THE INTERNATIONAL JOURNAL of ORGANIZATIONAL INNOVATION

VOLUME 7 NUMBER 1, JULY 2014

Table of Contents

Page: Title: Author(s):

3. Information Regarding IAOI, ICOI And IJOI

4. 2014 IJOI Board Of Editors

6. Trouble In The Middle: American - Chinese Business Relations, Culture, Conflict, And Ethics Steven P. Feldman Ph.D.

15. The Role Of Work Place Spirituality And Employee Engagement To Enhance Job Satisfaction And Performance Olivia Fachrunnisa, Ardian Adhiatma, Mutamimah

36. Performance Appraisals Between Family Businesses And Non-Family Businesses Wen-Jie Zou, Yung-Ho Chiu, Chia-Chien Hsu

46. Relational Benefits, Customer Satisfaction, And Customer Loyalty In Chain Store Restaurants Chu-Mei Liu, Chien-Jung Huang, Mei-Liang Chen

57. Key Success Factors In B & B Lodging Services: From The Perspective Of Affective Commitment, Interactional Justice, And Parent-Child Participation Shih-Mao Lin, Ming-Yuan Wang, Mei-Ju Chou

69. The Superintendent And School Board Relationship: Functioning As A Group Ray Thompson

78. Clothing Matchmaker: Automatically Finding Apposite Garment Pairs From Personal Wardrobe Ching-I Cheng, Damon Shing-Min Liu, Mei-Lin Liu, I-En Wan

1 The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 105. The Prospects Of Appling The International Financial Reporting Standards In Vi- etnam – An Empirical Study Of Accounting Professionals Wen-Hsiang Lin, Shu-Hui Su, Thi Thanh Phan

114. Analyzing Innovation Policy Dimensions And Contexts: In The Empirical Cases Of Taiwan And Singapore Chih-Chieh Lin, Grace T.R. Lin

129. A Case Study Of Applying Computer Aided Design (Cad) To The Design And Manu- facturing Of Kd Chairs Wen-Ching Su, Hung-Yo Wang, An-Sheng Lee

137. Sensitivity Analysis Of “Black-Scholes” Option Index In Indonesia Irni Yunita12

149. Stepping Stones To Success: A Comparison Of Stakeholder Groups On Perceived Benefits Regarding Professional Certificates In Gaming Management Wanching Chang, Jingxue (Jessica) Yuan

161. Service Climate, Service Convenience, Service Quality And Behavioral Intentions In Chain Store Restaurants Cheng-Kai Chou, Po-Hsuan Wu, Ching-Yuan Huang

171. Service Expectation, Perceived Service Quality, And Customer Satisfaction In Food And Beverage Industry Po-Hsuan Wu, Ching-Yuan Huang, Cheng-Kai Chou

181. Assessing Measurement Invariance Across Gender In The Version Of The Part Of Tangibles In Servqual Scale For Retail Chain Stores Business In Taiwan Dr. Yu-Jia Hu

187. A Study Of The Leisure Motivation And Satisfaction In The 2013 Taiwan Kaohsiung Chengcing Lake Balloon Festival Shang-Chang Ting, Ming-Yuan Wang, Mei-Ju Chou

202. Expected Dividend And Earnings Management: Evidence From Taiwan Szu-Hsien Lin, Li-Hua Lin, Huei-Hwa Lai, Chien-Chung Tu

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

Information Regarding:

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

The International Journal of Organizational Innovation (IJOI) (ISSN 1943-1813) is an international, blind peer-reviewed journal, published quarterly. It may be viewed online for free. (There are no print versions of this journal; however, the journal .pdf file may be downloaded and printed.) It contains a wide variety of research, scholarship, educational and practitioner perspectives on organizational innovation-related themes and topics. It aims to provide a global perspective on organizational innovation of benefit to scholars, educators, students, practitioners, policy-makers and consult- ants. All past issues of the journal are available on the journal website. Submissions are welcome from the members of IAOI and other associations & all other scholars and practitioners. Student papers are also welcome.

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

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

The International Conference on Organizational Innovation (ICOI):

The 2014 ICOI Conference will be held in Manila, Philippines at De La Salle University, August 12-14, 2014. For more information on the conference and to submit a paper or to register for the conference, go to: http://www.iaoiusa.org/2014icoi/index.html and see the next pages.

The 2015 ICOI Conference location is Jogia/Jogjakarta, Indonesia. Jogja is a famou- http://www.iaoiusa.org/2014icoi/index.htmls tourist destination after Bali. For more information, please visit http://www.yogyes.com/ Airlangga University will be the Host University.

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3 The International Journal of Organizational Innovation Vol 7 Num 1 July 2014

THE 2014 BOARD of EDITORS

Position: Name - Affiliation:

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

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

Assistant Editor Ahmed M Kamaruddeen - Universiti Utara, Malaysia Assistant Editor Alan E Simon - Concordia University Chicago, USA Assistant Editor Alex Maritz - Australian Grad. School of Entrepreneurship, Australia Assistant Editor Andries J Du Plessis - Unitec New Zealand Assistant Editor Anton de Waal - Swinburne University of Technology, Australia Assistant Editor Asma Salman - American University in the Emirates, Dubai Assistant Editor Barbara Cimatti - University of Bologna, Italy Assistant Editor Ben Hendricks - Fontys University of Applied Sciences, the Netherlands Assistant Editor Bettina Stevanovic, University of Western Sydney, Australia Assistant Editor Carl D Ekstrom - University of Nebraska at Omaha, USA Assistant Editor Catherine C Chiang - Elon University, USA Assistant Editor Chandra Shekar - American University of Antigua College of Medicine, Antigua Assistant Editor Chung-Hung Lin - I-Shou University, Taiwan, R.O.C. Assistant Editor Dafna Kariv, College of Management Academic Studies, Israel Assistant Editor Davorin Kralj - Institute for Cretaive Management, Slovenia, Europe. Assistant Editor Denis Ushakov - Northern Caucasian Academy of Public Services Assistant Editor Donna S McCaw - Western Illinois University, USA Assistant Editor Eloiza Matos - Federal Technological University of Paraná - Brazil Assistant Editor Earl F Newby - Virginia State University, USA Assistant Editor Fernando Cardoso de Sousa - Portuguese Association of Creativity and Innovation (APIC)), Portugal Assistant Editor Fuhui Tong - Texas A&M University, USA Assistant Editor Gloria J Gresham - Stephen F. Austin State University, USA Assistant Editor Hassan B Basri - National University of Malaysia, Malaysia Assistant Editor Heather Farmakis – Academic Partnerships, USA Assistant Editor Henry T Burley - La Trobe University, Australia Assistant Editor Hong-Cheng Liu - I-Shou University, Taiwan R.O.C. Assistant Editor Chun-Ming Hsieh - Tongji University, China Assistant Editor Ilias Said - Universiti Sains Malaysia, Malaysia Assistant Editor Ileana Monteiro - Portuguese Association of Creativity and Innovation, Portugal Assistant Editor Ismael Abu-Jarad - Universiti Utara Malaysia Assistant Editor Janet Tareilo - Stephen F. Austin State University, USA Assistant Editor Jeffrey Oescher - Southeastern Louisiana University, USA 4 The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 Assistant Editor Jian Zhang - Dr. J. Consulting, USA Assistant Editor John W Hunt - Southern Illinois University Edwardsville, USA Assistant Editor Julia N Ballenger - Texas A & M University - Commerce, USA Assistant Editor Julius Ndumbe Anyu - University of the District of Columbia, USA Assistant Editor Jun Dang - Xi'an International Studies University, P.R.C. China Assistant Editor Jyh-Rong Chou - I-Shou University, Taiwan R.O.C. Assistant Editor Kai-Ping Huang - University of Technology, Sydney, Australia Assistant Editor Ken Kelch - Alliant International University, USA Assistant Editor Ken Simpson - Unitec, New Zealand Assistant Editor Kerry Roberts - Stephen F. Austin State University, USA Assistant Editor Krishnaswamy Jayaraman, Universiti Sains Malaysia Assistant Editor Madeline Berma - Universiti Kebangsaan, Malaysia Assistant Editor Marius Potgieter - Tshwane University of Technology, South Africa Assistant Editor Mei-Ju Chou - Shoufu University, Taiwan R.O.C. Assistant Editor Melissa Kaulbach - Sarasota University Assistant Editor Michelle Williams - Stephen F. Austin State University, USA Assistant Editor Michael A Lane - University of Illinois Springfield, USA Assistant Editor Muhammad Abduh - University of Bengkulu, Indonesia Assistant Editor Nathan R Templeton - Stephen F. Austin State University, USA Assistant Editor Noor Mohammad - Faculty of Law, Universiti Kebangsaan, Malaysia Assistant Editor Nor'Aini Yusof - Universiti Sains Malaysia, Malaysia Assistant Editor Olivia Fachrunnisa, UNISSULA, Indonesia Assistant Editor Opas Piansoongnern - Shinawatra University, Thailand Assistant Editor Pawan K Dhiman - EDP & Humanities, Government of India Assistant Editor Ralph L Marshall - Eastern Illinois University, USA Assistant Editor Ray Thompson - Texas A&M University-Commerce. USA Assistant Editor Richard Cohen - International Journal of Organizational Innovation, USA Assistant Editor Ridong Hu - Huaqiao University, P.R. China Assistant Editor Ronnie Coutinho - AUA School of Medicine, Antigua, West Indies Assistant Editor Shang-Pao Yeh - I-Shou University, Taiwan R.O.C. Assistant Editor Shanshi Liu - South China University of Technology, Taiwan R.O.C. Assistant Editor Sheng-Wen Hsieh - Far East University, Taiwan R.O.C. Assistant Editor Siriwan Saksiriruthai - Suan Sunandha Rajabhat University, Thailand Assistant Editor Stacy Hendricks - Stephen F. Austin State University, USA Assistant Editor Thomas C Valesky - Florida Gulf Coast University, USA Assistant Editor Tung-Yu Tsai - Taiwan Cooperative Bank, Taiwan R.O.C. Assistant Editor Wen-Hwa Cheng - National Formosa University, Taiwan R.O.C. Assistant Editor Yung-Ho Chiu - Soochow University, Taiwan R.O.C. Assistant Editor Yulun Hsu - Nan Jeon Institute of Technology, Taiwan, R.O.C. Assistant Editor Zach Kelehear - University of South Carolina, USA

5 The International Journal of Organizational Innovation Vol 7 Num 1 July 2014

TROUBLE IN THE MIDDLE: AMERICAN - CHINESE BUSINESS RELATIONS, CULTURE, CONFLICT, AND ETHICS

Steven P. Feldman Ph.D. Professor of Management, Weatherhead School of Management Case Western Reserve University, Cleveland, Ohio, USA [email protected]

Abstract

This article is exerpted from Trouble in the Middle, a book on ethical and cultural issues in American-Chinese business relations. Based on interviews of American business executives in the United States, American and Chinese business executives in China, and visits to American and Chinese operations in China, the research focuses on challenges to doing business in China. The Chinese economic reforms are analyzed in detail to determine the type of business system that is emerging. Specific attention is given to the different ethical and cultural assumptions that American and Chinese executives bring to doing business with each other. A concept of the cultural middle is developed to help managers do business in foreign cultures. Several chapters focus on the role of corruption in the China market, both business-government corruption and business to business corruption. Two chapters deal with intellectual property rights issues and the thorny process of addressing them in China. Running through the entire book are detailed discussions of the role of the Chinese middleman in American-Chinese business relations, especially in regard to facilitating bribe payments. The middleman is seen as a key to understanding Chinese culture. The research is related to broader issues concerning China’s historical struggle to modernize its economy and globalization.

Keywords: American-Chinese business relations, Guanxi, Chinese economic reform

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 6 Introduction erarchy that simultaneously turns back against it, undermining its directives Western businesspeople face a di- while maintaining its integrity. It main- lemma. China’s growing role in interna- tains its integrity by both respecting hier- tional business means it is nearly impos- archical status within guanxi networks sible not to do business in China. This and contributing efficiency to rigid hier- article discusses the importance of the archal structures. Chinese middleman, explores ethical conflict, and suggests that when comparing “The purpose and function of guanxi is to Western and Chinese cultures there is bypass formal hierarchical systems for much to respect in both. obedience in the broader society.”

It is an interesting irony that guan- Western business people walking xi, the socially intense system of informal into this system find it difficult to master relationships that undercuts and reverses because they see only two opposite ex- formal Chinese institutions, is itself a tremes. Many times they experience only subcategory of the central principle of chaos. On one hand, the Confucian prin- Chinese culture, hierarchy . Guanxi, in a ciple of hierarchy is nowhere more ob- word networking, connects the individual servable than in the government-society to a social network of “friends” who can relationship. The government is authori- be called upon for favors when needed. tarian and makes extensive if not enor- These social networks, however, pay trib- mous demands on business, some portion ute to the status of their members. The of which can be classified as abuse of social status of each member in the power. On the other hand, every rule the broader community is respected within government passes, every demand it the social network. Yet the exact purpose makes, can be gotten around with the and function of Guanxi is to bypass for- right connections. So simultaneous with mal hierarchical systems, institutions, and the enormous power of the state is a sys- demands for obedience in the broader so- tem of relationships that regularly ignores ciety. These intense obligations of re- state edicts. Indeed, state officials are spect, required and mapped out in detail right at the center of this system, playing in innumerable interpersonal rituals and both sides as loyal bureaucrats, “friends,” mannerisms, make efficient action diffi- and rent-seeking individuals. cult. Guanxi addresses this problem by enabling relationships to develop new Western Businesses and Chinese types of bonds based on trust and mutual Middlemen advantage and thus new channels for action. Guanxi, then, is an outgrowth of hi-

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 7 Some of the main disadvantages action in China; it also highlights the lack Westerners face in this situation are their of trust and fear of dishonesty. language, culture, and outsider status, leaving them less than expert players in The rule of three grows out of the the guanxi system, which, for all practical collectivist nature of Chinese society. In- purposes, is an escape hatch in a hierar- dividuals attach themselves to groups and chical society. Here enters the third party, work through groups. This is a corollary the Chinese middleman . Westerners, es- to the guanxi principle. The hierarchical pecially big companies that can put steep nature of Chinese society strongly limits incentives into play, work with Chinese individualism in the Western sense, in- middlemen, utilizing their already devel- stead channeling individual effort infor- oped networks. So, for example, if an mally into groups and networks. Both hi- SOE is not paying its bills, a Western firm erarchy and its resistant child, guanxi, are can ask its middleman “friend” to contact forms of collectivism. The difference is his friend in the provincial ministry to put that hierarchy, in pursuing collective pressure on the SOE to pay its bills. If the goals as decided upon by top leaders, minister sees the Western firm as poten- gives rise to informal, secretive guanxi tially helpful to his own goals, all the bet- networks to accommodate individual and ter. In this way, the Western firm, through out-group interests, though these net- the middleman, has entered a guanxi networks still operate collectively and hier- work. Without the middleman this would archically. have been nearly impossible. The fact that the Western firm is able to utilize It cannot be otherwise because all the guanxi network shows the utilitarian Chinese cultural forms emanate from the aspect of guanxi. It is not all bonding, principle of hierarchy, even guanxi, which brotherhood, and obligation. directly challenges it. Hierarchy infil- trates guanxi through the principle of Perhaps the most important aspect face. Face is the status one has in the net- of this situation is the rule of three. There work. It is extremely important in regulat- is the Western firm, the middleman, and ing interpersonal relations. A person of a the government official. The dyad, a di- certain status has expectations for how he rect relationship between the Western should be treated. If these expectations firm and the official, is highly unlikely. are not met, conflict will result. An essential aspect of guanxi is that for A to win a favor from B, many times a third This is why the rule of three is so party, C, is needed. This need for a third important in Chinese culture. A third par- party demonstrates the intense personality can enter into a dyadic relationship, zation and informalization of collective separating the two parties and damping

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 8 down the emotions, helping to manage ethical norms. The middleman is hired to and safeguard delicate and sensitive is- take the Western firm into a guanxi net- sues of face. Face is the blood of collec- work that exists exactly for the purpose of tivism, infusing and enforcing hierar- avoiding rules, laws, taxes, and regula- chical status throughout the social body. tions. The legally minded Westerners are The middleman too is thus part of the hi- disinclined to enter the Chinese no-rule- erarchical and collectivist system, ensur- unbent universe directly for several rea- ing its smooth functioning by creating dis- sons, not least of which is liability to tance and indirectness, social forms badly prosecution under the Foreign Corrupt needed in the rigid and conflict-prone na- Practices Act. Bribery, the central form of ture of hierarchy. corruption in China, is handed off to the middleman so American executives can For Westerners, profoundly de- wash their hands of it. pendent on the use of middlemen in Chi- nese business, middlemen do more than The middleman, then, is a bit of a offer connections and translations, they magician. He can involve American firms also manage issues of face to avoid an in business transactions that require brib- escalation of conflict between Westerners ery even though the American firms have and Chinese. Westerners are typically ill specific laws and policies against paying equipped to be sensitive to the face needs bribes. The expectations of Chinese offi- and expectations of Chinese executives. cials or managers are met even though The middleman can take the intention of they directly and fully contradict the re- the Westerner and formulate it such that it quirements of the Americans. The mid- is acceptable to the Chinese, in terms of dleman operates between two cultures not just economic value but also social and, in a sense, in no culture. His special- form. Western culture and Chinese culture ty is having no cultural allegiance while are so different that both sides are typical- participating in two different cultures. ly made anxious by the ambiguity and Thus American and Chinese business cul- foreignness of the other. The middleman, tures are paradoxically connected and re- speaking both languages and having fa- mote. From the American side, the para- miliarity with both cultures, reduces this dox makes apparent the breakdown of vulnerability to miscommunication and American ethics, because at the end of the stress. day the bribes are paid. The “magical” middleman in the “middle” transforms Ethical Norms American business values into Chinese business practices. In reality, he creates a One area of particular importance social conduit through which money and especially liable to conflict is that of flows but the law does not follow.

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 9 while hurting the broader society. Unlike Thus when American firms utilize ascribed guanxi, which builds community the rule of three, which they regularly do, by bringing moral values like benevo- they are participating deeply in Chinese lence, reciprocity, and caring into the rela- culture. This is evidence, contrary to the tionship, achieved guanxi does not have view of Guthrie for example, that Western any such moral counterweight to offset its firms in China are more influenced by self-interested, antigovernment, and anti- Chinese business culture than the reverse. community intentions. Western involve- This is an empirical question that requires ment in guanxi relations, since they are more research and also time to answer. In seldom of the ascribed guanxi sort, there- any case, the rule of three has Western fore raises moral questions. firms adapting to and participating in Chinese business culture. Using middle- Guanxi and Universal Rights men is accepting a teacher, someone who instructs and educates Western firms on But even if Westerners were to how to do business in China. Using a develop ascribed guanxi relations, can middleman is not merely an impersonal these relationships really be morally justi- transaction. It is a dependent, apprecia- fied given that they operate only on the tive, and many times long-term relation- subgroup level? In the West, core val- ship. In other words, it involves social and ues—freedom of speech, equal opportuni- psychological elements of Chinese cul- ty, the right to vote, privacy, equality be- ture. fore the law, and so on—are considered If ascribed guanxi, relations based “human” rights and thus are considered on goodwill and compassion, and morally universal. Guanxi, on the contra- achieved guanxi, relations based in calcu- ry, is exactly designed to give insiders lation and self-interest, are seen as two more rights than others. Thus, guanxi and ideal end points by which to evaluate in- universal rights are incompatible. Hence formal business relationships, Western even ascribed guanxi cannot be morally relations with middlemen usually will justified according to the principle of uni- mark out closer to the achieved pole. Giv- versalization. en that guanxi relations are often used to avoid formal rules or change them, it is In practice, however, the principle difficult to see how achieved guanxi can of universalization does not work perfect- be morally justified. Indeed, Snell and ly even in the West. Clearly, people with Tseng lament that the large increase in money or power have better opportunities achieved guanxi during the “privatiza- in the marketplace or better chances in tion” process in the 1990s was dishonora- court, for example. Is there really such a ble—that is, based merely on self-interest big difference between guanxi and “hu-

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 10 man rights” as they are practiced in the It has often been noted that indi- West? Yes, there is. In the West, failures vidualism too is prone to abuse, but, un- to honor human rights are continually de- like hierarchal society, a democratic soci- bated and efforts are made to improve ety is hedged around with checks and bal- them; in the guanxi system, honoring rela- ances so that both public and private ac- tionship over principle is the nature of the tion are more subject to public, political, system. and legal review. In a hierarchical society, all processes of review are subordinate to “Neither a culture developed around the one, the political. Hence, Western busi- core category of individualism or one de- nesses operating in hierarchical societies veloped around the core category of col- cannot morally justify full participation in lectivism is superior to the other. Indeed, hierarchical culture without violating their all cultures must have both categories. In own values. When they enter in- this regard, both China and the United to guanxi relations, they may easily be States can learn from each other.” entering into unethical activities according to their own beliefs. This is the difference between a democratic culture and a hierarchical one. This is not to say Western values The individualism inherent in a democrat- are superior to Chinese values. The Chi- ic culture pushes toward universal rights; nese have low trust in impersonal rela- this tendency is missing in a hierarchical tions and high trust in personal relations, society, which puts a much stronger em- while the West has higher trust in con- phasis on the whole. The problem is tracts and the ability to enforce them that guanxi, hierarchy’s other half, under- when they fail, and less reliance on per- cuts and hurts the whole in favor of the sonal relations. Is the latter “modern” and subgroup. Though guanxi can lead to the the former feudal or less developed? Is development of strong bonds, bonds often universalization the test of development missing in the West as individualism be- and ethical superiority? Maybe so in the comes an end in itself (narcissism) and economic sphere, where the single criteri- leads to impersonalization and selfish- on of efficiency can be used as a universal ness, the cost of guanxi is high, as is evi- measure to evaluate action. But it is less dent in widespread corruption and dam- true in the political sphere, where com- age to public goods such as water and air plex goals involving diverse values make in China. Even though guanxi addresses universal (rational) criteria less relevant the evils of unchecked power, it merges because continuously shifting contexts with power and creates its own abuses. and multivalued actions make it impossible to universalize the criteria of evalua- Western Values and Chinese Values tion.2 Hence, since the economic and po-

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 11 litical spheres are interrelated, not to men- way evidences an imbalance toward bene- tion the value-laden religious, cultural, fiting subgroups and individuals at a cost esthetic, and personal spheres, it is impos- to others and the whole. sible to judge a social system merely according to its “modernization.” Profound In the West, however, legal com- moral choices and trade-offs are involved petition to address the imbalance works in any life order, requiring moral evalua- more effectively than does reliance on the tion to be multilayered. good character of leaders in hierarchical culture. Institutionalized checks and bal- “The Chinese have low trust in imperson- ances have proven more reliable than the al relations and high trust in personal re- good graces of absolute power. On the lations, while the West has higher trust in other hand, hierarchical (Confucian) cul- contracts and the ability to enforce them ture has made possible huge and densely when they fail.” populated cities, such as Shanghai and Beijing, where the crime rate is relatively In addition, it is important to keep low compared with that of New York, in mind, when comparing Western and Chicago, or Los Angeles. Chinese cultures, that there is much to respect in both. In hierarchal culture, the In the abstract, neither a culture emphasis on social harmony and respect developed around the core category of for others—especially parents, teachers, individualism or one developed around leaders, and elders—is noble and has the core category of collectivism is supe- good consequences. But, as was men- rior to the other. Indeed, all cultures must tioned, hierarchical culture often leads in have both categories. It is a question of practice to abuse of power. Western cul- emphasis. In this regard, both China and ture relies more on formal structures such the United States can learn from each oth- as laws and rules, not personal relations, er. to provide order in society. But just as Moral Challenges guanxi can benefit the subgroup at the expense of the community, the expensive This conclusion does not remove and overused legal system in the United the moral challenges faced by Western States is evidence of a destructive (self- businessmen working in China. There is ish) individualism that concerns itself lit- widespread corruption on the different tle for the good of society. Neither Chi- levels of Chinese government, and the nese collectivism nor American individu- government represses its own citizens. alism lives up to its own ideals of the Western businesspeople cannot morally good society, particularly the need to care ignore these facts if they are committed to for the whole. Each society in its own the democratic values upon which West-

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 12 ern societies are based. The argument that not to do business in China. Yet the moral it is morally justifiable to do business in challenges cannot morally be ignored. China because Western businessmen can- Ethics is not just a nice thing we should not do anything about the behavior of the do if we can afford it. It is part of social Chinese government is not valid. One reality and has concrete consequences. cannot support unethical activities without Ignoring Chinese government transgres- sharing some responsibility for them. sions strengthens these transgressions at the same time that it weakens Western Western business is, at a mini- ethics. It encourages both the Chinese mum, required to express its own values government and other governments to vi- and protest values it finds unethical. One olate human rights and exercise unre- cannot benefit from business activities in stricted power, which can only contribute China without taking some moral respon- to the suffering of its people and a more sibility for them. Otherwise, Western dangerous world for everyone else. Poi- business is caught in a contradiction be- soned food products and medicines com- tween its own values and its behavior in ing out of China are not unrelated to gov- China, undermining Western values for ernment corruption in that they are the itself and others. Considering the risks of model for other types of corruption. protesting is valid, but it is not sufficient. Moral deliberation involves multiple as- Complete resolution of the dilem- pects; in addition to risks, responsibilities ma is not possible; thus a compromise is to and consequences for others must be called for. It should be worked out both considered. collectively and individually by Western businesses. It should involve, at the least, Western businesspeople face a di- a statement of principles that expresses lemma. China’s growing role in interna- Western business values, defines what tional business, and the opportunities for practices are acceptable and what ones are and threats to Western business in China, not, and outlines sanctions for Western make it nearly competitively impossible businesses that violate these principles.

Reprinted by permission of Routledge. Excerpted from Trouble in the Middle: American- Chinese Business Relations, Culture, Conflict, and Ethics by Steven P. Feldman. Copyright 2013. All rights reserved. Routledge Publishing , March 2013, 505 pages

Steven P. Feldman is professor of business ethics at Case Western Reserve University, Cleveland, Ohio. He was Fulbright Distinguished Lecturer in business ethics at Shanghai International Studies University in Shanghai, China. His Ph.D is from the Wharton School of Business, University of Pennsylvania. He has held visiting positions at Oxford Universi-

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 13 ty, University of Innsbruck, and the University of Minnesota. He has lectured broadly in China on business ethics issues. His previously published books are Memory as a Moral Decision and The Culture of Monopoly Management. He has published extensively in management journals on ethical and cultural issues. Steve specializes in American-Chinese business relations, business ethics, and nonprofit management. For more information about his book on ethical and cultural issues in American-Chinese business relations, see www.TroubleInTheMiddle.com

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 14

THE ROLE OF WORK PLACE SPIRITUALITY AND EMPLOYEE ENGAGEMENT TO ENHANCE JOB SATISFACTION AND PERFORMANCE

Olivia Fachrunnisa Department Management, Faculty of Economics Unissula Semarang, Indonesia [email protected]

Ardian Adhiatma Department Management, Faculty of Economics Unissula Semarang, Indonesia [email protected]

Mutamimah Department Management, Faculty of Economics Unissula Semarang, Indonesia [email protected]

Abstract

Workplace spirituality is defined as work situation by which leader and follower have high spirit toward work completion and achievement of organization objectives. The family planning programme in Indonesia evolved from a private endeavour in the 1950s to become a government programme in 1970. One of the determinants of this succesful program is the role of field workers as service employees implementing the family programme. These employees have a role as mediators between goverment office and community. They serve as government officers who are required to communicate effectively with the community regarding the program. This study discusses the role of creative process engagement between leader-fieldworkers-community to enhance job satisfaction and performance of field workers. Drawing from spiritual leadership theory, we examine the role of workplace spirituality and creative process engagement to enhance job satisfaction and performance. Results indicated that workplace spirituality and creative process engagement is requirements to create job satisfaction which then lead to employee performance to implement the government program.

Keywords: spiritual workplace, creative process engagement, job satisfaction, task performance

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 15 Introduction creative strategy for improving the employee performance is a creative process It has been widely argued that most engage-ment (Zhang and Bartol, 2010). of leaders are coming to realize that they Creative process engagement is defined as have to be engage in a harmonize way with the level of employee involve-ment in their followers to achieve mutual goals. creativity relevant to the cognitive (know- Considerable evidence indicates that a ledge) with indicators: (1) be able to unique engagement between leader and identify the problem, (2) be able to find employee can fundamentally contribute to information relevant to the completion of organizational innovation, effectiveness, the work, and be able to look for performance and survival (Zhang and alternative ideas in solving problem, Bartol, 2010). Leader - employee rela- (Amabile, 1983; Zhang and Bartol, 2010). tionship refers to an exchange process about ideas, vision and mission to work Creative engagement process will together. It includes to the production of have an impact not only on performance novel and useful ideas by a leader or by a but also the effectiveness of creative work group of leader and their followers for as a whole. The strategy is to develop a collaborate succesfully (Amabile, 1988; view-based strategy, which recognizes the Madjar, Oldham, & Pratt, 2002; Shalley, limited ability of the stakeholders to make Gilson, & Blum, 2000; Zhou & Shalley, decisions. Kahneman (2001) states that 2003). For a good and trustable relation- each individual has the capacity of atten- ship to occur between leader and member tion and cognitive resources are limited. It in organizations, leaders need to support is often also inhibit the ability of human to and promote it, as they are the individuals focus on a job simultaneously. The spirit who are most knowledgeable about their of the individual to provide the best in follower. Moreover, employees have con- work is also influenced by a stimulus that siderable influence over the context within results from a concern. which a good engagement can occur. Based on the existing literature, the The existing discussion in the performance will increase, if the creative literature on how to improve the per- engagement process is applied in order to formance of employee in an organization encourage individuals stimulus to work receives high attention. This is because better. The low level of involvement in the employees are one of key element in the creative process works tend to reflect low achievement of the vision and mission of activation of individual businesses. In the organization. Some old-fashion human contrast, the level of creativity that is too resource strategy to improve the employee high will cause individuals have difficulty performance are compensation design, focusing on business ventures throughout leadership styles, motivation, job satisfac- the task demands. Such a situation would tion, etc.. However, some literature states lead to a reduction in overall performance. that under conditions of organizational change, old-fashion strategy should be Therefore, the balance between further developed into creative strategy. creative process engagement facilitated by Creative Strategy is defined as the search the organization will balance the needs of for business ideas that leads to the involve- creative individuals. Creative engagement ment of all stakeholders involved to process is also rooted in the theory of the achieve common goals (Amabile, 1983). role of identity (Zhang and Bartol, 2010). This strategy is believed to accommodate The theory states that individual's role all the needs of stakeholders in accordance identity mapping individual about proper with mutual agreement with. One of the behavior in the sharing of roles and inter-

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 16 nalize them as a component of identity or they have spirit to finish their works, it is role. In the next phase, the individual will believed they will have a strong commit- review by themselves, or extracting mean- ment to the welfare of society. Spiritual ing ascribe themselves in relation to a wellbeing is often generated from applying particular role. The role of self-identity is the existence of spiritual leadership and related to 'how self' is further defined as a articulate a vision in a group based on hierarchical ranking of identity. Employee altruistic love. Altruisitc love is the true was carrying out a dual role in the order of love of a leader or co-worker to co-worker importance, assessing the number of to co-worker to another. The process of identity becomes more important than the leadership that could encourage workplace other. Labianca, Gray and Brass (2000) spiritual existence is spiritual leadership concluded that in the context of organi- (Fry, 2003). When spiritual leadership in zational change, employee is required to the present work in order to produce a take creative initiative to cultivate an genuine spirit of an organization's human action in accordance with the role of resources, the creative process engagement employee rather than personal interests. is supporting facilities. This is because the creative process engagement, human On the other hand, in addition to resource development and the process of trying to cultivate employees in order to appreciation and respect of human understand its role in the organization as a resources within an organization is key stakeholder in the achievement of the something that is vital. Thus, the creative vision, the organization should also pay process is the facilitation of the process of attention to the welfare of intrinsic moti- engagement with leaders of employee vation. Employee welfare intrinsic moti- engagement will result in spiritual well- vation was also identified as an effective being. strategy for improving human performance. In conjunction with efforts to Furthermore, spiritual wellbeing is increase the employee performance, measured from calling and membership attention to the spiritual well-being to be degree of employees within the organi- something that should be considered. zation (Fry, 2011). Calling is the individ- Spirituality in the workplace (workplace ual who felt it was a matter of conscience spirituality) is a framework of organi- are then issued in the form of devotion and zational values that realized with the commitment to the organization. Member- creation of culture through the work ship is a sense of organization and co- routine. The work process is used to workers regard themselves as in need of facilitate the individual to connect with love and affection as a fellow. Fry (2011) other individuals that bring a feeling of suggests that the meaning / calling and peace and fun when it works (Giacalone membership succeeded in increasing and Jurkiewicz, 2003). Spiritual well-being productivity of human resources and in the workplace result in benefits in terms organizational commitment. Hence, we of individuals and organizational outcomes argue that a spiritual leadership needs to be (Eisler and Montouri, 2003). exist in an organization. Spiritual leadership is defined as a leader with high spirit One of the sense in employee toward his employee to achieve organ- spiritual is ‘calling’ by which individuals izational vision and mission. The theory of who feel that the work done by employee spiritual leadership (Fry, 2003) is ground- to make other people's lives changed. ed in an intrinsic motivation model that Sense of care to the other is the feeling that incorporates vision, hope/faith, and altruis- this job is very meaningful to the individ- tic love, theories of workplace spirituality, ual. In the context of service employee, and spiritual well-being. Operationally,

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 17 spiritual leadership draws from an inner life or spiritual practice to develop the val- In this section, we discuss the de- ues, attitudes, and behave-iors that are velopment of our overall research model necessary to intrinsically motivate one’s by first exploring the general nature of self and others so they have a sense of spiritual leadership as it relates to creative spiritual well-being. process engagement and task performance. We next investigate how job satisfaction The purpose of spiritual leadership mediates relationship between spiritual is to tap into the fundamental needs of leadership towards task performance. We both leader and follower for spiritual well- then examine the mediating role of crea- being through calling and membership, to tive process engagement in relationship create vision and value congruence. In this between spiritual wellbeing and task research, therefore, a major purpose is to performance and in relationship between build and test theory that addresses the spiritual wellbeing and task performance. connection between workplace spirituality As part of these arguments, we incorporate as determined by spiritual leadership and leader spirit to encourage spiritual well spiritual wellbeing and creative process being by which it will lead to creative engagement to enhance job satisfaction process engagement and will help on ex- and employee performance. The rest of the plaining how siritual leaders can affect paper is organized as follows: section 2 task performance via spiritual wellbeing, discusses theory and hypotheses, section 3 creative process engagement and job presents research method, section 4 satisfaction. The hypothesized model is describes result of analysis and section 5 depicted in Figure 1. provides discussion and conclusion.

Theory and Hypotheses

Figure 1. Hypothesized Model

Spiritual leadership and spiritual ent service to key stakeholders (Fry, 2003, wellbeing 2005a). This in turn produces a sense of calling which gives one a sense that one's Spiritual leadership positively in- life has meaning, purpose and makes a dif- fluences spiritual well-being as group ference. Concurrently, as leaders and fol- members model the values of altruistic lowers engage in this process and gain a love to one another. They jointly develop a sense of mutual care and concern, mem- common vision, which generates hope/ bers gain a sense of membership and feel faith and a willingness to “do what it understood and appreciated in organiza- takes” in pursuit of a vision of transcend tion. In conjunction with efforts to increase The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 18 the performance of service employee, organization is something that is vital. attention to the spiritual well-being is Thus, a creative process is the facilitation something that should be considered. of engagement process between leader Spirituality in the workplace (workplace and employee in setting goal and determin- spirituality) is a framework of organiza- ing plans accourdingly. Furthermore, tional values that realized with the creation spiritual wellbeing is measured by calling of culture through the work routine. The and membership degree of employee in work process is used to facilitate an organization (Fry, 2011). Calling is an employee to relate and com-municate with individual feeling that was a matter of others which can bring a feeling of peace conscience issued as form of devotion and and joy (Giacalone and Jurkiewicz, 2003). commitment to the organization. Member- The creation of a spiritual workplace will ship is a degree of attachement or simi- result in spiritual well-being. It will larities between individual vision and influence individual and organizational organizational vision. It will create a sense outcomes (Eisler and Montouri, 2003). of part of organizational member by which they themselves is in need of love and One result of encouragement work affection. spirit by leader is sense of calling by which an employee feels his/her finished work Moreover, people seek not only can change or improve other people's lives. competence and mastery through their In this case, employees will have a feeling work but also a sense that work has some that their job is very meaningful to others. social meaning or value (Pfeffer, 2003). In the context of service employee, if the The term calling in spiritual wellbeing has spirit to serve community is owned by long been used to define the characteristics them, it is believed that they will have a of a professional employee. Professionals strong commitment to the welfare of in general have expertise in a specialized society. Spiritual wellbeing is often gener- body of knowledge, ethics centered on ated from applying the existence of selfless service to clients/customers, an spiritual leadership and articulate a vision obligation to maintain quality standards in a group based on altruistic love. Altru- within the profession, calling to their field, isitc love is the truth of love in relationship dedication to their work, and a strong between leader and employee of between commitment to their careers (Filley,House, co-workers. The process of leadership that & Kerr, 1976). The challenge for organi- could encourage the existence of spirituali- zational leaders is how to develop the ty in workplace is spiritual leadership (Fry, same sense level of calling within 2003). Hence, we formally form the employees through task involvement and following hypothesis: goal identification (Galbraith, 1977). Membership encompasses the cultural and Hypothesis 1. Spiritual leadership is social structures we are immersed in positively related to spiritual wellbeing through a completion of job. A sense of Spiritual wellbeing and creative process being understood and appreciated largely engagement stems from interrelationships and connections through social interaction with and If spiritual leadership presents in membership in groups. Indeed in organi- workplace in order to produce a genuine zations, people value their affiliations and spirit of an employee, the creative process sense of interconnection or belonging to engagement will easily to occurs. This is part of a larger community (Pfeffer, 2003), because in creative process engagement, which in turn create high level of the development and appreciation of others engagement. and respect of employees within an

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 19 In the context of engagement On the other hand, leader encour- relationship in workplace, Harvey and Kou agement of creativity is defined as the ex- (2011) explores the creative process in a tent of a leader’s emphasis on being crea- group or team. The creative process is tive and on actively engaging in processes designed based on the collective engage- that may lead to creative outcomes. Such ment. Creative participation is usually emphasis is likely to prime employee at- based on the conceptualization of a process tention and facilitate effort toward trying consisting of the preparation stage, the to be creative (Scott & Bruce, 1994; Wyer identification of the problem, develop & Srull, 1980). Several studies have sug- ideas and ultimately select ideas (Amabile, gested that when individ-uals know the 1988; Jackson and Poole, 2003). Creativity importance of creativity in their jobs, they in the organization of groups associated are more likely to actually be creative with the production of ideas that occurred (e.g., Carson & Carson, 1993; Speller & in the group agreed. There are four types Schumacher, 1975). For example, Shalley of creative process that can be used to (1991, 1995) found that assigned creativity increase the involvement of community goals effectively enhanced employee crea- members in a participatory methods are: tive performance, whereas assigned per- (a) Brainstorming, Brainstorming is a formance goals (e.g., production quantity) session in which community members actually detracted from creative perfor- exchange information. The result of this is mance. Similarly, Pinto and Prescott brainstorming of creative ideas for (1988) concluded that a clearly stated mis- constructive purposes. (b) Sequential, in sion by a leader enables a greater focus on sequential, a group introduced an idea in new idea development and subsequent the discussion, while the second group successful innovation. Moreover, employ- elaborate this idea and then discuss these ee participation as a part of goal setting ideas in detail. The results of this sequent- negotiation is a significant process to ial appearance is similar to brainstorming maintain leader-employee engagement. activities. The difference is in sequential, Setting goal together with employees in members of the discussion board often their task description would support avail- agree on an idea and a member of the ability of creativity and confidence, in- group then discussed the ideas that might crease satisfaction, and inspire motivation be revised. Elaboration and combining that yields lasting results and achieves ideas is essential in creativity (Finke, Ward goals (Yui-Tim Wong 2003; London, & Smith, 1992) (c) Parallel, the third form Mone et al. 2004; Vigoda-Gadot and An- is a parallel discussion about an idea at a gert 2007). Most of employees will accept time. In a parallel discussion, the group manager imposed goals if the person as- cultivate a small idea and then discuss it signing them (supervisors) is trusted and together and (d) Iterative, this happens well respected. Employees who involve in where members of the group involve in a setting their own goals have a tendency to creative process. Forms of this iterative try harder to accomplish those goals. They process usually starts from the introduction have an ownership of this goals which in and discussion of an idea, followed by the turn to goal commitment. Participation al- introduction of new ideas without so increase acceptance of the goal itself as comparing with previous ideas, then go a desirable one to work toward and more back to the original idea. The group may likely to accept the responsibility of ac- discuss some of the ideas in this stage, complishing those goals. In the perspective introducing each point of difference and of expectancy theory, participation and run the iterative process to reach rich communication in goal setting may agreement. increase volition, which in turn, may in-

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 20 crease goal commitment and trust toward people who gives task (managers). Spiritual wellbeing and job satisfaction

On the other hand, supervisor sup- Spiritual wellbeing becomes an portiveness is another variable that also important aspect in today's business organ- important in leader-employee engagement izations. Those aspects are used to encour- especially in goal setting process. Supervi- age employees to complete the work in sor supportiveness is defined by (Klein, accordance with the organizational’s ex- Wesson et al. 1999) as some resources that pectation. Spiritual wellbeing indicated by dedicated by supervisors to their employ- the feeling perceived by the employee that ees as friendliness and listening employee the valuable work being done in accord- opinion. Difficult goals setting that agreed ance with their ideal job, the level of im- by supervisor and employee would be per- portance of job to them, and they feel that ceived as fairer and more realistic, causing the work they have done so far has brought goal commitment to be higher. (Medlin changes for the benefit of others, contrib- and Green Jr 2009) directly showed that a uted to their profession, and they feel ap- measure of supervisor trust was positively preciated and cared by their leader. Chand correlated with goal commitment. (Ander- and Koul (2012) explores the consequenc- son, Dekker et al. 2009) provided indirect es of organizational emotional ownership, evidence in that supportive supervision workplace spirituality, and job satisfaction was positively associated with selected among IT (Information Technology) pro- goal level for subjects in participative con- fessionals of India. This study was de- ditions. Providing performance feedback signed to analyze the influence of work- helps employee understand what they place spirituality, organizational emotional should continue doing, stop doing, or start ownership and job satisfaction as predic- doing to attain goal. Managers cannot as- tors to cope up with job stress. It reveals sume that their employee can perform bet- that workplace spirituality, organizational ter in any type of task. Therefore, it cannot emotional ownership and job satisfaction argue that all employees need to control in are negatively correlated with job stress. the same ways in all task. As consequence, setting goal in each task description should We have also found that workplace be done and agreed between supervisor spirituality emerged as the strongest pre- and employee. Perhaps even more im- dictor to cope up with job stress. Robert, et portant is giving employees the opportuni- al (2006) indicated that spiritual well- ty to contribute ideas and opinions before being , religious well-being . and existential the manager makes a decision. This adds well-being had impact to job satisfaction. dignity and meaning to the task in the Clark L et al, examined the prevalence of views of most employees. As creative spirituality among hospice interdiscipli- supportive environment in leader- nary team (IDT) members and observe employee engagement will work better if whether spirituality is related to job satis- leader facilitate a spiritual wellbeing in faction. An individual's attitude about his workplace, thus, we expect spiritual or her job should have meaningful implica- wellbeing mediated relationship between tions about how he or she does it. Many creative process engagement and service human-relations era researchers sought to employee performance. Formally, we pro- establish job satisfaction as a driver of per- pose: formance (e. g. McGregor, 1960). They examined the structural path relationships Hypothesis 2. Spiritual wellbeing is among four variables; spiritual belief, inte- positively related to creative process gration of spirituality at work, self actual- engagement ization and job satisfaction. The study sur-

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 21 veyed 215 Hospice IDT members who completed the Jarel Spiritual Well-Being Creative process engagement and task Scale, the Chamiec-Case Spirituality Inte- performance gration and Job Satisfaction Scales. Multi- ple regression and structural path modeling In an organization, services methods were applied to explain the path employee and non-services employee give relationships involving all four variables. a significance difference. Employee servi- In multiple regression, spirituality, integra- ces relate and communicate directly with tion and self-actualization explained 22% the client or customer of an organization of the variation in job satisfaction (R = that expected to have a skill of serving 0.48; adjusted R 2 = 0.218; df = 3,175; F = behavior. Serving behavior will impact on 17.2; p = 0.001). customer satisfaction and customer satisfaction will affect organizational Structural path models revealed performance as measured by the perform- that job satisfaction is more likely to be ance of the operating and financial realized by a model that transforms one's performance. The model proposed Peccei spirituality into processes of integrating and Rosenthal (2001) consider the function spirituality at work and self actualization of 'employee willingness' and 'employee than a model that establishes a direct path capacity' to conduct continuous from spirituality to job satisfaction. Hos- improvement and more work for the client. pice IDT member's integration of their Employee Willingness is the conceptuali- spirituality at work and greater self actual- zation of affective, normative, calculative ization significantly improve job satisfac- commitment (Myer, 1988) and altruistic tion. Duggleby, et al (2009) showed that orientation (equivalent to organi-zational using linear regression analysis of the re- commitment) on customer service. sults that the spiritual well being has a sig- 'Employee Capacity' is measured by seven nificant positive effect on job satisfaction variables related to the knowledge of the and organizational performance. Hence, it employee (employee knowledge) and can be derived that values of spirituality in competence of employees (employee today’s environment have proven a great competence), empowerment (empow- source of competitive advantage for any erment) and the availability of resources. organization. According to Wong (2003) The results of this study indicate support strongly held spiritual values i.e. altruistic, for the model of affective commitment, love, care affection, and meaning creation normative and altruistic factors are the lead to high organizational outcomes. The main influence on the 'employee willing- importance of work spirituality is consist- ness' to act. Calculative orientation was not ently growing as the spiritual cause leads found to be a good predictor in employee to strategic benefits to the business units. willingness. (Gogoi, 2005) argued that due to the significant contribution of work spirituality, a Furthermore, the convenience of spirituality interest group is specially cre- employee (employee wellbeing) is ated by the renowned academy of man- fundamental practice of HR policies in an agement for modification of concept and organization. Basically this is because the precision of spiritual and God’s values. thought is not realistic to ask employees Spirituality aids in the enhancing the level convey their ideas, hard work and of job satisfaction and fulfilment with an commitment without some hope on overall organizational accomplishment. employees wellbeing and focus on their future careers. Higher contribution to the Hypothesis 3. Spiritual wellbeing is psychological contract makes the relation- positively related to job satisfaction ship between the organization and the

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 22 employees to be close and trustworthy 2004) have suggested that a promising di- (Holman et al., 2003). However, only few rection for creativity research would be to organizations that demonstrate attention to focus on achieving a better understanding the wellbeing of their employees. Employ- of the process that eventually leads to crea- ees wellbeing does not mean employees tive outcomes. As mentioned earlier, we should be hired for life, nor by maintaining define creative process engagement as em- low performers. Focus attention on the ployee involvement or engagement in wellbeing of employees who are highly creativity relevant cognitive processes, in- committed into HR practice which is an cluding (1) problem identification, (2) in- attempt to avoid the 'job reduction', and formation searching and encoding, and (3) employees are expected to manage their idea and alternative generation (Amabile, involvement in the organization - through 1983; Reiter-Palmon & Illies, 2004). Sim- internal transfers -. Employee wellbeing ple solutions that may not be novel and can be enhanced by - well devised - and useful emerge when individuals minimally sustainable system of human resource engage in the process. On the other hand, planning. Convenience is also an employee when an individual spends effort to more intention in its organization which can be fully identify a problem, obtains as much encourage to achieve flexibility. This information as possible, and generates nu- requires organizations view that employee merous ideas and alternatives, solutions is not as a variable cost, but as a critical that are both novel and useful are more asset in long-term viability and successful likely to be produced. This line of reason- organization. For example, employees will ing is congruent with research findings that feel the high involvement and information the first ideas generated tend to be routine sharing if they enjoy the wellbeing of and less creative, whereas ideas identified employees and workplace wellbeing. later in a process of idea generation tend to Similarly, they will be happy to work be more creative (Runco, 1986). We theo- together as a team if their efforts are rize that creative process engagement may appreciated with incentives based on have important influences on an employ- performance, share ownership, and get an ee’s performance. Specifically, when an opportunity to participate in training. employee perceives that his or her job re- Instilling a sense of concern for subor- quirements are meaningful and personally dinates in every work will contribute important, the employee will spend more greatly to the success of a service effort on understanding a problem from organization, in contrast with little multiple perspectives, searching for a solu- involvement and concern for subordinates tion using a wide variety of information in the work will make people less creative from multiple sources, and generating a and productive. Therefore, it needs a significant number of alternatives by con- creative-based strategies to increase the necting diverse sources of information productivity of personnel service employee (Gilson & Shalley, 2004; Jabri, 1991). In in an organization. addition, when an employee believes that he or she has the ability to perform a task According to Amabile’s (1983) successfully, has a certain degree of self- componential conceptualization of creativ- determination over job execution, and can ity, intrinsic motivation is a necessary but shape desired outcomes through his or her not sufficient condition for creative out- behaviors, the employee is likely to focus comes. Engaging in creative activities has on an idea or a problem longer and more an equal, if not more important, role in persistently (Deci & Ryan, 1991; Spreit- promoting employee performance. Recent- zer, 1995). Such an employee is also more ly, several scholars (e.g., Mainemelis, likely to take risks, explore new cognitive 2001; Mumford, 2000; Shalley et al., pathways, and be playful with ideas (Am-

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 23 abile et al., 1996). Accordingly, we propose that one approach to doing so is pose: spiritual leadership.

