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Management Trends Vol. 10, No.

1-2 June-Dece - 2013


CONTENTS
MANAGEMENT TRENDS
An International Bi-Annual Referred Journal of Department of
Business Management
Vol. 10, No. 1-2 June-December - 2013
MANAGEMENT TRENDS
Management Dynamics and Bhagwad Gita 1
Nageshwar Rao & Ram Pravesh Rai
A Study of Impact of Strategic CSR as an Integral Tool For
Expanding Rural Markets Through : A Case Study of Hindustan Uniliver Ltd. 19
Jayrajsinh D. Jadeja & Kedar Shukla
IFRS and Related Implications 27
Daksha Pratapsinh Chauhan
Exploring the Role of Lean Accounting : A Step Ahead from Traditional Costing 34
Vineeta Arora & G. Soral
Disclosure Pattern of Valuation Principles of Raw Material
Inventory in Indian manufacturing Industry (Special reference to AS-2) 44
Shurveer S. Bhanawat & Abhay Jaroli
Influence of Effectiveness of Leadership on Satisfaction of
Leadership in Public and Private Insurance Sectors 56
Dasari Pandurangarao, Gella Sireesha & Devarapalli Rajasekhar
Impact of Brand Association on Soft Drinks Purchase Decision on
Indian Consumers 69
Syed Irfan Shafi & C. Madhavaiah
Relationship Between Working Capital Management and Profitability :
A Case Study 79
Shailesh N. Ransariya
Role of Panchayati Raj Institutions in the Rural Development Programme 88
Brijendra Pradhan & Amit Singh Rathore
Impact of FII on Indian Stock Market 96
Himani Gupta
Last Day of the Trading Period Effect on Volatility in Prices
of Stocks of Bombay Stock Exchange Limited 104
Venkataramanaih. M
Employee Engagement - A Key to Organizational Success 111
Viralkumar Shilu
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Bhagavad-Gita was written thousands of years ago. It enlightens us on all the
facets of management dynamics leading us towards a harmonious and blissful state of
affairs in place of the conflict, tensions, poor productivity, and absence of motivation and
so on, common in most of Indian enterprises today. In Gita, the process of the ascent of
man from a state of utter dejection, sorrow and total breakdown and hopelessness
to a state of perfect understanding, clarity, renewed strength and triumph is revealed.
What makes the Gita a practical psychology of transformation is that it offers us the tools
to connect with our deepest intangible essence, and we must learn to participate in the
battle of life with right knowledge. "Freed from attachment, fear and anger, absorbed in
me and taking refuge in me, purified by the penance of knowledge, many have attained
union with My Being." (Gita 4:10). Effective management is not limited in its application
only to business or industrial enterprises but to all organisations where the aim is to reach
a given goal through a manager with the help of available physical and human resource.
The manager's role can be briefly summed up as:
l Developing vision and enabling & enacting to realise such vision
l Establishing the institutional excellence and building an innovative organisation
Management Dynamics and Bhagwad Gita 1
Management Dynamics and Bhagwad Gita
Nageshwar Rao*
Ram Pravesh Rai**
* Pro-Vice Chancellor, IGNOU, New Delhi
** Assistant Professor, School of Journalism Mass Communication and New Media, Central
University of Himachal Pradesh, Dharamshala-, H.P.
Abtract : Bhagavad-Gita was written thousands of years
ago. It enlightens us on all the facets of management
dynamics leading us towards a harmonious and blissful state
of affairs in place of the conflict, tensions, poor productivity,
and absence of motivation and so on, common in most of
Indian enterprises today. In Gita, the process of the ascent
of man from a state of utter dejection, sorrow and total
breakdown and hopel essness t o a st at e of perf ect
understanding, clarity, renewed strength and triumph is
revealed. This paper aims to analyse Bhagwat Gita in context
of various facets of management dynamics. More specifically,
the paper analyses the issues relating to visionary approach,
innovation, mind power, self-management, value oriented
work culture, motivation, leadership etc.
Keywords: Management Dynamics, Bhagwad Gita, India
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
l Developing human resources
l Team building and teamwork
l Delegation, motivation and communication
l Cultivating the art of leadership
l Reviewing performance and taking corrective steps
This paper aims to analyse Bhagwat Gita in context of various facets of management
dynamics. More specifically, the paper analyses the issues relating to visionary
approach, innovation, mind power, self-management, value oriented work culture,
motivation, leadership etc.
Visionary Approach
Vision is a tremendously powerful force in any walk of life, but in business it is
essential. A vision is a target towards which leaders aim their energy and resources. The
constant presence of the vision keeps a leader moving despite various forces of
resistance: fear of failure; emotional hardships, such as negative responses from
superiors, peers, or employees; or 'real' hardships, such as practical difficulties or
problems in the industry. Equally important, a vision, when shared by employees, can
keep an entire company moving forward in the face of difficulties, enabling and inspiring
leaders and employees alike. Moving toward the same goal, individuals work together rather
than as disconnected people brought together because of having been hired coincidentally
by the same organization. The Gita gives a 'vision of total life' which is deeper and broader
than the western concept of vision. Here, Lord Krishna counsels Arjuna on developing a
broader 'vision of life' for attaining success and happiness. "The quality of our actions and
reactions depend upon our 'vision of life' as envisaged in the Gita. A narrow vision is divisive,
a broad vision is expansive, and the supreme vision is all inclusive.
'The Vision of Life' is extensively explained by Lord in Gita. As explained in
chapter 18th, the three temperaments (gunas)- Satva, Rajas and Tamas fluctuate and mix
in different proportions in our bosom to create differences among individuals in term of
knowledge, karma or works, buddhi or understanding, dhriti or fortitude, and happiness.
Now a days ,the vision about Happiness is gaining vital role both for employees and
management. Lord enlightens Arjuna with the three types of happiness (good, passionate
and dull i.e. sattvic, rajasic and tamasic) in verses. The 'sattvic happiness' is arising
out of the inner self- control and consequent self- perfections which, though painful and
arduous in the beginning, is enduring in the long run, in contrast with the fleeting joys
provided by sense tickling. To discuss the different job perspective for the same job and
how the perspective affects the assignment, we may look at a small story. Three stone-
cutters were engaged in erecting a temple. The contractor asked them what they were
doing. The response of the three workers to this innocent-looking question is illuminating:
'I am a poor man. I have to maintain my family. I am making a living here,' said the
first stone-cutter with a dejected face.
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Management Trends Vol. 10, No. 1-2 June-Dece - 2013
'Well, I work because I want to show that I am the best stone-cutter in the country,'
said the second one with a sense of pride.
'Oh, I want to build the most beautiful temple in the country,' said the third one
with a visionary gleam.
Their jobs were identical but their perspectives were different. What Gita tells us
is to develop the visionary perspective in the work we do.
The innovation
Today, organizations are witnessing an unsurpassed change in an increasingly
global, dynamic and competitive marketplace. Their aim is similar to one another that are
achieving sustainable competitive advantage and long-term success over competitors.
But the road to reach out there is severe and more than easy to say. In order to be competitive
in this dynamic business environment, organizations have to be agile, embrace creativity
and innovative. These latter two, creativity and innovation, are the "motto" for every
business enterprise today. These are the new management mantras that, as Peter Drucker
indicated are critical to growth in a competitive environment without which companies
stall and die. This is the reality of today's relentless business environment. And this reality
leads us to most elusive asset of any company, namely the Human Capital.
It is just simply because an organization's creativity and innovation level totally
depend on the potential of their people. This brings an implication for HR professionals
to set their agenda and to design systems for attracting, developing, retaining talent
and engaging them towards getting the most of their human capital potential. It
seems that the only way is to nurture organizational learning, teamwork and collective
intelligence by stimulating free-flow of ideas along with a disciplined and methodical
approach to continuous improvement. Knowledge and experience are tacit when they are
housed in the minds of the employees. Once the knowledge is written down in some form
it is explicit. Structural capital is the ability to convert tacit knowledge into explicit
knowledge so that the organization is able to retain knowledge.
Managing the knowledge and talent of human resource in favour of organisation is
a great path towards innovation. This concept deals with maximizing the available collective
knowledge and relevant level of talents in an organization. Thus the emphasis should be on
acquiring talents by means of attracting and selecting candidates wisely and retaining them
too. Managing the talents towards innovation followings may be the common steps:
Planning of talent needs
Selecting the best talents
Boosting up productivity
Motivating them
Training for updating skills and knowledge
Measures to retain them
Developing culture to enjoy talent mobility across the organization etc
Management Dynamics and Bhagwad Gita 3
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Now it is very clear that this the game of mind power therefore first of all it becomes
important to understand that the human brain and the mind are not the same things. Both
the mind and mind power are purely a non-physical consciousness (spiritual) that is only
capable of thought, while the brain is the physical tool that the mind uses to carry out a
portion of its intended purpose. The studies have shown that the average person utilizes
only about 10% of their brains capability so, what about the other 90%? The spiritual
principles say that this 90% can be tamed by Dhyan Yoga and Ananda that is widely
discussed in Gita. Thus the power of the human mind is unlimited in its potential for any
kind of innovation.
It is difficult to derive such kind of formula that defines how innovation takes
place. But on the basis of critical observation the innovation process can be derived as:
EXHIBIT: 1 STEPS IN INNOVATION PROCESS
According to Gita, happiness or enjoying the job is the key factor to create ground
for innovation. By this way it is possible to achieve a life of purpose without much struggle
and stress if the perceptions of joy can be developed. By implementing some simple
principles, and following proven, time tested strategies to enhance mind function and
development, one finds that one can literally "attract" and "allow" success to flow in.
Many scientific studies and experiments have been done on the subject of human mind
power and proved that the ability of mind power to reverse and heal illness and disease
that the medical community had previously labelled as irreversible has been developed
by Spiritual faith and Dhyan Yoga. Would our Creator have provided us with mind power
that he had no intention for us to use? That is a valid question. It is a simple formula like
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Management Trends Vol. 10, No. 1-2 June-Dece - 2013
any other extremely simple things that our Creator has provided us with. Man has converted
this extremely simple concept into extremely complex because their believes are covered
with Maya, and so these simple things have become out of reach of the average person,
there are proven and simple means of developing the human mind to consciously and
consistently achieve by following the simple rules that our creator has told us to do. The
lessons given by Lord Krishna in the Bhagavad-Gita are the way to achieve self-realization
and to realize the ultimate truth. These are very basic Universal principles (Spiritual
Laws) that support and have proven that the average human does have the ability to
create unlimited mind power. Becoming aware of, and developing the understanding of,
exactly how these basic principles operate, are the first steps toward realizing our own
true potential to do so. Thus, on the basis of principles propounded in Gita the following
formula can be illustrated to develop one's innovative capability:
Knowledge+ Thought+ Vision +Will power+ Happiness + Action = Innovative
Capability
The Mind Power
Wise selection and optimal utilization of resources is the important lesson of
management science. An instance to justify this statement may be seen when just before
the Mahabharata War, Duryodhana chosen Sri Krishna's large army for his help while
Arjuna selected Sri Krishna's wisdom for his support. This episode gives us a clue for
being an effective manager ? the former chose numbers, the latter, wisdom or mind
power. In the contemporary management scenario, mind power is strategic to managers.
It assumed that managers should be strong and mentally fearless, hence, many of the
management training programme focuses on this. An untrained mind is very weak and
unstable, as a result even a small obstacle coming in its way may make it lose initiative.
Sri Krishna also mentioned that for one who has conquered the mind, the mind is the
best of friends, but for one who has failed to control their mind, the mind will be the
greatest enemy. In the chariot of the body, the five horses represent the five senses
(tongue, eyes, ears, nose and skin). The reins, the driving instrument, symbolize the
mind, the driver is the intelligence, and the passenger is the self. Managers should use
their will power and Dhyan to control the mind (the driving instrument), they should
not let the mind to be controlled by the senses. Sri Krishna described that from anger,
complete delusion arises, and from delusion bewilderment of memory. When memory
is bewildered, intelligence will be lost and when intelligence is lost one falls down
(B.G. 2.63).The psychology or sound mental health of human resource is a peculiar
factor of any organisation as well as any human activity. An expert describes sound
mental health as that state of mind which can maintain a calm, positive poise or regain
it when unsettled in the midst of all the external vagaries of work life and social existence.
Now it becomes very important not only for managers but for all of us to develop our
mind power and tackle its impediments to sustain it. The Gita tells us that how the
impediments can be tackled, which can be illustrated as follows:
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Management Trends Vol. 10, No. 1-2 June-Dece - 2013
EXHIBIT: 2 Monitoring and Controlling the Impediments to Mind Power through
Gita's Way
The speed, greed, ambition and competition are the driving forces of today's rat-
race environment. This lead to the erosion of one's ethico-moral fibre which supersedes
the value system as a means in the entrepreneurial path like tax evasion, undercutting,
spreading canards against the competitors, entrepreneurial spying, instigating industrial
strife in the business rivals' establishments etc. Although these practices are taken as
normal business hazards for achieving progress, they always end up as a pursuit of mirage
- the more the needs the more the disappointments.
Gita tells us how to get rid of this universal phenomenon by prescribing the
following mantras:
l Cultivate sound philosophy of life
l Identify with inner core of self-sufficiency
l Get out of the habitual mindset towards the pairs of opposites
l Strive for excellence through work is worship.
l Build up an internal integrated reference point to face contrary impulses and emotions
l Pursue ethico-moral rectitude
Cultivating this understanding by a manager would lead him to emancipation from
falsifying ego-conscious state of confusion and distortion, to a state of pure and free mind
i.e. universal, supreme consciousness wherefrom he can prove his effectiveness in
discharging whatever duties that have fallen to his domain.
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Impediments to
mind power

Bhakti Yoga
Peace
Detachment
Satisfaction
Karma Yoga
l Frustration
and anger
l Envy
l Anguishness
l Greed
l Egotism
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Bhagawan's advice is relevant here:
"tasmaatsarveshukaaleshumamanusmarahyuddha cha"
'Therefore under all circumstances remember me and then fight' (Fight means
perform your duties)
Self-Management
A manager always thinks to play all the roles very effectively but faces some
impediments to be effective in his job. Here, Bhagwat Gita proclaims that 'you should try
to manage yourself'. It means managing the self is very critical. Unless the Manager
reaches a level of excellence and effectiveness that sets him apart from the others whom
he is managing, he will be merely a face in the crowd and not an achiever. The despondent
position of Arjuna in the first chapter of the Gita is a typical human situation which may
come in the life of all. Sri Krishna by sheer power of his inspiring words raised the level
of Arjuna's mind from the state of inertia to the state of righteous action, from the state of
faithlessness to the state of faith and self-confidence. These are the powerful words of
courage, of strength, of self-confidence, of faith in one's own infinite resource, of the
glory in the life of active people.
When Arjuna got over his despondency and stood ready to fight, Sri Krishna gave
him the gospel for using his spirit of intense action not for his own benefit, not for satisfying
his own greed and desire, but for using his action for the good of many, with faith in the
ultimate victory of ethics over unethical actions and truth over untruth. Arjuna responds
by emphatically declaring that all his delusions were removed and that he is ready to do
what is expected of him in the then situation. Sri Krishna's advice with regard to temporary
failures in actions is 'No doer of good ever ends in misery'. Every action should produce
results: good action produces good results and evil begets nothing but evil. The Gita
further explains the theory of "detachment" from the result which enables to analyse the
situation more objectively and accurately and stresses on importance of self-management
or personal management first before managing the others i.e. human resource management
(HRM). Self-management includes all aspects of management of oneself such as managing
life, time, stress, anger, fear and self-control etc. In explaining the position of a self-
realized person, the Gita stressed the aspects such as controlling the mind, determination,
giving up sense gratification, being free from attachment and hatred, body and mind
control, power of speech, free from false ego, false pride and anger as essential part of
self-management
Value Oriented Work Culture
Work culture means vigorous and arduous effort in pursuit of a given or chosen
task. When Sri Krishna rebukes Arjuna in the strongest words for his unmanliness and
imbecility in recoiling from his righteous duty it is nothing but a clarion call for the
highest work culture. Poor work culture is the result of tamoguna overtaking one's mindset.
Sri Krishna stinging rebuke is to bring out the temporarily dormant rajoguna in Arjuna.
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Management Trends Vol. 10, No. 1-2 June-Dece - 2013
The Gita elaborated two types of Work Ethic viz. divine work culture and demonic work
culture. Daivi work culture - means fearlessness, purity, self-control, sacrifice,
straightforwardness, self-denial, calmness, absence of fault-finding, absence of greed,
gentleness, modesty, absence of envy and pride. Asuri work culture - means egoism, delusion,
desire-centric, improper performance, work which is not oriented towards service. It is to
be noted that mere work ethic is not enough in as much as a hardened criminal has also a
very good work culture. What is needed is a work ethic conditioned by ethics in work.
Often people comment that the central message in Bhagwat Gita is about the notion
of karma yoga. It will be very useful to understand how this issue is laid out in the Gita.
First of all Lord Krishna establishes a paradigm that there is nothing called "the state of
inaction". He clearly says in chapter 3 that there is nothing likes akarma (no action or
inaction). Why did he say that? Because only then we will focus on the issue of how to do
work correctly. It is natural then for us to ask how to do work. He says enjoy complete
degree of freedom and total joy while engaging in work. That is the idea. While we are in
the thick of work can we enjoy? Gita emphatically replies in the affirmative. Krishna goes
to the extent of saying that with such a perspective to work, we may realize that even
when we do a lot of work, we do not feel like indeed engaging in any.
Management is all about doing work, doing it efficiently and ensuring that results
follow. Viewed from this perspective, Gita offers counter-intuitive ideas on these issues.
The axioms of work have been proposed in Gita is also relevant in modern management
style. There are four aspects to this, which is brought out in this famous shloka in Gita:
H$_ ` od m{Y H$maVo _ m\ $c of w H$XmMZ & "Karmanye Vadhikaraste Ma Phaleshu Kadachana,
_ mH$_ \ $c h oVw^ y: _ mVog mod H$_ {U && Ma Karma Phala Hetur Bhurmatey Sangostva
Akarmani"
When one is told that he/she has to do the work, he/she does not ask for results or
bother about what causes these results, the normal tendency in some cases is to say, "well
in that case, I am not interested in doing the work". The last component takes away that
possibility. Since in Gita, the notion of non-work or inaction is not a feasible alternative,
the last component makes sense. The most difficult part is the second and the third
component. How can someone do the work and yet not have the right for results? This
requires some more articulation and understanding of the idea.
We are told that we need to work for results. Why is then Lord Krishna advocating
the antithesis of this? In order to get this clear, let us trace some side effects of working for
results. Many of us with some work experience will be able to relate to these side effects:
l Result orientation can make one wary of failures, we may refuse to undertake great
activities. It is much in news that student ended his life because he did not clear the
exam.
l We have a tendency to excessively focus on ends instead of means. This is what most
working in Multi-National Companies are busy doing. Modern day managers spend
significant time to manager "performance reports" rather than "performance" itself.
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l In order to be good in managing the performance report, "process orientation" must
give way for "result orientation"
l What are results at the end of the day? They are issues of the future about which we
spend our time in the present. Therefore, we may tend to escape the dynamics of
"present" and go after "future"
The apparent confusion that we have in understanding this shloka is that when we
say you have no right to the results, it merely suggests that take off your pre-occupation
with results and have a process orientation. We have the right to work only but never to its
fruits. Let not the fruits of action are your motive. Nor let our attachment be to inaction.
The first half of this verse is a simple factual statement, which each one of us experiences
in the day to day life. One cannot have an absolute authority over the final outcome of any
action. There is always a possibility of discrepancy between expected result and actual
result. Thus 'Karmanyevadhikaraste' becomes a scientific statement. There is no wonder
that strategic planning methods like 'SWOT Analysis' acknowledge the same scientific
fact. SWOT analysis is a strategicplanning method used to evaluate the Strengths,
Weaknesses, Opportunities, and Threats involved in a project or in a business venture.
Strengths/ Weaknesses are intrinsic characteristics of the business. Opportunities/ Threats
are impacts of external elements.) Lord Krishna propels Arjuna to perform his duties,
while staying selflessness to success or failure; not thinking of the fruit of action - once in
the field of activity and relinquishing attachment. He who gives up all desires and moves
free from attachment, egoism and thirst for enjoyment, attains peace which is the most
essential thing in life. When the work perspective developed in our thought with antecedent
mind set passes through the pipe line of the karma principle the consequences would be
different, this can be illustrated as:
EXHIBIT: 3 Value Oriented Work Culture
Management Dynamics and Bhagwad Gita 9

