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 ILAKSHAN
XIMB JOURNAL OF MANAGEMENT
Volume V Issue No. 1 March, 2008

Xavier Institute of Management

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March, 2008 THE CREST OF THE XIMB
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 Contents
ARTICLES

1. An Analysis of Microfinance Rating Models S. K. Mitra, 1

Rajnish Ranjan
& Shivi Negi

2. Factors Affecting Emotional Intelligence:An Shamira Malekar 23

Empirical Study for Students of Secondary & R.P.Mohanty
Schools and Professional Colleges

3. Exchange Rate, FII and Stock Index Ajaysingh Rajput 43

Relationship in India & Keyur Thaker

4. Attribute Based Perceptual Mapping of Cement P.Shahida, 57

Brands: an Empirical Study Rajendra Nargundkar
& Gaurav Hiremath

5. Work Role Characteristics as Determinants J. Reeves Wesley 65

of Job Satisfaction: An empirical analysis & P.R. Muthuswamy

6. Empirical Examination of A Cost Allocation Ajay Kumar Pillai 75

Model: using the Theory of Planned Behaviour

7. Valuation of Intellectual Capital: The case of Nikhil R. Nayak, 93

Financial Services Industry in India Munmun Mohanty
& B. B. Mishra

8. Measuring Technical Efficiency of Coal Mines Sreekumar, 113

using Data Envelopment Analysis – A Case Rohita Kumar Mishra
Study of Mahanadi Coal Fields Ltd. & Debendra Kumar Mahalik

PERSPECTIVES

9. Beyond Whistleblowing: A Study on Socrates, Bibhu Prasan Patra 125

Satyendra and Manjunath

10. Private Equity — Gaining Momentum Naliniprava Tripathy 147

 MANAGEMENT CASES

11. Fabindia Overseas Private Limited B. Mohanty 157

& Rajeev Roy

12. BSNL – Making the Elephant Dance M. N. Tripathi 167

13. The Case of Raw Material Supply in the Wood Debadutta Kumar Panda 179
Carving Clusters of Orissa

BOOK REVIEWS

14. Managing Creativity D. Chakraborty 189

15. New Mantras in Corporate Corridors A.S. Abani 195

 An Analysis of Microfinance Rating Models*

S. K. Mitra,1 Rajnish Ranjan2 and Shivi Negi3

Abstract
Microfinance has emerged as a very important paradigm for meeting the credit requirements of poor
people, who were until recently outside the coverage of formal banking institutions. But a lack of
transparency in the microfinance sector and information asymmetry between microfinance institutions
(MFIs) and lenders have made lenders apprehensive of lending to MFIs. MFI rating is designed to
remove such constraints. There are around 16 rating agencies the world over. At present, in India only
two agencies are involved in MFI rating, and between them most of the ratings are done by M-CRIL.
These rating agencies adopt different methodologies, rating models, and rating scales for assessing the
performance of client MFIs. This study examines the increasing importance of MFI ratings in the
development of the microfinance sector. It looks at some of the popular rating agencies and their models,
and does a comparative analysis of these. It also examines the feedback received from different stakeholders
with respect to the ratings and the key challenges related to MFI rating. (For the abbreviations used in
this paper see Appendix - 1)

1.0 INTRODUCTION In other words, a microfinance institution

Microfinance is being accepted
increasingly as a powerful tool for the
social and economic empowerment of
marginalised communities, especially
women. Over time, microfinance has
come to include a broader range of
services (credit, savings, insurance, etc.)
as it was realised that the poor people
who lack access to traditional formal
financial institutions require a variety of
financial products.
(MFI) is an organisation that offers
financial services to low-income
populations. Within the microfinance
industry, the term microfinance
institution has come to refer to a wide
range of organisations dedicated to
providing these services, such as NGOs,
credit unions, co-operatives, private
commercial banks, and NBFCs. Diverse
operating models, legal forms, and
financing arrangements have resulted in
significant variation in the depth and

* Received November 20, 2008

1 Professor, Institute of Management Technology, Nagpur, email: skmitra@imt.ac.in
2 PG PRM Student (26th Batch), Institute of Rural Management, Anand,
email: rajnish2555@yahoo.com
3 PG PRM Student (26th Batch), Institute of Rural Management, Anand,
email: koolkiwi_08@yahoo.com
 2 Vilakshan, XIMB Journal of Management ; March, 2008
breadth of financial disclosure across
these institutions. Other than the leading
institutions, few MFIs follow global
financial disclosure guidelines for
microfinance. This has resulted in
growing disparity and information
asymmetry among the whole spectrum
of MFIs in terms of the way in which they
conduct their operations.
In addition, in recent years, it has been
observed that microfinance has had an
asymmetric growth across the country,
with instances of differences in the rates
of interest charged to the members being
brought to light. Concerns have been
expressed about the methods adopted by
MFIs to gain business, which raises
doubts about their long-term
sustainability. This situation has led to
the need for finding a way to identify
good MFIs from the point of view of both
donors and investors. Donors and
investors also want to know how well
their money is being managed by an MFI.
This calls for an evaluation mechanism
that can rate the credibility of an MFI in
terms of both credit and social
deliverables. All these issues have
encouraged the recent development of
MFI rating agencies as these ratings have
emerged as a solution in this regard. MFI
rating is a tool designed to overcome
problems with the availability, reliability,
and quality of information on the risks
and performance of MFIs.
2.0 MFI RATINGS : A BRIEF
A rating represents an assessment of a
specific debtor’s creditworthiness, that is,
of how likely it is that the MFI (debtor)
will repay the debt. It involves a detailed
assessment of an MFI’s creditworthiness
and forming an opinion on the relative
ability of the MFI to make timely
repayments of all loan obligations to
lenders.
As the microfinance rating industry
matures, microfinance rating services
have drawn attention increasingly from
investors and donors (Rating Fund 2005).
The total number of ratings and
assessments has grown by 84 per cent
in a span of four years recently, from
152 in 2001 to 281 in 2005 (Rating Fund
Market Survey 2005). It is estimated that
by 2005–06 more than 650 MFIs (around
more than half of all MFIs in the world)
will have been evaluated by an external
rating agency and will have also
updated their rating with a second
evaluation (Microfinance Rating and
Assessment Fu nd 2006). The large
majority of these are situated in Latin
America and Asia. This indicates the
growing realisation about the
importance of MFI ratings. It has been
now acknowledged that MFI ratings are
important not only for MFIs and
investors but also for the entire sector.
The importance of MFI ratings can be
gauged from Figure - 1.
The term rating is used usually as
shorthand for credit rating. In the early
phase of the development of MFI ratings,
it was mainly main stream raters that used
to rate MFIs. In this case, the MFIs were
benchmarked against the banking sector.
 Mitra et.al, An Analysis of Microfinance ... 3

Figure-1: Utility of MFI Rating

UTILITY OF MFI RATING

For MFI For Investors For the

Sector

• Obtaining • Identifying • Improved

funding MFIs access to data
• Comparing • Evaluating • Gaining trust
performance MFIs from sector
with other • Follow-up on and outside
MFIs funded MFIs
• Assessing
performance

It was only later when the demand for
rating agencies catering specifically to the
microfinance sector arose that specialised
MFI raters emerged to meet the needs
of this niche market. For instance,
ACCIÓN International adapted the
CAMEL approach to the analysis of
financial institutions in evaluating their
affiliate MFIs in the early 1990s. The idea
of creating a specialised rating agency
(oriented toward investors) emerged
only later with the creation of Micro Rate
in 1996. Specialised rating for
microfinance most closely resembles
main stream rating, although it goes
beyond mere payment capacity to capture
aspects of institutional performance
particular to microfinance.
Sixteen rating agencies are now active in
this market. If the MFI industry is still
young, MFI rating agencies are even
younger. Since the first rating agency was
established in 1996, many other MFI
rating agencies have come into the
market with their own models and
methodologies for assessing the
performance of the client MFI.
3.0 OBJECTIVES OF THE STUDY
In the study, an analysis of various
microfinance rating agencies has been
done. In addition, their methodologies
have been compared with the following
objectives in mind:
• To gain an in-depth understanding
of the different MFI rating models
of the various rating agencies.
• To do a comparative study of the
different rating agencies and their
models.
 4 Vilakshan, XIMB Journal of Management ; March, 2008

• To learn about the viewpoints of the
stakeholders with respect to MFI
ratings, that is, the MFIs themselves,
banks, and capital providers like
Units and NABARD.
3.1 Rating Agencies Selected for the
Study
To meet the first two objectives of our
study, we chose six rating agencies (see
Table-1) out of the 16 rating agencies that
are involved in MFI rating the world
over. In choosing the rating agencies, we
have taken three parameters into
consideration. The first parameter is the
experience of the rating agency, which is
given by the number of MFI ratings that
it has conducted. A rating agency like
JCR-VIS was not considered because of
this reason, as it had done only five MFI
ratings until 2005 (www.ratingfund.org).
The second parameter is the availability
of secondary information about the
rating agency on the Internet and through
other sources. There is very little
information available about PEARLS.
Consequently, it could not be studied.
The third parameter is the availability of
the reports in English on the Internet. A
rating agency like Apoyo and Asociados
does not have its rating reports and
related articles available in English on the
Internet. Consequently, it could not be
studied.
Of the six rating agencies selected for the
study, we have taken two reports of the

Table-1: List of the Rating Agencies Studied

Rating Rating Rated MFI Rating Number
Agency Model Obtained of MFI
Ratings done
until 2005
ACCIÓN CAMEL 1. ‘Bereke’ Kazakhstan 3.42 / 5 NA
International Microcredit organisation
2. SOEGSOL 2.89/ 5
MicroRate - 1. Amhara Credit & α- 280
Savings Institution
2. CMF β
Microfinanza srl - 1. SEF International Ltd BB+ 90
2. ACME BBB+
Planet Rating GIRAFE 1. ABA A- 165
2. ECLOF D
CRISIL MICROS 1. ESAF mfR5 18
2. BASIX mfR2
M-CRIL - 1. Spandana α+ 365
2. Grameen Koota β (Nov. 2006)

MFI rating for each
(www.mixmarket.com). Care has been
taken to take one report with a rating on
the higher side of the rating scale and
another with a rating on the lower side.
For a better understanding of the rating
methodology of each of the rating models
used by these agencies, we have taken
the help of the technical guides issued by
these agencies. Thus, 12 rating or
assessment reports (two from each of the
six rating agencies) completed between
2000 and 2006 were selected for our study
(see Table - 1).
3.2 An Overview of the Selected Rating
Agencies
3.2.1 ACCIÓN International
The original CAMEL was developed in
1978 by the US Federal Reserve to
evaluate the solvency of US banks. In
1993, ACCIÓN adapted CAMEL to the
needs of microfinance. ACCIÓN does not
issue credit ratings, but uses CAMEL as
an institutional assessment tool. The
majority of ACCIÓN’s clients are
affiliates of their network, and most of
their reviews are conducted in Africa and
Latin America. ACCIÓN CAMEL
reviews and rates five areas of financial
and managerial performance: capital
adequacy, asset quality, management,
earnings, and liquidity management.
3.2.2 Micro Rate
Micro Rate is a US company specialising
in the rating of Latin American MFIs. It
is the leading and also the oldest rating
agency specialising in the evaluation of
Mitra et.al, An Analysis of Microfinance ... 5
MFIs. Micro Rate has evolved a risk-
driven methodology that combines the
measuring of credit worthiness with an
assessment of an institution’s excellence
in microfinance. Rather than following a
formula, evaluation teams use their
experience to identify those areas critical
to the performance of the particular MFI.
Micro Rate analyses five areas of MFI
performance and risk: microfinance
operations, portfolio quality,
management and organisation,
governance and strategic positioning,
and financial performance.
3.2.3 MicroFinanza
MicroFinanza Rating was created in 2001
as a division of MicroFinanza Srl.
Mic roFinanza Rating has wide
experience in rating and assessing MFIs
with different legal structures and in
operating in various economic, political,
and legal environments, and in both
rural and urban contexts. Its rating
methodology is based on quantitative
and qualitative assessment factors. The
quantitative analysis is always
integrated with the description and put
in the context of the used indicators. The
qualitative analysis includes a careful
evaluation of institutional ownership,
governance, and market positioning, as
well as a complete assessment of the
different organisational, operational,
and management aspects. The rating
scale and grades are synthetic
evaluations of the credit risk and
fiduciary risk profile of the MFI rated
by MicroFinanza.
 6 Vilakshan, XIMB Journal of Management ; March, 2008
3.2.4 Planet Rating
Planet Rating was created in 1999 as a
department of the international
microfinance NGO, Planet Finance. Later
on it became an independent agency
specialising in MF ratings. Planet Rating
is a European company that evaluates
MFIs worldwide. Its goal is to help MFIs
attract new sources of financing, to build
the capacity for MFI self-evaluation, and
to promote transparency in the
microfinance sector. Planet Rating
provides rating services based on the
GIRAFE methodology, which takes into
account G-Governance, I-Information,
R-Risk management, A-Activities and
services, F-Financing and liquidity, and
E-Efficiency and profitability. Planet
Rating currently is testing a new
component for its evaluation system.
GIRAFE-S is an assessment of an MFI’s
effort to make a positive social impact on
its clients’ welfare by meeting unsatisfied
demand for credit and other financial
services and by expanding the overall
opportunities for clients.
3.2.5 CRISIL
CRISIL was established in 1987. It was
the first credit rating agency to undertake
ratings for entities such as banks, financial
institutions, utilities, municipal bodies,
insurance companies, and green-field
projects, as well as for new instruments
such as asset and mortgage-backed
securities and other structured
obligations. CRISIL, which is India’s
premier credit rating agency, also
features among the top four rating
agencies in the world in terms of both its
coverage and its analytical strength.
CRISIL uses the MICROS methodology,
specifically designed for MFIs, which
stands for Management, Institutional
arrangement, Capital adequacy and asset
quality, Resources, Operational
effectiveness, and Scalability and
sustainability. The thrust is on the MFI’s
management ability, institutional
arrangement, and financial strength to
sustain and scale up operations.
3.2.6 M-CRIL
M-CRIL is the world’s no. 1 microfinance
rating agency (http://
www.mixmarket.org). The mission of M-
CRIL is to facilitate the delivery of
microfinance services in the developing
countries of Asia by minimising
information asymmetry and mitigating
the limitations caused by lack of relations
between commercial investors and MFIs.
M-CRIL’s methodology groups 30
indicators under three broad areas—
governance and organisational aspects,
management systems and human
resources, and financial strength.
4.0 COMPARISON OF THE DIFFERENT RAT-
ING AGENCIES AND THEIR MODELS
4.1 Market Share of the Rating Agencies
Out of the six rating agencies studied,
only one (CRISIL) is a main stream rater
while the other five are specialised rating
agencies. All are recently established
agencies, with the oldest being ACCIÓN
CAMEL, which started MFI ratings in
1993. Micro Rate, which was established

in 1996 and which started MFI ratings in
1997, is the first and oldest specialised
MFI rating agency in the world. Though
CRISIL was established in 1987, it started
MFI ratings only in 2001. Amongst the
six rating agencies examined in this study,
CRISIL and MicroFinanza entered the
MFI rating industry most recently, that
is, in 2001.
As per the findings of the Rating Fund
Market Survey 2004–05, M-CRIL is the
most active specialised agency, with 44
per cent of global assessments performed
Table -2: Top Three Rating Agencies in Different Regions of the World (2004–05)
First
Asia M-CRIL (75%)
Sub-Saharan Africa Micro Rate (66%)
CEE/NIS MicroFinanza (64%)
MENA Planet Rating (91%)
4.2 Regarding Rating Models and
Reports
Most of the MFI evaluations reviewed
here demonstrate depth, variety (in terms
of coverage), and consistency (in terms
of a clear methodology). Ratings and
assessments of MFIs focus more on asset
quality and efficiency in order to attract
investments. In recent times, the social
performance of MFIs has also gained
importance. All rating agencies have
chosen to establish their own
methodologies to rate MFIs. ACCIÓN-
CAMEL uses CAMEL, Planet Rating uses
GIRAFE, while CRISIL uses the MICROS
model.
Mitra et.al, An Analysis of Microfinance ... 7
in 2004–2005. Micro Rate comes second,
with 24 per cent of total assessments
completed worldwide. Planet Rating and
MicroFinanza follow next, with 19 per
cent and 13 per cent respectively. Among
the main stream rating agencies, CRISIL
contributed 20 per cent of all credit risk
ratings performed globally in 2004–05
(Rating Fund Market Survey 2005). The
Fund Market Survey 2004–05 has done
the rating of rating agencies and the top
three rating agencies in different regions
of the world are shown in Table-2
Second Third
CRISIL (21%) JCR-VIS (3%)
Planet Rating (31%) MicroFinanza (3%)
Planet Rating (34%) M-CRIL (3%)
MicroFinanza (9%)
Different rating agencies use different
scales. These are difficult to compare
because those using the same grades do
not always assign the same meaning to
the grades. The scales are very different,
with their own definitions, and hence it
is difficult to relate the scores assigned
to MFIs by several raters.
Out of the six MFI rating agencies, only
three claim to study the social performance
of MFIs: MicroFinanza, Planet Rating, and
M-CRIL. Planet Rating has developed the
GIRAFE-S model, which includes social
evaluation and is based on CERISE. The
first MFI assessed under this methodology
was Enda, from Tunisia, in 2005. M-CRIL
 8 Vilakshan, XIMB Journal of Management ; March, 2008
has recently launched a new social rating
service for MFIs. This social rating
considers the MFI’s adherence to its social
mission, the depth of outreach to low-
income clients, and the suitability of
products to client needs. In 2004, M-CRIL
conducted a pilot rating exercise in India,
evaluating the social performance of
Bullockcart Workers Development
Association (BWDA).
Generally, two kinds of reports are
offered by rating agencies. One is the
credit rating report and the other is the
risk assessment report.
4.2.1 Credit Rating Report.
Out of the six rating agencies that we
studied, four (CRISIL, M-CRIL, Micro
Rate, and MicroFinanza) give credit
rating reports that present their views on
the creditworthiness of MFIs. They all
give overall credit rating reports, and
their methodologies concentrate on
evaluating the financial soundness of the
organisation. Two agencies, Micro Rate
and M-CRIL, have adapted their
methodologies to offer both a credit
rating and a global risk rating.
4.2.2 Risk Assessment Report
Five rating agencies (ACCIÓN, CRISIL,
M-CRIL, Micro Rate, and Planet Rating)
give risk assessment reports that are
broader than credit reports but that
may not include some points that are
of interest to investors, suc h as
probability of default by MFIs. In these
reports, the agencies issu e an
assessment of different components
along with the item sc ores of the
component. Some agencies also issue a
c omposite sc ore (ACCIÓ N with
CAMEL, CRISIL with MICROS, and
Planet Rating with GIRAFE).
4.3 Rating Parameters
Rating reports consider certain common
parameters in assessing the performance
of the client MFI for the purpose of rating.
These parameters and our findings on
these parameters are as follows:
4.3.1 External Risks
Three rating agencies (MicroFinanza,
CRISIL, and Planet Rating) give their
opinions on the c onditions of the
cou ntry’s ec onomy and the
microfinance sector. They also study
the levels of competition and regulation
in the sector.
4.3.2 Internal Risks
The most important systems for avoiding
internal risks are internal control
systems and MIS. All the models
examined these two aspects in detail.
They provide sufficient information
about the organisations’ internal control
system designed to avoid fraud and to
keep a check on operations. They also
give details about the kind of MIS and
loan-trac king system that an
organisation has.
4.3.3 Credit Risks
All rating reports give details about the
financial condition of MFIs. The portfolio
 Mitra et.al, An Analysis of Microfinance ... 9

at risk (PAR) has emerged as the most 4.3.6 Adjustments

important ratio for representing the
quality of a portfolio. In addition, all All the rating agencies make the
reports give the write-off ratios and the following adjustments in the financial
loan-loss reserves. statements of the MFI in order to present
the true picture:
4.3.4 Profitability
All the reports give details of the • Loan write-offs removed from the
profitability of MFIs. All the ratings use balance-sheet portfolio
Return on Equity (ROE) and Return on
Assets (ROA) to show the profitability • Inflation adjustments
of MFIs. In addition, all ratings use • Adjustments for subsidised debt
Operational Self-Sufficiency (OSS) and
interest (example: reflect what the
Financial Self- Sufficiency (FSS) to show
MFI should have paid to clients for
whether an organisation is earning
mandatory savings)
enough revenue to meet its expenses or
not. • Shadow expenses of the value of
4.3.5 Efficiency implicit subsidies
Cost per borrower and loan officer per 4.4 Comparison of the Rating Models
account are two important parameters
that are used to judge the efficiency of The six rating agencies and their models
MFIs. Operating expense ratio is also along with rating methodologies have
used by all rating agencies to find the been shown in a comparative manner in
level of expenses. Table -3.
Table-3: Comparative Analysis of the MFI Rating Agencies and their Models
Parameter ACCIÓN Micro Rate Planet CRISIL M-CRIL Micro
International Rating Finanza
ABOUT THE MFI RATING AGENCY
Started MFI 1993 1997 1999 2001 1998 2001
rating from
Regional Latin Latin Africa, South Asia, South Asia, CEE/NIS,
coverage America, America, Latin South-east South-east Latin
(2004) Africa Africa America, Asia Asia America,
East Asia, South-east
CEE/NIS
Asia,
MENA,
Africa
10 Vilakshan, XIMB Journal of Management ; March, 2008

Products 1. Risk 1. Credit 1. Ratings 1.Credit 1.Credit 1.Institu-

and ratings 2. Pro-forma rating rating tional
assessment
2.Risk
services rating 2.Risk diagnostic
2. Training 2. Global assessment
offered 3. Training assessment 3.Specia- 2.Assess-
risk
4. Consultancy lised studies ment/
assessment
work for of the MF private
apex sector rating
4.Inter-
institutions 3.Rating
national
5. Customised Best 4. SPA
evaluation Practices (Social
services Advisory Perfor-
6. GIRAFE-S Services mance
5.Quarterly
Assess-
monitoring
6.Social ment)
rating
Price range NA Fees for Fee for Fee for Fee for Fee for
credit rating global risk global risk credit global risk
$15,000;For assessment assessment ratings assessment
global risk $8,000– Lowest $5,000– $8,000–
assessment $15,500 charge: $11,000 $15,500
$7,000– $6,500;
$15,000;
Highest
Annual
charge:
updates
$5,000– $10,800
$8,000
ABOUT THE RATING MODEL

No. of 21 - 26 M: 30 •Governance
indicators management &
C-capital •Microfinance G: I: The operational
used for adequacy operations governance indicators
rating institutional structure
A-asset arrangement cover three
quality •Portfolio I:information main areas: •Assets
quality R: risk C: capital
M- • Organisa- structure &
management adequacy & tional &
management •Management A: activities quality§
E-earnings & asset governance Internal
& services quality
L-liquidity organisation aspects control &
management F: financing R: risk
•Governance & liquidity resources •Managerial management
& strategic & resource
positioning E: efficiency O: strength •Financial
& operational structure
•Financial effectiveness •Financial
profitability Strategic
performance S: performance objectives
scalability & & financial
sustainability needs
 Mitra et.al, An Analysis of Microfinance ... 11

Quantitative 46% 30% 43% 45% 51% 40%

Qualitative 54% 70% 57% 55% 49% 60%
Rating scale Rating is Excellence Issues a 8-point From α+++ 10 grades,
given on a in composite grading to y from AAA
scale of 0 to Microfinance score scale of (highest)
5. This – α++ to γ- ranging from mfR1 to to D
corresponds Credit 0 to 5.Global mfR8, with (lowest
to an rating – rating is mfR1 being
alphabetical AAA to given the highest
rating of DDShort- ranging from rating and
AAA to D. term debt – G1 to G5; mfR8 being
A1+ to C Composite the lowest
rating is rating
given
ranging from
e to a.
KEY DIFFERENTIATING FACTORS

Highlights of Very • Short • Exhaustive •Well •Rating Ratings

report compre- analytical factual detail balanced opinion include a
hensive report with in both geared risk
benchmarking factual and more profile
comparisons performance towards and
inputs credit risk bench
•Well
and marking
balanced in •Clear
repayment analysis,
both factual definition
capacity and
and of risk
consider
performance level •Bench-
carefully
analysis marking of
•Strong on the
key
comments specific
parameters
in capacity operational
against
constraints, environ-
MFIs in M-
management, ment and
CRIL’s
governance, the target
existing
best market of
database
practices, the MFI
track •Comments
record, and on the risk
bench- grade and
marking the
suggested
lending
amount and
conditions
12 Vilakshan, XIMB Journal of Management ; March, 2008

Salient •Conducts a •Tracks •Has very •Rates •M-CRIL is •Ratings

features very changes in good MFIs/ the pioneer include a
detailed MFI understanding NGOs in social risk profile
assessment funding of the MF internation- rating. and
sources sector ally to take benchmarking
•Focuses •Although
into analysis,
more on •Benchmarks •Offers M-CRIL
account and
sustainability MFIs to variety of ratings are
external consider
peers in a products and valid only
•Very risks carefully
semi- services for one
strong on factors the specific
annual MFI year, the
financial •Gives more operational
comparison •Has rating
aspects like weight to environment
adopted recommen-
capital •Compares ‘fiduciary’ and the
hybrid MF dations
adequacy MFIs on risk target
rating keep in
and asset performance market of
• Metho- model, view the
management. and risk the MFI
dology which long-term
•Does not focuses includes prospects of •Assesses
apply a rigid more on both credit the rated the
rating management risk and organisation achieve-
formula; than on risk risk ment of
rating teams assessments •Maintains the MFI’s
use their for MFIs a compre- double
experience to hensive bottom
•High database of line
identify
domain all its rating through
those areas
knowledge actions,
critical to the its social
of the which is
performance rating
financial used for
of the
sector bench-
particular
MFI marking
MFIs

Approach Strong on Strong on Strong on Strong on Strong on

bias manage- financial manage- financial capacity
ment, track ment, parameters constraints
profitability, record and governance, based on
and bench- and best specific
benchmark- marking practices issues
ing against
practices peers
What it •Does not •Does not •Does not •MF •Does not •Less
does not measure provide currently grading is take into focus on
take into credit risk real ratings rate the not a credit account internal
account but rather credit risk rating and external control
•Does not does not
offers a of an MFI environmental system.
rate the indicate the
rationale and make it factors
institution
 Mitra et.al, An Analysis of Microfinance ... 13

in terms of for an available credit •Less focus

its impact opinion on to worthiness on systems
at the client the MFI’s investors of an MFI and
level credit (obligor) procedures
worthiness
•Only •MF
those •Does not grading
aspects that provide cannot also
the consulting be
‘market’ services compared
assesses as with a
important credit
are rating
included in assigned to
the rating a debt
instrument
of the same
MFI