Hypothesis 4. Creative process According to Fry et al’s concept- engagement is positively related to task ualization (2005, 2008, 2012), spiritual performance leadership involves highlighting the significance of the work, providing spiritual Job satisfacton and task performance wellbeing, conveying confidence that performance will be high, and removing bu- Recent research indicates that dif- reaucratic constraints. These behaviours ferent forms of leadership are related to are conceptually highly relevant to the employee engagement (e.g., Zhang and degree of involvement which we termed it Bartol, 2010). For instance, Tierney et al. as creative process engagement. For in- (1999) found that effective leader-member stance, it is clear from the leadership litera- exchange (LMX) relationships are posi- ture that altruism, vision, calling and tively associated with employee creativity, meaning and perceptions of spirtiual a finding supported by related research wellbeing are vital preconditions for crea- (e.g., Scott & Bruce, 1994). In considering tive process al., 2004). Inherent in the broader leadership approaches, some stud- combination of spiritual leadership behav- ies have shown support for a positive im- iors is making vision more clear and dele- pact of transformational leadership on em- gating authority to an employee, so as to ployee participation (e.g., Howell & enable the employee to make decisions and Avolio, 1993; Jung, Chow, & Wu, 2003; implement actions without direct supervi- Keller, 1992; Shin & Zhou, 2003; Sosik, sion or intervention (Bass, 1985; Jung et Kahai, & Avolio, 1998), but others have al., 2003). Given the nature of creativity, produced contrary results (e.g., Basu & such delegation helps establish a work Green, 1997; Jaussi & Dionne, 2003; context wherein an employee is encour- Kahai, Sosik, & Avolio, 2003). Surprising- aged and empowered to explore diverse ly lacking research attention is a leadership creative alternatives before (perhaps) set- approach with considerable promise of in- tling on a viable creative solution (Ama- fluencing employee engagement: spiritual bile et al., 1996). leadership. Hypothesis 5. Job satisfaction is positively In view of evidence that leaders related to task performance. can affect employee vision and involvement in organization, several creativity Method scholars have argued for a closer look at leadership behaviours or styles that might Research setting and participants fundamentally address the nature of creative engagement process. Such work tends This study was conducted in an to involve complicated, ill-defined prob- Indonesia government office which has a lems for which novel and useful solutions responsibility to the succesfull implemen- are far from obvious (Ford, 2000; Mum- tation of national family program in one ford et al., 2002; Reiter-Palmon & Illies, region. It called as Bapermas KB (Badan 2004). As a result, leaders cannot rely on Pemberdayaan Masyarakat dan Keluarga predefined structures that spell out means Berencana) which headquartered in or even precise ends. Instead, they must Demak, Indonesia. We used a question- encourage employee spirit and well being naire to collect the data. Participants were to solve these problems and yet enable field workers who have to serve as work considerable employee latitude. We pro- field or service employees. Their main task

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 24 is to give presentation and consultation to For example, community member are free the community about the importance of to make decisions regarding the number, contraception to manage Indonesian birth time distance between one child to another rate. In order to finish their job succes- child, and age for giving birth. However, fully, they have to be engage with the an institutional regulation or formal community as well as their direct approach will make accessible information supervisor. Additionally, they need to have about safe and effective methods for the a high level of spirit, vision and passion to welfare of our future generation (Popula- their job. tion and Development Review, 1995).

The family planning program in 2 The decision, by community members, Indonesia evolved from a private endeav- to participate in a family planning our in the 1950s to become a government programme is influenced by many factors programme in 1970. One of the determin- (Islam et al., 2001). The couple’s percep- ants of this succestul program is the role of tions, evaluations, norms and attitudes to- field workers as service employees imple- wards contraception choices are formed menting the family programme. These and shaped by social interaction within the employees have a role mediators between community setting. In this line of thinking, goverment office and community. They the decision to have children might not be serve as government officers who are re- influenced only by individual families, but quired to communicate effectively with the by other individuals and groups including community regardingthe programme. As relatives, neighbours, colleagues, commu- their role involves influencing community nity leaders, professionals, and state au- members to participate in the program, thorities. Additionally, a couple’s deci- these field workers need to perform in an sion-making could be influenced by a field appropriate and creative manner.We argue worker acting as an education agent in the that the office needs to support theirwell- community. Moreover, there are govern- being to make them engage with the ment programmes which not only make community to ensure the success of a modern contraceptives available, but also program. Therefore, field workers have to actively encourage couples to limit their be creative in their role so that supply number of children (Easterlin, 1978; matches the demand; in other words, that Freedman, 1979; Lesthaeghe, 1980; Sim- what they offer (supply) meets the re- mons and Phillips, 1992; Watkins, 1987). quirements of the community (demand). Since the government endorses and encourages participation in these pro- 1 With community participation concept, grammes, this affects the social climate each community member has a freedom to within which individual contraceptive de- make a decision to involve in family cisions are made (McNicoll, 1975; Wat- planning programme or not. Previous kins, 1987). The family planning program researches (e.g. Arnstein, 1969; Chambers, emphasise ‘accessibility’ and a ‘communi- 1995; Oakley and Marsden, 1984) argue ty-based distribution system’ in order to that the concept of ‘participation’ includes encourage couples’ participation. Although community member’s opinion in decision mass media facilitate awareness and pro- making process. It starts from giving vide basic information about contracep- choices, opinion, supporting the tion, acceptance itself is more likely to be programmes and moni-toring such result. encouraged or discouraged by the opinion Researches also suggest that it is part of of leaders ‘closer to home’ who share empowering process, which make many of the same characteristics as the community to anaylise several choices and couples (Retherford and Palmore, 1983). make the decision based on their opinion.

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 25 Given the above, the goverment is coming to realize that field workers have Spiritual leadership. We used Fry et al.’s to be creative if they are to create com- (2005) to measure Spiritual Leadership. munity engagement and ensure the success This 12-item measure has multi-item sub- of the programme. It is also clear from the scales corresponding to three dimensions: discussion above that a field worker as (1) Vision, (2) hope/faith, (3) altruistic service employee needs to be creative and love. engage with the community to increase the number of participants in the family Spiritual Wellbeing. This 8 indicators were planning programme. derived from Fry et al’s (2011) as a degree of calling and membership in organization. The participants were chosen by Calling is defined as degree how they put a the head office and also the office meaning about their job. It is a perceived secretary to determine whom field workers value that their role in organisation is very or which area that required substantial cre- important. Calling refers to the experience ativity in order to be effective in create a of transcendence or how one makes a dif- service toward community. After several ference through service to others and, in consideration and discussion with the head doing so, derives meaning and purpose in officer, 82 field workers were participate life. in this study. The 82 usable employee survey responses received constituted a 94.5 Creative process engagement. An 11-item percent response rate. The average age of scale was developed for this study on the the participants was 50 years. The average basis of the conceptual work of Amabile organizational tenure was 26 years. (1983) and Reiter-Palmon and Illies Among the 82 respondents, 44 percent (2004). Creative process engagement is were male; 43 percent female, 13 percent defined as a process by which leader and leaves the question blank. Regarding their employee working together to set their education, 33 percent held high school de- mutual goal or oganizational goal that grees, 12 percent diploma, 32 percent needs to be achieved. undergraduate and 9 percent postgraduate. 15 percent of them leaves the questions Task Performance. We used the official without answer. periodic performance rating system. This rating is given to every field service Measures worker at the end of each year and is given based entirely on their performance such All the variables were measured by as quantity, quality and work load as participant responses to questions on a determined by leader. five-point Likert-type scale ranging from “strongly disagree” to “strongly agree.” Job Satisfaction . Job satisfaction is defined The specific measures are described be- as pleasurable or positive emotional state low, along with the results of calculation resulting from the appraisal of one's job or of Cronbach alpha coefficients for the var- job experiences" (Locke, 1976 p. 1300). A ious measures. When a measure is de- 15 item scale from JDS (Job Dimension scribed as having dimensions, the dimen- Scale) was used to measure this variable. It sions (items averaged) were used as indi- includes employee satisfaction toward cators for their construct in structural equa- compensation, leader, co-worker, work tion modeling. Otherwise, items were av- facilities and task itself. eraged into an overall scale score. Measures were completed by field workers Data analysis as our respondents.

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 26 Partial Least Square (PLS) was the model fit, chi-square (X 2) values are used to examine the hypothesized model. reported as the index of absolute fit, which The advantage of PLS is that it offers a assesses the extent to which the covari- simultaneous test of an entire system of ances estimated in the model match the variables in a hypothesized model and thus covariances in the measured variables enables assessment of the extent to which (Kline, 1998). the model is consistent with the data. PLS has the advantage that it “involves no as- Results sumptions about the population or scale of measurement” (Fornell & Bookstein, Table 1. provides the descriptive 1982) and consequently works without dis- statistics, correlations and scale reliabil- tributional assumptions and with nominal, ities for the main study variables prior to ordinal, and interval scaled variables. analysis. Prior to testing the measurement However, one has to bear in mind that and structural models, we averaged items PLS, like any statistical technique, also into dimensions for spiritual leadership, requires certain assumptions to be fulfilled. spiritual well-being, and creative process Apart from the standard ones (i.e., Gaussi- engagement and treated the different di- an classical linear ordinary least squares) mensions as separate indicators of their regression model (see, e.g.,Gujarati, 1995), corresponding construct in our PLS anal- the most important assumption is predictor yses. For all other variables in our model, specification (Chin & Newsted, 1999). we averaged the items into single indica- According to this strategy, the measure- tors. The favorable indicator is greater than ment model was first confirmed using con- 0.5 and all validity indicators are greater firmatory factor analysis (CFA), and we than 0.5 (in parentheses). then performed PLS based on the measurement model to estimate the fit of the hypothesized model to the data. To gauge

Table 1. Summary of Descriptive Statistics

No. Variables Mean s.d 1 2 3 4 5 1 Spiritual Leadership 3.99 .55 (.863) 2 Spiritual Wellbeing 3.93 .58 .468 (.865) 3 Creative Process 3.86 .56 .456 .559 (.884) Engagement 4 Task Performance 3.8 .57 .377 .642 .528 (.861) 5 Job Satisfaction 4.14 .46 .331 .293 .285 .507 (.865)

Measurement Model and Hypothesis model with deflective indicators is Testing assessed by the correlation between the item score to construct score which Outer model calculated by PLS. Indicators is stated as valid when loading vactor values greater Measurement model with reflective than 0.5 or the value of the t-statistic is indicators is evaluated with covergent and greater than t-table of 2.00 ( α = 5%). The composite reliability indicator for the result of this measurement is presented in block of each variable. On the other hand, Table 2. convergent validity of the measurement

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Table 2. Composite Reliability

Variable Composite Reliability Spiritual Leadership 0.863 Spiritual Wellbeing 0.865 Creative Process Engagement 0.884 Job Satisfaction 0.865 Task Performance 0.861

We tested the unidimensionality of Inner model each construct convergent validity by looking at each indicator constructs. An An inner model describes the rela- indicator is categorized as reliable the val- tionship between latent variables by ob- ue is greater than 0.70, while if loading taining the output of the model structure of factor is between 0.5 to 0.6, it can still be the construct loading factor Graphical rela- maintained for a model as they are still in tionship between all empirical variables. the development stage. Based on the value The inner model of this study is shown in of composite reliability, each construct Figure 2. was very reliable because it has a high value of composite reliability (greater than Structural modelling results 0.70). This means that the instrument of all suggested that the hypothesized model fit variable is considered to be used as re the data well. Table 3 provides coefficient parameter, t-statistic f value and R-Square. search instruments. According to the table Moreover, Table 4. summarizes all the 2, we can see that each indicator is signifi- model fit indexes. cant at 0.05.

l pengolahan data pada gambar eFigure 3. Structural Model

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Table 3. Coefficient Parameter, T-Statistic value, and R-Square

Original Mean of Stand- Hypothesis T- R-square Variable Sample subsam- ard De- Statistic Test Result Estimate ples viation Spritual Leadership 0.491 0.590 0.099 4.974 Supported Spiritual Wellbeing Spiritual Wellbeing 0.526 0.595 0.098 5.337 Supported Creative Process Engagement Spiritual Wellbeing Job 0.414 0.477 0.111 3.750 Supported Satisfaction Creative Process Engagement 0.436 0.461 0.120 3.643 Supported Task Performance Job Satisfaction Task 0.329 0.343 0.158 2.086 Supported Performance Spiritual Wellbeig 0.219 CPE 0.312 Job Satisfaction 0.086 Performance 0.418

Hypothesis 1 states that spiritual Hypothesis 2, which states that leadership is positively related to spiritual spiritual wellbeing is positively related to wellbeing. Our results supported this view creative process engagement, was also ( β = .486, p < .05). It means that if the supported ( β = .559, p < .05). It can be employees properly understand organi- conferred that if organization is able to zational’s vision and mission, they create spiritual wellbeing toward their committed to carry out the vision and employees, they will have the ability to mission, they strive to achieve its vision identify a problem, able to watch it from and mission. Moreover, they supported different points of view to create solutions, leader behaviors that always gives identifying gradually and carefully, credence to them to optimize their looking for information to support problem creativity in performing duties as an solving. Moreover, if leader always educator as well as give attention to their provide the opportunity for employee to welfare. With this situation, employee will looking for new ideas from a variety of then feel that the work they do is very sources, then employee will feel that the meaningful to them, and can bring about work they do is very meaningful. Finally, change for others, in this case gives public once thay have great membership with awareness about family planning their work, they can make a difference for programme. others, in this case gives an unique way to engage with the community to create

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 29 public awareness about family planning opportunity for employees to seek new programme. ideas from a variety of sources which turns out the capability to reach out the standard Similarly, hypothesis 3, which states of work quality and work quantity. Ability that spiritual wellbeing is positively related and creativity of employees in solving to job satisfaction, received support as well problems experienced during performing (β = .293, p < .05). It can be derived that their duties and functions will lead toward spiritual wellbing which characterized as high task performance. degree of calling and membership create a job satisfaction. Employees who feel that Finally, hypothesis 5 argues that their work is part of their own life, their spiritual wellbeing is positively related to organization is their own home and performance. Our results supported this organizational vision and mission is their hypothesis ( β = .388, p < .05). The impact own life vision, will put a high value to of spiritual wellbeing to employee their job and organization. It leads to the performance does not occur directly rather high degree of job satisfaction. through a process of self-formation of attitudes in each employees. Active Moreover, hypothesis 4 says that spiritual leadership will create spiritual creative process engagement is positively wellbeing. With the achievement of related to performance, also supported ( β organizational goals, through vision, hope = .418, p < .05). Creative process / faith, and altruistic love, it ecourages engagement means that employee has the individual positive attitudes, both in ability to identify a work problem, look at meaning / calling and membership. Once it from different points of view, careful employee has high meaning and identification, finding information to membership in their organization, their support problem solving, then their work performance will likely to be high as well. performance will increase. Moreover, In view of Anderson and Gerbing’s (1988) employee engagement toward their leader suggestions, we also examined four and community provides employee with alternative models that we believed were

Table 4. Summary of Model Fit Indexes

Model Test X2 R Square AVE Alternative Model 1 : Direct path from spir- 0.865 0.086 0.393 itual leadership to job satisfaction ( β = 0.414, p < 0.05) Alternative Model 2 : Direct path from spir- 0.884 0.312 0.440 itual leadership to creative process engagement ( β = 0.526, p < 0.05) Alternative Model 3 : Direct path from spir- 0.861 0.418 0.674 itual leadership to performance ( β = 0.436 , p < 0.05) Alternative Model 4 : Remove direct path 0.861 0.418 0.674 from job satisfaction to performance ( β = 0.388 , p < 0.05)

less likely to fit the data but were Model 1 proposed to test the direct nevertheless plausible on the basis of path from spiritual leadership to job theoretical arguments. satisfaction. It results in significant The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 30 relationship (β = 0.414, p < 0.05) with R model (β = 0.388 , p < 0.05). Overall, the Square 0.086 which is lower than through hypothesized model was more consistent spiritual wellbeing. Hence, we can say that with the data than any of the four alterna- spiritual wellbeing mediated the relation- tive models. ship between spiritual leadership and job satisfaction. As discussed earlier, spiritual Discussion and Conclusion leadership which can be measured with degree of love and caring of the leader will It is gratifying that this research has create spiritual wellbeing by means calling been able to make several distinct contri- and membership. Once employee has high butions. First, our overall contribution is meaning of their work they will enjoy with that we have built and tested a conceptual their work and finally it leads to job model that uniquely integrates spiritual satisfaction. In model 2, A case could al- leadership theory in employee perform- so be made that spiritual leadership direct- ance and job satisfaction. Second, our ly influence creative process engagement, study contributes to both the leadership because a high spirit of leader tends to and the creativity engangement literatures help a follower gain confidence, empha- by examining and confirming spiritual size the importance of his or her work, and well-being as a mediating mechanism provide freedom to complete the task. As a through which creative process engage- result, an employee may become more in- ment ultimately influences spiritual well- volved in his or her job by engaging in being (Zhang & Sims, 2005). Our findings processes likely to lead to creative out- are congruent with past research pointing comes. to a positive association between spiritual leadership and spiritual well-being (Fry et Therefore, in the second alternative al., 2003, 2010). However, there has been model, we added a direct path from a need to empirically test the specific spiritual leadership to creative process en- relationship between spiritual leadership gagement. This model provided an ade- and creative process engagement. We also quate fit to the data but was not signifi- introduced a promising mediating variable, cantly better than the hypothesized model spiritual well-being. Results of our study (β = 0.526, p < 0.05). Relying on similar support the notion that spiritual well-being arguments, we added a direct path from is likely to mediate a relationship between spiritual leadership to employee spiritual leadership and creative process performance. This model provided an ade- engagement and job satisfaction. Future quate fit to the data but was not signifi- research might determine a means of influ- cantly better than the hypothesized model encing spiritual well-being, as it appears to (β = 0.436 , p < 0.05). We also considered be an important boundary condition with an additional alternative model that fo- respect to the influence of spiritual leader- cused on relationships among spiritual ship on job satisfaction and employee wellbeing, job satisfaction, creative performance. process engagement and employee performance. In one of these (alternative Third, our study is only one of its model 4), we tested the possibility that kind in explain the relationship of creative creative process engagement might fully process engagement with employee mediate the relationship between spiritual performance. More specifically, our study wellbeing and employee performance by shows that, as expected, creative process removing the direct link between job engagement was positively related to satisfaction and employee performance. employee performance. It has been We found that this model had a signifi- suggested the need for research on the cantly poorer fit than our hypothesized process of how individual follows in

The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 31 producting creative outcomes, however, to tion did provide the advantage of control- the best of our knowledge, this is the first ling for potential organization-level con- research that analyze the relationship founding variables. Future research in mul- between spiritual leadership and employee tiple organizational settings or another engangement in decision making process. kind of employee may increase the gener- These results not only support previous alizability of the findings. Finally, the indications that an employee tends to be model, derived from Western theories, was more creative when he or she involves in tested in an Indonesian organization. Thus, the beginning process until end on how to this study provides initial support for the finish the work (e.g., Carson& Carson, notion that Western spiritual theories can 1993; Speller & Schumacher, 1975), but be applied to other cultural contexts also demonstrate the important role that (e.g.Indonesia). Future work that includes leaders can play in directing employee at- other cultures can help verify the generali- tention to effective processes for achieving zability of our findings. targeted performance. This research model also has im- Our recommendation for future plications for managers. First of all, in en- research is to examine the extent to which couraging employee job satisfaction and degree of participation may strengthen the performance, engagement between leader impact of spiritual well-being on the pro- and member is significant. Specifically, pensity to engage in such processes. Yet our results suggest that spiritual leadership another area of interest is the extent to has the capacity to positively influence which spiritual leadership behaviors over workplace spirituality which means em- time might strengthen an employee’s ployee well-being, an important element performance, potentially leading the em- that affects creative outcomes and ployee to accelerate the pace of creative performance. However, managers are like- idea production as an outcome of creative ly to find differences in the extent to which process engagement. Like any study, this service employees wish to be influenced in research has several limitations. First, this their desire to perform and engage with study had a cross-sectional design. We leader in the workplace. If they are able to explained the results in simultaneous engage with the leader, it will be easy to manner although it is possible to run disseminate information. Hence, managers simultaneously through PLS. Second, data may find that their efforts to influence em- on many of the major constructs were col- ployees are more successful in engender- lected with self-reports questionnaire, ing cognitions of motivation in those who which possible to same-source bias view spirituality as part of their role identi- problem. Since these constructs (spiritual ties. leadership, creative process engagement, spiritual well-being, job satisfaction and Acknowledgment employee performance) address individuals’ internal states, hence we argue that it This work was supported by The is logical to collect the data from partici- General Directorate of Indonesian Higher pants themselves. Education (DIKTI) Indonesia under research scheme of joint research between Thirdly, all data were collected University and Government Office Re- within a single organization, which may search Grant No. : limit the observed variability and decreas- 319/SP2H/PL/Dit.Litabmas/IX/2012. es external validity. Undoubtedly however, conducting this study in a single organiza-

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PERFORMANCE APPRAISALS BETWEEN FAMILY BUSINESSES AND NON-FAMILY BUSINESSES

Wen-Jie Zou College of Economics, Fujian Normal University, People’s Republic of China [email protected]

Yung-Ho Chiu Department of Economics, Soochow University, Taiwan [email protected]

Chia-Chien Hsu Soochow University, Taiwan [email protected]

Abstract

The main purpose of this study is to compare and evaluate the operating performances between family businesses and non-family businesses using the Meta-frontier DEA. With the respect to the meta-technology ratio (MTR) in each year, the empirical results show that the ratio in family firms is much lower than that in non-family firms. In other words, non-family firms are much more efficient than family-firms. The Mann -Whitney test presents a significant difference between family and non-family businesses, displaying that the difference of ownership structure and management style between family and non-family businesses do effect production efficiency.

Keywords: S&P 500, Data Envelopment Analysis, Meta-frontier

Introduction members control more than 15% of ownership. Family members are often involved in the operations of their family business in Family firms have long been rec- some capacity. In fact, in smaller compa- ognized as being an important governance nies usually one or more family members structure of business organizations in both are the senior officers and/or general man- developed and developing economies, sub- agers. Many businesses that are now pub- stantial impacting the development of na- lic companies started out as family busi- tional economies. Family-owned and fami- nesses. Poza’s (2007) book classifies a ly-controlled firms account for approxi- family business as one in which family mately 90% of all incorporated businesses in the United States. They generate 64% of

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U.S. GDP, make up 85% of private-sector ily goals before business goals. employment, and are responsible for about 86% of all jobs created in the past decade. From the agency theory perspective, The performance implication of family- ownership structure and its implications on owned firms has gained increased attention firm performance have been extensively lately in the business strategy and financial debated and examined. Berle and Means economics literature. In academic re- (1932) introduced the separation of owner- search, the topic of family business is of- ship and management, which further re- ten aggregated with the general area of en- sults in agency problems. Agency prob- trepreneurship, essentially viewing family lems can be mitigated through the process firms as having an amicable environment of effective monitoring by concentrated or for entrepreneurial activities. controlling shareholders, but the combination of ownership and control also allows Most studies in the literature adopt- such shareholders to change profit into ed the DEA (Data Envelopment Analysis) private rent by several means, such as su- method to discuss performance evaluation perior voting shares or special dividends. and assumed that all companies have the same technology set without considering Thomsen and Pedersen (2000) ar- the difference of ownership structure. gued that the identity of large owners, such Therefore, this study employs the Meta- as family, banks, institutional investors, frontier concept and Slack-Based Measure government, and other companies, has im- (SBM) to evaluate and compare the oper- portant implications for corporate strategy ating performances between family and and performance. Moreover, the existence non-family firms from the view of re- of long-term large shareholders also resource management and usage. Through duces the probability of control by other such an analysis, we shall present distinct agents and thereby lessens the efficiency results for the performance appraisals of of the market for corporate control and the these two types of businesses. value of the firm (Barclay and Holderness 1989). A considerable number of research The remainder of this paper is orga- studies also suggest that managerial en- nized as follows. Section II is Literature trenchment and expropriation behaviors of Review. Section III is Empirical Model. concentrated family shareholders over mi- Section IV is Empirical Results. Section nority shareholders lead to a corporate VI is Conclusions. governance issue for family firms, further undermining their performance (Demsetz Literature Review 1983; Gomez-Mejia et al. 2001).

Traditional research on family Rettab and Azzam(2011) find that business organizations mainly focuses on family businesses outperform non-family the negative influence of family ownership businesses in trading and construction sec- (Poza 2007). In general, there are two dif- tor. However, Performance of family busi- ferent categories of research. The first cat- nesses is weakest in manufacturing and egory is based on the agency theory and services sector. emphasizes the wealth expropriation behaviors pertaining to the concentration of As to the second category of re- family ownership. The second category search, Lansberg (1983) argued that the concerns the institutional overlap within “institutional overlap” nature of family family firms, which invites family share- firms may cause a managerial dilemma. holders and family managers to place fam- Institutional overlap refers to the co-

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existence of two qualitatively different in- knowledge associated with their business, stitutions: the family institution and the because they have been in contact with business institution. All family-owned their business from childhood, hence mak- firms comprise the family and the busi- ing the control and monitoring of family ness, and each has its own set of values, firms easier than non-family firms. The norms, principles, and rules of conduct. information advantages held by family Initially, family-owned firms benefit from shareholders also create other advantages the overlap of family and business func- in disciplining the possible opportunistic tions, but as the business matures, this behaviors of managers and in minimizing overlap generates conflicts, concerning the free-rider problem inherent with small, selection compensation and equity, ap- automatic shareholders (Demsetz and praisal, training and development, and Lehn 1985; Bonilla et al. 2010; Cai et al promotion, often resulting in ineffective 2012). management. Third, the sustained presence of Although the traditional literature family shareholders also creates potential emphasizes the setbacks of family firms benefits. Poza (2007) presented that, from and predicts a negative relationship be- the resource-based view of the firm, the tween founding-family ownership and firm sustained presence of family shareholders performance, family ownership also has a represents an intangible and specific re- positive effect. A growing amount of em- source that enable firms to develop long- pirical studies reports that founding-family term relations with stakeholders, such as ownership positively influences firm per- buyers, employees, suppliers, banks, and formance (Bonilla et al. 2010; Berent- other transactional parties. Such long- Braun and Uhlaner 2012; Cassia et al. lasting, repeated ties help create trust be- 2012). Based on the empirical study of tween transactional parties and result in Chu (2009), this study elaborates upon certain long-term economic consequences some of the characteristics of founding- for family firms relative to non-family family ownership that have been proposed firms. in the literature as potential sources of competitive advantages under the follow- Fourth, Astrachan et al. (2003) ing classifications: (1) combination of maintained that family firms have been ownership and control, (2) information widely viewed as a major source of entre- advantages, (3) sustained presence of preneurship and technological innovation. family shareholders, (4) entrepreneurship, Since entrepreneurship requires combining and (5) investment efficiency. tangible and intangible resources to ensure innovativeness and a proactive approach First, Demsetz and Lehn (1985) through a company’s diverse operations, noted that combining ownership and con- coordination, integration, and a risk-taking trol can be advantageous, because family culture are thus important (Sathe 2003; shareholders and family managers are Stopford and Baden-Fuller 1994 ). Given viewed as the owners and residual claim- that family firms have advantages of com- ants who control firms that largely belong bining ownership and control, compared to their own families. with outside managers, owner-managers are expected to invest in building the Second, Smith and Amoako-Adu firm’s operations and pursue promising (1999) argued that, compared with other entrepreneurial opportunities. Owner- shareholders, family shareholders may managers are also expected to support in- have superior information and better novations that enhance organizational

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growth (Zahra 2005). Therefore, some sumption of CRS. Therefore, Banker, scholars argue that family firms represent Charnes and Cooper (1984) set up the con- an organization form that supports entre- cept of the distance function and loosened preneurial activities, further leading to the restriction of the variable possibility. competitive advantages of firms (Astra- The new DMU using variable returns to chan et al. 2003; Zahra 2005; Berent- scale (VRS) is called the BCC model. Braun and Uhlaner 2012). Tone (2001) provided an SBM Fifth and finally, with regard to in- model that considers the slacks of the input vestment efficiency, because founding item and output item to estimate the effi- families are likely to see firms as assets to ciency value. The estimated efficiency pass on to their succeeding generations, value in the SBM model is between 0 and family firms are expected to have longer 1. The SBM model also uses a non-radial investment horizons than non-family method to estimate an efficiency value. firms. This suggests willingness by them Thus, the puzzle in which the efficiency to invest in long-term projects relative to value cannot be achieved in the CCR mod- shorter managerial horizons. Stein’s el and in the BCC model does not happen (1989) economic model clearly shows how in the SBM model. maximizing short-term profits leads to different actions than maximizing long-term Following the Tone (2001) model, profits and how this short-term focus leads Battese and Rao (2002), Battese et al. to ex ante losses for shareholders. (2004), Moreira and Bravo-Ureta (2010), and Zhou et al. (2011) specified the non- Empirical Model stochastic frontier estimation, based on the Meta-frontier concept, to calculate the The non-parametric approach has technology gap, and O’Donnell et al. been traditionally assimilated into Data (2008) calculated the technology gap Envelopment Analysis (DEA). DEA is a through the radial DEA model. The ad- mathematical programming model applied vantage of the Meta-frontier model enables to observed data that provides a way to the calculation of comparable technical construct production frontiers as well as efficiencies for firms operating under dif- calculate efficiency scores relatives to ferent technologies. Moreover, the tech- those on the constructed frontier. nique includes building a global technology production frontier (or a Meta-frontier) The model developed by Charnes, and then separating the countries in the Cooper and Rhodes (1978), known as the sample into relatively homogeneous (or CCR model, imposes three restrictions on regional) groups and then estimating frontier technology: constant returns to group-specific frontiers. scale, convexity for the set of feasible input-output combinations, and strong dis- This study further develops the posability of inputs and outputs. The basic SBM technology gap measurement, based assumption of the CCR model is that a on the DEA model, to analyze the differ- DMU has constant returns to scale (CRS), ences between various operational tech- but a DMU could have increasing returns nologies. Suppose that the overall DMU to scale (IRS) or decreasing returns to can be classified into I groups that em- scale (DRS) in reality. As a result, the in- ploy different operating technologies. The efficiency of a DMU might result not only sample size of the ith group is J i from the inappropriate configuration of inputs and outputs, but also from the as- The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 39

i θ ≤1, µ j ≥ 0. I and satisfies J i = J . The for- ∑i=1 mula can be rewritten as: Here, θ i represents the group- efficiency score measured from the radial

Min : inputs, and µ j represents the composed θ ,φ ,λ,s NR − ,s NR + weight of benchmarks for DMU . In order 1 I J ts − e ρ* = t − ∑ ∑ ij to distinguish the differences between I + J i=1 j =1 technologies, we define the technology gap ratio (TGR) of efficiency for ith s.t. group’s jth DMU (i.e., DMU ij ) as: I J i

∑ ∑ x jin λ ji ≤ θ ⋅ xen , * i* i=1 j=1 TGR ij = ρ ρ n = ,1 L, N I J i The TGR in terms of utilization of inputs y λ ≥ y , ∑ ∑ jip ji ep and generation of outputs of an individual i=1 j=1 DMU is defined as follows: p = ,1 , P L I J i input TGR of DMU ij : (4) ∑ ∑ λ ji = 1, i=1 j=1 * i* RITGR ij = θ θ i = ,1 , I L θ ≤1, λ ji ≥ 0 . The TGR in terms of utilization of inputs and generation of outputs of individual The optimal objective value of ρ * groups is defined as follows: is identified as meta-efficiency following the definition of O’Donnell et al. (2008). input TGR of ith group : RITGR i = We compute the efficiency score of J i ∑ RITGR ij / J )5( DMU (labeled as ρ i ) evaluated based on j e ith group (namely group-efficiency) by Empirical Results solving the following mathematical program: The objective of this study is to Min : (2) θ ,φ,λ,s NR − ,s NR + compare the performances between family and non-family businesses. According to 1 J ts − ρ i = t − j U.S. Securities and Exchange Commission ∑ X I j =1 en data and MSN Money data in 2011, the J i research sam ples cover 111 S&P500 firms, i ∑ x jn µ j ≤ θ ⋅ xen , including 83 non-family firms and 29 fam- j=1 ily firms. Every company has five years’ n = ,1 L, N worth of data, from 2006 to 2010, and thus J i this study contains 555 types of data. ∑ y jp µ j ≥ yep , j=1 Input and Output Variables p = ,1 L, P J i This study separates the firms into ∑ µ j = 1 , family and non-family businesses. The j = 1 four variables encompass two input varia-

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bles: employees and fixed assets. The oth- the technical efficiency with respect to the ers are output variables: total revenue and Meta-frontier. In other words, the technical goodwill. efficiency here does not make a distinction between family and non-family firms. Table 4-1 shows the descriptive sta- Third, by the technical efficiency from the tistics of the input and output variable data group frontiers and Meta-frontier, we are for each group’s results from 2006 to 2010 able to compute the meta-technology ratio. as follows: for the input variables, the average employees in family firms is 492, Table 4-2 presents the reorganized whereas it is 513 in non-family firms; the data of the meta-technology ratio in family maximum employees are 3,102 and 3,510 firms from 2006 to 2010. The average me- in family and non-family firms, respective- ta-technology ratios for the years in order ly. The average fixed assets are are 0.783, 0.797, 0797, 0.711, and 0.615, US$6,318.33 million and US$7,513.99 and the 5-year average is 0.740. The data million, and the maximum amounts are show that family businesses have a lower US$107,878 million US$103,196 million possibility of approaching the Meta- in family and non-family firms, respective- frontier, revealing that family businesses ly. Thus family firms and non-family firms are relatively less efficient. are similar in company scale, but the former have more employees than non-family Table 4-3 presents the reorganized firms. data of the meta-technology ratio in non- family firms from 2006 to 2010. The aver- For the output variables, the trends age meta-technology ratios for the years in of total revenue between family firms and order are 0.942, 0.928, 0934, 0.969, and non-family firms are comparable with the 0.958, and the 5-year average is 0.946. The averages being US$27,502.83 million and data show that non-family businesses have US$24,809.39 million, respectively. How- a greater possibility to approach the Meta- ever, the amount of goodwill in family frontier, revealing that non-family busi- firms is less than that in non-family firms. nesses are relatively more efficient. The average and maximum goodwill are US$2,621.62 million and US$16,763 mil- In order to verify whether the fron- lion in family firms, whereas for non- tiers of family businesses and non-family family firms they are respectively businesses are the same, we examine the US$6,310.44 million, which is more than significance of these two groups by Non- two times that of family businesses, and parametric Statistics as in Table 4-4. Since US$81,759. Therefore, non-family firms Asymptotic Significance, which is exactly have a relative advantage in applying the same as p-value, in each year is ap- goodwill compared with family-firms. proaching zero, this proves that the two groups have significant differences. In Result Analysis other words, with two groups of the sample from different populations, the result of Family and non-family businesses this study is effective. differ in the composition of their stock- holders. In order to clarify whether differ- Compared with family businesses in ent stockholder structures present different Table 4-5, non-family businesses perform product efficiency, we first calculate tech- better in the average meta-technology ra- nical efficiency with respect to the group tio, not only in each year, but also in the frontiers - that is, family and non-family annual average. This shows that non- firms respectively. Second, we calculate

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family firms are more efficient in taking Commission and MSN Money. The sam- advantage of their resources. ple covers 111 S&P500-listed firms, including 83 non-family firms and 29 family Conclusions firms, during 2006 to 2010. The input variables include the labor amount and the The traditional DEA model assumes fixed assets, and the output variables are that all DMUs share the same production total revenue and goodwill. frontier. However, family businesses and non-family businesses should have differ- Based on the descriptive statistics, ent production technology resulting from non-family businesses have much more different ownership structures and man- advantage on goodwill, which is a variable agement style. This research analysis em- that has never been used in previous litera- ploys by the Meta-frontier model proposed ture. Because non-family businesses have by O’Donnell et al. (2008) and assumes better performance on goodwill, this vari- family businesses and non-family business able can be noteworthy in future research. are two separate groups with different pro- With the respect to the MTR during 2006- duction frontiers. First, we separately cal- 2010, the ratio in family firms is 0.783, culate the technical efficiency with respect 0.797, 0.797, 0.711, and 0.615 and which to the group frontier and Meta-frontier. in non-family firms is 0.942, 0.928, 0.934, Second, the meta-technology Ratio (MTR) 0.969, and 0.958, those ratio proves that is the ratio of the technical efficiency with non-family firms are more efficient than respect to the group frontier and the Meta- family-firms. frontier. Third, the most appropriate input and output are acquired by the slack varia- The empirical result also shows ble analysis. that non-family firms are more efficient than family-firms in the average meta- The data in this research are taken technology ratio. It is consistent with Ret- from the U.S. Securities and Exchange tab and Azzam (2011).

References Berent-Braun, M M, &Uhlaner, L M. Astrachan, J. H. &Sharma, P., “Family- “Family governance practices and sponsored ventures”, Kansas, MO: teambuilding: paradox of the en- Kauffman Foundation, 2003. terprising family”, Small Business Economics, 38(1),pp 103-119, Banker, R.D. & Charnes,A.C., “Some 2012. models for estimating technical and scale inefficiencies in data envel- Berle, A., & Means, G., The modern cor- opment analysis,” Management poration and private property, New Science, 30, 1078-1092, 1984. York: Harcourt, Brace, & World, 1932. Battese, G.E. & Rao,D. S. P., “Technology Gap, Efficiency, and a Stochastic Bonilla, C. A., Sepulveda, J., &Carvajal, Meta-frontier Function”, Interna- M. “Family ownership and firm tional Journal of Business and performance in Chile: A note on Economics, 1, pp. 87-93, 2002. Martinez et al.’s evidence”, Fami- ly Business Review, 23(2),pp 148- 154, 2010.

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Cai, Di , Luo, Jin-hui , & Wan,Di-fang , Sathe,V.,Corporate entrepreneurship: Top “Family CEOs: Do they benefit managers and new business creation, firm performance in China?” Asia Cambridge, UK: Cambridge Univer- Pacific Journal of Management, sity Press, 2003. 29(4),pp 923-947, 2012. Smith, B. F., & Amoako-Adu, B., “Man- Chu, Wenyi, “The Influence of Family agement success and financial per- Ownership on SME Performance – formance of family controlled Evidence from Public Firms in Tai- firms”, Journal of Corporate Fi- wan”, Small Business Economics, nance, 5(4), pp. 341-368, 1999. 33, pp. 353-373, 2009. Stein, J., “Efficient capital markets, ineffi- Demsetz, H., “The structure of ownership cient firms: A model of myopic cor- and the theory of the firm”, Journal porate behavior”, Quarterly Journal of Law and Economics, 26(2), pp. of Economics, 104(4), pp. 655-669, 375-390, 1983. 1989.

Demsetz,H.&Lehn,K.,“The structure of cor- Rettab, B.,& Azzam, A. “Performance of porate ownership: Causes and con- Family and Non-family Firms with sequences”, Journal of Political Self-Selection: Evidence from Du- Economy, 93(6), pp. 1155-1177, bai’, Modern Economy, 2(4),pp 625- 1985. 643, 2011.

Gomez-Mejia, L., Nunez-Nickel, M. & Stopford, J. M., & Baden-Fuller, C. W. F., Gutierrez, I., “The role of family ties “Creating corporate entrepreneur- in agency contracts”, Academy of ship”, Strategic Management Jour- Management Journal, 44(1), pp. 81- nal, 15, pp. 521-536, 1994. 95, 2001. Thomsen, S. & Pedersen, T., “Ownership Lansberg, I. S., “Managing human resources structure and economic performance in family firms: the problem of insti- in the largest European companies”, tutional overlap”, Organizational Strategy Management Journal, 21(6), Dynamics, 12(1), pp. 39-46, 1983. pp. 689-705, 2000.

O’Donnell, C. J. & Battese,G. E., “Meta- Tone, K., “A Slacks-based Measure of Effi- frontier Frameworks for the Study of ciency in Data Envelopment Analy- Firm-level Efficiencies and Tech- sis”, European Journal of Operation- nology Ratios”, Empirical Econom- al Research, 130, pp. 498-509, 2001. ics, 34, pp. 231-255, 2008. Zahra, S. A., “Entrepreneurial risk taking in Poza, E. J., Family business, New York: family firms. Family Business Re- Thomson South-Western, 2007. view”, 18(1), pp. 23-40, 2005.

Zhou, Xianbo, Kui-Wai Li & Qin Li, “An Analysis on Technical Efficiency in Post-reform China”, China Econom- ic Review, forthcoming, 2011.

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Table 4-1. Descriptive Statistics Non-Family Family Firms Firms (Sample: 145) (Sample: 415) Maximum 3,102.00 3,510.00 Employees Minimum 186.00 219.00 (people) Average 492 513 Standard Deviation 282.76 328.19 Maximum 107,878.00 103,196.00 Fixed Assets Minimum 181.73 27.00 (millions dol- lar) Average 6,318.33 7,513.99 Standard Deviation 17,785.00 13,925.28 Maximum 421,849.00 181,581.00 Total Reve- Minimum 2,095.39 1,474.90 nue (US$ million) Average 27,502.83 24,809.39 Standard Deviation 71,096.67 27,843.18 Maximum 16,763.00 81,759.00 Goodwill Minimum 51.71 2.50 (US$ million) Average 2,621.62 6,310.44 Standard Deviation 3,433.87 13,298.69

Table 4-2. Yearly Family Firms’ Meta-technology Ratio 2006 2007 2008 2009 2010 5-yr Avg. Average 0.783 0.797 0.797 0.711 0.615 0.740

Table 4-3. Yearly Non-family Firms’ Meta-technology Ratio 2006 2007 2008 2009 2010 5-yr Avg. Average 0.942 0.928 0.934 0.969 0.958 0.946

Table 4-4. Mann-Whitney Test Family/Non-Family Firms 2006 2007 2008 2009 2010 Mann-Whitney U 623.000 653.500 630.000 348.500 291.000 Z -4.028 -3.769 -3.939 -6.173 -6.455 Asymptotic Sig. (2-tailed) 0.000 0.000 0.000 0.000 0.000 Source: Authors’ collection. The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 44

Table 4-5. Descriptive Statistics of the Meta-technology Ratio Standard Average Maximum Minimum Deviation Family Firms 0.783 0.225 1.000 0.117 2006 Non-Family Firms 0.942 0.103 1.000 0.471 Average 0.863 0.164 1.000 0.294 Family Firms 0.797 0.195 1.000 0.244 2007 Non-Family Firms 0.928 0.128 1.000 0.243 Average 0.862 0.161 1.000 0.244 Family Firms 0.797 0.206 1.000 0.191 2008 Non-Family Firms 0.934 0.130 1.000 0.152 Average 0.866 0.168 1.000 0.172 Family Firms 0.711 0.242 1.000 0.082 2009 Non-Family Firms 0.969 0.110 1.000 0.215 Average 0.840 0.176 1.000 0.149 Family Firms 0.615 0.230 1.000 0.203 2010 Non-Family Firms 0.958 0.129 1.000 0.154 Average 0.786 0.179 1.000 0.179

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RELATIONAL BENEFITS, CUSTOMER SATISFACTION, AND CUSTOMER LOYALTY IN CHAIN STORE RESTAURANTS

Chu-Mei Liu Graduate Institute & Department of International Business Tamkang University, Taiwan, R.O.C.

Chien-Jung Huang Department of Marketing and Distribution Management Chihlee Institute of Technology, Taiwan, R.O.C.

Mei-Liang Chen* Department of International Business China University of Science and Technology, Taiwan, R.O.C. *corresponding author: [email protected]

Abstract

This study aims to investigate the structural relationships among relational benefits, customer satisfaction, and customer loyalty in the chain store restaurants. Based on a theoretical background literature review, three types of customer relational benefits were determined: psychological, social, and special treatment benefits. Theoretical relationships among relational benefits, customer satisfaction, and customer loyalty were derived from the review of literature, and a theoretical model was proposed. The proposed model was then tested employing data collected from 267 customers of chain store restaurants. The results of subsequent analysis of the data indicated that relational benefits influence customer loyalty, and customer satisfaction with employees influence customer loyalty. In addition, the impact of which is partially mediated by satisfaction with employees. The managerial implications of these findings are discussed in the latter part of this article.

Keywords: relational benefits, customer satisfaction, customer loyalty.