Ethical values
Cultural Values
Human values
Organisational
values
Professional
effectiveness
Ethical behaviour
Institutional
commitments
Job satisfaction
Inculcation of
Karma
o No Expectation of
results
o Emphasis on
working
o Moral duty
o Selfless action
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
This should not be seen as antithesis to Management by Objectives (MBO) and
Management By Results. It tells us that we should build a work culture wherein values
occupy an important place. The inculcation of ethical values,cultural values,organisational
values and human values in Karma will give effective results.
Motivation
Dedication for work means to 'work for the sake of work'. The Gita tells us not to
mortgage the present commitment to an uncertain future. If we are not able to measure up
to this height, then surly the fault lies with us and not with the teaching. It has been
presumed for long that satisfying lower needs of a worker like adequate food, clothing
and shelter, recognition, appreciation, status, personality development etc are the key
factors in the motivational theory of Maslow. It is the common experience that the spirit
of grievances from the clerk to the Director is identical and only their scales and
composition vary. It should have been that once the lower-order needs are more than
satisfied, the Director should have no problem in optimising his contribution to the
organisation. But more often than not, it does not happen like that; the eagle soars high
but keeps its eyes firmly fixed on the dead animal below. On the contrary a lowly paid
school teacher, a self-employed artisan, ordinary artistes demonstrate higher levels of
self- realization despite poor satisfaction of their lower- order needs.
This situation is explained by the theory of Self-transcendence or Self-realisation
propounded in the Gita. Self-transcendence is overcoming insuperable obstacles in one's
path. It involves renouncing egoism, putting others before oneself, team work, dignity,
sharing, co-operation, harmony, trust, sacrificing lower needs for higher goals, seeing
others in you and yourself in others etc. The portrait of a self-realising person is that he is
a man who aims at his own position and underrates everything else. On the other hand the
Self-transcenders are the visionaries and innovators. Their resolute efforts enable them to
achieve the apparently impossible. They overcome all barriers to reach their goal. The
Gita further advises to perform action with loving attention to the divine which implies
redirection of the empirical self away from itsegocentric needs, desires, and passions for
creating suitable conditions to perform actions in pursuit of excellence. It is found that all
work irrespective of its nature have to be directed towards a single purpose that is the
manifestation of essential divinity in man/woman by working for the good of all beings -
lokasangraha. . The same motivation is given by Sri Krishna in the Third Chapter of Gita
when He says that 'He who shares the wealth generated only after serving the people,
through work done as a sacrifice for them, is freed from all the sins. On the contrary those
who earn wealth only for themselves, eat sins that lead to frustration and failure.'
It is in this light that the counsel 'yoga karmasukausalam' should be understood.
Kausalam means skill or method or technique of work which is an indispensable component
of work ethic. Yoga is defined in the Gita itself as 'samatvam yoga uchyate' meaning
unchanging equipoise of mind. Tilak tells us that performing actions with the special
device of an equable mind is Yoga. By making the equable mind as the bed-rock of all
actions Gita evolved the goal of unification of work ethic with ethics in work, for without
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ethical process no mind can attain equipoise. The principle of reducing our attachment to
personal gains from the work done or controlling the aversion to personal losses enunciated
in Ch.2 Verse 47 of the Gita is the foolproof prescription for attaining equanimity. The
common apprehension about this principle that it will lead to lack of incentive for effort
and work, striking at the very root of work ethic, is not valid because the advice is to be
judged as relevant to man's overriding quest for true mental happiness. Thus while the
common place theories on motivation lead us to bondage, the Gita theory takes us to
freedom and real happiness. Is it not what the total quality management (TQM) philosophy
is also arguing about? Further, it may be asked, why do we want to take the fixation from
results and instead concentrate on the work itself? The simple answer to it is that by doing
do it lets you literally "get lost in work". When one gets lost into work, the traditional
barriers of efficiency and motivation are broken and the individual treads into extraordinary
performance born out of inspiration. Perhaps, that is how a Nobel Laureate or a great
scientist or a visionary leader would have spent several years of his/her time.
We often say when we do very interesting things in life, "I never knew how time
passed" That is a good indication of our ability to practice Karma Yoga. This is neither an
unknown or impossible idea to mankind. Every day we all practice this when we have
deep sleep. We rise from the deep sleep and remark that we had a sound sleep. By that
what it means is no matter what sound others made in the vicinity I continued to sleep.
Therefore it is hardly surprising that we can draw such alternative ideas and thoughts
from Gita. However, in order to benefit from this immensely, in the domain of management,
we need to step out of the world of rationality and tread into unknown areas. Perhaps a
nearest reference to this idea in modern day is "out of the box" thinking or thinking
"without" the box. This in itself is a paradigm shift in perception that we need to make in
our own mind.
One of the biggest problems that we are facing in our daily life, professional work
and personal life is that we don't seem to enjoy what we are doing. There was no word
like boredom in the dictionary about 400 years - 600 years ago. Today the children say "I
am bored". Young professionals want to adopt the western model of "weekend getaway".
We need weekend getaways if work is perceived as drudgery and an avoidable aspect of
our life. Such a perspective can never get the best from work place that modern business
management is worried about. What is this boredom? Why does it happen? Because we
don't enjoy what we are doing, we get bored. The basic tenet of Gita is antithesis to this
idea that work could be drudgery. First understand there is nothing like state of no work.
We cannot run away from work as there is nothing called "no work".
Further, if we always calculate the date of promotion or the rate of commission
before putting in our efforts, then such work is not detached. It is not "generating excellence
for its own sake" but working only for the extrinsic reward that may (or may not) result.
Working only with an eye to the anticipated benefits, means that the quality of performance
of the current job or duty suffers - through mental agitation of anxiety for the future. In
fact, the way the world works means that events do not always respond positively to our
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calculations and hence expected fruits may not always be forthcoming. It is also criticised
that not seeking the business result of work and actions makes one unaccountable. In fact,
the Bhagavad-Gita is full of advice on the theory of cause and effect, making the doer
responsible for the consequences of his deeds. While advising detachment from the avarice
of selfish gains in discharging one's accepted duty, the Gita does not absolve anybody of
the consequences arising from discharge of his or her responsibilities. Attachment to
perishable gives birth to fear, anger, greed, desire, feeling of "mine" and many other
negative qualities. Renounce attachment by regarding objects for others and for serving
others. Depend only on wisdom (not body, nor intellect), and the dependency on the
world will end. Renouncing attachment is the penance of knowledge, which leads to His
Being - Truth, Consciousness and Bliss. (B.G.4.10) Thus the best means of effective
performance management is the work itself. Attaining this state of mind (called "nishkama
karma ") is the right attitude to work because it prevents the ego, the mind, from dissipation
of attention through speculation on future gains or losses.
There have been many studies examining staff motivation and here are few examples
of what commonly employees feel about their motivational needs or factors:
" The working environment - poor or inadequate equipment or work facilities
" Working Conditions - too hot, too cold, no breaks, long hours ,rest etc.
v Social Interaction - isolation, socialisation discouraged etc
v Job Security - redundancies, feeling not part of company etc
v Skill or intellectual use -inability or discouragement to use intellectual or skill
v Promotional prospects and job title - lack of promotion, others promoted but not
them
v Responsibility - not allowed to work off own initiative
v Recognition and appreciation - lack of praise or recognition for achievement
v Trust and respect - treated as a machine
v Participation in decision making - not allowed to get involved with company
v A sense of belonging - Salary - pays poor for job they are doing
v Management issues - conflicts with management, etc
This situation is explained by the theory of self-transcendence propounded in the
Gita. Self-transcendence involves renouncing egoism, putting others before oneself,
emphasizing team work, dignity, co-operation, harmony and trust - and, indeed potentially
sacrificing lower needs for higher goals. "There are signals from inside; there are voices
that yell out. This is a path, one of the ways that we try to teach self-actualization and the
discovery of self. The discovery of identity comes via the impulse voices, via the ability
to listen to your own guts, and to their reactions and to what is going on inside of you." .
12 Nageshwar Rao & Ram Pravesh Rai
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
The great teachings of "Gita" come into play, these philosophies teach you all about, how
you should do your duty, how you should lead your life etc. These "Gita" teachings were
given by "Lord Sri Krishna" to his disciple "Arjuna" on the battle field of Kurukshetra in
Haryana state of India in ancient times. "Arjuna" was involved in a war against his enemies
(some of them his own relatives too) but he refused to do his duty of fighting a righteous
battle as he got infatuated & started thinking of his enemies as his own near & dear ones.
He told his master "Lord Sri Krishna" that he is going away from the war & do not want
to fight on the battle field. Arjuna's mentalhealth became weak & he got deeply depressed.
To overcome his disciple Arjuna's depression & to motivate him to fight a righteous war,
"Lord Sri Krishna" gave the great teachings of "Gita" to his disciple "Arjuna". After
listening to all these great teachings, Arjuna's mental health became well & he became
motivated & energetic to fight the war.
The Bhagavad-Gita was delivered by Sri Krishna to boost Arjuna's declining morale,
motivation, confidence to his (Arjuna) intra-personal conflict, which was to fight or not
to fight the war at Kurukshestra. Thus the transformation of Arjuna from a self-centred,
restless person to a conscious, peaceful person is a case of effective motivation. As shown
in the table, the condition of Arjuna before Krishna's voice was
Exhibit: 4 Motivation Process in Gita
Arjuna before Gita's Voice Gita Professes Arjuna after Gita's voice
u Disappointed u Bhakti yoga u Enthusiastic
u Fear of sin u Karma yoga u No fear
u In dilemma u Jnana yoga u Static mind
u Away from duty u Raj yoga u Motivated towards duty
u Unable to think u Wisdom u Increase in Thinking
Capability
u Family attachment u Duty Consciousness u Detached from family
bond
u Disturbed Peace u Immortality of soul u Peaceful brain
very critical but the analysis of the individual character of Arjuna reveals that
Arjuna was the great warrior and able to face toughest circumstances. But the real time
situation at the battle field made his condition critical and after the Gita process he again
becomes well motivated towards his goal. This instance shows the key role of motivational
factor. Hence, the Gita is all about motivation process. And the modern management
principles also support the importance of motivation as key factor. Now it becomes clear
that whether we acquire power, position, money, good mental and physical health etc, but
motivation is badly required to unite all our inner power and transform our self to
enthusiastically face the challenges before us.
Management Dynamics and Bhagwad Gita 13
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Leadership
The wisdom of the Bhagavad Gita contains many leadership lessons that are similar
to contemporary leadership theories and practices. Many contemporary leadership topics
such as emotional intelligence, situational leadership, character and integrity were already
discussed in the Bhagavad Gita thousands of years ago. These topics were discussed in a
philosophical context, as management science as we know today did not exist then. It is
also intriguing to find other management concepts embedded in the Gita. Thousands of
years before Frederick W. Taylor defined work and worker, and Peter F. Drucker defined
knowledge and knowledge worker, the topics of work and knowledge were already in the
Bhagavad Gita.. He suggests that the Gita provides advice on mission and core values,
the development of new capabilities, the importance of developing business connections
and communication, and the duty of managers to maintain a purpose-centric perspective.
"Whatever the excellent and best ones do, the commoners follow," says Sri Krishna in the
Gita. The visionary leader must be a missionary, extremely practical, intensively dynamic
and capable of translating dreams into reality. This dynamism and strength of a true leader
flows from an inspired andspontaneous motivation to help others. "I am the strength of
those who are devoid of personal desire and attachment. O Arjuna, I am the legitimate
desire in those, who are not opposed to righteousness," says Sri Krishna in the 10th
Chapter of the Gita.
After hearing 575 verses from Sri Krishna in the Bhagavad-Gita, Arjuna was
motivated, energized and acted according to Sri Krishna's instruction. This is transformation
leadership.It explained - "He (Arjuna) stood steady on the ground with bow and arrow in
hand. He lifted his arms ready to fight the war". Sri Krishna demonstrated transformational
leadership qualities in developing and guiding Arjuna to victory in the war. The Gita
represents the struggles encountered by all humans in everyday activities, including the
struggles of leadership. The Bhagavad Gita provides guidance to modern day leaders
regarding important leadership qualities and vision of life which facilitates healthy
organizational behaviour and success.
Management needs those who practise what they preach. This is the leadership
quality prescribed in the Gita. The visionary leader must also be a missionary, extremely
practical, intensively dynamic and capable of translating dreams into reality. This dynamism
and strength of a true leader flows from an inspired and spontaneous motivation to help
others. "I am the strength of those who are devoid of personal desire and attachment. O
Arjuna, I am the legitimate desire in those, who are not opposed to righteousness" says
Sri Krishna . Organizations whose leaders lack vision are doomed to work under the
burden of mere tradition. They cannot prosper and grow as they are reduced to keeping
things the way they have always been. For leaders, a vision is not just a dream; it is a
reality that has yet to come into existence. Vision is palpable to leaders; their confidence
in and dedication to vision are so strong they can devote long hours over many years to
bring it into being. In this way, a vision acts as a force within, compelling a leader to
action. It gives purpose to a leader. Sensing purpose and commitment creates the power
14 Nageshwar Rao & Ram Pravesh Rai
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
of vision and inspire the leaders to respond and work. Warren Bennis, having spent many
years working with leaders, concluded "while leaders come in every size, shape, and
disposition--short, tall, neat, sloppy, young, old, male, and female---every leader I talked
with shared at least one characteristic: a concern with a guiding purpose, an overarching
vision. They were more than goal-directed" (Bennis, 1990). Peter Kreeft says that "to be
a leader you have to lead people to a goal worth having-something that's really good and
really there" (Stewart, 1991). That essential "something" is the vision.
The relationship between leadership and the concept of yoga as propounded in
Gita is established below:
EXHIBIT: 5 LEADERSHIP AND GITA
Management Dynamics and Bhagwad Gita 15
An effective leader is one who judiciously blends knowledge, skills and values.
The three types of yoga as propounded by Gita confers the same.This gives the leader not
only the mind power,right attitudeand innovative vision but also it promotes and strengthens
his ability to blend task orientation and people orientation(Managerial Grid)
The results of inner discipline and contemplation bring about tranquillity (prasad)
in intellect, and from this tranquillity of the intellect gurgles out the 'happiness', which is
called 'sattvic happiness'. The 'rajasic happiness' arises only when the sense organs are
directly in contact with the sense- objects. In the beginning it is quite nectarine and alluring,
but it creates in the enjoyer a sense of exhaustion and dissipation in the long run. This
temporary happiness provided by the sense- objects is termed as the 'rajasic happiness'.
In 'tamasic happiness', the permanent ever existing goal of life recedes to the background
on account of the non- apprehension of reality (nidra) and this results in simple
sensegratifications at the flesh level. These kinds of pursuits incapacitate the intellect to
think out correctly the problems (alasya) that face it and to arrive at a right judgement.
When theof the higher in us (pramada). Such a 'happiness', which deludes the soul, both
at the beginning and the end is termed as 'tamasic happiness'.
Values
Skills
Knowledge
ETHICS
(Bhakti yoga)
WISDOM
(Jnana yoga)
ACTION
(Karma
L
E
A
D
E
R
S
H
I
P
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Conclusion:
The Bhagavad-Gita was delivered by Sri Krishna to boost Arjuna's declining morale,
motivation, confidence to his (Arjuna) intra-personal conflict, which was to fight or not to
fight the war at Kurukshestra Sri Krishna gave not only spiritual enlightenment to Arjuna (
and to all of us) but also the art of self management, conflict management, stress &, anger
management, transformational leadership, motivation, goal setting and many others aspects
of management which can be used as a guide to increase our managerial effectiveness.
Unlike the western approach to managerial effectiveness, which focuses in exploring the
external world of matter and energy, the Bhagavad-Gita recommends a managerial
effectiveness approach, which focuses on exploring the inner world of the self.
References:
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o Sharma, A. and B. Talwar. Business excellence enshrined in Vedic (Hindu)
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Organizational Creativity', Academy of Management Review 18(2), 293-322.
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Management Dynamics and Bhagwad Gita 17
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Websites:
o www.sathyasai.org,
o www.en.wikipedia.org
o www.gitapress.org,
o www.vedanta.og,
o www.guruvayur.com
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o www.managementparadise.com
18 Nageshwar Rao & Ram Pravesh Rai
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
A Study of Impact of Strategic CSR as an Integral Tool
For Expanding Rural Markets Through
A Case Study Of Hindustan Uniliver Ltd.
A Study of Impact of Strategic CSR as an Integral Tool For Expanding Rural Markets Through 19
Jayrajsinh D. Jadeja*
Kedar Shukla**
* Dean of Faculty of Management Studies at The M.S.University of Bardoa - Vadodara
Email : jdjadeja@yahoo.co.uk
** Associate Professor of Marketing Management at GIDC Rofel Business School - Vapi
Email : kedars1111@gmail.com
Abstract : Evolving from remaining just charitable or
philanthropic activity, of earlier days Corporate Social
Responsibility (CSR) has been a leading and emerging
strategic management concept of the modern days'
management. There are sizable numbers of research papers,
which lead to conclude that business organizations involving
in discharging their Social Responsibility and duties
towards the society, not only helps to the society but it equally
benefits to the their own business organization directly and
indirectly in achieving their business units goals. Strategic
Approach of CSR advocates the discharge of the CSR in a
way, which helps the society and increase the "organizations'
value" by benefiting in it's operations. During the last decade
researchers' have attempted to measure the impact of the
CSR activities on the various functions of the organization
like Marketing, Finance , Human Resource, Production etc.
Management literature review of the research papers reveals
that in India 'Rural Development' is one of the prime area
of concern for the business having great growth potential ,
and many organizations choose the 'Rural Development' as
their area of discharging their CSR. Does a CSR investment
make any sizable contribution in expanding market also in
the rural area for the organization or the industry? In the
present research paper researchers' have attempted to
answer this question with the help of secondary data of the
organizations which has invested their CSR funds in to the
rural development.
Key Words : Corporate Social Responsibility ; Rural
Marketing , Brand Image, Ethics
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
(I ) I ntroduction
India's historic freedom struggle was characterized to a great extent by concern
for the problems like mass poverty, protection for farmers, artisans, inflation, the need for
industrialization and reconstruction of entire socio-economic life. During the period of
post independence the image of Indian business leaders was under the criticism for not
being sensitive towards the society. The perception of the society for them was of being
capitalist and adopter of the many unfair practices for increasing profits. On one hand
the business was and have been resting on the hoarding black marketing, adulteration,
profiteering, unethical practices etc, on the other hand social responsibility concept was
also emerging during that phase out of all the darkness. Business leaders like Shri. Arvind
Mafatlal had remarked that "Businessmen and industrialist should discharge their social
responsibilities on a scale and on such diverse lines that they would go beyond the
requirements of various law of the country, it is indeed important that the business grows
the majority of the human being settled at the villages of India, and benefits of the business
must reach to them."
A group of the business leaders started believing that "The tarnished image of the
private business can be improved and brightened only if it discharges social responsibilities
honestly and as a matter of fact a moral duties."
Mid-seventy onwards Social responsibility of business has remained central
business concept among the businessmen, researchers and academicians. With evolution
of business in India, India has turned to one of the fastest growing economy and so as, the
role of CSR has also evolved and now it has not remained just a charitable activity of the
business but it has turned to the one of the most discussed and debated strategic business
management concept."
In the present research paper , we have tried to understand the impact of strategic
CSR on the business organizations' performance , which we have studied through the
case studies of the companies Proctor and Gamble and Hindustan Unilever Ltd.
(I I ) Research Methodology
For the study of Strategic CSR and it's impact secondary data analysis methodology
has been used with the descriptive research analysis, Secondary data related to study has
been obtained from Hindustan Uniliver Ltd. and the same has been reproduced as a case
study. It has been attempted to study the scope of strategic CSR and impact measurement
through the secondary data analysis and descriptive research. Since the same has been
presented as the case study no hypothesis has been formed.
(I I I ) Review of Literature
(A) Corporate Social Responsibility as Strategic Management Concept.
The understanding of the Corporate Social Responsibility has been evolved with
the time and has widely understood as,
20 Jayrajsinh D. Jadeja & Kedar Shukla
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Milton Friedman (Friedman, 1970). "There is one and only one social responsibility
of business - to use its resources and engage in activities designed to increase its profits
so long as it stays within the rules of the game, which is to say, engages in open and free
competition without deception or fraud"
Peter Drucker (1984) , legend of Modern Management , remarked in his paper
'The new meaning of corporate social responsibility (1984, California Management
Review) "Social responsibility is the term used to assert or assign - leadership responsibility
of the businessman with respect to the "culture" of the community. - Responsibility for
social impacts is a management's responsibility not because it is a social responsibility
but because it is a Business responsibility."
From the various empirical results of various research work carried out to 'assess
the impact' of CSR efforts on the various functions as mentioned earlier, leads to the fact
that there is a direct impact of the CSR activities and approaches of the companies on it's
functional dimensions like , Marketing Management, Human Resource and Financial
Management. Although there are very few results which establish negative co-relations
of the CSR investment on the various functional department, but by and large it is seen
from the study that investment made by the organization in the CSR activities are positively
linked with it's other prime functions like Finance, Human Resource and Marketing
functions mainly. The interlink of the relationship can be diagrammatically represented,
CSR and I t's Linkage with Business Functions
A Study of Impact of Strategic CSR as an Integral Tool For Expanding Rural Markets Through 21
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
(I V) CSR as Marketing Tool and I t's Support in Expansion of Rural Market.
Host of research has been carried out to check the impact of CSR on Marketing
Function , to an extent the CSR efforts of the organization often faced the criticism of just
and 'investment for marketing' or 'business investments.' Sighting some of them as,
Holt (1995) , Glazer and Konrad(1996)
Holt founds that consumers product choice sends the social signals regarding their
personality attributes, similarly Glazer and Konrad examine the role of social signals in
the realm of charitable behavior. Their model implies that purchasing CSR- Associated
products , is a specific method of making charitable donations - should also serve as a
social signal.
Varandarajan and Menon (1998)
They categorize CRM among CSR initiatives that "Do Better by Doing Good." In
other words, CRM not only increases the company's revenues but also contributes to
societal welfare. They defined CRM as: 'The process of formulating and implementing
marketing activities that are characterized by an offer from the firm to contribute a specified
amount to a designated cause when customers engage in revenue-providing exchanges
that satisfy organizational and individual objectives.'
Quattrone and Tversky (1984)
On attempt to study on , what specific motivations that drive the decision to purchase
a CSR - associated product , they have found out that people often engage in behaviors in
order to signal to themselves that they possess a particular desire trait , even when there
are no social incentives.
Sen and Bhattacharya (2001)
Most companies than ever engage in CSR activities , however the Research by the
Sen. and Bhattacharya , shows that communicating about CSR activities does not
necessarily results in positive business effect always for the companies. Furthermore, it
shows that the companies that are criticized the most in the area of CSR are also the ones
that are the criticized the most. However it is also found in their research that, products
with a CSR-association are extremely popular among the consumers.
However from the presented literature review it is leading to a clear conclusion
that CSR investments and approaches have a direct impact on the 'Marketing Functions'
mainly to sump up we can say that,
l CSR investments build the strong and ethical Brand Value of the organizations.
l Specifically in India, though the base of Rural Market is wide enough the contribution
in the business in low from the same, therefore many FMCG and Consumer durable
companies uses corporate social responsibility concept in creating brand awareness
and expanding rural markets.
22 Jayrajsinh D. Jadeja & Kedar Shukla
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
l Consumers are often willing to buy the 'socially responsible products' or 'environmental
friendly products.'
l Organizations have started diverting or minimizing advertisement expenditure to
socially responsible causes, there are results which favors that the same helps in building
brands and results in to higher profitability.
It's undoubted fact that the 'Corporate Social Responsibility' approaches of the
organization as well as , Socially responsible behavior of the 'Corporate' indeed has helped
the 'brands' in reaching to the rural markets and expanding rural market which has almost
sixty percentage of Indian population. As a result of that, not only Corporate Social
Responsibility has not only helped the society but it has also helped the business. Select
examples of CSR supporting marketing and rural market expansion have been presented
here in brief.
(I V) CSR of Hindustan Unilever Ltd. And I t's Market I mpact.
(a) A Case Study of Project Shakti' By Hindustan Uniliver Ltd.
HLL in the year 2001 estimated the rural consumer base for their products as 100
million users by, 2005. With a mission of reaching them through the CSR by approaching
minimum 100000 villages by the end of the year 2005, through the CSR "Project Shakti "
CSR Project Shakti for HLL as a strategic tool to reach rural consumers
A. PROJ ECT SHAKTI - Vision : Changing Lives in Rural India ; Mission: Reaching
100000 villeges of India to reach 100 million consumers.
Project Shakti is HLL's rural initiative, which targeted small villages with population
of less than
2000 people or less. It seeked to empower underprivileged rural women by
providing income generating opportunities. Project Shakti launched with an aim to
improve the standard of living of the rural community, by providing health and hygiene
education.
In general, underprivileged rural Indian women were target, who were needing a
sustainable source of income. Project Shakti has been a pioneering effort in creating
livelihoods for rural women, organized in Self-Help Groups (SHGs), and improving living
standards in rural India. Project Shakti has been providing critically needed additional
income to these women and their families, by equipping and training them to become an
extended arm of the company's operation.
Started in 2001, Project Shakti had been extended to more than 30000 villages in
196 districts in 11 States during the year 2004, - Andhra Pradesh, Karnataka, Gujarat,
Madhya Pradesh, Tamil Nadu, Chattisgarh, Uttar Pradesh, Orissa, Punjab, Rajasthan and
Maharashtra. The respective state governments and several NGOs are actively involved
in the initiative.
A Study of Impact of Strategic CSR as an Integral Tool For Expanding Rural Markets Through 23
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Project Shakti already had over 10,000 women entrepreneurs in its fold by the
year 2004. A typical Shakti entrepreneur earns a sustainable income of about Rs.1,000
per month, which is double their average household income. Project Shakti is thus creating
opportunities for rural women to live in improved conditions and with dignity, while
improving the overall standard of living in their families. In addition, it involves health
and hygiene programmes, which help to improve the standard of living of the rural
community.
The project's ambit already covers about 15 million rural population. Plans are
also being drawn up to bring in partners involved in agriculture, health, insurance and
education to catalyze overall rural development. Unilever has allied itself with the State
Bank of India on a microfinance drive in Maharashtra and Karanataka. The pilot phase
has seen 12 of the Shakti Ammas who sell Unilever's goods act as providers of basic
banking services, and 1,000 accounts have been established thus far.
According to the company, 20% of households from the test regions have signed
up, and nearly 80% of participants are women, generally seeking an "accessible" way to
enter the category. "The objective is to bring about financial inclusion in rural areas,"
Hemant Bakshi, HUL's executive director, sales and customer development. The ultimate
intention is to roll out this offering across India in the next 12 months, utilizing some of
the 43,000 existing Shakti Ammas.
(b) LIFEBUOY SWASTHYA CHETANA -- Health & Hygiene Education
Lifebuoy 'Swasthya Chetana' is the single largest rural health and hygiene
educational programme ever undertaken in India. Its objective was to reach rural consumers
for the lifebuoy soap by educating people about basic hygienic habits. It has been
developed around the insight that people mistakenly believe "visible clean is safe clean".
The programme established the existence of "invisible germs" and the associated risk of
infection. In India this is important, because diarrhoea, caused by invisible germs, is the
second largest cause of death among children below the age of 5.
The campaign has been divided into various phases. In the initial phase, a Health
Development Facilitator (HDF) and an assistant initiates contact and interacts with students
and influencers of the community, like village community representatives, medical
practitioners, school teachers etc. A number of tools like a pictorial story in a flip chart
format, a "Glo-germ demonstration", and a quiz with attractive prizes to reinforce the
message are used. The "Glo-Germ demonstration" is a unique tool to make unseen germs
visible and emphasize the need to adopt hygienic practices. The first interaction with
students is then replicated with the rest of the community.
Started in 2002, the programme covered about 15000 villages in 8 states in it's
first phase like -- Uttar Pradesh, Bihar, Jharkhand, West Bengal, Orissa, Madhya Pradesh,
Chattisgarh and Maharashtra; and touched about 70 million people, imparting hygiene
education to over 25 million children.
24 Jayrajsinh D. Jadeja & Kedar Shukla
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Post floods in Mumbai in 2005 , Hindustan Unilever Ltd took up a CSR task of
distributing 1.5 Lakhs lifebuoy sops , through UNICEF. It is observed that the good will
and brand image earned by the company through this very small investment and social
initiative was way ahead of 20 sec prime time television advertisement , with a frequency
nothing less that 15 times. Product Promotion benefits were derived was surplus.
(c) FAIR & LOVELY FOUNDATION -- Economic Empowerment of Women
The Fair & Lovely Foundation is HLL's initiative which aims at economic
empowerment of women across India. It aims to achieve this through providing information,
resources, inputs and support in the areas of education, career and enterprise. It specifically
targets women from low income groups in rural as well as urban India. Fair & Lovely, as
a brand, stands on the economic empowerment platform and the Foundation is an extension
of this promise. The Foundation has renowned Indian women, from various walks of life,
as its advisors. Among them are educationists, NGO activists, physicians. The Foundation
is implementing its activities in association with state governments.
In India, low-income families, albeit unwillingly, tend to discriminate against girl
children, in providing opportunities for education and enterprise, because of resource
constraints. The support
provided by Fair & Lovely Foundation has been helping girl children avail
opportunities of higher education and acquire skills in appropriate professions. The series
of projects that have been drawn up to achieve the vision of empowering women include
the areas of Career guidance , vocational professional trainings and education scholarship.
Launched in 2003, Fair & Lovely Foundation impacted the lives of about 5000
women by 2005. And project also created brand awareness of fair and lovely and brand
has been now well recognized and accepted brand in the segment of the cosmetic products.
(I V) Conclusion.
Hindustan Unilever Ltd. Has effectively integrated corporate social responsibility
with it's marketing function and strategic planning of CSR investment not only helped the
society in the development but also supported company in reducing it's brand building
cost through the advertisements and helped in reaching out millions of consumers'
specifically in the rural area. Projects like 'Fair and Lovely Foundation' touched to the
'emotional esteem' of the rural women and not only helped them in achieving their aspiration
of growth but also supported the company in creating it's powerful brand awareness and
impact in the consumers' mind. Fair and Lovely cosmetic products are one of the most
recognized and sold brand in their product category. It is also important to note here that
the company has a thoughtful market and consumer analysis of the rural Indian market
and that has been linked to the strategic corporate social responsibility planning, which
produced effective results as per the companies vision and not only that the, it has pushed
competitors to copy the strategic move of integrating corporate social responsibility to
their marketing plans.
A Study of Impact of Strategic CSR as an Integral Tool For Expanding Rural Markets Through 25
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
References :
1. Carroll, Archie B. (1991) The Pyramid of Corporate Social Responsibility: Toward
the Moral Management of Organizational Stakeholders, Business Horizons, July-
August 1991
2. Drucker, P. F. (1984) 'The new meaning of corporate social responsibility', California
Management Review, 26: 2, 53-63.
3. Holt, Douglas B. (1995), "How Consumers Consume: A Typology of Consumption
Practices," Journal of Consumer Research, 22 (June), 1-16.
4. Varadarajan, R. P., and A. Menon (1988), "Cause-Related Marketing: A Coalignment
of Marketing Strategy and Corporate Philanthropy", Journal of Marketing, 52 (3),
58-74.
5. Quattrone, G, A. and Amos T. (1984), "Casual Versus Diagnostic Contingencies:
On Self-Deception and on the Voter's Illusion." Journal of Personality and Social
Psychology 46 (February), 237-248.
6. Sen, S., and C. B. Bhattacharya (2001), "Does Doing Good Always Lead to Doing
Better? Consumer Reactions to Corporate Social Responsibility", Journal of
Marketing Research. 38, 225- 243.
7. Website : http://www.hul.co.in/sustainable-living/
26 Jayrajsinh D. Jadeja & Kedar Shukla
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Abstract : International Financial Reporting
Standards (IFRS) are designed as a common global language
for business affairs so that company accounts are
understandable and comparable across international
boundaries. They are a consequence of growing international
shareholding and trade and are particularly important for
companies that have dealings in several countries.They are
progressively replacing the many different national accounting
standards. The rules to be followed by accountants to maintain
books of account which is comparable, understandable,
reliable and relevant as per the users internal or external.
IFRS began as an attempt to harmonies accounting across
the European Union but the value of harmonization quickly
made the concept attractive around the world.
On April 1, 2001, the new IASB took over from the
IASC the responsibility for setting International Accounting
Standards. During its first meeting the new Board adopted
existing IAS and Standing Interpretations Committee
standards (SICs). The IASB has continued to develop
standards calling the new standards International Financial
Reporting Standards (IFRS).
IFRS are used in many parts of the world, including
the European Union, India, Hong Kong, Australia, Malaysia,
Pakistan, and GCC countries, Russia, South Africa, Singapore
and Turkey. As of August 2008, more than 113 countries
around the world, including all of Europe, currently require
or permit IFRS reporting and 85 require IFRS reporting for
all domestic, listed companies, according to the U.S. Securities
and Exchange Commission.In this paper an attempt have been
made to review the opinion of practicing chartered
accountants regarding IFRS and related implications. The
paper recommend the need for developing a sufficient
environment by the national level body to resolve ambiguity
in the adoption and implementation process.
Keywords: IFRS, Implications, India
Daksha Pratapsinh
Chauhan*
IFRS and Related Implications
Professor, Head &Dean, Department of Commerce and Business Administration, Saurashtra
University, Rajkot - 360005 (India) Email: dakshagohil2006@yahoo.co.in
IFRS and Related Implications 27
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
I. Introduction
Accounting as a "language of business" communicate the financial results and
health of an enterprise to various interested parties by means of periodical financial
statement like balance sheet, profit and loss account etc. like any other language accounting
should have its grammar and sets of rules of accounting standards. The main aim of
accounting standard is to provide the standardized the diverse accounting policy so,
comparability can be possible with high quality of transparency in accounting practices.
Financial statements prepared in different countries with different rules and
regulation. So single set of globally accepted set of accounting standards were demanded
for comparison, analysis and interpretation globally.
The international accounting standard board is working in single set of high quality,
understandable, enforceable and globly accepted IFRS. In order to achieve these objectives
the IASB is coordinating the various stakeholders views on this area.
In this backdrop the ministry of corporate affairs (MCA) GOI set up a high-powered
core group under the chairmanship of secretary (MCA) to study the impact of IFRSs and
to understand the preparedness of the Indian companies for converging with IFRSs. The
road map towers IFRS convergence for corporate from april1, 2011 has been finalized by
the ministry of corporate affairs in January, 2010.
Convergence also entails maintaining consistency with legal and regulatory
requirements prevalent in the country. Towards this end, amendments need t be made to
existing laws and regulations, notably the companies act, 1956 provisions and schedules
that detail the requirements of financial statements need to be harmonized with IFRS
requirements and converged Indian accounting standards need to be notified under section
211 (3c) of the said Act. Additionally there are also issues relating to taxation under an
IFRS converged environment.
There is also a need to improve awareness in general and build technical competence
for the accounting and auditing profession on IFRS. The ICAI has already included a
comparative study of Indian accounting standards with international standards in its
syllabus for CA final advances accountancy and is alsooffering courses and seminars for
its members to update them in the field. The RBI too has been holding periodical seminars
and workshops to educate its staff on IFRS provisions.
II. Review of Literature
A number of studies related to the objectives of this research have been published
in recent years, which shall be considered as follows:
A research paper published by Shailesh.Gandhi, IIM- Ahmadabad, on GAPS in
GAAP; issues in non-profit accounting and reporting in India (2005 March). This paper
recommends the need for developing a uniform accounting and reporting system for all
NPO. In addition to this need for amendment in various act was recommended. In one of
28 Daksha Pratapsinh Chauhan
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
the speech given by Dr. K.C. Chakrabarty, Deputy governor of RBI at the national seminar
on IFRS in Mumbai 11 Feb 2011 has given his view on importance of accounting standard,
development of IFRS, lesson from the financial crisis and challenges for the implementation
were discussed. Tokar (2005) focuses on the impact of convergence on auditing firms
and concludes that achieving true convergence of accounting standards is a costly and
time-consuming objective, and will require a huge investment of money and a significant
change in the training of accounting student in near future.Jermakowicz and Gornik-
Tomaszewski (2006) argue that the complexity of IFRS, coupled with the lack of guidance
and of a uniform interpretation, can hinder the transition to IFRS. In addition, Jermakowicz
and Gornik-Tomaszewski (2006) provide evidence which indicates that many companies
would have not adopted IFRS if it were not mandatory. Ilse Maria Beuren, Nelson Hein,
Roberto Carlos Klann (2008) analyzed the impact of differences between the International
Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles in
the United States (US GAAP) in the economic-financial indicators of English
companies.According to Karamanis and Papadakis (2008) Greek accountants and auditors
believe that the introduction of IFRS will improve the quality of the financial statements
prepared by Greek firms. In particular, they believe that the implementation of IFRS
improves the understandability, relevance, reliability and comparability of financial
statements. On the other hand, the respondents in the survey expressed some concerns
regarding the difficulties they face when they implement IFRS.Susana Callao, Cristina
Ferrer, Jose I.Jarne, Jose A. Lainez (2009) discovered the quantitative impact of
International Financial Reporting Standards (IFRS) on financial reporting of European
countries and evaluates if this impact is connected with the traditional accounting system
in which each country is classified, either the Anglo-Saxon or the continental-European
accounting system.Robyn Pilcher, Graeme Dean (2009) determined the impact financial
reporting obligations and, in particular, the International Financial Reporting Standards
(IFRS) have on local government management decision making, In turn, this will lead to
observations and conclusions regarding the research question: "Dose reporting under the
IFRS regime add value to the management of local government?"Alfred Wagenhofer
(2009) analyzed the challenges that arise from political influences and from the pressure
to sustain a successful path in the development of standards. It considers two strategies
for future growth which the International Accounting Standard Board (IASB) follows:
the work on fundamental issues and diversification to private entities.Rudy A. Jacob,
Christan N. Madu (2009) examined the academic literature on the quality of International
Financial Reporting Standards (IFRS), formerly International Accounting Standards (IAS),
which are poised to be the universal accounting language to be adopted by all companies
regardless of their place of domicile.John Goodwin, Kamran Ahemed (2010) examined
the impact of Australian equivalents to international financial reporting standards (A-
IFRS) on the accounts of small-, medium- and larger sized firms.Dennis W. Taylor (2010)
compared the costs to financial statement prepares of making the transition to International
Financial Reporting Standards (IFRS) relative to the benefits to financial statement users
from receiving "higher quality" IFRS-based information (measured as incremental value-
IFRS and Related Implications 29
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
relevance for listed companies in the UK, Hong Kong and Singapore). These countries
had different approaches to harmonization leading up to IFRS adoption.Graeme Wines,Ron
Dagwell, Carolyn Windsor (2011) crirically examined the change in accounting treatment
for goodwill pursuant to International Financial Reporting Standards (IFRS) by reference
to the Australian reporting regime.
This study fills the gap in the literature by focusing on the IFRS and related
implications. the literature review found that the study is related to IFRS, and development
in India etc. but here the researcher made an attempt to review the perceptions of chartered
accountant regarding applicability of IFRS in India.
III. Objectives of the Study
The brooder objective of the study is to know the practical implication of IFRS
and to know the perceptions of Chartered Accountants.
IV. Research Methodology
This study is based on primary data. For this a structure questionnaire was develop
by the researcher on each standard of IFRS and to know their opinion for the related
implications. Here with the 5 point scaling technique data were collected, classified, and
tabulated as per need of the study. At this stage researcher has taken 50 randomly selected
chartered accountants of the Rajkot city. Other information of IFRS implication is collected
from the secondary data also.
Following hypotheses were developed.
i) H
0
:- There is no significance difference between the perceptions of Chartered
Accountant of Rajkot regarding in the impacts of IFRS.
ii) H
1
:- There is significance difference between the perceptions of Chartered Accountant
of Rajkot regarding in the impacts of IFRS.
Further it was testedwith ANOVA (one-way analysis).
V. Findings of the study
1. The study is based on the 50 sampled respondents consisting of 38(76%) male and
12(24%) female.The respondents who are unmarried were more than married
respondents in Rajkot city i.e. 68% respondents were unmarried whereas 32%
respondents were married.All the respondents were falling under the age group of
21-30 years and all respondents having professional experience of 1-10 years, and
very less people were shows their readiness to disclose their profession fees due to
professional ethics which is issued by ICAI and due to their personal behavior.
2. Most of the respondents have sufficient knowledge about IFRS and have a basic
knowledge about the differentiate requirements under GAAP and IFRS. And most
of the respondents believe that IFRS would reduce complexities, encourage outsider
investor and helps for transparency in accounting treatment.
30 Daksha Pratapsinh Chauhan
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Most of the respondents have general awareness of IFRS and their implication effects
such that IFRS would lead to create global scale due to IFRS and it is totally based
on principle based approach. Respondents believe that before implementing IFRS
international as well as national body should create for providing sufficient
environment to the concern party.
3. Most of the respondents have knowledge about the specific awareness of the IFRS:
4. As per IFRS-1 it could be said that accounting policies adopted for the first time
should follow throughout the period and entity should report comparable financial
statement of GAAP as well as with IFRS. Only few respondents have disagreed for
the same.
5. As per IFRS-2 it could be find that most of the respondents believe that the entity
should report the entire share based transaction in the financial statements and also
required and disclosed to report the entire share based option granted in the financial
statement. Only few respondents have disagreed for the same.
6. As per IFRS-3 it could be find that most of the respondents believe that business
combination should be applied with the business combination method and should
not be applied to joint venture and holding transaction. Only few respondents have
disagreed for the same.
7. As per IFRS-4 it could be find that most of the respondents believe that insurer need
not change its accounting policies for insurance contract and also required and
disclosed to report the sensitivity risk associated with the insurance contract. Only
few respondents have disagreed for the same.
8. As per IFRS-5 it could be find that most of the respondents believe that the entity
should not report the temporary transaction related with non-current assets held for
sale and noncurrent assets should be repot at carrying amount in the financial
statement. Only few respondents have disagreed for the same.
9. As per IFRS-6 it could be find that most of the respondents believe that the exploration
and evaluation of mineral assets should be measured at cost and most of the
respondents believe that such an asset subject to impairments in the financial
statement. Only few respondents have disagreed for the same.
10. As per IFRS-7 it could be find that most of the respondents believe that buy or
sale of non financial items should be disclose separately and required to account
all the income and expenses in the financial statement, entity should report the
all type of risk in the financial statements. Only few respondents have disagreed
for the same.
11. As per IFRS-8 it could be find that most of the respondents believe that the operating
segment should apply to the companies whose share or debt are traded in the public
market and such segment aspects should not cover post employment benefits and
IFRS and Related Implications 31
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
entity should report the reportable segment assets to the total entities assets separately
in the financial statements and. Only few respondents have disagreed for the same.
12. As per IFRS-9 it could be find that most of the respondents believe that this IFRS
will cover all the hedge as well as derivative transaction in the financial statement
and also cover hybrid contracts also in the financial statements as a disclosure as a
financial instrument . Only few respondents have disagreed for the same.
13. As per IFRS-10 it could be find that most of the respondents believe that the entity
should report consolidation of structured consolidation financial statements
transaction in the financial statements and also required and assets manager
responsible for all consolidation of financial transaction. Only few respondents have
disagreed for the same.
14. As per IFRS-11 it could be find that most of the respondents believe that the entity
joint arrangement only focused on the right and obligation of the arrangement and it
may also major impact on the real estate industries. Mutual funds and all the venture
capital companies units trust and other related organization at fair value method.
Only few respondents have disagreed for the same.
15. As per IFRS-12 it could be find that most of the respondents believe that the entity
should disclose the interest in their financial statement and report with other financial
statement interested parties. Only few respondents have disagreed for the same.
16. As per IFRS-13 it could be find that most of the respondents believe that the entity
should set out a single IFRS as a framework for measuring at fair value but it is not
required for plan assets. Only few respondents have disagreed for the same.
VI. Suggestions
1. Implementing IFRS would rather require change in format of account, change in
different accounting policies and more extensive disclosure requirements.
Therefore all parties concerned with Financial Reporting also need to share the
responsibility of international harmonization and convergence. India should go
along and face the challenge, study the likely risks and accordingly get prepared
for IFRS.
2. Majority of the respondents do not believe that IFRS and IASB can complete the
convergence on time. Thus Institute of Chartered Accountants of India should make
an effort to train and upgrade the profession in IFRS.
3. Majority of the respondents believes that there would be a unified platform and that
too transparent in the global scale. A continuous research is in fact needed to harmonies
and converges with the international standards and this in fact can be achieved only
through mutual international understandings.
4. For successful implementation of IFRS in India, the regulator should immediately
announce its intention to covert to IFRS and make appropriate regulatory amendments.
32 Daksha Pratapsinh Chauhan
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
VII. Conclusion
Training, education and skill development is one of the corner stone's of the
successful implementation of IFRS. All the stakeholder need to develop understanding
for IFRS provisions. Institute can play a significant role for thought development process
to meet the challenges and non accounting issues among practicing chartered accountants
and students of this field.
References:
1. Barry J. Epstein and Eva K. Jermakowicz , "Interpretation and Application of IFRS
for Indian Companies", Wiley India.
2. C.R.Kothari, "Research Methodology", New Age International (P) Limited
Publishers.
3. D.S.Ravat , "Indian Accounting Standards" & IFRS", Snow White Publications.
4. Deloitte Touch Tohmatsu "The Framework for the Preparation and Presentation of
Financial Statements"
5. Dolphy D/'Souza , "Indian Accounting Standards &Gaap" (Interpretation, Issues
And Practical Application) Volume - I & II , Snow White Publications Pvt. Ltd.
6. Dr. A.L. Saini, "IFRS for India", Snow White Publications Pvt. Ltd.
7. Dr.S.N. Maheshwari, "A Text Book of Accounting and financial Control", Sultan
Chand & Sons.
8. Dr.T.P. Ghose, Fundamentals of Accounting, Sultan Chand &sons.
9. Kamal Garg, "Accounting Standards & IFRS", Bharat Law House Pvt.Ltd.
10. P.C. Tulsian, "Accountancy for CA Final Course", Tata McGraw Hill.
11. Smith N.J. (2012), Constant Item Purchasing Power Accounting per IFRS, Ch. 1.22.2
Three Concepts of Capital Maintenance
12. T.P. Ghose, CA SrinavasanAnand, "Guide to Indian Accounting Standards Converged
With IFRS", Taxman Allied Services Pvt.Ltd.
Journals and Reports:
1. Reports of Institute of Chartered Accountant of India (ICAI)
2. Reports of International Accounting Standard Board
3. Journal of Accounting Research
4. Business India
5. Journal of Accounting and Public Policy
6. Journal of Accounting & Economics
7. Bombay Chartered Accountant Journal
8. News Letter of ICAI
IFRS and Related Implications 33
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Exploring the Role of Lean Accounting : A Step Ahead
from Traditional Costing
Vineeta Arora*
G. Soral**
* Lecturer, S.D. Govt. College, Beawar, Rajasthan vineetaarora.lean@gmail.com
** Dept. of Accountancy & Statistics, Mohanlal Sukhadia University, Udaipur, Rajasthan,
drgsoral@gmail.com
Abstract: In today's global market, a dynamic change is
required in strategic and manufacturing practices because
the current traditional costing system is almost obsolete with
respect to indirect cost absorption. The development of a
lean accounting system may have resolved the problems
faced by most firms due to their traditional costing systems.
Lean accounting, in the simplified form, is a systematic
approach to eliminate waste (overproduction, waiting,
transportation, inventory, over processing) through
continuous improvement. Lean is a principle based operating
system which can be expressed by customer value, value
stream (sequence of activities from receiving order to deliver
it to customer), flow and pull with minimum interruption,
pursuit of perfection and empowered people. Finally lean is
every day, every time by everyone in any type of company
where the business has been managed by value streams with
accountability for growing profitability and continuous
improvement.
Lean accounting does not require the traditional
management accounting methods like standard costing,
activity based costing, variance reporting, cost plus pricing,
complex traditional control system and untimely, confusing
financial reports. These are replaced by performance
measurement chart, value stream costing, box score, plain
language financial statement, SOFP, value based pricing
etc. The current state of traditional accounting system, where
profit is earned by full utilization of resources, is having
large inventory, long lead time, and poor delivery, expand
ling orders, overhead absorption, complex and confusing
accounting system. But lean system earned profit through
maximize flow on pull from customers and eliminate waste.
The result is superior customer value, good quality, good
34 Vineeta Arora & G. Soral
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
delivery, shorter lead time, organizational productivity and
frequent reporting of process measurement. These qualities
make lean accounting different from traditional accounting.
This study has been explored the role of lean accounting
with its principle, practices and tools as well as a case study
has been conducted by comparing the facts of lean
accounting and standard costing.
Key words: Lean Accounting, Traditional Accounting,
Standard costing.
Today's worldwide open competition in market has raised expectation of more
heterogeneous product choices to be offered to them at high quality level, low prices and
reasonable delivery times. That is why companies now seeking the movement which
provide best customer focus and would be able to sustain a good competitive position,
requires the cooperation of both the company's operating and accounting systems (Kennedy
and Widener, 2008). Over the past two or three decades there managers are now found
themselves as warriors of accounting battle which is bubbling up around the world that
has broad implication for how to run a business. The battle begins when a manager starts
to think that which accounting method is best. Because there are lots of costing techniques
and methods available like cost plus pricing, standard costing, activity based costing etc.,
which claim to provide accurate cost of product and by using this cost, company could
fight the battle of incredible throat cutting competition.
Traditional costing method use apportionment and absorption of overhead on some
appropriate basis. Standard costing was developed to suit the needs of mass manufacturing.
(Manjunath H. S. and Andrew Bargerstock, 2011). After great complexity of Activity
based Costing as lots of activities are there, accountants are looking for a new cost
management technique which is suitable and not very much complex. Lean accounting
may be the solution of this problem. Lean accounting viewed as a systematic approach to
identify and eliminate the waste (non-value adding activities) through continuous
improvement that focus on perfection (quality) in the pursuit of manufacturing excellence
(S S Mahapatra and S R Mohanty, 2007). Hennery Ford's philosophy of mass production
is no more fascinating managers because it results in various kinds of wastes in an industrial
enterprise (Imai M, 2002). Lean accounting is a production strategy for organizational
effectiveness focusing on waste reduction and improving productivity through Value Stream
Costing, Box Score reporting, Plain English Income Statement, Plan Do Check Act
(PDCA), 5S etc.
Lean Accounting being a new and emerging concept of accounting, this paper
seek with major concept of lean accounting and concentrates that how lean accounting is
better decision making technique. This is done through conducting a case study of a
world leading company where standard costing technique is applicable for determining
the cost of product.
Exploring the Role of Lean Accounting : A Step Ahead from Traditional Costing 35
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Objectives:
The purpose of the present study is to contribute an understanding towards the
emerging dimension of accounting i.e. lean accounting. For this purpose, this paper has
been divided into three parts:
(1) To focus on the conceptual reviewof Lean Accounting and its major aspects.
(2) To review the literature available on Lean Accounting to identify the current state.
(3) To analyze a case study based on lean principle for the problem facing in traditional
standard costing.
Research Methodology:
This research is derived from a specific challenge facing by the companies that
what kind of costing and accounting approach is required to support the accurate product
costing. In order to address the issue, an extensive literature survey has been done to
understand that what is lean accounting and what are its tools, principles and practices.
Also this literature survey identified the problem created by the continued use of traditional
costing and accounting methods.
To capture the last objective of the study, a case study is conducted of a world
leading company of US where standard costing is using as its decision making technique.
The name of the Company is kept anonymous as per agreement with its management to
keep it confidential. Consequently, the studied company is referred to as Anonymous Inc.
It is a leading manufacturer and exporter company of US. The required data have been
collected through convenient sources like e-mails, e-resources available and annual reports
of the company.
(I)-CONCEPTUAL REVIEW
Lean is getting the right thing, to the right place, at the right time, in the right
quantity to achieve the right work flow while minimizing waste, being flexible with greater
customer satisfaction. Lean accounting is a support to the business by controlling the
waste, loss and defects. (Ross Maynard, 2009).
In simple words Lean Accounting:
u Will provide accurate, timely and understandable information to motivate and increased
customer value, growth, profitability and cash flow.
u It uses lean tools to eliminate waste from the accounting processes while maintaining
thorough financial control.
u It is fully comply with generally accepted accounting principles (GAAP), external
reporting regulations, and internal reporting requirements.
In short, Lean Accounting is a Japanese approach that focuses all activities that do
not add value to the production process such as holding of stock, repairing faulty product
36 Vineeta Arora & G. Soral
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
and unnecessary movement of people and product around the plan with Continuous
improvement by the shortest, fastest route possible is the ultimate goal of lean accounting
(D. Muthamizh Vendan Murugavel, 2011).
Principles of Lean Accounting:
The five steps process for guiding the implementation of lean techniques is shown
in figure 1. These principles are easy to remember but not always easy to achieve.
1. Specify value from the standpoint of the end customer by product family.
2. Identify all the steps in the value stream for each product family, eliminating whenever
possible those steps that do not create value.
3. Make the value-creating steps occur in tight sequence so the product will flow smoothly
toward the customer.
4. As flow is introduced, let customers pull value from the next upstream activity.
5. As value is specified, value streams are identified, wasted steps are removed, and
flow and pull are introduced, begin the process again and continue it until a state of
perfection is reached in which perfect value is created with no waste.
Lean principle if followed and lean program if implemented properly will add to
the profit and profitability of an organization through all-round improvement in the whole
cycle from manufacturing to product delivery with less inventories, less wastage, less
space utilized, less cost on the one hand and better quality and greater customer satisfaction
on the another hand.
Figure 1:
Principles of
lean
accounting
Exploring the Role of Lean Accounting : A Step Ahead from Traditional Costing 37
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Tools of Lean Accounting:
The fundamental assumptions of traditional mass production are contrary to the
assumption of Lean Accounting. Lean accounting is not only a set of interesting and
useful shop-floor tools but it is a very different way to manage the business. Yet in many
companies embarking on lean accounting, these radical changes do not move outside of
the production floor. Sure, some companies are applying lean flow in the offices, and
others are using lean-style methods in product design, but there is a much bigger cultural
impact to changing the way we think about the accounting, measurement, control, decision-
making, and management of the enterprise (Brain H Maskell, 2004). Figure 2 shows an
overview of the primary tools of Lean Accounting.
Figure 2: Tools of Lean Accounting
(Source: Brian H. Maskell, 2005)
Lean accounting reports and tools actively support the lean transformation. The
accumulation of all of these tools creates continuous improvement. The financial and non
financial reporting affects the overall value stream flow, not individual product, job or
process. Lean Accounting focuses on measuring and understanding the value created for
the customers and uses this information to enhance customer relationship, product design,
product pricing and lean improvement (Brain H. Maskell and Bruce L. Baggley, 2006).