5.0 VIEWS OF STAKEHOLDERS ON MFI RAT-
INGS
Meetings were set up to elicit the opinions
of the different stakeholders—MFIs,
banks, Unitus, and NABARD—on the
issue of MFI ratings. The list of the
various stakeholders visited is given in
Appendix 2.
5.1 Feedback of MFIs on Ratings
Feedback was sought from the eight MFIs
situated in and around Hyderabad and
Bangalore on their experience with
ratings. The trend that emerged was that
the MFI would go in for a rating only
when it was in need of funds and the
creditor had laid out the rating as
essential. Thus, many MFIs like Outreach
have gone in for a rating only when it
was required for SIDBI funding. Only a
few MFIs like Grameen Koota have gone
in for a rating from the view of
performance evaluation. Some MFIs like
Outreach have not gone in for a rating
for the last few years as they were in a
consolidation phase and were not in need
of funds.
In general, MFIs were satisfied with the
services of the rating agencies. MFIs
found the rating reports very helpful in
identifying the strengths and weaknesses
of their organisations and in identifying
the areas for improvement. Rating reports
are also used to attract new sources of
funding, to appear more transparent to
current and potential partners and
funders, and to benchmark performance
with other institutions. The general
feedback on the present rating model was
that it is skewed towards the financials.
The social impact of the MFI is not taken
into account while conducting a rating.
Some of the MFIs also demanded that
their performance should be measured
in terms of the achievement of their
mission and vision. All the MFIs agreed
 14 Vilakshan, XIMB Journal of Management ; March, 2008
that social rating is important, but they
have different opinions on the question
of how this should be done. BSS felt that
the same rating should incorporate both
credit and social parameters. On the
other hand, Ujjivan felt that it would be
better to have different ratings for credit
and social purposes.
Recognition of the rating by the lenders,
both national and international, is very
important. This fact came to light through
the experience of SKS. Until recently, SKS
was able to meet its credit requirements
through national lenders like banks. In
this situation, the rating by M-CRIL came
in handy as M-CRIL is a specialised rating
agency for MFIs and has a good brand
value in this sector. But now, because of
rapid growth, the credit requirement of
SKS has grown tremendously. For this
reason it is on the lookout for
international lenders and for funds from
the capital market. Keeping this in mind,
SKS has decided to go in for a CRISIL
rating this year. The reason given for this
by Jennifer Leonard, VP Finance, SKS
was that CRISIL has a wider appeal than
M-CRIL, which extends beyond the
microfinance sector in India. For global
transactions, SKS would go in for a rating
by Fitch in the future, she said.
Among the things that MFIs did not like
about the raters’ methodology was the
lack of flexibility in adapting the
methodology to the local context. There
is a demand and a need for a flexible
rating model that provides reasonable
scope for customisation according to the
needs of the client MFI. This point was
brought to light by ASP and Sharada’s
Women’s Association for Weaker Section
It was felt that the current rating models
are too rigid in their approach.
An often repeated complaint of the MFIs
regarding the rating agencies is the lack
of interaction between MFIs and field
workers. The raters only interview board
members and do not interact much with
the field staff and SHG members. The
MFIs felt that to get the full picture, the
raters should interact more with the
people working at the grass-roots level
in the organisation. According to them,
the time spent on site was too short. The
MFIs also expressed the need for more
experienced and professional raters.
Grameen Koota, ASP, Ujjivan, and
Sharada’s Women’s Association for
Weaker Section were not satisfied with
the qualifications and field experiences
of the raters. In their opinion, the raters
had not been in this field long enough to
understand the intricacies of the
microfinance sector well.
In addition, some MFIs like Grameen
Koota felt that there is a lack of practical
recommendations in the final report. The
CEO of Grameen Koota expressed the
view that the rating does not bring out
anything new for them. It only helps to
confirm what the organisation already
feels and knows about its strengths and
weaknesses. Thus, there are no surprises
in the rating report for the organisation.
MFIs feel that too much attention is paid
to past activities and operations and that

not enough attention is paid to the future
prospects of the organisation.
Another dimension brought to light was
by ASP. ASP pointed to the fact that
current ratings are not suitable for
measuring the performance of a co-
operative. A separate rating model is
required for co-operative-based MFIs.
APMAS with a strategic alliance with M-
CRIL is catering to this niche market.
Grameen Koota brought forth the issue
that the ratings done, especially those
conducted by M-CRIL, are too
conservative in their projections. The
CEO of Grameen Koota said that there
is a need for a more optimistic outlook.
He said that the degree of awareness
among MFIs about their weaknesses
should also be considered in the rating.
With regard to the issue of
benchmarking, MFIs (Grameen Koota,
Ujjivan) expressed the view that it is
helpful, but added that it should be done
with respect to legal form as well as to
the geographical environment in which
an MFI is operating. Benchmarking
should also be done on the social
performance of the MFI. The need for
sensitivity analysis, competitor analysis,
and environment analysis in the rating
reports was expressed by Ujjivan.
5.2 Feedback of Banks and Investors on
Ratings
Investors require a rating report before
investing in an MFI. Investors use reports
mostly for initial background screening,
monitoring, and investment picking. All
Mitra et.al, An Analysis of Microfinance ... 15
of them consider rating reports as
complementary to their own due
diligence. For example, ICICI carries out
an internal assessment procedure to find
out the credit worthiness of an MFI. This
consists of nine-point assessment criteria;
it generally checks the history of the
credit performance and reliability of the
promoters. Investors save some due-
diligence time by using rating reports.
The most useful sections in rating reports
are credit risk, PAR, portfolio
composition, profitability and efficiency,
internal risks, management, principal
process, and systems. Investors would
like to see more information on cash flow
and solvency projections; social
indicators and impact; country risk;
interest rate risk; and law, regulation, and
financial markets. The importance
attributed to the grading in rating reports
varies. It was stressed that grades could
be very useful, but only when the reports
are standardised and are based on
probability of default. In general,
investors use and appreciate access to
rating reports, but would prefer it if
rating reports adopted a more
standardised format. At present, there
seems to be too much diversity in the
methodology used by specialised raters,
which is confusing for investors who are
not familiar with the different rating
agencies.
5.3 Feedback of NABARD on Ratings
Through its funding requirements, SIDBI
has contributed significantly to the
demand for ratings by MFIs, thus
 16 Vilakshan, XIMB Journal of Management ; March, 2008
enhancing transparency in the sector.
NABARD has recently followed suit with
the establishment of the MFI Grading
Scheme in partnership with CRISIL,
whereby it agrees to fund the ratings of
small and medium-sized institutions with
the purpose of increasing the amount of
bank credit available to them. Under this
scheme, small and medium-sized MFIs
and their potential bank partners are
reimbursed for the professional fee of
obtaining an MFI grading from CRISIL.
The most extensive information on the
microfinance sector is held by SIDBI (40
MFIs) and NABARD (>100 such
organisations).
According to Mr Krishnan Jindal, Deputy
General Manager, one of the key factors
for the success of MFIs is their capacity
to deliver. The success of an MFI rests
on two pillars: scale and sustainability.
Scale refers to the MFI’s reach among the
target market, or client
coverage. Sustainability refers to the cost
of providing financial services after
suitable adjustments have been made.
Some of the problems faced by MFIs in
this context are: weak institutional
capacity; lack of a viable and sustainable
delivery system; relatively small financial
base; and huge investment requirements
in staff training and client orientation.
These constraints militate against any
attempt to reach a greater number of the
target clientele in an effective and
efficient manner. Another point is that
in the very short run, MFIs may be able
to expand their present reach because of
donations and other subsidies, but unless
they become viable and sustainable, the
effort cannot be sustained. The above
problems faced by MFIs are the key risk
factors that need to be assessed in
evolving a suitable rating methodology
for them.
5.4 Feedback of Unitus on Ratings
The opinion of Unitus was that for any
MFI rating model to be successful, the
rating parameters need to be
standardized in line with the CGAP
guidelines on financial ratios. Unitus
personnel also expressed the view that
the rating market in India is now mature
enough to bear some cost of the ratings.
Nevertheless, funding would be required
for some more time.
6.0 KEY CHALLENGES FACING
MICROFINANCE ASSESSMENTS
Microfinance assessments can contribute
to improving transparency in the field of
microfinance. However, we realised that
several challenges with regard to ratings
require attention: improving information,
standardising indicators and definitions,
increasing the frequency of assessments,
and reducing their costs.
6.1 Improving information
Microfinance assessments begin with the
information provided by the MFI in its
financial statements and operational
records. However, this information is
not always accurate or complete. The
industry has much work to do in
developing appropriate and reliable
internal information systems, as well as

strengthening internal controls and
audits.
6.2 Standardising indicators and their
definitions
It has been found that widely agreed
upon definitions exist only for a few
terms, such as average loan balance,
operational efficiency, adjusted return on
assets, adjusted return on equity, and
return on average assets. The resulting
confusion leads to frequent
misinterpretation of indicators.
Definitions of indicators will have to be
clarified and standardised so that the
microfinance industry can have a
language for evaluation that everyone can
speak and understand.
6.3 Increasing frequency of reporting
MFI assets tend to be short term, with
loan terms as short as three months.
Because micro loans are typically
unsecured, loan repayment can be much
more volatile in the case of MFIs than in
the case of commercial banks. Thus, the
financial position of MFIs can deteriorate
seriously over the course of a month or
two. In light of this, the prevailing
reporting cycles for MFIs—quarterly,
semi-annual, or even yearly—are often
not frequent enough. This pattern makes
it hard to monitor MFIs effectively. In
addition, once an MFI has been rated or
evaluated, the report is meaningful only
for a short period of time, generally for
one year. From an investor’s point of
view, a yearly update is a minimum
requirement, since the volume and type
of financing needed by an MFI—as well
Mitra et.al, An Analysis of Microfinance ... 17
as the risk of that MFI—are changing
continuously.
6.4 Reducing costs of assessments
The cost of rating an MFI according to
best standards is estimated by ACCIÓN,
Micro Rate, and Planet Finance at
between US$5,000 and US$25,000 In
India, the M-CRIL rating costs around Rs
2 lakh, while the CRISIL rating costs
around Rs 9 lakh. Most of the ratings are
still subsidised by either SIDBI or
NABARD. Thus, there is a need for
coming up with new rating agencies that
can deliver ratings at a reasonable cost.
The challenge for the agencies is to re-
engineer their assessment systems,
reducing costs without unduly lowering
quality standards.
7.0 KEY FINDINGS
• This study of different MFI rating
agencies and their methodologies
has brought out several key issues
pertaining to ratings. The first issue
relates to the current scenario of
rating in India. In India, there are
only two players active in the rating
market. These are M-CRIL and
CRISIL. Between the two, M-CRIL
has done the majority of the ratings.
The factors that have contributed to
its popularity are lower pricing and
a good brand name, which comes
from being an established and
specialised rating agency.
Interactions with MFIs revealed that
the key factors that could provide a
comparative advantage to a new
rating agency in India are pricing,
 18 Vilakshan, XIMB Journal of Management ; March, 2008
time taken, and field experience of
rater personnel.
7.1 Social Ratings
Credit rating and global risk assessment
both pay more attention to the financial
sustainability of the organisation.
Though financial sustainability is no
doubt important, it reveals only half of
the microfinance story. Most of the MFIs
also have a social mission, such as
providing credit support to families
hitherto excluded from the banking
sector and thus reducing their
vulnerability and poverty. Thus, the
performance of any MFI needs to be
understood in the context of its social
mission in order to get a complete
picture.
This gap is sought to be filled by social
ratings. Social rating basically assesses
how far an MFI has been able to achieve
its social mission in accordance with
accepted social values. Thus, credit rating
combined with social rating enables a
comparison of both the financial and
social performances of MFIs. In this way,
social rating helps in assessing the double
bottom line of MFIs. Thus, it serves three
purposes. First, it is a useful aid for both
investors and donors in evaluating an
MFI and accordingly making effective use
of their microfinance resources in terms
of investments in this sector. Second, it
also helps MFIs in improving their social
performance just as credit ratings help
them in improving their financial
performance by providing a valuable
basis for assessment. Third, it helps in
benchmarking social performance across
the whole microfinance industry.
Previously, only two MFI rating
agencies—MicroFinanza and Planet
Rating—used to provide social ratings.
But seeing its potential and the demand
from both MFIs and donors, M-CRIL has
recently introduced a social rating
product to meet this requirement of
various interest groups.
8.0 CONCLUDING REMARKS
In recent years, the demand for
microfinance ratings has increased in
both India and abroad. In India, although
at present only M-CRIL and CRISIL are
active players in this market, there is
room for new entrants, which would
ensure healthy competition. Many rating
agencies have invested in product
diversification and have expanded the
range of services they offer to meet the
new demands of MFI clients. Realising
the importance of meeting the specific
requirements of the microfinance sector,
many specialised rating agencies are now
extending their range of rating services
to include social performance
assessments for donors and MFI
management, and mini-ratings for
smaller and/or younger MFIs that are
not yet ready to go in for a full-fledged
rating. Other add-ons like institutional
diagnostics, country analyses, and
investment fund ratings are being
incorporated currently into the rating
report to present a more holistic view.
As a result of this product diversification
and the expansion into new areas,

competition among the rating agencies,
especially in India, is expected to become
more intense.
The development of MFIs has in turn led
to the emergence of specialised MFI
rating agencies. These agencies play a
very important role as they provide
valuable information to both donors and
investors about MFI performance. By
doing so, they contribute to promoting
transparency in the microfinance sector,
which is an indispensable quality. Thus,
for the development of the microfinance
sector, ratings should be encouraged as
these are beneficial for every stakeholder
in this field.
REFERENCES
ACCION (2006) “Accion Camel,” Accessed from
the website of ACCION, http://
www.accion.org/camel.asp
CGAP (2003) “Definitions of Selected Financial
Terms, Ratios, and Adjustments for
Microfinance” Accessed from the website of
http://www.cgap.org/portal/binary/
com.epicentric.contentmanagement.servlet.
Co nt en tD el iv er ySe rv le t/Do cume nt s/
Guideline_definitions.pdf Microfinance
Consensus Guidelines, September 2003.
CRISIL (2006) “The NABARD-CRISIL MFI
Grading Scheme,” Accessed from the website
of CRISIL, http://www.crisil.com/credit-
ratings-risk-assessment/nabard-crisil-mfi-
grading-scheme.htm
Ghate, Prabhu (2006) “Microfinance in India: A
State of the Sector Report, 2006,” Accessed
from the website of Microfinance India,
www.microfinanceindia.org/
index.asp?P=L&ID=38
Mitra et.al, An Analysis of Microfinance ... 19
M-CRIL (2006) “Rating of Microfinance
Institutions,” Accessed from the website of
M-Cril, http://www.m-cril.com/
services.html
Microfinance Rating and Assessment Fund
(2006) “Microfinance Ratings: Raising
Awareness Among MFIs.” . Accessed from
the website of Rating Fund,
w w w . r a t i n g f u n d . o r g /
document_view.aspx?id=79
MICROFINAZA (2006) “Microfinanza Rating,”
Accessed from the website of Microfinanza,
www.microfinanza.com/Site/Inglese/
Services.htm
MICRORATE (2006) “The MicroRate
Methodology,” Accessed from the website
of Microrate, http://www.microrate.com/
rat-metho.html
MixMarket (2006) “Partners (Market
Facilitations)”, Accessed from the website of
The Mix Market, http://
w w w . m i x m a r k e t . o r g / e n /p a r t n e r s /
partners.quick.search.asp
Planet Rating (2006) “GIRAFE methodology,”
Accessed from the website of Planet rating,
h t t p : //w w w . p l a n e t r a t i n g . co m /E N /
methode.php
Rating Fund (2005) “Key data on the MF Rating
Industry and the Rating Fund-II Forum on
MFI Ratings: Towards a Sustainable Market.”
Accessed from the website of Rating Fund,
w w w . r a t i n g f u n d . o r g /
document_view.aspx?id=42
Rating Fund Market Survey (2005) “The
Microfinance Rating Market Outlook.”
Accessed from the website of Rating Fund,
w w w . r a t i n g f u n d . o r g /
document_view.aspx?id=70
 20 Vilakshan, XIMB Journal of Management ; March, 2008
Rosenberg, Richard (2003) “Core performance
indicators for Microfinance,” Accessed from
the website of CGAP, http://cgap.org/
p o r t a l / b i n a r y / c o m .
epicentric.contentmanagement. servlet.
Co nt en tD el iv er ySe rv le t/Do cume nt s/
Core_Performance.pdf
Rosenberg, Richard et al (2003) “Microfinance
consensus guidelines: Disclosure guidelines
for financial reporting by microfinance
institutions,” Accessed from the website of
CGAP,
h ttp://w w w .th e m ix.org /s tan d a rd s /
CGAP_2003_Microfinance_Consensus_
Guidelines_Disclosure.pdf
Sinha, Sanjay et al (2003) “Risk management in
microfinance: How M-CRIL supports the
provision of financial services to low income
clients,” Accessed from the website of M-
CRIL , http://m-cril.com/publications.html
 Mitra et.al, An Analysis of Microfinance ... 21

APPENDIX 1
LIST OF ABBREVIATIONS

APMAS Andhra Pradesh Mahila Abhivruddhi Society

ASP Ankuram-Sangamam-Poram
BSS Bharatha Swamukti Samsthe
CEE Central and Eastern Europe
CEO Chief Executive Officer
CERISE Centre for Russian International Socio-Political and Economic Studies
CGAP Consultative Group to Assist the Poor
FSS Financial Self-Sufficiency
ICICI Industrial Credit and Investment Corporation of India
M-CRIL Micro-Credit Ratings International Ltd
MENA Middle East and North Africa
MFI Microfinance Institution
NABARD National Bank for Agriculture and Rural Development
NBFC Non-Banking Financial Company
NGO Non-Governmental Organisation
NIS Newly Independent State
OSS Operational Self-Sufficiency
RBI Reserve Bank of India
RoA Return on Assets
RoE Return on Equity
SHG Self-Help Group
SIDBI Small Industries Development Bank of India
SKS Swayam Krishi Sangam
SPA Social Performance Assessment
VP Vice President
22 Vilakshan, XIMB Journal of Management ; March, 2008

APPENDIX 2
List of Stakeholders Interacted with
Name of Organisation Place Name of Person
Interacted with
MFIs

1. SKS Hyderabad Jennifer Leonard, Vice President,

Finance
2. Ujjivan Bangalore Ajit GrewalDirector
3. Mahila Abhivruddhi Society Hyderabad S. Rama LakshmiAssociate VP,
Andhra Pradesh (APMAS) Quality Assessment
4. Ankuram-Sangamam- Secunderabad J. NeelaiahCEO
Poram (ASP)
5. Sharada’s Women’s Secunderabad Ramamurthy S.General
Association For
Weaker Section Manager
6. Grameen Koota Bangalore Suresh K. K.CEO
7. Bharatha Swamukti Bangalore G. C. Swamy Project Executive
Samsthe (BSS)
8. Outreach Bangalore Radhakrishnan A. C.Project
Manager, MF Activities
Banks
UNITUS Bangalore Abhijit RayCapital Markets
NABARD Mumbai Krishnan Jindal Deputy
General Manager
Factors Affecting Emotional Intelligence:An
Empirical Study for Students of Secondary
School and Professional Colleges*

Shamira Malekar1 & R.P.Mohanty 2

Abstract
Researchers and human resource management professionals across the world are actively engaged in
studying emotional intelligence (EI) and its applications in various organizational settings to improve
managerial performance. It is found from literature that a very few studies are available relating to the
application of EI among the school and management students. This paper is an attempt in that direction
to make a comparative empirical study to identify important determinants of EI in students of professional
colleges and secondary certificate schools in the metro city of Mumbai. Such a study has the potential to
contribute in providing feedback to the parents, academicians and other authorities to better meet the
future needs of the society.

1.0 INTRODUCTION describes abilities distinct from, but

Emotional intelligence (EI) has emerged
as an important subject of research
investigation during the last several
years. Some of the pioneering
researchers have defined EI as follows:
“Emotional intelligence is the capacity
for recognizing our own feelings and
those of others, for motivating
ourselves, and for managing emotions
well in ou rselves and in our
relationships. Emotional intelligence
complementary to, academic intelligence
or the purely cognitive capac ities
measured by IQ” (Goleman, 1998).
“Emotional intelligence is the ability to
perceive emotions, to ac cess and
generate emotions so as to assist
thought, to understand emotions and
emotional knowledge, and to
reflectively regulate emotions so as to
promote emotional and intellectual
growth” (Mayer and Salovey, 1997).
“Emotional intelligence reflects one’s

* Received November 11, 2007; Revised February 18, 2008

1. Research Scholar, Institute for Technology and Management (ITM) Group of Institutions,
Mumbai, email: shamira_malekar@yahoo.com
2. Dean and Adviser, Institute for Technology and Management (ITM) Group of Institutions,
Mumbai, email: rpmohanty@gmail.com
 24 Vilakshan, XIMB Journal of Management ; March, 2008
ability to deal with daily environment
challenges and helps predict one’s success
in life, including professional and
personal pursuits”(Bar-On, 1997).
“Emotional intelligence is a way of
recognizing, understanding and
choosing how we think, feel and act. It
shapes our interaction with others and
our understanding of ourselves. It
defines how and what we learn, it allows
us to set priorities, it determines the
majority of our daily actions” (Freedman,
1998).
All these pioneering definitions lead us
to conclude that EI is important in
shaping one’s personality, behaviour,
style and abilities. EI has been studied
scientifically in the past decade.
Goleman’s 1995 book “Emotional
Intelligence” substantially added to the
popular interests in accumulating
knowledge regarding EI.
Business organizations have used EI for
organizational development and for
enhancing organization effectiveness
(Lowe, Kroek, and Sivasubramaniam,
1996). EI improves managerial practices
as well as helps in leadership
development (Druskat and Wolff, 2001).
EI is often used to motivate employees
and to create a cu ltu re of high
performing work place. Huy (1999)
introduced the concept of emotional
capability to capture an organization’s
ability to ac knowledge, rec ognize,
monitor, discriminate, and attend to its
members’ emotions, and it is manifested
in the organization’s norms and
routines related to the feeling.
Further, EI has been used as a predictor
of ability by parents as it has been found
to be a predictor of life satisfaction,
healthy psychological adaptation,
positive interactions with peers and
family, and higher parental warmth
(Warwick and Nettelbeck, 2004).
EI has also been used in education to
lay the fou n dati ons to bu ild the
cul tu re of a sc h ool c ommi tted to
learning (Parker 2004). Every child
ent ers the worl d wi th a u n i qu e
c om bina tion of c ompon ents of
em otio nal inte lli genc e su c h a s:
emo tion al se nsit ivit y, em otio nal
memory, emotional processing and
problem solving ability, emotional
learning ability (Mayer, 2000). The
way a child is raised can dramatically
affect what happens to the potential
in each of these components. For
example, if a child is born with a high
potential for the arts, but is never
giv en a c h a nce to d evel op t hat
potential, the world may miss out on
this person’s special gift. Children
raised in an emotionally abusive home
or from a lower economic strata home
may use their emotional potential in
destructive ways later in their lives.
We have observed from an extensive
survey of literature that a lot of studies
have been conducted to measure EI and
testing its validity with bu siness
 Malekar et.al, Factors affecting emotional ... 25
organizations. We find a very little
evidence of EI application for school
students and students of B- schools.
There are studies that demonstrate the
link between EI and ac ademic
ac hievement in stu dents making
transition from high school to a post
secondary environment (Parker et al.
2004). A finding by Newsome, Day and
Catano (2000) and Van der Zee et al
(2002) proves that EI is uncorrelated to
cognitive ability relating to academic
performance (cited in Petrides et al
2004). Another study by Reiff et al 2001
showed that students with learning
disabilities had lower EI scores than
their non disabled counterparts. We
could find that no study is available to
demonstrate the important
determinants of EI amongst the school
students of age grou p 9-14 years.
Therefore, we attempt here to measure
EI by modifying Bar – On and Parkar’s
Emotional Quotient Inventory Youth
Version questionnaire (EQi YV). We
also compare the EI levels of school
students with professional student’s
age grou p 22 - 27 years whose
measurement is done with Bar – On’s
(1997) Emotional Quotient Inventory
(EQi)
We attempt here to measure EI of school
and professional college students coming
from different socio-economic
backgrounds and a large metro city like
Mumbai. We intend to understand the
important determinants of EI and
evaluate the strength of each factor. We
also intend to develop a normative
empirical relationship of EI with key
factors with a comparative study of
students of professional colleges and
secondary certificate school.
2.0 FACTORS AFFECTING EI
Salovey and Caruso (2000a) categorized
models of EI into two types; namely
ability model (Mayer and Salovey 1997)
and mixed trait ability (or personality)
model (Bar-On 2001; Goleman 1995, 1998;
Petrides and Furnham, 2001).
According to ability models, EI is a
form of intelligence involving cognitive
processing of emotional information
and is defined as a set of cognitive
abilities in emotional fu nctioning.
Ability models c onceptu alize
intelligenc e that involves emotion
(cited in Goldenberg et.al 2006). Such
models define EI in a traditional sense
(e.g. Mayer and Salovey 1997). They are
a conceptually related set of mental
abilities with emotions and processing
of emotional information. Emotional
perception and expression, emotional
fac ilitation of thinking, emotional
u n derstanding and emotional
regulation are the essential elements of
the ability model. They contribute to
logical thought and intelligence in
general. Ability model proposes that
emotions c an make thinking more
intelligent and can intelligently handle
emotions. EI has a number of
 26 Vilakshan, XIMB Journal of Management ; March, 2008
similarities to other types of
intelligences and abilities and develop
with age and experience.
In comparison, mixed trait ability
models have EI as partly or wholly a
personality-like trait, or behavioural
disposition. They define EI as a
mixtu re of emotion related
competencies and personality traits.
Mixed trait ability models also make
references to abilities in the processing
and use of emotional information but
combine these abilities with other traits
and characteristics such as optimism,
motivation and social relationships
(Bar-On, 2000, 2001; Goleman 1995,
1998). Mixed trait ability models are
important as they acknowledge the
importanc e of mu ltiple aspects of
personality that may pertain to
emotion. They do not relate to the
c onc ept of emotion spec ifically
(Matthews, Roberts and Zeidner, 2004).
Bar- On (2000) has identified 5 factors,
su ch as intrapersonal ability,
interpersonal ability, stress
management, adaptability and general
mood. Here we are u sing factors
outlined by Bar-On to find out the
relationship of emotional intelligence
with interpersonal ability,
intrapersonal ability, stress
management, adaptability and general
mood tested with stu dents of
professional colleges and secondary
certificate schools.
Intrapersonal ability
Shearer (2006) defined intrapersonal
ability as an ability to think about and
understand one’s self, to be aware of
one’s strengths and weaknesses and to
plan effectively to achieve personal
goals, reflecting on and monitoring
one’s thou ghts and feelings and
regulating them effectively. It’s the
ability to monitor one’s self in
interpersonal relationships, be aware of
and understand one’s emotions,
feelings, and ideas and to act with
personal efficacy. It consists of related
abilities like recognizing and labeling
one’s feelings. Intrapersonal ability
includes emotional awareness and the
ability to identify them correc tly.
Individuals scoring high on
intrapersonal ability tend to understand
their emotions and are able to express
and communicate their feeling and
needs.
Interpersonal ability
It is defined by Shearer (2006) as the
ability to recognize the feelings of other
people that are facilitated by linguistic
skill. It’s the ability to be aware of and
understand others’ emotions and
feelings. Skill in managing relationships
with other people is also a factor in
one’s overall mood and emotional well-
being. It consists of related abilities like
identifying emotions in others and
having empathy towards others.
Interpersonal ability deals with the
relationship with peers, subordinates
 Malekar et.al, Factors affecting emotional ... 27
and superiors. High on the
interpersonal ability are likely to have
satisfying interpersonal relationships,
are good listeners and are able to
understand and appreciate the feelings
of others.
Stress Management
It is defined as the ability to be flexible
and alter one’s feelings with changing
situations (Day and Livingstone 2005).
It consists of abilities like delaying or
resisting an impulse. Those with high
stress management are generally calm
and work well under pressure; they are
rarely impulsive and can usually respond
to a stressful event without an emotional
outburst.
Adaptability
Day and Livingstone (2005) defined
ada ptab ilit y as the abi lity to be
flexible and alter one’s feelings with
c hanging situ ations. It consists of
abilities like being to adjust one’s
emotions and behaviuor to changing
situations or conditions. Adaptability
involves skills related to management
of change. Managing change involves
th e ab ilit y to ma nage str essf u l
situations in a relatively calm and
proactive manner. Individuals who
sc or e high o n this d imension are
impulsive rarely and work well under
pressure (Bar –On, 1997, 2000, 2002).
Individuals with high adaptability
sc o res are flex ible , re alis tic and
effective in managing change; good at
finding positive ways of dealing with
everyday problems.
General mood
It is defined as the ability to feel and
express positive emotions and remain
optimistic (Bar –On, 1997). It represents
the ability to enjoy life and maintain a
positive disposition. Higher levels on
general mood feel satisfied with their
lives and maintain a positive outlook.
Happiness and Optimism are two aspects
of general mood including maintenance
of positive aspects and brighter side of
life.
Measures of EI
A number of assessment devices
purporting to measure EI have been
developed. The devises differ in two
significant ways:
1. They are based on different
conceptual frameworks.
2. They use different measurement
approaches including performance
tests, self report inventories or
observer ratings.
Thus, there has been a lot of debate
concerning the most suitable method to
be used for measuring EI. Some have
argued that measurement approach
rather than the theoretical approach
ultimately determines the nature of EI
model being assessed (Matthews et al
2004; Petrides and Furnham 2000). It is
argued that performance measures are
more valid if EI is a type of ability,
 28 Vilakshan, XIMB Journal of Management ; March, 2008
whereas self-report instruments can be
used if EI is viewed of comprising a
number of non ability related traits or
attributes (Goldenberg et al 2006).
Thus, the measures of EI for the age
group 8 - 18 years similar to ability and
mixed trait ability models are classified
as: a. performance based measure of EI
b. self-report measures of EI.
a. Performance based measures of EI
pertain to ability models for instance
Mayer, Salovey, Caruso Emotional
Intelligence Test (MSCEIT YV) by
Mayer, Salovey and Caruso (2006) which
is yet in the sampling stage.
b. Self-report measures are pertaining to
mixed models of EI. They are
determined to assess emotions within the
personality framework and to assess
cross - situational consistencies in
behaviour (Petrides and Furnham 2000)
for instance Emotional quotient
inventory: Youth Version (EQ-i YV) by
Bar-On and Parker (2000)
For adults above 18 years performance
based report measures of EI were:
• The instru ment most strongly
modeled on this theory is the
performance-based Mayer-
Salovey-Caruso Emotional
Intelligence Test (MSCEIT; Mayer
et al., 2002a).
• The EARS - Emotional Accuracy
Researc h Scale by Mayer and
Geher, (1996) modified by Geher,
et al., (2001) assesses a single
c onstru c t rather than the fou r
branches.
Similarly, adult self-report measures of
EI were:
• Personal excellence inventory
(PEI)of Nelson and Low (2003). An
a-priori self-report instrument
intended to extend the education
model of emotional intelligence.
• Robert Cooper’s (2000) EQ map
divides EI into 5 attributes -
emotional literacy, emotional
competency, EQ values, EQ
attitudes and EQ outcomes.
• Schutte et al. (1998) developed a 33
– item Emotional Intelligence Scale
(EI scale) for use with older
adolescents and adults. The
questionnaire was derived from the
Salovey and Mayer (1990) model of
EI, but is often referred to as a
measure of trait EI because it relies
upon self-perceptions of ability
(MacCann et al., 2003).
• A measure of workplace EI is the
Swinburne University Emotional
Intelligence Test (SUEIT) of Palmer
and Stough (2001) (cited in Palmer
et al 2002). The SUEIT gives scores
on five facets of EI: emotional
recognition and expression,
understanding emotions, emotions
direct cognition, emotional
management and emotional control.
 Malekar et.al, Factors affecting emotional ... 29
• The Benchmark of Organizational
Emotional Intelligence (BOEI) is a
powerful organizational survey – a
self report measure designed by
Stein (2006). BOEI analyses job
happiness, compensation, work / life
stress management, organizational
cohesiveness supervisory
leadership, Diversity and anger
management and organizational
responsiveness.
• Assessing emotions scale (AES) is
also a measure to test EI devised by
Schutte et al (1998). (cross validation
of a modifies version by Austin et al
2004) It contains 33 items measuring
appraisal and expression of emotion,
utilization of emotion and regulation
of emotions.
3.0 REVIEW OF LITERATURE
EI has attracted a lot of interest in
academic literature (cited in Petrides
2004). The roots of EI can be traced back
to the concept of ‘social intelligence’
coined by Thorndike (1920) to refer to
the ability to understand, manage and
act wisely in human relations. Gardner
(1983) introduc ed the c onc epts of
intrapersonal and interpersonal
intelligence. EI as a concept has been
included in literature by Salovey and
Mayer (1990). Along with Goleman’s
1995 best selling book, there has been a
lead article in the same year by Gibbs
in TIME magazine. Thereafter articles
on EI began to appear with increasing
frequency with empirical work on the
constru ct along with scientific
theoretical literature.
Proponents of mixed models of EI (e.g.,
Bar-On, 1997, Cooper and Sawaf, 1997,
Goleman, 1995; 1998) have typically
been the most vocal in making claims
about the predictive promise of EI and
what EI means in terms of ‘life success’.
These models have generally appeared
to assume that just about any variable
other than IQ that has been found to
show propensity towards predicting
some degree of success (i.e., higher
income, more frequent promotions,
higher academic achievement, higher
tertiary attainment, more satisfying
interpersonal relationships and better
physical and psychological health) is
representative of EI. The field of EI,
however, is still relatively new and
thus many of these claims have not
been su bstantiated. Fu rthermore,
many su c h c laims appear to be
unrealistic and to extend beyond what
could be reasonably attributed to the
EI construct.
On the basis of this research on school
students in the western context, EI has
been found, among other things, to be
positively correlated with relations with
others, perceived parental support and
fewer negative interactions with close
friends (Lopes et al., 2003); pro-social
behaviour, parental warmth and
positive peer and family relations
(Mayer et al., 1999); more optimism
(Schutte et al., 1998); higher empathic
 30 Vilakshan, XIMB Journal of Management ; March, 2008
perspective taking and self-monitoring
in social situations, higher social skills
(Schutte et al., 2001). Additionally,
negative correlations have been reported
with illegal drug and alcohol use, defiant
behaviour and poor relationships with
friends (Brackett et al., 2004),
unauthorised absences and exclusions
from school (Petrides et al., 2004) and
depression (Dawda and Hart, 2000;
Schutte et al., 1998).
EI proponents also claim that family
socialization practices determine the
development of EI in children (Saarni
1999,2000; Salovey and Sluter 1997)
Parental socializations has been found to
impact directly child’s social and
emotional competency as well as work
indirectly on the understanding of
emotions and gaining social knowledge
(Cited in Zeidner et al 2002). Parental
socializations take effect through explicit
lessons or informal conversations about
regulation of emotion. Parental
influences also occur through the child’s
observational capacity. The basic
assumption is that a child whose parent
displays constructive EI related
behaviour in everyday life is most likely
to implement it as a part of its own
behaviour. In addition to parents, school
setting is one of the most important
contexts for learning emotional skills and
competencies (Mayer and Salovey 1997).
In the process of emotional learning the
individual develops the aptitudes, skills,
attitudes and values necessary to acquire
higher emotional intelligence. Mayer and
Geher (1996) hypothesized that those
who are low in emotional intelligence
could be educated to recognize, express
and regulate their feelings better. In this
paper, we have tested Bar–On and
Parker’s questionnaire of EI in the Indian
school students and differentiated the
EQ levels of school students (9-14 yrs)
primarily focusing upon to provide a
relationship between its factors. We have
attempted to identify these factors,
which could be implemented for
directing students to attain higher EI. We
have also attempted to compare EQ level
of school and professional college
students and assert that similar
relationship exists between EI and its
factors for professional students in the
age group of 22 - 27 years. To achieve
our final aim, we have tested Bar–On’s
(1997) questionnaire of EI in the Indian
professional college students and also
differentiated the EQ levels.
4.0 DESIGN OF EXPERIMENT
This statistical experiment designed in
the study involves the use of correlation
coefficients determination followed by
multiple regression analysis. It helps in
assessing the individual and the
combined effect of independent
variables (factors) on the dependent
variable (EQ).
4.1 Participants
The sample consisted of a total number
of 948 students of Anjuman Islam’s
Allana High School (Muslim Trustees
 Malekar et.al, Factors affecting emotional ... 31
Board), Sir Jacob Sassoon High School
(Jewish Trustees Board), Sharon High
School (Christian Trustees Board) and
Gandhi Shikshan (Hindu Trustees
Board). The sample also consisted of a
total number of 319 professional college
students of Institute of Technology and
Management (1st year Post Graduate
Diploma in Business Administration) and
Institute for Management and Computer
studies (1st year Master in Management
studies and 1st year Master in Computer
Application).
4.2 Procedure
Participants were asked if they would
volunteer to study on “emotional
intelligence”. Participants completed the
Bar-On Emotional quotient inventory:
Youth Version (EQi YV) (Bar - On and
Parker, 2000) or the Bar-On’s (2000)
Emotional quotient inventory (EQi) in
July and August 2005 depending on their
age.
School students who participated
completed the EQi:YV during a zero
period in the premises of their school. In
exchange for their participation,
individuals were provided with a
confidential feedback report on their
results of the instrument. Similarly,
professional college students were also
asked to complete the EQi after their
lecturing hours in the premises of their
institute. In exchange for their
participation, individuals were provided
with a confidential feedback report on
their results of the instrument.
4.3 Measures
The EQ-i;YV is a 60 item self-report
measure of EI developed by Bar-On and
Parker (2000).Children and adolescents
between the ages of 9 and 14 are asked
to respond to the statements which best
describe the way they feel, think, or act
in most situations. Responses are rated
by the participant on four-point Likert
scales, ranging from 1 for ‘’very seldom
or not true of me,’’ to 4 for ‘’very often
true or true of me.’’ The instrument has
a 6-item intrapersonal scale, a 12-item
interpersonal scale, a 12-item stress
management sc ale, and a 10-item
adaptability scale. Along with a total EI
scale (the sum of the four previous
scales), the EQ-i;YV also has a 14-item
general mood scale and a 6-item
positive impression validity scale. A
high score on any individual ability scale
(or the total score) reflects a high level
of social and emotional competency.
Bar-On and Parker (2000) report that
the EQ-i;YV has a replicable factor
structure (developed with a normative
sample of 9172 school-aged children and
adolescents); the various scales on the
instrument correlate highly with
comparable scales on the adult version
of the inventory (the Emotional
Quotient Inventory; Bar-On,1997).
The EQ-i is a 133 item self-report
measure of EI developed by Bar-On
(1997). Professionals between the ages
of 22 and 27 are asked to respond to
the statements which best describe the
way they feel, think, or act in most
 32 Vilakshan, XIMB Journal of Management ; March, 2008