Introduction ble relational benefits, such as psychological benefits, social benefits, and special The core tenet of relationship mar- treatment benefits (Chen & Hu, 2010; keting is the creation and maintenance of Hennig - Thurau, Gwinner, & Gremler, long-term customer relationships through 2002). From a company’s perspective, the the provision of both tangible and intangi most important outcome of providing such relational benefits is the maximization of customer satisfaction (Berry & Parasura- The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 46

man, 1991; Kim, 2009). Satisfied custom- ing success (Gwinner et al., 1998; Hennig- ers not only provide a company with fi- Thurau et al., 2002). In addition, from the nancial resources through continued trans- previous statement, we can infer that satis- actions, they are also an integral factor in faction impacts customer loyalty; there- creating a company’s positive brand im- fore, it is also a consequence of relational age, thus performing valuable marketing benefits (Keh & Teo, 2001; Reynolds & functions (Lee, 2001; Pappu & Quester, Beatty, 1999). That is, the sequential pro- 2006). cess: relational benefit satisfaction customer loyalty. However, while existing In addition, customer satisfaction is studies emphasize the importance, our un- associated with the formation of customer derstanding of how these factors interre- loyalty (Hyun, 2010; Oliver, 1999), and late is relatively weak. increased repeat purchase behaviors (Bodet, 2007; Chi & Qu, 2008). Such cus- In recent years, the development of tomer behavior in relationship marketing chain store restaurants is rapid and the is a significant asset to a service firm. business volume is rising year by year in Since customers can enhance service pro- Taiwan. The market is hence getting into a duction and delivery efficiency (Young- severe competition. Therefore, more and dahl & Kellogg, 1997), service organiza- more restaurants try to expand market tions can benefit from understanding the shares by running business in chain store factors that lead to voluntary customer form to reduce cost and increase profits. participation. In doing so, they can take The operation of chain store can reach the advantage of this ‘hidden asset’: the cus- large-scale production in terms of econom- tomer. There is growing interest in the ic efficiency. Furthermore, in order to sur- customer’s role in relationship marketing; vive in low-price competitive environ- however, little empirical research exists ment, the restaurants would provide new that addresses the antecedents of customer products for meeting customers’ require- behavior (Bettencourt, 1997). ments. Therefore, from the concepts of customer relationship management, this Since interactions with the enter- study would test the relationships of rela- prises make customers decide their loyalty tionship benefits, customer satisfaction, to, and relationship with, the company and customer loyalty. (Rogers, 2005; Sirdeshmukh, Singh, & Sabol, 2002). If the corporation cannot Literature Review raise the quality of total customer experiences, then customers will not stay with it Relational Benefits (Seybold, 2001). In order to provide a total customer experience, enterprises need to Customers not only purchase prod- have a favorite and an identifiable brand ucts but also receive and expect to receive name, develop a trust system and build an relational benefits from a service provider interaction model of customer druthers (Chen et al., 2010; Chen & Hu, 2010). For (Payne & Frow, 2005; Uncles, Dowling, & instance, the product in a dining experi- Hammond, 2002). ence is the food and drink consumed by the customer. The relational benefits of In summarizing the existing litera- this experience may include a pleasant at- ture, it has been shown that satisfaction mosphere, an enjoyable interchange with has been widely used as an overall meas- the service providers and with other cus- ure of customer relational benefits, which tomers, and personalized service. are a key determinant of longterm market-

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According to previous studies, re- associated with benefits that meet or ex- lational benefits help to maximize custom- ceed customer expectations (Ofir & Si- er satisfaction and revisit intention, thus monson, 2007; Parasuraman, Zeithaml, & playing a key role in revenue maximiza- Berry, 1985). In relationship marketing, it tion (Berry & Parasuraman, 1991; Chen et has been argued that a customer’s appraisal., 2010). The personal nature of relational of his or her level of satisfaction can be al benefits places a priority on emphasiz- made across multiple dimensions, including the service provider’s customer rela- ing judgments of both the service employ- tionships (Hennig-Thurau et al., 2002). ees and the service setting itself (Singh, Customers benefit in numerous ways from 1991; Westbrook, 1981). For example, in a ongoing relationships with service provid- healthcare setting, satisfaction judgments ers and thus are motivated to continue are driven by assessments of both the med- such relationships (Kim, 2009). ical staff and of the facility (Singh, 1991). Consequently, an owner or manager can From the existing literature review, closely understand and act upon the differ- three types of customer relational benefits ent types of customer satisfaction or dis- were determined: psychological, social, satisfaction (Wong & Sohal, 2002). and special treatment benefits (Gwinner et al., 1998; Hennig-Thurau et al., 2002; Since employees play a key role in Reynolds & Beatty, 1999). Psychological creating an emotional connection with cus- benefits include feelings of comfort, secu- tomers, and are charged with recognizing rity, and reduced anxiety as a result of the customers’ desires for special treatment relational experience. Social benefits gen- and fulfilling their customers’ preferences. erally describe feelings related to the frat- For this reason, service employees are crit- ernization and friendships facilitated by ical in providing psychological, social, and the relational experience. Special treat- special treatment benefits. Given the im- ment benefits are broadly concerned with portance of the employee role in creating the implementation of additional services relational benefits for consumers, existing and considerations for ‘preferred’ custom- studies (e.g. Reynolds & Beatty, 1999) ers. It has been strongly believed that posi- have postulated that consumer satisfaction tive experiences in these key relational with service employees fully mediates the benefit dimensions are associated with in- relationship between relational benefits creased customer satisfaction (Hennig- and overall satisfaction. Previous research Thurau et al., 2002; Reynolds & Beatty, suggests that relational benefits can influ- 1999). ence consumer satisfaction (Chen et al., 2010; Hennig-Thurau et al., 2002). Psy- Customer Satisfaction chological benefits indicate feelings of comfort, security, and reduced anxiety as a Customer satisfaction is the key result of the relational experience (Gwin- mediator considered in relationship mar- ner et al., 1998; Hennig-Thurau et al., keting and service quality theory (Hennig- 2002; Reynolds & Beatty, 1999), which Thurau et al., 2002; Reynolds & Beatty, lead to perceptions of trustworthiness of 1999). In the history of marketing, many the service provider (Morgan & Hunt, definitions of customer satisfaction have 1994). On a more practical level, psycho- been postulated. Customer satisfaction can logical benefits indicate customers’ confi- be defined generally as a positive affective dence in what they will derive from the reaction to the favorable appraisal of a relationship with a service provider. These consumption experience (Babin & Griffin, positive emotions cause customers to per- 1998). A favorable reaction is primarily ceive fewer risks in relationships with a

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service provider, thus enhancing customer tive, therefore, special treatment benefits satisfaction (Berry, 1995). In a service set- can be considered an aspect of service per- ting such as a chain store restaurant in par- formance. On this basis it is hypothesized ticular, the customers prefer to visit a that: chain store restaurant with a positive brand image as well as one that offers close in- H3: Consumer perceptions of special teractions with service employees (Hyun, treatment benefits are positively related to 2009). On this basis it is hypothesized satisfaction with employees. that: Customer Loyalty H1: Consumer perceptions of psychological benefits are positively related to satis- Customer loyalty describes “cus- faction with employees. tomer behaviors indicating allegiance to and promotion of the organization’s inter- Another important dimension of ests beyond individual interests” (Betten- relational benefits is social benefits (Chen court, 1997). Customer satisfaction aids in et al., 2010; Chen & Hu, 2010). Social the creation of customer loyalty (e.g., re- benefits are feelings related to the fraterni- purchase, positive word-of-mouth, and zation and friendships that are facilitated recommendation) (Sun & Lin, 2010; Lin et by the relational experience (Reynolds & al., 2009). The satisfaction-customer loyal- Beatty, 1999). Social benefits focus on the ty relationship is documented in numerous relationships themselves rather than on consumer service contexts (Anderson & outcomes, and can be expected to be posi- Sullivan, 1993; Roig, Garcia, & Tena, tively related to customer satisfaction 2006). On this basis it is hypothesized (Hennig-Thurau et al., 2002). Wilson & that: Jantrania (1996) postulated that the social bond/social benefit is a concept of mutual H4: Satisfaction with employees has a friendship, which helps to form a personal positive effect on customer loyalty. interaction, thus positively influencing customer satisfaction. Based on the theo- The Mediating Effect of Satisfaction retical and empirical backgrounds, the following hypothesis is derived: Based on the existing theoretical and empirical backgrounds in these areas, H2: Consumer perceptions of social bene- a series of hypotheses was proposed. After fits are positively related to satisfaction integrating the hypotheses, a model was with employees. developed that describes the full mediating role of satisfaction. During the model de- The other important dimension of velopment process, it was suspected that relational benefits, special treatment bene- customer relational benefits could bear a fits, is broadly concerned with additional direct impact on customer loyalty. Cus- services and considerations for ‘preferred’ tomer loyalty occurs when customers be- customers, and a positive relationship believe that their expectations for relational tween special treatment benefits and cus- benefits have been satisfied in the service tomer satisfaction has been reported in re- delivery process (Rosenbaum & Massiah, lated studies (Chen et al., 2010; Yen & 2007). However, in the chain store restau- Gwinner, 2003). It is the service employ- rant context, patrons show customer loyal- ees who fulfill an organization’s promises ty not only when they feel satisfied with and deliver the perceived benefits to the relational benefits, but also when they are customers. From the customer’s perspec- dissatisfied with specific service interac-

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tions and point out problems to employees. tomers within one of the largest chain res- For this reason, theoretically, customer taurants in the Taipei area. Based on the satisfaction should exist between relational results of the pre-test, some revisions of benefits and customer loyalty. items on the questionnaire were made. Questionnaires were administered with the There are several empirical studies sample being randomly selected from a from the theoretical and empirical back- certain college in Taipei. Students from all grounds that have examined the direct re- areas of Taiwan respond to the question- lationships between customer relational naire by their own actual consuming expe- benefits and customer loyalty, the majority rience within the chain restaurants. The of which support the full mediating role of questionnaires finally yielded 291 finished satisfaction in the relationship between questionnaires. Out of these, 267 were us- two conceptual constructs (e.g. Reynolds able. & Betatty, 1999). In accordance with the existing theoretical and empirical back- Measuring Tools. grounds, this study posits that relational benefits influence customer loyalty, but The measurement instrument was that their impact is fully mediated by cus- designed based on various previous stud- tomer satisfaction. On this basis it is hy- ies. All the questionnaire items were pothesized that: measured on a five point scale. Respond- ents were asked to indicate their level of H5: Psychological benefits has a positive agreement toward each statement, from 1 impact on customer loyalty through the (strongly disagree) to 5 (strongly agree). mediating effect of satisfaction with employees. Psychological benefits.

H6: Social benefits has a positive impact on customer loyalty through the mediating Psychological benefits in this study effect of satisfaction with employees. include feelings of comfort, security, and reduced anxiety as a result of the relational H7: Special treatment benefits has a posi- experience. We use and adjust the measur- tive impact on customer loyalty through ing scales developed by Gwinner et al. the mediating effect of satisfaction with (1998), Garbarino and Johnson (1999), employees. and Hennig-Thurau et al. (2002).

Methodology Social benefits.

Quantitative Data Collection Social benefits in this study generally describe feelings related to the fraternization Sampling and Data Collection. and friendships facilitated by the relational experience. We use and adjust the measur- The sample of this study focuses ing scales developed by Gwinner et al. on the customers of chain store restau- (1998), and Hennig-Thurau et al. (2002). rants. Questionnaires were used to collect the data for this study. A questionnaire Special treatment benefits. was submitted as a pre-test to determine possible shortcomings in comprehension Special treatment benefits in this study are and to confirm its suitability. A pilot test broadly concerned with the implementa- of the survey was conducted with 40 cus- tion of additional services and considera-

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tions for ‘preferred’ customers. We use Cronbach’s alpha. The range of the values and adjust the measuring scales developed was between .78 and .89, which indicated by Gwinner et al. (1998), and Hennig- all measures were quite reliable. Thurau et al. (2002). Structural Equation Model Customer satisfaction. In order to find out the relationship Customer satisfaction in this study can be in the whole research model in this study, defined generally as a positive affective a structure equation model (SEM) was reaction to the favorable appraisal of a used. The criteria of Chi-square, GFI, consumption experience. We use and ad- AGFI, CFI, RMR, and RSEMA were used just the measuring scales developed by to evaluate the overall goodness of fit of Reynolds and Beatty (1999). the model. According to Hair et al. (2010), the value of overall fit of a hypothesized Customer Loyalty. model can be regarded as appropriately significant when each criteria Chi-square Consistent with the relevant literature (Ho is small (p value>.05), and fit indices such et al., 2010; Lee et al., 2008; Zeithaml et as the ratio of Chi-square to degrees of al., 1996), the customer loyalty scale con- freedom (Chi-square/d.f. ≤2); goodness of sisted of four items. fit index (GFI>.9), and adjusted goodness of fit index (AGFI>.9); root mean square Purification and Reliability of residual (RMR<.1), and root mean square Measurement Variables error of approximation (RMSEA<.08) are all fulfilled. The result of confirmatory To purify the measurement scales factor analysis (CFA) produced evidence and to identify their dimensionality, prin- of an acceptable fit of the model (Chi- cipal components reliability test with square= 153.72; df =84; p=.00; Chi- varimax rotation was applied to condense square/df=1.83; RMR=.04; GFI=.90; AG- the collected data into certain factors. Af- FI = .92; RMSEA = .07). Parameter esti- ter reliability test, we used item-to-total mates of the final model were inspected correlation and internal consistency analy- and no problematic occasions were found. sis to confirm the reliability of each re- And the correlations between latent varia- search factor. The reliability of five latent bles ranged from .21 to .37 (see Table 1). variables was investigated by calculating

Table 1 Correlation matrix and discriminant validity analysis of latent variables Constructs 1 2 3 4 5 1. Psychological benefits 0.73 2. Social benefits 0.23** 0.76 3. Special treatment benefits 0.24** 0.21** 0.81 4. Customer satisfaction 0.31** 0.30** 0.35** 0.89 5. Customer loyalty 0.33** 0.34** 0.36** 0.37** 0.89 M: Means, SD: Standard deviations, *p ＜0.05, **p ＜0.01, n=267 The square roots of average variance extracted (AVE) are given on the diagonal. The correlation coefficients of constructs are given under the diagonal.

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Results ty (.33, p < .01). Although social benefits have a positive effect on customer loyalty Quantitative Data Analysis (.05, n.s.), it did not affect customer loyalty. The empirical results indicate that spe- The results showed that the typical cial treatment benefits have a positive and respondent was male (47.35%), between significant effect on customer loyalty (.42, 30-39 years of age (38.7%) or 20-29 years p < .01). The results of subsequent analy- of age (34.5%), and had completed univer- sis of the data indicated that relational sity degree (72.4%); female (52.65%), be- benefits influence customer loyalty, and tween 20-29 years of age (39.1%) or 30-39 customer satisfaction with employees in- years of age (34.2%), and had completed fluence customer loyalty. In addition, the university degree (76.1%). Moreover, the impact of which is partially mediated by majority of respondents worked in profes- satisfaction with employees. sional jobs (32.4%), and earned a monthly income of 40,000 to 50,000 NT (34.6%) or Conclusion 50,000 to 60,000 NT (27.6%). From the theoretical standpoint, Assumption Tests this study makes some contribution to chain store literature by providing insights Hypotheses H1-H3 proposed that on the factors that affect loyalty. First, the relational benefits influence consumer sat- results of data analysis indicate that all isfaction with employees. In particular, sub-dimensions of relational benefits bear psychological benefits bear a positive ef- strong positive impacts on customer satis- fect on satisfaction with employees ( γ 11 = faction with employees. The results of data .28, p < .01), thus supporting H1. Mean- analysis also indicate that customer satis- while, social benefits bear a significant faction bears a significant impact on cus- effect on satisfaction with employees ( γ 12 tomer loyalty. This means that, when cus- = .25, p <0.01.), and the result support H2. tomers are satisfied with employees Furthermore, we hypothesize that special through service exchanges, they become treatment benefits are associated with sat- favorable supporters of the service provid- isfaction with employees (H3). With re- ers and of the service firm. Therefore, pa- gard to satisfaction with employees, this trons’ satisfaction is a critical factor for prediction suggests a stronger positive co- service firms in stimulating customer loy- efficient ( γ13 = .32, p < .01). Satisfaction alty. In addition, in accordance with the with employees ( β21 = .41, p < .01) has a existing theoretical backgrounds (e.g. Kim, significant positive effect on customer loy- Ok, & Gwinner, 2010), relational benefits alty, thus supporting H4. bear a positive effect on creating customer loyalty; however, the effectiveness of Additional analyses of indirect ef- these benefits is mediated by satisfaction fects were conducted to investigate wheth- with employees. er relational benefits bear an effect on customer loyalty through the mediating roles Beyond the theoretical implica- of satisfaction with employees. Relational tions, the findings of this study possess benefits were found to be positively asso- critical practical implications for restaurant ciated not only with customer satisfaction, marketers and managers. As data analysis but also were found to influence consumer revealed, when patrons felt relational ben- loyalty (Hennig-Thurau et al., 2002). As efits from service providers, they showed a the result, psychological benefits have an high level of satisfaction. Therefore, in indirect, positive effect on customer loyal- order to provide greater relational benefits

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to patrons, restaurant managers should should be addressed. First, the proposed conduct appropriate employee training and model in this study was tested with data efficient marketing strategies that maxim- collected from chain store restaurants pa- ize these benefits. In light of the fact that a trons in Taiwan. For this reason, the ability thorough understanding of the relation- to cross-culturally generalize the results is ships between relational benefits, customer therefore limited to some extent. Future satisfaction, and customer loyalty is criti- research may attempt to further verify or cal in improving the marketing competen- extend the proposed model with different cy of a service firm, the model developed study populations. Second, in the data in this study can be utilized chain store analysis, it was suspected that the sample restaurants in retaining customers over the size or the number of parameters involved long term and in maximizing the share- in the model. Future research may attempt holder value of the company. to test the proposed model with a smaller or larger sample size, or with a more par- Limitations And Future Directions simonious or complicated model.

Despite its theoretical and practical implications, two limitations of this study

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KEY SUCCESS FACTORS IN B & B LODGING SERVICES: FROM THE PERSPECTIVE OF AFFECTIVE COMMITMENT, INTERAC- TIONAL JUSTICE, AND PARENT-CHILD PARTICIPATION

Shih-Mao Lin President of Ping Tung County Lodging Association, Taiwan Department of Tourism Management, National Kaohsiung University of Applied Sci- ences, Taiwan

Ming-Yuan Wang Department of Tourism Management, National Kaohsiung University of Applied Sci- ences, Taiwan

Mei-Ju Chou (corresponding author) Department of Early Childhood Education, Taiwan Shoufu University, Taiwan Email: [email protected]

Abstract

With the popularity of family members experimenting travelling and sightseeing activities together in Taiwan, this study aims to identify the key success factors that contribute to affective commitment, interactional justice, parent-child participation and their satisfaction and loyalty in B & B lodging service. The authors propose a model, in addition to the factors in which affective commitment and interactional justice is assumed to increase the extent to which parent-child participation in the service delivery. Furthermore, parent-child participation may increase satisfaction and loyalty. From the literature review, the major findings of this study are as the following: Firstly, affective commitment and interactional justice relate positively to parent-child participation. Secondly, parent-child participation enhances satisfaction and loyalty. Meanwhile, satisfaction has a positive effect on loyalty. Thus, the findings provide early childhood educators and tourism managers in the B & B lodging services with valuable insights that affective commitment and loyalty play the important role in contributing in satisfaction and loyalty; furthermore, firms can increase their competitive advantage through enhancing parent-child participation; early childhood educators can add parent-child participation activities into their training courses for early childhood education students during their college curriculum.

Keywords: affective commitment, interactional justice, parent-child participation, satisfaction, lodging service.

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Introduction have identified the benefits that customer participation brings about The popularity in B & B for consumers and firms. When lodging service have become the customers take part in the process hot issue in Taiwan, especially in of decision-making, they gain more the Ping-Tung area, where the Na- control of the service creation and tional Kenting Park is located and delivery. Hence, the service quality family members are interested in is better and customers obtain more visiting the wonderful sightseeing customized service (Xie et al., places in Southern Taiwan. Espe- 2008). For the firms, their produc- cially for B & B lodging services in tivity increases and their customers Ping Tung County, in order to prone to be more satisfied, when make travel-related decisions, cus- they perceive more value from tomers make use of travel sites and their service encounters during par- on-line communities to obtain ticipation (Sharma & Patterson, practical information. Through 1999). Based on these findings, knowledge from themselves and many researchers support the view from social communities, custom- that firms should embrace the con- ers are taking an initiative to com- cept of customer participation, be- municate with service providers. cause it is the means to achieve competitive advantage (Prahalad & These changes correspond Ramaswamy, 2004) and the next to what Prahalad and Ramaswamy frontier in competitive effective- stated (2000) “the market has be- ness (Bendapudi & Leone, 2003). come a platform where consumers actively participate in value crea- As for the factors that en- tion”. In other words, the market- hance customer participation, prior ing philosophy is transformed from studies showed that the extent to “market to” to “market with” (Var- which customers participate in the go & Lusch, 2004). Under the con- service delivery depends on the re- cept of “market to”, consumers are sources that customers have. In passive receivers of value. They terms of value creation, customer are segmented and then enticed to participation offers greater oppor- purchase the products that produc- tunities for services that require ers design for them. In this case, high degrees of customer contact the roles of buyers and sellers are and high interdependence between clear-cut. In contrast, the notion of customers and service providers for “market with” means those con- favorable outcomes (Auh et al., sumers go along with the firms to 2007). B & B tourism is a service create value (Lusch et al., 2007). that emphasizes the human touch attributes and requires frequent in- Customers are more capa- terpersonal interaction. It serves as ble, willing and motivated to exer- an appropriate context to explore cise power to get involved in the the role of customer participation. service. In contrast, firms play the In addition, owing to the im- role as facilitators of value crea- portance of the relationship be- tion, rather than producers of tween parents and children, this standardized value (Payne et al., study assesses how parent-child 2008). Some empirical researches participation interacts with its ante-

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cedents and decedents from the De Ruyter, 1999; Ennew & Binks, perspective of the B & B service. 1999; Wu, 2011). According to Li and Petrick (2008), relationship Based on the discussion marketing and customer as value above, research direction focuses co-creator are two paradigms that on under which circumstances cus- need to be more researched. There- tomers would be motivated to en- fore, in this study we combine par- gage in service delivery. However, ent-child participation and relation- while reviewing related literature, ship marketing together and then we found some gaps. First, there is examine the factors that enhance limited empirical research for the parent-child participation and how factors that contribute to parent- parent-child participation effects child participation. So far most of satisfaction and loyalty. the research concerning customer participation focuses on the effects Literature Review that it brings about, like service quality (Ennew & Binks, 1999), Parent-Child Participation satisfaction (Bendapudi & Leone, 2003; Chan et al., 2010; Wu, 2011) From the family education and loyalty (Ennew & Binks, perspective, family members who 1999). Little attention is paid to the plan their tourism and travelling factors that enhance parent-child are in accordance with their psy- participation. chological and physical motivation, including combining education and Furthermore, most of the entertainment, experimenting inter- works that address its antecedents esting activities with family mem- provide only theoretical review (Li bers, and relax for a vacation. Cus- & Petrick, 2008; Lusch et al., 2007; tomer participation emphasizes the Payne et al., 2008). Empirical sup- participative role of consumers in port is rarely explored (Wu, 2011). the service context. Dabholkar Second, in the tourism literature, (1990) defined customer participa- parent-child participation is less as- tion as "the degree to which the sociated with service relationship. customer is involved in producing The concept of relationship mar- and delivering the service". Ac- keting was not introduced to tour- cording to Lengnick-Hall et al. ism literature till 1996. Thus the (2000), customer participation theoretical and empirical literature means “engaging customers as ac- development concerning relation- tive participants in the organiza- ship marketing is quite limited tions’ work”. Under this concept (Yuksel et al., 2010). empowered consumers take part in Satisfaction and loyalty are often the design, execution and delivery associated with corporate image of the service (Ertitnur, 2008). Cus- (Richard & Zhang, 2011), com- tomer’s role as active participants mitment (Moline et al., 2007) and requires mental and physical ef- service quality (Ennew & Binks, forts and involvement (Cermak, 1999). There has been little work File, & Prince, 1994). Namely, cus- that addresses firm-customer rela- tomers need to be physically pre- tionships from the perspective of sent to get the service or provide customer participation (Bloemer & information as a prerequisite. In-

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creasingly, customers engage is widely accepted to be an im- themselves in value creation, either portant factor that enhances service by serving themselves, cooperating quality (Ennew & Binks, 1999), with service providers (frontline because perceived quality is signif- employees vs. customers) or with icantly influenced by the interac- other customers (tourists in the tion between customers and service same travel group). providers. Thus, parent-child participation becomes the indicator for Customer participation is an effective relationship and per- essential to the services that are ceived service quality. Besides, complex, long term, or both. In successful relationships further- these services it has the characteris- more contribute to satisfaction, tics that it takes customers long loyalty and retention. time to wait for the result and the service outcome is highly uncer- Despite these concerns, we tain. In addition, the service offer is believe that when parent-child con- typically customized. In this study, tribution is performed in a helpful we mainly focus on the relation- and cooperative way, its benefits ships between parents and children, outweigh costs. Customers obtain and assess how parent-child partic- timely service with better price but ipation interacts with its anteced- gain greater control of service qual- ents and decedents from the per- ity with satisfaction. For firms, spective of the B & B service. In- parent-child participation raises deed, parents can understand their productivity (Fitzsimmons, 1985), children’s thoughts and feelings, efficiency (Jones, 1990), service and can further communicate with performance (Mills et al., 1983), them through the interaction. Ru- and contribute to service quality an’s research (2002) on the rele- and satisfaction. The engagement vant factors of the parent-child in- of parent-children in the service teraction in play situations con- process benefits not only them- cluded that there are at least seven selves but the service providers. functions in parent-child’s play in- Both parties experience win-win teraction. Therefore, in the B & B situation through reciprocal coop- tourism industry, front-line em- eration, which enhances the rela- ployees or managers provide cus- tionship. Bendapudi and Leone tomers with travelling information (2003) pointed out that the process and jointly choose the travelling of customer involvement is “the tour that best suits parent-child’s next frontier of competitive effec- needs. Both parent - childs and ser- tiveness”. The firms that provide vice providers have to make con- customers with service co- scious efforts to interact with each production opportunities and re- other to ensure that the service is sources are able to improve com- appropriately delivered. Through petitive advantage (Lusch et al., participation, parent-children are 2007). able to reduce uncertainty and avoid service failure, when the ser- Affective Commitment vice is long term in nature and is perceived high-risk. In the litera- Commitment is a key psy- ture review customer participation chological force that relates cus-

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tomers to the relationship (Bansal like switching costs and sacrifice. et al., 2004). Garbarino and John- The customer is compelled to son (1999) recognized commitment choose the collaboration partner as an ‘an essential ingredient for out of economic need and is left creating and maintaining successful with limited alternatives. Com- long-term relationships. Moorman pared with affective and calculative et al. (1992) defined it as an endur- commitment, normative commit- ing desire to maintain a valued re- ment derives from social pressure. lationship. Commitment implies The customer feels obliged to at- the willingness to develop a stable tach to the service provider. relationship (Iniesta, 2000). Com- Among the three dimensions of mitment has been studied in areas, commitment, affective commit- including psychology, economics ment is far more likely to arouse and marketing and has been inter- customer participation in the deliv- preted differently. However, mar- ery of service. keting researchers have pointed out three major dimensions of com- Consequently, the focus of mitment that dominated the litera- this study is primarily on affective ture: affective commitment, calcu- commitment. It represents a situa- lative commitment and normative tion in which customers demon- commitment. strate an affective and emotional attachment to the relationship with Affective commitment re- the service providers. When indi- fers to the sense of liking, emotion- viduals have high affective com- al attachment and belongingness. mitment, they may perceive them- Individuals with affective attach- selves as part of the company (Iun ment show a favorable attitude to- & Huang, 2007) and therefore are ward the relationship and want to prompted to actively take part in stay in it. The critical feature of behavior that helps the firm to this dimension of commitment lies achieve its goals (Mayer & in that the customers stay in the re- Schoorman, 1992). Empirically lationship, because they want to Morgan and Hunt (1994) demon- (Cichy et al., 2009). This self- strated that commitment had a driven desire motivates thus the positive effect on cooperation be- customers to contribute meaning- tween buyer and supplier in the fully to maintain durable associa- B2B setting. The same result also tions with their partners. held true in the customer-service firm relationship, namely, B2C set- According to Meyer and ting. The findings of Kim et al. Herscovitch (2001) when a cus- (2010) supported the view that af- tomer decides to stick to a relation- fective commitment enhanced the ship out of his own will, he tends to customers’ cooperative behavior. demonstrate favorable behavior Thus, the following hypothesis is towards the relationship party vol- proposed: untarily. In comparison, calculative commitment is based on instru- Proposition 1: Affective commit- mental reasons. Namely the force ment relates positively to parent- that binds a customer to a service child participation. provider lies in economic motives,

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Interactional Justice tice is one way they evaluate whether the participation is worth- Interactional justice refers while. to the fairness that customers perceive during interpersonal interac- Interactional justice is often tion in the service encounter (Tax used to explain complaining behav- et al., 1998). Bies and Moag (1986) ior and customer expectations of a stated that customers’ judgment of firm’s recovery efforts. Following fairness is based on the quality of a service failure, customers expect interpersonal treatment during the compensation for their losses. Un- service delivery. The judgment if der interactional justice, customers the interaction is fair requires fre- evaluate fairness through the way quent communication between the how employees of the firm resolve two parties. During this communi- the conflicts. Sincere and trustwor- cation both sides expect to be treat- thy attitude of employees are im- ed with respect. When the individ- portant indicators that complaints ual carries out the communication are fairly handled. Interactional considerately, kindly and respect- justice is “up close and personal” ful, the communication is viewed (Cruceru & Macarescu, 2009), un- as correspondent to interactional like distributive and procedural jus- justice. tice. Customers perceive the service recovery as fair when the Social exchange theory problem is timely resolved. Bies helps to understand more about the and Moag (1986) proposed that relationship between customers and customers’ perception of interac- service providers. According to tional justice would affect their at- Blau (1964), through mutual ex- titude and behaviors toward the in- changes the two parties in the ser- dividual that carries out the treat- vice develop a relationship that ment. The higher the fairness cus- both sides are obliged to each oth- tomers perceive during the service, er. In other words, whenever one the more contributions that they are party makes contributions to the willing to make. Therefore, we hy- other party, he also expects a return pothesize that: in the future. The receiver party is at the same time develops a sense Proposition 2: Interactional justice of obligation to reciprocate. To relates positively to parent-child make participation in the service participation. relationship work, it requires investment from both parties. For Customer Satisfaction customers they invest monetary and nonmonetary costs, such as Satisfaction has been long time, effort and other psychic ac- the discussion topic in the market- cess costs, so that they are knowl- ing literature. Diverse definitions edgeable about the issue they are are identified. Satisfaction has been handling with. While the customers observed as the gap between ex- pay price for the success of the ser- pectation and perception, cognitive vice, they expect to gain some ben- and affective state of mind, and efits from the firms as well (Ennew process or outcome. Despite its & Binks, 1999). Interactional jus- multifaceted dimensions, satisfac-

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tion is generally interpreted to be come is not possible. In addition, the post-consumption evaluation Schneider and Bowen (1995) after a consumption experience. pointed out that customers who are Chang (2006) pointed out that sat- offered the chance to participate isfaction is comprised of emotional are more likely to be satisfied re- and cognitive components and is an gardless of whether they actually attitude based on needs and desires participate in the service or not. for services. Therefore, we hypothesize that:

No matter defined as a cog- Proposition 3: Parent-child partici- nitive or affective reaction, in the pation relates positively to satisfac- service context customer satisfaction. tion can be seen as response to a single or prolonged set of service Customer Loyalty encounters (Hu et al., 2009). As a result, we can say that satisfaction Beatty et al. (1988) pointed is based on one single experience out that when a customer is highly or the sum of several service expe- involved in the service delivery, he riences (Oliver, 1997). Customer tends to contribute some of his satisfaction reflects that the service time to do service-related infor- quality is appropriately delivered to mation search. Once he is satisfied the customers. It is essential for the with the service, he will repatron- survival for any types of businesses ize and hence form loyalty. As the (Neal & Gursoy, 2008). When a frequency of repurchasing intensi- firm is able to deliver high quality fies the chance of searching for al- service that results in satisfied cus- ternatives decreases. In the tourism tomers, the firm gains competitive context, many believe that novelty advantages. It also helps to raise and experience seeking is the main the firm’s image and reputation, motive for travelling, which leads and decrease marketing costs (Choi to the tendency of switching & Chu, 2001). Satisfied customers brands, like visiting different desti- are very likely to generate positive nations, restaurants and hotels feedback through repeat purchase, (Galloway & Lopez, 1999). How- recommendations and WOM. ever some researchers argued that relaxation seekers demonstrate a Previous research has iden- different attitude. They show a tified that the quality of the interac- higher propensity of repeated visit tion between customers and firms (Fyall et al., 2003). In addition, the and the extent to which customers novelty-seeking mentality may not participate in the relationship are hold true for all other businesses in possible antecedents of customer the B & B tourism industry. Thus, satisfaction (Ennew & Binks, we hypothesize that: 1999). In the service, where customer’s presence is a prerequisite, Proposition 4: Parent-child partic- the service outcome depends high- ipation relates positively with cus- ly on customer participation, as tomer loyalty. customers are part of the service. Unless customers perform their Customer Satisfaction and role effectively, the desired out- Customer Loyalty

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It is long acknowledged in the marketing literature that satis- Proposition 5: Customer satisfac- faction and loyalty are related. Ball tion relates positively to customer et al. (2004) identified that in the loyalty. bank service, satisfaction along with communication, complaints Conclusion and trust are variables that positively effect loyalty. Among the four From the parent-child par- factors, satisfaction was confirmed ticipation perspective, the key suc- to be the most important variable to cess factors in meeting customers’ explain loyalty. A study by Howat satisfaction and gaining their loyal- et al. (2008) examined the relation- ty lies in the providing conceptual ships between service quality, framework that incorporates moti- overall satisfaction and loyalty at vation as facilitating factors for ef- Australian public aquatic centers. fective parent-child experimenting Their results showed that overall during the activities. The analysis satisfaction is highly correlated shows that customer satisfaction with loyalty. and customer loyalty can be enhanced by encouraging customers However, the relationship to participate in service. In addi- between satisfaction and loyalty is tion, this study offers an insight on not straightforward but non-linear the antecedents that promote cus- (Oliva et al., 1992). When satisfac- tomers participation, especially tion exceeds a certain point, cus- from the perspective of parent- tomer loyalty will increase rapidly. child interrelationship. Our study Bloemer and De Ruyter (1999) benefits the existing marketing lit- stated that in the service delivery erature concerning parent-child where low customer involvement participation in that it proposes occurs due to short service encoun- some factors that contribute to cus- ter, the effect of satisfaction on tomer’s participative role in the loyalty is weaker than that where service delivery. It serves as the high customer involvement occurs. empirical support for the S-D logic In addition to the level of customer proposed by Lusch and Vargo involvement, switching cost also (2004). influences the satisfaction-loyalty relationship. In the industry where At last, we believe this switching cost is low, like amuse- study provides valuable insights in- ment park or fast food, the link be- to the customer’s participative role tween satisfaction and loyalty is in the service delivery as value co- lower than those where switching creator. As customers become cost is high, like opera house (De more knowledgeable and demand- Ruyter et al., 1998). In these cases ing due to experience-seeking and switching costs refer to physical modern technology, including the access, time, psychological costs, application of technological service associated with uncertainty of mak- before, during and after their lodging contact with different staff. ing, managers should map the Due to the nature that tourism is whole experience process and open highly customer-involved and up more opportunities to include risky, we propose that: parent-child participation into ser-

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vice delivery. In B & B home-stay childhood education students dur- service, what the parents care about ing their college curriculum. This in enhancing parent-child interrela- also guides us the direction that in tionship lies in offering the hands- the further research direction, in on experience in which parent and order to elevate parents-customers’ children can experiment the activi- satisfaction and loyalty, the under- ties during their staying in B & B standing in parents’ and children’s home-stay hotels. Hence, for early psychological and physical motiva- childhood education perspective, tion in choosing B & B service early childhood educators can add would be a very practical and in- parent-child participation activities valuable topic. into their training courses for early

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THE SUPERINTENDENT AND SCHOOL BOARD RELATIONSHIP: FUNCTIONING AS A GROUP

Ray Thompson, Ed.D. Texas A&M University – Commerce [email protected]

Abstract

This article examines the school board-superintendent working relationship in the area functioning as a group. In this quantitative research method, surveys were mailed to Texas public school board presidents and superintendents. Descriptive statistical analyses were used to determine any differences in the perceptions of the school board presidents and the superintendents in their working relationship. Each survey question was analyzed to discover any questions with a five percent or greater difference in the participant’s response. The research concluded that a difference does exist in the perceptions of the school board presidents and the superintendents in their working relationship.

Key Words: Education Administration, Superintendent, Board of Trustees, Relationship, Teamwork

Introduction In recent years the working relationship of the board of trustees and the super- Public school boards and superinten- intendent has been characterized as more dents play a critical role in the well-being complex and stressful due to educational of four million young people in the state of reform and high expectations (Stellar, Texas in the United States of America. 2011; Wright, 2002). The National Com- How they work together strongly impacts mission on Excellence in Education, the quality of our children’s schools. The chaired by Secretary of Education T. H. school board-superintendent relationship is Bell, undertook the task of examining the vital to increasing student achievement in quality of education in the United States the twenty-first century (LaMonte, 2009). (National Commission of Excellence in Armed with unprecedented technological, Education, 1983). Secretary Bell’s report, scientific, and education advances, a A Nation at Risk , served as a catalyst in a school board-superintendent relationship paradigm shift for the board - superinten- that embraces proactive leadership, genu- dent relationship, influenced especially by ine collaboration, honest and open com- the issue of accountability (1983). This munication, and unwavering trust is poised document decried the mediocre condition to embark on team building that fosters of education in American by substantiating high performing schools (Eadie, 2009; and addressing systemic educational fail- Goodman & Zimmerman, Jr., 2000). ure and adamantly advocated sweeping and immediate changes in educational The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 69

leadership and for the educational system The superintendent and the school (1983). John Hoyle (2002) noted that spe- board are spotlighted as key players in im- cific challenges emerged by heightened plementation and governance of the educa- public awareness, as well as demands for tional reform movement. Each entity is excellence in schools and improved stu- challenged to demonstrate transformation dent performance. Consequently, intense in their roles and relations in the quest for pressure has been brought upon the rela- high expectations for schools in a post- tionship of the superintendent and the modern era. During the twentieth century, board of trustees. Muth (2002) notes a shift of thought concerning learning, which is viewed as an Superintendent-School Board active process rather than an industrial Relationship model of acquiring knowledge and com- municating knowledge. Muth emphasizes The school board president holds a that the shift focuses on interaction, col- unique relationship with the superinten- laboration, problem solving, and critical dent. The relationship is not a matter of thinking and thereby, transforms educa- individual strength but one of partnership tional leadership. and teamwork (Ellingson, 2010; Richards, 1997). Richards asserts“the stronger the Additionally, Muth (2002) advances partners, the greater the progress potential” the notion that transformation of education (p. 86). The school board president serves leadership and practice is the framework as a liaison between the board and the su- that liberates stakeholders to new possibili- perintendent (Smoley, 1999). Specifically, ties, knowledge, and methods of educa- Smoley portrays the school board presi- tion. Anderson and Saavedra (2002) con- dent as a person who informs both the tend that the theory of transformative leads board and the superintendent of the learners to constantly transform the reali- amount of support for issues, develops ties of their everyday lives into meaningful compromises, and attempts to ensure that educational experiences. Transformation there are no surprises in the working rela- leadership expects that the school board tionship. Mountford (2004) notes that this and superintendent team commitment will relationship reflects how the board dele- develop trust, respect, and interdependence gates power and authority to the superin- upon one another. tendent. Additionally, this relationship un- derscores the need to better understand Statement of the Problem how each school board president and superintendent perceive the effectiveness of In this study the problem is that ad- their operations and the need to develop verse actions and operations by school relationships that will foster high achiev- boards negatively impact the effective ing schools. working relationship of school board and the superintendent. Bickering between su- Leadership emphasizes a collabora- perintendents and members of the board of tive relationship rather than an adversarial trustees harms many school administra- one (Duffy, 2003). In this atmosphere, tors’ careers and serves as a deterrent to Duffy advances that trust, respect, and re- the education of children (Ellingson, 2010; sults flourish. Members of school boards Goodman, Fulbright, & Zimmerman, and superintendents must genuinely ad- 1997). Micro-management by school dress the status of their relationship. boards results in a battle for the day-to-day operations of the school districts (Clift & Theoretical Framework Reese, 2004; Glass, 1992). Additionally, trustee with single agenda issues and su-

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perintendent “witch hunts” have received Research Question priority at the expense of a positive school climate and high student achievement This research focuses on the school (Clift & Reese, 2004). board-superintendent working relationship as perceived by superintendents and the Current research, then, is needed to school board presidents from Texas school determine the impact of the school board - districts. This research is guided by the superintendent relationship upon high stu- question: Is there a difference in Texas dent achievement. Intense and persistent school board and superintendents’ percep- pressure is brought about by educational tions regarding the school board - superin- reform for superintendents and school tendent working relationship? The sub- boards to perform well in the accountabil- question that relates to this overriding ity system (Mongford, 2004; Goodman, question is: Is there a difference in the per- Fulbright, & Zimmerman, 1997; Porch & ception of the school board president and Protheroe, 2003). High expectations by the superintendent in functioning as a stakeholders place pressure on school dis- group (team)? Functioning as a group re- tricts to increase student learning at all lates to the cohesiveness of the board. grade levels (Goodman & Zimmerman, Members must understand that it is the 2000; National Commission of Excellence group, not individual members, which pos- in Education, 1983). Superintendents are sess the power. It involves the group held to a very high level of accountability agreeing on operating procedures. The infor improving student achievement. Suc- tended results include an increase in re- cess in the accountability expectations is spect and trust, and recognition of each achieved when the board of trustees and individual’s contributions. Leadership in the superintendent work in tandem (Texas this area resides with the board president Association of School Boards, 2003). (Smoley, 1999).

Purpose Statement The data from this research contributes to the understanding of the school The purpose of this research was to board-superintendent relationship by ex- explore the perceptions of Texas school amining the perceptions held by school board presidents and superintendents re- board presidents and superintendents on garding their working relationship. A bet- the subject. Specifically, this research enter understanding of the school board- deavors to examine the school board- superintendent relationship allows them to superintendent working relationship in the better serve their students and community area functioning as a group (Smoley, at large. Tallerico (1989) contends, “The 1999). functional relationship between the school board and the superintendent is a critical Research Methodology connection which stands at the apex of the organizational pyramid in education” In an attempt to answer the re- (p.1). Herein lies the significance of this search question, a quantitative study em- study; the examination of the school ployed descriptive design methodologies. board-superintendent working relationship By utilizing these methods, the researcher in the area of functioning as a group. Such produced both a detailed description and an examination can produce solutions for analysis of the population sample, which increased relationship in teamwork, coop- consisted of school board presidents and eration, collaboration, and communication superintendent from a listing of all Texas (Smoley, 1999). public school districts, grade levels kin- dergarten through 12, who received a 2005

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accountability rating. The list of school a group (team), exercising authority, con- board presidents, who had served in that necting to the community, working toward capacity for the 2004 and 2005 school board improvement, and acting strategical- years, was obtained from the Texas Asso- ly. Question responses were ordinal-scaled ciation of School Boards. A list of school into four categories consisting of strongly districts was secured from the Texas Edu- agree, agree, disagree, and strongly disa- cation Agency by means of a public in- gree. Superintendent and school board formation request. This information in- president questionnaires were tabulated cluded the accountability rating, the num- separately with the results used for com- ber of economically disadvantaged stu- parisons. dents, and superintendents who had been in the district in that capacity for two or Data collection and analysis more years. The object for this criterion was to pair school board presidents and Data collection took place over a superintendents. two-month period during the fall of 2006. Data from returned surveys was entered This research sought two responses into the Microsoft Office Excel (2003) from each of the school districts. One was software program and then transferred to solicited from the superintendent and one the Statistical Package for the Social Sci- from the school board president. The sam- ences (SPSS, 2003) software for tabula- ple for this study was selected from the tion. Data from surveys were sorted into a name of the schools as listed by the Texas two groups: school board president and Education Agency. Although charter superintendent. Data were entered and school data was available in this search, coded from the returned questionnaires. A these schools were not included in the combination of descriptive and inferential sample for this study. Participation was statistics, regression analysis, was utilized entirely voluntary. All participants were in this study. The combination of these given the option to withdraw from the two statistical treatments enabled the re- study at any time. searcher to describe the data in full detail, while addressing the specific statistical Instrumentation significance of the influences of certain dependent variables on the resulting equity Permission was obtained to use an measures. The Microsoft Office Excel existing survey, the Board Self-Assess- (2003) and SPSS (2003) statistical soft- ment Questionnaire (BSAQ), to gather da- ware were used to describe and analyze the ta on six topics related to school board- data. superintendent relations. The BSAQ was developed by Eugene Smoley. He utilized Surveys were scored using the cri- material originally created by the Center teria that Smoley (1999) developed to as- for Higher Education Governance and sess the actions of effective school boards. Leadership at the University of Maryland Functioning as a group was scored from through a project funded by the Lilly En- twelve questions based on Smoley’s Mod- dowment. Smoley used data from this el for School Board Effectiveness. Under- questionnaire to create his Model for lined questions were scored in reverse: School Effectiveness. The survey is a self- Functioning as a Group – 3, 17, 30, 32, 36, assessment tool that analyzed school board 37,49, 53, 59, 64, 68, 72 (p.137). effectiveness through a series of 73 questions. School board performance in six ar- Responses were arranged on a Lik- eas of board operations were assessed as ert scale (Carroll & Carroll, 2002) with follows: making decisions, functioning as replies consisting of strongly agree, agree,

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disagree, and strongly disagree. The ques- number of school board presidents. This tions will be scored as follows: Strongly same procedure was applied to the SA-A Agree – 4; Agree – 3; Disagree – 2; ratings. This process was repeated for the Strongly Disagree – 1. Measures of cen- group of superintendents. Once percent- tral tendency were performed on the re- ages were determined for the SD-D and sults to determine the distribution of the the SA-A categories for the school board scores. A table was for the Functioning as president group and the superintendent a group category and the results were pre- group on each question, the mathematical sented. Lastly, additional analysis of the process of subtraction was applied to de- scores was accomplished through the use termine if any difference of five percent or of SPSS. greater existed. The stated difference represented a noteworthy perspective. Descriptive Statistics Findings The first step in data analysis was to describe or summarize the data, using The analysis and resulting findings, descriptive statistics (Gay & Airasian, which included descriptive statistics for 2000). Measures of central tendency, the sample population and the survey re- measures of relationships, measures of sponses, were utilized to accept or reject variability, and measures of relative posi- the research hypotheses. The purpose of tion are among the most common descrip- this research was to explore the percep- tive statistics. Measures of variability in- tions of Texas school board presidents and clude variance, while the relationship be- superintendents regarding their working tween variables was evaluated using corre- relationship. This research was guided by lation statistics (Gall, Borg, & Gall, 1996). the following question: Is there a differ- Central tendency was evaluated utilizing ence in Texas school board and superin- mean, median, and mode. Gay and tendents’ perceptions regarding the school Airasian (2000) defined mean as the board-superintendent working relation- arithmetic average, while mode is a fre- ship? quency statistic that defines the value that is most common among the sample being Summary of Descriptive Population evaluated. Statistics

Exploring differences The population data utilized in this study was a combination of data elements Descriptive statistical analysis in- provided by the Texas Education Agency, volved the determination of any difference the Texas Association of School Boards, of five percent or greater that existed be- and the demographic data furnished with tween the school board presidents and the the BSAQ. The accountability ratings and superintendent responses for each of the data for school count, economically disad- 73 questions. All ratings of the respond- vantaged, and ethnicity were obtained for ents were sorted into the two major the 2005 school year. The superintendents groups: 1) school board president and 2) and school board presidents surveyed were superintendent. Within each group, ratings individuals who were in their position for for each question were sorted into two cat- the 2004 and 2005 school years. Forty-six egories. One category included the strong- school districts were invited to participate ly disagree and disagree (SD-D) and the in the study. other category included ratings strongly agree and agree (SA-A). The sum of the Of the school board presidents, SD-D ratings was divided by the total 32.61 returned their surveys while 56.52

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percent of superintendents returned their tions of effective school boards. Questions surveys. Paired survey returns were 26.09 were divided into six sub-sections or cate- percent. The mean of the student count gories based on Smoley’s Model for was 6,076 students with the smallest School Board Effectiveness. Underlined school having an enrollment of 155 stu- questions were scored in reverse. dents and the largest school with an en- Functioning as a Group – 3, 17, 30, 32, 36, rollment of 34, 649 students. The mean for 37, 49, 53, 59, 64, 68, 72 the ethnicity of the schools revealed a student body of 47.05 percent non-white and The factor analysis revealed that 52.95 percent of white students. The mean the indexes were not unidimensional. for the economically disadvantage student Since indexes must be unidimensional, a count was 53.52 percent. description analysis of each question was utilized to analyze the survey responses The education level of the school instead of the planned regression analysis. board presidents surveyed was 26.67 percent with a bachelor’s degree and 33.33 Each question was treated as an percent with a master’s degree. Twenty individual variable and each question was percent of the school board presidents sur- treated in the same fashion. Responses are veyed had only a high school diploma. Of presented as percent and are grouped into the school board presidents surveyed, categories of strongly agree-agree and 67.67 percent had two years of service as a strongly disagree-disagree. This grouping school board president and 33.33 percent was purposefully decided for clarity of dis- had three to seven years of experience. tinguishing the response differences. A five percent difference of statistical analy- The education level of the superin- sis was considered worthy of notation. tendents surveyed reveals that 53.85 per- Inferential statistics were not used because cent held a master’s degree while 46.15 the sample sizes for both the school board held a terminal degree. Sixty-one percent presidents and superintendents were too of the superintendent’s age fell within the small for such calculations (Neuman, range of fifty to fifty-nine years. Of the 2003). Of the 12 questions in the sub- superintendents surveyed, 57.69 percent section, Functioning as a Group, seven or had served as a superintendent for three to 58.33 percent, met the criteria establishing seven years in their current position. a difference between the school board presidents’ and superintendents’ percep- Descriptive Survey Response Analysis: tions. The greatest difference, which was Factor Analysis 42.31 percent, in school board presidents’ and superintendents’ perceptions were in Factor analysis is a statistical tech- question 3, which stated: “There have been nique that may be used to explain variabil- occasions where the board itself has acted ity among variables in terms of fewer vari- in ways inconsistent with the district’s ables known as factors. A factor analysis deepest values” (Smoley, 1999, p. 131). was conducted on the BSAQ for the purpose of determining if the questions fac- The results of this study indicated tored together to measure what the inven- that data suggests that there was a differ- tory and the sub-sections within the BSAQ ence in Texas school board and superin- intended to measure for the study. Written tendents’ perceptions regarding the school permission was obtained from Dr. Eugene board-superintendent working relationship. Smoley, Jr. to use the BSAQ in this study. Surveys were scored using the criteria that Smoley (1999) developed to assess the ac-

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Conclusions the updating and revising of the training topics and material. The research data suggested that there is a difference in Texas school board and Fourth, I conclude that school superintendents’ perceptions regarding the boards develop a meaningful self- school board - superintendent working re- evaluation process that addresses the func- lationship. The question studied the differ- tioning board members. Fifth, I conclude ence in the perception of the school board that school board conduct affects tenure. A president and the superintendent in func- healthy school board-superintendent rela- tioning as a group (team). As indicated in tionship is more likely to exist when the 58.33 percent difference between the lengthy tenures of superintendents and school board president and superintendent board members are expected and encour- responses, the findings suggested that aged. there is a difference in the perception of the school board president and the superin- Sixth, I conclude that school boards tendent in functioning as a group (team). and superintendents must develop process- The differences were in the areas identi- es and practices to connect with the com- fied as inconsistent actions of the board munity in a meaningful manner. The con- with district values, public disagreement, cept of effectively connecting with the and the lack of discussion on values. These community holds the prospect for signifi- differences represented a disparity in cant benefits, which will result in student group dynamics and communication achievement. The vision and voice of the (Glass, Bjork, & Brunner, 2000). I con- community must have a viable, conven- clude that inconsistent actions by board ient, and credible avenue for expression. members create a degree of uncertainty and trust in the working relationship of the In summary, this study continues to re- school board and superintendent. veal that a significant breach exists between the school board and superintendent Conclusions are formulated from when acting as a group. Too often a reluc- this research. First, I conclude that the re- tance on the part of school board members lationship of the superintendent and school is evident in the effort to realistically deal board is very complex. Second, I conclude with conflict in the superintendent-school that the superintendent and school board board relationship. The resulting frustra- relationship is not static but rather chang- tion, which is experienced by the superin- ing and transforming. Third, I further con- tendent, can be eliminated when a spirit of clude that the issue of change is an ele- teamwork on the part of superintendent ment that must be continually factored into and school board exists to focus on student outcomes and achievement.

