA, 2008).
Confederation of Indian Industry and Indian Tobacco Company (CII-ITC): It enables Indian
businesses become sustainable, and channels the potential of Indian industry to power India’s
agenda for inclusive growth and sustainable development. It enables businesses transform
themselves by embedding the concerns of sustainable development into their own strategies and
processes. The Centre of Excellence conducts advocacy and initiates awareness generation
activities to the industry in all parts of India on triple bottom line issues, professional training for
capacity building on sustainable development not only for the large companies but also the
medium and small companies, recognizes and reward companies that contribute to sustainable
development and promote role models in different sectors of the Indian Industry, encourages
sustainability thought leadership.
Use of Environmental Indicators by Companies

A list was prepared by compiling all the indicators from different organizations. A set of 96
indicators was obtained, some of which were management indicators (training, tools and
resources etc.), operational indicators (waste, water, energy usage and raw material etc.) and
impact indicators (surroundings and bio diversity). These indicators were classified into broader
categories like Material, Energy, Water, Emissions & wastes, Compliance, Biodiversity,
Products & Services, Suppliers and Transport etc. The indicators falling under these categories
were further subdivided into Core and Additional indicators. A random sampling method was
adopted for selecting case companies keeping in mind the profits & revenues of the companies
and 16 case companies were finally taken up for the study. These companies hold top position in
their respective sectors. Sustainability reports of these 16 case companies as posted on their
websites were studied. These companies were selected from different sectors like Manufacturing
and Services. It was found that each company followed a different set of indicators. All case
companies indicators were mapped against 96 indicators compiled from different organizations.
A Brief analysis of each category was done: In Material section resource use efficiency was the
only indicator used by most of the companies. Energy consumption and Energy efficiency with
renewable energy initiatives were the two indicators which were used extensively. Water and its
associated indicators were reported by almost all companies. Under the category of Emissions &
effluents, GHGs, VOCs, CO2 emissions, Spills, Air quality & health were used by most of the
companies. Environmental compliance status was reported by all the companies whereas bio
diversity was reported by few companies like Tata, Philips, ITC, E &Y. All companies reported
their significant environmental performance of principle products & services, suppliers and
transport. Other indicators like employee training, policy management & governance were
reported by a few companies only. Also it was observed that those companies which were
complying with GRI were giving emphasis to the factors related to biodiversity while others did
not report on it. PepsiCo is the only company which reported on agricultural inputs as some of
their products contain significant agricultural inputs. Rabo bank which is into the financial
services industry reported the least number of indicators. It was found that around 20 indicators
were not used by any company. The company using the maximum number of indicators is Tata
steel limited.
232
Table 1: Sixteen Companies and Their Reporting on Indicators

Number of Indicators
No Industry Sector Company Name
Used
1 Manufacturing Tata Steel 40
2 Manufacturing Tata Tinplate 24
3 Manufacturing Adidas 20
4 Manufacturing Dell 19
5 Manufacturing Philips 19
6 Manufacturing ITC 17
7 Manufacturing ACC 10
8 Manufacturing BMW 16
9 Manufacturing Procter & Gamble (P & G) 11
10 Manufacturing Pepsico 19
11 Manufacturing Jubilant Organosys 11
12 Manufacturing Dr Reddy’s 18
13 Services British Telecom (BT) 24
14 Services Ernst & Young (E & Y) 22
15 Services Rabo Bank 4
16 Services Ecotel Hotels 14
Table 3: Observed Number of Indicators Used by companies

Number of Companies
Category Indicator Using the Indicator
(Out of 16 Companies)
Material Resource use efficiency 13 (11+2)
Energy Consumption & their sources 12 (10+2)
Energy efficiency & renewable energy
8(7+1)
initiative
Water Total water use 9(7+2)
Recycling & reuse 9(8+1)
Emissions, effluents
Green house gas & climate change 12(9+3)
& wastes
CO2 emissions 12(9+3)
Indirect GHG 10(8+2)
Air Quality & Health 12((=3)
Compliance Environmental Compliance status 13(11+2)
Significant environmental performance of
Products & Services 9(6+3)
principle products & services
Suppliers Environmental performance of suppliers 9(6+3)
Conclusions
An indicator is user specific. Different indicators are used by different companies as per their
requirement and special indicators are also built to measure some specific processes/ operations
in a firm. For proper evaluation of a firm’s environmental performance it should have a
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combination of some specific as well as some universal indicators. Indicators reduce the number
of measurements and parameters that normally would be required to give an exact presentation
of a situation. Indicators also simplify the communication process by which the results of
measurement are provided to the user. Due to this simplification and adaptation to user needs,
indicators may not always meet strict scientific demands to demonstrate causal chains. Indicators
should therefore be regarded as an expression of “the best knowledge available”. An important
aspect of any kind of indicator is the necessity to take account of as many relevant characteristics
as possible. Not only could they be exploited to compare firms of a given industrial sector in a
national context, but perhaps more importantly in a sustainability perspective, they could serve to
compare firms or sectors that can significantly differ in the way they take social and
environmental goals into account. This can result in the formulation of adequate corrective
actions since the causes of unsustainability can be detected from the indicators. And here we
return to the ultimate objective of using indicators, namely, providing the stakeholders with
adequate tools to adopt regulations and incentives that will ensure overall sustainability.
Although there has been significant progress in building, implementing and exploiting
environmental performance indicators over the last few years, we are still far from complete
standardization and universal use by private companies and public decision makers. Indicators
related to biodiversity were only developed by GRI, although well defined & useful these
indicators were least reported and used by companies. Service sector reported on less number of
indicators Around 20 indicators were not used by any company. Indicator usage within a single
sector varies. Different companies use different indicators as per their need. Decision makers
(managers) choose and modify indicators which help them in decision making process.
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236
Augmented Reality: A Sustainable

Marketing Tool?
Marius Bulearca1 and Daniel Tamarjan2
1
Center for Industry and Services’ Economics of the Romanian Academy
2
Bournemouth University, United Kingdom
Abstract
Purpose - The present research aims to look at the ways in which Augmented Reality
Experiential Marketing (AREM) is beneficial for companies and brands not only on
short-term - the “shiny object” syndrome, but also on the long-term, contributing to
the creation of customer satisfaction, as other forms of experiential marketing have
done, which can lead to an increase in customer loyalty, intention of repetitive
purchasing, positive word-of-mouth (WOM) or a greater market share. Based on the
aim of this research paper and on the literature review, three measures of the perceived
value have been chosen – enhancing convenience, influencing enjoyment and
affecting brand attitude.
Design/methodology/approach - Because this research focuses around the concept of
perceived experiential value, the methodological approach chosen will be
interpretative “underpinned by the belief that social reality is not objective but highly
subjective – shaped by our perceptions”. Focus groups will be the method used for this
qualitative study because they are dynamic group discussions much like real
unconstrained everyday conversations which have the capacity of surfacing meanings
and emotions about AR experiential marketing applications that might not be
articulated elsewhere. A semi-structured approach informed by the previous-
mentioned objectives will be used in conducting these focus groups being rather
flexible but also overcoming the researcher’s inexperience in research studies which,
in the case of an unstructured approach, might become risky leading to serious
deviation from the subject.
Findings - There is little understanding of the long-term effects of AR marketing due
to scarceness in benchmarks, measurable elements and research studies. Based on
these findings, this paper explores the ways in which AREM leads to the creation of
perceived experiential value, and thus contributing to the development of customer
satisfaction. Glasses Direct is the brand chosen for this research because it is one of
the few companies that uses AR as an ongoing marketing process, not just as part of
one particular campaign, being very often given as a positive example of how brands
should undertake AR technologies to enhance customers’ experience and drive long-
term brand benefits. Focusing on a particular case also makes the abstract concept of
AREM operational in terms of participants’ understanding of the subject and the
researcher’s analysis of the results.
Research limitations - The lack of any AR experiential marketing research studies
and the few mainly quantitative experiential marketing studies have led the researcher
to take an exploratory qualitative approach which will also extend marketers’
understanding of AR experiential marketing’s effects on experiential value. This
approach will allow a deeper mining into the participants’ mind and will provide a
more accurate representation of consumers’ subjectivity. Also, this lack of any
research studies on AR experiential marketing, the inadvertences, ambiguities and the
predisposition towards quantitative methods in the aforementioned experiential
marketing research related to customer satisfaction are only a few of the rationales GBMR
behind this research project. Moreover, controversies and the problem of limited Vol. 2, No. 2 & 3, 2010
knowledge arise with the question of “what are the long-term effects of AR pp. 237-252
experiential marketing on our business?” even for marketing practitioners.
237
Practical implications - Because this is a qualitative study where researcher’s personal thoughts and
opinions about AR could affect the credibility of the analysis and of the results, several elements have
been used for the pilot and will be used for further researches to ensure the trustworthiness of the findings
- credibility, transferability, dependability and confirmability. The pilot study itself helped to amend any
leading questions and to test the methodology’s accuracy and appropriateness, while helping discover
new themes which will be included in further researches. Peer checking has also been useful for finding
any ‘blind spots’ and for checking the questions’ effectiveness and it will also be considered in further
studies. Member checking was furthermore used to verify the accuracy of the coding and to get valuable
feedback from focus group members after the research, thus ensuring a clear understanding of the themes
discussed, so no personal ideas would infiltrate in their explanation. To ensure a good transferability of
the findings, a rich description of the participants and of the case study used in the focus groups will be
provided for further papers.
Originality/value - The use of Augmented Reality as a form of experiential marketing during the past
two years has been raising numerous controversies regarding its long-term benefits, extending from AR
being only a promotional tool, to AR effectively contributing to a positive customer-brand relationship
and to customer satisfaction through the creation of perceived experiential value. The way in which AR
has been used in marketing campaigns can be seen as a form of experiential marketing because it focuses
not only on a product/service, but also on an entire experience created for the customers. Although more
marketers are inclined to consider AREM a serious direction for their brands’ future, the lack of any
research studies in this area, complemented by the rapid adoption of this trend and the expected
increasing value of the AR market urge the need for a prompt clarification of the effects of this form of
experiential marketing, consequently demonstrating the value and originality of the present paper.
However, more research is needed to replicate these findings on other cultures and to further investigate
the connections discovered, through qualitative studies. The relationship between values and customer
satisfaction is additionally supported by different research findings who suggest that experiential
marketing should deliver experiential value - emotional and functional value, and positive customer
satisfaction.
Keywords: Augmented Reality, Marketing Strategies, Promotional Tool
Introduction
Entering into a toy shop and being able to see the contents of a box ‘assembled’ on a screen in
real-time only by pointing the box to a webcam and even interacting with the 3D representation
by moving the packaging is surely an unforgettable experience (Web-Strategist, 2009). This type
of application and many others have invaded the world of marketing in the last one and a half
years (Woodsa, 2009) due to what is known as Augmented Reality (AR).
Originating from military aviation (Lamantia, 2009), this concept has been defined in numerous
ways by practitioners and academics, however all agree that it incorporates a series of
technologies which allow a real-time mix between the real world and digitally-generated layers
of information and imagery enhancing the specific reality (Clawson, 2009; Lamantia, 2009;
Shute, 2009)
The use of augmented reality (AR) as a form of experiential marketing during the past two years
has been raising numerous controversies regarding its long-term benefits, extending from AR
being only a promotional tool (Grimes, 2009 cited in Woods, 2009), to AR effectively
contributing to a positive customer-brand relationship (Owyang, 2010) and to customer
satisfaction through the creation of perceived experiential value (Chou, 2009; Yuan and Wu,
2008).
The way in which AR has been used in marketing campaigns can be seen as a form of
experiential marketing because it focuses not only on a product/service, but also on an entire
experience created for the customers (Yuan and Wu, 2008; Schmitt, 1999). This is further
supported by Tony Effik (CSO at Publicis Modem) who argues that “AR has the potential to
provide consumers with an experience they want and they will tell their friends about”
(Benjamin, 2009, p.41).
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Although more marketers are inclined to consider AR experiential marketing (AREM) a serious
direction for their brands’ future, the lack of any research studies in this area, complemented by
the rapid adoption of this trend (Woods, 2009) and the expected increasing value of the AR
market (ABI Research, 2010) urge the need for a prompt clarification of the effects of this form
of experiential marketing.
With the launch of the first experiential marketing campaigns incorporating AR technology,
brands and agencies have been rushing to explore the possibilities of augmented reality in a bid
to catch the consumers’ attention (Clawson, 2009). Big international companies like
Procter&Gamble or Wal-Mart have been using this technology to promote their brands (Farhad,
2009). And this trend is not expected to stop - according to ABI Research (2009), the total
market for AR marketing applications is projected to grow from $6 million in 2008 to more than
$350 million in 2014.
Nevertheless, there is little understanding of the long-term effects of AR marketing due to
scarceness in benchmarks, measurable elements (Farhad, 2009) and research studies. Based on
these findings, this paper aims to explore the ways in which AREM leads to the creation of
perceived experiential value, and thus contributing to the development of customer satisfaction.
Glasses Direct (Appendix 1) is the brand chosen for this research because it is one of the few
companies that uses AR as an ongoing marketing process, not just as part of one particular
campaign (Woods, 2009), being very often given as a positive example of how brands should
undertake AR technologies to enhance customers’ experience and drive long-term brand benefits
(Owyang, 2010; Clawson, 2009; Woods, 2009).
Focusing on a particular case also makes the abstract concept of AREM operational in terms of
participants’ understanding of the subject and the researcher’s analysis of the results. Therefore,
the aim of this study is to look at the ways in which AR experiential marketing is beneficial for
companies and brands not only on short-term - the “shiny object” syndrome (Owyang, 2010) but
also on the long-term, contributing to the creation of customer satisfaction, as other forms of
experiential marketing have done (Yuan and Wu, 2008), which can lead to an increase in
customer loyalty, intention of repetitive purchasing, positive word of mouth (WOM) or a greater
market share (Bearden and Teel, 1983; Fornell, 1992; Fornell et al., 1996).
Based on the aim of this research paper and on the literature review, three measures of the
perceived value have been chosen - convenience, enjoyment and brand attitude - which inform
the objectives:
1. To explore the ways in which Glasses Direct’s AREM can enhance convenience.
2. To explore the ways in which Glasses Direct’s AREM influences enjoyment.
3. To explore the ways in which Glasses Direct’s AREM affects brand attitude.
An exploratory qualitative research method in the form of homogenous semi-structured focus

groups will be used for achieving the previously-mentioned objectives. Four focus group
discussions will be conducted, each comprising between five and six 18-30 years-old UK
students at Bournemouth University.
Before undertaking any further researches, a pilot study has been used to gain prompting,
probing and accuracy experience (Bell, 2005) and to discover any potential “blind spots” in the
creation of the methodology tools, which in turn contributes to the trustworthiness of this study.
Furthermore, the pilot can inform the researcher of different themes/issues that can be further
explored in future researches.
Literature Review
Because of a scarcity of academic literature and research studies on AR experiential marketing,
this literature review will start by focusing on the little research and small number of papers
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concerned with experiential marketing in general which build the rationale and the components
of this research study.
Experiential Marketing and Customer Satisfaction

Economists posit that the contemporary world finds itself in the “experience economy” (Yuan
and Wu, 2008; Pine and Gilmore, 1998) where customers do not always focus on products but
on experiential consumption “where functional utility is either taken for granted or seen as
irrelevant” (Denegri-Knott and Molesworth, forthcoming 2010, p.9).
At this stage, experiential marketing comes in, treating consumption as a holistic experience and
recognizing both the emotional and rational drivers of consumption (Schmitt, 1999). The
importance of experiential marketing is recognized as a means of creating value for the end
consumer (Pine and Gilmore, 1998) which would be the future competitive edge for companies
(Prahalad and Ramaswamy, 2000) and will motivate customers to make faster and more positive
purchasing decisions (Williams, 2006).
However, although this new marketing orientation is widely agreed to represent the future of
marketing, (Williams, 2006; Schmitt, 1999), it is still not fully comprehended and, as such,
requires a more diverse range of research methods and research studies to better understand
consumers (Williams, 2000).
The creation of experiential value referring to customers’ perceptions of products/services
through direct use or indirect observation (Mathwick, Malhotra and Rigdon, 2001) has been
recently demonstrated by two quantitative studies (Chou, 2009; Yuan and Wu, 2008) focused on
American brands and their customers’ perceptions in the Taiwanese market. Furthermore, these
studies have shown that the experiential value created can induce customer satisfaction (Chou,
2009; Yuan and Wu, 2008).
However, more research is needed to replicate their findings on other cultures and to further
investigate the connections discovered, through qualitative studies. The relationship between
values and customer satisfaction is additionally supported by different research findings
(Martensen et al., 2000; Cronin et al., 2000; Ennew and Binks, 1999; Fornell et al., 1996) and
Schmitt (1999) who suggests that experiential marketing should deliver experiential value -
emotional and functional value, and positive customer satisfaction.
Despite a clear widely agreement on the direct relation between value and customer satisfaction,
there is no consensus regarding the elements which create the customers’ perceived value, each
of the previously-mentioned studies being based on a different model of customer satisfaction
index.
Conversely, many scholars believe that customer satisfaction has a crucial role in the success of
any business and it is essential in increasing the overall profitability (Yuan and Wu, 2008;
Kotler, 1991). If the consumers are satisfied with a certain product, generally they “will buy the
product again, be inclined to promote the product to other people, ignore competing brands’
advertisements, and refrain from purchasing from competitors” (Yuan and Wu, 2008, p.2).
However, customer satisfaction should not be taken for granted but reinforced and reassured
continuously (Ehrenberg, 2000) and a good way of doing this would be through valuable
experiences provided by experiential marketing.
Customer Satisfaction and AR Experiential Marketing