Visual
Management
Cell
Performance
Measurement
Elimination of
Transaction
Plain English
Financial
Statements
Sales,
Operations &
Financial Plan
Lean Decision
Making
Value Steam
Costing
Financial
Benefits of
Lean Change
Value Stream
Measurement
Value Stream
Management
Life Cycle
Costing
Continuous
Improvement
Box Score
Value Stream
Cost &
Capacity
Features &
characteristic
costing
Target Costing
Capital project
justification
i
38 Vineeta Arora & G. Soral
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
( II )- REVIEW OF LITERATURE
A brief review of work already done on the subject reveals the following findings:
D. Muthamizh Vendan Murugavel (2011) comparing Traditional Manufacturing
to Lean Manufacturing and concluded if the lean production is carried out through efficient
planning and effective management, the manufacturers would surely achieve competitive
advantage of this global market.
Manjunath H.S. Rao and Andrew Bargerstock (2011) exploring the role of standard
costing in lean manufacturing enterprises. The author indicates a three stage path to lean
transformation that should be accompanied by corresponding changes in accounting.
Ideally in stage second of lean transformation, the company must move away from
traditional standard costing accounting and variance analysis.
A. Lakshminarasimha and Vivek Krishna K. (2010) provide an introduction to
lean concepts and discuss the impact of target costing on lean. Suggestions and pointers
for further study are indicated, which would go a long way in practical sustained
implementation of lean practices. A research is has also been conducted to study the
practices of "Lean and Target Costing" in India and they found that to gain competitive
advantage in the global market place is only through lean and target costing combined.
Dan Woods (2009) examines the implications of lean philosophy with standard
cost accounting and got the core difference i.e. Lean Accounting attempts to find measures
that predict success and standard cost accounting measures results after the fact.
P.K. Chakraborty (2008) highlights different aspects of lean thinking as a way to
success. He concluded that lean implementation aims at getting the right things, to the
right place, at the right time, in the right quantity to achieve the right work flow while
minimizing waste being flexible with greater customer satisfaction focusing on more
cash flow, more profit and profitability and delivery of better value added products and
services.
Brian H. Maskell and Frances A. Kennedy (2007) explain why do we need lean
accounting and how does it works. They said that since those companies choosing lean
principles as their basic business model will want to do everything they can do succeed.
This article offers six reasons why accounting methods need to be change before companies
can fully realize the benefit of their lean transformation.
S S Mahapatra and S R Mohanty (2006) revel in their article that lean accounting
is a strategy for organizational effectiveness focusing on waste reduction and
improving productivity through application of various tools. This article find out the
reasons for sparse adoption of the concept of lean in Indian manufacturing
organizations through a cross-sectional survey study which highlights knowledge and
lead to its adoption, benefits derived thereon and application of lean tools looking
into operating environments.
Exploring the Role of Lean Accounting : A Step Ahead from Traditional Costing 39
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Brian H. Maskell (2005) reveals in his article "What is Lean Accounting?" that
there are several tools included in Lean Accounting and they each work together to create
a framework for the control & management of a lean enterprise. In his article he tried to
give the answer of the question "What will Lean Accounting do for us?" by using simple
examples with the help of Lean Accounting tools.
Mike Rother and John Shook (1998) introduced Toyota's concept of material and
information flow diagrams, in the book "Learning to See", which now called value-stream
maps. This is a simple, direct and accurate way to create financial reports with very few
transactions.
Womack and Jones (1996) in the book "Lean Thinking", provide a simple
description of lean principles-value, value stream, flow, pull, and perfection-along with
stories of companies beyond Toyota that are applying them successfully in North America,
Europe, and Japan. The final section presents an action plan for any company to follow
toward a lean transformation.
Susan lilly and Nick Katho (1995) compared lean accounting with volume based
traditional accounting and specify how can we solve any problem using the Plan, Do,
Check and Act process. Lean accounting focusing on more cash flow, more profit and
profitability and delivery of better value added products and services.
After this background in view, we can say that with launching of the concept of
lean accounting during the mid 1990's, most of the organizations, irrespective of their
capability and understanding of the concept, wanted to jump on the bandwagon in an
attempt to trim the excess out of their organization and improve their bottom line. Now it
become a magical costing and decision making technique with no indirect cost, which are
going to improved and adopted by the society of world. Finally there is a broad
implementation framework for application of lean accounting
(III)- CASE STUDY
The transparency of lean accounting is helpful in demonstrating the benefits of
lean manufacturing initiatives and optimizing day-to-day business operations. Because
standard cost accounting rewards overproduction, using standard methods to try to
demonstrate the value of lean processes that eliminate production waste would be futile.
Lean accounting, on the other hand, reveals savings and costs that might otherwise be
misinterpreted or hidden - the true cost of labor and machinery, for example a study
reported several years ago in the Harvard Business Review concluded that 50% of executive
decisions are made on intuition. Surely that is cause for alarm. Is business decision-
making necessarily that much of an art? Are executives not well trained in the use of
decision-making tools? Or is it that executives sense that their information and data is
skewed for some reason, and so go on gut feel in order to arrive at a comfortable decision?
To show how lean accounting rather than standard costing can lead to better decisions, a
case study undertook of Anonymous Inc.
40 Vineeta Arora & G. Soral
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Manufacturing Anonymous inc. had purchased a large new plant. Its existing
product base would use only 10% of the capacity of the new machine, so the sales force
was asked to approach new customers to capture business that would utilize this plant.
After diligent efforts, the sales people returned to the corporate office with several new
opportunities that would be manufactured using the new plant. However, they were soon
told the orders would not be accepted because the gross margin percentage for the orders
based on standard cost accounting was only 16% - less than its target margin of 25%. So
the controller decided to reject the orders.
After the controller had made the 'thumbs down' decision, the sales force decide
to insight lean picture to uncover what impact these orders would really have. A statement
arranged like this is called a 'plain English' or 'lean' financial statement. Table 1 to Table
4 is showing summary of the statements.
Table 1: Traditional decision factors
Table 2: Lean Profit Statement for existing business
Table 3: Analysis of new order
Quoted price
$30/unit

Standard cost
$25/unit

Gross margin
$5/unit

Gross margin %
16.67%

Current gross margin %
23%


Direct cost ($)

