Volume 6, Issue 9 – Sep 2018 ISSN: 2054-7404

Volume 6, Issue 9 – Sep 2018

ISSN: 2054-7404

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ArchivesofBusinessResearch(ABR) Vol.6,Issue9,Sep-2018

Copyright©SocietyforScienceandEducation,UnitedKingdom II

TABLE OF CONTENTS

EDITORIALADVISORYBOARD

DISCLAIMER

III

Principals’LeadershipStylesAndJobPerformanceOfTeachersInPublicSecondarySchoolsInImoState,NigeriaChidinmaEvanObiVictoriaC.Onyeike

01

ChildAbandonmentAndItsImplicationsForEducationalDevelopmentInNigeriaJosephineAzukaOnyido(PhD)BokimeGabrielAkpan

13

Returnablepackagingasasustainabilityfactorintheautomotivechain:acasestudy.GetulioK.AkabaneFernandoJoséBussolaAntonioCésarGalhardiHamiltonPozoJoséMartinoNeto

21

AppliedLearningThroughtheManagementofOnlineEducationalResourcesPradeepCharathChristinaDeKoekkoekMarisStella(Star)Swift

32

PositiveFindingsRegardingaNewTrendinUniversityArchitectureEvaluatingStudentImpressionsofanInnovativeAcademicBuildingSonNguyenKristinKennedyWilliamH.Zywiak

39

StrategicEntrepreneurshipandPerformanceofSmallandMediumScaleEnterprisesinAbaMetropolisOlubisiGraceMakindeCarolynUgochiAgu

49

The(in)completenessoflocalintegritysystemsAcross-sectionalstudyonmunicipalintegritysystemsforcivilservantsintheNetherlandsAndrévanMontfort,PhDBecirOgric,MScLeoHuberts,PhD

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RelationshipBetweenInternalAuditPracticesAndPerformanceOfWaterServiceProvidersInKenyaPerminusNyagaNdimituDr.CyrusIrayaMwangiDr.SifunjoKisakaDr.MirieMwangi

91

LearningandcompetencesofmanagementstudentsinBrazil:theparticipationoforganizationsanduniversityinprocessofsupervisedinternshipRobertoRodriguesdeSouzaJúniorMiguelCarlosRamosDumerAlexandredosSantosCerqueiraMarkMirandadeMendonçaFilipeBressanelliAzevedo

105

ProductionPlanningandRawMaterialsSupplytoMeetFluctuativeDemandforLivestockFeedFlourZainalAriefIdaAjuBrahmasariAnisEliyanaM.FahrulRozi

116

LendingGrowthAsAFiqhImplicationTowardProductDevelopmentOfIslamicBankInIndonesiaIndupurnahayuRirisAishahPrasetyowati

122

EstablishingTheTotalQualityOfATypeOfResultObtainedByAnEconomicCompany-GeneralitiesNicolaeDobrițoiu

134

IndependenceandFraudDetection:InfluenceonTheProfessionalismofForensicAuditorTriesElliaSandariTriRatnawatiIndrawatiYuhertiana

141

InvestmentDecision,CapitalDecision,IndustryPerformance,EconimicMacrosasAntecedentVariablesofFinancialRiskManagementandFinancialDistressAgainstValueofTheFirmWithGCGAsaVariableModeratingForManufacturingCompaniesRegisteredOnTheindonesianstockexchange.UlfiPristianaTriRatnawatiAndreDwijantoWitjaksono

147

StrategicPlanning,ExternalEnvironmentandPerformanceofCountyGovernmentsinKenyaCatherineN.DavidDr.WashingtonOkeyo

164

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FinancialInclusion:AVeritableToolForInclusiveGrowthAndPovertyAlleviationInNigeriaO.S.Uwakaeme,Ph.D

175

PlanningForInstructionalResourcesForScienceBasedSubjectsInSecondarySchoolsInKenya:AddressingFinancingOptionsPaulAmollohOdundoCharlesRichardOyier

198

TechnicalandOperationalInnovationsapproachestofirmperformanceofSMEsautoservicesectorCollinsKanKam-KwartengJohnGartchieGatsiStephenAcheampongJacobDonkor

211

ThevisionoftheDisneyWorld:anexperiencemarketingstudyatTheWaltDisneyCompanyRachelFariasdoPatrocinioJulianaLopesdeAlmeidaSouzaCarolinaToledoOliveiraSantosKatheryneSoaresMartins

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Copyright©SocietyforScienceandEducation,UnitedKingdom v

EDITORIALADVISORYBOARD

Prof.StephenPollardCaliforniaStateUniversity

UnitedStates

Dr.VahidhosseinKhiabaniNorthDakotaStateUniversity

UnitedStates

Dr.ValentinaDellaCorteUniversityofNaples

Italy

Prof.ColinC.WilliamsUniversityofSheffield

UnitedKingdom

Dr.StephenArthurLemayMississippiStateUniversityUnitedStateUniversity

Prof.EddieJohnFisher

UniverzitatPalackeho,OlomoucUniversidaddeOriente,SantiagodeCuba

UnitedKingdom

Dr.BrunaEcchiaUniversityofNaples

Italy

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DISCLAIMER All the contributions are published in good faith and intentions to promote and encourage research activities around the globe. The contributions are property of their respective authors/owners and Archives of Business Research (ABR) is

not responsible for any content that hurts someone’s views or feelings etc.

ArchivesofBusinessResearch–Vol.6,No.9PublicationDate:Sep.25,2018DOI:10.14738/abr.69.5095.

Obi, C. E., & Onyeike, V. C. (2018). Principals’ Leadership Styles And Job Performance Of Teachers In Public SecondarySchoolsInImoState,Nigeria.ArchivesofBusinessResearch,6(9),1-12.

Principals’LeadershipStylesAndJobPerformanceOfTeachersInPublicSecondarySchoolsInImoState,Nigeria

ChidinmaEvanObi

DepartmentOfEducationalManagementUniversityOfPortHarcourt

VictoriaC.Onyeike

DepartmentOfEducationalManagementUniversityOfPortHarcourt

ABSTRACT

Thestudyinvestigatedtheextentprincipals’leadershipstylespredictjobperformanceof teachers in public secondary schools in Imo State. Four research questions wereansweredwhile fourhypothesesweretestedat0.05alpha level.Thestudyadoptedacorrelational research design. The population for this study comprised all the fourhundredandthirty(430)viceprincipalsinthepublicsecondaryschoolsspreadacrossthesix(6)educationalzonesinImoState.Asampleof239viceprincipalsweredrawnwith the use of multi-stage sampling approach. Two sets of instruments titledPrincipals’ LeadershipStylesQuestionnaire (PLSQ), and JobPerformanceofTeachers(JPTQ) were used and duly validated. The Cronbach alpha was used to compute thereliability coefficients of the instruments as follows: Principals’ Leadership StylesQuestionnaire(PLSQ)-0.720,andJobPerformanceofTeachersQuestionnaire(JPTQ)-0.720. Datawereanalyzedusingmultipleandsimpleregression,whichwereusedtoanswertheresearchquestions,whileANOVAassociatedwithmultipleregressionsandt-test associated with simple regression respectively were used to test the nullhypotheses. Theresultof thestudyrevealed thatprincipals’ leadershipstyles jointlyand significantly predicted job performance of teachers in secondary schools in ImoState. Transformational leadership style was the most potent predictor of jobperformance. It was recommended among others that school principals shouldendeavourtoenroll in leadershiptrainingprogrammesfromtimetotime inordertoenhance their leadership quality and efficiency for improved job performance ofteachers.Keywords: Leadership, Styles, Transformational Leadership, Transactional Leadership,LaissezfaireLeadershipandJobPerformanceofTeachers

INTRODUCTION

The Principal has key tasks to perform in realizing the objectives of secondary education.Apart from creating a comfortable teaching and learning atmosphere in the school, he is toprovideeffective leadershipandenhance jobperformanceamongthe teachers.The term jobperformance is amultidimensional concept that has been used in organizations all over theworld.It isusedtodescribetasksdonebyworkersintheirvariousorganizations.Motiwidlo,Borman&Schmidt inBullock (2013)defined jobperformanceas theoverall expectedvaluefromemployeesbehaviourscarriedoutoverthecourseofasetperiodoftime.MotowidloetalinBullock(2013)sawjobperformanceasthatentireworthofanemployees’conductwhichheperformsoveracertainperiodoftime.Anemployeeisexpectedtoperformsomedutiesinhisworkplace,inwhichoveraparticularperiod may be assessed if he is really doing well or not. Campbell (1990) described jobperformance as somethingdoneby an employee or a person. This canbe seen as a duty or

Obi,C.E.,&Onyeike,V.C.(2018).Principals’LeadershipStylesAndJobPerformanceOfTeachersInPublicSecondarySchoolsInImoState,Nigeria.ArchivesofBusinessResearch,6(9),1-12.

URL:http://dx.doi.org/10.14738/abr.69.5095. 2

obligationcarriedoutbyanemployee.Jobperformancetherefore,istheactofaccomplishingatask for which an individual or employee is paid for. From these definitions, somethingvaluable is expected fromemployee’sbehavior in theworkplace. Jobperformance isusuallyassociatedwithbehaviorandoutcomes.Generally, thebehaviorofworkerscanmakeormartheorganization’sgoalandobjectives.Itiswidelyagreedthatjobperformanceconsistsofcomplicatedseriesofinteractingvariablespertaining to aspects of the job, the employee and the environment (Milkovich & Wigdor,1991). Jobperformance isusuallyassociatedwithgoodandcomfortableworkingconditions.Meeting the expectation and needs of the employee results in high job performance whiledeprivingthemoftheseexpectationsleadstolowoutcomeintheworkplace.Oneofthemostimportant resources used in education is the teacher. The importance of a teacher as afacilitator of learning process to achieve learning outcomes cannot be overemphasized,especiallyduetohisrolesintheimpartationofknowledgeinamorallyacceptablemanner.Jobperformanceofteacherscouldalsobeseenasthosedutiesintheschoolimplementedbyateacher at any specified time which is geared towards accomplishing the daily school andclassroom tasks as well as the set goals and objectives of education. Furthermore, jobperformanceofteacherscouldbemeasuredthroughannualreportoftheiractivitiesintermsofperformance in teaching, lessonpreparation, andpresentation,masteryof subjectmatter,competence, teachers’ commitment to job and extra-curricular activities. Other areas ofassessmentincludeeffectiveleadership,supervision,monitoringofstudents’work,motivatingstudents’interest,classcontrolanddisciplinaryabilityoftheteachers(Adeyemi,2011).The job performance of teachers in the public secondary schools in Imo State, Nigeria hasremained questionable in contemporary times as there is still public outcry. As a teacher,personalobservationhasshownthatsometeachersnomattertheconditionofserviceortheworkingconditionscarryouttheirdutiesenthusiastically.Theseteachersexhibithighregardand value for their noble profession. They are always committed and willing to renderacademicservicestostudents.Theypreparetheirlessonnotesandshowcasetheircompetencyandmasteryoftheirsubject.Theyhandleanyextra-curricularactivityassignedtothemintheschoolwholeheartedly. They give assignments and supervise their classwork and even givemoreattentiontostudentsthatarelowachieversintheclassroom.Theiroverallresponsetoduties assigned to them by the principal or head of their subject department portrays highlevelofjobperformance.Conversely,personalexperiencealsohasshownthattherearesometeacherswhodonottaketheir teaching profession seriously. In most situations these teachers do not attend theirclassesregularlyandtheirlessonnoteisnotuptodate.Whentheymanagetogotoclass,theygo there late, tell thestudentsstoriesandevenpunish themforany littlemisconduct.Thesegroupsofteachersarenotcommittedtotheirdutiesandcannotdeliveradequatelybothtothestudentsandtotheschoolmanagement.Thelaissezfaireattitudesofsomeoftheseteachersreflectonthepoorperformanceofstudentsbothintheirinternalandexternalexaminationsaswellaslitaniesofstudents’indisciplineinschools.Leadership plays an important role in the school effectiveness and school improvement.Leadership is the ability to influence others so that they will willingly and enthusiasticallyaccomplishtheorganizationalgoals.Leadershipisdefinedastheabilitytogetthingsdonewiththe support and cooperation of other people within the institution, organization or system(AdesinainKiboss&Jemiryott,2014).Ukeje&OkorieinOkorie(2009)opinedthatleadership


Copyright©SocietyforScienceandEducation,UnitedKingdom 3

is the process of influencing, directing and coordinating the activities of other people in anorganization. Put together, school leadership can be viewed as the Principal’s ability toinfluence teachers, students and parents so that they can willingly and cooperativelycontributetowardstheachievementoftheschoolobjectives.Thetypeofleadershipthatisatplayinoureducationalinstitutionvariesduetothefactthatanindividual(leader)isnotonlyresponsible for the groups performances, but also actively seeks the collaboration andcommitmentofallthegroupmembers(stakeholders,parents,etc.)towardstheachievementofthegroupobjectivesforaparticulartask.Leadership stylesofprincipals are thosepatternsofbehaviorusedby them to influence thegroupmembers’(teachers,studentsandparents)performances.Itvariesfromoneinstitutionto another as no two educational leaders (Principals) can administer their educationalinstitutions in the samemanner. Leadership style is the attitude in which a leader uses toprovide direction, implements plans, and motivates people so as to achieve organizationalobjectives.Itcanbeseenasapeculiarwayofleadingpeople.In recent years, leadership styles have become an important topic of study in the field ofmanagement andmany researchers consider leadership style as an important variable thatinfluenceshowindividualsperforminorganizations.ThepreferredleadershipstylesidentifiedbyBassaretransformational,transactionalandlaissez-faire.Theseleadershipstyleshavebeenfound as an important predictor of organization performance. There are various leadershipstylesthatexist,whichareautocratic,democratic,charismatic, transactionalandlaissez-faireleadershipstyles.In this study, the following leadership styles are considered: transformational, transactionaland laissez-faire leadership styles. For teachers to perform efficiently and effectively, it ispresumedthatprincipals’leadershipstylecouldbeessential.Transformationalleaderscreatenew things fromoldexisting thingsby changing theprimary, cultural, andpolitical systems.They are proactive and also assist their followers to achieve unusually high performanceresults.Transformationalleadershiptosomeextentispeopleoriented.Researchhasnotonlyauthenticatedtheexistenceoftransformationalleadershipbutalsoconsistentlyhaslinkedthepractice of these transformational leadership behaviours with employee performance andsatisfaction(Bass&Riggio,2006;Dumdum,Lowe&Avolio,2002;Trottier,VanWart&Wang,2008;Sajjadi,2014).Withthisinmind,theresearcherwouldexploretherelationshipbetweensecondary school principals’ leadership style and job performance of teachers within theconceptualframeworkofthefullrangeofleadershipmodeladvancedbyBass(Bass,1985).The transactional leaders make adjustments to the organizational mission, structure andhumanresources.Theystimulatetheirfollowersbyexchangingrewardsforservicesrendered.Laissez-fairetypeofleadershipistheabsenceoftransactionswithfollowers.Itallowsfreedomtogroupdecisionwithouttheparticipationofthe leader.Thereforethereisneedtoexaminetherelationshipbetweenthesevariablesandjobperformanceofteachers.Adeyemi (2011), investigated the relationship that existed between principals’ leadershipstyles(autocratic,democraticandlaissez-faire)andteachers’jobperformance,andfoundoutthat democratic leadership style yielded a moderate teachers’ job performance whileautocraticleadershipstyleyieldedabetterteacher’jobperformance.Arumugam,Cheah,Yahya,Yaakob and Rozlina (2015) carried out a study on the relationship between principals'transformational leadership style and secondary school teachers' commitment. The studyshowed a significant relationship between principals' transformational leadership andteachers' commitment. Camps and Rodriguez in Yahaya & Ebrahim, (2015) in their study,



transformationalleadershipbehaviourandemployees’individualperformance,alsofoundthattransformational leadership behaviour increases workers’ self-perceived employability,commitment,andperformance.The finding of Kiboss and Jemiryott (2014) showed that therewas no relationship betweenoverall teachers’ job satisfaction and transactional leadership style. It implies thattransactionalleadershipdoesnotimproveorlowerteachers’jobsatisfaction.InthefindingofWahabetal(2016)therewasapositiverelationship,significantandsmallcorrelationbetweentransactional leadership and organizational performance. This assertion was supported byBass(1999).LimsilaandOgunlana(2008)foundthattransformational leadershipstylehasapositive influence on work performance and organizational commitment of subordinates,whereastransactionalandlaissezfaireleadershipdoesnot.Althoughstudieshavebeendoneontherelationshipbetweenprincipals’leadershipstylesandteachers’jobperformance,littleornostudytotheknowledgeoftheresearcherhasbeencarriedoutontheindependentandjoint contribution of principals’ leadership style to the prediction of job performance ofsecondaryschoolteachersinImoState,Nigeria.It is against this background that the researcher is bothered about whether principals’leadershipstylescouldpredictjobperformanceofteachers.Hencetheproblemofthisstudy,put in a question form is, canprincipals’ leadership styles jointly and separatelypredict jobperformanceofteachersinpublicsecondaryschoolsinImoState?

PURPOSEOFTHESTUDYThe aim of this study is to investigate the extent principals’ leadership style predict jobperformanceofteachersinpublicsecondaryschoolsinImoState,Nigeria.Specifically,thestudywasdesignedto:

1. Find out the extent principals’ leadership styles (transformational, transactional, andlaissez-faire)jointlypredictjobperformanceofteachersinpublicsecondaryschoolsinImoState.

2. DeterminetheextenttransformationalleadershippredictsjobperformanceofteachersinpublicsecondaryschoolsinImoState.

3. Ascertain the extent transactional leadership predicts job performance of teachers inpublicsecondaryschoolsinImoState.

4. Examine the extent laissez faire leadership predicts job performance of teachers inpublicsecondaryschoolsinImoState.

RESEARCHQUESTIONS

Thefollowingresearchquestionsguidedthisstudy:1. To what extent do principals’ leadership styles (transformational, transactional, and

laissez-faire)jointlypredictjobperformanceofteachersinpublicsecondaryschoolsinImoState?

2. TowhatextentdoestransformationalleadershippredictjobperformanceofteachersinpublicsecondaryschoolsinImoState?

3. Towhat extent does transactional leadership predict job performance of teachers inpublicsecondaryschoolsinImoState?

4. To what extent does laissez-faire leadership predict job performance of teachers inpublicsecondaryschoolsinImoState?



HYPOTHESESThefollowingnullhypothesesweretestedatanalphalevelof0.05:

1. Principals’ leadershipstyles (transformational, transactional, and laissez-faire) jointly,donotsignificantlypredictjobperformanceofteachersinpublicsecondaryschoolsinImoState.

2. TransformationalleadershipdoesnotsignificantlypredictjobperformanceofteachersinpublicsecondaryschoolsinImoState.

3. Transactional leadershipdoesnotsignificantlypredict jobperformanceof teachers inpublicsecondaryschoolsinImoState.

4. Laissez faire leadership does not significantly predict job performance of teachers inpublicsecondaryschoolsinImoState.

METHODOLOGY

Thestudyadoptedacorrelationalresearchdesign.Thepopulationforthisstudycomprisedallthefourhundredandthirty(430)viceprincipalsinthepublicsecondaryschoolsspreadacrossthesix(6)educationalzonesinImoState.Asampleoftwohundredandthirtynine(239)viceprincipals of public secondary schools in Imo State, Nigeria was used for this study. Amultistage sampling approach involving cluster sampling, and simple random samplingtechniqueswereusedtodrawthesample.Two sets of instruments titled Principals’ Leadership Styles Questionnaire (PLSQ), and JobPerformance of Teachers (JPTQ) were used for data collection and were duly validated byexperts in the department of educational management. A self-structured instrument titled‘‘Principals’ Leadership Styles Questionnaire’’ (PLSQ) consists of 40 items made up of 3clusters (3 leadership dimensions by Bass). The first cluster has 25 items on principals’transformational leadership (1- 25), second cluster has 8 items on transactional leadership(26-33)andthelastclusterhas7itemsonlaissezfaireleadership(34-40)makingatotalof40 items. PLSQwere structured after themodified Likert’s 4-point rating scales of StronglyAgree(SA);Agree(A);Disagree(DA);andStronglyDisagree(SA).The second instrument is ‘‘Job Performance of Teachers Questionnaire’’ (JPTQ). Theinstrumenthasa4-pointsratingscaleofVeryFrequently(VF);Frequently(F);Often(O),andNever(N).Itconsistsof40items.Altogether there are 80 items and the instruments were one time administered to 30 viceprincipalsthatwerenotusedforthestudy.Cronbachalphawasusedtodeterminetheinternalconsistencyoftheinstrument.TheinstrumentPLSQandJPTQyieldedreliabilitycoefficientsof0.720 and 0.720 respectively. The coefficients for the subscales of TransformationalLeadership,TransactionalLeadershipandLaissezfaireLeadershipare0.713,0.703and0.869.Theinstrumentswereadministeredtotherespondentsintheirvariousschoolswiththehelpof three research assistants. All the filled copies of the instruments were retrieved by theresearcher on the same spot. Multiple and simple regressions were used to answer theresearch questions,while ANOVA associatedwithmultiple regressions and t-test associatedwithsimpleregressionrespectivelywereusedtotestthenullhypotheses.

FINDINGSResearchQuestionOneTowhat extent do principals’ leadership styles (transformational, transactional, and laissez-faire)jointlypredictjobperformanceofteachersinpublicsecondaryschoolsinImoState?



Table1a:MultipleRegressionsanalysisshowingtheextentofjointpredictionofprincipals’leadershipstyles(transformational,transactional,andlaissez-faire)onjobperformanceof

teachersModel R RSquare AdjustedRSquare Std.ErroroftheEstimate

1 .313a .098 .087 19.84507

Table1arevealedthattheregressioncoefficientandregressionsquaredvaluesare0.313and0.098. The coefficient of determination (R2) is 9.8%. This implies that principals’ leadershipstylesvariablesaccountsforupto9.8%ofjobperformanceofteachersinImoState,Nigeria.HypothesisOnePrincipals’ leadership styles (transformational, transactional, and laissez-faire) jointlydonotsignificantlypredictjobperformanceofteachersinpublicsecondaryschoolsinImoState.

Table1b:ANOVAassociatedwithmultipleregressionsonthejointpredictionofprincipals’leadershipstylesonjobperformanceofteachers

Model SumofSquares Df MeanSquare F Sig.

1 Regression 10083.651 3 3361.217 8.535 .000a

Residual 92549.286 235 393.827

Total 102632.937 238

Table1b revealed that sumandmean squaresare10083.651and3361.217.Withdegreeoffreedomof3and235,theFvalueof8.535isstatisticallysignificantwhensubjectedtoanalphalevelof0.05thisshowedthatthenullhypothesiswasrejected.Thisisbecausethecalculatedprobability value of 0.000was less than the critical probability value of 0.05which impliesstatistical significance. By implication, principals’ leadership styles (transformational,transactional,andlaissez-faire)jointlyandsignificantlypredictjobperformanceofteachersinpublicsecondaryschoolsinImoState.ResearchQuestionTwo:TowhatextentdoestransformationalleadershipstylepredictjobperformanceofteachersinpublicsecondaryschoolsinImoState?

Table2a:SimpleRegressionontheextenttransformationalleadershipstylepredictsjobperformanceofteachers

Model R RSquare AdjustedRSquare

1 .310a .096 .092

Table 2a showed that transformational leadership style has regression coefficient (R) andregressionsquare(R2)coefficientof0.096.Thecoefficientofdeterminationshowedtheextentof prediction as 9.6%. This shows that transformational leadership style predicts jobperformanceofteachersby9.6%.HypothesisTwoTransformationalleadershipstyledoesnotsignificantlypredictjobperformanceofteachersinpublicsecondaryschoolsinImoState.



Table2b:t-testassociatedwithsimpleregressionshowingthepredictionoftransformationalprincipals’leadershipstylesonjobperformanceofteachers

Model

UnstandardizedCoefficientsStandardizedCoefficients

T Sig.B Std.Error Beta

1 (Constant) 90.552 6.338 14.287 .000

Transformational .455 .091 .310 5.026 .000

a.DependentVariable:jobperformanceTable2brevealedthat the t-testvalueassociatedwithsimpleregressionwas5.026which issignificantat0.000whensubjectedtoanalphalevelof0.05.Therefore,thenullhypothesiswasrejected. By implication, transformational leadership style significantly predicts jobperformanceofteachersinpublicsecondaryschoolsinImoState.ResearchQuestionThreeTo what extent does transactional leadership style predict job performance of teachers inpublicsecondaryschoolsinImoState?

Table3a:SimpleRegressionontheextenttransactionalleadershipstylepredictsjobperformanceofteachers


1 .089a .008 .004

Table3ashowedthattransactionalleadershipstylehasregressioncoefficient(R)of0.089andregressionsquare(R2)coefficientof0.008.Thecoefficientofdeterminationshowedtheextentofpredictionas0.8%.Thisshowsthattransactionalleadershipstylepredictsjobperformanceofteachersby0.8%.HypothesisThreeTransactional leadership style does not predict job performance of teachers in publicsecondaryschoolsinImoStateTable3b:t-testassociatedwithsimpleregressiononthepredictionoftransactionalleadership

styleonjobperformanceofteachers

Model



1 (Constant) 112.101 7.158 15.661 .000

Transactional .450 .328 .089 1.372 .171

a.DependentVariable:jobperformanceTable 3b revealed t-test value associated with simple regression was 1.372 which is notsignificantat0.171whensubjectedtoanalphalevelof0.05.Therefore,thenullhypothesiswasnotrejected.Byimplication,transactionalleadershipstyleindependentlydoesnotsignificantlypredictjobperformanceofteachersinpublicsecondaryschoolsinImoState.



ResearchQuestionFourTowhatextentdoeslaissezfaireleadershipstylepredictjobperformanceofteachersinpublicsecondaryschoolsinImoState?

Table4a:SimpleRegressionontheextentlaissezfaireleadershipstylepredictsjobperformanceofteachers


1 .064a .004 .000

Table4ashowedthatlaissezfaireleadershipstylehasregressioncoefficient(R)of0.064andregressionsquare(R2)coefficientof0.004.Thecoefficientofdeterminationshowedtheextentofpredictionas0.4%.Thisshowsthatlaissezfaireleadershipstylepredictsjobperformanceofteachersby0.4%.HypothesisFourLaissez faire leadership style does not significantly predict job performance of teachers inpublicsecondaryschoolsinImoState.

Table4b:t-testassociatedwithsimpleregressionshowingthepredictionoflaissezfaireleadershipstyleonjobperformanceofteachers

Model



1 (Constant) 121.462 1.374 88.381 .000

Laissezfaire .011 .011 .064 .988 .324

a.DependentVariable:jobperformanceTable 4b revealed t-test value associated with simple regression was 0.988 which is notsignificantat0.324whensubjectedtoanalphalevelof0.05.Therefore,thenullhypothesiswasnot rejected. By implication, laissez faire leadership style does not significantly predict jobperformanceofteachersinpublicsecondaryschoolsinImoState.

DISCUSSIONOFFINDINGSTheresultsofthisstudyarepresentedasshownbelow:JointContributionofPrincipals’LeadershipStylesandJobPerformanceIt was found that principals’ leadership styles (transformational, transactional, and laissez-faire)jointlypredicted9.8%ofjobperformanceofteachersinsecondaryschoolsinImoState.Thisdepictsthatabout90.2%ofthevarianceinthejobperformanceofteachersinthepublicsecondary schools in Imo State could not be explained by this data, and is therefore due toother factors. The findings of the study baffled the expectations of the researcher. Theresearcherexpectedthatthecombinationofleadershipstylesissupposedtobringabouthighlevelofjobperformance,butthereverseisthecaseforthisstudy.Thepossiblereasoncouldbethat the principals who are applying these styles are doing so to disengage some of theirteachers.The resultof this study is inagreementwith the findingofOku (2017)who foundthat effective management of leadership styles predicted teachers’ job performance to amoderate extent. In the same manner, Marshall (2015) found that there is a high positiverelationship between leadership styles and teachers job commitment. The comparisonbetweenleadershipstylesandtheorganizationalperformanceshavesignificantresultswhere



the findings of Sun (2002) showed that there is a positive correlation between leadershipstyles andperformance. This is because teacherswho are committedmay likely showhighlevel of performance in their job areas. Principals’ leadership styles (transformational,transactional,andlaissez-faire)jointlyandsignificantlypredictjobperformanceofteachersinpublic secondary schools in Imo State. The significant prediction that existed betweenprincipals leadership stylesand teachers jobperformance isunquestionable.This isbecausetheapplicationofsuitableadministrativeleadershipstylesboastsmoralesandcommitmentofworkers to deliver on mandate. Oku (2017) reported a significant prediction of principals’leadershipstylesandteachers’jobperformanceinsecondaryschoolsinRiversState.Hisstudytotally supported thepresent study through thedocumentationof a significantpredictionofleadershipstylestoteachers’jobperformance.Therefore,itwillbeerroneoustomaintainthatleadershipstylesdidnotleadtoteachers’jobperformancebecausetheessenceofleadershipistomoveand inspire thesubordinates todischarge theirdutieswithoptimal satisfactionandengagement.Principals’TransformationalLeadershipStyleandJobPerformanceofTeachersItwasfoundthattransformational leadershipstylepredictedjobperformanceofteachersby9.6%.Transformationalleadershipstyleisanacceptableandvision-filledleadershipstylethatisbenton theachievementoforganizationalgoals.This finding is in linewith the findingofOpurum(2016)whobuttressedthattransformationalleadershipapproachisfoundtobemorerewarding andenduring leadership stylewhich can improveworkersdisfranchisement. It isnot a gain-saying that transformational leadership style provedmore rewarding than otherleadershipstylesbecauseofitsadventurousembodiment.Itwasreportedthatmajorityoftheresearcheshadassociatedtransformationalleadershipstylewithemployee’sperformanceandjobsatisfactionandarguedthattransformationalleadershipcanbebestpredictorofemployeeperformance(Raja&Palanichamy,2011).ThenullhypothesisrevealedthattransformationalleadershipstylessignificantlypredictedjobperformanceofteachersinpublicsecondaryschoolsinImoState.Becauseoftheeffectivenessof transformational leadership style, most secondary schools principals had adoptedtransformational leadership style compared to any type of other leadership style, theirstudentsandstaffsperformbetter than thosewhoareusing theseother typesof leadershipstyles(Omar,2016).SupportingthefindingofthisstudywasthestudyofWahabetal(2016)whofoundthatthereisapositiverelationshipbetweentransformationalleadershipstyleandorganizationalperformanceamong the academic leaders inMalaysianpublicUniversities. Infurtherance of the support of the findings of this studywas thework of Arumugam, Cheah,Yahya,YaakobandRozlina(2015)whichshowedasignificantrelationshipbetweenprincipals'transformationalleadershipandteachers'commitment.Empirically, it was discovered that transformational leadership can positively envisageperformance,behavioursandjobattitudesoffollowers(Liao&Chuang,2007;Walumbwaetal,2004).Principals’TransactionalLeadershipStyleandJobPerformanceofTeachersItwasfoundthattransactionalleadershipstylepredictsjobperformanceofteachersby0.8%.Theviewthattransactionalleadershipstylecontributedalittletojobperformanceofteachersisnotbeyondexpectation.Onepossible reasonwhile this leadershipstylemaynotyield therequiredreportcouldbeasaresultofitsdevoidofpassionandcommitmentonthesideoftheleaders.InconsonancetothefindingofthisstudywasthatofYulk(2006)whoreportedthatthe process of exchange in transactional leadership is not likely to produce passion andcommitmentamongthefollowers.Onthecontrarytothefindingofthisstudywastheresultof



Oku(2017)whoreportedthattransactionalleadershipstyleisthemosteffectiveandefficientfororganizationalgoalachievementandworkerssatisfaction.Incontrasttothefindingofthisstudythattransactionalleadershipstyledidnotsignificantlypredict job performance, the study of Ogomakalam (2015) rather found that transactionalleadershipstylesalsopredictedteachers’ jobeffectivenessinsecondaryschools inImoState.Bass et al in Yahaya & Ebrahim (2016) found that transactional leadership contributes toeffective leadership and is essential to successful performance, when the leader clearlyprovidesorstatestheexpectations,hepositivelycontributetoenhancingtheperformanceofthegroup.Althoughapplyingtransactionalleadershipresultsinperformancethatgoesbeyondexpectationandleadsorganizationstotriumph(Avolio&Bass,2008;Erkutlu,2008;Limsila&Ogulana, 2008 as cited in Ochugudu & Ayatse, 2013). The hypothesis testing revealed thattransactional principals’ leadership styles independently do not significantly predict jobperformanceofteachersinpublicsecondaryschoolsinImoState.ThehypothesiswasinconformitywiththefindingofKibossandJemiryott(2014)thatshowedthattherewasnorelationshipbetweentransactionalleadershipstyleandoverallteachers’jobsatisfaction.MovingawayfromtheresultofthisstudywasWahabetal(2016)whoreportedthattherewasapositiverelationship,significantandsmallcorrelationbetweentransactionalleadershipandorganizationalperformance.Principals’LaissezfaireLeadershipStyleandJobPerformanceofTeachersItwasshownthatlaissezfaireleadershipstylepredictedjobperformanceofteachersby0.4%.Authoritieshavequestionedtheworkabilityoflaissezfaireleadershipstyleinthemotivationof teachers to achieve the desired goal and objectives. Laissez faire leadership style did notreasonablypredictjobperformanceofteachers.Thepossiblereasonwhythisleadershipstyledid not predict job performance of teachers could be stemming from the fact that theseteachersarenotmaturedenoughtoworkwithlittleornosupervision.Inthelightofthestudy,KibossandJemiryott(2014)foundthatprincipals'leadershipstyleshaveagreatimpactontheworkingatmosphereinaschoolandconsequentlytheteachers' jobsatisfaction.LaissezfaireleadershipstyledoesnotsignificantlypredictjobperformanceofteachersinpublicsecondaryschoolsinImoState.On the same vain Adeyemi (2011) submitted that laissez faire leadership style has nosignificantinfluenceonteachers’jobperformanceinschools.OnthecontrarytothefindingofthestudywasthefindingofWahabetal(2016)whichshowedthattherewasasignificantandhighcorrelationbetween laissez-faire leadershipandorganizationalperformanceamong theacademicleadersofMalaysianpublicUniversities.

CONCLUSIONBasedonthefindingsofthestudy,itwasconcludedthatprincipals’leadershipstylesarejointandsignificantcontributorstojobperformanceofteachersinpublicsecondaryschoolsinImoState. It was also concluded that transformational leadership style independently andsignificantly contributed to teachers’ job performance while transactional and laissez faireleadership style did not independently and significantly contribute to teachers’ jobperformanceinsecondaryschoolsinImoState.

RECOMMENDATIONSBasedonthefindingsofthisstudy,thefollowingrecommendationsweremade:



1.Itwasrecommendedthattheschoolprincipalsshouldbepragmaticanddynamicontheapplicationofleadershipstylesbasedonthelevelofmoraleoftheirteachers.

2. The school principals should endeavour to enroll in leadership training programmesfrom time to time in order to enhance their leadership quality and efficiency forimprovedjobperformanceofteachers.

3. The principals should create values, cultures, safety practices and organizationalstructuresthatcanmaketheworkenvironmentappealingforkeenperformance.

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Sun,R.Y.(2002).Therelationshipamongtheleadershipstyle,organizationalstructureandorganizationaleffectivenessbasedoncompetingvalueframework:AnempiricalstudyfortheinstituteoftechnologyinTaiwan.Unpublisheddoctoraldissertation,NationalTaipeiUniversity,Taipei,Taiwan.

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Onyido, J. A., & Akpan, B. G. (2018). Child Abandonment And Its Implications For Educational Development In Nigeria.ArchivesofBusinessResearch,6(9),13-20.

ChildAbandonmentAndItsImplicationsForEducationalDevelopmentInNigeria

JosephineAzukaOnyido(PhD)

DepartmentOfEducationalFoundationsFacultyOfEducation,UniversityOfPortHarcourt

BokimeGabrielAkpan

DepartmentOfEducationalFoundationsFacultyOfEducation,UniversityOfPortHarcourt

ABSTRACT

This is a position paper that examined child abandonment and its implications foreducational development in Nigeria. Child abandonment is a common socialphenomenoninNigeriaandtherateatwhichtheactisbeencommittedcallsforseriousactionbyall inorder tominimize the impactof thisuglymenaceonour society.Thepaper therefore identified the causes andeffectsof child abandonmentwhich rangesfrom family conflicts, barbaric cultural practices, poverty and homelessness, andintra/inters ethnic conflicts among others. The paper emphasis that when a child isabandoned, the child is facedwithphysical, behavioural, psychological consequencesand the society faces the bulk of these consequences. It was recommended amongstothers that government shouldensure strictmonitoringof the child rights acts in allthe states, conflicts in the family should be settled amicably, youths and intendingparentsshouldbeproperlycounselledontherolesofparenting.Itwasconcludedthateducation is a vital tool which should be used as an instrument to minimize childabandonmentinthesociety.Keywords:Childabandonment,Education,Childabuse

INTRODUCTION

TheNigerian child is facedwitha lotof challengeswhicharises from the family, the school,peer groups, and the society at large. One of such challenges is the plague of childabandonment.Childabandonment isgraduallyeatingdeep intoour societyand thevalueaswellastheplaceofourfutureleadersisgraduallybeendarkenedbythisinhumanact.Itisinthislightthatthispaperseekstolookatthemeaningofchildabandonment,causeandeffects of child abandonment and the possible remedies to curtail the menace of childabandonmentthroughtheuseofeducation.Education is seen as aprocess of nurturing, guiding, training andbringing forthworthwhilecharacter inan individual.Onyido(2009)defineseducationasablackboxthroughwhichanindividualpassesandbecomesdifferentfromwhatheusedtobe.Thisimpliesthateducationbrings about positive changes in the life of an individual. It is said that one of the aims ofeducation is to instilmoral values inman, such that if we succeed in instilling thesemoralvalues inman,societywill takecareof itsself. It is thefoundationofanypoliticalandsocio-economic advancement in any country. It is on record that countries such as China, Korea,Singaporetomentionafewhaveovercomemanydevelopmentalchallengessuchasinequality,underemploymentandpovertyasaresultofadvancementineducation.Thesechallengeshavefarreachingimpactsonthesocietyandifovercomewillprovebeneficialtothesociety.

Onyido, J. A., & Akpan, B. G. (2018). Child Abandonment And Its Implications For Educational Development In Nigeria. Archives of BusinessResearch,6(9),13-20.


Childabandonmentisasocietalphenomenonandassuchrequiresthatsocietypassesthroughtheblackbox (education) inorder tobecomedifferent fromwhat it is.Thesocietydoesnotexist in amass but through social institutions ofwhich the family is the first and themostimportant. Individuals are formed or made in the family, thus if individuals are properlyeducated,theissueofchildabandonmentcanbeminimizedfromthesociety.

DEFINITIONOFTERMSEducationEducationisderivedfromtheLatinwordEducarewhichmeanstheactofnurturing,guiding,training and bringing forthworthwhile character of a child. Education as defined byOxfordAdvancedDictionary(1995)istheprocessoftrainingandinstructing,especiallychildrenandyoungpeopleinschoolsandcollegeswhichisdesignedtogiveknowledgeanddevelopskills.Education is social institution that isderived from thevalueof the society inwhich it exists(Fafunwa,1994;Ugwuja,2010).Thus,howorganisedanddevelopedaneducationalsystemisdependsonthelevelofvalueplacedonitbythesociety.AccordingtoE.BCastle(1965)educationisallthathappenstousfromthedaywewereborntothedaywedie.Assuch,educationcanbestatedasacontinuousprocessthattakesmantohis grave. It can alternatively be defined as the process of collation and utilization ofknowledge,manacquiresknowledgeandutilizestheknowledgeacquired(AlfredWhitehead,1907;Asaju&Adagba,2014).Therefore,knowledgeacquiredmustbeutilizedandmustreflectin the sum totality ofman’s behaviour and in his interactionswith others in the society. Itinvolvesthecollationofabstractthoughtsandpsycho-motorcompetenciesforexistenceinanatomisedsocialorder(Ojobo,2008).Itistheartofacculturationthatseesanindividualaidedtoreachhis/hermaximumpotentials(Okafor,1981;Asaju&Adagba,2014).Educationcanbeusedtobringaboutpositivechangesanddevelopmentneededinthesociety,through educationman can think reason and act as a better person in the society he findshimself. According to Alufohal & Ezeani (2012) education liberates the population fromignoranceandfuelsdevelopment.Hence,thegoalofeducationistoachievetotaldevelopmentof a child and the pattern of interaction between the parents and the child indicates themannerthechildissocialisedintobehavioursthatareacceptablebythesociety.Itisatoolthatseeks to integrate individuals effectively into the society in order to attain nationalconsciousness and self-realisation (Umoru, 2015). As such, education is the totality of theadvancementofthepersonalityofthechild.Thisthereforecallstoquestionthereasonsbehindchildabandonment.AnalysthaveidentifiedchildabandonmentasacommonsocialphenomenoninNigeriaandtherateatwhichtheactisbeencommittedcallsforseriousactionbyalltoeradicatethisuglymenacefromoursociety.Areport fromtheUnitedNations InternationalEducationFund(UNICEF)shows thatno fewerthan10.5millionNigerianchildrenareoutofschoolsoutof thisnumbermorefemaleswererecordedthanmales(HumanRightsWatch,2016).Lookingatthisfigure,oneistemptedtoaskhoweffectiveNigeriahas implementedandmonitored internationalandnationalpoliciesonchildrightsactsandeducationsuchas:

1. ChildrenParliamentAct,20032. ChildRightsAct,20033. UniversalBasicEducationAct,20044. ChildRightsLegislatureinNigeriaAct,2011.



Childrenare the future leadersof tomorrowandevery society thathopes to survive andberelevant, must give prompt attention to it’s future leaders. It was in light of the place andsignificanceofchildreninthesocietythattheNigeriagovernmentsignedontothesepoliciesfor the protection and education of theNigerian child. These policies spell out the rights ofchildren and the responsibilities of parents aswell as government towards the children. Inorder to strictly monitor the compliance and enforcement of these acts, children, parents,government and the society at largemust be synthesized, awareness programmesmust becarriedoutandallthesecanonlybevisibleifthepopulaceiseducated.Therefore,educationisverynecessaryincombatingthemenaceofchildabandonmentinNigeria.ChildAbandonmentThewordabandonment literallymeans to leave, forsake,desert, leftunattended to,uncaredfor. The Merriam Webster Dictionary (1828) defines the word abandonment as the act ofgivingupsomeonewiththeintentofneveragainclaimingarightorinterestintheperson.Itmeanstowithdrawsupportorhelpfromsomeone.AbandonmentasawordoriginatedfromanAngloFrenchword“abandoner”whichwasderivedfromthephrase“abundun”whichmeanstohandover,thustoabandonmeanstoletgoofsomething,toloseinterestinsomeone,toholdbackonesloveandaffectiontowardsaperson.Child abandonment is the act of abandoning a child; a child refers to someone who is notgrownenoughtotakeresponsibilitiesofhislife.Achildisabandonedwhenaparentorparentsfail to take responsibilitiesof thechild. It is thepracticeof relinquishing interestandclaimsoveronesoffspringwithorwithouttheintentofneveragainresumingguardianshipoverthechild.Thephraseisalsousedtodescribethephysicalabandonmentofthechildwhichincludesactssuchasneglectandemotionalrejection.Childabandonmentisanextensionofchildabuseand it is a phenomenon that is gradually eating deep into our society. (Portwood, 2006;Nuszkiewicz, 2012) defined child abuse as the deliberate use of force, physically orpsychologicallytocarryoutactsthathavethepossibilityofcausingdevelopmentaldisruptionsaswellasinjurytothementalandphysicalstateofachild.Itisanactintentionallycarriedoutwiththeviewofinflictingharmonthechild(WHO,2002).Acaseofchildabandonmentisalarmingandisgraduallybuildingupasasocialvice,whichifurgentattentionisnotgiven,willbecomeanationalthreattothecountry.Therateatwhichthisplagueoccurs inoursocietyposesthegreatquestionthateveryconcernedNigerianwillwanttoask,wherehaveweandwhyhavewethrownourmoralconsciousnessaway?Whatmoral justification do parents have to abandon a child? It is pathetic that a parent who issupposetonatureachildwillratherchoosetoabandonhimorherwithnofeelingorpangofguilt. The manner in which the act is practiced in Nigeria exposes the rate of our moraldecadence. Countless children are been abandoned daily and are flooding our streets at analarming rate, these children have been forced by their parents to grow up and takeresponsibilitiesofthemselves.Andassuchhavebecomeeasyandreadypreytounscrupulousindividualsinthesocietywholurethemintoactssuchasprostitution,robbery,cultism,drugabuse,hooliganismandotherantisocialvices.CausesofChildAbandonmentTherateatwhichchildrenareabandonedinNigeriaisontheincreaseandincombatingthismenace, it is necessary to x-ray the reasons why child abandonment occur in our society.Children are not just abandoned, parents do not just abandon their children and there arereasonswhythisacttakesplace.Althoughthesereasonsarenotjustifiableenoughforparentstoabandontheirchild,thefollowingaresomeofthecausesofchildabandonmentinNigeria.



FamilyConflictThe family is the first place of socialisation a child experiences. The family serves as animportant aspect for the development of a child. It is also in the family that the act ofabandonmentstarts.Thus,thefamilyisseenasthesolecauseofchildabandonment.Conflictsinthefamilyifnotwellresolvedbyparents,leadstobrokenhomeswhichresultstochildrenbeenabandonedeitherbythefather,motherorbyboth(Lemin&Sarah,2008).Scholarshaveopined that in situations where parents are abusive towards a child, it goes to affect thecharacter of the child latter in life, who in turn will be abusive towards other children(Thrasher, 1927; Poonen, 2014). This is further promulgated by the contribution that thefamilyiswidelyacknowledgedasamongthemostpowerfulsocializingagentinayoungchild’sdevelopment(Maccobyetal,1957;Onyido,2016)thereforethechildshouldbegivenadequatelove,care,attentionandsupportthatwillmakehimfeellovedandwanted.Ontheotherhandwhenthechildisabandoned,thechildgrowsupwiththenegativefeelingofrejectionandfeelsunwanted.NegativeCulturalPracticesInsomesocietywheretheystillpracticesomebarbaricculturessuchasthesuperstitiousbeliefthatchildrenbornwithdeformedbodypartsaresymbolsofcursesfromthegodsandassuch,should be abandoned. This had led to the abandoning of children with certain medicalconditionssuchaslameness,blindnessorhandicapped.Also,insomeethnicgroupswhereitisseenasatabootobeasinglemother,motherswithbaby/babiesarefacedwiththeoptionofabandoningorneglectingthechild/childreninfarawayplacesjusttoavoidscornandshamefrom the society. The issue of preferred sex also contributes greatly to abandonment. MostNigerian culture prefers themale child to a female child and for these set of women; theirmarriagesareonlysecuredwhentheygivebirthtoamalechild.Therehasbeenreportedcaseswhere(duringchildbirth),womentradeouttheirfemalechild(abandon)inreplacementofamalechildjusttoremaininandbeacceptedascompletewivesintheirmatrimonialhomes.PovertyandHomelessnessPovertyisasituationwhereoneisnotabletoorfindsitdifficulttoprovideforhisbasicneeds.Apersonissaidtobepoorwhenhecan’tprovideforhisfood,clothe,shelter,healthcareandeducation. Poverty is also one of the causes of child abandonment, parenting a child comeswithalotofresponsibilitybecauseachildwillneedtobefed,clothed,sheltered,senttoschooland provided with good health care facilities. The rate of poverty, which is as a result ofunemploymentinNigeria,hasplacedmoreofourpopulacebelowpovertylevel.AccordingtoSedLock (1989) thephysicalabuseof childofwhichchildabandonment isanaspect that isalmostseventimesmorelikelytobereportedinhomeswheretheannualincomeisverylow.Aparentwhoisnotgainfullyemployedmayturnabusiveduetofinancialpressureathomeandwhereitisnotproperlyhandled,mayjustchoosetogoawayandabandonthefamily.Intra/InterEthnicCrisesConditions such as war and family displacement are other causes of child abandonment.Sometimes child abandonment is not intended by parents but in cases where there areconflictssuchaswar,alotofpeoplearedisplacedfromtheirhomes.Whenthishappens,thereisascrambleforindividualsafetyanditisthissituationsthatparentslosestheirchildrenandthesechildrenbecomeabandoned, theclashbetweenfarmersandherdsmenhasworsenthesituation.



EffectsofChildAbandonmentChildabandonment isa societalproblemwhichmustbe stopped.Theconsequencesof childabandonmentmovesfromthechildtothesociety,thereforetheendeffectsoftheactisonthesociety.BelowaresomeoftheconsequencesofchildabandonmentinNigeria.PhysicalConsequencesThis has to do with physical injuries inflicted on an abandoned child. Sometimes physicalinjuriesarerelativelyminorwhileatother times it ismajor.Whenachild isabandoned, thechildisexposedtounfavourablehealthconditionswhichsometimesresultstophysicalinjuriessuchasbruises,cuts,brokenbones.Atveryseverecases,achildabandonedatinfantagemightbedownwithcasesofpoliobecauseasatwhenhewasabandoned,necessaryimmunizationhave not been administered. Also in some cases, the stress of chronic abuse causes ahyperousalresponsebycertainareasof thebrainwhichmightresult inhyperactivity,sleepdisturbancesandanxietyaswellas increasedvulnerabilitytoposttraumaticstressdisorder,learning andmemory difficulties (Dallam, 2001; Perry, 2001). Studies indicate that there iscorrelation between varying forms of households abuses and poor health (Felitti, 2002).Furthermore,childabuseandneglecthaveshowntocause importantregionsof thebraintofail to form properly resulting in impaired physical, mental and emotional development(Watts-English, Fortson, Gibler, Hooper & De Bellis, 2006). As such, they have a higherprobabilityofsufferingfromasthma,ulcer,highbloodpressureandbronchitistomentionbutafew(Springer,Sheridan,Kuo&Carnes,2007).BehaviouralConsequencesAn abandoned child feels rejected and unwanted and as such, because of the abusiveexperiencesthathehaspassedthrough,thereisthetendencythathewillequallybeabusivetowardothers.Whenthesechildrenareopportunetobeinschool,theydisplaytruancyastheyareeasilyspottedamongthedisobedientgroupsofstudentswhoconstantlybreakschoolrulesandregulations.Itisestimatedthatapproximatelyonethirdofabusiveandneglectedchildrenwilleventuallyvictimisetheirownchildren(Dubeetal,2001).Drugsandalcoholaddictsareequallyfoundamongabandonedorneglectedchildren,asthereisanincreasedlikelihoodthatneglectedchildrenwillsmoke,drinkandtakeillicitdrugs.ThisassumptionissupportedbytheNationalInstituteondrugabuse(2002)whenitreleasedareportthatasmanyastwothirdofpeople indrugtreatmentarereportedtohavebeenabusedaschildren.AccordingtotheU.SDepartment ofHumanServices (2008) an estimated905,000 childrenhave fallen victims tochildneglectandabuse.Theseactshaveseenvictimsexhibithigh-riskbehaviours.Johson,Rew& Sternglanz (2006) suggest that child abuse have a higher likelihood of engaging in sexualrisk-takingthatexposethemtocontractingsexuallytransmitteddiseases.Thus,theillofchildabandonment tends to be in a vicious cycle, and therefore needs to beminimized from oursociety.PsychologicalConsequencesThisisalsoreferredtoasemotionalabuse.AccordingtoKinard(1979)emotionalabuserefersto an injury to a child’s psychological self. The immediate emotional effects of childabandonmentarefearandinabilitytotrustotherswhichtranslatestolife-longconsequencesof lowselfesteem,depressionandrelationshipdifficulties.Assuch,childrenwhoareabusedand neglected by parents often do not form secured attachment to them (Morrison, Frank,Holland&Kates, 1999; Onyido, 2016). These early attachment difficulties can lead to latterdifficultiesinrelationshipwithothers-adultsaswellaswithpeers.Accordingtoapublicationbythechildwelfareinformationgateway,childabuseleadstopsychologicalproblemssuchasdepression, emotional difficulties and anxiety issues (Child Welfare Organisation, 2014). In



furtherance to this, another study established that psychological conditions such as reactiveattachmentdisorder,attentiondisorderanddissociativedisorder(Teicher,2000).SocietalConsequencesFor every child abandoned, the society is at the receiving end. The society is a complexhierarchy of classes and strata and for every injustice meted on the child there is aconsequenceonthesociety.Takingacloserlookatthis,achildwhoisabandonedsufferspain,mentaltortureandwithdrawal.However,thechildisnotisolatedinthesocietyandassuchthesociety bears the brunt of the psychological, economical and physical impacts of theabandonment.Thesocietypays thegrandpriceof childrenabandonment, themorechildrenare abandoned, the more society records cases of juvenile and adult criminal activities,domesticviolence,andlowself-esteemedindividualswhowilleventuallydropoutofschools.With these, literacy level of the society reduceswithhigh rate of unemployed youthswhichleads to high rate of poverty. With poverty, it is more likely that more children will beabandoned and then society goes through the vicious cycle all over again with increasingtendenciesofalltheconsequencesmentionedabove.Allaroundus,weseepicturesandhearcases of children been abandoned, the social media is flooded with gruesome picture ofabandonedbabiesinsewagetanks,refusedisposalsitesandinuncompletedbuildings;societymustriseagainsttheseinhumanacts.

CONCLUSIONConclusively, child abandonment has been established as theneglect of the child byhis/herparentorparents,eitherintentionallyorunintentionally.ThecausesofchildabandonmentinNigeria include family conflicts, negative cultural practices, poverty and homelessness, andintra/interethnicconflicts.Irrespectiveofthereasonbehindtheact,itisviewedasacriminalactbecause it isaconductregardedbysociety tobedestructive,endangering thesafetyandcomfortofthechildandforwhichtheoffenderispunishableunderthelaw.Theconsequencesofchildabandonmentarephysical,behavioural,psychologicalandsocietalconsequences.Thispaperhasestablishedthatwhenachildisabandoned,thesocietysuffers.Therefore, the society must ensure the eradication of this ugly menace through the use ofeducation.Thus,societymustriseuptothetaskoferadicatingchildabandonment,aseveryonein the society (the child, parents, non-governmental agencies and the government)must actaccordinglybycontributingitsquotatoendthisproblem.

RECOMMENDATIONSThe causes and effects of child abandonment in Nigeria can be minimized if the followingactionsarefullyadopted:

• Conflicts in familiesare inevitableandassuchshouldbesettledamicablywithouttheinvolvementofthechild/children.

• Cultureisnotstatic;certainculturalpracticeswhicharenotinlinewithchildren’srightactsshouldbeabolished.

• Economicsituationofthecountryshouldbeimproved,morejobopportunitiesshouldbeprovided.

• Youthsand intendingparentsshouldbeproperlycounselledontheresponsibilitiesofparenthoodandshouldbemadetofacethelawwheretheydefault.

• Attitudesofpeopletowardssingleparenthoodespeciallysinglemothersshouldnotbejudgemental.Theyshouldnotbescornedatandstigmatised.

• Intra/inter-ethnic conflicts should be settled peacefully. Government must ensuresafetyoflivesandpropertiesofitscitizens



• Finally, Government at all levels should ensure the full implementation of the Childrightsact,2003.Childrenparliamentact,2003.Universalbasiceducationact2004andChildrightslegislationact,2011.

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Akabane,G.K.,BussolaF.J.,Galhardi,A.C.,Pozo,H.,&Neto,J.M.(2018).Returnablepackagingasasustainabilityfactorintheautomotivechain:acasestudy.ArchivesofBusinessResearch,6(9),21-31.

Returnablepackagingasasustainabilityfactorintheautomotivechain:acasestudy.

GetulioK.Akabane

CPS-CentroPaulaSouzaMasterProgram-SãoPaulo-Brazil

FernandoJoséBussolaCPS-CentroPaulaSouzaMasterProgram-SãoPaulo-Brazil

AntonioCésarGalhardi

CPS-CentroPaulaSouzaMasterProgram-SãoPaulo-Brazil

HamiltonPozoFacultyofTechnology“RubensLara”-Santos-Brazil

JoséMartinoNeto

FacultyofTechnologyGuarulhos-Guarulhos-Brazil

ABSTRACTPackaging makes a valuable contribution to economic, environmental and socialsustainability through product protection, waste prevention, enabling efficientbusiness conduct and providing consumers with the benefits of the products itcontains. The case study chosen for the work was carried out in a multinationalautomotivecompanywiththeobjectiveofresearchingthefinancialandenvironmentalfactors in the substitution of one-way packages by the returnable ones during thedistribution of parts for automotive dealers. There is no single solution to managepackaging waste. The best combination of options depends on local conditions,especially demographics and the degree of investment made in modern processingsystems.Determining thebest combinationof options formanagingpackagingwastetherefore requires detailed case-by-case analysis where life-cycle assessments canprovidevaluabledecisionsupport.Key-words:Packaging,sustainability,waste,finances

INTRODUCTION

Packagingisoneoftheimportantissuesinallocatingresourcesindifferentindustrialsectors,especiallyinmanufacturingandlogisticsservices.Withoutpackaging,fooddeteriorates,fragileproducts are damaged and the dispensing process becomes harmful and the entire supplychainbecomesextremelyinefficient.Thepressureonpackaging isnot anewphenomenon,buthas increaseddramatically in the21st century by the perceptions of media-driven consumers and legislation that demandincreasingly"sustainable"packaging,makingitamajorchallengeforbusinesses.Packagingcametobeperceivedasanautonomousproduct,thustranscendingitsfundamentalrole,whichistoprotect,distributeanddisplaygoods.While essential, packaging is rarely analyzeddeeply, and the sociocultural pressure that themarket imposes for packaging to be "sustainable" is confronted with a lack of commonunderstandingofwhatitcanmean.



As a result, companies end up having to deal with conflicting demands from consumers,regulatorsandotherstakeholders.Thisrequirestime,asignificantcost,andasourceoffrictionbetweenthecompaniesandthecommunitiesinwhichtheyoperate.Wuetal.(2016)emphasizethatpackaginghasanumberoffunctionsanditsfundamentalroleis todeliver theproduct to theconsumer inperfectcondition.Goodpackagingusesonly therightkindofmaterialneededtoaccomplishthistask,butexcessivereductionsinitscostmaketheeconomyfalsebecauseasthepackagingisreduced,therangeofscenariosunderwhichthefrequencyofproductlossesincreasesuntilthedestinationpointisreached,wherethelossoftheproductexceedsthesavingsinthepackagingmaterial.Transport packaging (or tertiary packaging) is intended to ensure handling and transportwithoutdamagetoagivenoperation,whetherbyroad,rail,waterwayorair.With the entry of numerous automakers in the Brazilian market, and due to the highcompetitiveness of the automotive sector, obtaining a competitive advantage through theimprovement of logistics processes has become a determining factor for the company'ssurvivalandsuccess.Reducingcostsandminimizingtheenvironmentalimpactofpackagingisakeyelementinbusinessoperationsintoday'sworld.Thecasestudychosen for theworkwascarriedout inamultinationalautomotivecompany,where its headquarters are in the city of São Paulo and it has a relationship with dealersthroughoutthecountry.Theresearchencompassesoneoftheactionsofthecompanyaimingatthesustainabilityaspectregardingthereductionofeconomicandenvironmentalcostsinthestudyofthesubstitutionofdisposableboxesbyreturnableonesinthesupplyofpartsfortheconcessionaires.In this way, the objective is to investigate the financial and environmental factors in thesubstitutionofone-waypackages for thereturnableonesduringthedistributionofparts forautomotivedealers.

LITERATUREREVIEWCorporatesustainabilityIn1987attheWorldCommissiononEnvironmentandDevelopmentundertheleadershipofthe formerNorwegianPrimeMinisterBrundtland,hepresentedthedefinitionofSustainableDevelopment as "a development capable of meeting the current needs of an intactenvironment, social justice and economic prosperity without limit the ability of futuregenerations to meet their needs, where preservation of the natural environment is aprerequisiteforafunctioningeconomyandsocialjustice."(FINKBEINER,2010).ForKuhlmanandFarrington(2010)therehasalwaysbeenthecounterpointintherelationshipbetweenhumanityandnature,whereoneviewreinforcesthatnaturemustbeconqueredandtheother emphasizes a relationshipof adaptation andharmony.Although the first viewhasbeenprevalentinrecentcenturies,thesecondhasbecomeaconstantquestioninginbehaviorsincethe1970s.Philippi Jr et al. (2017) stand out from the current decade and increasingly on theenvironmental issue, on the one hand, it needs to meet the legal and environmentalrequirements of specific markets, and the other that strengthens a consumer market thatpreferscompanieswithecological-environmentalcharacteristics.Inthiscontext,anewreality



ariseswhereelementspreviouslylessrelatedtothesurvivalofthecompanyareimportantandare closely linked to their economic and financial health.With this, it becomes essential toincorporatethesocio-environmentalthemeintheorganizationaldecision-makingprocesses.Indiscussingsustainabilityinabusinesscontext,theconceptoftheTripleBottomLine(TBLor3BL),which represents the sustainability tripod that encompasses the social, environmentaland economic requirements of productive activities, is essential for full understanding. anintegratedform,reflectingabalanceintermsofresultbetweenthethreePs:People,ProfitandPlanet(Elkington,1997).Infact,thesethreepillarsarecloselylinkedandcannotbedevelopedinisolation.Theycametobe recognized as the standard approach to consider sustainability according to the BritishStandardsOrganization(2006).

•People-Socialequityandcohesion:"Promotingademocratic,sociallyinclusive,cohesive,healthy, secure and fair society with respect for fundamental rights and culturaldiversitythatcreatesequalopportunitiesandcombatsdiscriminationinallitsforms."

• Profit - economic prosperity: "Promote a thriving, innovative, knowledge-rich,competitiveandeco-efficienteconomythatoffershighstandardsoflivingandfull,high-qualityemploymentacrosstheglobe."

•Planet -Environmentalprotection: "Protect theearth'scapacity tosupport life inall itsdiversity, respect the limits of the natural resources of the planet and ensure a highlevelofprotectionandimprovementofthequalityoftheenvironment.environmentaland promote sustainable consumption and production to break the link betweeneconomicgrowthandenvironmentaldegradation."

When practical examples of the three pillars are provided, environmental aspects, includingclimatechange,resourceuseandbiodiversitytendtopredominate,followedbysocialaspectsofpublichealthandworkprotection.Theeconomicimperativetomaintainthestandardoflivingkeepsallthreeaspectsinbalance.Thechallengeistoworkholisticallywiththesethreepillars,recognizingthetensionsbetweenthem and respecting the importance of each. A brief definition encapsulating this is"sustainable development: a lasting and balanced response to economic activity,environmental responsibility and social progress" (BRITISH STANDARDS ORGANIZATION,2006).Companies have been adapting their business models and including products, services andprocessesbasedonthesustainabilitytripod,assuringtotheirstakeholderstangible,economicandfinancialandintangiblereturns,suchascredibility,knowledge,image,intellectualcapital,drivingtheNewEconomy(PEREIRA,2012).Seeinganalternativethatcancontributetothesustainablevisioninthecompany,aperennialissueinmanyofthemisinrelationtoproductpackaging.Packagingmakesavaluablecontributiontoeconomic,environmentalandsocialsustainabilitythrough product protection, waste prevention, enabling efficient business conduct andprovidingconsumerswiththebenefitsoftheproductsitcontains.Faria and Costa (2005) highlight two types of packages: one-way packaging where it isnormallyusedonlyonceandthendiscardedandreturnable,whichcanbeusedseveraltimes.Likeotherlogisticsprocesses,thedecisionregardingthebesttypeofpackagingfortheprocess



shouldtakeintoaccounttherequirementsofIntegratedLogistics,wherethemainparadigmistomeetthelevelofservicerequiredbythecustomeratthelowestpossiblecost.Leite (2003) makes a comparison between disposable and returnable packaging. Bothreturnable and disposable packages have direct shipping costs, return shipping, flowmanagement, receipt, cleaning, occasional repairs, storage and invested capital. However,returnablepackaginghasotherbenefitssuchasenvironmental,greaterprotectionofproductsand end of life, in many cases packaging can be returned to the manufacturer as recycledmaterialandcanbeusedinnewpackaging.

ROLEOFPACKAGINGINSUSTAINABILITYThe contribution of packaging to economic, environmental and social sustainability can beillustrated by the fact that, in developing countries, the lack of packaging or inadequatepackagingindistributioncauses30to50percentofallfoodtodisintegratebeforetoreachtheconsumer (WORLDHEALTHORGANIZATION,1984,MADI,1984). InWesternEurope,wherefoodispackagedefficiently,only2%to3%ofthefoodproduceddoesnotreachtheconsumer(PRO-EUROPE,2004).Theproductsgenerallyrepresentmoreresourcesandhaveaninherentvaluegreaterthanthepackagingusedtoprotectthem(Kooijman,1994,Erlövetal.,2000,Busseretal.,2008).Thus,lossesofproductsduetolowperformancepackagingarelikelytocausemuchgreateradverseeffects on the environment than the gains obtained through excessive packaging reduction(KOOIJMAN,1994,ERLÖVetal,2000,BUSSERetal,2008,INCPEN,1995).If, indevelopingcountries,averagelossesinthefoodsupplychaincouldbereducedbyusingimproved packaging of 40% for the European average of 2.5%, the energy consumptionassociated with food losses would be reduced by more than 50%, also increasing theavailabilityoffood.Improvementsintheenvironmentalperformanceofthepackagingshouldnotbegeneratedtogeneratemajornegativeenvironmentalimpactselsewhereintheproductlifecycleandshouldonlybecontinuediftheimpactsofthepackagedproductaremaintainedorreduced.There are several initiatives to improve the system of packaged products and encourageimprovementsthatcontributetoproductsustainability,including:

•TheEuropeanParliamentandCouncil (1994),whichdefines legal requirements for thepackaging of EU participants, actions for the reduction, recycling, reuse and / orrecoveryofthesource.

• The Conseil National de l'Emballage (2008) in France, which is committed to offeringproductstoconsumersataminimalenvironmentalandeconomiccost.

•UK INCPEN (1995) in its INCPEN5 report "ReducingPackaging:DoingMorewithLess"describes actions such as reduction of sources, selection of materials and improvedpackagingcompatibilitywithexistingrecyclingandrecoveryschemes.

Suchstrategiesandeffortsaremeanstooptimizethetotalsystemofpackagedproductsanddoesnotendinthemselves.



REUSE,RECOVERYANDDISPOSALA central objective of the EU Waste Framework Directive is to prevent and reduce wastegeneration (CEN, 2003). Since packaging avoids wastage of products, it is contributingsignificantlytothisgoal.The reuse of packaging (CEN, 2003,2004) under Article 5 of the PackagingWaste Directivemeansthatitisreturnedtothefactoryandreloaded.Itmustsupportseveralrotationsofthistypewithin its life cycle before being recoveredwhen it canno longer be used. There is nogeneralpreferenceforreusableornon-reusablepackaging,thechoicedependsentirelyonthelocalsupplychainandthemarket.Weshouldalsohighlightthatrecyclingcanplayakeyroleintheproductlifecycle,throughtheenergeticeconomy,canprovideitsdecreaseinthemanufacturingprocess,suchas:

•Aluminumrecyclingsavesupto95%oftheenergyrequiredforvirginmaterials(ENERGYINFORMATIONADMINISTRATION,2006),

•RecyclingofPET9savesabout50%ofenergy(FEDERALOFFICEOFTHEENVIRONMENT,2007).

TheorganizationEcoEmballages (2007)emphasizes that theapplicationof recyclingshouldbeadopted,whereitresultsinlowerenvironmentalimpactsthanotherrecoveryalternativesandthatmeetotherrequirementssuchassafety.Some types of recovered material are also a valuable source of energy (incineration withenergyrecovery).Therefore,recyclingneedstobeconsideredwithinabalancedapproachtopackagingrecovery.The ideal balance between recycling and energy recovery varies greatly with the wastecomposition.OverviewoftheautomotiveindustryinBrazilThe automotive sector is a major driver of the national and global economy and fostersinnovation to a large extent due to the high competitiveness of the industry and its strongparticipationingeneraltrade.In Brazil, according to ANFAVEA (2017b), the automotive sector is present in all Brazilianregions with 67 industrial units and currently employs more than 121 thousand directemployees andapproximately1.3million jobs throughout theproduction chain. For2017, anational production of 2.2 million vehicles was estimated, with a growth prospect for thecomingyears,asshowninChart1.



Chart1:NumberofvehiclesproducedinBrazilandDollarvariationinrelationtotheReal.

Source:SiteofANFAVEA(2017a).

Theautomotivesectorisconsideredoneofthepillarsofsupportfortheeconomyandtradeofparents. Its structure influenceswhole citieswhere it is installed,due to itspotentiality andstrength(VAZETAL.,2017).DiSerio(2007)describesthatthedevelopmentof theautomobilechain inBrazilbeganwiththe installationof the firstFordassemblyunit in1919, followedbyGM in1925.During thisperiod the two companies imported dismantled kits and parts from other countries andmountedintheirlineslocatedinSãoPaulotocomplywithlocallegislation.Inthe1950s,withthepublicpoliciesofeconomicandindustrialdevelopmentofthegovernmentofVargas(1951-1954)and laterKubitschek (1956), culminatedwith the factory facilitiesof theGM,VWandFordcompaniesinthecountrywiththetraditionalmodelofmassproduction.AccordingtoNetoandPires(2007),theautomotivesectorexpandsitsstructuresworldwide,withinthiscontinuousprocess,BrazilcurrentlyfindsitselfasaparticipantinERMs(EmergingRegionalMarkets)alongwithArgentina,RussiaandTurkey.TheBrazilianmarketisattractivebecause it has a fast growth of the vehiclemarket, production units in locationswith lowercosts, accelerated growth of motorization rates, characteristics common to the countryclassifiedinERMs.IntheautomobilechaininBrazil,severalorganizationalarrangementswerealsoimplemented,includingthemodularconsortiumandindustrialcondominium.As in all segments, the search for improvements in processes, products, aswell as creatingcompetitiveadvantagesshouldnotbeseparatedfromsustainabilityconcerns.

RESEARCHMETHODOLOGYIt is a case studyof aqualitativenature,whichemphasizes theperspectiveof the individualbeingstudied,sothatitispossibletoobtaininformationfromtheseperspectives,tointerpretthe environment in which the problem is found (CAUCHICK . Therefore, the naturalenvironment in which individuals are inserted becomes the research environment. Themethod to be employed is the single case study, which has as object of study a leadingautomotivemultinationalinitssegment,whichwillbecalledABC.For Yin (2001), a case study is: "an empirical investigation of a contemporary phenomenonwithinitsreal-lifecontext,andwhentheboundariesbetweenphenomenonandcontextarenotclearly defined." According to Eisenhardt (1989) the case study can be used to provide a



description;testatheory;orgenerateanewtheory.ForBryman(1989),theprimaryconcernsofthisapproachare:measurability;causality;generalization;replication.For this study, the sources of internal evidence (YIN, 2001) were considered, such asinterviewswiththoseresponsibleforthelogisticssectorofthecompanyABC,complementedwiththetechniqueofdirectobservationinthepartsandaccessoriesdistributioncenterofthereferencedcompany.The selected sample can be considered as a convenience, which is characterized as non-probabilistic, in which the researcher selects more accessible members of the population,aimingatcollectingdataandinformationinamoresimplifiedway.Respondentswereselectedas:managersandmanagersofcertainsectorsofthecompany(AAKER;KUMAR;DAY,1995).The treatmentof thedatawasstatistical thatseeks todescribe thecharacteristicsofagivensituation,measuringnumericallytheobjectiveraisedaboutaresearchproblem.

PRESENTATIONANDANALYSISOFRESULTSOutboundlogisticsDistributionlogisticsoroutboundlogisticsisassociatedwiththemovementofmaterialfromapointofproductionorstoragetothecustomer,andalso includingthereturnof thegoods ingoodorbadconditionaspartofthisprocess(BERTAGLIA,2009).The distribution of spare parts in Brazilwas segmented according to Figure 1 below into 5majorregions,accordingtothedeliverypointsservedby5carriers.

Figure1-BrazilMapdividedbyserviceregions

Source:Preparedbytheauthors

CURRENTSITUATION

ThedistributionofsparepartsinBrazilwassegmentedintoregionsidentifiedfrom1to5bythecompany,accordingtothedeliverypointsattendedbyfivecarriers.



Due to the great extent of the Brazilian territory, the XPTO company delimits 60 objectsdeliverypointsstudiedinthisresearch:Region3thatincludesRiodeJaneiro(7dealers)andMinasGerais(9dealers);Region4thatencompassesSãoPaulo(44dealers).For this study only the two one-way packaging models were considered, with the highestvolumeof consumption, the packages denominated in this study as "A" and "B". As figure 2indicates: first thevolumeand flow for thepackagesbasedon thecurrentsituation,withallvolumesofsmallpartsbeingshippeddailyincartonboxes.

Figure2–Currentsituationofdistributionwithone-waypackaging,costandvolume.

Source:theauthor,2017.

Considering the 240 days of dispatch per year and the respective acquisition costs of eachmodel, figure3 showsa summaryof thevolumesandvalues involved in theoperationwithone-waycartonboxes.

Figura3–Currentsituationcostandvolume


ProposedsituationFigure4demonstrates thenew flow,aswell, as thenewvolume involved in theproposal toreplacethetwotypesof"A"and"B"cartonboxeswithonlyonereturnableplasticboxmodelcalled"C",beingthisboxwithavolumeandsufficientoccupationtoreplacetheprevioustwomodels.