References Carroll, S. R., & Carroll, D. J. (2002). Anderson, G. L. & Saavedra, E. Statistics made simple for school (2002). School-based reform, leaders: Data-driven decision leadership, and practitioner re- making. Lanham, MD: Scarecrow search: Mapping the terrain. Press. Scholar-Practitioner Quarterly, 1(1), 23-52.

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Clift, C., & Reese, P. (Eds.). (2004). Sept. Hoyle, J. R. (2002). Superintendents for 17-20 TASB/TASA Dallas convention Texas school districts: Solving the highlights. Texas Ed ucation News. crisis in executive leadership. Fort 21 (30). Worth, TX: Sid W. Richardson Foundation. Duffy, F. M. (2003). Courage, passion, and vision: A guide to leading LaMonte, H. (2009). Seeing the light. systemic School improvement. American School Board Journal, Maryland: Scarecrow Publishers. 196 (8), 27.

Eadie, D. (2009). The partnership tan- Microsoft Office Excel. (2003). Microsoft go. American School board Jour- Office Student and Teacher Edition nal,196 (12, 42-43. 2003 [Computer software]. Red- mond, Washington: Microsoft Ellingson, Jason M. (2010). A matter Corporation. of trust: My quick transition to the Superintendentcy . School admin Mountford, M. (204). Motives and power istrator, 00366439l, 67 (9). of school board members: Implica- tions for school board-superinten- Gall, M. D., Borg, W. R. & Gall, J. P. dent relationships. Educational (1996). Educational research: An Administration Quarterly, 40 (5), introduction (6 th ed.). White 704-741. Plains, NY: Longman Publishers. Muth, R. (2002). Scholar-practitioner goals, Gay, L. R., & Airasian, P. (2000). Ed- practices, and outcomes: What stu- ucational research: Competencies dents and faculty need to know and for analysis and application, sixth be able to do. Scholar-Practitioner edition. Upper Saddle River, NJ: Quarterly, 1 (1), 67-87. Prentice-Hall, Inc. National Commission of Excellence in Ed- Glass, T. E. (1992). The 1992 study of ucation. (1983). A nation at risk: the American school superintend- The imperative of school reform. ency. Arlington, VA: American Washington, DC: U.S. Office of Association of School Adminis- Education. 11trators. Neuman, W. (2003). Social research meth- Goodman, R. H., Fulbright, L., & ods: Qualitative and quantitative Zimmerman, Jr., W. G. (1997). approaches (5 th Ed.). Boston, MA: Getting there from here . Arling- Allyn & Bacon. ton, VA: Education Research Ser- vice. Porch, S., & Protheroe, N. (2003). School board-superintendent rela- Goodman, R. H., & Zimmerman, Jr., W.G. tions in support of high student (2000). Thinking differently: Rec- achievement. The Informed Edu- ommendations for 21 st century cator Series. Arlington, VA: school board superintendent lead- Education Research Service. ership, governance, and teamwork for high student achievement. Ar- lington, VA:Education Research Service.

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Richards, R. (1997). How to build an effective board. Washington, D. C.: American Society of Associa- tion Executives.

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Wright, E. K. (2002). A study of Texas public school superintendents’ perceptions of board/ superintendent relations. Unpublished doctoral dissertation, Stephen F. Austin State University, Nacogdoches, Texas.

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CLOTHING MATCHMAKER: AUTOMATICALLY FINDING APPOSITE GARMENT PAIRS FROM PERSONAL WARDROBE

Ching-I Cheng National Chung Cheng University, Taiwan, R.O.C. [email protected]

Damon Shing-Min Liu* National Chung Cheng University, Taiwan, R.O.C. *Corresponding Author: [email protected]

Mei-Lin Liu National Chung Cheng University, Taiwan, R.O.C. [email protected]

I-En Wan National Chung Cheng University, Taiwan, R.O.C. [email protected]

Abstract

The research aims to develop a knowledge-based system which functions as a personal dressing advisor to help women choose apposite attire for attending a specific occasion and fitting demanded look from their own closets. Matchmaker is to search for apposite garment suits from person digital wardrobe according to the user demand. For building a personal digital wardrobe, what a user needs to do is taking garment images and input to the system. The physical feature detector is then invoked to automatically extract essentials, such as feature points and major color. Afterwards, several expressive features (e.g., cold degree, fancy degree, soft degree) are obtained using the expressive feature converter. Impression category indicator is exploited for assigning appropriate category terms to garments. At run time, Matchmaker is activated after receiving user demand, and several matched pairs will be shown. We present an efficient interactive automatic schema for mixing-and-matching

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clothes, based on expert knowledge of fashion, to advise impressive appearances for individuals. All what garment essentials and fashion knowledge are from garment images. Personal- ization and Automation are the main features of the system. The work is to provide such a user-centric services system that functions as a personal fashion advisor for general users to choose proper attires from their own wardrobe for different occasions.

Keywords: Clothing combination, Expert system, Database, Fashion, Color match, Dressing Advisor, recommendation

Introduction apposite clothes to present an impressive and fit outlook for a specific occasion is a According to clothing history, the big challenge for the general, especially principal task of clothing has been for women. It might be difficult for people changed from protecting human body for who are not sensitive to fashion to pick out survival to presenting impressive image a decent outfit to perfectly present a spe- for identification [1]. What you wear is cific image for a specific occasion. Hence, what will start the impression you make on having a personal fashion recommender others. People thus always want to give an would be a benefit to individuals for per- impressive outlook through their apparel at fectly dressing. the first sight when they meet. “What shall I wear?” becomes a popular daily question With computer technology rapidly for most people before dating. People growing, researchers keep working hard might have experienced the situation when on innovating computer applications standing in front of their wardrobe and which can interact with of human beings finding their mind goes blank. Additional- and further enhance our daily life easily ly, there was a study by onepoll.com and conveniently. A decision support sys- commissioned by Matalan, UK clothes tem, for example, always helps people retailer, on hours women spend choosing analyze business data and make businesses clothes. The study found that 10 minutes a decision easily, such as market selecting morning will be taken up trying to find an strategies. A recommender system, another acceptable outfit while on holiday, with example, can provide advice to users about another 10 minutes spent picking evening information they might be interested in, clothes. Dinner parties, Christmas parties such as MovieLens system recommends and black tie events take up about 36 movies (http://movielens.umn.edu/login), minutes a time, six times a year - adding based on the ratings of objects from its us- up to 3 1/2 days. It shows that picking up ers. The proposed clothes search system in [2] helps user to search for garment piece

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based on impression category. Similarly, Matchmaker for the Intelligent Dressing through the help of computer technology, a Advising System. The remainder of the fashion mix-and-match module to coordi- paper is organized as follows. Section 2 nate clothing is useful for people who are reviews some relevant works. Section 3 clueless to fashion. The research thus pro- gives an overall description of the proposes an integrated methodology to digi- posed framework. Section 4 briefly de- talize mix-and-match dressing scheme for scribes the implementation. Section 5 pre- providing women an efficient interface to sents the experimental results and discus- obtain clothing recommendations using sions. Finally, Section 6 draws a conclu- their own wardrobe. It uses computer sion and suggests future works. technology to process vague knowledge concerning fashion mix-and-match, and Related Work creates effective visualizations and intui- tive user interactions. Specialized areas, Recommender System such as digital image processing as well as database technologies, have all been taken People always ask for suggestions into account. The main goal of the re- when they cannot make their choices on search is related to mix-and-match fashion something they are interested. For ex- and automation. The following are signifi- ample, Google is a common way to search cant contributions of this work: for others’ experience of accommodation when making traveling plan. Hence, rec- Content Analysis: Physical and expressive ommender systems (RSs) have been a features of garments are automatically ex- popular research area and also successfully tracted from digital photos through the fea- applied to many different practical do- ture detector. mains, such as recommending books, music, movie, videos, and so on. RSs are usu- Content Retrieval: Digitalize personal ally exploited to identify web pages that wardrobe - an efficient database schema will be of interest for the user, or suggest- for quick search users’ clothing based on ing alternate ways of searching for infor- the queries (impression, weather, and oc- mation. Recently, a growing number of casion). companies, including Amazon.com, CDNow.com and Levis.com, employ or User interface interactions: Design intui- provide recommender system solutions. tive and friendly user interface interactions. Generally, RSs can be categorized into three main categories: content-based, This article describes the mix-and- collaborative filtering, and hybrid [3]. In match fashion framework of Clothing the case of content-based RS [4-5], objects

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will be recommended based on the content uct attributes, [6] introduces a novel rec- of the objects the user is examining or has ommendation technique, Scenario- examined in the past. A set of products is Oriented Recommendation, which analyz- viewed as a set of attribute (feature) lists in es users’ goals and maps them to possible recommender systems. Attribute lists are characteristics of relevant products. It pro- always used to construct and store the his- poses a system for giving suggestions that tory of user preference. Whether a product matches the clothes’ styles and functions item is recommended to a user is accord- with the concepts needed for the context ing to the similarity between the two at- based on commonsense reasoning accord- tribute lists. For example, in an art domain, ingly, and further provides a useful inter- a content-based RS tries to understand user face for users to make decision of getting preferences by analyzing commonalities suitable outfit for specific occasions. among the content of the artifacts. These However, their works are mainly based on commonalities could be based on features the commonsense reasoning technology, such as the style, the creator, and the place automatically combining matched tops and of manufacturing. The artifacts that have a bottoms are not taken into consideration. It high degree of relevance to the user’s pro- is tough for people who are not sensitive to file are recommended [3]. Collaborative mix-and match fashion to pick out a decent filtering RS collect ratings of objects from outfit. many individuals and make recommendations based on those ratings to a given us- Our work aims to develop a fash- er. The quality of recommendation is com- ion mix-and-match module to coordinate pletely based on the user rating, instead of clothing for people who are clueless to the information content. MovieLens sys- fashion. As mentioned previously, a con- tem, for example, recommends movies tent-based RS collects features present in based on the ratings made from the nearest or extracts from the content descriptions of neighbors. Although collaborative filtering the objects to create the data structure. The technology has been widely exploited, it retrieval of objects is then based on the cannot recommend new items to users data structure. According to [2], garment is without any history in the system and divided into several visual features and a completely denies any information that can specific image category is automatically be extracted from contents of items. For assigned to each garment item. However, this reason, hybrid recommender systems image (e.g., seductive and casual) of a are developed, which can exploit both user garment is what we feel through its visual preferences and contents. elements, such as color and shape. Various presentations of visual elements may bring Unlike other recommender systems the same image. Hence, based on the con- that require users to provide specific prod- cepts of recommender system and human

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categorization behavior, the research de- stance, if the value of the sensation of sex- velops a method for assigning an appropri- iness is higher, the garment presents ate impression category to a specific gar- stronger seductive feel. ment through visual perceptions and further makes proper clothing combination Additionally, neural networks according a specific occasion and desired (NN) and support vector machines (SVM) image for women. both are mathematical structure, which are reliable and have a high predictive accura- Classifiers cy. Basically, in the case of support vector machines, a data point is viewed as a n- Basically, classifiers have been dimensional vector, and a n-dimensional dealt with in the literature on data mining hyperplane is found to separate such and machine learning for decades. There points. Kernel parameter setting in SVM are lots of systems for learning classifiers, training process, along with the feature such as decision tree learners, rule learn- selection, significantly affects classifica- ers, neural networks, support vector mation accuracy [11]. Neural networks are chines, ensemble methods, and so on. non-linear statistical data modeling tools, which have been studied for many years in Most classifiers are developed for the hope of achieving human-like perfor- classifying data with definite target values. mance in many fields. There are numerous Decision tree learners, for instance, whose algorithms available for training NN mod- primary purpose is to predict the value of a els [12]. Kuroda and Hagiwara, for exam- target variable based on several input vari- ple, proposed a method in 2002 using neu- ables [7][8][9]. It is simple to understand ral network to classify image regions into and interpret, and also performs well with sky/earth/water categories. The proposed large data in a short time. However, it will NNs used in their method were trained by produce a huge tree structure if all situa- back propagation algorithm. tions affected by human emotions are considered. Rule learner is another system for Human category learning is affect- learning classifiers, which is popular and ed by how the learner interacts with the well researched for discovering interesting stimuli, the learner’s goals, and the nature relations between variables in data mining of the stimuli, under either supervised or [9][10]. However, most classical rule unsupervised learning condition, that is learners consider all examples equally im- reminiscent of what NN models do in portant, thus they are weak on highly learning categories. Hence, in psychology, skewed or hybrid datasets. Some specific neural network based model is often ap- feel of a garment is strongly shown based plied to category learning. As proposed by on a particular garment feature. For in- social psychologists, receivers try to make

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sense of the world around them, including In ALCOVE, the training instances the people with whom they interact. Con- are assumed to be stored in the hidden lay- sequently, perceivers gradually develop er as the hidden nodes, each of which will cognitive structures to represent the world be activated to the extent of how much the in an organized fashion. These structures input item is similar to the corresponding are part of a network of thought that ena- exemplar, and then the activation of the bles perceivers to respond to stimuli such hidden nodes will be weighted and as the appearance of a person [13]. Per- summed to the output nodes in order to ceivers tend to assume that the attributes or generate the probabilities to classify this qualities assigned to others on the basis of item to different categories. The original appearance are interrelated. In other ALCOVE can represent continuous and words, there is a tendency to “cluster” or binary-valued dimensions, but not nomi- group person-attributes or person-qualities. nally-valued dimensions. As proposed by As the description presented by Kruschke Cheng and Liu in 2007, an ALCOVE on 2004, category learning is critically im- based model is explored to classify the ma- portant because it underlies essentially all jor color tone of a garment [16]. The input cognitive activities. Yet it is very difficult nodes of their ALCOVE model are RGB for machine to be able to perform like real color elements; hidden nodes are 600 people on categorization. Moreover, cate- training exemplars (one exemplar is a set gorization occurs on different dimensions of input values and one output color tone) and at different levels of abstraction simul- given by stylists; output nodes are twenty taneously. However, researchers in cogni- tones pre-selected from color researches. tive science have addressed plenty of mod- A specific color name is given after user els for human category learning which are inputs a combination of RGB, via the simi- worth applying to the field of machine larity computing process for the training learning. One of the famous approaches is examples stored as hidden nodes and the referred to the exemplar-based model (e.g. inputs. In addition, it is also the model ex- the Generalized Context Model proposed plored to develop the impression categori- by Nosofsky in 1986) [14], in which cate- zation model in the project proposed by gorization is thought to be achieved by as- Cheng and Liu in 2008 [17]. They defined signing an object to the category to which ten impression categories, and used AL- it is relatively more similar than other cat- COVE to classify garment to one of the egories. Kruschke’s ALCOVE (Attention ten. However, exemplar models expand Learning COVEring network) embodies their internal representations with every this idea in an RBF (Radial Basis Func- training example, so large amount of train- tion) NN and successfully accounts for ing examples are needed for learning the many human categorization phenomena behavior of styling cognition. [15].

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SUSTAIN (Supervised and Unsu- ports for assigning an apposite impression pervised STratified Adaptive Incremental adjective to a garment. The process of cat- Network) is another well known model of egory learning using examples is the key how humans learn categories from exam- component to make the system possessed ples. Its learning involves unsupervised of cognitive capability for apparel styles. and supervised processes, and affords a However, in SUSTAIN, the measurements great deal of sensitivity to different task of input dimensions are assumed to be in- goals in category learning that matches the dependent mutually. This assumption flexibility observed in human categoriza- might not be satisfied for the dimensions tion [18]. It is a three-layered NN model. of subjective measurements (e.g., adjec- In the input layer, the input perceptual in- tives suitable to describe the feeling of a formation is translated into a set of fea- garment). All visual features of a garment, tures that are organized along a set of di- actually, are integrated to give an overall mensions. In the hidden layer, a number of impression when people look at a specific hidden nodes which are called clusters are garment, suggesting that the features used formed dynamically during learning and to describe our impression to a garment will compete to respond to the input stimu- might be very likely to be correlated. Since lus on each trial. The cluster closest to the SUSTAIN has been evident to be good to input in a representational space wins. In account for many human categorization the output layer, the output nodes corre- phenomena yet it apparently cannot handle spond to the attributes defining the stimuli, well the natural category stimuli (e.g., namely the perceptual dimensions (e.g., garment), the objective of this study is color) as well as the category label. The hence to base on SUSTAIN and develop a output nodes are activated by the signals learning algorithm to simulate the human from the winning cluster solely, thus mak- behavior of obtaining garment outlook im- ing the prediction to the value on queried age. Instead of the classification accuracy, dimension (e.g., category label). Although classifying items like what people do is the adopting the same classification principle major purpose of the research. as ALCOVE does, SUSTAIN further makes the hidden nodes more flexible than Relevant Applications ALCOVE does, in that it will recruit a new cluster whenever the prediction fails on a Life becomes efficient and conven- trial or when the current item is not suffi- ient because of computer technology rap- ciently similar to any existing clusters. The idly grows. Researchers keep working project proposed in [2] is such an applica- hard on innovating computer application to tion of visual-based knowledge extraction enhance our daily life. Many applications and representation which functions as an of clothing are developed in the recent apparel style consultant to provide sup-

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decade. Six clusters of clothing application utes. It might return unsuitable clothing are shown as below. pairs while the exemplar photos are not creditable. The work proposes a A. Outfit Synthesis System. It is proposed knowledge-based system which functions in 2013[18], and the authors present an as a personal dressing advisor to help automatic optimization approach to outfit women choose apposite attire for attending synthesis. Given the hair color, eye color, a specific occasion and fitting demanded and skin color of the input body, plus a image from their own closets. The match wardrobe of clothing items, the system rules in Clothing Matchmaker are directly suggests a set of outfits subject to a partic- defined and updated by fashion editors for ular dress code. However, it focuses on obtaining upcoming fashion rules. obtaining suitable outfits by optimizing a cost function that guides the selection of C. Magic Mirror. It is an intelligent mix- clothing items to maximize the color com- and-match system, proposed by the Hong patibility and dress code suitability. The Kong Polytechnic University in 2006, us- situation of weather and occasion is not ing smart fitting room and smart dressing taken into consideration. The proposed mirror. This system uses the technology of Clothing Matchmaker concerns with per- Radio Frequency Identification (RFID) to sonalized and cognitive search for specific detect items brought into a fitting room or occasions and weather. placed in front of a dressing room. The intelligent mix-and-match database of the B. Magic Closet. It is a practical system system then delivers recommendations on for automatic occasion-oriented clothing what looks good with the item to the cus- recommendation [19], mainly targets at tomer [20]. However, the process of iden- two clothing recommendation scenarios, tifying garments and determining whether clothing suggestion and clothing pairing. they are matched is relying on the hard- Given a user specified occasion, it is able ware, RFID. It is one of the important is- to automatically recommend the most suit- sues in textile industries. Nevertheless, the able clothing by considering the wearing proposed system aims to achieve that the properly and wearing aesthetically princi- system swiftly finds out some clothes ples. In particular, magic closet is based on matched user’s desired image from own a latent SVM model, which is learned closet. It concerns with personalized and from the visual features of the given cloth- cognitive search. Thus RFID does not suit ing photos with full annotations on occa- the proposed system. sions and attributes. However, the match rules are learned through exemplar photos, D. Social Retailing Mirror System. It was and the proposed model heavily relies on developed by IconNicholson, a digital de- the human annotations of clothing attrib- sign and services firm, in 2007, which lets

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consumers try on clothing at a store and wearing clothes they choose and can then enables other people, wherever they are, to decide whether to put the items in shop- watch and make comments via the Inter- ping cart [23]. It focuses on modeling and net. The system could also show viewers clothing simulations. other clothing that is in stock or in a cata- log and could recommend items that might Schematic Structure look better or go well with the clothes the shopper has tried on [21]. The Intelligent Dressing Advising System is to provide such a user-centric E. Virtual Stylist Project. It was proposed services system that functions as a person- in 2003 by Masataka Tokumaru, helping al fashion advisor for general users to users to find out their favorite clothes from choose proper clothing to show demanded Web server in clothing shops on the Inter- image for different occasions from their net. The system searches through clothes own wardrobe. It utilizes clothing mix- database for clothes on the basis of the and-match scheme to provide some nicely harmony and sensation of colors that are matched recommendations while user used in them. In the case that a user re- submits the condition, such as how the quires a jacket and pants which she might weather is, where the occasion is held, and wear with her own shirt, the system what the personal image she wants. Cloth- searches for some jacket and pants whose ing Matchmaker is the core for automati- colors are in harmony with image sensa- cally finding apposite clothing pairs from tion seems to fit her imagination of dress- user’s personal wardrobe. Figure 1 shows ing [22]. However, color is not the only the overall schematic procedure. Firstly, a one factor affecting clothing sensation personal digital wardrobe is built by user when people first see. Clothing image is using garment photos. Each submitted usually affected by its outline shape, print garment photo is divided into four physical types, major color, and fabric material. features and stored in the database. User People often feel a top with chiffon mate- submits the conditions through the friendly rial soft and relax even though the color is graphic user interface. Clothing Match- dark. Hence, a knowledge-based clothes maker is then invoked for seeking suitable matching advising system, which works as garments from personal wardrobe and ob- a real personal fashion consultant to gen- taining clothing match recommendations. eral users, is a useful application in the modern fashion society. As shown in Figure 2, Clothing Matchmaker is activated while receiving F. Virtual Try-on. This is mainly applied the inquiry from user. It firstly processes a on virtual shops. Surfing the virtual shop search with weather condition in garment online, customers can see their virtual twin database to get a group of garments which

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match current climate. Next, it sifts out a weight of print style principle since the new clothes group from the first group current trend is towards mixing fashion. with appearance image category which Matched garment pairs are divided into user expected. Clothing Matchmaker then pantsuits and skirt suits, and shown in 3D chooses a top within the last group as the Show Room. User can browse matched basis to search a matched bottom for each garment pairs and select one as the most object based on the matching rules, such as favorite, and then send back to the system color harmony rules. It then eliminates to update the user preference information. bottoms which do not match based on attire harmony principles in the order of Implementation print style harmony principle, color harmony principle, fabric material harmony As proposed in the research done principle, and outline shape principle. A by in 2001, nearly seven in ten (69%) group of clothes may match to the basis Americans believe clothing, hair and garment is sift out. It then evaluates the makeup are very or extremely important coordination of each garment pair accord- for a woman to make a good appearance ing to harmony principles. The weight of on the job [24]. Eicher and his colleagues color harmony is the highest since color also indicated that both wearers and ob- affects visual image most. Print style is the servers perceive characteristics of any in- second factor affecting clothing image, so dividual’s total dress through all five sens- the weight of print style harmony principle es: sight, touch, smell, sound, and taste. is the second highest one. And then the weight of fabric material is lower than the

Figure 1. The overall schematic procedure.

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Figure 2. The detailed procedure of Clothing Matchmaker .

Besides, fashion trend and style garment is then transformed into several cognition in recent two decades were con- numerical attributes and stored in a data- sidered and found that color tone, print base, namely the digital personal ward- formation, outline shape and fabric materi- robe. In the following subsections, the deal are main visual factors affecting cloth- scriptions of harmonization principles def- ing image [25-28]. However, some people inition, mix-and-match dressing scheme may have difficulties on combining appro- evaluator, and building personal virtual priate garments for showing proper image wardrobe are given. to a specific occasion. Hence, a creditable garment match inference engine is the sig- Definition of Harmonized Principles nificant core of our project. In addition, the physical property of textile can be extend- People always tend to give a good ed in clothing psychology. The feel of image to the public when attending a spe- softness, for example, is usually a repre- cific occasion. However, some may make sentation of feminine and romance. Thus, disharmony of clothing combination when a feature detector is exploited in the work getting dressed. The project aims to pro- to extract garment features, and further a vide appropriate and trendy dressing clothing image category is assigned scheme to users. Hence, garment match through an image category indicator. A rules have to be acquired from fashion lit-

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eratures and trends for developing a cred- two or more colors are brought together to itable match engine. There are many prin- produce a satisfying affective response, ciples for gathering harmony garment they are said to be harmonized. Combining pieces, such as color harmony, printed pat- colors with different degrees of brightness tern harmony, and fabric material harmo- in the same hue gamut is a common prin- ny. A simple brief about fabric harmony is ciple to show color harmonization while that coordinate garments with similar soft- applying to clothing. Generally speaking, a ness. The current trend, however, towards color scheme based on analogous gives mixing and matching fashion. People can pleasant impression, and a color scheme develop their creativity on mixing fashion. based on complementary gives active im- For combing fabrics of different softness, pression. Analogous colors are any three there is a principle that fabric of bottom colors which are side by side on a hue must be harder than fabric of top. wheel, whereas complementary colors are any two colors which are directly opposite According to color researches and to each other (Figure 3). the art of color harmony [29-31], when

Figure 3. A diagram of color wheel of hue. Any color which is side by side on a color wheel is similar, whereas any color which is directly opposite to each other is complementary color.

In addition, women tend to dress compliment one another because the quiet either entirely neutral tones or in full on but rich brown acts as a basic form which color assault. Light and shade are an inte- the vibrant pink can shine. It forms a clas- gral part of style and fashion. One of the sic color combination that exudes a real most successful examples of this is the sense or freshness but at the same time color combination of pink and brown. lashings of sophistication. Further, Virtual These seemingly unrelated colors perfectly Stylist Project, done by Masataka Toku-

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maru and his colleagues, focuses on har- Harmony scheme 1: Harmony within the mony and image sensations of color com- same hue section. bination of clothes [32]. The method of Matsuda’s Color Coordination proposed The scheme is similar to mono- by Yutaka Matsuda is useful to compose chromatic color scheme. It uses only one the color scheme harmony evaluation part hue section and all values of it for a unify- of the system. In his research, color ing and harmonious effect. The hue of the schemes are classified into 8 hue types or basis garment is used as the primary color 10 tone types. A color scheme type is to find appropriate matched garment group composed based on the relationship be- which has hue value ranges in 36 degrees. tween a hue type and a tone type. Our pro- The combination brings gentle, soothing, ject hence employs and modifies the color and tranquil mood. harmony evaluation process in Virtual Stylist Project. Harmony scheme 2: Harmony of analogous hue. Moreover, printed pattern is one of Analogous color scheme uses col- the important visual factors affecting ors that neighbor each other on the color clothing image. Different print style lends wheel. The neighboring color means the different visual image. Small floral print, distance between the two color hue ranges for instance, brings into sweet feel, and from 36 to 72 degrees. For example, one bold stripes lend a nautical feel. The chal- set in red, red-orange, and red-violet is lenges get more intense when attempts are analogous color. They are more peaceful, made at coordinating three or four differ- less jarring than complementary schemes. ent print styles at the same time. Bringing The combination brings young, vivid, and various printed pattern into harmony is cheery mood. tough. Hence, there are many harmonized rules to make an integral balance of gar- Harmony scheme 3: Harmony of opposite ments with different printed patterns. Gen- hue. erally speaking, the major principle of Complementary color scheme uses mixing and matching printed patterns is two colors opposite one another on the not to allocate many colors together. color wheel. For example, violet and yel- Therefore, our project takes the common low are complementary colors. It creates a color harmony and printed pattern harmo- high-energy, vibrant look. However, using ny principles for the Matchmaker to get complementary color scheme needs care- further garment combinations. There are fully consider the contrast of brightness six harmony schemes defined as below. and chromatics.

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Harmony scheme 4: Harmony of achro- Image is what we feel about some- matic color. thing we contact with. People in modern This scheme relates to light and society generally use various adjectives, dark, only white, grays, and black are such as brilliant, elegant, and so on, to de- used. Achromatic color can be combined scribe images for apparel. Cheng and Liu with all other color schemes. Dressing in have concluded six specified adjectives, many colors looks unstable, so achromatic namely apparel image categories, in [2] color is usually exploited for making every (Table 1). Furthermore, apparel image outfit go further. Additionally, according might be affected by outline shape of to modern researches on color psychology dressing. The outline shape is defined as [29], Black is popular as an indicator of the clothing body based on the boundary power and also associated with unhappi- of shoulder, waist, hip, and bottom points ness, sexuality, formality, and sophistica- (Figure 4 A). The length of shoulder line, tion; White always represents purity or waist line, hip line, and bottom line are innocence. denoted as s, w, h, and b respectively. As shown in Figure 4 B, there are 5 shape Harmony scheme 5: Harmony of printed types, namely H, A, X, O, and V, defined pattern and plain color. by fashion experts in the research. As Putting different printed pattern shown in Table 1, the shape type is deter- together looks garish. The safe way is that mined using the ratio of s, w, h, and b. The not wearing floral print on upper body and ratio, for example, is nearly 1 represents lower body at the same time. Putting a the loose shape H. Table 2 shows the plain bottom and a printed pattern top to- lookup table of outline-suits-image effect- gether makes harmonious. In this case, the ing coefficients. The value ranges from 0 major color of the bottom is the major col- to 1, ‘0’ means the shape is totally not or of the printed pattern of the top. Find suitable to show the image and ‘1’ means out the major color of the blouse, and then the image is completely suitable to show a put a plain bottom together which color is specific image. Type X, for instance, is in the same hue gamut. Note that it will be good to show seductive image, and type O imbalance while the blouse is with large generally shows casual image. Through floral print. Wearing a plain bottom with the help of computer technology, a cogni- opposite color or white lends balance tion module to recognize acknowledged when the blouse is with large floral print images of clothing is useful for people or large abstract. who are clueless to fashion. With comput- erized cognition module, selecting a fit Clothing Image garment to present a specific image becomes easy. Hence, we extend the work

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proposed in [2] to develop a digitalized computation. The module is developed personal image consultant. through a learning-and-testing process and thus gain knowledge from visual image, The garment image cognition and has the capability of assigning an ap- module is developed based on inductive posite impression category to a new gar- learning concept. Some garment photos ment. At the beginning of runtime process, indicated with an expected image category Image Analyzer is firstly activated to ex- (“girlish”, “seductive”, “classic”, “casual”, tract physical features of the new instance. “elegant”, and “sporty”) are learning ex- The corresponding expressive features are amples, and some garment photos without obtained using Sensation Transformer. any image category indicated are testing Eventually, apposite impression category examples. A garment is then divided into is assigned according to the resemblance four feels (coldness, loudness, hardness, value. and sexiness) in order to do numerical

Figure 4. (A) The outline shape is defined based on the boundary of shoulder, waist, hip, and bottom points. (B) There are H, A, X, O, and V types defined by s, w, h, and b (the length of shoulder line, waist line, hip line, and bottom line).

Clothing Matchmaker visual impression for people at personal communication. People thus always Garments are generally classified choose a specific top for attending a spe- into three basic types, i.e., tops, skirts and cific occasion and then use skirts or pants pants, for combinations. Except facial ex- to make further combinations to show out- pression, tops usually make the most

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standing image. Generally, the process of work, nights out, dinner parties, holidays, outfit combination is going with the har gym and other activities. In addition, as monized principles described in Section indicated in [24], four in ten Americans 4.1. believe casual clothing (81%) and heavy According to a study of MATA- makeup (80%) are not acceptable for a LAN (a UK fashion company), women woman’s first day on the job, followed by spend much time on choosing outfits for

Table 1. Definition of outline shape, H, A, X, O, and V using the length of shoulder line, waist line, hip line, and bottom line, denoted as s, w, h, and b.

Outline shape Definition H s≒w≒h≒b A s≒w ww wb V s>w w≒h≒b

Table 2. Outline-suits-image lookup table is used to indicate how fit the outline shape is to a specific image category. The highest number means that the specific outline shape (H, A, X, O, V) is the most suitable for presenting the image (seductive, classic, girlish, elegant, sporty, casual).

Image H A X O V Seductive 0.8 0.6 0.9 0.3 0.5 Classic 0.7 0.3 0.5 0.1 0.8 Girlish 0.3 0.8 0.6 0.2 0.1 Elegant 0.7 0.8 0.6 0.3 0.4 Sporty 0.9 0.5 0.1 0.7 0.2 Casual 0.9 0.7 0.1 0.4 0.5

three in four who cite large clunky jewelry combinations are not suitable for some (77%) or a short or tight skirt (76 %). De- specific occasions and some color combi- spite of general color harmony principles, nations are straighten a specific image for fashion researchers believe that some color specific occasions. Several fashion con-

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sultants were thus invited to define coeffi- the occasion. For instance, seductive im- cients of image-suits-occasion and color- age completely suits for attending a ban- scheme-suits-occasion. As shown in Table quet and night party, but it might not suit 3, the coefficients of image-suits-occasion for outdoor activity. Moreover, Table 4 are defined as a lookup table. The value lists the effecting coefficients of the occa- ranges from 0 to 1, ‘0’ means the image is sion and the four color schemes mentioned totally not suitable for the occasion and ‘1’ in Section 4.1 Table 5 indicates the effect- means the image is completely suitable for ing coefficient of outline- suits-occasion.

Table 3. Image-suits-occasion lookup table is used to indicate how fit the image is to a specific occasion. The highest number means that the image fits to the specific occasion most.

Occasion seductive classic girlish elegant sporty casual Banquet 1 0.8 0.6 0.9 0.2 0.3 Night party 1 0.5 0.8 0.6 0.1 0.2 Official meeting 0.5 1 0.4 0.7 0.1 0.2 Professional 0.4 1 0.5 0.8 0.1 0.2 meeting Friends’ dating 1 0.6 0.6 1 0.6 0.8 Sweet dating 1 0.7 0.8 0.9 0.4 0.5 Outdoor activity 0.1 0.3 0.4 0.6 1 0.8

Table 4. Color-scheme-suits-occasion lookup table is used to indicate how fit the color harmony scheme is to a specific occasion. The highest number means that specific scheme is the most suitable to the occasion.

Scheme Scheme Scheme Scheme Scheme Occasion 1 2 3 4 5 Banquet 0.8 0.3 0.4 0.6 0.5 Night party 0.2 0.8 0.6 0.4 0.7 Official meet- 0.8 0.2 0.3 0.6 0.2 ing Professional 0.6 0.2 0.4 0.8 0.1 meeting Friends’ dating 0.4 0.8 0.6 0.5 0.3 Sweet dating 0.8 0.7 0.6 0.5 0.8 Outdoor activi- 0.2 0.7 0.8 0.3 0.7 ty

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A dressing scheme is developed to detailed process of this stage is described seek for several pairs of garments (top and as below: bottom) from the customized virtual closet. And an evaluation number is esti 1. Find a group of clothes, G1, based on mated for indicating how much degree the the season type the user given. Every gar- pair matches to the requirements user ment in the database has an attribute, sea- submitted. The dressing scheme is basical- son, which is prescribed by user when ly involved two stages, (1) finding basis building the personal closet. and (2) searching for matched. At the stage G1={g|g.season=season_type} of finding basis, a group of tops is obtained according to the user’s demand. The

Table 5. Outline-suits-occasion lookup table is used to indicate how fit the outline shape is to a specific occasion. The highest number means that specific outline shape (H, A, X, O, V) is the most suitable to the occasion.

Occasion H A X O V Banquet 0.8 0.7 0.6 0.2 0.5 Night party 0.6 0.4 0.8 0.3 0.7 Official meeting 0.7 0.7 0.4 0.3 0.8 Professional meet- 0.7 0.6 0.4 0.3 0.8 ing Friends’ dating 0.8 0.6 0.4 0.4 0.8 Sweet dating 0.6 0.8 0.8 0.3 0.4 Outdoor activity 0.3 0.2 0.3 0.9 0.6

2. Sift a group of clothes, G2, from G1, people always choose thin fabric for hot according to the weather_status the user weather. Thus, attribute hardness is used to given (a numerical value ranged in 0-1, gain Mw. Mw = (1-g.coldness) + (1- means very cold to very hot) and clothing g.hardness). Thus, the value of Mw is psychology (wear warm/cold color in higher, the match degree is higher. cold/warm day). 3. Sift a group of clothes from G2, namely G2 = {g|g.coldness = weather_status}. G3, in which every garment has an image category matched to the user desired. Meanwhile, Mw is calculated for each G3={g|g.image=desired_majorImage || piece to indicate how the clothes math to desired_secondImage}. Mi is then calcu- the weather. Additionally, fabric material lated to indicate how the individual gar- has to be taken into consideration since ment math to the image user desired. The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 95

4. According to the image-suits-occasion less user interaction. The digital personal lookup table (as shown in Table 3), the wardrobe is a garment database, every coefficient Mio is then obtained for each garment the user owns is one record in corresponding garment in G3. The coeffi- which. In order to simplify user input, the cient Mio is to show how suitable the im- only one job for user is to prepare photos age is for attending a specific occasion. of each flatten garment in her real closet. Besides, for clearly representing a garment At the stage of searching for the and reuse in the system, we need to find matched bottom, every garment in G3 is some specific garment attributes. But, how used as basis to search for matched bot- those attributes are extracted from garment toms (skirts, pants, and trousers) in the da- images? Several challenges are raised cor- tabase according to the prescribed harmo- respondingly. Techniques of digital image ny schemes (as shown in Section 4.1). For processing are employed to gain physical each combination, Mro is obtained accord- garment attributes, such as major color, ing to the lookup tables of color-scheme- outline shape, and so on. On the other sutis-occasion (Table 4). After the overall hand, computer would not know what out- outline shape is determined (H, A, X, O, look image is without training and learning V), Moo and Moi are obtained for each process. Thus, a cognition module is used pair according to the occasion and image to recognize what outlook style of a gar- user desired (Table 2 and Table 5). An ment is. Neural network is explored to evaluation number, E, is eventually ob- learn psychological attribute, such as out- tained using equation 1. Matchmaker look impression. eventually ranks all pairs according to the corresponding E, and the first three pairs Traditional CAD application for will be shown on response page. the apparel industry uses feature points to cut the garment shape within a cloth grid,

E = ( (Mw +Mi +Mio ) *1.2 +Mro + Moo + smoothing the surface of patterns, posi-

Moi ) *type (1) tioning patterns with face vector, seaming patterns to be a garment, resizing and col- Building Personal Virtual Wardrobe lision handling to make it real on a virtual actor [33]. All information needed for sew- Clothing Matchmaker is to provide ing patterns is from CAD pattern file. users a friendly interface to search for However, the project here is to provide matched garment pairs within their per- general users a personalized dressing ad- sonal wardrobe according to a specific oc- vice. It is not able to get specific CAD file casion and desired image. Hence, the first for each garment in the users’ real closets. requirement of the work is to build a digi- Hence, for simplifying the process of tal personal wardrobe for individuals with building garment database for users, [2]

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integrates several image processing tech- sensations. Finally, a reasoning process for niques, including edge detection with So- assigning impression categories to each bel filter, corner detection and chain code garment is applied after having the essen- processing, to analyze garment images for tials of each garment. Those physical and getting feature points and outline. And a cognitive characteristics are the attributes technique of color histogram is applied to of the garment database. A garment record gain color distribution of a garment. Fur- is created in the garment database while thermore, Cheng and Liu defined “color”, the essentials have been gathered. Figure 5 “print style”, “outline shape”, and “materi- illustrates how user builds a customized al” as the physical essentials of a garment. wardrobe. The detail technologies for Membership functions are then performed gaining garment to translate those physical essentials into

Figure 5. The processing flow of building a customized wardrobe.

essentials are described in [2] proposed by tool, all what a user need to do is to take a Cheng and Liu in 2008. flatten photo of each garment and submit to the system. Further, it provides nicely Experimental Results and Discussion matched recommendations for dressing up according to the conditions user submitted, The goal of this study is to develop such as how the weather is, where the oc- a knowledge-based intelligent dressing casion is held, and what the personal im- advising system for those who might lack age she wants. Clothing Matchmaker is of fashion match knowledge. It is a novel hence needed indeed for computing well- user oriented fashion recommendation

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matched coefficient being as the match The numbers in the y-axis, on the other criteria for each combination. hand, are the subjects’ average agreements to the questions (strongly disagree:1, In the research, there are three sub- strongly agree:5). Generally speaking, the jects in the experiment, all of which are subjects agreed that the system is useful office ladies in Taiwan. Each of them has a for choosing garment combinations personal digital closet, which contains at properly, but is weak on helping users to least 60 tops and 20 bottoms (including learn more about outfit images and occa- skirts and trousers). They are all invited to sions. inquiry for what to wear by simply submitting several conditions, and the matched In summary, this research shows garment pairs are then returned on the re- that the system provides useful clothing sult page (Figure 6). Table 6 shows several combination under specified conditions, experimental results based on the inquiry makes the decision-making process easier, of user. Finally, they are asked to fill a and is desirable in either online and physi- questionnaire for obtaining the satisfacto- cal stores. Nevertheless, it is only a pilot, ry. The questionnaire has 10 questions in 5 meaning that subjects of more diversity ( point Likert scale. Figure 7 shows the sta- e.g. gender, age, race, and so on), and tistical results with regard to study goals. more complicated experiment setting need The numbers on the x-axis are correspond- to be involved in order to investigate more ed with the numbered questions in Table 7. into the problem.

(A) (B) Figure 6. (A) The enquiry page for submitting the conditions, and (B) the results are returned after processing mix-and-match process.

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Conclusion and Future Works garments. Garments are thus decomposed into several attributes and stored as records The proposed approach of develop- in the database, namely personal digital ing Clothing Matchmaker for an intelligent wardrobe. With Clothing Matchmaker de- dressing advising system applied well- veloped, the project has the capability to known principles of mix-and-match fash- automatically find suitable garment pairs ion. A domain expert is involved to give from users’ wardrobe according to the the definitions of harmonization principles submitted requirements. This helps users and definition of outline shapes. Addition to get proper outfit easily for attending a ally, the system applies well-known tech- specific occasion and showing apposite niques of image processing for extracting image, and to make the most available out physical features of garments. Category of each garment in user’s personal closet. learning with neural network is used to In conclusion, the system gain knowledge train the system to enable it to do personal from photos, and has the capability that image classification for the submitted allows people to find suitable harmonized garment pairs easily.

Table 6. Experimental results of user enquiry.

Results Enquiry conditions Garment pairs -Top Garment pairs-Bottom

Impression: Clas- sic/Elegant 1 Occasion: Official Meeting Weather: Autumn

Impression: Clas- sic/Elegant 2 Occasion: Official Meeting Weather: Autumn

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Impression: Casu- al/Seductive 3 Occasion: Outdoor Activity Weather: Summer

Impression: Seduc- tive/Classic 4 Occasion: Banquet Weather: Summer

Impression: Seduc- tive/Classic 5 Occasion: Banquet Weather: Summer

Questionnaire of Satisfaction 5 4.5 4 3.5 re 3 co S 2.5 e g 2 ra ve 1.5 A 1 0.5 0 1 2 3 4 5 6 7 8 910 No. of Question

Figure 7. The average deviation of the answers to the questions in the questionnaire. The participants all agreed that the system is useful for choosing a proper garment combination to show a specific image, but they do not agree that the system is a good tool to understand more about outfit image and occasion.

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Table 7. The questions listed in the questionnaire.

No. Questions 1. Generally speaking, you like the recommendation that the system provides. 2. Generally speaking, you find the recommendation useful. 3. The recommended clothing combinations are appropriate to show the image. 4. The recommended clothing combinations are appropriate for the occasion. 5. You have never seen or heard of any systems that can give recommendation based on the image and occasion. 6. The system makes the decision making process more efficient. 7. The system helps you to understand more about the outfit image and occasion. 8. It is easier to decide on the clothing combinations with the recommendation. 9. It is fun to use the recommendation system. 10. All in all, you would like to use this system when you need to find clothes to show specific image for certain occasion.