Customer satisfaction is often seen from two different perspectives: transaction-specific and
cumulative aspects (Johnson, Herrmann and Gustafsson, 2002). If the transaction-specific refers
to the perceived value customers obtain after they finish one specific transaction (Yuan and Wu,
2008), the cumulative aspect comprises the customers’ overall measurement of all their
experiences with a company’s products at all stages of the purchase process (Patterson and
Spreng, 1997; Fornell, 1992).
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Consequently, although the cumulative aspect of customer satisfaction is considered a complete

state only after purchase (Sweeney and Soutar, 2001), a perceived value occurs at various stages
of the purchase process, including the pre-purchase stage (Woodruff, 1997).
For this research, AR experiential marketing will be considered to mainly affect the pre-purchase
stage (Figure 1) due to the fact that, by its current nature, AR has the most impact at the pre-
purchase stage. At this step, according to the buying decision-making process (Fill, 2009) the
consumer is evaluating their choices before taking the purchase decision (Fill, 2009) and AR has
the power to “put the product in the hand of the users” (Woodsa, 2009, p.37) giving them the
opportunity to test the product as they would already own it, enticing the prospect to commit
more time or even trigger a purchase (Owyang, 2010).
Therefore, this research study will focus on exploring the ways in which AR experiential
marketing determines a perceived experiential value during the pre-purchase stage of the buying
process, thus contributing to the development of customer satisfaction.
The lack of any research studies on AR experiential marketing, the inadvertences, ambiguities
and the predisposition towards quantitative methods in the aforementioned experiential
marketing research related to customer satisfaction are only a few of the rationales behind this
research project. Moreover, controversies and the problem of limited knowledge arise with the
question of “what are the long-term effects of AR experiential marketing on our business?”, even
for marketing practitioners.
If some of them see AR only as a promotional tool, not an enduring marketing opportunity
(Grimes, 2009 cited in Woodsb, 2009), the PR buzz being everything that some brands want
(Clawson, 2009), others believe that it contributes to the development of a positive customer-
brand relationship and influences purchasing decisions (Owyang, 2010; Murray, 2009 cited in
Clawson, 2009). Because, as previously-discussed, the AR market is expected to grow
exponentially in the next four years, and because “so far we have seen only 5 to 10 percent of
what AR can be used for” (Uzzan, cited in Woods, 2009), companies need to know what
directions they should follow in order to ensure a positive outcome from their AR experiential
marketing.
Figure 1: Customer Satisfaction and Purchasing Stages (Adapted from Fill, 2009; Woodruff,
1997)
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Aim and objectives

According to the issues discussed in the literature review, the aim of this research paper is to
look at the ways in which AR experiential marketing leads to the creation of a perceived
experiential value, which is widely accepted to contribute to the development of customer
satisfaction (as shown in the literature review).
The objectives for this study will focus on two areas agreed by most scholars to be the main
components of experiential value: functional and emotional (Berry et al. 2002; Sweeney and
Soutar, 2001; Mathwick, Malhotra and Rigdon, 2001; Schmitt, 1999). The three objectives are as
follows:
Objective 1: To explore the ways in which AR experiential marketing can enhance
convenience.
The first objective is looking at convenience defined for this study as the functional value
offered by the opportunity to experience the brand/product before buying it, therefore
providing an answer to questions like “how time and cost efficient is this application for
consumer?”, “how many functional aspects of the product can the consumer experience
through AR?”. Convenience was demonstrated to be a key issue in increasing the
purchase consideration (Bigham, 2005) and therefore determining the movement of
consumer from the pre-purchase stage to the during-purchase stage, having a major
contribution to the cumulative aspect of customer satisfaction (Sweeney and Soutar,
2001; Mathwick, Malhotra and Rigdon, 2001).
Objective 2: To explore the ways in which AR experiential marketing influences

enjoyment levels.
Enjoyment is considered by many academics as one of the most important emotional
values (Sweeney and Soutar, 2001) and the prime aspect searched by consumers when
engaging in a consumption experience (Firat and Dholakia, 1998 cited in Denegri-Knott
and Molesworth, forthcoming 2010). This is also one of the primary links between
experiential marketing outcomes and customer satisfaction (Chou, 2009; Yuan and Wu,
2008).
Objective 3: To explore the ways in which AR experiential marketing affects brand

attitude.
Attitude as an emotional value (Sweeney and Soutar, 2001) was chosen for this paper
because brand attitude is always a communication objective in marketing and if there is
no positive attitude towards the brand among the target audience, then there is little
purchase likelihood (Percy and Elliott, 2005), which will bring to an end the customer’s
purchasing process and therefore not creating any customer satisfaction.
Because this research focuses around the concept of perceived experiential value, the
methodological approach chosen will be interpretative “underpinned by the belief that social
reality is not objective but highly subjective – shaped by our perceptions” (Collis and Hussey,
2009, p. 56). The lack of any AR experiential marketing research studies and the few mainly
quantitative experiential marketing studies have led the researcher to take an exploratory
qualitative approach (Churchill and Iacobucci, 2005) which will also extend marketers’
understanding of AR experiential marketing’s effects on experiential value. This approach will
allow a deeper mining into the participants’ mind and will provide a more accurate
representation of consumers’ subjectivity (Wright and Crimp, 2000).
Focus groups will be the method used for this qualitative study because they are dynamic group
discussions much like real unconstrained everyday conversations (Churchill and Iacobucci,
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2005) which have the capacity of surfacing meanings and emotions about AR experiential
marketing applications that might not be articulated elsewhere (Daymon and Holloway, 2002).
They also help in identifying particular attitudes and behaviours, being one of the popular
methods of gathering consumer responses to marketing communications (Daymon and
Holloway, 2002). Because the objectives of this research are related to functional and emotional
values perceived by consumers, the interaction with other group members may motivate the
participants to expand and refine their own ideas and perceptions of AR experiential marketing
(Collis and Hussey, 2009).
A semi-structured approach informed by the previous-mentioned objectives will be used in
conducting these focus groups being rather flexible but also overcoming the researcher’s
inexperience in research studies which, in the case of an unstructured approach, might become
risky leading to serious deviation from the subject (Bell, 2005). Before starting the actual data
collection, a pilot focus group will also be conducted, in order to gain prompting, probing and
accuracy experience (Bell, 2005) and to discover any potential “blind spots” in the creation of
the methodology tools.
The number of focus groups which will be used for this research will be four (a reasonable
number for the relative small scale of the research), divided as following: two focus groups
consisting only of male participants and two focus groups consisting only of female participants.
This separation between genders is the result of the nature of this research. Because the subject
of this study is not only related to marketing but also to technology (AR), the researcher wants to
avoid a discussion monopolized by men (Daymon and Holloway, 2002) who historically
speaking are more attracted to technology than women. This structure of focus groups is only
designed to create a more complete view of the topic and is not intended to assess gender
specific answers.
However, if the analysis will show such an important difference, one of the recommendations for
further research will be to look deeper at the way in which different genders perceive AR
experiential marketing communications. Each group will have five or six members, a size which
is neither too small and easy to dominate by one member nor too large and characterized by
boredom and frustration (Churchill and Iacobucci, 2005). The sample chosen for the study will
consist of young English and international Bournemouth University students aged 18-30 years
because this age group is usually targeted by AR applications (Owyang, 2010) and mixed
nationalities for a better understanding of the AR experiential marketing effects across different
cultures and to inform future research directions.
At the end of each focus group the discussion will be transcribed and coded – the first step in
creating categories, patterns and concepts (Daymon and Holloway, 2002). Some ideas may
emerge after each focus group which will be tested as the research process progresses. The
findings will not only be compared between focus groups but also with the literature related to
experiential marketing; peer checking and member checking will also be used in order to avoid
overlooking important elements (Daymon and Holloway, 2002).
Data Analysis
The sample for the pilot focus group includes one UK and three international postgraduate
students at Bournemouth University (Appendix 2). Initially, they have been handpicked based on
the criteria of wearing prescription glasses (the product category of Glasses Direct); however,
due to a last-minute cancellation and the increased time-pressure, a replacement was found in a
person who does not wear prescription glasses but often wears sunglasses. The pilot’s sample is
similar to the one which will be used for the main research but not identical, as nationality was
not considered an important factor for the purpose of the trial focus group.
The semi-structured focus group was held in one of the university’s private rooms and all
members were provided with snacks/drinks for relaxing and ‘opening-up’ the atmosphere in
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order to obtain deeper insights. The focus group lasted for 35 minutes (without the introduction)
and was recorded in a digital audio format from which the main parts could been transcribed and
coded. One major problem with the data collection was determined by some unforeseen Internet-
related problems which did not allow the researcher to conduct a live demonstration of Glasses
Direct’s AR application. This was therefore replaced by a video demonstration and some extra
information added by researcher during the discussion. Alternatives should be considered for the
main research to anticipate any similar potential problems.
It is important to note that the results of this trial focus group are not considered definitive
conclusions, having the sole purpose of clarifying/changing the directions followed by the main
research and of ensuring operability of the method/tools used.
Because of the small scale and time constraints of this project, only 15 minutes from the focus
group could been transcribed and open-coded according to trends/themes and the literature
review (Miles and Huberman, 1984). Nevertheless, the transcript includes all the main points
considered relevant in relation to the objectives of any further studies and pertinent for the
purpose of this pilot. Consequently, three major themes emerged, related to (a) perceived
benefits of AREM for Glasses Direct, (b) brand attitude creation and (c) perceived drawbacks of
AR in relation to glasses (product category for Glasses Direct).
a) Perceived Benefits of AREM for Glasses Direct

The first impression of the AR application among the participants was very good, leading to the
identification of several functional benefits, such as time-saving, practicality and convenience
(70.P1,P2,P3,P4) which confirm the literature review findings regarding experiential marketing
in general (Schmitt, 1999):
Very practical. You don’t actually need to go to the shop anymore (3.P2)
It’s like you’re really wearing them so you don’t need to go to the shop anymore.
Especially if you don’t have time or if you live far from the town centre…. (20.P1)
Despite the previously-mentioned advantages, there are some controversies regarding their
application – one of the participants (P4) was initially against the use of Glasses Direct’s AR,
however, in the end, he agreed that he might consider it, but only for sunglasses:
I personally wouldn’t use it because I think … I don’t know… I can’t see it overtaking
the actual process of going in a shop and trying the glasses on yourself in real life. (8.P4)
Yeah, like I said… I think I… certainly with sunglasses, I’d probably consider it…
(173.P4)
Similar uncertainties arose during the discussion with other members (P1 and P3), thus
indicating some possible shortcomings holding the participants back from using and relying on
the AR application, which should be further investigated in the main research study.
Some emotional benefits also emerged in the discussion, mostly related to this AREM tool’s
perceived playfulness (44.P1, 46.P4), a main component of enjoyment, which, in turn, is the
prime aspect searched by consumers when engaging in a consumption experience (Denegri-
Knott and Molesworth, forthcoming 2010; Yuan and Wu, 2008).
However, the focus group’s findings do not show a clear delimitation between the short-term
enjoyment determined by the wow factor (Lieb, 2010), which wears-off very quickly (Clawson,
2009), and the long-term enjoyment which contributes to the creation of brand attitude and leads
to customer satisfaction (Mathwick et al, 2001):
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Do you find the use of this augmented reality application enjoyable? (23.I)
Very much, it’s about the user’s experience I think. (24.P2)
Yeah. (25.P1)
Versus
What do you enjoy? (29.I)
Just the fact that is very cool… (31.P1)
You can try all of them on and it’s kind of a new experience. Like I said before, I didn’t
know it so… it’s quite … yeah… a new thing, a new technological thing. (32.P2)
This confusion comes mainly from the questions used to identify perceived enjoyment, therefore
further attention should be given to the questions’ phrasing and to the prompts used in the main
research to ensure a clear understanding of the differences between the long-terms/short-term
concepts. The new and the amended questions can be found in Appendix 3.
b) Brand Attitude Creation

Another major theme surfaced during the discussion is related to the elements that contribute to
the creation of brand attitude – the primary emotional value which affects purchasing decisions
and therefore customer satisfaction (Sweeney and Soutar, 2001).
One of the primary elements of brand attitude – motivation that drives someone’s behaviour
(Percy and Elliott, 2005) - emerged in the form of reliability and trustworthiness of the AR
application in relation to Glasses Direct. Participants felt a sense of trust towards the brand
because it allows them to personally try the products without “having it presented to you in an
advert” (82.P2), which made them declare that “I would rely on it to be honest” (17.P2).
Although the element of motivation was present in the pilot study, other elements such as
participants’ cognitions and feelings about the brand (Percy and Elliott, 2005) could not be
measured as no member of the focus group had any awareness of the Glasses Direct brand
beforehand. This might seem beneficial for this research as there was no pre-formed attitude
bias; nevertheless, the lack of any brand awareness is a serious obstacle in creating brand attitude
(Percy and Elliott, 2005) in a short period of time as the duration of a focus group. Therefore,
before conducting main research focus groups, a 5 minutes-slot should be allocated for
participants to familiarize themselves with the Glasses Direct brand by navigating through their
website.
Furthermore, questions should be more focused and more prompts should be formulated in order
to explore all the elements that contribute to brand attitude development and follow any useful
leads (Appendix 3).
c) Perceived drawbacks of AR in relation to the product category (glasses)

Because of the lack of research in the AR area, possible drawbacks were not known at the
moment of the literature review discussion; however, some of them emerged in the pilot focus
group and proved of high importance because of the influence they have on the three perceived
values covered in the objectives. These drawbacks usually emerge from the difference between
the real shopping experience and the AR online experience.
The haptic experience seems to be an important issue when buying glasses especially because
the ‘feel’ of the glasses is considered a proof of their quality:
Ok, that might be a negative aspect actually, because you can’t actually know how it
feels like, how the quality is, so yeah that’s probably a negative (97.P2)
and of their personal fit:
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Sometimes it just doesn’t feel right on your nose or it’s too tight…that’s also true yeah
(108.P2).
Moreover, the service offered by in-store opticians is not replicated through the AR application -
“well, it doesn’t offer any service” (100.P1); however, there seems to be a degree of uncertainty
regarding its perceived importance:
Quite, yeah, because we don’t … in some ways, we don’t get to have the salespeople to
advise us or anything, but in other ways, like P3 said, it would be good because you
can rely only on your personal taste and judgment of how you look, so it’s a bit
tricky.(103.P1)
Another possible drawback regarding the AR application is related to its ease-of-use, as the steps
required for its installation were perceived by some participants as quite difficult and annoying:
I don’t know how simple it is to configurate it [the application] because you also need
to…. (49.P2)
But there is no web application where you can actually use it directly from there
[without downloading the application]? (53.P2)
These elements need to be further explored in the main research as they could seriously affect
brand attitude development, terminate the purchasing process and therefore not create any
customer satisfaction (Percy and Elliott, 2005).
Overall, the initial questions prepared for the pilot have worked well, surfacing important issues
regarding the three proposed objectives; however, new questions should be added for a deeper
investigation of the emerging themes (Appendix 3).
Trustworthiness
Because this is a qualitative study where researcher’s personal thoughts and opinions about AR
could affect the credibility of the analysis and of the results (Silverman, 2006) several elements
have been used for the pilot and will be used for further researches to ensure the trustworthiness
of the findings - credibility, transferability, dependability and confirmability (Daymon and
Holloway, 2002).
The pilot study itself helped to amend any leading questions and to test the methodology’s
accuracy and appropriateness, while helping discover new themes which will be included in
further researches. Peer checking has also been useful for finding any ‘blind spots’ and for
checking the questions’ effectiveness (Daymon and Holloway, 2002) and it will also be
considered in further studies.
Member checking was furthermore used to verify the accuracy of the coding and to get valuable
feedback from focus group members after the research (Silverman, 2006), thus ensuring a clear
understanding of the themes discussed so no personal ideas would infiltrate in their explanation.
To ensure a good transferability of the findings, a rich description of the participants and of the
case study used in the focus groups will be provided (Daymon and Holloway, 2002) for further
papers.
Conclusions & Reflections

Despite the initial thoughts, the research proved to be more complicated and time-consuming,
raising different challenges for the researcher. Although the subject was not difficult to choose
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because of researcher’s interest in technology, especially in AR, finding the relevant literature
and relating it to different marketing theories was the most complicated stage, due to the lack of
research in this area. This, corroborated with the researcher’s inexperience, led to much time
being lost until a connection with other topic (experiential marketing) could be made, which
represented the starting point of the literature review.
Extensive reading, tutorials, general class discussion and learning group’s help were invaluable
in achieving the previously-mentioned goal and also for narrowing down the literature to three
focused and relevant objectives. Peer checking and tutorials proved also very helpful for
checking the questions prepared for the focus group to ensure they had no bias, that they were in
line with the objectives and that they were clearly formulated. Lesson learnt – talking to anybody
about your research study can be very beneficial and can save time which would have been spent
afterwards to correct all the mistakes done at this stage.
Unforeseen events can occur and for this case technology was a big issue. Low battery voice
recorder, poor Internet connection and non-working AR applications came as a wave of bad luck
upon the pilot focus group. Spending more than 15minutes trying to solve the problem was not
only time-consuming, but also stressful. In the end, although solutions were found, having a plan
B for future research would be much useful.
Furthermore, gathering people for the focus group was another difficulty as many of the
participants (students) had very busy schedules during the period in which the pilot has been
conducted. The lack of researcher’s experience regarding these situations and the short-notice
resulted in a low-response/attendance rate, therefore careful planning of all major steps of the
research project should be considered for the future and prospective participants should be
contacted well in advance of the focus group.
When coding and analysing the data from the pilot, several problems emerged in relation to the
way in which the focus group discussion has been conducted. There are different moments when
prompts would have been needed in order to deepen the researcher’s understanding; some
questions may be considered leading because of the way they are formulated (e.g. 26.I); other
questions were not very clear as prompted by the participants (e.g. 56.I) and at least once the
researcher may have been a little bit pushy in one of his answers (60.I).
Nonetheless, conducting a pilot proved very useful for understanding what questions need to be
amended, what approach should be taken and what skills need to be improved. Exercising these
skills in other pilot studies before doing the main research can enhance the chances of getting
appropriate and relevant answers from the participants.
Lastly, because of the aim of this research study which does not require any confidential or
personal data from the participants, no important ethical issues need to be considered for further
researches.
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249
Appendix
Appendix 1: Glasses Direct
According to their website (www.glassesdirect.co.uk):
Glassesdirect.co.uk is the largest online opticians in the world.