Shared cost ($) Total cost ($)
Sales

100,000 -- 100,000
Material

20,000 -- 80,000
Direct costs

18,000 -- 18,000
Shared cost

-- 39,000 39,000
Total
62,000

(39,000) 23,000


Incremental impact of new 10,000 units

Revenue

300,000
Material

60,000
Variable margin

240,000
Direct cost

40,000
Profit

200,000
Gross margin %
67%


Exploring the Role of Lean Accounting : A Step Ahead from Traditional Costing 41
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Table 4: Lean Profit Statement showing old and combined business
New total with
Lean profit statement of ex isting business 10,000 additional
units ($)s
Direct ($) Shared ($) Total ($)
Sales 100,000 -- 100,000 400,000
Material 20,000 -- 20,000 80,000
Variable margin 80,000 -- 80,000 320,000
Direct cost 18000 -- 18,000 58,000
Shared cost -- 39,000 39,000 39,000
Gross margin 62,000 (39,000) 23,000 223,000
Gross margin % 57.5%
Anonymous incorporated's controller had been used to seeing lean financial
analysis, he almost certainly would have approved the new orders. The advantages in
profit and margin would have been obvious, and the need to apply intuition would have
been minimized - at least, relative to financial impact. So, finally new order has been
accepted.
Conclusion:
While traditional statements may account for a fixed-dollar amount of overhead
for every dollar of inventory spent, lean accounting looks at these costs as variable,
assessing the true costs of labor and overhead on a case-by-case basis. Statements should
also align with value-stream maps, visual representations of the end-to-end production
process which can give owners and executives a clear picture of their companies' financial
situations. Even though lean accounting can't replace traditional accounting practices,
it can go further in helping owners and executives make accurate, informed business
decisions. It's also a necessity for manufacturers who want to see the true financial
effects of their lean manufacturing initiatives. Lean accounting may not be right for
every organization, but manufacturers that are committed to and invested in lean
manufacturing practices should consider supporting them with simplified, lean
accounting processes.
References:
u Baggaley, B. and B. Maskell. (2003). Value stream management for lean companies,
Part I. Journal of Cost Management (March/April): 23-27.
42 Vineeta Arora & G. Soral
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
u Fullerton and Kennedy. (2009). Lean manufacturing: costing the value stream.
Industrial Management & Data Systems. Vol. 113, issue 5
u Kennedy and Brewer. (2006). The Lean Enterprise and Traditional Accounting-Is
the honeymoon over? Journal of Corporate Accounting & Finance. Vol. 17
u Kennedy and Widener. (2008). Functional lean: A new approach for optimizing internal
service function value. Journal of Cost Management (July/August): 5-14.
u Maskell, B. H. and B. L. Baggaley. (2006). Lean accounting: What's it all about?
Target Magazine 22(1): 35-43.
u Mahapatra, S S and Mohanty, S R. (2007). Lean manufacturing in continuous process
industry: An empirical study. Journal of Scientific and Industrial research, Vol.66.
u Manjunath H. S.; Bargerstock, Andrew (2011). Exploring the role of standard costing
in lean manufacturing. Management Accounting Quarterly, Vol. 13.
u Ross Maynard, (2009). What is Lean Accounting. Chartered Institute of Management
Accountants.
u Schiemann, W. and J. Brewton. (2009). Functional lean: A new approach for optimizing
internal service function value. Cost Management (July/August): 5-14.
u Staats, B. R. and D. M. Upton. (2011). Lean knowledge work: The "Toyota" principles
can also be effective in operations involving judgment and expertise. Harvard Business
Review (October): 100-110.
u Tracey, D. L. and J. E. Knight. 2008. Lean operations management: Identifying and
bridging the gap between theory and practice. The Journal of American Academy of
Business 12(2): 8-14.
u Womack, J. P. and D. T. Jones. (1994). From lean production to the lean enterprise.
Harvard Business Review (March-April): 93-103.
Exploring the Role of Lean Accounting : A Step Ahead from Traditional Costing 43
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Disclosure Pattern of Valuation Principles of Raw
Material Inventory in Indian manufacturing Industry
(Special reference to AS-2)
Abstract : The quality of corporate disclosure influences to
a great extent the quality of investment decisions made by
investors. Here, the accounting policies for the disclosure
pattern of valuation principle of raw material are examined
in this paper. The consistency has been observed in all the
sample units of different sectors regarding disclosure of
valuation principle of raw material either at cost/NRV (M1)
or lower of cost or NRV (M2) throughout the study period
except in case of Alok industry and Ranbaxy. We pointed
out that a serious gap exists between theory and practice in
many sectors of Indian manufacturing industry. On the
observation of annual reports of consumer goods and
automobile sectors, it has been identified that very poor
disclosure has been made. On an average only two third
sample units (67.92%) have been disclosed either M1 or
M2 valuation principles of raw material during entire study
period but it is mandatory to disclose the valuation principle
of raw material as per AS-2. It means one third (32.08%) of
the sample units did not think it prudent to disclose it to
stakeholders during study period and did not follow the AS-
2. On an average 35 sample units (out of fifty three) followed
the critical operative part of the Accounting standard-2
(Revised) is that "inventories should be valued at the lower
of (a) Cost and (b) net realizable value". At 5% level of
significance our null hypothesis that all ten sectors of
manufacturing industry having the same disclosure pattern
regarding valuation principle of raw material is rejected on
the basis of chi-square test.
Key words: Disclosure, Valuation principles, Accounting
Standard-2, Raw material, Realizable Value
* Associate Professor, Department of Accountancy & Statistics, University College of Commerce
& Management Studies, M. L. S. University, Udaipur, Rajasthan
** Lecturer, Department of Accountancy & Statistics, B.N.P.G. College, Udaipur
Shurveer S. Bhanawat*
Abhay Jaroli**
44 Shurveer S.Bhanawat & Abhay Jaroli
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Introduction
The quality of corporate disclosure influences to a great extent the quality of
investment decisions made by investors. The survey conducted by different institutions
and researchers reveals that the material cost alone contributed about 60-65% of either
sales valve or total cost of the product6. On a save of rupee one ultimately increased the
profitability of the firm. Hence the raw material becomes a significant factor for the
investors to take the decisions, Therefore a proper disclosure of valuation principle is
need of the hour. Singhvi and Desai developed a list of 34 items of information which
they felt should be disclosed in annual reports for the purpose of measuring the quality of
disclosure. Copeland and Frederick studied the extent to which changes in common stock
outstanding were disclosed in annual reports. Carpenter, Francia and strawser surveyed
four user groups in order to determine their perceptions of the importance of, and
information deficiencies for, several problem areas in accounting. Strephen constructed
of 38 items or types of financial and non financial information which might appear in an
annual report. After examining the literature it is observed that research work which has
been done on the disclosure of items in general in annual report but no specific research
work has been done except Manaswee K Samal regarding whether Indian manufacturing
industry disclose the all aspect of raw material in annual report which has been suggested
in AS-2 entitled "Valuation of Inventory." Samal studied confined with analysis of
disclosure of different segments of inventory without formulating and testing the hypothesis
after considering only twenty two sample units. The present study is concentrated with
sector-wise disclosure of principal of raw material only of fifty three companies of ten
sectors along with testing of the hypothesis. The critical operative part of the Accounting
standard-2 (Revised) is that "inventories should be valued at the lower of (a) Cost and (b)
net realizable value". This standard requires an enterprise should disclose the accounting
policies adopted in measuring or valuing inventories including the cost formula used and
the total carrying amount of inventories and its classification appropriate to the enterprise.
Common classifications of inventories are raw materials and components, work in progress,
finished goods, stores and spares and loose tools. Here an attempt has been made to
examine whether such disclosure is followed by sample units or not in relation to raw
material only. We are trying to point out the gap exists between theory and practice in
many sectors of Indian manufacturing industry.
Review of Literature
Peter Harris (2011) examines critically the many disadvantages of LIFO.
Ultimately, the author theorizes that these negatives may collectively explain the
observed research findings of the inverse relationship between LIFO adoption and firm
value/stock price. The elimination of LIFO which seems imminent may result in a win-
win situation for all; as the negative and added costs of LIFO may well exceed its tax
advantage, resulting in greater cash flow for the firm, while allowing for the
standardization of worldwide accounting standards and raising additional tax revenue
for the US government.
Disclosure Pattern of Valuation Principles of Raw Material Inventory in Indian manufacturing Industry 45
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Bhanawat S. Shurveer (2010) explained in his article that the main factor which
contributes to the cost of production is the cost of material. The results also reveal that on
an average raw material cost as percentage of gross sales is 46.46% for Indian
manufacturing industry. In oil industry it was found 80.78%. Hence, it can be concluded
that raw material cost is a major part of cost structure and it should be properly valued
and disclosed in the annual report.
Bajpayee H.S., Srivastava, Anubha (2010) analyze the compliance of accounting
standards practices in India by various companies. So far as mandatory accounting
standards are concerned all the companies are complying with those all but in case of
optional accounting standards there are some, which are disclosing full information
regarding their compliance with the accounting standards, and on the other hand there are
some companies which are clarifying the true picture. As a conclusion it could be said
that that there must be uniformity in financial statement of companies in order to make
inter -firm and intra- firm comparison easy.
Samal K Manaswee (2005) states in his article that Inventory valuation plays a
significant role in reporting operating results, as well as the state of affairs of a business
entity. Empirical literature suggests that inventory valuation is one of the devices often
resorted to smooth out a firm's operating results.. The findings suggest that the disclosure
of accounting policies regarding inventory valuation in listed Indian companies is more
of a form than of substance, and there is ample scope for improvement in fixing the
valuation norms.
Tim Baldenius examines that the LIFO (last- in-first-out) inventory flow rule is
shown to be preferable to the FIFO (first-in- first-out) rule for the purpose of aligning
incentives. His analysis also finds support for the lower-of-cost-or-market inventory
valuation rule in situations where the manager receives new information after the initial
contracting stage.
Ole-Kristian Hope (2003) investigates that there is relation between the accuracy
of analysts' earnings forecasts and the level of annual report disclose, and between forecast
accuracy and the degree of enforcement of accounting standards. He documents that
firm-level disclosures are positively related to forecast accuracy, suggesting that such
disclosures provide useful information to analysts. He took sample from twenty two
countries.
Objective Sample Design
To examine the disclosure pattern of valuation principle of raw material inventory
in different sectors of Indian manufacturing industry with special reference to Accounting
Standard-2
Hypothesis
There is no significance difference among the different sectors of Indian
manufacturing industry as regard to disclosure pattern of valuation principle of raw material
46 Shurveer S.Bhanawat & Abhay Jaroli
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
inventory according to Accounting Standard-2 entitled "Valuation of Inventory" issued
by ICAI, New Delhi.
Sample Collection and Source of Data:
A sample of fifty three companies engaged in various manufacturing activities has
been selected for the purpose of present study. Sample has been chosen according to
stratified random sampling technique. For this purpose 10 strata has been identified in the
Indian manufacturing industry. Thereafter sample units have been selected on the random
basis in each strata. The selection of sample is not without reasons. It is partly to keep the
study within manageable limits and resources. The required information on disclosure for
sample units is collected from annual reports and websites of respective sample units.
The number of companies varied (7.57% to 13.20%) among the industry groups. Table1
provides Industry-wise strata of the sample units.
Table 1: Industry-Wise Classification of the Sample Units
S.N. Industry No. of Sample Units Percentage
1 Textile 05 11.32
2 Pharmaceutical 06 9.43
3 Cement 06 11.32
4 Automobile 05 7.57
5 Sugar 04 9.43
6 Consumer Goods & Durables 07 9.43
7 Electrical Equipments 05 13.20
8. Iron & Steel 06 7.57
9. Paper 05 11.32
10 Fertilizers and chemicals 04 9.43
Total 53 100
Techniques:
Statistical techniques like mean, standard deviation, coefficient of variation and
chi-square test are used in the present research paper.
Period
A period of five years from 2007-2008 to 2011-2012 has been taken into account
for the purpose of analyzing the disclosure pattern of valuation pattern of raw material
inventory in different sectors of manufacturing industry in India.
Disclosure Pattern of Valuation Principles of Raw Material Inventory in Indian manufacturing Industry 47
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Analysis and Discussion
Industry-wise disclosure of valuation principle of raw material is discussed here
in special reference to AS-2. On the observation of the annual reports of the sample units,
it is found that hhe disclosure of valuation principle of raw material may be done in two
forms viz., inventory of raw material is valued either at cost or at NRV (M
1
) and inventory
is valued at cost or NRV whichever is less (M
2
). This disclosure has been examined
separately in relation to M
1
and M
2
for Textile, Pharmaceutical, Cement, Iron and Steel,
Sugar, Electrical equipments, Automobile, Consumer Goods and Durables, Fertilizers
and Chemicals and Paper industry. A frequency distribution table has been prepared in
form of discrete series. The following abbreviations are used in the tables:
Method:-1 (M
1
) :- Inventory is valued either at cost or at NRV
Method:-2 (M
2
) :- Inventory is valued at cost or NRV, whichever is less
Method: -3 (X) Not separately disclosed
Table No. 1: Type of Disclosure of Valuation Principle
RAW MATERIAL
S.No Company /Year
2007-08 2008-09 2009-10 2010-11 2011-12
Textiles
1 Alok Industry M
1
M
2
M
2
M
2
M
2
2 Arvind Ltd. M
1
M
1
M
1
M
1
M
1
3 Bombay Dyeing M
1
M
1
M
1
M
1
M
1
4 Grasim X X X X X
5 Raymond M
2
M
2
M
2
M
2
M
2
Pharmaceuticals
6 Aventis Pharma M
2
M
2
M
2
M
2
M
2
7 Cipla X X X M
2
M
2
8 Dr.Reddy's Lab M
2
M
2
M
2
M
2
M
2
9 Orchid M
1
M
1
M
1
M
1
M
1
10 Ranbaxy X M
1
M
2
M
2
M
2
11 Twilight Litaka X X X X M
2
Cement
12 ACC Ltd M
2
M
2
M
2
M
2
M
2
13 J.P.Associates M
1
M
1
M
1
M
1
M
1
48 Shurveer S.Bhanawat & Abhay Jaroli
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
14 India Cement M
1
M
1
M
1
M
1
M
1
15 J.K.Cement X X X X X
16 Shree Cement M
1
M
1
M
1
M
1
M
1
17 Ultratech X X X X X
Automobiles
18 Bajaj Auto M
2
M
2
M
2
M
2
M
2
19 Hero Honda M
2
M
2
M
2
M
2
M
2
20 Mahindra & Mahindra X X X X X
21 Maruti X X X X X
22 TVS X X X X X
Sugar
23 Bajaj Hindustan M
2
M
2
M
2
M
2
M
2
24 Balrampur Chinni X X X X X
25 Renuka Sugar M
2
M
2
M
2
M
2
M
2
26 Triveni Engg. & Inds. M
2
M
2
M
2
M
2
M
2
Consumer Goods &
Durables
27 BPL X X X X X
28 Colgate M
2
M
2
M
2
M
2
M
2
29 Emami X X X X X
30 HUL X X X X X
31 ITC X X X X X
32 Videocon Inds. X X X X X
33 MIRC Elec. M
1
M
1
M
1
M
1
M
1
Heavy Electrical equipments
34 BHEL M
2
M
2
M
2
M
2
M
2
35 Siemens M
2
M
2
M
2
M
2
M
2
36 ABB M
2
M
2
M
2
M
2
M
2
37 Crompton Greaves M
1
M
1
M
1
M
1
M
1
38 Thermax M
2
M
2
M
2
M
2
M
2
Disclosure Pattern of Valuation Principles of Raw Material Inventory in Indian manufacturing Industry 49
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Iron & Steel
39 SAIL M
2
M
2
M
2
M
2
M
2
40 Ispat Ind. X X X X X
41 Jindal Steel & Power M
2
M
2
M
2
M
2
M
2
42 JSW Steel M
2
M
2
M
2
M
2
M
2
43 Tata Steel M
2
M
2
M
2
M
2
M
2
44 TISCO M
2
M
2
M
2
M
2
M
2
Paper Industry
45 Ballarpur (BILT) X X X X X
46 Andhra Paper M
1
M
1
M
1
M
1
X
47 J.K.Paper X X X X X
48 Rainbow Paper M
2
M
2
M
2
M
2
M
2
49 Tamil Nadu News M
1
M
1
M
1
M
1
M
1
Fertilizers & Chemicals
50 Nagarjuna Fertilizers M
1
M
1
M
1
M
1
M
1
51 Gujarat State Fertilizers M
1
M
2
M
2
M
2
M
2
52 Zuari Industry X X X X X
53 Deepak Fertilizers M
2
M
2
M
2
M
2
M
2
On examining the above table no. one it is found that only electrical equipment
sector has followed the AS-2 strictly. All the sample units disclosed M
2
in their annual
reports during the entire study period. It can be concluded that electrical sector disclosed
that valuation of raw material has been valued at cost or NRV whichever less is. However
a very poor disclosure has been identified in consumer goods and durable sector of Indian
manufacturing industry. Only 28.57% (two sample companies viz., Colgate and Mirc out
of seven) units disclosed either of M
1
or M
2
during entire study period. Colgate Company
and Mirc Company disclosed M
2
and M
1
respectively during entire study period. There is
also no good practice has been observed in automobile industry in relation to disclosure
of M
1
or M
2
, as it is evident by above table no.1. The well known companies of automobile
industry viz.Mahindra and Mahindra, Maruti and TVS failed to disclose the valuation
principle of raw material in their annual reports. While other units of automobile industry
Bajaj Auto and Hero Honda companies followed good practice of disclosure during entire
study period.
The consistency has been followed by all the sample units of different sectors
regarding disclosure of either M
1
or M
2
throughout the study period except in case of
50 Shurveer S.Bhanawat & Abhay Jaroli
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Alok industry and Ranbaxy. These companies are shifted once from M
1
to M
2
and thereafter
consistency has been maintained. In accordance with AS-1 disclosure must include changes
if any, but here no disclosure is made in the annual report of Alok industry and Ranbaxy
for switching from M
1
to M
2
in 2009-10. Cipla and Twilight Litaka had started to disclose
M
2
from 2010-11 and 2011-12 respectively. It can be concluded that Indian manufacturing
industry also followed the consistency which is the basic fundamental accounting
assumption given in AS-1. Sixteen companies out of fifty three sample units never disclosed
M
1
or M
2
during entire study period i.e. 2007-08 to 2011-12. These sample units are
silent regarding disclosure of valuation principle of raw material. Out of fifty three sample
units eleven units disclosed M1 method i.e. raw material is valued either at Cost or NRV
and thirty nine (50.9%) units disclosed m2 method and three units disclosed mix method
of either m
1
& m
2
. It clearly indicates that maximum sample units followed the critical
operative part of the Accounting standard-2 (Revised) is that "inventories should be valued
at the lower of (a) Cost and (b) net realizable value".
Table No. 2: Disclosing sample units for different years in respect of aluation
principles of Raw Material
The above table of year wise classification of M
1
and M
2
shows that the highest
degree (67.92% of sample size) of disclosure has been found in the year 2010-11 &
2011-12 regarding valuation principal of raw material separately. On an average two
third sample units (67.92%) have been disclosed either m1 or m2 valuation principles of
raw material during entire study period. It means one third (32.08%) of the sample units
did not think it prudent to disclose it to stakeholders during study period. On examine the
above table it is noticed that on an average 23.01% (12.2 out of 53) sample units are
disclosing the M
1
and 43.77% of the sample units disclosed M
2
and again it is not known
exactly whether inventory of raw material has been valued either at cost or NRV.
In order to check out the variation between disclosure practice of M
1
and M
2
methods coefficient of variation (C.V) has been calculated. There is more inconsistency
Year 2007-08 2008-09 2009-10 2010-11 2011-12 %
Type of
Disclosers
No. % No. % No. % No. % No. % Mean c.v.
M1
Disclosures 13 24.53 13 24.53 12 22.64 12 22.64 11 20.75 12.2 6.8578
M2
Disclosures 21 39.62 22 41.51 23 43.40 24 45.28 25 47.17 23.20 7.71058
Total 34 64.15 35 66.04 35 66.04 36 67.92 36 67.92 35.4 3.22083
Non
Disclosure
19 35.85 18 33.96 18 33.96 17 32.08 17 32.08 17.6 6.4782
Total 53 100 53 100 53 100 53 100 53 100