situations. Responses are rated by the
participant on five-point Likert scales,
ranging from 1 for ‘’very seldom or not
true of me,’’ to 5 for ‘’very often true
or true of me.’’ The instrument similar
to its YV has an intrapersonal scale,
interpersonal scale, stress management
scale, adaptability scale and general
mood scale.
4.4 Computation of EI scores.
We computed the scores with the aid of
SPSS statistical package and Excel work
sheets. EI scores of school students had
to be calculated by the methodology
developed by Bar –On and Parker (2000)
for his youth version of the test. EI scores
of professional college students had to
be calculated by the methodology
developed by Bar –On (1997).
The sample size consisted of a total
number of 1062 students of 4 different
schools.115 students did not complete
the main battery of measures and
therefore could not be considered.
Hence, the main sample size got reduced
to 948 students – all of them belonging
to age groups 9- 14 years. 616 (64.97%)
of respondents were male and 332
(35.03%) female. Table-1 shows the
descriptive statistics of the individuals
with its EI and its factors scoring sheet
scores.
Table-1 denotes descriptive statistics of
EQ along with its factors having 65 as
lowest score and 130 as maximum. School
students ranged from 9-14 years of age;
the mean age was 12.34 years (SD1.55)
for males and 12.57 years (SD1.63) for
females.
The sample size of professional college
students consisted of a total number of
356 students of 4 different schools. Thirty

Table-1: Statistics for School students

Minimum Maximum Mean Standard

Deviation
Male Female Male Female Male Female Male Female
AGE 9 9 14 14 12.34 12.57 1.550 1.630
EQ 65 65 130 130 91.18 90.9 14.968 13.95
General mood 65 65 122 122 87.92 88.54 15.094 15.876
Adaptability 65 65 130 130 95.22 97.73 16.434 16.783
Stress 65 65 126 126 88.31 87.55 13.474 12.543
Management
Interpersonal 65 65 125 125 90.06 90.88 16.949 17.989
ability
Intrapersonal 65 65 130 130 97.85 96.32 14.425 14.025
ability
 Malekar et.al, Factors affecting emotional ... 33

eight students did not complete the main
battery of measures and therefore could
not be considered. Hence the main sample
size got reduced to 318 students – all of
them belonging to age groups 22- 27 yrs.
195 (61.32%) of respondents were male
and 123 (38.679%) female.
Professional college students ranged
from 22 - 27 years of age; the mean
age was 25.4 years (SD1.25) for
males and 24.57 years (SD1.36) for
females.
5.0 RESULTS

Table-2 denotes descriptive statistics of A confirmatory Pearson’s Correlation is

EQ along with it factors has 3 as lowest conducted as seen in Table-3 for School
score and 130 as maximum. students.

Table-2: Statistics for professional college students

Minimum Maximum Mean Standard

Deviation
Male Female Male Female Male Female Male Female
AGE 22 22 27 26 25.4 24.57 1.25 1.360
EQ 3 3 130 130 90.8 94.7 14.67 13.50
General mood 2 2 75 75 62.92 61.4 15.94 15.86
Adaptability 3 3 112 112 95.22 97.73 16.31 16.83
Stress Management 2 2 81 81 68.31 67.55 13.44 12.43
Interpersonal ability 3 3 124 124 90.6 90.8 15.49 13.99
Intrapersonal ability 5 5 167 167 121.85 126.32 11.26 12.05

Table-3: Correlations of EI and its factors for school students

Factors*** 1 2 3 4 5 6
1 1 0.593(**) 0.660(**) 0.530(**) 0.707(**) 0.540(**)
2 0.203(**) 0.368(**) 0.262(**) 0.245(**)
3 0.135(**) 0.601(**) 0.639(**)
4 0.209(**) 0.099(**)
5 0.554(**)
6 1
** Correlation is significant at the 0.01 level (2-tailed).
*** 1 = EQ
2 = Intrapersonal ability
3 = Interpersonal ability,
4 = Stress management
5 = Adaptability
6 = General mood
 34 Vilakshan, XIMB Journal of Management ; March, 2008

There is a range of correlation coefficients study the former correlates highest

between the factors as described below:
1. Adaptability realm has highest
correlation with EQ followed by
interpersonal ability compared to the
study conducted by Parker et al (2004)
where r = 0.707 for adaptability and
0.660 for interpersonal ability. In that
with EQ.
2. Intra-personal ability correlates
moderately with EQ and the extent
to which stress management and
general mood correlate is nearly the
same similar to the study conducted
by Parker et al (2004)

Table-4: Correlations of EI and its factors (Professional college students)

Factors# 1 2 3 4 5 6
1 1 0.869(**) 0.653(**) 0.850(**) 0.708(**) 0.863(**)
2 0.553(**) 0.766(**) 0.558(**) 0.755(**)
3 0.522(**) 0.308(**) 0.604(**)
4 0.679(**) 0.589(**)
5 0.751(**)
6 1
** Correlation is significant at the 0.01 level (2-tailed).
*** 1 = EQ
2 = Intrapersonal ability
3 = Interpersonal ability,
4 = Stress management
5 = Adaptability
6 = General mood
# Factors here are same as in Table - 3.

As shown in Table-4 of correlations of EI on EI, the method of multiple regression

and its factors for professional college
students, Intrapersonal ability has
highest correlation with EQ followed by
general mood similar to the study
conducted by Bar-On (2000). This is in
contrast to correlations obtained for
school students in which adaptability has
the highest correlation coefficient.
As the objective of this paper is to
identify and assess the effect of factors
analysis has been chosen, as it helps in
assessing the individual and the
combined effect of independent
variables (interpersonal, intrapersonal,
adaptability, stress management,
general mood) on the dependent
variable (EQ).
The steps used in conducting the
regression analysis on the above sample
of school students are as follows:
 Malekar et.al, Factors affecting emotional ... 35
Firstly, School wise analysis with 5 factors
(as explanatory variables) of EQ was
done. The regression equation for school
wise analysis with 5 factors is as follows:
Y = A + B1X1 + B2 X2 + B3 X3+ B4 X4 + B5 X5
.......... + Ui (1)
Y = dependent variable representing the
emotional intelligence
B1, B2, B3, B4 and B5 are the coefficients of
the regression equation
X1 = Intrapersonal ability
X2 = Interpersonal ability
X3 = Stress management
X4 = Adaptability
X5 = General mood
Ui = Disturbance term
A = Constant term
The regression was then tested for its
signific anc e u sing F-test for the
regression as a whole, (i.e. to test
whether the EI is dependent on the
Intrapersonal ability, Interpersonal
ability, Stress management,
adaptability and general mood at 5%
level of significance. This was followed
by t-test to test the significance of each
of the drivers at 5% level of
significance. The F-test results showed
that the regression as a whole was
significant for the first 4 factors. Hence,
in order to improve and get more
significant results it was essential to
omit the fac tors that were not
significant. From the t-ratios in the
above regressions, it could be seen that
general mood was not a significant
factor of EI. Further the overall impact
of General mood can be overcome by
using and calculating EI as a function
of the intrapersonal ability,
Interpersonal ability, stress
management and adaptability by
omitting general mood. So, regression
analysis with 4 factors (as explanatory
variables) of EI was carried out with
the following equation.
Y = A + B1X1 + B2 X2 + B3 X3+ B4X4 + ……… + Ui
(2)
Table-5 summarizes the results of the
regression analysis for 4 factors of EI.
The following points are worth
mentioning:
• The results were found to be
significant in the data of 948 school
students.
• Four explanatory variables -
intrapersonal ability, Interpersonal
ability, stress management and
adaptability are significant factors
affecting EQ. General mood does not
seem to impact EI.
• General mood is not significantly
affecting EQ and hence cannot be
considered as a factor for school
students.
The steps used in conducting the
regression analysis on the sample of
professional college students are as
follows:
 36 Vilakshan, XIMB Journal of Management ; March, 2008

Table-5: Results of the regression analysis using four independent variables (4 factors
of EI for school students)

Independent Unstandardized Standardized t Sig. F R Square

Coefficients Coefficients
Variables B Std. Error Beta 1092.927 0.823
(Constant) -28.151 1.874 -15.019 .000
* Intrapersonal .336 .016 .324 21.444 .000
* Interpersonal .301 .015 .341 19.826 .000
* Stress .322 .017 .290 19.504 .000
Management
* Adaptability .325 .016 .356 20.298 .000

Dependent Variable: EQ

Firstly, Institute wise analysis with 5 regression as a whole, (i.e. to test

factors (as explanatory variables) of EQ
was done. The regression equation for
school wise analysis with 5 factors is as
follows:
Y = A + B1X1 + B2 X2 + B3 X3+ B4 X4 + B5 X5 +
.......... + Ui (3)
The regression was then tested for its
significance u sing F-test for the
whether the EI is dependent on the
Intrapersonal ability, Interpersonal
ability, Stress management, adaptability
and general mood at 5% level of
significance. This was followed by t-test
to test the significance of each of the
drivers at 5% level of significance. The
F-test results showed that the regression
as a whole was significant for all 5 factors.

Table-6: Descriptive statistics with regression analysis for 5 factors of EI for professional
college students
Independent Unstandardized Standardized t Sig. F R Square
Coefficients Coefficients

Variables B Std. Error Beta 675.602 0.914

(Constant) 7.492 1.612 4.646 .000
*Intrapersonal .195 .016 .346 12.164 .000
*Interpersonal .118 .015 .162 7.631 .000
* Stress .200 .024 .195 8.490 .000
Management
* Adaptability .145 .026 .172 5.590 .000
*General Mood ,311 .035 .260 8.827 .000
Dependent Variable: EQ
 Malekar et.al, Factors affecting emotional ... 37
Table-6 denotes the descriptive statistics
for professional college students with
regression analysis for 4 factors of EI.
The following points are worth
mentioning:
• The results were found to be
significant in the data of 318
professional students.
• All the five explanatory variables -
intrapersonal ability, interpersonal
ability, stress management,
adaptability and general mood are
significant factors affecting EQ.
6.0 CONCLUSION
In this paper, we have attempted to
decompose EI into its factors and they
have been statistically validated to test
the significance of each of the factor
in 4 school students and 2 professional
institutes. The objective was to derive
significant and consistent factors of EI.
This pa per also revi ews the
applic ability of EI for the sc h ool
children in Mumbai (age 9- 14 years)
and arranges the factors affecting EI
in descending manner. A comparative
stu dy is also done with stu dents
studying for professional courses (age
22 -27 years).
The following remarks are worth
mentioning:
1. Results of the present study suggest
that adaptability, interpersonal
ability and intrapersonal ability are
important factors affecting EQ for
school students.
a. Adaptability was found to be very
highly significant with EQ with
correlation coefficient of 0.707.
b. Secondly, interpersonal ability was
found to be highly significant with
EQ with correlation coefficient of
0.660.
c. Intrapersonal ability was found to be
significant moderately with EQ with
correlation coefficient of 0.593.
d. The EQ of students can be enhanced
if the 4 factors identified in the
regression model are strengthened
with the help of inputs and training
imparted to them.
e. General mood and stress
management were found to be
moderately significant with EQ with
correlation coefficient of 0.540 and
0.530 respectively.
2. Comparatively results of
professional students suggest that
adaptability, interpersonal ability,
intrapersonal ability, stress
management and general mood are
important factors affecting EQ in
contrast to 4 factors for school
students.
a. Intrapersonal ability was found to
be very highly significant with EQ
with correlation coefficient (r) of
0.869.
b. Secondly, general mood was found
to be highly significant with EQ with
correlation coefficient of 0.863.
 38 Vilakshan, XIMB Journal of Management ; March, 2008
c. Stress Management was found to be
highly significant with EQ with
correlation coefficient of 0.850.
d. Adaptability has r = 0.708 and
interpersonal ability has r = 0.653 in
contrast to school students wherein
these two factors have the highest
correlation.
7.0 KEY LEARNINGS
This study is a guiding study in
suggesting that without the measure of
more intrinsic and complex human
behaviour, setting up a correlation model
for emotional intelligence with strongly
influencing factors can actually be a
longer journey involving a study of the
evolution of human values as we grow
physically and mentally.
There is some scope as to whether
emotional intelligence in children can be
developed or it is innate – for if it is the
former, there is real hope in literally
catching them young as far as EI / EQ is
concerned.
In this study we have only identified
factors affecting EI of students and
measured them at aggregate level.
However, eac h fac tor can be
disaggregated or fac tored into
attributes at operational level. Such
studies are available for adults (Bar-on
1997) by following the same
methodology depic ted in the self-
report.
We have denoted that EI depends on
these 4 factors and if we implement it
in the form of training the future of
India, our students will be bright. The
emotionally intelligent leader evolves
into someone with the ability to move
seamlessly from one approach or style
to another, allowing the requirements
of the situation and the resources at
hand to dictate what he or she needs
to do.
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 Exchange Rate, FII and Stock Index
Relationship in India*
Ajaysingh Rajput1 & Keyur Thaker2

Abstract
In globalized world, exchange rate, FII and Stock Index are important economy variable and reflect
underlying strength and stability of business and an economy. Earlier study findings reveals positive,
negative and mixed relationship amongst those variables. We measure the relationship and its predictive
power for the period from January 2000 to December, 2005, contemporary to third generation reforms
in India. Using simple correlation and regression analysis it is found that no long run positive
correlation exists between exchange rate and Stock Index except for year 2002 and 2005. FII and Stock
Index show positive correlation, but fail to predict the future value.

1.0 INTRODUCTION investments in stock market is driven by

For a global and liberal economy,
Exchange rate is increasingly important
economy metric as it reflects underlying
strength and competitiveness with world
economies. Adoption of floating
exchange rate system leads to free
determination of the Exchange rate
changes by market forces. Such changes
affect the business transactions and
competitiveness and ultimately cash
flows and market value. Firm level and
industry- level share values are thus
influenced by exchange rate.
(Dominguez, 2001)
Stock Index reflects underlying stability
and growth of economy and strength of
businesses in an economy. Foreign
the valu ations of the stocks and
underlying growth and profitability of
the business in an economy. The flow
of foreign investments affects the
exchange rate and the stock market
performance.
Researches support prevalence of
relationship, though evidences of causal
relationship are mixed. Substantial
research is found in context of developed
economies, but studies for emerging
market are rare. Classical economic
theory suggests a relationship between
the stock market performance and the
exchange rate behaviour. For example,
“flow oriented” models of exchange rate
determination affirm that currency

* Received May 6, 2007; Revised February 23, 2008

1. Management Consultant, Mott MacDonald, Ahmedabad, e mail: rajput_ajay@yahoo.co.in.
2. Assistant Professor, Indian Institute of Management, Indore , email: thakerkeyur@yahoo.com
 44 Vilakshan, XIMB Journal of Management ; March, 2008
movements affect international
competitiveness and the balance of trade
position, and consequently the real
output of the country, which in turn
affects current and future cash flows of
companies and their stock prices
(Dornbusch and Fisher, 1980).
Movements in the stock market may also
affect exchange rates. Equities, being part
of wealth, may affect the behaviour of
exchange rates through the demand for
money according to the monetarist
models of exchange rate determination
(Gavin, 1989). Money supplies and
demand theory emphasise the
relationship of exchange rate and FII
investment.
2.0 REVIEW OF LITERATURE
In the context of a developed economy
the research studies on this relationship
can be traced back to 1970s. The earliest
contribution was found from Frank and
You ng (1972), investigating the
relationship between stock prices and
exchange rates. Six different exchange
rates were analyzed to find that there
existed no relationship between these
two variables. Similar work by Solnik
(1987), employing regression analysis on
monthly and quarterly data for eight
industrialized countries from 1973 to
1983, concluded a negative relationship
between real domestic stock returns and
real exchange rate movements.
However, for monthly data over 1979–
83, he observed a weak but positive
relation between the two variables.
Jorion (1988) attempted to analyze and
compare the empirical distribution of
returns in the stock market and in the
foreign exchange market by using the
maximum likelihood estimation
procedure and ARCH model in daily
data of exchange rates and stock returns
spanning from June 1973 to December
1985. The study found that exchange
rates display signific ant jump
components, which are more manifest
than in the stock market. The statistical
analysis of the study for the foreign
exchange market and stock market
suggests important differences in the
structures of these markets. Taylor and
Tonks (1989) studied the impact of the
abolition of the UK exchange control on
the degree of integration of the UK and
its overseas stock markets such as West
Germany, the Netherlands, Japan and
the US. By employing the G ranger
Cau sality and Engel Granger co-
integration tests over the two sub
periods, spanning from April 1973 to
September 1979 and October 1979 to June
1986 respectively, the study concluded
that there was no significant increase in
the correlation of stock market returns
as a result of the abolition of exchange
control. The co-integration test
confirmed that the UK and foreign (non-
US) stock-market indices were co-
integrated in post-1979 period but not
before that. Ma and Kao (1990), using
the monthly data from 1973 to 1983 on
six major industrialized countries, found
that domestic currency appreciation
negatively affected the domestic stock

price movements for an export-
dominant economy and positively
affected an import-dominant economy.
However, study was silent on exchange
rate effect on stock index. Bahmani-
Oskooe and Sohrabian (1992) employed
co-integration analysis and the Granger
cau sality test on stoc k prices and
effective exchange rate of the dollar on
the US economy from July, 1973 to
Dec ember, 1998. They fou nd a bi-
directional causality between stock
prices and the effective exchange rate of
the dollar, at least in the short run. The
co-integration analysis revealed that
there is no long-ru n relationship
between these two variables. Bartov and
Bodnar (1994) concluded that
contemporaneous changes in the dollar
have little power in explaining abnormal
stock returns. They also found that a
lagged change in the dollar is negatively
associated with abnormal stock returns.
The regression results showed that a
lagged c hange in the dollar has
explanatory power with respect to
errors in analysts’ forecasts of quarterly
earnings. Ajayi and Mougoue (1996)
examined the inter-temporal relation
between stock indices and exchange
rates for a sample of eight advanced
countries during the period April, 1985
to June, 1991. By employing the co-
integration and causality tests on daily
closing stock market indices and
exchange rates, the study found that (a)
an increase in aggregate domestic-stock
price has a negative short run effect on
domestic currency values, (b) sustained
Rajput et.al, Exchange Rate, FII and ... 45
increase in domestic stock prices will
induce domestic currency appreciation
in the long ru n, and (c) currency
depreciation has negative short-run and
long-run effects on the stock market.
Abdalla and Murinde (1997) observed
the interaction between exchange rates
and stock prices in the cases of India,
Korea, Pakistan and the Philippines by
applying bi-variate Vec tor Auto
Regressive models on monthly
observations of stock price index and
the real effective exchange rate over
January, 1985 to July, 1994. The study
found the unidirectional causality from
exchange rate to stock prices in all the
countries except in the Philippines. This
finding suggests policy implications,
that the respective governments should
be cautious in their implementations of
exchange rate policies in such a way that
these policies have ramifications in their
stock markets. Ong and Izan (1999)
employed the Non-linear Least Square
method to examine the association
between stock prices and exchange rates.
They found that US share price returns
fully reflected the information conveyed
by movements in both the Japanese Yen
and the French Franc after four weeks.
However, this result suggests a very
weak relationship between the US
equity market and exchange rates. They
concluded that depreciation in a
country’s currency would cause its share
market returns to rise, while an
appreciation would have the opposite
effect. Ibrahim (2000) investigated
 46 Vilakshan, XIMB Journal of Management ; March, 2008
interactions between stock prices and
exchange rates in Malaysia using bi-
variate and multivariate cointegration
and the Granger Causality test. Multiple
variables such as stock price, three
exchange rate measures viz., the real
effective exchange rate, the nominal
effective exchange rate and RM/US$,
money supply, and reserves during the
period January, 1979 to June, 1996 were
analyzed. The results from bi-variate
models indicate that there is no long-
run relationship between the stock
market and any of the exchange rates.
However, there is some evidence of co-
integration, when the models are
extended to include money supply and
reserves. This finding indicates that in
the short run, a concerted stance on
monetary policy, exchange rate and
reserve policy is vital for stock market
stability and that there is informational
inefficiency in the Malaysian stock
market. The multivariate test suggests
that (a) there is unidirectional causality
from stock market to exchange rate, (b)
both the exchange rates and the stock
index are Granger-caused by the money
supply and reserves, (c) there is bi-
directional causality between variables
only in the case of nominal effective
exchange rate. Bodart and Reding (2001)
investigated the impac t of foreign
exchange markets on the conditional
distribution of industry stock returns for
a set of European countries by using the
bi-variate GARCH model over the
period January 5, 1990 to November 12,
1998. The analysis of the study
confirmed that industries from traded
sectors are usually more sensitive to
exchange rates than industries from non-
traded sectors, both in mean and
volatility. Regarding the volatility
spillovers, the study concluded that the
influence of the foreign exchange market
on the mean and to a lesser extent on
the volatility of industry stock returns
is modified when exchange rate
innovations are abnormally large.
Fang and Miller (2002) attempted to
investigate empirically the effects of daily
currency depreciation on Korean stock
market returns during the Korean
financial turmoil of 1997 to 2000. By
employing the Granger causality test and
an unrestrictive bi-variate GARCH-M
model over the period spanning from
January 3, 1997 to December 21, 2000,
the study found that (a) there exists a bi-
directional causality between the Korean
exchange market and the Korean stock
market, (b) currency depreciation has
statistically significant effects on stock
market returns through three channels
such as, first, the level of exchange rate
depreciation which negatively affects
stock market returns; second, exchange
rate depreciation volatility positively
affects stock market returns; and third,
stock market returns volatility responds
to exchange rate depreciation volatility.
In Indian context, Apte (2001)
investigated the relationship between the
volatility of the stock market and the

nominal exchange rate of India by using
the EGARCH specifications on the daily
closing USD/INR exchange rate, BSE 30
(Sensex) and NIFTY-50 over the period
1991 to 2000. The study suggests that
there appears to be a spillover from the
foreign exchange market to the stock
market but not the reverse.
Bhattacharya and Mukharjee (2002)
studied the nature of causal relation
between the stock market, exchange
rate, foreign exchange reserves and
value of trade balance in India from 1990
to 2001 by applying the co-integration
and long-run Granger Non-causality
tests. The study suggests that there is
no causal linkage between stock prices
and the three variables under
consideration.
To examine the dynamic linkages
between the foreign exchange and stock
markets for India, Nath and Samanta
(2003) employed the Granger causality
test on daily data during the period
March 1993 to December 2002. The
empirical finding of the study suggests
that these two markets did not have any
causal relationship. When the study
extended its analysis to verify if
liberalization in both the markets
brought them together, it found no
significant causal relationship between
the exchange rate and stock price
movements, except for the years 1993,
2001 and 2002 during when a
unidirectional causal influence from
stock index return to return in forex
Rajput et.al, Exchange Rate, FII and ... 47
market is detected and a very mild
causal influence in the reverse direction
is found in some years such as 1997 and
2002.
A gap analysis of FII investment in Indian
stock market, on closing data of S & P
CNX NIFTY 500 of September 30, 2004,
shows that the FIIs investments are
highly concentrated in terms of their
market value in a very small number of
companies and there is a wide gap
between the actual investments by FIIs
and the investments allowed as per the
cap, Sharma (2004).
Panda (2005) found that the returns on
Indian stock market indices such as BSE
sensex and NSE nifty are relatively more
affected by mutual fund investments
than FIIs investments. In fact, FIIs
investments do not affect BSE sensex
rather it is affected by the latter. FIIs
are found to follow positive feedback
strategy and to have return chasing
tendency. However, he does not find a
clear causality between FIIs and NSE
nifty. So researcher sum up with the
view that domestic investors like mutual
fund affect Indian stock markets to a
greater extent than FIIs and the recent
boom in Indian stock market could not
be mainly because of larger FII inflows.
Narayan and Smyth (2005) examine the
long run relationship and granger F
tests to examine any causal relationship
between exchange rates and stock price
in four South Asian Countries, (India,
 48 Vilakshan, XIMB Journal of Management ; March, 2008
Pakistan, Sri lanka and Bangladesh).
The study finds that there is no long
run equilibrium relationship between
these two financial variables in three of
the four countries studied. Exchange
rates, Granger cause stock prices in
India in both the long run and short run
and in Pakistan in the short run.
Badhani (2005) examines the long term
and short-term relationship among
stock prices, Dollar –Rupee exchange
rate and net FII investment in India
using monthly data from April 1993 to
March 2004. Study finds long term
relationship between FII investment
flow and stock prices and between FII
investment flow and exchange rate.
However no long-term relationship
was found between exchange rate and
stock prices. Study also shows that
exchange rate long term granger causes
FII investments flow and vice versa.
It su gges ts that FII u se positive
feedbac k trading in respe c t to
exchange rate. BI-directional long-term
c au sal ity was fo u n d betwee n FII
investment flow and stock pric es.
However, no short-term cau sality
could be traced between above two
pairs of variables using monthly data.
Stu dy shows that the short term
causality runs from change in exchange
rate to stock returns, not vice versa.
3.0 RESEARCH METHOD
This study reexamines the relationship
between two fundamental economic
variables, exc hange rate and stock
price over a long period coinciding 3rd
gener ation re forms i n India. FII
investment in stock market was also
studied along. Causal research to find
out correlation between exchange rate
and stock price is performed. Same
causal researc h is adopted to find
correlation between FII investment
and stock market index. Regression
analys is is u sed to develo p the
regression model to find prediction
power of relationship between the
variables.
Hypotheses
Exchange rate has positive correlation
with stock price i.e. stock market index
nifty.
FII investment has positive correlation
with NIFTY.
Each Relationship predicts the future
value of Stock Index.
Data and Sample
Data for six-year period consisting of
total 1564 daily closing data of NIFTY
and daily data of exchange rate from
January 2000 to December 2005 were
collected. Also, 72 monthly data NIFTY
performance and FII investment from
January, 2000 to December, 2005
collected.
4.0 ANALYSES AND INTERPRETATION
a. Data analysis of Year 2000-2005
The select descriptive statistics of
regression analysis is given in
Table -1.
 Rajput et.al, Exchange Rate, FII and ... 49

Table-1: Descriptive statistic of NIFTY Closing and Daily Exchange Rate

NIFTY CLOSING EXCHANGE RATE
Mean 1475.54936 Mean 46.11912494

Standard Error 11.70637494 Standard Error 0.04333015

Median 1349.35 Median 46.1269

Mode 1067 Mode 47.125

Standard Deviation 462.8091312 Standard Deviation 1.71359651

Sample Variance 214192.2919 Sample Variance 2.936412998

Kurtosis -0.053507729 Kurtosis -1.145765392

Skew ness 0.884290224 Skew ness -0.027592925

Range 1988.4 Range 5.7413

Minimum 854.2 Minimum 43.3175

Maximum 2842.6 Maximum 49.0588

Sum 2306283.65 Sum 72130.3114

Count 1563 Count 1564

Largest (1) 2842.6 Largest (1) 49.0588

Smallest (1) 854.2 Smallest (1) 43.3175

Confidence level (95.0%) 22.96187284 Confidence level (95.0%) 0.084991417

Table-2 contains the correlation statistics

between Nifty and Exchange rate while 2800
C L O S IN G

Figure-1 is the graphical representation

of regression relationships and Table -3 2300

contains regressing analysis.