Figure4–Proposeddistributionsituationwithreturnablepackaging.

Source:aspertheauthor,2017.

Consideringthesame240daysofdispatchperyear,thecostofacquiringthenewmodel,thecostofreverselogisticsandreplacementcostofanydamagedand/orlostboxes,thefinalcostcomparingwiththecurrentsituation,isdemonstratedasperfigure5below.

Figura5–CostComparation(“one-way”xreturnable).


Asperthecomparativetable in figure5,againofR$107,588.60peryear isdemonstrated,using the returnable plastic box instead of carton boxes, which also means a reduction of41.18%comparedtothecurrentannualcost,alreadydiscountingtheinitialinvestmentshownincolumn2.Itispossibletocalculatethefinancialgainsforthenext5years,aspertheresultspresentedinfigure5.Consideringthattheinitialinvestmentisdiscountedalreadyinthefirstyear,andthegaininthissameperiodisinR$107,588.60.For the next 4 years, the initial investment amount will not be discounted, as: (b) boxreplacement cost: R $ 3,388.00, and (c) logistics impact (reverse) R $ 83,390.40. Therefore,therewillbe:thetotalvalueofone-waycartons(a)261,259.20-(b)boxreplacementcostR$3,388.00 - (c) logistics impact (reverse)R$83,390.40=R$174,480.80gain for thesecond ,third,fourthandfifthfollowingyears.

Table1–Annualconsumptionreductionofcardboardinkilograms(kg).


CONCLUSIONS/FINALCONSIDERATIONS

DuetothehighcompetitivenessoftheBrazilianautomotivesector,theprocessofcontinuousimprovement inthereverse logisticschainhasbecomeacrucial factor for thesuccessof thecompanies.

TAMPER-RESISTENTPLASTIC BOX

DEALERSSP / RJ / MG

STATE ROUTETotal

volume:129/day

RETURNABLE CONTAINER APPLICATION FOR DLRs1) SMALL PARTS 2) PACKAGE MODEL 3) OUTBOUND VEHICLE

(Frequency = Once/day)

"A" "B"

"ONE-WAY"

320mm

❶ONE-WAY: R$ 261,259.20❷RETURNABLE: R$ 153,670.60

Cost reduction (❷-❶):- R$107,588.60↓ 41.18%

COST COMPARISONCURRENT x PROPOSAL

❶ CURRENT SITUATION<"A" + "B" ONE-WAY>TOTAL COST/YEAR

❷ PROPOSAL SITUATION<"C" RETURNABLE>TOTAL COST/YEAR

Total volume / day: 871 (Round Trip + Inventory)(a) Box acquistion cost / year: R$ 66,892.20 (b) Box replacement (5%): R$ 3,388,00(c) Logistics impact (reverse): R$ 83,390.40

TOTAL cost / year: (a) + (b) + (c) R$ 153,670.60

Total volume & cost / year:"A": 24.720 units & R$ 170,568.00"B": 11.280 units & R$ 90,691.20

TOTAL cost / year :R$ 261,259.20



Thesustainabilityfactorhasbeenconsideredasafundamentalelementinoperations,whereitsadequateapplicationcanaddvaluesinthecompanies'results.Inthisway,itcanbeobserved,basedontheresultspresentedinthisstudy,theexistenceofagain in the first year of R$ 107,588.69, equivalent to 41.18% of cost reduction and also, anenvironmental economy of consumption of 36 tons of cardboard per year with thereplacementoftheone-waypackagingbythereturnableones,resultinginsignificantfinancialandenvironmentalgains.Itispossibletoconfirmthecontributionofthereturnablepackagingstrategyasanimportantprocedureintheviabilityofthesustainableactioninthebusinesslogisticprocesses.Ontheotherhand,theresultsobtainedinthisresearchalsoshowedthefinancialfeasibilityofreplacing one-way packageswith returnable itemswithout compromising the quality of thepartsdistributionprocesses for automotivedealers, and it ispossible to significantly reducetheconsumptionofinthisprocess.Inaddition, thestudywas limited toonly two typesofpackages, called"A"and"B"and inaspecificlogisticflowofsparepartsdistributioninRegions3and4.However,itisnecessarytoextend the present research for all five regions, integrating the supply chain at the nationallevel,inordertoidentifynewopportunitiesforimprovementsandgainsinthesubstitutionofone-waypackagesforreturnableones.There is no single solution to manage packaging waste. The best combination of optionsdependson local conditions, especiallydemographics and thedegreeof investmentmade inmodern processing systems. Determining the best combination of options for managingpackaging waste therefore requires detailed case-by-case analysis where life-cycleassessmentscanprovidevaluabledecisionsupport.Itwasnotedinthiswaythattheexpansionofthestrategytootherlogisticssectorsandotheroperationscouldleadtoothereconomiesandthusaddnewvaluestothecompany'sprocessesinitsglobalscope.ReferencesAaker,D.A.,Kumar,V.,&Day,G.S.(1995).Marketingresearch.JohnWiley&Sons.

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Charath, P., DeKoekkoek, C., & Swift, M. S. (2018). Applied Learning Through the Management of Online EducationalResources.ArchivesofBusinessResearch,6(9),32-38.

AppliedLearningThroughtheManagementofOnlineEducationalResources

PradeepCharath

B.TechandMBACandidateGrandValleyStateUniversity,AllendaleMichigan

ChristinaDeKoekkoek

BBAinAccountingCandidateGrandValleyStateUniversity,AllendaleMichigan

MarisStella(Star)Swift

JDandMLIR,ProfessorSeidmanCollegeofBusinessGrandValleyStateUniversity,GrandRapidsMichigan

ABSTRACT

The purpose of the website, The Digital Workplace, was originally to educateindividuals on how the increasing digitalization of the workplace affects businessowners and employees, especially regarding the law. Since then the website hasevolved toencompassmany topicswhere technologyand the law intersect, includingcloudstorage,privacy,freespeech,andsecurity.Thesiteexplainsthelawusingcasesas examples, with summaries, links to court documents, and videos. The site alsoexplainstechnologywithexplanationsontypesofdatastorage,howtosecuredata,anddatadefinitions.Thewebsiteinitiallydrewalotoftrafficfromlocalstudentsusingitasa guide for their classes. When we received the Google AdWords Grant and beganadvertising the website usage increased. The Google AdWords Grant has given thewebsiteaglobal reach.Countries suchas India, thePhilippines,SouthAfrica,and theUnitedKingdomarefrequentvisitors.Onethingallthesecountrieshaveincommonisthat they are all affected by the technological revolution and it impacts all theirworkplaces.The issueofhowtomanageagrowingamountofdata isuniversalalongwith the questions of privacy and security that comewith any datamanagement. Intoday’s world, cases involving technology are at the forefront of human rights; it isimportanttoprovideaccessibleinformationtopeopleonthelawinaformatthattheycanunderstand.Keywords:AdWords,Analytics,OnlineLearning,Collaboration,LawinTechnology

PURPOSE

Thepurposeof thewebsite, TheDigitalWorkplace,wasoriginally to educate individuals onhow the increasing digitalization of the workplace affects business owners and employees,especially regarding the law. Since then thewebsite has evolved to encompassmany topicswhere technology and the law intersect, including cloud storage, privacy, free speech, andsecurity. The site explains the law using cases as examples, with summaries, links to courtdocuments, andvideos.The sitealsoexplains technologywithexplanationson typesofdatastorage,howtosecuredata,anddatadefinitions.Thewebsiteinitiallydrewalotoftrafficfromlocalstudentsusingitasaguidefortheirclasses.When we received the Google AdWords Grant and began advertising the website usageincreased.TheGoogleAdWordsGranthasgiventhewebsiteaglobalreach.CountriessuchasIndia,thePhilippines,SouthAfrica,andtheUnitedKingdomarefrequentvisitors.Onethingall



thesecountrieshaveincommonisthattheyareallaffectedbythetechnologicalrevolutionanditimpactsalltheirworkplaces.Theissueofhowtomanageagrowingamountofdataisuniversalalongwiththequestionsofprivacyandsecurity thatcomewithanydatamanagement. In today’sworld, cases involvingtechnology are at the forefront of human rights; it is important to provide accessibleinformationtopeopleonthelawinaformatthattheycanunderstand.

BACKGROUNDThe managers of the website are a group called Teaching through Technology. At its core,Teaching through Technology (t3) is amulti-faceted, community organization comprised ofuniversity students, alumni and faculty,who all share a passion for providing access to freeresources to better the lives of others. The groupwas founded by a university professor in2008asanopensourcenonprofitorganizationproviding freeandaccessible learning to theglobalcommunity.Sincethenthegrouphasexpandedtoincludefaculty,currentstudents,andalumniatapublicMidwestern institution in theUnitedStates.The team’sproducts take theshapeofmultiplewebsites,afewapps,andpodcaststhatrangefromdetailsaboutthelaw,theworkplace,midwifery, solar-powered technologyand theLGBTQcommunity.ThispaperwillfocusontheDigitalWorkplacesiteonthelawandtechnology.

EVOLUTIONOFPURPOSEThroughthecreationofthewebsite,thesitedirectorsrealizedthatthepurposeofthesitewasnotlimitedtoeducatingotherpeople.Everyoneinvolvedlearnedthroughtheoperationofthewebsite.Thedirectorsof the site learned thecontentof thecasesas theysummarized themand posted videos and other information to the site. They also learned how to utilize theGoogleAdWordsGrant and how to interpret the analytics tomake changes for thewebsite.Thesechangescameinboththeformoftailoringcontenttomeetthedemandfortopicsandinupdating ad campaigns to better target the site’s audience. These three aspects form aninterdependenttriangleofanalytics,content,andadsthatreinforceeachother.Theintegrityofthe site relieson theoptimalperformanceofall threeof theseareas in connectionwithoneanother.Overtheyears,thesitehasseenamultitudeofchangesasthedirectorshavelearnedhowtomake amoreuser friendly and effective experience. In addition, therehavebeen challengesandchangesinkeepingupwiththeevolvingrulesofGoogleGrants.Learninghowtoadapttothese changes and how to broaden the appeal of the site has led to learning outside of theanticipatedsubjectofstudy.

ORGANIZATIONThewebsite itself is organized around fourmain topics,withplans to adda fifth sectiononartificial intelligence (AI). The first topic is cases revolving around search and seizure andprivacyrights.Thisincludesexplainingwhatemployerscanandcannotlegallymonitorabouttheir employees. Case examples include, among other issues,whether or not employers canlegally read employee emails on their server, warrants to search cell phones, and techcompaniesbeingorderedtobuildsoftwareallowingthegovernmenttocircumventpasscodeprotections.The second topic is related to the first because it explains electronic information and itsstorage. This is relevant because of privacy concerns and data security. The site focuses onexplaining what cloud storage is through an informational video. There is also a link to asamplecloudcontract[1]outlyingthemostimportantconsiderationsforcloudstorage.

Charath, P., DeKoekkoek, C., & Swift, M. S. (2018). Applied Learning Through theManagement of Online Educational Resources.Archives ofBusinessResearch,6(9),32-38.


Thethirdtopicise-discovery.E-Discoveryisusedbythepartiestoalawsuit,anadministrativehearingoranarbitration.Infederalandstatecourtstherearerulesthatspecificallyrequiretheparties to disclose electronic information [2] that is relevant to the lawsuit. This electronicinformation(data)maybestoredonacomputerharddrive,aflashdrive,ane-mailserver,acloud,etc.Thesitewalksusersthrougheachstepinthee-discoveryprocess.Thelasttopiconthesite,asofthemoment,isfreespeechconcerns.Thisfocusesoncasessuchas Elonis vs. United States [3], where it was ruled that violent posts on Facebook do notconstituteasathreatunlessthereisintent.Thesitealsoexaminesthelinebetweenfreedomofspeechonsocialmediaandcyberharassment.Typically,eachcaseisgivenavideoexplainingthecase,anabstractsummarizingwhatthecasewas about and what the results were, the original court documents for people to read forthemselves, and some links for further learning and more information. Cases that are inprogressareconsistentlyupdatedwithnewinformationontheoutcomeofthecase.

WHYE-LEARNING?Theinternetisoneofthefastestgrowingformsofmedia.Withoverhalftheworld’spopulationusingtheinternet[4]asofJanuary2018,whichisasignificantlyhigherlevelthanpreviouslyprojected[5].Duetotheversatilenatureoftheexchangeofinformationthroughtheinternet,asamedium,itservesasanidealmethodofsharingknowledge-basedcontent.According to Gros and García-Peñalvo (2016), e-Learning describes learning delivered fullyonline where technology mediates the learning process, teaching is delivered entirely viaInternet, andstudentsand instructorsarenot required tobeavailableat thesame timeandplace [6]. The practice of e-learning matches with various pedagogical models and theevolutionofe-learninghasledtomodernizingpedagogy.The pedagogies of e-learning may be categorized into four categories, namely; associative,cognitive/constructivist, situativeandconnectivist [7].Associative learning is the traditionalform of educating, with a strong focus on the individual,mostly based on learning throughassociation and reinforcement. Cognitive/Constructivist learning has a more dynamic andbroadviewofknowledge,andismostlyataskorientedformoflearning.Situativelearningis“learner centered” and learning is viewed as a social practice refined through socialinteraction.ConnectivistLearningisthedistributionofaknowledgeacrossthewebinmultipleenvironments,theengagementwithanetworkedenvironmentservingastheeducator.This project utilizes three of the four of these pedagogy methods. The foundation of ourwebsite isbuiltuponconnectivist learning.Visitors to thesitearegivenavarietyof links togather further information on topics they are interested in learning about and the originalsource documentation for cases. The researching done by the directors of the site to collectlinksandnewsabout cases is anotheruseof connectivist learning.The case summaries andvideos take the more traditional associative learning approach, a form of chalk talk. Thedirectors experience constructivist learning through the constant adaptation to newinformation given by analytics and changes in Google AdWords grant guidelines. Figure 1showsavisualrepresentationoftheaforementionedpedagogymethods.



Figure1:GraphicalRepresentationoftheUsedPedagogyMethods

IMPACT

IndividualImpact-WebsiteDirectorsThecreation,operationandmaintenanceofthewebsiteallowedforthedirectorstolearnthesubjectmatter, new practices of research and the technological aspects of thewebsite. Thecontent learned revolved around the facts and proceedings of the cases and the legalimplicationsofeachcase.Determininghowtoobtaincourtdocumentsandhowtosummarizecases appropriately were new practices that had to be adopted. The requirements ofdeveloping the structure of thewebsite and formatting the data andmedia in an organizedmannerwereintegraltothetechnologicallearning.Editingthedatatooptimizelearningwasalsoimperative.OrganizationalImpact-AllmembersofT3The larger Teach throughTechnology group learned fromone anotherwhat practicesworkbestformanagementofwebsitesandthenewcontentpostedonthewebsites.Studentsfromall different disciplines learned how to collaborate with one another and with alumni andfaculty.Thestrengthsofeachareaof learningcometogethertobuildastrongerproductandgiveoutsideinputondetailsthesitemanagersmayhaveoverlooked.Eachmemberbringstothetabletheirownperspectiveandlearningfromoneanother.University-levelImpactTheresourcesprovidedonthelegalaspectsoftechnologyintheworkplaceareusedtoinstructuniversitystudentsasatextbook.Thesummariesandvideosonthewebsiteallowthestudentstolearnthelegalimplicationsofrealcasesinavisualandauditorymanner.Theonlineformoftheresourcesenablesthemtobeaccessedfromanycomputerorsuitablemobile-device.Theavailabilityof the contentprovides studentswith theoption to control the timeandpaceoflearning.Feedbackontheexperienceofusingthewebsiteisactivelysoughtduringthecoursewhichisconsideredforfutureimprovements.ImpactontheGreaterCommunityThe website provides relevant and detailed legal information for the increasingly digitizedworkplace. It also provides video instruction of cases dealing with employee and employerresponsibilitieswhen technology is involved. As a teaching tool, thewebsite allows for thisinformation to be curated and delivered directly to any interested visitor. The latestadministrativerulesandregulationsregardingtechnologyarealsoincludedinthewebsiteforquickandeasyaccessfortheuser.



ROLEOFGOOGLEADWORDSANDANALYTICSThrough the Google Grant, T3 receives $10,000 everymonth in advertisements that appearwith the results from the Google search engine. The advertisements appear when specificphrasesaresearchedthatmatchthespecifiedkeywordsandmatch-type.Theadvertisementsprovide links to redirect users to the DigitalWorkplacewebsite and at this time, the grantmoneyisdeducted.Theamountthatisdeductedisdecidedbasedonacost-per-clickbiddingprocesswithamaximumof$2[8].ThespecificationsoftheadsandthekeywordsareassignedandcontrolledusingGoogleAdWords.The performance and reach of the ads established through Google AdWords aremonitoredusingGoogleAnalytics.GoogleAnalyticsalsoprovidesdataontheinteractionusershavewiththewebsite.Thisdataservesasan invaluableresourcetodeterminethenecessarycourseofaction tobe taken tooptimize thewebsite forbetteruserexperience.Figure2 indicates thenecessitythewebsitehasintheGoogleAdWordsGrant.

Figure2:GraphicalRepresentationoftheUsedPedagogyMethods

PriortoJune15th2018,theGoogleAdWordsaccountwasdeactivatedforaperiodoftime.Itisclear fromthedatathatthetraffic tothewebsitewassignificantly lowerwhentheAdWordsaccountwasdonecomparedtowhentheadvertisementswerebeingdisplayed.SubsequenttoJune 29th 2018, certain actions were taken with the geographic targeting of the ads whichprovedtobedetrimentaltotraffic.Reversingthoseactionsallowedfortheprocessofrestoringthepreviousleveloftraffictobegin.KeytermspertainingtoGoogleAdWords[9]:

● GoogleAdWords:TheGoogleprovidedprogram,usedformanagingAdCampaignsandcreatingAds.

● GoogleAdCampaign:AdivisionwithinaGoogleAdWordsaccount.Eachcampaigncanbeallocatedaspecificdollaramountandcanbetargetedtowardsaspecificgeographicregion.

● GoogleAdGroup:Agroupofsimilaradsallconnectedtothesamelistofkeywords,anAdGroupismadewithinanAdCampaign.

● Impressions:ThenumberofGooglesearchesthattheadcreatedhasappearedin.● Clicks:ThenumberofclickstheGoogleAdhasreceived.● CostPerClick:ThecostassociatedbyaclickonaGoogleAd.● ClickThroughRate:Ratioofhowmanypeopleclickonyouradvertisementdividedby

thenumberofviewstheadhad(impressions).SomeotherimportanttermstoknowinordertounderstandGoogleAnalyticsareasfollows:

● BounceRate:Percentageamountgiventosinglepagevisitsorvisitsinwhichthepersonleftyoursitefromtheentrance(landing)page.(GoogleAdWords)

● AverageVisitDuration:Theaverageamountoftimespentonwebpage.



● Keywords:ThesearchtermusedwhenpeopleuseaGooglesearchengine.● InPageAnalytics:Breakdownofthewebpage,displayingwhatareasaregettingthe

mostclicks.Overtimetheseanalyticshaveshapedthewaythedirectorsorganizeandchoosecontent forthewebsite.Forexample,sitedirectorsnoticedthatadsrelatedtothetopicofFreeSpeechonSocialmedia had a high click through rate, leading directors to postmore content on casesrelatedtofreespeechversuswhatconstitutesasathreat.The directors have also faced challenges with adapting to changing guidelines for what isrequired for Google AdWords grants. Rules on whether keywordsmust be single words orphrases, how ads must be targeted and quality score thresholds for ads are constantlychangingandtheadsmustchangewiththem.Anewrulewassetrequiringaminimumclickthroughrateof5percent[10],givingtheteamtheneedforadsthataremoreeffective.Whilein the past, quantity of ads through an increased budget was the focus, now the team islearninghowtocreatebetteradsonalowerbudget.

CONCLUSIONContentThe managers of the website have worked together to decide the content that should beincluded in thewebsite, the level of detail of said content and the form in which it was toappear.Monitoringthechangesandlatestnewssurroundingtechnologicalcaseswasseenasthedrivingfactorforupdatingthecontent. Itwasobservedthatalthoughtheworkplacewastheareaoffocus,manynon-workplacecaseswerefoundtoberelevanttothepurposeofthewebsite.Thiswasduetothepersonaluseoftechnologyintheworkplaceaswellastheimpactcasesregardingprivateuseoftechnologyhadoverall.Ads,Bouncerate(GoogleAnalytics)Theperformanceoftheadsandkeepingupwiththechangestothetechnicalrequirementsofthe grant constituted the major challenges regarding the online marketing of the website.Bounce rate was the major performance measure of the website itself along with averagedurationpervisitwhereas theperformanceof theadswasmeasuredbasedon itsCTR, totalnumberofclicksandqualityscore.Thesignificantdropinbounceratewasan indicatorthatthewebsitehadbeenperformingwell.Inadditiontotheeffectivenessoftheads,theprivacyofthedatasubjectshasbecomeoneoftheprimaryelementsofdataprocessing.GlobalReachThewebsitewas visited by users fromvarious locations around theworld as shownby theanalytics.Thissupported thenotion that thee-learning formatadoptedwouldprovidequickandeasyaccess.Italsoimpliedthattheselectedcontentwasof interesttopeopleallaroundtheworld.LearningbyCreatingKnowledgeandtheWebsiteThecreationofthewebsite,researchintothecontentandformattingtherelevantinformationfor the optimal learning experience allowed the directors of the website to learn from theprocess.Deeperunderstandingsofthetechnicalaspectsaswellasthelatestdevelopmentsinthe real-life applications of technology were obtained which are necessary skills forprofessional careers in the future. The directors observed that the importance of the legalunderstandingsof thedigitalworkplacewouldneedtobeextendedto thedigitalworld.Theadvancementsinthetechnologicalcapabilitieshasbroughtchangestotheperceptionofdata.



Therefore, there is now a need for clear definitions of the various data entities, such aspersonalinformationonsocialmediaandgeneticcodes,andtheirlegalstandings.ReferencesDigitalWorkplace,“CloudStorage”,Retrievedfromhttp://digitalworkplace.teachthroughtech.org/about/cloud-storage/

ShookHardy&Bacon,(2018).“LinkstoStateCourtandLocalFederaleDiscoveryRules:DataandDiscoveryStrategies”.Retrievedfromhttps://www.shb.com/~/media/files/services/practices/dataanddiscoverystrategies/state-court-and-local-federal-ediscovery-rules.pdf

DigitalWorkplace,“ElonisVsUnitedStates”:Retrievedfromhttp://digitalworkplace.teachthroughtech.org/sample-page/communications/free-speech-on-social-media/

Kemp,S.,(2018).“Digitalin2018:World’sInternetUsersPassthe4BillionMark”,WeAreSocialLtd.Retrievedfromhttps://wearesocial.com/blog/2018/01/global-digital-report-2018

Statista,“Worldwideinternetuserpenetrationfrom2014to2021”.Retrievedfromhttps://www.statista.com/statistics/325706/global-internet-user-penetration/

Gros,B.&García-Peñalvo,F.J.,(2016).“FutureTrendsintheDesignStrategiesandTechnologicalAffordancesofE-Learning”.Retrievedfromhttps://link.springer.com/content/pdf/10.1007/978-3-319-17727-4_67-1.pdf

Conole,G.(2014)“Learningdesign:Apracticalapproach”London:Routledge.Retrievedfromhttps://link.springer.com/content/pdf/10.1007/978-3-319-17727-4_67-1.pdf

GoogleAdGrantsHelp,“BidLimit”.Retrievedfromhttps://support.google.com/grants/answer/1332166?hl=en

Andrykovich,K.,Wisniewski,E.&Swift,M.S.(2014)“HowaGoogleGrantandGoogleAnalyticsImprovedaWebsite:ACaseExampleofaUniversity’sArbitrationandMediationWebsiteUsedbyStudents,BusinessandthePublic”,InternationalJournalofBusinessAdministration,Vol5,No.4pp60-69

GoogleAdGrantsHelp,“Performance”.Retrievedfromhttps://support.google.com/grants/answer/117827?hl=en


Nguyen, S., Kennedy, K., & Zywiak, W. H. (2018). Positive Findings Regarding a New Trend in University ArchitectureEvaluatingStudentImpressionsofanInnovativeAcademicBuilding.ArchivesofBusinessResearch,6(9),39-48.

PositiveFindingsRegardingaNewTrendinUniversityArchitectureEvaluatingStudentImpressionsofanInnovative

AcademicBuilding

SonNguyenBryantUniversity,MathematicsDepartment

Smithfield,RI,02917

KristinKennedyBryantUniversity,MathematicsDepartment

Smithfield,RI,02917

WilliamH.ZywiakBryantUniversity,MathematicsDepartment

Smithfield,RI,02917

AcknowledgementstoAssociateProfessorKennethSousa,ComputerInformationSystems

ABSTRACTBryantUniversityrecentlyopenedaspectacularlyvisuallyappealing,newbuilding,theAcademic Innovation Center (AIC). It was designed to promote innovative problemsolving classroom experiences for business and liberal arts students alike with aspaciousandwideopenfeeling.Bryantisamongagroupofotheruniversitieswhoareturning to radically different building design. Kamal (et.al.) in a lengthywhite papercaptures theessenceofwhyuniversitiesare turning towardssuchnovelarchitecture[1]. Students and faculty alike are enjoying the pleasure of working in such anaestheticallypleasingplace.Theintentionsofthispaperweretocapturetheemotionsandperceptionsofstudentsregardingtheir impressionsofthenewbuildingasit justopened,andcaptureperceptionsonwhetherthenewdesignreallydideffectafeelingof engagement and collaboration. Upon the opening semester, we surveyed thestudents that fall with a pre and post survey (September and December) regardingperceptions of engagement, collaboration, and enjoyment. We hoped that theadministeredsurveywouldillustratethatthenewspacedidindeedfosterafeelingofacademicsuccessandbolsteranewexcitementforlearningwiththestudents.Variedstatisticaltechniqueswereusedtocapturediverseresults.Keywords:University Architecture, Innovative Academic Buildings, Student Perceptions ofAcademicArchitecture

INTRODUCTION

Bryant University recently opened a spectacularly visually appealing, new building, theAcademic Innovation Center (AIC). Itwas designed to promote innovative problem solvingclassroomexperiences forbusiness and liberal arts students alikewith a spacious andwideopenfeeling.Winnerofnumerousdesignawardsthearchitectural firmhiredforthisprojectwasEYP,Inc.Theycreatedabuildingthatfostersintellectualcollaborationamongststudentsandfacultyalike.UnderthedirectionofleadarchitectKipElliss,thebuildingandclassroomsweredesignedtocreateawelcomingspaceforstudentstocongregate,study,andlearnandaspacethatwouldpromoteingenuityandacollaborativeenvironment[1].

Nguyen, S., Kennedy, K., & Zywiak, W. H. (2018). Positive Findings Regarding a New Trend in University Architecture Evaluating StudentImpressionsofanInnovativeAcademicBuilding.ArchivesofBusinessResearch,6(9),39-48.


Experimentingwithnewclassroomdesigninitiallycametotheforefrontinthe1970swiththeconceptofOpenClassrooms,whichdidnothaveapositiveimpactontheclassroomexperienceas educators had hoped. Michael Horn published a 2 part interview with Larry Kearns, aninnovative architectwhohas spent years exploring thehistory and futureof schooldesigns.Kearnsmaintained in the2015 interviewthat theOpenClassroommodelwasnotsuccessfulbecausethe‘universal’spacethatwascreatedforalltypesoflearningwithinaschoolwasasaspacethatwasnotcreatedtofitanyoneparticularactivityinanyspecificallyproductiveway.Also technological advances in learning were not incorporated into the classrooms. Theadvanceswe have todaywere of course not available then. Kearns believes that purposelydesignedspacesfordifferentmodesoflearningcanbecapturedintoonelargespacethatwillgreatly enhance the classroom design of the future. Today these new spaces can and willincorporatenewandalwaysadvancingtechnologyaswell[4].Bryant isamongagroupofotheruniversitieswhoare turning toradicallydifferentbuildingdesign.Kamal (et.al.) in a lengthywhite paper captures the essence ofwhyuniversities are turningtowards such novel architecture. From a wide range of small liberal arts schools to largeprivateuniversities,manyschoolsseethesenewopenandspaciousbuildingsas1)attractingSTEMandNon-STEMstudentsalikeand2)offeringflexibleclassroomsforinnovativeteachingandtechnologyand3)offering‘softspaces’forstudentstostudyandcollaborate[1].Attractingstudentsinterestedinscience,technology,engineering,andmathematics(STEM)isnow viewed by many institutions of higher learning to be key in promoting a vibrant andsuccessfulacademiccommunity. Kamalexplains thatwhilemanyuniversitiesare strugglingwith increasing thenumberof students in a STEMprogram, a small but growingnumberofinstitutions have boosted their STEM initiatives in several ways. One ingredient to theirsuccess has included designing radically new buildings. In fact EYP has been tracking theimpact of thesenewbuildingdesigns onuniversity campuses for about 10 years now.Theymaintain that the new designs can be new buildings or renovated existing ones, but all thedesigns that are transforming teaching methods have incorporated 5 design elements: softspaces for informal learning, flexible laboratories, classrooms that canbe re-configuredwithease,glasswallsputtingSTEMclassesondisplay,andinnovativeresearchlabs[1].Bryant’s new AIC building is bright and welcoming, and it is modeled with the 5 designelementsinmind.Thebuildinghasclassroomsofdifferentsizesandarrangements;allroomscanbeconfiguredtofitdifferentteachingmodes:

o 5FlatClassrooms(calledpods)-theseroomshaveeasilymoveablesmalltablesandchairsofdifferentstylesandcanbeconfiguredinseveralwaystofacilitateteachingstyles,andtheyhaveseveraldifferentdisplayscreensdependingontheroom

o 5TieredClassrooms–theseareamphitheaterstylealsoequippedwithstateofthearttechnology,andtherearechalkboardsanddigitalwhiteboards

o 1InnovativeForum–themainforumisveryopenandbrightwith2separateprojectors,anditisbestusedintheeveninghoursduetotheamountofnaturallighting

o 23BreakoutRooms–theseroomsvaryinlayoutsandcapacities,allhavedisplayscreensandvaryingtypesofcomfortablefurniture,butquitesmall[2].

TheAICwasawardedthenationalCollege/UniversityGrandPrizeforoutstandingdesignandarchitecture in College Planning and Management (CP&M) 17th Annual Education DesignShowcase[3].



Students and faculty alike are enjoying the pleasure of working in such an aestheticallypleasingplace.Itisexcitingtohavesuchatransformativespaceoncampus.Theintentionsofthispaperaretocapturetheemotionsandperceptionsofstudentsregardingtheirimpressionsof the new building as it just opened, and capture perceptions on whether the new designreallydideffectafeelingofengagementandcollaboration.Upontheopening,wesurveyedthestudentsinthatfallsemesterwithapreandpostsurvey(SeptemberandDecember)regardingperceptionsofengagement,collaboration,andenjoyment.Whileitisalwaysgratifyingtobeinfresh, new, and clean environment,we hoped that the administered surveywould illustratethat the new space did indeed foster a feeling of academic success and bolster a newexcitementforlearningwiththestudents.

THESURVEYANDGENERALCOMMENTSThetwicegivensurveyhadsixquestionsthatfollowedaLikertscale,twoquestionsaskedforopencomments,andonequestionidentifiedthemostimportantfeaturesofthebuilding.ThelastquestioninquiredwhetherthestudentwouldpreferfuturecoursesintheAICornot,givena particular class. The survey datawas analyzedwith various statistical techniques such asgraphs, t-tests,anddataminingdecisiontrees to try tocapturesomeoverallviewpointsandimpressions.ThemostinterestingfindingsarehighlightedintheResultssectionbelow.Generallythetwochoicesforclassroomsareanamphitheaterroomorapodroom.Thepodshave several monitors around the room, moveable and comfortable furniture, a mixture ofwhite and blackboards, and glass walls which can be used as a writing board. Rather thandesks, these rooms have easily moveable (smaller) tables and chairs, which particularlyfacilitategroupwork. Thesoundsystemsandallthetechnologyinallspacesarestateoftheart. Studentswere asked for general comments aboutwhat they likedordisliked, and theynotedthatcertainclassesperformedbetterinonetypeofsettingthananother.Forexample,smallergroupsfeltlostinalargeramphitheaterroom.Alsostudentscommentedthatworkingingroupswasdifficult inanamphitheatersetting. A fewcommentsweremadeto theeffectthatthebuildingneedscolor! Studentsmissedthesensationthatcolorcanadd;thebuildinghasallwhitewallsandfloorswithalargeamountofglass.

SOMESTATISTICALRESULTSApre-surveyandpost-surveywereadministeredtocapturestudentimpressionsregardingthenew building in the first semester of opening. We had 462 students responding for theSeptember survey and 317 on the December one, 711 total responses. However, all theboxplotsandallofthedecisiontreeanalysiswasdonewithmissingdataremoved.Finding1:Sinceallwasanonymous,apre/post-surveypairwisecomparisonwasnotpossible.However,wetookallsixquestionsthatfollowedtheLikertscalefrom1(lowrating)to7(highrating),averagedtheresponsesforthepreandpost-survey,andcomparedall6pre/postsurveys.Thesmallestp-valueof all 6 comparisonswasp= .15 [t(df=709)=1.43]. Thus, afterhaving asemester in the new building, the overall impressions of the students did not change verymuch. Impressionsfromthebeginningofenteringanewclassroomspaceremainedmoreorlessthesamewiththeirimpressionsattheendofthesemester.Finding2:We then created a boxplot, Graph 1, of the overall feelings from September and again inDecember, divided by level of course, and all responses were at least 5 or greater, so theresponsesindicatedthatthestudentslikedtheAICbuilding.ItappearsfromGraph1thatthe200and300 levelcoursesdidnotchangetheiropinionverymuchregardinghowthey liked



theAICoverall fromSeptembertoDecember. Noticethoughthatthe100levelcourseslikedtheAICbuildingmorebytheendofthesemester,wherethe400levelcourseslikeditlessattheendof thesemester. Itseemsthat the freshmenclasseswere impressed,andtheseniorspreferred themore traditional classroom. Interesting that the seniors’ impressions seem todecreasebytheendofthesemester,sowetookacloserlook.

Graph1:PreandPostsurveyregardingoverallimpressionbyclasslevel.Variable‘pre1post2’indicates the time the survey being taken where values 1 means the survey taken at thebeginningofthefallandvalues2meansitistakenattheendoffall.To see if therewas a difference regarding the freshmen and senior courses as the Graph 1suggests,werananANOVAtest.TheresultslistedbelowinFigure1showthatthereactuallyisnosignificantdifferencebetweenthetwolevelsofclasses(100and400)andthepre/postsurvey,asthegraphsmightsuggest.ANOVA:scaleversuslevel,pre1post2Factor Information Factor Type Levels Values level Fixed 2 100, 400 pre1post2 Fixed 2 1, 2 Analysis of Variance Source DF Adj SS Adj MS F-Value P-Value level 1 1.878 1.8776 1.88 0.172 pre1post2 1 0.299 0.2986 0.30 0.585 level*pre1post2 1 1.439 1.4395 1.44 0.231 Error 170 169.506 0.9971 Total 173 171.874

Figure1:ANOVA(2x2)ComparingLevelofCourseandPre/PostTestOverallImpressions.



Finding3:Regarding thequestionofwhether the studentsprefer one typeof roomover theother,welooked at a descriptivehistogramby groupingof podor amphitheater. Graph2 shows thatoverallstudentsratedtheflatroomhigherthantheamphitheater.

Graph2:Overallratingbystudentsofthepodroomcomparedtotheamphitheaterillustratedbydensityhistogram.Variable‘pods1amphi2’takesvalue1iftheclassisinapodsettingandvalue2iftheclassisinanamphitheatersetting.Theverticallinesindicatethemeansofthetwogroups.Wecanseethatthereisadifferenceinthetwomeans,soat-testcomparisonwasperformedtochecksignificance. Thep-valuewas0.049, justunderaratingof0.05,sothedifferencebetweenthetwoisnothighlysignificant.ThisresultisshowninTable1below.Wethenlookedathoweachcourse levelrankedthetwotypesofrooms.OnGraph3wesee300levelcoursesrankingamphitheatermuchlowerthanthepod(Means5.29and5.77),andthe400 level classes ranking theamphitheater settingactuallyabithigher (Means5.54and5.35). Thismay be a direct result of the type of class that juniors and seniors had in thoseclasses.Theamphitheaterroomswouldlendthemselvestolecturestyle,whilethepodswouldbe better for group, collaborative classes. Freshmen and sophomore classes ranked bothclassroomsthesame.



Graph3:OverallImpressionsofthetwotypesofclassroom,dividedbylevelofcourse.Since it appears thatdifferent classeswerenot consistentlynaming theamphitheateror thepodas their first choice,we thoughtperhaps therewas some interactionoccurringbetweenthe levelof courseand the typeof room. WhenweranaTwoWayANOVAwith the factorslevelofcourseandtypeofroom,wedidseethattheinteractionwassignificantwithap-valueof0.039.ANOVA:scaleversuslevel,pods1amphi2.Thereare4levels(100,200,300,400)Source DF Adj SS Adj MS F-Value P-Value level 3 3.278 1.0927 1.11 0.345 pods1amphi2 1 1.834 1.8340 1.86 0.173 level*pods1amphi2 3 8.321 2.7737 2.81 0.039 Error 553 544.923 0.9854

WhenweranANOVAagainwithjustthelevels300and400,inwhichwesawsomedifference,weseethattheinteractionbecomeshighlysignificantwithp=.006:ANOVA:scaleversuslevel,pods1amphi2.Thereare2levels(300and400) Factor Type Levels Values level Fixed 2 300, 400 pods1amphi2 Fixed 2 1, 2 Source DF Adj SS Adj MS F-Value P-Value level 1 0.495 0.4946 0.47 0.493 pods1amphi2 1 1.489 1.4894 1.42 0.235 level*pods1amphi2 1 7.955 7.9547 7.56 0.006 Error 364 382.887 1.0519

We then looked at some t-test comparisons regarding the question ofwhether the studentspreferonetypeofroomovertheother.Theyrevealedthepods,comparedtotheamphitheaterrooms,wereconsideredmoreengaging,facilitatedcommunicationwithotherstudentsbetter,andhadhigherratingsacrosstheaverageofthesixLikertscaleitems(scale),asillustratedin



Table1.FurthermoretheCronbachalphaforthisscalewasexcellentbeingequalto0.92.Theruleofthumbisthatthisscaleshouldbeabove0.7. flat amphitheater

t (df) p mean(SD) mean(SD)engaging 2.108 (600) .035 5.80(1.10) 5.60(1.13)communication 4.815 (600) <.001 5.59(1.30) 5.08(1.29)Scale 1.975 (600) .049 5.48(1.01) 5.32(0.97)Table1:T-testsComparingPodstoAmphitheaterRooms-Variable‘scale’istheaverageoftheall the rankings for interesting, engaging, enjoyable, ability to learn, ability to communicatewithstudents/instructorwith7beingthehighestranking.Although the amphitheater classroom is new and roomy, designed with very comfortableseating,thestudentsstillselectedthepodsforimprovedengagementandcommunication.OnepossibleanswermightbethatBryantUniversitygenerallysupportssmallerclasssizes.Smallclassesmayfeelthattheamphitheaterwastoolarge.Alsothepodslendthemselvestogroupwork,whichisverypopularpedagogyinuniversityclassrooms.Inthepod,re-arrangementofthefurnitureiseasy,andtheroomscanbedividedquicklyintosectionswithplentyofwritingspaceonthewallsineacharea.Finding4:ContinuingfromFinding3,welookedatthedifferencefrom100–400levelclassesonthreequestionsregardingwhetherclasses intheAICweremorea) interesting,b)engaging,andc)enjoyable specifically at the end of the semester on the post-survey. Surprisingly, only thequestionof‘moreinteresting’showedresultswithsignificance,withap-valueof0.03.Thenextsmallest p-value regarding ‘engaging’ and ‘enjoyable’was p-value = 0.15. Table 2 shows themeans for the 4 levels on the question of ‘more interesting’, andwe see that allmeans areabove5.

n Level Mean/scale St.Dev.43 100 5.26 1172 200 5.4 1.1236 300 5.66 1.07151 400 5.44 1.19

Table2.Post-SurveyMeans:AreclassesintheAICmoreinteresting?Tukey comparisonofmeans test showed that thedifferencebetween the200 and300 levelmeans approached significance, but the p-value was only p-value = 0.087. The differencebetween those two levels was approaching significance, but certainly not highly significant.OnlytheOmnibustestshowedsignificance.Onemaythinkthatthecomparisonof100levelto300levelwouldshowsignificance,butitdoesnot,mostlikelyduetothesmallersamplesizeofthe 100 level course. We also note that the mean responses on the question of ‘moreinteresting’fromall4levelsarequiteclose.Finding5:Inthegeneralcommentsection,severalstudentsmaintainedthattheyfelttheycoulddeliverpresentations in a more professional way in the AIC rather than in traditional classroomsettings.Inoneofthequestionstheywereaskedtorankthefeaturesofthenewbuildingfrom1(mostimportant)to4(leastimportant)inregardtoone’sabilitytolearnintheAIC,andthefourchoiceswerephysical layoutof theroom,generalambience, technology,orcollectionof



differentclasses.Everylevelofclassrankedthe‘physicallayoutoftherooms’mostimportanttotheirlearningwithameanof1.84.Thenexttwoclosestrankingswere‘technology’withamean of 2.22 and ‘general ambience’ with a mean of 2.4. It appears that the majority ofstudents in each level feels that the physical change of the room had some effect on theirlearning. This feature was ranked highest by every individual class level with 56% of thefreshmendown toa lowof41%of theseniors sayingphysical layoutof the roomwasmostimportant.Anotherinterestingoverallresultwasthatonly8%ofthefreshmenclasses(100levelcourses)ranked technology as first compared to physical layout, general ambience, or collection ofdifferentclassesastobeingmostimportanttotheirlearning,althoughoveralltechnologywasrankedsecondwithameanof2.22asmostimportanttoastudent’slearning.Freshmenmayfeelthattechnologyisnowsimplyapartofeveryclassroom,whetheritbeinanewbuildingornot.Freshmenhavebeen immersed in technology theirentireeducational livesandperhapsnowareexpectingnewandinnovativetechnologyasagiven.Finding6:To get a different perspective on some of the survey questions, we ran some decision treeanalysisusingSASEnterpriseMineronthefulldataset,andweseeslightlydifferentresults.ThefirstquerythatwasposedwaswhetherstudentsoveralllikehavingclassesintheAIC.Atthetopofthetree,71.8%ofthestudentssaidthattheylikedtakingclassesintheAIC.Inthepre-survey,thedatashowedthat73.8%ofthestudentspreferredtoregisterforclassesintheAICbuildingandonthepost-surveythisdroppedslightlyto68%,givingtheoverallaverageof71.8%.Atthebottomofthetree,followingthebranchofthepost-surveyresponsesandthe100levelclasses, 100%of the responses said that they likedhaving classes in theAIC (n=32). Thus100%or the freshmenat theendof thesemestersaid that theyprefer theAIC. On thepre-surveybranchofthetree,80.5%ofthestudentswhotookthelevelof100–300levelclassesinthepods, likedclasses in theAIC. Onthatsamebranch, ifastudentwas inanamphitheaterroom, 70.6% of those students liked the AIC.With different algorithms we capture slightlydifferentresultsfromotherFindings,butitisgoodtoexaminedifferentstatisticalmethods.Adifferentalgorithmcanhighlightdifferentresults.Nowweareseeingsomeresults thatstatetheamphitheaterclassroomsarewellliked.Decisiontreesidentifiedthat63.5%ofthestudentsfeltoverall itwaseasiertocommunicatewiththeinstructorintheAIC,andthatpercentageincreasedto71%iftheclasswasa200levelclassinanamphitheaterroom.Anotherinterestingresult,astheboxplotsshowedthatoverallthe200levelcoursesrankedthepodandtheamphitheaterroomsequallythesame.Alsoiftheclasswasa100or300 level courseand the classwas inapod, thepercentage increased to77%.Thusthepercentageisstillthehighestinthepodclassroom,regardingwhetherstudentsfelt the communication with the instructor was improved. The pod classrooms are stillidentifiedasthebetterofthetwotypes.Decisiontreeswerealsousedtoexaminethequestionofwhetherclassesaremoreinterestingin theAIC. Overall,80%of the respondentsnoted that classesweremore interesting in theAIC, and that percentage increased to 87.5% for the Honor students. 92% of the freshmencoursesidentifiedthecourseasmoreinteresting, if itwastaughtinapod.Thisconcurswithpreviousresults(Finding3and4).



Also,regardingthephysicallayoutoftheroom,usingdecisiontrees43%ofallresponsessaidthattheywouldselectthephysicallayoutoftheclassroomsasthemostimportantfeatureasareasonforlearning.However,53%ofthefreshmenidentifiedthephysicallayoutasimportant,iftheclasswasinapod,whichsupportsthe56%inFinding5asmentionedabove.

CONCLUDINGREMARKSThestatisticalanalysisof thispaperwas intendedtocapturethe feelingsand impressionsofstudentswhoweretakingclassesinanew,innovativebuildingforthefirsttime. Bryantandother universities havemade thedecision to invest in radically different classroombuildingdesign. Bryant’s new building has only been open for one academic year, but studentimpressionsareimportant.Differentstatisticaltechniqueswereusedtoevaluatethefindingsin hopes of uncovering some nuances. Having class orworking in a new, clean building isalways pleasant, but we hoped to discover some interesting points of engagement in theclassroomexperience.OverallthestudentsrespondedthattheydidliketheAIC,asparticularlynotedinthedecisiontreeanalysis.80%ofall theclasses felt theclassesweremore interesting,andthatstatisticsgrewtobe87.5%ifthebranchidentifiedHonorstudents.Furthermore,92%ofthefreshmenfelttheclassesweremoreinteresting,iftheclasswasheldinapodclassroom.Infactseveralvariedresultsillustratedthatthepodwasthefavoredclassroomstyle.Freshmenparticularlyenjoyed the experience of the new building, which would be a new experience formost ofthem,justcomingoutofhighschool.Other trees illustrated that 43% of the students felt the physical layout of the classroomsimproved learning, and that percentage grew to 53% if the branchwas freshmenwho hadclassesinapod.Resultswithseveraldifferentstatisticaltechniquesandquestionshighlightedthatthepodstylewasclearlythefavoriteclassroomtype.Bryant has built its reputation on smaller classroom environments. Perhaps because ofsmaller classes, the students usually identified the pods to be more to their liking than anamphitheater room. The amphitheater rooms are really designed for larger classes with alecturestyleapproach.UnderFinding3, thestudentsoverallgavethepodsahigherranking,but they also identified those classrooms to be more engaging and facilitate bettercommunication with other students, and the comparisons were statistically significant.Furthermore,becausethepodsareeasilychangeableandadaptabletodifferentsetupdesigns,thoseroomsareparticularlycomfortableforgroupwork.

FUTURERESEARCHThis is a first look at impressions regarding an innovative learning environment. Similarstudiesconducted ina longitudinalmannercouldhelp identify truecomparisonsof thisnewbuildingtotraditionalclassrooms.Itwouldbeinterestingtohaveinformationonwhattypeofclass and teaching style was used in the classes to see if that made a difference on anyoutcomesofimpressions.Infact,asimilarpre/postsurveywasgiventofacultymemberswhotaughtintheAICduringthis same period, but the sample size was very small. Capturing the faculty impressions infuturesurveyswouldbeparticularlyhelpful,especiallyifwecouldidentifytheteachingstyleofeachprofessorandeachparticularclass.The ANOVAs that were done were all Between Subject design. It would be interesting toconstructaWithinSubjectdesigntoexamineanydifferences.Itwouldalsobegoodtoidentify



professorswhotaughttwosectionsofthesameclass,whereoneclasswasintheAICandtheotherwasinsomeoftheolder,traditionalclassroomsinotherbuildings.Finally, sincemanyclassesatBryantarepedagogicallysetupwith team-based learning,andsincepodsseemtobetheclassroomthatmoststudentsprefer,ahypothesistobetestedinthefuture might be to see whether the interactive design of the pods, facilitates introverts’engagementinteam-basedlearningtoagreaterextentthanthetraditionalclassroom. IthasbeenpreviouslynotedbyPerskyet.al(2015)thatintrovertshavelowerpreferenceforteam-based learning thanotherstudents [5].Might thenewpodstyleclassroomhaveaneffectonengagementandcommunicationtoastudent,whohasapersonalityonthequietside?ReferencesKamal,L.Ellis,K.Loiacano,T.andKirby,Charles;“HowCollegesandUniversitiesInvigorateCampusesThroughaNewGenreofSTEMBuildings”;August5,2016;Retrievedathttp://www.eypae.com/publication/2016.Feb16,2017.

RetrievedfromBryantUniversitywebsite:http://teaching.bryant.edu/aic/innovation-forum.Feb17,2017.

CollegePlanningandManagement;December,2016;Retrievedathttp://pdf.101com.com/CPMmag/2016.

Horn,Michael;“ThePast,Present,andFutureofSchoolDesign”;EdSurgeNews;July6,2015;Retrievedathttp://edsurge.com/news.Feb25,2017.

Persky,AdamM.Henry,Teague&Campbell,Ashley;“AnExploratoryAnalysisofPersonality,Attitudes,andStudySkillsontheLearningCurveWithinaTeam-BasedEnvironment”;AmericanJournalofPharmaceuticalEducation;2015;7(9),20.


Makinde,O.G.,&Agu,C.U.(2018).StrategicEntrepreneurshipandPerformanceofSmallandMediumScaleEnterprisesinAbaMetropolis.ArchivesofBusinessResearch,6(9),49-69.

StrategicEntrepreneurshipandPerformanceofSmallandMediumScaleEnterprisesinAbaMetropolis

OlubisiGraceMakinde

DepartmentofBusinessAdministrationandMarketingBabcockUniversity,Nigeria

CarolynUgochiAgu

DepartmentofBusinessAdministrationandMarketingBabcockUniversity,Nigeria

ABSTRACT

Strategicentrepreneurshiphasbecomedominantinthecontemporaryworldanditisconsideredaneffectivetoolforeconomic.Smallandmediumscaleenterprises(SMEs)in Abametropolis are faced with issues like inadequate information about strategicentrepreneurship, low entrepreneurial innovation which had resulted into lowproductivity and inefficiency in profitmaximization. Little attention have been giveninto how strategic entrepreneurship contributes to performance of SMEs in Abametropolis,AbiaState.Thisstudyexaminedtheeffectofstrategicentrepreneurshiponperformance of selected SMEs in Aba metropolis. The study adopted the surveyresearchdesign.Thepopulationofthestudyconsistedof231owner/managersoftheselected SMEs in themanufacturing, the finance, health and the food and beveragessectors inAbametropolis. The total enumerationmethodof samplingwasused anddataweregatheredthroughtheuseofaquestionnaire.Theinstrumentwasvalidatedand the KMO valueswere greater that 0.5while the reliability testwas 0.875. Datawere analyzed using simple linear regression analysis. The results revealed thatstrategic entrepreneurship variables have effects on the performance variables. ThestudyconcludedthatstrategicentrepreneurshipplaysanimportantroleinenhancingtheperformanceofSMEsinAbametropolis.ItwasthereforerecommendedthatSMEsshould pay critical attention to the adoption of strategic entrepreneurship due to itspositiveeffectonperformance.Keywords: Entrepreneurial education, Entrepreneurial knowledge, Entrepreneurialleadership,Entrepreneurialorientation,SMEPerformance,Strategicentrepreneurship

INTRODUCTION

Strategicentrepreneurshiphasbeentoutedasoneofthefundamentalinstrumentforsuperiorperformancebysimultaneouslyseekingopportunitiesandadvantagesthroughorganizationalactivities. (Dapend, Jin & Songting, 2016; Ireland, Hitt & Sirmon, 2003). The challenge ofglobalization has led to intense competition in the business world thereby gearingorganisationsintofindingwaysbywhichtheycanachieveandsustaintheirperformanceintheglobalmarket.(Agarwal&Ashwani,2008).Rigidity,riskaversion,andexhaustionheightenedby mechanistic organizations obstruct the development of entrepreneurial activities.Consequently,entrepreneurialorganizationswhicharechange-orientedandwhichfavourrisktakingandcontinuousinnovationaregaininggreaterpopularity(Kantur,2016).StrategicentrepreneurshipispotentiallyabusinessfunctionwhichhasbecomeakeyelementofthestrategyofeverySMEintheireffortstoestablishandmaintaintheircompetitiveedgeinthemarket (Foss&Lyngsie,2011).Byemployingstrategicentrepreneurshipmethods,SMEscan gain meaningful direction and the ability to illustrate its success to key stakeholders(Kuratko&Audretsch,2017).Astrategicplanalsoneeds tobe inculcatedbecausewithouta

Makinde, O. G., & Agu, C. U. (2018). Strategic Entrepreneurship and Performance of Small andMedium Scale Enterprises in AbaMetropolis.ArchivesofBusinessResearch,6(9),49-69.


strategicplan,SMEsmay lose itsdirection,unknowinglydriftaway from itsvalues,and lackthe ability in adequate delivery of its services or products to its clients (Majama&Magang,2017). Thus, strategic entrepreneurship is established with how firms’ strategic intent canfacilitate continuous leveraging of entrepreneurial opportunities for advantage seekingpurposesinordertocreatewealth(Foss&Lyngsie,2011).According to Audretsch, Lehmann, Belitski and Cajazza (2018), large companies are moresuccessfulthanSMEsbecausethelargecompaniesplanstrategically,thus,theneedforSMEstoalsoplanstrategically tohavecompetitiveadvantage.Withstrategicentrepreneurship, firmsare able to highlight their development and growth options, look deeply into theiropportunities and strategically plan to fully exploit the opportunities presented. Strategicentrepreneurshipexceedshierarchicallevels,appliestobothsmallandlargefirms,establishedfirms as well as new ventures (Agarwal, Audretsch & Sarkar, 2010). Thus, strategicentrepreneurshipislinkedwithhowfirms’strategicintentcanfacilitatecontinuousleveragingof entrepreneurial opportunities for advantage seeking purposes in order to create wealth(Foss & Lyngsie, 2011). Zafar & Mustafa (2017) opines that commitment from everystakeholderswillenablestrategicentrepreneurshipwillensurethesuccessintherevampingthe SMEs as engines of growth in the economy and a viable tool for the development ofindigenous technology, rapid industrialization, generation of employment and the pivot forsustainableeconomicdevelopment.The Federal and State Government places great emphasis on the development of small andmedium scale enterprises (SMEs) with the view to improving the economy through theprovisionofspecialsupportandprotectionofSMEs(Eniola,2014).This isbecausetheSMEsensures capacity building through production of goods, improves exports and earn foreignexchangeforthecountrytherebyimprovingtheforeignreserve(Oni&Daniya,2012).Given the importance of small and medium scale enterprises to economic and socialdevelopment, their lackof longevity, is however a cause for concernbecause the survival ofbusinessiscriticaltothesustainabilityofeconomies(Mohammed&Obeleagu-Nzelibe,2014).Ithasbeenestimatedthat,internationally,only30%ofSMEssurvivetothesecondgeneration,whilefewerthan14%makeitbeyondthethirdgeneration(Majama&Magang,2017).AccordingtoMohammedandObeleagu-Nzelibe(2014),theincreaseinthefailurerateofSMEsinAbametropolisisofgreatconcern.OneofthemajorchallengesofthegrowthofSMEsinAbametropolisisthatmostofthemdonotengageinstrategicentrepreneurshipbecausetheyfinditdifficulttocombineopportunityandadvantageseekingbehaviourstogetheratthesametime(Schindehutte & Morris, 2009). SME owners/managers in Abia State have been accused ofbeingstrategicallymyopicandlackingthelong-termvisionasregardswheretheircompanyisheaded.Theconcern is thatbyneglectingstrategicentrepreneurship,SMEsmaynotachievetheir full performanceandgrowthpotentials, and their survival couldbeat risk.Most SMEsoperating in Aba metropolis lack entrepreneurial education and this has led to lack ofentrepreneurial efficiency in the areas of low capital outlays, the use of labour intensivetechnology,lowlevelofskillsandorganization,limitedaccesstoorganizedmarketsandformalcredit,unregulatedandcompetitivemarkets,limitedaccesstoservices,lackofadequaterein-vestment,andunrealizedearningsandprofit(Burger,O'Neil&Mahadea,2005;Dauda,2007).Also, the importance of entrepreneurial leadership has not been fully studied in AbametropolisandthishasledtoahighemployeeturnoverintentionoftheSMEsduetolackofstrategybythe leaders(Saasongu,2015). About80percentofbusinesses inAbametropolis



lack entrepreneurship skills and this is greatly affecting their growth not only on the localmarketbutalsointheregion.Thisshowsthattheyarenottakingadvantageoftheirpotential.Furthermore, the study of entrepreneurial knowledge has not been fully inculcated in SMEemployees in Aba metropolis as this can be done through oral during formal or informalmeetings(Mohammed&Obeleagu-Nzelibe,2014).Thishasledtolackofentrepreneurialskillsof the employees in the areasof resiliency, ability to focus, investing for the long-term, self-reflectionandself-reliance(Mohammed&Obeleagu-Nzelibe,2014).IthasalsobeenindicatedthatSMEemployees inAbametropolis lackentrepreneurialorientationwhichhas ledto lowentrepreneurial innovation of market products, technology and lack of exposure to newbusiness opportunities and also lack of competitive advantage in the business environment(Eleodinmuo,2015).SchindehutteandMorris(2009)statedthatstrategicentrepreneurshipismorethanintersectionofstrategicmanagementandentrepreneurshipandshouldbetreatedasacontestedideaandnotasasettledissue.SMEs in Abametropolis have not invested adequate resources on the utilization ofmoderntechnologies,andthishasledtothedeclineinthedesigninganddevelopmentofnewproducts(Eleodinmuo&Onwumere,2015).Thissituationhasaffectedthepresentandfuturegrowthofthe enterprise leading them to go into extinction. SMEs in Aba metropolis lack healthycompetition in the sector and this has led to decline in their sales volume and inability toachievetheirmarketingandcorporategoals.Thishasalso ledtoadifficulty intheirsurvivalandasaresult,theperformanceandefficiencyofsmallandmediumscalebusinessesasatoolfor growth and development in Nigeria is not being realized. Various studies have beenconducted on the effect on entrepreneurship development but notmuch has been done onstrategicentrepreneurshipandSMEperformanceas itrelates toNigeriaandspecificallyAbametropolis (Bengesi&Roux,2014;Luke,2009;Mohutsiwa,2012;Akhamiokhor&Adanikin,2017;Obiwuru,Okwu,Akpa&Nwankwere,2011).Therefore,therewasaneedtoinvestigatethe effect of strategic entrepreneurship on the performance of small and medium scaleenterprisesintheAbametropolis,AbiaState.

LITERATUREREVIEWStrategicEntrepreneurshipStrategicEntrepreneurship refers to the connectionbetweenentrepreneurshipand strategicmanagement literature (Kuratko & Audretsch, 2017). It can also be described as theintegrationofentrepreneurial(opportunity-seekingactions)withstrategic(advantage-seekingactions) perspectives to design and implement entrepreneurial strategies that createwealth(Hitt, Duane, Camp & Sexton, 2001). Strategic entrepreneurship has emerged through acombination of strategic management literature and entrepreneurship literature (Simmons,2010). It incorporates aspects from both fields to combine entrepreneurial actions withstrategicperspective(Ireland,Hitt&Sirmon,2003;Simmons,2010).AccordingtoDuane,Ireland,Hitt&Sirmon(2003),strategicentrepreneurshipistheactionofsimultaneously engaging in the search for opportunities and competitive advantage fordevisingandimplementingentrepreneurialstrategiesthatcreatewealth.Furtherconstructsofstrategicentrepreneurshiparetheapplicationofcreativityandthedevelopmentofinnovation.First movers in innovation impact significantly on competitors’ market power and enjoy,potentiallytransient,monopolyadvantagesandabnormalprofitsbecauseofthesloweractionsof competitors (Qosja,2014).According toHittetal.(2001), innovations resulting fromnewcombinationsofproductionfactorsarecriticaltoafirm’swealth-creatingefforts.Innovationislinkedtosuccessfulperformanceoforganisationsinboththeindustrialandservicesectorsaswellas to thegreatereconomyasawhole (Salisu&AbuBakar,2018).Effective innovations



createnewvalueforcustomers,thereby,enhancingtheperformanceoftheorganizationwhichmakescreativityanessentialelementforincreasedperformance(Padachi,2012&Mohutsiwa,2012).EleodinmuoandOnwumere(2015)arguedthatcreativityisincreasinglyimportantforsmallandmediumscaleenterprisesasitopensdoorsformultipleopportunities.Creativityasacontinuousprocess rather than the outcomeof a single act is the basis of innovation and isencouragedwhentheresourcessupportingitaremanagedstrategically.Hitt, Ireland,CampandSexton (2001), sought todefine, legitimizeandclarify thedomainofstrategic entrepreneurship. They argued that in order for firms to achieve sustainedcompetitiveadvantage,theyneedtostrategicallyleverageentrepreneurialwealthcreation.EntrepreneurialEducationEntrepreneurialeducationemphasizesonteachingtheworkersoremployeeswiththepassionand desired skills needed to create an entrepreneurial firm and guide the firm successfullythroughitsinitialstagetomaturitystage.ItseekstoprovideSMEs“withtheknowledge,skillsand motivation to encourage entrepreneurial success in a variety of settings” (Izedonmi &Okafor, 2010; Maria, 2010). This would enhance necessary identification and avoidance ofmany pitfalls awaiting the less well trained and vigilant entrepreneurs. The training inentrepreneurialeducationmayinitiallybeperceivedasacostintermsoftimeandmoneybutitwouldeventuallybeappreciated(Yusuf,2017).Entrepreneurshipeducation isdesigned tocommunicate and inculcate competencies, skills, knowledge, andvaluesneeded to recognizebusinessopportunity,organizeandstartnewbusinessventure(Njenga&Theuri,2016).TheexpectedgoalofentrepreneurialeducationistoinculcatetheSMEstraineeswiththeabilityto;identifyandsolveproblemsusingcritical andcreativethinking,effectivelyworkwithothersasproactiveteammemberstocultivatetheabilitytoresolveconflict.Also,thegoalof entrepreneurial education to SMEs trainees or employees involves the ability to collect,analyze, organize and critically evaluate information, communicate and negotiate effectively(Qosja,2014).EntrepreneurialLeadershipEntrepreneurialleadershipisconceivedastheabilitytoinfluenceotherstomanageresourcesstrategically in order to identify and display opportunity and advantage seeking behaviour(Covin & Slevin, 2002). Entrepreneurial leadership has also been defined as the process ofcreatinganentrepreneurialvisionandinspiringateamtoenactthevisioninhighvelocityandinuncertainenvironments(Kuratko&Audretsch,2017,Chen,2007;Gupta,MacMillan&Surie,2004; Surie & Ashley, 2008). This definition has three main components such as:proactiveness:beingactivetoinfluenceandleadthefutureratherthanwaitingtobeinfluencedbyit;exploitingopportunitiesandacceptingtheresponsibilityoffailure(Kuratko,2017);beingable to anticipate future problems, needs for change, and improvement (Okudan & Rzasa,2006);andrespondingtoenvironmentalopportunities(Surie&Ashley,2008).Innovativeness,the ability and tendency to think creatively, develop novel and useful ideas in opportunityrecognition, resources utilization and problem solving (Claudino, Santos, Cabral, & Pessoa,2017); thedistinctive attribute that differentiates entrepreneurs from those thatwant to beself-employed. Risk taking, the willingness to absorb uncertainty and take the burden ofresponsibility for the future (Chen, 2007). Risk taking is one of the characteristics of anentrepreneurial leader during the early stages of the venture but the risk taken should in aprudential manner (Agbim, Oriarewo & Owutuamor, 2013). To be effective, entrepreneursshouldseekopportunity to internalizeandpracticeall theskills thatareassociatedwith theentrepreneurialleadershipcomponents(Okudan&Rzasa,2006).Also,AvolioandYammarino



(2013)pointedoutthattheactivitiesoftheSMEs’leadersrelatetoleadershipwhichistheall-importantdrivingforceofanyorganization.Entrepreneurial leadership capability helps entrepreneurs to cope with the challengesassociated with new venture creation, growth and success, and to deal with competitivebusiness environment (Cogliser & Brigham, 2004). Entrepreneurs, thus, need to developentrepreneurial leadership capabilities so as to gain competitive advantage and achievesustainedentrepreneurialsuccessintheirventures(Madanchian&Taherdoost,2017).EntrepreneurialKnowledgeEntrepreneurialknowledgeexplains“theabilitytorecognizeorcreateanopportunityandtakeaction aimed at realizing an innovative knowledge practice or product” (Didenko & Pliego,2014). Entrepreneurial knowledge is the way an individual appreciates skills concepts andmentality which is expected of an entrepreneur (Tshikovhi & Shamdare, 2015).Entrepreneurship knowledge focuses on opportunities which is aimed at improving the“production”and“personaltransformation”ratherthantheeconomicentrepreneurshipwhichis aimed at monetary profit. Matzler, (2008) argued that entrepreneurial knowledge is themost suitable form of entrepreneurship. Massad and Tucker (2009) articulated thatentrepreneurial knowledge can be acquired and developed through consistent exposure toentrepreneurship activities. Small and medium scale enterprises need entrepreneurialknowledge to be creative. Small and medium scale enterprises need entrepreneurialknowledgeontheskillssuchas interpersonalskillsandcriticalandcreativeskillsneededtogrow the businesses (Audretsch, Lehmann, Belitski & Caiazza, 2018). Itwas further positedthat entrepreneurial knowledge is need by SMEs in order to know how to raise capital,discoveramodelthatissustainable,toimprovetheservicesrenderedandtounderstandtheneedsofthecustomers.EntrepreneurialOrientationEntrepreneurialorientationhasbeendefinedasallthedecision-makingactivitiesthatleadtoanewmarket entry and the support of business activities (Kropp, Lindsay& Shoham, 2006).Entrepreneurial orientation also refers to the strategy making practices that businessesimplement to identify and launch new ventures (Farja, Gimmon & Greenberg, 2016).Entrepreneurialorientationhasitsrootsinstrategy-makingprocessliterature.Theconstruct,as it is commonly defined today, is first described as an entrepreneurial organization, amultidimensionalconcept, thatengages inproductmarket innovation,undertakessomewhatriskyventuresandisfirsttocomeupwith`proactive'innovations,beatingcompetitorstothepunch (Covin&Wales,2012).Applicationofentrepreneurialorientationwouldenablesmallbusinessenterprises tohaveaccess tocapitalandhence, itsperformancecouldbe improved(Sidek,Mohamad&Nasir,2016).Rezaei&Ortt(2018)pointedoutthattopmanagerswithhighrate of entrepreneurial orientation who are willing to take risk, show high degree ofcompetitive advantage and imbibe innovative activities have positive relationship toperformance of the firm. According to Sidek,Mohamad&Nasir (2016), the firms that haveentrepreneurial orientationaremore focused towardsachieving theirobjectives and makemore effort toward seeking opportunities from supply of capital. Firms that create effectivestrategic orientation can make more return on investment and profits and attract moreexternalfinances(Cheng,Ioannou,&Serafeim,2014).PerformanceAccording to Bassey& Tapeng (2012), performance is the result of an effort resulting fromactionswhichanorganizationhasundertakenwhichcoversvariousactivitiessuchashumanresources,finance,productionandmarketing.Businessperformancealsoconsistsofalleffort



by an organization to attain its set goals consisting but not limited to survival, employee,customer and satisfaction, sales growth and profitability (Mark & Nwaiwu, 2015). It wasfurther opined that business performance entails the views about the values provided andreceivedbycustomers.Thepredictableapproachto firm’sperformancehasbeentoconsiderthe financialapproach.Anotherapproachtoorganisationalperformanceistousemeasurementagainstpurposeandperceptual measures of company performance. Park and Luo (2001) asserted that similarapproach to assessing the level of satisfaction can arise from specific factors and actions.Subsequently, performancemeasurement has come from the areas of organisational theoryandstrategicmanagement;hence,organisationalperformancecanbemeasuredusingfinancialmeasures,non-financialmeasuresoracombinationofboth.EntrepreneurialEfficiencyEfficiency is defined as “the capacity of an organization, institution, or business to producedesired results with a minimum expenditure of energy, time, money, personnel, material”(Mesh, 2012 in Nyaga, 2015). Cummins (2003) as used by Abanis, Byamukama, Burani,IbrahimandNovembrieta (2013)definedentrepreneurial efficiency in termsof ‘profitabilityand growth’. Profitability ratios are criticalways of identifying andmeasuring the financialsituation of a business organization. When the profitability of an organization is decliningcompared to other firms in the same industry, then the firm is considered to be financiallyweak (Abanis, Arthur, Byamukama, Burani, Ibrahim, & Novembrieta, 2013). Efficient firmsgrow and survive even in the midst of economic downturns. Firms operating below theminimumefficientscalewhichareunabletoovercomethediseconomiesofscaleareforcedoutof the industry.Efficient firmsgrow faster than their counterpartsas they tend toovercometheir initial scaledisadvantageby investinggradually in theenterpriseor firm (Abanisetal,2013).EmployeeTurnoverIntentionMaylew (2013), defines employee turnover “as the number of employees who leave anorganization and are replaced by new ones” Ross (2014 sees the concept as a method ofreplacing an employee with a new employee which can be measured at a percentage rate.Turnover can be classified as an important part of performance indicator which will affecteveryotheraspectofanorganizationand it canoccurdue tovariousreasonswhichmaybeexpectedornotexpected(Nowak,Holmes&Murrow,2010;Kurnat-Thoma,Ganger,Peterson&Channell,2017). Employeeturnoverisreferredtoasthe“rateatwhichanemployergainsand losses employee” which can harm the organisation’s efficiency in that highly skilledworkersoftenleavetheorganization(Armstrong,2006)andforserviceorientedfirms,itcanleadtodissatisfactiononthepartofcustomersbecauseacustomerfeelsuncomfortableseeingnewpersonsateverycontact(Brian,2009). Theorganizationisusuallyatthereceivingendbecause the cost of losing an experienced employee is greater than paying a higher wage(Kumar,Ramendran&Yacob,2012).The employee turnover intention has been described as the decision making process ofvoluntaryturnover(Kim,Kim&Rhee,2017).Thewillingnesstoleaveisknownasemployeeturnover intention (Hongvichit, 2015). Employee turnover will lead organization to faceoperationaldisruptionduetothedifficultyinreplacingtheskilledandabilityemployeesandalso, the demoralization of organizationalmembershipwill be increased. In order to reduceemployeeturnoverrate,theleadershipoftheenterpriseshouldplayacrucialroleinincreasingthe enterprises and employees’ performance through incentives and motivation which will



yield high productivity and the attainment of the enterprise’s vision. (Gul, Ahmad, Rehman,Shabir,&Razzaq,2012).EntrepreneurialSkillsEntrepreneurialskillscanbedefinedasknowledgedemonstratedbyactionsortheabilitytoperforminacertainwayandareacquiredthroughtrainingandeducation(Bosire&Nzaramba,2013). It canalsobedefinedas thecapabilitiesanentrepreneurpossesses inorder to runabusiness (Hisrich & Peter, 2002). Entrepreneurial skills enable an entrepreneur to identifycustomer needs, technical and market opportunities, generate ideas, develop products/servicestomeettheneeds,andacquireinformationaboutthepotentialopportunitydomainand knowledge (Omare & Kyongo, 2017). Specific entrepreneurial and business skills areessential for thesuccessofSMEs. According toAfolabiandMacheke (2012), theabsenceorlow levels of key skills like motivation, ability to gather resources, financial management,humanresourcemanagement,marketingand technical skills,may lead tozeroperformance,while weakness in a particular element would decrease effectiveness in the overallperformanceoftheventure.Thisthus,meansthattheincreaseinthecapacityofanyoftheseskillscanleadtoanincreaseintheentrepreneurialperformanceoftheentrepreneur(Afolabi&Macheke,2012).EntrepreneurialInnovationEntrepreneurial innovation can be defined as “the willingness to support creativity andexperimentation in the introductionofnewproductsor services”which involves research&development in the development of processes (Lumpkin & Dess, 2001). Innovation isparamounttothesurvivalandgrowthofanybusiness(Martin&Namusonge,2014).Ithaschangedthewaycompaniesconducttheirbusinessesandthewaysofsatisfyingtheneedsof customers. Small and Medium Enterprises (SMEs) constitute 99.7% of the enterprisesworldwide (Agarwal & Ashwani, 2008). Since Small and Medium Enterprises (SMEs)contributesubstantiallytotheeconomicandindustrialdevelopmentinmostcountries,itbecomescrucialtostudyinnovationinSMEs(Ebitu,Basil&Ufot,2016).According to Lumpkin andDess (2001), product-market innovativeness places emphasis onthe design of the product, the market research, advertisement and promotion whiletechnological innovation deals with the process and technological development. Theinnovativepropensityofanorganizationinfluencestheextenttowhichprofitoutcomespersistovertime,thus,moreinnovationisequaltogreaterprofit(Eleodinmuo&Onwumere,2015).Innovation is dependent on a variety of factors, such as innovative behaviour, workenvironment, learning orientation and organizational learning procedure (Zahra, Ireland &Hitt, 2000;Kleysen&Street, 2001). Despite the roles of innovation in ensuringproductivitygains, SMEs faces various challenges especially in developing economies like Nigeria whichinclude limited human and financial capabilities, poor infrastructural development,unfavourablepoliciesonthepartofgovernmentwhichinhibits innovativeactivities(Abdu&Jibir,2017)

THEORETICALREVIEWResourceBasedViewoftheFirmResourceBasedView(RBV)waspropoundedbyWernerfeltin1984.Wernerfelt(1984)inhisanalysisofRBVexplained thestrategicoptionsofa firm forchoosingresources. The theoryexplains the origin or competitive advantage of a firm and supports that the intangibleresourcesarethemainconcernthatensuresperformanceofafirm(Barney,Ketchen&Wright,2011; Galbreath & Galvin, 2006; Liu, Timothy & Gao, 2010). Studies have revealed the



relationships between organisational resources, capabilities, performance through RBV(Barney2007;Meutia&Ismail,2012;Ogunyomi&Bruning,2015;Ibrahim&Shariff,2016).TheRBVhasbeencritisisedforthereasonthattherearenomanagerialimplicationsanditisalso viewed as limited in its application in that the sustained competitive advantage is notachievable Kraaijenbrink, Spender & Groen (2010). Tywoniak (2007) stated that theusefulnessofRBVappearstobegreaterintermsofgeneratingunderstandingandprovidingastructure for strategizing. Barney (2001) also stated that resource based logic can helpmanagers to completely understand the kind of resources that help generate sustainedstrategicadvantages,helpthemusethisunderstandingtoevaluatethefullrangeofresourcestheir firmmaypossess, and thenexploit those resources thathave thepotential togeneratesustainedstrategicadvantage.Resourcebasedviewacknowledgedthatthehumanresourcesinformofskills,competenciesandcapabilitiesarethekeycomponentsofentrepreneurshipeducation.Thetheoryisrelevantto the study as it involves acquisition of entrepreneurial skills through entrepreneurialeducation and entrepreneurial knowledge, adoption anduse of technology by the small andmediumscaleenterprises inorder toenhance theiroverallperformance.Thus, in thisstudy,thepostulatesofRBVwereusedtoinformtheindependentvariables.ResearchModelandHypothesesDevelopmentThisstudyexplorestheeffectofstrategicentrepreneurshipontheperformanceofsmallandmedium scale enterprises. Strategic entrepreneurship comprise Entrepreneurial education,Entrepreneurial leadership, Entrepreneurial knowledge, andEntrepreneurial orientation.Ontheotherhand,performanceentailsentrepreneurialefficiency,employee turnover intention,entrepreneurialskills,andentrepreneurialinnovation.EntrepreneurialEducationonEntrepreneurialEfficiencyYusuf (2017) established that entrepreneurial education has effect efficiency of SMEs inNigeria since entrepreneurial education leads to improved skills and competencies whichpositivelyboostedperformanceofSMEs,whichinturnhasamultipliereffectontheeconomicrecoveryandgrowthofNigeria.ThisconfirmedthestudyofMitchelmoreandRowley(2010)thatacquiringentrepreneurialcompetenciespositivelyimpactedonthebusinessperformanceofSMEs.Furthermore,MohammedandNzelibe(2014)alsoestablishedthatentrepreneurshipeducationhad significant effecton thebusiness successof SMEs inNigeria. Similarly,Bosireand Nzaramba (2015) reported that entrepreneurship education do lead to better businesspractices and increased revenues and profits in SMEs. They concluded that lack ofentrepreneurshipeducationisanimportantfactorthatlimitthegrowthofSMEs.The study of Yusuf (2017) also revealed that acquisition of entrepreneurship education,implementation of technological devices and platforms, as well as, globalisation enhancesefficiency and profitability of SMEs in Nigeria. The study of Barchue and Aikaeli (2013)revealed that entrepreneurial education and access to credit do positively influence theefficiencyof SMEs inMonrovia.Other studieshavealsoandhaveeffectonefficiency (Qosja;2014,Njenga&Theuri,2016). ThestudyofNjorogeandGathungu(2013)revealedthat theentrepreneurs were able to market their products within the district but not around thecountryduetoinadequacyofentrepreneurialeducation.H01: Entrepreneurial education does not have significant influence on entrepreneurialefficiencyofselectedSMEsinAbametropolis.