Disclosure Pattern of Valuation Principles of Raw Material Inventory in Indian manufacturing Industry 51
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
has been observed in case of M
2
as compared to M
1
during entire study period as it is
evident by having higher C.V (7.71058%) of M
2
. IN other words, there is uniformity of
disclosure pattern of raw material in M1 during five years of period as compare to M
2
.
Intra Sector Comparison
Table No. 3: Disclosure Sample Units
Year 2007-08 2008-09 2009-10 2010-11 2011-12
Industrial No. % No. % No. % No. % No. % Mean C.V.
Sector
Textiles 4 80 4 80 4 80 4 80 4 80 80 0
Pharmaceuticals 3 50 4 67 4 67 5 83 6 100 73 0.25
Cement 4 67 4 67 4 67 4 67 4 67 67 0
Automobiles 2 40 2 40 2 40 2 40 2 40 40 0
Sugar 3 75 3 75 3 75 3 75 3 75 75 0
Fertilizers & ch. 3 75 3 75 3 75 3 75 3 75 75 0
Consumer 2 29 2 29 2 29 2 29 2 29 29 0
Heavy Electrical 5 100 5 100 5 100 5 100 5 100 100 0
Iron & Steel 5 83 5 83 5 83 5 83 5 83 83 0
Paper Industry 3 60 3 60 3 60 3 60 2 40 56 0.15
Total 34 58.49 35 62.26 35 62.26 36 62.26 36 64.15 61.88 0.03
Average 65.9 67.6 67.6 69.2 68.9
C.V. 21.450 20.711 20.711 21.27 24.94
Table 3 indicates number of companies who disclosed the principle of valuation
of raw material inventory in different sector as per the requirement of AS-2. Heavy electrical
equipments sector is only sector in which all sample units disclosed principle of valuation
of raw material in their annual reports consistently during entire period as it is evident by
C.V i.e. zero. The lowest disclosure has been reported by Consumer goods & durables,
on an average only 29% sample units feel disclosure of principal of raw material is
necessary in the interest of various stakeholders. Only three sectors viz., Automobile,
Consumer goods and Paper sectors did not maintain the industrial average of disclosing
units i.e. 61.884% as regard to disclosure practice in Indian manufacturing industry. Only
two sectors viz., Pharmaceutical and Paper industry reported C.V. 0.2575 and 0.15971
respectively. It indicates that there is less uniformity in disclosure pattern in these sectors
as compared to other sectors of the manufacturing industry. On an average in all over the
years almost two third units of sample units are disclosed principal of valuation of raw
52 Shurveer S.Bhanawat & Abhay Jaroli
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
material. In 2010-11 69.26% companies felt that disclosure of valuation of principle of
raw material is required for the benefit of various stakeholders. The Indian manufacturing
industry reported least C.V. in the year 2008-09 and 2009-10. It indicates that in these
years uniformity is maintained in connection with disclosure pattern as compared to other
years of study period.
Testing the Hypothesis
In order to examine whether the difference between disclosure pattern of inventory
of raw material in form of M1 or M2 among different sectors of manufacturing industry
are significant or only due to chance, Chi-square test has been administered. The numbers
of companies that disclosed either M1 or M2 and calculated value of chi-square are given
below:
Table No.4:No. of Sample units Disclosed either M
1
or M
2
Sector Textile Pharma Cement Auto Sugar Fertilizers Consumer Heavy Iron Paper
mobile &chemicals goods electrical steel
& durable
Average 80 73 67 40 75 75 29 100 83 56
No. of
companies
(In %)
Calculated chi-square value = 58.4896
Table value of ?
2
at 5% level of significance at 9 d. f. = 16.919
At 5% level of significance our null hypothesis that all ten sectors of manufacturing
industry have same disclosure pattern regarding valuation principle of raw material is
rejected. Since calculated value of ?
2
(58.4896) is much grater than table value i.e.16.919.
It clearly indicates that visible difference in the ratio of different sector is not only due to
chance but due to major reasons. Hence, it is matter of further investigation to identify
specific reasons.
Concluding Remark
After analyzing the fifty three sample units of different sectors of Indian
manufacturing Industry the following Conclusions can be drawn
l Only electrical equipment sector that has followed the AS-2 strictly. All the sample
units disclosed M
2
in their annual report during entire study period. It can be concluded
that electrical sector disclosed that inventory of raw material has been valued at cost or
NRV, whichever is less.
l A Very poor disclosure has been identified in consumer goods and durable sector of
Indian manufacturing industry. Only 28.57% (two sample companies viz., Colgate
and Mirc out of seven) units disclosed either M
1
or M
2
during entire study period.
Disclosure Pattern of Valuation Principles of Raw Material Inventory in Indian manufacturing Industry 53
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
l The well known companies of automobile industry viz.Mahindra and Mahindra,
Maruti and TVS failed to disclose the valuation principle of raw material in their
annual reports. While other sample units of automobile industry viz., Bajaj Auto
and Hero Honda companies followed good practice of disclosure during entire
study period.
l On an average two third sample units (67.92%) have been disclosed either m1 or
m
2
valuation principles of raw material during entire study period. It means one
third (32.08%) of the sample units did not think it prudent to disclose it to
stakeholders during study period.
l There is a more inconsistency has been observed in case of M
2
as compared to M
1
during entire study period, it is evident by having higher C.V (7.71058%) of M
2
. It
indicates that there is uniformity of disclosure pattern of raw material in M1 during
five years of period as compare to M
2
.
l At 5% level of significance our null hypothesis that all ten sectors of manufacturing
industry have same disclosure pattern regarding valuation principle of raw material
is rejected. Since calculated value of ?
2
(58.4896) is much grater than table value
i.e.16.919
References :
1. Bajpayee H.S., Srivastava, Anubha,,"An empirical study of disclosure practices
of accounting standards in India" Foundation for organisation research and
education, jan. 2010,Vol. 28, No. 1.
2. Bhanawat S. Shurveer, "An Anal ysi s of Raw Mat eri al Cost i n Indi an
Manufacturing Industries", The IUP Journal of Accounting Research and Audit
Practices, The Icfai University Press, Hyderabad, July 2010, pp65-80.
3. Carpenter Charles G, Francia Arthur J and strawser H Robert.1971. Perception
of financial Reporting Practice: An Empirical study. MSU Business Topics,
autumn, pp56-62.
4. Copeland Ronald M and Frederick William. Extent of disclosure. Journal of
Accounting Research (spring)1968 .pp106-13.
5. Ole-Kristian Hope; "Disclosure Practices, Enforcement of Accounting Standards,
and Analysts' Forecast Accuracy: An International Study." Journal of Accounting
Research, 2003, vol.41, issued 2, pages 235-272
6. Peter Harris, "Should Last in First Out Inventory Valuation Methods Be
Eliminated?" Global Journal of Business Research, 2011, Vol. 5. No. 4, pp. 53-
67.
54 Shurveer S.Bhanawat & Abhay Jaroli
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
7. Samal K Manaswee. An Empirical Study of Inventory Valuation And Disclosure
Practices in Listed Indian Companies. The ICFAI Journal of Accounting Research.
October 2005.pp 7-35
8. Singhvi Surendra S and Desai harsha B. An empirical Analysis of the Quality of
Corporate Financial Disclosure, JSTOR. The Accounting Review, 1971.vol.46,
no.1,Jan.pp 129-138.
9. Stephen l Buzby. Selected items of Information and Their Disclosure in
Annual Reports. The Accounting Review, July1974, Vol. XLIX,. No.3 ,pp
423-435
10. Tim Baldenius,"Incentives for Efficient Inventory Management: The Role of
Historical Cost" Management Science, Forthcoming, July, 2005, Vol. 51, No. 7,
pp. 1032-45.
Disclosure Pattern of Valuation Principles of Raw Material Inventory in Indian manufacturing Industry 55
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Influence of Effectiveness of Leadership on Satisfaction
of Leadership in Public and Private Insurance Sectors
Dasari Pandurangarao*
Gella Sireesha**
Devarapalli Rajasekhar***
* Assistant professor, Department of MBA, St.Ann's Engineering College, Chirala, Andhra
Pradesh, India-523187. Email: dasaripanduranga@gmail.com
** Assistant professor, Department of MBA, St.Ann's College of Engineering & Technology,
Chirala, Andhra Pradesh, India-523187. Email: sirishamba09@gmail.com
*** Research Scholar, Department of commerce and business administration, Acharaya Nagarjuna
University, Guntur. Email: dsp.sekahr31@gamil.com
Abstact : This paper studies the perception of leadership
styles and Influence of effectiveness of leadership in public
and private insurance sectors. A sample of 300 employees
of public insurance sector (Life Insurance Corporation of
India) and 300 employees of private insurance sectors (ICICI
Prudential Life Insurance) was taken for the purpose of the
study. The coastal districts of Andhra Pradesh such as
Guntur, Krishna, Nellore and Prakasam have been
purposively selected for the present study. In public insurance
sector employee's suggestions are not considered and also
no time for them, employees are informed about what has to
be done and how to do it but private insurance sectors
employee ideas and input are sought for an upcoming plans
and projects, employees are informed about what has to be
done and how to do it.
KEY WORDS: Effectiveness, Influence, Insurance,
Leadership, and Satisfaction.
INTRODUCTION:
In this complex environment no single leader can be effective unless he has
knowledge, ability to envision, plan and achieve social, political or organizational goals.
Modern leadership demands collaboration with many people each of whom has special
skills, knowledge and expertise that generate unique insights and perspectives. One of
the crucial jobs of a leader is to foster open communication among his collaborators and
involve them in decision-making at all levels. To function effectively employees should
feel free to participate, providing information, giving advice and expressing dissent. Often
employees do not feel free to speak of their minds when there is asymmetry of power not
only in organizations but also in public dialogue.
56 Dasari Pandurangarao, Gella Sireesha & Devarapalli Rajasekhar
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Effectiveness of leadership covers the interpersonal relations among employees,
strategy formulation, involvement, adaptability, decision making process, learning process,
organizational behavior, opportunities for career development, work culture, innovative
ways of doing things, empowerment, enhancing productivity of employees, personality
development of employees, creating positive attitude among employees, ethical values
and effective communication.
LITERATURE REVIEW:
Bagheri and Pihie, (2009), found that entrepreneurial leadership development in
that learning entrepreneurial leadership capabilities occurred in a process of experience
and social interaction through which students recognized the opportunities for their
personal development as well as business creation. Moreover, the knowledge acquired
from experience and social interaction was transformed through a process of reflection,
particularly on failures, to adopt entrepreneurial behaviours and solved the problems of
new situations. Laohavichien, et. al., (2009) found that organizations paid more attention
on the transactional and transformational leadership. The behaviour of both leadership
styles considered strong determinant of organization success. It also concluded that
transformational leadership had higher effect than transactional leadership for quality
improvement in the organizations. Woodbine and Liu (2010) in concluded that moral
behaviour, motivation, achievement oriented approach, experience, knowledge, directive
and participative approach, supportive in nature and situational factors were influencing
the leadership styles.
Barratt and Korac-Kakabadse (2002) argued that many leaders did not seem
to address issues beyond short-term profitability, and therefore the time component
was crucial in the evaluation of leadership effectiveness. Timely leadership
effectiveness may be divided into three different leadership orientations. These
leadership orientations depended on whether the organizational performance was
derived from today's, yesterdays or tomorrow's corporate decision-making and
business behaviour.
Chen, et. al., (2008) found that diversified leadership roles influenced both
leadership effectiveness and team trust; both leadership effectiveness and propensity to
trust influenced team trust, and team trust in turn directly impacted team effectiveness. In
addition, team trust mediated the relationship between leadership effectiveness and team
effectiveness.
Rice (2010) concluded that principals with the experience and skills found to be
related to effectiveness were less likely to be working in high-poverty and low-achieving
schools, raising equity concerned about the distribution of effective principals. Besides,
the quality of a principal affected a range of school outcomes including teachers' satisfaction
and their decisions about where to work, parents' perceptions about the schools their
children attend and, ultimately, the academic performance of the school
Influence of Effectiveness of Leadership on Satisfaction of Leadership in Public and Private Insurance Sectors 57
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Abbasi et. al., (2011), found that significance of leadership, performance
management and employee involvement in context of TQM for gaining the competitive
benefit. Constant, clear and quality leadership was necessary for success. Therefore it
was required that quality leadership should be deemed as a strategic aim of the organization.
Quality in today's era was the continuous improvement therefore needed change at
continuous basis. Change cannot be carried out without effective leadership which provided
steadfastness and persistence against the confrontation to the change inside an organization.
METHODOLOGY AND SAMPLING:
Sample Design:
The secondary and primary data are collected from the sources of the selected
organizations in public and private sectors, this viz., Life Insurance Corporation of India
(LIC) and ICICI Prudential Life Insurance and their employees covering the districts of
Coastal Andhra in Andhra Pradesh. The LIC in public sector and the ICICI Prudential
Life Insurance in private sector are purposively selected for the study due to familiarity
of the researcher. The leadership in selected public and private sector was analyzed by
collecting the data from LIC and ICICI Prudential Life Insurance from four districts of
coastal Andhra of Andhra Pradesh namely, Nellore, Prakasam, Krishna and Guntur with
a sample size of 600.
Methodology:
In order to study perception of leadership styles, satisfaction of leadership and
rating of overall leadership of both public and private insurance sectors, t-test and Weighted
Mean has been applied and the multiple linear regressions by Ordinary Least Square
(OLS) estimation used to assess the influence of effectiveness of leadership styles on
satisfaction of leadership.
Research Hypotheses:
First Hypothesis: There is no significant difference in perception of leadership styles
among the employees in public and private sector
Second Hypothesis: There is no significant difference in satisfaction of leadership between
public and private sector
Third Hypothesis: There is no significant difference in rating of overall leadership between
public and private sector
Fourth Hypothesis: There is no significant difference in the influence of effectiveness of
leadership on satisfaction of leadership styles in public and private sector
RESULTS AND DISCUSSION:
First Research Hypothesis Test:
H1: There is no significant difference in perception of leadership styles among the
employees in public and private sector
58 Dasari Pandurangarao, Gella Sireesha & Devarapalli Rajasekhar
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
. The leadership styles regarding decision making, participation of employees,
communication of vision, setting of priorities to employees, delegation of authority,
leadership power, process of monitoring, motivational practices, encouraging creativity
in employees in LIC and ICICI Prudential Life Insurance were analyzed by working out
weighted mean and t-test and the results are presented in Table-1
Table -1:
In LIC, employee's suggestions are not considered and also no time for them,
employees are informed about what has to be done and how to do it, new hires are
not allowed to make any decisions unless it is approved by leader, leader closely
monitors employees to ensure they are performing correctly, leader likes the power
that his leadership position holds over subordinates, leader likes to use his leadership
power to help subordinates grow, employees must be directed or threatened with
punishment in order to get them to achieve the organizational objectives and
employees seek mainly security can are almost always true as perceived by the
employees in the LIC.
E-mails, memos or voice mails are sent to get the information and the meeting is
called very rarely. Employees are then expected to act upon the information, leader
delegates tasks in order to implement a new procedure or process, when there are
differences in role expectations, leader works with them to resolve the differences,
employees have the right to determine their own organizational objectives and Employees
can lead themselves just as well as leader can are frequently true as perceived by the
employees in the LIC.
The results indicate that it is always tried to include one or more employees in
determining what to do and how to do it, employees always vote whenever a major decision
has to be made, leader asks employees for their vision of where they see their jobs going
and then use their vision where appropriate, workers know more about their jobs than me,
so leader allows them to carry out the decisions to do their job, when something goes
wrong, leader tells employees that a procedure is not working correctly and he establishes
a new one, leader allows employees to set priorities with his guidance, employees will
exercise self-direction if they are committed to the objectives and employees know how
to use creativity and ingenuity to solve organizational problems are occasionally true as
perceived by the employees in the LIC.
From the table, it is observed that it is always retained the final decision making
authority within the department or team, employee ideas and input are sought for an
upcoming plans and projects, for a major decision to pass in my department, it must have
the approval of each individual or the majority, when things go wrong and there is a need
to create a strategy to keep a project or process running on schedule, by calls a meeting to
get employee's advice, environment is created where the employees take ownership of
the project and allow them to participate in the decision making process, employees are
Influence of Effectiveness of Leadership on Satisfaction of Leadership in Public and Private Insurance Sectors 59
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
allowed to determine what needs to be done and how to do it, each individual is responsible
for defining their job and leader likes to share his leadership power with my subordinates
are seldom true as perceived by the employees in the LIC.
In ICICI Prudential Life Insurance, the results indicate that employee ideas and
input are sought for an upcoming plans and projects, employees are informed about what
has to be done and how to do it, leader asks employees for their vision of where they see
their jobs going and then use their vision where appropriate, leader delegates tasks in
order to implement a new procedure or process, leader closely monitors employees to
ensure they are performing correctly, leader likes the power that his leadership position
holds over subordinates, leader likes to use his leadership power to help subordinates
grow and Employees seek mainly security are almost always true as perceived by the
employees in the ICICI Prudential Life Insurance.
From the results, it is observed that it is always retained the final decision making
authority within the department or team, it is always tried to include one or more
employees in determining what to do and how to do it, when things go wrong and there
is a need to create a strategy to keep a project or process running on schedule, by calls
a meeting to get employee's advice, employees are allowed to determine what needs to
be done and how to do it, new hires are not allowed to make any decisions unless it is
approved by leader, workers know more about their jobs than me, so leader allows
them to carry out the decisions to do their job, leader allows employees to set priorities
with his guidance, when there are differences in role expectations, leader works with
them to resolve the differences, employees must be directed or threatened with
punishment in order to get them to achieve the organizational objectives, employees
will exercise self-direction if they are committed to the objectives, employees have the
right to determine their own organizational objectives, employees know how to use
creativity and ingenuity to solve organizational problems and employees can lead
themselves just as well as leader can are frequently true as perceived by the employees
in the ICICI Prudential Life Insurance.
Employees always vote whenever a major decision has to be made, for a major
decision to pass in my department, it must have the approval of each individual or the
majority, E-mails, memos or voice mails are sent to get the information and the meeting
is called very rarely. Employees are then expected to act upon the information,
environment is created where the employees take ownership of the project and allow
them to participate in the decision making process, when something goes wrong, leader
tells employees that a procedure is not working correctly and he establishes a new one,
each individual is responsible for defining their job and leader likes to share his
leadership power with my subordinates are occasionally true as perceived by the
employees in the ICICI Prudential Life Insurance and employee's suggestions are not
considered and also no time for them is seldom true as perceived by the employees in
the ICICI Prudential Life Insurance.
60 Dasari Pandurangarao, Gella Sireesha & Devarapalli Rajasekhar
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
The t-value of 84.146 is significant at one per cent level indicating that there is a
significant difference in perception of leadership styles among the employees in LIC and
ICICI Prudential Life Insurance. Hence, the null hypothesis of there is no significant
difference in perception of leadership styles among the employees in public and private
sector is rejected.
Second Research Hypothesis Test:
H1: There is no significant difference in satisfaction of leadership between public and
private sector
The employee perception on the overall satisfaction of leadership in LIC and
ICICI Prudential Life Insurance are analyzed and the results are presented in Table-2
Table -2:
In LIC, the results show that about 68.00 per cent of the employees are satisfied
with leadership followed by neutral (17.33 per cent), dissatisfied (10.67 per cent) and
highly satisfied (4.00 per cent).In ICICI Prudential Life Insurance, it is observed that
about 66.67 per cent of the employees are satisfied with leadership followed by neutral
(20.00 per cent) and highly satisfied and dissatisfied (6.67 per cent).The t-value of 11.528
is significant at one per cent level indicating that there is a significant difference in
satisfaction of leadership between LIC and ICICI Prudential Life Insurance. Therefore,
the null hypothesis of there is no significant difference in satisfaction of leadership between
public and private sector is rejected.
Third Research Hypothesis Test:
H1: There is no significant difference in rating of overall leadership between public and
private sector
The rating of overall leadership in LIC and ICICI Prudential Life Insurance are
analyzed and the results are presented in Table-3
Table -3:
In LIC, the results indicate that about 40.00 per cent of the employees feel that the
overall leadership is good followed by bad (28.00 per cent), ok (22.67 per cent) and very
good (9.33 per cent).In ICICI Prudential Life Insurance, it is apparent that about 47.34
per cent of the employees feel that the overall leadership is good followed by very good
(19.33 per cent), bad(18.00 per cent) and ok(15.33per cent).The t-value of 9.764 is
significant at one per cent level indicating that there is a significant difference in rating of
overall leadership between LIC and ICICI Prudential Life Insurance. Hence, the null
hypothesis of there is no significant difference in rating of overall leadership between
public and private sector is rejected.
Research Hypothesis Test:
H1: There is no significant difference in the influence of effectiveness of leadership on
satisfaction of leadership styles in public and private sector
Influence of Effectiveness of Leadership on Satisfaction of Leadership in Public and Private Insurance Sectors 61
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Influence of effectiveness of leadership on satisfaction of leadership in LIC:
In order to assess the influence of effectiveness of leadership styles on satisfaction
of leadership in LIC, the multiple linear regression by Ordinary Least Square (OLS)
estimation and the results are presented in Table-4. The results indicate that the coefficient
of multiple determinations (R
2
) is 0.68 and adjusted R
2
is 0.64 indicating that the regression
model is good fit.
Table-4:
The results show that organizational climate, comfortability and development
are positively influencing the satisfaction of leadership styles at one per cent level of
significance, while interpersonal relationship and involvement are also positively
influencing the satisfaction of leadership styles at five cent level of significance in
LIC.
Influence of effectiveness of leadership on satisfaction of leadership in ICICI
Prudential
Life Insurance:
In order to assess the influence of effectiveness of leadership on satisfaction of
leadership in ICICI Prudential Life Insurance, the multiple linear regressions by Ordinary
Least Square (OLS) estimation and the results are presented in Table-5. The results show
that the coefficient of multiple determinations (R
2
) is 0.64 and adjusted R
2
is 0.59 indicating
that the regression model is good fit.
Table-5:
The results show that organizational climate, welfare and improvement are
positively influencing the satisfaction of leadership styles at one per cent level of
significance, while comfortability and career opportunities are also positively influencing
the satisfaction of leadership styles at five cent level of significance in ICICI Prudential
Life Insurance.
The null hypothesis is defined as there is no significant difference in the influence
of effectiveness of leadership on satisfaction of leadership in public and private sector.
The factors such as organizational climate, comfortability, interpersonal relations and
involvement are positively affect the satisfaction of leadership in public sector. In private
sector the influencing factors of effectiveness of leadership on satisfaction of leadership
in organization are through organizational climate, welfare, career opportunities and
improvement. There are differences in the influencing factors of effectiveness of leadership
on satisfaction of leadership in public and private sector.
Therefore, the null hypothesis of there is no significant difference in the influence
of effectiveness of leadership on satisfaction of leadership styles in public and private
sector is rejected.
62 Dasari Pandurangarao, Gella Sireesha & Devarapalli Rajasekhar
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Findings:
In Public sector the leadership improves the interpersonal relation between the
employees, and leadership resolves the strategic differences with management are highly
effective. Leadership is molding a staff, leadership helps in follow-through the functions,
leadership eases the adaptability by the employees, leadership contributes significantly
in employee's development, leadership increases the employee's commitment to the
organization, leadership decides the training and development needs of the employees,
leadership gives and expects the responsibility from the employees, leadership maintains
discipline of the employees, leadership creates the positive attitude among the employees
about their work and organization and leadership creates the awareness among the
employees about their works and changes are effective as perceived by the employees in
public sector. The results also indicate that leadership creates overdependence, leadership
resolves the strategic differences with management, leadership increases the involvement
of the employees, leadership provides consistency, leadership helps in formation of the
mission statements, leadership assists in learning process, leadership provides the
empowerment to the employees and leadership creates the job satisfaction among the
employees are moderately effective as perceived by the employees in the private sector.
In Private sector the leadership improves the interpersonal relation between the
employees, and leadership contributes in strategies formulation, leadership helps in follow-
through the functions, leadership creates the positive attitude among the employees about
their work and organization, leadership creates the awareness among the employees about
their works and changes and leadership encourages teamwork are highly effective as
perceived by the employees The results also indicate that leadership creates
overdependence, leadership resolves the strategic differences with management, leadership
increases the involvement of the employees, leadership provides consistency, leadership
helps in formation of the mission statements, leadership assists in learning process,
leadership provides the empowerment to the employees and leadership creates the job
satisfaction among the employees are moderately effective as perceived by the employees
in the private sector.
Suggestions:
For public sector in order to improve the effectiveness of leadership reduces over
dependence and leadership should provide consistency, besides, leadership should enhance
the organizational behaviour and also should assist in learning process. And leadership
should provide the empowerment and create the job satisfaction among the employees.
Leadership should act as catalyst for organizational change. In order to improve the
leadership styles of supervisor, the supervisor should take time to listen the employees
and should provide the employees with sufficient information related to their work and
also must take care of career development of their employees.
For private sector in order to improve the leadership, leaders should prescribe the
behavioural expectations of employees through formalization of rules and regulations
Influence of Effectiveness of Leadership on Satisfaction of Leadership in Public and Private Insurance Sectors 63
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
correctly. In order to increase the standards of leadership styles, leaders should ensure the
employees work together, encouraging team work and also proper handling of employee's
complaints. In order to improve the leadership styles of supervisor, supervisor should
take care of employees' career advancement.
CONCLUSION
The leadership concepts of leader is managing the critical functions of organization
efficiently, leader is facilitating the creativity and innovation on the part of the employees,
leader should create trust among the employees and leader is responsible for creating and
maintaining strong work culture are strongly agreed by the employees of public sector.
References:
l Afsaneh Bagheri and Zaidatol Akmaliah Lope Pihie, (2009), "An Exploratory Study
of Entrepreneurial Leadership Development of University Students" European Journal
of Social Sciences, 11(1): pp.177-190
l Laohavichien, T., Fredendall, L., and Cantrell, R., (2009), "The Effects of
Transformational and Transactional Leadership on Quality Improvement" The Quality
Management Journal, 16(2): pp. 7-24.
l Gordon F. Woodbine and Joanne Liu (2010), "Leadership Styles and the Moral Choice
of Internal Auditors", Electronic Journal of Business Ethics and Organization Studies,
15(1): pp.28-35.
l Barratt, R. and Korac-Kakabadse, N. (2002), "Developing Reflexive Corporate
Leadership: The Role of the Non Executive Director", Corporate Governance:
International Journal of Business in Society, 2 (3): pp. 32-6
l Chen, P.Y., and Spector, P.E., (2008), "Negatively Affectivity as the Underlying Cause
of Correlations between Stressors and Strains", Journal of Applied Psychology, 76(4):
pp.398-407
l Jennifer King Rice (2010), "Principal Effectiveness and Leadership in an Era of
Accountability: What Research Says", National Center for Analysis of Longitudinal
Data in Education Research, Washington, D.C.
l Aamna Shakeel Abbasi, Ali Muslim Bin Aqeel and Ali Naseer Awan (2011), "The
Effectiveness of Leadership, Performance and Employee Involvement for Producing
Competitive Advantage with a TQM Orientation: A Conceptual Framework"
Mediterranean Journal of Social Sciences, 3(4): pp.83-90.
64 Dasari Pandurangarao, Gella Sireesha & Devarapalli Rajasekhar
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Table -1: Perception of Leadership Styles of Employees in LIC and
ICICI Prudential Life Insurance
Leadership Styles LIC ICICI Prudential t- Sig
Life Insurance Value
Weighted Status Weighted Status
Mean Mean
It is always retained the final decision 1.56 ST 3.58 FT
making authority within my department
or team.
It is always tried to include one or more 2.89 OT 3.92 FT
employees in determining what to do and
how to do it.
Employees always vote whenever a major 3.42 OT 3.46 OT
decision has to be made.
Employee's suggestions are not considered 4.64 AAT 2.24 ST
and also no time for them.
Employee ideas and input are sought for 2.44 ST 4.62 AAT
an upcoming plans and projects.
For a major decision to pass in my 2.04 ST 3.26 OT
department, it must have the approval of
each individual or the majority.
Employees are informed about what has to 4.64 AAT 4.72 AAT
be done and how to do it.
When things go wrong and there is a need 2.42 ST 4.48 FT
to create a strategy to keep a project or
process running on schedule, by calls a
meeting to get employee's advice.
E-mails, memos or voice mails are sent to 3.62 FT 3.46 OT
get the information and the meeting is
called very rarely. Employees are then
expected to act upon the information.
Environment is created where the 2.24 ST 3.02 OT 84.146 0.01
employees take ownership of the project
and allow them to participate in the
decision making process.
Employees are allowed to determine what 2.35 ST 3.82 FT
needs to be done and how to do it.
New hires are not allowed to make any 4.56 AAT 3.94 FT
decisions unless it is approved by leader.
Leader asks employees for their vision of 3.02 OT 4.62 AAT
where they see their jobs going and then
use their vision where appropriate.
Influence of Effectiveness of Leadership on Satisfaction of Leadership in Public and Private Insurance Sectors 65
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Workers know more about their jobs than 3.12 OT 3.62 FT
me, so leader allows them to carry out the
decisions to do their job.
When something goes wrong, leader tells 3.44 OT 3.42 OT
employees that a procedure is not working
correctly and he establishes a new one.
Leader allows employees to set priorities 3.22 OT 4.38 FT
with his guidance.
Leader delegates tasks in order to 4.04 FT 4.62 AAT
implement a new procedure or process.
Leader closely monitors employees to 4.82 AAT 4.92 AAT
ensure they are performing correctly.
When there are differences in role 3.86 FT 4.44 FT
expectations, leader works with them to
resolve the differences.
Each individual is responsible for defining 2.16 ST 3.52 OT
their job.
Leader likes the power that his leadership 4.92 AAT 4.96 AAT
position holds over subordinates.
Leader likes to use his leadership power to 4.64 AAT 4.58 AAT
help subordinates grow.
Leader likes to share his leadership power 2.01 ST 3.18 OT
with my subordinates.
Employees must be directed or threatened 4.92 AAT 4.02 FT
with punishment in order to get them to
achieve the organizational objectives.
Employees will exercise self-direction if 3.32 OT 4.18 FT
they are committed to the objectives.
Employees have the right to determine 3.68 FT 3.64 FT
their own organizational objectives.
Employees seek mainly security. 4.68 AAT 4.62 AAT
Employees know how to use creativity 3.42 OT 4.02 FT
and ingenuity to solve organizational
problems.
Employees can lead themselves just as 3.56 FT 4.16 FT
well as leader can.
Source : Primary & Computed Data
Note : AAT = Almost always True if Weighted Mean is 5.00
FT = Frequently True if Weighted Mean is 4.00
OT = Occasionally True if Weighted Mean is 3.00
ST = Seldom true if weighted mean is 2.00
66 Dasari Pandurangarao, Gella Sireesha & Devarapalli Rajasekhar
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Table -2: Satisfaction of Leadership in both LIC and ICICI Prudential Life Insurance
Table -3: Rating of Overall Leadership in LIC and ICICI Prudential Life Insurance
Source: Primary & Computed Data
Source: Primary & Computed Data
Overall
Leadership
LIC
ICICI Prudential Life
Insurance t-Value Sig
Frequency Per Cent Frequency Per Cent
Very Good 28 9.33 58 19.33
9.764

0.01 Good 120 40.00 142 47.34
OK 68 22.67 46 15.33
Bad 84 28.00 54 18.00
Total 300 100.00 300 100.00
Satisfaction
LIC
ICICI Prudential Life
Insurance t-Value Sig
Frequency Per Cent Frequency Per Cent
Dissatisfied 32 10.67 20 6.67

11.528

0.01
Neutral 52 17.33 60 20.00
Satisfied 204 68.00 200 66.66
Highly Satisfied 12 4.00 20 6.67
Total 300 100.00 300 100.00
Table-4: Influence of Effectiveness of Leadership on Satisfaction of Leadership in LIC -
Multiple Regression
Source : Primary & Computed Data
Note : ** Significance at one per cent level
* Significance at five per cent level
Effectiveness of Leadership
Regression
Coefficients
t-value Sig
Intercept
1.246 1.139 .194
Organizational Climate(X
1
)
.528
**
3.864 .011
Comfortability (X2)
.524
**
3.946 .011
Dynamism (X
3
)
.194 .488 .049
Development(X
4
)
.568
**
3.896 .012
Enhancement(X
5
)
.047 .610 .352
Coordination(X6) .057 .750 .488
Values(X
7
)
-.312 -.624 .763
Organizational Behaviour(X
8
)
.512 .813 .962
Interpersonal Relationship(X9) .445
*
2.494 .031
Involvement(X
10
)
.452
*
2.629 .023
R
2
0.68
Adjusted R
2
0.64
F 4.262 0.01
N 300
Influence of Effectiveness of Leadership on Satisfaction of Leadership in Public and Private Insurance Sectors 67
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Effectiveness of Leadership
Regression
Coefficients
t-value Sig
Intercept 1.925
**
3.862 .013
Organizational Climate(X
1
) .608
**
4.148 .011
Welfare (X2) .649
**
4.259 .012
Improvement (X3) .594
**
3.852 .011
Efficiency(X
4
) .218 1.281 .346
Needs(X
5
) .192 .782 .412
Comfortability(X
6
) .459
*
2.462 .021
Cooperation(X
7
) .396 .604 .624
Career Opportunities(X8) .444
*
2.320 .024
Mission(X9) .124 .682 .624
R
2
0.64
Adjusted R
2
0.59
F 3.982 0.01
N 300
Table-5: Influence of Effectiveness of Leadership on Satisfaction of Leadership in ICICI
Prudential Life Insurance - Multiple Regression
Source : Primary & Computed Data
Note : ** Significance at one per cent level
* Significance at five per cent level
68 Dasari Pandurangarao, Gella Sireesha & Devarapalli Rajasekhar
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Syed Irfan Shafi*
C. Madhavaiah**
Impact of Brand Association on Soft Drinks Purchase
Decision on Indian Consumers
* Doctoral Research Scholar, Department of Management Pondicherry University
KaraikalCampus,Nehru Nagar KARAIKAL - 609 605
E-mail: irfanshafi123@gmail.com.
** Assistant Professor, Department of Management Pondicherry University, Karaikal Campus,
Nehru Nagar KARAIKAL - 609 605
E-mail: drcmadhavaah@gmail.com
Abstract : Brand association is an indispensable part of
brand image. The determination of optimal positioning in
the minds of the customer for the brand is based upon
identifying the relationship between the brand and its
favourable and unique associations. An association can
affect the processing and recall of information, provide a
point of differentiation, provide a reason to buy, create
positive attitudes and feelings and serve as the basis of
extensions. Brand association is an indispensable element
which directly has a relationship with brand loyalty, brand
knowledge, brand awareness, brand equity, purchase
decision and post purchase behaviour. The purpose of the
study is to understand which brand associations create
positive brand attitude and purchase decision in the minds
of consumers for the soft drink market in Pondicherry. The
statistical population consists of consumers in Pondicherry.
The research sample consists of 115 consumers of soft drinks
in Karaikal /Pondicherry and they are asked to reply
questions which are constructed based on Likert scale.
According to the research conceptual model, the relationship
between soft drink association mix dimensions and brand
association was investigated. The data has been analysed
using correlation analysis and regression model. The results
show that among all the factors, packaging, product
characteristics, quality, country of origin, producer's brand
image, retailer's brand image and retailer staff qualities are
positively related to the brand association, and price of the
brand was negatively related to the brand association.
Key Words: Soft drink marketing, brand association,
consumer decision-making, purchase, India.
Impact of Brand Association on Soft Drinks Purchase Decision on Indian Consumers 69
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
1. INTRODUCTION
Soft drinks are known as non-alcoholic beverage containing syrup essence or fruit
concentrates that are mixed with carbonated water. Soft drinks are thirst quencher, hygienic
and a drink of enjoyment. Soft drinks industries are quit old. Today, Pepsi and Coca - cola
are the famous brands and both are multinational.
The production of soft drinks is based on the franchise system, where the parent
companies supply the concentrates brand name and know how. The franchise unit that is
the bottling unit supplies the production to the market. Hence the bottlers become very
important for the successful operation of the soft drinks brand. The drinks are called soft
drinks, only to separate them from hard alcoholic drinks. This drinks do not contains
alcohol & broadly specifying this beverages, includes a variety of regulated carbonated
soft drinks, diet & caffeine free drinks, bottled water juices, juice drinks, sport drinks &
even ready to drink tea/coffee packs. So we can say that soft drinks mean carbonated
drinks.
Soft drinks are called "soft" in contrast to "hard drinks" (alcoholic beverages).
Small amounts of alcohol may be present in a soft drink, but the alcohol content must be
less than 0.5% of the total if the drink is to be considered non-alcoholic. Fruit juice, tea,
and other such non-alcoholic beverages are technically soft drinks by this definition but
are not generally referred to as such.
Widely sold soft drink flavours are cola, cherry, lemon-lime, root beer, orange,
grape, vanilla, ginger ale, fruit punch, and lemonade.
Today, soft drink is more favourite refreshment drink than tea, coffee; juice etc. It
is said that where there is a consumer, there is a producer & this result into competition.
Bigger the player, the harder it plays. In such situation broad identity is very strong. It
takes long time to make brand famous. Soft drinks are made by mixing dry ingredients
and/or fresh ingredients (for example, lemons, oranges, etc.) with water. Production of
soft drinks can be done at factories or at home.
2. SOFT DRINK INDUSTRY IN INDIA
First soft drink, established 50 years ago before all empowering Coca-Cola entered
the company to dominate the scene. It faced no competition and its euphoric image built
up in western countries helped it get ready clientele and glamour. Parle Export Private
Ltd should be regarded as the first Indian company introducing Limca a lemon drink
complimentary to their well established Gold Spot in 1970 which got moderate success.
However, before this, it had also introduced Cola-Pepino which was withdrawn in face
tough competition from Coca-cola.
Coca-Cola serves in India some of the most recalled brands across the world,
which includes names such as Coca-Cola, Diet Coke, Sprite, Fanta, along with the
Schweppes product range. The acquisition of Thums Up brought some of the leading
national soft drinks like Thums Up, Limca, Maaza, Citra and Gold Spot under its umbrella.
70 Syed Irfan Shafi & C. Madhavaiah
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
To add to this, Kinley mineral water was launched in the year 2000. The Soft Drink
Industry consists of establishments primarily engaged in manufacturing non-alcoholic,
carbonated beverages, mineral waters and concentrates and syrups for the manufacture of
carbonated beverages. Establishments primarily engaged in manufacturing fruit juices
and non-carbonated fruit drinks are classified in Canned and Preserved Fruit and Vegetable
Industry. Principal activities and products:
l Aerated waters
l Carbonated beverages
l Mineral and spring waters
l Soft drink concentrates and syrup
l Soft drink preparation carbonating
The first marketed soft drinks (non-carbonated) appeared in the 17th century.
They were made from water and lemon juice sweetened with honey. In 1676, the
Companies de Limonadiers of Paris was granted monopoly for the sale of lemonade
soft drinks.
In 2012, soft drinks registered a higher off-trade value growth rate than the review
period average. This growth was attributable to strong double-digit performances in sectors
such as sports and energy drinks, bottled water and fruit/vegetable juice, which had a
good year due to rising mercury levels. Long summers and higher disposable incomes are
the main growth drivers for the soft drinks category.
2.1 Categorisation of Soft Drink I ndustry
The industry of soft drinks is divided into two main categories namely non-
carbonated and carbonated drinks. The non-carbonated drink segments include mostly
mango flavours, squashes and fruit juices, while carbonated drinks include orange, lemon
and lemon flavours. Some of the top brand names in the soft drinks sector in India are
Thumps Up, Pepsi and Coco-cola, Limca, Sprite, Mirinda, 7Up, etc With a view to
meet the requirements of different segments of the society, these soft drinks are being
offered in varied sizes.
2.2 Top Soft Drink Companies in I ndia
Soft Drinks has become part and parcel of the lifestyle of Indians, irrespective of
middle aged people or kids. Particularly, after the arrival of a number of fast food joints
in India, soft drinks have gained more and more popularity. Foods like French fries,
burgers and pizzas go hand in hand with soft drinks. Gone are the days when soft drinks
were preferred only during sunny days, nowadays soft drinks are enjoyed with almost
every meal that is had by people outside their home. In spite of several issues that crept up
with respect to ingredients used in the manufacture of soft drinks, the market remained
stable.
Impact of Brand Association on Soft Drinks Purchase Decision on Indian Consumers 71
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
2.3 Top Players in the Soft Drinks I ndustry in I ndia:
The soft drinks industry in India is dominated by some of the top players and the
names of these top players are given below:
l Coco-Cola India
l PepsiCo India
l Rasna International
Some of the details regarding these top soft drink manufacturers in India are given
below:
Coco-Cola India
Coco-Cola Company entered into India in the name of Coco-Cola India, which is
its wholly owned subsidiary. The company was launched in India in the year 1993 and
this launch was actually a re-launch since India encouraged foreign investments in different
industries. The company has more than 1.3 million retailers and more than 7000 distributors
in India and their brands are the leading brands in the soft drinks industry in India. Some
of their popular brands in India are Thumps up, Sprite, Limca, Fanta Apple, Fanta Orange
and of course coco-cola. Their recent introduction to the soft drink industry in India is
Minute Maid Juice.
Pepsi Co India
PepsiCo is an international company that entered into Indian soft drink industry in
the year 1989 and within a short period of its entry, the company has started dominating
the Indian soft drink market. The company is operating with the vision of Performance
with purpose and the meaning of this vision is that when the business increases the value
of the shares, they become responsible for improving the society they serve and the
environment whose resources are being used by them. Thus, Pepsico India serves the
society to grow along with it. Some of their popular products are Slice, Pepsi, Nimbooz,
Mountain Dew, Mirinda and 7Up.
Rasna International
Rasna is another popular name in the soft drinks industry in India and this company
has in-depth and adequate information and knowledge on market behaviours, market
sizes, finances, government policies, project viabilities, etc They have emerging and
huge market for their products all over the world and they have made their mark in the
food & beverages industry in India. They have introduced a wide range of ready to make
soft drinks that can be prepared at the comfort of the home of users.
On the basis of pattern of consumption, the pattern of soft drink industry can be
classified into two segments, namely based on the premises in which they are sold like
cinema halls, restaurants, shops, railway stations, etc and the other segment is in-house
consumption, which indicates that soft drinks consumed at home by the consumers. Even
72 Syed Irfan Shafi & C. Madhavaiah
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
though, the soft drinks industry is growing in India, it is comparatively growing at a
slower pace as compared to that of soft drinks industry in other countries.
3. CONCEPT OF BRAND ASSOCIATION
Although there has not always been agreement on how to measure brand image
(Dobni and Zinkhan,1990), one generally accepted view is that, consistent with an
associative network memory model, brand image can be defined as perceptions about a
brand as reflected by the cluster of associations that consumers connect to the brand
name in memory. Thus, brand associations are the other informational nodes linked to the
brand node in memory and contain the meaning of the brand for consumers.
One way to distinguish between brand associations is by their level of abstraction,
that is, by how much information is summarized or subsumed in the association. In line
with this criterion, Keller (1993, 1998) classifies brand associations in to three major
categories: attributes benefits and attitudes. Attributes are those descriptive features that
characterize a brand,
Such as what a consumer thinks the brand is or has and what is involved with its
purchase or consumption. Benefits are the personal value consumers attach to the brand
attributes, that is, what consumers think the brand can do for them. Brand attitudes are
consumers 'overall evaluations of a brand.
The associations related to the functions represent a greater degree of Abstraction
than those referring to the attributes, and so are more accessible. And remain longer in
the consumer's memory (Chattopadhyay and Alba, 1988). A further specific feature f
the functions is that they have a positive nature, that is, the brand value is greater, the
higher the level. For these reasons, and given the interest of working with a
multidimensional measure of brand associations, we will examine the associations
concerning the functions.
Consumers use brand associations to help process, organize, and retrieve
information in memory. Keller and Aaker agree that brand associations are one of the
main dimensions of brand equity and have a great importance in attitude formation and
finally purchase decisions and loyalty. Brand attitude is defined as consumers' overall
evaluation of a brand .Hawkins, Best & Coney's suggest that attitude has three
components; cognitive, affective, and behavioural. Cognitive component refers to
consumer's knowledge and beliefs about a brand. The more positive they are, the easier
it is for the individual to retrieve or recall the brand. Consumer's feelings or emotional
reactions to a brand represent the affective component of an attitude. Individuals develop
favourable attitudes toward the brand if they positive feelings and emotional reactions.
The behavioural component of an attitude represents individual's overt behaviour to
the brand. In the literature, brand attitude is conceptualized as part of the brand equity.
To form brand attitudes, the existence of brand associations that are salient in a brand
is a must.
Impact of Brand Association on Soft Drinks Purchase Decision on Indian Consumers 73
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Figure 1: Research Model
The primary aim of this study is to examine whether the association with
Brand influence how the consumer perceives the brand. It explores to identify the
impact of the nine associations on Soft Drink purchasing behaviour, as shown in
Figure 1 .
4. RESEARCH METHODOLOGY & HYPOTHESES
An empirical study was undertaken to understand brand association impacting
purchase decision of soft drinks. Questionnaire with open and close ended questions
were circulated through investigators. In all, 115 respondents were selected who use Pepsi,
Coco-Cola, Rasna and other brands who are living in Pondicherry.
The flowing are the two key research hypotheses:
H1. Identify the impact of the nine associations on brand association of Soft Drink
purchasing behaviour, as shown in Figure 1 below.
H2: The relationship between brand association and Consumer Purchase Decision is
positive.
5. DATA ANALYSIS AND RESULTS
Collected data were analysed using statistical tools of computer programs viz.
Microsoft Excel and SPSS. The findings of the study are presented in a manner that meets