Until we started causing a stir in a stuffy industry in 2004, buying prescription glasses
was expensive - up to £400 for designer spectacles. Not any more. Through us, you can
buy the frames and lenses you’ll find on the high street, but from £24. Which means you
can now afford to have fun with your glasses, buying your favourite in several colours,
and different styles for different occasions.
Because we don’t have to pay for middlemen, stores, or the expensive machinery needed
to offer eye tests, we save our customers a small fortune. We use the same frames, lenses
and laboratories that the big opticians do, and all our dispensing opticians are registered
with the General Optical Council, so quality is guaranteed. You just pay less, and have
more choice. A win/win situation if ever we laid eyes on one.
We’ve had to battle to get here. The big high street opticians didn’t like the look of us at
all. But we turned a blind eye to their threats, and we’ve so far saved the spectacles-
savvy British public an estimated £20m. Things are looking good.
Approved by opticians
We have revolutionized the way people buy their glasses with the help, advice and
approval of registered opticians. Now, we make sure that every order is looked after by
an optician. In fact, when you call you might even be talking to one.
The AR application used by Glasses Direct takes live video from the shopper’s webcam and
allows them to see how the most popular frames would suit them. “The app allows customers to
get an idea of how a pair of glasses will look on them by using facial recognition software, which
superimposes images with 3D models of the glasses. Customers can move their faces to see how
they would look from different angles” (Clifford-Marsh, 2009).
Appendix 2: Pilot Sample – some more details

The sample for the focus group was composed of one British man and three international
women. They are all aged 22-25 years, undergoing the same marketing related course at
Bournemouth University. None of them have heard of Glasses Direct brand before and also they
did not know anything about augmented reality and how this technology is currently being used
in marketing. Furthermore, they all knew the researcher beforehand so their openness was not an
issue in getting deep insights.
Appendix 3: Initial vs. New and Amended Questions

Initial Semi-Structured Focus Group Questions
1. Have you ever heard of Glasses Direct until now? If yes, what do you know about this
online optician?
I will present them the website and the augmented reality application.
2. What is your first impression about this application? (Prompting: like it/ don’t like it/ any
opinions)
3. Do you find the use of this ARP enjoyable? In what ways? (Prompting: absorbing
activity/ active engagement/ playful)
250
4. Do you think it’s useful for consumers? Why? (Prompting: time-efficient, easy to use,
cost-effective)
5. What kind of information about the product do you think this ARP provides compared to
a common advert (TV, magazine etc.)? (Prompting: extra information/ can try it on)
6. What are the reasons for which you normally choose a certain store/ optician to buy your
glasses from? (Prompting: quality, price, loyalty, popularity etc.)
7. Do you think this augmented reality application influences any of your previously-
mentioned reasons? In what ways?
8. Would you consider buying glasses that you have experienced through an AR application
like this one? Why?
New Semi-Structured Focus Group Questions

1. Have you ever heard of Glasses Direct until now? If yes, what do you know about this
online optician?
I will present them the website and the augmented reality application.
2. What is your first impression about this application? (Prompting: like it/ don’t like it/ any
opinions)
3. Do you think it’s useful for consumers? Why? (Prompting: time-efficient, easy to use,
cost-effective).
Differentiating between the wow effect and long-term enjoyment:

4. Do you find the use of this AR application enjoyable? In what ways? (Prompting:
absorbing activity/ active engagement/ playful)
5. How much time would you spend using this application? (Prompting: only one or two
minutes/ more than 10 minutes)
6. Would you use the application only when you need to buy glasses? Why? (Prompting:
use it for fun/ use it only for its practicality)
7. Do you think Glasses Direct’s AR application is engaging? If yes, in what ways?/ If not,
why not?
Comparing the perceived benefits of AR with other forms of media used for marketing
communications:
8. What kind of information about the product do you think this AR application provides
compared to a common advert (TV, magazine etc.)? (Prompting: extra information/ can
try it on)
9. What are the reasons for which you normally choose a certain store/ optician to buy your
glasses from? (Prompting: quality, price, loyalty, popularity etc.)
10. Do you think this augmented reality application influences any of your previously-
mentioned reasons? In what ways?
Exploring motivation:
11. Would you consider the Glasses Direct’s AR application reliable? Why?
12. Do you think that your image wearing the glasses (shown through the AR application) is
a real representation of how you would actually look with those glasses? Why?
(Prompting: trust)
Exploring feelings:
13. What are your current feelings towards this brand based on everything you experienced
today? (Prompting: positive/negative, personal)
251
14. Do you think that this AR application played any role in your current feelings towards the
Glasses Direct brand? In what ways? (Prompting: influence your image of the brand)
Exploring the AR’s drawbacks and AR’s disadvantages in relation to the product category –
glasses:
15. Do you see any drawbacks in using this application? If yes, which are they? (Prompting:
technology limitations, difficulty to use)
16. What do you think these drawbacks are related to? (Prompting: the technology used (AR)
or the purpose for which AR is used – to sell glasses)
Exploring cognitions:
17. After this discussion and after experiencing the Glasses Direct’s AR application, what is
your overall opinion about this brand? (Prompting: high/low quality, it is/it is not for you)
Exploring the overall attitude on AR and its effects on purchase decision:

18. Would you consider buying glasses that you have experienced through an AR application
like this one? Why/why not?
Marius Bulearca can be contacted at: mariusbulearca@yahoo.com
252
Investors Preference on Financial Services

K.C. John Sasi Kumar and P. Vikkraman
Anna University, India
Abstract
Purpose - The purposes of this research are to study the level of customer’s
satisfaction about various services provided by the share broking institutions and to
study the investment preference of the investors.
Design/methodology/approach - Primary data has been collected from 500 investors
in Coimbatore - India with the help of a well structured questionnaire consisting of all
appropriate questions for the research. The sampling plan for the study is stratified
proportionate systematic sampling plan for selecting investors. List of investors are
obtained from the share brokers, from the list 40 investors from each share brokers has
been selected for the research. Statistical tools for the research are correlation
analysis, weighted average to rank the factors and factor analysis.
Findings - Service quality is a concept that has aroused considerable interest in the
share broking institutions in both defining it and measuring it. The customers are very
much satisfied about IPO facilities offered by the service providers.
Research limitations - The study has been carried out in Indian applicability and may
differ in other countries.
Originality/value- The researcher assures that, this is his original and authentic work;
it has in no way connected to any of the previous research, it is not published any were
and it is not under consideration for publication.
Keywords: Investor’s Preference, Share Brokers, Customer Satisfaction, Investment
Preference
Introduction
Economic development of a nation is depends on the performance of the
financial process and capital formulation of the nation. Efficient financial
system will automatically formulate required capital for investment. The non
banking financial services in India have growing continuously over a period of
time, in terms of number, deposit and so on. Indian financial sector has
reviving of its positive sentiments, formation of a stable newly elected
government, has the ripple effect on all the financial services in India.
Financial sector including banking and insurance, and mutual funds and share
broking business are beginning to reap the benefits of a good closure for 2008-
09. In 2008-09, the Indian economy is estimated to have grown by 6.7 per cent.
According to the latest Central Statistical Organization (CSO) data, financial
services and real estate sector rose by 9.5 per cent in the first quarter of 2009-
10.
The government has taken a number of steps in recent months to revive the
economy, including slashing interest rates, lowering factory levies and more
than doubling the limit on foreign investment in corporate bonds. The financial
services space is a rapidly growing one in India. With constant deregulatory
measures, exposure to international financial markets, introduction of IT
enabled service facilities and the introduction of new products and services, the GBMR
Indian financial service sector is charting an impressive growth path. Vol. 2, No. 2 & 3, 2010
pp. 253-274
253
Introduction of communication and network technologies has created paradigm shifts in the
share market operations. Technology has enabled organizations to bring about innovations in
products and services. Exchanges all over the world has moved to electronic trading systems
which are cheaper, wider reach and provide a better mechanism for trade and post trade
execution.
The country received US$ 45 billion in foreign currency remittances from non-resident Indians
in 2008, the highest in the world. April-May 2009 saw increased inflow in to equity with
investors steadily turning positive on equity according to mutual fund analysts. As per the
Securities and Exchange Board of India (SEBI), on May 15, net investment of mutual funds in
equity was around US$ 83.3 million lowering to US$ 20.5 million on May 21. As against this,
net investment of mutual funds in debt has more than tripled from US$ 42.9 million on May 15
to US$ 134.2 million on May 31, 2009.
Financial Services
Service is something that consumers use at any moment of any day. Financial services constitute
a large and growing sector in almost all economies. Quality and effective financial service is the
backbone of a healthy economic system. Trade and investment flows in financial services have
been growing rapidly with the emergence of new and growing markets in developing and
transition economies, with modernization, rapid technological change, use of new financial
instruments, and financial and trade liberalization. The financial services sector is also quite
large and complex and covers a wide range of activities and instruments, including
Financial services organizations are striving to achieve increasingly ambitious profit and growth
targets against a background of heightened risk, regulation and market pressures. Customer
needs and expectations are evolving in the face of increasing personal wealth. Intense
competition has squeezed industry margins and forced organizations to cut costs while still
seeking to enhance the quality of client choice and service. The battle for talent is also heating up
as companies seek to enhance innovation, customer loyalty and investment returns. The corollary
of this market evolution is increasing risk as products become more complex, organizations more
diffuse and the business environment ever more uncertain. Regulation is also tightening in the
wake of public and government pressure for improved governance, transparency and
accountability.
In this environment, the winners will be companies that can turn the challenges into
opportunities to build stronger and more enduring customer relationships; sharpen process
efficiency; unlock talent and creativity; use improved risk management processes to deliver more
sustainable returns; and use new regulatory demands as a catalyst for strengthening the business
and enhancing market confidence. Organic growth, operational cost reduction, and risk and
regulatory compliance are among the most pressing issues facing financial institutions today.
Indian Capital Market

Capital market reforms are a major constituent of the overall economic reforms in India. A series
of measures announced in Union Budgets beginning FY92 laid the road map for the growth and
A new phase of securities market regulation in India began with the setting up of Securities and
Exchange Board of India in 1992. Over the period, the Board has brought in several changes in
the way securities markets are organized and conducted in India. Major reforms that were
brought in the Indian securities markets since 1992 are summarized below:
In tune with the global stock markets that began to recover from the second half of 2003; Indian
stock markets too witnessed rapid growth. India’s two leading indices, the most popular BSE
Sensex, and the one most used by the markets the National Stock Exchanges’ S&P CNX Nifty
rose to record levels. Both primary and secondary market activity experienced sharp surge. Much
progress was made in further strengthening and streamlining risk management, market regulation
254
and supervision. A few aspects of the major developments in the India’s stock markets are :
Corporate memberships, product offerings, Greater reliance on research, Accessing equity
capital markets, Specialised services/niche broking, Online broking, Compliance oriented, Focus
on training and skill sets, From owners to traders, Fragmentation, Capital Adequacy, Global
Opportunities, Opportunities from regional finance, Product Dynamics, Competition from
foreign firms, Investor Protection, Customer retention, Wealth maximization, Customer
satisfaction, Services quality, and Speed.
India’s share in the total world m-cap has risen to 2.79 per cent currently. India’s market
capitalization (m-cap) has touched US$ 1.04 trillion making it the ninth largest in the world.
Further, according to global consultancy firm, Deloitte Haskins & Sells, the Indian economy and
capital markets are expected to witness a turnaround within six to nine months. Fund raising by
India Inc through initial public offers (IPOs) rose by a whopping 62 per cent since the beginning
of 2008 to May 29, 2008 to US$ 4.2 billion, against US$ 2.6 billion during the same period in
2006, according to global deal data provider, Dealogic. According to Goldman Sachs, Indian
companies may raise US$ 4 billion-6 billion from IPOs in the fiscal year ending March 31, 2010.
Share Brokers
The market intermediaries play an important role in the development of securities market by
providing different types of services. Major intermediaries in the securities market regulated by
SEBI are brokers, sub-brokers, portfolio managers, merchant bankers, depository participants,
bankers to an issue and share transfer agents. During 2007-08, there was an increase in the
number of intermediaries registered. As on March 31, 2008, the highest increase in absolute
terms, was observed in case of depository participants (DPs) of CDSL (52) followed by portfolio
managers (47). A decline was witnessed, in the number of underwriters followed by registrar to
an issue and share transfer agent and debenture trustees as compared to 2006-07. The details are
provided in Table 3.1. Some of the intermediaries’ applications for registration were in the
process, the details of which are provided in
Indian stock market has essentially three categories of participants, the issuer of securities the
investors in the securities and the intermediaries. The issuers are the borrowers, who issue
securities to raise funds. The investors, who are surplus savers, deploy their savings by
subscribing to these securities. The intermediaries’ are the agents who match the needs of users
and suppliers of funds for a commission. These intermediaries perform functions to help both the
issuers and investors to achieve their respective goals. There is large variety and number of
intermediaries providing various services in the Indian securities market. The process of
mobilizations of resources is carried out under the supervision and overview of the regulators.
The regulators develop fair market practices and regulate the conduct of issuers of securities and
the intermediaries. They are also in charge of protecting the interests of the investors. The
regulator ensures a high service standard from the intermediaries.
Share brokers are the persons or firms who execute buy/sell order on behalf of the investors and
charge a commission for rendering the service. They are one of the most important constituent of
the whole share dealing process. Any investor has to place an order through a recognized share
broker of a stock exchange.
Share Brokers Type & Share Treading

Share Brokers are of various types such as, Floor Brokers These share brokers place and execute
orders on behalf of their clients (who are not allowed to the trading area) on the floor of the
exchange. Upstairs Brokers These brokers locate counterparties (out of their known traders) and
negotiate trade terms with them on behalf of their clients (who are usually heavy-weight ones).
They then execute the transaction at a rate better than the market rate and also at a less time.
Discount Brokers These share brokers charge less commission than the full service brokers but at
255
the same time doesn’t give any investment advice to their clients. Value Brokers These are a
type of discount brokers who charge commissions at a percentage rate of the currency value of
each transaction. This is typically helpful for the small traders who generally trade in small
quantities and generally invest in low-priced shares because the brokerage costing is relatively
less.
Share Brokers offer two types of share trading, Offline Share Trading In this form of trading the
customer either goes to the share broker’s place and sits before the share trading terminal and
asks the dealer to place orders in his account or rings the share broker, asks the share quotes and
other relevant information, and accordingly places orders over the phone.
Online Share Trading The client could avail the share market and could place his order on his
own from any place he wants, provided he has a computer with an Internet connection.
Electronic Treading
Electronic trading is a method of trading securities currency and exchange traded derivatives
electronically. With the help of information technology buyers and sellers are brought together
through electronic media to create a virtual market place. It is believed reliable than older
methods of trade processing in the stock exchanges. Electronic trading system reduces cost of
transactions, greater liquidity, and greater competition increased transparency, tighter spreads,
convenience, and speed.
Trading Software is an absolute requirement for one to watch every up and down ticks, monitor
your short positions, and stay on top of your stop loss settings etc. There are so many different
stock market software packages are available at present. The share broking firms offer different
software to different clients. Many professionals use some type of software to keep their
emotions in check and to enable them to focus on their strategies while avoiding the effects of
fear and greed.
Software has no emotions. It doesn’t love or hate the stock that you own and it doesn’t want to
get rich. It simply crunches numbers and tells you what it “thinks” about when to buy, sell, or
hold. And while it is not flawless, it’s a lot smarter than most of us are.
Significance of the Study