EntrepreneurialLeadershiponEmployeeTurnoverIntentionSeveral researchers have done empirical reviews on the influence of entrepreneurialleadership on employee turnover. Siew (2017) revealed in his findings that there is arelationship between transformational and transactional leadership style and turnoverintention within SMEs in Malaysia. This study also demonstrated that the transformationalleadership style has contributed themost to turnover intentionwithin SMEs inMalaysia byreducing the employees’ turnover intention when compared with transactional leadershipstyle.AccordingtoElBadawyandBassiouny(2014),theystatedthatthereisapositiveimpactofthetransformationalleadershipanditsultimateimpactonemployee’sintentiontoquitanorganization.Theirresultindicateshighlystatisticallysignificantpositivecorrelationbetweentransformationalleadershipandemployeeintentiontoquit.Griffith(2003),WellsandPeachey(2010), Cheng, Bartram, Karimi, and Leggat (2016) proved that the transformationalleadershipstylehelpstoreduceemployeeturnoverintentionandithasbeenprovidedbytheresultsof severalstudiesand invariousemploymentareas. InGriffith (2003),hestated thatearlierresearchhasassociatedemployee jobsatisfaction,commitment,motivationandefforttotransformationalleaders.Cheng, Bartram, Karimi and Leggat (2016) found out that in healthcare industry,transformational leadership style is capable of constructinghealthierworking environmentsand alsohelpsinretainingnurses. Waldman,CarterandHom(2015)conductedastudyontheconnectionbetweenleadershipandfollowerturnoverbyinvestigatingtheeffectsofgroup-level transformational leadership on the withdrawal process. Through their finding, theydiscovered that transformational leadership predicts turnover through quit intentions andtheir testof cross-levelmoderation reveals that transformational leadershipcanweaken theeffectofquitintentionsonturnover.Therefore,theirresulthadshownthatemployeesarelesslikelytocarryoutquitintentionswhentheyhavetransformationalleaders.ThisoutcomealsosupportedthefindingsofthestudyofSiew(2017).Itwasfoundoutthataffectivecommitmentwould decline workers’ quitting intention and serves to promote a degree of trust andwillingness to follow their leaders’ philosophy, ideology, vision and guidance in theorganization(Gyensare,Anku-Tsede,Sanda,&Okpoti2016).Hence,affectivecommitmentfullymediates the relationship between transformational leadership and employee turnoverintention,(Gyensare,Anku-Tsede,Sanda&Okpoti2016).InthestudyofGyensare,Kumedzro,Sanda and Boso (2017), the results showed that transformational leadership positivelyinfluencedengagementbutnegativelyrelatestoemployeeturnoverintention.The study of Majeed, Jamshed and Mustamil (2018) revealed that there exists a negativerelationship between ethical leadership and employee turnover intention and prosocial rulebreaking. Furthermore, pro-social rule breaking has a positive relationship with employeeturnoverintention.Theresultsofregressionanalysisshowedthatprosocialrulebreakingactsasapartialmediatorbetweenethicalleadershipandemployeeturnoverintentions.Hence,thefollowingisthesecondhypothesisthatwasdevelopedtobetested:H02: Entrepreneurial leadership has no significant effect on employee turnover intention ofselectedSMEsinAbametropolis.EntrepreneurialKnowledgeonEntrepreneurialSkillsNystrom(2012)discovered that theprobabilityofhavinganadequateentrepreneurial skillsdepends on the level of entrepreneurial knowledge acquired. Findings indicated thatentrepreneurswithhigherentrepreneurialknowledgeofhumanresourcesmanagementwillhave high entrepreneurial skills towards human resources commitment practices andinvolvement practices than entrepreneurs with little or no entrepreneurial knowledge ofhumanresourcesmanagement(Tim,2011).



In the study of Gast,Werner and Kraus (2016), it was discovered that employees in lowermanagement positions in small and medium scale enterprises benefit strongly fromentrepreneurialknowledge spillovereffectsas thenecessary skills, knowledgeandexpertiseare inculcated in them because of the enabling environment and they are able to build upnetworksconducivetoentrepreneurshipactivitiesintheirenterprise.ThestudyofOmareandKyongo (2017) tested and confirmed the hypothesis that entrepreneurial skills have asignificant effect on competitive advantage. This means that entrepreneurs who wish tosucceedmust embrace and inculcate entrepreneurial skills among their employees throughentrepreneurialknowledge(Omare&Kyongo,2017).The study of Jafarnejad, Abbaszadeh, Ebrahimi and Abtahi (2013) revealed that lack ofsufficient knowledge in management skills, constitute barriers and challenges of corporateentrepreneurship development in Iranian SMEs which leads to inadequate skills andknowledge required to launch and sustain a business and also had little knowledge of thebusinessenvironment.AfolabiandMacheke(2012)revealedthatSMEsintheplasticindustryneedtraininginordertogainentrepreneurialknowledgeinacquiringthenecessaryskillssoastosucceedintheenterpriseasmostoftherespondentsindicatedthattheyhavenotyetundergone training, while Njenga and Theuri (2016) revealed thatmost entrepreneurs displayedlimitedentrepreneurialknowledgeinareassuchasaccesstofinancialinformation,operationof a business, business planning and monitoring profitability. Consequently, the thirdhypothesisthatwasdevelopedtobetestedis:H03: Entrepreneurial knowledge does not have significant effect on entrepreneurial skills ofselectedSMEsinAbametropolis.EntrepreneurialOrientationonEntrepreneurialInnovationBleeker (2011) revealed that when entrepreneurial orientation is considered as a one-dimensional construct, it influences both the innovation process as a whole and all itsindividual steps. However, while entrepreneurial orientation is considered as amultidimensionalconstruct,theonlydimensionthatinfluencestheinnovationprocessanditssteps is proactiveness which makes innovation a one-dimensional construct. Prior findingsfromthefieldoforganizationalbehaviourrevealedthatthereisasignificantlinkagebetweenentrepreneurial orientation and the levels of innovations (Schueffel, 2014). Pérez-Luño,Wiklund and Cabrera (2011) also revealed in their findings that proactivity and risk takingwerepositivelylinkedtothenumberof innovationsgeneratedbyafirm.OtherscholarslikeAvlonitis and Salavou (2007) also presented an entire string of arguments and empiricalevidence that yields support to the idea that entrepreneurial orientation has a significantpositiveeffectontheinnovationlevelsofacompany.BasedonthefindingsofSchueffel(2014),itwasstatedthatthemorepronouncedtheentrepreneurialorientationofafirmis,thehigherthelevelofitsinnovationperformance.The findings of Etriya, Scholten, Wubben, Kemp and Omta (2013) revealed thatentrepreneurial orientation positively affects innovation inputs, innovation adoption andinnovation generation, and innovation adoption has a positive effect on performance.Madhoushi and Sadati (2011) also revealed in their study findings that entrepreneurialorientation both directly and indirectly through the knowledge management affectedinnovationperformancewhileCheng,Tang, Jin,XieandLi(2014) foundthatentrepreneurialorientationispositivelyrelatedtoproductinnovationperformance.H04: Entrepreneurial orientation does not influence entrepreneurial innovation of selectedSMEsinAbametropolis.



RegressionModelsy1=β0+β1x1+µi………………………………………………Equation1y2=β0+β2x2+µi……………………………………………….Equation2y3=β0+β3x3+µi………………………………………………..Equation3y4=β0+β4x4+µi………………………………………………….Equation4Where:β0=Constanttermβ1-β4=Parameterstobeestimatedµi=errortermEFF=β0+β1EE+µi......................................................................(1)ETI=β0+β2EL+µi.........................................................................................................(2)ES=β0+β3EK+µi………………………………………………………………………..(3)EI=β0+β4EO+µi………………………………………………………………………..(4)

METHODOLOGYResearchDesignThisresearchadoptedthesurveyresearchdesign.Thisresearchdesigncanbeusedtodescribeanexistingconditionbythemeansofprimarydatacollection.Thesurveyresearchdesignwaschosenbecauseitfocusesonvitalfacts,beliefs,opinions,attitudes,motivesandbehavioursofthe respondents.Theuseof this researchdesign ispremisedon theworksofAdisa,AdeoyeandOkunbanjo(2016).Population,SampleandSamplingTechniqueThetotalpopulationforthestudyis231whichwasgottenfromAbaChamberofCommerce,Industries,MinesandAgriculture(ACCIMA,2017).Thetotalpopulationof231selectedSMEsinAbametropoliswasused for this researchworkbecause thepopulation size is not large.TheseselectedSMEsinAbametropoliscoveredthemanufacturingsector, thefinancesector,healthsectorandfoodandbeveragesindustry.The231selectedSMEsinAbametropoliswasthe sample of this study. Total enumeration sampling technique was used for this studybecauseonlytheowner/manageroftheselectedSMEsweretherespondents.ResearchInstrumentThe required data for this study was generated from primary data. The primary data wasgeneratedfromrespondentsoftheSMEswhichweretheowners/managementoftheselectedSMEs. The questionnairewas adapted fromprevious studies. Likert scalemeasurementwasusedinthisresearchworkanditrequiredtherespondentstogradetheiroptionsonascaleof1-6 to obtain their opinions and it consists of Strongly Agree (6 Points), Agreed (5 points),Partiallyagree(4points),Partiallydisagree(3points),Disagree(2points),Stronglydisagree(1point).The instrument was validated through the exploratory factor analysis using principalcomponentextractionmethod.TheresultsoffactoranalysisshowsthattheKMOvalueforallthevariablesaremorethan0.5recommendedthreshold asrecommendedbyKaiser(1974).InternalconsistencywastestedusingtheCronbach’salphastatistic.Theresultofthereliabilitytest indicates that all the variables attained the recommended threshold of 0.7 (Nunnally,1978; Pallant, 2010) denoting high reliability of the research instrument. Also, the overallreliabilitycoefficientfortheinstrumentwas0.875whichisconsideredreliable.



DATAANALYSISANDRESULTSDataanalysisforthisstudywascarriedoutwiththeuseofsimplelinearregressionanalysisinSPSStotesttheeffectoftheindependentvariable,strategicentrepreneurshipsub-variablesonthesub-variablesofperformance.

RESULTSANDDISCUSSION

Table1:RegressionAnalysisofEntrepreneurialeducationonentrepreneurialefficiencyofselectedSMEsinAbametropolis

Model UnstandardizedCoefficients

StandardizedCoefficients

T Sig.

B Std.Error Beta1 (Constant) 13.016 1.383 9.411 .000

EntrepreneurialEducation

.304 .070 .276 4.340 .001

R=0.276R2=0.076P-value=0.001a.DependentVariable:EntrepreneurialEfficiency

Source:FieldSurvey,2018

Theresultsoftheregressionanalysisintable1revealedthateentrepreneurialeducationhassignificant influence on entrepreneurial efficiency of selected SMEs in Aba metropolis (β =0.304, t = 4.340, p<0.05). The t-value shows that the coefficient of themodel parameter isstatistically significant. The R square of 0.076 indicates that 7.6% of the variation inentrepreneurialefficiencyofselectedSMEsinAbametropolisisexplainedbyentrepreneurialeducation.Thecoefficientofentrepreneurialeducationis0.304whichimpliedthatachangeofunit in entrepreneurial education influences a positive change of 0.304 units in theentrepreneurial efficiency of small andmedium enterprises in Abametropolis. The result isconsistent with Yusuf (2017) who established similar findings that acquisition ofentrepreneurshipeducation,adoptionanduseoftechnologydevicesandplatforms,aswellas,globalisationenhancesefficiencyandprofitabilityofSMEsinNigeria.ThestudyreportedthatformanufacturingSMEstooperatecompetitively,profitablyandsignificantlycontributetotheeconomicrecoveryandgrowthofNigeria, theyneedtocontinuouslyacquireentrepreneurialeducation. Additionally, Barchue and Aikaeli (2013) also established that entrepreneurialeducationandaccesstocreditdopositivelyinfluencetheefficiencyofSMEsinMonrovia.Table2:RegressionAnalysisofEntrepreneurialLeadershiponEmployeeTurnoverIntentionof

selectedSMEsinAbametropolisModel UnstandardizedCoefficients Standardized

CoefficientsT Sig.

B Std.Error Beta (Constant) 10.678 1.706 6.260 .000

EntrepreneurialLeadership

.320 .090 .230 3.553 .001

R=0.230R2=0.053P-value=0.001a.DependentVariable:EntrepreneurialTurnoverIntention




ThesecondhypothesiswasformulatedtodeterminewhetherEntrepreneurial leadershiphassignificant effect on employee turnover intention of selected SMEs in Aba metropolis. Theresults of the regression analysis showed that eentrepreneurial leadership has significanteffectonemployeeturnoverintentionofselectedSMEsinAbametropolis(β=0.320,t=3.553,p<0.05). The t-value affirms that the coefficient of the model parameter is statisticallysignificant(p=0.001).TheregressionresultshowsRsquareof0.053whichindicatesthat5.3%ofthevariationinemployeeturnoverintentionofselectedSMEsinAbametropolisisexplainedby entrepreneurial leadership. The regression coefficient of entrepreneurial leadership is0.320 which implied that a unit increase in entrepreneurial leadership (that isproactiveentrepreneurialbehaviour) would bring about an increase of 0.320 in employeeturnoverintentionofsmallandmediumenterprisesinAbametropolis.Theresultsshowedasignificant effect of entrepreneurial leadership on employee turnover intention of small andmediumenterprisesinAbametropolis.TheresultisconsistentwithElBadawyandBassiouny(2014) that there is a positive impact of the transformational leadership and its ultimateimpact on employee’s intention to quit an organization. Their result indicates highlystatisticallysignificantpositivecorrelationbetweentransformationalleadershipandemployeeintentiontoquit.ThisfindingalsosupportsGriffith(2003),WellsandPeachey(2010),Cheng,BartramKarimi,andLeggat(2016)argumentsthatthetransformationalleadershipstylehelpsto reduce employee turnover intention and it has been provided by the results of severalstudiesandinvariousemploymentareas.Table3:RegressionAnalysisofEntrepreneurialknowledgeonentrepreneurialskillsofselected

SMEsinAbametropolisModel Unstandardized

CoefficientsStandardizedCoefficients

T Sig.


EntrepreneurialKnowledge

.321 .054 .363 5.893 .001

R=0.363R2=0.132P-value=0.001a.DependentVariable:EntrepreneurialSkills

Source;FieldSurvey,2018Thethirdhypothesiswas formulatedtodeterminewhetherEntrepreneurialknowledgehavesignificanteffectonentrepreneurialskillsofselectedSMEsinAbametropolis.Theregressionresultsshowthatentrepreneurialknowledgehassignificanteffectonentrepreneurialskillsofselected SMEs in Abametropolis (β = 0.321, t = 5.893, p<0.05). The t-value shows that thecoefficientofthemodelparameterisstatisticallysignificant(p=0.001).TheRsquareof0.132indicates that 13.2% of the variation in entrepreneurial skills of selected SMEs in Abametropolis is explained by entrepreneurial knowledge. The analysis showed that a unitincreaseintheentrepreneurialknowledge,thatis,increasingabilitytorecognizeorcreateanopportunity and take action by a unit would result in increased entrepreneurial skills by0.321.Theresultsshowedasignificanteffectofentrepreneurialknowledgeonentrepreneurialskills of small and medium enterprises in Aba metropolis. This finding corroborates pastresultsofstudiesontherelationshipbetweenentrepreneurialknowledgeandentrepreneurialskills.Nystrom (2012) foundout that theprobability of having an adequate entrepreneurialskill depends on the level of entrepreneurial knowledge acquired. Findings indicated thatentrepreneurswithhigherentrepreneurialknowledgeofhumanresourcesmanagementwillhave high entrepreneurial skills towards human resources commitment practices and



involvement practices than entrepreneurs with little or no entrepreneurial knowledge ofhumanresourcesmanagement. Ina similar study,Gast,WernerandKraus (2016) foundoutthatemployeesinlowermanagementpositionsinsmallandmediumscaleenterprisesbenefitstrongly fromentrepreneurialknowledgespillovereffectsas thenecessaryskills,knowledgeandexpertiseareinculcatedinthembecauseoftheenablingenvironmentandtheyareabletobuildupnetworksconducivetoentrepreneurshipactivitiesintheirenterprise.Table4:RegressionAnalysisofentrepreneurialorientationonentrepreneurialinnovationof

selectedSMEsinAbametropolisModel Unstandardized

CoefficientsStandardizedCoefficients

T Sig.


EntrepreneurialOrientation

.271 .052 .324 5.180 .001

R=0.324R2=0.105P-value=0.001a.DependentVariable:EntrepreneurialInnovation


The result in table 4 showed that entrepreneurial orientation has significant influence onentrepreneurialinnovationofselectedSMEsinAbametropolis(β=0.271,t=5.180,p<0.05).The t-value of 5.180 shows that the coefficient of the model parameter is statisticallysignificant (p= 0.001). The result shows R square value of 0.105 shows that 10.5% of thevariationinentrepreneurialinnovationofselectedSMEsinAbametropoliscanbeexplainedbyentrepreneurialorientationandat95%confidencelevel.Theregressionequationshowedthata unit increase in the entrepreneurial orientation, that is, increasingSMEsentrepreneurialbehaviour by a unit would result in increased entrepreneurialinnovation by 0.271. From the study at 95% confidence level, entrepreneurial orientationproduced statistically significant values that were greater that 0.05 of p-value which is thestandard. The p-value for entrepreneurial orientation was found to be 0.001 from thecoefficient table and this is less than 0.05 hence the model can be accepted to producesignificantresult.Theresultshowedasignificant influenceofentrepreneurialorientationonentrepreneurialinnovationofsmallandmediumenterprisesinAbametropolis.

CONCLUSIONANDRECOMMENDATIONSThe effect of strategic entrepreneurship on the performance of small and medium scaleenterprisesintheAbametropolis,AbiaStatewasassessed,andthemajorissuesthatemergedfrom the findings showed that: Entrepreneurial education have significant influence onentrepreneurial efficiency of selected SMEs in Aba metropolis (R2 = 0.076, p<0.05).Entrepreneurial leadership has significant effect on employee turnover intention of selectedSMEs in Aba metropolis (R2 = 0.053, p<0.05). Entrepreneurial knowledge have significanteffect on entrepreneurial skills of selected SMEs in Aba metropolis (R2 = 0.132, p<0.05).EntrepreneurialorientationdoesnotinfluenceentrepreneurialinnovationofselectedSMEsinAbametropolisR2=0.105,p<0.05). It is concluded that strategic entrepreneurshipplays animportant role in enhancing the performance of small andmedium scale enterprises inAbametropolis(entrepreneurialefficiency,employeeturnoverintention,entrepreneurialskillsandentrepreneurialinnovation).



Thefindingthatentrepreneurialeducationhasasignificanteffectonentrepreneurialefficiencyof SMEs will benefit the owner/manager of SMEs in being proactive towards a continuouseffectiveentrepreneurialeducationoftheiremployeesonaregularbasistoensureefficiencyof operations. The findings that entrepreneurial orientation has a significant effect onentrepreneurialinnovationofSMEswillalsobenefittheowner/managerofSMEsinorientingtheiremployeesonnewwaysofproduction,packaginganddeliveryinordertoformthebestinnovationstrategiesandpoliciesthatwillboosttheenterprise’sperformanceandinmeetingtheir customers’ needs. Also, the finding that entrepreneurial leadership has a significantinfluenceonemployeeturnoverintentionofSMEswillbenefittheowner/managerbyhelpingthem adopt the best type of leadership in running their business inwhich transformationalleadershipissuitableasitislikelytoreducetherateofemployeeturnoverintentionofSMEs.ThefindingthatentrepreneurialknowledgehasasignificanteffectonentrepreneurialskillsofSMEswillalsobenefittheowner/managerinorganizingmonthlyprogrammesandseminarsthatwill enhance theentrepreneurial skillsof theSMEs towards increasedproductivity.Thefindingthatentrepreneurialorientationhasasignificanteffectonentrepreneurialinnovationof SMEs will benefit the government towards formulating favourable policies that willencourageentrepreneurialinnovationofnewproductsandnewtechnologyofSMEs.Basedonthefindingsandconclusionpresented,it isrecommendedthatinorderforSMEsinAba metropolis to operate competitively, profitably and significantly contribute to theeconomic recovery and growth of Nigeria, the owner/ management need to continuouslyacquire entrepreneurial education for themselves and their employees. Also, leaders ormanagersofSMEsinAbametropolisneedtoengagemoreintransformationalleadershipstyleas this is likely to reduce the rate of employee turnover intention. In addition, theowner/management needs to increase the level of entrepreneurial knowledge they have inorder to acquire more skills to operate efficiently in order to gain competitive advantage.Furthermore,owner/managementof SMEs inAbametropolis shouldbeable toorient theiremployeesboththeexistingstaffandthenewlyrecruitsonnewwaysofproductionandwaysofproductinnovationthroughperiodicmarketresearch.Future research shouldbe carriedout toascertain the relationshipamong the fourdifferentstrategic entrepreneurship variables. This will provide in-depth clarification with regard tohow each variable of strategic entrepreneurship relates to one another aswell as how thatrelationshipenhancesperformance.Also,collectionofdatastate-widewillensuregoodspreadandrobustnessofdataanalysis.Otherfactorsnotstudiedinthisresearchcontributed89.5%ofvariance in entrepreneurial innovation. Therefore, further research should be conducted toestablish the influence of other factors not analyzed in this study on entrepreneurialinnovationofsmallandmediumenterprisesinAbametropolis.ReferencesAbanis,T.,Arthur,S.,Byamukama,E.,Burani,A.,Ibrahim,Y.,&Novembrieta,S.(2013).BusinessefficiencyinsmallandmediumenterprisesselecteddistrictsinwesternUganda.ResearchJournalofFinanceandAccounting,2(4),19-28.

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Montfort,A.V.,Ogric,B.,&Huberts,L. (2018).The(in)completenessof local integritysystemsAcross-sectionalstudyonmunicipalintegritysystemsforcivilservantsintheNetherlands.ArchivesofBusinessResearch,6(9),70-90.

The(in)completenessoflocalintegritysystemsAcross-sectionalstudyonmunicipalintegritysystemsforcivil

servantsintheNetherlands

AndrévanMontfort,PhDAssociateprofessor,FacultyofSocialSciences,VUUniversityAmsterdam

DeBoelelaan1081,1081HV,theNetherlands

BecirOgric,MScLegaladvisor,SupervisionandEnforcementDepartment,

MunicipalityofHouten.POBox30,3990DA,theNetherlands

LeoHuberts,PhDFullprofessor,FacultyofSocialSciences,VUUniversityAmsterdam

DeBoelelaan1081,1081HV,theNetherlands

ABSTRACTPrivateorganizationsandgovernmentbodiesdevelopintegritysystemsthatconsistofvarious elements such as integrity officers, regulations, codes of conduct andsupervision arrangements. For both the private and public sector there is littlescientificknowledgeabouttheextenttowhichlocalintegritysystemsarecompleteandfactorsthatexplainthis(in)completeness.Thepresentstudyfocusesonlocalintegritysystems for civil servants in the Netherlands. Using a theory-based evaluationframeworkitisconcludedthatDutchmunicipalintegritysystemsdiffersubstantiallyintermsofcompleteness.Contrarytoourtheoreticalexpectations,neitherthenumberofinhabitants of a municipality nor the political composition of the municipaladministration offers an explanation for this. The circumstance of whether or not amunicipality is located in themost urbanized part of the Netherlands is, however, arelevant factor. The research findings open up challenging questions for futureresearchonpublicandprivateintegritysystems.Keywords: integrity, local integrity systems, codes of conduct, municipalities, politicalcompositionlocaladministration,urbanization

INTRODUCTION

Forbothgovernmentbodiesandprivateorganizations, integrityhasbecomea corevalue inrecent decades (Boatright, 2011; Six, Van der Veen& Kruithof, 2012; De Graaf &Macaulay,2014).Thesubjectof 'integrity'hasalso received increasingattention inscientificdisciplinessuch as organization sciences, business administration and public administration (Huberts,2014;Luu,2015).Thishappensundertheheadingsofbusinessethics(IBE,2007)andpublicintegrity(Huberts&Six,2012).IntegrityintheprivateandpublicsectorIt is understandable that private organizations paymore andmore attention to the issue ofintegrity. Employees, works councils, supervisory boards and, above all, clients expect highintegrityfromprivateorganizations.Forexample,customersare lesswillingtobuyproductsfrom companies known as non-integer.Non-integrity behavior damages the image of a firmandhasadirectnegative impactonsales.The increasedattentionto integritywithinprivateorganizationsisthereforeunderstandable(Boatright,2011;Muller,2012).



Inadditiontoprivateorganizations,governmentagenciesarealsoincreasinglyinvolvedinthetopicofintegrity(VandenHeuvel,Huberts,VanderWal,&Steenbergen,2010).Agovernmentbodythatlacksintegritylosesits legitimacyandtrustamongcitizens(Musschenga,2012;DeGraaf, 2012; Den Boer, 2012). Without legitimacy and trust, a democracy cannot functionoptimally(Procee,2000;Dreher&Schneider,2010;Huberts,VandenHeuvel,&VanderWal,2012). Government organizations thus have a great responsibility in the area of integrity(Muller,2012).Becauseoftheincreasedimportanceofintegrityintheprivateandpublicsector,privateandgovernment organizations increasingly develop integrity system (Boatright, 2008; Huberts,Anechiarico,&Six,2008;Six&Lawton,2010;Six,VanderVeen,&Kruithof,2012;Slingerland,Six, & Huberts, 2012). An integrity system safeguards and promotes integrity within anorganization(Six&Lawton,2010;Huberts&Six,2012;Slingerland,Six,&Huberts,2012). Itconsists of various elements such as integrity officers, regulations, codes of conduct andsupervisionarrangements.Alltheseelementsaimtocontributetotheintegrityperformanceofanorganization(Huberts&Six,2012;Slingerland,Six,&Huberts,2012).Although the subject of integrity is just as important for private organizations as for publicorganizations, thispaper focuseson the integritysystemsof the latterorganizations,namelyonthoseofmunicipalities.However,ourfindingsonthequalityofmunicipalintegritysystemsare also relevant for the private sector. As government bodies can learn from the businessorganizationsinsomerespects(Osborne&Gaebler,1992),theprivatesectorcanalsobenefitfrompublicsectorpracticesandinsightsoncertainpoints.LocalintegritysystemsForthepublicsector,adistinctioncanbemadebetweennationalandlocal integritysystems(Van den Heuvel, Huberts, Van der Wal & Steenbergen, 2010). Local integrity systems areintegrity systems of provincial government agencies, regional government agencies, waterboards ormunicipal government agencies. Usually these are integrity systems ofmunicipalgovernmentagencies.Inthispaper,theterms'localintegritysystem'and'municipalintegritysystem'areusedassynonyms.Itisespeciallyimportantformunicipalitiestopayattentiontointegrity(Six&Huberts,2008).Citizens form opinions about the government based on their experiences at the local level(BZK, 2003; Huberts & Six, 2012). Municipalities are responsible for decision making andserviceprovisioninareasthatareknownfortheirvulnerabilityto integrityviolations(Six&Huberts,2008).Furthermore,contactwithsocietyisthemostintensive,directandsometimesintertwiningatthelocallevel(VandenHeuvel&Huberts,2003).Thismakesitimportantformunicipalities tohaveaneffective integrity system (VandenHeuvel&Huberts, 2003; Six&Lawton,2010;Slingerland,Six,&Huberts,2012).Alocalintegritysystemisconsideredeffectivewhenintegrityrisksareproperlycurtailed.Thishappenswhenthesystemensuresthatintegrityishandledandintegrityrisksareavoided(Six& Lawton, 2010). For an effective integrity system, an important requirement is thecompleteness of the system All elements must be present that can promote the integrityperformanceofthemunicipalorganization(Slingerland,Six,&Huberts,2012;Habib-Ranzijn,2015;VandenHeuvel,Huberts&VanMontfort,2017).Adistinctioncanbemadebetweenlocalintegritysystemsformunicipalpublicadministratorssuch as city councilmembers, aldermen and themayor on the one hand and local integritysystems for civil servantson the other. This paper focusses on the second type of integrity

Montfort, A. V., Ogric, B., & Huberts, L. (2018). The (in)completeness of local integrity systems A cross-sectional study onmunicipal integritysystemsforcivilservantsintheNetherlands.ArchivesofBusinessResearch,6(9),70-90.


systems. It pays attention to local integrity systems for civil servant, regardless of whethertheseofficialswork indepartments 'in the townhall' or in outsidedepartments such as theConstructionandHousingDepartment.Semipublicmunicipalorganizationsaspublicschoolsandpublictransportcompaniesare,however,leftoutofconsideration.Inaddition,adistinctioncanalsobemadebetween internalandexternalelementsofa localintegrity system. (Muller, 2012; Slingerland, Six, & Huberts, 2012). The external elementsrelate to,amongstothers,externalaudit institutions, thepoliceand judiciary,andthemedia.The internal elements pertain to, amongst others, internal regulations, integrity trainingprograms,andethicalleadership(Slingerland,Six,&Huberts,2012).Thispaperpaysattentionexclusivelytotheinternalelementsoflocalintegritysystems(forpublicservants).Centralgovernmenthasleftindividualmunicipalitiesalotoffreedomfordevelopingtheirownlocalintegritysystems.Asaresult,municipalitiesmightdifferfromeachotherintermsofthecompleteness of these systems (Muller, 2012). So far, little research has been done on thisspecifictopic.CentralresearchquestionIn thepastdecades, thescientificattention for (local) integritysystemshas increased(Six&Lawton, 2010; Berndsen & Van Montfort, 2012; De Graaf, 2012; Huberts, 2012, 2015;Slingerland, Six, & Huberts, 2012; Quesada, Jimenez-Sanchez, & Villoria, 2013; De Graaf &Macaulay, 2014;Macaulay,Newman,&Hickey, 2014). A limitation ofmany existing studies,however,isthattheyaremainlydescriptiveorprescriptiveinnature.Theydescribewhattheidealintegritysystemlookslikeorshouldlooklike.Itisrarelyindicatedfromwhichelementstheexaminedsystemactuallyexists.Anotherlimitationofmanyexistingstudiesisthattheydonotofferexplanatorymodelswhichhavebeentestedempiricallyandprovideinsightintohowanintegritysystemactuallyfunctions(Six&Lawton,2010;Slingerland,Six,&Huberts,2012).As a result, it is still largely unclear to what extent municipalities have complete integritysystemsforcivilservants.Itisalsounknownwhetherpossiblerelevantsituationalfactorssuchthe number of inhabitants of a municipality (Van den Heuvel, Huberts, Van der Wal &Steenbergen, 2010) and the political composition of the municipal council (Leek & VanMontfort,2004),formanexplanationforthe(in)completenessofmunicipalintegritysystemsforcivilservants.These two gaps in the current scientific knowledge about municipal integrity systemspromptedustoconductaresearchprojectreportedinthispaper.Theresearchprojectfocusedon the situation in the Netherlands in 2017. It was carried out from the following centralquestion: To what extent do Dutch municipalities have a complete integrity system for civilservants and to what extent does this relate to the size of the municipality and the politicalcompositionofthemunicipaladministration?

THEORETICALFRAMEW0RKAnimportantconceptinourcentralquestionisintegrity.Despitethefactthatthisconcept‘isoftenusedinliteratureandpractice,itisnotalwaysclearwhatitexactlymeans(Six&Lawton,2010;Addink,2012;Tongeren,2012;VandenHeuvel,2012;Huberts,2012,2015).IntegrityInthisresearch,integrityisdefinedas"actinginaccordancewiththeprevailingmoralvaluesandnormsandtheassociated(game)rules"(VandenHeuvel&Huberts,2003,p.19;Vanden



Heuvel & Huberts, 2010, p. 26; Huberts, 2005, p. 9). This definition leaves room for theexistence of different interpretations of integrity, depending on time and place (Van denHeuvel&Huberts,2003;Reynaers,2012).Basedonthisdefinition,publicadministratorsandcivilservantsshowintegrityiftheyfulfilltheirdutiesandfunctionsinaccordancewithwhatismorallyjustified,measuredagainstthemoralnorms,valuesandcorrespondingruleswhicharerelevantatthattimeandinthatcontext(VandenHeuvel,Huberts,VanderWal&Steenbergen,2010;Addink,2012). Theoppositeof integrityare integrityviolations(Slingerland,Six,&Huberts,2012).Becauseintegrity violations can vary widely, a range of instruments and institutions are needed toaddress this diversity. This emphasizes the importance of thinking in terms of a 'system'(Slingerland,Six,&Huberts,2012).SystemapproachIn recent years, the scientific literature has focused not only on integrity policy, but on theentireintegritysystemofanorganization(Warburton&Baker,2005;Huberts,Anechiarico,&Six,2008;Six&Lawton,2010;Huberts&Six,2012;Six,&Huberts,2012;Six,VanderVeen,&Kruithof,2012;Slingerland,Six,&Huberts,2012;Quesada,Jimenez-Sanchez,&Villoria,2013;DeGraaf&Macaulay,2014;Macaulay,Newman,&Hickey,2014).Anintegritysystemismoreextensive than just an integrity policy (Six & Lawton, 2010). Slingerland, Six and Huberts(2012, p. 220)define an integrity systemas "thewhole of components, such as institutions,policyinstruments,actionsinpracticeandintegrityguards,whoseaimistocontributetotheintegrityperformanceofanorganizationintheheartofsociety".A system approach looks at the larger picture by taking into account all elements andconditionsthatareexpectedtobeimportanttotheintegrityoftheorganization(Six&Lawton,2010).Suchanapproachfocusesontheconnectionbetweenvariouscomponentswithinandoutsidetheorganization,howtheyareinterconnectedandhowtheyarejointlyresponsibleforthe integrityperformanceofanorganization(Kolthoff,2012). Ideally, the integritysystematthe internallevel is organized in such away that externalinstitutions such as external auditagencies,ombudsman,thepoliceandjudiciary,andthemedia,donothavetotakecorrectiveactions(Slingerland,Six,&Huberts,2012).EffectivenessofanintegritysystemTheeffectivenessofanintegritysystemisseenastheextenttowhichthesystemsmanagestolimit integrity risks (Six & Lawton, 2010; Slingerland, Six, & Huberts, 2012). Integrity risksconcernactions, functionsandworkprocesses thatarevulnerable from thepointofviewofintegrity.Itishighlyprobablethatthemostimportantintegrityrisksthatneedtobeaddressedinalocalintegritysystemcorrespondwiththemaintypesofintegrityviolations(Six&Lawton,2010;VanTankeren,2012).Thescientific literaturedoesnotclearlystatewhatexactlycreatesaneffectivelocal integritysystem (Six & Lawton, 2010; Slingerland, Six, & Huberts, 2012). Which combination orconfigurationofelementsleadstothehighestintegrityperformance?Whataretheunderlyingmechanisms thatdeterminewhethera certain combination is effective?Thesearequestionsthatarecurrentlyunanswered.CompletenessofanintegritysystemHowever,thereareindicationsinthescientificliteraturethatacompleteintegritysystemisanecessaryconditionforahighsystemeffectiveness.Manyofallimportantinternalorexternalelements of a integrity system must be present in order to have an effective system. The



completenessofanintegritysystemisconsideredannecessaryconditionforitseffectiveness.(Slingerland, Six, & Huberts, 2012; Habib-Ranzijn, 2015; Van den Heuvel, Huberts, & VanMontfort,2017).Thescientificliteraturedoesnotcontainacompleteoverviewofthekeyinternalandexternalelements thatmakeupacomplete integritysystem.Thevastmajorityofpreviousstudies inthe field of organisation integrity mainly or exclusively focus on individual elements of anintegrity system (Vidaver-Cohen, 1995; Kaptein &Wempe, 1998; Bass & Steidlmeier, 1999;BZK, 2003; Treviño, Brown & Hartman, 2003; Van den Heuvel & Huberts, 2003; Brown,Treviño,&Harrison,2005;Huberts&Nelen,2005;BIOS,2015a,2015b,2018;TerHorst,2008;Van den Heuvel, Huberts, Van der Wal, & Steenbergen, 2010; Van Tankeren, 2010, 2012;Heetman,VanWayenburg,Guijt,&DeWit,2011;DeGraaf,2012;Heres,2012,2015;Hoekstra,2012; Huberts, Van den Heuvel, & Van der Wal, 2012; Maesschalck, 2012; Muller, 2012;Musschenga,2012;Nelen,2012;VandenHeuvel,2012;VanderWal,2012;VanderVeer,2012;Hoekstra, Makina, & Talsma, 2013; Van Montfort, Huberts, & Dees 2014; Huberts, Six, VanTankeren,VanMontfort&Paanakker,2014;Huberts,2015;Zweegers,2015;Tahalele,2015;DeDroog&Hoekstra,2016;Faro,2017;Talsma,Hoekstra,&Zweegers,2017).Althoughmostpreviousstudiesdonotpayattentiontointegritysystemsasawhole,theyareusefulbecausethey make clear what separate elements of a local integrity system are important forguaranteeingandpromotingintegrity(Hoekstra,2012).Thesestudiescanbeusedformakinganoverviewoftheimportantelementsthatshouldbepresentinacompleteintegritysystem(VandenHeuvel,Huberts,&VanMontfort,2017).EvaluationframeworkBased on the literature on separate elements of a local integrity system,we constructed anoverviewofkeyinternalelementsfromwhichacompletelocal integritysystemshouldexist.ThisoverviewoffortyinternalelementsdividedintothirteencategoriesispresentedinTable1. The overview constitutes an evaluation framework throughwhich the completeness (andthereforeindirectlytheeffectiveness)ofaconcretelocalintegritysystemcanbeassessed.



Table1:Evaluationframeworkforassessingcompletenesslocalintegritysystem Category1:Attentiontointegrity1a.Municipaladministratorspayalotofattentiontointegritywithinthecivilservice.1b.Managerspayalotofattentiontointegritywithinthecivilservice.1c.Thesubjectofintegrityisregularlydiscussedduringworkmeetingswithinthecivilservice.1d.Thereissufficienttimeandmoneytosafeguardintegritywithinthecivilservice. Category2:Regulations2a. Thereisalocalregulationfortheacceptanceofgifts.

Thisregulationisknowntocivilservants.2c. Thereisalocalregulationforhavingancillarypositions

Thisregulationisknowntocivilservants.2e. Thereisalocalregulationfordeclaringexpenses.

Thisregulationisknowntocivilservants.2g. Thereisawhistleblowingregulation.

Thisregulationisknowntocivilservants. Category3:Codesofconduct3a. Thereareoneormoreformallyestablishedcodesofconductwithinthecivilservice.3b. Civilservantshavebeensubstantiallyinvolvedintherealizationofthecode(s)of

conduct.3c. Thecodeorcodesofconductareknowntocivilservants.3d. Thecodeorcodesofconductcaneasilybeconsultedbycivilservantsontheintranet. Category4:Oathorofficialpromise4. Civilservantsusuallytakeanoathorofficialpromiseafterhavingbeenappointed. Category5:Personnelpolicy5a. Inapplicationprocedures,theavailabilityoftherequireddiplomasisusuallychecked.5b. Inemploymentconditionsinterviews,thetopicofintegrityisusuallyaddressed.5c. Inperiodicalperformanceinterviews,integrityisusuallyappliedasanassessment

criterion. Category6:Integritytrainingprograms6a. Civilservantsregularlyparticipateinanintegritytrainingprogram.6b. Afterwards,oneormorefollow-upmeetingsusuallytakeplace. Category7:Ethicalleadership7a. Managerssetagoodexampleintermsofintegrity.7b. Managerspropagatetheimportanceofshowingintegrityintheperformanceoftasks.7c. Itispossibletodiscussmoraldilemmaspresentintheperformanceoftasks.7d. Managerscallcivilservantswhobehaveinappropriatelytoaccount. Category8:Riskanalysesorvulnerabilitystudies8. Withinthecivilservice,riskanalysesorvulnerabilitystudiesregularlytakeplace. Category9:Localintegritydepartmentorfunctionary9a. Alocaldepartmentorfunctionarycoordinatesandimplementsintegritypolicy.9b. Thislocaldepartmentorfunctionaryparticipatesinaninter-municipalnetworkinwhich

knowledgeandexperiencesinthefieldofintegrityareshared. Category10:Localcontactpointforreportingsuspectedintegrityviolations10a.Thereisalocalfunctionaryordepartmentwherecivilservantscanreportsuspicionsof

integrityviolationsbycolleagues.10b.Thislocalfunctionaryordepartmentisknowntocivilservants.10c.

Itiscleartocivilservantswhatfunctionaryoradministratordecideswhetherthereportaboutapossibleintegrityviolationisareasontostartaninternalinvestigationintothisissue.



10d.Itiscleartocivilservantswhatfunctionaryoradministratordecideswhethertheresultsoftheinternalinvestigationwillbecommunicatedwiththepolice.

Category11:confidentialcounsellor11a.Within the civil service, there are one ormore confidential counsellors in the field of

integrityand/orsexualharassment.11b.Theexistenceofoneormoreconfidentialcounsellorsisknowntoofficials. Category12:registrationandreporting12a.Withinthecivilservice,reportsofsuspicionsofintegrityviolationsarecentrally

registered.12b.Withinthecivilservice,actualintegrityviolationsarecentrallyregistered.12c.Thereareannualmanagementreportsontheimplementationoftheintegritypolicy. Category13:integrityinvestigations13a.Thereareinternalinvestigationsintohigh-profilesuspicionsofintegrityviolationsona

regularbase.13b.Whenapunishmentisimposedoranothermeasureistakeninresponsetoaninternalor

externalinvestigation,thebackgroundofthemeasureisclearlycommunicatedtocivilservants.

Withtheaidoftheabovementionedevaluationframework,itcanbeassessedtowhatextentalocal integritysystemhasall the important internalelements fromwhichacompletesystemshould exist. It is to be expected that some local integrity systems will prove to be morecompletethanothers.Ifthatwillturnouttobethecase,thenthequestionmayarisetowhatextent these differences in the completeness of a local integrity system can be explained byfactors such as the size of the municipality and the political composition of the municipalcouncil.MunicipalitysizeaspossibleexplanatoryfactorWeassumethatthefactor 'municipalitysize'hasapositive influenceonthecompletenessofthe entire integrity system (Longenecker,Moore, Petty, Palich,&McKinney, 2006;Hoekstra,2012;Downe, Cowell,&Morgan, 2016;Koolma,Hulst,&VanMontfort, 2017). The size of amunicipalitycanbeexpressedinthenumberof its inhabitants. Internationalresearchshowsthat large municipalities are probably better equipped to tackle integrity issues than smallmunicipalities(Downe,Cowell,&Morgan,2016).Theintegritysystemsoflargemunicipalitiesmaythereforebemorecomplete.Thisassumptionleadstothefollowinghypothesis:H1=Asamunicipalityhasmore inhabitants, themunicipalityhasamorecomplete integritysystem.PoliticalcompositionofmunicipaladministrationaspossibleexplanatoryfactorMoreover,weassumethattheextenttowhichnon-nationalpoliticalpartiesarerepresentedinthemunicipal administrationhas a negative influence on the completeness of themunicipalintegrity system (VandeGraaf&Hoppe, 1992;Berman&West, 1995;BZK, 2003;Hiironen,2004;Leek&VanMontfort,2004;VandenHeuvel,Huberts,VanderWal,&Steenbergen,2010;Huberts&Six,2012;Slingerland,Six,&Huberts,2012;Kremer,2013;Luu,2015;Brandsma&Kieskamp,2018;Broersma&Lacon,2018;DeBruin,2018;Koster,2018;VanLoon&VandeWiel,2018;VanRuiten,2018).Thispossibleexplanatory factorrefers to theextent towhichnon-nationalpoliticalpartiesarerepresented in themunicipal council (i.e. thepercentageofcouncilmembersfromnon-nationalpoliticalparties).Italsoreferstotheextenttowhichnon-national political parties are represented in the college of mayor and aldermen (i.e. thepercentageofaldermenfromnon-nationalpoliticalparties).



Dutch central government has obliged municipal administrations to develop local integritysystems. Central government has alsomade some specific system elements such as offeringintegrity training programs and taking an oath or promise, mandatory for municipaladministrations. Nevertheless, municipal administrations are provided with a lot ofdiscretionaryspacefordevelopingtheirownlocalintegritysystems(VandenHeuvel,Huberts,VanderWal,&Steenbergen,2010).Weexpectthe'administrativewill'ofamunicipaladministrationtobeadecisivefactorintheextenttowhichthemunicipaladministrationcomplieswithcentralgovernment'sobligationtodevelopalocalintegritysystemandtoincludesomespecificelementsinthissystem(VandeGraaf&Hoppe, 1992; Leek&VanMontfort, 2004). This ‘administrativewill’ of amunicipaladministration is in turn probably dependent on the political composition of themunicipaladministration(VandeGraaf&Hoppe,1992;Leek&VanMontfort,2004).It canbeassumed thatmunicipal administrations inwhichnon-nationalpoliticalparties arehighly represented have a comparatively smaller ‘administrative will’ to develop a localintegrity system and include some specific elements in this system. Non-national politicalparties focusmoreonwhat isgoingonamong the localpopulation.Theyaremorepracticalandprimarilyinterestedinlocalproblems(Broersma&Lacon,2018;DeBruin,2018;Koster,2018; Van Loon & Van de Wiel, 2018). Municipal administrations in which non-nationalpolitical parties are highly represented will therefore probably develop less complete localintegrity systems than municipal administrations in which national parties have the upperhand.Thesetheoreticalassumptionsresultinthefollowinghypotheses:H2=Asthecitycouncilhasmoremembersofnon-nationalpoliticalparties,themunicipalityhasalesscompleteintegritysystemH3 = As the college of mayor and alderman has more members of non-national politicalparties,themunicipalityhasalesscompleteintegritysystem.Theabovetheoreticalinsightsandhypothesesarepresentedintheformofaconceptualmodelinfigure1.



Figure1:Conceptualmodel

Municipality size

Completeness local integrity system

Attention to integrity

Regulations

Codes of conduct

Oath or official promise

Personnel policy

Integrity training programmes

Ethical leadership

Risk analyses or vulnerability studies

Confidential counsellor

Local integrity department or functionary

Local contact point for reporting suspected integrity violations

Registration and reporting

Integrity investigations

(H2)

(H3)

Representation of non-national political

parties in the city council

Representation of non-national political parties in the college

of mayor and alderman

Political composition of the municipal administration

(H1)

DATACOLLECTIONANDANALYSESTheresearchincludesanevaluatingpartandahypothesis-testingpart.First,itwasevaluatedtowhatextentthelocalintegritysystemsofDutchmunicipalitiesconsistoftheelementsthataccording to the literature should be present in a complete system. Subsequently, threehypothesesweretestedontheextenttowhichthecompletenessofalocalintegritysystemisrelated to the size of the municipality and to the political composition of the municipaladministration.Forboth theevaluatingpart and thehypothesis-testingpartof the research,use is made of a cross-sectional research design (De Vaus, 2001). In 117 local integritysystems,quantitativedataonthecurrentstateofaffairshavebeencollected.DigitalsurveyamongallDutchmunicipalitiesTheresearchdatawereobtainedbymeansofadigitalsurvey.Thequestionnaireforthesurveyconsistedmainlyof closedquestions.The items in thequestionnaire canbe roughlydividedinto two groups. One group of items related to the system elements from the evaluationframework(presentedaboveinTable1).Theothergroupofitemspertainedtothevariablesfromthehypotheses.Thewayinwhichthelocalintegritysystemelementsandtheexplanatoryand control variables have been operationalized into the items of the questionnaire isdescribedbyOgric(2018).



The digital survey took place in the spring of 2018 and covered the situation in 2017. Thesurveywas conducted by the first author of this article and three fellow students from theMaster'sprograminPublicAdministrationatVUUniversityAmsterdaminthecontextoftheirfinalgraduationprojects.Theresearchersweresupervisedbythesecondandthirdauthorofthisarticle.All 380 Dutch municipalities were approached by the researchers with the request toparticipateinthedigitalsurvey.Ultimately,117(31%)wereinvolvedinthesurvey.Respondents,sampleandrepresentativenessInmostmunicipalities,thequestionnaireofthesurveywasfilledinbyapolicyofficer(32.5%),astaffmember(23.1%)oranlegaladvisor(11.1%).

Table2:OccupationsofrespondentsPolicyofficer 32,5%(38)Staffmember 23,1%(27)Legaladvisor 11,1%(13)Manageratthelevelofmunicipalsecretaryordepartmenthead 7,7%(9)(Legal)controller 5,1%(6)Manageratthelevelofteamleader 4,3%(5)Other 16,2%(19)Total 100%(117)

Eventually, 117 respondents filled in the questionnaire of the survey on behalf of theirmunicipalities.Table3showsthedistributionofthemunicipalitiesbynumberofinhabitants.Withregardtothenumberofinhabitants,thesampleof117municipalitiesisrepresentativeofthetotalpopulationofDutchmunicipalities.

Table3:MunicipalitiesbynumberofinhabitantsLessthan20,000inhabitants 21,4%(25)20,000to50,000inhabitants 47,9%(56)50,000to100,000inhabitants 20,5%(24)100,000to250,000inhabitants 8,5%(10)Morethan250,000inhabitants 1,7%(2)Total 100%(117)

Table4showsthedistributionoftheinvestigatedmunicipalitiestothepoliticalcompositionofthemunicipaladministration.Thetablerelatestothepresenceofcouncilmembersfromnon-nationalpoliticalpartiesand thepresenceofaldermen fromnon-nationalpoliticalparties inlocal government.With regard to both aspects, the sample is not representative of the totalpopulation ofDutchmunicipalities.Municipalitieswhere less than20percent of the councilmembers / aldermen belong to non-national political parties are overrepresented in thesample.



Table4:Municipalitiesbypercentageofcouncilmembersfromnon-nationalpartiesandpercentageofaldermanfromnon-nationalparties

Councilmembers

Aldermen

Lessthan20percentbelongtonon-nationalpoliticalparties 47,9%(56) 51,3%(60)20to40percentbelongtonon-nationalpoliticalparties 28,2%(33) 27,4%(32)40to60percentbelongtonon-nationalpoliticalparties 17,9%(21) 12,0%(14)60to80percentbelongtonon-nationalpoliticalparties 4,3%(5) 7,7%(9)Morethan80percentbelongtonon-nationalpoliticalparties 1,7%(2) 1,7%(2)Total 100%(117) 100%(117)DataanalysisThesurveydatawereanalyzedusingSPSS.Inordertodeterminethedegreeofcompletenessof the local integrity systems investigated, descriptive univariate analyzes were performed,which resulted in tables with frequency distributions. To test the hypotheses, bivariateanalyzes were first performed, resulting in cross-tabulations with Phi-values andcorresponding p-values. Subsequently,multivariate analyzeswere performed in the form oflinearorlogisticregressionanalyzes.Inallstatisticalanalyzes,aconfidenceintervalof95%(p<0.05)wasused.

RESULTSWhatdothesurveydatatellusaboutthe(in)completenessoflocalintegritysystems?Andtowhat extent do the factors from our hypotheses provide an explanation for this(in)completeness?PresenceofintegritysystemelementsOf the40 elements fromwhich a complete local integrity system should exist (See above inTable1),23arefoundtoa largeextent inthesampleof117integritysystems.Theother17elements are found to a lesser extent in our sample. Table 5 showswhat 5 elements werefound in the largestnumberof investigated integritysystems(‘top5popularelements’)andwhat5elementswereobservedinthesmallestnumberofexaminedintegritysystems(‘top5neglectedelements’).Thetablestartswiththemostpopularelementandendswiththemostneglectedelement.



Table5:PercentageoflocalintegritysystemsinwhichapopularorneglectedelementispresentElement Percentagesystems

Top5popularelementsThereisalocalregulationfortheacceptanceofgifts 100%Thereisalocalregulationfordeclaringexpenses 100%Thisregulationisknowntocivilservants 99,2%Thereisalocalregulationforhavingancillarypositions 98,3%Thereareoneormoreformallyestablishedcodesofconduct 98,3%

Top5‘neglected’elementsWithinthecivilservice,riskanalysesorvulnerabilitystudiesregularlytakeplace.

29,8

Civilservantsregularlyparticipateinanintegritytrainingprogram.

30,2

Afterwards,oneormorefollow-upmeetingsusuallytakeplace 35,3Thereareinternalinvestigationsintohigh-profilesuspicionsofintegrityviolationsonaregularbase.

47,3

Thereareannualmanagementreportsontheimplementationoftheintegritypolicy.

44,8

(Missingcases=4,1,0,2,0,13,21,11,7,12)Sofar,attentionhasbeenpaidtothepresenceofindividualsystemelements.Wenowswitchtotheintegritysystemsasawholeandassessthe(in)completenessofthesesystems.Towhatextentdolocalintegritysystemshavetheelementsthattheyshouldcontainaccordingtoourevaluationframework?CompletenessofentireintegritysystemsIna largenumberof investigated integritysystems,nosurvey information isavailableaboutoneormoresystemelements.Thelackofinformationaboutaparticularsystemelementcanhave four causes: (a) the requested information was unknown to the respondent; (b) therespondent failed to answer the relevant survey question; (c) the answer to the surveyquestion is not taken into consideration by the researchers, because that answer wasinconsistentwithananswertoanothersurveyquestion;or(d)thequestiondidnothavetobeansweredby the respondent, because this question - given the answer to aprevious surveyquestion-didnotapply to the integritysystemonwhichtherespondentwasquestioned. Incaseofoneofthefirstthreecauses,thereisa'missingcase'.Becausemanyexaminedintegritysystemslacksurveyinformationaboutat leastonesystemelement,manymunicipalintegritysystemswouldbedroppedoutoftheanalyzesifwewouldcalculateacumulativescoreforthetotalofallsystemelements.Thatiswhywehavecreatedanewvariablethatcalculatesper integritysystemtheaveragescore(i.e.arithmeticmean) forthe total of all system elements. In doing so,we have disregarded the investigated integritysystemsinwhichonlylessthan80percentofthesystemelementsarepresent.Inotherwords,weonlycalculatedanaveragescore for the totalof thesystemelements if therewassurveyinformationavailableaboutasufficientnumberofsystemelements.Theaveragescorecalculatedperintegritysystemisagoodmeasureofthecompletenessofanintegritysystem.Thisaveragescoreranges from0(indicating thatall systemelements fromourevaluation frameworkaremissing in the integritysystemunderreview) to1(indicatingthat all system elements from our evaluation framework are present in the system underinvestigation).Wedistinguishfourcategoriesoflocalintegritysystemsaccordingtotheextentoftheircompleteness:



- veryincompleteintegritysystems,inwhichlessthan50percent(averagescore<0.50)of thesystemelements fromourevaluation frameworkareobserved in theexaminedintegritysystem;

- incomplete integrity systems, characterized by the fact that 50 to 70 percent (0.50 <averagescore<0.70ofthesystemelementsfromourevaluationframeworkarefoundintheinvestigatedintegritysystem;

- complete integritysystems, inwhich70 to90percent (0.70<averagescore<0.90)ofthe system elements from our evaluation framework are observed in the integritysystemunderreview;

- averycompleteintegritysystem,characterizedbythefactthatmorethan90%(averagescore>0.90)of the systemelements fromourevaluation frameworkare found in theintegritysystemunderinvestigation.

Table 6 shows that 45.3%ofDutchmunicipalities have a very incomplete or an incompleteintegrity system. A small majority (54.7%) of municipalities have a complete or a verycompleteintegritysystem.

Table6:LocalintegritysystemsclassifiedaccordingtotheircompletenessVeryincomplete 2,8%(3)Incomplete 42,5%(45)Complete 50,9%(54)Verycomplete 3,8%(4)Total 100%(106)(Missingcases=11)

Thefactthatmunicipalintegritysystemssubstantiallydifferfromeachotherintermsoftheircompletenessraisesthequestionofwhetherthesedifferencescanbeexplainedonthebasisofthe factors fromour three hypotheses. Do the size of amunicipality (hypothesis 1) and thepolitical composition of the municipal administration (hypotheses 2 and 3) provide anexplanationforthecompletenessofalocalintegritysystem?TestingofhypothesesContrary towhat is expected inourhypotheses, the sizeof amunicipality (expressed in thenumber of inhabitants) and the political composition of the municipal administration(expressed in thepercentageof councilmembers fromnon-nationalpoliticalpartiesand thepercentage of aldermen from non-national political parties) are not associated with thecompleteness of the local integrity system. This is apparent both from the results of thebivariateanalyzesandfromtheresultsofthemultivariateanalyzes.Theresults in table7shownosignificantassociationbetweenthesizeofamunicipalityandthecompletenessofitsintegritysystem(Phi=0.034,p=0.3635).Theresultsofthemultiplelogistic regression analysis also show that the size of a municipality is not significantlyassociatedwiththecompletenessofthelocalintegritysystem(B=0.009,p=0.4995).

Table7:Municipalitysizeinrelationtocompletenessoflocalintegritysystem Fewinhabitants ManyinhabitantsIncompletesystem 50,7%(36) 47,1%(16)Completesystem 49,3%(35) 52,9%(18)Total 100%(71) 100%(34)

(Missingcases=12;Phi=0.034,p=0.3635)



AccordingtoTable8,thepercentageofmunicipalcouncilorsofnon-nationalpoliticalpartiesisnot associated with the completeness of the municipal integrity system (Phi = 0.028, p =0.386).Thispicture isconfirmedbytheresultsof logisticregressionanalysis(B=0.006,p=0.348).Table8:Politicalcompositionofmunicipalcouncilinrelationtocompletenessoflocalintegrity

system Fewcouncilmembersof

non-nationalpartiesManycouncilmembersofnon-nationalparties

Incompletesystem 51%(26) 48,1%(26)Completesystem 49%(25) 51,9%(28)Total 100%(51) 100%(54)

(Missingcases=12;Phi=0.028,p=0.386)Table 9 shows that the percentage of aldermen of non-national political parties does notcorrelatewiththecompletenessofthemunicipalintegritysystem(Phi=0.066,p=0.249).Theresultsofthelogisticregressionanalysisalsoshowthatthepoliticalcompositionofthecollegeof mayor and aldermen is not significantly associated with the completeness of the localintegritysystem(B=0.003,p=0.415).Table9:Politicalcompositionofcollegeofmayorandaldermaninrelationtocompletenessof

localintegritysystem Fewcouncilmembersof

non-nationalpartiesManycouncilmembersofnon-nationalparties

Incompletesystem 53,1%(26) 46,4%(26)Completesystem 46,9%(23) 53,6%(30)Total 100%(49) 100%(56)

(Missingcases=12;Phi=0.066,p=0.249)Allinall,itcanbeconcludedthatourhypothesesarenotconfirmedbytheresearchresults.Isthereperhapsanotherfactorthatexplainsthecompletenessofalocalintegritysystem?Therelevanceofamunicipality’sgeographicallocationThe control variable 'geographical location' used in the statistical analyzes appears to be animportant factor.With respect to this variable, a distinction ismadebetweenmunicipalitiesthatarelocatedwithinTheRandstadandmunicipalitiesthatarelocatedoutside.TheRandstadisthemosturbanizedpartoftheNetherlands.ThisurbanareaissurroundedbythecitiesofAlkmaar,Amsterdam,RotterdamandUtrecht.Ofthe117municipalitiesthatparticipatedinthedigital survey, 28 are located within The Randstad and 88 are located outside (while thegeographicallocationofonemunicipalityisunknown).The geographical location of amunicipality is associatedwith the completeness of the localintegritysystem.MunicipalitieswithinTheRandstadgenerallyhaveamorecompleteintegritysystemthanmunicipalitiesoutsideTheRandstad.ThiscanbeseeninTable10(Phi=-0.178,p=0.035)andalsoappearsfromtheresultsofthemultivariateanalysis(B=-0.928,p=0.0305).



Table10:Geographicallocationsofmunicipalityinrelationtocompletenessoflocalintegritysystem

LocatedwithinTheRandstad LocatedoutsideTheRandstadIncompletesystem 34,6% (9) 55,1% (43)Completesystem 65,4% (17) 44,9% (35)Total 100% (26) 100% (78)

(Missingcases=13;Phi=-0.178,p=0.035)

CONCLUSIONANDDISCUSSIONTheresearchdatapresentedabovemakeitpossibletoanswerthecentralresearchquestiononthe extent towhichDutchmunicipalities have a complete integrity system for civil servantsand the extent towhich this is associatedwith the size of themunicipality and the politicalcompositionofthemunicipaladministration.First, it can be concluded that the completeness of the local integrity system variesconsiderablybetweenDutchmunicipalities.Insomemunicipalities,forexample,theintegritysystem consists of almost all elements that should be present according to our evaluationframework,suchasacodeofconduct,anoathorofficialpromiseandintegritytraining.Othermunicipalitieshave,however,amuchlesscompleteintegritysystem.Thegeneralpictureisasfollows: 3.8% of the municipalities have a very complete integrity system, whereas 50.9%,42.5%of2.8%ofthemunicipalitieshaveacomplete,incompletesystemandveryincompleteintegritysystemrespectively.A second conclusion is that the explanatory factors incorporated in our hypotheses, do notofferanexplanationforthesubstantialdifferencesbetweenlocalintegritysystems.Contrarytoour theoretical expectations, neither the number of inhabitants of a municipality nor thepoliticalcompositionofthelocaladministrationisassociatedwiththe(in)completenessofthelocalintegritysystem.Thecircumstanceofwhetherornotamunicipalityislocatedinthemosturbanized part of the Netherlands proves, however, to be a relevant factor. These researchfindings give rise to an modification of the conceptual model presented at the end of thesectiononthetheoreticalframework.Figure2showsthemodifiedconceptualmodel.



Figure2:Modifiedconceptualmodel

Municipality size

Completeness local integrity system

Attention to integrity

Regulations

Codes of conduct

Oath or official promise

Personnel policy

Integrity training programmes

Ethical leadership

Risk analyses or vulnerability studies

Confidential counsellor

Local integrity department or functionary

Local contact point for reporting suspected integrity violations

Registration and reporting

Integrity investigations

Representation of non-national political

parties in the city council

Representation of non-national political parties in the college

of mayor and alderman

Political composition of the municipal administration

Geographical location: inside or outside urbanized area

Apossibleexplanationfortherelevanceofamunicipality’sgeographicallocationmaybethatmunicipalities thataresituated inhighlyurbanizedareashave tocopewithamoredynamicand complex social environment thanmunicipalities in a rural area. In such a complex anddynamicenvironmenttheremaybeagreaterneedforregulations,proceduresandstructuralcontrolswith regard to theperformanceofpublic tasks (Dielemans&Musterd,1991;Güler,2018).Thismayexplainthemorecompletelocalintegritysysteminhighlyurbanizedareas.PossibilitiesforimprovementOurresearch findingscanserveasabenchmark formunicipalities.Amunicipality canapplythecomprehensiveevaluationframeworkdevelopedbyustoitsownlocalintegritysysteminorder to determine the system’s (in)completeness. This (in)completeness can then becomparedwiththecompletenessoflocalintegritysystemsingeneral,ofwhichanup-to-datepicturehasbeenoutlinedinthisarticleFurthermore, municipalities could start to pay attention to the following ‘top 5 neglectedelements’:riskanalysesorvulnerabilitystudiesonaregularbase,regularparticipationofcivilservants in integrity training programs, follow-up meetings after training programs on theregular base, internal investigations into high-profile cases on a regular base, and annualreportsonthe implementationof integritypolicy.Manymunicipalitiesdonotcurrentlyhave



oneormoreoftheseelements.Gettingstartedwiththeelementscanbeconsideredaspickinglow-hangingfruit.These possibilities for improving the completeness and thereby the effectiveness of localintegrity systems do not only exist in government agencies, but also apply to privateorganizations. There is little reason to assume that the requirements and actual situationregardinglocalintegritysystemsinthepublicsectordiffersignificantlyfromtherequirementsandactualsituationintheprivatesector. Just likepublicorganizations,privateorganizationscan use our research findings for a benchmark and immediately start adding the 'top 5neglectedelements'totheirintegritysystems.FutureresearchBased on the literature,we constructed an overview of key internal elements fromwhich acompletelocalintegritysystemshouldexist.Weleftouttheexternalelementsofanintegritysystem.Futureresearchshouldpreferablyalso takeexternalelementsofan integritysystemintoaccount.Thecompletenessoftheintegritysystemattheexternallevelisalsoanecessaryconditionforaneffectivesystem(Slingerland,Six,&Huberts,2012).Elementsattheexternallevelinclude,forinstance,externalauditagencies,localombudsmen,thepoliceandjudiciary,and the media (Slingerland, Six, & Huberts, 2012; Six & Lawton, 2010). These externalinstitutions can take corrective actions if the examined integrity system is of an insufficientqualityattheinternallevel(Slingerland,Six,&Huberts,2012).Finally,aliteraturestudycouldbedonetoexaminewhereourevaluationframeworkshouldbeslightlymodified inordertobecomesuitable for theprivatesector.Thissomewhatmodifiedevaluation frameworkcouldsubsequentlybeused inacross-sectionalsurveyamongprivateenterprises. This way, it could be checked whether the situation in the business sector isindeedabitmorefavorablethaninthepublicsector,assuggestedinarecentstudy(Talsma,Hoekstra&Zweegers,2017).

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Ndimitu, P. N., Mwangi, C. I., Kisaka, S., & Mwangi, M. (2018). Relationship Between Internal Audit Practices AndPerformanceOfWaterServiceProvidersInKenya.ArchivesofBusinessResearch,6(9),91-104.

RelationshipBetweenInternalAuditPracticesAndPerformanceOfWaterServiceProvidersInKenya

PerminusNyagaNdimitu

PhDCandidate,DepartmentofFinanceandAccounting,SchoolofBusiness,UniversityofNairobi

Dr.CyrusIrayaMwangi

DepartmentofFinanceandAccounting,SchoolofBusiness,UniversityofNairobi

Dr.SifunjoKisaka


Dr.MirieMwangi


ABSTRACTThepurposeofthisstudywastoestablishtherelationshipbetweeninternalauditandorganisationalperformanceofKenyanWSPs.To fulfil the studyobjective, hypothesiswas derived and tested on a population of 93 Water service providers. This crosssectional descriptive study was guided by a positivist study paradigm. The DataEnvelopment Analysis approach was used to codify the dependent variable andregression analysiswas then applied to test the hypothesis. The null hypothesiswasrejectedastheregressionanalysisfoundthat10.1%ofvariationsinfirmperformanceareexplainedbyvariationininternalauditwhile89.9%ofvariationsareexplainedbyothervariables.ThisinfersthatinternalauditinfluencesperformanceofWaterserviceproviders in Kenya. The study made contribution to policy formulation anddevelopmenttobenefittheunderstandingonhowinternalauditintheKenyancontextinfluence organizational performance resulting to formulation of reforms in variouspublicinstitutionstostrengtheninternalaudit.Keywords:InternalAuditPractices,FirmPerformance,WaterServiceProviders

INTRODUCTION

TherelationshipbetweeninternalauditandfirmperformancehasgraduallycreatedinterestinWaterserviceprovider’smanagementstudy(AlMatari,Swidi&Fadzil,2014).Internalauditisan essential part of management and a tool for enhancing performance of organisations.Complex organisational structures demand competent and professional internal audit toensure thatscarceresourcesareutilizedefficientlyandeffectively toenhanceorganisationalperformance (Chan, 2004). From the literature reviewed, there is sufficient empirical andtheoreticalevidencethatinternalauditinfluencesorganisationalperformance(Cohen&Sayag,2010;Eko&Hariyanto,2011;Theofarisetal.,2011).However, internalauditalonemaynotadequately explain variation in performance of companies. This shows that some otherelementsmediate to catalyse,decelerateormoderate theassociationbetween internalauditandfirmperformance.

Ndimitu,P.N.,Mwangi,C.I.,Kisaka,S.,&Mwangi,M.(2018).RelationshipBetweenInternalAuditPracticesAndPerformanceOfWaterServiceProvidersInKenya.ArchivesofBusinessResearch,6(9),91-104.


Waterserviceproviders(WSPs)arelegalpublicbodies licensedbyWaterRegulatoryBoards(WRB)toofferwaterandsanitationserviceswithintheirmandatedareas.Thisisprovidedforinsection46ofWaterActof2002ofthelawsofKenya.Waterserviceprovidersthereforearevehiclesusefultothegovernmentinordertoachieveitsgoalstoprovidepipedwatertoeveryhomeby the year 2030. Internal audit is an independent and objective appraisal, assuranceandconsultingfunctionintendedto improveanddevelopanorganisationsperformance(IIA,1999;Reid&Ashelby,2002).Itassistsanorganisationaccomplishitsgoalsbyintroducinganorderly, efficientmethod to assess and enhance the efficacy of risk assessment and controlprocess.Internalauditpracticeisanindependentandobjectiveappraisalactivityestablishedwithin an entity to examine and evaluate its operations as a service to the organization(Subramaniam,2006).Itsaimistoassuremanagementthattheinternalcontrolsareadequateandoperatingsatisfactorily(Reid&Ashelby,2002).Duffy, Fitzsimmons and Jain (2006) define organisational performance as the organisationscapabilitytoachieveitsgoalsbymeansofresourceseffectivelyandefficiently.Performanceoforganizations is measured by outcomes achieved and determinants of that performance byassessingtheefficiencywithwhichthatperformanceisachieved(Bethanetal,2004).Itistheextent towhich a company achieves a set of pre- determined targets that are unique to itsmission.Explainingandoftenpredictingfirmperformanceisaprimarystudyobjectiveofmostmanagement study. Organizational efficiency is a recurrent theme in most branches ofmanagement (Venkatramann and Ramanujam, 1981). Explaining and often predictingorganizational performance is a primary research objective of most management research(MarchandSutton,1997).Ithashoweverbecomeacontentioussubjectamongorganizationalresearchers (Barney, 1997) and continues to attract considerable contest in terms ofmeasurement and definition (Keats & Hitt, 1985). The problems of measurement ofperformancearisefromitsmultifacetedandmultidimensionalnature(Ongeti,2014).