Packaging
Characteristics
Quality
Country
Price
Producer
Retailer
Staff
Events
Brand
Association
Consumer
Purchase Decision
74 Syed Irfan Shafi & C. Madhavaiah
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
the purpose of the study. Findings of the Study The data from the survey were coded and
entered for statistical analysis. The data obtained were analysed by using different
statistics techniques such as Pearson Correlation test was used to uncover association
of each of the nine brand associations with the consumer's Soft Drink spending. A
Regression analysis was used to examine the relationship between brand association
and its constructs.
The mean values for the Brand associations and Association Factors are
presented in Table 1. In terms of brand association have Mean Value (4.17), Staff
gained the highest mean score (4.15), followed by Packaging (4.03) and Characteristics
was perceived lowest with a mean score of 2.79. The mean values for the brand
association dimensions show that respondents associate, Packaging, staff Country
experience higher with their most preferred soft drink brands when compared to the
other dimensions. Their brand association, on the other hand, is somewhat at a
mediocre level.
Indian respondents, therefore, considered Staff as the most important attribute
followed by Packaging while the attribute that they considered least was the
characteristics.
Table 1: Mean and Standard Deviation
Variables Mean Standard Deviation
Packaging 4.03 0.99
Characteristics 2.79 1.29
Quality 3.50 1.12
Country 3.88 0.97
Price 3.78 1.08
Producer 3.55 1.20
Retailer 3.66 1.11
Staff 4.36 .763
Events 3.00 1.67
Brand association 4.17 .518
Regression Analysis
The study uses simple regression analysis to examine the relationship between
brand association, Packaging, characterises, Quality, Country, Price Producer,
Retailer, staff, Events and purchase Decision. As shown in Table 2, Packaging
(=0.107, p<0.001) and country (=0.114, p<0.001) are positively and significantly
related to brand Association. Also, Price, producer, Retail, Staff Event and Quality
are significantly accounted for Brand association. In addition, Characteristics ((= -
0.83, p<0.001) Price (= - 0.62, p<0.001), are negatively and significantly related to
Brand Association and purchase Decision. This brings the results that H1, H2 are all
supported.
Impact of Brand Association on Soft Drinks Purchase Decision on Indian Consumers 75
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Regression Coefficients for Dependent Variable: Brand Association
Coefficients
a
Model
Unstandardised
Coefficients
Standardised
Coefficients
t Sig. B Std. Error Beta
1 (Constant) 3.449 .342 10.09 .000
Packaging .107 .047 .206 2.280 .000
Characteristics -.083 .037 -.206 -2.228 .028
Quality .059 .045 .128 1.304 .000
Country .114 .053 .215 2.154 .000
PRICE -.062 .063 -.129 -.983 .328
Producer .003 .054 .008 .065 .000
Retailer .035 .056 .076 .629 .000
Staff .063 .063 -.093 -.999 .320
Events .081 .028 .262 2.881 .000
a. Dependent Variable: Brand Association
Correlation
Pearson Correlation test was used to analyse relationships if any between
the nine brand associations (independent variables) affecting Brand association
consumers' soft drink spending (dependent variables). The main hypothesis stated
that all of the nine Independent Variables have an impact on Brand association.
Table 3.
Table 3: Pearson Correlation Coefficients
Variables Pearsons Correlation Sig(2-Tailed)
Packaging 0.225
*
0.001
Characteristics 0.170* 0.000
Quality 0.158** 0.000
Country 0.208** 0.000
PRICE -0.300* 0.025
Producer
0.250**
0.001
Retailer 0.145* 0.004
Staff
0.250**
0.002
Events
0.240**
0.001
*. Correlation is significant at the 0.05 level (2-tailed).
**. Correlation is significant at the 0.01 level (2-tailed).
76 Syed Irfan Shafi & C. Madhavaiah
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Pearson result showed that that the independent variables of packaging, product
characteristics, quality, country of origin, producer's brand image, retailer's brand image
and retailer staff qualities are positively related to the dependent variable, i.e., Price of
the brand was negatively related to the dependent variable.
5. CONCLUSION
The present study has analysed the brand association based on the functions or
benefits that the consumer associates with the brand. The basic objective was to study the
influence of these functions on certain aspects of consumer purchase decision in soft
drink market. For this, we have formulated two hypotheses that relate each of the brand
functions with the consumer's willingness to recommend the brand to others, pay a price
premium for it and accept brand association and the result concluded that brand association
have positive and significant relation with consumers purchase decision process in soft
drink market in India.
6. SCOPE FOR FURTHER STUDY
The researcher purposes to analyse the relationship of all variables that affect
brand association toward soft drink and to make suggestion. Accordingly, a further study
with two import areas is suggested for future research.
First, further research can be conducted on other important factors that contribute
soft drink industries to its successful business that are not covered in this study. For
example, satisfaction, location, loyalty and other factors, second, a further study focusing
on new target population can be conducted for soft drink users. Soft drink's new target
population is students belonging to the age group of 20 and above.
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Journal of Product and Brand Management, Santa Barbara, 16(1), 38
78 Syed Irfan Shafi & C. Madhavaiah
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Abstract : Working capital management is important part
in firm financial management decision. Efficiency of any
business organization can be judge through its profitability
performance. Efficient management of working capital plays
an important role of overall corporate strategy in order to
create shareholder value and profitability performance. In
the present paper an attempt has been made to identify the
relationship between working capital management and
profitability in Reliance Industry Limited (RIL). The study
period is 2001-02 to 2010-11. I have studied the effects of
different variables of working capital management including
current ratio, quick ratio, debt equity ratio, interest coverage
ratio, debtor turnover ratio, inventory turnover ratio,
investments turnover ratio, fixed assets turnover ratio,
working capital turnover ratio on the Return on capital
employed ratio of the company. To determinant profitability
backward regression analysis were used on the variables of
the study. The result of the study suggests a negative
relationship between working capital management
components and profitability. Finally, I found the
insignificant negative relationship between working capital
management and profitability.
KEYWORDS: Working Capital Management, Profitability,
Working Capital Policies
Shailesh N. Ransariya*
* Head, Department of Commerce and Accountancy, S. S. P. Jain Arts & Commerce College ,
Dhrangadhra - 363310 (Gujarat). E-Mail: snransariya@yahoo.com
Relationship Between Working Capital Management
and Profitability : A Case Study
INTRODUCTION:
As without efficient management in this area no company can survive. Working
capital is linked with, both, liquidity and profitability of a firm. Working capital ascertains
the firm's ability to continue its operation without endangering the liquidity. Working
capital management is comprised of many important decision makings. Working capital
plays a very important role in business. It acts as lubricant to run the wheels of fixed
assets. Its effective provision and utilization can leads to success of the business while its
inefficient management leads to heavy losses and ultimate downfall of the organization.
Relationship Between Working Capital Management and Profitability : A Case Study 79
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
In short, the success and efficiency of business organization depends fundamentally on
its ability to manage its working capital and that is why working capital management
holds very important place in firm's overall financial management.
In a time when global competition erodes prices, margins are low, companies
need cash to expand internally or overseas, invest in new technologies and products and
pay down debt, turning to working capital as a source of cash represents a managerial
tool. There are a growing number of companies recognizing working capital management
as a true competitive advantage in the profit enhancement. In the case of Dell Computer,
the company derives cost advantage in three areas: component purchase costs, selling
and administrative costs and inventory and working capital costs.
OBJECTIVES OF WORKING CAPITAL MANAGEMENT:
The objectives of working capital can be stated as:
1. To ensure optimum investment in current assets.
2. To strike a balance between the twin objectives of liquidity and profitability in the
use of funds.
3. To ensure adequate flow of funds for current operations.
4. To speed up the flow of funds or to minimize the stagnation of funds.
NEEDS OF WORKING CAPITAL MANAGEMENT:
For studying the need of working capital in a business, one has to study the business
under varying circumstances such as a new concern, as a growing concern and as one
which has attained maturity. A new concern requires a lot of liquid funds to meet initial
expenses like promotion, formation etc. the amount of working capital needed goes on
increasing with the growth and expansion of working capital till it attains maturity. At
maturity the amount of working capital needed is called normal working capital.
The need of working capital cannot be over emphasized. Every business needs
some amount of working capital for the day to day operations of the organization. The
need for working capital arises due to the time gap between the production and realization
of cash from sales. There is an operating cycle involved in the sales and realization of
cash. There are the time gap in purchase of raw material, production, sales and the
realization of cash. Thus working capital is needed in for following purpose:
1. For the purchase of raw material, components and spares.
2. To pay wages and salary.
3. To incur day to day expenses and overhead cost such as fuel, power, office expenses
etc.
4. To meet the selling cost as packing, advertisement etc.
5. To provide the credit facility to the customers.
6. To maintain the inventories of raw material, work in progress, store and spares and
finished stock.
80 Shailesh N. Ransariya
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
OBJECTIVES OF THE STUDY:
The following are the specific objectives of the study:
v To analyze the firm's efficiency in Working Capital Management in the RIL.
v To analyze the relationship between Working Capital Management and profitability
RIL
REVIEW OF LITERATURE:
The review of literature is:
u Shin and Soenen (1998) used a sample of 58,985 firm's years covering the period
1975-1994 in order to investigate the relationship between net-trade cycle that was
used to measured efficiency of working capital management and corporate profitability
and found a strong negative relationship between lengths of the firm's net trading
Cycle and its profitability. In addition, shorter net trade cycles were associated with
higher risk adjusted stock returns.
u Ghosh and Maji( 2003) in this paper made an attempt to examine the efficiency of
working capital management of the Indian cement companies during 1992 - 1993 to
2001 - 2002. For measuring the efficiency of working capital management,
performance, utilization, and overall efficiency indices were calculated instead of
using some common working capital management ratios. Setting industry norms as
target-efficiency levels of the individual firms, this paper also tested the speed of
achieving that target level of efficiency by an individual firm during the period of
study. Findings of the study indicated that the Indian Cement Industry as a whole did
not perform remarkably well during this period.
u Ganesan, (2007), analyzed impact of working capital management upon the
performance of firms in Telecom industry. The variables used were, days sales
outstanding, number of days for payment to vendors, average days inventory held,
cash conversion efficiency, revenue to total assets, revenue to total sales, etc. Findings
reveal negative & insignificant relationship between profitability and daily working
capital requirement in the said industry.
u Garcia-Teruel and Martinez-Solano (2007) studied the effects of working capital
management on the profitability of a sample of small and medium-sized Spanish
firms. They found that managers can create value by reducing their inventories and
the number of days for which their accounts are outstanding. Moreover, shortening
the cash conversion cycle also improves the firm's profitability.
u Chakraborty (2008) evaluated the relationship between working capital and
profitability of Indian pharmaceutical companies. He pointed out that there were two
distinct schools of thought on this issue: according to one school of thought, working
capital is not a factor of improving profitability and there may be a negative relationship
between them, while according to the other school of thought, investment in working
Relationship Between Working Capital Management and Profitability : A Case Study 81
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
capital plays a vital role to improve corporate profitability, and unless there is a
minimum level of investment of working capital, output and sales cannot be maintained
- in fact, the inadequacy of working capital would keep fixed asset inoperative.
u Singh and Pandey (2008) studied the working capital components and the impact of
working capital management on profitability of Hindalco Industries Limited for period
from 1990 to 2007. Results of the study showed that current ratio, liquid ratio,
receivables turnover ratio and working capital to total assets ratio had statistically
significant impact on the profitability of Hindalco Industries Limited.
u Falope and Ajilore (2009), using a sample of 50 Nigerian quoted non-financial
firms for the period 1996 -2005, found a significant negative relationship between
net operating profitability and the average collection period, inventory turnover in
days, average payment period and cash conversion cycle for a sample of fifty Nigerian
firms listed on the Nigerian Stock Exchange. Furthermore, they found no significant
variations in the effects of working capital management between large and small
firms.
u Karamjeet Singh and Firew Chekol Asress (2010), concluded that firms which
have adequate working capital in relation to their operational size are performed
better than those firms which have less than the required working capital in relation
to their operational size. If firms actual working capital is below the required working
capital in relation to their operational size, firms are forced to produce below their
optimal scale and this create problem to run day to day activities smoothly, so this
lead firms to generate low return on their investment.
In view of the literature surveyed above, I found that there still is indistinctness
regarding the appropriate variables that might serve as proxies for working capital
management and no significant study was conducted in India on the issue regarding impact
of working capital management components on profitability for Reliance Industry Limited
(RIL).
SIGNIFICANCE AND SCOPE OF THE STUDY:
Very few studies have been made in relation to Working Capital Management
especially in the refinery industry in India for 10 years 2001-02 to 2010-11. Therefore,
the present study is a maiden attempt to analyze the relationship between WCM efficiency
and Return on capital employed in the refinery industry in India. The study covers leading
refinery industry in India RIL), for which an attempt is made to provide an empirical
support to the hypothesized relationship between WCM and profitability.
RESEARCH HYPOTHESIS:
The hypotheses on the basis of objectives of the study are:
H0 : There is no relationship between working capital management and profitability.
H1 : There is relationship between working capital management and profitability.
82 Shailesh N. Ransariya
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
SELECTION OF VARIABLES:
The variable of the study are:
Dependent variable:
v Return On Capital Employed (ROCE)
Independent variables:
v Current Ratio
v Quick Ratio
v Debt Equity Ratio
v Long-term Debt to Equity Ratio
v Interest Coverage Ratio
v Inventory Turnover Ratio
v Debtor Turnover Ratio
v Investment Turnover Ratio
v Fixed Assets Turnover Ratio
v Working Capital Turnover Ratio
MODEL SPECIFICATIONS:
The basic empirical framework employed in this study is based on a simple model:
ROCE t = + X t + t
Where ROCE refers to Return on capital employed of company i at time t.
X t refers to the vector of determinants of working capital Management which
represents different independent variables for working capital Management of firm at
time t and is the error term. is the intercept of equation.
l is the Coefficients of X it variables.
l t is the time = 1, 2,,10 years.
In order to understand the impact of working capital management component on
profitability more precisely, the above equation is elaborated as follows:
ROCEt = + 1 (CR t) + 2(QR t)+ 3 (DER t) + 4 (LTDER t) + 5 (ICR t) + 6
(ITR t) + 7 (DTR t) + 8 (IsTR t) + 9 (FATR t) + 10 (WCTR t) + t
Where,
CR = Current Ratio
QR = Quick Ratio
Relationship Between Working Capital Management and Profitability : A Case Study 83
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
DER = Debt Equity Ratio
LTDER = Long-term Debt to Equity Ratio
ICR = Interest Coverage Ratio
ITR = Inventory Turnover Ratio
DTR = Debtor Turnover Ratio
IsTR = Investments Turnover Ratio
FATR = Fixed Assets Turnover Ratio
WCTR = Working Capital Turnover Ratio
Table No.1 (Multiple Correlations)
Correlations
ROCE CR QR D/ E LD/E ICR ITR DTR IN.TR FTR WTR
ROCE Pearson Correlation
Sig. (2 tailed)
N
1.000
.
10

CR Pearson Correlation
Sig. (2 tailed)
N
-.857**
.002
10
1.000
.
10

QR Pearson Correlation
Sig. (2 tailed)
N
-.301
.399
10
.474
.166
10
1.00
.
10

D/ E Pearson Correlation
Sig. (2 tailed)
N
-.857**
.003
10
.669*
.049
10
0.250
.517
10
1.000
.
10

LD/ E Pearson Correlation
Sig. (2 tailed)
N
-.714*
.020
10
.666*
.035
10
.125
.731
10
.920**
.000
10
1.000
.
10

ICR Pearson Correlation
Sig. (2 tailed)
N
.244
.497
10
-.340
.336
10
.452
.190
10
-.233
.547
10
-.539
.108
10
1.000
.
10

ITR Pearson Correlation
Sig. (2 tailed)
N
.723*
.018
10
-.762*
.010
10
-.197
.585
10
-.439
.238
10
-.288
.420
10
.045
.902
10
1.000
.
10

DTR Pearson Correlation
Sig. (2 tailed)
N
-.203
.574
10
-.088
.809
10
.262
.465
10
.224
.563
10
-.122
.738
10
.685*
.029
10
-.157
.664
10
1.000
.
10

IN. TR Pearson Correlation
Sig. (2 tailed)
N
.792**
.006
10
-.841**
.002
10
-.185
.609
10
-.550
.125
10
-.416
.232
10
.176
.627
10
.971**
.000
10
-.053
.885
10
1.000
.
10

FTR Pearson Correlation
Sig. (2 tailed)
N
.005
.990
10
.273
.445
10
.835**
.003
10
-.176
.651
10
-.125
.731
10
.240
.505
10
.047
.897
10
-.138
.703
10
.057
.875
10
1.000
.
10

WTR Pearson Correlation
Sig. (2 tailed)
N
-.065
.859
10
-.076
.835
10
-.095
.795
10
-.544
.130
10
-.591
.072
10
.425
.221
10
-.392
.262
10
.477
.164
10
-.285
.425
10
-.173
.632
10
1.000
.
10
** Correlation is significant at the 0.01 level (2-tailed).
* Correlation is significant at the 0.05 level (2-tailed).

84 Shailesh N. Ransariya
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Pearson's Correlation analysis is used for data to examine the relationship between
working capital management components and profitability. Table No.1 shows multiple
correlations of selected companies. Pearson's correlation analysis is used for data to find
the relationship between working capital management and return on capital employed.
The ROCE and CR are negatively correlated but show significance result at 1% level of
significance. Correlation between ROCE and current ratio is negative indicating that high
current ratio involving greater current asset than current liability will reduce the profitability
of the firms. The ROCE and QR also show negative correlation but t-test result is
insignificance. It indicates that the two objectives of liquidity and profitability have inverse
relationships. So, the Indian manufacturing firms need to maintain a balance or tradeoff
between these two measures. The ROCE and D/E shows negative correlation and it shows
significance result at 1% level of significance. The ROCE and LD/E indicates significance
result at 5% level of significance. The ROCE and ICR show insignificance correlation.
The ROCE and ITR show the positive correlation. The correlation coefficient is 0.723
shows that less the time firm take in selling inventory more will be the favourable effect
on its profitability.
Table No.2 (Model of multiple regressions)
Model Summary
Model R R Square
Adjusted
R Square
Std. Error
Of the
Estimate
1 .990
a
.990 .990 5.000E-02
a.
Predictors: (Constant), WTR, CR, FTR, DTR, ICR, D/ E, ITR, QR
Table No.2 indicates the model of multiple regressions which shows that
independent variables like WTR, CR, FTR, DTR, ICR, D/E, ITR and QR have 0.990
effect on the dependent variable (ROCE).
Table No. 3 (Coefficients)
Coefficients
a

Model
Unstandardized
Coefficients
Standardized
Coefficients t Sig.
B Std. Error Beta
1 (Constant)
CR
QR
D/ E
ICR
ITR
DTR
FTR
WTR
55.280
-36.799
88.316
-32.902
-0.651
-0.784
-0.429
-24.497
-0.193
3.875
5.381
10.152
2.392
0.140
0.305
0.037
2.217
0.049