Financial service institutions are playing a vital role both in national economy construction and
individual wealth creation but the investors are facing number of problems and uncertainties to
name a few: Regularity norms, Capital market trends, International financial market trends,
Economic issues, Share market volatiles, Money market trends, Brokerages, Ineffective service
facilities provided by the share brokers, Reliability of information, Market rumors and so on.
According to Hand book of statistics on Indian securities market 2008, Securities &Exchange
Board of India had been received about 33, 76,888 compliant from investors during the period
1991-92 to 2007-08. This is about an average of 1, 98,640 Compliant per year which is about
800 compliant per treading day. This statistics is about the compliant reported by the investors in
fact the real number could be more than 4 to 5 times of dissatisfactions reported.
Table 1: Grievances Received from the investors

Year No. of Grievances Received
1991-92 18794
1992-93 110317
1993-94 584662
1994-95 516080
1995-96 376478
256
1996-97 217394
1997-98 511507
1998-99 99132
1999-00 98605
2000-01 96913
2001-02 81600
2002-03 37434
2003-04 36744
2004-05 54435
2005-06 40485
2006-07 26473
2007-08 54933
Source: Hand book of statistics on Indian securities market 2008
Share broking firms are also struggles to provide effective service to their customers because of
Difficulties in understanding investors needs, Complicated service standards ,Service satisfaction
measurement issues, Non availability of defined service models for different type of customers,
Categorization of investors, Difficult to distinguish investors behavior, Customers satisfaction
and so on. The study Investors Preference on Financial Services (With special reference to Share
broking services) provided by share brokers with special reference to Coimbatore tries to define
the problems faced by the share brokers and investors and proposed to suggest to improve the
level of investors satisfaction
The objectives of this research are to study the level of customer’s satisfaction about various
services provided by the share broking institutions and to study the investment preference of the
investors. Primary data has been collected from 500 investors in Coimbatore - India. Secondary
data has been collected from various sources like journals, magazines, previous researches,
books and websites. A well-structured questionnaire is developed to collect primary data from
the investors. It is found sampling method is the most appropriate to do the research. The
sampling plan for the study is stratified proportionate systematic sampling plan for selecting
investors. List of investors are obtained from the share brokers, from the list 40 investors from
each share brokers has been selected for the research.
The researcher identified 20 important services namely; Research reports, Live news , Securities
News, Intraday calls, Daily Technical review, Morning corporate news, Weekly Technical
Report, Sectoral Reports, SMS Alerts, Trinity Account , Call and Trade, Trading software, M-
Trade, Stock Ideas , Derivative Reports, Portfolio Advice, Report on Company Fundamentals,
Technical Company Charts, IPOs, After Market Orders and Market exposure for the analysis.
The following are the share breaking institutions identified for the research they are; ICICI
Direct, Kotak Securities, India info line, Karvy, Reliance Money, Indi bull financial, Angal
broking ltd, Giojit Securities, Mothilal Oswal, Emkay Global Financial Services, Stock holding
Corporation of India Ltd, and Others. The others include some regional brokers.
Primary data has been collected with the help of a well structured questionnaire consisting of all
appropriate questions for the research. In order to analysis the collected data various statistical
tools like correlation analysis, weighted average to rank the factors and factor analysis has been
carried out and inference also drawn.
257
Results and Discussion

Stock Brokers
Share Brokers (individuals or firms) are registered agents of stock exchange(s) who act as
intermediary between buyers and sellers of shares and in return charge a commission for doing
the same. They buy or sell share on behalf of their clients. The number of share brokers in India
is in increasing trend because the requirement of financial services in India.
Table 2: Exchange-wise Stock Brokers Registered with SEBI

As on March 2007 As on March 2008
Number of Total Number Number of
Total Number of
Stock Exchange Corporate of Stock Corporate
Stock Brokers
Brokers Brokers Brokers
Ahmadabad 317 153 321 157
Bangalore 256 125 256 124
BSE 901 722 946 767
Bhubaneswar 216 19 214 19
Calcutta 960 204 957 204
Cochin 432 80 435 80
Coimbatore 135 48 135 48
Delhi 374 213 374 213
Gauhati 104 3 103 3
ISE 925 336 935 245
Tripura 492 18 488 18
Ludhiana 293 85 297 85
MPSE 174 35 174 34
Madras 181 71 181 71
NSE 1077 988 1129 1039
OTCEI 752 574 714 551
Pune 188 55 188 55
UPSE 384 82 354 78
Vadodara 311 64 311 64
Source: Source: Hand book of statistics on Indian securities market 2008
The above table shows the number of share brokers during 2007and 2008. The total number of
registered stock brokers as on March 31, 2008, was 9,487 as compared to 9,443 in 2006-07. The
share of corporate brokers to the total stock brokers increased marginally to 44.1 per cent in
2007- 08 from 43.5 per cent in 2006-07. NSE had the highest number of 1,129 registered stock
brokers, followed by the Calcutta Stock Exchange (957), Bombay Stock Exchange Ltd. (946)
and Inter-connected Stock Exchange (ISE) (935). NSE had also the highest number of corporate
brokers (1,039), constituting 92.0 per cent of the total stock brokers of NSE. The proportion of
corporate brokers at BSE and OTCEI was 81.1 per cent and 76.6 per cent, respectively.
Coimbatore stock exchange the registered share brokers and corporate brokers are constant
135and 48 respectively for the year 2007 and 2008. It seems that Coimbatore stock exchange is
not very active and business activities are restricted for the last two years.
258
Global Business
Registered Intermediaries
Indian brokerage industry is highly fragmented. Numerous small and medium firms operate in
this space. Given the growing importance of technology in operations and increasing emphasis
on regulatory compliance, smaller firms might find it constrained to make right type of
investments that will help in business growth and promotion of investor interests.
Table 3: Registered Intermediaries

Type of Intermediaries As on March 2007 As on March 2008
Registrar to issue and share Transfer
82 76
Agent
Banker to an issue 47 50
Debenture Trustee 30 28
Merchant banker 152 155
Portfolio Manager 158 205
Underwriter 45 35
DPs-NSDL 230 239
DPs-CDSL 363 415
Credit Rating Agency 4 5
The intermediaries involved in share market operations are Registrar to issue and share Transfer
Agent, Banker to an issue, Debenture Trustee, Merchant banker, Portfolio Manager,
Underwriter, DPs-NSDL, DPs-CDSL CDSL and Credit Rating Agency. The number of portfolio
managers are increased 158 in 2007 and 205 in 2008 ie 30% increase. The Customers are
expecting more advice of experts in recent years. Whether it is on choosing a stock or sector or
anything regarding investments all the customers’
c queries will be answered. DPs-CDSL
DPs number
also increased from 363 during 2007 and 415 during 2008 ie 14% increase.
Credit Rating Agency

DPs-CDSL
CDSL
DPs-NSDL
NSDL
Underwriter
Portfolio Manager As on March 2008
Merchant banker As on March 2007
Debenture Trustee
Banker to an issue
Registrar to issue and share Transfer…
0 100 200 300 400 500
Figure 1: Registered Intermediaries
Table 4: Registered Sub-brokers

As on March 2007 As on March 2008
Number of Sub-
Sub
Stock Exchange Number of Sub- Brokers
Brokers
Ahmedabad 97 97
259
Vol. 2, No. 2 & 3 Global Business
Bu and Management Research: An International Journal
Bangalore 156 156

BSE 13482 20616
Bhubaneswar 17 17
calcutta 87 87
Cochin 42 42
Coimbatore 21 21
Delhi 292 227
Gauhati 4 4
ISE 3 3
Taipure 33 33
Ludhiana 37 37
MPSE 5 5
Madras 112 112
NSE 12724 22144
OTCEI 19 19
Pune 158 158
UPSE 14 8
Vadodara 38 38
Sub-broker
broker means any person not being a member of a stock exchange who acts on behalf of a
stock-broker
broker as an agent or otherwise for assisting the investors in buying, selling or dealing in
securities through such stock-brokers.
brokers. The stock broking business of regional stock exchange
(RSE) subsidiaries has been in increasing trend. This is because of new norm that implemented
by SEBI barring the RSE members from dealing directly with clients. The numbers of sub- sub
brokers are increased in BSE 13,482 during 2007 and 20,616 in 2008. The growth of sub-brokers
sub
in Bombay stock exchange is 53%.and National stock exchange is 74% the is due to SEBI s new
norms. The figure remains consent in Coimbatore.
Coim
100%
90%
80%
70%
60%
50%
40% Number of Sub-
Sub Brokers 2008
30% Number of Sub-
Sub Brokers -2007
20%
10%
0%
Figure 2: Registered Sub-brokers
260
Investors Profile
The investors profile includes information relating to the average number of family members,
their monthly income,number of family members and earning members,investment preference
and investment amound.
Table 5: Average number of Family members and Income

Average No of earning Average family
Income No. of investors
Members members
Below 10000 50 1 3.8
10001-20000 65 1.4 4.2
20001-30000 110 2 4.4
30001-40000 150 2.2 4.5
40001-50000 75 2.4 4.5
Above 50000 50 2.5 4
0.095 0.96 0.75
r
0.32 0.58
Source: Primary data
The above table revels that the income cateogries of the investors and the number of
investors.The analsis also demonstrate the average number of earning members and average
family members. The analysis revels that there is a positive correlation between income and
number of investors (r=0.09). It is found there is a perfect correlation between the monthly
income of the investors and the average number of earning members in the family (r=0.96) and
average family members income (r=0.75). There is a positive correlation between number of
investors and average number of investors (r=0.32) and average fanily members (r=0.58).
Investment Preference
Table 6
Mutual Small Share Real Commodity Currency
Income Bank Gold Insurance Others
Fund Savings Market Estate Market Market
Below
32 28 12 15 8 12 41 0 0 1
10000
10001-
42 39 18 19 18 17 57 2 2 3
20000
20001-
87 78 29 21 48 29 98 7 6 7
30000
30001-
97 84 43 36 65 38 136 12 8 8
40000
40001-
42 38 30 15 52 24 67 10 9 4
50000
Above
50 39 15 19 38 20 48 8 7 6
50000
Average 58.33 51 24.5 20.83 38.16 23.33 74.5 6.5 5.33 4.83
Median 46 39 23.5 19 43 22 62 7.5 6.5 5
SD 26.88 23.68 11.67 7.80 21.56 9.24 36.11 4.637 3.55 2.63
Variance 722.66 560.8 136.3 60.96 464.97 85.46 1304.3 21.5 12.66 6.96
There is a wide verity of investment opportunities available to the investors while they like to
invest. The investment options considered for the research is Bank, Gold, Mutual, Fund, Small
savings, Share market, Real Estate, Insurance, Commodity Market, Currency Market, Others
(others include EPF schemes, Government bonds, and all other kind of investments). The
261
product offerings of brokerage firms today go much beyond the traditional trading of equities.
The investors preferences also changed
changed to a great extend. A typical brokerage firm today offers
trading in equities and derivatives, commodities futures, exchange traded funds, distributes
mutual funds and insurance and also offers personal loans for housing, consumptions and other
related loans, offers portfolio management services, and some even go to the extent of creating
niche services such as a brokerage firm offering advisory services. The investor’s
investor investment
options are displayed in the above table shows the investors preference. It is found from the
research that an average of 58 investors prefers to invest in bank, 51 in Gold and 74 in insurance.
Currency market and commodity market are not very popular among the Indian investors.
140
120
100
80
Below 10000
60
10001-20000
40
20001-30000
20
40001-50000 30001-40000
0
20001-30000 40001-50000
Below 10000 Above 50000
Figure 3: Investment Preference
Table 7: Investor Profession and Investment Preference

Profession
and Bank Gold Insurance Others
Fund savings Market estate Market Market
Investment
Private
84 69 25 12 87 42 91 4 4 2
Employees
Govt.
93 121 54 63 31 31 100 2 1 2
Employees
Self
72 56 25 14 54 34 90 14 12 14
Employed
Professionals 47 37 21 21 36 21 100 15 10 7
Others 54 23 22 15 21 12 66 4 5 4
Source: primary data
The above analysis revels that there is a close correlation between investor’s
investor profession and their
investment pattern. The investors mostly like to invest in Gold and bank since both are very safe
investment. It is found the investors are almost invested in insurance this is may be due to the
security aspect of their life.
262
Table 8: Investment preference on Share Marker

Share Nifty
Nifty Bank Nifty Nifty
Income Market Mid BSE Others
Fifty Nifty IT Junior
(Total) Cap
Below 10000 8 4 2 1 4 2 3 3
10001-20000 18 10 5 4 8 7 4 5
20001-30000 48 24 12 10 21 28 12 14
30001-40000 65 40 28 14 19 24 12 21
40001-50000 52 43 32 16 32 37 15 19
Above 50000 38 24 18 12 27 32 12 24
Average 38 24 16 10 19 22 10 14
The above analysis revels the investors preference on share market. Investors prefer to invest in
Nifty fifty, Bank Nifty, Nifty IT, Nifty Junior, Nifty mid cap, BSE, and others. The research
revels that an average of 24 investors prefer to invest their money in Nifty fifty and 22 investors
prefer to invest in Nifty mid-cap. The srudy also revels the closerness of income and investment
in share market.
Table 9: Investment Amount (Rs. Average Per month)

Income Bank Gold Insurance Others
Fund Savings Market Estate Market Market
Below
1864 1624 689 784 582 540 621 0 0 500
10000
10001-
2089 1950 748 854 739 600 700 350 320 521
20000
20001-
2850 2415 954 987 1124 800 921 500 514 321
30000
30001-
2800 2200 1230 1000 1400 1240 1230 425 542 452
40000
40001-
4210 3125 1500 2000 3450 3200 2140 625 687 514
50000
Above
5200 4012 3200 1800 4812 4125 2560 900 1120 1500
50000
r 1 0.99 0.93 0.73 0.92 0.99 0.99 0.87 0.98 0.73
The above analysis discloses the average money saved by the investors. SEBI-NCAER Survey
of Indian Investors, March 2003 reveals that only 0.4% of the investors invest in equity market.
The research proves that there is a perfect correlation between income and investment in various
investment opportunities. SEBI-NCAER Survey of Indian Investors, June 2000 shows that
76.2% of the house hold investors invest in bank deposit. The present study also proves that the
investor’s first preference is bank deposit.
263
6000
5000
4000
Below 10000
3000
10001-20000
2000
20001-30000
1000
30001-40000
0 40001-50000
Above 50000
Figure 4: Investment Amount (Rs. Average Per month)
Table 10: Investment in Share Market

Nifty Nifty Nifty Mid
Income Bank Nifty Nifty IT BSE Others
Fifty Junior Cap
Below 10000 100 120 0 220 142 0 0
10001-20000 120 139 0 250 150 80
20001-30000 150 170 0 400 350 54
30001-40000 200 200 0 350 250 100 300
40001-50000 700 450 200 640 580 200 680
Above 50000 1100 700 362 680 690 380 900
Service Providers
There are about 48 corporate share brokers in Coimbatore out of which 12 share brokers has
been selected for the research. Reliance Money, It is a one-stop-shop, providing end-to-end
financial solutions (including mobile and web-based services). Kotak Securities Ltd. 100 %
subsidiary of Kotak Mahindra Bank is one of the oldest and largest broking firms in the Industry.
Its offerings include stock broking through the branch and Internet, Investments in IPO, Mutual
funds and Portfolio management service. India bulls Group is one of India’s top Business houses
with businesses spread over Real Estate, Infrastructure, Financial Services, Securities, Retail,
Multiplex and Power sectors. Indiabulls Financial Services is an integrated financial services
powerhouse providing Consumer Finance, Housing Finance, Commercial Loans, Life Insurance,
Asset Management and Advisory services. The India Infoline group, comprising the holding
company, India Infoline Limited and its wholly-owned subsidiaries, straddle the entire financial
services space with offerings ranging from Equity research, Equities and derivatives trading,
Commodities trading, Portfolio Management Services, Mutual Funds, Life Insurance, Fixed
deposits, GoI bonds and other small savings instruments to loan products and Investment
banking. Stock Holding Corporation of India Ltd. (SHCIL) was incorporated at the special
initiative of the Government of India as a Public Limited Company in 1986. It has been jointly
promoted and owned by the All India Banks and Financial Institutions, viz., IDBI Bank Ltd,
ICICI Bank, SU-UTI, IFCI Ltd, LIC, GIC, NIA, NIC, UIC, and TOICL all leaders in their fields
of business. SHCIL has established itself in India as a one-stop solution provider in the Financial
Services domain. Emkay Global Financial Services Ltd. (EMKAY), a truly Indian, dynamic and
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visionary firm, and a trusted name in the financial services arena, offers the entire gamut of
advisory services under one roof. Right from investing, trading, research and financial planning
to portfolio management services, we provide our clients with integrated, robust and reliable
solutions to satisfy all their financial needs. Geojit BNP Paribas Financial Services Ltd. provides
a range of trading and investment products and solutions primarily in India. It offers various
products and services, including equities, derivatives, currency futures, custody accounts, mutual
funds, life and general insurance, initial public offerings, portfolio management services,
property services, margin funding, and loans against shares. Motilal Oswal Securities Ltd.
(MOSL) was founded in 1987 as a small sub-broking unit. A well diversified financial services
firm offering a range of financial products and services such as Wealth Management, Broking &
Distribution, Commodity Broking, Portfolio Management Services, Institutional Equities,
Private Equity, Investment Banking Services and Principal Strategies. Angel Broking’s tryst
with excellence in customer relations began in 1987. Today, Angel has emerged as one of the
most respected Stock-Broking and Wealth Management Companies in India. With its unique
retail-focused stock trading business model, Angel is committed to providing ‘Real Value for
Money’ to all its clients. The Karvy group was formed in 1983 at Hyderabad, India. Karvy ranks
among the top player in almost all the fields it operates
Table 11: Factors considered for selection of a specific share broker