LITERATUREPREVIEWTheoreticalReviewSeveral theories explain the association between internal audit and efficiency of firm. Thisstudy is underpinned on the following theories: agency theory (Adams, 1974), monitoringtheory (Wallace, 1980), and policeman theory (Adams, 1974). Jensen andMeckling (1976)developed the agency theory framework that explains the associationbetween theprincipaland the agent; where one part (principal) delegate tasks to another (agent). Watts andZimmerman(1986)positthattheauditservestheinterestsofbothshareholdersaswellasthemanagement. While the shareholders own the firm, the management (agent) exercises thecontrolof that firm.Ifshareholdersandmanagementeachseektomaximizetheirutility, theagent may possibly prioritize own interests to the detriment of those of the principal. Themonitoringtheoryexplainsthatemployeesarerational,risk-averseandareselfishactorswhoaremotivated by self-interest (Beaver, 1989).Monitoring theory posits that when the agentacceptstoworkonbehalfoftheprincipal,theagentiswellawarethathewillbemonitoredtoensureoptimumefficiency .Wallace(1987)andBeaver(1989)explainedthatthemonitoringtheory aims to reduce problems of moral hazard and information asymmetry between theprincipalandtheagent.Thepolicemantheoryassertsthatinternalauditingisresponsibleforsearching,detectingandpreventingfraud.Itfocusesonadesignedinternalaudittosafeguardthe assets of companies and assist in verification of accounting information for decisionmaking purpose (Van Peursen, 2005). However, the policeman theory cannot clarify thechangeofauditingtoconfirmationofthetrueandfairfinancialstatementswhichiscurrentlythemain focusof internalauditas itgivesreassurance tomanagementon thosestatements.Nevertheless, the policeman theory contributes to the study due to its advocacy of



safeguardingthepubliccompany’sassetsandensuringaccountabilityonthepartofmanagersofpublicinstitutions(Morgan,1979).EmpiricalReviewAccording to Subramaniam and Cooper (2013), test on the influence of internal audit onfinancial reporting inMalaysian companies using a regression analysis approach. The studyfindingspointedtoapositiverelationshipbetweeninternalauditqualityandirregularaccrualsinferringthatsomeinternalauditqualitieshave animportantpart inthefinancialreportingprocess. Though the study is a contribution to regulatory reforms with Board of directorsmoderatingtheobservedrelationship,thestudyconsideredthequalityoffinancialreportsandnotthelevelsoffirmfinancialperformanceasinfluencedbyinternalauditquality.The study by Aldamen, Duncan, Kelly, McNamara, Nagel (2012) on investigating whetherBoardAuditcommittee(AC)characteristicscontrolstheperformanceoffirmsduringadverseeconomicdownturneventsuchasGlobalFinancialcrisis,thatusedthelogitregressionteststoanalyze the data on audit committees and the Board of directors. The findings were thatsmaller audit committees with more experience and financial expertise enhance firmperformance. Longer serving chairs of audit committees were however found to negativelyinfluencefinancialperformanceoffirmsbuthavepositiveimpactwherethechairoftheboardand other members of the Board are independent and have many years of managerialexperience.Corporate governance improves audit committee character that positively affectperformanceespeciallyduringadverseeconomicshocksliketheglobalfinancialcrisisrevealedthatperformanceisnegativelyrelatedwiththenumberofauditcommitteemembers.CohenandSayag(2010)studiedtheefficacyofinternalauditusingdescriptiveanalysisdesignbyresearchingonthefollowingvariables:industryofthefirm;expertiseofinternalauditors;worthofauditwork;independence;trainingandtopmanagementsupport.Topadministrationsupportwas seen to be themajor determinant of internal audit effectiveness for enhancingperformanceofhotelsinIsrael.A cross sectional survey on 108 Israel firms that employ internal audit to determine theperceptions on internal audit function, effectiveness and determinants of internal auditeffectiveness in an organisation was done by Dominic and Nonna (2011). Data on theeffectiveness of internal auditwere derived from themanagers as respondents and data onwhatdetermineseffectivenessof internalaudit fromthe internalauditors. Theresultswerethat effectiveness of internal audit is determined to a large extent by firm organisationalstructure, the status and relationship of internal auditworks, staffing level of internal auditdepartment and the competencies of staff in that department. An investigation on internalauditpositioninthefirm’sorganisationchartandhowitenhancestheauditindependenceandits effectsonaudit role inpromotionof corporate structureswas carriedoutby Sarens andBeelde(2006).ThesurveyofChiefAuditexecutivesinEuropeancompaniesusedmultivariateregressionanalysis.Thefindingswerethat,theinternalaudithasawidescope,freeaccesstoinformation,adequateresourcestomonitorvariouscompanydecisionsandadequatelyadvicemanagers, provide oversight and ensure own independence and objectivity to promotecorporategovernanceandfirmefficiency.VanPeursen’s(2005)studyonhowinternalauditdealswiththeconflictof interestbetweenthedoublerolesofconsultingandassuranceserviceprovisiontomanagement.ThesurveyofinternalAuditors inIsraelhotelsfoundoutthatthereistensioninmaintainingthetworolesleading to a mix up of roles which hinders internal audit effectiveness. There are bothconceptual and contextual gaps. No consideration was given to internal controls, firm



characteristics ofWSPs in Kenya and further no relationship between internal audit and firperformancewasevaluated.Inthelightoftheforegoing,thisresearchtestedthenullhypothesisbelow:Ho1:TheinfluenceofinternalauditonperformanceofwaterserviceprovidersinKenyaisnotsignificant.

RESEARCHMETHODOLOGYResearchDesignAcross-sectionalsurveywasusedinthisstudy.Thedesignwasappropriatesinceitincludeddata collection at a point in time which relates to two or more variables in an effort todetermineassociationsbetweenthevariables.AsurveywassuitedforthestudybecauseWSPsinKenyaarefewbutspreadtoallpartsofthecountry.PopulationoftheStudyThepopulationofthestudywas93waterserviceprovidersinKenyawhichwereregulatedbyWASREB as at 2015. Population censuswas best for the research as theWSPs are few andalthough spread in the entire country , Kenya, data collection costs were minimal as therespondents were within reach at WASPA monthly meetings and the secondary data wasreadilyaccessiblefromWASREBimpactassessmentreports.Thiscontextwaschosenbecausetherewasaprevalentmanifestationofthevariablesinthisstudyasalludedtobytheliteraturereviewed(WASREB,2014).DataCollectionInstrumentThe study used both primary and secondary data. Primary data was obtained by self-administered,prearrangedquestionnairemadeupofclosedendedquestionspreparedinlinewith the goals, theories upon which the study was anchored, empirical studies andcorrespondinghypothesesofthestudy.Studyassistantswererecruitedandtrained.Thedatacollection instrumentswere delivered to the Chief ExecutiveOfficerwhowas considered asbestplaced tohave the required information.According toNewbert (2008),one respondentwho is knowledgeable on matters regarding a study is well placed to be a key informant.Secondary data on performance of WSPs was collected for the period 2011 to 2015 fromWASREB impactassessment reports. Anaverageof thatdata for the fiveyears showing theperformanceofeachWSPwascomputedandanalyzed.Theprimarydatacollectedoninternalaudit, institutionalcharacteristicsandinternalcontrolswasregressedonperformanceoftheWSPtoestablishthelinkages.DataAnalysisData collected was cleaned and edited to ensure it was complete. It was then coded andenteredintothestatisticalpackageforsocialsciences(SPSS)softwareversion21andanalysedthroughdescriptiveandinferentialstatistics.Linearregressionmodelswereusedtoevaluatetheassociationbetweenvariablesashypothesizedinthestudyat5%levelofsignificance.EmpiricalModelThe objective was to establish the association between internal audit and performance ofwater service providers in Kenya. The dependent- independent variables relationship ismodelledas:

P=𝑎 + 𝛽$𝑋$ + 𝜀Where:P=Performance



β1isbetacoefficient𝑎=intercept𝜀=ErrortermX1=internalaudit(composite)

RESULTSANDDISCUSSIONResponseRateAtotalof93questionnaireswerecirculatedtothe93WSPsthatwerethetargetpopulationforthestudy.Atotalof73questionnaireswerecorrectlyfilledandreturned.Thisrepresentedaresponserateof78%.AccordingtoBorg(2007)aresponserateof50percent inasurvey isadequate.Theresponserateof78%wasconsideredadequateasitwasabovethebenchmarkof50percent.This implied that the findingsof this studywere representativeof theoverallpopulation.DescriptiveAnalysisforInternalAuditThe researcher sought to carry out three types of analysis on internal audit. The pertinentresultsarepresentedbelow.

Table1:DescriptiveStatisticsonOversightingInternalAudit N Mean Std.

DeviationCoefficientofVariation

1. Thepoliciesandpracticesdevelopedbytheinternalauditforriskmanagementareapprovedbytheauditboard

73 3.758 1.313 35%

2. Theauditboardapprovesauditprogrambeforeitsforwardedtotheboardforimplementation

73 3.773 1.310 35%

3. Theauditboardsreviewperformanceofinternalauditors

73 3.652 1.295 35%

4. Theauditboardmeetswithinternalauditorsandmanagementonaregularbasistodiscussissuesofconcernthatmayarise

73 3.485 1.438 41%

5. Theauditboardestablishesproceduresforacceptingconfidentialinformationlikewhistleblowing

73 2.742 1.481 54%

6. AuditcommitteereportstotheboardofDirectorsregularly

73 4.283 1.133 26%

Source:Author(2018)

Theresultsintable1, indicatesthatinternalauditisoversightedbyotherboardorganstoalargeextent.Regularreportstotheboardbyinternalaudit(Mean=4.283,SD=1.133),Auditcommitteeapprovalof audit reportbefore it is forwarded to theboard (Mean=3.773,SD=1.310)andAuditboardreviewsperformanceofinternalauditors(Mean=3.652,SD=1.259).Onproceduresestablishedbytheboard,thevariationwashighabovetheaverage(C.V=54%)whiletherewasalessvariabilityonauditcommitteereportingtotheboardregularlyat26%.ProvisionofResourcestoInternalAuditFunctionTheresearchercomputeddescriptivestatisticsontheaspectofprovisionofresourcestotheinternalauditfunction.Table2belowshowstheresultsofthisanalysis.



Table2:DescriptiveStatisticsonProvisionofResources N Mean Std.


1. Theauditboardapprovesthebudgetofinternalauditdepartment

73 3.576 1.313 37%

2. Theauditboarddeterminescompensationandbenefitsofchiefinternalauditor

73 2.813 1.271 45%

3. Theauditboardensurestheinternalauditfunctionhasauditresources

73 3.554 1.118 31%

Source:Author(2018)

As indicatedby the likertscale itemresponses inTable2, therespondents indicate that toamoderateextent, theauditboarddeterminescompensationandbenefitsof thechief internalauditor (Mean = 2.813, SD = 1.271). Two likert item responses show that to a large extent,auditboardapprovesbudgetofinternalauditdepartment(Mean=3.576,SD=1.313)andtheauditboardensuresthattheinternalauditfunctionhasresources(Mean=3.554,SD=1.118).On determining compensation and benefits of chief internal auditor by audit board thevariation stood at 45% while audit board ensuring the internal audit function has auditresourceswasat31%.CompetencyofChiefInternalAuditorThestudyenvisagedtoestablishthecompetencyofchief internalauditorandgottheresultspresentedinTable3

Table3:DescriptiveStatisticsonCompetencyofChiefInternalAuditor N Mean Std.


1. Theauditboardisresponsibleformakingsurecompetentchiefinternalauditorishired

73 3.631 1.257 37%

2. Theauditboardmonitorstrainingneedsofauditstaff

73 3.159 1.221 39%

3. Theauditboardassessstheperfomanceofthechiefinternalauditorregularly

73 3.516 1.297 37%

Source:Author(2018)

Aspresented in table3above, the respondents indicate that toamoderateextent, theauditboardmonitorstrainingneedsofauditstaff(Mean=3.159,SD=1.221)andtoalargeextent,theauditboardensurescompetence inhiring thechief internalauditor (Mean=3.631,SD=1.257)andauditboardassessperformanceofchief internalauditorregularly(Mean=3.516,SD=1.297).OnCompetencyof Chief InternalAuditor the rangeon variabilitywasbetween37%and39%,hencetheauditboardmonitoringtrainingneedsofauditstaffhadthehighestvaribility.IndividualSub-VariableDescriptiveStatisticsThe study collected primary data on specific internal audit attributes and internal controlmechanisms among the identified water service providers. These internal audit attributesincluded;assuranceservices,compliancepolicies,consultingmanagement, independenceandobjectivity. The internal control mechanisms included; segregation of duties, IT controls,human resources controls and operating procedures. The descriptive statistics of theresponsestothespecificquestionsbasedonasurveyof93WSPSwithNbeing73WSPsareindicatedintables4to6below.



AssuranceServicesTheresearchercarriedastudyonassuranceservicesandobtainedtheresultsbelow.

Table4:DescriptiveStatisticsonAssuranceServices N Mean Std.


1. Internalauditiskeentoprovidecomprehensiveinformationonoperationsofthecompany

73 3.569 1.104 31%

2. Auditreportsareacceptedbymanagementwithoutfurtherquerries

73 3.258 .991 30%

3. Auditreportcontainstatusofpreviousreports 73 3.413 1.303 38%4. Theinternalauditorreviewperformanceofinternal

controlandgivesrecommendations73 3.694 1.125 30%

5. Internalauditanalysesandevaluatesinternalcontrolmechanismsusedtodetectanddeterfraud,evaluatethecompany'smanagementofriskoffraud,requiringtobeincludedinfraudinvestigations

73 3.794 1.180 31%

6. Internalauditordiscussesreasonablenessofauditreportswithmanagement

73 3.594 1.205 34%

Source:Author(2018)Fourlikertitemresponsesbytherespondents(CEO)onassuranceservicesallratedtoalargeextent.AspresentedinTable5above,Assistingmanagementwithanalysisofinternalcontrolsfor fraud detection (Mean = 3.794, SD = 1.180), review of performance of internal auditoperations(Mean=3.694,SD=1.125),discussionofinternalauditreportswithmanagement(Mean = 3.594, SD = 1.205) and provision of comprehensive information on organisationalprocedures(Mean=3.569,SD=1.104)areinternalauditpracticesexistenttoalargeextentinthecompanies.Twoofthe likertresponses indicatethatprovisionofpreviousstatusreports(Mean= 3.413, SD= 1.303) andmanagement acceptance of reportswithout further queries(Mean = 3.258, SD = 0.991) are experienced by the respondents to a moderate extent. Onassuranceservices the itemonwhetheraudit reportscontainstatusofpreviousreportshadthehighestvariabilityat38%.CompliancetoPoliciesDescriptiveanalysisoncompliancepolicieswasconductedandyieldedthefollowingresults.

Table5:DescriptiveStatisticsonCompliancePolicies N Mean Std.

DeviationCoefficientsofVariation

1 Thechiefinternalauditoriskeenonsafeguardingadherencetopoliciesandprocedures

73 3.641 1.213 33%

2 AuditplanisregularlyreviewedtoensurecompliancewithIIAstandardsofreporting

73 3.286 1.224 37%

3 Thechiefinternalauditorcontinuouslyreviewtheoperatingproceduresandgivesrecommendations

73 3.500 1.234 35%

4 Theinternalauditassessstheperformanceofpolicyimplementationinthecompany

73 3.460 1.105 32%

Source:Author(2018)As presented in Table 6, two likert item responses indicated that the chief internal auditorsafeguardsadherencetopoliciesandprocedures(Mean=3.641,SD=1.213)andcontinuously



reviews operating procedures and gives recommendations (Mean = 3.500, SD = 1.234) to alargeextentTwo likert item responses indicate that to a moderate extent, the internal audit assessesperformanceofpolicy implementation inthecompany(Mean=3.460,SD=1.105)andauditplanisregularlyreviewedtoensurecompliancewithinternationalreportingstandards(Mean=3.286,SD=1.224).Oncompliancepoliciestheitemthat,auditplanisregularlyreviewedtoensurecompliancewithIIAstandardsofreporting,hadthehighestvariability.ConsultingManagementThe researcher conducted a study on the impact of consulting management on matterspertaininginternalaudit.

Table6:DescriptiveStatisticsonConsultingManagement N Mean Std.


1 Thechiefinternalauditorisconstantlyconsultedonbestpracticesoffinancialmanagement

73 3.031 1.168 39%

2 Thechiefinternalauditorisproactiveininitiatingmeasuresthatcurbfrauds,andreducepotentialwasteinresources

73 3.344 1.185 35%

3 Thechiefinternalauditorprovidesinsightsthatfocusonareasofenhancedperformance

73 3.672 1.222 33%

4 Themanagementimplementproactivelyinternalauditorsrecommendations

73 3.594 1.065 30%

5 Themanagementconstantlyconsultsinternalauditorsonriskmanagementstrategies

73 3.172 1.203 38%

Source:Author(2018)Table6indicatesthattoalargeextent,internalauditprovidesinsightsthatfocusonareasofperformance (Mean = 3.672, SD= 1.222) and management proactively implements internalauditorsrecommendations(Mean=3.594,SD=1.065).Fromthreelikertitemresponsesinthetableabove,internalaudittoamoderateextentproactivelyinitiatesmeasurestocurbfraudsandreducepotentialwasteinresources(Mean=3.344,SD=1.185),areconstantlyconsultedbymanagementonriskmanagementstrategies(Mean=3.172,SD=1.203)andareconstantlyconsultedonbestpracticesoffinancialmanagement(Mean=3.031,SD=1.168).Theitemonwhether the chief internal auditor constantly consults on best practices of financialmanagement had the highest variabilty at 39%while on whether management implementproactiveinternalauditrecommendationshadthesmallestvariabiltyof30%.IndependenceThestudyaimedatestablishingtheindependenceofinternalauditor.



Table7:DescriptiveStatisticsonIndependence N Mean Std.


1 Theheadofinternalauditreportsfunctionallytotheauditboardandadministrativelytothechiefexecutiveofficer

73 4.333 1.188 27%

2 Theboardsthroughtheauditboardapprovestheinternalauditbudget

73 3.742 1.267 34%

3 Theboardsthroughtheauditboardapprovesthebudgetplanandreviewsauditplan

73 3.594 1.306 36%

4 Theinternalauditordeterminesthescopeofauditing,andcommunicatingresultsindependently

73 3.862 1.171 30%

5 Auditboardreviewstheannualprogressoftheauditactivitiesinrelationtotheauditplan

73 3.466 1.341 39%

6 internalauditfunctionhasbeenfundedinawaythatpromotesobjectivityandconsistencyinqualityofitsdelivery

73 3.463 1.206 35%

Source:Author(2018)

Table7presents four likert responseswhere respondents indicate toa largeextent that theheadof internalauditreports functionallytoauditboardcommitteeandadministrativelytotheCEO(Mean=4.333,SD=1.188), theinternalauditor is freefrominterferenceinscopingwokandcommunicatingresults(Mean=3.862,SD=1.171),theboardthroughtheauditboardapproves the internal audit budget (Mean = 3.742, SD = 1.267) and the boards through theauditboardapprovesresourceplanandreviewsauditplans(Mean=3.594,SD=1.306).Therespondentsindicatethattoamoderateextent,auditboardreviewsannualprogressofauditactivitiesinrelationtoauditplan(Mean=3.466,SD=1.341)andinternalauditfunctionhasbeenfundedinawaythatpromotesobjectivityandconsistency(Mean=3.463,SD=1.206).OnIndependence,onwhether auditboardreviewstheannualprogressoftheauditactivities inrelation to theauditplanhad thehighestvariabilityof39%whileonassessingwhether theheadofinternalauditreportsfunctionallytotheauditboardcommitteeandadministrativelytotheCEOhadsmallestvariabilityof30%.ObjectivityThe researcher sought to find out whether there is objectivity in practice by the internalauditor.

Table8:DescriptiveStatisticsonObjectivity N Mean Std.


1. Therenumerationandtermsofserviceforchiefinternalauditorareapprovedbytheauditboard

73 3.215 1.484 46%

2. Theinternalauditorisprohibitedfromauditingworkswhichhehasexecuted

73 3.322 1.559 47%

3. Thechiefinternalauditorhasdirectaccesstoallfirminformationwithoutrestrictions

73 4.062 1.309 32%

4. Thechiefinternalauditorcannotreviewtheoperationsconductedbyarelative

73 3.422 1.434 42%

Source:Author(2018)

AspresentedinTable8,theintervieweesindicatedthattoalargeextent,theinternalauditorhasdirectaccesstoallfirminformationwithoutrestrictions(Mean=4.062,SD=1.309).Therespondents indicate that to amoderate extent, chief internal auditor can not review the



proceduresconductedbyarelative(Mean=3.422,SD=1.434),internalauditorisprohibitedfromauditingworkshehasexecuted(Mean=3.322,SD=1.559)andrenumerationandtermsofserviceforchief internalauditorareapprovedbytheauditcommitte(Mean=3.215,SD=1.484).Ahighvariability47%wasnotedonwhether the internalauditor isprohibited fromauditingworkswhichhehasexecutedalowvariabilityof32%wasnotedonwhetherthechiefinternalauditorhasdirectaccesstoallfirminformationwithoutrestrictions.PerformanceofWaterServiceProvidersThe researcher examined the performance of WSPs in Kenya using DEA model withoutput/inputrelationship.Dataenvelopanalysiswhichanon-parametrictechniqueisassignedaperformancescorerangingfrom0to1tothedecisionmakingunits.

Table13:PerformanceoftheWSPsinKenyaRange/Statistic Frequency Value0.0to0.3 4 5.5%0.31to0.6 12 16.4%0.61to0.9 41 56.2%0.91andabove 16 21.9%TotalnumberofWSPs 73 100%ArithmeticMean

0.7259

StandardDeviation

0.2069Maximum

1.0000

Minimum

0.1493Source:Author(2018)

Table13 shows the outputs used as:Water coverage,Revenue collectionperformance; Staffperformance;Meteringratio;NonRevenueWater;Revenueturnover;andNumberofhoursofWatersupplywhiletheInputsusedwerePersonnelcosts,OperatingandMaintenancecosts.The observation is shown in Table 13 above. Fifty six percent (56%) of the WSPs hadperformanceofbetween.61and0.9whichisaboveaverage.SixteenpercentoftheWSPshavebetween .31and .60performancewhich ismoderate. Thehighestperformancewas1.0andthelowestwas0.15.TheDEAperformanceiscapturedinAppendixV.

HYPOTHESESTESTINGANDDISCUSSIONOFFINDINGS

InfluenceofInternalAuditonOrganisationalPerformanceThefirstspecificgoalofthestudywastodeterminetheeffectofinternalauditonperformanceof Water Service Providers in Kenya. The study postulated that the relationship betweenperformance and internal audit attributes namely; assurance services, compliance policies,consulting management, independence and objectivity were not significant. Organisationalperformance was measured through the performance ratio of each water service provider.Simple regression analysis was used to assess if there is linear relationship between theinternal audit (independent variables: assurance services, compliance policies, consulting,independence and objectivity) and whether they predicted performance ratio (dependentvariables)ofthewaterserviceprovidersofKenya.Hypothesis: The influence of internal audit on performance of water service providers inKenyaisnotsignificant.



Thepredictionequationwasgivenas:P=𝑎 + 𝛽$𝑋$ + 𝜀Where:P=Performanceβ1isbetacoefficient𝑎=intercept𝜀=ErrortermX1=internalaudit(composite)TheresultoftheregressionmodelaregiveninTables5.1,5.2and5.3.GoodnessofFitDetermination of the influence of internal audit on performance ofWater Service ProviderswasconductedandobtainedresultsinTable15

Table15:ModelGoodnessofFitofInternalAuditPracticesandPerfomanceModel R RSquare AdjustedRSquare Std.ErroroftheEstimate

1 .336a .113 .101 .17739Source:Author(2018)

TheregressionresultsinTable15showsanadjustedR2=0.101,F(1,72)=9.047,p<0.05.Theoutcome of the regression analysis in Table 15 shows that 10.1% of variations inorganisationalperfomanceisexplainedbyvariationsininternalauditamongsttheWSPswhile89.9% is accounted for by other factors outside the study. The relationship is statisticallysignificant (p<0.05) and thus we reject the null hypothesis and accept the alternativehypothesis.Thisshowsthatinternalauditinfluencesperformanceofwaterserviceprovidersinkenya.

ANOVATable16testedthegoodnessoffitofthemodelbyinterpretingthep-valueaswellasthebetacoefficients.Table16:ModelOverallSignificanceofInternalAuditPracticesandOrganisationalPerfomance SumofSquares df MeanSquare F p-value.Regression .285 1 .285 9.047 .004bResidual 2.234 71 .031 Total 2.519 72

Source:Author(2018)As presented in table 17, the regressionmodel one shows a statistically significant positiverelationshipbetweeninternalauditandorganisationalperfomance(β=0.336,t=3.008,p<0.05)implying that for every unit increase in internal audit, there is an expected increase inperformancethatproxyorganisationalperfomanceby0.336units.

Table17:ModelRegressionCoefficientsofInternalAuditPracticesandOrganisationalPerfomance

UnstandardizedCoefficients

StandardizedCoefficients

t Sig.

B Std.Error Beta

(Constant) .385 .076 5.070 .000Internalauditpractices .336 .021 .336 3.008 .004

Source:Author(2018)



Basedontheresultsoftheregressionanalysiswhichshowsastatisticallysignificantpositiveassociationbetweeninternalauditandorganisationalperformance, thestudyconcludedthatthere is a significant relationship between internal audit and performance of water serviceprovidersinKenyaresultingtotherejectionofhypothesisone(H1).ThisfindingisconsistentwithearlierfindingsbyDonaldsonandDavid(1991),SeremsandBebedde(2006),CohenandSayag(2010)whichconfirmedthatexistenceofinternalauditinorganisationsinfluencetheirperformance.

CONCLUSIONSANDRECOMMENDATIONSThis study set out to examine the relationships between internal audit and performance ofwater service providers in Kenya. The study was anchored on Monitoring, Agency andPoliceman theories. Primary and secondary data were collected from the Water serviceprovidersinKenya.Outof93questionnairesissuedtotherespondents,73(78%)respondentsfilled and the data collected used for the analysis. Simple regression analysis results led torejection of the hypothesis and concluded that internal audit significantly influence firmperformance. Therefore, for improved performance of the WSPs, the firm managers anddirectors should ensure existence of sound internal audit practices including; assuranceservices, compliance policies, consulting management, independence and objectivity. Thereshouldalsobeanauditcommitteethatoverseeinternalaudit,providesresourcesandensurescompetencyofthechiefinternalauditor.

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Souza,R.R.,Dumer,M.C.R.,Cerqueira,A.S.,Mendonça,M.M.,&Azevedo,F.B. (2018). Learningandcompetencesofmanagement students in Brazil: the participation of organizations and university in process of supervised internship.ArchivesofBusinessResearch,6(9),105-115.

LearningandcompetencesofmanagementstudentsinBrazil:theparticipationoforganizationsanduniversityinprocessof

supervisedinternship

RobertoRodriguesdeSouzaJúniorMasterscienceinAdministrationatProgramPosGraduationsinAdministração(PPGAdm)/

FederalUniversityofEspiritoSanto(UFES)

MiguelCarlosRamosDumerDoctorcandidateinAdministrationfromtheFederalUniversityofEspíritoSanto(UFES)

MasterofScienceinAccountingfromtheFUCAPEBusinessSchool

AlexandredosSantosCerqueiraDoctorcandidateinAdministrationfromtheFederalUniversityofEspíritoSanto(UFES)

MasterofScienceinAdministrationfromtheFUCAPEBusinessSchool

MarkMirandadeMendonçaMasterofScienceinAccountingfromtheFUCAPEBusinessSchool

TeacherinUniversityCenterProjection

FilipeBressanelliAzevedoMasterofScienceinAccountingfromtheFUCAPEBusinessSchool

TeacherinUniversityCenterProjection

ABSTRACTThe main objective of this study is to describe and analyze the contribution ofuniversities andbusinesses in the learning anddevelopment of professional skills ofsupervised students in theAdministrationof theFederalUniversityof Espírito Santo(Brazil). Themain approaches that anchor the present study focus on the individualactions that generates learning and consequently the development of competencies.Thus,theconceptsofcompetencylearningthroughsocial,experientialandeducation-based approaches to build competencies and resources mobilization. The presentqualitative research approach used the interpretative paradigm. We applied thetechnique of in-depth interview for the data collection, and for the discussion of theresults,weusedthequalitativedataanalysis.Asaresult,wefoundtheneedforanewlook at the supervised internship discipline both by the organizations and theUniversity. Additionally, we found the need to create an environment that allowsgreaterinteractionbetweentheactorsdirectlyinvolved,providingnewtoolstofollowthedisciplinewithgreatercontrolbycoordinatorsand internshipprocessnorms.Alltheseresultscanmakepossibletheintegrationofcontentandpracticeinaneffectiveway.Keywords:OrganizationLearning;Competences;SupervisedInternship.

INTRODUCTION

In recent years, the supervised internshipdisciplinehasbeen the subject ofdebates,mainlyaboutitsobjectivesandformsofdevelopment. InBrazil, itsconceptionwasgivenbyFederalLaw No. 6,494, sanctioned on 07/12/1977 (Brazil, 1977) and its regulation was given byFederalDecreeNo.87.497of08/18/1982(Brazil,1982).OnSeptember25,2008,theFederal

Souza,R.R.,Dumer,M.C.R.,Cerqueira,A.S.,Mendonça,M.M.,&Azevedo,F.B.(2018).LearningandcompetencesofmanagementstudentsinBrazil:theparticipationoforganizationsanduniversityinprocessofsupervisedinternship.ArchivesofBusinessResearch,6(9),105-115.


GovernmentenactedLawno.11,788(Brazil,2008),knownastheNewInternshipLaw,whichnowbecomesthenewframeworkthatregulatesallaspectsoftheinternshipdisciplineinthecountry'sundergraduatecourses.FederalLawNo.11,788(Brazil,2008), in itsarticle1,definesan internshipas"asupervisedschool education act, developed in the work environment, aimed at preparing for theproductive work of students who are attending regular education in institutions of highereducation[...]".AccordingtotheguidelinesestablishedinLaw11.788(Brasil,2008),decree3388-R(EspíritoSanto,2013),twocategoriesoftheinternship:compulsory,whichisthatpreviouslydefinedinthe course'spedagogicalprogramandwhichhasa the timetable tobe fulfilledand thenon-compulsory,whichistheonethatthestudentperformsasanoptionalcomplementtowhatislearnedintheclassroomandtheinternmustfulfillanestablishedworkload.Atthisinternship,thereisapecuniarycounterpartcalledthescholarshipgrant,aimedatfinanciallysubsidizingthestudentwithexpensesduringhisperiodofstudy.Thatbeingsaid, theextracurricularsupervisedplacemententers thepictureasaproperandimportant space for both students and organizations. For organizations, it can be used as aretentionchannelfornewtalentthatcanaddnewinsightsandideastotheorganization.Forindividuals, itcanbeasourceof learningofprofessionalcompetencesfromthepossibilityofjoining the theory studied in educational institutions with the practice carried out in theorganizationalcontext(Roesch,1995).In addition, the compulsory subject of supervised internship is connected with theextracurricularactionsthatthestudentdevelopsintheorganizations,withthat,thisdisciplineisgivenbyatutor,whosefunctionistoallowthesetraineestudentstointerpretandreflectonthe contents of the classroom and its connection with the practices developed in theorganizational environment of the extracurricular internship, since such practices arefundamentalrequirementsforqualificationandprofessionaltrainingofthestudent.In this context, the accomplishment of this study has as justification to contributewith thisdiscussion in the scope of the Brazilian Universities. Since law regulates the practice of thesupervised internship, thus, discussing, reflecting and seeking proposals that enable thepracticeof internships in administrationat ahigh level of competence learningby students'parts, isrelevanttothecurrentcontext.ThepurposeofthisstudyistodescribeandanalyzetheparticipationoforganizationsandtheUniversityintheprocessoflearninganddevelopingprofessionalskillsofsupervisedstudentsoftheUFESAdministrationcourse.

THEORETICALREFERENCEIt isnot today that theantagonisms involving the topicoforganizational learninghavebeendiscussedintheacademicandorganizationalenvironmentsthemselves.Whentheyconductedasurveyonthistopic,Easteby-Smith,Crossan,andNicolini(2000)foundthattheexistenceofthe perception of a dormancy in the following debates: organizational learning vs. learningorganizations,single-loopvs.double-learningxunlearning,learningforcognitivexbehavioralchangeandtheclassicdiscussionbetweenindividualandorganizationallearning.On the other hand, these same authors argue that it is not possible to state that thesediscussionswereextinguishedsincetheyhaveprovidedandprovideuntiltodayatheoreticalbackground that enables the fomentation of new discussions and, above all, the creation of



fertilegroundfortheemergenceofnewconcepts.BrandiandElkjaer(2011),whenrevisitingthe literature, also confirm that, currently, the focus of studies on organizational learninginvolves the themes: process, content, concept and the relationship between individual andorganization.Therefore, the present study is delimited in the approach of learning from the action of theindividuals for thedevelopmentof competences.FreitasandBrandão (2006)affirm that thelearning is a process that allows the individual to acquire competencies. Fleury and Fleury(2001)reinforcethatthenotionofcompetencesisassociatedwithseveralverbs,amongthem"learningtolearn".Inthisline,severalauthorsusethelearningapproacharticulatedwiththeprocess of competency development, such as Ruas (2001), Antonello (2003), Dutra (2004),Bitencourt(2004).Fromthisperspective,thedevelopmentofcompetencescanbefacilitatedandunderstoodfromseveral learning perspectives. In social learning, the emphasis is on the acquisition ofknowledge through experience and research, as well as the development of identities andsocialization through the adaptive capacity of individuals. Thus, through the occurrence oftensions and ruptures, it is possible to understandhow theprocesses of this learning occur(BrandiandElkjaer,2011).IntheperspectiveofKolb's(1984)classicstudyofexperientiallearning,itcanbedefinedasaprocessbywhichknowledgeisgeneratedthroughthetransformationofexperienceandthatknowledge is indeed a process of transformation that must be constantly created andrecreated.Kolb(1984:38)statesthat"learningtransformsexperienceinbothitsobjectiveandsubjective forms. Finally, to understand learning, we must understand the nature ofknowledge,andviceversa."Also,on theapproaches that focuson learning inaction for skillsdevelopment, the informallearning perspective also contributes to this process. Informal learning can occur ineducationalinstitutions,buttheydonot.Itisthetypeoflearningthatoccurswhenindividualsperformactivities inoroutsideorganizationalsettings.Whenit isnot intentional, learning iscalledincidental,thatis,itoccursasakindofsideeffectofactivity(Marsick;Watkins,1990).Theperspectiveofinformallearningisquitebroadbecauseitreferstotheideaoflearningthatoccursbothintheindividualandinthesocialfield.AccordingtoCheethamandChivers(2001),theinformallearningdevelopedbyworkersduringprofessionalpracticemakesitpossibletoacquireskillsandimprovepracticesthroughexperience.Thus,oftenthelearningexperiencesthat occur in theorganizational environmentoccur in anunplannedway andareoriginatedfromsimpleneeds,suchasdoubtsaboutthewaytheactivitiesareexecutedorabouttheworkitself (Coelho Júnior andMourão, 2011).As a result, these sameauthors affirm that the factthattheyarenotplanned,thisprocesshasnocosttotheorganization,unlikethedevelopmentandeducationprocessesthatmustbeplannedandtherearebudgetsoftheirown.Given this, once the individual mobilizes all these resources, i.e., the processes of social,experiential, informal and incidental learning, there is, therefore, the learningof skills, sincethefactofjustlearningalsodoesnotconditiontothefulldevelopmentofindividualknowledge(LeBoterf,2006).Perrenoud(1999,p.23)definesthat"buildingacompetencemeanslearningto identify and find relevant knowledge". Zarifian (2011) concluded that the practicalunderstandingemphasizeslearningthatisfundamentaltocompetence.



Therefore, the development of the supervised internship is only possible with the researchactivityandwith theeffectiveparticipationbetween teacherandstudent,where the teacherhasafundamentalrole,sinceitishewhomustcultivateinthestudentthecapacityofanalysisand problematization of the actions and the practices, confronting them with theoreticalreferences,withexperiencefromotherperspectivesandfromothersocialactors.Inthissense,thelearningandthedevelopmentofcompetenciesareemphasizedtolegitimizetheresultsofthepracticesofaninternship,whichhastheeducationalobjectiveofthestudent'sprofessionaltraining(LimaandPimenta,2005).According toAktouf (1996), teachers should integrate, among other aspects, adherence to aparticipatory, clear and collaborative teaching environment to ensure that students areunderstanding the depth of the subject and also integrate the experienced practice as thefoundation of training. In the University / Company context, the internship also lacks thisintegration and, in this sense, has another role, which is to establish the importance of theinternshipbeyondtheeconomic-socialidea.Thisintegrationisthebridgetotheunderstandingandimprovementoftheconceptsacquiredinthetrainingcourse,providingthestudentwithanunderstandingof thevalueofworkandthesocial ideaofprofitability,which is the factorthatdriveseconomicactivities(Gluck,1979).

METHODOLOGYInthisqualitativestudy,regardingtheobjective,itcanbeclassifiedasdescriptive.Inthistypeof research,oneormorephenomenaareobserved,described,analyzedand interpreted(Gil,2002).Thistypeofresearchisappropriatetothephenomenonstudied,becauseitwasdesiredto study the relationship between learning and the development of competences under thepoint of themanagers of the trainees in theirwork environment (organizations) and of theprofessorsofFederalUniversityofEspíritoSanto(Brazil),whoaretheresearchsubjectsofthisstudy.ForCervoandBervian(2004),thedescriptiveresearchobserves,registers,analyzesandcorrelatesfactsorphenomenawiththepurposeofprovidingmoreinformationonthesubject.Therefore, theapproachadoptedforresearch isqualitative.AccordingtoRichardson(1999),thisapproachservestodescribeaphenomenondeeply.Init,theresearcherdoesnotintendtoenumerateormeasure,fromvariables,theeventsstudied.Itstartswithbroadquestionsthatarebeingdefinedasthestudyprogresses.Researcherswhoadoptthisapproacharguethataphenomenoncanbebetterunderstood in the context inwhich itoccursandofwhich it is apart. In this context, qualitative research also carries the characteristic of creativity, whichconditions the researcher to become involved in the studied environment and this spacebecomespropitious forconstructing interpretationsbasedonempirical findings(DenzinandLincoln,1998)DatacollectionRichardson (1999) states that through the technique of unstructured or "in-depth"interviewing,asisalsoknown,itispossibletoobtainaveryrichmaterialforanalysis,whichallows understanding the phenomena using unstructured interviews involving the researchsubjects.Thus,theinterviewswereconductedbasedontwoscriptswithtwoactorsinvolvedinthe internship process. Thus, seven interviewswith representatives of FederalUniversity ofEspírito Santo were carried out (Table 1). In the organizations' perspective, six public andprivateorganizationsofdifferentsegmentsandstructureswereselected(Table2).Withthis,the IU and IO acronym were used to represent the interviewees of the University and theorganizationsrespectively.



Identification Education/Degree Teachingperiod

IU1 DoctorateinProductionEngineering 7yearsIU2 DoctorateinEconomics 4yearsIU3 DoctorateinProductionEngineering 12yearsIU4 DoctorateinEnergyPlanning 1yearIU5 DoctorateinAdministration 15yearsIU6 DoctorateinProductionEngineering 4yearsIU7 DoctorateinAdministration 1year

Table1:SubjectsProfileontheUniversity:Source:Preparedbytheauthors(2018)

Identification Function/job SectorIO1 ProjectCoordinator PublicIO2 InvestmentAdvisor PrivateIO3 SpecialAdvisor PublicIO4 HRAnalyst PrivateIO5 ProjectCoordinator PrivateIO6 Psychologist Public

Table2:SubjectsProfileonOrganizations:Source:Preparedbytheauthors(2018)

RESULTSDISCUSSIONAfterthefloatinganddeepreadingsofthetranscripts,thedatawerecodifiedandcategorized,beingtheseprocessescarriedoutinthelightofthatproposedbyGibbs(2009).Thus,followingthesameauthor'sperspective,codingrepresentsawayofindexingasetofideasandthematiccategorization,itbringsthenotionofseparationbythemesintoamoreanalyticalanddetailedlevel.After this, in table 3 a schematization is presented, where, at first, the codification andcategorization were carried out in the view of the university representatives. After thisprocess, the codes and categories are used to subsidize the interpretation of the qualitativedatawhenlinkingthefindingsoftheresearchwiththetheoreticalreference.

Internship

KnowledgeapplicationMergetheorywithpractice

Contributions Intermediationbetweenorganization/student/universitySkills

ManagerialcompetenceRelationshipandleadershipskills

Improvements Approximateandeffectivefollow-upbyteachersNewtoolsandmethodsformonitoringMajorIntegrationCompany/University

Table3:CodificationandCategorizationforUFESInterviewees:Source:Preparedbytheauthors(2018)

UniversityparticipationThe internship code refers to the role that the supervised internship represents for theteachersandcounselorsof thestudents.Thus, the IU3states that"[...] the internshiphelpsastudenttomakethecomparisontheoryandpracticewithmoreassertivenessbecausethereheglimpseswhat ishisprofessionwithwhathecorroboratesornot, andalsowithwhat is therealityofthisforhim[...]".



Inthiscontext,boththeapplicationofknowledgeandtheabilitytounitetheoryandpracticearerelatedtothelifecycleofKolb(1984),whichproposesthatexperientiallearningisbasedonfourmodesofinteractionbetweentheindividualandtheenvironment,thesemodesbeingcharacterized by concrete experience, reflexive observation, abstract conceptualization andactiveexperience(figure1).

Figure1:Kolbcicle:Source:(1984)

StillwithKolb(1984)theindividual,fromhislivedexperiences,reflects,establishesmodelsofaction and experiences in similar situations, thus generating a learning cycle. Also, thesupervised internship environment is therefore framed as the locuswhere the professionalcharacterofthestudentisgenerated,constructed,perfectedandalsowherethedevelopmentof activities experienced in practice generates learning, capacity for reflection, criticism(Buriolla,2001)andconsequentlythedevelopmentofskills.Regarding the code, the university's contributions to learning students' skills through theinternshipprocess,theIU7states:"IthinkthattheUniversityhasaroleofintermediation,ofserving as this bridgebetween the student and themarket and also of doing this suitabilitymost advantageously for the student through the teacher [...] ". From this perspective,Perrenoud(1999)raisedsomecriticismsofcontenteducationfocusedonthetransmissionofinformation.Forthisauthor,discussionsaboutchangesintheworldofwork,whichgaverisetotheideaofanewworker,gavebirthtothenotionofcompetenceintheareaofeducation,withthis,theroleoftheteacherisfundamentaltoprovokeinstudentstheconsciousnessthatthe learning process shouldmake them "headsmade", that is, different from the traditionalconceptionofaccumulationofknowledgethatadvocatesa"fullhead"perspective.Asforthecodeofcompetences,theteachersbelievethatinadditiontotherelationshipskills,technical and analytical dimension that is also mentioned by the interviewees of theorganizations, the student develops more comprehensive competencies, such as leadershipandmanagerial competence. Therefore, the IU5 affirms the following competencies that aredevelopedbythesestudentsininternshipprocesses:

"[...]reflectiveactthatistoreflectonpractice/theory,analyticalabilitylet'ssayso; this relationship issue also, the competence of the "know to be" becausewhenyougetintotheorganizationalworldyouwillhavetodealwithpeople,andIthinkthatisthemostimportantabilityandtechnicalissuesalsothathewillgetapractice,the"know-how"thatisveryimportanttohim".

Lopes (2006) argues thatmanagerial competence can not only be learned in the classroom,becausethedynamicsof thebusinessenvironmentenablesgoodadministrativepracticeand



improvesthespecificlearningofagivenorganization,itsproducts,processesandstructures,its markets, its technologies, finally, enables the individual the ability to dominate thesubsystemsoftheorganizationandhavethecapacitytoanalyzetheexactmomentfordecisionmakinganditseffects.Theseargumentsjustifythelearningofcompetencesbytraineesinanorganizationalenvironment.In this lastquestion, the teacherswereaskedwhich improvementscouldbe implemented inthe internship process, the answers pointed to the execution of actions for the close andeffectivemonitoringofteachers,newtoolsandmethodsforfollow-upandgreaterintegrationbetweencompanyandUniversity.InthissensetheIU6states:

"Itwould be necessary to follow-up, a follow-up so to say,more present andmore forceful, both by the guiding teacher and both by the coordinator. Aportfolio of companies that are receptive toUFES students shouldbe createdbecause it has a differentiated profile and prospects for the market, whichshouldbethecompetenceoftheUniversity.Avoidthisrepetitionofreportsthatwe see every sixmonthswhereone studentdoesandpasses to theotherandhencewedonothaveabsolutecontroloverwhatisproducedhedoesnotevengotothecompanyandendsupdoingplagiarismofreportsfromthefriend[...]".

Inthiscontext,itispossibletorelatetowhatCheethamandChivers(1996)defend,thatis,theeffective execution of activities, also includes the need tomaster discrete skills (values andethical competence), however, the focus still remains on articulation of all these essentialelements (skills and knowledge) to achieve the results. Thus, the improvements in theinternship process are due to the need for students to be committed to the objectives, theUniversity'sneedtoinvestintoolstomonitorstudents'activitieswithorganizations.TheparticipationoforganizationsInthesecondinternship,codificationandcategorizationwerecarriedoutfollowingthesamedistributionscheme,observingnowintheviewoftherepresentativesoftheorganizations,asshownintable4.

Profile BehavioralAspectsTechnicalconcepts

Development Meetings,Lectures,andConversationWheelsQualifyingProgramsLearningandDevelopmentwitha

Competence SocialCompetenceAnalyticalSkillsTechnical-professionalskills

Gettingthejob

PerformanceGetintolearningandmakingnewskillsAchieveconsistentresults

Table4:Codificationandcategorizationinthevisionofrepresentativesoforganizations:Source:Preparedbytheauthors(2018)

Asforthecodeprofileoftraineethattheorganizationsuseforselection,itwasobservedthatthe organizations seek trainees adapted to their objectives, in this sense IO1 states that theprofile used for selection is: "preferably with more than one competency: focus on resultsquality of delivery, Interpersonal skills, adaptability, and flexibility. In addition to specifictechnicalcompetenciesforeachjob[...]".Therearealsocasesinwhichtheselectedprofileis



not defined based on interview processes or subjective analysis of the candidate regardingbehavioral, psychological and performance issues, are the cases evidenced by IO3, whichstates:"Weuseonlythesocioeconomicprofile,becausetheobjectiveoftheprogramisexactlytoendtheappointmentoftraineestotheorgans[...]".As for the actions of organizations to train and develop trainees, i.e., development code,respondents mostly related training and development only with the practice of internshipactivities.Therefore,thereisalackofinitiativesinthisregardonthepartoftheorganizations,except the organization of IO1 that said: "We have a program focused on trainees called'Transform',wheretrainees,accordingtothetimetheyhavehere,receivearouteoftrainingtobefulfilled,thisrouteiscalled'Routetotransform'[...]".About the skills that students can acquire in an internship process, the respondents werepredominantly responsible for technical-professional and relationship skills. The IO1 alsomentions: "CompetenceofAnalysisandsolutionofproblems, it is clear that the traineesarehere to learn, but they can give opinions ...". It can be seen that both the role of theadministration trainee as well as the profile that the organizations seek have commoncharacteristicsaboutthecompetencylearningissues,thatis,thestudentstartsfromclassroomtheorytopracticewithinorganizations,andthroughaprocessoflearningandexperience,hewillacquireskills.In this sense, it is possible to identify traces of McClelland's (1973) studies in which heconsidersintelligenceasapropellingfactorfortheachievementofcompetenceandthestudiesofKolb(1984)inwhichheaffirmsthatexperientiallearningisaprocessbywhichknowledgeis generated through of the transformation of experience and that knowledge is indeed aprocessof transformationthatmustbeconstantlycreatedandrecreated.Addressingwhat ittakesforatraineetoachieveeffectiveness,performanceissuesandconsistentpresentationofresultsinthisregard,IO3statesthat"theprofessionaleffectivenessofatraineefollowsthesecriteria."The interest in learning and developing new skills was also pointed out as one of the traitcharacteristics of trainees. In this sense, it is interesting to draw a parallel with Flores andFlores (2009, apud Sendin, 2002) in which they affirm that one of the objectives of theadministration course is to awaken entrepreneurship in the student, and at this point theinternship can enable the student to play this entrepreneurial spirit, since the student can:rehearse,research,withoutthecommitmentofresults.Thatis,inadditiontotheopportunitythatthestudenttraineehastobecomeeffectiveasanemployeeofthecompanyhecandevelophis entrepreneurial capacity and consequently find out if his vocation is to be a realbusinessman.

CONCLUSIONSIn analyzing the role of the trainee legislation in trainee training through this study, itwaspossibletoverify inorganizationsthatthere isnoformalenforcementrequirementfromthegovernment, in some cases, in fact, follow the legislation andmake it possible to student anappropriate internship environment and even enhance the internship processwith internalrules. On the slope of the university also occurs the same, that is, the collection for theperformanceof the roleof the internshipmust startwith theown teacherswhoaccompanythesestudents.



Regardingtheperformanceoftheroleofthetraineeshipinthestudy,itwaspossibletoverifyseveral points of view, and it also points to the need to obtain new answers through newstudies.Oneexamplewouldbetheneedforbettermonitoringofsupervisedtrainingreportson the part of the teachers, so that the students can actually do an immersion in theorganizationalworldandnotonlyhavethesupervisedinternshipasacompulsorysubject;theneed for new methods for the development of the discipline; the teachers present to thestudentsfromthefirstdisciplinesthroughactivities,formsandsituationsinwhichthisstudentcanalreadyexperienceandanalyzetheconnectiontheoryandpractice.In termsof organizations, towakeup about the real possibility of hiring goodprofessionalswhoalreadywork in thesecompaniesand for this tohave theuniversityasa supportagentprovidingtheseprofessionals;thecreationofadatabaseforcompaniestoconsulttheprofilesofthestudentsthatareavailabletopracticebasedmainlyonacademicperformancesothatitcanalsoorganizeandcentralizetheofferanddisseminationoftraineeshipsandasregardsthecontribution of organizations for learning is that these organizations can provide atransformationalinternshipenvironmentinwhichstudentscaneffectivelyexperiment,create,learn,andprincipallyapplythetheorieslearnedintheclassroom.Inconclusion,itispossibletoobservethroughthisstudythatboththesupervisedinternshipoftheFederalUniversityofEspíritoSantoinadministrationcourseaswellastheparticipationofthe companies in this process have points to be improved, but it should be noted that theinternshipisalreadyplayingitsrolewithpositiveresultsonbothsideswhenyouwanttohavethat result. Because the participation and dedication of all actors in the process arefundamental to the fact that the expected result should happen, a new look is required forsupervisedinternshipandinternshipintheorganizationalenvironmentandforthistohappenthe actors in this process must also play its role always following principles, concepts andespeciallylegislation.ReferencesAKTOUF,O.Aadministraçãoentreatradiçãoearenovação.SãoPaulo:Atlas,1996.

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Arief, Z., Brahmasari, I. A., Eliyana, A., & Rozi, M. F. (2018). Production Planning and Raw Materials Supply to MeetFluctuativeDemandforLivestockFeedFlour.ArchivesofBusinessResearch,6(9),116-121.

ProductionPlanningandRawMaterialsSupplytoMeetFluctuativeDemandforLivestockFeedFlour

ZainalArief

DoctoralStudentofEconomics,Universityof17Agustus1945Surabaya

IdaAjuBrahmasari

LecturerofFacultyofEconomics,Universityof17Agustus1945Surabaya

AnisEliyana

LecturerofFacultyofEconomicsandBusiness,AirlanggaUniversitySurabaya

M.FahrulRoziPrivateSector

ABSTRACT

Production is creating goods and services, CV Bulu Nusantara is a company thatprocessespoultryfeathers,fishbones,beefbones,shellsintodoughflourforlivestockfeed. Sometimes these companies encounter overproduction and sometimesproduction shortages. The researcher intends to run production planning and rawmaterial need planning that can meet fluctuative demand and minimize productioncostswithJIPandMRPapproaches.Fromtheresearchcarriedout,obtainedforecastingdemandresultforperiodJune2017-May2018forfeatherflour,fishflour,bonemealandcrabflourfor191,040kg,144,876kg,135,189kgand158,028kg.Fromproductionmaster schedulemadebasedon forecasting andproduction capacity result, a plan isobtained for June 2017 - May 2018 of Rp. 1,858,057,638. Material requirementsplanning(MRP)canbeseenwhen,howmanyorders,howmanytimestheorderforrawmaterialsiswithin1year,sothattherawmaterialinventoryisoptimalinaccordancewiththemasterproductionschedule,inadditiontoMRPalsoobtainedforthetotalcostof raw materials for planning period June 2017 - May 2018 amounting to Rp.16,710,197,190.Fromthecostoflaborandrawmaterials,totalproductionplanningisRp. 18,568,254,838, if the total cost of production planning is compared to the totalproductioncostsofthecompanyin2016-1017amountingtoRp.18,690,250,000thenthe difference in annual production costs of Rp. 121,995,170. This means that byimplementing JIP and MRP systems the company will save production costs by Rp.121,995,170.Keywords:productionplanning,rawmaterialinventory,JIP,MPS,MRP.

INTRODUCTION

Productioniscreatinggoodsandservices(Render,Heizel,2001)operationsmanagementisanactivity that makes goods and services through changes and inputs into outputs. CV BuluNusantara is a company that processes poultry feathers, fish bones, beef bones, shells intodough flour for animal feed.TheCompanybeganoperations in2004, located inGresik,EastJava.This companydistributesproducts sold to livestock feedcompanies suchasPokphand,Japfa,etc.Theneedforlivestockfeedflourwillneverstop,givingrisetofluctuatingdemand.The company currently has notmade demand forecasting based on previous sales data yet.Thereforethecompanycannotmeetallconsumerdemands,asaresultthecompanywilllose



salesatcertain times,whichshouldbeaprofit.Onevaluablecompanyasset israwmaterial.Raw materials is a worth for the company. Without raw materials planning, it is can beuncontrollable, if it is too excessive itwill cause storage costs to soaring, but if it cannotbesufficient, thecompanycannotproducesothat itaffectsproductionsmooth.Recognizingtheproblems faced, companies must be able to deal with fluctuations in demand by makingproductionplanningandrawmaterialrequirementsplanning.

LITERATURREVIEWOperationManagementOperationsmanagementisaseriesofactivitiesthatmakegoodsandservicesthroughchangesfrominputtooutput(Render,Heizel,2001).ForecastingIt is the science of predicting future events. Forecasting requires taking historical data andprojecting it to the future with some form of mathematical model (Render, Heizel, pp. 46,2001).MRP(MaterialRequirementPlanning)Isadependentinventorymodel(DavidW.Pentica,1979),theuseofthismodelisaneffectiveinventorymodel,andtheconditionsmustbeknown:

(a)themainproductionschedule(whatwillbemadeandwhenisdone)(b)specificationsorbillofmaterial(c)availabilityofsupplies(d)ordersthatmustbefulfilled(e)leadtime(howlongdoesittaketogetvariouscomponents)

Arief, Z., Brahmasari, I. A., Eliyana, A., & Rozi,M. F. (2018). Production Planning and RawMaterials Supply toMeet Fluctuative Demand forLivestockFeedFlour.ArchivesofBusinessResearch,6(9),116-121.


RESEARCHMETHODTofacilitatedataprocessing,aresearchdesign isneededthatcandescribeasystematicdataprocessingprocess,asinthefollowingfigure.

Figure1.ResearchFlowchart

RESULTSANDDISCUSSION

Togetananalysisandconclusionfromthisstudy,thensupportingdataisneededsothattheresultcanbeaccountedforboththeoreticallyandapplicativeinthefield.Theavailabledataisdatasourcedfromthecompany,butthepresentationisdifferentaccordingtothepresentationthatIhavesetintheresearchmethodthatIdo.Thesupportingdata,amongothers.



DemandDataDemanddataforthepastperiodisproductiondatacarriedoutbythecompanyinaccordancewithdemandtodeterminetheextentofdemandlevelduringthelastperiod,thusillustrationofproductionwillbeobtainedbasedonhistoricaldemandobtainedbythecompanynottoofarwiththetimeresearchwasconducted,sothattherewasapossibilityofdatairrelevancyduetoincompatibilitywithrealconditions.ForecastingDemandforLivestockFeedFlourFromthe flour feeddemand for livestock feed June2016-May2017 forecasting isdonewiththemovingaverageandexponential smoothingmethods, this isbecause thedemanddata isfluctuatinganddoesnotshowalineartrend.FromdemandforecastingthathasbeencarriedoutforJune2017toMay2018,theforecastingmethodwasselectedforeachproduct,featherflour using the moving average (MA = 3) method, fish flour using exponential smoothingmethod(α=0.33),boneflourusesexponentialsmoothingmethod(α=0.33),andcrabflourusesexponentialsmoothingmethod(α=0.33).Herearetheresults:

Table1.TheForecastingofLivestockFeedFlourPeriod

TheResultofForecast(kg)Featherflour Fishflour Boneflour Crabfluor

June2017 191040 144876 135189 158028July2017 191040 144876 135189 158028August2017 191040 144876 135189 158028September2017 191040 144876 135189 158028October2017 191040 144876 135189 158028November2017 191040 144876 135189 158028December2017 191040 144876 135189 158028January2018 191040 144876 135189 158028February2018 191040 144876 135189 158028March2018 191040 144876 135189 158028April2018 191040 144876 135189 158028May2018 191040 144876 135189 158028

MakingProductionMasterScheduleInputs from the Production Master Schedule are the forecasting result, labor costs andproductioncapacity,productioncapacityisobtainedfromeffectiveworkingdaysdataanddataprocessingtime.BeforemakingtheProductionMasterSchedule, itmustfirstmakeequaltheunitsbetweenforecasting,costs,andproductioncapacity,whichinthisstudyusedunits(kg).From the ProductionMaster Schedulemade based on the forecasting result and productioncapacity,thefollowingresultsareobtained:

Arief, Z., Brahmasari, I. A., Eliyana, A., & Rozi,M. F. (2018). Production Planning and RawMaterials Supply toMeet Fluctuative Demand forLivestockFeedFlour.ArchivesofBusinessResearch,6(9),116-121.


Tabel2.ProductionMasterScheduleofCV.BuluNusantaraJune2017-May2018

ProductionPlanning(kg)Period Featherflour Fishflour Boneflour Crabfluor

June2017 191040 144876 135189 158028July2017 191040 144876 135189 160834August2017 191040 147792 137658 162890September2017 191040 141960 132720 150360October2017 191040 144876 135189 162890November2017 191040 153707 143188 162890December2017 191040 136045 127190 148304January2018 191040 153707 143188 162890February2018 191040 136045 127190 153166March2018 191040 150708 140127 162890April2018 191040 141960 132720 153166May2018 191040 141960 132720 158028

MasterProductionScheduleaboveshowsthatforforecastingrequests,productionplanningiscarriedoutasTable7above,sothatdemandbasedonforecastingresultscanbefulfilledwithminimumlaborcosts.MaterialRequirementPlanning(MRP)BeforemakingMRP,youmustfirstdeterminetherawmaterialrequirementsandlotsize,formaterialrequirementsobtainedfromtheBillofMaterialandProductionMasterSchedule.Themethodemployeddetermine the lot size in this study isEOQ, this isbecause thismethod iscompatibleforplanningwithinthetimehorizon1year.FromtheMRP,youcanseewhen,howmanyorders,howmanyordersforrawmaterialsonaplanorderrelease,andalsohowmanyrawmaterialsintheinventoryforeachmonthareprojectedonhandsothattherawmaterialinventoryisoptimalaccordingtotheProductionMasterSchedule,herearetheresults:

Table3PlanforOrderRelease&ProjectedOnHandofRawMaterialsRaw material Plan Order Release Total

Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 11ar-18 apr-18 May-18

Poultry feather 310 297 310 297 310297 1 310.297 310 197 310 297 310 297 2. 172 079 Fish bone 330 948 330 948 330.948 330 948 330 948 1 .654 740 Cow bone 319 692 319 692 319 692 319 692 A 692 1. 598 460

Shells 399 114 399114 399114 399114 399114 1.995570 Packing sack 122 879 122.879 245 758

Raw material Projected On Hand

Total Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 1pr-18 May-18 Poultry feather 99.408 .209.113 8521 118.226 227.931 1 27.339 137 044 246.749 46.157 15a 861 265.567 64.975 1.606.892

Fish bone 97 880 276 708 121 526 303 416 151296 320.856 178.005 16.613

204. 714 46 471 228 361 79 303 2.025.145 Cow bone 108 052 285 796 14125) 1899 179 643 29 296 215 438 65.091 251.233 104 100 284 436 145 080 1811319 Shells 134 071 364 309 193 274 35 396 163 475 92.440 335 835 164.800 3 976 231055 71231 304 416 2.195. 278 Packing sack 2 874 113 627 101344 89.375 77 249 64 617 52 998 40)76 28 747 16 307 4 338 115148 707.110

FromTable above, in the plan order release section shows that the companymust place anorderforrawmaterialsinthestatedmonthsandtheordersizestatedintheplanorderreleasesectioninTable8.Theprojectedonhandsectionshowsthequantityofrawmaterialexpectedininventoryattheendoftheperiod,andavailablefor



TotalLaborCost =Rp. 1.858.057.638TotalCostofRawMaterials PoultryFeathers =Rp. 2.998.391.900 Fishbone =Rp. 5.678.156.500 Cowbone =Rp. 3.073.359.900 Shells =Rp. 4.829.338.800 PackingSacks =Rp. 130.950.100TotalProductionPlanCosts=Rp. 18.568.254.838 If the production plan costs results are compared to the company's production costs (laborcosts+rawmaterialcosts)theyearofuseinthenextperiod.ProductionCostCalculationAfter obtaining total labor costs and total costs for each rawmaterial, the total productioncostscanbecalculatedforthefirstyear(June2017-May2018).Followingaretheresultsofthe calculation of production costs for the first year: 2016-2017 which amounted to Rp.18,690,250,000,thedifferencewillbeobtainedasfollows:

Table4.DifferenceinProductionCosts1YearofCompanyVersionandPlanningProduction

ProductionCosts1YearDifferenceCompany Productionplan

Rp18.690.250.000 Rp18.568.254.838 Rp121.995.170

CONCLUSIONBased on the calculation of production planning costs obtained from JIP and MRP, thedifferencebetweenthecostofRp121,995,170andthecompany'sproductioncosts in2016-2017wasobtained.ThiscostdifferenceshowsthatifthecompanyplansproductionusingJIPandMRP,asavingsofRp121,995,170willbeobtainedin1year.ReferencesBaroto,Teguh,2002.PerencanaandanPengendalianProduksi,Jakarta:GhaliaIndonesia

DavidW.Pentica,1979.MaterialRequirementsPlanning:JournalHospitalTopics57,pp.40-43(May–June1979)

Gasperz,Vincent.2004.ProductionPlanningandInventoryControl.Jakart:PTGramediaPustakaUtama.

Heizer,Jay,andBaryRender.1997.ProductionandOperationManagement,FourthEd.UpperSaddleRiver.NJ.PrenticeHall

JohnG.Wacker.1985.EffectivePlanningandCostControlforRestaurants.JournalProductionandInventoryManagement.pp.55-70

Kusuma,Hendra.2002.PerencanaandanPengendalianProduksi.Yogyakarta:Andi.

Makridakis.1993.MetodedanAplikasiPeramalan,Jakarta:BinaAksara.

Nasution,ArmanHakim.1999.PerencanaandanPengendalianProduksi.Jakarta:GunaWidya.

Render,B.,andR.M.Stair.1997.QuantitativeAnalysisforManagement,SixthEd.UpperSaddleRiver,NJ:PrenticeHall.

Sivakumar,R.A.,R.BattaandTehrani.SchedulingRepairatTexasInstruments,Interface23,No4(July–August1993)pp.68-74.

Sutalaksana,Iftikar.1979.TeknikTataCaraKerja.Bandung:InstitutTeknologiBandung.


Indupurnahayu., & Prasetyowati, R. A. (2018). Lending Growth As A Fiqh Implication Toward Product Development OfIslamicBankInIndonesia.ArchivesofBusinessResearch,6(9),122-133.

LendingGrowthAsAFiqhImplicationTowardProductDevelopmentOfIslamicBankInIndonesia

Indupurnahayu

LecturerofMagisterProgram,IbnKhaldunBogorUniversity,Indonesia

RirisAishahPrasetyowati

LecturerofFacultyofEconomic,IbnKhaldunBogorUniversity,Indonesia

ABSTRACT

ThisstudyaimtoexaminethefinancinggrowthofIslamicbankinIndonesiawiththeprovisions system and proof that there is a counterclicality and capital smoothingbehaviorofbankmanager,thesefindingscontrastwiththeresultsofpreviousstudieson procyclical behavior in loan loss provisions. The objects of this study are IslamicBanks and Islamic Business Unit in Indonesia period of 2000 – 2016. This studyspecificallyestimatesadifferent calculation ineverycomponentofdiscretionaryandnon-discretionary in Islamic bank financing with the variable control such as, nonperformance loan/financing, total loan, deposit growth, equity ratio, and total asset.Theequationwillbetestedbyusingtheregressionsystemestimationandthevaliditytested by Kolmogorov-Smirnov test and Durbin Watson. The result of this studyquantitativelyproved that there is apatternof countercyclicalitybehavior in Islamicbank consistent with compliant Syariah and significantly has positive correlationdescribedbytherelationofloanlossprovisionwiththecoefficientofGDPgrowthrate.Fromthisresultinaccordancewiththefiqhplatform,forallformsofmuamalahis“alashlu fil mu’amalah illa al-ibahah yadullu daliil ‘alaa tahriimiha” (the origin ofeverything isallowedunless there isproof that forbid it),whichmeans thatbyusingthe theory of fiqh rules the product development of Islamic bank can be done andexpanded. The evidence for financing growth is that Islamic bank financing does notdepend on the amount of deposit rates, and the coefficient of deposit and financinggrowth isinsignificantandexcluded,while thegrowthoffinancingandbankcapital,GDP, and NPL have a negative and significant correlation. The coefficient of totalassetsandthegrowthoffinancinghasapositiveandsignificantcorrelationthatmeansthatIslamicbankmanagerstobeincomesmoothingbehavior.Keywords: countercyclicality, loan lossprovision, financinggrowth,FiqihPlatform, IslamicLending.

INTRODUCTION

IslamicBankinitsefforttoimprovethefinancinggrowthshouldbeawareoftheriskpaymentfailureinfinancingthatcanbeinputandbasisformakingthebank’sprofitabilitycalculation,capital adequacy, solvency, and the calculation of the allowance incentive financing lossreserves (Dermine and Carvalho, 2006). According to Yaziz (2011), to improve financinggrowth from sharia perspective for financing risk and loan loss provisions in Islamic bank,therearetwoperceptions:firstistheperceptionofshariafinancingriskasabasisforassessingthequalityof financing,andthesecond is theperceptionofallowance incentive for loan lossprovisionsusedbyIslamicbankinachievingacertaingoals.The fact that Islamicbank in expanding its financing shows thebehaviorofprocyclicality. Itoccursbecause thebankmanagers increase theprovisionsduring thedeteriorated timeandreducetheprovisionsduringthedecenttime.So,theimplicationsofprocyclicalityisprovoking



afinancingcrisisandthenexacerbatetheeconomicrecession(Adzisetal.,2015).Atthecycleof deteriorates time, the increasing of loan loss provisions will affect the bank’s revenue,weakenthebank’scapitalandreducetheloaneligibilityofthedebtor.AccordingSoedarmonoet al., (2016) loan loss provisions of Islamic bank generally procyclicality. The loan lossprovisionsdeclinewheneconomicgrowthstrengthened,and thisprocyclicalitybehaviorcansharpenthedeclineofeconomicgrowththroughthereductionoffinancing.This study examines the growth of Islamic bank financing in Indonesiawith the provisionssystemthatusedinordertoobtaintheresultasaproofthatthereisaprocyclicalitybehaviorandincomesmoothingbehaviorofbankmanager.Thisresultwillbediagnosedinaqualitativeanalysisbasedonfiqhplatforminordertogeneratesomeimplicationsforregulators,society,and further research. To improve the financing growth, Islamic bank can do such productdevelopment,innovation,anddiversificationbasedontheprinciplesofsharia,withouthavingconstrainedbyrisk,capitaladequacy,reserverequirements,andthebank’ssolvency.So, it isexpected that operational activities of Islamic bank in Indonesia not only for the benefit ofcapitalist.

LITERATUREREVIEWTheoryofShariaFinancingThe theory that relating to the classification of sharia financing explained thatmusharaka,mudharaba, murabaha, salam, istishna, ijara, and qardh is the classification of the mainagreementcontractthatprovidedforIslamicbankcustomers.Thisclassificationdistinguishedby:non-debtshariafinancingmodel,namelymusyarakaandmudharaba;debtshariafinancingmodel, namely murabaha, salam, istihsna and Ijara (Kahf, 2005). Other forms of financingclassificationbyUthmani (2002)define it basedon: 1)Pure sharia financingmodel, namelymusharaka, mudaraba, salam, and istishna; 2) Artificial/Reformed sharia financing model,namely:murabahaand Ijara. This study added the financing that is actually the real loan,accordingtoshariaprinciples,namelyloansal-qardhal-hasan.Before stipulate the determinants of the sharia financing growth, there are two principalopinions that Islamic banks adhere to sharia rules on each contract, even though theartificial/reformed financingmodel of less Sharia than the pure financingmodel (El-Gamal,2000).Onthecontraryopinionsaidthat ijaraandmurabaha financingmodel isnot ideal forIslamic bank and it is only used as a device to escape from interest rates (Uthmani, 2002).mudharabaandmusyarakaarebasedontheprincipleofprofitandlosssharing,andthisisthemodelthatisthemostneededinIslamicbanks.Whenusingbothoftheseinstruments,itdoesnot create a debt for thewhole community, the profits divided equally between capital andlabor.Anotherargumentproposedbytheresearcherwhoun-feelnecessarytoconnectwithIslamicfinance industry. Ordody de Ordod (2001) shows that the economic balance and fullemploymentguaranteedbyunlimitedindividualsbasedonfactsthatarerecommendedbeforeinterestratesareset.Ordod(2001)arguethattherigidityofinterestratetowardfluctuationled to disequilibrium and inflation. Shiller (2003) proposed the notion that the borrower’sprobleminconventionalinterestratestipulatedinhisdebtisdirectingontheissueofpersonalbankruptcy.Based on the opinions above, it necessary to determine the variables for calculating thefinancinggrowthinIslamicbank:

1. LLPnon-discretionaryasapredictorbasedonresearchofriskdeterminationinIslamicbank (Agmad, 2003; Hassan 1992.1993; Hassan et al.,1994; Shireve and Dahl, 1997;

Indupurnahayu.,&Prasetyowati,R.A.(2018).LendingGrowthAsAFiqhImplicationTowardProductDevelopmentOfIslamicBankInIndonesia.ArchivesofBusinessResearch,6(9),122-133.


Angbazo et al.,1998), in this component, variables that describes bank’s LLP areincluded, such as non performing loan, total loan, and the growth of gross domesticproductasvariablescontrolofloanriskintheNLLPcomponent.

2. The third-party fund or deposit is the total liabilities from the balance sheet report.Total liabilities are managed based on the principle of profit and loss sharing forinvestmentaccounts,savingaccountsandwakaladepositsusingspecialreserveforhisprofitandlosssharing(Taktaketal.2010)thatisprofitequalizationreserve(PER)andinvestmentriskreserve(IRR),whicharethetwomechanismsthatactivelyreducethevolatilityoftherateofreturnindeposits investmentincludingtheconsequenceinhisreturnequalization(Sundarajan,2005;KhanAhmed,2001;Archeretal.,2010).ThisisexecutedbyIslamicbankstoavoidtheabandonmentofmassivewithdrawalsriskthatareacommonoccurrencethatcausesapotentiallybankrun.

3. Equity is the number of outstanding shares multiplied by the stock price at thebeginningofeachyear.ForIslamicbank,totalequityisthesumofthefirsttiercapital(Tier-1 capital) and second tier capital (Tier-2Capital),where the second tier capitalneededtocapturethemotivesofcapitalmanagementthatisexpectedtoaffectloanlossprovisionsnegatively.(Ashraf,etal.,2000).

4. Totalassets classified based on sharia contract such as asset based on sale-purchasecontract,assetbasedonleasing,andequityinvestment.Islamicbankdothelogarithmoftotalassettocapturebankinvestmentfromeachtypesofbank.