However, clothing is affected by In addition, via mobile network gender, culture, age, and social relations. users can know immediately whether she The principles of female mix-and-match has anything match in the closet while fashion are unsuitable for males. For fe- shopping in a store by transmitting a pho- male mix-and-match fashion, the same to, which is taken at the shop, to the sys- garment might bring different meaning in tem. It makes shopping efficient and eco- different cultural regions. White color, for nomic. People will not waste a penny on example, is the main tone in a Japanese buying something they never wear. More- wedding but is considered unlucky in a over, ontology is a mechanism between the Chinese wedding. A mini-cut skirt for an user and the database to pick out appropri- eighteen-year-old school girl presents a ate results from the database by semantic cute and fresh style, but is a sexy style for information supplied by the user. With an a thirty-year-old office lady. Thus, the pro- ontology structure embedded, it helps cat- ject could not be applied in general to eve- egorize the garments in the database in a ryone in the world. The framework is fo- class hierarchy, supporting multiple inher- cusing on the age of twenty-five to thirty- itances, drawing relations between in- five office ladies. In the future, a module stances of the database, allowing for prop- for age classification which employs dif- erties to be assigned to instances and clas- ferent categories and match rules for dif- ses, bringing ease to finding garments that ferent age will be added. fit the user’s specific requirements. Then the system has the capability to do seman-

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tic searches through the database and pick ble garments by submitting the semantic out garments that fit the semantic meaning requirements to the system. This will be of the input given. With the help of ontol- the main work of our further research. ogy, it is able to automatically find suita-

Reference [6] conference on Digital libraries. 195- 204, New York, USA. 2000. [1] B. Cosgrave. A complete history of costume & fashion: from ancient [7] Shen, H. Lieberman, and F. Lam. egypt to the present day, Checkmark What am I gonna wear? scenario- Books. 2001. oriented recommendation. In IUI ’07: Proc. of 12th International Con- [2] C.I. Cheng and D.S.M. Liu. An intel- ference on Intelligent User Interfac- ligent clothes search system based on es, Honolulu. 365–368. 2007. fashion styles, In Proc. International Conference on Machine Learning [8] S. Rasoul Safavian and David Land- and Cybernetics, Kunming, China, grebe. A survey of decision tree clas- 1592-1597. 2008. sifier methodology. IEEE Trans. Sys- tems Man Cybernetics, 21, 3, 660- [3] Admavicius, Gediminas, Sankarana- 674. 1991. rayanan, Ramesh, Sen, Shahana, and Tuzhilin, Alexander. Incorporating [9] Tao Wang, Zhoujun Li, Yuejin Yan, contextual information in recom- and Huowan Chen. A survey of mender systems using a multidimen- fuzzy decision tree classifier meth- sional approach. ACM Trans. on In- odology. In Proc. 2nd International formation Systems, 23, 1, 103-145. Conference of Fuzzy Information 2005. and Engineering, vol. 40 of Advanc- es in Soft computing, Berlin, 959- [4] A. Ansari, S. Essegaier, and R. Kohli. 968. 2007. Internet recommendation systems. Journal of Marketing Research, 37, [10] Ian H. Witten and Eibe Frank. Data 3, 363-375. 2000. mining: practical machine learning tools and techniques. Morgan Kauf- [5] Raymond J. Mooney and Loriene mann. 2005. Roy. Content-based book recommending using learning for text cate- gorizations. In: Proc. The fifth ACM

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[11] Monika Zakova and Filip Zeleznu. Proc. 4th International Conference Exploiting term, predicate, and fea- on Fuzzy Systems and Knowledge ture taxonomies in propositionaliza- Discovery, 4, Haikou, China, 339- tion and propositional rule learning. 343. 2007. In Proc. 18th European Conference on Machine Learning, Lecture Notes [18] B.C. Love, D.L. Medin, and T.M. In Artificial Intelligence, 4701, Po- Gureckis. SUSTAIN: a network land, 798-805. 2007. model of category learning, Psycho- logical Review, 111, 309-332. 2004. [12] Vojislav Kecman. Learning and soft computing — support vector ma- [19] Lap-Fai Yu, Sai-Kit Yeung, Demetri chines, neural networks, fuzzy logic Terzopoulos, Tony F. Chan. Dres- systems. MIT Press, Cambridge, sUp! Outfit synthesis through auto- MA. 2001. matic optimization. ACM Trans. on Graphics, 31, 6, 134, 2012. [13] J.A. Freeman and D. M. Skapura. Neural networks-algorithm, applica- [20] Si Liu, Jiashi Feng, Zheng Song, tions, and programming techniques. Tianzhu Zhang,Hanqing Lu, Chang- Addison-Wesley. 1991. sheng Xu, Shuicheng Yan. Hi, Magic closet, tell me what to wear! In Proc. [14] Daniel M. Wegner and Robin Val- 20th ACM international conference lacher. Implicit psychology: an in- on Multimedia, 619-628. troduction to social cognition. Ox- ford University Press, USA. 1977. [21] Institute of Textiles and Clothing, The Hong Kong Polytechnic University, [15] R. M. Nosofsky. Attention, similarity, http://www.itc.polyu.edu.hk . and the identification-categorization relationship, Experimental Psycholo- [22] IconNicholson. High-tech mirror gy: General, 114, 39-57. 1986. helps shoppers reflect on their purchases, IEEE Computer , 40, 8, 21, [16] J. K. Kruschke. ALCOVE: An exem- Aug. 2007. plar-based connectionist model of category learning, Psychological Re- [23] M. Tokumaru, N. Muranaka, and S. view, 99, 22-44. 1992. Imanishi. Virtual stylist project- examination of adapting clothing [17] C.I. Cheng and D.S.M. Liu. Discover- search system to user’s subjectivity ing dressing knowledge for an intel- with interactive genetic algorithms. ligent dressing advising system, In

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In Evolutionary Computation, 2, by Neural-Fuzzy Study. Applied Art 1036-1043, 2003. and Design, 1, 31-41, July 2006.

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THE PROSPECTS OF APPLING THE INTERNATIONAL FINANCIAL REPORTING STANDARDS IN VIETNAM – AN EMPIRICAL STUDY OF ACCOUNTING PROFESSIONALS

Wen-Hsiang Lin Department of Accounting I-Shou University, Taiwan, ROC [email protected]

Shu-Hui Su ＊ Department of Accounting I-Shou University, Taiwan, ROC ＊Corresponding author: [email protected]

Thi Thanh Phan College of Management I-Shou University, Taiwan, ROC [email protected]

Abstract

The purpose of this study is to investigate the implications of applying International Financial Reporting Standards (IFRSs) in Vietnam. A survey was conducted to identify issues of applying IFRSs in Vietnam. The results indicate that: (1) the information of IFRSs in Vietnam is not really adequate and not diversified enough, (2) a large percent of respondents tend to agree with the benefits of applying IFRSs, such as better comparability with other businesses, lower cost of capital, and less reporting transform cost, (3) the lack of knowledge and the complexity of IFRSs and the training of accounting staffs are important challenges in applying IFRSs, and (4) a large majority of respondents believe that convergence to IFRSs is consistent with the conditions of Vietnam and the best time to introduce convergence to IFRSs is the period 2015 to 2016.

Key Words: International Financial Reporting Standards (IFRSs), Vietnamese Accounting Standards (VASs), Convergence to IFRSs

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Introduction (2006) and Fajardo (2007), adopting IFRSs would remove barriers to cross- Accounting, as a tool of economic border transactions in the securities management, has also been experi- market, increase trade and investment enceing major changes in recent years. and help enterprises integrate easily Abell, et al. (2008) asserted that the into the capital markets, and also result issuance and adoption of International in a lowered cost of capital. The appli- Financial Reporting Standards (IFRSs) cation of an accounting language around the world is now a special con- worldwide will increase comparability cern of most national and professional of financial information (Tweedie, organizations. Vietnam plan to com- 2006) which allows investors to see plete the integration in the field of ac- different companies from different counting and auditing before 2020. Vi- countries in the same way, thereby in- etnamese Accounting Standards creasing abroad investment opportuni- (VASs) is generally based on IFRSs ties. Secondly, as a single set of high updated in 2003 while “a formal date quality accounting standards, IFRSs for the full adoption of IFRSs has not increases financial disclosure “to en- yet been accounted”. The purpose of sure the transparency of financial re- this study is to identify the most suita- porting” (Nobes, 2001), reduce misun- ble timing and the best way to apply derstanding and risks in making in- IFRSs in Vietnam. The findings pre- vestment decisions. Additionally, the sent that a majority of respondents be- adoption of IFRSs would reduce de- lieved that convergence IFRSs is con- velopment and maintenance costs for sistent with the conditions of Vietnam. national accounting standards. Inves- Convergence means Vietnam should tors will be more confident in the update, amend, supplement, and refine transparency and reliability of financial VASs to fit with IFRSs. This research information so contribute to the devel- enhances the accounting practical for opment of national stock market. Im- assessment and reflects the general plementing IFRSs would help to attract perception about IFRSs, which identify more foreign investments (Sikidar and the possible way available to Vietnam Das, 2008) and also to easier access to for using IFRSs smoothly. loans and capital from international organizations to develop national eco- Literature Review nomic (Gyasi, 2010). Applying IFRSs worldwide will take advantage as the For the strong development of global network of accountant and audi- capital markets and multinational en- tor. When accounting standards and terprises, the financial transactions are audit procedures are consistent from great and growing in complexity country to country, it would be easier worldwide. Jauffret (2010) claimed for training and shifting accountants that the biggest advantage of using and auditors around the world (Tweed- IFRSs is a common reporting language ie, 2006). all over the world. Additionally, the application of IFRSs will bring many One of research questions in this benefits to stakeholders such as enter- study is: What are the implications for prises, investors, nations and also ac- Vietnam if it applies the International countants and auditors. Financial Reporting Standards? When business activities become increasingly According to Jermakowicz and complex, the rapid application of Gornik-Tomaszewski (2006), Tweedie IFRSs becomes more urgent than ever.

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Applying IFRSs means a new account- H3: The benefits of applying IFRSs in ing environment to be formed, and it Vietnam are clear . requires providing full information about IFRSs. To provide prospects of Finally, besides the benefits of the application of IFRSs in Vietnam, IFRSs, the application of IFRSs takes this study would like to evaluate the many challenges for many countries sources of IFRSs in Vietnam. There- including Vietnam. According to Kan- fore, the first hypothesis was proposed nan (2009), most enterprises faced a as following: lack of practical experiences about IFRSs. In the present period of transi- H1: The information of IFRSs in Vi- tion to IFRSs in Vietnam, it will be etnam is adequate and diversified. difficult not only because there are the differences between IFRSs and VASs, When joining the WTO, the but also IFRSs is considered to be very Vietnam’s goal is to complete the inte- complex, even for developed econo- gration in the field of international ac- mies. So the fourth hypothesis is as counting and auditing before 2020. In follow: which, the period 2010 - 2020, dynamic phase of integration: Vietnam’s H4: The challenges of applying IFRSs comprehensive integration and equality in Vietnam are clear. with other countries in the field of accounting and auditing, we can both Methodology import and export accounting and auditing services. Thus, the rapid update This study uses an email survey and refine VASs to fit with IFRSs is as through questionnaire to solicit re- inevitability. Therefore, the second hy- sponses from the population as Viet- pothesis would be: namese accountants and accounting lecturers. The first section of the ques- H2: The update and refine VASs to fit tionnaire requires the respondents to with IFRSs is indispensable. circle or highlight the appropriate answer, either “yes” or “no” or choose Next, the current globalization of the best answer for multiple-choice the world economy has made business questions in the column provided, activities more standardized (Epstein, based on their understanding of IFRSs. 2009). Along with the strong develop- The next section is to identify the time ment of capital markets and multina- and best way to apply IFRSs in the fu- tional enterprises, the financial transac- ture. The third section covers a list of tions are great and growing complexity expected benefits of the adoption of worldwide. According to Nobes IFRSs to enterprises, investors, State/ (2001), Carroll (2003), Jermakowicz et nation, accountants and auditors in Vi- al. (2006), Epstein (2009), Gyasi etnam. (2010), and Jauffret (2010), the application of IFRSs to record and report on Respondents were asked to indi- the economic activities of enterprises cate their opinions based on a five- will bring many benefits. This content point Likert scale for measurement of was presented as advantages of IFRSs the answers which range from “1” in literature review. To revaluate of the (strongly disagree) to “5” (strongly benefits from applying IFRSs to Vi- agree). The fourth section includes five etnam, the third hypothesis would be: items of expected challenges of applying IFRSs in Vietnam. Here respond-

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ents are asked to indicate how agree on of respondents have invested in the each challenge by using a five-point stock market. The sample seems to be Likert scale from “1” (strongly disa- represented not only the accounting gree) to “5” (strongly agree). The final lecturers and the accountants but also section was designed to acquire demo- the investors in Vietnam. The key find- graphic data of respondent such as ings and discussion are explicated in gender, age, level of academic qualifi- the followings based on Table 1-4. cation, job, and years of experience in teaching and working as an accounting The first hypothesis that “the in- professional. formation of IFRSs in Vietnam is adequate and diversified” is rejected. Ac- To test the above four hypothesis, cording to responses, lecturers show a the data were subjected to one samples greater satisfaction with IFRSs re- t-tests. Also, to investigate the relation- source than accountants. The reason is ship between the demographic varia- that the lecturers have high levels of bles and the evaluation of IFRSs re- scientific research and usually study in source, the ways and the reasons to theoretical accounting, as well as help- contacting the IFRSs information, the ing to apply this knowledge practical- suitable time and way in applying ly. They also have many more oppor- IFRSs, the benefits and challenges, a tunities to attend conferences, to read cross tabulation analysis with Chi- books, newspapers and magazines. Square test, an independent sample t- Generally, almost all of the young re- tests and one way ANOVA were ap- spondents (less than 45 years old) re- plied. The demographic variables were ported that they know IFRSs from the the independent variables, and the oth- internet. People, who have master's or ers items were dependent variables. In doctor's degree and have invested in addition, a logistic regression statistics the stock market, have higher opportu- was applied to measure the direction of nities to know IFRSs from confer- the association between the way for ences, newspapers and magazines. applying IFRSs and the expected bene- Moreover, the findings show that even fits of using IFRSs. The logistic re- now twenty six respondents have no gression equation is: knowledge of IFRSs. Then, to increase the accuracy of analytical results, peo- WAY = f ( α, benefit for enterpris- ple who have never known about es factors; benefit for investors factors; IFRSs will be excluded from continued benefit for nation factors; benefit for analyses. accountants and auditors factors) Regarding the frequency of con- In which the assumption that the tacting IFRSs resources, the most approach to apply IFRSs (WAY) is common frequency response is several assigned 1 means convergence, 0 times a month with the average time if means full adoption. The results ob- 2.94 hour. The primary reason for contained from the analysis are reported in tacting the IFRSs information was the the next section. necessary for the respondent’s job. Im- proving accounting ability and re- Result and Discussion spondent’s interest were cited in turn as the second and the third most im- 148 people including 80 lecturers, portant reason. Furthermore, some of 62 accountants and 6 auditors is the the respondents reported one of their sample of the study. More than a half reasons for contacting the IFRSs in-

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formation was their attendance at a to apply IFRSs, and also should amend conference, congress, or other forms of the standards (if necessary) to suit the education. Finally, there are some re- conditions. spondents who have business reasons for contacting the IFRSs information. The findings from this study con- The above results suggest that a large firm that a large percent of respondents part of accountants in Vietnam has not believe that the change in accounting yet had urgent needs for using IFRSs and reporting under IFRSs as the bene- so they pay little attention to these fits for enterprises, including (1) easier standards. These results may be inter- access to capital (2) greater reporting preted as showing that some of re- transparency, and (3) improved quality spondents have no real motivation or and timeliness of management infor- lack the conditions necessary for learn- mation. The expected benefits of the ing about IFRSs. change, such as (1) better comparability with other businesses, (2) lower As a consequence, if the demand cost of capital and (3) reduce reporting for IFRSs is not large enough then the transform cost are questioned by most supply of IFRSs’ resources may not be respondents. Likewise, the change as abundant or diverse is understandable. increase cross-border listings and in- Therefore, the second hypothesis “the vestment opportunities for investors is update and refine VASs to fit with also questioned by many. Fortunately, IFRSs is indispensable” is accepted. there is general consensus that the oth- Moreover, the findings suggest that er expected benefits for investors, na- lecturers have a tendency to conver- tion, accountants and auditors in Vi- gence IFRSs higher than accountants etnam are clear. Then taken together, and they believe that the best time to these findings suggest that the third apply (by the way of convergence) hypothesis – namely, “the benefits of IFRSs in Vietnam is period 2015 to applying IFRSs in Vietnam are clear” 2016. Explaining the reason for choos- is accepted. On the other hand, the re- ing convergence IFRSs, Prof. Dang sults of logistic regression analysis Van Thanh, the chairman of VAA and show that respondents who agreed accounting faculty of Hanoi University more strongly with the changes under of Business and Technology says that: IFRSs including: (1) lower cost of cap- “Vietnam’s economy is in conversion ital, (2) increase cross-border listings so the characteristics and development and investment opportunities for inves- level are different with other coun- tors, (3) create the confidence for in- tries”. Therefore, we need to select the vestors, contributing to the develop- appropriate steps to Vietnam during ment of stock market, (4) create the the application of IFRSs. Furthermore, global network of accountants and au- others who choose convergence IFRSs ditors, who more tend to convergence also gave some reasons that include: IFRSs. While of those who agreed IFRSs is relatively complex because it more that using IFRSs will make (1) covers all transactions in the developed greater reporting transparency, (2) re- economies. While Vietnam is a devel- duce reporting transform cost, (3) easi- oping country where there may not be er compare the financial results of many complex transactions. Besides, companies operating in the different the ability for accountants to take a jurisdictions, (4) reduce the cost of ac- shortcut to apply IFRSs in Vietnam counting standards development and may not be enough. Hence, Vietnam maintenance, (5) easier provide ac- should be careful in choosing the way counting and auditing services in dif-

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ferent countries, those more tend to ciations, education and the accountants adoption IFRSs. and auditors.

There is general consensus that Besides completing the legal IFRSs are so complex to apply IFRSs, framework, strengthening the activities the training of accounting and man- of professional associations have also agement staff is the most important played an important role in the success challenge. Besides, almost respondents of applying IFRSs. VAA will carry a have limited knowledge of IFRSs and heavy responsibility in disseminating the barrier of language (in English). new knowledge. To accomplish its The findings then suggest that the mission, VAA should continue to im- fourth hypothesis – namely, “the chal- prove its role in the transmission and lenges of applying IFRSs in Vietnam dissemination of knowledge from theo- are clear” is accepted. Finally, the find- ry to practice. Accounting schools ings here suggest that to be successful need quickly to renew the program, in applying IFRSs, Vietnam’s MOF content, and training methods of ac- should make a clear step-by-step plan counting and auditing at all levels. that includes increasing accountant’s Training program requires not only awareness of IFRSs, issuing the stand- conform to the existing standards, but ards lacking compared to IFRSs, and also need to gradually prepared pre- quickly bringing IFRSs into education. conditions for convergence with international accounting. Furthermore, the Conclusion schools should become a bridge between enterprises and the application The results have important implica- of new standards with the role as a tions, especially for the best way and guide. the timing to apply IFRSs in Vietnam. Specifically, this study indicates that For the urgent need to improve the the convergence IFRSs is consistent transparency of accounting infor- with the conditions of Vietnam and the mation, Vietnam accounting profes- best time to convergence to IFRSs is sionals are not only having great op- period 2015 to 2016. The findings of portunities but also facing so many this study provided the suggestion that challenges. In order to achieve the suc- Vietnam’s MOF must build an integra- cess in converging to IFRSs, they need tion roadmap with each step in detail. to develop a specific roadmap for rais- This roadmap requires effort on the ing awareness, training and improving MOF, enterprises, professional asso- the legal framework.

Reference Carroll, N. (2003). Thought required before the IFRS plunge. Aus- Abell, C., Corley, J. & Fiore, M. tralian CPA . Vol. 73, Iss.10, (2008). IFRS conversion: 10 pg. 76. reasons why tax should be involved. International Tax Re- Epstein, J. B. (2009). The Economic view . London. Available at: Effects of IFRS Adoption. The http://proquest.umi.com/pqdwe CPA Journal. New York, b?did=1590529891&sid=1&Fm Vol.79, Iss.3; 26-31, 6 pgs. t=3&clientId=48072&RQT=30 9&VName=PQD .

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Fajardo, C. L. (2007). The Move Sikidar, S. & Das, A., (2008). Con- Towards Convergence of Ac- vergence of Accounting Stand- counting Standards World ards with IFRS: A Comparative Wide. Journal of American Analysis. Management Ac- Academy of Business, Cam- countant. Vol. 43, Iss. 12; pg. bridge. Vol. 12, Iss. 1; 57-62, 6 905. pgs. Tweedie, D. (2006). Prepared stand- Gyasi, A. K. (2010). Adoption of In- ards of Sir David Tweedie, ternational Financial Reporting Chairman of The International Standards in Developing Coun- Accounting Standards Board tries - The Case of Ghana. before the Economic and Mone- Business Economics and Tour- tary affairs Committee of Euro- ism, University of Applied Sci- pean Parliament. Available at: ences. Variable: http://publi- http://www.iasplus.com/resourc cations.theseus.fi/handle e/0601tweedieeuspeech.pdf. /10024/15526.

Jauffret, P. (2010). Asia needs better voice on IFRS. International Financial Law Review. London.

Jermakowicz, E. K. & Gornik- Tomaszewski, S. (2006). Im- plementing IFRS from the perspective of EU publicly traded companies. Journal of Interna- tional Accounting, Auditing and Taxation. Volume 15, Issue 2, 2006, 170-196, 27pgs.

Kannan, R. (2009). Reporting of the committee on IFRS compliance in India Insurance industry. In- surance regulatory and development authority. 203pgs.

Nobes, C., ed. (2001). GAAP 2001: A survey of National Account- ing Rules Benchmarked against International Accounting Standards by Andersen, BOD. Deloitte Touche Tohmatsu. Ernst & Young, Grant Thornton, KPMG, Pricewater- houseCoopers. New York, NY: J Wiley & Sons.

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Table 1. Job vs. Vietnam's IFRSs Resource is Adequate

Vietnam's IFRSs resource is adequate F Mean dif. Strongly Partly Strongly Mean Disagree Agree Sig. Sig. disagree Agree agree Accountant 22 29 11 0 0 1.82 13.221 -0.627 Lecturer 5 38 34 2 1 2.45 .000*** .000*** Auditor 1 3 1 1 0 2.33 Total 28 70 46 3 1

Table 2. Job vs. The Way in Applying IFRSs

The way in applying IFRSs X2 F Mean Dif.

Others Adoption Convergence (p) (p) (p) Accountant 0 26 21 32.901 8.043 -.585 Lecturer 6 7 60 .000*** .001*** .001*** Auditor 0 0 2 Total 6 33 83

Table 3. The Way in Applying IFRSs vs. The Best Time to Apply IFRSs

t - v The best time to apply IFRSs in Vietnam a l u e M e p

A a ( 201 ft n 2 2 15 19 er - 17 - - – – 2 t 18 201 16 20 0 a 4 2 il 0 e d ) 3 6 . . Adop 1 3 12 14 3 4 3 tion 5 0 9

. 2 0 Con- . 0 ver- 23 34 18 5 3 1 0 gence 7 * * * 6( 24( 37( 30( 19( 4. Total 19. 33. 26. 15. 9 7%) 6%) 2%) 6%) % )

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Table 4. Tests of Independence and Association between the Ways to Apply IFRSs and the Expected Benefits for Accountants and Auditors

WAY = α + b1 * aCACALATW + b2 * aANABMC + b3 * aATABATQ + b4 * aESTSIDC +b5 * aCTGNOAAA

Benefit factors B S.E. df Sig. aCACALAT -.254 .401 1 .526 W aANABMC .498 .499 1 .319

- aATABATQ .493 1 .022 1.130 **

- aESTSIDC .450 1 .006 1.237 ***

aCTGNOAA .737 .358 1 .039 A **

Constant 7.154 1 .003 2.446 *** Chi-square 23.791 ***

Overall Percentage 78.4 %

Note 1: ** , *** indicate significance at the 0.05, and 0.01 levels, respectively. Note 2: WAY equal 1 means convergence, 0 means adoption. Note 3: Benefit factors included benefits for accountants and auditors which aCACALATW means create a common accounting language around the world, aANABMC means accountants and auditors become more competitive, aATABATQ means standardize training and better assure the quality of their work on a global basis, aESTSIDC means easier sell their services in different countries, and aCTGNOAAA means create the global network of accountants and auditors

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ANALYZING INNOVATION POLICY DIMENSIONS AND CONTEXTS: IN THE EMPIRICAL CASES OF TAIWAN AND SINGAPORE

Chih-Chieh Lin * Institute of Management of Technology National Chiao-Tung University, Taiwan R.O.C. *Corresponding author: [email protected]

Grace T.R. Lin Institute of Management of Technology National Chiao-Tung University, Taiwan R.O.C. [email protected]

Abstract

Taiwan and Singapore are both relatively small countries that have transformed into successful, competitive economies and leaders in high-tech industries. National innovation systems are important in their development of a country’s economic performance. This research explores the practice of the innovation policies of Taiwan and Singapore, and focuses on supply side, environment side and demand side. In a comparative analysis of innovation performance between these two countries, Taiwanese public institutes take an active role in innovation/R&D and focus their policies on specific industries, a top-down approach, while the Sin- gapore Government promotes innovation by public enterprises establishments.

Keywords: Innovation policy, national innovation systems, comparative analysis, Taiwan, Singapore

Introduction wan and Singapore have accelerated policy efforts aimed at strengthening their nation- As small countries within the al innovation systems. These efforts in- "Asian Tiger" economies, Taiwan and clude the introduction of broad measures Singapore have both been recognized for to improve performance in areas such as performing economic miracles. In recent research and development, education, en- decades, as economic activities in both na- trepreneurial activity, and knowledge flow; tions have grown more knowledge inten- all of which are key determinants for inno- sive, increasing attention has been paid to vative activity (Merges and Nelson, 1990). the economic role of innovation. The ability to innovate will gain greater promi- Innovation as a driver of growth nence in driving future economic growth, theory is derived from the economic theo- so the national governments of both Tai ry of creative destruction advanced by Jo- The International Journal of Organizational Innovation Vol 6 Num 4 April 2014 114

seph Schumpeter (1942), which states that national innovation policy can be evaluat- long-term economic growth is generated ed using various approaches. by the creation of the new, and the dis- placement of the old, in a capitalist socie- Numerous system perspectives on ty. As nations achieve higher levels of innovation performance have been used to gross domestic product per person, the examine the classification and role of in- main source of this change becomes inno- novation policies. Rothwell and Zegveld vation. (1981) developed a comprehensive classification system for innovation policy em- Recognizing the relationship be- ployment, in which they grouped innova- tween innovation and economic perfor- tion policy tools into supply-side, demand- mance, we can then separately explore side, and environmental-side. Supply-side how genuine innovation-related factors tools are those that provide the basic re- drive the competitiveness of these two sources for innovation, such as provision small, but relatively fast-growing, econo- of financial, manpower and technology mies. This paper is devoted to the task of assistance, including educational institu- assessing and analyzing the innovation tions or universities, trained technicians, policies of Taiwan and Singapore, high- information networks, and technical ad- lighting their specific strengths and weak- vice. In addition, they include direct inno- nesses, and their effectiveness in the spe- vation by government-owned agencies and cific economic and institutional context in state industries, as well as research directly which they operate, with a core focus on supported by government funds, such as national innovation systems. The existing research grants. Environmental-side tools literature related to these systems primarily regulate the operating environment of emphasizes the active role played by gov- firms, and include the means by which the ernment policy and specific institutions, government impacts the financial aspect of including the university system (Nelson innovation. This classification also in- and Rosenberg, 1994), the extent of intel- cludes not only the legal environment in lectual policy protection (Merges and Nel- which firms operate, but also the legal en- son, 1990), and the evolution of the indus- vironment for innovation. Demand-side trial research and development (R&D) or- tools have an effect on the stimulation of ganization (Mowery, 1984). invention by the demand for new products and services created by public spending Literature Review and public services. These also include the stimulation or suppression of innovation Innovation Policy by regulation of demand from overseas, and the ability of overseas competitors to Traditional innovation policy has operate in the national market. often focused on promoting science and technological policies, which have typical- This paper uses the policy analysis ly believed in the science push effect in the denotations originally derived from Roth- radical innovation process. The new inno- well and Zegveld (l981) as a guideline in vation environment then sets new demands facilitating a more insightful national infor regional innovation policies and strate- novation policy assessment. The reason we gies. Therefore, innovation cannot be chose this framework as an analysis base is viewed as a property of science- or tech- that it rests on the premise that understand- nology-based firms; it is the basis of coming the links between the policy actors in- petitiveness in all types of economic activ- volved in innovation is the key to improv- ities (Pekkarinen and Harmaajorpi, 2006). ing technology performance (Shyu and The following discussion portrays how Chiu, 2002). Furthermore, it is more feasi-

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ble and applicable than other indicator sys- of the notable antecedents of the concept tems, from the perspective of comparabil- of NIS is Christopher Freeman (1982). ity and comprehensiveness. Since then, an international body of literature has documented the growing influence However, we believe that the poli- of the NIS approach (Sharif, 2006). cy field of promoting network and entrepreneurship on the supply side may be a The concept of NIS can be per- missing link in the innovation policy as- ceived as a historical grown subsystem of sessment framework first proposed by the national economy, in which various Rothwell and Zegveld (1981). Frenken organizations and institutions interact with, (2000) contended that successful innova- and influence, one another in carrying out tion depends on complementary compe- innovative activity and generating innova- tencies in networks of producers, users, tion performance. The NIS approach im- and governmental bodies. Moreover, net- plies that innovative activity encompasses works have become understood as im- the input processes of R&D efforts by pri- portant organizational forms for coordinat- vate and public sectors, as well as the de- ing the efforts of heterogeneous actors terminants influencing national technolog- without restricting their individual goals. ical capabilities, for instance, learning pro- More specifically, technological incuba- cesses, incentive mechanisms or the avail- tors have assumed a growing role in R&D ability of skilled labor (Nelson and Rosen- research and innovation management, and berg, 1993; Balzat and Hanusch, 2004). their importance has not escaped the atten- Therefore, the NIS approach focuses on tion of researchers (Lumpkin and Ireland, the analysis of nationwide structures of 1988; Mian, 1996). Science parks, such as innovation activities, their institutional de- technology incubators, are property-based terminants, and their economic effects initiatives designed to provide a conducive (Balzat and Pyka, 2006). environment in which high-tech businesses can be established and can develop (Roper, Lundvall et al. (2002) indicated 2000). Venture capital funds provide not that the NIS concept provides a new per- only capital, but also management assis- spective from which to examine a coun- tance; once the enterprise has become a try's innovation processes through differ- success, they sell off their holding in the ent types of policy. A wide set of policies, company to make a profit. Support of this including labor market policy, education is somewhat beneficial for entrepreneur- policy, industrial policy, energy policy, ship promotion (Tsai and Wang, 2005). environmental policy, and science and Importantly, inter-firm collaboration and technology policy, affect a country's com- inter-organizational learning are central to petence-building. Moreover, a systematic the innovation process (Roper, 2000). analysis of comparative studies of different NIS helps to obtain a critical understand- In consideration of the discussion ing of the limits and the benefits of specif- above, the revised innovation policy as- ic national policy strategies (Edquist and sessment model of general roles for each Lundvall, 1993; Lundvall et al., 2002). grouping is depicted in Table 1. Assessing National Innovation National Innovation Systems Policy

The concept of national innovation Supply-Side of Innovation Policy systems (NIS) can be traced back to the Taiwan. mid-1980s in the context of debates involved in industrial policy in Europe. One

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Five Taiwanese state-owned enter- ment as a direct provider (as opposed to prises have been established to meet the facilitator) is emphasized. Examples are strategic and tactical needs of the govern- the establishment of the Industrial Tech- ment and to protect certain industries by nology Research Institute (ITRI), the the construction of large-scale businesses, Technological Information Center, and the through direct operation of upstream, National Science Council, which conduct heavy industry, which the private sector research on a large scale and undertake was unable or unwilling to undertake (No- studies into the feasibility of industrializ- lan and Wang, 1999). The Taiwanese gov- ing new technology. From the late 1980s ernment is attempting to make these more through the early 1990s, the government competitive through privatization, but this directed a considerable number of innova- has yet to materialize. tion alliances in the areas of notebook computers, high-definition televisions, fax To encourage entrepreneurship, the and communications equipment, etc., in Taiwanese government adopted an incuba- order to promote industrial upgrading in tor tool, foreign direct investment (FDI), Taiwan, working through research institu- and deregulation. Since 1996, the Small tions. (Tsai and Wang, 2005). and Medium Enterprise Administration (SMEA) of Taiwan has continued to pro- The Taiwanese government fo- mote the establishment of incubators, cused on providing the tools of innovation, through the use of financial support avail- that is, technically educated students, as able from the Small and Medium Enter- well as government-funded research, train- prise Development Fund for office equip- ing, and information. However, Shyu ment, personnel, and related costs. The (2006) criticized the approach in stating inflow of FDI has also helped to establish that the needs of industry are not always small and medium enterprises SMEs in served by the supply policy system; this is Taiwan. Those multinational companies the result of the separation of education, (MNCs) not only introduced advanced industry, and government, as well as the technology to the industry, but also created political nature of such a government- a center-satellite manufacturing model to focused system. shape a supply chain. Taiwan's government promulgated several laws to encour- Singapore age nationals to become involved in business affairs through investment, such as Public enterprises in Singapore’s the Statute for Encouragement of Invest- Government of Singapore Investment ment in 1960. In addition, the Statute for Corp and Temasek Holdings were estab- Establishment and Management of Export lished by the government to control or Processing Zones (l965), and the Statute monopolize several strategic industries. for Establishment and Management of Sci- Over time, the statutory boards not only ence-Based Industrial Parks (l979), created became major actors in the economy, but the two most significant areas for Taiwan's also formed subsidiary companies to add industrial development; export processing flexibility to their own operations. These zones (EPZ) and the Hsinchu Science- subsidiaries, such as, Jurong Town Corp., based Industrial Park. Taiwan's venture attracted corporate investment by offering capital (VC) has made a particular impact funds and the promise of cooperation from on those in the emerging industries, and government departments to ensure that the the government has established many VC corporations transferred proprietary tech- associations, in addition to offering finan- nology and training to Singapore. cial support to investors (Tsai and Wang, 2005). We can see that the role of govern-

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The Singapore government has form and incubate university spin-off firms gone one step further by building more since autonomy’s inception in 1992, while science parks (Tuas Biomedical Park, the Innovation and Technology Transfer One-North Science Habitat), a city within Office at Nanyang Technological Univer- a city (the Biopolis), and clusters (Com- sity is currently incubating numerous high- munication and Media), in order to be on tech start-ups. the cutting edge of technology. These science parks specifically catered to the The Singapore government estab- unique research needs of advanced tech- lished the Ministry of Information, Com- nology and new business models to create munication and Arts to develop a compre- value. hensive infrastructure and manpower to boost the economy. In the 10-year master The country's competitiveness is of information and communication (info- propped up by a strong focus on education, comm) industry plan (iN2015), the city- providing highly skilled individuals for the state aims to become "An intelligent na- workforce. The National University of tion, a global city, powered by infocomm". Singapore is not only the leading academic The infrastructure and manpower of info- organization in higher education, it is also comm was intended to speed up economic a decisive player in university-industry growth and set Singaporean businesses collaboration on applied R&D. It provides apart from others by encouraging ideas a campus location for regionally outstand- and creativity, building brands to foster ing research institutes, such as the Institute growth of global talents and expertise for Microelectronics, pointing to a re- based on iN2015. search focus on information and communication technology and microelectronics, The main differences in supply- as well as life sciences. These institutes side innovation policy between Taiwan co-operate with multinational enterprises and Singapore are shown in Table 2. and international research partners, and range from contract research to mutual Environmental-Side of Innovation Policy agreements of understanding. The second major academic player is Nanyang Tech- Taiwan nological University, with research institutes such as the Advanced Materials Re- In Taiwan, the government encour- search Centre and the Gintic Institute of ages R&D by exempting companies from Manufacturing Technology. Its strategic import duties on instruments and equip- outlook on R&D activities exhibits an ment for experiments. In addition, equip- even more applied orientation, closer to ment with a life of longer than 2 years can the innovation segment of product im- adopt a 2-year accelerated depreciation, provement (Nanyang Technological Uni- and expenditures of 15-20% can be busi- versity, 1996). This assessment also holds ness income tax-deductible (Shyu and for Singapore's four polytechnics, which Chiu, 2002). The Ministry of Economic are engaged in the promotion of R&D ac- Affairs also took action in promoting tradi- tivities on a minor scale (Ebner, 2004). tional industries' technology capacity with "Rules of encouragement for the private These state universities were given sector's development of new products" and greater autonomy to be competitive in the the "Law governing development for di- fast-emerging educational services sector rective new products" (Shyu and Chiu, of Singapore, and added to their traditional 2002). In addition, a subsidy for the R&D roles of training scientific, engineering, activities of high-tech companies located and managerial manpower in new ways to in science-based industrial parks was of-

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fered by the Taiwanese government (Tsai at the time of the US stem cell controver- and Wang, 2005). sy, to develop recommendations on the legal, ethical, and social issues of human Changes were made to address the biology research (Finegold, Wong and weaknesses in patent enforcement and Cheah, 2004). This early and clear legal prosecution through the integration of the support for stem-cell research, plus gov- Taiwan Intellectual Property Office into ernment financial support, has helped Sin- the NIS administration structure, whereby gapore create several stem-cell companies. Taiwanese laws and regulations include the Patent Act, Integrated Circuit Layout, The Singapore government allows Copyright Act, Trade Secrets Act, etc. for tax benefits, grants, and training subsi- Although most of Taiwan's companies are dies to raise productivity by upgrading small and medium-sized enterprises, the skills and supporting enterprise invest- country’s competition law, the Fair Trade ments in innovation in each of six qualify- Law, does not emphasize mergers and ac- ing activities: R&D, IP registration, IP ac- quisitions. Rather, it focuses on preventing quisition, design activities, automation cartels, monopolies, limited competition through technology or software, and train- and other behaviors hindering fair compe- ing for employees. tition. The main differences in environ- Singapore mental-side innovation policy between Taiwan and Singapore are shown in Table The first formal science and tech- 3. nology plan of Singapore was implemented only as recently as 1991, and had a Demand-Side of Innovation Policy greater focus on the establishment of investment environment. In the early years Taiwan of independence, Singapore's strategy was to attract MNCs to the island state to pro- Taiwan uses government procure- duce goods for global export markets. ment as one of the most important sources Great efforts were consistently made to of technological development, especially attract MNCs and invest in education and weapons systems procurement (Tien and skills training, as well as encourage tech- Yang, 2005), although it faces a predica- nology diffusion from MNCs to the local ment in this respect. To comply with the economy, in the early post-independence Agreement on Government Procurement years. Tax incentives were given for man- of the World Trade Organization (WTO), ufacturing companies that undertook R&D Taiwan's government procurement law in Singapore. was legislated in 1999 and aims to clarify procurement information, complete pro- Singapore is one of the most effi- curement evaluation, and internationalize cient financial markets in Asia. Its open the procurement market. Since then, the and flexible financial environment has at- most advantageous tendering method has tracted many giant MNCs, such that they been adopted as a major legitimate con- have established their offices in that coun- tract award mechanism, instead of the try, and the pro-business environment also lowest-bid tendering method (Tzeng, Li gives support to domestic SMEs. Singa- and Chang, 2006). pore also has put in place a regulatory environment that is broadly supportive of Singapore innovation. For example, the Bioethics Advisory Committee was formed in 2001,

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The bulk of government procure- From a systematic perspective, in- ment activities in Singapore are decentral- novation policy can affect a country's in- ized to individual ministries, departments, novation performance and competence- and statutory boards that make their own building. The capability to innovate and to arrangements. However, they must adhere bring innovation to market successfully to central guidelines issued by the Ministry will be a crucial determinant of the global of Finance. Centralized purchasing is car- competitiveness of nations. Most policy- ried out for common goods and services, makers are aware that innovative activity which are consumed service-wide by cen- is a primary driver of economic progress tral procuring entities, such as the Ex- and well-being, as well as a potential fac- penditure and Procurement Policies Unit tor in meeting global challenges in do- of the Ministry of Finance, the Ministry of mains such as the environment and health. Defense, and the Infocomm Development Authority. The Singapore government has As small island economies, both adopted the fundamental principles of fair- Taiwan and Singapore have achieved high ness, openness, and competitiveness for its economic growth rates in the past, while procurement policies. being competitive in science, technology, and innovation. The current innovation Since the signing of its first free policies of the Taiwanese government trade agreement (FTA) under the ASEAN concentrate on supply-side policy. Con- free trade area in 1993, Singapore has ex- versely, the government of Singapore has panded to cover 18 regional and bilateral refocused its innovation policy from pro- FTAs with 24 trading partners (China, Ja- moting traditional innovative activities to pan, Korea, the ASEAN, India and the attracting FDI and growing certain indus- United States). Singapore's FTAs have trial clusters, such as the biomedical and been instrumental in helping Singapore- infocomm industry, from environmental- based businesses strengthen cross-border to supply-side. trade by eliminating or reducing import tariff rates, providing preferential access to Governmental attitudes toward services sectors, easing investment rules, promoting national innovation capacity improving IP regulations, and opening play a key role in determining the ob- government procurement opportunities. served differences (OECD, 2007). First, in Singapore, the aggressive education poli- There are no significant exchange cies and huge budget for the overall educa- controls, and funds may be freely remitted tion system provide abundant research into and out of the country. There is also manpower and great competitiveness for no restriction on the repatriation of profits. domestic and MNCs. The incentive of tax Subject only to tax liabilities, a company and environment for foreign talents en- incorporated in Singapore may pay divi- courages the development of excellent dends to foreigners not residing in Singa- human resources for businesses (Anwar, pore. 2008). Every year, Singapore spends approximately 20% of its national budget on The main differences of demand- establishing its education system. The side innovation policy between Taiwan budget for education covers primary and and Singapore are shown in Table 4. higher education, occupational education, and on-the-job training. Well-trained indi- How National Innovation Policy Affects viduals, not only in science and technolo- Development: Taiwan and Singapore gy, are one of the main reasons why many MNCs have moved to Singapore. Moreo- ver, these MNCs have brought advanced

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knowledge and experience to the local served in constant patent growth, as well landscape, and have created a positive cy- as in very strong cluster formation and in cle that encourages a greater number of national development exhibited by long- knowledge workers and well-developed term industrial growth. facilities (Anwar, 2008). The government considers entrepreneurship to be a key Conclusion and Policy driver of its economic growth and it has Implications launched policies that aim to implant an innovative and risk-taking spirit in school Variation in innovation policy education and encourage students to start shows the differences and similarities in businesses. Singapore and Taiwan in terms of public enterprises, education, and information. Singapore has adhered to a series Taiwanese innovation policy places a of policies that successfully constructed greater emphasis on the development of many notable clusters decades ago. These innovation by research institutes and clusters once contributed to increased ex- through universities. Taiwanese public in- port, and helped Singapore evolve from a stitutes have taken an active role in inno- small harbor city into an innovation-driven vation/R&D and have focused policies on country. The tax incentives and reliable specific industries, using a top-down ap- infrastructure are the main reasons for cre- proach. The Singapore government pro- ating clusters (Parayil, 2005). The Singa- motes innovation by public enterprises es- pore government now has a base of suc- tablishments, where large and wealthy cessful experience and is turning its efforts holding companies directly control specif- toward advanced technology, such as in ic industries and define the path of innova- that of the biomedical, infocomm and me- tion development. dia industries. These industries will up- grade the domestic manufacturers and will In terms of education policy, Sin- also reinforce the strength of infrastructure gapore puts more resources into education in Singapore. and training than Taiwan. We can find a variety of education and training programs Overall, as part of its innovation that are provided by the Singapore gov- policy, Taiwan's government has invested ernment. With regard to information infra- significant amounts in research institutions structure, Singapore has made the con- and selected universities, and has also struction of the infocomm industry of na- funded selected firms; these funds are typ- tional importance. The iN2015 plan also ically used to develop one industry or shows Singapore's ambition to be a leader technical area that is viewed as having sig- in information infrastructure. Taiwan's "In- nificant growth potential. The Taiwanese telligent Taiwan" also aims to increase the government has chosen to develop high- strength of information infrastructure and technology industries (Tsai and Wang, industry. 2005). In order to compete in these industries and to enter new segments, high lev- In environmental-side policy, Sin- els of innovation have been vital. Focusing gapore has a more competitive and wide- on a few sectors serves to concentrate ranging benefits package, while Taiwan scarce resources on priority areas (Habara- has established science parks and clusters das, 2008). This core concentration on in- that provide financial and tax holidays to novation has resulted in a strong innova- specific industries. The most important tion performance, as shown by the number direct subsidies in Taiwan are in the form of triadic patent families. The results of of tax incentives. In Singapore, the effects this innovation policy focus can be ob- of environmental-side policy can be found

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in large FDI and specific grants, as well as use of government procurement and indus- tax holidays toward certain industry and trial cooperation policies to acquire ad- innovation activities. As a result of effi- vanced technologies, such as aerospace ciency and openness, Singapore has bene- technology, military technology, transpor- fited from the presence of foreign MNCs, tation technology, etc., which established which bring in capital, technology, man- the foundation of the high-tech industry in agement know-how, and access to world Taiwan (Industrial Technology Research export markets. Singapore also works with Institute, 2005). Trade shows have also like-minded countries within international been of importance in bringing together and regional organizations to encourage key customers and manufacturers. The free trade. demand-side policy for Taiwan is mainly from the domestic market, whereas Singa- In demand-side policy, the Tai- pore benefits more from regional and wanese government has emphasized the global integration.

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Table 1. A More Complete innovation Policy Analysis Model

Grouping Policy tools Examples Supply side Public enter- Innovation by publicly owned industries, prise setting up of new industries, pioneering use of new techniques by public corporations, participation in private enterprise Network and Supporting start-ups, establishing sci- entrepreneurship ence parks and incubators, encouraging collaboration between firms and institutions, venture capital associations, measures to promote entrepreneurship Scientific and Research laboratories, support for re- technical search associations, learned societies, professional associations, research grants Education General education, universities, technical education, apprenticeship schemes, continuing and further education, retraining Information Information networks and centers, libraries, advisory and constancy services, da- tabases, liaison services Environmental Financial Grants, loans, subsidies, financial shar- Side ing arrangements, provision of equipment, buildings, or services, loan guaran- tees, export credits, etc. Taxation Company, personal, indirect and payroll taxation, allowances Legal and Patents, environmental and health regu- Regulatory lations, inspectorates, monopoly regulations Political Planning, regional policies, honors or awards for innovation, encouragement of mergers or joint consortia, public consultation Demand Side Procurement Central or local government purchases and contracts, public corporations, R&D contracts, prototype purchases Public services Purchases, maintenance, supervision and innovation in health services, public building, construction, transport, tele- communications Commercial Trade agreements, tariffs, currency regulations Overseas agent Defense sales organizations Source: Adapted from Shyu & Chiu, Innovation Policy for Developing Taiwan's Competitive Advantages (2002), based on Rothwell and Zegveld (1981).

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Table 2. Comparison of supply-side policies between Taiwan and Singapore

Singapore Taiwan Public Enter- Several giant holdings com- Five state-owned enterprise panies prises Commanding state-owned Traditional manufacturer enterprises directly or indi- rectly involved in technology and science Engaged in banking, invest- R&D activities that focus ment, real estate, land, info- on product development comm, biomedical and other and basic science research advanced industries Network and Listed in national economic Innovation alliances Entrepreneurship plan Social and cultural side re- Incubator establishment form Innovation Voucher Scheme Setting up of venture capital associations Incubator Development Pro- gram Scientific and Four major clusters Industry and research Technical conferences The Agency for Science, Support for university re- Technology and Research (A search * STAR) Spearhead in biomedical and Establishment of research infocomm industry institutes University research grants Education Autonomy of universities Government training Enhance entrepreneurship Development plan for education in campus world-class universities and development of research centers of excellence Information iN2015 master plan Enhance linkage between national institutes and businesses Infocomm Development Au- Intelligent Taiwan project thority of Singapore devel- within i-Taiwan 12 pro- ops policies to ensure the jects growth of an innovative and competitive Infocomm sector

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Table 3. Comparison of environmental-side policies between Taiwan and Singapore

Singapore Taiwan Financial Various loans on machinery, Loan subsidies factories, working capital, ventures abroad Grants for incubators and start- Grants for incubators ups Subsidies for finns Located in Science Parks Development fund Research facilities Taxation Benefits for small-to-midsize R&D equipment/expenditure companies starting up tax alleviation Startups that meet certain quali- Tax relief for training fying conditions can claim for tax exemption under the Tax Exemption For Start-ups scheme Capital gains taxes are generally Tax incentives and export 0% processing zones for attracting foreign direct investment Legal and Strict IP protection system Patent and copyright acts regulatory Centralized IP management Fair Trade Law focusing on preventing cartels and monopolies Political High business costs of terrorism Visa restrictions (negative effect) Maintain balance of power Technology export restrictions (negative effect) Independent foreign policy

Table 4. Comparison of demand-side policies between Singapore and Taiwan

Singapore Taiwan Procurement Contracts and tenders worth Government procurement around S$10 billion each year and industrial cooperation Decentralized government pro- Build-operate-transfer curement system Government R&D service contract Central guidelines issued by Ministry of Finance Public ser- Jurong Town Corporate Science Parks in Hsinchu, vice Taichung and Neihu, and Nangang Singapore Science Park Commercial No significant exchange con- Reduced foreign exchange trols controls 18 regional and bilateral free Access to multilateral trade trade agreements (FTAs) organizations, such as the World Trade Organization (WTO) The International Journal of Organizational Innovation Vol 6 Num 4 April 2014 127

Overseas Member of WTO, Association Participates in regional agent of Southeast Asian Nations, trade organizations, such as Asia-Pacific Economic Coop- APEC eration (APEC), and other international groups Signed the FTA with Pana- ma and Guatemala

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A CASE STUDY OF APPLYING COMPUTER AIDED DESIGN (CAD) TO THE DESIGN AND MANUFACTURING OF KD CHAIRS

Wen-Ching Su Department of Wood-Based Materials and Design, National Chiayi University, Taiwan, R.O.C.

Hung-Yo Wang Department of Wood-Based Materials and Design, National Chiayi University, Taiwan, R.O.C.