Rank
Factors
1 2 3 4 5
Service quality 216 126 84 27 31
Popularity of the share brokers 48 98 34 87 46
Service providers 27 42 42 45 54
Service facility 12 33 41 42 63
Technology 49 51 48 55 54
Price 15 9 24 42 21
Service products offered 26 12 27 54 32
Communication 9 7 24 25 24
Advertisement 6 7 21 14 41
Investment advises 21 24 31 19 42
Promotion schemes 7 9 27 17 21
Customer care 24 42 43 15 15
Service delivery process 12 15 27 31 24
Service standards 28 25 27 27 32
Service quality is a concept that has aroused considerable interest in the share broking
institutions in both defining it and measuring it. Institutions striving hard to formulate a definite
service quality measurement models so that institutions and investors could understand each
other. The investors also give first preference to service quality. While supermarkets approach
are adopted in general by broking firms, there are some which are creating niche services that
attract a particular client group such as day traders, arbitrage trading, investing in small cap
stocks etc, and providing complete range of research and other support to back up this function.
Issues of investor interest and Customer care will assume centre stage. Firms found not having
suitable infrastructure and processes to ensure investor safety and protection will encounter
constraints from regulation as also class action suits that investors might bring against erring
firms. The present study revels that the customers are note very much satisfied with the
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customer care taken by the share brokers. It is important for brokerage firms to establish strong
and streamlined systems and procedures for ensuring investor safety and protection. Retaining
the investor is the most challenging situation for any share broking service institution. Since the
growth of media and information technology the customer’s expectations are changed to a great
extent. When the institution fails to deliver the required service expectation the customer quickly
swing to other service provider. Creating an ideal environment and atmosphere for the customer
within is certainly a difficult task but a firm should understand the investors.
It is very important to match the customer’s expectation and institutions objectives in this regard.
Share broking firms must take utmost care to understand investor’s short term as well as long
term requirement to frame a definite plan of action in the stock market considering internal and
external market environment.
One thing which is certain in the uncertain Share Markets is the need for speed. Response time is
of extreme importance and every second can be an opportunity or a failure. This need for speed
coupled with technology escalating market data volumes across all asset classes have forced to
re-look at their service provider. The investors evaluate share brokers ability to adopt the latest
information technology by their broker and the one who could convert the best possible
information service to their customer is well appreciated.
Table 12: Investor’s satisfaction towards their service providers

Share brokers Rank
ICICI Direct 104 6
Kotak Securities 118 2
India info line 129 1
Karvy 90 12
Reliance Money 98 10
Indi bull financial 102 9
Angal broking ltd 104 6
Giojit Securities 116 3
Mothilal Oswal 105 5
Emkay Global Financial Services 97 11
Stock holding Corporation of India Ltd 104 6
Others 163 4
The rank analysis revels that the customers’ satisfaction level is high in India Info Line and Low
in Emkay Global financial services. Client advising in India has graduated from personal
insights, market tips to becoming extensively research oriented and governed by fundamentals
and technical factors. Vast progress has been made in developing company research and refining
methods in technical and fundamental analysis. The research and advice are made online giving
ready and real time access to market research for investors and clients, thus making research
important brand equity for the brokerage firms.
266
Investor’s satisfaction towards their service providers

Table 13: Correlation Matrix
1 2 3 4 5
1 1.0000 0.8451 0.9063 0.0648 0.0087
2 0.8451 1.0000 0.8409 0.4066 0.2460
3 0.9063 0.8409 1.0000 0.0562 0.1898
4 0.0648 0.4066 0.0562 1.0000 0.4686
5 0.0087 0.2460 0.1898 0.4686 1.0000
The above correlation matrix explains the relationship between the various factors and the
investors ranking. The table revels that the ranking factors one two and three are closely
correlated than other variables.
Factor Importance
The Factor Importance table shows the relative and cumulative amount of variance explained by
each factor.
Factor Eigenvalue Variance % Cumulative % Scree Plot
1 2.73651 54.730 54.730 ********************

2 1.13884 22.777 77.507 ********
3 0.12076 2.415 79.922
4 -0.00302 . .
5 -0.11792 . .
Stop when cumulative explained variance = 80%
Minimum allowed eigenvalue = 0.50000
Number of factors retained = 2
The factor importance chart lists each factor, its associated eigenvalue, the percent of total
variance explained by the factor, and the total cumulative variance explained by all factors up to
and including this one. One popular rule of thumb in determining how many factors to use is to
only use factors whose eigenvalues are at least 1.0.
Communalities
Initial Final Common Var. % Unique Var. %
1 0.8832 0.9301 93.008 6.992

2 0.8708 0.9102 91.020 8.980
3 0.8866 0.8896 88.956 11.044
4 0.5786 0.8967 89.672 10.328
5 0.4080 0.2486 24.860 75.140
Communalities did not converge. After 101 iterations, final difference = 2.7913e-004
Communality is the percent of variance in a variable that is accounted for by the retained factors.
267
Rotated Factor Matrix

Fac1 Fac2
1 0.9643 * -0.0119
2 0.8752 * 0.3798
3 0.9414 * 0.0575
4 0.0451 0.9460 *
5 0.0845 0.4913
Var. 2.737 1.139
There are several methods of rotating the factor matrix that make the relationship between the
variables and the factors easier to understand. The factor matrix presented above is the result of
rotating the factor matrix. In this case Varimax rotation was used. The research reveals that the
rank one two and three are closely related so we could conclude that the customer satisfaction
towards various share brokers are highly satisfied.
Services offered by the share brokers

Research reports are the key for any investor to decide weather to invest or not, most of the
share brokers provide extensive research report to their customers Most of them are having
Securities Research Centers, the special research cell bring intensive research reports on how the
stock market is faring, when is the right time to invest, when to execute your order and ore.
Depending on the kind of investor they provide fundamental, technical research reports.
Securities News: They have access to all news related to a stock, right from its results, earnings,
bonus, share holding patterns etc. Also know about market developments, latest happenings,
stock movements and lots more.
Intraday calls: these calls are provided according to changing market situations. Be in news,
momentum or technical perspectives be updated with what are experts advice are communicated
during the market hours.
Daily Technical View summarizing the previous day’s movement and what is expected to
happen on the current day. This report will also provide calls for trading along with various
supports and resistances of chosen stocks.
Morning Corporate News: the investors also have information on all daily economic, political
and various other factors which affect the fundamentals of a company.
Weekly Technical Report: This weekly technical report brings a complete round up of the
week gone by - recommendations, major supports and resistances, what to look forward to and
lots more.
Sectoral Reports are the other important information for the customers to decide which sector
will boom. Sectoral report can guide them to know the details including the effect of government
policies and regulations and estimates about how the sector is expected to behave.
SMS Alerts: All the broker houses are providing expert tips and recommendations as SMS on
customer’s mobile phone so that he knows what to invest in at all times.
Trinity Account: A 3 in 1 account that integrates the Trading, Bank and Demat account. With
Trinity Account all the transactions will be seamless and very convenient for the customers.
Call and Trade: The customer can capitalize on market opportunities even when his computer
is inaccessible. Call & Trade essentially provides him the convenience of trading in equities by
making a simple phone call.
Trading software: Most of the share brokers are providing Securities E-trading Access
Terminal with most sophisticated software this superior trading platform is to monitor market
movements, view gains and losses and order placements instantaneously.
268
M-Trade: It is exclusively designed to give instant access to the stock market through mobile
phone, thereby allowing the customer to catch every little market movement when he is on the
move.
Stock Ideas: Share brokers are providing stock ideas. Stock brokers picks out potential stocks
which can provide immense scope for returns on investments. This is report is completely based
on fundamentals.
Derivative Reports: Customers can view the put call ratio, the most active derivative contracts
and the top change in open interest. Investors can also get FII statistics, the top gainers and losers
and the cost of carrying out various derivative contracts.
Report on Company Fundamentals: Investors get access to information on results, profit and
loss statements, company specific news, announcements, share holding pattern, promoters,
auditor reports, bonus, dividend and lots more.
Technical Company Charts: Every stock can be seen on a chart, both for Intraday as well as
EOD analysis. Along with the charts you also get to use 52 different indicators and additional
studies to do your technical analysis.
IPOs: Investors get to know each and every IPO details, the ones which are currently on, which
have listed and also the ones which are due. Customers can get every bit of information related
to these IPOs.
After Market Orders: Many brokers allow the customer to place orders after and before the
market hours ie before 9.55am and after 4.15pm. This facility will be of very useful for the
customers who can predict the market even after or before the trading hours.
Market exposures are the multiple received against the margin money. The exposure varies
from brokers to broker. Some brokers provide exposure against the shares lying in the
Depository Participant (DP) account also called as De mat account.
The share brokers are not only confined themselves to the above said services they are also
providing much more personalized services to their customers i.e. Personalized investment
advice, Finance against securities, investors camp,
Table 14: Investor’s satisfaction

Factors Weighted Average Score Rank
Research report 374.25 2
Security news 335 7
Intraday call 322.75 10
Daily technical View 330.5 9
Morning Corporate News 311.5 15
Weekly tech Report 337.5 7
Sectorial report 317.75 14
SMA Alerts 292.5 16
Trinity Acc 344.25 6
Call & trade 368.75 4
Trading software 372.5 3
M-trade 261.5 19
Stock ideas 274.25 17
Derivative Report 265.25 18
Portfolio Advice 318 13
Com rep 321.25 12
Tech 323.75 11
IPO 397.5 1
269
After Market Orders 360.25 5

Market Exposure 251.5 20
Survival of any service institution is purely based on the customer’s

customer s satisfaction. There are
number of services offered by the share brokers the most important services are analysised. The
customers are very much satisfied about IPO facilities offered by the service providers. The
customers are also happy with the research report and trading software. Most Mo of the customers
are having problems with the service providers relating to their market exposure. They were also
not very happy with mobile trading facilities offered and derivatives report. The ranks express
the view that the modern services are not reaching properly and customer’ss satisfaction is also
poor. Share brokerage
rokerage firms in India made much progress in pursuing growth and building
professionalism in operations.
The brokerage industry being very dynamic, changes could be rapid and so as the challenges
c that
emerge from time to time. As domestic finance matures and greater flow of cross border flows
continue, new market segments will come into force, which could benefit the domestic brokerage
firms, if they are well prepared. Brokerage firms had newer opportunities in the form of
commodities futures, distribution of insurance products, wealth management, mutual funds etc,
and as the market momentum continues, broking firms will have an opportunity to introduce a
wider number of products also. At this juncture it is essential that share brokers must care a great
deal about the customers and their satisfaction.
100%
90%
80%
70%
60%
50%
40%
30% Series4
20%
10%
0% Series3
Tech
Research report
Derivative Report
Daily technical View
ME
Com rep
ipo
SMA allerts
Stock ideas
Interday call
Weekly tech Report

Sectorial report
Call & trade
M-trade
Portfolio Advice
ama
Security news
Trinity Acc
Trading soft weare

Morning corp news
Series2
Series1
Figure 5: Investors Satisfaction
Investor’s Satisfaction on Service Provider and their Services.

Several brokers are extending benefits of online trading through creation of separate windows to
satisfy the customers. The customer satisfaction is the key for success of any firm. The
researcher has made factor analysis to know the relationship between variables.
270
Table 15: Correlation Matrix
The above table explains the relationship between the various share brokers and the customer's
satisfaction towards their service offerings. The tables explain the customers are having a
271
positive opinion towards their service providers since the correlation matrix revels in positive
values.
Factor Importance
Factor Eigenvalue Variance % Cumulative %
1 7.38309 61.526 61. 526

2 1.02454 8.538 70.064
3 0.48974 4.081 74.145
4 0.29050 2.421 76.566
5 0.08761 0.730 77.296
6 0.07966 0.664 77.959
7 -0.04086
8 -0.06880
9 -0.11360
10 -0.15826
11 -0.18409
12 -0.38189
Stop when cumulative explained variance = 80%
Minimum allowed eigenvalue = 0.50000
Number of factors retained = 1
The above table shows the relative and cumulative amount of variance explained by each factor.
The analysis revels that the variance for the factor 1 (Service Quality) has the high degree of
variance when it has been compared with other factors.
Communalities
Initial Final Common Var. % Unique Var. %
ICICI Direct 0.6364 0.3650 36.503 63.49
Kotak Securities 0.8026 0.6903 69.027 30.9
India Info line 0.5894 0.7345 73.445 6.55
Karvy 0.5894 0.4860 48.600 51.40
Reliance Money 0.5301 0.3641 36.413 63.58
Indi Bull Financial 0.8566 0.6882 68.817 31.18
Angal Broking ltd 0.9196 0.7693 76.933 23.06
Giojit Securities 0.9196 0.8992 89.919 10.08
Mothilal Oswal 0.9138 0.8669 86.692 13.30
Emkay Financial Services 0.8905 0.9525 95.246 4.75
Stock Holding India ltd 0.9162 0.8091 80.909 19.09
Others 0.9162 0.7826 78.258 21.74
Communalities converged after 36 iterations.
Communality is the percent of variance in a variable that is accounted for by the retained factors.
The study reveals that communality variance higher for Emkay Financial Services (95%) and for
ICICI Direct it is less (36.5).
272
Rotated Factor Matrix

Fac1
ICICI Direct 0.5630
Kotak Securities 0.8197 *
India Info Line 0.5512
karvy 0.4774
Reliance money 0.5293
India Bull Financial 0.8295 *
Angel Broking ltd 0.8732 *
Giojit Securities 0.9481 *
Mothilal Oswal 0.9301 *
Emkay Services 0.9733 *
Stock Holding 0.8540 *
Others 0.8315 *
Var. 7.383
The factor matrix presented above is the result of rotating the factor matrix. In this case Varimax
rotation was used. The research reveals that the customers satisfaction towards various services
provided by the share brokers. The level of customer satisfaction is high for the share brokers
like Kotak Securities (0.8197), India bull Financial Services (0.8925), Angel Broking ltd
(0.8732), Giojit Securities (0.9481), Mothilal Oswal (0.9301) Emkay Services (0.9733), Stock
Holding (0.8540) and Others (0.8315). The customers’ satisfaction is low in the case of ICICI
Direct (0.5630) India Info Line (0.5512) Karvy (0.4774), Reliance money (0.5293).
Concluding Remarks
According to Hand book of statistics on Indian securities market 2008, Securities &Exchange
Board of India had been received about 33, 76,888 compliant from investors during the period
1991-92 to 2007-08. This is about an average of 1, 98,640 Compliant per year, which is about
800 compliant per treading day. This shows the customers' dissatisfaction towards the service
provider and the regulatory norms.
The share of corporate brokers to the total stock brokers increased marginally to 44.1 per
cent in 2007- 08 from 43.5 per cent in 2006-07.
An average of 58 investors prefers to invest in the bank, 51 in Gold and 74 in insurance.
Currency market and commodity market are not very popular among the Indian investors.
Service quality is a concept that has aroused considerable interest in the share broking
institutions in both defining it and measuring it.
The customers are very much satisfied about IPO facilities offered by the service providers.
The level of customer satisfaction is high for the share brokers like Kotak Securities
(0.8197), India bull Financial Services (0.8925), Angel Broking ltd (0.8732), Giojit
Securities (0.9481), Mothilal Oswal (0.9301) Emkay Services (0.9733), Stock Holding
(0.8540) and Others (0.8315). The customers’ satisfaction is low in the case of ICICI Direct
(0.5630) India Info Line (0.5512) Karvy (0.4774), Reliance money (0.5293).
There is a growing surge of corporate memberships (92% in NSE and 75% in BSE), and the
scope of functioning of the brokerage firms has transformed from that of being a family run
business to that of professional organized function that lays greater emphasis on observance of
market principles and best practices. Brokerage firms are giving importance to training on skill
sets of the service employees that could prove to be beneficial in the long run to retain the
273
customers. With the nature of markets and products becoming more complex, it becomes
imperative for the broking firms to keep their staff continuously updated with latest development
in practices and procedures. Greater emphasis on aspects such as research and analysis is giving
scope for in-depth training and skills sets on topics such as trading programs, valuations,
economic and financial forecasting and company research.
Sasi Kumar can be contacted at: jeffinsasi@yahoo.co.in
274
Vertical Decomposition Approach for Two