TheoryofIncomeSmoothingZoubiandAl-Khazali(2007)inhisresearchintheGulfcountries,notingthatthereisapositivecorrelation between the LLP and Income. This positive correlationmeans thatmanagers ofIslamicbanksalsousetheLLPtomanageearning,nowandinthefuture.Previousresearchhashypothesizedthatbankmanagershaveanincentivetoapplyincomesmoothing(MismanandAhmad,2011).Ashrafetal.(2015)revealedthatthebank’searningmanagementinapplicationof LLP is influenced by the nature of the bank, because the results showed the issue aboutmanagementandbank’sgovernancethatwerelisted.TheoryofProcyclicalityBehaviourAl-Khayat(2013)whodidresearchin15countriesoftheGulfCooperationCouncil(GCC)suchasBahrain,Kuwait,Oman,Qatar,SaudiArabia,andUnitedArabEmirates(UAE),demonstratedby using the determinant of LLP on Islamic banks, namely : Tier-1 capital, NPL and Size,revealedthatinfact,theIslamicBankhasaprudentbehaviorpatternsandnotprocyclis,andIslamic bankdoesnot perform the income-smooth, exceptwhen Islamic banks experiencingthenegativeearning,andthisaction isalsocarriedoutasacountercyclical tool.ResearchofBoulilaetal.(2010)testedthehypothesistheincomesmoothingofIslamicbanksshowtypicalcharacteristicsenvironment:First,IslamicbanksgovernedbyIslamicprinciples(Sharia)usinga risk-sharing mechanism among investors. Second, the regulations related to shariaaccountingthatdoesnotrestrictedtheuseofdynamicprovisioning,sotheIslamicbankshaveatendencytoestablishtheallowancetoabsorblossesinthefuture.TheFiqhPlatformAccordingtoMalikiyah,murabahaorfinancinginIslamicbankismutuallybeneficial,itmeansthe seller must notify the buyer about the product price he bought and determine theadditionalprofit.InAl-Qur’anChapterAn-Nisaaverse29stated:

“Oyouwhohavebelieved,donotconsumeoneanother’swealthunjustlybutonly(inlawful)businessbymutualconsent.Anddonotkillyourselves(oroneanother).IndeedAllahistoyoueverMerciful.”(An-Nisaa,29)



FromAbiSa’idAlKhudri,inHadithRasulullahSAWsaid:“Indeed,sellinghastodowithmutualfondandmutualwillingly”.(HR.IbnuMajah) (AlZuhaily,p.703).Themajorityof fiqh scholarsagree that the supporting fiqh ruleused for financing contract in Islamicbank is “alashlufilmu’amalahalibahahillayadulludalil‘alaatahriimiha”whichmeanstheoriginofeverythingispermitted unless there is a proof that forbid it (haram) (Qal’ah Jiy, p.11). This rule is inaccordancewithDSNfatwaNo.90/DSN-MUI/XII/2013.Anotherrulethatsupportthefinancingtheoryare“adhdararuyuzaal”whichmeansthedangerofheavyload,thelossshallbeomitted(AlSuyuthi,p.16).“Alashlufil‘uquudwasyuruthalibahah”whichmeansbasicallyallformsofcontractandtermsarepermittedtobeexecuted.“Adhdhararuyudfa”whichmeansanyharmshallbeavoidedwhereveritpossible(AlZarqa,p.207).“Alhaajatutanzilumanzilatadharurati‘aammatankaanatawkhaasah”whichmeanstheurgentneedscanbeinemergencyposition,bothgenerallyandspecifically(MUI,p.79-92).The rule of benevolent loansalqardhulhasan in sharia is “kulluqardhinjarranaf’anfahuwariba”whichmeans any debts that bring benefits to the indebted is riba (Ramadhan, p.300).From that rule and legal source, the theory ofmusyaraka,mudharaba,istishna,salam,ijarah,murabahaandqardh in Islamicbankmustbe inaccordancewith the fiqh theory,which is inevery economic activity has to do with mutual fond (‘an taradhinminkum), equitable (’al‘adaalah), and no adverse (laadhararwalaadhirar). Related to the practice ofmurabaha inIslamic bank, financing product for purchase of investment goods, both domestically andabroad through (L/C) and ask for a down payment from customer and get discount fromsuppliers. Legally, it can be executed referring to the grand theory of fiqh rule “alashlu filmu'amalahalibahahillayadulludaliil'alatahriimiha”.Likewise intheoperationalto increaseprofitabilityandexpanditsbusiness,IslamicbankcandeveloptheirproductsthroughthesaleandpurchasecontractthatispermittedbyIslam.Itcanbeimplementedinanothersectorforproductiveactivity,sotheroleof Islamicbankas intermediary institutionhasdonewellandnotjustfocusonfinancing.ProfitinIslamicbankisinaccordancewiththecharacteristicsofIslamicfinanceormurabahacalled agreed profit (Rushd, p.293). Another theory states that benefit ratio determined byagreement,notbytheportionofdepositcapital(Al-Kasani;AshSyarbini&AlBahuti).Thelegalbasis in the fiqh rule that used for profit and risk in accordance with Islamic principles,mentioned in theHadith “walaamaalamribhuyudhman” whichmeans there should be noprofitwithout risking loss (Ahmad6831,Nasa’i 4647). “Alghurmubilghunmi”whichmeanslossandprofitareborneandshared(Ramadan,p.461).FromUrwahAlBariqiRA,state thatRasulullahSAWgavehimonedinartobuyagoat.Withthatonedinar,heboughttwosheep’sandresellsonegoatworthinonedinar.ThenhecametotheProphetwhilebringonegoatandonedinar.Bylookingatthis,theProphetpraysforhisblessing(HadithofBukhari).AMuslimscholar,Al-Ghazali in his bookAl-IhyaUlumuddin doesnot dismiss the fact that profit is themain motive of trade. But he gives a lot of emphasis on business ethic, which is this ethicderives from Islamic values (Al Amin & Amalia, 2010). From previous explanation, can beconclude thatprofit in Islam is permitted as long asnoharmor injustice andnothurt eachotheraccordingtoIslamicprinciples.OneoftherulesinMuamalahconceptinIslamisaboutriba.Ribameansanexcessoraddition.Islam strictly prohibits riba, Al-Qur’an as a legal basis clearly stated in the Chapter of Al-Baqarahverse275:”waahallahulba’iwaharramariba”(ButAllahhaspermittedtradeandhasforbiddenriba).AlsoinChapterofAn-Nisaaverse161stated:

“And(for)theirtakingofribawhiletheyhadbeenforbiddenfromit,andtheirconsuming of the people’s wealth unjustly. And we have prepared for thedisbelieversamongthemapainfulpunishment.”(An-Nisaa,161)



The fiqh rule that used for riba: “laa tadzlimuuna walaa tudzlamun” means that do notpersecute nor persecuted (Haroen, 2000). Referring to Islamic legal basis and Islamic fiqhtheoryabouttheprohibitionofriba,clearlythatribawillneverbringmashlahatorgoodness.NotonlyforMuslimsbutforthewholehumanrace,andevenledtothedangerorharmgreatereconomicsustainabilityandlife.

METHODOLOGYTheobjectsof this studyare IslamicBanksand IslamicBusinessUnit in Indonesiaperiodof2000 – 2016. The data used as an instrumentmeasurement of financial statement obtainedfromIslamicBankStatisticsReportfrom2000–2016fromBankIndonesiaandtheFinancialServicesAuthority.Theappendixcontainsoftablesofstatisticaldataprocessingresults.This studyuses theapproachofBouvatierandLepetit (2008) toobserve the impactofnon-discretionaryanddiscretionarycomponentsinloanlossprovisionstothefinancinggrowthofIslamicbank.Wealsospecificallyestimaterangingfromsettingadifferentdefinitionfromthecalculation of each component of discretionary and non-discretionary on the financing ofIslamicbank.TheequationwemadefollowstheapproachofBouvatierandLepetit(2012)asfollows:TLt=β0+β1NDISCt+β2DEPt+β3cCARt-1+β4TAt-1+ut………………………………………………(1)

TheFtistheshariafinancinggrowth.NDISCtinthisresearchisnon-discretionarycomponentthat is expected to affect financing growthnegatively if allegedly the procyclicality behaviorconsistentwiththesystemofbackward-lookingloanlossprovisioning.Theincreasedofcostsfrom sharia financing is shown with the loan loss provisions, thus encouraging banks toreducingincentivestoincreasethefinancing.Wealsosetthevariablecontrolsuchas:depositsgrowth DEPt, equity ratio CARt-1, and to measure the size of Islamic banks by using thelogarithmofTotalAssetsTAt-1.Aswellastheinfluenceoftimeonthelevelofgrossdomesticgrossproduct(GDP)alsoweaddtocontrolthechangesinmacroeconomicconditions.Thispaper focuson themeasurementcalculationof severalnon-discretionarycomponent totest the robustnessof the results, so theequation thatused to representhypotheses for thebehaviorpatternsofprocyclicalityand incomesmoothingbehavior in Islamicbanks refer tothestudyofBouvatierandLepetit(2012)asfollows: NDISCt=α1LLPt-1+α2NPlt+α3ΔNPLt+α4TLt+α5GDPt+α6TAt………………………………..(2)

In the systemofbackward-lookingprovisioning show theprimary correlationof NDISCt inlinewith NPLt thatistheratioofnon-performingfinancingtowardtotalassetintheendofyear t, and the first ddeviation (delta) from NPLt(ΔNPLt=NPLt- NPLt-1) as a explanatoryvariable.ThesetwovariablesaregoodindicatorstoindetifylossesinthefinancingportfolioofIslamicbank.Thisvariablewillshowapositivecorrelationwiththeloanlossprovisions.Weaddthefailure risk for the entire financing portfolio, measured by the ratio of total net financingtowardtotalassetsTLt,thesevariablesshowedapositivecorrelation.Weconsidertherateofgross domestic product growth GDPt which has a negative correlation with loan-lossprovisions. Because of the feasibility of customer’s financing Islamic banks depend oneconomicconditions.Thenwealsoconsider thecurrentratioofbankearningsand loan loss



reservetowardtotalassetTAttoexaminewhetherIslamicbanksuseloanlossprovisionsforthesmoothingincome.For methodology estimation used OLS to test the equation, this estimation known asregressionestimation.Thecombinationofthetwoequations,are:theoriginalequationandthetransformation equation. The transformation equation can be the first difference for theoriginalequation.Theequationinstrumentappliedonlytolagofdependentvariable(LLPt-1).Foranothervariableconsideredasexogenous.ValidityestimationtestedusingKolmogorov-SmirnovtestandDurbinWatsonthat examinethe autocorrelation and fixed effect. We also guarantee that in this test there is nomulticollinearityproblemandcorrelationmatrix.

RESULTQuantitativeResultResult of normality test of Nondiscreation LLP andDiscretion LLPwhich showsmanagerialgoalsinincomesmoothing,capitalmanagement,andsignalingasfollows:

Table1.NLLPVariableNormalityTestOutput.

Table1showsAllNLLPvariablesusedshowvaluesgreaterthan0.05meansthatallvariablesarenormallydistributedandthereisnodifference.

Table2.DLLPVariableTestOutput

Inquantitativemethod,theresultproved(table2)thattheDLLPvariableindicatingthebankmanagerhasanattitudeofincomesmoothing,capitalmanagement,andsignalingisvalidandsignificanttotheprivisons(LLP).Theresultoftheregressionequationobtainedforthecorrelationandtheinfluenceofloanlossprovisionwithnon-discretionarycomponentthataffecttothefinancinggrowthratealsoshowthe countercyclicality and capital management behavior of bankmanager. This result is inaccordancewithShariahcompliance,asfollows:



Tabel3.OutputRSquareLLP

Table3showstheLLPvariablebeingeligibleandnotautocorrelatedwithDurbinWatsontestof1<2.765<3.MeaningthatTA,GDP,NPF,EAT,andTLcontributetoLLP.

Table4.OutputSignificanceofLLPVariables

Table4.showsthesignificanceofallLLPvariablesof0.000<0.05

Table5.OutputofLLPBetaValue

Table5showstherelationshipandinfluenceofLLPvariablewiththefollowingequation:LLP=-121,5+0,43NPF+0,13GDP–0,39CAR+0,69EAT-2,72TL+2,97TA…………….(3)Thisequationshowsthatloanlossprovisionshaveacommonforminthedifferentsetofdata.NPFratioandGDPgrowthratessignificantlyaffecttheLLPinallestimation.NPFandGDPhavea positive and significant effect,where each 1% increase inNPFwill increase provisions by0.43%,aswellasinGDPwithapositiveandsignificanteffect,thisresultcontradictsthereviewofBouvatierandlepetit(2012).theresultsofthisstudyshowbehaviourtheforwards-lookingprovisionssystemencouragecountercyclicalitypatternsonLLPinIslamicbanksinIndonesiathis study. The results for discretionary behavior of Islamic bank managers as capitalmanagementbehaviorshowedtheconsistentresultwiththehypothesisthatIslamicbanksinIndonesiausedLLPforitsincomesmoothing,andtheTAcoefficienthasapositivecorrelationandsignificantinallestimations.ButTLhasanegativecorrelationwiththebehaviorofIslamicBanks.Dynamicprovisioningistheoreticallydesignedforreservelevelingthroughoutthecycle(actingasabuffer),sothatoncertainconditionstheimpactissimilartothatofbuffer(DeLisandHerrero,2013).ThisbehaviorisinaccordancewiththeshariahcompliancethatappliestoallIslamicBanks.The resulted of regression equation for financing growth of Islamic banks (Table 2) withdroppingthevariableofNDISCasfollows:



Tabel6.OutputRSquareLoan

Table6showsthegrowthofloansvariableiseligibleandautocorrelatedwithDurbinWatsontestof1<2.837<3.Meaning thatTA,GDP,NPF,CAR,andProvisions(LLP)contribute to thetotalLoans.

Table7.OutputofSignificanceofGrowthofLoansVariables

Table7.showsthatallgrowthofloanvariablesaresignificantat0.000<0.05

Table8.OutputofDepositVariablesExcluded

Table8showsthevariableDeposits(thirdpartyfunds)excludedasnotsignificant.Thismeansthat profit-based profit-sharing variables can not be included as a variable of the growth offinancing. Sources of financing funds in Islamic banks can not rely on third-party fundingsources(deposits).Becausethecontractsandcalculationsfortheresultsarenotequaltothecalculation of margin financing at Islamic Bank which has various contracts and types ofengagement.TheseresultssupportthestudyofKhanandAhmed,(2001)thatthedifferencesinthenatureofthecompositionofassetsandliabilitiesofshariabankswiththeprincipleofprofitandlosssharing

Table9.OutputBetaGrowthofLoanValue



Table 9. shows the relationship and influence of growth of loan variable with equation asfollows:TL=-0,037LLP-0,035NPF-0,006GDP–0,14CAR+1,205TA+u……………………….…(4)

The coefficient associated with the provisions growth rate represented by LLP showed asignificantnegativerelationshipforany1%increase in1%financinggrowthofreserveswilldecreaseby0.04%.FortheNPFcoefficientshowsanegativeandsignificantrelationshipwhereevery 1% increase in financing growthwill reduce problem financing by 0.04%. In theGDPcoefficientshowsanegativeandsignificantcorrelationforeach1%growthincreaseingrowthoccurswheneconomicgrowthdecreasesby0.006%.ThecoefficientofCARisforequityratioshowsnegativeandsignificantcorrelationwhereeveryincreaseoffinancinggrowthdecreasecapitalratioequalto0,14%thisdescribesbehaviorofcapitalsmoothingfrombankmanager.but theTotalAsset coefficient representing size shows a positive and significant correlationwhichmeansthatevery1%increaseinfinancinggrowthincreasesthetotalassetsofIslamicbanksby1.21%Thepositiveimpactonnon-discretionaryLLPtofinancinggrowthindicatesthatthesystemisforward-lookingprovisionsaffectthecountercyclicalityintheIslamicbankfinancing.Itshouldbewhen the Islamic bank is in high economic cycles, the LLP is high, so encourage Islamicbankstodecreasethefinancing.Inthecontrary,whenthebanksuffereddecliningineconomiccycle,theLLPbecomelow,causedtheIslamicbanksreducestheincentiveinthenewfinancingdeals.Thesensitivityoffinancinggrowthofbanktowardnon-discretionaryLLPbankdependsonitsbankingsystem.Table9(enclosed)showstheuseofNDISCinfinancinggrowthrevealsthatthepositiveimpactonnon-discretionaryLLPonfinancinggrowthisdependentontheeffectofGDPgrowthratetowardLLP.Theeffectnon-discretionaryLLPtowardfinancinggrowthbyinsertingvariableofcapital smoothing behavior found that the coefficient results were negative and significant.Thisresultsrevealthatcapitalsmoothingbehaviormitigatestheimpactofnon-discretionaryLLPtowardfinancinggrowth.Theseresultshighlightthatthecapitalsmoothingbehavioristherightsolution tomitigate thecyclicalitypatternonanon-discretionaryLLPandevenreducethe impact on financing growth.The right solution comes from Islamicbanking regulator toimplementdynamicprovisioningsysteminaccordancewithIslamicbanks.Furthermore,theresultsofempiricalresearchwithquantitativemethodswillbediagnosedinqualitativemethodtodoprognosisandgeneratestheimplicationsforregulatorandsocietyingeneralaccordingtothefiqhplatform.QualitativeResultThe growth of Islamic banks in this study is very small and tends to be slow due to theclassification model of the primary contract agreement contract provided for Islamic bankcustomers such as murabaha, mudharaba, musharaka, ijara, salam and isthisna. The fiqhplatform which is used for all forms ofmuamalah is “al ashlu fil mu’amalah illa al-ibahahyadulludaliil‘alaatahriimiha” (the origin of everything is allowed unless there is proof thatforbid it), which means that by using the theory of fiqh rules the product development ofIslamicbankcanbedoneandexpanded.Inpractice,Islamicbankonlyoffermurabahaproduct,butinIslamitselfsale-purchaseorba’ihaveavariousformthatallowed,usable,andcanbeofferedtothepublicinaccordancewith



their needs and abilities. Types of ba’i or sale-purchase contract that can be developed inproductof Islamicbankareba’inaqdan,ba'itaqsith,ba’imuajjal,ba’ibitsaman‘ajil,ba’iwafa,evenba’itawarruqtoprovidethechoicestothepublicinaccordancewiththeconditionsandproblems.Products from mudharaba contract can develop according to its type such as mudhrabamuthlaqaandmudharabamuqayyada.Likewisethedevelopmentofmusyarakawithavarietyof partnership contract model such as, musharaka (wujuh, inan, abdan, mufawadhah),muzara'ah,musaqaandmukhabara.Depositorsavingfundcalledwadi’ah,thedevelopmentofproductcontractcanbewadi’ahyaddhamanah andwadi’ahamanah. Ijara contractalsocanbedeveloped inaccordancewith theneedsandcapabilities.Thedevelopmentof ijaracontractor leasecontract inIslamlikepureijara that is ba’iwal ijara, ijaramuntahiyabitamlik or called IMBT, ju’ala and parallel ijara.Islamicbanks in Indonesia shouldbebraver and confident indeveloping shariaproducts aswell as to educate thepublic about theproductsof Islamicbankswhichwill be appliedanddeveloped,sothatIslamicbankscanbegrewwell.WithproductdevelopmentofIslamicbanks,the public may believe that the interest or riba is not a way out of their problems. Theimplication of these products development is the advancement of Islamic bank in IndonesiaandincreasetheeconomicwelfareoftheIndonesianpeople.

SUMMARYANDRECOMMENDATION1. Quantitatively, theapplicationofbackward-lookingprovisionsystem in financing loss

provisionshaspositivecorrelationandsignificantshowedapatternofprocyclicalityinIslamicbanks.

2. The relations of earning current variable with LLP showed the income smoothingbehavior of Islamic bankmanagerwho encourages the implementation of backward-lookingprovisionsystem.

3. The pattern of cyclicality in non-discretionary component of LLP with incomesmoothing behavior cannot bemitigated, it can even reduce the financing growth ofIslamicbank.

4. Qualitatively, the fiqhplatformwhich isused forall formsofmuamalah is“alashlufilmu’amalah illa al-ibahah yadullu daliil ‘alaa tahriimiha” (the origin of everything isallowedunless there isproof that forbid it),whichmeans thatbyusing the theoryoffiqhrulestheproductdevelopmentofIslamicbankcanbedoneandexpanded.

5. There are a lot of forms of the agreement contract that can be developed such asmurabaha(ba’inaqdan,ba'itaqsith,ba’imuajjal,ba’ibitsaman‘ajil,ba’iwafa,evenba’itawarruq),mudharaba(mudhrabamuthlaqaandmudharabamuqayyada),musharaka(wujuh,inan,abdan,mufawadhah),muzara'ah,musaqa andmukhabara, ijara (ba’iwalijara,ijaramuntahiyabitamlik,parallelijara)andwadi’ah(wadi’ahyaddhamanahandwadi’ahamanah) as long as in accordance with the condition and capability of thecustomers.

ReferencesAdzis,AziraAbdul,HermanShahAnuarandNoorShahiedaMohdHishamuddin.”MalaysianCommercialBanks:DoIncomeSmoothing,CapitalManagement,Signaling,andProcyclicalityexistthroughLoanlossprovisions?”InternationalJournalofEconomics,Financeandmanagement,Vol.4,No..2,March2015,pp.68-76.

AhmadBinHanbal,AlMusnad.1995.AlQahirah:DarAlHadits

Ahmed,A.S.,Takeda,C.andThomas,S.”BankLoanLossprovisions:areeaxaminationofcapitalmanagement,earningmanagementandsignalingeffect”,JournalofaccountingandEconomics,Vol.28No.1.1999,pp.1-25.



AlArif,NurRianto;Amalia,Euis.2010.TeoriMikroekonomi:SuatuPerbandinganEkonomiIslamDanEkonomiKonvensional.Jakarta:Kencana

Al-Kasany,Bada’iAlShana’i.t.th.Bairut:DarAlKitabAl‘Araby

AlSuyuthi,Jalaludin.1995.AlAsybahWaNazha’ir.Bairut-Libnan:DarAlFikr

AlZarqa’,Ahmad.1989.SyarhAlQawa’idAlFiqhiyyah.Damascus:DarAlQalam

Anandarajan,A.,Hasan,I.andLoranzo-Vivas,A.”TheRoleofLoanLossprovisionsinearningmanagement,capitalmanagement,andsignaling:TheSpanishexperience”,AdvancesinInternationalAccounting,Vol.16,2003,pp.43-63.

Anandarajan,A.,Hasan,I.andMcCarthy,C.”UseofLoanLossprovisionsforcapital,earningmanagementandsignalingbyAustralianbanks”,journalofAccountingandfinance,47,2007,pp.357-379.

Ashraf,Ali.,M.KabirHassan,andSyedAbulBasher.”LoanlossprovisioninginOICCountries:Evidencefromconventionalvs.Islamicbanks”,JKAU:IslamicEcon.,Vol.28No.,2015,pp.23-59.

Athanasoglou,P.P.,Danilidis,I.,&Delisc,M.D.”Bankprocyclicalandoutput:Issuesandpolicies”,Journalofeconomicsandbusiness,72,2014,pp.58-83.

Balla,E.,andA.McKenna.”Dynamicprovisioning:ACountercyclicaltoolforLoanLossReserves”,EconomicQuarterly,Volume95,No.4,Fall,2009,pp.383-418.

Baltagi,BadiH.Econometricanalysisofpaneldata.Chichester:JohnWileyandSons,2001.

BaselCommitteeonBankingSupervision2011.BaselIII:AGlobalregulatoryframeworkformoreresilientbanksandbankingsystems.BankforInternationalSettlement.

Benston,G.J.,andWall,L.D.”Howshouldbanksaccountforloanlosses?”JournalofaccountingandPublicpolicy,vol.24,2005,pp.81-100.

Bikker,J.A.,danHu,H.“Cyclicalpatternofprofit,provisioningandlendingofbanks.BancaNazionaledelLavaroQuarterlyReview,Vol.55,2002,pp.143-175.

Bikker,J.,andMetzemakers,P.“Bankprovisioningbehaviorandprocyclicality”,JournalofInternationalFinancialMarkets,InstitutionalandMoney,Vol.15,2005,pp.141-157.

Boumediene,Aniss.”IsCreditriskreallyhigherinIslamicbanks?”.TheJournalCreditRisk(97-129).Volume7/Number3,Fall2011.

Bouvatier,V.,andLepetit,L.(2008).”Banks’procyclicalbehavior:Doesprovisioningmatter?”JournalofInternationalMarkets,InstitutionsandMoney,Vol.18,pp.513-526.

Bouvatier,V.,andLepetit,L.(2011).”ProvisioningrulesandbankLending:Atheoreticalmodel,JournaloffinancialStability,forthcoming.

Bouvatier,V.,andL.Lepetit,(2012),”EffectofLoanlossprovisionsongrowthinbanklending:someinternationalcomparisons”,InternationalEconomics,Vol.132,pp.91-116.

Carpenter,S.B.,Whitesell,W.,Zakrajsejk,E.(2001),”Capitalrequirement,businessloans,andbusinesscycles:AnEmpiricalanalysisofpotentialcyclicaleffectsofthenewBIScapitalstandards,BoardofGovernorsofthefederalReserveSystem.

CavalloM.MajnoniG.”DoBankprovisionsforbadloansingoodtime?”,Empiricalevidenceandpolicyimplications.WorldBank,WorkingPaperNO.2619.2001.

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Haroen,Nasroen.2000.FiqhMuamalah.Jakarta:GayaMediaPratama

Hidayatullah,Syarif.2012.Qawa’idFiqhiyyahdanPenerapannyadalamTransaksiKeuanganSyariahKontemporer(Mu’malat,MaliyyahIslamiyyah,Mu’ashirah).Jakarta:GramataPublishing

Majah,Ibnu.T.th.SunanIbnuMajah.DarAlFikr

Ql’ahJiy,Rawwas.1987.Mausu’ahFiqhUmarBinAlKhattab,Bairut:DarAlNafais

Ramadhan,‘Athiyah.T.th.Mausu’ahAlQawa’idAlFiqhiyyah.AlIskandariyah:DarAlQimmah-DarAlIman



APPENDIX

Tabel10.CorrelationofLLP&Cyclicality

Tabel11.CorrelationVariablesGrowthofLoan


Dobrițoiu,N.(2018).EstablishingTheTotalQualityOfATypeOfResultObtainedByAnEconomicCompany-Generalities.ArchivesofBusinessResearch,6(9),134-140.

EstablishingTheTotalQualityOfATypeOfResultObtainedByAnEconomicCompany-Generalities

NicolaeDobrițoiuAssoc.Prof.Eng.Ph.D.

UniversityofPetroșani,RomaniaUniversitățiiStreet20,332006,Petroșani,Romania

ABSTRACT

Theresultsoftheactivitiescarriedoutinaneconomiccompanyareconcretizedinoneormoretypesofproductsorservicesofacertainquality.Thequalityofproductsandservices of an organization is determined by the ability to satisfy customers and theintendedandunintentionalimpactonrelevantstakeholders,orThequalityofproductsandservicesnotonly includes their intended functionsandperformancebutalso thevalue andbenefit perceivedby the client (SR EN ISO9000: 2015)According to thesedefinitions, taken from the quality standard SR EN ISO 9000: 2015, it results that aproductisofhighqualitywhenthefollowingisachieved:-satisfactionofalargenumberofconsumerexpectations;-encourageconsumerstomeetnewexpectations;-thecostofmeetingtheseexpectationsshouldbeassmallaspossible;-theperiodinwhichaproductmeetstheexpectationsmustbeashighaspossible;-thecostofusingtheproductbyconsumersmustbeassmallaspossible.Duetothefactthatatthelevelofnationaleconomythereisagreatvarietyoftypesofproductsandservicesitisnecessarytogroupthemaccordingtovariousclassificationcriteria. Also, each type of result obtained by a company is described by a variablenumber of quality characteristics, this leads to grouping these qualitativecharacteristicsaccordingtovariousclassificationcriteria. Ingeneral,determiningthequalityofatypeofresultobtainedbya firmrequiresknowledgeofthegroup'snameand the position it occupies in the resulting group according to an establishedclassification criterion. Developing a mathematical model for determining the totalqualityforatypeofresultrequirestheknowledgeoffollowinginformation:-nameofresulttype;-classificationcriteriaafterwhichthetypeofresultisgrouped;-thenameoftheresulttypeclassificationgroupanditspositioninthegroup;-criteriaforclassifyingqualitativecharacteristics;-name of classification group and the position of the qualitative characteristic in thegroup.

OVERVIEW

Atthemultitudeofmeaningsinconnectionwiththeconceptofproductsqualityitaddsthefactthat, as the products demand diversification increases and with the industrial productiondevelops, the notion of products quality has evolved and diversified through the followingterms:

- "potentialquality",meaningthequalityoftheproductafterdesign,beforeassimilationintothemanufacturingprocess;

- "partialquality",representingtheratiobetweenthequalityobtainedandtherequiredquality;

- "achievedquality"isthequalityresultingfromthecheckattheendofproductionline;- "assuredquality"isthequalityresultingfromaunitaryprogramcomprisingallquality

controlactivities(prevention,measurementandcorrectiveaction);- "total quality", this concept integrates the degree of utility, economy, aesthetics and

ergonomicsofproductsviewedfromafunctionalandsocialpointofview,etc.



Inorderforaproducttobedemandedbyconsumers,itwillhavetosatisfyanumberofneeds.Thehigher thenumberofneedsand the costof satisfaction is lower, the betterquality theproduct.Aneedmaybefulfilledbyoneormorequalitativefeatures.Specialtyliteraturehighlightsalargenumberofdefinitionsofthequalityconcept,ofwhichwepresentthemostrepresentativeones:

1."Productquality"istheexpressionofthedegreeofsocialutilityoftheproduct,theextentto which, through its technical, functional, psychosensory characteristics and ofeconomicparameters, it satisfies theneeds forwhich itwas createdand respects therestrictions imposed by the general interests of society, regarding the social andeconomicefficiency,theprotectionofthenaturalandsocialenvironment.

2.Thequalityofproductsandservicesofanorganization isdeterminedby theability tosatisfycustomersandtheintendedandunintentionalimpactonrelevantstakeholders,

orThe quality of products and services not only includes their intended functions andperformancebutalsothevalueandbenefitperceivedbytheclient(SRENISO9000:2015)Startingfromthisdefinition,itisobservedthattheoverallqualityofaresultisdeterminedinseveralstages,namely:

- thestageIconsistsofestablishingthepartialqualityofaproduct,madebyacompany,inthesalesphase;

- thestageIIconsists indeterminingthepartialqualityoftheresultdependingonhowtheproductmeetstheneedsforwhichitwaspurchased;

- the stage III consists in establishing the partial quality of the result, given by theavailability;

- thestageIV,consistsindeterminingthepartialqualityoftheproduct,givenbythecostsofusingtheproductbythebeneficiary.

- the stage V consists in establishing the partial quality of the product, given by itsremovalanddestruction.

- the stage VI, consists in establishing the partial quality depending on the product'senvironmentalimpactontheenvironmentinwhichitoperated.

Foreachofthesetypesofquality,acoefficientofimportanceisassignedandthesumofthesecoefficientsofimportanceisequalto1.Determiningthetotalqualityofaresultisdonewiththerelation:

==

5

1*

iii gCCT

where: -Ci represents the value of the partial quality established in the "i" stage and is expressed inpoints, and the totalnumberofpoints thatapartialqualitymay take is: 100,1000,or10000; -giisthedegreeofimportanceoftheestablishedqualityinstage"i".Observation.Byassigningalargenumberofpointstothemaximumvalueofthequalityofaproduct obtained in a firm, at a certain stage of its existence it can better highlight its totalquality.

Dobrițoiu,N. (2018).EstablishingTheTotalQualityOfATypeOfResultObtainedByAnEconomicCompany-Generalities.ArchivesofBusinessResearch,6(9),134-140.


Someofthedeterminedpartialqualitiesmaypresentdynamicsatdifferenttimes,andthismayinfluencetotalquality.Inordertodeterminethetotalqualityofaproductitisnecessarytoachieveaclassificationoftheproductsaccordingtothedegreeofcomplexity.AtnationallevelandintheEuropeanUnionthereareclassificationsoftheseresults,namely:

- CAEN2018-Classificationofactivitiesinthenationaleconomy- CPSA2007-Classificationofproductsandservicesassociatedwithactivities- CPSAistheacronymfortheClassificationofProductsandServicesadjacenttoActivities

andtheCPSAcodeisanumericsymbolspecifictoaparticularproductorservice.CPSAis the romanian version of the corresponding European classification CPA 2002 (EUstandard)andCPCrev.3.1(UNstandard).

THEQUALITYCHARACTERISTICSOFAPRODUCT

The quality of a product is a cumulus of qualitative characteristics, where each qualitativecharacteristichasameasuredorattributivevalue,avaluewithinaspecifiedrange,andeachqualitativecharacteristicfulfillsindividuallyorinassociationwithothercharacteristicswithintheproduct,afunction,anecessityorawell-definedutility.Quality characteristics are those properties of the entities through which the degree ofsatisfactionofcustomerrequirementsisassessedatagivenmoment.Also, the ISO 9000: 2015 standard defines the term of quality characteristic, as "thecharacteristic (property) inherentofanobject (object,entity,article,anythingperceptibleorimaginable) concerning a requirement (need or expectation which is declared, generallyimpliedormandatory)".Note1."Inherent"meanswhichexistsinsomething,especiallyasapermanentfeature;Note2.Afeatureattributedtoanobject(egthepriceofanobject)isnotafeaturerelatedtothequalityoftheobject.Due to the large number of qualitative characteristics that a product has, it is necessary toclassify them, and the literature indicates the following classification criteria for qualitativecharacteristics,presentedintableno.1:



Thecriterion Thecharacteristic

Natureandtheeffectitshowsintheprocessofuse

TechnicalcharacteristicsPsycho-sensorycharacteristicsAvailabilitycharacteristics

Economicandtechnical-economiccharacteristics

Social-generalcharacteristicsThecriterionoftheimportanceofthequalitycharacteristicsinassuringtheutilityandfunctioningoftheproducts

Basiccharacteristics

Secondarycharacteristics

Theeconomicdestinationandthethecharacterofusingproductsintheconsumptionprocess

CharacteristicsofthemeansofworkCharacteristicsofworkobjects

Featuresforobjectsofindividualconsumption

Possibilitytoquantifythequalitycharacteristics

DirectlymeasurablefeaturesIndirectlymeasurablefeatures

Featuresobjectivelycomparablewiththestandardsample

Featuressubjectivelycomparablewiththestandardsample

ThemodeofexpressionQuantifiablefeaturesAttributivecharacteristics

STAGESFORDETERMININGTHETOTALQUALITYAs stated in paragraph 1, the total quality is determined in stages. The order of the stagespresents a logic in the establishment of the total quality, which leads to the continuousimprovementoftheinformationregardingthetotalqualityoftheproduct.1.Atthefirststageisdeterminedthepartialqualityoftheproductatthestageofsale.Thequalitativecharacteristicsunderlyingthedeterminationofthequalityoftheproductatthestageofsalearethosegivenbythecriterion"accordingtothenatureandeffectthatitpresentsintheprocessofuse".Determiningthepartialqualityatthestageofproductpurchaseisdoneinseveralphases.

- inphaseI,theindicatorsofthequalitativecharacteristicsprovidedinthecriterion"bythenatureandtheeffectthattheypresentintheprocessofuse"areidentified.

- inphaseIIweidentifythevaluerangesinwhichthevaluesofeachindicatorvary.- in phase III it is checked by sampling, on the basis of previously developed control

plans,whether the values of the indicators of the followed qualitative characteristicstakevaluesinthepredeterminedranges.

- in phase IV, after processing the data obtained in the third phase, through differentstatistical methods, it can be determined whether or not the products are of therequiredquality.

2. At the stage II, is determined thepartial quality onhow theproductmeets theneeds forwhich it was purchased. The purchased product is used for different purposes by thebeneficiary,duringtheperiodofuseitischeckedwhethertheproductsatisfiestheneedsforwhich itwaspurchasedand, foreachnecessity, inpart, aredetermined thecostvalueswiththeir satisfaction. Knowing the values of these indicators, are determined the values of theindices.Asabasisofcomparisoninthedeterminationofthevaluesoftheindicescanbe:the



values of the technical and economic indicators provided in the technical documentation,values obtained by similar products made by other companies, values obtained by otherbeneficiariesetc.).Thevaluesoftheindicesallowacomparisonoftheobtainedresultswiththoseprovidedinthetechnical-economic documentation and, depending on them, the partial quality can beestablishedatthisstage.Also,at thisstage, thecostsofoperating theproductunderdifferentworkingconditionsaremonitoredduringdifferenttimeperiods,thusallowingforthedeterminationofunitcostsfortherealizationofaunitofproductorservice.3.AtthestageIII,apartialqualityisdeterminedwhichreferstotheavailabilityoftheproductduringitsusefullife.AccordingtoSTAS8174/3-1977,availabilityis"theabilityofasystemtoperformitsspecificfunction at a given moment or in a period of time, considering the combined aspects ofreliability,maintainabilityandmaintenance."The partial quality determined at this stage is based on the statistical indicators of theavailabilitycharacteristics(reliability,maintenanceandavailability).Indicatorsofavailabilitycharacteristicsmayinfluencethequalityoftheproduct.4.StageIV.Thepartialqualitydeterminedatthisstageisbasedonthevaluesofthesyntheticor complex (integral) indicators obtained in the process of using the product, under certainworkingconditionsandacertainperiodoftime.In the first phase we determine the average values of the indicators of the economiccharacteristics achieved in the activity of the product functioning, and among the mostsignificant indicators we mention: productivity; specific consumption of raw materials,materials,fuels,energy;specificconsumptionwithworkmanshipetc.Depending on the values of the determined indicators, the values of the indices of theseeconomic characteristics are calculated.When calculating these indices, the following valuesareusedas thevalues tobecompared:plannedvalues;valuesachieved inpreviousperiods;values achieved of similar products in the same time periods; values achieved by otherbeneficiaries;thevaluesprovidedinthetechnicalandeconomicdocumentationoftheproduct.By comparing these indiceswith theonesplanned, thepartial quality of theproduct canbedeterminedforthetimeperiodconsidered.Observation. The partial quality determined at this stage shows a dynamic for theenvironmentalconditionsinwhichtheproductisworkinganddifferenttimeperiods.5.AtStageVitisdeterminedthepartialqualityoftheproductduetoitsdecommissioninganddestruction.Indicators determined at this stage of product life refer to all the costs of performing thenecessaryactivitiesatthisstageoftheproduct,amongwhich:



- thecostofpreparingtheremovaloftheproduct;- lossesduetonon-fulfillmentoftheplannedperiodofoperation(amortizationcosts);- lossofproductionduetonon-performanceoftheperiodofoperation;- the moral wear and tear of the product; high moral wear and tear leads to large

production lossescompared to similarproductsbutwitha lowdegreeofmoralwearandtear.

6.StageVIconsistsindeterminingthequalityaccordingtotheinfluenceoftheproductontheenvironmentinwhichitoperates.This partial quality refers to the influences that the product has had on the environment,concretizedbyasystemofindicators,namely:

- thedegreeofenvironmentalpollutionsurroundingtheatmosphere;- influenceofsometypesofradiation,ofchemical,physical-mechanicalfactorsresulting

from the operation of the product on the environment, on theworkforce and on thepopulationinthearea;

- theinfluenceofthechemicalfactorsthatcanoccurduringtheoperatingperiodontheenvironment,onthelaborforceandonthepopulationinthearea;

- theinfluenceofthephysicalandmechanicalfactorsthatcanoccurduringtheproduct'slifetimeontheenvironment,ontheworkforceandonthepopulationinthearea.

There are situations when the influence on the environment, the operation, the use of aproduct,isquiteaggressiveorpositive,duringtheperiodofoperationorinthenearfutureorfurtheraway.

CONCLUSIONSANDPROPOSALSTo determine the total quality of a product of high complexity, the following groups ofinformationmustbeknown:

-themultiplicityofallsetsofenvironmentalconditionsinwhichtheproductwillwork;-dynamicsofthealternationofsetsofenvironmentalconditions;-periodsoftimetheproductworksforeachsetofenvironmentalconditions.

Theresearchtobecarriedoutwillfocusonthedevelopmentofmodelsthatwillformthebasisofestablishingpartialqualities,takingintoaccounttheabovementionedinformationgroups.Thetotalqualityofacomplexproductisafunctionofpartialqualities.From thepractical point of view, theknowledgeof the total quality of a complexproduct isvaluablefortheredesign,researchordesignofsimilarproducts.For the beneficiary it is important to know the partial qualities provided in the technical-economicdocumentationthatwillbecheckedinpractice.Theproposedmodelfordeterminingthetotalqualityofaproductcanbeusedforalltypesofproducts,regardlessoftheircomplexity.Forconsumerproducts,thetotalqualityisdeterminedbycertainpartialqualities,sincethesetypes of products, in their existence, do not go through all the stages of the existence of acomplexproduct.



ReferencesBaron,T.,(coord.),QualityandReliability,TehnicăPublishingHouse,Bucharest,1988(inRomanian)

Dobrițoiu,N.,QualityAssessmentforaCompany,University"1Decembrie1918",AlbaIulia,ProceedingsoftheInternationalScientificConference“ChallengesofContemporaryKnowledge-Basedeconomy”,November16-17,2007

Dobrițoiu,N.,QualityAssessmentforaCompany2,MagazineofManagementandEconomicEngineering,Vol.6/No.4(25),2007

Dobriţoiu,N.,ResearchcontractNo.534/10.05.2010–TechnicalandeconomicanalysisofoperatingsystemsusedbyEMCfortheiroptimizationincaseofnewtechnical,economicandsocialconditions,codeCPV71241000-9,UniversityofPetroșani,2010(inRomanian)

Dobrițoiu,N.,QualityAssessmentforaCompany3,Proceedingsofthe18thWSEASInternationalConferenceonAppliedMathematics(AMATH'13),RecentAdvancesinAppliedandTheoreticalMathematics,Budapest,Hungary,Dec.10-12,2013,PublishedbyWSEASPress,pp.256-267,ISBN:978-960-474-351-3

Dobrițoiu,N.,Radu,S.M.,Mangu,I.S.,ConsiderationsontheQualityofCoalProductionintheCoal-MiningDepositOltenia,Romania,24thWorldMiningCongressPROCEEDINGS-MINERALECONOMICS/BrazilianMiningAssociation/InstitutoBrasileirodeMineração(Org).1ed.-RiodeJaneiro:IBRAM,2016,e-book,Availableat:www.wmc2016.org.brandwww.ibram.org.br,35-46,ISBN:978-85-61993-11-5e-book

Drăgulănescu,M.,Drăgulănescu,N.,TheManagementofServicesQuality,AGIRPublishingHouse,Bucharest,2003(inRomanian)

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Tovissi,L.,Vodă,V.,Metodestatistice-aplicaţiiînproducţie.Ed.ŞtiinţificăşiEnciclopedică,Bucureşti,1982(inRomanian)

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Sandari,T.E.,Ratnawati,T.,&Yuhertiana,I.(2018).IndependenceandFraudDetection:InfluenceonTheProfessionalismofForensicAuditor.ArchivesofBusinessResearch,6(9),141-146.

IndependenceandFraudDetection:InfluenceonTheProfessionalismofForensicAuditor

TriesElliaSandari

FacultyofEconomicandBusiness,17Agustus1945SurabayaUniversity,Surabaya,Indonesia

TriRatnawati

FacultyofEconomicandBusiness,17Agustus1945Surabaya,Surabaya,Indonesia

IndrawatiYuhertiana

FacultyofEconomyandBusiness,PembangunanNasionalVeteranUniversity,Surabaya

ABSTRACT

Thisstudyaimstoanalyzetheinfluenceofthisstudyaimedtoanalyzetheinfluenceofaudit risk, and investigative audit techniques, on independence, fraud detection andforensic auditor professionalism in Indonesia. This study uses a survey methodconducted forall forensic auditors in Indonesiawith200 forensic auditorswhohavehandledfraudcases.Thenumberofsamplesusedwas116respondents.Dataanalysisand hypothesis in this study use Structural Equation Modeling (SEM) with PLS 20.0software.Theresultsofthisstudyindicatethattwelvehypotheseswereaccepted.Thesignificance of this hypothesis shows directly through audit risk, investigative audittechniquesonindependence, frauddetectionandforensicauditorprofessionalism,sothattheforensicauditor'sprofessionalismindetectingfraudwillincrease.Keywords:Audit risk, investigative auditing techniques, independence, fraud, detection offraud,forensicauditors,professionalism

INTRODUCTION

BasedondatafromtheIndonesiaCorruptionWatch(ICW)investigationdivision,therewere482casesin2016andanincreaseof576corruptioncasesin2017.TheamountofstatelossesalsoincreasedbyafigureofRp6.5trillionandabribeofRp211billion.Meanwhile,accordingtotheCorruptionControlCommission(KPK)inIndonesia,in2016TransparencyInternationalIndonesia announced the achievement of the 2016 Corruption Perception Index - CPI inIndonesiauponerank(from36to37),in2017theKPKsucceededinreturningstatelossesofRp.276.6billion.Thisistheresultobtainedfromcorruptioncases."MorethanRp188billionhasbeenputintothestatetreasuryintheformofPNBPfromhandlingcases.TherearestillasmallnumberofprofessionalforensicauditorswhohavefraudcertificatesinIndonesia due to a lack of training for forensic auditors in Indonesia. While fraud casesinvolvingmanycasesofcorruptionrequire fraudauditorswhohavespecialexpertise in thisfield,accordingtotheForensicAuditor'sProfessionalCertificationInstitute(LSP_AF)itissaidthat along with the increasing number and variety of financial transactions and activitiesrelated to financial / non-financial state, Auditors who have forensic expertise in thepreventionandhandlingoffraud/corruption.

Sandari,T.E.,Ratnawati,T.,&Yuhertiana, I. (2018). IndependenceandFraudDetection: InfluenceonTheProfessionalismofForensicAuditor.ArchivesofBusinessResearch,6(9),141-146.


The biggest cause of corruption cases in some private companies and Governmentdepartmentsiscollusionthatoccursinprivatecompaniesandindividuals,researchersbelievethattherearelesscasesfoundbyforensicauditors,intentionalorunintentionalinsomecasesoffraudbyforensicauditorsinaneffort implementfrauddetectionintheprivatesectorandgovernmentdepartments.So that it requires professionalism for the forensic auditor in solving every case of fraud.Tuannakotta, (2012: 349) explains that a large number of auditorswho are experienced inauditing the company's financial statements are hesitant in auditing fraud and investigativeaudits. Medium according to Piter Simanjuntak (2008). That audit time and risk budgetpressureswillalwaysaffectauditbehaviorwhichisadecreaseinauditquality.

LITERATUREREVIEWTheAuditRiskAudit risk is the vulnerability of account balances or transactions tomaterialmisstatement,audit risk positively influences the auditor's responsibility in detecting fraud (Jaffar et al.,2008)thisresearchwassupportedbyKrambia-Kapardis,(2002)andMatsumuraandTucker,(1997) which concluded that audit risk positively affects the auditor's responsibility indetectingfraudinfinancialstatements.InvestigativeAuditingTechniquesThepurposeofaninvestigativeauditistoidentifyinvestigationsanduncoverfraudorcrime,approaches,proceduresandtechniquesusedininvestigativeauditsthatarerelativelydifferentfromtheapproaches,proceduresandtechniquesusedinfinancialaudits,performanceauditsor other audits. special purpose (Wahono, 2011). According to (Tuanakotta: 2010) thedefinition of investigation is an attempt to prove that an investigative audit is a fraudinvestigationandexaminationthatisusedinterchangeably.IndependenceAuditorindependenceisindependencewhichistheattitudeexpectedfromtheauditortonothave personal problems in carrying out his duties, which is contrary to the principles ofintegrityandobjectivityandtoachievegreatqualityofperformance,anindependentattitudeis required from the auditor (Andenna Pentaza Swastyami, 2016). If the auditor loses itsindependence,theauditreportproducedisnotconsistentwiththefactthatitcannotbeusedas a basis for decision making. A study conducted by Wahyuningtyas (2007) states thatindependence has a positive effect on the auditor's responsibility in detecting errors andirregularities in financialstatements.Theresultsofhisstudyarealsosupportedbyresearchconducted by Widiyastutiand and Pamudji (2009), which states that independence has apositive effect on the auditor's responsibility in detecting fraudulent financial statements,independencemustalsobeownedandmaintainedby theauditor, thisattitudedemands theauditortobefairineverytask,heisnotjustifiedtobenefitanyone.Independenceconsistsoftwocomponents,namely:1. Independenceofmental attitude independenceof anattitude isalsodemandedbytheauditorsothatheisfreefrominterestsandpressurefromanyparty,sofraud can be detected properly, and after fraud has been detected, the auditor does notparticipateinsecuringthepracticefraud.FrauddetectionFrauddetectionisveryimportantforauditorsbecausefraudisimportanttodetect.Thisisthemotivation of this research, especially in detecting fraud, auditors must be supported byattitudesofcompetence, independence,andprofessionalism(Wahyuningtyas,2007).Suraida



(2012) states that experienced auditors will show a higher level of selective attention torelevant information. Arens, et al. (2008) states that auditors must have technicalqualificationsandexperienceintheindustrytheyaudit,becausethiswillmakeauditorsmorelikelytofindfraudfromtheclientstheyaudit.Factors Drivers of Fraud Occurrence by William C Boyton in (Arens 2008: 432) Threefraudulent conditions arising from reported fraudulent financial and misuse of assets areoutlined in SAS 99 (AU 316). Triangle Fraud, there are three things that encourage theoccurrence of a fraud, namely pressure, opportunity, and rationalization, as follows: thepressureProfessionalismofForensicAuditorAccording toTheodorrusTuanakotta (2012), theprofessionalismof forensicauditorscanbedefinedas theexpertiseof forensicauditors in conductingaudits inaccordancewith certainexpertiseandforensicauditorprofessionalismisveryimportant.AccordingtoSastianaandSumarlin, (2016)Professionalismisanelementofmotivationthatcontributestosomeonetohavehighperformancetasks.Professionalpeoplehavegreaterresponsibilitybecause it isassumedthataprofessionalhastheingenuity,knowledge,andexperiencetounderstandtheimpactoftheactivitiescarriedout(Widyastuti and Pamudji, 2009). According to Arens (2009) professionalism as theresponsibility of individuals to behave better than merely obeying the existing laws andregulationsofsociety.Aprofessional isapersonwho(1)believesthathisworkis important(dedication to the profession), (2) Provides services for the public (Social Obligations), (3)Requires autonomy as a condition for their services (demands for autonomy), (4) Supportsseparate rules that differ from other professional rules (Trust in Self-Regulations) and (5)Affiliationwithothermembersoftheirprofession(professionalcommunityaffiliates).Hypothesis

1.Auditriskhasasignificanteffectontheindependence.2.Auditriskhasasignificantlyeffectonthedetectionoffraud.3.Auditriskhasasignificanteffectontheprofessionalismofforensicauditors.4.Investigativeaudittechniqueshasasignificantlyeffectontheindependence.5.Investigativeaudittechniqueshasasignificantlyeffectonthedetectionoffraud.6.Investigativeaudittechniqueshasasignificantlyeffectontheprofessionalismofforensic

auditors.7.Independencehasasignificantlyeffectonthedetectionoffraud.8.Independencehasasignificantlyeffectontheprofessionalismofforensicauditors.9.FrauddetectionhasasignificantlyeffectontheprofessionalismofforensicAuditors



ConceptualFramework

Figure1.ConceptualFrameworkofResearch

METHODOLOGY

The object of this research is all forensic auditors. The number of samples of 116 auditorsselected by purposive sampling. The sample selection method used is forensic auditors inIndonesiawhohavehandledseveralfraudcasesandareexperiencedinexaminingfraudcasesformorethantwoyears.Totesttheproposedhypothesis,theanalysistechniqueusedisSEM(StructuralEquationModeling),withPLSstatisticalsoftware(GhozaliImam,2014).WhiletheconceptualframeworkofresearchcanbeseeninFigure1

Figure2.TheOutputOfBootstrapping



Table2.ThePathCoefficientTable2.ThePathCoefficients(Mean,STDEV,T-Values)

OriginalSample(O)

SampleMean(M)

StandardDeviation(STDEV)

StandardError

(STERR)

TStatistics(|O/STERR|)

(X1)RiskAudit->(Y)ProfessionalismofForensicAuditor

0.108859 0.109963 0.012768 0.012768 8.525881

(X1)RiskAudit->(Z1)Independence 0.241498 0.242595 0.011872 0.011872 20.341037

(X1)RiskAudit->(Z2)FraudDetection 0.275875 0.273732 0.016128 0.016128 17.105044

(X2)InvestigativeAuditTechniques->(Y)ProfessionalismofForensicAuditor

0.579660 0.579333 0.012493 0.012493 46.397844

(X2)InvestigativeAuditTechniques->(Z1)Independence

0.739714 0.738743 0.011676 0.011676 63.354857

(X2)InvestigativeAudittechniques->(Z2)FraudDetection

0.688807 0.689833 0.017452 0.017452 39.468635

(Z1)Independence->(Y)ProfessionalismofForensicAuditor

0.191970 0.191650 0.013611 0.013611 14.103774

(Z1)Independence->(Z2)FraudDetection 0.018832 0.019983 0.014771 0.014771 1.274901

(Z2)FraudDetection->(Y)ProfessionalismofForensicAuditor

0.117506 0.117101 0.012164 0.012164 9.660330

Source:dataprocessedHypothesisTestingTable1showsthatalltimebudgetpressurevariables,auditrisk,investigativeaudittechniqueshaveasignificanteffectontheindependence,frauddetectionandprofessionalismofforensicauditorsinIndonesiawithasignificanceabove5%withat-statisticvaluegreaterthanthet-tablevalueof1.96.Theoriginalvalueofthepositiveestimateshowsthatallvariableshaveapositiveeffect,excepttheindependencesvariabletothefrauddetectionvariablewhichhasanegativeeffect,thisisbecausehighindependenceswillmaketheauditorunabletodetectthegap well. Based on the results of testing using 2.0 PLS gives an answer that the twelvehypotheseswereaccepted.

SUMMARYTheresultsofthisstudycanbeconcluded:(1)auditriskaffectandsignificanttoindependence;(2)auditriskaffectandsignificanttofrauddetection;(3)Auditriskaffectandsignificantlytoprofessionalismofforensicauditors;(4)Investigativeaudittechniquesaffectandsignificanttoindependence ;(5)Investigativeaudittechniquesaffectandsignificanttodetectingfraud;(6)Investigative audit techniques affect and significant theprofessionalismof forensic auditors;(7) Independence affect and significantly influence fraud detection; (8) Independence affectandsignificanttheprofessionalismofforensicauditors;(9)Detectionoffrauddetectionaffectandsignificanttoprofessionalismofforensicauditors.



BIBLIOGRAPHYA.APutuRatihCahayaNingsihdanP.DyanYaniartha,(2013),”PengaruhKompensasi,Independensi,dantimeBudgetPressureterhadapKualiatasAudit”E-JurnalAkuntansiUniversitasUdayana4.1:92-109

AndennaPentazaSwastyami.(2016).“KarakteristikAuditor.AuditRisiko.dantanggungjawabdalammendetekskecurangan”JournalOfBusinessAccounting.Vol.XVNo.29.2016.

Arens,et.al.2008.AuditingandAssuranceServices,NewJersey:PearsonPrenticeHall.

https://nasional.tempo.co/read/1062534/kasus-korupsi-tahun-2017-icw-kerugian-negara-rp

https://news.detik.com/berita/d-3787260/kpk-kembalikan-rp-2766-miliar-uang-negara-di-2017

https://www.kpk.go.id/id/publikasi/papers-antikorupsi/488-tantangan-governansi-dalam-menyelesaikan-masalah-korupsi-di-sektor-publik-sektor-swasta

Jaffaret.al.2008.TheEffectsoftheExternalAuditors'AbilitytoAssessFraudRiskonTheirAbilitytoDetecttheLikelihoodofFraud.InternationalJournalofManagementPerspectives.ISSN:1307-1629.2008.1(1).49-70.

JanSvanberg.PeterOhman.(2013).TimepressureAuditor:Doesthequalityoftheauditsupportethicalculture.ManagerialAuditingJournal.JournalofemeraldVol.28Iss:7.pp.572–591

Krambia-Kapardis.M.2002.Afrauddetectionmodel:amustforauditors,theJournalofFinancialRegulationandCompliance,10(3).266-278.

MatsumuraandTucker.1997.Frauddetection:Atheoreticalfoundation.Frauddetection:Atheoreticalfoundation,TheAccountingReview,67(4),753-782.

Suraida,Ida.(2012).“Pengaruhetika,kompetensi,Pengalaman,RisikoAuditdanSkeptismeProfesionalismeAuditorTerhadapKetepatanPemberianOpiniAkuntanPublik”Vol.7No.3.186-202.

Tuanakotta,TheodorusM,(2012).ForensicAccountingandInvestigativeAudit.Jakarta'sSalembaEmpat.

Widiyastuti,MarcellinaandSugengPamudji,(2009).“PengaruhKemandirian,kompetensi,danprofesionalismeMenujukemampuanAuditordalammendeteksiKecurangan,Nilaitambah”.Vol.5,no.2

Wahono,Sugeng.2011.AuditInvestigation.NarotamaUniversity.Surabaya


Pristiana, U., Ratnawati, T., & Witjaksono, A. D. (2018). Investment Decision, Capital Decision, Industry Performance,EconimicMacrosasAntecedentVariablesofFinancialRiskManagementandFinancialDistressAgainstValueofTheFirmWithGCGAsaVariableModeratingForManufacturingCompaniesRegisteredOnTheindonesianstockexchange.ArchivesofBusinessResearch,6(9),147-163.

InvestmentDecision,CapitalDecision,IndustryPerformance,EconimicMacrosasAntecedentVariablesofFinancialRisk

ManagementandFinancialDistressAgainstValueofTheFirmWithGCGAsaVariableModeratingForManufacturing

CompaniesRegisteredOnTheindonesianstockexchange.

UlfiPristianaDoctoralStudentatTheDoctoralPrograminTheFacultyofEconomicsandBusinessatThe

Universityof17Agustus1945Surabaya,IndonesiaDepartmentofManagement,TheFacultyofEconomicsandBusinessatTheUniversityof17

Agustus1945Surabaya,Indonesia

TriRatnawatiLectureratTheFacultyofEconomicsandBusinessatTheUniversityof

17Agustus1945Surabaya,Indonesia

AndreDwijantoWitjaksonoLectureratTheFacultyofEconomics

atTheSurabayaStateUniversity,Indonesia

ABSTRACTThe purpose of this study is to analyze and prove the effect of Investment Decision,Capital Decision, Industry Performance, Macro Economic As Antecedent Variables ofFinancialRiskManagementAndFinancialDistressToValueOfTheFirmWithGCGAsModeratingVariables.ThepopulationofthisstudyismanufacturingcompanieslistedontheBEIfrom2014to2016.Usingthemethodofpurposivesamplingitwasfound40manufacturingcompaniesasresearchsamples.TheresultofthisresearchshowsthatInvestment Decision, Capital Decision , Industry Performance , Macro Economic,FinancialDistressandGCGhavesignificantinfluencetothecompanyvalueofthefirm,but Financial RiskManagement has no significant influence to company value of thefirm.GCGmoderatessignificantlytheinfluenceofFinancialDistressandFinancialRiskManagementonValueofthefirm.Keyword: Investment Decision, Capital Decision, Industry Performance, Macro Economic,FinancialRiskManagement,FinancialDistress,ValueOfTheFirm,GCG

INTRODUCTION

Manufacturing industry sector is one of the important sector in national economicdevelopment . It supports thenational economysince this sector contributes significantly totheeconomicgrowthofIndonesia(Darmawan ,2016). Indonesia iscurrently intransitiontoan agrarian-based economy to a semi-industrial economy in an effort to boost nationaleconomic growth . The pattern of subsistence economies relying on the primary sector isslowly shifting into an economy sustained by the manufacturing sector . Manufacturingindustry sector is a fairly stable sector and become one of the support of the country'seconomyamidtheuncertaintyoftheworldeconomywithapositivegrowthrate.Inaddition,themanufacturingindustryisalabor-intensiveindustrythatabsorbsalotoflabors.Basedondata onto the Central Bureau of Statistics (BPS ) (Feb , 2017 ) in Indonesia the number of

Pristiana, U., Ratnawati, T., & Witjaksono, A. D. (2018). Investment Decision, Capital Decision, Industry Performance, Econimic Macros asAntecedent Variables of Financial RiskManagement and Financial Distress Against Value of The FirmWithGCGAs a VariableModerating ForManufacturingCompaniesRegisteredOnTheindonesianstockexchange.ArchivesofBusinessResearch,6(9),147-163.


openedorunemployedworkersreached7.01millionpeople .Thisshows that therearestillmany workers that have no job to meet a decent life . Increased growth of manufacturingindustry will be able to absorb labor in Indonesia so that will reduce the number ofunemployment . Thedevelopment ofmanufacturing industry in Indonesia suffered after theeconomic crisis in 1998 , where the growth of the manufacturing sector (21%) was underGrossDomestic Product (23.7%) (Basri , 2015 ) . Data onto the Central Bureau of Statistics(BPS)of2015showsthattheaveragegrowthofthemanufacturingindustryhavedecreasedsignificantly,intheperiodof2011-2014theaveragegrowthwas5.3whilein2015,Itdroppedto3.9(CPM,2015)Thephenomenonofthedeclineincompanygrowth,indicatesthatmanufacturingcompaniesis facing troubles and need to be attended , especially to the go public manufacturingcompanies.Thedecreasinggrowthindicatesthedecliningofthecompanyvaluethatleadsinlowering public investment confidence . Therefore , it is necessary to do an analysis todetermine the factors affecting the value of the company / value of the firm . Based on thedescribed background and to achieve the ultimate goal , the researcher assessed thesignificanceof the influencingvariables that is expected to affect thevalueof the company ,consistingofInvestmentDecision,CapitalDecision,IndustryPerformance,MacroEconomicas endogenous variables , and Financial Risk Management , Financial Distress and GoodCorporate Governance as moderating variables in manufacturing companies listed on theIndonesiaStockExchange.FinancialManagementAccordingtoVanHorneandWarchowiz,Jr.(2014:20)itissaidthatfinancialmanagementdealswiththeacquisitionofassets,financing,andassetmanagementbasedonsomegeneralpurposes . Companymanagementwill dealwith financialdecisions suchas introducingnewproducts,thetimingofinvestinginnewassets,thetimingofreplacingtheexistingassets,thetimingofborrowingmoneyfrombanks,thetimingofissuingsharesorbonds,thetimingofextending credit to customers , andhowmuchcash shouldbemaintained (Keown ,Martin ,Petty & Scott Jr. 2005 : 4 ) . From the point ofmanager's view , the financialmanagementdecisionisadecisionrelatedto(a)thedecisionontheallocationoffunds,bothfrominsideandoutsidethecompanyonvariousformsofinvestment,(b)decisionmakingofspendingorfinancinginvestment,c)dividendpolicy.FinancialDecisionFinancialdecisionsareadecisionthatmustbemadebythecompanymanagementtodevelopthebusinesswiththeaimatmaximizingthevalueofthecompany.AccordingtoDamodaran(2014 ) , there are three factors that are considered tomaximize the value of the companynamely investment decisions , funding decisions and dividend decisions . Internal financialdecisionsthathavetobetakenbythecompanyaccordingtoVanHorne,Wachowicz(2014:2) consists of 3 indicators namely investment decisions , funding decisions and dividenddecisions . These three decisions will be reflected on the financial ratios associated withdecisionmakingintermsofinvestmentandrelatedtothecompany'sabilitytogenerateprofitsresulting from its investment , the ability of companies toutilize fixed assets , capital used ,inventoryandaccountsreceivable.Fundingdecisionreflectsthedebtconstructionusedbythecompany to fund its assets and indicates the company's ability to repay short-term debtsecuredbyitscurrentassetsandcashposition.Thedividenddecisionisadecisionthatmustbetakenbythecompanytoincreasetheprosperityoftheshareholders.



InvestmentDecisionThedecision on investing is a decision thatmust bedone carefully , because it involves thepolicyoftheuseoffundsandreturnsreceivedbythecompanyoraninvestmentdecisionontheassetintheexpectingofobtainingareturngreaterthantheminimumvaluethatshouldbeaccepted .Determiningtheinvestmentdecisionsareaveryimportantdecision ,becauseit iscloselyrelatedtothetrustgivenbythecommunity.AsWarchowiczexplains(2014:250)thecurrent asset of manufacturing company typically accounts for more than half of the totalassets .The larger theasset the faster the rateof returns/ROIbut companieswith smallerassetswilldisruptmeansthat thecompanywillbegettingdifficulties inmaintainingsmoothoperation.FinancingDecisionThe company's funding decisions are inseparable from the investment policies set by thecompany.Thefundingdecisionisdefinedasadecisiononthecompositionoffundingchosenby the company (Hasnawati , 2005 ) . According to Brigham , Houston , (2014 : 155 ) thedeterminationofcapitalstructurewillinvolvetheexchangeofriskandreturn,theuseofdebtinlargerquantitieswillincreasetheriskborebytheshareholders,butmoredebtingeneralwill increasetheestimatedreturnonequity .Thefundingdecisionisamanagementdecisionondeterminingtheoptimalcapitalstructure.Soitwon'tdisruptthecompany'soperations.DevidendDecisionThe dividend decision is a decision that must be taken by the company to increase theprosperity of the shareholders The value of a company formed by the indicator of stockmarket , is heavily influenced by investment opportunities . The signaling theory of thedividendisbuiltbasedontheasymmetricinformationframeworkexplainsthatasaninsiderinthe firm , amanager in choosing dividend policy can be used as ameans of information inrelationtotheprospectofthecompanyWilliam(1985),MillerandRock(1985)inKusuma(2004).IndustryPerformancePerformance is the result of work that is influenced by the structure and behaviour of theindustrywhichtheresultscanbeidentifiedbytheamountofmarketcontrolortheamountofprofitofacompanyinanindustry.IndustrialPerformanceisameasureofacompanythatcandescribe the value of a company . The United Nations Industrial Development Organization(UNIDO)developedaCompetitivenessIndustrialPerformance(CIP)indicatorwhichwasthenappliedtomeasurethecompetitivenessofmanufacturingindustrysectorsin93countriesoverthe 1980-2000 period (Bapenas ) . The size of the CIP indicator in Industrial DevelopmentReport 2004 consists of 4 (four ) main variables , namely (a ) value added per capitalmanufacturingindustry,(b)percapitalmanufacturingindustryexports,(c)industrializationintensity as measured by the contribution of the manufacturing industry on GDP and thecontribution of medium and high technology manufacturing industries to manufacturingsectors,(d)qualityofexportsmeasuredbythecontributionofmanufacturedexportstototalexports and the contribution of medium and high technology manufacturing in the exportvaluetothemanufacturingindustry.MacroEconomicsEconomic growth can be defined as a development in an economy that causes goods andservicesproducedinasocietytoincrease(Sukirno,2011:9).Therearemanyindicatorsthatcan measure macro variables theoretically including political economic indicators . A fairlycommon indicatorusedtopredictstock fluctuations isavariabledirectlycontrolledthroughmonetary policy of / on a transmission mechanism through the financial market (Bank



Indonesia , 2004 ) . These variables includeGrossDomestic Product (GDP ) , Interest rate ,inflationrate,andforeignexchangerate(Tandelilin,1997).FinancialRiskManagement/FRM.Riskmanagementisastructured/methodologicalapproachfrom/tomanaginguncertaintiesrelatedtothethreat(Mamduh,2014).Themainobjectiveofriskmanagementistominimizethe potential losses arising from unexpected changes in the price of currency , credit ,commodities,andequity.AnthonySandMarcia(2014:173)statethatthemaingoalofthecompanyistobenefittheowner.Buttheseconditionsarecostlyandtherewillberisksfacedby thecompany .AnnualReportof thegopubliccompany in theFinancialStatementNote/CALKillustratedthattherisksfacedbymanufacturingcompaniesarerisksassociatedwiththeconditionofthecompanyiefinancialriskcompanyorFinancialRiskManagement/FRM.FinancialDistressFinancialdistressisaconditioninwhichthecompanyfacestheproblemoffinancialdifficulties.Financialdistressoccurswhenacompanycannotfulfillitsobligations,especiallyinthecaseof debt payments (Ross , et al / , 1999 ) . Companies in financial distress can be caused byvariousfactors.Thesefactorsare(Ogdenetal,2003:587):internalfactorsarefactorsthathave a direct impact on the condition of financial distress and external factors are factorsbeyondthecontrolofthecompany.GoodCorporateGovernance(GCG).GoodCorporateGovernance(GCG)isapillarofthemarketeconomysystem,asitrelatestopublicconfidencetothecompany.Externallythecompanywillbemoretrustedbyinvestors.AccordingtotheForumforCorporateGovernanceinIndonesia/FCGI(2001),GCGisasetofrules governing relationships between shareholders , managers of companies , creditors ,governments ,employeesandotherinternalandexternalstakeholdersrelatedtotheirrightsandobligationsor inotherwordsasystemthatcontrols thecompany .Thegoal is tocreateaddedvalueofallstakeholders.Corporategovernancemechanismaimstocreateaddedvalueofallstakeholders,sothatthereisnoconflictbetweentheagentandprincipalthatimpactondecreasingagencycost(Bodroastuti,2009).Goodcorporategovernancemechanismscanbeproxiewithfivevariablesaccordingtoaresearch(Black ,etal ,2001) ,namelyshareholderrights (shareholder rights ) , board of directors , outside directors , audit committees andinternalaudit,anddisclosuretoinvestors.ValueoftheFirmEverycompanyhasaprimarygoalistomaximizethevalueofthecompany.Theoptimizationofcompanyvaluesasitisthecompany'sgoalcanbeachievedthroughtheimplementationofthe financial management function , whereby one financial decision will affect the otherfinancialdecisions andaffect thevalueof the company (FamaandFrench , 1998 ) , and thevalueofthecompanywillbereflectedfromthestockmarketprice(Fama,1978).SalvatoreinPurnama(2013)saysthatthemainpurposeofthecompanyaccordingtothetheoryvalueofthefirmaretomaximizethewealthorvalueofthecompany(valueofthefirm) .VanHorneandWarchowicz,Jr.(2014)statethatthecreationofcorporatevalueisthemaximizationofafter-tax returns (Earning After Taxes ) . Maximizing the value of the company is veryimportant to a company , because by maximizing the value of the company also means tomaximizeshareholderwealththatisthemaingoalofthecompany.



RESEARCHMETHODSPopulationandSampleThe population of this study are allmanufacturing companies listed on the Indonesia StockExchange.BasedonIDXdataonto2016thenumberofmanufacturingcompanieslistedontheIndonesiaStockExchangeaccountedfor136companies.Determinationofsampleusedinthisresearchispurposivesamplingmethod,whichisonetechniqueofnon-randomsampling(nonrandom sampling ) . Based on the determination of the criteria there are 40 companiesselectedtobeanalyzed.DefinitionofConcept

1. Investment Decisions (X1 ) is a management decision on determining the rightinvestmentwith the expectation of a return in accordancewith the invested amount(Horne,Warchowicz,2014)

2. Capital Decisions (X2 ) is amanagement decision on determining the optimal capitalstructure.Soitwillnotdisruptthecompany'soperations(Brigham,Houston,2011)

3. IndutryPerformance/PerformanceIndustry(X3)isameasureofacompanythatcandescribethevalueofacompany(Fama,1978)

4. Macro Economic / Macro Economy (X4 ) is a measure of the growth of a companydeterminedbytherateofinflation,exchangerateandinterestrate.(Damodaran,2014)

5. FinancialRiskManagement/FRM(X5)istheamountofriskfacedbythecompanybyusingthecompany'srisk informationcontainedinthecompany's financialstatements(CALKAnnualReportGoPublicManufacturingcompany.

6. FinancialDistress (FD ) (X6 ) is a conditionwhere the company faces theproblemoffinancial difficulties . Financial distress occurs when a company can not fulfill itsobligations,especiallyinthecaseofdebtpayments(Ross,etal/,1999).

7. GoodCorporateGovernance(GCG)(X7)isarelationshipoftwoaspectsofgovernancestructurethatisthecompositionofdirectorsandleadershipstructureofthedirectors(DailyandDalton,1994).

8. ValueoftheFirm/ValueCompany(Y)isdepictedwiththewelfareofitsownersthathaveawealthofshares,thehigherthevaluethatwillbereflectedon/offthemarketpriceofitsshareswillprovideprosperityfortheowner(Fama,1978)

DATAANALYSISTECHNIQUE

This research used two types of data analysis that is descriptive analysis and statisticalanalysis .Descriptive analysiswasused todescribe the results of research ,while statisticalanalysiswasusedtoprovetheresearchhypothesis .StatisticalanalysistoolusedisSEM-PLSwithSmartPLSprogram.

RESULTSANDDISCUSSIONEvaluationMeasurement(Outer)ModelValiditytestAnindicatorisvalidifithasaloadingfactorofmorethan0.70withaconstructtobemeasured,howeverfortheinitialstageofdevelopmentofascalemeasuring,theloadingvaluesof0.5to0.60areconsideredsufficient(Chin,1998inGhozali,2015:74).SmartPLSoutputforloadingfactorgivesresultasshowninFigure1of:



Figure1.SmartPLSoutputforloadingfactor

Thepictureshowstherearetwelveindicatorsofresearchvariablesthathavealoadingfactorsmallerthan0.50.TheyaretheratioofPPE/BVA,CAP/MVA,MVA/BVA,MVE/BEastheindicator of the variable of Decision Investment , DER andMDE as the indicator variable ofCapital Decision , Debt Ratio , Inventory Turnover , Total Asset Turnover , Fixed AssetTurnoverastheindicatorofIndustryPerformancevariable,InflationastheindicatorofMacroEconomic variable and PER as the Value of the Firm indicator . Indicators having a loadingfactorlessthan0.70orinvalidareexcludedfromthemodelornotincludedinthenextanalysisphase.TheanalysisresultsafterexcludingtwelveinvalidindicatorsareshowninFigure2of:

Figure2.SmartPLSoutput

Reliability Test Reliability tests is done by checking the Composite Reliability value of theindicatorblockthatmeasurestheconstruct.CompositeReliabilityresultsaresatisfactoryifithasthevalueof0.7.Table5.28belowisthevalueofCompositeReliabilityonoutput.