N IF T Y

1800

Table- 2: Correlation ship between

NIFTY Closing and Daily Exchange Rate 1300

n 1563
800

r statistic -0.76 4 3 .5 45 4 6 .4 4 7 .1 4 8 .7 4 8 .4 4 7 .4 4 5 .3 4 5 .3 4 4 .5 4 3 .5
EX C H A N G E R A T E

95% CI -0.78 To -0.74

Fig. - 1: Relationship of NIFTY CI with
2-tailed p <0.0001 (t approximation) Exchange rate
 50 Vilakshan, XIMB Journal of Management ; March, 2008

Table -3 : Regression analysis of NIFTY Closing and Daily Exchange Rate

n 1563
R 2
0.58
Adjusted R2 0.58
SE 300.5655

Term Coefficient SE P 95% CI of Coefficient

Intercept 10946.5767 204.75 <0.0001 10544.9467 to 11348.2
Slope -205.3590 4.4367 <0.0001 -214.0615 to -196.65
Source of variation SSq DF MSq F P
Due to regression 193548207.276 1 193548207.276 2142.45 <0.0001
About regression 141020152.748 1561 90339.624
Total 334568360.024 1562

There is a negative correlation between

NIFTY Closing and Daily Exchange
y = - 2 0 5 .3 6 x + 1 0 9 4 7
300 0
N IF T Y C L O S IN G

250 0
Rate as depicted in Figure-2 over the
200 0
six years. Figure-3 gives the Histogram
150 0 of the NIFTY and Exc h ange rate
100 0 relationship. It means upward
50 0
movement in one variable while
0
downward movement in the other
43 4 5 4 7
EX C H A N GE R A T E
49
variable. The correlation is – 0.76. Based
on this c orrelation, the regression
Fig. - 2 : Relationship Between NIFTY closing
& Daily Exchange Rate model Y = -205.36X+10947, fails to
4.5
predict any future trend in dependent
3.5 variable Y based on independent
2.5 variable X.
Standard iz e d re s iduals

1.5

0.5 The Tables 4 and 5 and figures depict

-0.5 various statistics and graphical view of
-1.5
regression analysis output on FII and
-2.5

-3.5
NIFTY relationships for 6-year period.
-4.5 Table - 4 gives the descriptive statistics
43 45 47 49 0 200 400 600
EXCHANGE RATE of regression results while Table-5
Fig. - 3 : Histogram showing relationship of
gives the c orrelation and the test
NIFTY with Exchange Rate results.
 Rajput et.al, Exchange Rate, FII and ... 51

Table - 4: Descriptive statistic analysis of FII and NIFTY (based on monthly data)
FII NIFTY

Mean 1939.027778 Mean 1477.994485

Standard Error 317.5782893 Standard Error 54.15918939
Median 1161.5 Median 1359.634
Mode #N/A Mode 1132.1
Standard Deviation 2694.741143 Standard Deviation 459.555961
Sample Variance 7261629.83 Sample Variance 211191.6813
Kurtosis 0.692289239 Kurtosis 0.027968328
Skew ness 0.898835174 Skew ness 0.906903156
Range 13423 Range 1823.181
Minimum -3808 Minimum 949.43
Maximum 9615 Maximum 2772.611
Sum 139610 Sum 106415.6029
Count 72 Count 72
Largest (1) 9615 Largest (1) 2772.611
Smallest (1) -3808 Smallest (1) 949.43
Confidence Level (95.0%) 633.2334363 Confidence Level (95.0%) 107.9904098

Table-5:Correlation between NIFTY and FII

2 800

72
2 600
N
2 400

r statistic 0.53 2 200

95% CI 0.34 To 0.68

N IF T Y

2 000
NAFTY

1 800
2-tailed p <0.0001 (t approximation)
1 600

1 400

Similarly the Table-6 shows relationship 1 200

between N ifty and FII. Regression

1 000

800
results show a low predictive power. 1 84 -424 10 31 37 0 4 22 12 33 2493 28 16 -587

Figure- 4 depicts the graphical FI I

manifestation of the relationship and

Fig. - 4 : Relationship Between NIFTY & FII
slope.
 52 Vilakshan, XIMB Journal of Management ; March, 2008

Table-6 : Regression analysis of NIFTY and FII

R2 0.28
Adjusted R2 0.27
SE 392.7552

Term Coefficient SE P 95% CI of Coefficient

Intercept 1303.0546 57.1609 <0.0001 1189.0508 to 1417.0584
Slope 0.0902 0.0173 <0.0001 0.0557 to 0.1247
Source of variation SSq DF MSq F p
Due to regression 4196643.639 1 4196643.639 27.21 <0.0001
About regression 10797965.732 70 154256.653
Total 14994609.371 71

A positive correlation is found between regression slope, while Figure-6 shows

NIFTY and FII investment over the six the histogram of the relationship. It
years of data. By looking at Figure-5 one means nifty increases as FII investment
can observe the graphic depiction of the increases in nifty. The correlation statistic
is 0.53. Based on this correlation the
regression model Y = -0.0902X+1303.1 is
y = 0 .0 9 0 2 x + 1 3 0 3 . 1
35 00

30 00
developed. This fails to predict any
25 00
future trend in dependent variable Y
based on independent variable X.
NIF TY
N IFT Y

20 00

15 00

b. Yearly data analysis and

10 00
interpretation of 2000-2005
5 00

0 Over six-years period the Exchange rate

and stock price has negative correlation
-40 00 1 00 0 60 00

FII

Fig. - 5 : Representation of Regression Slope and they this is not helpful to predict
future trend. While FII and NIFTY show
4
a positive relation, the regression model
3 is not able to predict the future trend.
2 The data used in this analysis is varied
Standardize d r e s iduals

1 largely (as shown in descriptive

0 statistics) because of long time period
-1
taken for study. For better result, an
-2
analysis on yearly data is performed. The
year wise correlation statistic between
-3

NIFTY and FX Rate can be viewed in

-4
-4000 1000 6000 0 10 20 30
FII
Table-7. Table-8 shows the correlation
Fig. - 6 : FII and Standardised Residuals statistic between FII and Nifty.
 Rajput et.al, Exchange Rate, FII and ... 53

Table - 7 : Correlation between DAILY The positive correlation between FII

CLOSING NIFTY and DAILY EXCHANGE and NIFTY implies a causal relationship
RATE between these two variables. It means
FII is affecting the NIFTY performance.
YEAR CORRELATION
While no continu ou s relationship
2000 -0.780370385 between NIFTY and Exchange Rate
2001 -0.812194488 provide a very weak relationship
2002 0.38007965 between both the variables. But 0.76
2003 -0.839731013 correlation in year 2005 between NIFTY
and Exchange Rate, and heavy
2004 -0.627766231
investment of FII in Indian stock market
2005 0.745564413 during this time, provide the evidence
2000-05 -0.760592682 of c orrelation ship between these
variables.
Out of six years four years show negative
5.0 CONCLUSION AND LIMITATIONS
correlation between NIFTY and
Exchange Rate, while only two years Stock market and exchange rate are
show positive correlation between these important factors in the economy and FII
two variables. The entire regression flow affects both the variables. Research
model is not able to predict the future findings differ and lack consensus. Our
trend. study found no long run positive
Table-8 : Correlation between FII correlation between Exchange Rate and
investment and NIFTY NIFTY. Over the six years it shows
negative trend but in year 2002 and 2005
YEAR CORRELATION
a positive correlation between these two
2000 0.351061 variables is found.
2001 0.780056
From the analysis of FII investment
2002 0.416388 and NIFTY performance, one can find
2003 0.826445 that the FII significantly affects the
2004 0.599925 NIFTY performance and is one of the
important driving forces of the stock
2005 0.228477
market. Continuou s p ositive
2000-05 0.53
correlationship exists between these
FII and NIFTY show continuous positive two variables.
correlation over six years. But the Positive correlation found between FII
regression model is not able to predict and NIFTY tempts one to think about
the future trend. the relationship between Exchange
 54 Vilakshan, XIMB Journal of Management ; March, 2008
Rate and NIFTY. If we consider recent
boom in Indian stock market and
movement in exchange rate, a positive
c orrelated movement is observed.
This is because in last two years 2004-
05 and 2005-06, FII invested heavily in
market and their inv estment
influenced the supply and demand
position of Indian rupee.
FII flows fails to predict the future value
of NIFTY. This result provides evidence
that FII is one of the important factors,
but not only one significant factor
affecting NIFTY.
We hope this study will provide a good
work to carry out more vigorous
analysis in this field with more effective
statistical tool and with latest data of
boom period.
For the analysis of financial market and
with voluminous data to predict the
interrelation ship between variables,
more effective tools such as GARCH,
Vector Auto Regression and Granger
Casualty are warranted. We wish to
extend the research with those tools.
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 Attribute Based Perceptual Mapping of
Cement Brands: an Empirical Study*

Shahida P.1, Rajendra Nargundkar2 & Gaurav Hiremath3

Abstract
The Indian cement industry has seen an explosive growth backed by heavy investment in Infrastructure
development in the last decade. By 2008, the domestic demand will be 140 million tonnes. The industry
is expected to grow by 12 % every year. There are some established brands in the market, namely, ACC,
Grasim, Gujarat Ambuja, Ultratech Chemco, Birla etc. Multinational companies such as Holcim
(Switzerland), Lafarge (France), Italicementi (Italy) have invested 10-50% in Indian Companies. This
study is an attempt to find out the factors, which influence the choice of cement brand. The relative
importance of various brand attributes is studied. The consumers’ perception towards the leading
brands of cement is analyzed through an attribute based perceptual map. The managerial implications
and directions for future research are discussed.

1.0 INTRODUCTION Branding is applicable to all categories

A brand is a strategically potent weapon.
The Brand helps a company to
differentiate itself from competition. It
defines to the stakeholders, customers
and partners what the company believes
in and what to expect from the company.
Brand management has been extensively
researched in the western countries and
several research papers have been written
on different aspects of branding. For
many industries, branding offers the best
opportunity for creating growth.
and industries and even applies to
commodities. Research in brand
management has gained prominence in
India in the last decade. Brand
positioning is a crucial decision for a
company.
A brand’s positioning is designed to
occupy a unique and distinctive place in
the consumer’s mind. The objective is to
develop a sustainable competitive
advantage on product attribute(s) in the
consumer’s mind. Kotler (2002) defines

* Received January 29, 2008 ; Revised February 13, 2008

1. Assistant Professor, Dept. of MBA, PESIT, Bangalore, email: shahida.74@gmail.com
2. Director, Dept. of MBA, PESIT, Bangalore, email: rnargundkar@gmail.com
3. Area Sales Manager, Reliance Communications, Bangalore, email:ghgaurav@gmail.com
 58 Vilakshan, XIMB Journal of Management ; March, 2008
brand positioning as “the act of
designing the company’s offer and image
so that it occupies a distinct and valued
place in the target customer’s mind.”
Brand positioning involves establishing
key brand associations in the minds of
customers and other important
constituents to differentiate the brand
and establish (to the extent possible)
competitive superiority (Keller et al.
2002). Keller (2003) defines brand
positioning as all about creating the
optimal location in the minds of existing
and potential customers so that they
think of the brand in the “right way.”
Brand positioning requires thoughtful
analysis of competitors and consumers to
determine the desired image for the
brand to maximize its chances for success.
Although a number of different
approaches and methodologies for
positioning are possible, they all typically
define the nature of the target market
and relevant competitors and the means
by which the brand should be seen as
similar as well as distinct from those
competitors.
According to Perreault and Mc Carthy
(1999) positioning refers to how
customers think about proposed and /
or present brands in a market.
Developing an effective positioning
strategy, which is sustainable, unique and
competitive, is not easy.
Schnedler (1996) states “Positioning
products in a complex market can be one
of a company’s most difficult decisions.”
The result of positioning is the successful
creation of a customer focused value
proposition. Brand positioning sets the
direction of marketing activities and
programs—what the brand should and
should not do with its marketing.
2.0 OVERVIEW OF INDIAN CEMENT
INDUSTRY
The Indian Cement industry is the second
largest cement producer in the world,
with an installed capacity of around 157
million tonnes per annum (mtpa) at end-
March 2006. The Indian cement industry
is a mixture of mini and large capacity
cement plants, ranging in unit capacity
per kiln as low as 10 tpd to as high as
7500 tpd. Majority of the production of
cement in the country (94%) is by large
plants, which are defined as plants having
capacity of more than 600 tpd. At present
there are 124 large rotary kiln plants in
the country. (IBEF, 2007).
The Ordinary Portland Cement (OPC)
enjoys the major share (56%) of the total
cement production in India followed by
Portland Pozzolana Cement (PPC) and
Portland Slag Cement (PSC). A positive
trend towards the increased use of
blended cement can be seen with the
share of blended cement increasing to
43%.
As on March 2006, ACC was the largest
player with a capacity of 18.64 mtpa.
UltraTech CemCo Ltd occupied the
second slot with a capacity of 17 mtpa
(now a part of Aditya Birla corp.). The
Gujarat Ambuja group has emerged as
 Shahida et.al, Attribute Based Perceptual ... 59
the third largest player with a capacity
of 14.86 mtpa. Grasim ranks fourth with
a capacity of 14.12 mtpa. Other leading
players include India Cements, Jaypee
group, Century Textiles, Madras
Cements, Lafarge, and Aditya Birla Corp.
Multinational players have invested in
Indian companies and the Planning
Commission’s Working Group on
Cement Industry predicts cement
production in India to grow at a rate of
10% during the Tenth Five-Year Plan
(2002-2007). By comparison, the cement
industry is expected to grow at around
8-10% during the 2003-07 periods.
Growth of 9% per annum from FY2006-
10 would result in cement production
increasing to around 196 mt in FY2010.
According to Cement Manufacturers
Association (CMA), the average monthly
capacity utilisation during fiscal 2006-07
was 94 per cent. And due to the sustained
demand levels, the growth in capacity
utilization has continued in the current
fiscal 2007-08, with 94 per cent capacity
utilization for the period April-
September as against 90 per cent during
the corresponding period quarter last
fiscal (vBulletin, 2007)
Simultaneously, cement dispatches in
2007 were at an all-time high of 155
million tonnes (mt), up from 142 mt in
the previous fiscal, thereby recording a
growth of 10 per cent. During the first
half of 2007, dispatches (including
exports) have also jumped by 8.19 per
cent to reach 80.24 mt. Net sales of
cement companies went up by 50.5 per
cent during 2007 while profits zoomed
by 183.4 per cent. According to the latest
ICRA Industry Monitor report, installed
capacity of the c ement industry is
expected to increase to 186 million
tonnes per annum (mtpa) by end of 2007-
08, 219 mtpa by end of 2008-09, and up
to 241 mtpa by end of 2009-10 (IBEF,
2007)
3.0 SIGNIFICANCE OF BRAND POSITIONING
Rising noise levels in the media and
extensive advertising by different
companies lead to a c lu tter in the
consumer’s mind. If brand awareness
and recognition is good, the brand will
fall in the consideration set of the
c onsumer but may fail to bu ild
customer loyalty without a unique
brand position. According to Aaker and
Shansby (1982), the positioning decision
is often a crucial decision for a company
or brand because the position can be
central to consumer’s perception and
choice decisions. A clear positioning
strategy can ensure that the elements
of the marketing program are
consistent and supportive. According to
G win and G win (2003), while
developing a positioning, a marketer
needs to consider four things: the
target market, how the produ ct is
different or better than competitors,
the value of this difference to the target
market and the ability to demonstrate
or communicate this difference to the
target market.
 60 Vilakshan, XIMB Journal of Management ; March, 2008
Acc ording to Aaker (1996) brand
position is the part of the brand identity
and value proposition that is to be
actively communicated to the target
audience and that demonstrates an
advantage over c ompeting brands.
Positioning and segmentation are
treated as different concepts in practice
and in literature. Positioning has no
value unless it is appropriate for the
target segment (Rao and Steckhel, 1998).
Aaker (1996) in the brand identity
planning model suggests that a brand
position has to be built on five
parameters- look to the core identity,
identify points of leverage, create the
value proposition: benefits that drive
relationships, target audience and active
communic ation. Brand position is
extremely important to create a defined
identity for the brand.
Aaker and Shansby (1982), propose six
approaches to positioning strategy, which
are: positioning by 1) Attributes 2) price-
quality 3) use or applications 4) product-
user 5) the product class and 6) the
competitors. The following were our
research questions:
4.0 RESEARCH QUESTIONS
R1. To find out the relative importance
of various attributes of cement
considered while purchasing branded
cement.
R2. To find out the brand positioning of
different brands with attribute based
perceptual mapping using discriminant
analysis.
5.0 RESEARCH METHODOLOGY
A questionnaire was administered
personally to collect primary data from
dealers and consumers. A seven point
rating scale with 1 being “Worst” and 7
being “The Best” was used for rating the
attributes on different brands of cement.
Non-probability judgmental sampling
technique was used. The sample size was
30 retailers, 20 dealers and 10 consumers,
covering major commercial and
residential areas in Bangalore city.
6.0 ANALYSIS AND DISCUSSION
Keon (1983) has described four methods
for measuring and evaluating a brand’s
current or potential positioning. The
methods are Multi dimensional scaling,
factor analysis; discriminant analysis and
multi attribute compositional models. In
this study we have used discriminant
analysis; discriminant analysis
determines the linear combinations of
attributes that best discriminate among
brands. The ratings of brands on
attributes are used to develop the
perceptual map. Perceptual maps provide
a visual picture of the brand positioning
activity and help brand managers
understand the position of the brand in
comparison to competing brands.
R1. To find out the relative importance
of various attributes of cement
considered while purchasing a branded
cement. Table 1 shows the relative
importance of different attributes based
on their mean scores.
 Shahida et.al, Attribute Based Perceptual ... 61

Table 1: Relative Importance of Different R2. To find out the brand positioning of
Attributes different brands with attribute based
Sl No Attribute Mean perceptual mapping using discriminant
analysis.
1 Price 5.38
2 Setting time 4.28 We performed discriminant analysis and
3 Strength 6.90 found significant differences between
4 Availability 5.10 three leading brands of cement in
5 Sand-cement-water ratio 3.44 Bangalore- ACC (Associated Cement
6 colour 4.60 Company), Ultratech ( Aditya Birla Corp)
and Zuari (Italicimenti group). The Wilks
Color 4.6 lambda test revealed, two functions (1
Sand-cement-water and 2) both are statistically significant.
ratio 3.44
The Chi square value for function 1 is
Avaliability 5.1
171.572 at 12 degrees of freedom with
Strength 6.9 significance of 0.000 and Chi square of
4.28 function 2 is 18.98 at 5 degrees of freedom
Setting time
with significance of 0.002
5.38
Price
0 2 4 6 Table 2: Standardized Canonical
Discriminant Function Coefficients
Chart 1: Relative Importance of Different
Attributes Function
Attributes
1 2
The most important attributes of cement
Price of The Brand .823 .027
are strength of the cement (mean; 6.9),
followed by price (mean; 5.38) and Setting Time -.954 .225
availability (mean; 5.10). N ext in Strength of the cement .109 1.121
importance is colour (mean; 4.6). The Availability of Cement .787 .045
least important attributes are, setting
Sang Cement Water Ratio -.091 -.302
time (mean; 4.28) and sand-cement-
water ratio (mean; 3.4). The strength Colour of the Cement -.096 -.647
and price of the cement appear to be
the most important attribu tes that From the standardized discriminant
customers will focus on while choosing function coefficients (table 2); it appears
a cement brand. This finding indicates that there are two different functions
that cement brands need to focus their based on five attributes. Function 1
marketing c ommunic ations consists of price of the brand, setting
predominantly on “Strength” of the time and availability. Fu nc tion 2
c ement, as strength is the most consists of strength and colour of the
important attribute of cement. cement.
 62 Vilakshan, XIMB Journal of Management ; March, 2008
Table 3: Functions at Group Centriods
Brand Name
Ultratech -1.916
ACC
Zuari
A perceptual map is drawn using the
standardized canonical discriminant
function coefficients (table 2) and the
functions at group centroids (table3).
Function 2
SETTING TIME
ULTRA TECH
-3 -2 -1
S-C-W RATIO
COLOUR
Function 1
Chart 2: Attribute based Perceptual Map of
Cement Brands
7.0 INTERPRETATION
The above graph represents the vectors
for each of the attributes- strength,
price, availability, setting time, sand-
cement-water ratio, and colour. These
vec tor s represen t the effe c t of
discriminating on each dimension.
Longer arrows pointing more closely
toward s a given grou p c ent roid,
represents variables most strongly
associated with that particular group
(or Brand, in this c a se). Vec tors
pointing in the opposite direction from
Function
a given grou p c entroid r epresent
1 2 lower association with the concerned
-.013 group.
.918 .460 Variables with longer vectors in a given
.998 -.448 dimension, and those closer to a given
axis are contributing more to the
interpretation of that dimension.
Looking at all variables that contribute
to a given axis (dimension), we can label
the dimension as a combination of those
variables.
1.2
STRENGTH As seen from the graph (chart 2)
1
0.8
Ultratech (Birla Plus before October
0.6
2007), ACC and Zuari have their unique
0.4
ACC
position on the map. In addition on the
map we have values of the attributes on
Attributes
0.2
Brands
the same two dimensions (each
AVAILABILITY
PRICE
0
discriminant function represents a
0 1 2
-0.2
-0.4
ZUARI
dimension). From the figure we can see
-0.6
that dimension 1 seems to be a
-0.8
combination of Availability and Price
(closest to the x-axis). Dimension 2 seems
to comprise Strength, Sand-Cement-
Water ratio and colour.
8.0 BRANDS AND THEIR ASSOCIATION
ACC seems to be stronger in both
Dimension 1 (Availability) and
Dimension 2 (strength). Ultratech seems
to be strong in dimension 2 (strength, in
comparison to Zuari). Zuari seems to be
weak in both the dimensions as
compared to its competitors.
Aaker (1996) defines brand position as
follows: Brand position is part of the
brand identity and value proposition
 Shahida et.al, Attribute Based Perceptual ... 63
that is to be actively communicated to
the target audience and that
demonstrates an advantage over
competing brands.
The respondents in our survey associate
ACC brand as strong cement which is
easily available in the market. Ultratech
is perceived to be high on strength
compared to Zuari.
The brand Ultratech was known by
many other brand names in the past. In
2004, Grasim bought 51% stake in L&T
cement and named L&T cement as
Ultratech Cement. According to O.P.
P uranmalka, Group execu tive
president, Grasim Industries and chief
marketing officer, UltraTech Cement
Ltd, “The name UltraTech was the
outc ome of an in-depth researc h
conducted throughout the country. The
research study indicated that in the
c ustomers’ mind, L&T stood for
quality, technology and expertise. The
name UltraTech with the signature line
‘the engineer’s c hoic e’ admirably
captured the premium nature of the
brand and its salience.” In October 2007
Birla Plus brands was rechristened as
Ultratech. Though regional brands
were retained such as Vikram Cement
in the north zone and Birla Super in
Bangalore, P une and Mysore, and
Rajashree Cement in the west and south
zone (Business India, 2008). Ultratech
became the national brand. The recent
name c h ange from Birla P lu s to
Ultratech may have had an influence on
the brand positioning of the same.
9.0 LIMITATIONS
The study confines itself to Bangalore
city only. Though eight or more brands
were researched for brand awareness,
we considered only three regional
brands for attribute based perceptual
mapping.
10. MANAGERIAL IMPLICATIONS
From this study we can conclude that
Customer considers Strength of the
cement as the most important attribute
of the cement. Second is Price of the
cement and the third is Availability of
the cement brand. Cement
manufacturing companies need to focus
on these attributes. From the perceptual
map, we can conclude that ACC is
having an edge over Ultratech on Price
and Availability, which is a serious
concern for Ultratech as it may lose its
market share to ACC du e to non
availability of cement in the market.
Both Ultratech and Zuari cements are
not perceived highly on both dimensions.
With the entry of global giants such as
Holcim, Lafarge, the current positioning
of Indian brands may have to be
reconsidered. From this study, we can
interpret that except for ACC, other
brands do not have good attribute based
positioning. Aaker (1996) and Keller
(2003) have emphasized on the
importance of not only selecting a
suitable positioning strategy for a target
segment but also on the importance of
updating the brand over a period of
time, to ensure that the brand stays
relevant at all times.
 64 Vilakshan, XIMB Journal of Management ; March, 2008
REFERENCES
Aaker, A. David (1996). Building Strong Brands.
The Free Press, New York.
Aaker, A. David and Shansby, Gary (1982).
Positioning your Product. Business Horizons,
May-June, 56-62.
Cement: A report for Crisil by IBEF, India Brand
Equity Fund. www.ibef.org, accessed on 12
01-2008.
Cement –Industry profile, updated on December
31, 2007, www.ibef.org (2007), accessed on
12 February 2008.
Cement Industry (2007), v Bulletin, Jelsoft
enterprises, www.management paradise
.com, accessed on 12 February 2008.
Cement: Industry Profile (2007), IBEF India Brand
Equity Fund. www.ibef.org, accessed on 12
01-2008.
Mohan, Devendra (2008), Grasim Press release,
Business India, 13 January 2008.
Gwin, F. Carol and Gwin, R. Carl (2003 ). Product
Attributes Model: A Tool for Evaluating
Brand Positioning. Journal of Marketing: Theory
and Practice, 30-42
Keller, K. L. (2002). Branding and brand equity,
Bart Weitz, Robin Wensley, eds. Handbook of
Marketing. Sage Publications, 151-178,
London, UK.
Keller, K. L. 2003. Strategic Brand Management:
Building, Measuring, and Managing Brand
Equity, 2d ed. Prentice Hall, Upper Saddle
River, NJ.
Keon, John. W.(1983). Product Positioning:
Trinodal Mapping of Brand Images, Ad
Images and Consumer Preference. Journal
of Marketing Research, 20, 380-392.
Kotler, P. (2002). Marketing Management.
Prentice Hall. New Jersey.
Perreault, William D., Jr and E. Jerome Mc
Carthy (1999). Basic Marketing: A Global
Managerial Approach, Boston, MA: Irwin
McGraw-hill.
Rao and Steckel (1998). Analysis for Strategic
Marketing. Reading, MA: Addison-Wesley.
Schnedler, David E. (1996). Use Strategic Market
Models to Predict Consumer Behavior. Sloan
Management Review, 37(3), 85-94.
The Indian Cement Industry: ICRA Sector
Analysis (2006). www.icra.in. accessed on
10/ 01/ 2008.
 Work Role Characteristics as Determinants
of Job Satisfaction: An empirical analysis*
J. Reeves Wesley1 & P.R. Muthuswamy2

Abstract
In this article, we have developed a model based on prior literature and examined the relationship
between work role characteristics and job satisfaction. Data was collected from 230 faculty members
from self-financing Engineering colleges in and around Coimbatore city. Using multiple regression
analysis it was found that work conflict, supervisory support, and job involvement influence job
satisfaction. The results are discussed and implications to the institutions as well as to the individuals
are suggested.