Stage Capacitated Warehouse Location
Problems
Priyanka Verma and R. R. K. Sharma
Indian Institute of Technology, India
Abstract
Purpose - Two Stage Capacitated Warehouse Location Problem (TSCWLP) is having
the characteristics similar to bulk commodity distribution problems. This is a type of
facility location problem explored by the authors for last two decades. This paper
studies a new method of solving TSCWLP.
Design/methodology/approach - In this approach, TSCWLP is vertically
decomposed into smaller problems, which is attained by relaxing the associated flow
balance constraints. This leads to three different versions of Capacitated Plant
Location Problem (CPLP) referred as RHS_CPLP, MID_CPLP and LHS_CPLP here.
A variety of Linear and Lagrangian relaxations of LHS_CPLP and RHS_CPLP are
developed and a comparison of their relative strength is done. Different (strong and
weak) linear relaxations of MID_CPLP are formulated and their relative strength is
compared. Finally, a method is developed for solving complete TSCWLP with the
help of LHS_CPLP, MID_CPLP and RHS_CPLP.
Findings - This paper identifies the need to develop computationally effective
Lagrangian relaxation for MID_CPLP. The paper is also enriched with computational
experiences on a variety of problems.
Keywords: TSCWLP, Location, Transportation, Distribution
Introduction
In any organization, one of the most important strategic decisions is to locate
facilities viz. factories, plants or warehouses. While locating a facility, the most
prioritized criterion is a good service level. However, achievement of an
economic optimality is also a key decisive factor. Based on the number of
stages between the producing facility and the market, there are different types
of facility location problems like simple plant location problem, single stage /
two stage warehouse location problem and multistage facility location problem.
A latest review of literature on location problems can be found in Sahin and
Sural (2007) and ReVelle et al. (2008). Multistage warehouse location
problems are frequently occurring in real life (see: Geoffrion and Graves, 1974;
Sharma, 1991; and Sharma, 1996). In this work, we will discuss Two Stage
Capacitated Warehouse Location Problem (TSCWLP). If the distance between
the plants and markets is too high and there are two sets of warehouses
between them, their intermediate distances (plants - warehouse 1 (whs-1) -
warehouse 2 (whs-2) - markets) become comparatively less. Here it is assumed
that warehouses have finite capacity and single commodity is considered for
distribution.
GBMR
Vol. 2, No. 2 & 3, 2010
pp. 275-284
275
The locations of the potential warehouses are known and each has a fixed cost associated with it.
The problem is to choose such warehouses for which (fixed location cost associated with (whs-1
and whs-2) + transportation cost from (plants to whs-1 + whs-1 to whs-2 + whs-2 to markets)) is
minimum while satisfying the demands at each point.
Formulations of TSCWLP
Problem formulation
TSCWLP studied by Sharma and Namdeo (2005) uses the new formulation style (Sharma and
Sharma, 2000) to develop a variety of constraints that link real and 0-1 integer variables. They
have also developed some strong constraints based on Sharma and Berry (2007).
Constants Definition
Here index ‘h’ is used for plants, ‘i’ for whs-1, ‘j’ for whs-2 and ‘k’ for markets.
Dk : Demand for the commodity at market ‘k’

dk : Dk / ∑ Dk , Demand at market ‘k’ as a fraction of total market demand.
fws1i : Fixed cost of locating a stage 1 warehouse at ‘i’
fws2j : Fixed cost of locating a stage 2 warehouse at ‘j’
Sh : Supply available at plant ‘h’
sh : S h / ∑ Dk , Supply available at plant ‘h’ as a fraction of the total market demand.
CAPWS1i : Capacity of a stage 1 warehouse ‘i’
CAPWS2j : Capacity of a stage 2 warehouse ‘j’
capws1i : CAPWS1i / ∑ Dk , Capacity of whs-1 at ‘i’ as a fraction of total market demand.
capws2j : CAPWS 2 j / ∑ Dk , Capacity of whs-2 at ‘j’ as a fraction of total market demand.
cpws1hi : Cost of transporting ∑ Dk goods from plant ‘h’ to whs-1 ‘i’
cws1ws2ij : Cost of transporting ∑ Dk goods from whs-1 ‘i’ to whs-2 ‘j’
cws2mjk : Cost of transporting ∑ Dk goods from whs-2 ‘j’ to market ‘k’
Variable Definition
XPWS1hi : Quantity of commodity transported from plant ‘h’ to whs-1 ‘i’.
xpws1hi : XPWS1hi / ∑ Dk , Quantity transported from ‘h’ to ‘i’ as fraction of total demand.
XWS1WS2ij : Quantity of commodity transported from whs-1 ‘i’ to whs-2 ‘j’.
xws1ws2ij : XWS1WS 2 ij / ∑ Dk , Quantity transported from ‘i’ to ‘j’ as fraction of total
demand
XWS2Mjk : Quantity of commodity transported from whs-2 ‘j’ to market ‘k’
xws2mjk : XWS 2M jk / ∑ Dk , Quantity transported from ‘j’ to ‘k’ as fraction of total
demand
yws1i : 1 if stage 1 warehouse is located at ‘i’, 0 otherwise
yws2j : 1 if stage 2 warehouse is located at ‘j’, 0 otherwise
Mathematical Formulation
The cost minimization problem for the TSCWLP can be written as follows:
276
Objective:
Z = Min∑∑ xpws1hi cpws1hi + ∑∑ xws1ws 2 ij cws1ws 2 ij + ∑∑ xws 2m jk cws 2m jk
h i i j j k
(1)
+ ∑ fws1i yws1i + ∑ fws 2 j yws 2 j
i j
This can be rewritten as:
Minimize Z = f1 + f 2 + f 3 ,
Where
f1 ( xpws1hi , cpws1hi , yws1i , fws1i ) = min
xpws1, yws1
∑∑ xpws1hi cpws1hi + 12 ∑ fws1i yws1i
h i i
f 2 ( xws1ws 2 ij , cws1ws 2 ij , yws1i , yws2 j , fws1i , fws 2 j ) = min ∑∑ xws1ws2 ij cws1ws2 ij
xws1ws 2, yws1, yws 2
ij
+ 12 ∑
fws1i yws1i + 12 ∑ fws 2 j yws 2 j
i j
f1 ( xws 2m jk , cws 2m jk , yws 2 j , fws 2 j ) = min

xws 2 m, yws 2
∑∑ xws2m jk cws2m jk + 12 ∑ fws 2 j yws 2 j
j k j
Subject to:
∑∑ xpws1hi = 1 (2)
h i
∑∑ xws1ws 2 ij = 1 (2(a))
i j
∑∑ xws 2m jk = 1 (2(b))
j k
xpws1hi ≤ yws1i s h ∀h, i (3)
xws1ws 2 ij ≤ yws 2 j capws1i ∀i, j (3(a-i))
xws1ws 2 ij ≤ yws1i capws 2 j ∀i, j (3(a-ii))
xws 2m jk ≤ yws 2 j d k ∀j, k (3(b))
xpws1hi ≤ yws1i ∀h, i (4)
xws1ws 2 ij ≤ yws 2 j ∀i, j (4(a))
xws 2m jk ≤ d k ∀j, k (4(b))
∑ xpws1hi ≤ yws1i capws1i ∀i (5)

h
∑ xws1ws 2 ij ≤ yws1i capws1i ∀i (5(a-i))

j
∑ xws1ws2 ij ≤ yws2 j capws2 j ∀j (5(a-ii))

i
∑ xws2m jk ≤ yws2 j capws2 j ∀j (5(b))

k
∑ xpws1hi ≤ sh ∀h (6)
i
∑ xws1ws 2 ij ≤ capws1i ∀i (6(a-i))

j
∑ xws1ws2ij ≤ capws2 j ∀j (6(a-ii))

i
277
∑ xws 2m jk = d k ∀k (6(b))
j
xpws1hi ≥ 0 ∀h, i (7)
xws1ws 2 ij ≥ 0 ∀i, j (7(a))
xws 2m jk ≥ 0 ∀j, k (7(b))
yws1i ∈ {0,1} ∀i (8(a))
yws 2 j ∈ {0,1} ∀j (8(b))
∑ yws1i capws1i ≥ 1 (9(a))

i
∑ yws 2 j capws 2 j ≥ 1 (9(b))

j
∑ sh ≥ 1 (10)
h
∑ capws1i ≥ 1 (10(a))
i
∑ capws 2 j ≥ 1 (10(b))
j
∑ xpws1hi = ∑ xws1ws 2ij ∀i (11(a))

h j
∑ xws1ws2 ij = ∑ xws2m jk ∀j (11(b))

i k
0 ≤ yws1i ≤ 1 ∀i (12(a))
0 ≤ yws 2 j ≤ 1 ∀j (12(b))
PL1 ≤ ∑ yws1i ≤ PU 1 (13(a))

i
PL 2 ≤ ∑ yws 2 j ≤ PU 2 (13(b))
j
Here PL1, PL2, and PU1, PU2 are the lower and upper limits on the number of open warehouses at
each stages of warehouse respectively. With so many constraints available, TSCWLP can be
formulated in a variety of different ways. In these formulations, if (8(a)) and (8(b)) is replaced by
(12(a)) and (12(b)) we obtain various Linear Programming (LP) relaxations. Also by relaxing
different constraints, various relaxations can be obtained as Lagrangian relaxation (LR). LR is a
relaxation technique, which works by moving hard constraints into the objective, by imposing a
penalty on the objective if not satisfied. An optimal objective value of the Lagrangian relaxed
problem, for a given set of multipliers, provides a lower bound (in the case of minimization) for
the optimal solution to the original problem. An upper bound on the optimal solution of the
original problem can be derived by using the information obtained from the LR to construct a
feasible solution to the original problem. This is normally done by applying some heuristic.
In the next section, we present vertical decomposition approach for solving TSCWLP.
Relaxed TSCWLP Formulations

Proceeding in a manner similar to Verma and Sharma (2007), TSCWLP is also vertically
decomposed into three sub problems. In this approach, stages of warehouses are vertically
decomposed to get smaller sized problems, which are relatively easier to solve.
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First LR of this formulation is obtained by relaxing flow balance constraints (11(a)) and (11(b))
with suitable multipliers λ1 and λ 2 respectively. In main problem, we note that (11(a)) connects
‘xpws1hi’ and ‘xws1ws2ij’. Similarly, (11(b)) connects ‘xws1ws2ij’ and ‘xws2mjk’. If these two
sets of constraints are relaxed, main problem will be separated into three sub-problems. One
problem with ‘xpws1hi’ and ‘yws1i’, called as LHS_CPLP, the other with ‘xws1ws2ij’, ‘yws1i’
and ‘yws2j’ as MID_CPLP, and the last problem with ‘xws2mjk’ and ‘yws2j’ as RHS_CPLP.
LHS_CPLP
Objective:
Z LHS _ CPLP = f1 ( xpws1hi , (cpws1hi + λ1i ), yws1i , fws1i ) (1(a))
Subject to:
(2), (3), (4), (5), (6), (7), (10), (8(a)), (9(a)), (10(a)).
MID_CPLP
Objective:
Z MID _ CPLP = f 2 ( xws1ws 2 ij , (cws1ws 2 ij − λ1i + λ 2 j ), yws1i , yws 2 j , fws1i , fws 2 j ) (1(b))
Subject to:
(2(a)), (3(a-i)), (3(a-ii)), (4(a)), (5(a-i)), (5(a-ii)), (6(a-i)), (6(a-ii)), (7(a)), (8(a)), (9(a)), (10(a)),
(8(b)), (9(b)), (10(b)).
RHS_CPLP
Objective:
Z RHS _ CPLP = f 3 ( xws 2m jk , (cws 2m jk − λ 2 j ), yws 2 j , fws 2 j ) (1(c))
Subject to:
(2(b)), (3(b)), (4(b)), (5(b)), (6(b)), (7(b)), (8(b)), (9(b)) and (10(b)).
Original relaxed TSCWLP

Objective:
Z ORI _ TSCWLP = max ( Z LHS _ CPLP + Z MID _ CPLP + Z RHS _ CPLP ) (1(d))
λ1,λ 2
Subject to:
(2)-(7), (10), (2(a)), (3(a-i)), (3(a-ii)), (4(a)), (5(a-i)),(5(a-ii)), (6(a-i)), (6(a-ii)), (7(a))-(10(a)),
(2(b))-(10(b)).
Description and Comparison of Relaxations

LHS_CPLP
Relationship between relaxations of LHS_CPLP
Verma and Sharma (2007) have worked on 13 relaxations of LHS_CPLP by developing different
LP and LR based relaxations. Finally, they have developed relationship theorem for LHS_CPLP.
Due to space limitation, the description is omitted and only relationship theorem is reproduced.
Theorem 1:
Z ( LTSC - 1) = Z ( LTSC - 2) ≤ Z ( LTSC - 3) = Z ( LTSC - 4) = Z ( LTSC - 5) = Z ( LTSC - 6) ≤ Z ( LTSC - 13)
Z (LTSC - 7) ≤ Z (LTSC - 8) = Z (LTSC - 9) ≤ Z (LTSC - 10) ≤ Z (LTSC - 13)
Z ( LTSC - 11) = Z ( LTSC - 12) ≤ Z ( LTSC - 13)
Theorem-1 provides the relative effectiveness of the bounds for different relaxations of
LHS_CPLP. Here LTSC-A corresponds to Ath relaxation of LHS_CPLP (Verma and Sharma,
2007); where A lies between 1-13.
279
RHS_CPLP
Relationship between relaxations of RHS_CPLP
It has been found that RHS_CPLP is similar to formulation of CPLP, given by Sridharan (1986).
The relationship between different relaxations of RHS_CPLP is similar to the relationship
between relaxations of Sridharan (1986). Verma and Sharma (2007) have worked on different
relaxations of RHS_CPLP. Relationship theorem developed by them is reproduced here:
Theorem 2:
Z (RTSC - 1) = Z (RTSC - 2) ≤ Z (RTSC - 3) = Z (RTSC - 4) = Z (RTSC - 5) = Z (RTSC - 6)
≤ Z (RTSC - 8) = Z (RTSC - 9)
≤ Z (RTSC - 7) ≤ Z (RTSC - 10) ≤ Z (RTSC - 13)
 Z (RTSC - 11) = Z (RTSC - 12)
≤
This theorem provides the relative effectiveness of the bounds for different LP and LR based
relaxations of RHS_CPLP. Here RTSC-A corresponds to Ath relaxation of RHS_CPLP (Verma
and Sharma, 2007); where A lies between 1-13.
MID_CPLP
Description of relaxations
In this section, various (weak and strong) LP relaxations of MID_CPLP are described below.
MTSC-1:
Objective: (1(b))
Subject to: (2(a)), (5(a-i)), (6(a-i)), (6(a-ii)), (7(a)), (10(a)), (10(b)), (12(a)) and (12(b)). This is a
weak relaxation.
MTSC-2:
Objective: (1(b))
Subject to: (2(a)), (3(a-i)), (3(a-ii)), (4(a)), (5(a-i)), (5(a-ii)), (6(a-i)), (6(a-ii)), (7(a)), (10(a)),
(10(b)), (12(a)) and (12(b)).
MTSC-3:
Objective: (1(b))
Subject to: (2(a)), (3(a-i)), (3(a-ii)), (5(a-i)), (5(a-ii)), (6(a-i)), (6(a-ii)), (7(a)), (9(a)), (9(b)),
(10(a)), (10(b)), (12(a)) and (12(b)).
MTSC-4: The main problem i.e. ZMID_CPLP is referred as MTSC-4 for comparison.
Along with the LP relaxations, LR for MID_CPLP is also developed.
MTSC-LR-1: Dualize (2(a)), (5(a-i)), (6(a-i)), (6(a-ii)).