Table1:CompositeReliabilityvalue

ResourcecompositeReliabilityValueAnalysiswithSmartPLS2.0-2018

The table above shows that the value of composite reliability for all variables is above 0.7indicatingthatallvariablesintheestimatedmodelmeetsthecriteriaofdiscriminantvalidity.StructuralModelTesting(InnerModel).Thetestofthestructuralmodel(innermodel)isperformedaftertheestimatedmodelmeetstheOuterModelcriteriaTheresultoftestingforstructuralmodel(Innermodel)isaslistedinTable5.30.Thetableshowsthat:

1. R-Square0.793066forValueoftheFirmconstructsmeansthatValueoftheFirmisableto explain the variance between Decision Investment , Capital Decision , IndustryPerformance , Macro Economic , Financial RiskManagement , Financial Distress andGCGof79.07percent

2. R-Square0.561332fortheconstructionofFinancialRiskManagementmeansthat theFinancialRiskManagementisabletoexplainthevariancebetweenDecisionInvestment,CapitalDecision,IndustryPerformance,MacroEconomic,andGCGby56.13percent.

3. R-Square 0.044478 for Financial Distress constructsmeans that Financial Distress isabletoexplainthevariancebetweenDecisionInvestment ,CapitalDecision , IndustryPerformance,MacroEconomic,FinancialRiskManagementandGCGof4.45percent.

Table2.:R-Square

ResourcesR–SquarewithSmartPLS2.0-2018

Proof the hypothesis in this research is done reviewing the significance influence betweenvariables on coefficient parameter and significance value (t statistic ) . In SmartPLS2.0 it isdonebylookingatAlgorithmBoostrappingreport.AlgorithmBoostrappingreportobtainedinthisstudyisshowninFigure3andTable3below:



Figure3:Boostrapping

Table3:PathCoefficients(Mean,STDEV,T-Value)

ResoucesPathCoefficientswithSmartPLS2,0-2018

EffectofInvestmentDecisiononFinancialRiskManagement.Theresultofanalysis shows that InvestmentDecisionhas significanteffectofFinancialRiskManagament as evidenced by T-statistic value of 20.451815 > 1.96 . The original sampleestimate of 0.760340 indicates that the direction of the relationship between InvestmentDecision toFinancialRiskManagamenthadapositive influenceon.Theeffectof investmentdecision on financial riskmanagement ofmanufacturing company of research sample had apositiveon, that is , thebiggerthe investment isdonebycompany , thegreaterthe financialrisk faced by the company , the smaller the investment made by the research samplemanufacturingcompany,thesmallerthefinancialrisksfacedbythecompany.Theresultsofthisstudydonotsupportthetheorysayingthattheinvestmentdecisionhasanegativeeffecton financial risk management . This happens because according to the theory , when the



investmentdecisiondecreasesthenfinancialriskmanagementincrease.Theobtainedrealityshows thatduring theperiodof financial riskmanagement research facedbymanufacturingcompanies,researchsampledecreased,becausetheCRtrenddecreasedby0.2percentwhileQRincreasedby2.9percent,sothattheaverageincreased.Theresultsofthisstudycannotbecompared with the results of previous research , because the previous research did notexaminetheeffectoffinancialriskmanagementonfinancialriskmanagement.TheEffectofInvestmentDecisiononFinancialDistressTheresultofanalysis shows that InvestmentDecisionhassignificanteffectof/onFinancialDistressasevidencedbyT-statisticvalueof8.634927>1.96.Theoriginalsampleestimateof0.156374 shows that the direction of the relationship between Investment Decision toFinancialDistresshadapositiveinfluenceon.Theeffectofinfluenceofinvestmentdecisiononfinancial distress of manufacturing company , as the research sample , is nondirectional ,meaning that the better investment decided bymanufacturing company of research samplehencethebigofincapabilitytopayobligation(financialdistress)company.Theresultsofthisstudydonotsupportthetheorythattheinvestmentdecisionhasanegativeeffectonfinancialdistress . This happens because according to the theory of investment decision , that is notgood will cause financial incompetence (financial distress ) company will increasingly. Thefacts obtained show that during the period of financial distress research faced bymanufacturingcompaniesresearchsamplesdecreased ,because the trendof ICRonaverageincreasedby0.7percent . (The resultsof the studycannotbe comparedwith the resultsofprevious research , because previous research did not examine the effect of investmentdecisiononfinancialdistress.TheEffectofInvestmentonValueoftheFirmTheresultofanalysisshowsthattheDecisionInvestmenthassignificanteffectof/onValueoftheFirmwhichisprovedbyT-statisticvalueof26.757624>1.96.Theoriginalsampleestimateof 0.945049 indicates that the direction of the relationship between InvestmentDecision toValueoftheFirmhadapositiveinfluenceon.TheinfluenceofinvestmentdecisiononValueoftheFirmmanufacturing company research sample isunidirectional ,meaning thebetter theinvestmentdecidedbythecompanymanufacturingresearchsamplethenthehighertheValueof theFirm .The resultsof this studysupport the theory that the investmentdecisionhasapositive effect on the firm's value . This happens because according to theory , investmentdecisionisgettingbetterthentheValueoftheFirmisalsoincreasing.Thefactsobtainedshowthat during the study period the firm's value faced by the manufacturing company of theresearchsamplehas increasedby10.79percent .TheresultssupportresearchconductedbyFenandar , andRaharja (2012 )which shows that investment decisions have a positive andsignificantimpactoncorporatevalue.InfluenceofCapitalDecisiontoFinancialRiskManagement.The result of analysis shows that Capital Decision has significant effect of Financial RiskManagament as evidenced by T-statistic value of T-statistic equal to 20.451815> 1,96 . Theoriginalsampleestimateof-0.131497showsthattherelationshipbetweenCapitalDecisiontoFinancial Risk Managament is opposite . The direction of influence of capital decision onfinancialriskmanagementofmanufacturingcompanyofresearchsampleisoppositedirection, meaning lower funding determined by manufacturing company of research sample hencehigher financial riskmanagement . The results of this study support the theory that capitalmanagement has a negative effect on financial risk management . This happens becauseaccordingtotheory , ifthecapitaldecisionaregettingbetterthenfinancialriskmanagementalso decreased . The reality obtained shows that during the period of financial riskmanagement research faced by manufacturing companies research samples decreased ,



becausetheCRtrenddecreasedby0.2percentwhileQRhasincreased2.9percent,sothattheaverageincrease.comparedwiththeresultsofpreviousresearch,becausepreviousresearchdidnotexaminetheinfluenceofcapitaldecisionsonfinancialriskmanagementInfluenceofCapitalDecisiontoFinancialDistress.The result of analysis shows that Capital Decision has significant effect of / on FinancialDistressasprovedbyT-statistic valueof2.783785>1.96 .Theoriginal sampleestimateof -0.044114indicatesthatthedirectionoftherelationshipbetweenCapitalDecisiontoFinancialDistress is opposite . The direction of the influence of the capital decision to the financialdistressof themanufacturingenterpriseof theresearchsample is in theoppositedirection ,that is , the lower the financing structure decided by the research sample manufacturingcompany the greater the inability to pay the financial distress and vice versa if the higherfundingstructuredecidedbycompaniesmanufacturingresearchsampleshencetheinabilitytopayobligations(financialdistress)companygettingsmaller.Theresultsofthisstudysupportthetheorythatcapitalmanagementhasanegativeeffecton financialdistress .Thishappensbecause according to theory, if the better capital decisionwill cause financial incompetence(financialdistress)companywilldecrease.Thefactsobtainedshowthatduringtheperiodoffinancial distress research faced bymanufacturing companies research samples decreased ,becausethetrendofICRonaverageincreasedby0.7percent.Theresultsofthestudycannotbecomparedwiththeresultsofpreviousresearch,becausepreviousresearchdidnotexaminetheinfluenceofcapitaldecisionsonfinancialdistress.InfluenceofCapitalDecisiontoValueoftheFirm.The result of analysis shows that CapitalDecisionhas significant effect of Value of the Firmwhich is proved by T-statistic value of 3.823139> 1.96 . The value of the original sampleestimateof0.025112indicatesthatthedirectionoftherelationshipbetweenCapitalDecisiontoValueoftheFirmhadapositiveinfluenceon.Thedirectionofinfluenceofcapitaldecisiontofirmfirmvalueofmanufacturingresearchsampleisunidirectional,meaningbetterfinancingstructuredeterminedbymanufacturingcompanyofresearchsamplehencehigherValueoftheFirm . The results of this study support the theory that capital management has a positiveeffectonfirmvalue.Thishappensbecauseaccordingtotheory,thebettercapitaldecisionsthebetterValueoftheFirmalso.Thefactsobtainedshowthatduringthestudyperiodthefirm'svalue faced by the manufacturing company of the research sample has increased by 10.79percent.TheresultssupporttheresearchconductedbyNirmala(2010),Hermuningsih(2013) , Obaid (2016 )which states that the funding structure has significant effect on the firm'svalue , but does not support the research conducted by Fenandar , and Raharja (2012 ) noeffectontheValueoftheFirm.InfluenceofIndustryPerfomancetoFinancialRiskManagement.Theresultofanalysisshowsthat IndustryPerfomancehassignificanteffectofFinancialRiskManagamentasevidencedbyT-statisticvalueof2.758785>1.96.Theoriginalsampleestimateof 0.022195 shows that the direction of the relationship between Industry Perfomance toFinancial Risk Managament is the same direction . The direction of the influence of theperformance industry towards the financial risk management of manufacturing companiesresearch samplehad apositive influenceon ,meaning that thebetterperformance industryproduced by manufacturing companies research samples , the higher the financial riskmanagement .Theresultsof thisstudydonotsupport thetheorythatperformance industryhasanegativeeffecton financial riskmanagement .Thishappensbecause theoretically , thelowertheperformanceindustrythefinancialriskmanagementislower.Therealityobtained



shows thatduring theperiodof financial riskmanagement research facedbymanufacturingcompaniesresearchsampledecreased,becausetheCRtrenddecreasedby0.2percentwhileQRincreasedby2.9percent,sothattheaverageincrease.Theresultsofthestudycannotbecomparedwith theresultsofpreviousresearch ,becausepreviousresearchdidnotexaminetheinfluenceoftheperformanceindustryagainstfinancialriskmanagement.InfluenceofIndustryPerfomancetoFinancialDistress.The result of analysis shows that Industry Perfomance has significant effect of FinancialDistresswhichisprovedbyT-statisticvalueof4.628152>1.96.Theoriginalsampleestimateof-0.065640indicatesthatthedirectionoftherelationshipbetweenIndustryPerfomancetoFinancialDistress isopposite .Thedirectionof the influenceof the industryperformanceonthe financial distress of the manufacturing company's research sample is in the oppositedirection,meaningthatthehighertheperformanceindustryobtainedbytheresearchsamplemanufacturingcompany,thelessfinancialliability.Theresultsofthisstudysupportthetheorythatperformance industryhas anegative effect on financial distress . Thishappensbecauseaccording to theory , the higher the performance industry will cause financial distress thecompanywilldecrease .The factsobtained show thatduring theperiodof financialdistressresearchfacedbymanufacturingcompaniesresearchsamplesdecreased,becausethetrendofICRonaverageincreasedby0.7percent .Theresultsofthestudycannotbecomparedwiththeresultsofpreviousresearch ,becausepreviousresearchdidnotexaminetheinfluenceoftheperformanceindustryagainstfinancialdistress.InfluenceofIndustryPerfomancetoValueoftheFirm.The result of analysis shows that IndustryPerfomancehas significant effect of Valueof theFirmwhichisprovedbyT-statisticvalueof14.217352>1.96.Theoriginalsampleestimateof0.131519 indicates that the direction of the relationship between ) . Industry Performanceagainst Value of the Firm is unidirectional . The direction of the influence of the company'sperformance toward the firm's firm's firm'svalueof theresearch isunidirectional ,meaningthat the better the industry performance produced by the research sample manufacturingcompany the higher the firm's value . The results of this study support the theory that theperformanceindustryhasapositiveeffectonthefirm'svalue.Thishappensbecauseaccordingto theory , if theperformance industry thebetter theValueof theFirmalso thebetter .Thefactsobtainedshowthatduringthestudyperiodthefirm'svaluefacedbythemanufacturingcompanyoftheresearchsamplehasincreasedby10.79percent.Theresultsofthestudycannot be comparedwith the results of previous research , because previous research did notexaminetheinfluenceoftheperformanceindustryagainsttheValueoftheFirm.EffectofMacroEconomiconFinancialRiskManagement.The result of analysis shows that Macro Economic has significant effect of Financial RiskManagament which is proved by T-statistic value of 5.058853> 1.96 .The original sampleestimateof0.061954showsthatthedirectionoftherelationshipbetweenMacroEconomictoFinancial Risk Managament is the same direction . The direction of influence of macroeconomic to financial risk management of manufacturing companies research samples isunidirectional ,meaning the lowermacro economic policy then the lower the financial riskmanagement .Theresultsofthisstudydonotsupportthetheorythatmacroeconomichasanegative effecton financial riskmanagement .Thishappensbecauseaccording to theory , ifmacro economic policy is lower then financial risk management is also lower. The realityobtained shows that during the period of financial risk management research faced bymanufacturingcompaniesresearchsampledecreased,becausetheCRtrenddecreasedby0.2percentwhileQRincreasedby2.9percent,sothattheaverageincrease.



EffectofMacroEconomiconFinancialDistress.Theresultof analysis shows thatMacroEconomichas significanteffectofFinancialDistresswhich is proved by T-statistic value of 3.951814> 1.96 . The original sample estimate of0.066628indicatesthatthedirectionoftherelationshipbetweenMacroEconomictoFinancialDistress is unidirectional . The direction of the influence of macro economic to financialdistressmanufacturingcompaniesresearchsampleisunidirectional,meaningthatthebettermacro economic hence the higher the condition of the inability to pay obligations (financialdistress ) company . The results of this study support the theory that macro economicpositivelyaffects/affectedthefinancialdistress.Thishappensbecauseaccordingtotheory,ifthemacroeconomicthebetterwillcausefinancialincompetence(financialdistress)companywillbehigher .The factsobtainedshowthatduring theperiodof financialdistressresearchfacedbymanufacturingcompaniesresearchsamplehasincreased,becausethetrendofICRonaverageincreasedby0.7percent.Theresultscannotbecomparedwiththeresultsofpreviousresearch,becausepreviousresearchdidnotexaminetheeffectofmacroeconomictofinancialdistress.EffectofMacroEconomiconValueoftheFirm.TheresultofanalysisshowsthatMacroEconomichassignificantinfluenceofValueoftheFirmManagament which is proved by T-statistic value of 3.421312> 1.96 . The original value ofsample estimated is - 0.029478 which show that the direction of the relationship betweenMacro Economic to Value of the Firm is opposite . The direction of influence of macroeconomictofirmfirm'svalueofmanufacturingresearchsampleisoppositedirection,meaningbettermacroeconomicconditionthenlowerValueoftheFirm.TheresultsofthisstudydonotsupportthetheorythatmacroeconomicpositivelyaffectstheValueoftheFirm.Thishappensbecauseaccordingtotheory,ifthemacroeconomicaredecliningthentheValueoftheFirmisalsogettingbetter.Thefactsobtainedshowthatduringthestudyperiodthefirm'svaluefacedby themanufacturing companyof the research samplehas increasedby10.79percent .Theresults of this study support research conductedbyFrimpong , JM (2009 )which concludesthatmacroeconomic(exchangerate,consumerpriceindex,moneysupply,andinterestrate)haveanegativeimpactonstockpricesandstockreturnsinGhanastockexchange.However,theresultsofthisstudydonotsupportresearchconductedbySandhi(2014)indicatingthatmacro economy has positive and significant effect of / on Value of the Firm , Levy (2006 )found that index positively correlated to stock return in Palestinian stock exchange , Imron(1990)acausalrelationshipwasfoundbetweenmacroeconomicindicatorsandstockprices,TirapatandNittayagasetwat(1999)whichconcludedthatmacroeconomicconditionswereacritical indicator that caused the company to experience a corporate financial crisis inThailand.InfluenceofFinancialRiskManagementtoFinancialDistress.TheresultsoftheanalysisshowthattheFinancialRiskManagamenthasnosignificanteffectonValueof theFirmprovedby theT-statisticvalueof0.311182<1.96 .Theoriginalsampleestimatevalueof0.022191 indicates that thedirectionof therelationshipbetweenFinancialRisk Managament to Value of the Firm is unidirectional . The direction of the influence offinancial risk management on the financial distress of the manufacturing company in theresearchsampleisoppositedirection,meaningthatthehigherthefinancialriskmanagementproducedbytheresearchsamplemanufacturingcompany,thelowerthecompany'sfinancialdistress .Theresultsof this studydonotsupport the theory that financial riskmanagementhas a positive effect on financial distress . This happens because according to theory , iffinancial risk management is low then financial risk management is also low . The facts



obtained show that during the period of financial distress research faced bymanufacturingcompanies researchsamplesdecreased ,because the trendof ICR increasedby0.7percent ,The results can not be compared with the results of previous research , because previousresearchdidnotexaminetheinfluenceoffinancialriskmanagementtofinancialdistress.InfluenceofFinancialRiskManagementtoValueoftheFirm.TheresultsoftheanalysisshowthattheFinancialRiskManagamenthassignificanteffectonFinancialDistressasevidencedbytheT-statisticvalueof9.157940>1.96.Theoriginalsampleestimate of - 0.138958 shows that the direction of the relationship between Financial RiskManagamenttoFinancialDistress isopposite .Thedirectionoftheinfluenceof financialriskmanagementtofirmfirm'svalueofmanufacturingresearchsampleisunidirectional,meaningthat the higher the financial riskmanagement the higher the firm's value . The insignificanteffectoffinancialriskmanagementonthefirm'svalueisduetothedecreaseinfinancialriskmanagementofthecompanyduringtheperiodofresearch,duetothefactthatCRtrendhasdecreasedby0.2percentalthoughQRhasincreasedby2.9percent.EffectofFinancialDistressonValueoftheFirm.TheresultsoftheanalysisshowthattheFinancialDistresssignificantlyinfluencestheValueofthe Firm as evidenced by the value of T-statistics of 7.469651> 1.96 . The original sampleestimateof0.163587indicatesthatthedirectionoftherelationshipbetweenFinancialDistresstoValueoftheFirmisunidirectional.Thedirectionoftheinfluenceoffinancialdistresstofirmfirm's firm's value ofmanufacturing is unidirectional ,meaning that the higher the financialdistress condition of the firm the higher the firm's value . The results of this study do notsupportthetheorythatstatesthatfinancialdistressnegativelyaffectedtheValueoftheFirm.This happens because according to theory , if the higher the financial distress condition thehigherthefirm'svalueisalsothebetter.Thefactsobtainedshowthatduringthestudyperiodthefirm'svaluefacedbythemanufacturingcompanyoftheresearchsamplehasincreasedby10.79percent.Theresultscannotbecomparedwiththeresultsofpreviousresearch,becausepreviousresearchdidnotexaminetheeffectsoffinancialdistressonthefirm'svalue.TheInfluenceofGoodCorporateGovernancetoFinancialRiskManagement.TheresultsoftheanalysisshowthatGoodCorporateGovernancehasnosignificanteffectontheFinancialRiskManagamentasevidencedbytheT-statisticvalueof0.403605<1.96 .Theoriginal sample estimateof - 0.003940 shows that thedirectionof the relationshipbetweenGoodCorporateGovernance toFinancialRiskManagament isopposite .Thedirectionof theinfluence of good corporate governance of the financial riskmanagement of manufacturingcompanies in the research sample is unidirectional ,meaning the lower the involvement inmanagement(goodcorporategovernance),thelowerthefinancialriskmanagement.Thelackof significance of GCG to FRM is due to the fact that during the research period there is adecrease in quality of corporate governance which is indicated in spite of an increase inmanagerialawareness,buttheincreaseinshareownershipisonlyownedbythemanagerialmanager.ShouldincreasetheownershipofsharesconductedbyexternalpartiescompanyTheInfluenceofGoodCorporateGovernancetoFinancialDistress.The result of the analysis shows that Good Corporate Governance has significant effect ofFinancial Distress as proved by T-statistic value of 11.059066> 1.96 . The original sampleestimateof0.158834indicatesthatthedirectionoftherelationshipbetweenGoodCorporateGovernancetoFinancialDistressishadapositiveinfluenceon.Thedirectionoftheinfluenceofgoodcorporategovernanceof the financialdistressof theresearchsamplemanufacturingcompany is had a positive influence on, the lower the management of good corporategovernance,thelowertheinabilitytopaythecompany'sfinancialdistress.Theresultsofthis



study do not support the theory that good corporate governance has a negative effect onfinancialdistress.Thishappensbecauseaccordingtotheory,ifgoodcorporategovernanceishigherwill cause the lower the financialdisability (financialdistress ) company .Therealityobtained shows thatduring theperiodof financialdistress research facedbymanufacturingcompanies research samples decreased , because the ICR trend on average increased . Theresults of this study support the research conducted byEmrinaldi (2007 )which concludedwiththeincreaseinmanagerialownershipwillbeabletopushdownthepotentialforfinancialdistress . Wardhani (2006 ) does not support the results of research state the greater thenumberofdirectorsthehigherthepossibilityofcompaniesexperiencingpressureconditionsfinance . The Daily & Dalton study (1994 ) concludes that there is indeed a significantrelationship between the composition of the directors and the leadership structure of thedirectorswith the possibility of the company going bankrupt . The Iramani (2007 ) studiedconcludedthatthepartialownershipstructurecannotbeusedasapredictorinthefinancialdistressmodel.TheInfluenceofGoodCorporateGovernancetoValueoftheFirm.TheresultofanalysisshowsthatGoodCorporateGovernancehassignificanteffectofValueofthe Firm which is proved by T-statistic value of 16.011973> 1.96 . The original sampleestimatesvalueof-0.144209whichshowthatthedirectionoftherelationshipbetweenGoodCorporateGovernancetoValueoftheFirmisoppositedirection.Thedirectionoftheinfluenceof good corporate governance of the firm's firm's value of manufacturing research is inoppositedirection,meaningthatthehigherthemanagerial(goodcorporategovernance)thelower the firm'svalue .The resultsof this studysupport the theory that thegoodcorporategovernancenegativelyaffectstheValueoftheFirm.Thishappensbecauseaccordingtotheory,ifgoodcorporategovernanceislowerthentheValueoftheFirmisalsoincreasing.Thefactsobtained show that during the study period the firm's value faced by the manufacturingcompany of the research sample has increased by 10.79 percent . The results of this studysupport research conducted byRuan , Tian andMa (2011 )which concludes that there is anegative relationship betweenmanagerial ownership and firm value , but does not supportresearchbyShortandKeasey(1999) inEmrinaldi , (2007) the linearrelationshipbetweenmanagerialownershipandfirmvalueandRustendiandJimmi'sresearch(2008)showsthatpartiallymanagerialownershiphasnoeffectonfirmvalue.Black,Jang,andKim(2001)alsoshowthatthereisapositivecorrelationbetweenGCGandfirmvalue.GoodCorporateGovernancemoderatedtheinfluenceofFinancialRiskManagementtoValueoftheFirm.TheresultofanalysisshowsthatGoodCorporateGovernanceasamoderatorofrelationshipbetween Financial Risk Managament with Value of the Firm is a significant influence asevidencedby theT-statisticsof4.255963>1.96 .Theoriginal sampleestimateof -0.272610indicates that Good Corporate Governance as a moderator of the relationship betweenFinancialRiskManagament andValueof theFirm is the samedirection . The results of thisstudyindicatethatgoodcorporategovernanceisabletoweakentheinfluenceoffinancialriskmanagement to Value of the Firm . The results of the study can not be comparedwith theresults of previous research , becauseprevious researchdidnot examine themoderation ofinfluenceoffinancialriskmanagementtoValueoftheFirm.



The Influence of Good Corporate Governance as a moderator of the relationshipbetweenFinancialDistressandValueoftheFirm.The result of the analysis shows that Good Corporate Governance as a moderator of therelationship between Financial Distress and Value of the Firm is a significant influence asevidenced by the value of T-statistics of 6.210832> 1.96 . The original sample estimate of -0.121728 indicates that Good Corporate Governance as a moderator of the relationshipbetweenFinancialDistresswithValueof theFirm is the samedirection .The resultsof thisstudy indicate that good corporate governance is able to weaken the influence of financialdistress on the firm's value . The results can not be comparedwith the results of previousresearch,becausepreviousresearchdidnotexamineaboutthemoderationoftheinfluenceoffinancialdistressonthefirm'svalue.

CONCLUSION1. Investment decisions have a significant effect on the financial risk management of

manufacturingcompanies.2. Investmentdecisionshaveasignificanteffectonthefinancialdistressofmanufacturing

companies.3. Invesment decision has a significant effect on the value of the research company's

manufacturingsample.4. Capital decisions have a significant effect on the financial risk management of

manufacturingcompanies.5. Capital decisions have a significant effect on the financial distress of manufacturing

companiesresearchsamples.6. Capital decisions have a significant effect on the value of the firm of manufacturing

researchsample.7. Industry performance has a significant effect on the financial risk management of

manufacturingcompaniesresearchsamples.8. Industry performance has a significant effect on financial distress manufacturing

companysampleresearchIndustryperformancehasasignificanteffectonthevalueofthefirmofmanufacturingresearchsample.

9. Macro economic significant effect on the financial riskmanagement ofmanufacturingcompaniesresearchsamples.

10. Macro economic has a significant effect on the financial distress of manufacturingcompaniesresearchsamples.

11. Macroeconomicsignificanteffectonthevalueofthefirmfirmmanufacturingresearchsamples/sampled.

12. Financial risk management has a significant effect on the financial distress ofmanufacturingcompanyofresearchsample.

13. Financial risk management has no significant effect on the value of the firm ofmanufacturingresearchsample.

14. Financial distress has a significant effect on the value of the firm of manufacturingresearchsample.

15. Good corporate governance has no significant effect on financial riskmanagement ofmanufacturingcompanyofresearchsample.

16. Good corporate governance has a significant effect on the financial distress ofmanufacturingcompanyofresearchsample.

17. Good corporate governance has a significant effect on the value of the firm ofmanufacturingresearchsample.

18. Good corporate governancemoderates the influenceof financial riskmanagement onfirmfirm'svalueofmanufacturingresearchsamples/sampled.



19. Goodcorporategovernancemoderatesthe influenceof financialdistressonthe firm'sfirm'svalueofmanufacturingresearchsamples.

LIMITATIONS

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David, C. N., &Okeyo,W. (2018). Strategic Planning, External Environment and Performance of CountyGovernments inKenya.ArchivesofBusinessResearch,6(9),164-174.

StrategicPlanning,ExternalEnvironmentandPerformanceofCountyGovernmentsinKenya

CatherineN.DavidPostgraduatestudent,

TheManagementUniversityofAfrica

Dr.WashingtonOkeyoDeputyVice-Chancellor–Academic,ResearchandExtension,

TheManagementUniversityofAfrica

ABSTRACTThepurposeofthestudywastodeterminetheeffectofeffectofstrategicplanningonorganizational performance of Nairobi County. Descriptive research design wasadopted in this study which targeted a total of 246 employees of Nairobi Countygovernmentofwhom23weretop levelmanagers,61middle levelmanagersand162low levelmanagers. Datawas collected using structured questionnaire administeredthrough drop and pick from a sample of 80 employees who were selected usingstratifiedandsequentialrandomsamplingmethods.Correlationandlinearregressionanalysiswere used to analyze the data. Regression results revealed that therewas apositive and significant relationship between strategic planning and performance ofthecountygovernment.Regressionresultsfurtherrevealedthatexternalenvironmenthasapositiveandsignificanteffectonperformanceofcountygovernment.Inaddition,external environment moderate the relationship between strategic planning andperformanceofcountygovernment.Thestudyrecommendsthatstrategicformulationshould be a top priority activity at every county government. County governmentshould also employ top-bottom communication during the strategic planimplementationprocess. Inaddition, thecountygovernmentshouldensuretheyhaveenoughcompetentstafftoimplementstrategicinitiatives.Adequatefinancialresourcesshould also be allocated towards strategy control in their county. Performanceindicators and targets should also be clearly defined and communicated within thecounty. In addition, employees of the county should complywith the countyby laws.The county government should thereforedoproper environmental scanning so as toimprove their performance. The county government should also comply with theparliamentaryActsformulatedfromtheKenya’s2010constitution.Keywords:strategicplanning,organizationalperformance

INTRODUCTION

Decentralization has been seen as an important tool in revenue performance and thereforeinstrumentalinprovidingservicesclosertopeopleinlargeanddenselypopulatedeconomiessuch as China, theUS and someEuropean countries through federal arrangements (Clegg&Greg, 2010). According to Rosenbaum (2013) the worldwide governance trend is towardsdecentralization. In the United States of America, for example, the governance structure ishighly decentralized. The US has 50 state governments and approximately 85,000 localgovernments.Bothnationalanddevolvedgovernmentsareindependentwithtaxingauthorityand, inmany cases, aquitehighdegreeof autonomywithin thegeographic sphere inwhichtheyfunction.InAfrica,thereareabout15,000localgovernments;Asiahasabout26,000localgovernments,whileLatinAmericahasabout17,000localgovernments(Rosenbaum,2013).



In Africa, many countries have carried out reforms aimed at decentralizing the political,administrative,andfiscalstructuresofthepublicsector.Theneedtotransformthestructureofgovernanceis informedbytheviewthatdecentralizationincreasestheoverallefficiencyandresponsivenessofthepublicsectorinprovidingservices,anoutcomethatenhanceseconomicdevelopment and contributes to a reduction in regional disparities decentralization hasadvanced considerably in the last two decades (Amusa & Mabugu, 2016). Moreover, manycentral governments in Africa have initiated or deepened processes to transfer authority,power, responsibilities,andresources tosub-national levels.TheAfricancountries thathavedecentralized include Kenya, Botswana, Burkina Faso, Ethiopia, Ghana, Mali, Mozambique,Nigeria,SouthAfrica,Tanzania,andUganda(Dickovick&Riedl,2010).InKenya,anewconstitutionwaspromulgated in theyear2010whichsplit thecountry intofortyseven(47)countiesoneofwhichisNairobiCityCounty.ThecountywasformedonthesameboundariesofwhatwasinitiallyrecognizedasNairobiProvinceandgotitsfirstgovernorin2013.StrategicplanningStrategic planning is branded as the arrangement of thoughts and deeds that result toformulations of implementations of plans that are intended to achieve an entity objective(Pearce&Robinson,2003).Theessentialobjectiveofstrategicplanningistomanageafirminsetting out its vital aim, needs and center itself towards achieving the same (Kotter, 1996).Strategicplanningismadeupofputtingintoplacevitalprocedurestocontrolacircumstancein order to attain better and idealistic result for an entity. Strategic planning pin pointsdirection for some unit like, financial focuses, human resource, marketing and businesses.Strategic planning is usually effectivewhen there is a unison agreement in themission, andwhenthetaskrelieson,expertiseandtechnologyisputintoconsiderationOrganizations undertake strategic planning for various reasons (Pathfinder International,2014).Strategicplanningnotonlyhelpbuild trustwithinanorganization,buildon the teambutitalsohelpstheorganizationtomoveinaunisondirection,anticipateforchangeanddealwithitAccordingtoAosa(2011)thosefirmsthatputstrategicplanningontheirmapareabletogeneratealotofincomeascomparedtothosethatdon’t,inadditionstrategicplanningalsohelpinmakinginformeddecisionsonthingsascomparedtofirmsthatdon’t.Organizations that practice strategic planning also have a higher sales return, significantproductivityandefficiencyascompared toorganizationwithoutstrategicplanning.Strategicplans also challenge the status quo and allowmanagement to put a lot of emphasis on theobjectivesconcerningthefuturedirectionoftheorganization(PathfinderInternational,2014).Thereareeveninstanceswhenaclearlythoughtoutstrategicplancanbeusedasmarketingtoolandcanencouragedonorsupportfortheorganization.According to Pearce and Robbinson (2008) effective Strategic planning practices involveformulationofvisionandmissionstatement,performanceofenvironmentalanalysis,objectivesetting and finally strategy selection occasionally lot of firms tend to wait after they haveundergone one ormore cycle of strategic planning before coming upwith the vision of theentity.Establishedorganizationandcommunities,ontheotherhanddevelopvisionsofwhattheywanttobethestartoftheprocesstodevelopaunisonagreementonvaluesandpurposethatguideonemergingissuesandstrategyidentification(Thompson,2014).Vision describes the firm’s aspirations ofwhat it reallywants to be. Pitts (2003) notes thatvisionstatementsaredesignedtocapturetheimaginationofthepublicandaswellgalvanize

David, C. N., & Okeyo, W. (2018). Strategic Planning, External Environment and Performance of County Governments in Kenya. Archives ofBusinessResearch,6(9),164-174.


theeffortsofemployeesatalllevelssuchthatitsemotionalappealchallengesthemtocommittheirfullenergiesandmindstobelieveitisthebest. Mostorganizationsmaywanttowaituntiltheygothroughoneormorecyclesofstrategicplanningbeforedevelopingadetailedvision.New organizations, and communities, however, often establish a vision ofwhat/where theywant to be at thebeginningof theprocess to establish consensus onpurpose and values toguideissueandstrategyidentification. Thevisionportraysacompany’sfuturebusinessscope;wherewearegoingorwanttobe(Thompsonetal.,2004).Objective setting is oneof themostprominent andbasic toolsusedbyboth individuals andorganizations to assist in setting their direction and in accomplishing it. Objective settingalwaysgo inhandwithgoalsetting.Goalsarethebroad, long-termaccomplishmentsthatanorganizationwantstoattain,achieveorwhereitwantstobe.Theyprovidetheoverallcontextforwhatthevisiontriestoachieve(Nickelsetal.,2000).Theyarepowerfultoolsthatbreakthevision statement into specific tasks and actions to attain desired results across theorganization. They function as the yardstick for tracking an organization’s performance orprogress(Thompsonetal.,2004).Successfulcompaniesandotherorganizations(publicsectorandnonprofitentities)oftensetbothlong-andshort-termgoals,notonlyforsales,products,and service development but also for improving quality, reducing errors, becoming morecustomer-focused,andbuildingbetterinternalandpublicrelations.Thereforeforthesuccessof the Organization, Drucker (1999) emphasizes that strategic plans must be designed tosupportobjectives.Strategyselectionisthewaybywhichafirmchoosesthebestcourseofdoingthingsinordertoobtaindesirableresults.Thiswaysarecrucialastheydeterminetheendresulttowhichthefirmwill get. Strategicplansought tobemadeaware toall subordinates soas toalign theiraction in the direction of achieving the company’s objectives (Pearce, Robinson &Subramanian,2000). Strategy formulationpushesanorganization tobe conversantwith theimmediateenvironmentandbepreparedfortheanychangesthatcancomewith it.Strategyformulation forces an organization to carefully look at the changing environment and to bepreparedforthepossiblechangesthatmayoccur.Astrategicplanalsoenablesanorganizationto evaluate its resources, allocate budgets, and determine the most effective plan formaximizingROI(returnoninvestment).CountygovernmentsIn theyear2010,Kenyapromulgatedanewconstitutionaldispensation thatadvocated foradevolved system of governance. Themain purpose of this important actionwas to addressfailures linked to quality of governance such as corruption, economic stagnation, poverty,developmentinequalitiesandepisodic instability.Thishascurrently ledtotheestablishmentof47Countygovernmentsinthecountrythatarechargedwiththeresponsibilityofprovidingvariousservicestothelocalpeople.KeyamongtheresponsibilitiesoftheCountygovernmentsistheimplementationofthedevolutionstrategy.NairobiCityCountyisoneofthe47Countygovernments thatwereestablished through thepromulgationof thenewconstitution in theyear2010.TheCountycameintoexistenceinMarch2013onthesameboundariesofwhatwasformerly known as Nairobi province. Nairobi County has an approximate population of 3.5millionpeoplebutthepopulationcontinuestoincreaseatarateof3%eachyear.StatementoftheProblemSince the beginning of devolved system of governance in Kenya, county governments haveexperienced a number of performance challenges (Hornsby, 2013).Most citizens in NairobiCounty have expressed their dissatisfaction with the services offered by Nairobi County



government for example heavy traffic in the city, poor roads, water rationing, garbagecollection amongmany others. In the recent Tifa opinion polls county ranking, Nairobiwasrankedsecondlastperformingcounty(TifaPollsReport,2017).Don(2014)suggeststhatlackofgoodstrategicplanningisoneofthemajorcausesofpoorperformanceinNairobiCounty.Lackofgoodstrategicplanning leadersto lackofvision,slowbudgetapprovals, lackofclearindividual role, lack of alignment with the organization strategic plan, lack of employeeinvolvement, poor staffing level, and ineffective communication during strategyimplementation and lack of coordination of activities during strategy implementation inNairobi County. This has made Nairobi county government lag behind on service delivery.Strategicplanningisaveryimportantactivityinorganizations.Researchhowevershowsthatstrategicplanningcanbeusedasatooltoimproveorganizationalperformance.Organizationsthatundertakegoodstrategicplanninghavebetterperformanceascomparedtoorganizationswithpoorornostrategicplanningpractices.ThisstudysoughttodeterminetherelationshipbetweenstrategicplanningandorganizationalperformanceinNairobiCountygovernmentandtheroleofexternalenvironmentinthisrelationship.

LITERATUREREVIEWTheoreticalLiteraturereviewThisstudywasanchoredonresourcebasedviewtheorywhichwasproposedby(Wernerfelt,1984).Wernerfelt (1984) borrowed ideas fromPenrose (1959)whopioneered the thinkingbehind resource based view. The theory argues that for a firm to be recognized as morecompetitivethanotherfirms,itoughttohavearelativelyhigherpositioninthemarket.Otherfirms shouldalsonot alreadybeusing its strategy in themarketplace (Penrose,1959).Theresource-based view argues that strategic management is very vital and brings the firm’sability to have an upper hand. Outperforming performance is connected to capabilities andresources which are costly to obtain (Barney, 1991). Arguing from a point of view thatstrategic assets are evenly distributed across all firms, Barney (1991)went ahead to revealexistenceofassociationbetweenafirm’supperhandanditsstrategicresources.Fourelementsthat enable a firm resources impact significantly to it having an upper hand include value,rareness,inimitability,andnon-substitutability.Theresource-basedviewhoweverhasbeencritiqued.AccordingtoPriemandButler(2001),theRBVlacksmanagerialexplanationonhowthingshouldbehandledsimilarlyitsvalidityisquestionable. In spiteof showing thatmanagers candevelopandacquire resources that canhelpanorganizationhaveanupperhanditfailstoshowtheycandoso(Connor,2002).PriemandButler(2001)andCollins(1994),alsoarguesthattheRBVisregressiveinnature.Incaseafirmhascapabilitiesthatitcanuseforbetterresultbutdoesnotusethosecapabilitiesanotherfirmcanusethosecapabilitiesandovertakethefirmthushavinganupperhand.Collins(1994)calls this second-order capabilities). As per Kraaijenbrink et al. (2010), However ResourceBasedviewapplicabilityislimitedtosmallfirmsandonlyappliestolargefirmthatcansustainthemselves in upper hand, this limitationmakes sustainability of lower firms to be deemedunachievable,makingthemfallshortofRBV(Kraaijenbrinketal.,2010).The Resource Based View of organizations combines strategy and management of a firmmaking it key in ensuring the firm’s has a competitive advantage. Theuse ofResource baseview in management involves identifying capabilities and assets that can give the firm anupperhandduringcompetition.Inthispaperthetheoryishelpfulasithelpsthemanagementbeware of their environment both macro and micro, and come up with effective strategicplanning procedures to positively shape the performance of the organization. Through theanalysis of the critics of the theory, the paper is able to recommend the best theories orcombineacoupleofrelevanttheoriesthatcanhelpinthesolvingoftheresearchproblem.



EmpiricalliteraturereviewJulian(2013)conductedastudyonnon-governmentalorganizations(NGOs):therelationshipbetween strategic planning and organization’s performance. The data being qualitative innaturecontentanalysiswasused.Thestudyfoundoutthattherewasapositivecontributionofstrategic planning directly to organizational performance. The study concludes that strategyplanningandorganizationperformanceinActionAidKenyatoensurestrategyalignmenthasto involvedrawing fromaglobalcontext,prioritize.Theresult finalizedthatapproachesandfinal results in weighing down strategic planning effectiveness and firm performance aretotally different, this confirms the argument that picking the most convenient approach tomeasuringrelationshipbetweenstrategicplanningandorganizationperformanceoughttobedonewithuttermostcarefulness.Debrah’s(2012)resultsontheeffectofstrategicplanningonperformanceandoperationsofthe agricultural developmentbank showed that, for the various features of amanagedbanktherewasarelativeimprovementinthebank.Thestudyhowevershowedthatforthebottomupinfrastructureputintoplacetherewaslackoffamiliaritywiththeemployeesinthebank.Thiswasduetoemployeeslackingkeennessabouttheprogramsorlackputtingconsiderationtowardtheprograms.TheresearchrecommendedthatsoastoachievethebestresultfortheADBthenemphasisoughttobeputsoastofamiliarizetheemployeeswiththeinfrastructuresputintoplace.Sophia(2015)conductedastudyoneffectsofstrategicplanningonorganizationalgrowth:ACaseStudyofKenyaMedicalResearchInstitute,andusedqualitativeresearchdesigninwhichthequestionnaireswerefilledbytheselected,headsofdepartment,middlelevelmanagersandgeneralstaffmembersofKenyaMedicalResearchFoundation(KEMRI).Thefindingsshowthatfor there to be growth in the organization strategic planning has to be implemented well.Strategic planning was deemed to be of importance in the organization andwas upheld asappropriate this shows that KEMRI used strategic planning for evaluating and identifyingobjectives of the organization that were long term and also in distribution of assets andmonitoringandevaluationofprogresstoensuregrowth.GapsinLiteratureReviewSeveral gapswere identified from literaturewhich included;methodological, conceptual andcontextual gap. For example, Julian (2013) conducted a study and thenatureof informationgatheredwas subjective andwashence examinedutilizing content examination system.Thecurrentresearchuses(quantitative)descriptivetechniquetoanalyzedata,thusthispresentedamethodologicalgap.Julian(2013)focusedonActionAidKenya.HypothesesofthestudyThestudywasguidedbythefollowinghypotheses:H01:StrategicplanninghasnosignificanteffectonPerformanceofNairobicountygovernmentH02: External environment has no moderating effect on the relationship between strategicplanningandorganizationalperformanceConceptualFrameworkThis study is conceptualized with three variables, an independent, a moderating and adependent variable. The conceptualization depicts strategic planning as the independent,external environment as the moderating variable which modifies the relationship betweenstrategic planning and performance of Nairobi County Government. These relationships aresummarizedinFigure2.1.



Figure2.1:ConceptualDiagram

RESEARCHMETHODOLOGY

Descriptive research design was adopted in this study Olusola et al (2013). Populationcomprisedof23toplevelmanagers,61middlelevelmanagersand162lowlevelmanagersinNairobicountygovernment.Sincethepopulationwaslessthan10,000,theFisheretal,(2003)formulawasutilized.Thesamplesizewas therefore80managersselectedthroughstratifiedrandomsampling.Thestratawillbetoplevelmanagers,middlelevelmanagersandlowlevelmanagers. The study used primary and secondary data collected through structuredquestionnairesandcontentanalysisrespectively.Quantitativedatawascoded,classified,andentered into SPSS. Descriptive statistics, correlation coefficient and linear regressiontechniqueswithin SPSSwereused analyze thedatawhileMicrosoft excelwasused to drawtablesandcharts.

RESULTSANDDISCUSSIONDemographicandpreliminaryanalysisAnalysisbygender show thatmajority (71%)of the respondentsmalewhile the rest (29%)female. The results of the study are thus more skewed towards male gender. Age-wise,majority(63%)wereagedbetween41–50years,22%over50years,9%werebetween31–40 years while only 6% were between 18 – 30 years. This implies that most employeesworking for the county government of Nairobi were mature aged above 41 years. Furtheranalysis by level of education indicates that 59%of the respondents had a bachelordegree,27% had ordinary diploma, and 10% had amaster degreewhile 4% had a certificate. Thisimplies that most employees studied were educated and thus had the capacity to improveperformanceofthecounty.Thestudyadopteddescriptivesurveydesigntargetingapopulationof 246 from whom a sample of 80 was drawn using Cochran’s (1977) formula. Data wascollectedwith questionnaire using drop and pickmethod. A total of 80 questionnairewerefilledand68returnedgivingaresponserateof85%.Descriptivestatistics,correlationanalysis,and regression analysis techniqueswere used to analyse data. The analysiswas done usingstatisticalpackageforsocialsciences(SPSS)version24.

Strategicplanningpractices

ORGANIZATIONALPERFORMANCE

Externalenvironment

(Moderating)

H01

H02



DescriptivestatisticsDescriptivestatisticsshowthatstrategicplanninghadameanof3.56andastandarddeviationof1.21implyingthatthemostrespondents’opinionswerewithinamaximumofthreeshowingthatdiversityinviews.Externalenvironmenthadameanof3.76andastandarddeviationof1.28also indicatingdiversity inrespondents’opinions.Performanceontheotherhandhadameanof3.87andastandarddeviationof1.07whichindicates lesservariationinopinionsofrespondents. Correlation analysis of the variables all returned significant associations.Strategic planning and performance had r=0.595 and p≤0.05, external environment andorganizational performance had r=0.569 and p≤0.05, and strategic planning and externalenvironmenthadr=0.538andp≤0.05.HypothesistestingAll thehypothesesof thisstudywere testedusing linearregressionanalysis techniques.Thetestsweredone inSPSSversion24at95%confidence interval.The linear regressionmodelusedduringhypothesistestingwasoftheform:

Y=α+βX1+βX2+…….+βXn+eWhere:Y=OrganizationalperformanceXi=independentvariablese=errortermTable4.1showsresultsforthetestsofhypothesisonewhichstatedthat“thereisnosignificantrelationshipbetweenstrategicplanningandperformanceofNairobiCountygovernment”.

Table4.1:ModelsummaryModel R RSquare AdjustedRSquare Std.ErroroftheEstimate

1 .595a 0.354 0.344 0.62183Predictors:(Constant),strategicplanningThismodelsummarytablepresentsanR2valueof0.354whichmeansthatstrategicplanningcan explain up to 35.4% of the total variability in the organizational performance. Theremaining65.6%ofthevariationmaybeexplainedbyotherfactorsincludingchance.Further testsofAnalysisofVariance(ANOVA)wereperformedonthemodelandtheresultsobtainedarepresentedinTable4.2.

Table4.2:AnalysisofVariance SumofSquares df MeanSquare F Sig.Regression 13.968 1 13.968 36.123 .000bResidual 25.521 66 0.387

Total 39.489 67 ANOVA results in Table 4.2 indicate that the model is statistically significant (p≤0.05) and

strong (F=36.123). This indicates that strategic planning is significantly related toorganizational.ResultsoftestsofregressioncoefficientsarepresentedinTable4.3.



Table4.3:Regressioncoefficients β Std.Error t Sig.(Constant) 1.012 0.481 2.105 0.039strategicplanning 0.814 0.135 6.01 0.000From the results inTable4.7, regression coefficient (β) of strategicplanning is 0.814whichimplies that the relationship between strategic planning and organizational performance isverystrongandsignificant(p=0.000).Therefore,thenullhypothesiswhichstatedthatthereisno significant effect of strategic planning on performance of Nairobi County government isrejected.ThestudythereforeconcludesthatthereisasignificanteffectofstrategicplanningonperformanceofNairobiCountygovernment.ThesefindingsagreewiththoseofJulian(2013)whoestablishedthatstrategicplanninghasasignificanteffectonorganizationalperformance.Further testsweredone forhypothesis twowhich stated that “external environmenthasnomoderating effect on the relationship between strategic planning and organizationalperformanceofNairobiCountygovernment”andtheresultspresentedinTable4.4.

Table4.4:ModelsummaryModel R RSquare AdjustedRSquare Std.ErroroftheEstimate1 .595a 0.354 0.344 0.621832 .664b 0.441 0.424 0.582793 .665c 0.442 0.416 0.58653TheR2of0.354wasobtainedinthismodel.Thisshowedthatmodel1couldexplain35.4percentofvarianceinthedependentvariable(performance)withanincrementalvariance.Thefindingsfromtable4.14alsoshowedthatwhenstafftrainingwasaddedasamoderator,theR2roseto44.1%Finally, to investigate how the external environment moderates the relationship betweenstrategicplanningandperformance,theinteractiontermsoftheindependentvariableandthemoderator(strategicplanning)wereenteredintheregressionmodeltoobtainmodel3.TheR2improvedto44.2%

Table4.5:ANOVA SumofSquares Df MeanSquare F Sig.Regression 13.968 1 13.968 36.123 .000bResidual 25.521 66 0.387

Total 39.489 67 Regression 17.412 2 8.706 25.632 .000c

Residual 22.077 65 0.34 Total 39.489 67

Regression 17.471 3 5.824 16.928 .000dResidual 22.017 64 0.344

Total 39.489 67

All the independent variables (strategic planning)were jointly found to have a positive andsignificantrelationshipwithperformance(p<0.05).



The findings from table 4.10 also showed that independent variables and the moderatingvariableweresignificantlyandjointlyrelatedtoorganizationalperformance(p<0.05).Finally, external environment was found to have a moderating effect on the relationshipbetweenstrategicplanningandperformance(p<0.05).

Table4.6:RegressionofCoefficients B Std.Error t Sig.(Constant) 1.012 0.481 2.105 0.039strategicplanning 0.814 0.135 6.01 0.000(Constant) 0.435 0.486 0.896 0.374strategicplanning 0.556 0.15 3.696 0.000Externalenvironment 0.393 0.123 3.184 0.002(Constant) -0.538 2.392 -0.225 0.823strategicplanning 0.109 0.048 2.265 0.025externalenvironment 0.138 0.043 3.191 0.002Planning*environment 0.259 0.046 5.643 0.000From the results above external environmentwas found to have amoderating effect on therelationship between strategic planning and performance (p=0.000). Therefore the nullhypothesis that external environment has no moderating effect on the on the relationshipbetweenorganizationalperformanceofNairobicitycountygovernmentwasrejected

Y=-0.538+0.109X1+0.138M+0.259X1*M+e

WhereYisorganizationalperformanceX1isstrategicplanningMisexternalenvironmenteistheerrorterm

SUMMARY,CONCLUSIONSANDRECOMMENDATIONS

SummaryofmajorfindingsThe first objective of the study was to establish the effect of strategic planning onorganizational performance of Nairobi city county government. The findings indicate thatNairobiCounty’sstrategicbehaviorandchoiceswereinlinewithenvironmentaldevelopmentsandthisisincorporatedinstrategyformulation.Inaddition,membersofstaffarebriefedandtakenthroughthestrategicmanagementplanbeforeimplementation.Furthermore,managersofthecountyaremotivatedtosupportimplementationofstrategiesinthecountygovernment.From correlation results, strategic planning have a positive associationwith performance ofcounty government. In addition, regression results revealed that there was a positive andsignificant relationship between strategic planning and performance of the countyGovernment.Hypothesisresultsalsorevealedthatstrategicplanninghasasignificanteffectonorganizational performance of Nairobi city county government. These findings agreed withthat of Julian (2013) who found that strategic planning have a significant effect onorganizational performance. These findings further agrees with that of Sophia (2015) whoconducted a studyon effects of strategicplanningonorganizational performance and foundthatstrategicplanninghaveapositiveandsignificanteffectonorganizationalperformance.



ThesecondobjectivewastodeterminethemoderatingeffectofexternalenvironmentontherelationshipbetweenstrategicplanningandorganizationalperformanceofNairobicitycountygovernment. Regression results revealed that external environment has a positive andsignificant effect on performance of county Government. In addition, external environmentmoderatetherelationshipbetweenstrategicplanningandperformanceofcountygovernment.These findings agreed with that of Jane (2014) who found that external organizationalenvironment have a positive and significant effect on performance of community-basedHIVandAIDSorganizations inNairobiCounty,Kenya.These findings further agreeswith that ofAdeola(2016)whofoundthatexternalbusinessenvironment(economic,political,legal,socio-culturalenvironment,demographic,natural, technological, globaland financialenvironment)haveasignificantinfluenceonMSMEsPerformanceinNigeria.

CONCLUSIONThe study concludes that strategic planning have a positive and significant effect onorganizationalperformanceofthecountyGovernment.InadditionNairobicountygovernmenthave the financial capacity to implementall the strategicplanning strategies.The studyalsoconcludesthatNairobicountystrategicbehaviorandchoiceswereinlinewithenvironmentaldevelopments and this is incorporated in strategy formulation. In addition,managers of thecounty aremotivated to support implementation of strategies in the county government. Inaddition, government policies have been enhanced in Nairobi county operations. Social –culturalandeconomicfactorsalsodeterminethelevelofperformanceofthecountyandalsoaffecteconomicdevelopmentofthecounty.ThestudywillbenefitNairobiCountygovernmentthroughunderstandingvariouschallengesexperiencedinstrategicplanningbyNairobiCountygovernment;thestudywillpointoutweakoperationsonceandmanagetheirresourcesandcapabilitiestowardsthatgoal.Thestudywillbenefit the county government establishments to learn and understand various challengeswhichfacemostofthecountry(s)strategicplanning;thiswillcreateanopportunitytounearththe critical service areas which are the core activity of any county government and itsoperations.Fromatheorypointofview,thestudywillcomeupwithaframeworkofstrategicplanninganditseffectonperformanceof thecounty.Sucha frameworkwillbeavailable for futuretheorybuildingandempiricaltesting. Inparticular, theapplicabilityofvarioustheoriesdiscussedinliteraturewillbetestedinthisstudy.

RECOMMENDATIONThe study recommends that strategic formulation should be a top priority activity at everycounty government. County government should also employ top-bottom communicationduringthestrategicplanimplementationprocess.Inaddition,thecountygovernmentshouldensuretheyhaveenoughcompetentstafftoimplementstrategicinitiatives.Adequatefinancialresources should also be allocated towards strategy control in their county. Performanceindicatorsandtargetsshouldalsobeclearlydefinedandcommunicatedwithinthecounty.In addition, employees of the county should comply with the county by laws. The countygovernment should therefore do proper environmental scanning so as to improve theirperformance.ThecountygovernmentsshouldalsocomplywiththeActsformulatedfromthenewconstitution.



SUGGESTEDAREASFORFUTURERESEARCHFurther study should focus on the research gaps identified in this study. The current studyfocused on effect of strategic planning on performance of Nairobi county government. ThusareaforfurtherstudiescouldconsiderothercountygovernmentsinKenyaforthepurposeofmakingacomparisonofthefindingswiththoseofthecurrentstudy.Since theRsquaredwasnot100%itseemsthereareotherstrategicplanningpractices thatwere not addressed by the study. Other studies should therefore focus on other strategicplanningpracticesthatmayaffectperformanceofNairobicountygovernment.ReferencesAndersen,T.J.(2004).Integratingdecentralizedstrategymakingandstrategicplanningprocessesindynamicenvironments.JournalofManagementStudies,41(8),1271-99.

Aosa,E.(2011).StrategicManagementwithinKenyaFirms.DBAAfricaManagementReview.1(1),25-36.

Barney,J.(1991).Firmresourcesandsustainedcompetitiveadvantage.Journalofmanagement,17(1),99-120.

Debrah,K.P.(2012).TheeffectofstrategicplanningontheperformanceandoperationsoftheAgriculturalDevelopmentBank(Doctoraldissertation).

Don,O.S.(2014).ChallengesofstrategyimplementationattheNairobicountygovernment(Doctoraldissertation,UniversityOfNairobi).

Julian,O.(2013).Relationshipbetweenstrategicplanningandorganization’sperformanceinNon-GovernmentalOrganizations(NGOS):ACaseOfActionaid,Kenya(UnpublishedMBAProjectSchoolofBusiness,UniversityofNairobi).

Kraaijenbrink,J.,Spender,J.C.,&Groen,A.J.(2010).Theresource-basedview:areviewandassessmentofitscritiques.Journalofmanagement,36(1),349-372.

Sophia,O.M.,&Owuor,D.(2015).EffectsofStrategicPlanningonOrganizationalGrowth.(ACaseStudyofKenyaMedicalResearchInstitute,Kemri).InternationalJournalofScientificandResearchPublications.

Tapinos,E.,Dyson,R.G.,Meadows,M.,(2005).Theimpactofperformancemeasurementinstrategicplanning.InternationalJournalofproductivityandperformancemanagement54.

Wernerfelt,B.(1984).Aresource-basedviewofthefirm.Strategicmanagementjournal,5(2),171-180.


Uwakaeme, O. S. (2018). Financial Inclusion: A Veritable Tool For Inclusive Growth And Poverty Alleviation In Nigeria.ArchivesofBusinessResearch,6(9),175-197.

FinancialInclusion:AVeritableToolForInclusiveGrowthAndPovertyAlleviationInNigeria

O.S.Uwakaeme,Ph.D

DepartmentofBankingandFinanceMadonnaUniversityNigeria,OkijaCampus,

AnambraState

ABSTRACTInrecenttimes,inclusivegrowthhasbecomeanationalpolicyobjectiveworldwide.Inthe contextofNigeria’s growthplanning, it is a relativelynew terminologywhichgottheattentionofpolicymakersinOctober2012.Inclusivegrowthhastheliteralmeaningofthetwowordsthatreferstoboththepaceandthepatternoftheeconomicgrowth.Itbasically means, broad based, shared, and pro-poor growth. In Nigeria, the formalfinancialsystemprovidesservicestoabout35%oftheeconomicallyactivepopulationwhile the remaining65%areexcluded fromaccess to financial services. These65%areoftenservedbytheinformalfinancialsectorsomeofwhicharenotregulated.Thenon-regulationof theactivitiesof the informalsectorhasserious implications for theCentral Bank of Nigeria’s ability to exercise its mandate of promoting monetarystability and sound financial system. Economic growth and development in anyeconomy is propelled by the quality of goods and services provided within thateconomy as well as their competiveness with other economies. One of the majorfactorsthathaveconstrainedthepaceofeconomicgrowthanddevelopmentislackofaccess to sustainable financial services by a greater proportion of the populace.Inclusive growth will follow at a faster pace when every segment of the populaceengages in the productive process through access to sustainable financial services.Accesstofinancialservicescouldassisttoalleviatepovertyandpromotebothgrowthand standard of living when the economic active-poor and the disadvantaged areenabledtosave,borrowandreinvestforthegrowthoftherealsectoroftheeconomy.Inthis,paperanefforthasbeenmadetounderstandtheinclusivegrowthphenomenon,its needand sustainable financial inclusionas a veritable tool to attain it, relative toNigerianexperience.KeyWord:FinancialInclusion,InclusiveGrowth,NationalpolicyandPoverty-alleviation.

INTRODUCTION

Aformalandstablefinancialsystemisprerequisitetoeconomicgrowthanddevelopment.Theoperations of such system are crucial to peoples’ savings, credit, payment and riskmanagementneeds. A robusteconomicgrowthcannotbeachievedwithoutputting inplacewell focused programmes to reduce poverty through empowering the people especially theactive-poorandthedisadvantagedwithintheeconomy.Thiscouldbeachievedbyincreasingtheiraccesstosustainablefinancialservicesespeciallycredittoenhanceproductioncapacity.Thelatentcapacityoftheeconomicallyactive-poorforentrepreneurshipwouldbesignificantlyenhancedthroughprovisionoffinancialinclusionactivitiestoenablethemengageineconomicactivities and be more self-reliant, increase employment opportunities, enhance householdincomeandcreatewealth.FinancialInclusionissimplythedeliveryoffinancialservicesataffordablecoststosectionsofdisadvantaged and low-income segments of society, in contrast to financial exclusionwherethose services are not available or affordable. In otherwords, it is the provision of a broadrange of high quality financial products, such as savings, credit, insurance, payments and

Uwakaeme, O. S. (2018). Financial Inclusion: A Veritable Tool For Inclusive Growth And Poverty Alleviation In Nigeria. Archives of BusinessResearch,6(9),175-197.


pensions,whicharerelevant,appropriateandaffordable for theentireadultpopulation,andespeciallythelowincomesegment.AReportonFinancialInclusionbytheWorldBankwhichwaslastupdatedon5thApril,2017revealedthatanestimatedtwobillionworking-ageadults(morethanhalfoftheworld’stotaladultpopulation)donothaveanaccountata formalfinancial institution.Financial Inclusionefforts seek to ensure that all households and businesses, regardless of income level, haveaccesstoandcaneffectivelyusetheappropriatefinancialservicestheyneedtoimprovetheirstandardof living. Inclusion inthe formal financialsystemhelpspeoplecarryoutday-to-daytransactions, including sending and receiving money, safeguard savings (which can helphouseholdsmanagecashflowspikes),smoothconsumptionandbuildworkingcapital,financesmallbusinessesormicroenterprises,helpownersinvestinassetsandgrowtheirbusinesses,planandpayforrecurringexpenses,suchasschoolfees,mitigateshocksandmanageexpensesrelated to unexpected events such as medical emergencies, a death in the family, theft ,ornaturaldisasters,andimproveoverallwelfare.ThebenefitsofFinancialInclusionarenotonlysignificantforindividualsbutforeconomiesaswell.FinancialInclusionislinkedtoacountry’seconomicandsocialdevelopment,andplaysaroleinalleviatingextremepoverty.AccordingtoaWorldBankreportonFinancialInclusion,therecentincreaseinFinancialInclusionisdueto“immense supportive and competitive environments, policies that encourage innovation andnational Financial Inclusion strategies”. These initiativeswere driven bymobile technology,digital payments and law reforms that encourage correspondent banking and relaxedcustomer identification. The Securities in Moveable Assets Act 2017 is one of such lawsrecentlyenactedtopromoteaccess to financialservices inNigeria.Theprovisionsof theActcompelbankstoacceptmovableassetsascollateralwhengrantingloanstoMicro,SmallandMediumEnterprises(“MSMEs”)aswellasotherNigerians.Inaddition,withtheprevalenceofmobile phones,mobilemoney is playing a crucial role in extending financial services to theunderserved.Inthedefinitionoffinancialinclusion,theCentreforfinancialinclusiondefinesafullfinancialinclusionas“Astateinwhichallpeoplewhocanusefinancialserviceshaveaccesstoasuiteofqualityfinancialservices,providedatanaffordableprices,inaconvenientmanner,andwithdignity for clients” (Gardeva andRynne ,(2011).[18].This entails building a stable financialsystemthatwouldserveasmanypeopleaspossible.(Afi,2010)[03]Inclusivegrowthconfersmanybenefitswhichincluderaisingthegeneralstandardoflivingofthepopulaceasmeasuredbypercapitanationalincome;makingincomedistributioneasiertoachieve;andenhancingthetimeframeofaccomplishingthebasicneedsofmantoasubstantialmajorityof thepopulacewhileeconomicstagnationcanbringdestabilizingconsequencesonthecitizenry.Economicgrowthanddevelopmentofanycountryispropelledbythequalityandquantity of goods and services providedwithin the economy aswell as the competitivenesswithothercountries.Wheneverysegmentofthepopulaceengagesintheproductiveprocess,growth and development will be enhanced at a faster pace. Empowerment for economicengagementiscreatedthroughtheinstrumentoffinancialservices.Financialservicesrequiredby thepopulacevary,dependingon theeconomic stratumor levelofdevelopment towhichonebelongs.Accesstosustainablefinancialservicesbytheeconomicallyactive–poorandthedisadvantagedgroupofthesocietycouldassisttoalleviatepovertyandpromotedevelopmentbyenablingthemtosave,borrowandreinvesttothegrowthoftheeconomy.Consequently financial inclusion, by providing access to financial services for the excludedgroupwould increaseproduction capacity for goodsand services, support reductionof food



relatedinflation,givesrisetotheuseoflowcostfinancialservices,efficientfinancialservicesandultimatelyreductioninpoverty.Financialinclusionwillalsocreateadiversificationoftheportfolio of financial institutions by bringing in the excluded group and this step willstrengthen portfolio risk management stance. Financial literacy which is an importantcomponent of financial inclusion will also enhance better financial services delivery byeducating the targeted excluded group thereby creating a well- informed financial servicesproviders and users .The combined effect of these financial inclusion activitieswill enhanceinstitutional viability, safety and soundness of the financial system. It will also lead toincreasing economic activities and employment opportunity for rural household, raise thestandard of living of the excluded with possible positive multiplier effect on the economy.Consequently, financial inclusion,whenpromoted inabroadercontextofeconomic financialinclusioncanbeatoolforeconomicgrowthandpovertyalleviation.Conversely,thereisaheightenedinterestinfinancialinclusionbydevelopingeconomiesworldoverbecauseagreaterproportionofthepopulaceconsistsoftheexcludedanddisadvantagedgroupandNigeria isnot left out. Many studieshaveestablished that financialdevelopmenttends to increase economic growth and reduce inequality of income and poverty.(Goldsmith,(1969)[20]aswellasWorldBank(2008and2014).[34and35].Thisisbecauseimprovement in the financial sector is expected to aid savings and capital formation, easeexternalfinancialconstraintthataccompaniesexternalborrowingandfinallyhighergrowthisobtained.(GreenwoodandJavanovic(1990).[21]NigeriaisdescribedasthegiantofAfricawithvastmineralresources,favourableclimateandvegetation.Despitetheseverygoodpotentials,shehasnotbeencountedamongthelargestandfastest growing economies of theworld. Her performance in terms of economic growth hasbeenveryvolatileandsluggish.Whathasbeenthemostchallengingfactabouthergrowthisthathergrowthhasnotonlybeenuneven,butalsodiscrete. Ithasbeenuneveninthesensethat there has been no uniformity in her growth performance and it has been discrete anddisconnectedwithregard togrowthanddistributionofgrowthbenefits tocertainsectorsoftheeconomy.Itisglaringclearthatavastmajorityofthepopulationremainedoutsideofbasichealth and education facilities evenduringwhen she recordedhigh growthphase. In recentdecades, economic and social inequalitieshave increasedalongsidehighgrowth rateswhichhaveincreasedregionalinequalities.Nigeria, with a population of approximately 2 million, has a formal financial system thatprovidesservicestoabout35%oftheeconomicallyactivepopulationwhiletheremaining65%are excluded from access to financial services. These 65%are often served by the informalfinancial sector through Non-governmental Organizations, microfinance institutions, moneylenders,creditunions,friendsandrelativesataveryexorbitantcost.Thenon-regulationoftheactivities of some of the informal sector has serious implication for the Central Bank ofNigeria’s (CBN) ability to exercise one of its mandate of promoting monetary stability andsoundfinancialsystem.(CBN,2005)[11]In the past, in order to enhance the flow of financial services to Nigeria’s rural areas,Government has initiated a series of publicly-financed micro/rural credit programmes andpolicies targeted at the poor. Notably among them were the Rural Banking Programme,sectorial allocation of credits, concessionary interest rate, and the Agricultural CreditGuarantee Scheme.Other institutional arrangementswere the establishment of theNigerianAgricultural and Cooperative Bank limited, (NACB), People’s Bank of Nigeria, (PBN), theCommunityBanks,theNationalDirectorateforEmployment(NDE),andtheFamilyEconomicAdvancementProgramme, (FEAP) etc. In theyear2000, theGovernmentmerged theNACB



with PBN and FEAP to form the Nigerian Agricultural Co-operative and Rural DevelopmentBankLtd(NACRDB)whileMicroFinanceBankstookovertheservicesofbothCommunityandPeoples Bank of Nigeria in 2005. (CBN, 2005) [11].All these were geared towards povertyalleviationandexpansionoffinancialservicesdeliverytotheruralareasandmostspecificallytotheeconomicallyactivepoorandthedisadvantagedgroupbuttheeffectswereshort-livedduetounsustainablenatureoftheprogrammes.Furthermore, in the recent times, the Nigerian financial sector has witnessed a significantfinancialdevelopmentasboththegovernmentandtheoperatorsinthesectorhaveinstitutedpoliciesandstrategies for its expansion.Althoughmostof thesepoliciesandstrategieshavebeentargetedatfinancialinclusion,theimpactofthisdevelopmentisyettobereflectedinthegrowthanddevelopmentofher real economy. For instance,majorityofNigerianSmall andMediumEnterprises(SME)(over80%)stilldescribepooraccesstofinancialservices,astheirmostdifficultproblem.(NSB.SMEDAN,(2012).[28] Ithasalsobeendocumentedthat financialdevelopmentindicatorssuchascredittotheprivatesectorhavenosignificant impactonthegeneraleconomicandstructuralgrowthofNigeria’seconomy. (Shittu,2012)[30]aswellas(Afangideh, 2010). [02] It is therefore not surprising thatNigeria ranks low in the financialinclusion indicators even among her peers. The World Bank Global index data shows thatabout 30% of Nigerian adults have accounts with the formal financial institutions. (WorldBank,2008)[34].ThisvalueisbelowthatofKenyaandSouthAfricawhichhavevaluesof42%and54%respectively.(Demirguc-KuntandKlapper(2012)[16]Definitely,when financialdevelopment isnotbeing inclusive, especiallywhen it tiltsheavilytowardsthewealthy,(asinthecaseofNigeria)itmaydampeneconomicgrowth.Thisperhapsmay explain why financial development of developing economies has not effectively beentranslated to growth. It has also been shown that in countries with low level of financialinclusion, households, Small andMediumEnterprises (SME) and other disadvantaged groupresort to the informal financial sector for financing at all cost and this can becounterproductive. (Collins et al, 2009) [14]. In the light of the above discussions, manycountries have come to recognize the potentials of financial inclusive systemwhich is nowincreasinglybecomingapoliticalissuestofinancialmarkets,regulators,andoperators.(AFI,2010)[03].Consequently, as a part of Nigeria’s efforts to address the problem of low level of financialinclusion, she has put together a National financial inclusion strategy which is designed toincreasethenumberofNigerianswhichareincludedintheformalfinancialsystemto70%byyear 2020. (CBN, 2012) [12]. One of the important aspects of this strategy is the issue ofmonitoring, evaluation, creating awareness and understanding the financial inclusionphenomenonandthe importanceof it ineconomicgrowthandpovertyalleviation.This is toensure that the strategywill be sustained andwill make a desired impact on the populaceespeciallyontheeconomicallyactivepoorandthedisadvantagedgroups.(CBN,2012)[12].ForalargeanddevelopingeconomylikeNigeria,itispertinenttoensurethatmeasuresoftheextent of financial inclusion encompass different parameters that properly reflect thecomplexity anddiversity of the country, taking into consideration the economically- activepoor and thedisadvantagedgroupwithinNigerian context. For instance, althoughmeasuresand data provided by international organisations have the advantages of providingstandardised cross-country comparisons, they may not reflect the peculiarity of the localeconomy and the level of her financial system development. There is therefore need todependonthepolicygoalsandsettingsof the financialdevelopmentof thecountry involved



and also keep the excluded abreast of the new ideas based on the evolving needs of thefinancialinclusionstrategyadoptedbythecountryinquestion(Chakrabarty,2012).[13].InthelightoftheaboveandinlinewiththeNigeriangovernmentstrategyonfinancialinclusion,thebroadobjectiveofthispaperistoestablishalinkonhowinclusioninitiativescanhelptheeconomicallyactivepoorandthedisadvantagedembracetheformalfinancialsystemtherebyreducingpovertyintheeconomy.Inaddition,financialinclusioncomparisonsaremadewithsome selected countries as well as efforts to explain differences in the extent of financialinclusions among the countries. The specific objectives of this paper include: To study andunderstandthemeaningandneedforinclusivegrowth;tounderstandtheroleandimportanceoffinancialinclusionininclusivegrowth;toknowtheextentoffinancialexclusion/inclusioninNigeria; and to make recommendations on how sustainable financial inclusion could be averitabletooltoattaintheinclusivegrowthandpovertyalleviationinNigeria

THECONCEPTOFFINANCIALINCLUSIONANDGROWTHFinancial inclusion refers to delivery of financial services at an affordable cost in a fair andtransparent terms and conditions to vast groups of disadvantaged, weaker and low incomegroups including household enterprise, small medium enterprise and traders. It not onlyenhancesoverall financial intensityof agriculturebut alsohelp in increasing rural non-farmactivities which lead to development of rural economy and improve economic condition ofpeople.Financialinclusionactivitiesincludemicrocredit,branchlessbanking,savingproducts,pensionforoldage,microfinance,selfhelpgroup,entrepreneurialcreditetc.However, the concept of financial inclusion has often been defined in the context of theinstitutionalsettingsandgoalsoftheeconomicpolicyofthecountryinvolved;hencedoesnotenhancestandardizationandcross-countrycomparisons.Consequentlytheconceptoffinancialinclusionhasbeendescribed invariouscontextsdependingonperceivedpeculiaritiesof theeconomyinquestion.WikipediaEncyclopaediadefinesitasthedeliveryoffinancialservicesataffordable cost to low-income and disadvantaged segments of the society. The Centre forFinancialInclusionoffersabroadervisionofit.Itdefines“Full-financialinclusion”asastateinwhich all people who can use financial services have access to a complement of qualityfinancialservices,providedataffordableprices,inaconvenientmannerandwithdignityoftheclients”.Thisdefinitionrecognisesdiversityintheinstitutionalproviders,servicesofferedandusers of financial services. TheReserveBank of India defines it as the delivery of financialservicesataffordablecosttovastsectionofthedisadvantagedandlow-incomegroups.(RBI,2013) [08] It identified the services to include credit, savings, insurance, payments andremittances. TheNigerianNationalFinancial InclusionStrategydefines itu-asastatewhereadult Nigerians have access to a broad range of financial services that meet their needs ataffordable costs. The United Nations Development Programme (UNDP) views on inclusivefinancialsystemasonethatservicesallclients,whichmeansreachingouttothepoorandtolow-income people and providing them with affordable financial services tailored to theirneeds. It further views an inclusive financial system as one that recognizes the marketpotentials/income generating opportunities in lending to the poor but excluded population.Economic growth is a key policy objective of any government and economic policy throughfinancial inclusion is amajor instrument for attainment of such objective. Economic growthcould be referred to as a sustained and positive change in the level of aggregate goods andservicesproducedbyacountryovercertainandgivenperiodoftime.Wheneconomicgrowthismeasured over the population of a given country, it can be stated in terms of per capitaincome, according to the aggregate goods and services produced in a given year which isdividedby thepopulationof thecountrywithin thatgivenperiod.Thehigher theper capitaincomeofthepopulace,thelessisthepovertyindicatorswithintheeconomy.Itcanbestatedinnominalorinrealterms. Basedonthis,whentheincreaseintheaggregatelevelofgoods



andservicesisdeflatedbytherateofinflation,realeconomicgrowthisachieved,butwhenitismeasuredwithoutdeflating,itisreferredtoasnominaleconomicgrowth.Economicgrowthraises thegeneralstandardof livingof thepopulationasmeasuredbypercapitanationalincome;makesmanykindsofincomedistributioneasiertoachieve;enhancesthetimeframeofaccomplishingthebasicnecessitiesofman,likeshelter,food,clothingetc,bya substantial majority of the populace and rapid growth rates are often associated withefficienteconomicandpoliticalsystemsorevenprestige,Lipsey,(1982)[24]. However, theconcept of economic growth has not been quite easy to understand and likewise itsmeasurements in real terms. This is because inmost literatureof economics, someauthorshavedifferentiatedeconomicgrowthfromthetermeconomicdevelopmentindifferentways.Authors like Todaro (1980)[31] and Baran (1968) [09] argue that themere increase in theaggregatelevelofgoodsandservicesproducedinacountry,tellsnothingaboutthequalityoflife of a citizenry given the threats of global pollution, abysmal lop-sided distribution ofaggregateincome,environmentaldegradation,prevalenceofchronicanddeadlydiseasesandabsence of freedom and justice. These authors believe that attention should be focused notmerelyonincreaseinaggregateoutputandincomebutalsoonthetotalqualityandstandardoflivingofthecitizenryespeciallytheeconomically-activepoorandthedisadvantagedgroup.Nevertheless,itisevidentthatthereisyetnosatisfactorymeasureof“qualityoflife”thatcanbeappliedtoquantitativemeasureofaggregateoutputandincome,thatwouldbeacceptableto all and sundry that could stand the test of time. The apparent consensus suggests thateconomic growth refers to an increase in the aggregate level of outputwithin a given timeperiodinacountrywhileeconomicdevelopmentisseenasanincreaseintheaggregatelevelofoutputandincomeswithdueconsiderationgiventothequalityoflifethathopefullytakesintoconsideration the distribution of income, health care, environmental degradation, globalpollution,freedomandjustice,etc.Generally,economicdevelopmentisaprocessbywhichaneconomy experiences three main phenomena namely: growth in output, structural changesandinstitutionalchanges.Ifthethreephenomenatakeplace,itwillleadtoariseinstandardoflivingofthepopulace.Hencethatexplainswhygrowthcouldbeenjoyedbymanyeconomiesbutnotallexperiencedevelopment.(Uwakaeme,(2015)[33]Inclusive growth embraces both the economic growth anddevelopment. In recent decades,economic and social inequalities have increased alongside high growth rates which haveincreased regional inequalities. Rapid and sustained poverty reduction requires inclusivegrowth that allows people to contribute to and benefit from economic growth, but for thisgrowthtobesustainableinthelongrun,itshouldbebroad-basedacrosssectors,andinclusiveof the large part of the country’s labour force. As a result, Inclusive growth has become anational policy objective worldwide. In some developing economies, it is a relatively newterminologywhichgottheattentionofpolicymakersinrecenttimes.Inclusivegrowthhastheliteralmeaningofthetwowordswhichreferstoboththepaceandthepatternoftheeconomicgrowthanditbasicallymeans,broadbased,shared,andpro-poorgrowth.Inmostdevelopingcountries,financialinclusionhasbeenadjudgedasaveritabletooltoachieveinclusivegrowth(WorldBank,2008)[34].FinancialInclusion:InclusiveGrowthandPovertyAlleviation:Itisaprovenfactthatfinancialinclusionandfinancialliteracyisaneffectivewayfor“PovertyAlleviation”.Theobjectiveoffinancialinclusionistomeettheexpectationoftheunbankedandexcluded, yet silentmass of the population are untouched,mostly in developing economies.Povertyandexclusioncontinuetodominatesocioeconomicandpoliticaldiscourse inNigeriaoverthelastseveraldecades.DespitebeingthegiantofAfrica,Nigeriaisstillahometoone-



thirdof theworldspoor.Financial inclusionhas thepotential toenhance the socioeconomiccondition of the lowest active poor. Inclusive financing is to deliver financial services ataffordablecosttolowincomesegmentofsocietyincontrasttofinancialexclusion.Theybridgeupthegapbetweentheweakersectionsofsocietyandthesourcesoflivelihoodandthemeansof incomewhichcanbegenerated for themif theyget loansandadvances.Once theweakersectionofsocietygetssomemoneyinloanform,theycanstartuptheirownbusinessortheycan support their education throughwhich they can sustain their livelihood. Thus financialinclusionturnsouttobebenefitforthelowincomehouseholds.Toservetherequirementsofthe large section of society, there is an urgent need for the larger market for the financialsystemwhichopensuptheavenuesforthenewplayersinthefinancialsectorandcanleadtogrowthofbankingsectoralso.Theimportanceoffinancialinclusionisthatitreducesthegapbetweenthedifferentsectionsof the society. It enhances reduction in the poverty levels andunemployment and increasesawareness about the financial products of the financial institutions involved. Financialinclusionhelpsinreductionofregionalorsocialdisparityaswellasincreasingtheinvestmentfor infrastructurewithintheeconomy.Thus financial inclusionactsasan imperativetool forinclusivegrowthandpovertyalleviation.