1.0 INTRODUCTION (family) of an individual’s life and self-

Work is deemed as an unavoidable
aspect of human being. All social
relationships are built around work.
Human beings by working also
contribute to the work world with their
intellectual stimulation, seek personal
growth, relish the challenge of work, and
get the financial benefit it provides
(Gordon and Whelan, 1998). It is a source
of life’s purpose, self-esteem and a
validating experience for men and
women (Kanter, 1977). Work lends
meaning to one’s lives and fulfils it
(Rifkin, 1995). So, it may be seen that
economic survival, satisfying the interest
of the unremunerated work domain
interest stimulates an individual to work
(Meda, 1996). However, there is no
denying the fact that the most important
reason why an individual works is in
order to survive, since work is the only
means of meeting the end i.e., the
financial stability of the family (Pratt and
Rosa, 2003).
Unfortunately, work which is deemed
to be a sou rc e of life-g iving to
individuals and in turn to families with
which an individu al is attac hed is
working just in opposite direction.
Organisations put pressure, explicit
and implicit, on employees to put more
time, stay late at night, come in on

* Received November 11, 2005; Revised January 17, 2008

1 Associate Professor, Karunya University, Coimbatore, email: jreeveswesley@yahoo.com.
2 Dean, KMCH Institute of Health and Hospital Administration, Coimbatore,
email: kmchms@gmail.com
 66 Vilakshan, XIMB Journal of Management ; March, 2008
weekends, take work home and so on
to help the firm impr ove its
competitive position (Hall, 1990). The
norm of a 35-44 hour/week has given
way to longer hours in the full-time
working week. With the dawn of a
new century, the information age is
rapidly replacing the industrial age,
bringing with it new norms of work
and longer hours of work involving
harder and more challenging tasks and
the need to be mu lti-skil led. The
global isation pr oc ess whic h has
resu lted in increased and intense
competition has brought in significant
c hanges in the workplac e. By and
large, it is believed that humankind
spends a major portion of his or her
time and energy in this realm due to
the c h an ging natu re of work in
respons e to new dema nds and
environmental pressures. Therefore,
assessing the characteristics of work
role (hereafter referred to as Work
Role Characteristics, labeled as WRC,
becomes essential because of its very
nature of being a factor influencing
reactions to job related outcomes like
job satisfaction. Researchers earlier
have studied the relationship between
WRC and job satisfaction, however,
have often captured only one or two
WRC. Keeping this in the background
and after a careful investigation of
prior literature (Aryee, Fields and Luk,
1999; Carlson and Perrewe, 1999) the
researc h er examines fo u r su c h
characteristics: Work demand (WD),
Work Conflict (WC), Job involvement
(JI) and supervisor support (SS) and
their impact on job satisfaction (JS).
Accordingly, the researcher attempts
to study the following objectives.
1) To study the relationship between
work demand and job satisfaction
2) To study the relationship between
work conflict and job satisfaction
3) To study the relationship between
job involvement and job satisfaction
4) To study the relationship between
Supervisor support and job
satisfaction.
Organisations put tremendous pressure
on employees resulting in longer hours
of work and increase of the work load.
They affect the level of control
individuals exert, when faced with
increasing role demand and time
pressures. This results in incompatibility
within the work role as well as life’s other
domain. A review of the extant literature
(Aryee, Fields and Luk, 1999; Carlson
and Kacmar, 2000) shows that such
incompatibility result in increase in work
demand thus, affecting job satisfaction.
Accordingly, the researcher hypothesizes
as follows:
H1: Work demand is negatively related
job satisfaction
Higher work overload - which is referred
to as a condition where an individual is
expected to do too many things within a
limited time, as part of the daily routine
 Wesley et.al, Work Role Characteristics as...
(Sekaran, 2004), could also lead to
conflict within the work domain, in which
all the work demands cannot be met in
the available span of time. Moreover, an
insightful investigation into the role
theory (Katz and Kahn, 1978) reveals that
incompatible expectations from the
supervisors would leave the individual
unable to influence the supervisor’s
actions, thus experiencing conflict at
work. Subsequently, a review of prior
literature (Aryee, Fields and Luk,1999;
Carlson and Kacmar, 2000; Higgins and
Duxbury, 1992) reveals that an increase
in demand in the work role results in
conflict affecting job satisfaction.
Accordingly, the researcher hypothesizes
as follows:
H2: Work conflict is negatively related to
job satisfaction
Studies have reported that job
involvement represents an internal or
self-induced source of pressure (Frone,
Russell and Cooper, 1992a,b;
Parasuraman, Purohit, Godhalk and
Beutell, 1996) to achieve a desired need.
The most important inference that could
be made from the above definitions is
that job involvement refers to the
individual’s mental and emotional
involvement in the job in an attempt to
fulfill its demands, leading to increased
devotion of time and energy in the work
role. It includes identifying with the job,
actively participating in it, and perceiving
job performance to be important to self-
worth (Blau, 1985; Rabinowitz and Hall,
67
1977) resulting in incompatibility with the
expectations of the job thus, affecting job
satisfaction (Aryee, Fields and Luk,1999;
Parasuraman and Simmers, 2001).
Accordingly, the researcher,
hypothesizes as follows:.
H3: Job involvement is negatively related
to job satisfaction
Supervisor support involves the
interpersonal transaction that takes place
between the members of the organisation
and the supervisor, seeking support on
issues related to work and affecting the
individuals. The issues that could affect
the individual might be work
environment stressors, such as time
pressure which is a characteristic of the
work (Kickul and Posig 2001) and role
pressure which is a combination of
expectations and demands that
individuals either place upon themselves
or have placed upon them by other
people such as the supervisors (Matteson
and Ivancevich 1987). The time pressure
and role pressure at workplace may
inhibit the individual’s requirements to
satisfy the obligations of the job.
Therefore, it is imperative that when
employees experience role pressure or
time pressure, supervisors should
attempt to provide emotional support
(Kickul and Posig, 2001). Accordingly,
the researcher hypothesizes as follows:
H4: Supervisor support is positively
related to job satisfaction.
The model describing this relationship is
depicted in figure. 1
 68 Vilakshan, XIMB Journal of Management ; March, 2008
Work demand
Work conflict
- Job Satisfaction
Job involvement
- quoted in Wesley, Oomen, Sumithra and
- Varkey, (2003). It is measured on a 5
Supervisor +
Figure - 1 Model depicting the relationship
between work role characteristics and job
satisfaction
2.0 METHODS
Measurement of the Variables under study
A questionnaire consisting of items
capturing the work role characteristics
and job satisfaction was used to collect
data.
Independent variables: The work role
characteristics are the independent
variables. The various factors
constituting the work role characteristics
were measured as follows: Work demand
scale Cronbach α = 0.65) consisted of four
items adopted from Williams and Alliger
(1994); work conflict (Cronbach α = 0.77)
adopted from Higgins, & Duxbury,
(1992) consisted of 8 items; job
involvement (Cronbach α = 0.66) was a
shortened form of Lodahl and Kejner
(1965) scale, quoted in Lobel and Clair,
(1992) consisted of 4 items and supervisor
support (Cronbach α = 0.61) originally
developed by Shinn, Wong, Simko and
Ortiz-Torres (1989) and adopted from
Batt and Valcour (2003) consisted of 6
items. The items were measured on a
five point Scale (5 = Strongly agree to 1 =
Strongly disagree).
Dependent Variable: The dependent
variable is job satisfaction. 8 items are
used to measure the job satisfaction
(Cronbach α = 0.78). These items were
point scale (eg, 5 = Strongly agree to 1 =
Strongly Disagree).
Sample and Data Collection
The data for this article were collected
in course of doctoral work. Accordingly,
the questionnaire was administered to
403 faculty members working in
Engineering Colleges in and around
Coimbatore city. Almost half of the
questionnaires were administered in
person and the remaining by choosing a
contact person in each college, through
whom the questionnaires were
distributed. However, the researcher
personally met the respondents or
contacted them over phone, to solicit
their kind cooperation in filling up the
questionnaire. They were given the
assurance that their responses would be
used only for academic purpose and were
assured absolute confidentiality and
anonymity on the information will be
maintained. This was done based on the
suggestions given by the respondents in
the pilot study, in order to encourage and
solicit the kind cooperation of the
respondents, in giving complete and
accurate information. A thorough follow-
up was done in person and over
telephone to expedite the process of
filling up the questionnaire. Yet some of
the questionnaires were not returned and

some were unusable and incomplete,
yielding a response rate of 57.1% (230
usable questionnaires).
The justification for choosing engineering
college teaching faculty as the
respondents, was based on the pattern
of reasons given by Suppal, Roopnarine,
Buesig and Bennett, (1996). It was seen
that they are educated and economically
stable because of the even salary structure
prescribed by their governing body (i.e.,
All India Council for Technical
Education). Further, the respondents
from academia are appropriate because
of the likelihood of experiencing higher
work role characteristics such as work
demand (Wesley and Muthuswamy,
2004). Moreover, academic realm holds
unique challenges, especially for women
who often report greater demands in life
(Dressel and Clark, 1990; Piotrkowski,
Rapoport, and Rapoport, 1987).
3.0 RESULTS
Data were analyzed using SPSS Version
11. Table-1 presents the means, the
Table -1: Matrix of inter correlations among study variables
Mean (& Standard
Deviation)
Work demand 3.83 (0.65)
Work conflict 2.86 (0.68)
Supervisory Support 2.69(0.98)
Job involvement 3.38(0.70)
Job Satisfaction 3.78(0.60)
* Correlation is significant at the 0.05 level (2-tailed).
** Correlation is significant at the 0.01 level (2-tailed).
Standard deviations given in parenthesis
Wesley et.al, Work Role Characteristics as... 69
standard deviations and the
intercorrelations among the study
variables. It is found that the means
range from a moderate (2.69 for SS) to a
high score (3.83 for WD). The standard
deviation of the variables measured on a
5-point scale appears to be slightly higher
with factors like SS reporting 0.98. The
inter-correlations range from very low
(e.g., 0.00 between WD and JS) to
moderate values (0.30 between WD and
JI). Theoretically, there is no evidence
of multicollinearity. Correlations are
meaningful within the conceptual
framework of the study, reaching
statistical significance. The coefficients
provide support for the suggested
linkages between the work role
characteristics and JS when viewed as
simple associations. However, the results
of the multiple regression analyses is
taken for discussing the model in the next
chapter because of its advantage over
correlation in explaining the simultaneous
effects of two or more variables in the
model.
1 2 3 4 5
.15*
.11 .18**
.30** .15* .17**
-.00 -.22** .24** .23**
 70 Vilakshan, XIMB Journal of Management ; March, 2008
Table-2 presents the results of the
regression analysis examining the
antecedents of job satisfaction. The R²
= 0.184 indicates that the regression
model explains 18.4% of the variance in
the dependent variable and R² seem to
be significant as indicated by the F-
value. The adjusted R² = 0.170 shows
that any time another independent
variable is added to this model, the R²
will increase (even if only slightly). The
decline in the adjusted R² and smaller
difference between R² and adjusted R²
are due to the relatively larger number
of observations compared to the
number of predictors. The decline in
the adjusted R² may also be due to the
less contribu tion to the explained
deviation by the additional variable to
the degrees of freedom. On examination
of the standardized beta coefficients, it
is found that WC (β = -0.29, p < 0.05) is
significant negatively supporting
hypothesis H2 and SS (β = 0.25, p < 0.05)
and JI (0.26, p < 0.05) are positively
related to job satisfaction supporting
hypothesis H3 reversely and H4
respectively. Work demand is non-
Table- 2: Regression results predicting job satisfaction
Unstandardised B
Work demand -.0572
Work conflict -.258
Supervisory Support .153
Job involvement .219
Dependent Variable: Job satisfaction;
(p < 0.05); constant (y intercept) = 3.588
significant predic ting and henc e,
hypothesis H1 is not supported. Work
conflict is the strongest predictor of JS
followed by JI and SS. The slopes given
by the B values quantify the steepness
of the regression line. It equals the
change in job satisfaction for any level
of change in the predictor variables. It
indicates that any c hange in work
conflict would affect change in job
satisfaction in the reverse direction.
Similarly, any change in job involvement
and supervisor support result in change
in the positive direction.
4.0 DISCUSSION
The goal of this study was to examine
relationship between work role
characteristics and job satisfaction
occurring as a function of the work role
characteristics, by evaluating a
hypothesized model.
This study reported a smaller R², in spite
of the model being fit. In order to
increase R², work role characteristics may
be expanded to include variables such as
work role ambiguity and include life’s
other role characteristic variable such as
Beta Coefficients (β) t Sig.
-.06 -.99 .33
-.29 -4.74 .00
.25 4.07 .00
.26 3.97 .00
R² = 0.184; adjusted R² = 0.170; F = 12.70
 Wesley et.al, Work Role Characteristics as...
family role characteristics. Moreover, the
researchers assert that job satisfaction is
an universal and pervasive phenomenon
predicted by many other organizational
factors such organisation culture and
climate and work role characteristics is
one of those many significant others that
account for variance in the dependent
variable thus, resulting in a smaller R².
The results report that all the work role
characteristics, but work demand, predict
job satisfaction. The strongest prediction
of JS by WC indicates that the faculty
members are subjected to multiple roles
within the work role. The multiple roles
may be in the form of conducting extra
coaching for weak students,
administrative work such as attendance
maintenance of the students and
informing parents about the performance
of the students, doing research,
consultancy and publishing papers in
journals. Going by the number of
institutions offering higher educations,
increasing competition and the indication
of foreign universities making forays into
the Indian soil this year, quality is
deemed to be the focal point for survival
for both the faculty and the institution.
In view of this, they experience
incompatible expectations from two or
more significant others in the work role
(e.g., students and management) leading
to dissatisfaction in their job.
The reward value of the SS is evidenced
in its prediction of job satisfaction.
Although SS is found to be lowest as
reported by the mean value, it has
71
significance as its prevalence increases job
satisfaction. This suggests that the
supervisors in educational institutions are
empathetic whose support could be used
as a coping mechanism aimed at
accommodating the faculty’s multiple
role pressures (WC), thus increasing job
satisfaction. Further, the SS - JS
relationship indicates in general, the
genre of supportive climate that exists in
educational institutions. It suggests the
perceptions of supportive leadership
practices that influence feelings of
personal emotional state of the faculties
directly.
Job Involvement’s (JI) positive
relationship with JS is a notable finding.
It points to the benefits associated with
a workforce where faculty members
appear psychologically involved in their
work efforts are satisfied with their jobs.
5.0 IMPLICATIONS, LIMITATIONS AND FUR-
THER RESEARCH
This study has important implications for
both organizations and individuals as it
has the potential to benefit both of them.
In the context of WC affecting JS,
institutions can help increase job
satisfaction by making adjustments in the
work role through sufficient supervisory
support. While multi-skilling and multi-
tasking are present day phenomena, roles
interfering with each other can be
reduced by applying unity of command
principle, combined with clear job
description and supervisor support. This
may also help to enhance the effective flow
of communication from the superiors to
 72 Vilakshan, XIMB Journal of Management ; March, 2008
the faculty members, eliminating dual
reporting relationships. Avoidance of
work conflict would also to greater
extent enhance the faculty members’
involvement in one particular job rather
than sharing their psychological
involvement with more than one job.
However, institutions to induce multi-
skilling and multi-tasking may resort to
job rotation rather than assigning
simultaneous multiple roles. This would
to a greater extent make the faculty a
multi-faceted personality. Further, it is
seen that supervisory support may be a
mechanism, so effective, in giving
solution to reduce work conflict and
enhance job satisfaction. Institutions can
also resort to newer initiatives, which
include the supervisors and the faculty
jointly setting time and ethical standards
that would meet the organizations
expectations and match the faculties’
abilities. This would also effectively
promote two-way communication
between the supervisors and their
faculty. In addition to this, they can also
jointly decide on the optimum number
of roles to be assigned to the faculty, the
resources and support required from
their colleagues and supervisors to
complete the tasks effectively.
Firstly, the sample is limited to
Coimbatore city alone. Taking into
consideration the number of engineering
colleges spread over the state of
Tamilnadu, this is a smaller sample.
Therefore, future studies should focus on
larger samples across the state and later
across India, which may reveal a better
picture on the work role characteristics
and their effect on job satisfaction.
Secondly, the sampling focus is on the
teaching faculty, which limits the
generalisability of the findings of the
study, given the structural and
educational differences in the
characteristics of the employment of
other non-teaching professions. Hence,
research should focus on occupationally
heterogeneous sample of individuals
possessing diverse skills. Thirdly,
researchers in the future shall have a
gendered approach while studying the
relationship. Fourthly, realistically, the
link between the conflict arising out of
the participation of men and women in
multiple roles and its impact on JS may
be complex. A structural equation
modelling may be applied to understand
the complex nature of this relationship
and thus eliminate measurement errors.
Fifthly, although this study is conducted
in a different culture (Indian), attempt
was not made to measure the cultural
values and beliefs of Indians on work.
Future studies shall focus on capturing
these factors too. Sixthly, future research
shall include other work-related factors
such as age, years of experience etc., in
studying this relationship.
6.0 CONCLUSION
This study is one among the pioneer tests
gleaned from several literatures,
providing insights into the importance of
job satisfaction while understanding the
work role characteristics. A major
contribution of this study is that it
 Wesley et.al, Work Role Characteristics as...
proposed and tested a composite model,
thus establishing a relationship between
the various work role characteristics and
job satisfaction using a non-western
sample. For institutions concerned with
the retention and performance of their
employees, this study suggests practices
painstakingly, that help enhance job
satisfaction, supervisory support and job
involvement whereby, reducing work
conflict. This facilitates institutions to
continually gain competitive advantage.
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 Empirical Examination of A Cost Allocation
Model: Using the Theory of Planned
Behaviour*

Ajay Kumar Pillai1

Abstract
This study examines the behavioural, normative and control beliefs of managers related to cost allocation.
The study is conducted in two phases. In the first phase, a procedure was used to determine the outcome
beliefs that underlie manager’s attitudes. Ajzen’s theory of planned behaviour provided the conceptual
basis for this study into manager’s attitude towards cost allocation.
Overall, the results of the study suggests that targeting identified underlying beliefs may serve to
strengthen the intentions of managers to participate in cost allocation. A major advantage of the TPB is
its ability to identify the underlying beliefs that distinguish between individuals intending and not
intending to perform a specified behaviour. It is proposed that the concepts of behavioural intentions,
norms and perceived behavioural control can be adapted to the context of cost allocation.

1.0 INTRODUCTION Activity Based Costing (Kaplan, 1998).

Attitude is an important concept that is
often used to understand and predict
people’s reaction to an object or change
and how their behaviour can be
influenced. Interest in this concept can be
observed not only among social
psychologists but of late among
management accounting scholars.
In cost allocations, literature reveals
interest in attitude generally and
specifically to certain techniques such as
Not much research has been done on the
attitude of managers in India towards
cost allocation. Another factor that has
been neglected, but has a significant
impact on the performance of cost
allocation systems is the concept of
behaviour.
The study of attitude’s influence on
behaviour began in 1872 with Charles
Darwin. Darwin defined attitude as the
physical expression of an emotion. In the

* Received October 4, 2007; Revised February 26, 2008

1. Lecturer, SCMS School of Technology and Management, Muttom, Cochin,
email:ckrishjay@hotmail.com
 76 Vilakshan, XIMB Journal of Management ; March, 2008
1930’s psychologists defined attitude as
an emotion or thought with a behavioural
component.
There are a number of psychological
theories that explain behaviou ral
intentions. Of special importance are the
theory of reasoned action (Fishbein and
Ajzen, 1975) and the theory of planned
behavior (Ajzen, 1985, 1987, 1991). These
two theories (reasoned ac tion and
planned behaviour) have been applied
to predict behaviour in many settings,
with considerable success (Baron et al.,
2006).
The theory of planned behaviour (TPB)
provides a conceptual vocabulary to
help organize empirical observations,
and indicates the important variables
in the attitude-formation process (Teo
and Loosemore, 2001). N u merou s
studies have conducted belief-based
analyses using the TPB framework to
understand behaviour. Most of the
research, in this context, has been in the
health area.
This paper is organized as follows: the
next section describes the Theory of
Planned Behaviour and then the concept
of cost allocation is introduced. This is
followed by the methodology and the
analysis and discussion of this study.
Then, a model for cost allocation is
proposed and recommendations are
made to help improve manager’s
attitude towards cost allocation. The
paper identifies areas for further
research before concluding with a brief
summary.
2.0 THEORY OF PLANNED BEHAVIOUR (TPB)
Social psychologists theorized that
attitude included behaviour and
cognition and that behaviour and attitude
were positively related. It was
considered that attitudes were multi-
dimensional systems consisting of beliefs
about the attitude object and action
tendencies towards the object.
In 1934, the results of a study conducted
by a leading psyc hologist
demonstrated that attitude was not a
good predictor of behaviour. By the
late 1960’s, social psychologists no
longer believed that they had a theory
to explain the relationship between
attitude and behaviour. It was in this
environment that Ajzen and Fishbein
created the Theory of Reasoned Action
in 1967.
Ajzen and Fishbein (1973) proposed that
a person’s behaviour was determined
by his intention to perform the
behaviour and that this intention was,
in tu rn, a fu nc tion of his attitude
towards the behaviour and subjective
norms. Sinc e then, there has been
considerable research and theorizing
on attitude from diverse perspectives.
The theory of reasoned action suffered
from a number of limitations which
made Ajzen propose the Theory of
Planned Behaviour.
The theory of planned behaviour models
behavioural intention as depending on
three factors: (1) attitude towards the
behaviour (AB); (2) subjective norms (SN)

and (3) perceived behaviour control
(PBC). This theory is diagrammed in
Figure 1:
Beliefs &
Factual Attitude (AB)
Knowledge
Social & Subjective Behavioural
Intention
Actual
Behaviour
Norms (SN)
Moral
Values
Perceived
Behavioural
Control (PBC)
(Figure 1: The Theory of Planned Behaviour)
Each of these determinants of
behavioural intention (ie. AB, SN, PBC)
is itself a function of an individual’s
salient belief (Ajzen, 1991). Managers
may hold certain beliefs and may form
attitudes about cost allocation based on
these beliefs. In turn, intentions to comply
or resist may relate to attitudes as well
as norms about these behaviours.
Attitudes relate to one’s own personal
views about the behaviour. The
antecedents of attitudes include both
behavioural beliefs about the action and
outcome evaluations. Behavioural beliefs
are the expected consequences of a
behaviour (e.g., a belief that managers
allocating costs will increase cost
consciousness) and outcome evaluations
are the actor’s assessment of those
consequences (e.g., a belief that it is good
for managers to be cost conscious).
Subjective norms are a function of an
individual’s perception that one or more
relevant people would approve of a
particular behaviour and the extent to
Pillai, Empirical Examination of A... 77
which the individual’s behaviour would
be influenced by that.
Perceived behavioural control refers to
an individual’s perceptions regarding the
extent of control he or she has over a
particular behaviour. This factor is
modelled as capable of influencing
behaviour directly as well as through it’s
effects on intentions.
Although each determinant would have
an impact on a person’s intentions
towards a behaviour, the relative
importance of each determinant would
vary based on the circumstances and the
behaviour studied. For example, two
managers, each with a positive attitude
toward cost allocation, may engage in
different behaviours if they face different
pressures in their environments.
3.0 COST ALLOCATION
Companies have to routinely allocate
costs of common corporate resources and
for this purpose they use a variety of
allocation methods reflecting different
attitudes concerning cost allocation. A
basic question often asked is: why cost
allocation?
Management accounting scholars have
attempted to offer different explanations
for it. Cost allocation arises whenever
there exists common resources which are
difficult to measure by the central
management.
The important fact about common cost
was recognized more than three quarters
of a century ago, and reemphasized
many times since then in leading
 78 Vilakshan, XIMB Journal of Management ; March, 2008
economic and accounting journals
(Bonbright, 1961). However, the
economic explanation was intertwined
with the statistical reason why serious
problem can arise with the allocation of
common costs.
There has been an everlasting debate
about cost allocation and many
arguments have been put forth to show
why common costs cannot be
meaningfully allocated. Despite these
apprehensions, there is growing evidence
that companies do allocate costs for a
variety of reasons and that there are
arguably certain benefits associated with
it (Modell, 2002).
Managerial accounting books (Horngren
et al., 2005; Blocher et al., 2006 and
others) and studies (Zimmermann 1979;
Drury and El-Shishini, 2005 and others)
on cost allocation have documented the
widespread practice of cost allocation.
The literature also states that there are
two basic outcomes from allocating costs:
better economic decisions (Snyder and
Davenport, 1997) and a higher level of
managerial motivation (Morse and
Zimmermann, 1997)
Researchers exploring the adoption of
various cost allocation practices across a
wide range of companies provide support
for behavioural considerations in cost
allocation systems. Since cost allocation
methods are components of the overall
performance evaluation system, it is
important to identify the behavioural
dimensions before examining attitudes in
cost allocations.
3.1 Behavioural Considerations in Cost
Allocation
It was in 1977 that Bodnar and Lusk
(Bodnar and Lusk, 1977) first introduced
behavioural considerations in cost
allocations. Their research addressed the
study of cost allocation in terms of a
specific behavioural theory. Since then
most management accounting scholars
have been guided by a behavioural
perspective while examining cost
allocation systems.
It has often been stated that one of the
likely explanation for the prevalence of
cost allocations within organization is
motivation and that cost allocation could
be used to motivate managers to
consume less or more of the company’s
resources. Another point made by
researchers was that managers must
consider cost consciousness while
allocating costs.
Cost allocation must be done carefully
because the motivational dimension
present in any allocation affects financial
performance (Bodnar and Lusk, 1977).
Additionally, cost allocation serves as a
communication mechanism to let
managers know how their actions were
affecting costs in the rest of the
organization.
One of the commonly cited criticism of
cost allocation is its arbitrariness
(Thomas, 1971). However, the position
that all cost allocations are necessarily
arbitrary has been subject to debate.
There was also suggestions that the
 Pillai, Empirical Examination of A... 79

problem of arbitrariness has been In addition to arbitrariness, it has also

compounded by the institutionalization
of various allocation practices, such as the
prevalent use of direct labour or other
volume-dependent bases for overhead
allocations, but that the adoption of more
sophisticated techniques such as activity-
based costing might mitigate against this
(Kaplan, 1999).
Critics of cost allocation interpret the
word arbitrary to mean unfounded or
without justification. They argue that cost
allocation could result in misleading
information that causes poor decisions
and therefore should be avoided (Hilton
et al., 2003). However, proponents of
cost allocation feel that it provides the
right incentive for managers to make
decisions that were consistent with the
goals of top management (Blocher et al.,
2006).
been pointed out that poorly designed
cost allocations could be the subject of
disputes among departments and their
constituents (Hilton et al., 2003). This
could lead to unnecessary tensions.
In spite of this, many managers allocate
costs to divisions and other
departments. Surveys c onduc ted
around the world report that companies
allocate costs for a number of reasons.
A recent survey conducted in UK found
that companies allocated costs to remind
managers that such costs exists and to
stimulate them to economize in usage of
corporate services (Drury and El-
Shishini, 2005).
Building upon the behavioural
considerations, the literature identifies
the following popular beliefs regarding
cost allocation (See Table-1)

Table-1: Belief variables along with the related literature)

Abbas and Abd-

Atkinson at al.,
Horngren et al

Shishini (2005)
Thomas (1971)
Zimmermann

Drury and El-

Hilton et al.,
Allah (1999)
(1979)

(2005)

(2003)

(2003)

Cost allocation can lead to optimal

utilization of resources × × ×
Cost allocation can lead to cost consciousness × ×
Cost allocation can lead to a high
level of motivation × × ×
Cost allocation is not always accurate × ×
Cost allocation causes unnecessary tension × ×
Cost allocation often leads to conflict × ×
 80 Vilakshan, XIMB Journal of Management ; March, 2008

The literature on cost allocation identifies
two types of intentions regarding cost
allocation. One group supports cost
allocation and can be called intenders
while the other group considers cost
allocation arbitrary and do not want to
allocate costs. This group can be called
non-intenders. The dependent and
independent variables are shown in
Figure-2.
Personal
Intentions
Intenders
Referents (to allocate (not to
costs)
Control
(Figure 2: Dependent and Independent
Variables)
The intention to allocate or not to allocate
costs is the independent variable and each
of the three constructs identified earlier
(personal, referents and control) in the
TPB is the multiple dependent variable
in the model.
4.0 METHODOLOGY
This stu dy employs the theory of
planned behaviour to identify beliefs
that comprise a manager’s attitude
towards cost allocation. An attitude
measure based on these beliefs is tested
to determine the influence of attitudes
on specific behavioural intentions. For
this reason, data are collected in two
stages. The first stage identifies the
beliefs and the second stage develops
the attitude measure. Ajzen’s theory of
planned behaviour provided the
conceptual basis for this study into
manager’s attitude towards c ost
allocation.
In the first phase, a procedure was used
to determine the outcome beliefs that
underlie manager’s attitude towards cost
allocation. These beliefs were
incorporated into an attitude measure
used in the second phase. The data
Non
Intenders
collected is further analyzed using
multiple regression. In this way, a
allocate
costs)
combination of qualitative and
quantitative methods is used in this
study.
Ajzen and Fishbein (1980) argue that for
an attitude measure to be useful at
predicting behaviour, it should
correspond to the behavioural intention
criterion in target, action, context and
time (TACT) variables. Accordingly, in
this study, attitudes are examined for cost
allocation keeping in mind the above
argument.
Phase One – Belief Elicitation Procedure
In accordance with the procedures
outlined by Ajzen and Fishbein (1980),
an elicitation study was conducted to
confirm the identified beliefs that were
salient to the target population when
confronted with cost allocation. An
Elicitation study is a qualitative
investigation of a subset of a population
under investigation, to discover the

salient behavioural, normative and
control beliefs about the behaviour
(Ajzen, 1991).
Data for elicitation can be collected by
arrangin g a foc u s grou p, or by
individual interview or by mailing
questionnaires (Ajzen, 1991). This
study used a combination of focus
groups and individual interviews to
collect data for the belief elicitation
study. The sample for the elicitation
study was 22. Participants were from
both in du stry and a c ademic
bac kgrou nd. Table-2 sh ows the
responses by group.
Table-2: Responses for Belief Elicitation
Study
Respondent source Number of
Subjects (Response
rate)
Industry 15 (70%)
Academicians 7 (30%)
Total Respondents 22
The responses were independently
analysed by labelling the themes and
listing them in order of frequency for
each of the following:
• behavioural beliefs
• sources of social pressure (reference
individuals or groups)
• control belief strength
The belief elicitation study consisted of
an open-ended questionnaire to elicit
salient behavioural, normative and
Pillai, Empirical Examination of A... 81
control beliefs for participation
intentions. Respondents were asked to
list the advantages and disadvantages of
allocating costs. This part of the study
was conducted in conjunction with a focus
group. Flexibility was ensured from the
ability to explore unexpected leads that
emerged from focus group discussion,
enabling greater insights into people’s
attitudes, beliefs and feelings about any
subject.
Careful management of the focus group
sessions was required because in case
of homogeneous groups, like the ones
used in this study, there is a possibility
that data could be biased. The focus
groups were carefully structured into
two distinct groups of intenders and
non-intenders. Respondents were from
both indu stry and ac ademic
background so that the focus session
was effective and there was adequate
representation.
Phase Two – Main Experiment
Although the elicitation study result
provides information about the belief
variables, they provide little insight
abou t as soc iations bet ween the
attitu de and behaviou r variables.
These were explored further in the
second phase during which data were
collected using a questionnaire. The
value of qualitative data produced in
the first phase complemented and
enric hed this part of the researc h
enabling deeper explanations between
the variables.
 82 Vilakshan, XIMB Journal of Management ; March, 2008

After identifying the belief variables and Table-3: Sample Demographics

further confirming them by the belief
Sample
elicitation study, data were collected on
the six outcome belief measures by two Age
groups based on their intention to 30 & Below 25%
allocate costs. The managers allocating 31-40 55%
costs formed a group (intenders) while 41-50 15%
the other group consisted of managers 51 & Above 5%
who did not intend to allocate costs (non- Gender
intenders). Male 57%
Female 43%
The response scale was a 1-5 Likert scale
Income
with extremely likely on one end and
Below 2 lakhs 26%
extremely unlikely on the other.
2-4 lakhs 54%
Referents included top management,
Above 4 lakhs 20%
other managers and staff. Five control
Industry
beliefs were further identified.
Manufacturing 50%
Respondents for this part of study were Service 45%
from different industries. The sample Others 5%
consisted mainly of finance mangers who
have handled cost allocation.
Questionnaires were sent to 75 managers, person’s behaviour, values, motives and
out of which ten were returned beliefs can be made from the content of
incomplete. Another fifteen were not the communication with others.
returned so the total respondents were The three most frequently reported
fifty. Table-3 provides the sample advantages of cost allocation (e.g.,
demographics. optimal use of resources) and the three
most commonly reported disadvantage
Elicitation Study (e.g., causing unnecessary tension)
Content analysis based upon Ajzen’s formed the behavioural beliefs in the
Theory of Planned behaviour was main questionnaire. Respondents were
performed. This technique is particularly asked to list the persons who would
useful for highly unstructured data, and approve or disapprove of cost allocation.
involves categorizing communication The most common referents (e.g., top
content into its component part and management) were used as a measure of
quantifying it (Berg, 1989). The normative beliefs in the main
assumption is that inferences about a questionnaire.