An-Sheng Lee* Department of Wood-Based Materials and Design, National Chiayi University, Taiwan, R.O.C. *(Corresponding author): [email protected]

Abstract

In this study, KD chairs were aimed, and a new furniture design was developed and manu- factured in hope of designing a chair which is useful, easy to disassemble and transport, and beautiful. The sketches of the chair were first created by hand, and AutoCAD and Solid- Works were used to generate the 3D diagrams and three-diagrams of the product. Alpha- CAM was employed to simulate the product processing. Finally, a computer numerically controlled (CNC) router was applied to the milling process, namely using a semi-automatic method to increase the yield, reduce the costs, and try to design and produce furniture which can be mass-produced. It was found in this study that the optimal rotating angle of a KD chair is 7.5°, which makes the overall appearance the smoothest and the most graceful. However, if 7.5° is employed as the angle of a KD chair, 12 specifications of boards will be necessary. In addition, since the offset angel of each board is very small, it is necessary to

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apply computer numerically control (CNC) to the processing and use semi-automatic methods to increase the yield and reduce the costs. Therefore, the future trend of furniture design is to introduce new furniture promptly to satisfy consumers’ need.

Key words: Furniture Design, KD Chair, Joint, Computer Numerically Control (CNC).

Introduction value, increase the factory automation, actively cultivate design professionals, Wooden furniture is one of the im- and establish brands for marketing portant traditional industries in Taiwan. In (Wang, 2006; Jong, 2009; Tai, 2003). early days, the furniture industry in Tai- wan was based on an original equipment This study was aimed to combine manufacturer (OEM) approach and earned advanced production technology with in- the reputation of “furniture kingdom” in novative design skills to design a chair the golden export era. Nevertheless, due which is useful, easy to disassemble and to the lack of labor, the difficulty in ob- transport, and beautiful. It was also aimed taining raw materials, and the increase of to use semi-automatic production methods costs, numerous furniture manufacturers to increase yield and reduce personnel have moved from Taiwan to Southeastern costs as well as normalize production by Asia and China. The structure of the means of computer-aided design and wooden furniture industry in Taiwan has manufacturing (CAD&M) in hope of thus changed. The manufacturers hence transforming furniture manufacturers in can not obtain abundant profits and con- Taiwan from OEMs to original design trol marketing channels, and the quality of manufacturers (ODMs) and, further, orig- furniture has also been influenced. The inal brand manufacturers (OBMs), im- wooden furniture industry in Taiwan be- proving furniture production efficiency, came the so-called sunset industry (Tsou, and upgrading the international competi- 1999). tiveness (Hsu, 2010).

However, the wooden furniture in- Materials and Methodology dustry in Taiwan also has its advantages, such as the practical experience accumu- Commercially available 2400×120- lating for decades and the excellent pro- ×18 mm five-layer plywood was used in duction technology. In the future, the in- this study. The specific gravity was ap- dustry can develop quality, exquisite, and proximately 0.64, and the air-dry moisture diversified products, advance the added was 14%. In terms of research methodol-

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ogy, the sketches were first drawn by Conception hands, the plane processing diagrams were created by AutoCAD, and the com- This study was aimed to design a KD plete 3D and three-view diagrams were chair which is useful, easy to disassemble, generated by SolidWorks. After the files and beautiful. After several designs, it were transferred into DXF files, which are was finally decided to adopt the formal AlphaCAM compatible, AlphaCAM was principles of spirals and gradual changes used to send processing instructions and as the elements of this chair. Combining transfer them into numerical control (NC) with rods, wooden boards piled up to codes for processing. The NC codes were form a chair. The number of the layers then sent to the CNC router for milling. and the size of the chair were decided af- After being milled, the components were ter the height and the thickness of ply- trimmed and chamfered by a potable wood were calculated (Su, 2009). The trimmer and then assembled. After being functions of “rotate” and “array” in Au- sanded and painted, the final product was toCAD were first used to draw the rotat- accomplished, namely achieving the pur- ing angle and the locations of the holes. In pose of applying CAD&M to furniture the beginning, three prototypes with dif- manufacturing. ferent rotating angles were designed. Each prototype included 12 boards, and the Results and Discussions boards of the three prototypes respectively offset 0°, 7.5°, and 15° in an arithmetic Material Selection sequence. After that, each diagram was saved as an individual file to accomplish In the beginning, the selected main the plane processing of each board set. material was 18mm teak-veneered medi- The outer diameter of each board set was um density fiberboard (MDF), whose spe- 450mm, and the inner diameter was cific gravity was approximately 0.68. 250mm. SolidWorks was then used to Nevertheless, MDF is prone to creep, and open the files and extrude the thickness of the surface fluffs easily after being milled, each board to 18mm and chamfer it. The which will increase the processing time. boards and rods were then combined. The Eventually, plywood was selected as the shapes and features of the accomplished main material of the KD chair in this three prototypes are detailed in Table 1. study since some parts of the KD chair are After various evaluations, the 7.5° angle very narrow, and plywood is not direc- was selected in this study. The 3D and tional, unlike wood, or easy to break, and three-view diagrams of the three proto- provides good strength when a person sits types are shown in Table 1 and Figure 1. on the chair.

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Jointing circular, so after the assembly, they became loose easily or could not penetrate, In this study, rods passed through which influenced the jointing precision. boards and 18mm-thick acrylic rings to Eventually, the exactly circular rods were form the KD chair. In the beginning, the lathed. The connection of the rods is rods were directly purchased from out- shown in Figure 2 (Tsou, 2004). side, but the commercially available rods were processed coarsely and not exactly

Table 1. The shapes and features of the three prototypes

Shape Rotating Features Angle The 12 boards have only one 0⁰ specification. The shape is simple but lacks changes while the assembly is easy and prompt. The boards have twelve speci- 7.5 ⁰ fications in total, one board one specification. The shape is curvy, smooth, and of changes, but the assembly takes more time. The boards have six specifica- 15 ⁰ tions, two boards for each specification. The shape is curved but not smooth, and it is also less beautiful.

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Top 3D View View

Fron Side Figure 1. The 3D and three-view DiagramsView of the KD chair

Computer Aided Manufacturing ical simulation function of AlphaCAM (CAM) can be applied to milling simulation before processing. AlphaCAM was used in this study to send processing instructions and NC The processing surface of the codes for processing, and a CNC router CNC router was 1300×700mm in this was applied to the processing. In terms of study, so the plywood was cut into six sending processing instructions, a straight pieces of 950×500mm boards. The boards knife with a 12mm diameter and a 35° were then fixed on the processing surface end cutting edge angle was first selected, by vacuum suction. The workpiece coor- and the edges were selected, and the func- dinate (G54) was then established. Final- tion of edge milling was used to mill the ly, the NC program was sent into the designed shape. Finally, the processing CNC router to start the NC codes and parameters for spindle speed, cutting feed, begin the processing. The processing time and cutting depth feed, respectively 10000 for each board was 32 minutes (Su, 2009). rpm, 2000 m/min, and 1000 m/min, were The process is displayed in Figure 3, and inputted. The process started after all the the processed components are shown in processing parameters were set. The phys- Figure 4.

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Figure 2. Rod jointing

Figure 3. CNC router processing Figure 4. The components after being processed by the CNC router

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Assembly and Modification light at night and illumination for office workers going out early and coming back A potable trimmer was used to trim home late, just like saying “welcome and chamfer the processed boards. Putty home” to them. The contexts of use of this was then used to fill the dents of the milled product are displayed in Figure 6. surfaces. After the putty was dry, a sanding machine and #120~#180 sandpaper were used to sand the surfaces of the boards, which were then painted. The painting procedures were: PU primer paint for sealing → NC white primer paint → sanding → NC white primer paint → sanding → NC plain finish → NC plain finish. The assembly was carried out after the aforementioned procedures were accomplished. After the assembly, the height was approximately 430mm while the width was approximately 635mm. The final product is displayed in Figure 5. Figure 6. The contexts of use of the product

Conclusions

The process from sketch drawing to the completion of a chair was detailed in this study. Manufacturing a product by CNC routers and semi-automatic production methods will increase the yield and reduce the personnel costs. Moreover, CAD&M will help achieve production normalization, which enables the produc- Figure 5. The accomplished KD chair tion of products to have the same quality and specification wherever the place is, Contexts of Use whatever the country is, or whatever processing techniques the operators possess. This product is positioned as a shoes stool, which can be placed in the en- This study was focused on developing trance of a house for people to sit when capabilities to design and manufacture fur- putting on their shoes. The seat of the niture. The furniture industry in Taiwan product is slightly higher than that of gen- should jump out of the OEM role, improve eral shoes stools, so users can obtain the the automation, and establish individual center of gravity more easily and do not brands. However, they should not be only need to completely stoop when they are capable of designing one piece of furni- going to sit on the stool. In addition, the ture. The value of a piece of furniture is spiral design enables users to place their influenced by the functions, finesse, and feet on the most comfortable place (Su, structure except the appearance. When 2009). Furthermore, a bulb is installed in- people understand the manufacturing pro- side the stool, and a time switch is com- cedures and methods of furniture, they can bined, so the stool can be used as night- design furniture with appropriate structure

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and conforming to contemporary pro- sary to have twelve specifications of cessing technology. boards in total, and the offset angle of each board is only slightly different. It is thus It was found in this study that the op- necessary to apply CNC to the process, timal rotating angle of a KD chair is 7.5° and use semi-automatic production meth- since the overall shape will be the curviest ods to improve the yield and reduce the and smoothest. However, if a 7.5° rotating costs. angle is applied to a KD chair, it is neces-

References Tsou M. H. (2004). Woodwork Jointing Illus- trations (pp.187). Taipei: Xushi Culture Hsu, C. Y. (2010). SolidWorks2010 Official & Education Foundation. Training Guide (pp.12.2-12.10). Taipei: Chuan Hwa Books. Wang, H. H. (2006). More than Furniture (pp. 37). Taipei: Garden City. Jong, Y. S. (2009). Marketing Strategies of Taiwanese entrepreneurs to Invest in China – Case Studies of the Wood Furni- ture Industry. Outcome report conducted at the 2008 Teachers’ Seminar in the Cheng Shiu University.

Su, W. C. (2009). Computer Aided Manufac- turing (Handouts, pp.11). Forestry Sci- ence and Furniture Engineering Depart- ment, National Chiayi University.

Su, W. C. (2009). Ergonomics (Handouts, pp. 4.1-4.18). Forestry Science and Furniture Engineering Department, National Chiayi University.

Su, W. C. (2009). Furniture Design (Handouts, pp. 2-7). Forestry Science and Furniture Engineering Department, Na- tional Chiayi University.

Tai, M. C. (2003). A Study on the Value Inte- grator Model in Furniture Industry (Mas- ter’s Thesis). ，College of Management, National Taiwan University.

Tsou M. H. (1999). Overview of Taiwan's furniture industry - Taiwanese furniture Chronicle (pp.403-404). Taipei: Taiwan Furniture Manufacturers’ Association.

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SENSITIVITY ANALYSIS OF “BLACK-SCHOLES” OPTION INDEX IN INDONESIA

Irni Yunita 12 1Doctoral Program Student at Padjadjaran University 2Telkom University, Indonesia [email protected]

Abstract

The purpose of this research is to find the value of call and put option of LQ45 Index in Indonesia Stock Exchange with Black Scholes Model and to analyzed the sensitivity of index’s price with Delta, gamma, Vega, theta, and Rho. This research,using historical volatility to find the volatility.

The result shows that the volatility of the index LQ45 is 32%. There are 3 condition to find the price of call and put option. The price of call option and put option when SX is 90.89 and 76.91. The result of sensitivity analysis when S>X is : deltacall (0.68), Delta Put (-0.32), Gamma (0.0002011), vega (311.83), theta call (-0.24), Theta Put (-0.24), Rho call (192.53), and Rho Put (-105.67).

Key words: call option, put option, black scholes model, volatility, delta, gamma, vega, theta and rho .

Research Background and deregulation of global financial trade. One of derivative products is option, Derivative products have consider- which is based on the underlying asset. ably developed in the recent 20 years. This case is related to the need of finding a so- Option is a contract between an op- lution towards financial pressure as well as tion seller and an option buyer, in which financial marketing development. The use the option seller ensures that there is right of derivative as the investment means in (not obligation) of the option buyer to buy the capital market and financial trade has or sell particular stock in certain cost and increased followed by the development

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time (Tendelilin, 2001). Based on the assesses the call option which does not pay agreed form of stock, the option can be dividends and uses five variables; the grouped into two: call option and put op- standard stock, strike price (exercise price) tion. Call option gives the right towards which is the listed price on the option con- the holder to sell the stock in certain tract, expiration date which is the end date amount in the agreed cost and time. An- of the contract, volatility of stock price other securities form is put option which which is the risk indicator of the option, gives the right towards the owner to sell level of short-term interest rate, and the certain stock in certain amount, time, and expected dividends. The Black-Scholes cost. assessment of option is intended for Euro- pean option. Some foreign stock exchanges trade the option namely Chicago Board Basically, an investor uses the de- Option Exchange which is established on rivative to conduct the hedging against the April, 26 th 1973 by trading call option financial risk potency. In order to know where 16 stocks becomes underlying. Un- the magnitude of risk towards an option, til now, the total of option contract option so it is necessary to analyze the sensitivity volume indicates the increased tendency; to figure out what will happen on the op- there are 275.4 million option contracts in tion price if there is a change on the some 2002. It increased 25.45% compared to the variables which influence the option in- preceding year in 1999 which were cluding the stock price during the expira- 221.3% contracts. The development of option date, the volatility of stock price, the tion contract trade in other stock exchang- interest rate, and the duration of option es such as in Korean Stock Exchange also contract. indicates the enhancement of option contract trade volume. In 2002, there is an in- Based on the above elaboration, crement of option contract trade of this research aims to reveal (1) the intrinsic 2,264.05% whereas in 1999, 79.94 con- price of LQ45 index option by using tracts became 1,889.82 option contracts Black-Scholes method and historical vola- (www.bapepam.go.id ). tility approach in determining the volatility, (2) the magnitude of the stock option In Indonesia, Surabaya Stock Ex- price change which probably will happen change firstly introduced contract trade of if there is a change on the variables influ- stock index futures based on the stock in- encing them, so that it will be beneficial dex of LQ-45 in Jakarta Stock Exchange in for the investors to gain the knowledge 2001. Subsequently, Jakarta Stock Ex- before they invest their fund in option. change has traded stock futures namely Based on the aim of the study, the re- Stock Option Contract since October, 6 th searcher takes the research title. 2004. Some derivative instruments use underlying stock index of LQ-45. LQ-45 index has been recognized as the leading Literature Review stock benchmark in Indonesian Capital Market (Siahaan as cited by Hariani, Option 2010). Option is a contract between the option seller or writer and the option buy- One of call option assessment er, in which the option seller ensures that models which have been considerably used there is right (not obligation) of the option in financial domain is Black-Scholes mod- buyer to buy or sell particular stock in cer- el. This model was developed by Fischer tain cost and time. The engaged parties in Black and Myron Scholes in 1973. It option are the investors with the other in- The International Journal of organizational Innovation Vol 7 Num 1 July 2014 138

vestor. The stock securities publisher pects that market will go up so, s/he can companies (issuers) which is used as op- buy the buying option and vice versa if tion are not engaged (Tandelilin: 2001). s/he expects that market will go down, she can buy the selling option. There are two basic types of option (Hull;2006). A call option gives the holder Black-Scholes Model the right to buy the underlying asset by a certain date for a certain price. A put Black-Scholes model is a call op- option gives the holder the right to buy the tion assessment model which has been underlying asset by a certain date for a widely accepted by financial community. certain price. This model was developed by Fischer Black and Myron Scholes. The formula Index Option used is not so complex even it has been available on calculator and computer. The Black-Scholes model in assessing the call Index option is an option which is option which does not pay dividends uses directly associated with the index value five variables; stock price, strike price, exchange, which becomes the underlying of piration date, interest rate, and volatility of its asset. Index option gives a chance for stock price. There are assumptions of this the investors in transacting towards certain Black-Scholes model (Jogiyanto; 2010): groups not necessarily buying the whole group members’ stock individually (Kar- 1. The stock associated with the op- nadjaja: 2007). The index is counted based on the average of price change from each tion never pays the dividends during index member’s stock. the option. 2. There is no transaction fee to buy In addition to the options associat- and sell the option and the stock. ed with the certain stocks, option also can 3. The level of risk free interest is be associated with the value of index mar- constant during the option. ket, e.g. S&P 500 index, Nasdaq-100 in- 4. The stock buyer can borrow the dex, and other indexes. The option associated with this index value is called as stock short-term loan with the risk free in- index option. Stock index option can be terest. defined as the option associated with the 5. The short-selling is allowed and the value of index market. short-term seller will sell his/her stock based on the market price at that time. An investor can buy the buying 6. The option can be only exercised at option or the selling option for this stock index option. The investor can transact maturity. with this stock index option based on the 7. The liquid market and the trade of movement of the market. By buying this all securities can occur continuously. stock index option, the investor only needs 8. The stock market prices change to decide only based on the movement of randomly. the market. For instance, the investor ex-

The formulas of option assessment by using Black-Scholes model are:

C = SN (d 1) – N (d 2 ) Where:

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d2 = d l – s

C = call option price S = stock price X = strike price r = risk free interest rates of short-term t = time remaining until the expiration date (in years) S = standard deviation of stock prices N (.) = Cumulative density function of d 2 and d l. The value N (.) generated from Normal Distribution Tables.

By knowing the price of call option, we can calculate the price of a put option at strike price, expiration date and shares the same benchmark. In addition, we can also determine the price of a put option by using the formula below:

rt Cput = X / (e ) – S + C call

where:

Cput = price of put option Call = price of call option strike price X = strike price S = stock price r = risk free interest rate t = expiration date (in years)

Volatility. volatility is, the higher the risk which will be faced is. It is based on a risk concept Volatility is the statistic measure- namely high risk high return. ment of an instrument price (Butler: 1999). Return volatility is indi-cated by the return There are two main types of vola- standard variants or deviation. There are tility (Karnadjaja: 2007), they are histori- some different methods in implementing cal volatility and implied volatility. the measurement of volatility, each measurement has particular characteristics a. Historical Volatility (Best,1998).

The considerable volatility value Historical volatility is also known describes the extent of risk level which as statistical volatility measuring the ten- will be faced in the future. The infor- dency of the stock price change based on mation about this volatility works for the the past price change during the certain investors who will invest on the index in period. USA and Asia. The higher the value of

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b. Implied Volatility

Implied volatility is a number which measures the tendency of an option price change. Implied volatility describes the movement of stock price in future dur- Vega – Λ. ing the certain period. Vega is a measure of call price sen- Option Greeks sitivity towards the change of volatility. Vega value is the first derivative of call Greeks is a measure of call price towards spot price volatility ( σ). The high- sensitivity (Sunaryo, T: 2007). There are er the fluctuation of spot price is, the high- calculations of option sensitivity measure; er the option value is. Hence, the Vega they are Delta, Gamma, Vega, Tetha, and value is always positive (Sunaryo, T: Rho. 2006). For a European call or put option on a non-deviden-paying stock , vega is Delta – ∆. given by (Hull: 2006).

Delta is a measure of call price

sensitivity towards the change of basis asset price (spot price). Delta value is the Theta ( Θ). first derivative of call price (C) towards the spot price (S). It means that if S goes Theta is a measure of option price one unit, C price rose by delta (Sunaryo, sensitivity towards the change of maturing. T: 2007). The formula for European call Theta value is the first derivative of the option on a non-dividend paying stock can call price towards the remained time until be shown as (Hull: 2006). the maturing period. Option value will be higher if the maturing is still long. Thus, the option value will be smaller if the ma- For a europan put option on a non- turing becomes shorter (Sunaryo, T: 2006). deviden, delta is given by (Hull: 2006) : Theta is sometime referred to as the time decay of the portfolio. For a European call option of a non-dividend paying stock, theta can be shown as (Hull: 2006). Where :

N (.) = is the cumulative density function of normal distribution. For a European Put Option of a non Gamma – Γ. dividend paying stock, theta can be showm as (Hull: 2006). Gamma is a measure of delta sensitivity towards the change of spot price. Gamma value is the second

derivative of call price (C) towards the spot price (S) (Sunaryo, T: 2007). For a Rho ( ρ). European call and put option on a non- deviden-paying stock, the gamma is given Rho is a measure of the call price by (Hull;2006). sensitivity towards the change of interest

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rate. Rho value is the first derivative of Type of Research call price towards the interest rate. The rho value is positive. It means that the incre- The type of research conducted in ment of interest rate causes the call price this research is descriptive research. De- up. Otherwise, the decrease of the interest scriptive method according to Sekaran rate causes the call price down (Sunaryo, (2006) is conducted to be capable in fig- T: 2007). For a European call option of a uring out and explaining the characteristics non-dividend paying stock, rho can be of researched variable in a situation showm as (Hull: 2006). Based on the level of explanation, this research is included in quantitative descriptive research. According to Bungin For a European Put Option of a non (2006), “A quantitative research framed by dividend paying stock, rho can be showm descriptive format aims to reveal, sum up as (Hull: 2006). various conditions, situations, and variables emerging in society which become the research object based on what is happening”. Research Methodology Operational Variables

Table 3.1 Operational Variables

No. Variable Definition Formula rt 1. Call Option Intrinsic Value of 1 Ccall = SN (d 1) – X e- N (d 2) Value call option rt 2. Put Option Intrinsic Value of 1 Cput = X / (e ) – S + C call Value put option 3. Delta Delta for Call Option Non Dividend Stock

Delta for Put Option Non Dividend Stock 4. Gamma Gamma for Call Option dan Put Option of Non Dividend Stock 5. Vega Vega for Call and Put Option Non Dividend Stock 6 Theta Theta for Call Option Non Dividend Stock

Theta for Put Option Non Dividend Stock

7 Rho Rho for Call Option

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Non Dividend Stock

Rho for Put Option Non Dividend Stock Source: Data processing

Population and Sample 1. Literary Study Population. Literary study is about learning and comprehends the literatures, articles, other According to Sugiyono; 2007: 90, sources, and publishing which is relevant population is a generalisation area to the discussed problem through the liter- consisted of object or subject which has ary study, the obtained data is the second- certain quality and characteristic agreed by ary data which is used to establish the the researcher to be learned and then s/he strong theoretical foundation in order to draws the conclusion. Population in this support the used analysis. research is index of Indonesia Stock Exchange. 2. Data Survey

Sample. Data survey is about collecting the data from www.financeyahoo.com in the The sampling is conducted by us- form of daily index, from www.BI.go.id in ing non-probability sampling with purpos- the form of interest rate data. ive sampling method. Purposive sampling is a technique of sampling determination Data Analysis Technique with certain consideration (Sugiyono; 2010). In this research, criteria of sampling Period Determination. choice are determined as following: This research will use the daily in- 1. Index which has blue chips stocks con- dex information data with the period range sists of stocks with high liquidity and of 3 years; since January 2008 until De- capitalization. cember 2011. Option Contract Period. 2. Index which has daily data complete- This research will use option contract ness started on January 2008 until De- period which is six months. The contract cember, 30 th 2011. period is aimed to ease the investor who is accustomed with short-term and mid-term Sampling Technique period so it can be directly compared to the investment in the form of deposit and Data source used in this research is in the form of purchase of government secondary data, in which the data has been bank certificate. Risk Free Interest Rate. provided and published by particular party. The secondary data refers to the infor- Risk Free Interest Rate which will be mation collected from available sources used in this research is short-term interest (Sekaran: 2006: 60). The data is obtained rate, the interest rate set on short-term loan by: such as on markeTable securities published by government and finance institution. The assumption during the contract

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period is that the interest rate is constant, on the historical data (Jogiyanto, the sharp fluctuation does not occur. 2010). To calculate the stock actual return of each sample by using daily stock, it is Index Data Return . used the following formula: (Jogiyanto, 2010). Return Measurement:

Return is an outcome obtained from the investment. Actual return is the return that has occurred, calculated based

Pi t − Pi t − 1 Rit = Pt − 1

Where : Rit : actual return of stock i in day t Pit : stock price i in day t Pi t-1 : stock price i in day t-1

Volatility Calculation. sumption that the volatility occurred in the past will be applied In volatility estimation calculation continuously in the future.To in setting the European Model call option estimate volatility of a stock price for index, it will be used the historical vol- empirically, the stock price is ussually atility model. observed at fixed intervals of time. The ussual estimate,s, of the standard deviation The estimation with the his- is given by : torical volatility is based on the as-

Where : xi = daily return µ = mean of daily return N = Number of observations-1 i = 1, 2, 3, .... N

In option pricing, we usually The equation to find the standard measure time in years, and the deviation in year is σyear = volatility of an asset is ussulally σday √N. N is the number of trading quoted as a “ volatility per year”. days (Hull: 2006). In this paper, i

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assuming that N is 240 days of Call Option Calculation . trading. In this research, Black-Scholes Strike Price. model is used in implementing the call option value calculation. There is the deter- Strike price is denoted by X. This mination formula of call option: research conducts the discussion from the rt option buyer side (Long Position). The Ccall = SN (d 1) - X e- N (d 2) price used as the execution price (strike price) for each stock is the closing price on Put Option Calculation. January, 3 rd 2012. Put option calculation uses the following formula: Index Price. rt Cput = X / (e ) – S + C call The calculation of data is the closing index value at the end of the agreed contract, with the notation of S. There are Results three illustrations of index value. Condi- tion (1): the recent index value (S) is 5% Return indeks LQ45 greater than the strike price (X). Condition (2): the recent index value = the strike Calculation results of LQ45 price (X). Condition (3): the recent index index actual return can be seen in value (S) is 5% smaller than the strike Table 4.1. price (X).

Table 4.1 Actual Return Indeks LQ45

Date Close LQ45 Return LQ45 02/01/2008 596.55 03/01/2008 591.35 -0.00871679 04/01/2008 602.35 0.018601505 ...... 30/12/2011 673.51 0.00357 Source: Data processing

Based on the calculations, the - Negative value indicates a decrease in the actual return stocks during the event tock price on the day-t of stock price on period is positive, zero and negative. the day t-1. - Positive value indicates an increase in the stock price of the day-t from stock Calculation Results of Volatility price on the day t-1. By using Historical Volatility - Zero value indicates that stock price on method, the daily volatility value is the day-t is equal to stock price in the 0.02068. To obtain the annual volatility day t-1. In other words, stock price will value, 0.02068 x √240 = 0.320 = 32%. not be changed from the previous day.

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Based on this result, the standard deviation of annual LQ45 index return is 32%.

Calculation results of LQ45 index option value call and put

Table 4.1 Result for Call and Put Value Option Indeks LQ45

Life Risk Free Strike Price Current Volatility Call Value Put Value (03/01/2012) Price Expiration Rate

σ t r K S0 c p S

S=K 670.8 670.8 0.32 0.5 0.0575 69.55 89.12

S>K 670.8 704.34 0.32 0.5 0.0575 90.89 76.91

Source: Data processing

From Table 4.1, the value of 1 call than the strike price in each life of and put value is tends to increase from 1 expiration. month to 6 month life of expiration. The value of 1 call is higher than the value of 1 Sensitivity of call and Put option indeks put, it is because the current price is higher LQ45.

Table 4.2 Result for Delta, Gamma, Vega, Tetha, dan Rho SX Delta Call 0.51 0.59 0.68 Delta Put -0.49 -0.41 -0.32 Gamma 0.0002004 0.0001959 0.0002011 Vega 254.32 275.51 311.83 Theta Call -0.12 -0.17 -0.24 Theta Put 0.03 -0.03 -0.24 Rho Call 135.49 164.76 192.53 Rho Put -161.19 -132.02 -105.67 Source: Data processing

a. Delta From the Table above, the value of that when the index price changes by a delta call when S

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about 51% of that amount. If the index option will tend to go down by $0.51. For price goes up by $1, so the call option will the put option value it will be an opposite tend to go up by 0.51 x $1 = $0.51. If the from the call value. index price goes down by $1, so the call

Table 4.3 Option Value if the Current Index go up by $1 SX Call Option Value 51.59 70.15 91.56 Put Option value 103.69 88.71 76.59

Figure 4.1 Variation of Delta with Stock Price for (a) a call option and (b) a put option of a non-dividen-paying stock

Source : Data Processing b. Gamma c. Vega For condition (1) where S

Table 4.4 Option Value if the volatility increase 1% SX Inccreases in 2.54 2.75 3.11 Option Value Source : Data Processing d. Theta call option is -0.12. For the other For condition 1 (S

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According to Hull (2006), theta is ussually For condition 1 (S

Table 4.5 Option Value if the Risk free rates increase 1% SX Call Option Value 51.59 70.15 91.56 Put Option value 103.69 88.71 76.59 Source : Data Processing

References Karnadjaja, Agustino., Ong, Edianto., Wijaya, Chris., Tanujaya, Budi., Best, Philip. 1998. Implementing Value at Effendi, Janto. 2007. Smart Risk. Chicester: John Wiley & Investment for Mega Profit : Sons. Strategi Menuju Kebebasan Finansial melalui Investasi Stocks Burhan Bungin. 2006. Metodologi dan Options dengan Small Capital, Penelitian Kuantitatif . Edisi Low Risk, Liquid & Stress Free . pertama . Jakarta : Kencana. Jakarta : PT Elex Media Komputindo.. Butler, Cormac. 1999. Matering Value at Risk, Financial Time. Great Sunaryo, T. 2007. Manajemen Risiko Britian: Prentice Hall. Finansial . Jakarta : Salemba Empat. Eduardus Tandelilin. 2001. Analisis Investasi dan Manajemen Uma Sekaran. 2006. Research Methods Portofolio . Yogyakarta. BPFE For Business. Edisi 4. Buku 1. Jakarta: Salemba Hariyani, Iswi dan Serfianto, DP. 2010. Empat. Buku Pintar Hukum Bisnis Pasar Modal: Strategi tepat Investasi www.bapepam.go.id Saham, Obligasi, Waran, Right, opsi, Reksadana &Produk Pasarmodal Syariah . Jakarta : Transmedia Pustaka.

Jogiyanto. 2010. Teori Portofolio dan Analisis Investasi . Yogyakarta : BPFE.

John C. Hull. 2006. Options, futures, and Other Derivatives. Sixth Edition. Pearson Prentice Hall.

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STEPPING STONES TO SUCCESS: A COMPARISON OF STAKE- HOLDER GROUPS ON PERCEIVED BENEFITS REGARDING PROFESSIONAL CERTIFICATES IN GAMING MANAGEMENT

Wanching Chang, Ph.D. Department of Tourism I-Shou University Kaohsiung, Taiwan, R.O.C [email protected]

Jingxue (Jessica) Yuan, Ph.D. Department of Nutrition, Hospitality and Retailing Texas Tech University Lubbock TX, USA [email protected]

Abstract

This paper aims to explore how academic administrators, certified employees, and casino managers perceive the value of gaming management certificate programs using the methods of in-depth interview. A cross-group perspective was used to analyze and interpret the data collected in this study. It was hoped that the combination of academic and industry perspectives would generate a deeper understanding of an explanation for the perceived benefits of a gaming management certificate program. The findings overall revealed favorable perceptions toward the gaming management certificate programs, in terms of individual professional development and the increased rate of enrollment for the department. The discussion takes into consideration the literature on Taiwan’s higher educational system and gaming industry in Asian jurisdictions.

Keywords: Certificate program, Perceived benefits, Gaming education, Professional certificates

Introduction past decade, and other Asian countries have started to see that there are enough Most of the growth in casino expan- gamblers in China to support a larger gam- sion for the foreseeable future will take ing industry (Gardner, 2012). The casino place in Asia. Macau has become the top industry in Macau has exhibited phenome- gaming destination in the world over the nal growth on a scale never before wit-

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nessed in any gambling jurisdiction (Kale, lished level of performance (Fenich and 2007). With another twenty gaming pro- Hashimoto, 1995). jects opening within the next five years, Kale (2007) predicted the race to acquire Gaming management certificates are the appropriate labor for casinos will heat presently offered at colleges and universi- up even more, and within such a competi- ties, mostly within the United States, Can- tive market, gaming customers will have a ada, Great Britain, and Australia. Unfortu- choice, especially when it comes to cus- nately, a small number of certificate pro- tomer service. As casinos expand in Asia grams exist in Asian countries. The Uni- and customers are given more options as to versity of Macau and the Global Gaming destinations, there is an increased demand Expo (G2E), and the Asia Gaming Associ- for the number of trained and qualified ation are the only institutions currently employees in the gaming industry (Hash- providing certificate programs in gaming imoto, 2003). Cummings (1996) noted to- management. Taiwan is at the initial stage day’s casino employers often seek pro- in the development process of gaming spective employees who understand the management certificate programs. At pre- art, science, and business of gaming. sent, there is not one Taiwanese university Therefore, because of the rapid expansion offering a gaming management certificate of the gaming industry worldwide, and program, even though few universities of- with the resulting increase in gaming ca- fer gaming courses within their programs. reer opportunities, it has become increas- With the expansion of Macau and Singa- ingly important to address the need for pore casinos, over 100,000 job opportuni- gaming education (Ebner, 2002). ties are to be expected in the future as Asian casino labor markets expand. The Careers specifically within the gam- employment and career opportunities in ing industry require certain knowledge, the gaming industry appear strong. Tai- skills, and abilities. Principles for casino wan, as their neighboring country, has the operation and management skills differ potential to possibly provide trained em- from traditional operation and manage- ployees for the future Asian labor market ment theories. Accordingly, a single, gen- in the gaming industry. eral-purpose gaming course no longer addresses the needs of all professionals A review of related literature revealed working within increasingly diverse fields the demand is increasing for the number of (Hashimoto, 2003). Academic units have trained and qualified employees in this responded to this demand by offering field (Hashimoto, 1999; Ebner, 2002; highly specialized courses connected with- Cummings, 1996; Hashimoto, 2003). A in logical sequences designed to meet spe- shortage in the number of trained man- cific and diverse educational objectives. agement employees currently exists due to Certificate programming is rapidly becom- the lack of casino management certificate ing one method of focused competency- programs offered by institutions of higher based, continuing education. As developed education (Hashimoto, 1999). The ra- to date, certificate programs on gaming tionale for certificate programs, as it has management recognize this diversity in evolved nationally, seems clear enough. background and are developed to prove the Therefore, there is a need to gather infor- practitioner’s know-how in carrying out mation from Asian academic administra- the tasks associated with particular job tors, certified employees, and casino man- functions (i.e., dealing, floor management, agers in order to reveal various perspec- table gaming supervision, etc.) at an estab- tives and expectations of gaming management certificate programs. A better under-

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standing of this phenomenon would allow rect context. Holt (1988) first introduced Taiwanese educators to proceed from a the definition of a certificate program: more informed perspective, in terms of design and facilitation of gaming man- A certificate program represents a agement certificate programs as part of sequence, pattern, or group of courses hospitality education in Taiwan. In order or contact hours that focus upon an area to understand this phenomenon, the study of specialized knowledge or information addressed four research questions: and that are developed, administered, and evaluated by the institution’s faculty 1. How do academic administrators per- members or by faculty-approved profes- ceive and what do they expect from a gam- sionals. (p. 1) ing management certificate program? Certificate programs provide in-depth 2. What expectations of perceived bene- training through a sequence of required fits do certified employees have of gaming and elective courses in a particular area of management certificate programs? concentration. They provide opportunities for individuals to acquire knowledge and 3. How do casino managers perceive cer- develop skills, which enable the develop- tified employees in terms of their profes- ment of predetermined practice competen- sionalism? cies (Kirk, Joyner, Lee, & Oles, 1998). Walshok (1991) regarded a certificate pro- 4. Are there any discrepancies between gram as an alternative to, or as a step be- these three groups? yond the substance of traditional degree programs, and believed they are designed With the findings of this study, edu- to serve educational purposes different cators will be able to identify the skills and from those served by a general degree. knowledge that employers in today’s gam- Hashimoto (1999) claims intelligent action ing industry find essential, and they will be can expand hospitality graduate career op- able to design appropriate gaming curricu- portunities, resulting in the development of lum which will enable the students to ob- a well-educated workforce and a solid tain the skills and knowledge deemed most foundation for game management within important. Once the gaps are bridged, pro- the gaming industry. gram planners will be able to direct their efforts toward teaching the skills and The perceived benefits of certificate knowledge today’s gaming industry em- to stakeholders ployers are looking for. Certificate programs have some ad- Literature Reviews vantage for universities and colleges in attracting new students and by increasing Certificate Programs versus Certification the ways that institution can meaningfully serve business and industry (Robinson, The term “certificate program” is a 1991). One of the benefits of certificate is troublesome piece of educational taxono- its effect on recruitment and retention of my. There is often a great deal of confu- students (Shirey, 2005). Murray et al. sion associated with the term certification. (2011) indicated that developing certificate In an effort to help clear some of this con- programs can be a successful recruiting fusion, distinctions between certificate and tool for academia, aiding students in find- certification need to be recognized in order ing a strong job. to place “certificate program” in the cor-

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There are several psychological and Hashimoto (2003) conducted a study financial gains for certified individuals. to examine casino managers’ perceptions The perceived benefits for individuals regarding the certification on gaming man- tended to be intangible, including greater agement. Casino managers were ambiva- personal satisfaction, respect and recogni- lent to the idea of certified employees be- tion, increased professional competence, ing rewarded by higher compensation, and improved self-esteem and self- faster promotion, higher entry-level posi- confidence (Morrison, 1993). More im- tions or preferential hiring, they believed portantly, gaining a certificate to oneself certificates should be created to improve demonstrates goal attainment and lifelong employee’s quality and performance. learning. For individuals, they may experience personal growth, a sense of accom- To sum up, certificate programs offer plishment, and recognition by successfully an employee-friendly, but results-oriented completing the program (Haskins, Hnati- system for directing today’s employees uk, & Yoder, 2011; Wade, 2009; Glad- toward long-term growth and development felter, 2006; Byrne, Valentine, & Cater, of the individual and the firm (Murray et 2004; Cary, 2001). Both business and inal., 2011). The collaborations between dustry fields view successful completion universities and industry benefit all stake- of certificate programs as an indicator of holders by recruiting students to academia one’s commitment to the profession, im- and then placing those students into em- proving one’s career opportunities and ployment opportunities after completion of chance for advancement and preparing for a certificate program in any professional- greater on the job responsibilities (Settle, ism. 1991). Besides, Certificate programs also provide excellent opportunities for affilia- Method tion within the industry network. The certificate program was a helpful mechanism Sampling framework for developing relationships with academic educators and classmates working in the In order to generate a deeper under- industry, and for gaining exposure among standing of an explanation for the per- the many human resource recruiters and ceived benefits of gaming management practitioners within the field (Settle, 1991). certificate program from academic and industry perspectives, A series of in-depth Certification can be a benefit to em- interviews were conducted with five casi- ployers as well. A business benefits when no hotel employees and managers in Ma- an employee acquires and demonstrates cau, China and with four academic admin- additional knowledge and competence. istrators in Taiwan. Nine participants were Because certified employees attain addi- selected based on criteria regarding their tional skills and increased knowledge, experience and professional qualifications, which assures service quality to their cus- as presented in Table 1. Six males and tomers. For business and industry profes- three female participated in the study. The sionals, the primary measure of the value half of participants was aged between 30- of a certificate program is the development 39 years old and college-educated or of competence, not the diploma, because above. Three participants have 6 to 10 competence translates to better products years teaching or working experiences. and services from employees (Caird, 1992).

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Table 1. Table of Sampling Framework (N=9)

Number of Participants Selection criteria participants Academic − Those academic administrators who have 4 administrators taught in Hospitality and Tourism related programs for more than five years. − Those academic administrators who have held their present position for at least two year. − Those academic administrators who were the key decision makers in curriculum planning for their program. Certified em- − Those certified employees who had been 3 ployees awarded a gaming management certificate within the past three years; − Those certified employees who had held their present position in the casino for at least one year. Casino man- − Had been working in the position of manager 2 agers for more than 3 years

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Data collection and analysis checking, and debriefing to enhance trustworthiness. The interview questions were designed and worded differently in order to Three different categories of partici- create three separate question sets for the pants (academic administrators, certified three groups of participants. These three sets employees, and casino managers) were in- of questions eventually formed the triangu- terviewed to enhance trustworthiness. Be- lation from participants’ responses. The av- sides, the critical incidents technique was erage length of each interview lasted 60-90 employed in the in-depth interviews and minutes. In conducting semi-structured in- served as a “validity check” for certain as- terviews, the researcher asked key questions pects of the data uncovered in the inter- in the same way each time and did some views. Several types of data were analyzed probing to encourage the participants to by comparison and contrast performed at elaborate further. If the participant’s re- various levels in order to check for emerging sponse was brief or unclear, probing ques- themes. In the process of member checking, tions were used to encourage them to elabo- each participant was requested to review a rate on their answer and explain why or summary of the data analysis procedure and how. a summary of the final results of the inquiry. They were able to answer or offer additional To begin organizing the data, the re- comments on whether or not they believed searcher listened repeatedly to the audio re- the data was interpreted in a manner congru- cordings and transformed each into verbatim ent with their perceptions. And, last verifica- transcripts of interviews. All interviews tion procedure involves asking a colleague were transcribed verbatim and pseudonyms to examine the research design of the study. were assigned to the various respondents to guarantee anonymity and confidentiality. Discussion, Implications and Recommendations

The data were analyzed qualitatively, look- Findings pertaining to the first re- ing for themes against the research ques- search question identify the perceptions of tions. These themes were then categorized three sampling groups regarding the value of and developed into higher-order themes, gaming management certificate programs. which serve as headings in the presentation Overall, favorable perceptions were revealed of the results from the study. toward the certificate programs, as displayed in increased enrollment and individual pro- Issues of Trustworthiness fessional choice.

The aim of trustworthiness in a Increase enrollment qualitative inquiry is to prove the inquiry’s findings are “worth paying attention to” As far as the department is con- (Lincoln & Guba, 1985, p.290). In other cerned, increased enrollment rates are the words, it refers to whether the participants’ number one priority and benefit brought on perceptions match up with the researcher’s by the development of a gaming manage- portrayal of them (Bloomberg & Volpe, ment certificate program. One participant 2008). In this study, the researcher applied agreed that the increased enrollment rate is multiple data collection methods, member the priority benefit by stating “we found that

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many students choose our department as field. Moreover, such a program offers stu- their major because they see there are some dents the opportunity to master their gaming gaming courses included in our program.” skills and increase their knowledge in a sup- Programs are encouraged to create distin- plemental specialty combined with their ex- guishing features so they are able to com- isting profession. As an additional benefit, pete within other universities in the same students are able to strengthen their position professional fields. One participant reflected and increase their competitive advantage this view by stating: within the future job market. Students have recognized by being prepared in a certain Well, as you know, there are less and field, with current employment opportuni- less students we can recruit because ties, they may be able to add a certificate to of the low birth rate. Even our de- their resumes and become marketable can- partment, with its long history and didates for positions (Gordon, 1987). One of good reputation, still needs to com- the academic administrator participants gave pete with other universities to recruit an example to illustrate his view: more students so that our university can survive. By developing the gam- We found some students who took the ing courses, we can increase our gaming courses last semester, major- competitive advantage in recruiting ing in Hotel Management, realized new students (interviewee, male). most casino-hotels combine lodging and casinos. Also, some students ma- Typically, most departments attempt joring in Travel Management are in- to be distinguished by offering distinctive terested in gaming courses because curriculum features. However, the parameter they have the need to understand the of practicality and relativity of the curricu- gaming industry as their supple- lum is the prior consideration for perspective mental specialty in case there may be students. Holt (1991) gave credence to this some members of an escorted tour perspective when she said: “The certificate interested in asking something about program focuses on areas of specialized the casinos. knowledge or information and contains a number of courses to meet the occupational, The certified employee participants professional, or personal improvement needs provided some important insights into the of well-defined audiences.” As a result, cer- value and personal worth of certificate pro- tificate programs represent an excellent op- grams as a mode of learning. Many are con- portunity for individuals to grow profession- ceived as a result of increasing specializa- ally. tion of careers and individual needs for ad- vancing job skills (Lopos, 1991). This re- Enhance the professionalism of individuals flects the statement of how Gonnella and Zeleznik (1983) define the goal of certificate The sampling group of academic programs. They believe the goal of continu- administrators showed confidence those stu- ing education is to ensure the development dents who have completed gaming courses of proficiencies that can be translated into can better distinguish themselves over those professional performance. Individuals who who have not. They also believe these stu- enroll in certificate programs recognize dents fully recognize what skills and these support factors as economic benefits. knowledge are necessary for working in the As Lopos (1991) noted, higher wages and

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promotions are the most tangible economic considerations within a particular geograph- benefits that accrue from participation in ical area so that it is able to benefit students certificate programs. and allow them to acquire and demonstrate the learned knowledge and skills within their The second major finding offered by future gaming career. this study indicates the majority of certified employees reveal favorable effects regarding The third research question indicated their individual professional advancement, some requirements, in terms of language and their practical needs related to curricu- ability and learning attitude, are valued by lum design can be linked to the difficulties casino managers. Surprisingly, casino man- encountered by academic administrators. agers do not place a large emphasis on the Each participant provided positive feedback necessity of a gaming management certifi- in relation to the overall program. All three cate, partly because the Macau government of them agreed they did learn a great fully supports training programs and pro- amount, but they were not 100% satisfied tects local residents’ rights for employment. with their courses. Regarding course con- There was a consistent thread of employer tent, the findings indicated the participants support from the participants’ respective ca- place higher value upon practical-based sinos when they decided to return to class. courses than theory-based courses when re- The employer s’ strong support and personal lated to the gaming curriculum. That is, the enrichment contributed to the motivation of participants valued the practical nature of enrolling in the program (Lopos, 1991). Alt- the courses and the real examples instructors hough casino managers seem to view the used during their lessons. gaming certificate as not a requirement for job employment, they still have a positive Most Participants prefer practical- attitude toward an employee’s participation based courses because they believe the in the program. One casino manager de- knowledge they have gained from these scribed the fact: types of courses can immediately be applied to their career and help to their job perfor- If someone wants to get a job as a mance. “Especially those courses which fo- dealer, no certificate is necessary. In cus on managing the various relationships fact, casinos don’t really care wheth- among colleagues or subordinates, and on er the employees hold a certificate or improving the quality of customer service” not. What they really care about is reflected by one participant. In addition, the the attitude and the spirit of service. participants suggested some very distinctive As long as the employed are willing courses be added to the gaming curriculum. to learn and love the job, everyone The focus of these courses specifically em- can be trained to be a qualified emphasizes moral issues, language ability, ployee. working attitudes and casino etiquette. Here, he indicated a behavioral di- There are multiple factors affecting mension, “willing to learn,” that is important the integrity of certificate programs. A well- to most employers. As employees seek to designed certificate program should be able enhance their career by enrolling in certifi- to justify itself in order to meet the needs of cate programs, this capitalizes on their inter- the program and its constituents. It must nal motivation to achieve professional com- adapt to appropriate cultural and regulatory petence and recognition by professional

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peers (Settle, 1991). Besides, casino manag- has come for hospitality educators and pro- ers indicated a higher value should be place fessionals to recognize gaming management upon the importance of language within the certificate programs as an integral part of curriculum. As globalization increases and hospitality education and to include a sector as casino players become even more cultur- in the curriculum tailored toward preparing ally diverse, they believe human resources qualified employees for a gaming career. managers will prefer hiring someone with Although gaming education and training the ability to speak multiple languages over needs, at present, are not being given much those who don’t. attention by most academic institutions in Taiwan, the study contributes valuable in- Last, the overall results from this formation for Taiwan’s educators to use as study revealed favorable perceptions toward they thoroughly evaluate the feasibility of gaming management certificate programs gaming management certificate programs. from both academic and industry perspec- Clearly, the findings of this study make it tives, though different groups placed empha- evident the gaming management certificate sis upon different types of courses. Their program is an excellent alternative with inputs emphasize on their respective needs great potential for expanding continuing ed- the current program doesn’t satisfy. What ucation programs, while also satisfying both the certified employees suggested becomes individual career goals and educational the platform the program planners should needs. utilize in order to make the program more complete; what the casino managers sug- Limitations of the study gested becomes the basic requirements future employees should meet in order to get This study contains certain limiting the position. It is essential all inputs provid- conditions. Because analysis ultimately re- ed by the three different sampling groups be lied on the thought and choices of the re- valued in the planning and implementation searcher, one of the key limitations of this process. Walshok (1991) shed light on the study is the issue of subjectivity and poten- importance of the input from program bene- tial bias regarding the researcher’s own per- ficiaries in the design of a certificate pro- ceptions. The study sites may affect the find- gram. The involvement of beneficiaries, in- ings of this study as well. The results of this cluding institutional and individual, affects study need to be interpreted within the more than just program content. They can unique sociocultural, geographic, and aca- provide valuable input on the timing, se- demic contexts of the participants. The dif- quencing, and method of delivery for vari- ferences between Taiwan and Macau exist ous components of the program. As such, not only in sociocultural perspectives, but program planners must work collaboratively also in the development of casinos. The lev- with the beneficiaries of the certificate pro- el of expectation among participants may gram to ensure appropriate content and to need to be considered between the countries arrive at a shared definition of quality. without casinos and the countries with casinos. Taiwan’s academic administrators may A conclusion to be drawn from the hold higher expectations than the individuals overall findings of the study is that, the time who live in a developed gaming city.