Here λxws1ws 2 0 , λxws1ws 21 i , λxws1ws 22 j and q1 are the respective lagrangian multipliers.
Objective:
MTSC − LR − 1 = max min ∑∑
λxws1ws 2 0 ,λxws1ws 21, λxws1ws 22, q1 xws1ws 2, y1, y 2 i
(cws1ws 2 ij
j
+ λxws1ws 2 0 + λxws1ws 21i + λxws1ws 22 j + q1i ) xws1ws 2 ij
1 1 (14)
+ ∑ ( fws1i − capws1i q1i ) y1i + ∑ fws 2 j y 2 j
i 2 j 2
− ∑ λxws1ws 21i capws1i − ∑ λxws1ws 22 j capws 2 j − λxws1ws 2 0
i j
Subject to: (3(a-i)), (3(a-ii)), (5(a-ii)), (7(a)), (8(a)), (8(b)), (9(a)), (9(b)), (10(a)), (10(b)).
280
Now the reduced problem is solved efficiently in polynomial time by just solving a number of
single constraint knapsack problems. In parts, this is similar to RTSC-9 of RHS CPLP.
Solving few problems revealed that this gives stronger bounds than MTSC-2 for MID CPLP.
In a similar manner, other LR’s may be developed and their relative strength can be compared.
Relationship between relaxations

A comparison of strength of the bounds given by different relaxations of MID_CPLP is shown
here. Proofs are omitted here due to space constraint.
Proposition 1: The relaxations MTSC-1 and MTSC-2 are related as

Z ( MTSC - 1) ≤ Z ( MTSC - 2)
Proposition 2: The relaxations MTSC-2 and MTSC-3 are equal, i.e.

Z ( MTSC - 2) = Z ( MTSC - 3)
In MID_CPLP warehouses at both the stages are to be located i.e. it involves two location
variables. Hence, it is a different problem from LHS_CPLP and RHS_CPLP. Thereby, this paper
identifies the need to develop computationally effective LR’s for MID_CPLP. As complete
proofs are not available for MID_CPLP, the relationship theorem so far developed is shown
below.
Theorem 3:
Z ( MTSC - 1) ≤ Z ( MTSC - 2) = Z ( MTSC - 3) ≤ Z ( MTSC - 4)
This theorem provides the relative effectiveness of the bounds that may be obtained for these
relaxations of MID_CPLP.
Empirical Investigation, Results and Discussion

Verma and Sharma (2009) have provided computational experiences of LHS_CPLP and
RHS_CPLP for a large variety of problems. It was found that some of the LR’s viz. 7, 9, 10, 11
and 12 of both LHS_CPLP and RHS_CPLP are providing better lower bounds as compared to
rest relaxations. LTSC-9 and RTSC-9 so far is providing the best lower bound in many cases.
Here we are not showing computational experiences for LHS_CPLP and RHS_CPLP. However,
we will be using the so found results of Verma and Sharma (2009) for solving TSCWLP in the
later section.
For MID_CPLP we have provided empirical investigations for its various relaxations on a set of
problems. Sample problems for TSCWLP, sized 50x50x50x50 and 100x100x100x100 were
created randomly. A ‘nxnxnxn’ problem corresponds to n plants, n whs-1, n whs -2 and n
markets.
We have considered 2 categories of problems for each problem size viz.
{∑h s h = 1, ∑i cap1i = 1,∑ j cap2 j = 1} i.e. ‘nil case’ is when the level of over supply from plant
as well as level of over capacity of whs-1 and whs-2 is nil. Similarly, the ‘abundance case’
{∑h s h = 5, ∑i cap1i = 5,∑ j cap2 j = 5} depicts the scenario when level of over supply as well
as the level of over capacity of both stage warehouses is 5 times of the demand. For each
category and each problem size, we created 25 problems; i.e. 100 problem instances in all. In
each of these problems, the fixed cost varied uniformly between 100 – 1000, all cost coefficients
281
varied between 1 –100. The value of different relaxations of MID_CPLP is obtained by using the
software LINGO 10.0, available at the institute.
‘T-test’ for these problems is done for the two cases i.e. ‘nil’ and ‘abundance’. The results of a
limited computational experiment are carried and tabulated as shown below.
Table 1: t test for Level of over capacity of whs-1 = 1 (nil) and whs-2 = 1 (nil)
Level of over capacity
of whs-1/ whs-2
∑i cap1i = 1,∑ j cap2 j = 1
‘t’ calculated for ‘t’ calculated for ‘t' calculated for

difference between difference between difference between
Problem Size
(MTSC-2 / MTSC-1) (MTSC-3 / MTSC-2) (MTSC-4 / MTSC-3)
and 1 and 1 and 1
Bounds Time Bounds Time Bounds Time

50x50x50x50 57.2+ 2.39% 1 -1.55 1 -6.1+
100x100x100x100 71.88+ 24.6+ 1 -51.31+ 1 3.36+
Table 2: t test for Level of over capacity of whs-1 = 5 and whs-2 = 5

Level of over capacity
of whs-1/ whs-2
∑i cap1i = 5,∑ j cap2 j = 5
‘t’ calculated for ‘t’ calculated for ‘t' calculated for

difference between difference between difference between
Problem Size
(MTSC-2 / MTSC-1) (MTSC-3 / MTSC-2) (MTSC-4 / MTSC-3)
and 1 and 1 and 1
Bounds Time Bounds Time Bounds Time

50x50x50x50 19.51+ 2.58# 1 0.097 8.4+ 6.18+
100x100x100x100 27.63+ 15.4+ 1 -3.28+ 14.8+ 7.66+
Table 3: t-critical value (Table Value)

Significance level α = .05 α = .01 α = .005
t-critical (one tail) 1.68 2.40 2.68
% : At α = 0.05, significance level = 1 tail

# : At α = 0.01, significance level = 1 tail
+ : At α = 0.005, significance level = 1 tail
T-values of table-1 and 2 are compared with those in table-3. Table-1 shows the t-values
obtained for bounds and CPU time of different relaxations of ‘nil case’. Similarly, Table-2 is
revealing the t-values for bounds and CPU time of different relaxations of MID_CPLP for the
‘abundant case’.
Analysis
‘Level of over capacity’ of whs-1 and whs-2 are ‘nil’:
282
From table-1 when comparing t-values for bounds , MTSC-2 are giving significantly better
bounds as compared to ‘weak relaxation’ MTSC-1. Similarly, MTSC-2 and MTSC-3 are giving
equal bounds. Significant t-value shows that both MTSC-2 and MTSC-3 are providing bounds
close to the optimal. In a similar manner when comparing their CPU times, it is found that as the
problem size is increasing time taken to solve it is also increasing.
‘Level of over capacity’ of whs-1 and whs-2 are in ‘abundance’:

Similarly, t-values are compared from Table-2 and 3. Significant t-values indicate that MTSC-2
and MTSC-3 are providing significantly better bound compared to MTSC-1. Similarly high t
value shows that MTSC-3 is providing less significant bounds compared with MTSC-4. On
comparing t values of different formulations of MID_CPLP of time taken by them, significant t-
value shows that MTSC-4 takes the maximum time.
Hence, it follows that for both the ‘nil case’ and ‘abundance case’ theorem 3 is satisfied fully.
Procedure for Solving Original TSCWLP

In this section, method for solving original TSCWLP is proposed. (1(d)) shows method for
evaluating TSCWLP with the help of LHS_CPLP, MID_CPLP and RHS_CPLP. Proceeding on
similar lines, best bound (BB) for TSCWLP can be obtained as follows
TSCWLPBB = max ( LHS _ CPLPBB + RHS _ CPLPBB + MID _ CPLPBB ) (15)

λ1,λ 2
Here LHS_CPLPBB is the best bound found from theorem-1, RHS_CPLPBB is the best bound
found from theorem-2 and finally MID_CPLPBB is the best bund found from theorem-3.
This best bound of TSCWLP can be used in a branch and bound procedure. Later the efficacy
(time wise as well as bounds realizable by the best bound of TSCWLP i.e. TSCWLPBB) in a
branch and bound procedure can be explored computationally.
Conclusion
TSCWLP is “vertically decomposed” into three standard version of CPLP by relaxing the
associated flow balance constraints. For these sub-problems a variety of LR and LP relaxations
are developed. Proofs are developed to show the relationship between different relaxations. Later
a procedure is developed for solving complete TSCWLP with the help of the decomposed
problems. This method for solving TSCWLP is using the best-bound providing relaxations of
decomposed problem. A future research topic could be to extend results of this paper to various
‘supply chain’ related problems.
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A New Lagrangian Relaxation Based

Approach to Solve Capacitated Lot-sizing
Problem with Backlogging
Mayank Verma and R.R.K. Sharma
Indian Institute of Technology, India
Abstract
Purpose - In this paper, we consider the multi-item multi-period case of the lot-sizing
problem with capacity constraints, the backorder costs and the setup times.
Design/methodology/approach - We have given two Lagrangian relaxations of this
problem. In the first relaxation, the capacity constraint is relaxed, to find that the
reduced problem is a multi-item uncapacitated lot-sizing problem. In the second
relaxation, we have relaxed the inventory flow-balance constraint, to find that the
reduced problem becomes a single constraint continuous knapsack problem with an
upper bound on the quantity produced. We also give a procedure to generate primal
feasible solutions to the original problem.
Findings - The knapsack problem so obtained can be solved very efficiently using the
technique of bounded variable linear programs. The solution given by the second
Lagrangian relaxation can be used effectively as a lower bound in an exact solution
procedure; such as branch and bound. This will act as an upper bound in the branch
and bound procedure.
Practical implications - We plan to implement these procedures in near future to
generate the computational results. A priori, the second new Lagrangian relaxation
proposed by us in this work offers significant advantages.
Originality/value- The first relaxation has been attempted in the past by researchers
using different approaches, including dynamic programming (Zangwill, 1969).
However, as the multi-item uncapacitated lot-sizing problem is known to be NP-hard,
this approach does not seem to be very promising.
Keywords: Lot-sizing, Lagrangian Relaxation, Knapsack problem, Bounded Variable
Linear Program.
Introduction
Capacitated lot-sizing problem (CLSP) has been one of the favorite ideas to
study for researcher in last five decades, as it is evident from the recent review
work of (Quadt and Kuhn, 2008). Right from one the most basic models of lot-
sizing, popularly known as the EOQ model developed by (Harris, 1913) to the
models which are closer to real life applications, viz. (Alfieri, 2002), have
received significant attention of the researchers in the past. But still finding an
optimal solution to a general real-life and real-sized lot-sizing problem is no
less than a challenge. (Manne, 1958) formulated CLSP as an integer linear
programming problem. (Florianet. al, 1980) showed the single item CLSP to be
an NP-hard problem. (Bitran and Yanasse, 1982) however showed some
special cases of single item CLSP to be solvable in polynomial times, but
unfortunately the very introduction of second item, even in those special cases,
makes it an NP-hard problem. There has been numerous approaches including GBMR
exact, relaxations (linear programming, Lagrangian) and heuristics to solve the Vol. 2, No. 2 & 3, 2010
pp. 285-295
real-sized problems.
285
By discussing the complexity of CLSP, we understand that to find an exact (optimal) solution to
a real (large) sized CLSP is practically an impossible task. It would hence be helpful if we can
determine bounds to the optimal by using some techniques. The technique is worthwhile if it can
decompose the problem into easily solvable sub-problems and also provide a duality gap, as low
as possible. Such a technique can provide good primal feasible solutions for an exact technique
like branch and bound. Lagrangian relaxation is one such procedure, which has wide
acceptability among the researchers as a procedure to obtain good bounds on the optimal
solution, as evident from seminal works of (Chen and Thizy, 1990), (Ozdamar and
Barabarosoglu, 1999) and (Sambasivan and Yahya, 2005).
Our work in this paper considers a multi-item, multi-period CLSP with the considerations of
backorders and setup-times in its formulation. We call the problem as CLSP_BS, where ‘B’ and
‘S’ signify backorders and setup-times respectively. There are assumptions, which make the
problem still away from the reality, but some critical issues like capacity, backorders and setup-
times are addressed for a multi-item lot-sizing problem. These aspects of the CLSP, all
considered together, has received much less attention in the past, as is evident from the review
work of (Karimi et al., 2003). We refer the readers to this reference, so as to get bigger picture of
the various approaches used to tackle a CLSP. One of the most important conclusions drawn in
(Karimi et al., 2003) is that the realistic and practical variants of the CLSP, specially which
considers backorders, setup times and setup carry-overs have received less attention than what it
deserves. This is the motivation to work on the CLSP_BS.
Here we give two different Lagrangian relaxations of the problem CLSP_BS. We provide an
entirely new approach to solve the Lagrangian relaxation formulated by relaxing the inventory
balance constraints. The relaxation is further decomposed by neglecting inventory and backorder
variables for time being; and solving this decomposed problem using the approach of bounded
variable linear programs. The decomposed problem actually becomes a single constraint
continuous knapsack problem, which is known to be one of the easier NP-hard problems,
solvable in quasi-polynomial times (Pisinger, 2005). Later we provide two heuristics to obtain
back the neglected inventory and backorder variables. This work is the conceptual and
mathematical framework of the solution procedure; and authors are working on the empirical
aspects so as to present the computational results shortly.
Classical Formulation of CLSP_BS

The standard formulation of the CLSP, which is available in the literature, is extended to include
the variables and the situations which we propose to study, to the model. The assumed model is a
single level, multi-item, multi-period case of a capacitated lot sizing problem, with backorders
and setup times considerations included. The formulation shown below is a reproduction of the
classical model given our recent work (Verma and Sharma, 2009).
Decision Variables:
XPit : Number of items ‘i’ to be produced during the period ‘t’
XINVit : Number of items ‘i’ carried as inventory at the end of period ‘t’
XBOit : Number of items ‘i’ that will be backordered from period ‘t’
YSit : Binary variable for setup of the resource for item ‘i’ during the period ‘t’
= 0 (if there is no setup required), 1 otherwise
Parameters:
CPit : Unit cost of producing item ‘i’ in period ‘t’
CSit : Unit cost of setup, for item ‘i’ in period ‘t’
CINVit : Unit cost of holding inventory of item ‘i’ for 1 period.
CBOit : Unit cost of Backordering item ‘i’, which was demanded during the period ‘t’
286
CAPit : Capacity available to produce item ‘i’ during the period ‘t’
CAPTt : Capacity available in time units, in a period ‘t’
Dit : Demand of item ‘i’ during the period ‘t’
PTi : Time required to process the item ‘i’
STi : Time required to setup the production for item ‘i’
Index used in the model:

i = product type, i = 1, . . . , I.
t = planning period, t = 1, . . . , T.
The classical CLSP_BS can be modeled in the manner described here. We refer to it as the
problem ‘P’ in our work.
Problem ‘P’:
I T
Minimize Z = ∑∑ [CPit XPit + CS it YSit +
i =1 t =1 (1)
CINVit XINVit + CBO it XBOit ]
subject to:
XPit + XINVi , t −1 + XBOit = Dit + XINVit + XBOi , t −1 ∀ i, t (2)
I
∑ ( PTi XPit + STiYSit ) ≤ CAPTt ∀t (3)
i =1
XPit ≤ CAPit YSit ∀ i, t (4)
XINVi 0 = 0 ∀i (5)
XINViT = 0 ∀i (6)
XBOi 0 = 0 ∀i (7)
XBOi ,T = 0 ∀i (8)
YSit ∈ {0,1} ∀ i, t (9)
XINVit , XPit , XBOit ≥ 0 ∀ i, t (10)
(1) gives the objective function of the problem, which intends to minimize the production cost,
setup cost, the inventory holding cost and the backlogging cost, summed over all items and time
periods. (2) is the inventory balance constraint which is made for each item and for each period.
(3) is the time capacity limit constraint, which ensures that the total time utilized in doing a
production of all the items added to the time used to do the setups is always less than or equal to
the maximum time available in any period. (4) is the production capacity constraint, which
ensures the production quantity to be always less than or equal to the maximum production
capacity available for all items and for all time periods. (5)-(8) assumes that there is no initial
inventory or backorders, neither is there any final inventory or backorders at the end of the
planning horizon. (9) sets the setup variable to be binary for all items and for all the periods. The
setup variable is equal to one when setup takes place for an item in a period, otherwise it takes
the value of zero. (10) restricts non negativity over the production quantity and the quantities
carried as inventory and backorders.
287
Relaxations
It is emphasized in the previous section that even finding a feasible solution to the CLSP with a
consideration to the setup times is known to be an NP complete problem (Maes et. al. 1991). So
the procedure dealt with in this work has made an attempt to simplify the problem, using the well
worked approach of Lagrangian relaxations to find a bound to the problem, so that large
instances can be dealt with, in appreciable times. (2), (3) and (4) are the three possible
constraints, which can be relaxed using the respective Lagrangian multipliers. The approach to
relax the capacity constraint (4) has been tried by many researchers in the past, viz. (Diaby et al.,
1992), (Millar and Yang, 1993). Capacity constraint when relaxed, leaves the problem an
uncapacitated lot-sizing problem, which is comparatively easier to solve, with a number of
known approaches including Wagner-Whitin algorithm and dynamic programming approach. In
this paper, authors explore an opportunity of relaxing the inventory balance constraint (2), which
leads to a special structure of the problem, elaborated in the subsequent sections.
Relaxing Capacity Constraint