Respondents were then asked to list any
factors or circumstances that might
discourage or encourage them in
allocating costs. The six most frequently
reported barriers to allocating costs (e.g.,
lack of awareness) formed the measure
of control beliefs in the main
questionnaire for the behaviour.
The main questionnaire assessed cost
allocation intentions and measured
behavioural, normative and control
beliefs for intentions to perform the
behaviour of allocation. Most belief items
were positively worded with some
negatively worded items included to
reduce participant response bias. All TPB
items were scored on 5-point Likert
scales.
Intention: Two items were used to assess
the strength of participants’ intentions to
perform the target behaviour (e.g., ‘I
intend to allocate costs’) ranging from
strongly disagree [1] to strongly agree
[5]).
Behavioural beliefs: The measure of
behavioural belief comprised six
behavioural belief items. Respondents
were asked to indicate how likely it would
be that three benefits and three
disadvantages obtained from the
elicitation study, would result if they
participated in allocating costs, ranging
from extremely unlikely [1] to extremely
likely [5]. To obtain an overall measure of
attitude belief, participants’ responses on
the behavioural items were averaged.
Pillai, Empirical Examination of A... 83
Normative belief: The measure of
normative belief was assessed by four
normative items. Participants were
asked how likely they thought four
different referents, identified from the
elicitation study (e.g., top management)
would think that they should allocate
costs and the answers varied from
extremely unlikely [1] to extremely
likely [5]. The participant’s scores on the
normative belief items were averaged
to provide an indirect measure of
subjective norm.
Control belief: The measure of control
belief was obtained from six control belief
items. Participants were asked to rate
how likely two external and three internal
factors obtained from the elicitation
questionnaire were to prevent them from
allocating costs from extremely unlikely
[1] to extremely likely [5]. Participant’s
scores on the control belief items were
averaged to provide the indirect measure
of PBC.
5.0 RESULTS
As stated previously, the belief
elicitation procedure was performed in
conjunction with a focus-group study.
Table-4 su mmarizes the most
commonly mentioned advantages and
disadvantages for c ost alloc ation.
Based on these findings, the six belief
variables identified by the literature
were c onfirmed as the outc ome
variables to be included in the main
questionnaire.
 84 Vilakshan, XIMB Journal of Management ; March, 2008
Table-4 : Summary of most Frequent
Responses confirmed in the Belief
Elicitation Procedure
Particulars Number of
responses (%)
Advantages
Optimum resource utilization 9 (40%)
Motivates managers 8 (36%)
Promotes cost consciousness 5 (24%)
Disadvantages
Is not always accurate 10 (45%)
Causes unnecessary tension 7 (31%)
Often leads to conflict 5 (24%)
On the basis of TPB research, three
separate MANOVAs were performed to
examine the belief-based differences
between managers intending to allocate
costs and those not intending to allocate.
In each analysis, the set of beliefs (i.e.,
behavioural beliefs, normative beliefs or
control beliefs), were examined in an
exploratory manner to identify those
beliefs differentiating between managers
intending and not intending to allocate
costs.
Three one-way multivariate analyses
of vari ance (MAN O VA s) were
c ondu c te d with intention s as the
independent variables and the belief-
based measu res as the dependent
variables. The distributions for the
behaviour was split into intenders and
non-intenders.
Overall, Wilk’s Lambdas were significant
for the three MANOVAs (p<.001) on
measures of behavioural, normative and
control beliefs. To further explore the
differences between the groups, the
dependent variables were examined at
the univariate level. Table-5 analyses
examining beliefs differentiating
intenders and non-intenders. The mean
beliefs for intenders and non-intenders
are shown in the form of graph in
Figure-3.
Behavioural beliefs
According to Wilk’s criterion, there was
a significant multivariate effect of
intentions on behavioural beliefs for cost
allocation, F (6,82) = 4.927, p < .001.
Univariate analysis revealed that
intenders and non-intenders differed
significantly on their assessment of
positive and negative outcomes.
Managers allocating costs were more
likely to believe that optimum utilization
of resources (4.92) and cost consciousness
(4.90) would result if they participated
in cost allocation. On the other hand,
those managers who did not intend to
allocate costs were more likely to feel that
conflicts (4.58) and the inaccurate results
of cost allocation (4.53) would prevent
them from allocating costs. As regards
motivating managers, intenders (4.88)
felt it is an important consideration and
non-intenders (4.00) considered it as not
influencing cost allocation.
Normative beliefs
The second MANOVA examined
normative beliefs on allocation
intentions. According to Wilk’s
criterion, a significant multivariate effect
was found between groups for
 Pillai, Empirical Examination of A... 85

Table-5: Mean beliefs for non-intenders and intenders in allocating costs

Beliefs Non-Intenders Intenders

(n=50) (n=52)
Mean SD Mean SD
Behavioural belief
Optimum resource utilization 4.15 0.80 4.92 0.77
Motivating managers 4.00 1.41 4.88 0.99
Promoting cost consciousness 3.66 1.03 4.90 0.68
Not always accurate 4.53 0.51 3.83 0.70
Causes unnecessary tension 4.30 0.63 4.04 0.86
Often leads to conflict 4.58 0.58 4.25 0.44
Normative belief
Top management 2.50 2.21 4.25 0.50
Other managers 3.33 1.50 4.08 0.71
Staff 3.10 0.51 4.20 0.41
Control belief
Lack of awareness 3.95 0.84 4.00 0.44
Inability to allocate 3.50 0.81 3.49 0.95
Arbitrary 4.25 0.96 3.85 0.85
Type of Industry 4.50 0.70 4.34 0.52
Time restraints 4.69 0.88 4.25 0.83

6
Intenders

4
Intentions

I intend to allocate costs

3 I do not intend to allocate costs

0
Cost Optimum use of Motivating Not always Causes Often results in
consciousness resources managers accurate unnecessary conflict
tension

Figure 3: Graph Showing Mean Beliefs for Intenders and Non- Intenders
 86 Vilakshan, XIMB Journal of Management ; March, 2008
normative beliefs, F (3,92) = 2.568, p <
.001. Univariate analysis revealed that
intenders and non-intenders differed
significantly in their perceptions of
people who would influence them in
allocating costs as shown in Table-5.
Managers allocating costs were more
likely to be influenced than those not
allocating costs.
Control beliefs
Finally, a significant multivariate effect
was found between the groups for
control beliefs, F (5,91) = 1.56, p < .001.
Univariate analysis revealed that
intenders and non-intenders differed
significantly on some of the control
beliefs, as shown in Table-5. Non-
intenders were more likely than
Table-6: Multiple regression analysis predicting allocation intentions
Variable R R2
Prediction of intentions .65 .42
Behavioural beliefs
Normative beliefs
Control beliefs
*** denotes very strongly significant
** denotes strongly significant
6.0 DISCUSSION
The aim of this researc h was to
determine the beliefs differentiating
managers who intended to allocate
(intenders) and managers who did not
intend to allocate (non-intenders). The
findings of this study suggests that
intenders and non-intenders differed
intenders to report that arbitrariness of
cost allocation would prevent them from
allocating costs.
Regression analysis examining the role
of beliefs in allocation intentions
While the MANOVA analysis
determined the beliefs that
differentiated between those managers
intending to and those not intending to
allocate costs, the belief’s predicting
intentions were not identified. Therefore,
a multiple regression analysis was
conducted to determine which of the
behavioural, normative and control
belief sets contributed most to the
prediction of intentions. The results of
multiple regression analysis is shown in
Table-6.
F df β
27.06 3, 166
.52***
.39**
-.21
signific antly on measu res of
behavioural, normative and control
beliefs.
The most important predictor of
allocation intentions was behavioural
beliefs. Therefore, the results of this
study provide information regarding
beliefs to target in formulating

strategies to increase allocation among
those currently not intending to allocate
costs in their organizations.
For behavioural beliefs, intenders and
non-intenders differed significantly on
beliefs regarding both the advantages
and disadvantages of cost allocation.
Intenders were more likely to believe
that cost allocation will result in
optimum utilization of resources and at
the same time promote c ost
consciousness whereas non-intenders
were more likely to focu s on the
negative belief (causing conflict). This
finding is in accordance with previous
research suggesting that both costs and
benefits influence allocation
(Zimmerman, 1979).
The findings that behavioural beliefs
predicted allocation intentions suggests
that, to shift the perceptions of
managers not intending to allocate
costs, future strategies should consider
the costs and benefits of cost allocation.
A primary focus should be to decrease
perception of the c osts (i.e time
restraints, lac k of awareness) and
inc rease the perc eived benefits of
alloc ating (e.g., promoting c ost
consciousness).
Examination of normative beliefs
identified in the study revealed that
different sources of perceived normative
pressures were apparent. Intenders
were more likely to be influenced by the
top management, other managers and
staff while allocating costs. Thus, a
Pillai, Empirical Examination of A... 87
potential strategy is to encourage
participation in cost allocation involving
both the top management and the
employees.
Examination of control beliefs revealed
a significant difference between
intenders and non-intenders. However,
results from MANOVA revealed that
only few control variables distinguished
between intenders and non-intenders.
For control belief, non-intenders were
more likely to report that lack of
awareness and arbitrariness of
information would prevent them from
allocating costs.
Therefore, to increase participation in
cost allocation, it may be useful to develop
strategies to combat the impact of
conflicts on cost allocation (e.g., costs can
be distinguished into controllable or
uncontrollable to reduce unnecessary
conflicts).
When considering the applied
implications of the findings of the present
study, it should be noted that failure to
allocate costs is often attributed to the
fact that often managers have no control
over certain costs and that they object to
charges they cannot influence and
control.
If cost allocations in an organization are
unrelated to either the use of resources
or influencing desired behaviour, then
it is difficult to justify any reason for cost
allocation. However, if c osts are
allocated in an efficient manner then
 88 Vilakshan, XIMB Journal of Management ; March, 2008

organizations can achieve the desired
outcomes.
The manager should formulate a cost
allocation system that results in optimal
decision making and encourages all
levels of management to make decisions
that are optimal from the organizational
perspective. The notion of beliefs and
attitu des are an important
consideration in constructing a cost
allocation system for performance
evaluation purpose.
7.0 A MODEL FOR COST ALLOCATION
A major advantage of the TPB is its
ability to identify the underlying
behavioural, normative and control
beliefs that distinguish between
individuals intending and not intending
to perform a specified behaviour. This
study uses this ability of the TPB model
to identify the beliefs regarding cost
allocation that distinguish between
managers intending and not intending
to allocate costs.

Beliefs about cost

Allocation

1. Cost allocation Intention with Behaviours with

can lead to respect to Cost respect to Cost
optimum Allocation Allocation
utilization of
resources
2. Cost allocation
can motivate Attitude
managers towards
A
3. Cost allocation
I intend to
Cost
promotes cost Allocation
consciousness allocate costs
4. Cost allocation
is not always
accurate
B
5. Cost allocation
causes
unnecessary
tension
6. Cost allocation Influence
often leads to
conflict Feedback

Figure 4: Schematic Presentation of Conceptual Framework relating beliefs, attitudes, intentions

and behaviours with respect to Cost Allocation
(Source: Adapted from Ajzen's Theory of Planned Behaviour)

Based on the literature reviewed and
the findings which have emerged from
this study, a model for cost allocation
is proposed. This model relates the
behavioural beliefs identified earlier in
this study, with the attitudes formed
as a result of the beliefs. This has led
to two different set of intentions
popu larly assoc iated with c ost
allocation systems. Finally, the model
identifies the actual behaviour which
will occur as a result of the beliefs,
attitudes and intentions.
The core propositions of this model are
derived from the theory of planned
behaviou r. It is proposed that the
concepts of behavioural intentions,
norms and perceived behaviou ral
control can be adapted to the context of
cost allocation.
The Figure-4 shows that beliefs about
cost allocation leads to formation of
attitude towards allocating costs which
in turn leads to a set of intentions that
indicates intention and non-intention to
allocate costs. Each of these intentions
relates to a certain behaviour. For
instance, A leads to the behaviour that:
“I will allocate costs as it will lead to
optimum utilization of resources and a higher
level of motivation which will ultimately lead
to cost consciousness”.
The sec o nd intention l eads to
behaviour B which is :”I will not
allocate costs as it will not always be
accurate and causes unnecessary tension
which will finally lead to conflict”.
Pillai, Empirical Examination of A... 89
Ajzen (1991) and other researchers have
described attitude as a learned
predisposition to respond in a
consistently favourable or unfavourable
manner with respect to a given object.
However, since a person’s attitude is
assumed to be related to the total affect
associated with his beliefs, intentions
and behaviours, Ajzen (1991) views
attitude as leading to a set of intentions
that indicate a certain amount of affect
towards the object in question.
Each of these intentions is related to a
specific behaviour and thus, the overall
affect expressed by the pattern of a
person’s actions with respect to the
object also corresponds to his attitude
towards the objec t. The fac tors
influencing intentions and behaviour
for cost allocation is illustrated in
Figure-5.
8.0 LIMITATIONS OF STUDY AND SCOPE FOR
FURTHER RESEARCH
The strength of this study has already
been highlighted. The limitation of this
study should also be kept in mind. It is
for the first time that the theory of
planned behaviour has been used in cost
allocation, so care should be exercised
while generalizing the result. This study
is the first effort to consider beliefs,
attitudes, intentions and behaviour in cost
allocation.
The findings of the present study, along
with the limitations noted above,
highlight several areas for future
 90 Vilakshan, XIMB Journal of Management ; March, 2008

Figure-5: Schematic Presentation of Conceptual Framework for the Prediction of Specific

Intentions and behaviours

research. Replication of this study with 9. 0 CONCLUSION

a greater representation of managers
from across industries would improve
the generaliability of findings. Future
reseac h c an fu rther c onsider the
antecedents to attitudes and behaviour
and determine how they can be best
targeted to improve cost allocation.
While the focus of the present study was
only on specific beliefs of cost allocation,
more insights is needed into the
perspectives of other beliefs which
influence managers to allocate or not to
allocate costs.
In conclusion, results of the present
research highlight important knowledge,
deficits and provide support for the use
of the theory of planned behaviour model
as a framework for understanding
differences in underlying beliefs that
distinguish between individuals who
intend and do not intend to allocate costs.
Overall, the results of the present study
suggests that targeting identified
underlying beliefs may serve to
strengthen the intentions of managers to
participate in cost allocation.

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 Valuation of Intellectual Capital: The case
of Financial Services Industry in India*

Nikhil R. Nayak1, Munmun Mohanty2 & B. B. Mishra3

Abstract
It is well understood that in today’s economy which is more knowledge based, the source of competitive
advantage lies in channeling the intellectual capital towards achieving the organization goals. Since it is
a fact that, what cannot be measured cannot be controlled and hence cannot be channeled, the importance
of valuing intellectual capital cannot be overemphasized. This paper is a preliminary attempt at measuring
the value of intellectual capital of firms belonging to the financial services sector of India. The data
consists of information collected from the financial statements of companies over a three-year period, that
is 2003-2006.

1.0 INTRODUCTION past, businesses primarily invested in the

In today’s knowledge based economy,
intellectual capital is being considered the
hidden treasure of most businesses. Also
known as intangibles or knowledge
assets, these are now increasingly
becoming important factors in innovation,
productivity, growth, business
competitiveness and economic
performance. These assets are
distinguished from physical assets such
as property, plant and equipment (PPE)
or stock and financial assets such as
receivables, investments and cash. In the
tangible means of production like
buildings and machines. Hence, the value
of company was at least somewhat
related to the value of its physical capital.
But in today’s turbulent and complex
business environment where companies
are required to be flexible, highly
innovative and be able to develop
proactive strategic approaches, there is
an increasing realization that knowledge
represents the most important factor in
creating value that underpins a firm’s
value creation performance (Nonaka and

* Received April 19, 2007; Revised January 10, 2008

1. Research scholar, Department of Business administration, Utkal University, Bhubaeswar,
email: nikhilranjannayak@rediffmail.com
2. Assistant professor, Finance, Institute of Business and Computer Studies, Bhubaneswar,
email: munmunmohanty@rediffmail.com
3. Reader, Department of Business administration, Utkal University, Bhubaneswar,
email: bidhumishra2006@yahoo.co.in.
 94 Vilakshan, XIMB Journal of Management ; March, 2008
Takeuchi, 1995). Hence, we are
witnessing an era where there is a lot of
investment in intangibles. However,
although most companies acknowledge
that intellectual capital (IC) is their most
valuable asset; conventional accounting
systems have no capacity to incorporate
it on balance sheets. Indeed, many
accounting standard setters oppose the
recognition of it on balance sheets. They
claim that even if intangible assets are
identifiable, measures of it are highly
subjective and lack sufficient reliability.
This confusion gives rise to problems of
valuation in two different dimensions
(Sudarsanam, Sorwar and Marr, 2003).
On one hand, companies that invest in
intangibles may reap the benefit without
any additional investment. For example,
once the company designs a chip or writes
a code for a new operating system, no
further investment is needed to ship the
product to yet another customer. This
intangibility of a company’s most
important asset makes it extremely hard
to figure out what company is really
worth, thus leading to under or over
valuation of a company.
On the other hand, this difficulty in
valuation gives rise to increased volatility
of the stock prices. This reflects in the
phenomenal growth of market value of
some knowledge driven internet
companies in the second half of 1990s and
the subsequent crash in 2000. The ascent
of stock markets around the world driven
by dotcom companies was as spectacular
as the crash. This experience is a potent
reminder of the perils of overvaluation
of knowledge rich companies.
Hence, under these circumstances the
importance of valuation of intellectual
capital can hardly be overstressed. The
fact that all the stakeholders of the
organization are now interested in the
value of intellectual capital has increased
the importance of valuation. The question
of classifying and measuring intangible
assets remains an important unresolved
issue in finance, economics and the
practice of management. That a firm is
more than the sum of its equipments and
tangible assets is not in doubt. But how
to measure the intangible part is a
problem that continues to vex academics,
accountants, M&A advisors, intellectual
property lawyers and joint venture and
licensing negotiators.
We have attempted to address the
difficult area of valuing the IC of the
Indian companies belonging to the
various financial services sectors by using
a suitable methodology. Definitions of IC
and its various components, the needs
of measuring IC, the difficulties normally
faced during the valuation of IC, available
methods of intangible valuation and their
pros and cons, the research method with
model, the results and the summary and
conclusion have been presented in the
following sections.
2.0 INTELLECTUAL CAPITAL DEFINED
Intellectual capital covers a multitude of
areas and economists, accountants and
standard setters are yet to agree on a

global definition. During the last few
decades we have witnessed an
unprecedented increase in the use of the
terms intangibles, intellectual capital or
knowledge in reference to a set of factors
that represent sources of corporate
earnings. However, these terms are
frequently employed indifferently and
often applied to different concepts. For
this reason it is essential to agree upon
common definitions. The terms Intangibles
and Intellectual Capital are used to refer
to the same concept. Both are applied to
non-physical sources of future economic
benefits that may or may not appear in
corporate financial reports. However,
these two terms tend to be used
differently: Intangibles is an accounting
term, whereas the Intellectual Capital was
coined in the human resources literature
and is mainly used in this field. However,
our focus here is on the Intellectual
Capital. Intellectual capital (IC) can be
described simply as knowledge that can
be converted into profits. There is,
however, a multitude of other definitions
and experts have yet to reach a consensus
on a commonly accepted definition. Some
other definitions used in practice are :
‘Intellectual capital is the intellectual
material- knowledge, information,
intellectual property, experience that can
be put to use to create wealth’ (Stewart,
1998)
‘Knowledge that can be converted into
value’ (Edvinsson, 1996)
‘Intellectual material that has been
formalized, captured and leveraged to
Nayak et.al, Valuation of Intellectual ... 95
produce a higher valued asset’ (Klein and
Prusak, 1994).
In this paper we use the terms
intangibles, IC, intellectual assets and
knowledge assets interchangeably.
Intellectual property (IP) is a subset of
IC and it comprises assets such as patents,
copyrights and trademarks and its
property rights are established under the
law and ownership of IP may be
transferred. Often there may be a
secondary market in IP. In contrast, other
intangibles such as goodwill, R&D,
organizational capital may be too
embedded within organizations to be
traded separately. Their ownership may,
however, be transferred as part of the
organization in which they are
embedded.
2.1 Components of IC
In order to arrive at the objective of
valuing and measuring IC, it is necessary
to understand the different components
that make up for intellectual capital.
Intellectual capital includes or
encompasses inventions, ideas, general
know-how, design approaches, computer
programmes, processes and publications.
One of the most popular models of
classifying IC is the Hubert Saint-Onge
model (1996) which is largely based on
Sveiby’s (1997). This model developed in
the early 1990s, divides IC into three
parts: human capital, structural capital
and customer capital. A slight variant of
this model devised by Nick Bontis (1999),
restates customer capital as relational
capital to include relationship with
 96 Vilakshan, XIMB Journal of Management ; March, 2008

suppliers and other strategic partners and
stakeholders. These are discussed in
greater details below and are depicted
in figure-1.
Human capital is defined as the
knowledge that employees take with
them when they leave the firm. It includes
the knowledge, skills, experiences and
abilities of people. Some of this
knowledge are unique to the individual,
some may be generic. Examples are
innovation capacity, creativity, know-
how and previous experience, teamwork
capacity, employee flexibility, tolerance
for ambiguity, motivation, satisfaction,
learning capacity, loyalty, formal training
and education.
Structural capital is defined as the
knowledge that stays within the firm at
the end of the working day. It comprises
the organizational routines, procedures,
systems, cultures, databases, etc.
Figure- 1 Classification of Intellectual capital
Examples are organizational flexibility,
a documentation service, the existence of
a knowledge centre, the general use of
Information Technologies, organizational
learning capacity, etc. Some of them may
be legally protected and become
Intellectual Property Rights, legally
owned by the firm under separate title.
Relational capital is defined as all
resources linked to the external
relationships of the firm, with customers,
suppliers or R&D partners. It comprises
that part of Human and Structural Capital
which is involved with the company’s
relations with stakeholders (investors,
creditors, customers, suppliers, etc.), plus
the perceptions that they hold about the
company. Examples of this category are
image, customers’ loyalty, customer
satisfaction, linkages with suppliers,
commercial power, negotiating capacity
with financial entities, environmental
activities, etc.