-1.948
2.664
-.0847
-0.898
-0.348
-0.601
-1.563
-0.266
14.264
-6.839
8.700
-13.755
-4.661
-2.575
-11.612
-11.048
-3.938
0.045
0.092
0.073
0.046
0.135
0.236
0.055
0.057
0.158
a. Dependent Variable : ROCE
Relationship Between Working Capital Management and Profitability : A Case Study 85
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
I have used the regression analysis to investigate the impacts of working capital
on the profitability. The above table no. 3 shows the result of the model of regression
analysis. The coefficient of CR and ROCE is -36.799 and result of t-test is significance.
Whereas the QR and ROCE shows positive coefficients with positive beta value and t
test result is significant. Coefficient between D/E and ROCE is negative with significant
diffidence of t -test. Whereas ICR, ITR, DTR, FTR and WTR explains negative
coefficient with negative beta value and t test has been significant with 5% level of
significance.
LIMITATIONS AND SCOPE FOR FURTHER STUDY:
1. The study is confined to ten years data only, i. e. from 2001-02 to 20011-12, therefore,
a detailed analysis covering a lengthy period, which may give slightly different results
has not been made.
2. The study is based on secondary data collected from the www.capitalline.com.
therefore the quality of the study depends purely upon the accuracy, reliability and
quality of the secondary data source. Approximation, and relative measures with
respect to the data source might impact the results.
3. Further studies could be made by future researchers in the following aspects and
areas: by inclusion of extraneous variables like profitability ratios (g/p ratio, n/
p ratio, etc) and analyzing the inter-relationship between the WCM and
profitability.
CONCLUSION:
Working capital management is exceedingly significant issue in firm's corporate
financial decision making process and it should be designed to generate higher profit.
Present study investigates the relationship between Working Capital Management (WCM)
and profitability of a Reliance Industry Limited. For analysis purpose financial ratios of
WCM are used to check their effect on the return on capital employed performance. The
method that was used is the multiple correlations and regression analysis in which, liquidity,
accounts receivable, inventories are analyzed for the period of ten years 2001-02 to 2010-
11. It was found from the study that there is negative relationship between working
capital components and profitability during the study period. The findings of the study
suggest that it may be possible to increase profitability by improving efficiency of working
capital.
REFERENCES:
1. Afza, T., & Nazir, M. (2009), Impact of aggressive working capital management
policy on firms' profitability. The IUP Journal of Applied Finance,vol. 15(8), pp20-
30.
2. Deloof, M. (2003), Does Working Capital Management Affect Profitability of Belgian
Firms? Journal of Business Finance & Accounting,vol. 30,no.(3&4), pp573-587.
86 Shailesh N. Ransariya
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
3. Eljelly, A. (2004), "Liquidity-Profitability Tradeoff: An empirical Investigation in
An Emerging Market", International Journal of Commerce & Management, vol. 14,
no.2, pp48-61.
4. Falope OI, Ajilore OT( 2009), Working capital management and corporate profitability:
evidence from panel data analysis of selected quoted companies in Nigeria. Research
Journal of Business Management, vol.3: pp73-84.
5. Ghosh, S. K. and Maji, S. G. (2003), "Working Capital Management Efficiency: A
study on the Indian Cement Industry", The Institute of Cost and Works Accountants
of India.
6. Lazaridis, I., & Tryfonidis, D. (2006), "Relationship between working capital
management and profitability of listed companies in the Athens stock exchange",
Journal of Financial Management and Analysis, vol.19, no.1, pp26-35.
7. Raheman, A. & Nasr, M. (2007), "Working capital management and profitability -
case of Pakistani firms", International Review of Business Research Papers, vol. 3,
no.1, pp279-300.
8. Shin, H. H., and L. Soenen, 1998. "Efficiency of Working Capital Management and
Corporate Profitability", Financial Practice and Education, Vol. 8, No. 2, pp. 37-
45.
9. Singh, J.P. and Shishir Pandey, 2008. "Impact of Working Capital Management in
the Profitability of Hindalco Industries Limited", ICFAI Journal of Financial
Economics, Vol. 6, Issue 4, pp. 62-72
Relationship Between Working Capital Management and Profitability : A Case Study 87
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Introduction
"In the true democracy of India, the unit is the Village. True democracy has to be
worked from below by the people of every village. Village unit as conceived by me is as
strong as the strongest. Such a unit can give a good account of itself if it is well organized
on a basis of self-sufficiency. If anyone can produce one ideal village, he will have
provided a pattern not only to the whole country, but perhaps f o r the whole world" -
Mahatma Gandhi.
Role of Panchayati Raj Institutions in the Rural
Development Programme
* Assistant Professor, Department of Social Work, JVBI, Ladnun, Rajasthan
** Director Om Kothari Institute of Management & Research, Kota
Abstract : This present paper examines the role of
Panchayati Raj Institutions in rural development programs.
The study is done against the background of the Constitution
(Seventy-Third Amendment) Act, 1992, and Uttar Pradesh
Panchayati Raj Act, 1994 both of which aim to rural
development by strengthening the Panchayati Ra System.
Main objective of Indian government is Overall development
of country since Independence. Earlier the main thrust for
development was laid on Agriculture, Industry,
Communication , Education, Health and Allied sectors but
soon it was realized that the all round development of the
country is possible only through the development of rural
India.Community Development Programmes, Integrated
Rural Development Programme, bringing local self-
government to the roots of the village through introduction
of Panchayati Raj system ushered a new era of rural
development. Schemes for providing effective rural
healthcare, guaranteeing 100 days of job, promoting literacy
and adult education, expansion of rural industries are other
development programmes that have received the thrust of
the government's development approach. Through these
schemes Government of India seems to accomplish its dream
of rural India. The study is entirely based on a secondary
based data and review of rural development programme.
Key Words : Panchayati Raj Institutions (PRIs), Rural
development, Local self governance
Brijendra Pradhan*
Amit Singh Rathore**
88 Brijendra Pradhan & Amit Singh Rathore
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
The Constitutional (73rd Amendment) Act, passed in 1992 by the Central
government, came into force on April 24, 1993. It was meant to provide constitutional
sanction to establish "democracy at the grassroots as it is at the state level or national
level".Panchayati Raj system is a three-tier system in the state with elected bodies at the
Village, Block and District levels. It is a constructional mechanism spread across the
country. It ensures greater participation of people and more effective implementation of
rural development programmes. There will be a Gram Panchayatfor a village or group of
villages, Block Panchayat(orPanchayatSamiti/ KshetraPanchayat) at Block level and the
ZilaPanchayat(or ZilaParishad) at the district level. India has a history of Panchayati Raj
starting from self-sufficient and self-governing village communities that survived the rise
and fall of empires in the past to the modern legalised institutions of governance at the
third tier provided with Constitutional support.In pursuance of this, States have initiated
action to devolve administrative and financial powers and resources to Panchayati Raj
Institutions (PRIs) to enable them to discharge their Constitutional role. It is expected
that once the process of devolution is effectively operationalised, resources from the
Central and State Governments meant for programmes falling within the jurisdiction of
the PRIs would directly get allocated to them.
The Ministry of Rural Development (MORD), which is the nodal Ministry for
implementation of the 73rd Constitutional Amendment Act, has also, so far, not discharged
its role in setting up institutional mechanisms for bridging the wide gap that exists today.
Though some steps have been taken by the MORD to goad the State Governments to
strengthen and deepen the process of democratic decentralization, it has not yielded the
desired results. Most Central Ministries have not yet internalised the PRIs role in the
delivery of services handled by the Ministry. According to Ministry of Rural Development
(Govt. of India). Rural Development implies both the economic betterment of people as
well as greater social transformation. In order to provide aspirations of the local people,
Panchayati Raj Institutions have been involved in the programme implementation and
these institutions constitute the core of decentralized development of planning and its
implementations. The Ministry is also vigorously pursuing with the State Governments
for expeditious devolution of requisite administrative and financial powers to PRIs as
envisaged under 73rd Amendment Act of the Constitution of India.
Still about 70 percent of India's population lives in rural areas. There are about
6,38,365 villages in the country as against about 300 cities and 5,161 towns. Of the 121
crore Indians, 83.3 crore live in rural areas while 37.7 crore stay in urban areas, as per the
Census 2011. The National Council of Applied Economic Research (NCAER) survey
report says that there are 720 million consumers across the villages in rural India. Hence,
the development of the nation largely depends upon the development of the rural
population. Majority of the rural population is dependent upon agriculture for their
subsistence. Uttar Pradesh, with a population of 19.95 crore as per 2011 Census, is the
most populous State of the country. UP covers 2,40,928 sq.kms. and accounts for 7.3
percent of total area of the country which makes it the fifth largest State in the country.
Role of Panchayati Raj Institutions in the Rural Development Programme 89
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Uttar Pradesh has 71 districts 820 development Blocks, 107452 villages, 51976 Gram
Panchayats and 8135 NyayPanchayats.
At present, there are about 3 million elected representatives at all levels of the
panchayatone-third of which are women. These members represent more than 2.4 lakh
Gram Panchayats, about 6,000 intermediate level tiers and more than 500 district
panchayats. Already the Constitution is amended to make the representation of women
50 percent. Spread over the length and breadth of the country, the new panchayatscover
about 96 percent of India's more than 6.4 lakh villages and nearly 99.6 percent of rural
population. This is the largest experiment in decentralisation of governance in the history
of humanity.
Rural Development
Development of rural areas has been at the core of planning process in the country
and also in the State. Rural Development is a broad, inclusive term which takes in its
consideration socioeconomic and political development of the rural areas. It includes
measures to strengthen the democratic structure of society through the Panchayati Raj
Institutions as well as measures to improve the rural infrastructure, improve income of
rural households and delivery systems pertaining to education, health and safety
mechanisms. Poverty alleviation is a key component of rural development. Government
of India has taken many initiatives for rural development. For this purpose it has setup the
Ministry of Rural Development.
The Department of Rural Development implements schemes for generation of
self employment and wage employment, provision of housing and minor irrigation assets
to rural poor, social assistance to the destitute and Rural Roads etc. Apart from this, the
Department provides the support services and other quality inputs such as assistance for
strengthening of District Rural Development Agency (DRDA) Administration, Panchayati
Raj Institutions, training & research, human resource development, development of
voluntary action etc. For the proper implementation of the programmes.
The 2011 Census estimates that 83.3 crore people, about 69 percent of the country's
total population of 121 crore, continue to live in rural India. A major challenge thus arises
is, how to feed India's growing population with rising incomes with the given land and
water resources. The expansion of income opportunities in the farm sector and progressive
absorption of people into non-agricultural activity have been identified as the most
appropriate solutions to this challenge. For achieving rural development, the present
government has been injecting resources at a massive scale to the rural and farm sector.
Presently, seven major flagship programmes are being implemented to develop rural areas.
They are: Mahatma Gandhi National Rural Employment Guarantee Act (MGMGNREGA),
National Rural Livelihood Mission (NRLM), Indira AwasYojana (IAY), National Rural
Drinking Water Programme (NRDWP) and Total Sanitation Campaign (TSP), Integrated
Watershed Development Programme (IWDP), PradhanMantriGrameenSadakYojana
(PMGSY) and rural electrification, including separation of agricultural feeders and Rajiv
90 Brijendra Pradhan & Amit Singh Rathore
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Gandhi GrameenVidyutikaranYojana (RGGVY). All these programmes are essentially
meant for creating gainful employment opportunities and to improve the quality of lives
of rural masses.
Role of Panchayti Raj Institutions (PRIs)
Ideally speaking, panchayats should be implementing programmes. However, even
if they are not doing so currently, they can play a key role in monitoring the implementation
of these programmes through certain simple and easy to install systems. First, panchayats
at all levels can be considered as units for data collection and aggregation in respect of
developmental schemes. Ideally, the planning and implementation of every rural
infrastructure scheme ought to be monitored at the village panchayat level, with appropriate
aggregation of information at the intermediate and district panchayat levels. This will
necessitate the creation of a database of village panchayats, givingdetails of the villages
and habitations that come within thejurisdiction of each panchayat, thus enabling all such
schemesto be monitored over standard geographical areas conformingto the jurisdiction
of the rural local bodies concerned. Oncevillage to panchayat correlation data is available,
data in respectof the planning and implementation of such schemes can bere-arranged
and maintained on the internet.
It must be ensured that perspective and annual plans in respect of each scheme are
prepared by the panchayats concerned. All monitoring formats for such schemes prescribed
by the Ministries concerned can be consolidated into a simple standardized monthly 'return'
that would be universally applied for monitoring purposes at each panchayat level from
the village panchayat upwards. Currently, performance of panchayats is being aggregated
at the District level for the purpose of monitoring. Districts are considered the basic units
for the furnishing of utilization certificates. This tends to average out performance of
individual panchayats, so that the best performing panchayats have to wait till the district
has reached the threshold prescribed before receiving the next instalment of funds. In
order to encourage well performing panchayats by ensuring smooth fund flows directed
towards prompt implementation, it is proposed that progressively, monitoring will be
taken down to each panchayat level. In the first instance, the intermediate panchayat can
be adopted as the basic unit for monitoring of progress, submission of utilization certificates
and release of funds (like the Nirmal Gram Puraskar). Panchayats will need to be fully
involved in the monitoring
process by development of yardsticks for monitoring through discussion at the
panchayat level, introducing a system of peer reviews, consolidation of data relevant to a
particular indicator and comparing it with the best possible status, as well as the minimum
actual level of achievement in the intermediate panchayat area, adoption of a system of
ranking between panchayats aimed at providing a development database of the area and
preparation of a model citizens charter covering all the flagship schemes and circulation
for adoption by all panchayats. It is also necessary to prepare databases of independent
quality assessments covering implementation of such schemes.
Role of Panchayati Raj Institutions in the Rural Development Programme 91
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Panchayati Raj Department is an important department for the rural development.
The mainobjective of this department is tostrengthen the Panchayati Raj System inthe
state according to the 73rd amendment of Indian constitution. So that panchayatscan
realize the dream of ruraladministration and rural developmentwith complete coordination
andtransparency.
1. Financial aid to Gram Panchayats
2. Rural Cleanliness Programmes.
3. Responsibilities of the Panchayats-(Transparency in work, rural administration &
development).
4. Responsibilities of public towards Panchayat.
5. Decentralization Programme.
6. Control over the Gram Panchayats
7. Arrangement of Panchayat Help-line.
8. Drinking water supply, cleaning and maintenance facilities.
9. Maintenance of public lamp posts, roads, drainage system, cleanliness programmes,
primary schools and maintenance of other public assets.
10. Construction of PanchayatBhawans for meeting halls and for the residence of secretary
of Gram Panchayat.
11. Construction of GraminKisan Bazaar and Livestock Markets.
12. Construction of underground water drainage system for the objective of environmental
cleanliness.
MGNREGA and PRIs
The Mahatma Gandhi National Rural Employment Guarantee Act (hereafter
MGNREGA) is a law whereby any adult who applies for employment in rural areas has
to be given work on local public works within 15 days. If employment is not given, an
unemployment allowance has to be paid. The employment guarantee is subject to a
limit of 100 days per household per year. The main objective of MGNREGA is to
protect ruralhouseholds from poverty and hunger. MGNREGA can also serve other
objectives: generating productive assets, protecting the environment, empowering
women, reducing rural-urban migration, and fostering social equity, among others. Thus,
MGNREGA is not just an employment scheme: it is a tool of economic and social
change in rural areas.
MGNREGA is perhaps, an opportunity for rural India as it guarantees one of the
crucial rights, right to work envisaged in the Article 41 of the Indian Constitution. The
national rural employment guarantee act has the potential to provide a "big push" in
92 Brijendra Pradhan & Amit Singh Rathore
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
India's region of distress. Panchayats are having central (Principal authority) role in the
implementation and monitoring of the Schemes under MGNREGA. . Under the
provisions of the Mahatma Gandhi National Rural Employment Guarantee Act
(MGNREGA), eligible households apply to the Gram Panchayat which, after due
verification, issues the job card. Each district has to prepare a shelf of projects, which
is done on the basis of priority assigned by the Gram Sabha. At least 50% of the works
have to be allotted to Gram Panchayats for execution. Social audit has to be done by
the Gram Sabha. However, for the potential of MGNREGA to be realized , major
interventions are required to enable Panchayats to fulfil their constitutional obligations
to lead economic development and social justice in their areas and major reforms need
to be initiated in its implementation.
It is important that Panchayati Raj Institutions are effectively enabled to govern
the Scheme.In several states of India, the District Rural Development Authorities have
been entrusted with a key role relating to administration of the Scheme, while the critical
role of Panchayati Raj institutions remains to be adequately appreciated and actualized.
In a state like Jharkhand, where elections to local panchayats haven't taken place for
over two decades, the government needs to pro-actively engage traditional gram sabhas
of local communities in operationalization and governance of the Scheme. The role of
institutions like District Rural Development Agency (DRDA) becomes particularly
questionable, when they unilaterally initiate critical processes, e.g. preparation of shelf
of projects, without any local level consultations and involvement of panchayat
functionaries - a common reality in many states where NREGS has been initiated.As
per section 16 (1) of the MGNREGA for the works/projects to be implemented in the
Gram Panchayat area would be undertaken by the Gram Panchayat ensuring active
participation of the gram sabha members. The plan proposals will then move upwards
for approval and consolidation at the above Panchayat levels and District Panchayat
Committee (DPC) will coordinate the preparation of detailed technical estimates and
sanctions. Most of the Gram Panchayats across the districts have not identified the
works to be implemented instead the works to be carried out are allotted to them. Gram
Panchayats play a very limited role in identification and planning of the works. It seems
Panchayats have become mere implementers of the scheme.The first step in the planning
process has to be initiated at the gram sabha level. Even the identification of the
beneficiaries is to be done by the gram sabhas. The gram sabhas have to carry out a
social audit of all the projects, within their jurisdiction.
The Act says that at least 50 per cent of the works in terms of costs will be
allotted to the Gram Panchayat for execution. Intermediate Panchayats and District
Panchayats are among other implementing agencies. The selection of implementing
agencies will have to be indicated in the Annual Plan. Although Panchayats are associated
with the implementation of the works but they play a very limited role in its effective
implementation. Panchayat representatives lack capacities and skills to efficiently
perform their duties as a result of which they get dependent on the government officials
Role of Panchayati Raj Institutions in the Rural Development Programme 93
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
for each and everything resulting in to passive participation in the processes. Lack of
capacity and skills of the Panchayat officials is one of the major critical issues which is
restricting Panchayats from effective participation in the MGMGNREGA. Lack of
technical skills, low awareness of the provisions of the scheme, lack of clarity on their
roles and responsibilities are some of the problems putting off the Panchayats from
active functioning. The Act defines Panchayats as the prime authorities in management
of the MGMGNREGA. The limited role of Panchayats in management of the scheme is
a critical issue in effective implementation of MGNREGA. Due to lack of functionaries,
they have become paralysed and are not able to perform their roles and responsibilities.
Deployment of full time professionals dedicated to MGNREGA at all levels, but most
importantly at block level is vital.
Conclusion
Consequent t o t he 73rd Const i t ut i on Amendment Act pol i t i cal
decentralisationhas taken place in almost all the States where elections have been
held. However,progress on fiscal and functional decentralisation has been mixed.
There are Stateswhich have taken steps to devolve funds, functions and functionaries
to the PRIs. Theprocess of devolution is at different levels of operationalisation across
States.Surprisingly, the States of Madhya Pradesh and Uttar Pradesh who have hadlittle
experience of decentralisation have made the most fundamental changes in thisregard.
Further, it is imperative that the PRIs have resources to match theresponsibilities
pl aced on t hem. Whi l e St at e Fi nance Commi ssi ons have submi t t edt hei r
recommendations, very few States have taken the necessary steps to ensure
fiscalviability of the PRIs. Yet, one can be hopeful that the experience of some States
andsome PRIs within States would provide the necessary impetus for greater
devolution in other parts of the country.
Strict monitoring of their performance by PRIs against specific outcomes should
be ensured. Greater convergence is required across departments and Programmes with
MGNREGA so that sustainable livelihoods can be created. Some of these principles,
such as answerability to PRIs, stakeholder participation and social audit, are inherent
in the MGNREGA architecture. But they are yet to be effectively put into place.
References
1. Uttar Pradesh Development Report . Planning Commission, Government of India
2. TFC (2004). 'Report of the Twelfth Finance Commission (2005- 10), Twelfth Finance
Commission, Government of India, New Delhi.
3. Report of Twelfth Finance Commission
4. Rao, Govinda M., H.K.Amarnath and B.P.Vani (2004). 'India: Fiscal Decentralization
to Rural Governments, Report No. 26654- IN (January)', World Bank Rural
Development Unit, South Asia Region, New Delhi.
94 Brijendra Pradhan & Amit Singh Rathore
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
5. Planning Commission (2006). 'Planning At the Grassroots Level: An Action
Programme for the Eleventh Five Year Plan, Report of the Expert Group, March',
Planning Commission, New Delhi.
6. Plan 2005-06 . Document of Planning Department, Government of Uttar Pradesh
7. MOPR (2006). Annual Report of the Ministry of Panchayati Raj 2005-6, Government
of India, New Delhi
8. Mathur, Mukesh (2003). 'Panchayati Raj Institutions and the state Finance
Commissions-A Report', in 3iNetwork (ed.), India Infrastructure Report 2003: Public
Expenditure Allocation and Accountability, Oxford University Press, New Delhi.
9. https://lrms.nic.in/clr_phy.pdf
10. http://www.righttofoodindia.org/rtowork/ega-toolsfor-action-and-research.html
11. http://www.mapsofindia.com/stateprofiles/uttarpradesh/m053101.htm
12. http://upgov.nic.in/upinfo/census01/cen01-6.htm
13. http://upgov.nic.in/
14. http://rural.nic.in/i1.htm
15. http://rd.up.nic.in/
16. http://planning.up.nic.in
17. http://panchayatiraj.up.nic.in/index4.htm
Role of Panchayati Raj Institutions in the Rural Development Programme 95
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Impact of FII on Indian Stock Market
Himani Gupta* Abstract : Foreign institutional investors have gained a
significant role in Indian capital markets. Availability of
foreign capital depends on many firm specific factors other
than economic development of the country. This paper
studies the impact of market opening to FIIs, on Indian stock
market behavior companies included in sensitivity index
(Sensex) of Bombay Stock Exchange India announced its
policy regarding the opening of stock market to FIIs for
investment in equity and related instruments on 14th
September 1992.. It is observed that foreign investors
invested more in companies with a higher volume of shares
owned by the general public. The promoters' holdings and
the foreign investments are inversely related. Foreign
investors choose the companies where family shareholding
of promoters is not substantial. Among the financial
performance variables the share returns and earnings per
share are significant factors influencing their investment
decision. Using stock market data related to Bombay Stock
Exchange, an empirical examination has been conducted to
assess the impact of the market opening on the returns and
volatility of stock return. We found that while there is no
significant changes in the Indian stock market average
returns, volatility is significantly reduced after India
unlocked its stock market to foreign investors.
Key Words: foreign institutional investors, Bombay Stock
Exchange, Sensex, share returns, earnings per share
*Assistant Professor, Jagannath International Management School; Address: K-13 A, Ground Floor,
Khirki Ext, Malviya Nagar, New Delhi 110017 E- Mail: tinugupta76@yahoo.co.in
I. INTRODUCTION
FOREIGN investment refers to investments made by the residents of a countryin
the financial assets and production processes of another country. After theopening up of
the borders for capital movement, these investments have grownin leaps and bounds. The
effect of foreign investment, however, varies from countryto country. It can affect the
factor productivity of the recipient country and can alsoaffect the balance of payments. In
developing countries there has been a great needfor foreign capital, not only to increase
96 Himani Gupta
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
the productivity of labor but also becauseforeign capital helps to build up the foreign
exchange reserves needed to meet tradedeficits. Foreign investment provides a channel
through which developing countriescan gain access to foreign capital. It can come in
two forms: foreign directinvestment (FDI) and foreign institutional investment (FII).1
Foreign direct investmentinvolves in direct production activities and is also of a medium-
to long-termnature. But foreign institutional investment is a short-term investment, mostly
inthe financial markets. FII, given its short-term nature, can have bidirectional
causationwith the returns of other domestic financial markets such as money
markets,stock markets, and foreign exchange markets. Entities covered by the term
'FII' include "Overseas pension funds, mutual funds, investment trust, asset management
company, nominee company, bank, institutional portfolio manager, university funds,
endowments, foundations, charitable trusts, charitable societies, a trustee or power of
attorney holder incorporated or established outside India proposing to make proprietary
investments or investments on behalf of a broad-based fund (i.e., fund having more
than 20 investors with no single investor holding more than 10 per cent of the shares or
units of the fund)" (GOI (2005)). FIIs can invest their own funds as well as invest on
behalf of their overseas clients registered as such with SEBI. These client accounts that
the FII manages are known as 'sub-accounts'. A domestic portfolio manager can also
register itself as an FII to manage the funds of sub-accounts.A few large FIIs (less than
3% of all registered ones, according to GOI (2005)), issue derivative instrument s called
'participatory notes' that are registered and traded overseas, backed by the FIIs' holdings
of Indian securities. This arrangement has raised some concerns in regulatory circles
since it makes it difficult to trace the ultimate beneficiary in the funds and may be used
to bring in "unclean" funds (funds generated out of illegal activities) into the Indian
markets. . In this age of transnational capitalism, significant amounts of capital are
flowing from developed world to emerging economies. Positive fundamentals combined
with fast growing markets have made India an attractive destination for foreign
institutional investors (FIIs). Portfolio investments brought in by FIIs have been the
most dynamic source of capital to emerging markets in 1990s. At the same time there is
unease over the volatility in foreign institutional investment flows and its impact on the
stock market and the Indian economy. Statistical records provided by Securities and
Exchange Board of India (SEBI) indicated that both FIIs and domestic institutional
investors together influenced market sentiment.FII exerts a largerimpact on the domestic
financial markets in the short run and a real impact in thelong run. India, being a capital
scarce country, has taken many measures to attract foreigninvestment since the beginning
of reforms in 1991.. There was a surge in capital inflows into India too since 1992 as in
India, the purchase of domestic securities by FIIs was first allowed in September 1992 as
part of the liberalization process, which affects short-term stability in the financial markets.
Hence, there is a need to determine the push and pull factors behind any changein the FII,
so that we can frame our policies to influence the variables that attractforeign investment.
Also, FII has been the subject of intense discussion, as it is heldto be responsible for
having intensified the currency crises of the 1990s in East Asiaand elsewhere in the world..
Impact of FII on Indian Stock Market 97
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Table 1 provides a cross section of data on the FIIs inflow and stock market
movement, not necessarily at cause and effect relationship however this is not been tested
by us anyway. The FIIs and hedge funds had pulled out money mainly due to higher
interest rates in U.S. after Federal Reserve increased interest rates to 4.5% under their
new governor. Similar changes and took place many times in the history since opening
and few times in the study.
YEAR FII INFLOW IN $ BSE SENSEX
2010:(DEC) -1,551 20509.09
2010:(NOV) -19,921 19521.25
2010:(OCT) 28,630 20032.34
2010:(SEP) 10,449 20069.12
2010:(AUG) -440 17971.12
2010:(JUL) 8,750 17868.29
2010:(JUN) 871 17700.9
2010:(MAY) -491 16944.63
2010:(APR) 3,159 17558.71
2010:(MAR) 5,206 17527.77
2010:(FEB) 230 16429.44
2010:(JAN) 3,093 16357.96