The capacity constraint (4) can be relaxed using the Lagrangian multiplier λ 3it . This step
reduces the problem to an uncapacitated version of the lot-sizing problem, which is known to be
relatively easier to solve. Let us call this modified resulting problem as P3, which has a modified
objective Z 3 ; formulation of P3 can be written as follows.
Problem P3:
 I T 
 Min Z 3 = ∑∑ [(CPit + λ 3it ) XPit + (CSit − CAPit λ 3it )YSit
Max  XP,YS , XINV , XBO i =1 t =1
+
 (1′)
λ3  
 CINVit XINVit + CBO it XBOit ] 
subject to:
XPit + XINVi , t −1 + XBOit = Dit + XINVit + XBOi , t −1 ∀i, t (2)
I
i =1
XINVi 0 = 0 ∀i (5)
XINViT = 0 ∀i (6)
XBOi 0 = 0 ∀i (7)
XBOi ,T = 0 ∀i (8)
YSit ∈ {0,1} ∀i, t (9)
XINVit , XPit , XBOit ≥ 0 ∀i, t (10)
This makes the problem an uncapacitated lot-sizing problem, which has been attempted among
others by Zangwill (1969), who applied the dynamic programming approach to this problem.
The problem, though simpler, is still well known to be NP-hard and hence it is not possible to
solve practical sized problems in reasonable time. We present here another approach by relaxing
the flow balance constraint (2). This approach is an entirely new one, which has never been
attempted in the past literature of lot-sizing problems.
288
Relaxing Inventory Balance Constraint

The inventory balance constraint (2) is relaxed using the Lagrangian multiplier λ 2it . So the
objective and the modified resulting problem (called P2) would be given as follows.
Problem P2:
 Min Z 2 = ∑∑[(CPit − λ 2it ) XPit + CSit YSit 

I T
 XP,YS, XINV , XBO i =1 t =1 

Max  + (CINVit + λ 2 it ) XINVit + (CBO it −λ 2 it ) XBOit 
(11)
λ2
 − (λ 2 it ) XINVi , t − i + (λ 2 it ) XBOi , t −1 
 + Dit λ 2 it ] 
Subject to:
I
i =1
XPit ≤ CAPit YSit ∀i, t (4)
XINVi 0 = 0 ∀i (5)
XINViT = 0 ∀i (6)
XBOi 0 = 0 ∀i (7)
XBOi ,T = 0 ∀i (8)
YSit ∈ {0,1} ∀i, t (9)
XINVit , XPit , XBOit ≥ 0 ∀i, t (10)
Problem Reduction
Instead of directly solving the above problem (P2) using any of the conventional approaches,
here we give a specialized procedure which is believed to solve the problem in much lesser
computational times. To start with, let us simplify this problem straightaway by neglecting the
inventory and backorder variables (viz. XINVit , XINVi ,t −1 , XBOit , XBOi ,t −1 ) as of now. After
attaining the values of YSit and XPit , the values of XINVit , XINVi ,t −1 , XBOit , XBOi ,t −1 can be
determined using some procedures, that would be discussed later. In addition, as Dit λ 2 it is a
constant, there is nothing to be considered for minimization in this term; and hence for now it is
being neglected from the above formulation. For a given value of λ 2 it , P2 reduces to P2′ as given
below.
Problem P2′:
I T
Minimize Z 2′ = ∑∑ [(CPit − λ 2 it ) XPit + CS it YSit ] (12)
i =1 t =1
subject to:
I
i =1
XPit ≤ CAPit YSit ∀i, t (4)
289
YSit ∈ {0,1} ∀i, t (9)

XPit ≥ 0 ∀i, t (13)
Now while solving this problem, the Lagrangian multiplier ( λ 2 it ) will be initialized by a value
(say zero) and will be subsequently updated at each iteration using the sub-gradient optimization
procedure. Based on the final value of λ 2 it that we attain, we follow the following procedure.
(a) If the final value of λ 2 it is such that (CPit − λ 2 it ) is positive, we make the binary
variable YSit for that combination of ‘i’ and ‘t’ as zero; so that there is no setup & hence
no production for that item ‘i’ during that time period ‘t’.
(b) If the final value of λ 2 it is such that (CPit − λ 2 it ) is negative, we make YSit for that
combination of ‘i’ and ‘t’ as one; so that there is a setup for this item ‘i’ during this
period ‘t’. Also, as in this case we are considering just the negative values of
(CPit − λ 2 it ) , we propose the objective function (12) to be multiplied by a factor of “–
1”, so that now the new objective is to maximize a function Z 2′′ . This transformation
would be advantageous in solving the further problem as well, because constraint (15),
which is actually used in solving procedure, is a “less-than or equal to” constraint,
compatible with a maximization objective. Using this rule, P2′ reduces to P2′′, as given
below:
Problem P2′′:
Maximize Z 2′′ = ∑ ∑ [(CPit − λ 2 it ) XPit − CSit ] (14)

i∈Si t∈St
subject to:
∑ ( PTi XPit + STi ) ≤ CAPTt ∀t (15)

i∈Si
XPit ≤ CAPit ∀i, t (16)
XPit ≥ 0 ∀i, t (13)
In the above formulation, S i ( ⊂ i = 1,..., I ) and S t ( ⊂ t = 1,..., T ) are respectively the sets of
those items ‘i’ and time periods ‘t’, for which we are substituting YSit to be one; i.e. excluding
those ‘i’ and ‘t’ for which we have made YSit and hence XPit to be zero.
(16) provides an upper bound on the value of XPit . For such structure of the problem, as shown
in the problem P2′′, there is a specialized method known as ‘Bounded Variable Linear Program’,
adopted here from the chapter 10 of Murty (1976). In this method, we remove upper bounding
constraint (16) from the problem and solve the remaining problem by using a technique, which
accommodates the upper binding constraint in its procedure. The problem can be restructured as
the probem P2k, as follows.
Probem P2k:
Maximize Z 2k = ∑ ∑ [(CPit − λ 2 it ) XPit − CSit ] (14)

i∈Si t∈St
290
subject to:
∑ PTi XPit ≤ (CAPTt − ∑ STi ) ∀t (17)

i∈Si i∈Si
XPit ≥ 0 ∀i, t (13)
By removing the upper binding constraint (16), the problem effectively becomes a single
constraint continuous knapsack problem for each time period ‘t’. Now, for each time period ‘t’,
the problem P2kt would be written as follows. In the formulation P2kt we remove CS it from the
objective function, as it is a constant and obviously has no effect on maximization of the
function.
Problem P2kt:
Maximize Z 2kt = ∑ [(CPi − λ 2 i ) XPi ] (18)

i∈Si
subject to:
∑ PTi XPi ≤ (CAPT − ∑ STi ) (19)

i∈Si i∈Si
XPi ≥ 0 ∀i (20)
In the above formulation, although we have removed the upper bound constraint (16), but the
solution methodology of the bounded variable linear programming, due to its inbuilt features,
will take care of this upper bound on the production quantity XPit . By doing this, we are actually
removing the capacity constraints (but not its constraining characteristic), which will have the
simplifying effect computationally and hence a better solution time is expected by the adaptation
of this procedure.
If we associate a dual variable ∏ (such that ∏ ≥ 0 ) with the constraint (19) of the problem P2kt,
the dual of the problem P2kt may be called as P2Dkt; and may be written as follows.
Problem P2Dkt:
Minimize ZD2kt = (CAPT − ∑ STi ) ∏ (21)

i∈Si
subject to:
PTi ∏ ≥ (CPi − λ 2 i ) ∀i (22)
∏≥0 (23)
Now as per the technique of bounded variable linear program, out of the ‘i’ instances of variable
( XP ), we make XPi equal to its upper bound (= CAPi , found from the values of CAPit for each
 (CPi − λ 2 i ) 
time period ‘t’) for which the ratio   is maximum. In this way one-by-one, we
 PTi 
291
calculate the values of all the instances of XPi . For each time-period, we repeat the above
process to ultimately achieve the values of XPit .
Inventory and Backorder Variables

Effectively until this part of our specialized procedure, we have successfully determined the
values of XPit and YSit . If now we can determine the values of other decision variables of the
problem, called inventory and backorder variables ( XINVit , XINVi ,t −1 , XBOit , XBOi ,t −1 ) by some
heuristics, we get a primal feasible solution, that may be used as an upper bound to the optimal.
We have devised two heuristics to determine the same.
Heuristic ‘H1’
By transforming the Lagrangian relaxation of the CLSP_BS into a knapsack problem, we get the
values of all instances of XPit and YSit . It is assumed in our model that there are no inventories
or backorders at the start or at the end of the planning period; i.e. initial and final values of
inventory and backorders ( XINVi 0 , XBOi 0 and XINViT , XBOiT ) are assumed to be zero.
Now for the first time-period, we know the demand ( Dit ) and the production ( XPit ). If (
XPit − Dit ) is positive, it indicates that an over production has been done and hence an inventory
will be carried at the end of the first period, to the second period. Otherwise, the negative (
XPit − Dit ) suggests that a backorder is to be carried to second period from the first period. So,
according to the positive or negative sense of the term ( XPit − Dit ), we get the values of XINVi1
and XBOi1 as ( XPit − Dit ) or ( Dit − XPit ) respectively.
Now for all the next periods we watch the sense of ( XPit + XINVi ,t −1 − Dit − XBOi ,t −1 ) to be
positive or negative. A positive value means XINVit = XPit + XINVi ,t −1 − Dit − XBOi ,t −1 , or a
negative value means XBOit =| Dit + XBOi ,t −1 − XPit − XINVi ,t −1 | . In this way, we get the values
of all the inventory and backorder variables, which can be substituted in the problem ‘P’ to get
its objective value Z , which may be used as the feasible solution (upper bound) in a branch-and-
bound procedure.
In general, we can summarize the heuristic in the form of a mathematical statement as follows:
For any item ‘i’ a time-period ‘t’, let XPit + XINVi ,t −1 − Dit − XBOi ,t −1 = α it . If:
α it > 0 , XINVit = α it & XBOit = 0
α it < 0 , XBOit = | α it | & XINVit = 0
α it = 0, XINVit = 0 & XBOit = 0.
α it may actually signify an ‘Artificial production’ for any item ‘i’ at any time-period ‘t’. The
setup time and setup costs for this artificial production are respectively zero. The positive or
negative value of the ‘artificial production variable’ α it will actually decide whether it will
correspond to inventory or the backorders for the item ‘i’ during the period ‘t’.
292
This heuristic is expected to perform best only for case when ( ∑ XPit = ∑ Dit ) for each item.
t t
In case when ( ∑ XPit ≥ ∑ Dit ) or ( ∑ XPit ≤ ∑ Dit ), there would respectively be an inventory
t t t t
carried at the last plan-period or a backlog at the end of plan-period. This is not preferred, as we
assume initial/final backorders and inventories to be zero in our model.
Heuristic ‘H2’
For each item, we know the number of items produced in each time-period, i.e. XPit . Also the
demand for each item in each time period, Dit is known. For each item, we determine the value
of ∑ XPit and that of ∑ Dit .
t t
If the value of ∑ XPit is found to be more than the value of ∑ Dit , we reduce the production
t t
quantity ( XPit ) for the time-period for which the production cost ( CPit ) is maximum. We reduce
the quantity produced till either ( XPit = Dit ) or ( ∑ XPit = ∑ Dit ) is satisfied. Similarly if the
t t
value of ∑ Dit is found to be more than the value of ∑ XPit , we increase the production
t t
quantity ( XPit ) for the time-period for which the production cost ( CPit ) is minimum. We
increase the quantity produced till either ( XPit = CAPit ) or ( ∑ XPit = ∑ Dit ) is satisfied.
t t
There may be a tie, in case CPit for two periods are same, in which a reduction or increase of
XPit is deemed essential, as per the above procedure. In such cases, tie can be broken arbitrarily,
by say, allotting the reduction (or increase) of XPit in that time-period for which the index of ‘t’
is lower. After the condition ( ∑ XPit = ∑ Dit ) is satisfied, we watch the sense of (
t t
XPit + XINVi ,t −1 − Dit − XBOi ,t −1 ) to be positive or negative.
A positive value means XPit + XINVi ,t −1 − Dit − XBOi ,t −1 = XINVit , or a negative value means
| XPit + XINVi ,t −1 − Dit − XBOi ,t −1 | = XBOit . In a sense, actually after attaining the condition of
( ∑ XPit = ∑ Dit ), we apply H1 to get the values of inventory and backorder variables, which
t t
can be than substituted in the problem ‘P’ to get a primal feasible solution for the branch and
bound procedure.
This heuristic is expected to give better results (less total cost) as compared to the heuristic
discussed previously, because it accommodates all kinds of conditions, i.e. whether ∑ XPit is
t
less-than, more-than or equal to ∑ Dit ; unlike H1 which might perform effectively when
t
∑ XPit = ∑ Dit .
t t
293
Conclusion
This work is an attempt towards solving a multi-item, multi-period CLSP, which considers
backorders and setup-times in the formulation; referred to as CLSP_BS here. We formulate two
different Lagrangian relaxations of the CLSP_BS, by relaxing the capacity constraint and the
balancing constraint. Former is attempted in different ways by researchers in the past. However,
limited attempts are made towards relaxation of the balancing constraint in the past literature.
Relaxing the balancing constraint, the problem is reduced to T (t = 1, 2, …, T) number of single
constraint continuous knapsack problems, each having ‘real variables’ that are upper bounded.
Essentially, we maintain single constraint as the working basis.
Use of this procedure is expected to allow large sized problems to be solved in considerably less
computational times. The objective value so rendered can be used as a bound in an exact solution
procedure (viz. branch and bound) to determine the optimal values of the large sized problems,
which otherwise are almost impossible to be solved using the best computational facilities
available. Efficacy of the procedure can be verified only after an extensive empirical
investigation for a variety of small, medium and large sized problems. Strength of the bounds so
found, efficacy of the procedure in determination of optimal, and comparisons between our two
heuristics will be reported shortly by the authors after an empirical study.
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295
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Investors Preference on Financial Services 253

Vertical Decomposition Approach for Two Stage Capacitated Warehouse 275

A New Lagrangian Relaxation Based Approach to Solve Capacitated Lot-sizing 285

The Evolution of Capital Productivity in

A frequently stated purpose of measuring productivity growth is to trace technical development.

The purpose of the present study is threefold:

The outline of this paper is as follows:

Review of Meaning and Measurement of Capital Productivity

OECD (2001) defines capital productivity as:

Quantity index of value added

In addition, capital productivity measures can be based on a gross-output or a value-added

Methodology and Estimation of Capital Productivity of Greek Manufacturing Industries

Table 1: Capital Productivity of Greek Manufacturing

1982 0,89 1,15 0,88 3,71 1,29 0,48 1,82

Table 1 (Continued): Capital Productivity of Greek Manufacturing

1982 1,39 0,75 0,44 0,46 0,44 0,34

Table 1 (Continued): Capital Productivity of Greek Manufacturing

1982 0,55 1,32 0,98 0,61 2,54 0,73

Capital Productivity “Relatives” in Greek Manufacturing Industry

Table 2 (Continued): Capital Productivity “Relatives” in Greek Manufacturing Industry

Table 3: Regressing CP against GVA and CS (1963-1973)

CP = 2,884 + 51,644GVA - 120,065CS F = 7,96 _

Graph 1: Contributors to Capital Productivity of Total Greek Manufacturing Industry (1963-

Table 4: Regressing CP against GVA and CS (1974-1984)

CP = 1,889 + 9,963GVA - 18,27CS F = 102,69 _

Graph 2: Contributors to Capital Productivity of Total Greek Manufacturing Industry (1974-

Table 5: Regressing CP against GVA and CS (1985-1995)

CP = 2,257 + 8,977GVA - 20,88CS F = 361,49 _

Graph 3: Contributors to Capital Productivity of Total Greek Manufacturing Industry (1985-

Machinery, Miscellaneous as well as Total Manufacturing, the t statistics of GVA appears

Table 6: Regressing CP against GVA and CS (1996-2006)

Graph 4: Contributors to Capital Productivity of Total Greek Manufacturing Industry (1996-

Growth of Capital Productivity and Forecast

Table 7: Percentage Change of Capital Productivity in Greek Manufacturing Industries

Transport Equipment 1,11 -5,23 1,38 -4,64 -1,91

Forecast of Capital Productivity

Table 8: Forecast of Capital Productivity in Greek Manufacturing Industries

Graph 5: Evolution of Capital Productivity of Total Greek Manufacturing Industry (1963-2011)

Role of Organisation Structure in

iv. Empowerment (of employees) throughout the organisation

Statement of the Problem

Background of the Problem

Theoretical Framework of the Study

ORGANISATION STRUCTURE: Components-

PRODUCT PRICE PHYSICAL

RESULTS OF THE STUDY

Figure 1: Theoretical Framework of the Study

Objectives of the Study

Limitations of the Study

Analysis and Findings

Table 1: Impact of Organisation Structure on Product Life Cycle