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References Fenich, G. G., & Hashimoto, K. (1995). Teaching casino gaming. Hospitality Bloomberg, L. D. & Volpe, M. (2008). and Tourism Educator, 7(4), 63-64. Completing your qualitative dissertation: A roadmap from beginning to Gardner, A. (2012, July 9). Asian casino in- end. Thousand Oaks, CA: SAGE dustry expanding as Taiwan ap- Publications, Inc proves gaming resort. CasinoGam- blingWeb.com, Retrieved July 9, Byrne, M., Valentine, W., & Carter, S. 2012, from (2004). The value of certification - A http://www.casinogamblingweb.com research journey. AORN Journal, /gambling-news/gambling- 79(4), 825-835. law/asian_casino_industry_expandin g_as_taiwan_approves_gaming_reso Caird, S. (1992). Problems with the identifi- rt_57877.html cation of enterprise competencies and the implications for assessment Gladfelter, J. (2006). Nursing certification: and development. Management Edu- Why it matters. Plastic Surgical cation and Development, 23(1), 6- Nursing, 26(4), 208- 210. 17. Gonnella, J. S. & Zeleznik, C. (1983). Cary, A. (2001). Certified registered nurses: Strengthening the relationship be- Results of the study of the certified tween professional education and workforce. American Journal of performance. New Directions for Nursing 101(1), 44-52. Adult and Continuing Education, 18, 59-72. Cummings, L. E. (1996). Educating for the gaming industry: Need, profile, and Gordon, J. D. (1987). An experimental suggested schema. Gaming Research course in elements of digital com- & Review Journal, 3(2), 39-51. puter technology for the training of computer programmers. Dissertation Ebner, S. R. (2002). Identification of gaming Abstracts International, 48, 01A. management competencies and attitudes toward inclusion of courses in Hashimoto, K. (1999). Developing a nation- Mississippi postsecondary institu- al gaming management certification: tions of higher education. Un- An examination of gaming class published Dissertation, The Univer- product life cycles, core subjects, sity of Mississippi. and industry needs assessment. Uni- versity of New Orleans.

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Hashimoto, K. (2002). Casino managers' Lopos, G. J. (1991). Certificate programs: perception of the need for a national Alternative ways to career advance- gaming management certification. ment and social mobility? In M. E. Journal of Hospitality and Tourism Holt & G. J. Lopos (Eds.), Perspec- Education, 14(4), 33-40. tives on Educational Certificate Pro- grams (pp. 87-97). San Francisco: Hashimoto, K. (2003). Certification of Man- Jossey-Bass. agers: Upgrading the Casino Indus- try. Journal of Hospitality and Tour- Morrison, A. M., Hsieh, S., & Wang, C. ism Education, 15(2), 30-35. (1992). Certification in the travel and tourism industry: the North Ameri- Haskins, M., Hnatiuk, C.N. & Yoder, L.H. can experience. The Journal of Tour- (2011). Medical Surgical nurses per- ism Studies, 3(2), 32-40. ceived value of certification study. MedSurg Nursing, 20(2), 71-93. Murray, S. L., Long, S. K., Elrod, C. C., & Akula, S. (2011). The value of grad- Holt, M. E. (1988). About certificate pro- uate certificate programs in Engi- grams. In G. J. Lopos, M. E. Holt & neering education: A strategic as- R. E. Bohlander (Eds.), Peterson's sessment. American Journal of Engi- guide to certificate programs at neering Education, 2(1), 51-62. American colleges and Universities. Princeton, N. J.: Peterson's Guides. NTUST open lotto, gaming research center (2007, Nov. 30). The China Post. Re- Kale, S. H. (2007). Internal marketing: An trieved from antidote for Macau's labor shortage. http://www.chinapost.com.tw/taiwan UNLV Gaming Research & Review /national/national%20news/2007/11/ Journal, 11(1), 1-11. 30/132981/NTUST-opens.htm

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SERVICE CLIMATE, SERVICE CONVENIENCE, SERVICE QUALITY AND BEHAVIORAL INTENTIONS IN CHAIN STORE RESTAURANTS

Cheng-Kai Chou Department of Food and Beverage Management, Tatung Institute of Technology, Taiwan

Po-Hsuan Wu (corresponding author) Department of Baking Technology and Management, Tatung Institute of Technology, Taiwan [email protected]

Ching-Yuan Huang Department of Food and Beverage Management, Tatung Institute of Technology, Taiwan

Abstract

This study aims to investigate the structural relationships among service climate, service convenience, service quality, and behavioral intentions in the chain store restaurants. Based on a theoretical background literature review, we are paying attention to investigate how to improve service quality on service to customers and how to provide them the best service by focusing on service climate and service convenience. Moreover, behavioral intention is also influenced by service quality. The proposed model was then tested employing data collected from 315 customers of chain store restaurants. The results of subsequent analysis of the data indicated that each construct has positive influence on each other. The findings suggest that service quality is perceived to be the most important factor and managers of restaurants should further understand about customer behavior to improve service quality in order to create value and satisfy customers.

Keywords: service climate, service convenience, service quality, and behavioral intentions.

Introduction Basically, delivery quality service to users Today’s customers have begun to or customer is seen as the essential determi- demand what is good with high quality and nant of business success and survival in to- convenience as an important part of service. day’s competition in service industries (Ug-

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boma et al., 2007). Hence, to this date there ty, service convenience and service climate are dozens of studies have been conducted and it also intent to know about the influ- in hope of understanding more about ser- ence of service quality on customer behav- vices in the services industry and related to ioral intentions. Finally, we expect that this businesses. study can provide useful information and implication on how service convenience and Existing practitioners and academi- service climate can enhance service quality cians have long noticed that perceived wait- and whether service quality can influence on ing time have great influential impact on customer behavioral intentions in chain store how services are assessed (Taylor, 1994). restaurant service in Taiwan. Many researchers have long noted consumers’ interest in conserving time and effort. Based on the research backgrounds This has encouraged the development of un- and motivations mentioned earlier, this derstanding on the convenience goods and study attempts to conduct and develop the services, increased advertisers’ promotion of research objectives as the following: 1. To time-oriented benefits of their products and examine the influential of service climate services, and motivated consumers to use and service convenience on service quality. convenience as a basis for making purchase 2. To investigate impacts of service quality decision (Katz et al., 1991). Berry, Seiders, on its outcome such as customer behavioral and Grewal (2002) emphasized that service intentions. convenience is conceptualized as consumer’s perception of time and effort related to Literature Review And Development buying or using a service. The authors dis- Of Hypotheses cussed the perception of time and effort, and finally they conceptualized convenience of Service Climate five main dimensions: decision convenience, access convenience, transaction conven- Little and Dean (2006) replicated ience, benefit convenience, and post-benefit that service climate in build on the basis of convenience. These convenience types re- keeping an eye on customers and the other flect stages of consumers’ activities related on employees. Moreover, Schneider et al. to buying or using a service. Furthermore, it (2006) said that climate is of the information is still beneficial to reach more comprehen- processing from various stimuli the people sion of service employees’ behaviors which do encounter at work. They further empha- are supposed to help control the perception sized that climate is a summary impression of time and effort during the service con- employees have about “how we do things sumption. around here” or “what we focus on around here” or “what we direct our efforts to As mentioned above, both practi- around here”. Moreover, climate is of the tioners and academic examinations have put shared common psychological identify, and great effort on the studies on quality of ser- this identify appears aligned with the way vices and services convenience. Conse- service quality is done. Obviously, employ- quently, there is still opportunity to examine ees may be seeking to understand character- and understand more about restaurant ser- istics of their workplace are really a service- vice. Additionally, this study intent to ex- oriented company, and what activities con- plore customers’ perception of service quali- stitute a service-oriented climate.

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Interestingly, Schneider et al. (2006) ments of non-monetary costs the consumers also reported results from the focus groups spend. These costs tend to be high during that employees will treat customer fairly such time as self-service and people- with the way company treat them. More im- processing service, traveling to the service portantly, they identified that there are four site, wait for service, figure out queuing sys- major components of service climate: foun- tems and service process etc. dation issues, internal service, clues and cues employees observe happening around The marketing literature has empha- them with the focus on service quality, and sized the importance of consumer’s desire the behavior on the part of employees that for convenience and the value of time. Time yields customer satisfaction, loyalty and or time-investment service of customers of- sales. Little & Dean (2006) examined and ten have hedonic value, which is especially added one more dimension to the Schneider relevant to discretionary activities pursued et al. service climate. Human resource man- for their own sake rather than as a means to agement was their choice, which was con- another goal (Holbrook & Lehmann, 1981). cerned specifically with the policies, proce- Many researchers argue that consumers seek dures, and resources to support frontline to conserve cognitive effort (Fennema & staff. This new factors also emphasize the Kleinmuntz, 1995). Whereas cognitive effort training, problem-solving, and the role of associated with purchase decisions is ex- customer-contact employees. pended for both goods and services, physical and emotional effort may be greater for ser- In this study the service climate is vices in which consumers participate in the defined as the employees shared perceptions production process. According to Hui, Tha- of practice, procedures, and a set of behav- kor, & Gill (1998) the more effort spent by a iors that get rewarded, supported, and ex- service consumer, the stronger is that con- pected with respect to customer service and sumer's commitment to the service outcome customer service quality, and which are and the higher is the potential for frustration. simultaneously concerned with their own and their customers’ well-being. Berry et al., (2002) concluded that if the time and effort the consumers spend dur- Service Convenience ing the service consumption can be reduced, the five dimensions of convenience can be Consumers’ perceptions of service positively and desirable affected. It can be convenience is time and effort required to said that the consumers may find it conven- buy or use a service. Time and effort are ient to make buy or purchase decision, to non-monetary cost consumers must bear to process the transaction, to see how much receive the service. Customer assessment of benefit will be in an their exchange, to know time expenditures is both objective and sub- how hard to have access to the service, or to jective (Davis & Vollmann, 1990; Hornik, see of it is still worthy after consuming the 1993). Additionally, Lovelock, Writz, Tat service. Keh, & Lu (2005) explained the non- monetary costs the consumers spend on buy- Based on Expectancy Theory’s ar- ing services. The time, effort, and discom- gument (Robbins & Judge, 2007), it is con- fort associated with search, purchase, and cluded that people tent to exert a higher lev- use of a service are referred to as the ele- el of effort when they believe the effort will

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lead to a better appraisal with rewards or mail, 2005; Ugboma et al., 2004). recognition, which will lead to satisfaction of final personal goal. In addition, as men- The role of service climate in service tioned above (Mowday et al., 1979) employ- organizations is associated with shaping or ee commitment in term of employees beliefs creating single idea of what good, efficient in the goals and value of the organization, delivery of service quality is (Dietz, Pugh, & their willingness to exert effort and their in- Wiley, 2004) and repeatedly, has shown tention to maintain membership of organiza- links between employees’ service climate tion. Thus, the following hypothesis is pro- perceptions and customer perceptions of sat- posed: isfaction with evaluations of service provided. Schneider et al., (1998) argued that the H1: Service climate has a positive way employee perceives the service climate effect on service convenience. in their organizations is positively related to customer satisfaction with the quality of ser- Service Quality vice. Moreover, in service quality literature found that organizations must create and Caceres and Paparoidamis (2007) maintain a climate for service in order for declared that a perception of service quality employees to effectively deliver excellent is a result of a comparison between what service. On this basis it is hypothesized that: customer consider the service should be and their perceptions about the actual perfor- H2: Service climate has a significant mance offered by the service provider. Simi- effect on service quality. larly, Parasuraman et al. (1985) also defined service quality as the comparison between There are many factors that cited as customers ‘expectation and perception of influencing consumers’ perceptions of wait- service. In addition, they suggested the un- ing. Those are service, facility, information derlying themes after examination of the provided by the firm, customer characteris- previous writing and literature on service. tics (Taylor, 1994). Waiting for service is a In the past research, many authors have pervasive and often unavoidable experience linked service quality to the firm’s perfor- for customers and appears to be a strong de- mance and customer satisfaction (Cronin & terminant of overall satisfaction with service Taylor, 1992) and behavioral intention and customer loyalty (Hui & Tse, 1996). As (Boulding et al., 1993; Zeithaml et al., customer satisfaction with the service will 1996). Knowing that SERVQUAL as a spe- be affected by the perception of waiting, an cific instrument for measuring service quali- alternative approach to queuing is to find ty (Parasuraman et al., 1988). They also ar- ways to make time pass as quickly and gued that there are only small difference be- pleasantly as possible (Pruyn & Smidts, tween SERVQUAL and SERVPERF (Par- 1998). Berry et al., (2002) suggested that asuraman et al., 1994). The SERVPERF is service failure can affect decision conven- measurement of customer’s perception of ience if a consumer is given incorrect infor- the performance of a service and it provides mation. And for access convenience if an adequate assessment for service quality online connection fails or parking area has (Cronin & Taylor, 1992). Generally, the no vacancies, transaction convenience if an SERV-QUAL has been successfully used in incorrect price is charged and its correction many differences sittings (Tahir & Wan Is- delays a consumer, and benefit convenience

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if a dining experience is flawed by unre- sponsive service. On this basis it is hypothe- Quantitative Data Collection sized that: Participants. H3: Service convenience has a significant effect on service quality. The sample of this study focuses on the customers of chain store restaurants. Behavioral Intention Questionnaires were administered with the sample being randomly selected from a cer- Behavioral intentions can be cap- tain college in Taipei. Students from all are- tured by such measures as repurchase inten- as of Taiwan respond to the questionnaire by tions, word of mouth, loyalty, complaining their own actual consuming experience behavior and price sensitivity (Zeithaml et within the chain restaurants. The question- al., 1996). Moreover, they argued that be- naires finally yielded 391 finished question- havioral intentions can be seen as an indica- naires. Out of these, 315 were usable. tor, which showed whether customer decides to remain with or defect from the company. Measuring Tools . Boulding et al. (1993) mentioned that customers were positively related with willing- The measurement instrument was ness to recommend and negatively related designed based on various previous studies. with switching and complaining behavior. All the questionnaire items were measured As viewed by the customer, high service on a five point scale. Respondents were quality often leads to favorable behavioral asked to indicate their level of agreement intentions while a low service quality tends toward each statement, from 1 (strongly dis- to lead to unfavorable behavioral intentions. agree) to 5 (strongly agree). The more positive of customer experience, the more likely customer willing to contin- Service Expectation . ues to use company’s service again. According to Little & Dean (2006), According to high service quality the employed 35 items of 5 factors, those are often leads to favorable behavioral intention general service climate (GSC), customer while a low service quality tend to unfavor- orientation, customer feedback, HRM, and able behavioral intentions (Olorunniwo et managerial practice. Hence, in this study is al., 2006). Many authors conclude that ser- to adapt from Schneider’s et al., (1998), this vice quality has direct links to behavioral frame expects that the GSC can be used to intention. Furthermore, Cronin et al. (2000) investigate service climate, by referring to emphasized that the direct link between ser- the previous researches (i.e., Little & Dean, vice quality and behavioral intention is sig- 2006). nificant. On this basis it is hypothesized that: Service Convenience . H4: Service quality is positively influenced on behavioral intentions. This study uses Berry’s et al., (2002) scale to be the best choice. The service convenience has five main factors (decision Methodology convenience, access convenience, transac-

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tion convenience, benefit convenience, and structure equation model (SEM) was used. post-benefit convenience) and each factor The criteria of Chi-square, GFI, AGFI, CFI, has three items. Totally, there are 15 items RMR, and RSEMA were used to evaluate are adopted. the overall goodness of fit of the model. Ac- cording to Hair et al. (2010), the value of Service Quality. overall fit of a hypothesized model can be regarded as appropriately significant when This study adapts Cronin’s et al., each criteria Chi-square is small (p val- (2000) that has 9 questionnaire items. The ue>.05), and fit indices such as the ratio of reason to adapt the scale by Cronin et al., Chi-square to degrees of freedom (Chi- (2000) is that it is reliable and valid measure square/d.f. ≤2); goodness of fit index of service quality. (GFI>.9), and adjusted goodness of fit index (AGFI>.9); root mean square residual Behavioral Intentions. (RMR<.1), and root mean square error of approximation (RMSEA<.08) are all ful- In order to measure behavioral in- filled. The result of confirmatory factor tentions, the study adapts the three items ac- analysis (CFA) produced evidence of an according to (Cronin et al., 2000; Taylor & ceptable fit of the model (Chi-square= Baker, 1994; Zeithaml et al., 1996). 427.68; df =243; p=.00; Chi-square/df=1.76; RMR=.04; GFI=.91; AGFI = .92; RMSEA = Purification and Reliability of .08). Parameter estimates of the final model Measurement Variables were inspected and no problematic occasions were found. To purify the measurement scales and to identify their dimensionality, princi- Results pal components reliability test with Varimax rotation was applied to condense the collect- Quantitative Data Analysis ed data into certain factors. After reliability test, we used item-to-total correlation and The results showed that the typical internal consistency analysis (Cronbach’s respondent was male (46.1%), between 20- alpha) to confirm the reliability of each re- 29 years of age (39.2%) or 30-39 years of search factor. According to Robinson and age (32.7%), and had completed university Shaver (1973) if α is greater than .7, the var- degree (67.8%); female (53.9%), between iable has high reliability, and if α is smaller 20-29 years of age (40.3%) or 30-39 years than .3, it implies that there is low reliabil- of age (33.8%), and had completed universi- ity. The reliability of four latent variables ty degree (74.7%). Moreover, the majority was investigated by calculating Cronbach’s of respondents worked in professional jobs alpha. The range of the values was between (47.2%), and earned a monthly income of .83 and .91, which indicated all measures 40,000 to 50,000 NT (37.8%) or 50,000 to were quite reliable. 60,000 NT (27.3%).

Structural Equation Model Assumption Test

In order to find out the relationship The hypotheses in this study were in the whole research model in this study, a tested by using Structural Equation Model-

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ing. The resulting measurement model has work. Furthermore, they should understand Chi-square /df equal to 1.76 and all values in well whether which factors (i.e., service the model reflect acceptable fit of the data. climate and service convenience) can im- For finalized model, standardized path coef- prove service quality. As mentioned in the ficients and significance are as below. marketing literature, organizations must create and maintain a climate for service in or- First, we find support for H1. The der for employees to effectively deliver ex- results of structural equation model analysis cellent service. Since employees of chain support this hypothesis, showing service store restaurants have firsthand and under- climate has a positive effect on service con- stand well about characteristics of custom- venience ( β = 0.36, p < 0.01). ers, managers should encourage and reward their employees relative to service quality Secondly, we find support for H2. design and implementation, especially in The results of structural equation model regard to internal public. The feedback analysis show that service climate has a sig- should be used to improve service quality. nificant effect on service quality (γ = 0.27, p Moreover, they should focus on time and < 0.01). effort during service processing in restaurants because service convenience is con- Thirdly, we find support for H3. The ceptualized as consumer’s perception of results of structural equation model analysis time and effort relative to buying and using show that service convenience has a signifi- service (Berry et al., 2002). Less time and cant effect on service quality (γ = 0.33, p < effort spend to receive the service is likely to 0.01). partly explain the quality of service. Contra- ry to the delay of a service is found to signif- Finally, we also find support for H4. icantly affect the feeling of anger and dissat- The results of SEM analysis reveal that ser- isfaction. vice quality is positively influenced on behavioral intentions (γ = 0.23, p < 0.01). As is the case with any research project, the studies presented exhibit limitation Conclusion And Future Research should be considered. Clearly, the limitation of the research is relatively small sample This study provides a model for un- size collected from chain store restaurants derstanding the relationships among service and the distribution is focused on the Taipei climate, service convenience, and service city only. Therefore, the future research quality are indicators that lead to behavioral should focus on many service sectors in or- intention. Importantly, superior customer der to get larger sample size and make the service is one of the characteristic of high result more accurate. As mentioned above, performance business. Based on results re- this study focus on time and effort and also ported in this study, managers of chain store service climate to indicate service quality. restaurants could interpret these results as Thus, for future research, we would like to suggesting that they may understand what suggest focusing on more other variables customers want and how they assess the ser- that influence on service quality such as at- vice quality. Moreover, they should analyze tribution of firm controllability or quality of their business and their competition from the service environment and so forth. Moreover, point of view of the service quality frame- the research considers service quality as a

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main indicator which effects behavioral in- suggest to find more variables like perceived tention of customer. In this case, we also sacrifice, trust so on and so forth.

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Boulding, W., Kalra, A., Staelin, R., & Fennema, M. G., & Kleinmuntz, D. N. Zeithaml, V. A. (1993). A dynamic (1995). Anticipations of effort and process model of service quality: accuracy in multiattribute choice. from expectations to intentions. Organizational Behavior and Human Journal of Marketing Research, Decision Processes, 63 (1), 21-32. 30 (1), 7-27. Hair, J.F., W.C. Black, J.B. Babin, R.E. An- Caceres, R. C., & Paparoidamis, N. G. derson and R.L. Tatham, (2010). (2007). Service quality, relationship Multivariate Data Analysis. 7th Ed., satisfaction, trust, commitment and Pearson Education Inc., Upper Sad- business-to-business loyalty. Euro- dle River, New Jersey. pean Journal of Marketing, 41 (7/8), 836-867. Holbrook, M. B., & Lehmann, D. R. (1981). Allocating discretionary time: Com- Cronin, J. J., Brady, M. K., & Hult, T. M. plementarities among activities. (2000). Assessing the effects of qual- Journal of Consumer Research, 7 (4), ity, value, customer satisfaction on 395-406. consumer behavioral intentions in service environment. Journal of Re- Hornik, J. (1993). The role of affect in con- tailing, 76 (2), 193-216. sumers' temporal judgments. Psy- chology and Marketing, 10 (3), 239- Cronin, J. J., Jr., & Taylor, S. A. (1992). 255. Measuring service quality: a reexam- ination and extension. Journal of Hui, M. K., & Tse, D. K. (1996). What to Marketing, 56 (3), 55-68. tell consumers in waiting of difference lengths: an integrative model of Davis, M. M., & Vollmann, T. E. (1990). A service evaluation. Journal of Mar- framework for relating waiting time keting, 60 (2), 81-90. and customer satisfaction in a service operation. Journal of Services Mar- Hui, M. K., Thakor, M. V., & Gill, R. keting, 4 (1), 61-69. (1998). The effect of delay type and service stage on consumers' reactions to waiting. Journal of Consumer Re- search, 24 (4), 469-479.

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Katz, K. L., Larson, B. M., & Larson, R. C. (1991). Prescription for the waiting- Parasuraman, A., Zeithaml, V. A., & Berry, inline blues: entertain, enlighten, and L. L. (1994). Reassessment of Ex- engage. Sloan Management Review, pectations as a Comparison Standard 32 (2), 44-57. in Measuring Service Quality: Impli- cations for Further Research. Journal Little, M. M., & Dean, A. M. (2006). Link- of Marketing, 58 (1), 111-124. ing between climate, employee commitment and employees' service Pruyn, A., & Smidts, A. (1998). Effects of quality capability. Management Ser- waiting on the satisfaction with the vice Quality, 16 (5), 460-476. service: beyond objective time measures. International Journal of Lovelock, C., Writz, J., Tat Keh, H., & Lu, Research in Marketing, 15 (4), 321- X. (2005). Service marketing in 334. Asia: managing people, technology and strategy (2nd ed.). Singapore: Robbins, S. P., & Judge, T. A. (2007). Or- Prentice Hall. ganizational behavior (12th ed.). New Jersey: PEASON Prentice Hall. Mowday, R. T., Steers, R. M., & Porter, L. W. (1979). The measurement of or- Schneider, B., White, S. S., & Paul, M. C. ganizational commitment. Journal of (1998). Linking service climate and Vocational Behavior, 14 (2), 224- customer perceptions of service qual- 247. ity: test of a causal model. Journal of Applied Psychology, 83 (2), 150-163. Olorunniwo, F., Hsu, M. K., & Udo, G. F. (2006). Service quality, customer Schneider, B., Macey, W. H., & Young, S. satisfaction, and behavioral inten- A. (2006). The climate for service: a tions in the service factory. Journal review of the construct with implica- of Service Marketing, 20 (1), 59-72. tions for achieving CLV goals. Jour- nal of Relationship Marketing, Parasuraman, A., Zeithaml, V., & Berry, L. 5(2/3), 111-131. L. (1985). A conceptual Model of Service Quality: Its Implications for Tahir, I. M., & Wan Ismail, L. S. (2005). Future Research. Journal of Market- Service quality is the financial ser- ing, 49 (4), 41-50. vices industry in Malaysia: the case of Islamic banks and insurance. In- Parasuraman, A., Zeithaml, V., & Berry, L. ternational Review of Business Re- L. (1988). SERVQUAL: A Multiple- search Paper, 1 (2), 10-20. item Scale for Measuring Customer Perceptions of Service Quality. Taylor, S. (1994). Waiting for service: the Journal of Retailing, 64 (1), 12-37. relationship between delays and evaluations of service. Journal of Marketing, 58 (2), 56-69.

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Ugboma, C., Lbe, C., & Ogwude, I. C. (2004). Service quality measurements in port of a developing economy: Nigerian port survey. Man- agement Service Quality, 14 (6), 487- 495.

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SERVICE EXPECTATION, PERCEIVED SERVICE QUALITY, AND CUS- TOMER SATISFACTION IN FOOD AND BEVERAGE INDUSTRY

Po-Hsuan Wu Department of Baking Technology and Management, Tatung Institute of Technology, Taiwan

Ching-Yuan Huang Department of Food and Beverage Management, Tatung Institute of Technology, Taiwan

Cheng-Kai Chou (corresponding author) Department of Food and Beverage Management, Tatung Institute of Technology, Taiwan [email protected]

Abstract

This study aims to identify the factors that contribute to service expectation, perceived service quality, and customer satisfaction in food and beverage industry. The author proposes a very brief Big-Five model with revised SERVQUAL and RESERV models to examine the relationships among service expectation, perceived service quality, and customer satisfaction. From the results, the major findings of this study are as the following: Firstly, service expectation and perceived service quality, relate positively to customer satisfaction. Secondly, service expectation has a positive effect on perceived service quality. Thus, the findings provide managers in the food and beverage industry with valuable insights that firms can increase their competitive advantage through enhancing customers’ perceived service quality and satisfaction.

Keywords: service expectation, perceived service quality, and customer satisfaction.

Introduction share in service industry (Directorate- General of Budget, Accounting and Statis- Taiwan’s service industry now ac- tics, Executive Yuan, Taiwan, 2010). The counts for over 70 % of Taiwan’s GDP. In business flourishes vigorously and com- particular, food and beverage industry in petes intensely. Therefore, it is important Taiwan has reached over 10 % market to satisfy the needs of target market and strengthen service management to achieve The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 171

better service performance (Analoui, sional performance. 1995). Literature Review And Development Of One role of management in food Hypotheses and beverage industry is to understand the customer behavior. Satisfied customers Service Expectation give referrals and repeat business. Manag- ers in the food and beverage industry Expectation is defined as the antic- should consider how to improve the per- ipation or looking forward to something ception of the quality of their service in while experiencing something. From this this respect (McDaniel & Louargand, definition it obvious that every customer 1994). To carry out food and beverage while consuming to a restaurant he or she management functions via understanding will expect to see, experience, or even do factors to the implications has influence something in that restaurant. Having said for the overall profitability of a firm. What that, the customer before consuming to a are the factors affecting competition in the restaurant he or she will expect the place food and beverage industry and what is the to provide some of those expectations such status of the decision of customers are im- as food and beverage, scenery, or culture. portant for managers. Many scholars focus on this area since it has a direct influence on their satisfaction. According to academic literature Expectation influences satisfaction direct- and interaction with food and beverage ly. The balance between customer expecta- industry counterparts, the industry has tions and real experiences influences cus- competitive attributes, but its competition tomers’ satisfaction; furthermore, custom- appears to be based more on non-price fac- ers’ experiences and satisfaction levels are tors, such as firm reputation or level of mostly influenced by such factors as phys- service quality. The purpose of this re- ical environment, activities, and psycho- search attempts to understand and satisfy if logical experiences (Xie, Qiu, Chen, & different personality orientations of cus- Song, 2007). Customer satisfaction is im- tomers have different needs in the food portant to successful destination marketing and beverage industry, to realize how to because it influences the choice of destina- play a critical role to obtain customer satis- tion, the consumption of products and ser- faction and maintain profitability, then to vices, and the decision to return (Kozak & bring up suggestions to the managers and Rimmington, 2000). enhance the service quality in the industry. Parasuraman, Zeithaml, and Berry The investigations of the research (1994) defined expectancy as the desire or are: (1) to find the relationships among need of consumers, which was not what customer expectation, perceived service service provider could provide but what quality, and customer satisfaction in the service provider should provide. They be- market; (2) to understand if service expec- lieved that consumers understanding of tation has a positive effect on perceived service quality came from the difference service quality. However, the research is between their expectations and their real ultimate to establish managers’ profes- experience. Brown and Fazzone (1998) sional, offer high level of service quality, believed the uncertainty of expectancy then to create rational profit via profes- would affect consumers purchase behav-

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ior. When consumers purchase merchan- pectations about a service and their per- dise, they have certain expectations. If the ceptions of the way the service has been result is similar to their expectation, con- performed: “Poor quality places a firm at a sumers will be satisfied. competitive disadvantage” (Christopher, Jochen, Hean, & Xiongwen, 2005). For The service quality tradition is example, if customers perceive unsatisfied concerned with a broader understanding of quality, they may change their business to expectations where respondents are asked elsewhere. Service quality is difficult to what they should expect of an excellent identify and priorities performance im- service provider. This is generally opera- provements that are required, unless both tionalized as normative or ideal expecta- perceptions and expectation of service are tions. The discrepancy between percep- measured. tions and expectations is used as to measure service quality. The size of this gap Parasuraman et al. (1988) men- indicates the degree to which a consumer tioned that SERQUAL instrument was perceives quality service (Oliver, 1996). specifically designed to measure service The discrepancy approach is believed to quality using both the gap concept, service mimic consumers’ cognitive processes and quality dimensions, and was designed to is grounded in prior conceptual work (Pitt be organizations in any service sector . In & Jeantrout, 1994). The service quality their original research form, SERVQUAL literature typically uses two definitions of contains 22 item statements in five service expectations, normative and ideal. Re- quality dimensions. The first one was the spondents are normally surveyed once on- tangibles that pertain to the establishment ly in the post-experience phase and are re- physical facilities, equipment and appear- quired to recall pre-experience expecta- ance of personnel. Second, the reliability tions. Since expectations are captured in which refers to the organizations’ ability to the post-consumption phase. Oliver (1996) perform the promised service dependably has suggested a number of explanations and accurately. Third, the responsiveness for this convention. Simple expediency is a that means the willingness of service pro- primary consideration given the difficulty viders to help customers and provide identifying prospective consumers prior to prompt service. Fourth, the assurance that purchase. relates to the knowledge and courtesy of employees and their ability to inspire trust However, theoretical considera- and confidence. Finally, the empathy, tions may also be at play. The underlying which means the caring and the individual- assumption is that referents used by con- ized attention that, a firm provides to its sumers in post-consumption phase are customers. However, there is a number of those that are actually processed cognitive- researchers have criticized the SERV- ly in satisfaction formation are therefore QUAL approach. Peter, Churchill, and the most relevant. Brown (1993) criticized that the indirect different score approach causes poor relia- Perceived Service Quality bility and problems of variance restriction related with component scores. Brown, Service quality involves around the Churchill, and Peter (1993) observed that ideas that it is the result of comparisons difference score produced theoretically which customers make between their ex- poorer than reliabilities than their compo-

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nent scores. Moreover, Teas (1993) argued Berry, 1985). In relationship marketing, it that the SERVQUAL scale of expectation has been argued that a customer’s apprais- made several different types of expecta- al of his or her level of satisfaction can be tion, the subjects were not able to differen- made across multiple dimensions, includ- tiate among type of expectations when ing judgments of both the service employ- they provide evaluations. ees and the service setting itself (Singh, 1991; Westbrook, 1981). For example, in a The literatures on service quality healthcare setting, satisfaction judgments have raised a number of important concep- are driven by assessments of both the med- tual and methodology issues which it at- ical staff and of the facility (Singh, 1991). tempted to resolve such as the problems of Consequently, an owner or manager can conceptually differentiating consumer sat- closely understand and act upon the differ- isfaction, or the role of expectation (There- ent types of customer satisfaction or dis- sa & Kay, 2003; Weiermair & Fuchs, satisfaction (Wong & Sohal, 2002). 1999). Also, the service quality model has been broadly applied in measuring cus- Since customers are impressed tomer satisfaction in different level of ser- when they get more than they anticipated. vice categories such as hotels, tourism The customers who receive more than they sites, national parks and recreation service bargained for will likely buy from that (Akama & Kieti, 2003). Since customers company again. Successful service com- are capable of distinguishing whether the panies offer their customers a distinguish- service provided are proper or not, they are ably better service package. The roles that more confident in deciding taking an ac- price, performance, and expectations play tive role in the service delivery. Thus, the in determining satisfaction in a discrete following hypothesis is proposed: service exchange (Voss, Parasuraman, & Grewal, 1998). When price and perfor- H1: Service expectation has a posi- mance are consistent, expectations have an tive effect on perceived service assimilation effect on performance and quality. satisfaction judgments. Both predictors and consequences of consumer satisfaction Customer Satisfaction and by providing evidence that expectation produce representational effects rather Customer satisfaction is the key than merely measurement context and re- mediator considered in relationship mar- sponse language effects (Teas & Kay, keting and service quality theory (Hennig- 2003). Their findings provide support for Thurau et al., 2002; Reynolds & Beatty, the theory and the strategic implications of 1999). In the history of marketing, many the disconfirmed expectations theory. Cus- definitions of customer satisfaction have tomers articulate their expectations can been postulated. Customer satisfaction can backfire and lead to more negative evalua- be defined generally as a positive affective tions of the shopping and consumption ex- reaction to the favorable appraisal of a perience. Pre-purchase expectations lead consumption experience (Babin & Griffin, customers to negative aspects of the shop- 1998). A favorable reaction is primarily ping experience and perceive the same associated with benefits that meet or ex- performance more negatively (Ofir & Si- ceed customer expectations (Ofir & Si- monson, 2005). On this basis it is hypothe- monson, 2007; Parasuraman, Zeithaml, & sized that:

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determinants of customer satisfaction H2: Service expectation has a signifi- (Johns, Avci, & Karatepe, 2004). Service cant effect on customer satisfac- belongs may explain the nature of the ser- tion. vice quality construct and its relationship to customer satisfaction and behavioral intentions. The dominant dimensions of Service quality is an antecedent of service quality construct in the service fac- customer satisfaction. Both perceived tory were found to be: Tangibles, Recov- quality and disconfirmation are determi- ery, Responsiveness, and Knowledge (Fes- nants of satisfaction (Cronin & Taylor, tus et al., 2006). On this basis it is hypoth- 1992). Service quality and customer satis- esized that: faction are widely recognized as key influences in the formation of consumers' pur- H3: Customer perceived service chase intentions in service environments. quality has a significant effect on Consumer satisfaction is best described as customer satisfaction. moderating the service quality/purchase intention relationship (Taylor & Baker, Methodology 1994). Perceived service quality as a result of desired level of performance; discon- Quantitative Data Collection firmation of desires as a predictor of both satisfaction and service quality (Spreng & Participants. Mackoy, 1996). Perceived service quality is an antecedent of satisfaction, rather than This study conducted a conven- vice versa. Finally, tangibles appeared to ience survey with a structured question- be a more important factor in the facili- naire. The questionnaires were distributed ty/equipment-based industries, whereas to a sample of 500 customers who received responsiveness is a more important factor food and beverage services and yielded in the people-based industries (Haksik, 416 finished questionnaires. Out of these, Yongki, & Dongkeun, 2000). 367 were usable.

Customer satisfaction should be Measuring Tools. operationalized along the same factors and the corresponding items on which service The measurement instrument was quality is operationalized (Sureshchandar, designed based on various previous stud- Chandrasekharan, & Anantharaman, ies. All the questionnaire items were 2002). The link between service quality measured on a five point scale. Respond- and customer satisfaction are indeed inde- ents were asked to indicate their level of pendent but are closely related, implying agreement toward each statement, from 1 that an increase in one is likely to lead to (strongly disagree) to 5 (strongly agree). an increase in another. Expectations and performance (SERVPERF) scores indicat- Service Expectation . ed that respondents were concerned most with the efficiency and least with the per- Utilized in the development of a sonalization of the services offered; generic service quality measurement in- promptness, empathy, efficiency and ser- strument SERVQUAL (Parasuraman et al., vice-scope aesthetics seem to be the main 1991; Parasuraman et al., 1988, 1994), a

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revised instrument to measure perceived Structural Equation Model levels of satisfaction with food and beverage service quality RESERV is developed In order to find out the relationship (Nelson & Nelson, 1995). in the whole research model in this study, a structure equation model (SEM) was Perceived Service Quality. used. The criteria of Chi-square, GFI, AG- FI, CFI, RMR, and RSEMA were used to Utilized in the development of a evaluate the overall goodness of fit of the generic service quality measurement in- model. According to Hair et al. (2010), the strument SERVQUAL, a revised instru- value of overall fit of a hypothesized mod- ment to measure perceived levels of satis- el can be regarded as appropriately signifi- faction with food and beverage service cant when each criteria Chi-square is small quality RESERV is developed. (p value>.05), and fit indices such as the ratio of Chi-square to degrees of freedom Customer Satisfaction . (Chi-square/d.f. ≤2); goodness of fit index (GFI>.9), and adjusted goodness of fit in- This research utilizes the develop- dex (AGFI>.9); root mean square residual ment of a generic service quality meas- (RMR<.1), and root mean square error of urement instrument (Parasuraman et al., approximation (RMSEA<.08) are all ful- 1991; Parasuraman et al., 1988, 1994), a filled. The result of confirmatory factor revised customer summary evaluation of analysis (CFA) produced evidence of an the quality of service to measure perceived acceptable fit of the model (Chi-square= levels of satisfaction with food and bever- 405.79; df =217; p=.00; Chi- age service quality. square/df=1.87; RMR=.04; GFI=.90; AG- FI = .91; RMSEA = .06). Parameter esti- Purification and Reliability of Measure- mates of the final model were inspected ment Variables and no problematic occasions were found.

To purify the measurement scales Results and to identify their dimensionality, principal components reliability test with Quantitative Data Analysis varimax rotation was applied to condense the collected data into certain factors. Af- Returned valid questionnaires are ter reliability test, we used item-to-total female (54.2%) and male (45.8%), mostly correlation and internal consistency analy- range from 21 to 30 years old (34.1%), sis (Cronbach’s alpha) to confirm the reli- next are 31 to 40 years old (28.6%). Next, ability of each research factor. According in the average monthly income, the highest to Robinson and Shaver (1973) if α is percentage is NTD 40,000 to 50,000 greater than .7, the variable has high relia- (36.5%), followed by NTD 30,000 to bility, and if α is smaller than .3, it implies 40,000 (30.7%). As for the occupation, the that there is low reliability. The reliability top one is Armed services, civil servant of four latent variables was investigated by and educator (30.1%), followed by the calculating Cronbach’s alpha. The range of business (24.7%), student for 18.7%, and the values was between .81 and .90, which manufacturing for 11.2%. To the education indicated all measures were quite reliable. degree, university is most (53.6%), followed by college (26.3%), the high school

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is accounted for 15.9%. implications for consumer behavior. As service quality appears to be the most im- Assumption Tests portant issue for the satisfaction of food and beverage customers. Service provider The hypotheses in this study were should realize how to enhance their service tested by using Structural Equation Model- quality to satisfy their customers in order ing. The resulting measurement model has to retain their customer base. Chi-square /df equal to 1.87 and all values in the model reflect acceptable fit of the It is important to note that custom- data. For finalized model, standardized ers are more likely to make recommenda- path coefficients and significance are as tion or repurchase if they are satisfied with below: First, we find support for H1. The their quality experience. If they are dissat- results of structural equation model analy- isfied with their experiences, they are un- sis support this hypothesis, showing a likely to return to the same firms for future moderately positive relationship between contact. Service gap between service ex- service expectation and perceived service. pectation and perceived service is influ- (β = 0.216, p < 0.05; β = 0.127, p < 0.05). enced by perceived service quality. Cus- Secondly, we find support for H2. The re- tomers have a high prior service expecta- sults of structural equation model analysis tion induce a negative impact on perceived show that customer service expectation has service gap. A high service expectation positive impact on customer satisfaction. may induce a little high perceived service (γ = 0.189, p < 0.05; γ =0.160, p < 0.05). quality, but cannot induce high satisfac- The result supports that customer service tion. expectation has effect on customer satisfaction. Finally, we also find support for In addition, the difference between H3. The results of SEM analysis reveal service quality and satisfaction is the con- that the path between perceived service cept of time. Satisfaction is related to a quality and customer satisfaction con- specific transaction whereas service quali- structs is significant positive in two model- ty is the attitude thought to develop over ing (excluding gap and including gap time (Nelson & Nelson, 1995). Food and modeling) ( γ = 0.843, p < 0.01; γ = 0.638, beverage industry is also composed of p < 0.01). widely spaced discrete transactions. The findings of this study could provide some Conclusion And Future Research meaningful implications for food and beverage industry. The results of this study provide revised SERVQUAL and RESERV meas- Limitations urement scale is appropriate for use in the food and beverage industry. Service quali- This study also has several limita- ty is main driver of customer satisfaction. tions. The findings of this study could be This study shows that customer satisfac- generalized the types of service industry is tion is primarily predicted by perceived unclear. Future research is necessary to service. The study results imply that cus- examine the generalization of this study to tomers perceived service quality will sig- other research in service industry. Future nificantly affect their satisfaction. This research dealing with food and beverage finding provides meaningful managerial service quality measurement should ad-

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dress one or more of the several remaining tudinal studies are recommended to ex- issues. This study is considered somewhat plore all the customers live in Taiwan or to preliminary due to the research was con- compare differences of data among more ducted using a convenience sampling from than two areas, then with systematic statis- customers only live in Taiwan. It may be tical method to measure the relationships doubtable if the empirical finding can be among research variables. inferred in other regions. For future longi-

References Cronin, J. J., Jr., & Taylor, S. A. (1992). Measuring service quality: a reexam- Akama, J. S., & Kieti, D. M. (2003). ination and extension. Journal of Measuring Tourist Satisfaction with Marketing, 56 (3), 55-68. Kenya's Wildlife Safari: A Case Study of Tsavo West National Park. Tourism Management, 24 (1), 73-81. Hair, J.F., W.C. Black, J.B. Babin, R.E. Anderson and R.L. Tatham, (2010). Analoui, Farhad. (1995). Workplace sabo- Multivariate Data Analysis. 7th Ed., tage: Its styles, motives and man- Pearson Education Inc., Upper Sad- agement. Journal of Management dle River, New Jersey. Development , 14(7), 48-65. Haksik, L., Yongki, L., & Dongkeun, Y. Babin, B.J. & Griffin, M. (1998). The na- (2000). The determinants of per- ture of satisfaction: an updated ex- ceived service quality and its rela- amination and analysis. Journal of tionship with satisfaction. The Jour- Business Research, 41 (2), 127-36. nal of Services Marketing, 14 (3), 217-231. Brown, Churchill, G. A., & Peter, J. P. (1993). Improving the Measurement Hennig-Thurau, T. Gwinner, K.P. & of Service Quality. Journal of Retail- Gremler, D.D. (2002). Understand- ing, 69 , 127-139. ing relationship marketing outcomes: an integration of relational benefits Brown, & Fazzone, J. (1998). Rapid Non and relationship quality. Journal of metro Growth Causes Problems in Service Research, 4 (3), 230-47. Rural Counties: the Case of Public Transportation. 1998; 28(4): 16-23. Small Town, 28 (4), 16-23. Kozak, M., & Rimmington, M. (2000). Tourist Satisfaction with Mallorca, Christopher, L., Jochen, W., Hean, T. K., Spain, as an off-Season Holiday Des- & Xiongwen, L. (2005). Service tination. Journal of Travel Research, Marketing in Asia : PEARSON: Pren- 38 (3), 260-269. tice Hall. McDaniel, J. R., & Louargand, M. A. (1994). Real estate brokerage service quality: an examination. Journal of Real Estate Research, 9 (3), 339-351.

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Nelson, S. L., & Nelson, T. R. (1995). Journal of Marketing, 58 (1), 111- RESERV: an instrument for measur- 124. ing real estate brokerage service quality. Journal of Real Estate Re- Peter, J. P., Churchill, G. A., & Brown, T. search, 10 (1), 99-113. J. (1993). Caution in the Use of Dif- ference Scores in Consumer Re- Ofir, C., & Simonson, I. (2005). The effect search. Journal of Consumer Re- of stating expectations on customer search, 19 , 655-662. satisfaction and shopping experience, Working Papers (Faculty) -- Stan- Pitt, L., & Jeantrout, B. (1994). Manage- ford Graduate School of Business ment of Customer Expectations: A (pp. 2-43). Study and a Checklis. Service Indus- tries Journal, 14 (2), 170-189. Ofir, C. & Simonson, I. (2007). The effect of stating expectations on customer Reynolds, K.E. & Beatty, S.E. (1999). satisfaction and shopping experience. Customer benefits and company con- Journal of Marketing Research, 44 sequences of customer-salesperson (1), 164-174. relationship in retailing. Journal of Retailing, 75 (1), 11-32. Oliver, R. (1996). Satisfaction: a Behav- ioral Perspective on the Consumer . Singh, J. (1991). Understanding the struc- Boston, MA.: Irwin- Mc Graw-Hill. ture of consumers’ satisfaction evaluations of service delivery. Journal Parasuraman, A., Zeithaml, V., & Berry, of the Academy of Marketing Sci- L. L. (1985). A conceptual Model of ence, 19 (3), 223-44. Service Quality: Its Implications for Future Research. Journal of Market- Spreng, R. A., & Mackoy, R. D. (1996). ing, 49 (4), 41-50. An empirical examination of a model of perceived service quality and sat- Parasuraman, A., Berry, L. L., & Zeithaml, isfaction. Journal of Retailing, 72 (2), V. A. (1991). Refinement and reas- 201-214. sessment of the SERVQUAL scale. Journal of Retailing, 67 (4), 420-450. Sureshchandar, G. S., Chandrasekharan, R., & Anantharaman, R. N. (2002). Parasuraman, A., Zeithaml, V., & Berry, The relationship between service L. L. (1988). SERVQUAL: A Multi- quality and customer satisfaction -- a ple-item Scale for Measuring Cus- factor specific approach. The Journal tomer Perceptions of Service Quali- of Services Marketing, 16 (4), 363- ty. Journal of Retailing, 64 (1), 12- 379. 37. Teas, R. K. (1993). Consumer Expecta- Parasuraman, A., Zeithaml, V. A., & Ber- tions and the Measurement of Per- ry, L. L. (1994). Reassessment of ceived Service Quality. Journal of Expectations as a Comparison Stand- Professional Services Marketing, ard in Measuring Service Quality: 8(2), 33-35. Implications for Further Research.

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Teas, R. K., & Kay, M. P. (2003). Discon- Xie, G., Qiu, P., Chen, Y., & Song, J. firmed expectations theory of con- (2007). Expectation and Satisfaction sumer satisfaction: an examination of of Rural Tourism: a Case Study of representational and response lan- Hainan, China. Ecological Economy, guage effects. Journal of Consumer 3, 405-416. Satisfaction, Dissatisfaction and Complaining Behavior, 16 , 81.

Theresa, A. P., & Kay, C. T. (2003). Tour- ist Satisfaction in Singapore--a Per- spective from Indonesian Tourists. Managing Service Quality, 13 (5), 399.

Taylor, S. A., & Baker, T. L. (1994). An assessment of the relationship between service quality and customer satisfaction. Journal of Retailing, 70 (2), 163-175.