RELATEDREVIEWEDSTUDIESDifferent studies have, at different times, investigated the effect of financial inclusion oninclusivegrowthanddevelopmentindifferenteconomies.Forinstance,Cyn-YoungandRagelio(2015) [15] examined the relationship between financial inclusions, poverty and incomeinequality in Asia. The study which focused on developing Asian economies sought todetermine country-specific factors and macroeconomic variables that affect the level offinancial inclusion for selected 37 developing Asian countries. They find that demographicfactorsandpercapitaincomesignificantlyaffectfinancialinclusion.Thestudyalsoshowsthatfinancial inclusion reduces income inequality and poverty. The study suggests that strongfinancialregulatoryoversight,ruleoflawandenforcementoffinancialcontractwouldimprovefinancial inclusionefforts.Migapetal. (2013)[26]examinedfinancial inclusionasastrategyfor inclusive growth inNigeria. The study comparedNigerian financial inclusion indexwithotheremergingeconomiesintheuppermiddleincomestrata.TheyfindthatNigerianfinancialinclusion indicator isstill shallowcomparedtoemergingeconomiesbothwithinandoutsideAfrica. The study suggests that active participation of media and educational institutionsshouldbeencouragedtopromotefinancialliteracyinNigeria.Nkwede(2015)[27]examinedfinancialinclusionandeconomicgrowthinAfrica,usingNigeriaas a case study. Data for the study covered the period 1981 to 2013. The study shows anegative relationship between financial inclusion and growth of Nigerian economy. Heattributesthefindingtohighleveloffinancialexclusionofadultsfromfinancialservices.OnaolapoandOdetayo(2015),[29]studiedfinancialinclusioninNigeriafromtheperspectiveofmicrofinancebanksusingasurveydesignmethod.Theyfindthataccesstofinancialservicesthroughmicrofinanceinstitutionsbylessprivilegedpeoplepromotesemploymentgeneration,reduction inpovertyandoveralleconomicgrowth. JosephandVarghese(2014)[22]studiedthe roleof financial inclusion in thedevelopmentof Indianeconomy.Thestudy investigatedtheactivitiesof fiveprivatesectorbanksand fivestatebanks fromJune toNovember,2013.Onsite and offsite ATM usage, number of bank branches, credit cards and debit cards percustomerswereusedasproxies for financial inclusionvariables focusingonruralandsemi-urbanareasinIndia.Theyfindthatquiteanumberofpeoplearestillexcludedfromfinancialservicesevenaftertheintroductionofinclusivebankinginitiativesinthecountry.



AdudaandKulanda(2012)[01]examinedfinancialinclusionandfinancialsectorstabilitywithreferencetoKenyaneconomy.Thestudywhichisexploratoryinnaturerevealsthatfinancialinclusion is a prerequisite for economic growth and development in Kenya because variousfinancial inclusionprogrammeshave impactonKenya financial stability.The study suggeststhatgovernmentshouldintensify its financial inclusionstrategiessothatmorepeoplewouldhaveaccesstofinancialservicesespeciallypeopleintheinformalsector.Similarly, Allen et al (2013) [05] revealed that commercial banks can enhance access tofinancialservicestounderprivilegedhouseholdsinKenyabydeepeningitsimpactontheruralandvulnerablegroups.Bruneetal(2011)[10]alsofindthatincreasedfinancialaccessthroughmobilizationofruralsavings improves the livelihoodofMalawianruralpopulationbecausepoorhouseholdshaveaccesstosavingsforagriculturalinputs.WorldBank(2008)[34]analysisshowsthatfinancialinclusionisalsoinfluencedbyspecificcreditneedsofvarioussegmentofpeoplearisingfromanumberactivitiessuchashousing,microenterprisesandagricultureetc.,duetodifficultiesinaccessing formal sources of credit by the poor individuals together with small savings andinternalresourcestoinvestinhousing,health,education,andotheropportunitiesUmmaDutse(2013)[32]analysedtheroleofFinancialLiteracyandConsumerProtection infosteringfinancialinclusioninNigeriaandstressedthatliteracyisapreconditiontocreatingawareness of investment and growth in the economy. The study also pointed out theimportance of a stable financial system which must include the public confidence andconsumer protection as an ideal system. This implies that consumers of financial servicesshouldnotbesubjectedtounfairordeceptivepractices,shouldhaveaccesstoinformationthatcouldenablethemmakeinformeddecisionsandshouldhaveaccesstorecoursemechanismstoresolvedisputes.Ajakaiye (2013) [04] in his contribution titled “Financial Inclusion inNigeria:MeasurementandLessons”analysedtheneedtoensuresustainablemeasurementoftheextentoffinancialinclusion, encompassing different parameters that properly reflect the complexity anddiversityofthecountry.Thus,measurementanddataprovidedbyinternationalorganisationsmayhavetheadvantageofprovidingstandardisedcross-bordercomparisonbutitshouldnotbe used for measuring the local stakeholders’ financial inclusion activities but rather themeasurement should reflect the specific institutional settings and goals of the financialdevelopment of the country that is involved. Eluhaiwe (2013) [17] focused on the role offinancialinclusioninitiativesonnationaleconomicdevelopmentandtheneedandimportanceof financial inclusionthat includes thepoorand disadvantaged in theeconomybyallowingthem access to sustainable financial services, thus enabling them to participate actively inproductiveactivitieswhichwillenhancegrowthanddevelopment.

ANOVERVIEWOFFINANCIALINCLUSIONSTRATEGIESTheneedtobluntlyreducepovertyalleviationthroughfinancialinclusionhasaccentuatedtheinvolvement of some global bodies. The Alliance for Financial Inclusion (AFI), a network ofpolicy makers from developing and emerging countries, has been leading the struggle topromote inclusive finance over the years. Founded in 2008, AFI recognizes, adopts andpromotesthepropagationofeffectivefinancialpoliciesindevelopingeconomiesinanattemptto reach the2.5 billion impoverishedpeople across the globe. (CBN, 2012) [12]. AFI (2010)[03]alsopromotespeerlearningamongmemberstocreateroomforinteractionandexchangeof knowledge on financial inclusion matters. Its activities have focused on consumer



protection, mobile financial services, agent banking financial integrity, micro-savings datamanagement,amongstothers.In addition, the G20 countries, in December, 2010 launched their Global Partnership forfinancialinclusioninSeoul,SouthKoreaThepartnershipcreatesaplatformforG20countriesandrelevantstakeholderstofosterfinancialinclusion.Theiractivitiesarebeingimplementedthrough comprehensive action plan focused on financial sector reforms and developmentagenda. The Centre for Financial Inclusion has been helping to bring about conditions thatwould achieve worldwide financial inclusion through collaboration. The World Bank inparticulariscollaboratingwithBillandMelindaGatesfoundationandhasconstructedaGlobalFinancialInclusionIndex(Findex);adatabasethatprovidesindicatorsformeasuringtheuseof financial services across borders of economies and over time. Equally, various countrieshavebeenmakingcommitmentintheirrespectivejurisdictionstopromotefinancialinclusion.In 2012, about 95 AFI member institutions from across the Globe adopted the MayaDeclarationonfinancialinclusion.Seventeen(17)ofthempledgedandmadecommitmentsattheAFIGlobalPlcForumheldinRivieraMaya,Mexicotopursuespecificgoalsandtargetsonfinancial inclusion. It was at the event that Nigeria pledged to reduce her adult financialexclusioninthecountryfrom46.3in2010to20%in2020(Eluhaiwe(2013)[17]The achievement of financial inclusion goals requires the participation of an array ofinstitutionswhichservicelargescale,medium,smallandmicroenterprises.Inmanycountries,commercial and investment banks provide financial services for industries and large scaleenterprises.Themediumandsmallscaleenterprisecategoryareservedmostlybyspecialisedinstitutions such as SME Banks, Agricultural Banks, and various guarantee and specializedfinancingarrangements. Those in themicrogrouphaveoveryearsbeenservedby informalfinancial institutions such as non-governmental organizations, financial cooperatives, creditunions and specially licensedmicrofinancebanks. Inorder to arrive at appropriate financialinclusion strategies,policymakershavebeenconvergingatvarious fora tobrainstormbestpolicy alternatives and propositions. This has, accordingly, resulted in the formulation ofpolicies, guidelines as well as programme. The success of the initiatives varies from onecountry to another,dependingon theenvironmental, social, political and cultural conditionswithintheeconomy. Diversityof financialproductsplaysacriticalrole infinancial inclusioninitiatives.Thisisbasedonthefactthateconomicgroupsneeddiversefinancialservices.Forinstance,savingsareneededfortherainydays,andreductionofvulnerabilitytoadverseeffectincomevagaries.Saversalsoengageininvestmentsthatoutweightheirbalances,creatingtheneedsforloansorcredit. Inmanycountries, institutionsplacealienonsavingsasconditionforextendingloansorcredit. Inordertomanagetheseuncertaintiesandmitigatetheriskofexternalshocks,microinsuranceproductshavealsobecomepartoffinancialservicesofferedtopoorclients.Smallpremiumpaymentsbyindividualclientsareusedtodefraytheloansofthosewhomightdefaultowingtonaturaloccurrencesuch lossofcropsand livestockduetodiseases,illhealth,fireandothernaturalhazards.Otherservicesthataregainingprominenceand acceptability include inventory collateralization, micro leasing, payment/remittanceservices and transfers. As financial inclusion programmes continue to attract increasingattentionofstakeholdersandpolicymakers,promotersarebecomingconcernedaboutcriticalfactorsthatwillensureeffectivenessandefficiencyinservicesdelivery.Oneofthosefactorsisfinancialidentity.Financialidentityisbeinghighlightedasakeyriskmanagementstrategyinfinancial inclusion programmes. Given the low literacy levels of economically active–poorgroupindevelopingeconomies,andabsolutelackofmethodsforregisteringsubjects,financialidentity presents a serious hurdle to financial inclusion. While large transaction wealthyclients might be able to provide their means of identifications such as identity cards fromorganisations or national identity cards, driving licensees and international passports, this



doesnotapplytothepooranddisadvantagedgroup.Theneedtosimplifythefinancialidentityprocedureforpoorgroupispertinenttopavewayforthemtoenterthefinancialmarketplace.Whilestrivingtoensureaccesstofinancialservices,theneedtoensurethatbeneficiarieswereprotected from negative consequences of unethical practices of the services providers alsocomestofrontburner.Areasoffocusinthisrespectincludeensuringthatthereisavoidanceofover-indebtedness, fair interest charges, ethical conduct of staff of financial institutions,appropriate loan collectionpractices andprocedures, secrecyof clientdata/informationandfairmethodsofseekingredressineventofdispute. ManycountriessuchasSouthAfricaandthe Philippines have embarked on aggressive financial education and literacy programmes,whileotherssuchGhanaareinstitutionalizingfinancialliteracyprogrammesintheirstructuraleducational system. Financial system regulators, on their own part have been striving tomaintain financial soundness and stability, encouraging the provision of sustainable andaffordablefinancialservicestotheeconomicallyactivepooranddisadvantaged,andprotectingthe financial institutions’ customers In order to fully capture the activities and initiatives offinancialsystemandtheinterveningforthegeneralgoodoftheeconomy,manycountrieshavebeenexploringvarious regulatory approaches. For instance,Cambodia employs a three tierapproach to microfinance institutional practice. The first tier corresponds to the regulatedinstitutionswhichwere licensed and supervised by the country’s central bank. The second,though not licenced, are registered by the Central bank and subjected to a light and simpleregulatoryecosystem,whilethethirdtierarethosethatcarryoutfinancialintermediationonaverylowscale(theinformalsector)andtheyarenotregisterednorregulated.NigerianNationalFinancialInclusionStrategyTheNigerianNationalFinancialInclusionStrategydefinesfinancialinclusionas“theprocessofimprovingaccesstoarangeofformalfinancialservicesandpromotingtheresponsibleusageofappropriateandaffordablefinancialservicestothosesectionsofthesocietywheretheneedexist.”Accessreferstotheeasewithwhichconsumercanobtainfinancialserviceswhileusagereferstobothuptakeofappropriateproductsandservicesaswellashowacquiredservicesareused after initial acquisition. InNigeria, theCentralBankofNigeria (CBN), in collaborationwithotherstakeholders,launchedthefinancialinclusionstrategyinOctober2012.Theoverallgoalofthestrategyistoincreasethefinancialadultinclusionratefrom20%in2010to46.3%in 2020. The achievement of this goal is expected to support the empowerment of manyeconomically active poor and disadvantaged Nigerians, facilitate their involvement ineconomicactivitiesandenablethemcontributetonationaleconomicgrowthanddevelopment.TheEFinAreportof2012accesstofinancialservicessurveyreportputsthecurrentfinancialexclusionrateat39.7%.(EfinA,2013).ThisisaclearindicationthatNigeria’simplementationefforts arebeginning toyield results.TheNigerian strategydefines clearobjectivesand setsspecifictargetsacrossfiveprimaryproductsandservices(payments,credits,savings,pensionsand insurance)throughabroadrangeofcoordinated interventionswithhighpriorityonthefollowingareasbelow

I. Transformation of the KYC {know your customers}makes regulation into a simplifiedrisk-based tiered framework that allows individuals easy for thosewho do notmeetformalidentificationrequirementstoenterthebankingsystem.Giantstrideshavebeenmade in this regard with the new KYC regulation already released to the bankingindustry.

ii.Developmentandimplementationofaregulatoryframeworkforagentbankingtoenablefinancial institutionsdeliver services through agents such as post offices, in locationsthatmightotherwisebeunprofitabletohavemortarandbricksbranches.



iii.DevelopmentandimplementationofNationalFinancialLiteracyFrameworktoguidethedelivery of programmes that will increase the awareness of financial products andserviceswiththeultimategoalofincreasingsustainableusers.

iv. Implementation of comprehensive Consumer Protection Framework to safeguard theinterestofconsumersof financialproductsandservicesandsustainconfidence inthefinancialsystem. ArenewedpolicyandregulatoryfocushasthereforebeenplacedonFinancial Consumer Protection to support prudentialmeasures and ensure increasedconsumerconfidenceandtrustinawell-functioningfinancialsystem.

v.Consistentpursuanceofadoptionofmobilepayment systemandothercash-litepolicyeffortstoreducethecostofserviceprovisionandincreasetheeaseoffinancialservicetransactions.

vi.Implementationofcreditenhancementschemes/programmestoempowermicro,smallandmediumenterprises(SMMEs).

Accordingtothe2012AccesstofinancialservicesinNigeriaSurveycarriedoutbyEFinA,39million adults (46.3%of the adult population)were financially excluded (EfinA 2013). The2012 Survey of the organisation showed that the exclusion rate had declined across geo-politicalzonesofthecountryasshownbelow:

Geo-politicalZone

2010AdultExclusion

2012AdultExclusion

PercentageImprovement

North–East 68.3 59.5 12.9North–West 68.1 63.8 6.3North–Central 44.2 32.4 26.7South–East 31.9 25.6 19.8South–West 33.1 24.8 25.1South–South 36.4 30.1 17.3

Source:EFinA2012SurveyReportNotionally,theexclusionratedeclinedfrom46.3%to39.7%buttherewasstillaproblem.ThishugepercentageofexcludedadultNigerians,necessitatedthelaunchingofthestrategybytheCentralBankofNigeria(CBN),incollaborationwithotherstakeholderson23rdOctober,2012. Thebroad target of the strategy is to reduce adult financial exclusion rate to20% in2020.Outofthe80%tobeincluded,70%wouldbeintheformalsectorwhile10%wouldbeintheinformalsector.Intermsofspecificfinancialservices,thefollowingtargetsweresetintheStrategy:

ServiceType Levelin2010 2020TargetPaymentServices 21.6% 70%SavingsServices 24.0% 60%CreditServices 2% 40%InsuranceServices 1% 40%Pension 5% 40%

Source;EFinA2012SurveyReportFurthermore,channelsforoutreachandprovisionoftheservicestoincreaseintermsofunitsper100,000areasfollows:

Channel 2010 2020BranchofDMB 6.8 7.8MicrofinancebanksBranches 2.9 5.0ATMs 11.8 59.6PointofSale(POS)MobileAgents 13.3 850.0MobileAgents 0 62.0

Source:EFinA2012SurveyReport



Majorinstrumentstosupporttheachievementofthestatedtargetswereidentifiedasfollows:i. AgentBanking–Agentbanking is thedeliveryofbanking servicesoutside traditional

bankbranches,throughadditionaltouch-pointssuchasexistingretailstoresandpetrolstationsorviatechnologysuchasPointofSale(POS)devicesormobilephone.

ii. Mobilebanking/MobilePhone-Accesstofinancialservicesthroughmobilephonesthatare either directly linked to a bank account or use ofmobilewallets as intermediaryvirtualmoneyaccounts

iii. Linkage Models - Enhancement of financial and business cooperation betweenconventionalfinancialinstitutionsand(depositmoneybanksanddevelopmentfinanceinstitutions/government and microfinance banks/institutions for wholesale fundingandon-lendingtransactions.

iv. Client Empowerment - Increase in the bankability of the population throughcoordinatednationalfinancialliteracyinitiativesthatarecomplementedwithconsumerprotection.

In addition to the above appropriate guidelines and frameworks on Tier KYC requirement,agentbankingregulation,national financial literacy framework,consumerprotection,mobilepaymentguidelinesandothercash-lesseffortaretobeputinplace.

FRAMEWORKANDIMPLEMENTATIONWITHINTHENIGERIANCONTEXTNigeria prides itself as the most populated country and the economic giant of the Africancontinentwithover205millionpeoplebuthowever about64% (of the adultpopulation) iscurrently unbanked. The financial sector boasts of 22 commercial banks, over 400microfinancebanksandover23MobileMoneyOperators,andovertheyears,theyhavebeentryingtotapintothemarketpotentialofthelargeunbankedpopulationintheeconomy.Thecurrent unbanked population controls majority of daily retail transactions and even thebankedpopulationareencouragingthemthroughcashtransactionsbecausetheeconomyhasnot moved away from the traditional cash based operations. The result is the increasingnumber of informal financial operators whose activities are not regulated, but who controlhigh volumesof liquiditywhich couldhavebeenused to create economic opportunities if itwereinthehandsoftheformalfinancialinstitutions.Theinformalfinancialoperatorsincludethemoneylenders,informalloancooperatives,thriftschemessuchasEsusuinWestAfricaandStokvels inSouthAfricawheremembersareonlyentitledtotheextentof theircontribution.Therearenochecksandbalancesoranystructuredregulationinplacetoeffectivelymanageorinvest the available funds. Financial Inclusion is becoming a priority for policy makers,regulators and development agencies globally. The World Bank Group considers FinancialInclusionakeyenablertoreducingextremepovertyandboostingsharedprosperity,andhasputforwardanambitiousglobalgoaltoreachUniversalFinancialAccess(UFA)by2020.Since2010,morethan55countrieshavemadecommitmentstoFinancialInclusion,andmorethan30haveeitherlaunchedoraredevelopinganationalstrategy.ArecentWorldBankresearchon Financial Inclusion indicates that when countries institute National Financial InclusionStrategy,theyincreasethepaceandimpactofreforms.Nigeria,throughitsCentralBank(CBN),hasdevelopeditsNationalFinancialInclusionStrategy(NFIS) to provide the blue print which will guide and support stakeholder activities inadvancingFinancial Inclusion in the country. Someof the featuresof the strategyare statedbelow:

• Firstly, the target set for the strategy nationally is to reduce the percentage of adultNigerians thatdonothaveaccess to financialservices from46.3%in2010to20%in2020.Inaddition,thestrategyprojectedthat70%ofadultNigerianshouldhaveaccess



to payment services in 2020, 60% to savings and 40% each to credit, insurance andpensions.

• Secondly,inordertoachievetheabovetargets,thechannelsthroughwhichpeoplecanaccess the services such as branches of banks,microfinance banks, number of ATMs,mobileagents,PointofSale(POS)agentsofdepositmoneybanksarealsoexpectedtoincrease to specified numbers per 100,000 adults in 2020. Accordingly, stakeholdersarebeingencouragedandcoordinatedtoensurethatthechanneltargetsaremet,whilethe Nigerian public is being sensitized to demand for, access and use the servicesavailableatthesechannels.

• Thirdly,regulatorsarebeingencouragedtodeveloprelevantguidelinesthatwillensurethatthenumberofaccesspointsincrease.Inthisregard,theCentralBankofNigeriahasissuedguidelinesontheagentbankingandmobilemoneyoperations,bothofwhichwillmake financial services available at point so that the conventional branches that areoftenfaranddifficulttoreachbyconsumersoftheseservices.TheBankhasalsoissuedthe tiered know your customer (KYC) requirements with simple documentationrequirements, and by so doing, enables low income and rural dwellers to open andoperatebankaccounts.ThefinancialliteracyprogrammeoftheCentralBankofNigeriaincollaborationwith theFederalandStateMinistriesofEducationwasestablishedtoimplement financial literacycurricula inschools,aswellas thecollaborationbetweenCBN and financial services providers to implement financial literacy campaigns. Thiswillenlightenbothprovidersandthepubliconpossiblefinancialservicesandhowbesttheycanbeprovidedandaccessed.Furthermore,theconsumerprotectionprogrammewillensurethatthereisfairtreatmentofallcustomers.

CURRENTIMPLEMENTATIONSTATUS

TheNigeria’sFinancialInclusionStrategy(NFIS)whichwaslaunchedin2012setsoutcertaininitiativesaimedatimprovingFinancialInclusioninthecountry.Variousstakeholdersengagedin the finance sector are implementing these initiatives. Financial Service providers haveengaged inFinancial Inclusioncampaigns tocapture theuntappedworkingpopulations.TheBank of Industry (BOI) in 2015 launched the Bank of Industry Fashion Fund. Under thescheme,women entrepreneurs in the fashion industry can apply for up toN1,000,000 (OneMillionNaira)withoutcollateraltoinvestintheirfashionbusinesses.Accesstosuchaschemewould likely require one to own a bank account with a commercial bank. Other financialinstitutions in Nigeria have also launched some initiative or strategy aimed at improvingFinancialInclusionintheeconomy.RegulatorsoftheFinanceIndustry(CBN,PENCOM,NIC,NCC,NDIC,SECetc.)arenotleftoutastheyhaveakeyroletoplay inthisregard.Sincethe launchoftheNFIS in2012theCBNhasembarked upon and implemented the following initiatives aimed at improving FinancialInclusioninNigeria:

• GuidelinesonMobileMoneyServices(Guidelines)inNigeria.–Issuedin2015• RegulatoryFrameworkforlicensingSuper-AgentsinNigeria–Issuedin2014• ConsumerProtectionFramework–Issuedin2016• BankVerificationNumber(BVN)ProjectExercise–Introducedin2014• ThreeTieredKnowYourCustomer(KYC)Requirements–Introducedin2013• CashlessPolicy• Afinancialliteracyframework

Other regulatory bodies such as the National Pension Commission (PENCOM) and NationalInsurance Commission (NIC) have embarked on financial literacy awareness campaignsenlighteningconsumersonthebenefitsoftheservicesofferedwithintheirindustry,aswellas



law reforms that would promote Financial Inclusion within the Nigerian economy. In thisregard,thesubsequentreviewofthePensionReformAct(PRA)2004andtheenactmentofthePRA2014 introduced the Contributory Pension Scheme (CPS) whichmade it mandatory foremployers and employees in both the public and private sectors to contribute towardsemployeeretirementbenefits.Thenewpensionschemeintroducedanautonomoustripartitesystem involving The Regulator, The Administrator and The Custodian to minimise thepossibilityofmisappropriationofpensionfundsinordertoensurethatalargenumberofthepopulation have adequate access to investible funds and lower rate credit facilities.Furthermore,theNationalInsuranceCommissionhasalsointroducedtheMicroInsuranceandTakaful Insurance Guidelines which are to aid the achievement of Financial Inclusion in allsectors of the economy. The Minister for State for Finance, Dr. Yerima Lawan Ngama in akeynote address at a two-day Micro Insurance and Takaful Insurance StakeholdersEngagementWorkshopandtheofficiallaunchingoftheTakafulInsuranceGuidelinesinLagossaid the step takenby theCommissionwill further increase insurancepenetration level andalsocontributetothenation’sGDP.

ECONOMICBENEFITSANDIMPACTThe effort put in by the Nigerian government and the CBN to increase Financial Inclusionthrough the years has resulted in not just an increase in the number of people utilizingfinancial services but also in the growth and sophistication of the financial system.Furthermore,developmenteconomistshavesinceestablishedthatFinancialInclusionleadstooverall economic growth and development. In other words, them or financial inclusivemarketsarelinkedwithbettereconomicdevelopment,themoretheincreaseingrowthoftheeconomy. The impact of Financial Inclusion can be accessed through various spectra offinancialproductsofferedtoconsumersincludingthefollowing:

• Credit–Accesstocredithelpstoencourageinvestmentsinassetsthatenablebusinessowners to start or expand small enterprises. For instance, in 2016, “EnhancingFinancial Innovation andAccess”(EFInA) awarded a $2 million grant to First CityMonument Bank (FCMB) to extend banking services to the financially excludedpopulation in Nigeria. EFInA, a financial sector development organization thatpromotes Financial Inclusion in Nigeria, said the grant would enable FCMB, via itsGroupLending andAgencyBankingproject, provide financial services and access tocreditfacilitiestoprospectivecustomersin12states;namely,Bauchi,Kaduna,Sokoto,Niger,Kwara,Lagos,Oyo,Ogun,AkwaIbom,Rivers,CrossRiver,andAbia

• Savings–Studiesonthe impactofsavingsshowthatsavingshelphouseholdsmanagecashflowspikesandsmoothconsumption,aswellasbuildworkingcapital.Comparedto informal means of savings, saving at formal financial institution can be safe asdepositsareinsureduptoalimitbytheNigeriaDepositInsuranceCorporation(NDIC)andmorevaluablebecauseof interestearnings.Atmacroeconomic level,savingscanlead to higher productivity and economic growth if they are invested within thecountry.

In view of the above, theNational Financial Inclusion Strategy defined several initiatives todrivetheachievementofthetargetforsavings,includingtheimplementationofthetieredKYC requirements, the implementation of a national savings mobilization programme andpoliciestosupportlinkagestoinformalsavingsgroups.Theprospectsofachievingthesavingstargetwilldependtoa largeextentontheimplementationofanationalsavingsmobilizationprogramme, the three-tiered KYC requirements, concerted implementation of the DigitalFinancialInclusionProject,andthedevelopmentofaformalframeworkonlinkagesbetween



informalandformalfinancialinstitutions.Also,themobilemoneyaccountsandagentbankinginitiativesneedtobeenforcedbyregulatorsandservicesproviders.

• Insurance - Vulnerability to risk and the lack of instruments to cope with externalshocksmake itdifficult forpoorpeople toescapepoverty.Micro insurancecanbeanimportant instrument formitigating risk.Micro insurance is insurance that is usuallyaccessedbylowincomeearnersinthesociety.Anotheraimoftheproductistoensureeverybodyisincludedundertheschemeandtoincreasethecontributionofinsurancetothecountry’sGrossDomesticProduct.Anexample is therecent introductionof the“Micro Insurance and Takaful Insurance Guidelines” by the National InsuranceCommissionwhichwas laiddown toaid theachievementofFinancial Inclusion in allsectorsoftheeconomy.

• ElectronicPaymentandMobileMoney-Anefficientpaymentsystemreducesincidentaltransaction costs. Rather than travel long distances, people have the ease of doingbusiness on their mobile phones and other computer devices which is more costeffectiveKeyinitiativestodriveusageofelectronicpaymentchannelsamongNigerianadults, as mentioned in the National Financial Inclusion Strategy, include theimplementation of the tiered KYC requirements, the roll-out of the Cashless NigeriaProject in all States of the Federation, andprogrammes to increase public awarenessabout mobile payments. The three-tiered KnowYour Customer (KYC) requirementswereintroducedin2013tosimplifyaccountopeningrequirements.Therequirementsstatethataccountsofallthreetierscanbeopenedwithbasicpersonalinformationandwithoutanyminimumamount.Theprimaryaimof these initiatives is to increase thenumberofadultNigeriansthathaveaccesstofinancialservicesviatheuseofelectronicpayments in order to reduce inefficiencies, leakages and illicit financial flows in thefinancialsystem.

In addition,more inclusive financialmarkets are directly linkedwith economic growth andemployment. Policy makers increasingly recognize that a financial market that reaches allcitizensallowsformoreeffectiveexecutionofothersocialpoliciesanddevelopmentpriorities.

OTHERCOUNTRIESEXPERIENCESONFINANCIALINCLUSIONIndiaIndiaisoneofthelargestandfastestgrowingeconomiesoftheworld,butwhathasbeenthemostdisturbing fact about itsgrowth is that its growthhasbeensluggishanddisconnected.There has been no uniformity in its growth performance and moreover growth anddistributionofgrowthbenefitstocertainsectorsofeconomyareveryglaring.Further,avastmajorityofthepopulationremainedoutsideofbasichealthandeducationfacilitiesduringherhigh growth phase. In recent decades, economic and social inequalities have increasedalongsidehighgrowthrateswhichhave increasedregional inequalities.Over25%of Indianscontinueto live inpoverty.Rapidandsustainedpovertyreductionrequires inclusivegrowththatallowspeople tocontribute toandbenefit fromeconomicgrowth, Asaresult, InclusivegrowthhasbecomeanationalpolicyobjectiveoftheUnionGovernmentinIndia.IncontextofIndian growth planning it is a relatively new terminologywhich got the attention of policymakers in the Eleventh Five Year Plan of India. The extent of financial exclusion in India isfound to be higher as compared with many Developed and some of the major emergingeconomies. The wide extent of financial Exclusion in India is visible in the form of highpopulation per bank branch and low Proportion of the population having access to basicfinancial services like savings accounts, Credit facilities, and credit and debit cards. (Garg&Parul, D. (2014).[18] The following table summarises India’s performance in the area offinancialinclusionascomparedwithotherdevelopingaswellasdevelopedcountries.



FinancialInclusion:CurrentStatus–India:

Source:IndiaReviewofInitiativesandAchievements.IOSRJournalofBusinessandManagement,

61

Despitevariousmeasuresforfinancial inclusion,povertyandexclusioncontinuetodominatesocio-economic and political discourse in India even after six decades of post economicindependenceera.Thougheconomyhasshownimpressivegrowthduringpostliberalizationeraof1991,impactis yet to percolate to all sections of the society and therefore India is still home of 1/3 ofworld's poor. Census, 2011 estimates that only 58.7% of the households have access tobankingServices.Thepresentbankingnetworkof thecountry (ason31.03.2014)comprisesofabankbranchnetworkof1,15,082andanATMnetworkof1,60,055.Ofthese,43,962branches(38.2%)and23,3341ATMs(14.58%)areinruralareas.


61



The summary of the progress of financial inclusion of all Banks in India including RegionalRuralBanks(RRBs),duringthefiveyearsperiodareasshownbelow.Thestatisticsshowthatthere is substantial progress towards opening of accounts, providing basic banking servicesduring the recent years as indicated above. However, it is essential that all the sections befinanciallyincludedinordertohavefinancialstabilityandsustainabilityoftheeconomicandsocialorder.Only35%ofIndianadultshadaccesstoaformalbankaccountand8%borrowedfroma formal financial institution in last12months.Theminutenumber suggests anurgentneedtofurtherpushthefinancialinclusionagendatoensurethatpeopleatthebottomofthePyramidjointhemainstreamoftheformalfinancialsystem.

Particulars

year ended 2010

year ended 2011

year ended 2012

year ended 2013

year ended 2014

banking outlets in villagesa)Branches 33,378 34811 37471 40837 46126b) Villages covered by BC's 34174 80802 141136 221341 3,37,678c)Other Modes 142 595 3146 6276 -total 67674 116208 181753 268454 383804Urban location through BC's 447 3771 5891 27143 60730

a )No.in. Millions 60.19 73.13 81.2 100.8 126b)Amt.in .billions 44.33 57.89 109.87 164.69 273.3

a) No.in.Millions 13.27 31.63 57.3 81.27 116.9b)Amount in billions 10.69 18.23 10.54 18.22 39

a)No.in.millions 0.18 0.61 2.71 3.92 5.9b)Amt.in .billions 0.1 0.26 1.08 1.55 16KCC's(No.in.Milions) 24.31 27.11 30.24 33.79 39.9

Basic saving bank deposit a/c - branches

Basic saving bank deposit a/c - BC's

OD Facility availed in BSBDA's Account


61ProgressofFinancialInclusionInitiativesinIndiaDuetoRBI’sconcertedeffortssince2005,thenumberofbranchesof scheduledCommercialBanks increased manifold from 68,681 in March 2006 to 1, 02,343 in March 2013.In ruralareas,thenumberofbranchesincreasedfrom30,572duringMarch2006to37,953inMarch2013.Ascomparedwithruralareas,numberofbranchesinsemi-urbanareasincreasedmorerapidly.Totalnumberofbankingoutletsinvillagesincreasedfrom67,694inMarch2010to2,68,454inMarch2013(increasedaround4timesduringtheperiodofthreeyears)oftotalbranches,banking outlets through BCs increased from 34,174 to 2,21,341 during the same period(increased around 6.5 times). The number of Basic Savings Bank Deposit Accounts openedincreased from 73.45 million in March 2010 to 182.06 million in March 2013.RBI advisedbanks to provide small overdrafts in BSBD accounts. Accordingly up to March 2013, 3.95millionBSBDaccountsavailedODfacilityofRs.1.55billion(Thesefiguresrespectively,were0.18millionand0.10billion inMarch2010).Bankshavebeenadvisedto issueKYCstosmallfarmers formeeting their credit requirements.Up toMarch2013, the total numberofKYCsissued to farmers remained at 33.79 million with a total outstanding credit of Rs.2622.98billion.BankshavebeenadvisedtointroduceGeneralCreditCardfacilityuptoRs.25,000/-attheirruralandsemi-urbanbranches.UptoMarch2013,bankshadprovidedcreditaggregating



to Rs.76.34 billion in 3.63 million GCC accounts. (Garg, et al (2015) [18] and World Bank(2008)[34].MexicoTheFederalGovernmentofMexicoestablishedDevelopmentNationalPlanfor2007-2012aspolicyagendaforincreasingthelevelforfinancialinclusion,strengthenconsumerprotectionandtoenhancefinancialliteracyinthecountry.TheSecretariatofFinanceandPublicCreditworkscloselywithsupervisoryagencies,theCentralBankofMexico,theNationalSavingsBankandlegislators,amongotherstokeepfinancialinclusionasapriorityonthepolicyagenda.In2008,theMexicanCongressapprovedareformfortheirbankinglawinordertoenabletheuseof non-financial entities to serve the as banking agents and allow the establishment ofSpecialised Banks. (Niche Banks) in order to increase access to the financial services. TheNationalBankingandSecuritiesCommissionofMexico issuedoperationalrule for theuseofnon-financial entities as banking agents to provide financial services to the underservedregions.Toexpandtheirservicestotheunbankedruralareas,savingsandcreditinstitutionsreceived assistance to become formal regulated institutions and accept deposits. They aresupportedbyNationalSavingsandFinancialServicesBank.Thelaterprovidesback-officeandbanking services to these institutions in close cooperation with the Federal Secretariat ofFinanceandPublicCredit,NationalBankingandSecuritiesCommissionandtheSecretariatofAgriculture,Livestock,andRuralDevelopment.(WorldBank,2014)[35].(Grag.2014).PakistanIn Pakistan, there a board based political commitment to financial inclusion with the StateBank of Pakistan at the forefront. A wide range of policy makers are supporting thecommercialisation of microfinance industry, fascinating competition, innovation anddiversificationofproductservicedeliverychannelsinthecountryThefirstMicrofinanceBankLimitedhaspartneredwithPakistanPosttousetheirinfrastructureforexpandedoutreachon financial services. There are also financing facilities and funds for institutionalstrengthening for microfinance and guidelines for Microfinance Banks and Microfinanceinstitutions. Microfinance share information with their customers through private creditinformationBureauwithnecessaryprivacysafeguards.TheStateBankofPakistanhasreceivedguidelinesforregulationoffinancialservicesthroughagents and mobile phones. The Ministry of Finance has recommended consistent taxtreatment for mobile banking operations to support national outreach to rural and remoteareas.ThePakistanTelecommunicationAuthorityhasalsoregularizedregistrationandannuallicensefeesonsatellitecommunicationsystemandothertechnologiesthatsupportoutreachtoremotelylocatedclients..(WorldBank,2008)[34].KenyaThe financial inclusiongoal inKenya’sVision2030Strategyempowered theCentralBankofKenya to play an active role in expanding access through regulating and supervisingcommercial banks. In 2009 – 2010, the Bank identified two areas which have a dramaticimpact on reducing the costs of delivering financial services through the banking systemTheseincludetheintroductionofagentsforusebythebankstodelivertheirservicesandtherevisionofcurrentregulationsandguidelinesrelatedtobranchoutlets.Presently,Kenyaisrecognizedasapioneerinmobilephonefinancialservicesthroughthe“M-Pesa”mobilepaymentsystemwhichhad17millionsubscribersasatDecember,2011.Itisthemost developed mobile payment system in the world that allows subscribers to deposit,



withdrawandtransfermoneyeasilywithamobiledevice.(Allenetal(2013).[05]andAdudaetal(2012)[01].ThePhilippinesFourmillionunbankedFilipinosareseentobenefitfromthenascentcreditscoringindustry,adevelopmentthatisseentoservethepersonthatisclassifiedatthebottomoftheeconomyaneasyaccess to creditonce the service isavailable to thepublic.MarloR.Cruz,presidentandchiefexecutiveofficerofCIBIInformation,Inc.(CIBI)asoneoftheaccreditedcreditbureausinthePhilippines,highlightedthatthisisexpectedtounlockmucheconomicpotentialinsectorsoftheeconomythatarecrucialforinclusivegrowth.[9]AsperCruz,"Manypeoplestilldonotrealizethatthevalueofhavingacreditopportunityissynonymous togenerating financialpower.Creditworthiness is thesameas toowningakeycardthatcanbeusedinnavigatingtothesocietyofbetterpossibilities."[10]TheBangkoSentralngPilipinas(BSP)reportsonFinancial InclusionInitiativesandFinancialInclusion in the Philippines summarizes the country’s accomplishments and significantmilestonesinfinancialinclusion.Thesereportsshowthat4outof10Filipinossavedmoneyin2015(upfrom2outof10in2009).AmongFilipinoadults,24.5%neversavedandonly31.3%(upfrom26.6%)haveanaccountataformalfinancial institution.Thelackofenoughmoneywascitedasthemainreasonfornothavingabankaccount.[11]Whiletherehasbeensignificantprogress,thereisstillmuchtobedone.Asanemergingcountrywithasizeablenumberofpeoplelivinginpoverty,accesstofinancialservices is an important challenge. Based on a March 18, 2016 report from thePhilippineStatisticsAuthority,thecountry’s2015povertyincidence(theproportionofpeoplebelowthepoverty line versus the total population) is at 26.3% while the subsistence incidence (theproportionofFilipinosinextremeorsubsistencepoverty)isat12.1%.Thismeansthattherearearound26millionFilipinoswhoarestilllivingbelowthepovertyline.TheCentralBankofthePhilippineshasalsobeen involved indialoguewith theRuralBankersAssociationof thePhilippinestoallowthelaunchofaninnovativeapplicationusingmobilemoney.(GlobalDatabase(2015)[19]andWorldBank(2008).[34].

THECHALLENGESOFFINANCIALINCLUSIONSTRATEGYINNIGERIAAs earlier stated, over half of the world’s adult population does not have access to formalfinancial institutions. Improving theglobal average level of Financial Inclusionhas thereforebecomeaglobalchallengeasthisposesathreattoglobaleconomicgrowthanddevelopment.InNigeria’scontext,itisquiteclearthattocoverNigeriawithaverylargepopulationofabout205 million with a sustainable financial services especially banking services is extremely adifficulttask..Bothdemandsidefactors(customers)andsupplysidefactors(banksandotherfinancial institutions) are responsible for financial inclusion. Banks and other financialinstitutions are largely expected to reduce the supply side constraint which includes non-availabilityofbranchesinruralarea;highrulesandregulationsandhighbankcharges.TherearealsolimitednumberandtypesoffinancialserviceproviderscomparedwiththepopulationofNigeria.Thedemandsidechallengesincludebutnotlimitedto:lowliteracylevels,lackofawarenessofabout financial products and services, irregular income of the economically active poor and



disadvantaged, lackof trustandconfidence in formalbanking institutionsetc. The followingaresomeofthekeychallengesthathinderFinancialInclusioninNigeria:

• Low Literacy Levels – Given the fact that more than half of the adult population inNigeria is uneducated, it stands to reason that this group of Nigerians also lackknowledge of the benefits derivable from accessing financial services. Furthermore,staff off in ancial service providers also seems to display a lack of adequateunderstanding of the financial services they offer and are unable to educate theunbanked effectively.We recommend that Government should embark on awarenessinitiativesinlocallanguagestocatertothegapintheadultpopulation.Financialserviceprovidersontheirparthavetoprovideon-goingtrainingtotheirstaff.

• PovertyandUnemployment–IncreasingpovertyandunemploymentareanothermajorimpedimenttoFinancial Inclusioninthecountry.Asthese increase,moreoftheadultworking population is less inclined to utilise financial products and services. TheGovernmentonitsparthastocreateanenablingenvironmentforbusinessestothrivewhichwillineffectleadtomorejobcreationwithintheNigerianeconomy.

• Inadequate/InefficientFinancial Service Infrastructure–Alsoof greateronce rnis thelargelyinefficiente-channelserviceofmostofthedepositmoneybanks.Thevariouse-channels and applications such as ATM, POS and mobile banking platforms that aresupposed to facilitate electronic transactions have remained deficient in most cases.ATM card requests stay untreated for weeks andmonths, whilemost subscribers toInternet and mobile banking platforms complain of poor services. This challengemanifestsitselfgenerallyinformofinadequatefinancialinfrastructureespeciallyintherural areaswhere the bulk of the financially excluded are found and therefore limitsoptions for accessing financial services. Financial service providers must invest ininfrastructure and ensure that regularmaintenance and upgrade is conductedwhilstimprovingcustomrelations.

The above are some of the demand-side challenges to Financial Inclusion in Nigeria. Thesupply-sidechallengesincludelongdistancetofinancialaccesspoints,theprohibitivecostoffinancialservicesandinappropriatefinancialproducts,etc.Regulatorybarriersincludethecumbersome“KnowYourCustomer”(KYC)requirements,lackofadequate laws and regulatory framework that would promote access to financial services.Other challenges include lack of trust in financial services providers and high rates ofcorruptioninthecountry.

RECOMMENDATIONSFORIMPROVINGFINANCIALINCLUSIONINNIGERIASome of thesemeasures are recommended for achievement of greater financial inclusion inNigeriaasstatedbelow:

i.ThegovernmentshouldconsidertyingupwithPrivatebankstodeliverfinancialsolutionstotheun-banked,usingitsextensivepostalnetworkandcorporateagencies.

ii. The rural poor have irregular/volatile income streams and expenditure needs, andtherefore,prefertoborrowfrequently,andrepayinsmallinstalments.ThereisneedfortheGovernmenttoencouragethepoorbyreflectingthisintheregulatoryframeworkofmicrofinancebanksandensures its implementationandstabilityof themicrofinanceinsti----------------------------------tutions.

iii.There is aneed for composite financial servicesandalso creating its awareness to themasses.Whilesmallruralborrowersseeksavingsandlendingservices,theyalsoseekinsurance (life, health, crop insurance, etc). Some big bank branches in rural areaswoulddowelltoexploreopportunitiestooffercompositefinancialservices.



iv.SettingofBiometricATMsinruralareas forcateringto illiteratecustomersandat thesametimeeducatingthemonhowtousethembyreliableandcompetentbankworkersattachedtothoseruralbranchestominimizeexposurestofraudsters.

v. There is a need of building an interactive internet based system bywhich the bankscouldbeabletounderstandthequeriesofpeoplelivinginruralareas.

vi.Alackoflegaldocumentationisanothermajorobstaclethatpoorhouseholdsemployedintheinformalsectorfacewhentryingtoopenanykindofbankaccount,beitsavings,credit, or current account. Simplification of procedures could also go a long way inencouraging thepoor tobankwith the formal sector, by reducing clients' transactioncosts.

vii.Publicsectorbankslikespecialisedinstitutionscurrentlydonothavetheflexibilitytorecruit staff locally, but staffing policies could be revisited. It is worth noting in thiscontextthatthehighrecoveryratesofmicrofinanceareassociatedwithstaffingpoliciesthatallowrecruitingstafffromthelocalareawhounderstandclients'needs,andafocusondoorstepbanking.

viii.Removingusage feeonATMs foruseofotherBankATM.Thisadoublechareon thepartofcustomers.Theregulatoryauthorityshouldseethatbanksdonotimposesuchchargesandshouldpenalizedforsuchactivity.

ix. The Government should provide free public capacity building on the importancefinancialliteracyandcustomerprotectionframeworkfortheruralareadwellerswhichwill eradicate financial literacy and also encourage the poor to save, borrow andreinvestfortheirbenefitandgrowthanddevelopmentoftheeconomy

x.BanksshouldprovidingBasicBankingAccountswithoverdraftfacilityofuptoastatedreasonableamounttoencouragethepoor..

xi.Toensurethatpersonsbelongingtolowincomegroupdonotfacedifficultyinopeningbankaccountduetoproceduralhassles,Banksshouldnotinsistonminimumamounttoopensavingsaccount toenableexcludedopenasavingsaccount. No-specificaccountsavingsbalance requiresnonegligible balance. This leads to lower costs both for thebankandindividual.

xiii.banksshouldprovideallthematerialrelatedtoopeningaccounts,disclosuresetcintheregionallanguage.

CONCLUSION

In light of the above, there is no doubt that inclusive growth dependsmainly on equitabledistribution of growth benefits and opportunities to all that need the benefits. FinancialInclusionisoneofthemostcriticalpartswhichneedtobeequitablydistributedinthecountryin order to attain comprehensive growth and development within the Nigerian economy.FinancialInclusionisintegraltoanynation’seconomicdevelopment,especiallyfordevelopingcountries like Nigeria. Greater Financial Inclusion is achieved when very economic activity,geographicalregionandsegmentsofthesocietyhaveaccesstofinancialinformation,financialassistance,financialservicesandfinancingwitheaseandatminimalcosts.Thishelpspromotebalancedgrowththroughtheprocessof facilitatingsavingsand investmentandthuscausingefficientresourceallocationfromsurplussectorsofthesocietytodeficitsectorsofthesociety.Bythisprocess,financialtransactionsaremadeeasy,incomelevelandgrowthincreaseswithequity,andpovertyiseliminated,whiletheeconomybecomesinsulatedfromexternalshock.Furthermore, thispaper comparedNigerian financial inclusionstrategywithotheremergingeconomies in the upper middle income strata. There is an implicit believe that Nigerianfinancial inclusion indicator is still shallowwhen compared with emerging economies bothwithin and outside Africa. There is need for the government and other stakeholders tounderstandfullythattoachievesustainablehighergrowth,thereshouldbeinclusivefinancial



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Odundo,P.A.,&Oyier,C.R.(2018).PlanningForInstructionalResourcesForScienceBasedSubjectsInSecondarySchoolsInKenya:AddressingFinancingOptions.ArchivesofBusinessResearch,6(9),198-210.

PlanningForInstructionalResourcesForScienceBasedSubjectsInSecondarySchoolsInKenya:AddressingFinancingOptions

PaulAmollohOdundoUniversityofNairobiSchoolofEducation

CharlesRichardOyierUniversityofNairobiSchoolofEducation

ABSTRACT

Instructional resources are educational inputs necessary for raising quality ofeducation across the school system. Planning for instructional resources includesetting aside money through budgetary allocation for procurement of resources. Anassurance for availability and adequacy of instructional resources require definedsources of funds and standardized procedures with appropriate financial base forprudent utilization. Interaction between policy and practice in budgeting processassures efficient utilization of finance for science instructional resources in schools.The study focussed on identification of gaps within national educational policyframework on budgeting process which influence planning for science instructionalresources. Specifically, determining extent to which policy framework supportsbudgetary allocation, financial resources, standardized procedures and financialaccountability in science instructional management. The study adopted frontloadingapproach, a methodological process that translates (inter)national human rightsstandards and obligations into the budget proposals required for effectiveimplementation inpublicpolicy. Thestudyreviewed legal instruments,publications,reports and documentation on instructional management. Findings indicated that,domesticating ICESCR in Constitution of Kenya (2010) scanty policy guidelines onissues of quality instruction; limited specific provision for budgetary allocation forscience instructional resources, asmuchasFDSEprovidenobudgetaryguidelinesonbridging deficits, adherence to legal provision guiding procurement procedures andaccountability.Thestudyrecommendsstreamliningofpoliciestoentrenchframeworksupport for implementationandmonitoringandevaluationofresourceallocation forqualityofinstructionandmanagement.KEYWORDS:Budgeting Process, Utilization of Instructional Resources, Policy Framework,HumanRights

INTRODUCTION

Science is an instrument for development that plays dominant role in spearheadingtechnological advancement, promoting national wealth and accelerating industrialization.AccordingtoMascitti-Miller(2012)scienceeducationisapillarintechnologicaldevelopmentandstimulateseconomicgrowth.Provisionforqualityscienceandmathematicsinstructionisvaluableinspurringnationaldevelopment.Amunga,AmadaloandMusera(2011)assertedthatsciencesandmathematicsequiplearnerswithmanipulativeskillsnecessaryfortechnologicaldevelopment and economic growth. Achieving national economic growth therefore requireappropriate utilization of science instructional methods and resources provided throughbudgetary process at secondary school level. Supporting this position Gichohi (2015) notedthat quality science instructions can only be achieved when resources are made availablethroughadequatebudgetaryallocation. InKenya, thenational educationalpolicy frameworkguides provision of quality instructionalmanagement through a number of legislations and



policypapers.These legislationsandpolicypapersprovisionsarederivedfrominternationallegalinstrumentsthatregardeducationashumanright(Kumbi2015).Asanintegralpartofeconomic,socialandculturalrights(ESCRs),education isperceivedas legitimate in termsofboth individual and collective good, resulting into growth both in national and global arena(Kung,Huang&Cheng(2015).NationalEducationalPolicyFramework(2005)andQualityScienceInstructionsScience education is apillar indevelopment in anynation.Quality science instruction isnotonly a prerequisite in fulfilment of education as human right but basic requirement intechnologicalandeconomicadvancementinanycountry(Mbugua&Rarieya,2014).Provisionofqualityinstructionsandespeciallyforscienceeducationismorevaluableasfarasnationaldevelopment is concerned. Realization of quality instruction is dependent on educationalpolicy framework particularly on national budgetary allocation for improved learningachievement in science based subjects (Nolan, 2013). Kenya national educational policyframework(2005) should influence science instruction through budgetary allocation tosecondaryschools.Agreeingwiththeposition,Mascitti-Miller(2012)underscoredthatpolicydrivenbudgetingprocess inpromotingquality science instructions is essential for achievingindustrialized status. National Education policy framework would therefore influenceadequacy,availabilityandutilizationofinstructionalresourcesthroughabudgetingprocessinsecondary schools. In Kenya, the government through FSE policy provides finances for thepurchaseofinstructionalresourcesinpublicsecondaryschoolsbasedonenrolment.However,fundingtoensureadequateinstructionalresourcesforsciencesubjectcouldonlybeachievedfromthebasisoflegalinstrumentswithineducationalpolicyframeworkinformingbudgetingprocess in secondary schools. This study looked at the gaps in national educational policyframeworkon schoolbudgetmanagement strategyand influenceofbudgetaryallocation forscienceinstructionalresourcesinsecondaryschoolsinKenya.SchoolBudgetManagementPolicyandQualityScienceInstructionsQualityscienceinstructionsinsecondaryschoolsrequireaninstitutionalbudgetmanagementpolicytoinfluencebudgetaryallocationteachingandlearningresourcesforchemistry,biologyand physics. Supporting this position Wagithunu, Muthee and Thinguri (2014) noted thatschool budgeting policy provides a system for budgetary allocations, budget control andaccountabilitymeasures to ensure appropriate utilization of science instructional resources.Further, Gichohi (2015) noted that school budget management policy enables educationalinstitutionstoorganizeandmanagefundsforeffectivescienceinstructions.Inpracticeschoolbudgetmanagement policy should provide a leadership framework for ensuring availabilityand adequacy of instructional resources which would enable learners understand scienceconcepts. Echoing these sentiments, Kung et al (2015) asserted that school budgetmanagementpolicyshouldbedesignedwithregardtoenrollment,infrastructureandstaffingpurposely for realization of institutional science instructional goal. To achieve scienceinstructional goals in secondary schools through adequate budgetary allocations gaps innationaleducationalpolicyframeworkneedstobeidentifiedandaddressed.Thisstudysoughtto identify Kenya educational policy framework with focus on how it influence scienceinstructionalmanagementthroughbudgetaryallocationatsecondaryschoolslevel.StatementoftheProblemEducational policy framework from national level should influence science instructionalmanagementinsecondaryschoolsinanycountry.Qualityscienceinstructionisdependentonadequatebudgetaryallocationforteachingandlearningresourcesforbiology,chemistryandphysics in secondary schools. Budgetary allocations and utilization of science instructionalresources at secondary schools are determined by tenets of national educational policy



frameworkwhicharehingedoninternationalinstrumentsoneducationasahumanright.ThismadeitnecessarytotracegapsonKenyanationaleducationalpolicyframeworkwithfocusonhowitwouldinfluencebudgetaryallocationandutilizationofscienceinstructionalresourcesinsecondaryschools.Fromnationalplatformtosecondaryschoolsfinancialpolicyframeworkprovisions for quality science instructions through budgeting process need to ensureadequacy, availability and utilization of instructional resources. In this study focus onidentifying gaps on Kenya national educational policy framework influencing budgetaryallocationandutilizationofscienceinstructionalresourcesinsecondaryschools.

THEORETICALFRAMEWORKThis study adopted amethodological process used to offer budget recommendations on thebasisof(inter)nationalhumanrightsstandardsknownasfrontloading.Nolan(2013)definedfrontloading as a methodological process that translates (inter)national human rightsstandardsandobligationsintothebudgetproposalsrequiredforeffective implementationinpublic policy and budget cycles. Allocation of funds for tuition as part of FSE policy hasimplications for the fulfillment of quality education as human rights depending on howsufficient the levelof financingwouldbetoraise levelofadequate instructionalresource forlearningatschool.AsnotedbyChetambveandSakwa(2013)allocationfortuitionthroughFSEpolicy is inadequate in ensuring availability for instructional resource. This position issupportedbyUNESCO(2015)assertionthatoftengovernmentsadoptedlawsandpoliciesthatare not implemented due to insufficient funding. Frontloading allows application all rights-based budgeting analysis frameworks on macro-level quantities to micro-level qualitiesfocusingon circumstancesofparticular right, in case realizationofquality instructions fromfundsallocatedtotuitionthroughFSEpolicy.Toadequatelyallocateresourcesforinstructionalmanagement, level of resources a government allocates to tuition in secondary schoolsdeterminesqualityofEducation.



CONCEPTUALFRAMEWORK

Figure1:PolicyFrameworkforRealizationofQualityInstructionasanEducationalRight

METHODOLOGYThis study merged theory with practice by relying on related literature review of statutes,policypapers,treatiesandreportsoneducationasahumanrights issue. Adeskreviewwasconductedtoestablishthemostrecentdevelopmentsandtrendsintheeducationsectorpolicy,which involved a comprehensive study of legal instruments, publications, reports anddocumentation on instructional management. The study was contemporary and assessedongoingreformsintheeducationsectorinKenyawithaviewtoinformingtheoryandpracticeon budgeting process for planning and utilization of science instructional resources insecondaryschools

FINDINGSANDDISCUSSIONNationaleducationalpolicyframework(2005)iscombinationoflegalinstrumentsdevelopedfor the purpose of domestication, realization and fulfilment of education as human right. Inrealization and fulfilling right to education, national educational policy framework needs toappreciate role science subjects in technological advancement, nationalwealth creation andspearheading industrialization. This study was focussed on identification of gaps in policyframework on issues of quality science instruction; budgetary allocation for scienceinstructional resources, procurement procedures for science instructional resources andaccountabilityinscienceinstructionalmanagementinsecondaryschools.InternationalCovenantonEconomic,SocialandCulturalRights(ICESCRs)of1966The Universal Declaration of Human Rights (UDHR) of 1948 in Article 2, InternationalCovenantonEconomic,SocialandCulturalRights(ICESCRs)of1966inArticle13statedthateveryonehastherighttoeducation(Nolan2013).EducationasahumanrightwasreaffirmedattheWorldDeclarationonEducationforall(WDE)Jomtien,Thailandin1990(Wadesango,.2012).AsawayoffulfillmentofUDHR(1948),ICESCRs(1966)andWDE(1990),in2000aninternationalconferenceoneducationheldinDakar,SenegalcameupwiththeinitiativecalledEducationforAll(EFA),toencouragecountriestoworktowardsmakingeducationaccessibleto all by 2015 (Hussein, 2015) with no emphasis on quality instructions. UDHR (1948)highlights theright toeducation; includingthoserelatingtospecificgroupssuchaschildren,



racialminorities, andwomen, but ICESCRprovides themost comprehensive provisions. Forinstance Article 13(1) of ICESCR state in part that education shall be directed to the fulldevelopmentofpersonstostrengthentherespectforhumanrights;Article13(2b)emphasizesthatsecondaryeducationshallbemadegenerallyavailableandaccessibletoallbyappropriatemeansand inparticularprogressivelymade free. Inaddition toarticle13which is themainprovision,whileotherarticlestargetingeducation includeArticle6(2)whichobligatesstatespartytocreateandimplementtrainingprogramstofullyrealizetherighttoworkandArticle10(1) that calls forprotectionandassistanceof families in their responsibility in educatingchildren. Reaffirmation of right to education as noted by Wadesango (2012), was madethroughWDEinJomtienin1990bystressing tappingeachindividual'stalentsandpotentialwhiledevelopinglearners'personalities,toimprovelivesandtransformsocieties.TheJomtien1990 conference was concerned with quantity without stressing quality through makinginstructional resource not only available but also adequate in schools (Hussein, 2015).Highlighting the need for quality instruction through budgetary provision for teaching andlearning resources for science based subject would lead into technological advancement,nationalwealthcreationandspearheadingindustrialization.FreeDaySecondaryEducationPolicy(2007)In 1972 Kenya signed ICESCR as a declaration of education as a human right whichwouldrequirebetter focuson sciencesasmeans towards industrializationandwealth creation. In2003,KenyalaunchedFPE,whileFDSEwasinitiatedin2007asresultsforpoliticalcampaignsafterelections.Thismeantlaunchingbeforepolicypapersweredevelopedtoaddressissuesofquality instruction insciencesandwerepurely intendedforrealizationofWorldDeclarationon Education of 1990 ( Chaudhury et al 2006). Later, a budgeting framework for guidingplanningforeducationalgoalswasprovidedforinFDSEpolicy.AccordingtoFDSEpolicy,thegovernmentmeetsfeesofKshs.10,265perstudentinsecondaryschoolbrokendownasshowninTable2

Table1:BreakdownofAllocationofFSEinVoteHeadsperStudentS/No. VoteHead Amount(Ksh)1 Tuition 3,6002 Repairs,MaintenanceandImprovement 4003 LocalTravelandTransport 4004 AdministrativeCosts 5005 Electricity,WaterandConservancy 5006 Activity 6007 PersonalEmolument 3,9658 Medical 300Total 10,265

Source:MOEST,Nairobi(2016)

Table1indicatesthattuitionisallocatedKshs:3600,whichisexpectedtofinanceinstructionalresources.While theprovisionofFDSEwascommendable, there isnoempiricalevidenceonhow science instructional management was to be developed. At secondary school level,adequacy and availability of science instructional resources is determined by a financialmanagement framework guiding the budgeting process. Therefore secondary schools areexpected tohave financialmanagement framework toguidebudgetingprocessby lookingathoweffectivelyscienceinstructionalresourcescouldbeavailedforbetterlearningoutcomes.Learners’ achievement in science subjects should be a product of effective utilization ofinstructionalresourcesprovidedforinFDSEpolicyasbudgetaryprovisionfortuition(Oyier,



Odundo, Ngauriaya & Mwangi, 2017). However, there is no policy directive on compellingsecondary schools to allocate a given portion on science instructional resources. This is intandemwithfindingsfromstudyoneffectivemanagementofschoolsinGhanabyDrah(2011)whonotedgovernment’sfailuretoputinplaceapolicyframeworkonminimumstandardsinrelation to provision of science instructional resources. Wagithunu, Muthee and Thinguri(2014), lookedatextent towhichFDSEpolicyhascontributed toavailabilityof instructionalresourcesinsecondaryschoolsandsuggestedtheneedofaclearguidelineonspendingKES:3600 meant for tuition per learner. The contribution of FDSE on availability of scienceinstructional requires school level financial management to guide budgetary allocation foreffective learning outcome. A school budgeting policy would therefore guide planning,monitoringandcontrollingtheutilizationofinstructionalresourcestowardsdesirablelearningachievementsinsciencesubjects.SessionalPaperNo.1of2005onEducation,TrainingandResearchSessionalPaperNo.1of2005oneducation,trainingandresearchwasdevelopedandadoptedto bring reforms through a Sector Wide Approach to Planning (SWAP) for the purpose ofimproving quality of instructions in science secondary schools. The sessional paperemphasized access, equity, quality, relevance and the strengthening of governance with noprovision on how to make instructional resources adequate and available, (Kaguri, Njati &Thiaine, 2014). For effective learning in sciences Gichohi (2015) as well as Nolan (2013)suggested that schools need a framework for budgeting to oversee, direct, conduct, regulateandcontrol instructionalmanagement. Sucha frameworkasnotedbyKipkoechandChesire(2011)shouldbe intendedtoprovide leadershipwithbasis forensuringadequateallocationutilization of instructional resources to help students understand the concepts in sciencesubjects. Further, through Sessional PaperNo. 1 (2005), KenyaGovernment had anticipatedthatinthelongrun,secondaryeducationwouldbeintegratedaspartofbasiceducation.ThishasalreadybeenachievedthroughBasicEducationActof2015;howeverthereisnoprovisionguiding budgetary allocation and utilization of science instructional resources in secondaryschools. As suggested by Oyier and Odundo (2017) money needs to be set aside throughbudgetingprocessforscienceinstructionalresourcesandrequirespolicyguidance.AsmuchasSessional Paper No. 1 of 2005 was intended to reform education through instructionalmanagementplanning forquality instructiondemands thatmoneybesetaside teachingandlearningresourcesinsecondaryschools.ConstitutionofKenya(2010)andQualityScienceInstructionDomesticationof ICESCR came inConstitutionofKenya (2010), by recognizingeducation ashumanrightArticle43.Secondly,articles43.1f,53.1band55amakeseducationarightofeverycitizen and like FPE and FDSE which came into force earlier, issues of quality scienceinstructionswasnotaddressed.Further,inSchedule4itisstipulatedthatamongtherolesofnational government are education policy and standards. Instructional management insecondary schools falls within these functions and is expected to be addressed throughparliamentary legislationsandministerialpolicypapers.Given thatVision2030underscoresthe importance of science subjects in ensuring relevant human and social capital forsustainable development, Constitution of Kenya (2010) provides a basis for adequatebudgetaryallocationforinstructionalresourcesthroughlegislation.Thisisfurtherhighlightedin article 11(2) (b) and (c)which recognises the role of science in the development of thenationontopofguaranteeingeverychildtofreeandcompulsorybasiceducation.However,toachieve transformational knowledge based economy as suggested in Vision 2030 adequatebudgetary allocation and utilization of science instructional resources requires a legislativepolicyframework(Oyieretal,2017)



On financial management to ensure adequate budgetary allocation for science instructionalresourcesisrealizedandmanagedforeffectivelearning,article10(2)oftheConstitutionsetsout the national values and principles of governance. These include inter alia inclusiveness,good governance, integrity, transparency and accountability. Together with provisions ofchapter13,theconstitutionlaysabasisforsecondaryschoolsboardsofmanagements(BOMs)withvaluesandprincipleskeyinmanagingschoolsresourcesforeffectivescienceinstructionalmanagement. Such values according to Odundo and Oyier (2017), define school financialmanagement leadership which directly influence budgetary allocations for scienceinstructional resources. Further in Articles 20, 35, 42, 43 and 53 have an emphasis oneducation as a human right and Nolan (2013) asserted that countries to be guided by theprinciplethatitisownresponsibilitytohaveresourcestoimplementeducationalprogrammes.The constitution may not be explicit on resources for science instructional management insecondary,butaccompanyinglegislationneedtoprovidedirectiononsourcesoffunds.ValuesandprinciplesinArticle232oftheconstitutionaccordingtoOdundoandOyier(2017),definehowsecondaryschoolfinancialmanagementleadershipwouldefficientlyandeffectivelymanage available resources. Prudent financial leadership in secondary schools provides themost economical way to ensures quality science instructions through adequate budgetaryallocationandutilization.Specifically,Article232(1a),talksofhighstandardsofprofessionalethics which would require secondary schools leadership to work with science teachers indetermination andmanagement of budgetary allocations for science instructional resources.OperationalizingArticle232(1a)throughparliamentarylegislationwouldimproveutilizationofinstructionalresourcesthroughsourcingorprocurementinmostaccountablewaypossible.This is further emphasized in Articles 201(a), (d), and (e); 226 and 227 on public financerelating to transparency, accountability, and appropriate governance of public monies. AsnotedbyJoubertandBray(2007)inanarticleonpublicschoolsadministrationitisprudenttobeaccountableforeffectiveinstructionalmanagement.Specificguidelineonscienceteachers’involvement in budgetary allocations andmanagement of resources for effective learning insciencescouldbetracedfromArticle237ontheTeachersServiceCommissionAct2012.Effective science instructional management requires secondary school principals to solicitsupport for respective subject teachers in school budgeting process to ensure adequatebudgetaryallocationforteachingandlearningresources.Thisrequiresfurtherlegislationstooperationalize Chapter 13 of the constitution to address involvement of science teachers inbudgetingforinstructionresources.AsnotedbyAnderson(2008)budgetingforinstructionalresources is part of school financial management provides the most visible ways throughwhichscienceteacherscanparticipateindecisionmakinginsecondaryschools,hencetheneedforpolicy guideline.Thiswill ensure adequatebudgetary allocation for science instructionalresources to make resources available for effective utilization as a determinant of goodlearningoutcomeandoverallperformanceoftheschoolKenyaVision2030TheKenyaVision2030isthenationallong-termdevelopmentpolicyaimingattransformationintoanewindustrializedandmiddle-incomecountryby2030.TheVisionrecognisestheroleofscience,technologyandinnovation(ST&I)inamoderneconomy,whichcanonlyberealizedthrougheffective learningatall levelsofeducation.Science instruction isexpected tobe theprinciple catalyst towards realization of Vision 2030. Quality science instructionalmanagementresultsintoaneducatedandskilledpopulationthatwouldcreate,shareanduseknowledgetowardsindustrializationinKenya.AsmuchasVision2030recognizesthatintheprocessoftheemergenceoftheknowledgeeconomyisassociatedwithanincreaseinscience-



related and technology-based activities, it does not specifically underscore instructionalmanagement. To adequately improve on the national pool of scientific skills and talentadequate budgetary planning, allocation, monitoring and control for science instructionalresources is essential. So long as policy framework on education address budgetaryimplications for science instructional management Vision 2030 envisaged curriculum thatwouldleadtonationalpoolofscientificknowledge,skillsandcompetenciestomeetthehumancapital needs of the country. The goal is to develop a repertoire of skills and competenciesnecessary toachieve theobjectivesandgoalsembodied in theConstitution,2010andKenyaVision 2030. Under the policy and the subsequent legislative framework, the GovernmentshouldprovidefreeandcompulsorybasiceducationthatisqualitativeandrelevanttoKenya’sdevelopmentgoalsthroughqualityinstructionalmanagement.Particularly,thiswouldbevitalinclarifyingonbudgetaryallocationforscienceinstructionalresourcestoenhanceutilizationwith focus on national development agenda through quality education across the schoolsystem.SessionalPaperNo14of2012Article11(2)(b)and(c)oftheConstitutionofKenya(2010)recognisestheroleofscienceinthedevelopmentof thenationon topofguaranteeingeverychild freeandcompulsorybasiceducation.Thisisguidedbytheprincipleofuniversalaccesstoeducationforeverychildunder18, as enshrined inArticle 53 of the Constitution. Every child is entitled to free and qualityeducation,regardlessofsocialcondition,gender,regionalbackground,anddisabilities.Thisisoperationalized in Sessional Paper No14 of 2012 as a policy framework for education andtraining.SessionalPaperNo14of2012containseducationalreformsanchoredinBillofRightsoftheConstitutionofKenya(2010)whichhasnospecificprovisionforqualityinstructionsinsciencesubjects.Learners’achievementinsciencesubjectsareproductsofeffectiveutilizationof instructional resources provided for in FDSE policy as budgetary provision for tuition.Therefore realization of Sessional Paper No14 of 2012 aspirations could partly be achievedthrough school level financial management policy which would ensure adequate budgetaryallocationforscienceinstructionalresources.Thiswouldfurtherenhanceutilizationofscienceinstructional resources for knowledge acquisition and skills necessary for nationaldevelopmentandeconomictakeofftowardmiddlelevelincomecountry.BasicEducationActof2015The constitution may not be explicit on resources for science instructional management insecondary,butaccompanying legislationneed toprovidedirectionon sourcesof funds.Asarequirementsof theconstitution,BasicEducationActof2015repealedEducationAct211of1968(revised1980)tomoderniseKenyaneducationalmanagement.InArticle86(2),theActhighlights the need for adequate funding of secondary education without elaborating onbudgetaryallocationforscienceinstructionalresources.Thisfailedtoaddressqualityscienceinstruction which is lacking in Science and Technology Act of 2009. Secondly, as much asemphasisisontrainingshiftsfromknowledge-reproductiontoknowledge-productionitdoesnotprovideaclearpolicyguidelinetowardsqualityscienceinstructions.Thirdly,ithighlightsonreformingmanagementofeducationandmakeitfunctionallyrelevanttotheprovisionsofthe constitution without emphasis budgeting process towards realization of better learningoutcome.However, ithasemphasisonefficiencyindeliveryofeducationthroughcreationofstructurestoensurepublicparticipationinthemanagement.Thisiskeyscienceinstructionalmanagement and according to Odundo and Oyier (2017) recognition the role of scienceteachers in budgetingprocess go a longway in effectiveutilizationof teaching and learningresources.Further,itechoesMbuguaandRarieya(2014)assertionthatparticipationofscienceteachers inbudgetingprocesswouldbe vital in overseeing, directing, conducting, regulatingand controlling in science instructional management. Further, a policy on science teacher



involvement in budgeting for instructional resources would enhance knowledge acquisitionandgainingofskillfornationaleconomicdevelopment.ChildrenActof2011Education in the Children Act of 2011 means the giving of intellectual, moral, spiritualinstructionorothertrainingtoachild.ChildrenActsof2011operationalizedArticles53oftheConstitutionprovisionson children’s right to free, compulsory andqualitybasic education, .Thisprovisionhowever,hasnodirectinfluenceonscienceeducationandbudgetaryallocationfor relevant instructional resources. Right to education as provided for in Article 7 whichemphasizes responsibility government andparents in funding education, butwithout clarityfor budgeting for instructional resources. This is in agreement with Chetambve and Sakwa(2013) assertion that as much as instructional management in public secondary schools ismainly financed by the government there is need for a policy guidance on budgetaryallocations for science teaching and learning resources. According Kaguri, Njati and Thiaine(2014), the government through FDSE policy meets fees of Kshs. 10,265 per student insecondary school out of which Kshs: 3600 is for tuition and should cater for scienceinstructional resources. Schools can also finance budgetary allocations for instructionalresourcesfromfeespaidbyparents,fundsfromincomegeneratingprojects,contributionsordonationsbyprivatesourcesandspecialgrantsfromgovernment(Kumbi,2015).Inensuringadequate budgetary allocation for science instructional resources, schools will be fulfillingprovisionsofArticle7(2)ChildrenAct2011andArticle28oftheUnitedNationsConventionontheRightsoftheChild.However,thereisaneedtoemphasizethroughapolicyorlegislativeprocess the need for adequate budgetary allocations for science instructional resources toenhanceutilizationforchildrenindividualdevelopment.TeachersServiceCommission(TSC)Act2012Article 237 of the constitution accords special status to the Teachers Service Commission(TSC), whose main role is teacher management. The TSC Act of 2012 converted the TSC,previously a semi- autonomous agency into a constitutional commission. TSC as aconstitutional office provide a basis for secondary school principals and science teachers ininstructional management. This puts secondary school leadership to play a key role in thedeliveryofqualityscienceinstructionthroughadequatebudgetaryallocationforteachingandlearning resources. In practice secondary principals have the responsibility of ensuring thatthereisadequatebudgetaryallocationtosupporteffectivelearninginsciencesubjectsthroughappropriateutilizationofinstructionalresources.Toensurethistakesplacesecondaryschoolsneed strategic plans plus financialmanagement policy to guide budgeting and utilization ofscience instructional resources (Oyier & Odundo, 2017). Although the importance of theinstructionalleadershipisaresponsibilityoftheprincipal,budgetingforscienceteachingandlearning resources should be a collaborative effort. In reality, good instructional leadershipskills are seldom practiced as noted by Mbugua and Rarieya (2014) secondary schoolprincipalsneedtobeguidedonacollaborativeapproachinbudgetingforscienceteachingandlearningresourcestoensureappropriateutilization.Achievingthisrequiressecondaryschoolsleadershipstodevelopafinancialmanagementpolicytoguidebudgetaryallocationforscienceinstructionalresources(Oyieretal2017).This isgapthatneedstobeaddressed inordertoensurethatallocationforinstructionalresourcesisadequateforqualityscienceinstructionstotakeplaceinsecondaryschools.PublicFinanceManagementAct2012;Articles201(a),(d),and(e),226,and227oftheconstitutionhaveprovisionsonPublicFinancerelatingtotransparency,accountability,andappropriategovernanceofpublicmonies.Public



Finance Management Act 2012 (PEMA) operationalizes the requirements of article 201 ofConstitutionofKenya(2010)andEducationAct2012 inensuring thatbudgetaryallocationsforscienceinstructionalresourcesareprudentlymanaged.Itisintendedtodirectlyinfluencebudgetingprocess insecondaryschoolsandensuringthat instructionalresourcesforscienceare adequatelymade available for quality instructions. Inpractice secondary schools need afinancial management policy hinged on PEMA 2012 to guide budgeting for scienceinstructional resources in a transparent and accountable manner (Oyier & Odundo, 2017).Adoption of provisions of PEMA 2012 into secondary school financialmanagement systemsshould enhance overseeing, directing, conducting, regulating and controlling in scienceinstructionalmanagement.ThiswillbeintandemwithMbuguaandRarieya(2014)assertionthat involvement of science teachers in budgeting process for sourcing of instructionalresourceswouldgoalong inensuringeffecting learning inbiology, chemistryandphysics inKenyansecondaryschools.AsPEMA2012operationalizesprovisionsinArticles201(a,d&e),226, and 227 of the Constitution it provides secondary schoolsmanagement with basis foreffective science instructional management through budgeting process. This is possiblebecause Article 207 of PFMA provides for participatory governance through structuralmechanisms,processesandprocedures.ItwouldbenecessarythereforetohaveschoolspecificfinancialmanagementpolicyincorporatingtenetsofPEMA2012toenhanceaccountabilityinbudgetaryallocationandutilizationofscienceinstructionalresources.Science,TechnologyandInnovation(ST&I)Policyof2012ThemandateoftheeducationsectoristorespondtotheConstitution(2010)andKenyaVision2030 inmakingKenya economic inclusive, relevant and competitive internationally. Scienceeducation in particular is an instrument for development. As noted by Oyier and Odundo(2017) scienceeducationbringsglobal relevanceand competitiveness through technologicaladvancement and accelerating industrialization. Further, Amunga, Amadalo and Musera(2011)inanarticleonimplicationsofVision2030onlearningachievementsunderscoredtheroleofscienceinstructioninenhancingnationaldevelopmentthroughinnovativetechnology.ThiscouldbeachievedthroughproperimplementationofScience,TechnologyandInnovation(ST&I) policy 2012 as a path towards industrialization. ST&I policy aims at creatingendogenous capacities appropriate to national needs, priorities and resources which arenecessary towards realizationofKenyaVision2030.Transforming thecountry intoanewlyindustrialized and middle-income nation requires a comprehensive policy framework topromote science education through quality instructions. However, as much as ST&I policyfocusesoncreatingascience,technologyandinnovationcultureitlacksemphasisontheneedforadequatebudgetaryallocationforinstructionalresourcestomakethisareality.PublicProcurementandDisposalAct2015Procurement of instructional resources in secondary schools in Kenya starts with settingtendering committees as required by Public Procurement and Asset Disposal Act 2015(PPADA). The main provision of PPADA is decentralization which grants teachers andsubordinatestaffthepowertocontrolprocurementprocessthroughtenderingcommitteesinsecondary schools. Expanding membership of tender committees to include BOM and PTAmembers remains critical for checksandbalanceswith such committees.Basedon this, it iscriticalthatprocurementregulationsbereviewedtoallowtheinclusionofBOM,PTA,opinionleaders, teachers andministry representatives in school tender committees. This is likely toprovide a strong mechanism for checks and balances needed by the committees to ensurebudgetary allocations for every vote head are effectively utilized. Wagithunu et al (2014)acknowledgedexistenceofguidelinesonthevoteheadsandallocationoffundsthatschoolsinKenyause inmanaging schools financesbasedon studentnumbers.AsnotedbyChetambveandSakwa(2013)inKenyathroughFSEpolicythegovernmentmeetsfeesofKshs.10,265per



studentinsecondaryschoolofwhichKshs:3600istuitioncoveringpurchaseofinstructionalresources like textbooks according to enrolment. At secondary school level, existence of abudgeting policy beyond the guidelines from MOEST would effectively guide utilization ofbudgetaryallocationforinstructionalresourcesforsciencesubjectsfromKshs:3600allocatedfortuition.