INTELLECTUAL CAPITAL

Human Capital Structural Capital Relational Capital

1. Knowledge, 1. Organisational processes 1. Customer
Competence, 2. Databases and Software relationship
skills and 3. Manuals and Trademarks 2. Customer loyalty
experience 4. Laboratories and Market Intelligence and satisfaction
of 5. Leadership 3. Distribution
employees. 6. Organisational learning capacity relationships and
7. Leaseholds agreements
2. Training 8. Franchises 4. Relationships with
3. Networks 9. Licenses and patents other partners and
10. Mineral rights other stakeholders

3.0 WHY MEASURE IC?
To gain a complete picture of the
operational performance and value of an
organisation, public or private, all
aspects of the organisation must be
considered. In order for an organisation
to attain its full potential for value
creation the intellectual capital
components must not only be measured
but also utilized effectively and
efficiently (Contractor, 2000). The
specific reasons for which companies are
interested in measuring intellectual
capital are as follows:
1. Young knowledge intensive
organizations encounter great
difficulty in attracting external
financiers because of the lack of
sufficiently large physical asset base
and hence need to develop a way to
quantify their IC so as to be able to
raise finance.
2. Alignment of IC resources with
strategic vision i.e. to support the
implementation of a specific strategy
via a general upgrading of the work
with the company’s human resources.
3. To place a value on separable
intangible assets such as brands,
patents, copyrights, databases and
technology in the event of their sale,
purchase and licensing.
4. During the sale, merger or
acquisition of one company by the
other, the actual value needs to be
calculated because it is not just the
physical assets that are transferred
Nayak et.al, Valuation of Intellectual ... 97
but there is a cost of knowledge
transfer over the years.
5. In case of lawsuits involving
intellectual property infringement,
proper value must be calculated to
determine the infringement costs
and penalties.
6. To influence stock prices, by making
several competencies visible to
current and potential customers.
3.1 Difficulty in Valuing IC
The first reason is historical. Accounting
rules, although revised on a regular
basis, were initially designed for assets
such as plant or machinery – tangible
things that represented a source of
wealth during the industrial age. Second,
some intangibles are hard to measure.
Creativity, for example, is at the heart of
a knowledge-generation process yet is
essentially an unpredictable process with
unpredictable outcomes. It can manifest
itself in many ways. For companies such
as Sony and 3M, product and process
innovation play a key role in market
differentiation. This leads us to the third
problem: the idiosyncratic nature of IC.
What is valuable for one company may
be worthless for another. This has
resulted in diverse measuring systems
that make comparability across
companies and sectors difficult. Finally,
intellectual capital can have two
dimensions: the stock dimension (the
stock of IC) and the flow dimension (the
intellectual activities). The intangible
resources of a company, a static notion,
 98 Vilakshan, XIMB Journal of Management ; March, 2008
can be measured at any given time. Thus
worker competencies (human capital),
intellectual property rights (structural
capital), customer satisfaction or
agreements with suppliers (relational
capital) would be considered under this
category. Intangible resources can also be
analysed in a dynamic sense. Companies
are undertaking activities to acquire or
internally produce intangible resources,
to sustain and improve existing ones and
to measure and monitor them. These
dynamic activities thus imply an
allocation and use of resources that are
sometimes not expressed in financial
terms and, consequently, may or may not
appear in the corporate financial reports.
This dynamic nature of IC means that its
individual components are often not
valuable by themselves but work only as
a system. In other words, it is the
intellectual capital elements interacting
that generate value for companies. For
example, a company may have good
programming skills that enable it to build
software. However, they might be worth
little unless accompanied by a strong
distribution network, loyalty and
commitment from its employees and a
powerful brand name. This dynamic
combination of intangibles is often the
recipe for success in companies such as
Microsoft, where the value of its
intellectual capital is more than the sum
of its individual parts. So as a concluding
remark on the difficulty of valuing the
stock and flow aspects of IC, we would
like to quote Roos, “There is no
correlation between how much you know
and how good you are at transforming
that knowledge into something useful for
somebody else” (Chatzkel, 2002).
4.0 A REVIEW OF AVAILABLE IC VALUATION
MODELS
Conventional accounting systems were
developed for manufacturing economies
and measure the value of financial and
physical assets- tangibles that can be
quantified. These include plant,
equipment, laboratories, land and natural
resources- assets that are easily
identifiable and can be sold for an agreed
price. The global transition to knowledge
based economies has made this cost-
based accounting of assets increasingly
irrelevant. For accountants and
accounting standard setters, the problem
with intangibles is that it is difficult to
account for the rate of change. It is almost
impossible to match investments and
costs in one period with profits in another
period. Conventional accounting treats
tangibles, such as computers, land and
equipments as assets. But investment in
intangibles is treated as a cost.
There are currently no widely accepted
methods for accounting for intangible
assets. Historically, the ‘goodwill’ line on
the balance sheet provided a convenient
accounting place for intangibles. But the
increasing complexity of business and
finance mean that this is no longer
appropriate. Accordingly several
researchers and practitioners have
attempted to put a value on the
intangibles of a company. Some of these
methods are suitable to be applied with

the help of lot of internal information
about the company, whereas, some other
methods can be applied by using publicly
available knowledge about a company.
Accordingly we have segregated the
models into the internal measures and the
external measures. We will also be
discussing a newer approach to valuing
IC- the real option based approach (Luu,
Wykes, Williams and Weir, 2001).
4.1 Internal Measures
Companies that have a deep
understanding of the role of knowledge
in their business treat it as an asset.
Measuring and reporting information on
their intangibles has the potential to
improve their management and decision
making and creates significant business
opportunities. The most common internal
measures of intellectual capital focus on
budgeting, training and human resources.
The four most popular internal measures
of intellectual capital are: Human resource
accounting, the intangible asset monitor,
the Skandia navigator and the balanced
scorecard.
Human Resource Accounting: Human
resource accounting (HRA) is an
accounting method that describes the
management of a company’s staff
(Hermanson, 1964). It aims at improving
the management of human resources from
an organizational perspective i.e. by
increasing the transparency of human
resource costs, investments and outcomes
in traditional financial statements. It
attempts to improve the basis for
investors’ valuation of the company. It
Nayak et.al, Valuation of Intellectual ... 99
focuses on employees’ education,
competence and remuneration
(Sackmann et al, 1989). HRA supports
accounting for investments in staff, thus
enabling the design of human resource
management system to follow and
evaluate the consequences of various HR
management principles. There are four
basic HRA models: Anticipated financial
value of individuals to the company,
Financial value of groups, Staff
replacement cost and Human resource
accounting and balancing. However, the
difficulties associated with several major
human resource evaluation methods cast
doubt on HRA’s accuracy. The difficulties
for any model of human resource
evaluation include input measurement,
output measurement and replacement
values.
The Intangible Asset Monitor: Karl-Erik
Sveiby developed the intangible assets
monitor (IAM) as a management tool
for organizations wanting to track and
valu e their intangible assets,
partic ularly acc ounting for the
difference between market and book
value. According to IAM, the intangible
part of a c ompany’s balance sheet
consists of three parts:
• External structure- a company’s
relationships with its customers and
suppliers, brand names, trademarks
and organizational reputation or
image.
• Internal structure- a company’s
organizational assets i.e. patents,
processes, systems, concepts and
100 Vilakshan, XIMB Journal of Management ; March, 2008
computer and administrative
systems.
• Individual competence- a person’s
ability to act in various situations i.e
skills, education, experience and
values.
The IAM is based on the assumption that
people are an organisation’s only profit
generators. All assets and structures,
whether tangible physical products or
intangibles, are the result of human
action and depend ultimately on people
for their continued existence.
The Skandia Navigator: The Skandia
navigator is perhaps the best known
business model developed to identify
intangible assets. A featu re of the
navigator is its definition of intellectual
capital. In addition to the skills and
expertise of its workforce, it also
includes the systems and processes that
it has put in place to capture and exploit
all the knowledge it can (Edvinsson and
Malone, 1997). It is designed to provide
a balanced picture of financial and
intellectual capital. Consequently, it
incorporates measures in categories
similar to those of the balanc e
scorecard. The focus on financial results,
c apital and monetary flows is
complemented by a desc ription of
intellectual capital and its development.
The navigator framework has at its top
end a series of measures about financial
focus. But it also has below the line
measures of intellectual capital. These
involve four areas and two dimensions.
These are:
• Customer focus- how the
organization views its customers;
• Process focus-key aspects of
organisation’s process performance;
• Renewal and development focus-
what is being done to renew and
develop the intellectual asset base;
and
• Human focus- the virtual binding
force of customer, process, renewal
and development and finance.
The Balanced Scorecard: The balanced
scorecard (BSC) is an organizational
framework for implementing and
managing a strategy at all levels of an
enterprise by linking objectives,
initiatives and measures to an
organisation’s vision and strategy
(Kaplan and Norton, 1996). The BSC
translates a business’s vision and
strategy into objectives and measures
across four balanced perspectives
namely, financial performance,
customers, internal business processes
and organizational growth, learning and
innovation. It is a structured way of
communicating measu rements and
targets. It is used as a tool for managing,
measuring and c ommunicating a
company’s financial and non-financial
information. The BSC allows an
organization to monitor its current
performance- financ ial, customer
satisfaction and business processes- and
its effort to improve processes, motivate
and educate employees and enhance its
ability to learn and improve.

4.2 External Measures
The growing influence of intangibles in
company performance is perceived as a
major factor in explaining the
exceptionally large differences between
the market and book values currently
seen in our capital markets. The
development of measurement and
reporting models enables comparisons to
be made between firms in the same
industry. By reporting on its IC, a
company can give itself a market
advantage, attract investment capital
more easily and improve its stock price
by giving market and potential customers
a more accurate picture of its assets.
Market-to-book values, Tobin’s Q and
Calculated Intangible Value (CIV) are the
most common intra industry measures.
Market-to Book Values: The value of
intellectual capital is commonly
expressed as the difference between the
market value (MV) of the company,
calculated by the market capitalization of
the firm, and its book value (BV), also
known as equity value. Recent
acquisitions show that price paid for an
acquired company is invariably higher
than its book value. Conventional
accounting practices incorporate this
difference as goodwill on the balance
sheets. The growing disparity between
market value and book value is largely
based on the intangibles of the business
providing the foundation for future
growth. The largest disparity occurs in
high-tech and knowledge-intensive
industries where investment is heavily
Nayak et.al, Valuation of Intellectual ... 101
concentrated in intangible assets such as
R&D and brands. From an internal
perspective, differences between MV and
BV are primarily due to assets that are
not currently included in the conventional
balance sheets such as knowledge,
relationships and image. The external
perspective on the gap between the MV
and the BV is primarily due to the
company’s future opportunities and these
are currently not valued in the
conventional balance sheet. The market-
to-book value is limited as a tool for
measuring intellectual capital for three
reasons:
1. The stock market is volatile and can
react strongly to factors outside the
control of management.
2. There is evidence that market value
and book value are usually
incorrectly stated.
3. Market-to-book value valuations can
be affected by timing inconsistencies.
Market value is determined and
revised constantly whereas book
values are only updated periodically.
Tobin’s Q: Tobin’s Q compares a
company’s market value with the
replacement cost of its assets. It uses the
ratio to analyse dynamic firm behaviour,
independent of macroeconomic
conditions such as interest rates. The
replacement cost of fixed assets can be
calculated by adding the reported value
of a company’s fixed assets to its
accumulated depreciation and adjusting
the result for inflation. It can be a useful
102 Vilakshan, XIMB Journal of Management ; March, 2008
measure of IC because it can reflect the
value market places on assets which are
not typically reported in conventional
balance sheets. By making intra-industry
comparisons between a firm’s primary
competitors, these indicators can act as
performance benchmarks and be used to
improve a company’s internal
management or corporate strategy. The
information provided by these ratios
facilitates internal benchmarking and
enables the organization to track its
progress in an area it defines as integral
to its success.
Tobin’s Q and market-to-book ratios are
most revealing when like companies are
compared over several years. They are
best suited to comparing the value of
intangible assets of firms within the same
industry, supplying the same markets,
with similar tangible assets, over a
number of years. When the ratios of a
company fall over time, it is a good
indicator that a firm’s intangible assets
are depreciating. It might tell investors
that a particular company is not
managing its intangible assets effectively
and lead them to adjust their investment
portfolios towards companies with
climbing or stable Qs.
Calculated Intangible Value: Calculated
intangible value (CIV) is a model for
calculating a fair dollar value for
intangible assets. It assigns a value to
intangible assets by comparing the firm’s
performance with an average business
competitor with similar tangible assets.
This approach is similar to that used to
evaluate brand equity. An advantage of
CIV approach is that it allows firm-to-
firm comparisons using audited financial
data and, as such, can be used as a
benchmarking tool. It can help assess
whether an organization is fading or
indicate value not reflected in traditional
financial measures or whether the
company is generating the capacity to
produce wealth in the future. However,
this method has several limitations. It
relies on averages to determine value and
this means that it lacks the precision
provided by balance sheet numbers. It is
also applicable to only those industries
or sectors that are not dominated by a
small number of companies.
4.3 Real Option Based Approach
A real option is a recent approach which
uses the methodology and the theory of
financial options to value intangible
assets. A financial option is the right, but
not the obligation, to buy or sell an
underlying asset at a fixed price for a
predetermined period of time. A real
option is an option that is based on non-
financial assets. Real options can be
applied to determine the value to
proceed, defer, expand or abandon
investment. By drawing on financial
market techniques, benchmarks and
information, businesses can discipline
their investment decisions and align them
with the investment decisions of the
market. Unlike the previous methods, the
real option provides an approach which
values the opportunities arising from
intellectual capital. Deciding on how

much to spend on R&D, or the kind of
R&D to invest in, translates to the
valuation of opportunities. Companies
with new technologies, product
development ideas, defensible positions
in fast growing markets, or access to
potential new markets own valuable
opportunities. For some companies,
opportunities are the most valuable
things they own. The challenge for the
companies is converting opportunity to
reality. For the investor the challenge is
to quantify the opportunity.
The real option approach is still in its
infancy and there are limits to its
usefulness. Natural resources companies
have been the early experimenters in the
use of real options. This is largely a result
of their ability to link the future value of
their assets to traded commodities, for
which market information is readily
available. However, despite the
attractiveness of this method, there are
significant drawbacks. Determining the
value of real options remains an inexact
science. Substantial difficulties remain in
valuing non-financial assets accurately at
the firm level. As most business
opportunities are unique, the likelihood
of finding the similar option is low. The
only reliable way to finding a similar
option is to construct one. Furthermore,
real option pricing is often too complex
to be worthwhile for minor decisions.
The use of real options presents two
fundamental problems: one of
quantifying real option value and the
second one is of persuading an
organization to change the way it
Nayak et.al, Valuation of Intellectual ... 103
traditionally thinks about valuation and
investment.
5. 0 RESEARCH METHOD
A discussion of the available models for
valuation of IC reveals that all the models
have inherent advantages and limitations.
There is not a single model that is free of
problems normally faced during valuing
the IC. The problem with the internal
measures is that, to value the IC of a
company a lot of internal information has
to be collected about a company. The
measurer has to be very closely associated
with the company to understand the
internal dynamics and the way the
components interact in the organization.
This proves to be difficult since most of
the people have reservations regarding
sharing intimate details of their
organization, which can be used against
them by their competitors. The problem
of real options has been discussed in
details in the previous sections and hence
has been overlooked as a possible
research method. That leaves us with the
external measures of IC valuation. These
methods are suitable for our purpose
since it needs the audited financial
statement and share price data of the
respective companies, which are readily
and publicly available. The market-to-
book value method has a major limitation
that since market value is stock market
dependent, its tends to fluctuate to factors
that are outside the control of the
management and hence is very volatile.
Tobin’s Q is quite similar to the market-
to-book value method with the only
104 Vilakshan, XIMB Journal of Management ; March, 2008
difference that instead of book value, the
replacement cost of assets is considered.
This method is very useful since it readily
lends itself to comparison across the
companies in an industry. However the
calculation of replacement cost of assets
is a very tedious job. That leaves the
calculated intangible value (CIV) method
as the only suitable tool that can be easily
applied by someone external to the
company without company specific
(internal) information. Hence the
availability of genuine data has
motivated us to pick the CIV method as
our model of IC valuation.
5.1 Calculated Intangible Value (CIV)
CIV is designed for valuing a company’s
IC. It was originally developed for
increasing the interest of lenders towards
knowledge-intensive business in which
majority of assets consists of intangible
ones (Stewart, 1997). The method is
based on the assumption that a company’s
premium earnings i.e. the earnings
greater than the average companies
within the industry, result from the
company’s IC. That is to say by utilizing
tangible assets, a company can reach only
an average level of earnings whereas the
premium is generated by the IC. The CIV
of a company can be calculated as
follows:
1. Calculate the Company’s average
pretax earnings for the past three
years (a).
2. Calculate the average year-end
tangible assets of the company for
the past three years (b).
3. Calculate the company’s return on
assets (ROA) denoted as ‘c’ as
follows c = a / b
4. Calculate the industry average ROA
(d) for the same three-year period
as in Step 3.
5. Calculate excess ROA by multiplying
the industry average ROA by the
average tangible assets (b). Subtract
the excess return from the pretax
earnings from Step (a) i. e. excess
return =a – (d * b)
6. Calculate the three-year average
corporate tax rate and multiply by
the excess return. Deduct the result
from the excess return.
7. Calculate the net present value
(NPV) of the after-tax excess return
by using the company’s cost of
capital as a discount rate. For the
sake of simplicity the same
percentage (10 %) has been used for
all the industries.
The result of executing the seven step
calculation is the calculated intangible
value (CIV). The value is a measure of
company’s ability to use its IC to succeed
better than the other companies within
the industry.
5.2 Data
The data covers the entire Indian
financial services sector. According to
RBI the service industry is divided into
the finance sector and the other sector.
In the financial service sector we have
selected the Banking services (134

banks), Financial institutions (37
companies), N on-banking finance
corporations (270 companies) and the
Sec urity houses and Stock brokers
segment (782 companies) as our data set.
The focus is to find out the IC of all these
companies and also find out which
companies in a particular sector has been
able to create more value as compared
to the average ones.
The financial information of the said
c ompani es and the i ndu stry
classification has been obtained from
the PROWESS database compiled by
the Cent er for Monitorin g Indian
Ec onomy (CMIE). The pe riod for
which data has been collected covers
a three year period from March 2003
to March 2006.
6.0 RESULTS AND ANALYSIS
As we have already discussed in the
calculation of CIV, it is a method which
depends upon the industry average
ROI and only those firms that have
higher ROI than the industry ROI are
eligible for this method. Hence, in this
filtering process a good number of
companies have been eliminated from
ou r orig inal data set of 1223
companies. We will discuss each of the
sectors separately and compare the
firms within each sector to find out
which company has the highest value
of IC.
6.1 Banking Services
The CMIE database lists a total of 134
companies in banking sector. This
Nayak et.al, Valuation of Intellectual ... 105
includes both government and private
banks. The industry ROI of the banking
sector was found to be 37.38 percent.
However, only 53 banks were found to
have a higher ROI than the industry
average ROI. These banks and their
corresponding ROI and CIV are listed
in Table-1.
It can be seen from the above table that
the highest ROI have been reported by
mostly the co-operative banks, leading
among them are South Indian Co-
operative bank Ltd, Mumbai district
central Co-operative bank Ltd, Model
Co-operative bank Ltd and City Co-
operative bank Ltd. There are six banks
which have RO I in exc ess of 100.
However, none of these are the big and
popular banks. A look at the third
column of table reflects that the ones
having very high ROI have very low
CIV. In fact the highest CIV have been
reported in case of all public sector
banks which do not have astoundingly
high ROI. The highest CIV is reported
in c ase of State Bank of India
(Rs.13572.21 Crores) followed by
Canara Bank (17189.7 Crores) and
Allahabad Bank (8823.8 Crores).
The CIV only represents an absolute
amount and it does not take into account
the size (balance sheet value) of the
company. Henc e we have tried to
calculate the relative value of IC by
dividing the value of IC by the value of
tangible assets (TA) and are presented
in the last column of table1. This shows
106 Vilakshan, XIMB Journal of Management ; March, 2008

that the banks reporting the higher ROI
are also the ones having highest CIV to
TA ratio. The highest ratio is reported
in case of South Indian Co-operative
bank which incidentally also had the
highest ROI. The banks having the
highest CIV have reported average CIV
to TA ratio of about 2, indicating that
their IC twice as much as that of the
physical assets of the company.

Table-1: CIV of banking companies

Sl. No. Company Name ROI CIV CIV / TA
1 Allahabad Bank 87.87 8823.802 2.091856
2 Andhra Bank 53.7 3073.996 0.722939
3 Bank Of Baroda 39.86 5910.17 0.39652
4 Bank Of India 39.97 915.666 0.0657
5 Bank Of Madura Ltd. [Merged] 81.16 1146.513 2.871595
6 Bank Of Maharashtra 58.66 3210.534 1.11847
7 Bank Of Rajasthan Ltd. 54.18 418.0522 0.672715
8 Bharat Co-Op. Bank (Mumbai) Ltd. 54.68 143.3506 0.853989
9 Canara Bank 68.5 17189.7 1.629467
10 Catholic Syrian Bank Ltd. 79.1 733.2527 2.334828
11 Citizen credit Co-Op. Bank Ltd. 43.09 26.0805 0.236408
12 City Co-Op. Bank Ltd. 109.88 47.51328 3.86916
13 City Union Bank Ltd. 94.12 876.5526 3.33404
14 Corporation Bank 40.29 281.804 0.05285
15 Deccan Merchants Co-Op. Bank Ltd. 55.84 19.68279 0.969118
16 Dena Bank 58.6 1774.845 0.872224
17 Dhanalakshmi Bank Ltd. 47.54 120.3686 0.647004
18 Federal Bank Ltd. 71.73 2553.127 2.26317
19 H D F C Bank Ltd. 43.25 337.9875 0.039227
20 Indian Overseas Bank 67.09 7531.212 1.28205
21 Jain Sahakari Bank Ltd. 63.71 10.7199 1.395821
22 Janakalyan Sahakari Bank Ltd. 56.21 175.6009 1.526699
23 Janata Sahakari Bank Ltd. 83.99 454.7678 2.827279
24 Karur Vysya Bank Ltd. 57.24 982.3616 0.924541
 Nayak et.al, Valuation of Intellectual ... 107

25 Lakshmi Vilas Bank Ltd. 43.05 65.23872 0.159613

26 Mahanagar Co-Op. Bank Ltd. 45.86 30.9972 0.418881
27 Maratha Sahakari Bank Ltd. 68.24 32.14059 1.485926
28 Model Co-Op. Bank Ltd. 110.44 48.91814 4.391216
29 Mumbai District Central Co-Op. Bank Ltd. 128.7 2028.103 5.521351
30 N K G S B Co-Op. Bank Ltd. 59.43 179.1767 1.260033
31 Oriental Bank Of Commerce 59.17 5387.906 0.843941
32 Patan Co-Operative Bank Ltd. 46.69 4.178798 0.48254
33 Pinakini Grameena Bank 48.08 32.42292 0.33285
34 Punjab & Maharashtra Co-Op Bank Ltd. 65.48 202.9767 1.212163
35 Punjab & Sind Bank 88.01 2176.912 3.197485
36 Ratnakar Bank Ltd. 111.88 215.2236 4.047077
37 Sangli Bank Ltd. 160.45 484.8154 7.55635
38 Shamrao Vithal Co-Op. Bank Ltd. 54.02 276.6837 0.86415
39 Shree Suvarna Sahakari Bank Ltd. 96 293.9271 2.831668
40 South Indian Bank Ltd. 74.34 1455.06 1.73242
41 South Indian Co-Op. Bank Ltd. 236.57 62.36047 10.2063
42 State Bank Of India 46.54 13572.21 0.217953
43 State Bank Of Indore 46.14 960.1907 0.424722
44 State Bank Of Mysore 52.58 870.8464 0.422848
45 State Bank Of Travancore 65.01 2701.681 0.821664
46 Syndicate Bank 71.33 6326.435 1.344808
47 Tamilnadu Mercantile Bank Ltd. 91.57 1673.661 3.312344
48 U T I Bank Ltd. 44.7 666.0038 0.102665
49 Uco Bank 75.08 7379.788 1.485049
50 United Western Bank Ltd. 55.39 705.2736 1.968773
51 Veerashaiva Co-Op. Bank Ltd. 66.63 29.1522 1.649813
52 Vijaya Bank 57.8 3536.477 1.357088
53 Zoroastrian Co-Op. Bank Ltd. 55.95 42.54318 0.926463
108 Vilakshan, XIMB Journal of Management ; March, 2008

6.2 Financial Institutions firms were found to be having higher

There were originally 37 firms in this ROI than the industry average. These
sector and the industry average ROI was firms and their corresponding values are
calculated to be 9.58 percent. Only eight presented in Table-2.
Table- 2: CIV of Financial Institutions
Sl. No. Company Name ROI CIV CIV / TA
1 Andhra Pradesh State Financial Corporation. 11.09 98.79587 0.105279
2 Housing & Urban Development Corporation Ltd. 10.86 2100.55 0.091001
3 Indian Railway Finance Corporation Ltd. 10.53 1155.301 0.062284
4 Karnataka State Financial Corporation. 13.6 356.9523 0.287327
5 Power Finance Corporation Ltd. 11.43 1893.733 0.069658
6 Rural Electrification Corporation Ltd. 11.17 658.2568 0.02926
7 Tamil Nadu Power Finance & Infrastructure 11.54 131.4231 0.07126
Development Corporation Ltd.
8 Tourism Finance Corporation Of India Ltd. 11.22 97.22813 0.17792

A perusal of Table-2 reveals that all the
firms have ROI in the similar range unlike
the banking sector where there were
many extreme values of ROI. The highest
CIV has been reported in case of HUDCO
followed by Power finance Corporation
and Indian railway finance Corporation.
The CIV to TA ratio is highest in case of
Karnataka state financial Corporation.
which also reported highest ROI in the
segment.
6.3 Non-Banking Finance Corporations
(NBFC)
According to CMIE there are 270 firms
in this sector and the industry ROI was
calculated to be 11.58 percent. There are
only 11 firms reporting higher than
industry ROI and these are presented in
Table-3.
The table reflects that the highest CIV is
reflected in case of Ashok Leyland
Finance (714.65 Crores) followed closely
by Reliance Capital Ltd. (699.89 Crores).
Again the same peculiarity in case of CIV
to TA ratio has been observed here i.e.
the firm reporting highest ROI in the
group, Dhandapani Finance Ltd., (30.31
Percent) is also showing the highest CIV/
TA ratio (1.25).
6.4 Security Houses and Stock Brokers
There is a whooping 782 firms listed in
this sector in the CMIE database and the
industry ROI was calculated to be a very
 Nayak et.al, Valuation of Intellectual ... 109

Table-3: CIV of NBFCs

Sl. No. Company Name ROI CIV CIV / TA

1 Ashok Leyland Finance Ltd. [Merged] 20.22 714.65 0.481187

2 Bajaj Auto Finance Ltd. 20.15 185.9067 0.218162
3 Dhandapani Finance Ltd. 30.31 92.53375 1.257081
4 Mafatlal Finance Co. Ltd. 17.32 36.3884 0.458928
5 Magma Leasing Ltd. 25.66 134.6426 0.59361
6 Manappuram General Finance & Leasing Ltd. 16.27 15.6797 0.208757
7 Reliance Capital Ltd. 17.09 699.8949 0.166788
8 S R E I Infrastructure Finance Ltd. 14.68 143.5741 0.221084
9 Shriram Investments Ltd. [Merged] 19.11 452.3215 0.308325
10 Shriram Transport Finance Co. Ltd. 18.5 349.1698 0.209262
11 Tata Finance Ltd. [Merged] 11.9 35.07513 0.044205

modest 8.64 percent. After analysis it was the industry is dominated by few players
found that only 9 firms have higher ROI and the average is affected by the
than the industry ROI. This means that extreme values of ROI.
Table -4: CIV of Security Houses and Stock Brokers
Sl.No. Company Name ROI CIV CIV / TA

1 Arihant Capital Markets Ltd. 32.12 9.13536 1.373738

2 B L B Ltd. 19.76 64.48863 0.808838
3 D S P Merrill Lynch Ltd. 50.9 1554.83 2.800134
4 Emkay Share & Stock Brokers Ltd. 86.75 146.3285 4.003516
5 Indbank Merchant Banking Services Ltd. 13.61 3.591952 0.270478
6 J R G Securities Ltd. 61.46 20.9769 2.315332
7 N P R Finance Ltd. 15.22 13.47029 0.356168
8 Networth Stock Broking Ltd. 15.52 4.184752 0.362945
9 S B I Capital Markets Ltd. 29.99 582.4622 1.303397

Table-4 reveals that the highest CIV is percent followed by SBI capital markets
reported by DSP Merrill Lynch (Rs.582.5 Crores) having a ROI of 30
(Rs.1554.83 Crores) having a ROI of 50.9 percent. The highest ROI is reported in
110 Vilakshan, XIMB Journal of Management ; March, 2008

case of Emkay Share and Stock Brokers Hence they are segregated in the
at 86.75 percent and also has the highest correlation test. The firms adding value
CIV to TA ratio at 4. due to higher earnings are showing high
After observing the peculiarity of the CIV and low correlation to ROI. The
behavior of ROI in relation to the CIV firms showing high ROI due to low
and CIV/TA ratio, we decided to run the tangible assets are not adding value as
correlation test on both the series. The evident from their low values of CIV
results are presented in Table-5. and hence high correlation to CIV to TA
ratio.
Table-5: The Coefficients of Correlation
7.0 CONCLUSION
Sector Correlation Correlation
between between ROI The CIV method has a lot of practical
ROI and and utility because the data needed for
CIV CIV/TA calculation is readily found from the
financ ial statement of a c ompany.
Banking -0.026 0.86
However, this can sometimes act as a
Financial -0.314 0.81 double edged sword. On the one hand,
Institutions data are relatively easy to access and
NBFC 0.011 0.89 the results of different organizations are
comparable with each other at least
Security 0.25 0.97
within the same industry. On the other
Houses and
hand, the financial statement is not
Stock Brokers
nec essarily the best sou rc e of
It is quite apparent from the table that information regarding the valuation of
firms have a very low correlation IC due to the fact that only a minor part
between their ROI and their IC value, of IC is inclu ded in the financial
meaning that a firm having high ROI statement. In addition, the CIV also
does not necessarily have high value of suffers from the limitations like it uses
intellectual capital, Whereas, firms are average industry ROA as a basis of
showing very high correlation between determining excess return. By nature,
ROI and CIV to TA ratio. The reason is average values su ffer from outlier
obvious. The higher ROI reported by problems and could result in excessively
firms can be assigned to either higher high or low ROA. However, CIV is a
pre-tax earnings or lower tangible quantitative method, which gives some
assets. The firms having higher ROI due kind of estimate of the monetary value
to the first reason are considered to be of IC (Antola et al., 2005). There is not
creating value whereas; the same is not much of evidence about utilizing CIV
necessarily true for the second reason. in practice. Stewart (1995) has

calculated the value of Merck’s IC ($1.1
billion).
In the present study, we have tried to
put a monetary value on the intellectual
capital of an organization. We have
considered the Indian Financial Services
Sector as our data set. The sectors that
we have selected for our study are the
banking service, the financial
institutions, the non-banking finance
corporations and the security houses
and stock brokers. We have used the
calculated intangible value method
(CIV) for valuing the IC. It was seen
that the firms having highest ROI were
not the ones having the highest CIV.
The reason is simple. ROI is a ratio that
is dependent on tangible assets and
earnings of a company. The company’s
tangible assets do not affect the
intellectual value of the company.
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 Measuring Technical Efficiency of Coal
Mines using Data Envelopment Analysis – A
Case Study of Mahanadi Coal Field Ltd.*

Sreekumar1, Rohita Kumar Mishra2 & Debendra Kumar Mahalik3

Abstract
Coal Industry in India plays a significant role for socio-economic growth and industrial development, as
power generation in the country is mostly through coal. The extraction of coal from the coal mines depends
upon the peoples and technology involved in that particular site. The quality of the coal not only depends
upon the nature but also the efficient utilization of people, process and technology. This paper attempts to
examine the efficiency of various collieries of a leading Government owned Indian Coal Company - Mahanadi
Coal Field Ltd (MCL). The data collected shows that there is no significant difference between both input
and output factors over the periods considered. A non-parametric method called Data Envelopment Analysis
is used for calculating the efficiency score of collieries or decision making units (DMUs). Two scale of
assumptions CRS (Constant Return to Scale) and VRS (Variable Return to Scale) of DEA are used to
compare the relative efficiency of collieries. The results obtained through application of DEA shows that
many of the DMUs are performing consistently over the periods considered.