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Wong, A. & Sohal, A. (2002). An examination of the relationship between trust, commitment and relationship quality. International Journal of Re- tail & Distribution Management, 30(1), 34-50.

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ASSESSING MEASUREMENT INVARIANCE ACROSS GENDER IN THE VERSION OF THE PART OF TANGIBLES IN SERVQUAL SCALE FOR RETAIL CHAIN STORES BUSINESS IN TAIWAN

Dr. Yu-Jia Hu Department of Marketing and Distribution Management Fortune Institute of Technology, Taiwan [email protected]

Abstract

The SERVQUAL Scale has been recognized an effective instrument for measuring service quality in current marketing research. However, the measurement invariance issue in SERVQUAL has received very few considerations. Literature also revealed there is the significant relationship between gender issue and SERVQUAL Scale. The purpose of this quantitative study was to examine the measurement invariance for the part of Tangibles in SERVQUAL Scale for retail chain stores business in Taiwan. The population in this research was selected as customers from four retail chain stores in Taiwan, resulting in 200 individual surveys for analysis. The results indicated the Taiwan version of Tangible 5-item scale only achieved partial measurement invariance. The property of structural covariances and measurement residuals across the gender were not equivalent, while the property of factor loading across the gender was equivalent in this scale. Finally, this research generated the recommendations for retail chain stores business in Taiwan and suggested future scholar studies.

Key Words: service quality, SERVQUAL, tangibles, measurement invariance, retail chain stores, Taiwan

Introduction and Theoretical Foundation ated by Parasuraman, Zeithaml, and Berry (1988). The SERVQUAL questionnaire Current enterprises recognize service proposed five dimensions to measure the quality is the critical factor to maintain the service quality, such as tangible, respon- competency for business development. The siveness, reliability, empathy, and assurance. most famous instrument for measuring ser- Although this scale has applied extensively vice quality – SERVQUAL Scales was cre to conduct studies for service quality in different industries or countries, very few stud- The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 181

ies have examined the issues of the meas- Hypothesis 1: Assuming model measure- urement invariance for SERVQUAL Scale. ment weights to be variant for gender groups. In addition, many researchers (Baird 1976, Blustain 2000, Canary and Hause Hypothesis 2: Assuming model structural 1993) have provided clear insight for gender covariances to be variant for gender difference in many aspects on psychology groups. and attitude, such as social skills, communications, work approaches and son on. Fol- Hypothesis 3: Assuming model measure- lowing the issues of woman buying power is ment residuals to be variant for gender getting stronger, the issues of gender differ- groups. ences in consumer behavior also have become important topic for academy research- Methodology er and corporate administrations. Meyers- Levy and Maheswarm (1991), and Mitchell The five items of Tangibles in this and Walsh (2004) claimed gender difference research were little modified from the will lead to different buyer behavior. Mitch- SERVQUAL Scales (Parasuraman et al, ell and Walsh (2004) also claimed gender 1988). Following Five Likert Scale: strongly differences resulted in different decision disagree, disagree, neutral, agree, strongly making process. These theories and studies agree, the five items were: (a). Store’s facili- provided the view that there is the signifi- ty is modern., b). Store’s environment is cant relationship between gender issue and clear and brilliant., c). Employee’s apparels SERVQUAL Scale. Therefore, this study are good., d). Display of goods on shelves is extended previous research and applied well-organized., and e). Store style (music, SEM approach to assess the measurement decoration or atmosphere) is good. Previous invariance across gender for the part of Tan- studies by Hu (2011, 2012, and 2013) have gibles in SERVQUAL Scale in retail chain demonstrated the validity and reliability for stores business of Taiwan. this scale are reasonable and acceptable. The customers from four retail chain stores in the Research Purposes and Hypotheses Kaohsiung city of south Taiwan attended this research. The pretest was conducted Based on the theory concept, the with Item Analysis in 50 samples. The re- purposes and the significance for this study searcher applied the method of random sam- were: (a) to examine the measurement invar- pling. Each store randomly invited volunteer iance for the part of Tangibles in SERV- customers who shopping in stores to partici- QUAL Scale in retail chain stores business pate the questionnaire survey. The total of Taiwan, (b) to generate the recommenda- number of valid responses was 200 (not in- tions for managerial application of retail cluding 15 invalid response), providing an chain stores business, and (c) to identify are- adjusted response rate of 93%. as for future scholarly inquiry. Byrne (2010) suggested the tests for multigroup invariance are: (a) factor loadings, (b) factor covari- Analysis of Results ances, and (c) structural regression paths. Following this concept, the researcher pro- The Structure Equating Modeling posed three hypotheses as follows. (SEM) by Analysis of Moment Structure (AMOS) software was applied to test the

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model structure and hypotheses in this both males and females. The multi-sample study. The factor analysis for five Tangibles analysis also showed the indexes of model items was showed as Figure 1. The results of fit for three constrained models - measure multi-sample analysis for the unconstrained weights, structural covariances (See Table and the three constrained models were listed 2.) and measurement residuals, across gen- as Table 1. The unconstrained model der, and these indexes indicated the three showed an acceptable baseline model for constrained models were accepted.

Chi-square=66.880 degree of freedom=20 normed chi-dquare=3.344 GFI=.895 AGFI=.843 CFI=.876 RMSEA=.109 .16

Tangibles 1.27 1.28 1.15 1.00 1.17

Tan1 Tan2 Tan3 Tan4 Tan5 1 1 1 1 1 .20 .16 .18 .28 .26 e5 e4 e3 e2 e1

Figure 1. Factor Analysis for Tangibles Items

Table 1. Model Fit Indexes for Unconstrained and Constrained Model χ R 2 M χ Model / S 2 D E F A 4 .1 4 0 24 . . Unconstrained 0 2 2 2 2 2 4 .1 2 1 00 . Measurement . 9 weights 8 9 9 3 9 5 3 .1 Structural co- 4 . 15 variances . 6 The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 183

χ R 2 M χ Model / S 2 D E F A 2 1 6 7 2 6 .1 3 6 09 . Measurement . 3 residuals 8 4 8 4 0

Table 2. Nested Model Comparisons χ Model 2 1 . Measurement 6 weights 7 6 1 2 Structural co- . variances 3 6 3 1 2 Measurement . residuals 6 1 9

The test results for nested model However, the χ2 difference test between comparisons were showed in Table Two. baseline model and constrained model for The χ2 difference test ( χ2(4)=1.675, p>.05) structural covariances ( χ2(1)=12.363, between baseline model and constrained p<..05) and measurement residuals model for measurement weights was not (χ2(5)=12.619, p<..05) were significant, in- significant, indicating the factor loadings dicating the structural covariances and across gender in this scale were equivalent. measurement residuals across gender in this The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 184

scale were not equivalent. The findings sup- was only partial invariance, Milfont and ported H2 and H3, while not support H1. Fischer (2010) claimed full measurement invariance is questionable to hold in reality. Conclusions and Suggestions Vandenberg and Lance (2000) also suggested partial invariance can be assessed when The results indicated this Taiwan some but not all of the parameters are invar- version of Tangible 5-item scales of SERV- iant across groups. However, if researcher QUAL Questionnaire only achieved partial keep strict manner in measurement invari- measurement invariance. The property of the ance, researcher may still apply this ques- structural covariances and measurement re- tionnaire, but should examine this scale sep- siduals across the gender were not equiva- arately by gender, specially studying retail lent, while the property of measurement chain stores business in Taiwan. Or, re- weights across the gender was equivalent in searcher may apply other types of service this scale. The results consisted with the quality questionnaires when conducting ser- views of Meyers-Levy and Maheswarm vice quality studies in Taiwan retailing busi- (1991), and Mitchell and Walsh (2004) sug- ness. gested gender differences will lead to dis- similar buyer actions. Although this model

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A STUDY OF THE LEISURE MOTIVATION AND SATISFACTION IN THE 2013 TAIWAN KAOHSIUNG CHENGCING LAKE BALLOON FESTIVAL

Shang-Chang Ting Graduate Student, Department of Tourism Management, National Kaohsiung University of Applied Sciences, Taiwan, ROC.

Ming-Yuan Wang Department of Tourism Management, National Kaohsiung University of Applied Sciences, Taiwan, ROC.

Mei-Ju Chou (corresponding author) Graduate Institute of Education, Taiwan Shoufu University, Taiwan Email: [email protected]

Abstract

The purpose of this study is to explore the motivation and satisfaction of participants of the Taiwan Balloon Festival in Kaohsiung Chengcing Lake. Descriptive statistical analysis, ANOVA analysis, and Pearson correlation analysis were applied after valid questionnaires had been collected among three hundred and fifty questionnaires distributed. The research results are as follows: Firstly, the differences in the background variables of the participants' gender, age, education level, occupation, and monthly income showed partially significant differences in the dimensions of the participants' motivation and leisure satisfaction. Secondly, participants accompany- ing with children attending the festival showed stronger motivation, higher satisfaction and continued in participation longer than the participants without accompany- ing children. Thirdly, the higher motivations the participants had the stronger satisfaction they owned. This is especially manifested in the significant correlation between leisure motivation and satisfaction. Fourthly, the most popular leisure activi-

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ties of Taiwan balloon festival include taking photos from air while flying with balloons, taking photos with colorful balloons, themed balloon exhibition, and wishing to have marriage ceremony in balloon situation. Based on the above results, the following conclusion and concrete recommendations are as follows: Firstly, with more multiple education-recreational programs and diversified interesting activities to be involved with, the participants would have higher leisure motivation and satisfaction. Second, this study focused on the participants in Kaohsiung city only; the other areas within Taiwan should be considered as well to see the difference among different culture and background. Therefore, the further study can be carried into the participants of other areas (e.g., Taitung and Hualien city in Taiwan). Third, the researcher recommends that a continuous follow-up study in the future can be carried by combining quantitative and qualitative research methods to explore advanced issues or do comparative study.

Key Words: Leisure Motivation, Recreation Experience, Satisfaction, Balloon Festi- val

Introduction static activities, and the application could be put into scholar, entrepre- According to World Travel neur, medical, and art area…etc. and Tourism Council 2013 Annual (Klin, 2013). For short travelling, it Statistical Repost on Tourism, the is popular because it combines average number of trips per person sightseeing and leisure. For exam- during the year 2012 was 5.12, an ple, Disneyland in America, Hong increase of 0.66 trips from the 4.46 Kong, and Japan gain so much pos- average of 2011 and 2012 respec- itive feedback, the amusement park tively (Kotler & Keller, 2011; in Taiwan also offer so much enter- World Tourism Organization, tainment and leisure activities for 2012). The leisure activities in this people, and the hot spring area, context include a lot of diverse farm also become hot sightseeing items like surfing, diving, fishing, sites for people feel comfort and competitions, sea angling, marine joyful after visiting those places. life viewing, camping among oth- From 2011 till now, Taiwan bal- ers. Many countries including Asia, loon festival was most held in Tai- Europe, America, Australia, and tung area and gained so much pop- Africa pay more and more empha- ularity from many countries’ sup- sis on modern people’s leisure ac- port and participation. From the tivities management, not only to re- leisure perspective, Taiwan people lax people’s pressure, to comfort gain more and more focus both lo- people’s psychological disease, but cally and globally from the famed also to combine education and en- festival. In 2013/06/01 - tertainment. The definition of lei- 2013/09/01, many countries partic- sure is time spent in freedom from ipated in Taiwan’s balloon festival, work, home or study and other dai- from 2013/07/06 -2013/08/04, this ly routines, including dynamic and activity is held in Kaohsiung The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 188

Chengchin Lake. The study col- Chengcing Lake. It is significant in lected the 350 on-site valid ques- the inherent service delivery value tionnaire data from the following it contains. Even more outstanding- five Saturday, including 07/06, ly is the fact it is an incredible ba- 07/13, 07/20, 07/27, 08/03. Be- sis for proper policy formulation cause on Saturday, the activity is and customer satisfaction. The re- combined with lake landscape, search questions are elaborated as sound, image and night shows. follows. Recreational leisure is a psychological experience. Therefore, recrea- 1. To determine the current situa- tional leisure activities involve an tion and difference of various dif- individual traveler's subjective per- ferent backgrounds participants’ ception of an actual or imagined leisure motivation and satisfaction. activity in which he or she participates at a given time. In order to 2. To compare the level of leisure serve effectively recreational lei- motivation and satisfaction be- sure participants at their destina- tween participants with children tions, it is essential for the study to and the participants without ac- deal in recreation at the destina- companying children. tions to understand the psychological forces and factors that motivate 3. To explore the relationship and satisfy individual participants. among leisure motivation, leisure satisfaction and recreation experi- With the government strat- ence. egies in focusing on leisure art and sport to offer participants wonder- 4. To establish the most popular ful leisure experience, this study is leisure activities of Taiwan balloon invoked by the need for complete festival. customer satisfaction at the tourist activity and facility of the 2013 The purpose of the study Taiwan Kaohsiung Chengcing aims to reach the following items. Lake Balloon Festival. This is mainly due to the stiff competition 1. To analyze the situation between experienced from other facilities different background participants’ and from the popularity of balloon verifiable pattern to motivation and activities during these years. As satisfaction. thus, there is a general agreement that to favorably compete in this 2. To explore participants’ lei- very dynamic activities, it is im- sure motivation, recreation experi- perative that decisive action is tak- ence and satisfaction involvement en to make drastic improvement. of balloon festival activities. To completely effect this, there was need to have these improve- 3. To investigate what leisure ments in the services in the com- activities are most preferred by par- plete perspective of the visitors to ticipants. best accommodate their needs. The To offer results for related institute purpose of this study is to deter- for developing appropriate leisure mine the motivation and satisfac- activities. tion of participants of the Taiwan Balloon Festival in Kaohsiung Definition of Terms

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from “needs and the internal needs Exclusively for the compi- for learning is learning motivation, lation of and in the context of this and the following needs include research, the following terms were physical, safety, love and belong- used as follows: ings, respect and self-fulfillment. In accordance many scholars, dif- Motivation - refers to the activity ferent background factors influence incite individual to go for a goal participants’ attending motivation. guided activity, and it is also could Generally, the older the people are, be internal impetus to promote in- the higher attending motivation dividual do actions, and its limits people have. Deci & Ryan (1991) based on the context in which the pointed three motivation stereo- inquiry is carried out and the sub- types, including intrinsic motiva- jects who will be involved. tion, extrinsic motivation, amotivation. Intrinsic motivation means Recreation Experience - The whole even without outside praise, indi- leisure experience and experiment vidual still feel love to do, satisfy includes anticipate phase, travel to and enjoy, and the motivation pro- the site, on-site activities, return vokes individual to have internal travel, and recollection phase actions. Extrinsic motivation means the actions are all influenced Satisfaction - Visitor satisfaction by outside world praise and pleas- refers to the extent to which the ure. Amotivation means after the services offered by a tourist desti- appearance of competition ability, nation meet the expectations of a having no god reason to provoke visitor with regards to the service individual into continuously attend- quality and value, experience and ing motivation. For leisure motiva- destination environment and out- tion, in order to reach joyfulness comes of the visit (Beaver, 2012). and body healthy, individual choose to active participate some Leisure - In order to reach joyful- activities and the time spent in ness and body healthy, individual freedom from work, home or study choose to active participate some and other daily routines. With the activities and the time spent in combination of leisure and motiva- freedom from work, home or study tion, scholars suggested that from and other daily routines. objective perspective, participants define activities, environment, and Review of Related Literature time for leisure; and from subjective perspective, participants define Motivation experiment, satisfaction, experience, and meaning for leisure. (Shu First of all, Freud (1856- & Wu, 2007; Mannell & Kleiber, 1949) claimed that personality 1997). could be divided into five stages, and in accordance with individual Satisfaction needs, individual needs different physical energy, happiness and re- With customer satisfaction ality principle to explore actions. being a global aspect of business Maslow (1908-1970) suggested success, little ground has been cov- that human being’s actions are all ered in the drive to achieve a uni-

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versal definition for the concept. knowledge, physical participation. Despite the difference in the opin- Schmitt (1999) suggested that ex- ions about the definition of cus- perience happens when individual tomer satisfaction, several elements receive some feedback for any par- have been identified as common ticular item, and the experience is among the numerous definitions provoked and is deemed as psycho- presented so far. That is, customer logical mind of state of partici- satisfaction being an emotional or a pants. Carbone (2004) suggested cognitive response or both and its that experience means the impres- being a response to a specific focus sion when people faces products, such as expectations; product; con- service and business, and it is the sumption experience (Castro, Ar- combination of human beings’ mario & Ruiz, 2007; Chen & Chen, feelings, emotions, and knowledge. 2010). Moreover, customer satis- Many scholars agreed Driver & faction as a response is achieved at Tocher (1970)’s recreation experi- a specific time after a client choos- ence include the following items. es or consumes a product (Bosque (1) Recreation is from participants. & Martin, 2008; Chen & Tsai, (2) Recreation Experience is from 2007; Chi & Qu, 2008). Thus, a the real activity participants expe- sound definition of customer satis- rience personally. (3) Recreation faction should encompass varying activity belongs to self feedback intensity of responses, aspects of from which participants gain joy- products, time- specific determina- fulness. (4) Participants choose the tion and duration. The other dis- activity from their free conscious- tinctions that should be made in ness. In accordance with Ownes definitions of customer satisfaction (2000), the high technology ad- are approaches to customer satis- vances human beings’ consumption faction such as the cognitive and and service is toward the satisfac- affective aspects of satisfaction and tion for participants; hence, the rec- the nature of transactions such as reation experience gains more and cumulative or transaction-specific. more emphasis in new technology Furthermore, customer satisfaction age. could also be transaction-based, in this regard, a customer’s cumula- Generally, we have had a tive judgment guides the definition thorough investigation into some adopted. In many cases, customers literature that we feel is most piv- evaluate the performance of prod- otal our study in terms of the ap- ucts immediately it is bought and proach to various issues of interest used. This information could be reas well as their development of cer- ally useful for suppliers of prod- tain issues of interest. We have had ucts, for marketing and improve- insight on various leisure motiva- ment purposes (Castro, Armarioo tion theories such as the Maslow & Ruiz, 2007; Dann, 1996; Cole & theory and others (Feud, 1930) and Illum, 2006). leisure motivation measurements (Beard & Ragheb, 1983). We have Leisure and Recreation Experience also looked into literature concerning recreational experience (Lock, Experience existed in peo- 1996). We also reviewed the soci- ple’s heart, and it is the summary ology of leisure (Stefan, 2011). of individual emotional, These perspectives were especially

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crucial and gave us exponential quately implemented and the most perspectives when drafting ques- obvious reason was the unfeasibil- tionnaires. ity of some of those recommendations. The most promising aspect in From the review, it is not our review was the fact more locals that there is a massive wealth of in- are noticeably getting increasingly formation on this particular topic. interested in local tourist attrac- We also discovered that there has tions. From the review, it is logi- been a fundamental shift towards cally conclusive that there is a lot this kind of research in recent of perspective on the topic but times. However, it has come to our most of the approaches do not im- realization that most of the research pact properly due to lack of input in this area is basically expert anal- from the target customers in the ysis and the recommendations balloon festival activity. Our study thereby are do not account for the in relation to the current state of af- perspectives of the tourists. We al- fairs and the wealth of research so realized that most of the rec- knowledge is in the fact that ommendations had not been ade-

Research Framework

we intend to contribute by consid- sure activity to gain intellectuality), ering the gap in approach and im- social motivation (with the attend- plementation. ing leisure activity to improve interpersonal relationship), compe- Instruments tence-mastery motivation (with the attending leisure activity to im- For the measurement of lei- prove, cope with problem solution sure motivation, Beard & Ragheb ability), stimulus avoidance moti- (1983) designed leisure motivation vation (human nature impetus) measurement to measure leisure were adopted for the study. For the motivation, including intellectual recreation experience, the study motivation (with the attending lei- adopted Beard & Ragheb (1980)

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measurement into psychological, factors between the correlation ma- educational, social, relaxational, trix in the population and appropri- physiological, and aesthetic. ateness of using factor analysis. The research distinguished the standards of factor analysis based Method of Data Analysis on the results of KMO and Bartlett ball test method. The data below 350 participants were used shows the outcome of the both in the study with different respons- tests. Factor analysis does not dis- es to the various questions report- tinguish between dependent varia- ed. To qualify as a respondent in bles and independent variables; it the study, an adult more than 18 places all the factors together and years old is qualified to be a partic- seeks to establish their interrela- ipant. The data collection method tionships. In this research, for the which this research used is ques- “destination image” and “satisfac- tionnaire. Quantitative data will be tion” factors, the results of KMO analyzed by using Statistical Pack- and Bartlett’s check are shown in age for Social Science (SPSS) the following Tables. The destina- software. Descriptive Statistics, tion image and the service quality item analysis, reliability analysis, questionnaire in the study are ra- independent samples Table test, ther suit for factor analysis. and one way ANOVA analysis were adopted. The questionnaire The results of the Bartlett reliability analysis shows that ball test method in the question- Cronbach’s α value is above 0.8; naire from visitors to destination therefore the pretest results indicate image is 3256.298 and to service to keep all questions in the re- quality is 3284.937, indicating a search. And questionnaires item strong correlation between varia- analysis is significant (p ＜0.05) as bles and their suitability for factor well. analysis.

Factor Analysis One Way ANOVA Analysis

Kaiser-Meyer-Olkin meas- From the collected data re- ure of sampling adequacy (KMO) garding destination, parents aged in significantly points out if it is ap- the 36-40 bracket have the highest propriate for the research dimen- grades in recreation experience fac- sion, variables and questions in the tor. Considering leisure motivation survey to conduct factor analysis or and satisfaction part, age group 31- not. The value near 1 means a 35 reported the highest satisfaction. higher relational situation. Hence, Perhaps this situation is due to en- it is appropriate for factor analysis. thusiasm and energy to play with Bartlett ball test method shows the their children and have conduct ex- x² distribution. The higher the cor- periment with their children in the relation coefficient between the balloon activity. In addition, the variables, the greater will be the x² other age groups have no signifi- value. Furthermore, it also stands cant for the situation of the common

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Table 1. Questionnaire Reliability Analysis

Item Motivation Experience Satisfaction Questionnaire 15 15 5 numbers Related Value 0.243- 0.428- 0.398- Range 0.587 0.687 0.713 Cronbach’s α value 0.827 0.889 0.854 Pre-test Results Keep All Keep All Keep All Source: Self-designed

Table 2. Demographic Profile of Respondents

Variable Item Frequency Percentage Accumulated Gender Male 192 54 54 Female 58 46 100 Age 18-25 3 1 1 26-30 101 28 29 31-35 172 49 78 36-40 78 21 99 41-45 4 1 100 Education Senior School & Lower 8 2 2 High & Voc. School 102 28 99 College & Higher 4 1 100 Personal Monthly Less Than 20,000 38 10 10 Income N.T. 20,001-30,000 128 35 45 Dollars 30,001-40,000 102 28 73 40,001-50,000 32 9 82 50,001-60,000 26 8 90 > 60,000 32 10 100 Occupation Manufacturing 9 2 2 Information 19 5 7 Service 88 25 32 Department 28 7 39 Insurance 25 7 46 Business 79 22 68 Free 49 14 82 Police/Public/Education 58 17 99 Others 3 1 100

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------Residence Place North 120 34 34 Middle 83 25 59 South 130 35 94 East 15 4 98 Others 10 2 100 ------

Table 3. The standard of the KMO numbers

0-0.5 0.5-0.59 0.6-0.69 0.7-0.79 0.8-1.0 Very un- Unsuit Common Moderate Suit suit Source: Kaiser, 1974

Table 4. The KMO and Bartlett Check of Leisure Motivation

KMO KMO 0.915 Bartlett Near Chi-Square Dis- 3256.298 tribution Freedom 209 Significance 0.000

Table 5. The KMO and Bartlett Check of Recreation Experience

KMO KMO 0.902 Bartlett Near Chi-Square Dis- 3284.937 tribution Freedom 209 Significance 0.000

difference in service quality, satisfac- experience and satisfaction. We can tion and loyalty, as Table 6. and Table see that in the age 36-40, their recrea- 7. tion experience has the highest aver- Age age. After Scheffe check, in recreation experience factor, 36-40 age level is Different age visitors has dif- significantly higher than 31-35 level ferent explanation on motivation, rec- age visitors. And in leisure motivation reation and satisfaction factor, 31-35 level age The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 195

is significantly higher than 26-30 and are illustrated in the following. Gender 36-40 level age visitors. And visitors has significant difference on the “So- of different age have significant differ- cial” and “Stimulus” of Leisure Moti- ence in recreation experience, as Table vation; “Psychological,” “Psychologi- 7. shows. cal,” and “Aesthetic” of Recreation Experience; “Overall Satisfaction” of The independent t-test of Gen- Satisfaction; for the above items, fe- der on “Leisure Motivation”, “Recrea- male has tion Experience”, and “Satisfaction”

Table 6. One Way ANOVA of Age on Leisure Motivation and Satisfaction

Item Intellect Social Competence Stimulus Satisfaction

25 Young- 3.99 4.36 3.96 4.21 4.09 er(1)

26-30(2) 3.87 3.92 3.78 4.07 4.03

31-35(3) 3.99 4.11 4.08 4.09 4.26

36-40(4) 3.79 4.08 3.80 4.51 4.04

41 older(5) 3.74 4.01 3.72 4.08 4.05

F value 2.503 4.683 2.612 4.985 2.621

P value 0.354 0.003** 0.421 0.002** 0.532

Scheffe n.s. 1＞2,3 n.s. 4＞2,3 n.s.

*p ＜0.05 ** p ＜0.01 *** p ＜0.001 n.s no significance

Table 7. One Way ANOVA of Age on Recreation Experience

Item Psy- Education So- Relax Physi- Aes- cho cio ology thetic 25 3.38 3.49 4.00 3.39 3.88 3.99 Youn ger(1 ) 26- 3.41 3.46 3.98 3.24 3.72 4.08 30(2) 31- 3.35 3.51 3.97 3.21 3.70 4.07 35(3) 36- 3.99 3.89 4.02 3.89 3.96 4.16 40(4) 41 3.39 3.52 3.98 3.21 3.64 4.02 The International Journal of Organizational Innovation Vol 7 Num 1 July 2014 196

older(5) F 4.394 5.184 4.645 5.103 4.181 5.483 value P 0.002 0.000 0.002 0.000 0.002** 0.000 value ** *** ** *** *** Schef 4＞2, 4＞2 4＞2, 4＞2, 4＞2,3 4＞1 fe 3 3 3 *p ＜0.05 ** p ＜0.01 *** p ＜0.001 n.s no significance

Table 8. t-test of Gender on Leisure Motivation, Recreation Experience and Motivation

Factor Item Average Aver- t P(sig) male age Fe- male Leisure Intellectual 3.7 3.79 - 0.029 Motiva- 7 2.27 tion 1 Social 3.4 3.97 - 0.011* 9 2.01 3 Compe- 3.7 3.76 - 0.074 tence 4 1.79 3 Stimulus 3.6 4.21 - 0.000* 9 2.25 ** 3 Recrea- Psychologi- 3.4 4.35 - 0.000* tion Ex- cal 0 2.68 ** perience 4 Education 3.4 3.49 - 0.524 8 0.69 2 Socio 4.0 4.00 - 0.463 1 0.93 4 Relax 3.5 3.58 - 0.071 6 2.19 3 Physiologi- 3.4 3.95 - 0.000* cal 2 2.54 ** 3 Aesthetic 3.5 4.16 - 0.000* 9 2.54 ** 3 Satisfac- Expectation 4.0 4.01 - 0.031 tion Product 0 3.99 1.58 0.052 Perform 3.9 4.56 7 0.000* overall 9 - ** 4.0 1.58 7 3 - 2.65 8

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higher recognition ability than males. loons, themed balloon exhibition, and While other items have no significant having marriage ceremony in balloon difference between male and female. situation

Results Limitations of the Study

Basing on the analyses of the The scope to which the re- data, the following results can be search was carried out was from per- drawn. The participants with demo- sonal examination and engagement of graphic backgrounds of higher educa- certain visitors by use of question- tional background, higher financial in- naires to review of some very im- come and younger to middle ages fre- portant literature relevant to the topic. quent the program than participants of The study had limitations in terms of any other demographics. the number of people we were able to administer the questionnaire to since Participants attending the festi- only 350 were selected for the under- val accompanied with children showed taking. The other limitation was an el- stronger motivation, higher satisfaction ement of non-corporation among the and continued in participation longer target population as only 350 question- than the participants without accompa- naires were valid and useful for the nying children. study. Recommendations The higher motivations the participants had the stronger satisfaction 1. Introduction of better quality and they experienced. This is especially more appealing recreational equip- manifested in the significant correla- ment, especially hot air balloons and tion between leisure motivation and cameras and diversified interesting ac- satisfaction. The correlation between tivities to be incorporated to see to it leisure motivation and recreation expe- that the participants have higher leisure rience is positively significant; the cor- motivation to enjoy what they like relation between recreation experience most. and satisfaction is also positively significant. 2. There should be a concerted effort to raise and sustain the motivational in- The most popular leisure activi- centives since they form the core to ties of Taiwan balloon festival were satisfactory stays at the festival. aerial photo shots from hot air balloons, taking photos with colorful bal-

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3. There should be an aggressive drive with more multiple education- to introduce and incentives promote recreational programs and diversified children programs to increase the interesting activities to be involved number of children involved in the with, the participants would have high- program and by extension, ensure er leisure motivation and satisfaction. stronger motivation, higher satisfaction Second, this study focused on the par- and continued participation for longer ticipants in Kaohsiung city only; the by those who bring them along. other areas within Taiwan should be considered as well to see the difference 4. There should be measures taken to among different culture and back- ensure that the festival is portrayed as ground. Therefore, the further study an inclusive event where no specific can be carried into the participants of group dominates by downplaying any other areas (e.g., Taitung and Hualien depictions of dominance but also tact- city in Taiwan). Third, the researcher fully ensuring the strong attendance recommends that a continuous follow- demographics are retained. up study in the future can be carried by combining quantitative and qualitative Suggestions for further research research methods to explore advanced issues or do comparative study. Based on the above results, the following conclusion and concrete recommendations are as follows: Firstly,

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Tourism Management, 31, 29- Duwan, J. L. (2008). Leisure Activity- 35. Experiment Perspective. Wa-du Publishers, Taipei. Cole, S. T., & Illum, S. F. (2006). Ex- amining the mediating role of Hribernik, J., & Mussap, A., (2010). festival visitors’ satisfaction in Research Note; Leisure Satis- the relationship between ser- faction and Subjective Well vice quality and behavioral in- Being. Annals of Leisure Re- tentions. Journal of Vacation search, 13(4), 701-708 Marketing, 12, 160-173. Kleiber A. (1999). Leisure Experience Curtis, M., (2011). Why Games Work and Human Development; A and the Science of Learning. Dialectical Interpretation. NJ: Retrieved; 19 April 2014 Tor- Basic Books bidoni F., (March, 2011). Man- aging of Recreational Experi- Kline, B. (2013). Free Time; the For- ence Opportunities: The Case gotten American Dream. Phila- of Hikers in Protected Areas in delphia: Temple University Catalonia, Spain. Retrieved; 19 Press April 2014. Manfredo J., Driver L., & Michael, A. Dann, G. (1996). Tourist images of a (1996). Journal on Leisure Re- destination: An alternative search; A Meta-Analysis of the analysis, In D. R. Fesebnauerm Recreational Experience Pref- H, T, O’Leary & M. Uysal erence Scales. JSTOR 28(3), (Eds.), Recent advances in Lindholst c., Burton M. and tourism marketing research Dempsey N., (February 2013). (pp41-55). New York: The Urban Design and Planning. Haworth Press. Proceedings of the ICE 166(5)

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Moneta, B. (2012). Measurement and Weber, D., & Anderson, D. (2010). Conceptualization of Flow. Contact with Nature: Recrea- New York: Springer. tion Experiences in Australian Parks. Taylor Francis Online Morgan M., Lugosi P., & Ritchie, B. 13(2) (2010). The Tourism and Lei- sure Experience; Consumer and Managerial Perspective. San Francisco: Channel View Pub- lications

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EXPECTED DIVIDEND AND EARNINGS MANAGEMENT: EVIDENCE FROM TAIWAN

Szu-Hsien Lin Department of Finance TransWorld University [email protected]

Li-Hua Lin, Department of Information Management TransWorld University [email protected]

Huei-Hwa Lai Customer Experience DBS Bank (Taiwan) [email protected]

Chien-Chung Tu Department of Finance TransWorld University [email protected]

Abstract

The earnings of a firm are not only relevant to its survival, but also affect managers’ performance and stakeholder’s decision. The accrual basis of accounting provides managers the discretion of financial statements. Since the funding of dividends often comes from and is often limited to earnings or equity increased, the accounting earnings are one of the important factors that determine the level of dividend payouts. In other words, when accounting earnings are lower than expected dividend levels, managers will have the incentive for an upward earnings management to prevent decreases in dividends. Daniel, et al. (2008) found that managers treat the expected dividend as an important earnings threshold. This paper followed Daniel, et al. (2008), and adopted the 6145 companies that listed in Taiwan Stock Exchange and OTC market, from 2005 to 2010, to examine the association between dividend threshold and earn-

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ings management. The empirical results support our hypothesis that the dividend threshold is an important incentive for managers to engage in earnings management. This is worth the attention of stakeholders and researchers.

Keywords: Earnings Management, Accruals, Discretionary Accruals, Dividend Policy previous year or analyst forecast in the current year. Managers may Introduction have the incentive for engaging in an upward earnings management, to The earnings of a firm are prevent decreases in payment of div- not only relevant to its survival, but idends. This study followed Daniel, also affect manager’s performance et al. (2008) to examine the associa- and stakeholder’s decision. Howev- tion between expected dividends and er, the business accounting law stip- ulates that a company should adopt the accrual basis of accounting, to earnings management. In Taiwan, as provide managers the discretion of far as we know, few studies are con- financial statements, and the behav- cerned for the relationship between ior of earnings management. The expected dividends (dividend past literature indicated that the in- threshold) and earnings manage- centives for managerial earnings ment. Thus, this study can supple- management include are to maxim- ment such void and act as a basis for ize bonus plan, smooth income, pre- conducting international compari- vent decreases in earnings and Defi- son. cit, or correspond to analysts’ expectation, etc. Review of Literature

In addition, the largest In order to correspond to the source of the firm’s funding of divi- general accounting principle, and dend payouts often come from and based on the principle of matching is limited to the earnings or the equi- cost with revenue, the accounting in- ty increased. Therefore, the earnings formation should be reported on ac- reported in financial statements are crual basis. However, the accrual an essential factor that decides the basis accounting leaves lots of op- level of dividends. Managers will tions and discretions, so these pro- avoid a lower accounting earning vide company managers to engage compared to the expected dividend in earnings management due to vari- level, which may be the earnings of ous incentives and motivations.

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In the academic area of financial idends. Daniel, et al. (2008) found management, there are distinct opin- that managers treat expected divi- ions toward whether firms should dends as an important earnings disburse cash dividends or not. One threshold. supports the “Dividend Irrelevance Hypothesis” of Miller and Modi- Even though there are some gliani (1963), which indicates that in domestic studies indicating the rela- perfect capital market, if the divi- tionship between earnings threshold dend policy does not affect the com- and earnings management of company's capital budget and the own- panies (e.g. Yang and Wu 2003; ers’ expected rate of return, then the Chang and Huang 2005; Tsai and disbursement of dividend is irrele- Yang 2006; Lin, et al. 2009), but vant to the value of the company. they didn’t focus on the expected dividend (dividend threshold), and However, the past empirical investigate its relationship with research documented that after most earnings management. This study companies announced changes in can make up the shortage and pro- dividend, there’s significant change vide an international comparison of in their stock prices, and managers such issues. seem to be willing to make every effort to avoid reducing dividends, Research Design such as DeAngelo and DeAngelo (2006). This study used Taiwan Economic Journal Database, and The debt obligations often collected all listed and OTC compa- stipulate the largest source of fund- nies in Taiwan Stock Exchange ing that companies can disburse Corporation (TWSE) during 2005 to must come from the earnings or eq- 2010 as the research object. We uity increase of the company. There- adopted the panel data analysis, after fore, the earnings of the accounting eliminating financial related indus- report become one of the factors that tries, state-operated enterprises and decide the level of dividends. In the objects with incomplete empirical other word, when the accounting data, there’s only 7,906 companies earnings are lower than the expected remained. Since this regression dividend level, the manager will model contained many variables that have the incentive to improve the need to use the data from previous reported earnings in order to prevent year, the number of companies in the decrease in disbursement of div- 2005 has been reduced from the

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samples. Additionally, some varia- dictive value of the cross-sectional bles have missing values regression model from Jones (1991) (undeclared or without data), so the shown above). actual empirical samples only remained approximately 6,145 and (2) We used the descriptive statistics 4,170 for our different regression value of each variable to observe models (regression (2) and (3)). whether a significant difference in DA between the companies that pay Three procedures are used to dividend and the companies that view the relation between dividend don't pay dividend and the compa- threshold and earnings management. nies with Deficit and the companies without Deficit. (1) This study follows the empirical model of Daniel, et al. (2008), and (3) We used the multiple regression firstly adopts the cross-sectional re- models to see the relationship be- gression model of Jones (1991), as tween expected dividend (dividend shown below: threshold) and the managerial earnings management after controlling Total accrual (below referred as TA) other factors. The empirical regres- TAi ＝a1+a2 △Si sion formula and the variable setting +a3PROPi+a4EQUi+ei (1) used in this study are as shown below: In the above equation, the variable is set as: i. DAit= β0+ β1DEFPit- i: firm i 1+ β2DEFNPit-1 TA: total accrual = reported earn- +β3PAYER+ β4REit-1+ β5CCit- ings before extra-ordinary income – 1+ β6SIZEit-1 operating cash flow +β7LEVit-1+ β8MBit- △S: Increase in annual net sales PROP: Total property 1+ +β9YR+eit (2) EQU: Total plant and equipment Add previous earnings threshold In addition, the discretionary (EARN) and analyst forecast thresh- accruals (DA), that is the residuals ei old (FORC) to control the variables of the cross-sectional regression in regression. model from Jones (1991) shown ii. DAit= β0+ β1DEFPit- above, equals TA – NDA (Non- 1+ β2DEFNPit-1 discretional accruals, that is the pre-

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+β3PAYER+ β4REit-1+ β5CCit- managed earnings (PERM). Among 1+ β6SIZEit-1 which, EXPD (expected dividend) = +β7LEVit-1+ β8MBit-1+ β9EARNit- actual dividend paid in prior year; 1 PREM (pre-managed earnings) = +β10FORCit- Operating cash flow + NDA – preferred stock dividends. 1+ +β11YR+eit (3) PAYER: Dummy variable. If the amount of paid dividend in prior In the equations (2)~(3), each varia- year is larger than zero, then PAY- ble setting is: ER=1, otherwise it will be zero. RE: Retained earnings. CC: The salary and bonus of man- EARN ： Annual earnings reported agers earnings before extra-ordinary in- SIZE: Company size = Log (the to- come – preferred stock dividend. tal book assets) FORC: Analyst forecast earnings LEV: Gearing ratio = total liabilities per share at the end of each year (if / total book assets there’s more than one predictive MB: Book-to-market ratio = (year - value, then substitute with an aver- end total book assets – year-end to- age value) × number of shares out- tal shareholders' equity + year-end standing. stock price × outstanding shares) / The regression equations (2) year-end total book assets to (3) are used to verify the H1 hy- IND: In the category of industry, we pothesis: When accounting earnings merged the industries with fewer are lower than expected dividend firms into the industries with similar level, managers may engage in an characteristics and obtained 20 cate- upward earnings management, in gories. order to avoid a reduction in pay- YR: Yearly dummy variable. If the ment of dividends. fiscal year is 2010=1, otherwise it will be 0. Results DEFP: The Deficit of company that pays dividend; The focus of this study is to DEFNP: The Deficit of company examine the relationship between that does not pay dividend. For expected dividends and earnings DEFP and DEFNP, Deficit = Max management. Unlisted Table (0, earnings shortfall). In the formu- showed that in companies that paid la above, earnings shortfall = ex- dividend, there’s about 33.75% posi- pected dividends (EXPD) – pre- tive Deficit, and the expected divi-

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dend (EXPD) is greater than the real centage that DA is greater than its earnings (PREM), and this result is Deficit decreases as well. slightly higher than the one of previous research (such as Daniel, et al. We used the regression mod- 2008). The average Deficit is about el to control other variable to ob- 6.36 hundred million NT. The aver- serve the relationship between Defi- age of paid dividend among all divi- cit and DA. In Table 2, regression dend-paying companies is about equation (2) observed the impact of 8.39 hundred million NT. Besides, the payment of cash dividends among dividend–paying companies (PAYER) and the Deficit upon DA. without any Deficit, only 26.7% of Our Deficit variable depends on them have positive discretionary ac- whether there is cash dividends or cruals (DA). In contrast, the per- not, and is divided into the two of centage of dividend-paying compa- variables (DEFP and DEFNP). If a nies with Deficit is as high as 79.3% dividend-paying company has posi- that have positive DA. tive Deficit of earnings (PREM), it means the premanaged-earnings do As we arranged companies not meet the expected dividend level from having the least to the greatest (EXPD). Table 2 shows that the re- Deficit, and divided them into six gression coefficient of the Deficit of groups, except the first group of ze- companies that pay dividend ro-Deficit (2,678 companies), the (DEFP) is significant at the 1% level other five groups each contained ap- of significance. This means that the proximately 273 companies. The da- expected dividend level is an im- ta of Table 2 showed that in the ze- portant earnings threshold, which is ro-Deficit group, the average DA is consistent with the result of Daniel, negative; the average DA of each et al. (2008). Whereas, the regres- positive Deficit group is positive, sion coefficient upon the Deficit of a and increases as Deficit increases. In company that does not pay dividend the second group with the least Def- (DEFNP) is negatively significant at icit, there‘re about 57.5% companies the 1% level of significance. The re- with DA that are greater than their sults means that a company which is Deficit. Yet in the fourth, fifth and closer to zero earnings threshold will sixth group, the average of DA is be more likely to engage in earnings smaller than the average of the Defi- management (DA positive); if far- cit, which represents that the Deficit ther from zero earnings threshold, of many companies can’t be elimi- companies will consider the cost of nated by DA. Meanwhile, the per- earnings management, and thus the

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DA values are lesser. This is con- dividend-paying company (DEFP) sistent with Kerstein and Rai (2007). are still positively significant, while The regression coefficient upon that of the Deficit of a company that PAYER variable is also significant does not pay dividend (DEFNP) at the 5% level of significance, then become not significant at the which means a dividend-paying 1% significance level. Accordingly, company’s DA value significantly the empirical result of regression larger than the payment of cash div- equation (2) to regression equation idends of companies. In addition, a (3) supports the hypothesis of this coefficient of retained earnings (RE) study. is significantly negative, in line with theoretical anticipations, which Summary and Conclusions means that retained earnings is the legitimate source of cash dividends, The empirical result of this so the higher retained earnings leads study supports our hypothesis: when to the fewer needs of earnings man- the accounting earnings are lower agement. than the expected dividend level, managers might engage in an up- Last, we added the annual ward earnings management to avoid earnings of the previous year decrease in the dividend payout. (EARN) and analysts forecast earn- That is, expected dividend level is ings (FORC) of the same year into an important earnings threshold. the regression equation (2) to obtain Even under the condition of control- the regression equation (3). We ex- ling other factors, the difference of pected to control the effect that premanaged - earnings and expected managers engaged in earnings man- dividend level can explain most agement to achieve the earnings cross-sectional variations of discre- thresholds (Burgstahler and Dichev tionary accruals (DA). In other 1997) of the previous year earnings words, the dividend threshold is an- as well as analysts forecast threshold other important incentive for man- (Degeorge et al. 1999). Table 2 agers to engage in earnings man- showed that even with the addition agement. of these two variables, the regression coefficient upon the Deficit of a

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References Tsai, L., and Yang Y. (2006). Corporate Governance and Earnings Management Burgstahler, D. and Dichev, I. (1997). to Meet Performance Thresholds, Soo- Earnings Management to Avoid Earn- chow Journal of Economics and Busi- ings Decreases and Losses, Journal of ness, 53, 33-72. Accounting & Economics, 24(1), 99- 126. Miller, M. H., and Modigliani, F. (1961). Dividend policy, growth, and the valu- Chang, W. and Huang H. (2005). Invest- ation of shares, the Journal of Busi- ment Sales, Income-Smoothing and ness, 34(4), 411-433. Market Reward, Journal of Contempo- rary Accounting, 6(2), 153-186. Lin Y., Chiu P., and Ho, W. (2009). Earn- ings Thresholds Effect and Earnings Daniel, N.D., Denis, D.J. and Naveen, L. Management, Journal of Accounting (2008). Do Firms Manage Earnings to and Finance Development , 2(2). 1-16. Meet Dividend Thresholds, Journal of Accounting & Economics, 45(1), 2-26. Tsai, L., and Yang Y. (2006). Corporate Governance and Earnings Management Degeorge, F., Patel, J. and Zeckhauser, R. to Meet Performance Thresholds, Soo- (1999). Earnings Management to Ex- chow Journal of Economics and Busi- ceed Thresholds, Journal of Business, ness, 53, 33-72. 72(1), 1-33. Yang, C. and Wu, S. (2003). Pay- DeAngelo, H. and DeAngelo, L. (2006). Performance Sensitivity, Performance The Irrelevance of the MM Dividend Threshold and Discretionary Account- Irrelevance Theorem, Journal of Fi- ing Choices--An Empirical Study, In- nancial Economics, 79, 293-315. ternational Journal of Accounting Studies, 36, 55-87. Jones, J. J. (1991). Earnings management

during import relief investigations, Journal of Accounting Research, 29(2), 193-228.

Kerstein, J. and Rai, A. (2007). Intra-year Shifts in the Earnings Distribution and Their Implications for Earnings Man- agement, Journal of Accounting & Economics, 44(3), 399-419.

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Table 1. The Discretionary Accruals of Dividend-Paying Companies with Deficit and without Deficit

Number of Deficit(Average, DA(Average, DA> Deficit Company Hundred million Hundred mil- number (%) NT) lion NT) 1st Group Def- 2678 0 -7.79 icit=0 Deficit>0 (To- 1364 6.37 4.77 699 (51.24%) tal) 2nd Group 273 0.19 0.39 157(57.51%) 3rd Group 273 0.68 1.30 149(54.58%) 4th Group 273 1.53 1.44 117(42.86%) 5th Group 273 3.55 3.11 137(50.18%) 6th Group 272 25.91 17.67 139(51.10%) This table shows the relationship between discretionary accruals and Deficits of the sample companies, which are classified into six groups according to their Deficits.

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Table 2. The Affecting Factors of Discretionary Accruals: Regression Equation (2) and Regression Equation (3)

Name of Regression Name of Regression T val- T value V IF V IF Variable Coefficient Variable Coefficient 2 ue DEFP it-1 1.449*** 20.05 1.07 DEFP it-1 1.158*** 16.06 1.100 DEFNP it-1 -0.548*** -4.85 1.11 DEFNP it-1 -0.162 -0.86 1.128 PAYER 207.113** 2.09 1.23 PAYER 167.77 1.08 1.155 RE it-1 -0.140*** -13.98 1.28 RE it-1 0.074*** 2.76 5.915 CC it -17.031 -0.51 1.22 CC it 1.860 0.05 1.163 SIZE *** - 1.764 SIZE -1311.820*** -13.68 1.69 it-1 it-1 1710.68*** -13.14 LEV it-1 -587.770** -2.20 1.19 LEV it-1 -414.745 -1.05 1.216 MB it-1 -2.6835 -0.12 1.03 MB it-1 19.483 0.51 1.020 Number 6143 EARN it-1 -0.135*** -3.18 6.072 of Sample 2 R 0.156 FORC it-1 -0.177*** -3.04 1.122 Adjusted Number of R2 0.152 Sample 4170 F value 140.40*** R2 0.1233 Name of Regression Adjusted R2 T value VIF Variable Coefficient 0.117 DEFP it-1 1.449*** 20.05 1.07 F value 19.40*** This table shows the empirical results of regression equation (2) and regression equation (3). The regression coefficient is at 1% level of significance. Regression coefficient1 is the result of regression equation (2); Regression coefficient2 is the result of regression equation (3). *** ：α(Significant Level)<1% ；** ：α<5% ；*：α<10%

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