CONCLUSIONSANDPOLICYRECOMMENDATIONSKenya government recognizes the key role played by science in wealth creation, buildinghumancapitaland innovations required for the transition toknowledgedriveneconomy.AsproposedbyVision2030qualityinstructionsinsciencesubjectswouldraiseproductivityandefficiency levels across economic, social andpoliticalpillars innationaldevelopment. Layingdownappropriateimplementationframeworkforkeypoliciesandlegislationsshouldfocusonidentification, acquisition, transfer,diffusionandapplicationof relevant scientificknowledgeinallsectorsoftheeconomy.Toachievethisthereisaneedforspecificprovisioninmakingsure secondary schools have adequate instructional resources for learning sciences. Suchprovision would lead into realization and fulfillment of education as a human right asenvisioned in the article 43 of the Constitution ofKenya (2010). The right to education is amultiplieror empowerment right aswell as anessentialmeans topromoteother rights. AtnationallevelfocusshouldbeonArticle13ofICESCRwhichstateinpartthateducationshallbedirectedtothefulldevelopmentofhumanpersonalitytostrengthentherespectforhumanrights.Secondaryschooleducationshouldnotonlybemadeavailableandaccessiblethroughappropriate policy framework, but the emphasis should be on quality science instructionsthrough adequate budgetary allocations. As noted in Article 13(2b) of ICESCR this can beachievedprogressivelytomakeKenyamovetowardsknowledgeeconomy.Despite having domesticated ICESCR in Constitution of Kenya (2010) there are no policypapersonissuesofqualityscienceinstruction.ThisevidentinSessionalPaperNo14of2012asapolicyframeworkforeducationandtrainingcontainingreformsanchoredinBillofRightsoftheConstitutionofKenya(2010)hasnospecificprovision forquality instructions insciencesubjectsthroughavailabilityandadequacyofinstructionalresources.Article11(2)(b)and(c)oftheConstitutionofKenya(2010)recognisestheroleofscienceandindigenoustechnologiesin economic development and the promotion of intellectual property rights of the people ofKenya, but this is not achievable without adequate budgetary allocation and appropriateutilization of instructional resources. Lack of emphasis on quality instruction in sciencesubjectisevidentinBasicEducationActof2013;MOEST’spolicyonScience,TechnologyandInnovation; and Science and Technology Act of 2009. For school to adequately provide forscience instructions a strategic plans plus financialmanagement policy are needed to guidebudgetingandutilizationofinstructionalresources.Articles201(a),(d),and(e),226,and227of theconstitutionhaveprovisionsonpublic financerelatingtotransparency,accountability,andappropriategovernanceofpublicmonies.Thiswould require structured involvementofstakeholdersbudgetingprocessforsourcingofinstructionalresourcesinsecondaryschoolsaswayofimplementingprovisionsofPublicFinanceManagementActof2012.The study recommends that policy gaps in laws that make it difficult to operationaliseprovisionoftheconstitutiononeducationashumanrightandpublicfinancemanagementtoensure that there is availability and adequate instructional resources needs to be in place.Secondly, it is important to have policy on strengthen the capacities of principals at KenyaEducation Management Institute (KEMI) on formulation of school financial managementstrategy. This will make secondary school principals appointed on the basis of teachingexperience,academicandprofessionalqualificationstohavefinancialmanagementcapacities.



Thirdly,schoolsshouldfindmeansbringingallpossibleinputfromstaff,parents,studentsandthe community together to ensure adequate provision and utilization of instructionalresourcesinscience.Onfurtherresearch,thestudyrecommendsworkoftheeffectsonschoolfinancialpolicyonavailabilityandadequacyofinstructionalresources.ReferencesAmungaJ.K.,AmadaloM.M;MuseraG,(2011).DisparitiesinChemistryandBiologyAchievementinSecondaryschools:ImplicationsforVision2030,InternationalJournalofHumanitiesandSocialScience,1(18),226-236,ISSN2220-8488(print),ISSN2221-0989(0nline

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KanKam-Kwarteng,C.,Gatsi,J.G.,Acheampong,S.,&Donkor,J.(2018).TechnicalandOperationalInnovationsapproachestofirmperformanceofSMEsautoservicesector.ArchivesofBusinessResearch,6(9),211-221.

TechnicalandOperationalInnovationsapproachestofirmperformanceofSMEsautoservicesector

CollinsKanKam-Kwarteng

KumasiTechnicalUniversity.Ghana

JohnGartchieGatsiSchoolofBusiness

UniversityofCapeCoast,Ghana

StephenAcheampongSchoolofBusiness,

GhanaBaptistUniversityCollege.Ghana

JacobDonkorSchoolofBusiness,

GhanaBaptistUniversityCollege.Ghana

INTRODUCTIONPrevious studies on Small and Micro Enterprises (SMEs) services performance suggest anumberofpredictors.ManagementresearchershaveovertheyearsinvestigatedandcompiledthecriticalfactorsthatcontributetotheoutcomeofthefirmperformanceSMEsservicesectorwithinnovationcapabilitiesasthepredictors(see;Sarooghietal.,2015;Atuahene-Gima,2005)However, much research has not been conducted into the automobile services industry inGhana (Kankam-Kwarteng & Amoateng, 2016). The dimensionalities in measuring theperformance of SMEs service firms have included both internal capabilities and externalcapabilitiescomponentsofbusinessoperations(Singhetal.,2008).Significant,totheinternalcapabilities of the firm, include building continuous capabilities in innovations. Kankam-Kwartengetal.(2018)foundthatfirmperformancemeasurementintheSMEsautoserviceinGhana can be attributed to service innovations. Walker (2004) suggests that types ofinnovationarecriticalininfluencingeachotherandtheyshouldbeinstitutedinconjunctiontorealise their full potential. On technical innovation, Staropoli (1998) found that it can beimproved by accommodating institutional rearrangement and coordinating frameworks.VarioustypesofinnovationsthathavebeenpositedbyWalker(2004)arecloselyrelatedandthat the more research is required to provide further clarify their contribution towardsbuilding a comprehensive framework for measuring the effects of innovations on theperformance of enterprises. The significant link between the performance of firms andinnovationshasbeendemonstratedinpreviousempiricalresearch(see;Koc&Ceylan,2007;Li&Atuahene-Gima,2001).The theoretical literaturerelating toTheRelationshipbetween theinnovationstypeshavebeenlimited(Gundayetal.,2011).Allthetypesofinnovationactivitiesare expected to lead to superior firm performance compared to enterprises that are notinnovationoriented.InmeasuringfirmperformanceoutcomesofSMEsservicesector,differentconceptshavebeenused(Rosenbuschetal.,2011).Inmost cases, thepredictorshavebeenbasedon internal capabilities suchas innovation. InthisstudyoftheSMEsautoserviceindustry,innovationsofthefirmshavebeenconceptualised



into technical and operational innovations and how they influence firm performance. ThisdimensionisbasedonthenatureofoperationsoftheSMEsautoserviceindustry.

LITERATUREREVIEWAvailable literature on firm innovativeness maintains that innovation is one of the coreelementsforthesuccessoffirmsandtheirsurvival(Jimenez&Sanz-Valle,2011;Cho&Pucik,2005;Bell,2005;Damanpour,1996;Fiol,1996;Wolfe,1994)andsustainablecompetitiveness(Standing & Kiniti, 2011; Bartel & Garud, 2009; Johannessen, 2008; Mumford & Licuanan,2004). Even with the dimensionalities of the concepts of innovations in extant literature,managementresearcherscontinuetostruggleforaconsensusstandardoftheexactmeaningoftheconcept (Amara&Landry,2005).Therrienetal. (2011)posited that innovation involvesinnovativenesscapabilitiestransformcomplexprocessesthatrelatetochangesinprocessandproduction functions in which enterprises seek to formulate and implement their uniquecompetenciesintechnology,consideredasasetofresourcesanenterprisepossessesandthemannerinthese.Innovationatthefirms’levelreferstoanenterprise’receptivityandpropensitytoadoptnewideas that lead to the development and launch of a new service (Rubera and Kirca, 2012).According to Brouwer (2000) innovations can be categorised into two primary forms, aprocess and product innovations. Innovation researchers have suggested business modelinnovations, managerial innovations, organisational innovations and marketing innovations(see; Subramaniam & Youndt, 2005; McGrath, 2001; Huiban & Bouhsina, 1998). Firminnovativenessisalsocharacterisedbyincrementalandradical,basedonitsdegree(Kobergetal.,2003).Somemanagementresearchersalsocategorised innovationscoveringproductandprocesses types from non-technological innovation capturing organisational and marketinginnovations.The current research is based on the categorisation of two types of innovationsconceptualisationfromtheexistingmodelsof innovationsfoundintheextantliterature(see;Damanpour et al., 2009; Popadiuk, & Choo, 2006) as technical innovation and operationalinnovation. Technical innovation introduces a new service or significantly transformedservices based on its characteristics and intended uses (Rice, 2013; Tether, 2005). Theyincluded significant transformations in technical components and materials, specifications,user-friendliness, incorporated software and other functional attributes (Sanz-Valle et al.,2011). The operational innovation of firms has to do with introducing customer specificrequirementsthatareconsideredmarketingoriented.Thus,operationalinnovationofthefirmistheformulationofaninnovativemarketingstrategyconsistingofsignificanttransformationinservicepackage,servicedesign,placementofservice,servicepricingandservicepromotion(Klingenbergetal.,2013).Operational innovationaimsataneffectivewayofaddressing theneedsofcustomers,openinganewmarket,positioningthefirms’serviceonthemarketwiththeintentionofimprovingcustomerbase(Oke&Kach,2012).FirmperformanceandInnovationThe Resource-Based Theory (RBT) of the firm suggests that enterprises have a bundle ofcapabilities and resources. These capabilities and resources provide a more sustainablecompetitiveadvantageandcontribute tohigherreturns(Peteraf&Barney,2003).Resourcesconsistof enterprises’ intangibleand tangiblehumanresources, andcapabilities refer to theabilityofanenterprisetomakefulluseoftheseresources(Harrisonetal.,2010).Managementresearchers (see; Molloy et al., 2011; Ray et al., 2005) have conceptualized an enterpriseresourcesastheresourcesthatinvolvesthecapabilities,assets,firmattributes,organizational



processes, knowledge and information structured by the firm that enables the business toformulateand implementa strategy that increase itseffectivenessandefficiency. Innovationcapabilities based on technical and operational orientations are resources that enhanceorganisational competitiveness (Zhou et al., 2005). The practical application of innovativecapabilities is widely recognised in contemporary management practices as a tool forproviding a sustained competitive advantage resulting in enhanced the performance of theenterprise(Koc&Ceylan,2007).Firmperformancehasbeenconsideredintheliteratureasamultidimensionalconcept(Poonetal.,2006;Murphyetal.,1996;Venkatraman&Ramanujam,1986)involvingcomponentsthatcan be categorised into finance, production and marketing (Sohn et al., 2007). Thedeterminantsoffirmperformancehavebeenextensiveintheliterature(Donkoretal.,2018).Fundamentaltoperformancestudieshavebeenoninnovationcapabilities(Camisón&Villar-López,2014).Theimplementationofinnovationstrategiesasapredictoroffirmperformancehasbeenstudiedextensively.However, theexistingresearchon innovation isyet toprovideconsistencyevidenceontheeffectsofthenewdimensionasproposedinthisstudy(technicalinnovationandoperational innovation)on theperformanceofSMEs(Koc&Ceylan,2007;LiandAtuahene-Gima,2001).There isempiricalsupport for thebroad innovation influenceonfirm performance (Prajogo, 2006). Notably, some researchers have found either no directeffect of innovation on performance (Wang et al., 2011) or a negative effect (Kotabe et al.,2002). Barker III and Mueller (2002) explained that R&D investment and implementationcould have either a negative or positive impact on profitability in various situations. Such aconflictingoutcomeisan indicationthatthe innovationandfirmperformancerelationship ismore complicated than assumed (Baer& Frese, 2003). Based on the dimensionalities in theinnovation firm performance and the proposed conceptualisation of the innovation intotechnicalandoperational,thisstudyhypothesisedthat;H1: Technical innovation will have a significant positive influence on firm performance SMEsautoserviceindustryH2: Operational Innovation will have a significant positive impact on firm performance SMEsautoserviceindustryH3: Operational innovationwillmediate theTechnical innovation and firmperformance SMEsautoserviceindustry

METHODOLOGY

PopulationandsamplingissuesThestudyfocusedontheSMEsautoservicefirmsinGhana.Datawereobtainedfromasampleof180autoservicesectorSMEs inKumasi through theadministeringofquestionnaires.Theparticipants were selected based on the principle of willingness to participate. It becamenecessarytothenon-probabilitysampletechniques(Convenience)becauseofthedifficultyincontrollingtheentirepopulationoftheSMEsautoserviceoperatortoperformaprobabilityorrandom procedures. The questionnaires were filled by SMEs owners and operations of theservice centres of the businesses. The questionnaire included firm-specific characteristicswhich included firmage,Firmsizeandownership types.The items for technical innovation,operationalinnovationandfirmperformanceweredevelopedbasedonmeasurementscales.MeasuresIn this paper, innovations are categorised as technical service innovation and operationalservice innovation. The items developed for the two variableswere extracted from existingtypesofinnovationsincludingprocess,product,organisationalandmarketinginnovations.Forthe activities of the SMEs auto service industry, the itemswere refined to suit the technicaldemandsofserviceautomobilesandtheactivitiesaimedatincreasingcustomermanagement



(operational innovation). The initial items were technical innovation (11-items) andoperationalinnovation(9-items).Afterreliabilityandvaliditytestofthemeasuringscale,four-4 itemseachwereretained forboth technical innovationandoperational innovation.All thescales for both technical innovation and operational innovationweremeasured on a Likertscale‘5’stronglyagreeto‘1’stronglydisagree.Firm performance has been measured from different perspectives. Two most prominentperspectives includedsubjectivemeasuresandobjectivemeasures(Walletal.,2004;Dawes,1999; Dess & Robinson, 1984). Firm performance measures chosen for this study aresubjective.Thisisbecausethereisthedifficultyincollectedobjectivedatabasedonfinancialstatements from the SMEs auto service industry. Venkatraman (1989) explains that in theabsence of any objective data that is publicly available subjective data becomes a perfectreplacement.Four4-itemswereretainedforfirmperformanceafterscreening11itemsacrossareas of financial and operational performance. All the scales for firm performance weremeasuredonaLikertscale‘5’stronglyagreeto1stronglydisagree.

ANALYSISOFRESULTSFirmprofileTable1reportsthesampledfirmcharacteristics.Itisnotedthatthemostofthesampledfirms(55.5%) are sole proprietorships. It should be emphasised that the study endeavoured tocapture firms of all types including joint ventures (12%), partnerships (22.5%) and othersincludingsoleproprietorships(10%).Themajorityoftheseinstitutionswereidentifiedtobemicro and small-scale enterprises (70%) as compared to medium scale institutions (20%).Concerningthenumberofyearsofexistence, thereport indicatesthatwhilesmajorityofthefirmsarewithin10years(76%).Itisalsodemonstratedthatthenumberoffirmsdeclinesasthe number of years extends; suggesting somewhat remotely the inability of most SMEs tooperateforextendedperiods.

TableI:FirmProfile

Frequency Percent

BusinessType Soleproprietorship 100 56Partnership 41 23Jointventure 22 12Others 18 10Total 180 100

Firmage Upto2years 31 17From2-5 65 36From5-9 41 23From9-13 27 15From13andabove 16 9Total 180 100

FirmSize 5-9employees 126 7010+employees 54 30Total 180 100

Source:Authors(2018)ReliabilityandvalidityAfterdatacollection,aseriesofanalyseswereperformedtotestthereliabilityandvalidityofthe constructs. The researchers followed a two-stepmethod to test the construct reliability.First,theresearchersconductedexploratoryfactor(EFA)analysesusingbothorthogonaland



obliquerotationstoensurehighloadingsonhypothesisedfactorsandlowloadingsoncross-loadings in the data sets. All the items loaded onto the expected factorswithout significantcross-loadings. Then the reliability of each construct was tested using Cronbach’s alpha.Cronbach’svaluesshowninTable3arewithintheacceptablevaluesforallconstructsdatasetindicatingthatallconstructsarereliableforthisresearch.

TableII:ConstructreliabilityandValidityConstructs Factor

LoadingAlpha(α)

TechnicalInnovation(KMO=0.806,Varianceexplained=42.396%,Alpha=0.829)1. Usingskillsandsystemstorespondquicklytoautoservices 0.741 0.7992. Acquirerelevanttechnologyinresponsetoadvancesinauto

servicing0.652 0.811

3. Theindustryisinconstantneedsoftechnicalskillsandsupportssystems

0.553 0.822

4. Therearesignificanttransformationsintechnicalcomponentsandmaterialsusedforautoservicing

0.662 0.811

OperationalInnovation(KMO=0.729,Varianceexplained=54.420%,Alpha=0.7101. Wehavebeenconsistentinmeetingtheneedsofcustomers 0.755 0.6132. Theextentofvarietiesofservicesofferedtocustomersis

incomparable0.645 0.708

3. Thenatureofservicesupporttocustomersareconstantlyimproving

0.794 0.616

4. Customersareconstantlyconsultedinprovidingservicedelivery

0.748 0.656

FirmPerformance(F.P)(KMO=.710,Varianceexplained=59.044%,Alpha=0.765)1. SMEsautoservicesgrowth 0.714 0.7472. Highprofitabilityintheautoservicingbusiness 0.698 0.7523. Increasedmarketshareinservicingautomobiles 0.844 0.6484. Competitiveadvantagegainedinautoservices 0.808 0.682

Source:Authors’Survey,2018FactorloadingsandCranach’salphaofTechnicalinnovation,OperationalinnovationandfirmperformancehavebeenproducedindividuallyandareshowninTableII.Technicalinnovationcontained four-4 items showing Cronbach’s alpha of 0.829. Total variance explained is42.396%, and Kaiser-Meyer-Olkin (KMO) stands to be 0.806. Operational innovationcontaining four-4 items explained 54.42% of total variance and alpha stood to be at 0.710.Finally, firm performance contained four-4 items and explained 59.044% variance. KMOremainedat0.710andalphastoodtobeat0.765.CorrelationAnalysisandDescriptiveStatisticsKamasak(2011)assertsthatalowtomoderatecorrelationamongtheexplanatoryvariablesisneededtoensurethattheycontributedistinctlyanduniquelytotheoverallmodel.AsindicatedinTableIII,thecorrelationbetweentheindependentvariablesislessthan0.9indicatingthereisn’t the likelihoodofmulticollinearityoccurring in themodel.Again,Table III indicates thatthere’s a positive and significant association between technical innovation and firmperformance(r=.487,P<5%).TheconclusionisthatanimprovementinSMEstechnicalskillsand efforts corresponds to an enhancement in firm performance in the SMEs auto servicesector. Similarly, a significant and positive relationship was found between technicalinnovationandoperational innovation(r= .546,P<5%).This indicatesthatSMEswithhighercapabilities in innovations perform better than rivals. Meanwhile a significant and positive



relationshipwas foundbetweenoperational innovationand firmperformance(r=0.349,P<5%). The implication is that an improvement in SMEs which applies stronger operationalinnovationsisalsomoreinclinedtoenjoythehigherfirmperformance.

TableIII.CorrelationAnalysisandDescriptiveStatistics

Source:Authors’Survey,2018Regarding the level and scopeof activities, a descriptive summaryof the variables indicatesthataveragely,theleveloftechnicalinnovationofthesampledfirmsishigh(Mean=4.12;SD=0.55).ThismeansthattheaverageSMEisverylikelytobuildastrongformoftechnicalskillsinprovidingservices.Itwashoweverobservedthelevelofoperationalinnovations(Mean=3.66;SD=0.61)ismoderate.AnaveragelymoderatelyhighlevelofperformancewasalsoidentifiedamongthesampledSMEsintheautoservicesector(Mean=3.99;SD=0.77).RegressionAnalysisAstructuralequationmodellingwasdevelopedtoestimatetherelationshipbetweentechnicalinnovation, operational innovation and firmperformance. Specifically, the researchers try toascertain whether operational innovation performed anymediating role in the relationshipbetweentechnicalinnovationandfirmperformance.TheresultsofthemediatinganalysisarepresentedinTable5. Themodelfitnessofthestructuralmodelshowsthatpartialmediationyieldedsuperiorperformanceoverthealternativeoffullmediation.Forthepartialmediationthemodel fitness test results obtained areχ2 (d.f) =13.841 (6), RMSEA = 0.07, CFI = 0.98,SRMR=0.02;whereasthefitnessstatisticsobtainedforthefullmediationmodelare:χ2(d.f)=47.760(5),RMSEA=0.11,CFI=0.94,SRMR=0.04.Thechi-squaredifferencetestshowsthatthere isasignificantdifferencebetweenthetwomodels(∆χ2=33.92∆d.f=1,p<0.05)1.Theinformationparsimonystatisticsalsoconfirmedthatthepartialmediationmodelwassuperior.Theestimatesofthepartialmediationare,therefore,interpreted.Inexaminingthestandardestimatesof thepartialmediationmodel, therefore, it isobservedthatthedirectpathsfromtechnicalinnovation(β=0.347;p<0.05)tooperationalinnovationwas positive and significant.Moreover, the results showed that there is also a positive andsignificant relationship between operation innovation and firm performance (β= 0.243; p<0.05).TheimplicationisthatbuildingastrongoperationalinnovationintheareaofoperationisalsovitalforaccruingsuperiorperformanceamongoperatorsinSMEsautoserviceindustry.This, therefore, emphasises the need for small and medium scale enterprises to committhemselves to the implementationofcompetitivestrategies toremain innovationoriented inthe market. The results also demonstrate a significant and positive relationship betweentechnical innovation and firmperformance (β=0.444;p<0.05).This is indicativeof the factthatthedeploymentofinnovationcapabilitiesisalsovitalfororganisationstoperformbetter.Concerningthemediatingroleofoperationalinnovation,theresultsrevealedthatoperationalinnovation mediated the relationship between technical innovation and firm performance(β=0.097;p<0.10).

Variables Mean S.D. TechnicalInnovation

OperationalInnovation

FirmPerformance

TechnicalInnovation 4.12 0.55 1.00

OperationalInnovation 3.66 0.61 0.546 1.00

FirmPerformance 3.99 0.77 0.478 0.349 1.00



TableIV:StandardizedEstimatesandModelFitVariables FullMediation PartialMediation

Beta(S.E) Beta(S.E)FirmPerformance TechnicalInnovation -- 0.444(.077)***OperationalInnovation .279(.096)*** 0.243(.103)** OperationalInnovation TechnicalInnovation .347(.117)** 0.347(.117)** IndirectEffect TechnicalInnovation .097(.047)** .097(.046)* FitIndices χ2 47.760 13.841d.f 5 6RMSEA 0.112 0.07CFI 0.94 0.98SRMR 0.04 0.02AIC 6880.16 4506.34BIC 6928.86 4548.42

Source:Authors’Survey,2018

DISCUSSIONOFRESULTSService innovation capabilities in firms are suggested bymanymanagement researchers tocontribute toSMEs firmperformance.More recently, somestudiesempiricallydiscussed theeffectsof service innovationonvariousaspectsof firmperformance.However, fewresearchstudies link technical service innovation, operational service innovation and SMEsperformancefromaholisticperspective.Moresignificantly,astudythatspecificallyaddressesSMEs auto services industry. By proposing a model discussing the effects of technicalinnovation and operational innovationwhich in turn lead to both financial and operationalperformance of SMEs auto services sector, the findings contribute to filling the gap in theliterature. The empirical results of this research confirm the stated hypothesis: technicalinnovation on firm performance, operational innovation on firm performance and themediating effects of operational innovation on technical innovation and firm performancerelationship.ThisfindingisconsistentwiththeworkofLiandAtuahene-Gima(2001)whoalsoestablishedthatinnovationshaveadirect,positiveimpactonorganisationalperformance.Thisfinding is consistent with the innovation capability based theories which suggest that theacquisition of innovation capabilities can be a source of improving the performance ofbusinesses (see; Gronum et al., 2012). Through effects analysis, this research provides apossible framework for innovation capabilities (technical and operational) practices lead tosuperior firm performance. Themediator role of operational innovations is also confirmed.Thus, operational innovation contributes directly to and indirectly to firm performance.Compared with the available literature, the research has not only been conceptualised thelinkagesbetweeninnovationandfirmperformance,butalsoamorespecificdetailoftechnicalinnovationandoperationalinnovation.Significantly,themodelproposedinthisstudymightbeappliedasanalternativemodelfortheoreticallyevaluatinginnovationandSMEsperformanceinfuturestudies.Interestinglythefindingsofthisworkdemonstratethatwhilestechnicalinnovationcanimpactonfirmperformancedirectly,italsohasanindirecteffectonperformancethroughitscapacityofengaging firms to improve theiroperational capabilities.The implication is thatSMEscan



potential develops capabilities in innovations whiles focusing on both technical andoperationalinnovations.

PRACTICALIMPLICATIONSThisstudyhaspracticalimplications.Therelationshipsbetweentechnicalserviceinnovationsand operational innovations and firm performance may provide a framework as to howorganisations should achieve superior performance by implementing technical serviceinnovationandoperationalserviceinnovations.ScalesdesignedinthisstudyofferachecklistforSMEsserviceproviderstoassessthemselvesinacertainenvironment.SMEsserviceoperatorsshouldthinkovertheimportantantecedentsthatleadtothetechnicalserviceinnovationandoperationalinnovationinimprovingtheirperformancelevels.Furthermore, strategies and activities for technical innovation and operational innovationshould be formulated for various firm performances. Future researchers, therefore, need togive broader considerations to the strategies and implementation of programs supportingtheseactivitiestoimprovefirmperformance.

LIMITATIONSANDFUTURESTUDIESThis study has limitations. First, potential lack of generalisation may result from theapplicationofwillingnesstoparticipateusedtoselectSMEsautoserviceproviders.Second,theuse of cross-sectional data did not allow longitudinal research processes of the conceptualframeworkmeasured in this research.Third, though the study resultsempirically confirmedthehypothesismodel,itwasrathersimpleandincorporatedafewconstructs.Itisimportanttonote that there is an opportunity to expand themodel to incorporate other consequent andantecedent constructs such as firm-specific attributes to form amore comprehensivemodellinking technical service innovation and operational service innovation. As a suggestion forfurtherimprovement,weneedtonotetheimportanceofthesustainabilityoffirmperformancegenerated in technical service innovation and operational service innovation capabilities.Longitudinalsamplesgatheredbasedonmultiplepointsoftimecanhelpsupportthisresearchobjective.Nevertheless, this survey has produced empirically based evidence to substantiate thehypothesised associations that both technical service innovation and operational serviceinnovationwill contribute to firm performance directly or through the improvement of themediated effort of operational innovation. Technical service innovation hasmore significanteffects on firm performance than the effort of operational innovation. The findings areencouragedtobringmoreinsight intohowfirmsSMEsautoserviceindustryshouldenhancetheir performance with well-conceived technical service innovation and operationalinnovationstrategiesandpractices.ReferencesAmara,N.andLandry,R.(2005).Sourcesofinformationasdeterminantsofnoveltyofinnovationinmanufacturingfirms:evidencefromthe1999statisticsCanadainnovationsurvey.Technovation,25(3),pp.245-259.

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Patrocinio, R. F., Souza, J. L. A., Santos, C. T. O.,&Martins, K. S. (2018). The vision of theDisneyWorld: an experiencemarketingstudyatTheWaltDisneyCompany.ArchivesofBusinessResearch,6(9),222-234.

ThevisionoftheDisneyWorld:anexperiencemarketingstudyatTheWaltDisneyCompany

RachelFariasdoPatrocinio

JulianaLopesdeAlmeidaSouza

CarolinaToledoOliveiraSantos

KatheryneSoaresMartins

ABSTRACT

The article aims to understand through interviews with Disney park goers andprospects the strategies that the multinational company The Walt Disney Companyuses tobecomeabrand thatenchants,using theso-calledexperiencemarketing.TheprojectalsolooksathowTheWaltDisneyCompany'sstrategiescaninfluencenotonlycustomersbutalsoprospectstotrustanddesirethebrand.Thesurveypointedoutthatmore than90%of visitorshad their expectations surpassed, even though theyhad ahighlevelofexpectationofknowingtheparks.Keywords:Disney;MarketingServices;ExperienceMarketing;Strategy;Positioning.

INTRODUCTION

Theincreasingcompetitivenessbetweencompaniesbringsouttheneedforthemtostandoutanddifferentiatethemselveswithconsumers,sincetherearemoreoptionsofconsumptionofthe same product and service. According to Serasa Experian, in January 2017, 194,199 newcompanieswerecreatedinBrazilalone.Experiencemarketingisaformofactionforcompaniesthatwanttopresentthemselvesinthemarketwithadifferential,workingwithwhatisrelevanttotheirtargetcustomer/audienceduring theirbuying journey.Companies thatengage inexperiencemarketingcan, ingeneral,get good results from consumers. A great example of success in the area of experiencemarketingisTheWaltDisneyCompany.Inaglobal annual report reviewingattractionsbyThemedEntertainmentAssociation (TEA)and AECOM, one of the parks of TheWalt Disney Company,Magic Kingdom appears as theworld leader in visitations in the year 2016with approximately 20 , 4million visitors. Thesecond, third and fourth place in the ranking is occupied by Epcot, Animal Kingdom andHollywoodStudios,whicharealsopartofTheWaltDisneyCompany. In its firsthalfof2016releaseTheWaltDisneyCompanyreporteda$35millionincreaseoverthesameperiodlastyear, which totaled a profit of $ 2.1 billion. Resort and resort revenue came to $ 3 billion,reflectingpublicsatisfactionwiththebrand'sexperience.Inrecentyears,manycompaniesinBrazilhavebeenengagedinmarketingresearchandhavesoughtseminars,workshopsandlectures,sincethepracticeofseveralwell-appliedmarketingtools generate great returns to brands. Considering the importance of these investments inmarketing,wecarriedoutthisworkwiththeintentionofexploringthisscenario,pointingoutthe principles and strategies of a company that has already served as an example to boostseveralothersandofseveralsegments,whethersmall,mediumorlarge.Throughinterviews



withshoppersandprospects,theimportanceofthemarketingprinciplesandstrategiesusedby The Walt Disney Company, a world reference in management, people management,businessmanagementandtourism,willbehighlighted.Tohaveastrongbrand in themarket,marketingstrategiesneed tobewellalignedwith thepurpose of the company andwhat the companywants people to think about it. The entirestrategy andmanagement ofmarketing processes can lead to a business failure or success.Therefore,studyingandunderstandingthestrategiesusedbyacompanylikeTheWaltDisneyCompany, with 93 years of market and reference in providing pleasant experiences to thecustomers,isofgreatimportance.The project will address and exemplify themes seen during the course of Advertising andPropaganda, and thus,will contribute to the training of groupmembers.Disciplines such asMarketing Principles, Brand Management, Advertising and Propaganda Processes andTechniques,andConsumerBehaviorwillbeaddressedduringtheproject.Thus,theauthorsofthisproject,asconsumersofthebrand,shareakeeninterestinunderstandingthestrategiesthathavepromotedthesuccessoftheDisneybrandworldwide.Theprojectprovidesgreaterknowledgeaboutmarketing,business,consumerbehavior,whichis of great importance for the growth of any professional in the field. In this context, it isquestioned: How does the Experience Marketing adopted by The Walt Disney Companyinfluencecustomersandprospects?Tobuildanargument, theresearchaimstoanalyzehowthe experience marketing adopted by TheWalt Disney Company influences customers andprospects.TheprocessofbuildingtheDisneybrandisalsoanalyzedaswellasidentifyingthestrategies used by Disney in building its marketing experience and also identifying howDisney'sexperiencemarketinginfluencescustomersandprospects.Branding:setsoftechniquesforbuildingabrandBranding refers to the set of techniques andpractices in the constructionof a brand,whichoptimized become a competitive differential and encompasses everything that is associatedwiththebrand.AccordingtoKellerandMachado(2007),theconsumercanhavealinkwithabrandandincorporateadeepmeaninginit,offeringtheirloyaltyandtrustthatthebrandwillprovidethemwithusefulness.Martins(2006)statesthatbrandedattitudes,whentakenwithknowledgeandcompetence,cantakethemarksfarbeyondtheeconomicnature,makingthempartof thecultureandmakingthemcapableofdirectly influencingpeople's lives.Therefore,considerbuildingabrandingthatis inaccordancewiththevaluesofthebrandandwhatthebranddelivers, candelight thecustomerandmakehimgivepreference toeverything that isrelated to his brand, always valuing the experience lived. Delivering positive consumerexperiencestiesthebrandtotheconsumer'slifestyle,makingbuyingattitudesabroadersocialcontext, saysHiller (2012, p.14). Aaker (2015) reports that understanding brands as assets,whichhaveequityandstrategy,hasinitiateddrasticchangesinperceptionsaboutmarketingand brandmanagement. The companies that adopted and knew how to use this vision sawbrand buildingmove from the tactical and reactive to a crucial factor of business strategy.Aaker (2015) also points out the importance of building a brand personality because itestablishes a connection with the consumer because it is defined as a set of humancharacteristicsassociatedwiththebrand.Positioningabrand ismuchmore than targeting thesellingproduct.Whenone thoughtofabrand,oneusedtothinkthathavingthesamewasthewayacompanyhadtogetajobdone,ieareminderintheconsumer'smindinaperiodoftimewherethemainagentofthesalewastheproduct. According to Costa (2013), the contingent, random character of individual contact

Patrocinio,R.F.,Souza,J.L.A.,Santos,C.T.O.,&Martins,K.S.(2018).ThevisionoftheDisneyWorld:anexperiencemarketingstudyatTheWaltDisneyCompany.ArchivesofBusinessResearch,6(9),222-234.


withadvertisingintraditionalmediahaschanged:thepassiverecipientindividualbecomesanactor in a free cyberspace open to all possibilities, both for information and communicationandforconsumption.Thebrand ismuchmoreofaproperty tohavedominionor let theconsumerbeattentive toyourproduct/service,butiseverythingthathelpsthecustomertoformulateanopinionaboutthecompany.Thebrandistheexperienceitcausesonthecustomer,ashefeels impactedontheconductandactionsofthesame.Tangiblethingssuchasthepresentationofalogoandacreative campaign today serve as a support for something greater, and what really makeimpact are the intangible elements, suchas the fundamentalwordsof thepersonalityof thebrand,theessenceofthebrand,whichfeelingsthebrandawakens.Thiscreationmostofthetimegivesauniquecharactertothesame,withthepersonalityitbecomesdifferentiated.Brandismuchmorethanacommunicationcampaign,itisasifitwereahumanbeing,havingessence,valuesandpersonality.Theprocessofcreatingabrandpassesthrough5elementaryprocesses, and these steps are important for a brand to bewell structured. The first step iswhatitrepresents:beingawareofthemarketandthecontextwherethebrandoperatesanditsmission.ThesecondisStorytelling.Wherethecustomerwillhaveanemotionalconnectionwith the brand. The third is the design: It makes the culture of all this experience, thecompany'soperations,withbusinesscardsandwebsites.The fourthcomponent is itsprice,which is an expectation with the customer and establishes the brand value. The finalcomponent is the relationship: From Storytelling, the customer can feel empathy with thebrandandmakeitclosetoit,makinghimwanttobeclosetothebrand.Therelationshipmakesthecustomerfeelspecialandpartofsomethingbigger.Brand positioning is defined as the future form inwhich the target audiencewill recognizeyourbrand.AccordingtoSerralvoandFurrier(2003,p.2),"thevalueofabrandcomesfromitsabilitytogainexclusive,prominentandpositivemeaning inthemindsofcustomers," that is,positioningrequires that thechoiceofsomeaspectof theproduct/servicedeliveredby thecompanyisdifferentiatedandmorerelevantthanthatofcompetitors.Abranddoesnot imposethepositioningtoitsclients, itmustplanandconquerthesame,totheextentthatthevaluethatthepublicexpectsisdelivered.Itisnecessarythatthecompanyhasconsistencyandcoherenceinwhatitpromisestodeliverandinwhatitactuallydelivers,inordertopositionitsbrand,evenbeforestartingthepositioningprocess,itwillbenecessarytoknowthebrandandwhatisthewhatistheobjectiveandinwhichsector/sectorsshewantsto differentiate herself. The positioning allows the brand to have a greater proximity to itstarget audience, because the thoughts and possible actions that must be taken will beidentificationpointswiththesame.Asanexample,thepositioningthroughbenefits,wherethebrandbringsitsvaluesaddedtotheservice/productandsomethingmore.Choosingpreciselyonwhat level yourbrandwants tobe is crucial, becausehaving thebestpositionmeans that the customerwill remember the brand, for the unique service that thecompany provides. Over time these actions by positioning your brand, the continuity insegmentinganddifferentiatingyourproductscanbringthereachofleadershipinthechosencategory.Marketing3.0:anewconceptofexperienceMarketing3.0isknownforthewayittreatsrelationshipsbetweenconsumers,businessesandbrands.Consumershavestoppedbeingtreatedasaspecificnumberofpeopleandhavecome



tobeseenas individualbeings,withtheirparticularitiesandwhomainlyseeksatisfactioninthe purchase of products / services. Concern aboutmaking human need and feeling a salesstrategyhasgrownoverthelastdecade.Animportantcompetitivestrategyisthedeploymentof Marketing 3.0. The meaning of this concept "has to do with emotional marketing, withmarketingofthehumanspirit"(GOMESandKURY,2013,p.5).Customershavelostconfidenceincompaniesworkingwithtraditionalmarketingknownas1.0marketingthefocuswasontheproduct.InMarketing2.0thefocuswasonthecustomer,withthat there was no delivery of value. The consumer / individual feels the need to buildrelationshipsandnotjusttoconsume.Brandsseektoestablishaconnectionwithconsumersandthisconnectioncanbeestablishedthroughthe integrity, imageandidentityofthesame.Theseshouldbeawareofconceptssuchaspositioning,differentiationandthebranditselfthusforming theauthenticityof theessenceof thecompany in themarket.According toKOTLER(2010)"Toestablishaconnectionwithhumans,brandsneedtodevelopanauthenticDNA,thenucleusoftheirtruedifferentiation."Marketing3.0seekstoprovidesocioculturaltransformations,andforthesetransformationstooccur thecompanymustbeawareof theneedtodevelopachangeofmission for it,andthewaytodosoisintheadoptionofphilanthropicactionsandinthetruesupportofgoodcauses,clientsvaluecompaniesthatalsohaveculturalandsocialawareness.Marketing3.0alsoseekstoraiseawarenessaboutthehumanizationofprocesses,concernabouthowhumanfeelings,socialprojectsandtheirroleinunitingandconnectingpeople/individuals.ServiceMarketingServicemarketing isasetofprocedurestocreate,maintainandtransfervaluetocustomers.Themarketingof servicesarosebecauseof thehigh competitiveness in themarket, becausewhenitwassoldsomethingthesamehaditsfocusonlyintheproducts,thatis,alltheeffortsofthe marketing were directed to what was sold and not how it was sold. One of thecharacteristicsofservicemarketing is its intangibility, itmeansthattheservice issomethingnotpalpable, it isapromiseofsomethinginwhichthebuyerwillonlyseetheresultafteritscompletion.AccordingtoCobraandZwarg(1987)"Aproductisanobject,somethingpalpable,theserviceistheresultofaneffort,aperformance.Whentheserviceissoldthereis,asarule,nothingtobeshownthatistangible.Servicesareconsumed,buttheycannotbepossessed."Another feature of ServiceMarketing is inseparability, that is, production and consumptionoccuratthesametimeandyoucannotseparatethem.Itissomethingheterogeneous,itisnotsomethinguniformlyproduced.The result of a servicemaynotbe the sameevery time it isrendered,evenifitisdonebythesameperson/company.MarketingServicesaswellasProductMarketinghasthe"MarketintgMix",betterknownasthe4p's.PeopleisthefirstPofthemixofservices,coversthoseinvolvedinprovidingthesame,iefromthecustomer,someintermediarysuchassecretariesorothersthatmaybeinthemiddle,eventheserviceprovideritself.ThesecondistheProfile/Square,thiscategoryincludesthephysicallocationwherethatserviceisprovided.ThencomesthepofProcesses;encompassesthemethodologies,thestepsthatwillbetakenfortheconsumertohavetheservice.AndlastlyintheProcedure,itinvolvestheformoftherelationshipbetweenthecustomerandthisserviceprovider,aswillthisprocedure,asanexamplethedecisionoftheserviceproviderindecidingwhetheritwillbethecustomerwhowillgetthatserviceorthesamewhogoestotheclient.Servicemarketinghassomepeculiaritiescomparedtomarketingtraditionalproducts.Someofthesechallengesarelinkedpreciselytothetransmissionofconsumerconfidence.Becausethe



service is not tangible, this is a great challenge for service marketing, because it requirescompaniesandproviderstopayspecialattention.AccordingtoCobraandZwarg(1987)"Thepurposeoftheserviceshouldalwaysbethecustomer[...]itisnotenoughtosellaservice,itisnecessarytowatchtheclientortheusersothathecanhavesatisfactionwiththesaleoruseoftheservice.service".Oneofthewaystowinthecustomerofaserviceistheexperienceyouprovidetohim,havingthe greatest chance of becoming a loyal customer and possibly becoming a promoter oradvocate.ProductandServiceStrategiesOne of the strategies that should be the focus of any company that wants to survivecompetitivemarkets.Itisthedifferentiationofproductsandservices.AccordingtoGrimmandMalschinger(2010),usingthisstrategy,itispossibletocreateauniqueidentitytostandoutinthe market, through specific characteristics that will make the consumer differentiate hisproductwiththeoneofthecompetition.Cobra (2009, p.6) characterizes that "value is defined as the difference between what thecustomer expects and what he receives." By differentiating their product or service in themarket,companiescanassignvaluesandbenefitsthatmakethedifferencetotheconsumer,inordertomakethemrecognizevalueasadifferentialthatimpactstheirpurchasedecision.Itisto show the customer that when using your product or service, you will be acquiringsomething that no other offers, be it a tangible or intangible differential. Tigre, Audi andBrastemparesomeexamplesofdifferentiation,astheyattributevaluestotheirproductsandareperceiveddifferentlyfromtheircompetitors.Thedifferentiationprocessisachallengeforall companies that want to operate in competitive markets. It is necessary to focus, andespecially, theknowledgeof strengths andweaknessesof your competitors, and thusdefinehowtodifferentiate them,whether inprice,design,easeofuse,qualityanddurabilityof theproduct,afterservicesales,oranyothercharacteristic thatmakes itbetterperceivedby theconsumer.Butitisimportantnotonlytolookatthephysicalaspectsoftheproductbutalsotoworkon intangible values that canbecomedifferential and to connect the customer toyourbrandinamorespecialandlastingway.Thedifferentiationofproductsandservicesconsistsinfindingoutwhatthecompanycandothatothercompaniesarenotdoing.Itisworkingtomakeyourvaluepropositiontheheartofthebrandandbeperceivedbyyourconsumersandseenasadifferentialthatmakesyouhaveapreferenceforyourproductorservice.Marketingofexperience:affectivememoryExperiential marketing or sensory marketing as it is also known, works with the client'semotional memory. Frederico Grosso says that customer experience involves "personalizedcontent appropriate to the context in which the customer is inserted, presence in differentpoints of contact and the interaction between them and the engagementwith and betweenconsumers"(GROSSO,2016,p.20).In experiencemarketing the product / service that the brand offersmust be a placewherethereisanimmersion,aprocesssothatthecustomercanexperiencetheexperienceinadeepway and thus influence it to have a historywith the brand. This positive experience can bepassedontootherpeople.Experienceisdirectlyrelatedtohowyourcustomerperceivesyourservice as it has contactwith your product / service and the brand, and how the customer



perceivesthevaluesandtheidentityofthebusiness.ThisiswhatExperienceMarketingisallabout,involvingconsumersinanunforgettablepositiveactionfortheconsumerusingoneorallofthebasichumansensessuchassmell,hearing,taste,touchandvision(LUÍS,2014).Intheeraofexperiences/sensesitisnotenoughtohaveaproduct/serviceofexcellence,itisnecessarytogobeyond.Thecustomer'sperceptionof thedifferencebetweenonebrandandanotherisinaddingdetail,inthevaluesthatthebrandwantstoconvey,workingwiththefivesensesoftheconsumer.Thecompanyneedstomarkinpeople'sheartsandminds.Inordertohavethebasisofadifferentiatedcompanyintheeyesofthecustomer,itisimportanttoinvestinprofessionals/employeesandintheirtraining,sothatwhatthebrandwishestopasstotheconsumerisemployedinaunifiedandlinearway.With the Cast Menbers policy adopted by Disney, the idea of transforming the commonexperience into the extraordinary experience the customer will have in the parks is thestrongest pillar of the brand'smarketing strategy andwhat helps it become an example ofbusinessconduct.

THEWALTDISNEYCOMPANYTheWaltDisneyCompanyisoneofthemostappreciatedandsuccessfulcompaniesworldwideand is a benchmark inmanagement,marketing, businessmanagement, peoplemanagementandtourism(EISNER,2011).Thename'Disney'referstomagic,enchantmentandimagination,and this isdue to thestrongorganizational culture,basedon thephilosophyof thebrothersWalter and Roy,whomanaged to fix the concept of "Disneymagic" in people'sminds. Thisconcept persists to this day, being cultivated daily and is in everything that refers to thecompany.AccordingtoZenithOptmedia,TheWaltDisneyCompanyisthesecondlargestmediacompanyintheworld.ThefirstplaceisAlphabet(HoldingthatcommandsGoogle)1.Inadditiontothethemeparksandresorts,TheWaltDisneyCompanyoperatesinfourmajorbusiness areas: CableTVChannels, Entertainment Studios, ConsumerProducts and Internet,andDirectMarketing.BrandslikeESPN,Pixar,Marvel,ABCandLucasfilmarealsopartoftheorganization. According to UNILUS Teaching and Research Magazine (2016, p.88), Disneyconsiders theopinionof customersextremely important,because through thevisionofeachguest (asDisney calls its customers andvisitors), it can generate improvements inplanningand employee training. Therefore, the group has one of the biggest and best indicators ofcustomer satisfaction in the world, with several listening posts spread across the parks,telemarketing service, interviews to verify the degree of satisfaction of the visitors and alsothroughthegueststhemselves,whodealwithservicesonadailybasis.Itall startedwithamanwhodared todreamandmakehisdreamscome true:WaltDisney.WalterEliasDisneywasbornonDecember5,1901,inChicago,UnitedStates.Atonly7yearsold,Waltalreadyrevealedhistalentfordrawing.Attheageof16,Walt joinedtheRedCrossandwenttoFrance,wherehewasanambulancedriver,shortlyafterWorldWarI.At18,WaltreturnedtoKansasandbeganhiscareerasacartoonistforadvertisementsandsoonwentontoproduceanimationsforcommercialsthatpassedinthemovies.

1Disponívelem:http://www.zenithoptimedia.cz/en/zenith/news/detail/102-Digital%20gi.Acessoem01deJulhode2017



In1923,decidedtofollowthecareerofanimator,WaltDisneywenttoHollywood,wherehesetupasmallanimationstudiowithhisbrotherRoy.Therewereproducedfilmswheretheyused a technique that combined cartoon and real actors, and these were passed to thedistributorM.J.Winkler.In 1928,Walt Disney and an animator of his studio, Ub Iwerks, created the character whobecame Disney's greatest icon, Mickey Mouse. That same year, the character debuted intheaterswiththeshortfilm'SteamboatWillie',thefirstcartoonwithsoundtrack.ThevoiceofthecharacterwasthatofWaltDisneyhimselffrom1928until1946.Mickeywassosuccessfulthatin1932WaltDisneyreceivedaspecialOscarforthecreationofthecharacterandin1978MickeyMousewas the first cartoon character to receive a star on the sidewalk of Fame, inHollywood,celebratingits50thanniversary.2Alwaysinnovatingandbringingnew,increasinglyadvancedtechnologiestomaketheirstoriescome true, in 1932Walt stunned the world with "Flowers and Trees," the first technicolorcartoon and the first to win the Oscar for "Best Short- Animation Footage '. In 1939,Waltprovedthat theanimationwasstrongenoughtobedrivenforsomethingotherthanashort,and then created the first full-length animated feature film, 'Snow White and the SevenDwarfs',whichwasaboxofficehit,andearnedhimthesecondOscaraward,givenbyShirleyTemple.Thestatuettewasaccompaniedby7mini figurines,makingreference to the film. Inaddition, 'SnowWhiteandtheSevenDwarfs'isthefirstofmanyDisneyClassics.Throughouthis life, Walt Disney had 59 Oscar nominations, won 22 awards and received 4 honoraryOscars.ThatmakeshimthegreatestrecordholderinOscarhistory.TheWaltDisneyWorldisthe largest andmost famous themepark complex and thedestinationofmillionsof touristsfromaroundtheworldwhotraveljusttoexperiencetheDisneyparks.Disney's first themeparkbegan tobeplanned in the1950s.WaltDisneywanted to createauniqueplacewhere childrenandadults could experienceuniqueexperiences. Sohehad theideatocreatesomethinggreat,Disneyland.Waltbought54acresinCaliforniaandonJuly21,1954 began, at an accelerated pace, the construction of the world's first theme park. Waltparticipatedinalltheplanningoftheparkalongwiththemostcreativetalentsandwentontocallthem'ImageKeepers'3.Disneydecidedthatalltheattractionsoftheparkshouldbedistributedfromacentralpoint,andwiththerecentsuccessof'SnowWhiteandtheSevenDwarfs',thisattractionshouldbeacastle.Thepark'stoyswouldbeinspiredbytheDisneymovies.OnJuly17,1955,theparkwasinaugurated and the event was broadcast live on American TV's ABC network. For theinauguration,11 thousand ticketsweredistributed to journalists andguests, but therewerefalsification of tickets and appeared more than 30 thousand people, which made it a realdisaster.Thewholestructureoftheparkwasnotenoughforsuchalargenumberofpeople.Afewweekslater,afterseveraladjustments,theparkwasopentothepublicandwasasuccess.However,WaltDisneywasnotsatisfiedbecausehewantedamorecompleteimmersionoftheguestinhispark.In1964,WaltbeganplanningtobuildamuchlargerparkthanWaltDisneyWorldinOrlando,Florida.Everythingwasthoughtforamorecompleteimmersionofthevisitors.However,Walt

2Disponívelem:https://disneyparks.disney.go.com/blog/2014/11/happy-birthday-mickey-mouse-2/3Disponívelem:https://www.youtube.com/watch?v=u5eHX80e9wA



failed to liveup tohisproject.Avictimofadisease,WaltDisneydied in1966.After severalyearsofplanningandconstruction,WaltDisneyWorldwasopenedtothepubliconOctober1,1971.ThefirstparkwastheMagicKingdom,whichbringstogetherthecharmofthetalesfairytale, backstage tour, classic attractions and themost famous Disney characters. The secondparktobeopenedinsidetheWaltDisneyWorldcomplexwasEpcotin1982,whichistwicethesizeof theMagicKingdomand isdivided intoFutureWorldandWorldShowcase.The thirdpark,inauguratedonApril22,1998,EarthDay,istheAnimalKingdom,whichispracticallyanamusement park on a safari. All the attractions of the park are geared towards nature andanimals.OnMay27,2017wasinauguratedattheAnimalKingdom,abrandnewareaforvisitorsofallages,Pandora-TheWorldofAVATAR,inspiredbytheDisneymovieAvatar.Thefourthparktobe opened was Hollywood Studios on May 1, 1989, and is the smallest of the four parkcomplexes. It is dedicated to entertainment, with live shows, high-speed rides, unique parkattractionsandbackstagerides.Inadditiontothesefourthemeparks,theWaltDisneyWorldcomplexalsohas twowaterparks.Oneof them isDisney'sTyphoonLagoon, inaugurated in1989,thatsimulatesaparadisiacplacethatwastakenbyastorm.Theparkhasawavepool,waterslides,lazyriver,playground,surflessonsandevensnorkellinginpoolswithfish,sharksand stingrays. The Typoon Lagoon undergoes yearly renovations and when it is not inoperation,anotherwaterparkremainsopen,BlizzardBeach,whichopenedonApril1,1995,withnumerousattractionsforthewholefamilyincludingSummitPlummet,consideredoneofthethehighestandfastestwaterslidesinthecountry.In addition to all these parks, the complex has 27 hotels that are divided into Economic,Moderate,LuxuryandLuxuryVillas.Alloftheseparksandhotelsareinonly⅓oftheentireareapurchasedbyDisneyinFlorida..InadditiontotheDisneycomplexinFloridaandthefirstparkinCalifornia,Disneyhas5moreparks around the world. The first of them, Disneyland Tokyo, was inaugurated in 1983 inTokyo, Japan; in 1992,DisneylandPariswas inaugurated in France; in 2005 theHongKongDisneylandResortopenedinChina,andthemostrecentwastheShanghaiDisneylandinChina,whichopenedin2016.

METHODOLOGICALPROCEDURESThe methodology can be understood, according to Minayo (2009 p14,15), "as the path ofthoughtandpracticeintheapproachtoreality...Itincludesthetheoreticalconceptionsoftheapproach,articulatingwiththeory,withempiricalrealityandwiththoughtsaboutreality."Inorder to meet the objectives of the work, we used bibliographic research as part of themethodological process. As part of the methodological process, we also use exploratoryresearch,becauseitisadequatetoincreasefamiliarityandknowledgeaboutthesubject.Thisworkhasreachedasampleof142validanswers.Theresearchwasdividedintotwoparts:onetounderstandtheexperienceofthosewhohavevisitedaDisneyparkandanotherwhodidnotvisit,tounderstandtheexpectationsoftherespondents.Inthesurvey,therewasapredominanceoffemaleparticipants,correspondingto86%oftherespondents,whilethemalerespondentsaccountedfor14%(Figure1).



Figure1-Sexofrespondents

Source:ownelaboration

Theagegroupofthemajorityoftherespondentswasbetween19and30yearsold(Figure2),corresponding to90%of respondents, followedby7%of respondents younger than18and3%above30yearsold.AccordingtoanIBOPEsurvey,peopleaged19to29arepartoftheYgeneration.AccordingtoHuntley(2006),theYgenerationisaveryconsumeristgeneration.Inaddition,theyconsumeandare loyaltobrandsthataccompaniedtheminchildhood,suchasDisneyandMCDonald's.

Figure2:Agerangeofrespondents


InthequestionnaireintendedforthosewhohavevisitedaDisneypark,questionswereaskedregarding the experience lived by the interviewee. According to the question "Did Disneyexceed your expectations?" 94% of respondents answered "Yes" and 6% answered "No"(Figure3).Throughthisresult,itispossibletorealizethatDisney,evenchargingahighvalueto visit the parks (approximately 99.50 USD \ day) and be a long awaited destination forvisitors,canexceedexpectationsandsurpriseconsumers.



Figure3:DidDisneyexceedexpectations?


It was observed that the service offered by Disney parks is a great differential. The vastmajorityofparticipantspraisetheworkdonebythecastmembers(asDisneystaffarecalled)and some cite the term "Disneymagic" in relation to attendance. In the answers, it is alsopossible to identify a certain degree of dissatisfaction with the waiting time of the queues,which vary according to the time of year. Disney is aware of this problem, which is aconsequenceofbeingoneofthemostvisitedparksintheworld.Toremedythisfactor,ithasbeenrealizedthatDisneyhasstrategiesthat,ingeneral,areveryeffective.Onestrategymostcommenteduponbyintervieweesisthatvisitorsarefacedwithinteractivegames,thematicdecorations,charactersandentertainmentthroughoutthequeues,makingthevisitordistractedandqueuingbecomespartoftheexperience.AnothersolutiontothequeuesistheSingleRider,aseparatequeueforanyonewhoisaloneordoesnotmindgoingtosomeattractionwithsomeoneunknown.Forexample,anattractionthathasacartfor4peopleandgoesafamilywith3people,this4thplaceisfilledbyasinglerider.Anotherveryusedserviceis theFastPass+,which is like a reservation in thequeue.Thevisitor canbooka time thatwants to go in a particular attraction and, when arriving at the scheduled time, enters adifferentiatedqueueandmuchsmallerthanthemainqueue.Theserviceisfree,however,thereisalimitedamountperattraction.Anotherhighly-commentedsolutionamongtheanswersisthe estimatedwaiting time in the queue at the entrance of the attraction,which allows thevisitortobeabletoplanandenjoytheparksbetter.Overall,eveniftheytalkalotaboutwaitinginthequeues,mostrespondentssaidthatbecausethey arewaitingdifferently, theydonot care abouthow long they stay in them.This showsonceagainhowmuchDisneystrivestoprovidethebestpossibleexperienceforeveryvisitor."Thecastmembers'servicemakesallthedifference,Ibelievetheyareessentialforthe"magic"ofDisneytohappenandthateveryonewhovisitstheparkscancomeoutwithunforgettablememories.Asforthequeuetimes,IthinkDisneywasabletomitigatethedisadvantageswell.Itistosaythat,sincethereisnowaytoextinguishthequeues,Disneyhascreatedanintelligentsystem of forecasting time and dissemination of this information to the public, as well asimplementingvariousactivitiestobedoneduringthequeue(interactivequeues)"Fabiane,21.Of the 106 participants, 40 responded that they did not live or witnessed a differentiatedexperiencewhiletherestsharedmomentsinDisneyparks.Itwasidentifiedthatinmostoftheanswers, there was the presence of the cast members, who work daily with attention andcourtesy to provide differentmoments to the visitors. From this, you can realize howmuch



Disneyinvestsintrainingitsemployees,whointurnhavetheauthorityandautonomytousevariousdevicestodelightvisitors.InTomConnellan'sbookBehindtheScenes,wenotetheuseof the term"Greatattention todetail,"apracticewecansee in theparticipants'experiencesthroughtheanswers,wherecastmembers,whenfacedwithsituationslikeanicecreamthatcrashedoraballoonthatburst,promptlyofferanewandatnocosttothevisitor.Throughtheanswers,wealsorealizethatDisneyparksarethedestinationofseveralcelebrations,rangingfrombirthdays toweddingrequests.Wecansee thatDisneystrives tomake thesemomentsunique and special to the visitorbyoffering themvariousprivileges and courtesies. "OnmywaytoWaltDisneyWorldtocelebratemy15thbirthdaywetookthebottom"I'mCelebrating"andacastmemberwrote"HappyBirthday,Ana";atlunchtimetheattendantattheentrancetotherestaurantwasBrazilianandwhenshesawmybottonaskedhowmanyyearsshewasdoingandwhenshesaidshewas15sheasked towaitamoment, therestaurantwasoutofbreath,andspokewiththemanagerandalongwithhimpreparedabirthdaytablethathadacupcake,minimickeys and balloons "Ana Carolina, 22. The attention to detailmakes all thedifferenceinthevisitor'sexperience,makingthemfeelspecialduringthevisit.Thequestion"WouldyouliketovisitDisneyparks?Ifso,why?"Wasdesignedtounderstandwhat drives people's desire to go to Disney and the 36 respondents, 4 responded that" no"wouldliketogo,whiletherestreplied"Yes"andjustified.Intheresponses,recurringtermswereidentifiedas"dream".MostparticipantssaygoingtoDisneyisachildhooddream.Withthiswe can see the great power of the brand,which feeds this desire through the ages andaccompanies its audience, since most respondents are in adulthood. Another reason is thedesire to live theexperience,because it isaplace"magical", "wonderful", "fun"and"happy",showingthatthereisgreatexpectationtoknowDisney.Itwasobservedthateventherespondentswhosaid theywouldnotwant togoto theparkswouldimagineitwouldbeagoodexperience.Intheresponsesoftheinterviewees,itisevidentthegreatexpectation toknow theparksofDisney.Throughwell-craftedbranding,Disney isabletogetpeoplewhohaveneverbeentotheirparkstoimaginethevisit,withfeaturesthatareallottedtoit.When you see the level of expectation that people go, can you compare the result of thequestion "Disney exceeded your expectations?" Of the survey for those who already were,resultingin94.3%oftherespondentswiththeirexpectationsexceeded.Withthis,itispossibletoconfirmthegreatcommitmentandsuccessofDisneyinovercomingthehighexpectationsofthevisitors.Inbothquestionnaires,intervieweeswereaskedtodescribeDisneyin3wordsandasaresultmore than 100 different adjectives were obtained, the similarity between the twoquestionnaireswasobservedsincetwowordsappearinthesameones,asthemostcitedones,being that themost remembered is theword "Magic",which togetherwas quoted85 times.Soonaftertheword"Fun",quoted39times.InthequestionnaireofanyonewhohasvisitedDisney,thewords"Dream"-quoted31times-andtheword"Quality"-cited23times-alsoappear.AlreadyinthequestionnaireofwhodidnotvisitDisney,thewords"Creativity"-quoted9times-and"Childhood"-quoted8times-appear.It was possible to observe that the words Magic and Fun, which stand out in the twoquestionnaires, are the result of the values and the image that the brand passed along the



experience of the respondents next to it. Already thewords that appear separately in eachquestionnaire,DreamandQualityforvisitorsandCreativityandChildhoodfornon-visitors,isduetothefactthattheformerhasalreadylivedtheexperienceandhaveanaccountofwhatDisneywas/istruly(withtheimpressionandopinionofit)andsecondtohaveanopinionofwhatthesameimaginesthatthecompanyoffers.

FINALCONSIDERATIONSThe development of this work allowed an analysis of how the combination of well-builtbrandingandeffectivemarketingexperiencecaninfluenceclientsandprospects.Todothis,wediscuss the importance of marketing strategies for building and strengthening a brand. Inanalyzingexploratoryresearchwithcustomersandprospectswenote thatDisneystrategiesalwayshave customer experience as themain focus.The fantastic attention todetail,makesyourvisitorshaveapersonalizedservice.Wecansee,analyzingtheresearch,thatmorethan90% of visitors had their expectations surpassed, even though they had a high level ofexpectationinknowingtheparks.AnotherfactorthatinfluencescustomersandprospectsisthestrongDisneyculture,whichisable to follow from children, who consume Disney products, to adulthood. This publiccontinues to follow the brand with fidelity, since 90% of respondents were people agedbetween19and30years.Withabrandingthat iswellalignedwithbrandvalues,eventhosewhohavenotyethadtheopportunity to go to one of the parks, canmake an allusion towhatDisney offers, bringingmuchexpectationtolivetheexperience.Finally, it is expected that thepresentworkwill contributeasa research source to studentsand professionals in the field of communication, who are interested in using experiencemarketingasamarketingstrategy,guidingthemtofollowexamplessuchasTheWaltDisneyCompany.Itisalsobelievedthatitcanserveasthebasisfornewentrepreneurs,pointingthefocusontheclientasakeypoint.ReferencesCHANNEL,History.ModernWonders:TheWorldofWaltDisney.Availableat:<https://www.youtube.com/watch?v=u5eHX80e9wA&t=530s>Accessedon27Jun.2018

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Volume 6, Issue 9 – Sep 2018 ISSN: 2054-7404

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