II. LITERATURE REVIEW
There have been several attempts to explain FII behavior in India. All the
existingstudies have found that equity return has a significant and positive impact on
FII(Agarwal 1997; Chakrabarti 2001; Trivedi and Nair 2003). But given the huge volumeof
investments, foreign investors can play the role of market makers and booktheir profits,
that is, they can buy financial assets when the prices are declining,thereby jacking-up the
asset prices, and sell when the asset prices are increasing(Gordon and Gupta 2003). Hence,
there is a possibility of a bidirectional relationship
between FII and equity returns.Following the Asian financial crisis and the bursting
of the info-tech bubble internationallyin 1998/99, net FII declined by U.S.$61 million.
This, however, exertedlittle effect on equity returns. This negative investment might
possibly disturbthe long-term relationship between FII and other variables such as equity
returns,inflation, and so on. Chakrabarti (2001) has perceived a regime shift in the
determinantsof FII following the Asian financial crisis and found that in the pre-Asiancrisis
period, any change in FII had a positive impact on equity returns. But it wasfound that in
the post-Asian crisis period, a reverse relationship has been the case,namely, that change
in FII is mainly due to change in equity returns. This is a factthat needs to be taken into
account in any empirical investigation of FII.Investments, either domestic or foreign,
depend heavily on risk factors. Hence,while studying the behavior of FII, it is important
98 Himani Gupta
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
to consider the risk variable.Further, realized risk can be divided into ex-ante and
unexpected risk. Ex-ante riskis an observed component and is negatively related to FII.
But the relationship betweenunexpected risk and FII is obscure. Therefore, while examining
the impactof risk on FII, one needs to separate the unobserved component from the
realizedrisk. Trivedi and Nair (2003) have used only the realized risk.Another possible
determinant of FII is the operation of foreign factors such asreturns in the source country's
financial markets and other real factors in the sourceeconomy. So far, however, studies
have found that both return in the source countrystock market and the inflation rate have
not exerted any impact on FII. Agarwal(1997) found that world stock market capitalization
had a favorable impact on theFII in India.A survey of the literature shows that existing
studies do not account for volatility(the ARCH effect), which can be expected in most of
the monthly financial timeseriesdata. Yet given the increase in financial market integration,
both domesticallyand in foreign financial markets, accounting for volatility is unavoidable.
Further,the existing studies either do not incorporate risk in foreign and domestic marketsor
make use of realized risk, an approach that does not always yield robust results.
Literature Review as per foreign researchers on Indian market.
As the Indian equity market is growing, the trend and future prospects in
foreigninstitutional investments has become a topic of great concern. A recent research
survey byJapan Bank for international operation (JBIC), shows that in the next 3 years,
India will bethe third most favoured investment destination for Japanese investors. A
Smith Barney (aCITI group Division) study says estimated market value of foreign
institutional investment inthe top 200 companies in India (including ADRs and GRDs) at
current market prices isUS$43 billion. This is 18% of the market capitalization of BSE
200.It is established in literature that block shareholders influence the firm performance
(Cho &
Padmanabhan, 2001). Governance of listed companies plays an important role in
foreignintuitional investment decisions. Further more management of businesses run by
familygroups plays a distinctive role. When governments become block share shareholder
theirobjective will be quite different from those of private investors.Douma, Pallathiatta
and Kabir (2006) investigated the impact of foreign institutionalinvestment on the
performance of emerging market firms and found that there is positiveeffect of foreign
ownership on firm performance. They also found impact of foreigninvestment on the
business group affiliation of firms. Aggarwal, Klapper and Wysocki(2005) observed that
foreign investors preferred the companies with better corporategovernance. Investor
protection is poor in case of firms with controlling shareholders whohave ability to
expropriate assets. The block shareholders affect the value of the firm andinfluence the
private benefits they receive from the firm. Companies with such shareholderswill find it
expensive to raise external funds. Yin-Hua and Woidtke (2005) found that whencompany
boards are dominated by members who are affiliated to the controlling familyinvestor
protection will be relatively weak and it is difficult to determine the degree ofseparation
of management from ownership. They also observed that firm value is negativelyrelated
Impact of FII on Indian Stock Market 99
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
to board affiliation in family controlled firms. Li (2005) observed that in case ofpoor
corporate governance the foreign investors choose foreign direct investment (FDI)rather
than indirect portfolio investment. It is generally believed that FDI could be
betterprotected by private means.Dahlquist et al. (2003) analysed foreign ownership
and firm characteristics for the Swedishmarket. They found that foreigners have greater
presence in large firms, firms paying lowdividends and in firms with large cash holdings.
They explained that firm size is driven byliquidity. They measured international presence
by foreign listings and export sales. Theyreiterated that foreigners tend to underweight
the firms with a dominant owner. Covirg etal. (2007) concluded that foreign fund
managers have less information about the domesticstocks than the domestic fund
managers. They found that ownership by foreign funds isrelated to size of foreign sales,
index memberships and stocks with foreign listing.Li and Jeong-Bon (2004) found that
foreign investors tend to avoid stocks with high crosscorporateholdings. They suggested
that FII are likely to be efficient processors of publicinformation and are attracted to
Japanese firms with low information asymmetry. Morin(2000) explored the influence
of French model of shareholding and management on FII.They commented that France
has undergone rapid change from a financial networkeconomy to a financial market
economy. The new pattern has broken the traditional systemof cross holding and
facilitated the arrival of FII who bring with them new techniques anddemands efficient
corporate management.What could be firm level factors that influence foreign capital
from an economic standpointis the question yet to be answered. Outside investors will
lower the price they pay if theyfear consumption of private benefits of control family.
Choe, Kho, Stulz (2005) found thatUS (United States) investors do indeed hold fewer
shares in firms with ownership structuresthat are more conducive to expropriation by
controlling insiders. In companies whereinsiders are dominating information access
and availability to the shareholders will belimited. With less information, foreign
investors face an adverse selection problem. So theyunder invest in such stocks.Leuz,
Nanda and Wysocki (2003) further asserted that the information problems
causeforeigners to hold fewer assets in firms. Firm level characteristics can be expected
tocontribute to the information asymmetry problems. Concentrated family control makes
itmore likely that information is communicated via private channels. Informative
insidershave incentives to hide the benefits from outside investors by providing opaque
financialstatements and managing earnings. Haw, Hu, Hwang and Wu, (2004) also found
that firmlevel factors cause information asymmetry problems to FII. Their paper found
evidence thatUS investment is lower in firms where managers do not have effective
control. Foreigninvestment in firms that appear to engage in more earnings management
is lower incountries with poor information framework. There is a growing literature on
the determinants of global investment flows and allocations.Prior research focused on
international portfolio flows and examined the relationshipbetween portfolio flows and
stock returns. Most of these studies have analyzed global andcountry level factors that
influence investment allocations. This paper investigatedempirically the firm specific
variables, which influence the investment decision of foreigninvestors.
100 Himani Gupta
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
III. Data and Methodology
The present study is based on the secondary data. The data for the net flows of
Foreign Institutional Investors (FIIs) and Sensitivity Index closing points is collected
from http://www.5paisa.com and http://in.finance.yahoo.com for the duration of 4 years
between January, 2007 and December, 2010 excluding days data set which was not
available. A set of 16 samples out of 48 monthly observations from the above mentioned
range of historical data were collected to study the distribution of correlation. MS Excel
has been used for plotting of graphs and analysis of data and SEBI and Centre for
Monitoring Indian Economy (CMIE) Prowess Database has been used for collection of
data otherwise.
The correlation values for samples are calculated through and result it interpreted.
Spearman's Coefficient of correlation for the sample is calculated by
?
??
=
? s ?
?
?
?
- s ?
?
s ?
?
? ? s ?
?
2
- (s ?
?
)
2
? ? s ?
?
2
- (s ?
?
)
2
- 1 =?
??
=1)
Where x and y are the data variables and n denotes the no. of data sets.
IV Result and Analysis
Another important measure of FIIs impact on SENSEX is the movement and
comparison between volatility and return on SENSEX. The movement of returns and
volatility suggests anpositive relationship. It can be observed that movement of the returns
on SENSEX and volatility is not only cyclical but it is notable that the peak of the former
coincides with the peak of the latter and vice-versa. The 48 months data on net FII inflows
and volatility respect to net FII inflows and Returns on SENSEX, the time series data for
39 months shows a shows positive correlation. Despite being significant it suggests a
higher net FII inflow would lessen the volatility in the SENSEX. Positive and significant
correlation and same has been depicted by the Graph shown below
Graph 1: Net FII Flows and BSE Sensitive Index
Impact of FII on Indian Stock Market 101
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Graph 2: Correlation for Different Samples
Footnote: 1,2,316. Means quarter starting from 2007 till 2010.
Footnote: 1,2,3..16,18. Relates to quarter stating from 2007 till 2010.
102 Himani Gupta
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
V. Conclusion
Sampling distribution of correlation obtained shows a range of --0.82096 to a
maximum of 0.910743 with 25% values lying at 0.162003, 50% of the values lying at
0.535007and 75% of the values lying at 0.786959. The result shows that correlation
between FII and BSE SENSEX is moderate because most of the values are following in
the bracket of + 0.25 and + 0.75 so it can be concluded that impact of FII on Indian stock
market (which is BSE in this case ) is moderate as there are many other internal and
external factors affecting the return of the stock market. Though it is a popular belief that
FII and SENSEX are positively correlated, our analysis also shows that there have been
many instances for a negative correlation between the net FII and SENSEX.
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l Singh, Rahul and P N Mishra (2005), Information and Stock Market Volatility: A
Study of SENSEX, Journal of Insurance and Risk Management, Vol. III, Issue 06, pp
105.
Impact of FII on Indian Stock Market 103
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
1. Introduction
The duration of trading period in the BSE is 5 days in a week. It starts on Monday
and ends with Friday. The mechanism of rolling settlement is T+2. Consequently, the
deals are to be closed on the next two days of trading. For the purpose of settlement, all
the trades are squared up in their trading positions. Squaring up the transaction means
acquiring the shares in case of short sales or selling the shares if there is no money to pay
for the purchase of shareswhatever the case may be.
If any trader, who is a short seller, is not able to acquire the shares required for
delivery, the position of that trader will be subjected to an auction. This action may result
in a great loss. Thus, there is a pressure on traders for buying or selling of shares as the
Last Day of the Trading Period Effect on Volatility in
Prices of Stocks of Bombay Stock Exchange Limited
Venkataramanaih. M*
* Professor & Principal, Vignanasudha Institute of Management & Technology, Chittoor
- 517 100; mvrsvu@gmail.com +9189850 52430 +9173960 82025
Abstract : The present study enquiries the effect of last
trading day of the week on volatility in the prices of stocks
of the Bombay Stock Exchange Limited. ). In the study, Friday
has been taken as the proxy of the last trading day of the
trading period. Here, the study period is one year, i.e. 2010.
The analysis is presented only as a case study by assuming
that it represents the rest of the period. The volatility for 252
trading days was computed during 2010. The percentage
deviation of half the spread between high-low values of index
from the mid-value of high-low spread of index was taken
as a measure of volatility. The study found that that there is
no enough evidence of effect of last trading day of the trading
period on volatility in the prices of the BSE. The IT, TECH
and CG sectors are exceptional to this phenomenon. The
rest of sectoral indices including sensex exhibits less volatility
during the last trading day of the trading period. The less
volatile days and average volatile days is more than that of
more volatile days in all the sectors. Therefore, it may
conclude that the effect of last trading day effect of the
trading period is minimal on the volatility of prices of stocks
in the BSE.
Keywords: Volatility, Trading, BSE, India
104 Venkataramanaih. M.
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
case may be, at the end of trading period. Further, this pressure may result in fluctuations
in quotations which may be more than the normal expected fluctuations.
2. Methodology
The primary objective of the study is to investigate the effect of last trading day of the
week on volatility in the prices of stock of the BSE. To identify, whether or not the end of
trading period is a factor in causing volatility in the share prices of the BSE, an attempt
has been made to analyse the volatility in the last trading days (LTDs) of 52 weeks (one
year). In the study, Friday has been taken as the proxy of the last trading day of the trading
period. Here, the study period is one year, i.e. 2010. The analysis is presented only as a
case study by assuming that it represents the rest of the period. The volatility for 252
trading days was computed during 2010. The percentage deviation of half the spread
between high-low values of index from the mid-value of high-low spread of index was
taken as a measure of volatility. The volatility on 252 trading days for the BSE sensex and
select sectoral indices were calculated. The values of quartile 1 (Q1), quartile 2 (Q2) and
quartile 3 (Q3) for volatility for 252 trading days were computed. The LTDs which have
the volatility more than that of the value of Q3 is termed as more volatile. The LTDs with
less than the value of Q1 are termed as less volatile and LTDs with volatility between
range of values of Q1 and Q3 termed as average volatile.
3. Effect of last trading day on the volatility in the prices of sensex
To test the effect of volatility on the stock prices, stock prices of sensex at the end-
of-the trading day of the week are computed. These are presented in Table 1. The Table
reveals the frequencies of LTDs in all the three categories of volatility i.e. less volatility,
average volatility and more volatility. These are shown in terms of absolute figures and
percentage terms. Out of the total of 52 trading weeks, the average
Table 1:
Impact of LTD on the Volatility of Prices of Securities of Sensex during 2010
Category of volatility No. of weeks % to total
Less volatility (Volatility <0.4392 %, i.e. value of
Q1)
16 30.77
Average volatility ( Volatility between 0.4392 and
0.8086 %
23 44.23
More volatility ( Volatility > 0.8086 %, i.e. value
of Q3)
13 25.00
Total 52 100.00
Source: Annexure-I
volatility exists in 23 weeks or 44.23 per cent of weeks. The less volatility emerges
in 16 or 30.77 per cent of weeks and in the rest 13 or 25 per cent of weeks, the volatility
Last Day of the Trading Period Effect on Volatility in Prices of Stocks of Bombay Stock Exchange Limited 105
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
is more. It may be concluded that there is no evidence to show that there is high volatility
in the sensex as low and average volatility weeks together accounted for 75 per cent
during 2010.
3.1 Effect of LTD on the volatility of prices of securities of sectoral indices
The effect of LTD of the week on the volatility of prices of securities in the select
sectoral indices during 2010 is evaluated. Table 2 presents the level of volatility in the
prices of BSE100 sector. It can be observed that the average volatility is 26 out of 52
weeks. It accounts for 50 per cent in the total number of weeks. The less volatility and
more volatility weeks were 15 and 11 respectively. These two have together constituted
50 per cent in the volatility weeks. It may
Table 2:
Impact of LTD on the Volatility of Prices of Securities of
BSE100 Sector during 2010
Category of volatility
No. of
weeks
% to
total
Less volatility (Volatility <0.3677 %, i.e. value of Q1) 15 28.85
Average volatility ( Volatility between 0.3677 and 0.6906 % 26 50.00
More volatility ( Volatility > 0.6906%, i.e. value of Q3) 11 21.15
Total 52 100.00
Source: Annexure-II
Be noted that the former forms 28.85 per cent while the latter 21.15 per cent
sequentially. It may be summed up that the LTD of the week has not contributed much for
volatility in the prices of securities under BSE100 sector.
Table 3 shows the range of volatility in the prices of securities of FMCD on account
of LTD of the week during 2010. A look at the Table reveals that the average volatility
spans over 25 or 48.08 per cent of total number of weeks in the year whereas less volatility
weeks are 15 or 28.84 per cent. This sector has experienced more volatility in 12
Table 3:
Effect of LTD on the Volatility of Prices of Securities of
BSE FMCD Sector during 2010
Source: Annexure-III
Kind of volatility
No. of
weeks
% to
total
Less volatility (Volatility <0.6667 %, i.e. value of Q1) 15 28.84
Average volatility ( Volatility between 0.6667 % and 1.2430 % 25 48.08
More volatility ( Volatility > 1.2430%, i.e. value of Q3) 12 23.08
Total 52 100.00
106 Venkataramanaih. M.
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
or 23.80 per cent in the aggregate number of weeks. It is evident that the average
and less volatility weeks have together accounted for 78.85 per cent in the total number
of weeks. It may be concluded that the LTD of the week has no impact on the volatility of
prices of securities forming part of FMCD sector.
In the case of CG sector, the less volatility is spread over 14 weeks, which accounts
for 26.92 per cent in the total number of weeks in the year (see Table 4). The more
volatility weeks are 14, recording a share of 26.92 per cent in the total. The average
volatility weeks are 24
Table 4:
Effect of LTD on the Volatility in the Prices of Securities of
CG Sector for the year 2010
Source: Annexure-IV
or 46.16 per cent. This situation in the CG sector contradicts that of BSE 100 and
FMCG sectors. In other words, the LTD exercises impact on the volatility in the prices of
securities under CG sector.
It can be gauged from Table 5 that the less volatile and more volatile weeks stood
at 15 and 13 serially in the year. Their proportions in the total number of weeks are 28.85
per cent and 23.08 per cent sequentially. The average volatility weeks are 24 or 46.16 per
cent. It may be summed up that LTD has not contributed significantly to volatility in the
prices of securities of FMCG sector since more volatile weeks are less than the lower
volatile weeks during 2010.
Table 5:
Impact of LTD on Volatility of the Price of Securities under FMCG
Sector during 2010
Category of volatility
No. of
weeks
% to
total
Less volatility (Volatility <0.4804 %, i.e. value of Q1) 14 26.92
Average volatility ( Volatility between 0.4804 % and 0.8598 % 24 46.16
More volatility ( Volatility > 0.8598 %, i.e. value of Q3) 14 26.92
Total 52 100.00

Category of volatility
No. of
weeks
% to
total
Less volatility (Volatility <0.4936 %, i.e. value of Q1) 15 28.84
Average volatility ( Volatility between 0.4936 % and 0.8627 % 24 46.16
More volatility ( Volatility > 0.8627 %, i.e. value of Q3) 13 25.00
Total 52 100.00
Source: Annexure-V
Last Day of the Trading Period Effect on Volatility in Prices of Stocks of Bombay Stock Exchange Limited 107
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
With regard to HC sector, the less, average and more volatile weeks are 15, 25 and
12 respectively (see Table 6). The share of each of these is 28.85 per cent, 48.07 per cent
and 23.08 per cent sequentially. This trend is similar
Table 6:
Effect of LTD on the Volatility in the Prices of Securities of HC sector during 2010
Source: Annexure-VI
to that of FMCG sector. The less volatile weeks are greater than that of more
volatile weeks. Therefore, it may be said that LTD has no impact on the volatility in the
prices of securities constituting HC sector.
A glance at the Table 7 shows that, in the IT sector, less volatility weeks are 15. In
another 15 weeks, the volatility is more. The average volatility is spread over 22 or 42.30
per cent of weeks. It may be noted that the intensity of volatility is relatively more than
that of CG sector. The conclusion which
Table 7:
Impact of LTD on Volatility in the Prices of Securities of IT Sector during 2010
Category of volatility
No. of
weeks
% to
total
Less volatility (Volatility <0.4804 %, i.e. value of Q1) 15 28.85
Average volatility ( Volatility between 0.4804 % and 0.8598 % 25 48.07
More volatility ( Volatility > 0.8598 %, i.e. value of Q3) 12 23.08
Total 52 100.00

Source: Annexure-VII
could be reached here conflicts with the ones drawn in the remaining sectoral
indices leaving CG. Between CG and IT sectors, the effect of LTD on the volatility in the
prices of the latter surpasses that of the former.
Table 8 portrays the pace of volatility in the prices of securities of PSU sector
during 2010. It can be observed that the less volatile weeks are higher than more volatile
weeks. The former and the latter have constituted 28.85 per
Category of volatility
No. of
weeks
% to
total
Less volatility (Volatility <0.4910 %, i.e. value of Q1) 15 28.85
Average volatility ( Volatility between 0.4910 % and 0.9697 % 22 42.30
More volatility ( Volatility > 0.9697 %, i.e. value of Q3) 15 28.85
Total 52 100.00

108 Venkataramanaih. M.
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Table 8:
Impact of LTD on the Volatility in the Prices of PSU Sector for the year 2010
Source: Annexure-VIII
cent and 23.08 per cent serially. The average volatility covers 25 or 48.07 weeks.
The results show that the effect of LTD on the volatility in the prices of securities
constituting PSU sector is absent.
It can be observed that the LTD has influence over the volatility in the prices of
securities forming part of TECH sector. This is based on the fact that
Table 9:
Volatility in the BSE TECH on Last Trading Day of the Week during 2010
Category of volatility
No. of
weeks
% to
total
Less volatility (Volatility <0.4910 %, i.e. value of Q1) 15 28.85
Average volatility ( Volatility between 0.4910 % and 0.9697 % 25 48.07
More volatility ( Volatility > 0.9697 %, i.e. value of Q3) 12 23.08
Total 52 100.00
Source: Annexure-IX
the average volatile weeks are less than that of the aggregate of less and more
volatile weeks. The less and more volatile weeks are 30 whilst the average volatile weeks
are 22. From the aforesaid analysis, we can deduce that LTD has impact on the volatility
in the prices of securities of CG, IT and TECH sectors only. In other words, the LTD has
no impact on the rest of five sectoral indices. Similar is in the case with securities
constituting sensex.
4. Summary of findings and conclusion
Out of the total of 52 trading weeks, the average volatility in sensex exists in 23
weeks or 44.23 per cent of weeks. The less volatility emerges in 16 or 30.77 per cent of
weeks and in the rest 13 or 25 per cent of weeks, the volatility is more. In BSE 100, the
average volatility is 26 weeks or 50 per cent of total number of weeks. The less volatility
and more volatility weeks were 15 and 11 respectively. The FMCD sector has experienced
more volatility in 12 or 23.80 per cent in the aggregate number of weeks. In the case of
CG sector, the less volatility is spread over 14 weeks, which accounts for 26.92 per cent
Category of volatility
No. of
weeks
% to
total
Less volatility (Volatility <0.4713 %, i.e. value of Q1) 15 28.85
Average volatility ( Volatility between 0.4713 % to 0.8571 % 22 42.30
More volatility ( Volatility > 0.8571 %, i.e. value of Q3) 15 28.85
Total 52 100.00
Last Day of the Trading Period Effect on Volatility in Prices of Stocks of Bombay Stock Exchange Limited 109
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
in the total number of weeks in the year. The more volatility weeks are 14, recording a
share of 26.92 per cent in the total. The average volatility weeks are 24 or 46.16 per cent.
The less volatile and more volatile weeks in FMCG sector stood at 15 and 13 serially in
the year. The average volatility weeks are 24 or 46.16 per cent. With regard to HC sector,
the less, average and more volatile weeks are 15, 25 and 12 respectively. The share of
each of these is 28.85 per cent, 48.07 per cent and 23.08 per cent sequentially. In the IT
sector, less volatility weeks are 15. In another 15 weeks, the volatility is more. The average
volatility is spread over 22 or 42.30 per cent of weeks. In PSU sector, the less volatile
weeks are higher than more volatile weeks. The average volatility covers 25 or 48.07
weeks. The average volatile weeks are less than that of the aggregate of less volatile
weeks and more volatile weeks in Tech sector. In this sector, the less and more volatile
weeks are 30 whilst the average volatile weeks 22.
On the basis above discussion it may be concluded that there is no enough evidence
of effect of last trading day of the trading period on volatility in the prices of the BSE.
The IT, TECH and CG sectors are exceptional to this phenomenon. The rest of sectoral
indices including sensex exhibits less volatility during the last trading day of the trading
period. The less volatile days and average volatile days is more than that of more volatile
days in all the sectors. Therefore, it may conclude that the effect of last trading day effect
of the trading period is minimal on the volatility of prices of stocks in the BSE.
References
(1) Cross, F.. 1973, Thebehavior of stock prices on Fridays and Mondays, Financial
Analysts Journal 4. 67-69.
(2) Fama, E., 1965, Thebehavior of stock prices. Journal of Business 38, 383-417.
(3) French, K., 1980, Stock returns and the weekend effect. Journal of Financial
Economics 8, 55-70.
(4) Gibbons, M. and P. Hess, 1981, Day of the week effects and asset returns, Journal
of Business 54, 579-596.
(5) Harris, L.. 1986, A transaction data study of weekly and intradaily patterns in stock
returns, Journal of Financial Economics 16. 99-117.
(6) Keim. D. and R. Stambaugh, 1984. A further investigation of the weekend effect in
stock returns, Journal of Finance 39, 819-835.
(7) Lakonishok, J. and M. Levi, 1982, Weekend effects on stock returns: A note, Journal
of Finance 37, 883-889.
(8) Prince, P.. 1982, Day of the week effects: Hourly data. Unpublished manuscript
(University of Chicago, Chicago, IL).
(9) Rogalski, R., 1984, New findings regarding day of the week returns over trading and
non-trading periods, Journal of Finance 39, 1603-1614.
(10) Scholes. M. and J. Williams, 1977. Estimating betas from non-synchronous data,
Journal of Financial Economics 4, 309-327.
110 Venkataramanaih. M.
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
Introduction
Accomplishment of organizational goal is of the biggest challenges for managers
in this century. Managers have been struggling to experiment with different techniques to
improve organizational performance. Among those suggested techniques, concepts like
Total Quality Management (TQM) and Business Process Reengineering (BPR) earned
recognition from many authors in the second half of twentieth century and were found
helpful in increasing organizational performance by focusing on operational and process
improvements.They were/still being used as tools for management in their effort to plan,
execute and control of the desired changes in the operational quality. The concept of
Employee Engagement is also doing round of late which signifies level of commitment
and emotional attachment of employees towards their organization. Employers now realize
Employee Engagement - A Key to Organizational
Success
* Director, Shree Swaminarayan Institute of Management, Porbandar - 360578 Email :
prof.viralshilu@gmail.com
Viralkumar Shilu* Abstract : Employee engagement is an approach which
touches almost all parts of human resource management in
an organization. If every part of human resources is not
addressed in appropriate manner, employees fail to fully
engage themselves in their job which results in to
unproductive organizational performance. The concept of
employee engagement is built on the foundation of earlier
concepts like job satisfaction, employee commitment and
Organizational citizenship behavior. Though it is related to
and encompasse sthese concepts, employee engagement is
broader in scope. Employee engagement is stronger
predictor of positive organizational performance clearly
showing the two-way relationship between employer and
employee compared to the three earlier constructs: job
satisfaction, employee commitment and organizational
citizenship behavior. Engaged employees are emotionally
attached to their organization and highly involved in their
job with a great enthusiasm for the success of their employer,
going extra mile beyond the employment contractual
agreement.
Keywords: Employee engagement, Employee commitment,
Job satisfaction
Employee Engagement - A Key to Organizational Success 111
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
that by focusing on employee engagement, they can create more efficient and productive
workforce. Any initiatives of improvement which are taken by management cannot be
fruitful without will ful in volvement and engagement of employees.
Employee engagement is a workplace approach designed to ensure that employees
are committed to their organization's goals and values, motivated to contribute to
organizational success, and are able at the same time to enhance their own sense of well-
being. Though the concept of Employee Engagement is very comprehensive; this article
limits itself to discuss only the basic concepts on employee engagement based on recent
literatures. The article explores the evolution of the concept, its definition and how it is
different from the earlier concepts such as Commitment, Organizational Citizenship
Behavior (OCB) and job satisfaction. Secondly, the articled is cusses the factors or drivers
leading to engagement. It details the impact of employee engagement on organizational
performance indicators or business out comes such as profitability, customer satisfaction,
company growth, productivity and others pointing out its benefits and importance to
organizations. Finally, the article suggests strategies the companies should take up to
keep employees engaged in their jobs.
Employee Engagement
Employee engagement refers to a condition where the employees are fully engrossed
in their work and are emotionally attached to their organization. One can't achieve anything
unless and until one is serious about it. An employee must be dedicated towards his work
and should take it as a challenge. Work should never get monotonous as it would then be
a burden for the individual.Problems arise when individuals have nothing creative to do
and sit idle the whole day. They start interfering in each other's work and tend to become
negative for the organization. They start finding reasons to fight with their fellow workers
and crib about almost everything.
Additionally, there are differences between attitude, behavior and outcomes in
terms of engagement. An employee might feel pride and loyalty (attitude); be a great
advocate of their company to clients, or go the extra mile to finish a piece of work
(behavior). Outcomes may include lower accident rates, higher productivity, fewer
conflicts, more innovation, lower numbers leaving and reduced sickness rates. But we
believe all three - attitudes, behaviors and outcomes - are part of the engagement story.
There is a virtuous circle when the pre-conditions of engagement are met when these
three aspects of engagement trigger and reinforce one another.It is to be stated that engaged
organizations have strong and authentic values, with clear evidence of trust and fairness
based on mutual respect, where two way promises and commitments - between employers
and staff - are understood, and are fulfilled.Although improved performance and
productivity is at the heart of engagement, it cannot be achieved by a mechanistic approach
which tries to extract discretionary effort by manipulating employees' commitment and
emotions. Employees see through such attempts very quickly; they lead instead to cynicism
and disillusionment. By contrast, engaged employees freely and willingly give discretionary
effort, not as an 'add on', but as an integral part of their daily activity at work.
112 Viralkumar Shilu
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
The employees must be assigned challenging assignments as per their interests
and expectations so that they devote their maximum time to work rather than loitering
and gossiping around. The team leaders or the managers must ensure to review their team
member's performance on a weekly basis to find out whether they are enjoying their work
or not? An employee must not treat his organization as a mere source of earning money
only. An organization is a place where employees are motivated to upgrade their skills
and learn something new every day. One must respect and love his job and to expect the
same. Never talk ill of your organization in front of anyone.
Various studies have shown that actively engaged employees are almost 50 percent
more productive than their not-engaged or disengaged colleagues. The employee
engagement cannot be improved only by designing and implementing effective human
resource strategies but their involvement and quality of output produced by them also
depends on their relationships with their colleagues, subordinates and seniors. It is a
basic need of human beings to belong and to be belonged. Such collaborations can be a
major contributor to the success of a company.
Until recently, solutions facilitating two-way communication including top-to-
bottom and bottom-to-top were given much important but nothing has been done to foster
the open communication and collaborations among employees. The way they interact
with each other determines the health of any organization. A perfect balance of respect,
care and competitiveness should be prevailed in the organization to keep them actively
engaged in their jobs. Mutual support and healthy relationships contribute majorly to the
organization's success.
Employee Engagement and Organizational Performance
Investing for Employee Engagement is fruitful practice. Studies have found positive
relationship between employee engagement and organizational performance outcomes:
employee retention, productivity, profitability, customer loyalty and safety. Researches
also indicate that the more engaged employees are, the more likely their employer is to
exceed the industry average in its revenue growth.
Effective ways to enhance Employee Engagement
Understanding Employees: The team leader should understand his members well.
Do not assign anything which the employee would not find interesting.
Effective communication: It enhances employee engagement. Make sure there is
transparency in communication at all levels and everyone is aware of what is happening
around him.
Motivation: The management must constantly motivate his employees. Cash prizes,
trophies, gift vouchers, certificates are an effective way to motivate the employees and
keep them engaged in their work. Give them a target and ask them to achieve that within
Employee Engagement - A Key to Organizational Success 113
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
a particular time frame to earn handsome incentives or lucrative prizes. This way, the
employees would not waste their time and spend their maximum time working and aiming
for the rewards.
Work life Balance: Be friendly with your team. Don't ask them to stay back late
unnecessarily. They are likely to commit more mistakes and eventually lose interest in
work. Let them go back home on time and enjoy their personal lives as well. Rejuvenation
is essential for an individual to remain happy and stress free. More than a strict boss, be
a mentor to them and stand by them always.
Creativity: Encourage your team members to think out of the box. Ask them do
their work in a little different way than they normally do. The employees must put on their
thinking caps at workplace and accomplish the task in the most innovative way.
Such activities help the employees to develop a sense of trust and loyalty towards
the management and stick to the organization for a longer period of time. They consider
the organization's goals as their goals and thus try to achieve them at any cost. The
employees learn to take ownership of their work and do every possible thing which satisfies
them as well as the organization.
Conclusion
Companies with engaged employees have higher employee retention, productivity,
profitability, growth and customer satisfaction. On the other hand, companies with
disengaged employees suffer from waste of effort and bleed talent, earn less commitment
from the employees, face increased absenteeism and have less customer orientation, less
productivity, and reduced operating margins and net profit margins. Most researches
emphasize merely on the importance and positive impacts of employee engagement on
the business outcomes, failing to provide the cost-benefit analysis for engagement
decisions. As any other management decisions, engagement decision should be evaluated
in terms of both its benefits and its associated costs, without giving greater emphasis to
neither of the two, not to bias the decision makers. Thus there is a need to study the cost
aspect of engagement decisions. Findings of various researches suggest their own strategies
in order to keep employees engaged. Here in this article the points or strategies called
the essential tablets were suggested to keep employees engaged. For managers, work
of employee engagement starts at day one through effective recruitment and orientation
program, the work of employee engagement begins from the top as it is unthinkable to
have engaged people in the organizations where there is no engaged leadership. Managers
should enhance two-way communication, ensure that employee shave all there sources
they need to do their job, give appropriate training to increase their knowledge and skill,
establish reward mechanisms in which good job is rewarded through various financial
and non-financial incentives, build a distinctive corporate culture that encourages hard
work and keeps success stories alive, develop a strong performance management system
which holds managers and employees accountable for the behavior they bring to the work
place, focuson top-performing employees and maintain or increase business performance.
114 Viralkumar Shilu
Management Trends Vol. 10, No. 1-2 June-Dece - 2013
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Employee Engagement - A Key to Organizational Success 115