1.0 INTRODUCTION like the United States and China. But

India’s gross domestic product rising at
9 percent this year reflects the good
economic health of the country. This
growing economy has to be supported
by continuous supply of energy. The per
capita energy consumption in India
remains low in comparison to countries
India, the world’s fifth biggest energy
consumer, is projected to surpass Japan
and Russia to take the third place by 2030.
[1]
This situation will lead to continuous
and growing reliance on fossil fuel – coal
and greater energy imports. In India,
generally half of the energy is produced

* Received March 19, 2007; Revised December 24, 2007

1. Associate Professor, Rourkela Institute of Management Studies, Rourkela, email:
sreekumar42003@yahoo.com
2. Assistant Professor, Institute of Management and Information Science, Bhuabneswar, email:
rohitkmishra@rediffmail.com
3. Lecturer, Department of Business Administration, Sambalpur University, Burla, Sambalpur,
email:debendramahalik1@dataone.in
114 Vilakshan, XIMB Journal of Management ; March, 2008

through coal. The Brookings report happening at a slow pace due to the
estimates that India’s coal reserves could hindrance of reliable supply from
run out in forty years. Power generation overseas and the presence of India’s own
accounts for most of the coal consumed natural gas field under deep seas.
in India, with heavy industry a distant Besides, coal price being lower than the
second. Beside power generation, the use equivalent natural petroleum product
of beneficiated coal has gained prices, Indian coal industry shall continue
acceptance in steel plants. The following and operate, but such continuance has to
table shows a comparison between two be more efficient with improved quality
countries, India and China, whose and through adoption of latest available
industrial development is powered by technology.
energy consumption [2].
This paper attempts to evaluate the
Table-1: Comparison of India and China efficiency of twelve collieries of
on coal production and consumption government owned coal company,
Mahanadi Coal Field Ltd (MCL). A non-
China India
parametric method called Data
Recoverable 126,214.7 101,903.2 Envelopment Analysis (DEA) is used to
Coal million million
measure the efficiency of each colliery.
Reserves short tons short tons
The paper is organized as follows. First,
Coal 2,156.4 million 403.1 million
a brief overview of Indian coal Industry
Production short tons short tons
per year per year and MCL is presented and then the
method, DEA, is presented and
Coal 2,062.4 million 430.6 million
Consump- short tons short tons explained. After that it elucidates, how
tion per year per year the DEA approach can be used to measure
efficiency of individual collieries. The
Source: Forbes magazine, Nov. 2006
1 Short ton = 907.2 Kilograms
slack analysis is also done for better
insight.
The Table-1 shows clearly a wide gap
2.0 INDIAN COAL INDUSTRY AN OVERVIEW
between the coal production and
consumption between the two countries, India is the third largest producer of coal
while there is not much of difference in in the world. Coal mining in India dates
recoverable coal reserves between two back to the 18th century. The regulatory
countries. The use of coal accounts for a framework for this industry was
number of problems, such as high ash, conceived in 1923. In 1972-73, the Indian
pollution and low efficiency. The government nationalised the coal
Government is encouraging industries to industry, primarily to develop the sector,
switch over from coal based power since it was considered of strategic
generation to natural gas based power importance for rapid industrial
generation, but such switch over is development. Coal India Ltd (CIL) was

incorporated as a holding company for
seven coal producing subsidiaries and a
focused institute for planning and
design. It is engaged in mining of coal
from a total of 495 working coal mines
which account for nearly 88 percent of
total production [3]. In India coal is used
for power generation to meet the
industry and domestic needs. The coal
Table-2: Demand and Availability of coal in India
Demand
Year Steel Electricity Cement Others
1997-98 41.4 222.0 18.2
2001-02 51.6 287.8 21.4
2006-07 - - - 563
2009-10 68.0 500.0 37.0
All data are in Million Tonnes
The wide projected gap in the coming
years call for efficient use of coals in the
years to come.
2.1 Mahanadi Coal Field Ltd (MCL)
The state of Orissa has two coalfields viz.
IB and Talcher under MCL. The estimated
share in the reserve is around 24.48% (62.00
Billion Tonnes) of total of 253.30 billion
tonnes of coal reserves as estimated by GSI
as on 1.1.2006[5]. The coal discovered goes
back to the year 1900. The earliest coal
mining started in 1909 by private parties.
In the year 1973, after nationalization of
Coal Industry it became part of Western
Coalfields Limited (WCL). Then in the year
Sreekumar et.al, Measuring Technical Efficiency... 115
based electricity generation capacity
sharply increased from 8000 MW in 1970
to 51000 MW in 1995. This is expected to
go up to 140000 MW by 2009-10.
However, at present, the country faces
an average energy shortage of about 15%
and peak shortage of 30%. The coal
demand and availability over a period
of time is shown in Table-2 below [4].
Availability
Total Availability Imports Gap
(From Existing
Coal Companies)
41.78 323.38 298 10 10
51.4 412.2 371 19 22
443 19 101
85.0 690 530 - 160
1986, it came under South Eastern Coalfields
Limited (SECL). In the year 1992 it came
under Mahanadi Coalfields Limited (MCL)
having headquarters (HQ) at Sambalpur in
Orissa. There are 33 sanctioned mining
projects in MCL with a capacity of 103.31
million tonnes per year (MTY) of coal. The
total capital outlay of 33 projects is Rs
3436.92 crore and out of this 16 (capacity
=43.23 MTY) have been completed with a
sanctioned capital investment of
Rs. 1714.49 crore. Mahanadi Coalfields Ltd.
produces non-cooking coal of Gr. B LF, Gr.
C LF, Gr. D LF, Gr. E & Gr.F at Talcher
field and IB field, in Orissa. For marketing
of their products, MCL put sustained
116 Vilakshan, XIMB Journal of Management ; March, 2008
efforts and customer satisfaction is given
top priority. The three factors, which are
taken care, are quality, quantity and size
of coal. The major customers at present
are: Orissa Power Generation
Corporation, Tamil Nadu Electricity
Board, Maharastra Electricity Board and
West Bengal Power Development
Corporation Ltd. It has been seen that
during the last three years the company
has shown growing PAT (Profit after tax),
and a sound financial health.
3.0 CONCEPTS OF TECHNICAL EFFICIENCY
Modern efficiency measurement began
with Farrell (1957) who drew upon the
work of Debru (1951) and Koopmans
(1951) to define a simple measure of firm
efficiency, which account for multiple
inputs. Koopmans (1951) defines a
decision making unit as technically
efficient if – (i)an increase in any output
requires a reduction in atleast one other
output or an increase in at least one input
(ii) reduction in any input requires an
increase in at least one other input or else
it results in a reduction of atleast one
ouput. This definition is not sufficient to
determine the absolute efficiency frontier
(Sahoo and Mohapatra, 2001). Farrell
(1957) took motivation from the
definition put forward by Koopmans
(1951) and treated technical efficiency
relative to best practices in the group
under consideration. But this approach
fails to give information regarding the
degree of inefficiency of an inefficient
DMU. Debreu addressed this issue.
Debreu and Farrell defined technical
efficiency as one minus maximum feasible
equiproportionate reduction in all inputs
that still allows the continued production
of given outputs. A score of unity
indicates technical efficiency and any
score less than unity indicates technical
inefficiency. This concept was
reformulated as a mathematical
programming problem called Data
Envelopment Analysis (Charnes, Cooper
and Rhodes, 1978).
4.0 DATA ENVELOPMENT ANALYSIS
The application of Data Envelopment
Analysis (DEA) was initiated after the
seminal work by Charnes, Cooper, and
Rhodes (1978) and subsequent evidence
can be found in Banker, Charnes and
Cooper (1984); Ramanathan (2001); Taluri
(2000); Despotis, Dimitris and Smirlis,
(2002) and Seiford and Thrall (1990).
DEA can be used to evaluate the
efficiency of a number of producers,
generally referred as decision-making
unit. DEA compares each producer with
only the “best” DMU in the group, which
is better than the comparison with
average of the group. In DEA, we can
consider number of DMUs, each of them
consuming similar inputs to varying level
to produce. A fundamental assumption
behind this method is that if a given
DMU, " A" , is capable of producing
Y ( A) units of output with X (A) inputs,
then other DMUs shall also be able to do
the same if they were to operate
efficiently. Similarly, if DMU B is capable
of producing Y (B ) units of output with
X (B) inputs, then other DMUs should
 Sreekumar et.al, Measuring Technical Efficiency... 117

also be capable of the same. DMUs A , B , s m

and others can then be combined to form subject to ∑u

a composite producer i.e. virtual
producer with composite inputs and
composite outputs. The emphasis of DEA
is on finding the “best” virtual producer
for each real producer. If the virtual
producer is better than the original
producer by either making more output
with the same input or making the same
output with less input then the original
producer is inefficient
To develop the DEA model we define
the following notations.
Notations
To develop the DEA model, we use the
following parameters and variables:
r =1
r y rj − ∑ v i x ij ≤ 0
i =1
j = 1,2, . . ., n
ur , vi ≥ 0 ∀ r , i (1)
The decision variables are respectively
u = (u1 , u 2 ,..., u r ,..., u s )
and v = (v1 , v 2 ,..., v i ,..., v m )
the weights given to the s outputs and to
the m inputs. To obtain the relative
efficiencies of all the units, the model is
solved n times, for one unit at a time.
The fractional program (1) can be reduced
to Linear Programming Problem (LPP) as
follows:
s

n = Number of DMU { j = 1,2,..., n} max h j0 = ∑ u r y rj0

r =1
s = Number of outputs {r = 1,2,..., s}
m
m = Number of inputs {i = 1,2,..., m} subject to ∑v xi =1
i ij 0 =1 (2)
y rj = Quantity of r th output of j th
DMU s m

x ij = Quantity of i th input of j th DMU ∑ u r y rj − ∑ vi x ij ≤ 0

r =1 i =1
j = 1,2, . . ., n

ur = weight of output
vi = weight of input
DEA Model
The relative efficiency score of j 0 DMU
is given by
max h j 0 (u , v) =
ur , vi ≥ 0 ∀ r , i
This model is called CCR output
maximization DEA model (Charnes,
Cooper, Rhodes 1978).
The routine computation of DEA can be
s
performed using generalized LP
∑u y r rj 0
software or specialized DEA software.
r =1
m The non-computational aspects are also
∑v x
i =1
i ij 0 important in the application procedure of
DEA.
118 Vilakshan, XIMB Journal of Management ; March, 2008
5.0 CASE OF MCL
The vision of MCL states consumer’s
delight as its ultimate goal, while at the
sametime improving the quality of coal
produced and fulfilling social
responsibility like using the mined out
land for afforestation, orchard,
pisciculture etc. to make the post-mining
land more useful than the pre-mining
land. To achieve this, company shall
operate efficiently. We have taken data
from twelve collieries and used DEA to
calculate the technical efficiency.
5.1 Selection of DMUs
According to Ramanathan (2003), there
are two factors which influence the
selection of DMUs for the study –
homogeneity and number of DMUs. By
homogeneity we mean the DMUs must
have same objectives and perform the
same task. The number of DMUs to be
selected depends on the objective of the
DEA study. The thumb rule to find the
number of DMUs is that the number of
DMUs shall be larger than the product
of number of inputs and number of
outputs. We have taken twelve units of
Table- 3: The inputs and outputs taken and notations
Input for j th DMU
u1 : earning per man shift ( Rs.)
u2 : electricity consumption ( LKWH )
u3 : disel consumption (ltrs.)
u4 : exp losive used ( Kg .)
MCL, Sambalpur for efficiency calculation.
These units are Talcher, Deulbera,
Nandira, Lingaraj OCP, Belpahar,
Lakhanpur, Lilari, Lajkura,Balanda,
Jagannath, Bharatpur, Kalinga OCP.
5.2 Input-Output Definition and
Descriptive Analysis
For our analysis the data are classified
into two categories viz. inputs and
outputs. The criteria of selection of
inputs and outputs are quite subjective.
Ramanathan (2003) indicates that there
is no specific rule in determining the
procedure for selection of inputs and
outputs. In general any factor used as
the resou rc es by the DMUs for
producing something of value and also,
any environmental factor that bears a
strong effect on how the resources are
consumed can be considered as the
input. Similarly, any factor, which
describes the amount of goods, services,
or any other outcomes obtained as a
result of the processing of resources can
be taken as output. The inputs and
outputs taken along with notations are
shown in Table -3.
Output for j th DMU
v1 : net reliazablesales price per tonne( Rs.)
v2 : productivity − output per manshift (tonne)
 Sreekumar et.al, Measuring Technical Efficiency... 119

u1 : earning per man shift ( Rs.) : It is the
average wage paid to the workers
u2 : electricity consumption ( LKWH ) :
Amount of electricity consumed for coal
extraction.
u 3 : disel consumption (ltrs.) : Amount of
diesel consumed for coal extraction.
u 4 : exp losive used ( Kg.) : Amount of
explosive used for blasting the hard stone
shaped coal.
v1 : net realizable sales price per tonne( Rs.):
The selling price of coal per tonne; it
generally depends upon the quality of
coal.
v 2 : productivity − output per manshift (tonne):
The amount of coal produced per man
shift.
The data collected from the collieries over
three-year period i.e. 2002-03, 2003-04
and 2004-05 is shown in appendix. The
data collected is subjected to descriptive
statistics; the results are tabulated in
Table-4 below.

Table-4: Descriptive Statistics

2002-2003 2003-2004 2004-2005
Mean Median IQR Mean Median IQR Mean Median IQR
594.149 595.920 73.903 647.453 647.415 77.735 824.016 801.825 123.333

119.515 127.545 61.055 125.286 118.441 49.259 126.122 118.933 96.592

25.980 25.010 43.435 25.626 19.904 47.183 25.604 19.289 42.050
13.297 14.799 19.169 14.345 13.953 22.398 14.345 13.953 22.398
537.573 373.900 455.023 550.354 376.780 492.170 648.987 428.645 627.048
12.603 12.345 19.568 12.172 11.480 21.185 12.066 11.435 18.455

We have used paired sample t-test to and median across the years. The results
know the difference between the mean are tabulated in Table-5 below.

Table-5: Results of the t –tests

Mean t = -1.41, p = 0.2169 t = -1.50, p = 0.1949 t = -1.50, p = 0.1949

Median t = -0.70, p = 0.5159 t = -1.18, p = 0.2895 t = -1.35, p = 0.2352

It is observed that there is no significant the correlation analysis is done between

difference between both input and output the parameters; the results are tabulated
factors over the period considered. Next in Table-6 below.
120 Vilakshan, XIMB Journal of Management ; March, 2008

Table -6: Correlation Matrix

u1 u2 u3 u4 v1 v2
u1 1 -0.06 (a) -0.10(a) 0.11(a) -0.22(a) -0.05(a)
0.24 (b) 0.04(b) 0.14(b) -0.36(b) 0.02(b)
-0.06 (c) -0.27(c) -0.18(c) -0.10(c) -0.13(c)

u2 1 0.49(a) 0.38(a) -0.02(a) 0.15(a)

0.47(b) 0.43(b) -0.13(b) 0.31(b)
0.69*(c) 0.72*(c) -0.40(c) 0.50(c)

u3 1 0.80*(a) -0.72*(a) 0.90*(a)

0.94*(b) -0.70*(b) 0.90*(b)
0.96*(c) -0.74*(c) 0.85*(c)

u4 1 -0.64*(a) 0.60*(a)
-0.75*(b) 0.84*(b)
-0.79*(c) 0.80*(c)

v1 1 -0.83*(a)
-0.78*(b)
-0.75*(c)

v2 1

*indicates p is significant at 0.05, (a) for year 2002-03, (b) for year 2003-04,( c) for year 2004-05

The Table-6 indicates that there is a high
degree of significant positive correlation
between the variable v 2 and u 3 , u 4 over
all the periods. But there is a low degree
of insignificant positive correlation
between v 2 and u 2 , and low degree of
insignificant negative correlation
between v 2 and u1 . Moreover it is
interesting to observe many of the
negative correlation occurring in the
column v1 .
5.3 Efficiency Analysis of Collieries under
MCL
We have used both the sc ale
assumptions i.e. constant return to scale
and variable return to scale to calculate
the efficiency of collieries over three
periods. For calculating the efficiency
scores of each DMUs we have used a
software Frontier Analyst [6] . The
efficiency scores of both the scales are
tabulated in Table-7 below.
 Sreekumar et.al, Measuring Technical Efficiency... 121

Table -7: Efficiency scores of DMUs and their Peers for CRS and VRS.

2002-2003 2003-2004 2004-2005

CRS VRS CRS VRS CRS VRS
DMUs Eff. peer Eff. peer Eff. peers Eff. peer Eff. Peer Eff. peer
1 1 - 1 - 1 - 1 - 1 - 1 -
2 1 - 1 - 1 - 1 - 1 - 1 -

3 1 - 1 - 1 - 1 - 1 - 1 -

4 1 - 1 - 1 - 1 - 1 - 1 -

5 0.612 3,4,6 0.653 2,4,6 0.574 2,4,6 0.626 2,4,6 0.582 1,6,12 0.651 2,6

6 1 - 1 - 1 - 1 - 1 - 1 -

7 1 - 1 - 1 - 1 - 1 - 1 -

8 0.734 3,6,7 0.734 1,3,6,7 0.556 3,4,6,7 0.5938 3,4,6,7 0.508 2,6,7 1 -

9 0.733 1,3,4 0.883 2,4 0.734 2,3,4 0.867 2,3,4 0.638 1,2,6 0.765 2,6

10 0.908 3,4,6 0.820 2,4,6 0.839 2,6,7 0.862 2,6,7 0.643 2,6,7 0.650 2,6,7

11 1 - 1 - 0.884 2,4,6 0.954 2,4,6 0.811 1,6,12 0.815 1,4,6

12 0.781 1,4 0.781 1,2,4 0.798 2,4,6 0.813 3,4,6 1 - 1 -

It is observed that DMU1, DMU2, DMU6. The efficiency trend plot over
DMU3, DMU4, DMU6 and DMU7 are three periods under CRS assumption is
coming out to be efficient over three shown in Figure -1.
periods under both the scales. So these
units are utilizing their resources in a
right way to produce the outputs.
DMU11, which was operating efficiently
in the year 2002-03, has become
inefficient in the subsequent period.
DMU8 with efficiency score less than
unity in all the periods is getting a score
of unity in the year 2004-05 under VRS.
The inefficient DMUs can refer their
peers for improvement and becoming
efficient units e.g. DMU5 for the year
2002-03 shall refer DMU3, DMU4 and Figure-1 : Efficiency trend under CRS
122 Vilakshan, XIMB Journal of Management ; March, 2008

The figure makes it clear that some of exc eption of DMU12 whose
the DMUs namely, DMU1 to DMU7 are performance has gone up in the year
performing consistently over three 2004-05.
periods. Some kind of variation is Next, the potential improvement for the
observed in the rest DMUs. The inefficient units is calculated for the year
performance of these DMUs has gone 2002-2003 under CRS assumption, and is
down with increasing period with the shown in Table-8.

Table- 8: Potential Improvement on various parameters for the year 2002-2003

Ineff. Improv. u1 u2 u3 u4 v1 v2
DMUs Required

DMU5 Actual 634.29 178.75 34.15 24.05 370.88 12.12

Target 634.29 103.54 34.15 13.4 607.83 19.86
Pot. Imprv. 0 -42.08 0 -44.26 63.89 63.89

DMU8 Actual 605.72 82.67 14.16 16.84 355.62 9.29

Target 605.72 55.44 14.16 5.77 484.26 12.65
Pot. Imprv. 0 -32.93 0 -65.74 36.17 36.17

DMU9 Actual 676.13 131.91 15.87 17.72 798.39 2.61

Target 676.13 131.91 4.97 3.64 1088.7 3.56
Pot. Imprv. 0 0 -68.68 -79.47 36.36 36.36

DMU10 Actual 601.54 137.01 36.99 15.99 368.9 17.73

Target 601.54 98.9 36.99 12.63 459.47 22.08
Pot. Imprv. 0 -27.82 0 -21.03 24.55 24.55

DMU12 Actual 552.93 159.21 56.28 28.09 371.83 18.38

Target 552.93 102.02 44.46 20.71 476.14 23.54
Pot. Imprv. 0 -35.92 -20.99 -26.28 28.05 28.05

It is observed that (Table-8) the target of DMU-5 should be 634.29, 103.54, 34.15
inputs i.e. earning per man shift (u 1), and 13.4 respectively. The target of
electricity consumption (u 2 ), diesel outputs for DMU-5 will be 607.83 and
consumption (u3), explosive used (u4) for 19.86 respectively. Hence the
 Sreekumar et.al, Measuring Technical Efficiency... 123
management should decrease the input
u2 by 42.08 units and u4 by 44.26 units
and increase the outputs v1 and v2 by
63.89 units each for the DMU- 5. The
value of stock, wages, and floor space for
DMU-1 should be 30.63, 9.63, and 248.33
respectively. Similarly, other DMU’s
target inputs and outputs are mentioned
in Table-8.
6.0 CONCLUSION
In this paper, a methodology based on
DEA is discussed to find the technical
efficiency of various collieries of an
Indian coal company. The methodology
facilitates to identify the benchmarking
collieries which can be referred by
inefficient units to become efficient
units. Two approaches of DEA viz;
Constant Return to Scale (CRS) and
Variable Return to Scale (VRS) are
c onsidered to obtain effic ienc y of
DMUs. From the perusal of the above
analyses and results, it is evident that
the efficiency of coal mines depends
u pon the performance in every
parameter which is direc tly or
indirectly linked with the system. DMU
1, DMU 2, DMU 3, DMU 4, DMU 6, and
DMU 7 are relatively efficient. Other
units are relatively inefficient. So in
order to maintain their efficiency they
have to formulate proper strategies by
proper utilization of inputs to produce
desired outputs. It is interesting to
observe here that no inefficient DMU
demands for potential improvement in
input u1 which is earning per man shift
but all the inefficient units has scope for
potential improvement regarding the
input u4 i.e. explosive used. There is a
scope for improvement in both the
outputs for all the inefficient DMUs.
The study will be more interesting if
one would take the non-discretionary
aspects like the location, quality of
manpower, experience etc.
REFERENCES
Banker R.D, Charnes.A , Cooper W.W. (1984).
“Some models for estimating technical and
scale efficiencies in Data Envelopment
Analysis”, Management Science, 30
1078-1092.
Charnes.A , Cooper W.W and Rhodes.E. (1978).
“Measuring efficiency of decision making
units”, European journal of Operational
Research, 2, 429-444.
Debreu, G. (1951),”The Coeffcient of Resource
Utilization”, Econometrica, 19, 273-292.
Despotis.K. Dimitris, Smirlis.G.Yiannis. (2002).
“Data envelopment analysis with imprecise
data, European Journal of Operational
Research, 140, 24-36.
Farrell, M.J. (1957).”The measurement of
productive efficiency”, Journal of Royal
Statistical Society, 120(3), 254 - 290.
Koopmans, T. C., (1951). “Analysis of Production
as an Efficient Combination of
Activities” in T. C. Koopmans (ed.) Activity
Analysis of Production and
Allocation:Proceedings of a Conference. New
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Ramanathan, R. (2001). “A Data Envelopment
Analysis of comparative performance of
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160-182
124 Vilakshan, XIMB Journal of Management ; March, 2008

Ramanathan, R. (2003), “An Introduction to Data END NOTES

Envelopment Analysis: A tool for [1] Zissis Carin , “India’s Energy Crunch” ,
Performance Measurement”, Sage Council on Foreign Relations, A Resource
Publication, New Delhi. for Nonpartisan information and Analysis,
December 8, 2006.
Sahoo, K Biresh and Mohapatara, K J Pratap.
[2] Energy and Environment, Forbes magazine,
(2001) “Measuring Technical efficiency in 27 November 2006.
Data Envelopment Analysis”, Opsearch, 38, [3] Coal Industry (diehardindian.com), http://
(.5), 456-482. www.diehardindian.com/infra/coal.htm,
accessed on 09-02-07 at 7.00pm.
Seiford, L.M. and R.M. Thrall. (1990), “Recent
developments in DEA: the mathematical [4] Coal in India, Chowdhary S.K., Former
Chairman, Coal India Limited, India, http:/
programming approach to frontier
/w ww .w or ld en er gy .org /w ecge is /
analysis.” Journal of Econometrics,
p ub l i c a t i o n s / d e fa u l t / t e c h _ p a p e r s /
46, 7-38. 17th_congress/2_1_20.asp
Taluri, Srinivas. (2000). “Data Envelopment [5] h t t p : / / m a h a n a d i c o a l . n i c . i n /
analysis –Model and Extension” Decision egocoalfield.htm
Line 8-11. [6] www.banxia.com
Perspective

Beyond Whistleblowing: A Study on

Socrates, Satyendra and Manjunath*

Bibhu Prasan Patra1

Abstract
Business ethics text books trivialize the concept of whistleblowing by stating some morally justifiable
criteria for whistleblowing. Business ethicists state that the act of whistleblowing should be based on
what is desirable, permissible and obligatory for an individual manager to do in a business situation. The
argument is that following these standards makes our action morally defensible (See appendix-1-De
George, 2006). The basic purpose of this paper is to analyze the other side of the notion and highlight that
whistleblowing reflects the finer element of our moral life. It goes beyond the ordinary question of what
is morally defensible. In this paper an attempt has been made to look at the issues that are more valuable
than life itself. At every point of our life we encounter the dilemma that deals with the finer question of
our living. Living a moral life is not just what is morally defensible or justifiable. Whistleblower’s
commitment to justice, fairness, and duty at times transcends the ordinary criteria of whistle blowing.
As Elaine Sternberg (1994) points out the efficacy of whistleblowing is not just its moral justification.
Individual decision makers as moral agents at times decide -which way to walk off- which ditch they want
to die. This obviously is not like resolving simple, ordinary dilemma of the whistleblower i.e. between
loyalty and free speech. An insight into leading a moral life and addressing issues in business ethics, are
not poles apart; rather one is the part of the other.

1.0 INTRODUCTION agency which is difficult for the public

Whistleblowers are just like umpires or
traffic police who blow the whistle
when they observe a fou l being
committed on the field or some one
rushing through, violating the traffic
rule. Bu siness ethic ists define
whistleblowing as an act of disclosure
made by a person about some wrong
doings by a corporation to an external
to know otherwise. Their act is based
on the inside information and the
documented evidence they have as a
member of the organization (see De
George, 2006, Velasquez, 2006, Jubb,
1999). For example Cynthia Cooper is
the whistleblower who exposed
massive accounting fraud at WorldCom
in 2002. Sherron Watkins the “Enron

* Received February, 27, 2008; Revised February 29, 2008.

1. Associate Professor, Xavier Institute of Management, Bhubaneswar; email: bibhu@ximb.ac.in
126 Vilakshan, XIMB Journal of Management ; March, 2008
whistleblower”, laments, “We’re such
a c rooked c ompany.” These
whistleblowers mainly inform the
society about the different types of
fraud, trickery and profit maximization
achieved by corrupt means. The act of
whistleblowing is valued for its moral
desirability. Whistleblowers are
generally hardworking people who
believe in the social, political, and legal
system and have loyalty to their
organization.
The aim in this paper is to discuss the
concept of whistleblowing which goes
beyond the ordinary morally
defensibl e ac t of whistle blowing.
These whistleblowers often travel the
difficult path and make the hard choice
of adopting the path of truth. Their
lives are guided by principle, and they
go beyon d what is ju st e thic ally
defensible. The basic point of their
moral c h art is b ased on a c lear
u n derstanding of virtu es that are
essential for living a life which is worth
living.
Their strong faith in the system, justice
and reason force them to speak out when
they see something wrong. They are
aware that fighting against corruption
and injustice may deprive them from the
ordinary materialistic pleasure. People
think that they take unnecessary liability
and invite injury to themselves. But these
whistleblowers do not agree with this
thesis and are ready to face even death
for an ideal.
2.0 THE DEATH OF SOCRATES
The death of Socrates, ‘the wisest and
most just of all men’ in 399 BC has
shown the unreliability and
undesirability of the democratic rule of
Athens. Socrates is seen as a wise and
benevolent citizen martyred for raising
his voic e against inju stice and
corruption. The false charge against him
is that he is corrupting the youths of
Athens and instigating them against the
rulers. The jury voted for death as the
penalty and Socrates carried out his
own execution by drinking the poison
called Hemlock given to him. He
accepted the verdict and decided to
die, helds on to his intellectual and
moral beliefs, when other options like
escaping from prison, begging apology
to the jury and living in exile elsewhere
were available to him. But he chose to
die as a law abiding citizen and because
of his respect for the system.
Common men ridicule Socrates for
undermining hu man pleasu re and
criticize him as an impractical man.
People see him neglecting life and
ignoring the most pragmatic aspect of
human l ivings. The c ommon
understanding of justice and right is
that wh o are depriv ed and
disadvantaged in society struggle hard
for thei r right and the ric h and
powerfu l extract what they want.
Inequality is inbuilt in the social system
and people reject the Socratic pursuit
for justice and equality. For them his

fight wa s a fu tile effor t. It is
unnecessary to bring life to an untimely
end like Socrates did.
But Socrates is well aware of these facts,
which the common men thought that he
does not know. On the other hand,
people seem to ignore the truths about
the deeper aspect human living and
human desires. They lack the
knowledge that there is something more
than living well with wealth and power.
In fact, proper use of the wealth and
power should be based on rational
judgment and moral virtues. Socrates
was worried about what our priorities
ought to be if our lives are to really go
well. He was stru ggling hard to
convince people that in order to live a
good life attachment to virtu e is
essential. Living well for Socrates is to
have an understanding of virtue and
transc ends what is ju st ethic ally
defensible. That is the wisdom
necessary to comprehend the value of
virtu e in human life. Soc rates
argu ment for his acc eptanc e of
execution reveals his commitment to
truth and deep sense of moral virtue.
In his explanation he says:
“I have c oncealed nothing I have
dissembled nothing. I know, that I am
speaking the tru th… they hate me
because I am speaking the truth and the
reason of their slender of me…. He
goes on and says… the greatest good
for man in daily life is to converse about
virtue… and the life whic h is
Patra, Beyond Whistleblowing: A ... 127
unexamined is not worth living. A life
which is worth living is also worth
dying for (Apology- Plato,1957).”
The above account of Socrates explains
the value of moral virtues and how they
are essential for our living well. These
virtues are traits of character that are
central for everyone everywhere to
obtain. Moral virtues are all
encompassing and necessary for living
well. He highlights the deeper aspects
of living well and the limits of the
shallow understanding of the common
men. Virtues matter in every aspect of
our life. Every person and every
profession should start from the
understanding of virtue and why they
matter in our lives.
This Socratic wisdom is still alive and
asserted by the two you ng Indian
professional who defy the common
men’s understanding of living well
and adopt the path of virtu e and
dec ided not to compromise with
principle. Mere surviving and living a
life with ordinary pleasure failed to
allure them. Like Socrates they spoke
out when saw something wrong. They
laid down their lives fighting against
corruption and injustice. They faced
the ultimate end for holding on to their
‘ideal’. Their commitment to virtue and
living a life that is worth living was
unequivocal. Those who put them to
death by unjust means really confer on
them the honor of immortality. What
128 Vilakshan, XIMB Journal of Management ; March, 2008

is better?; an ordinary life with 3.1 Satyendra Dubey

pleasure, without any ideal or a life Golden Quadrilateral, the state of the
with an ideal? This is what “Socrates art infrastructure project, of national
says just before his death…. the hour Highways Authority of Indian (NHAI)
departure has arrived, and we go our was considered as the dream project for
ways – I to die and you to live, which every Indian. The construction work of
is better, God only knows” (Apology – this project was taking place under the
Plato, 1957). direct supervision of the office of the
3.0 SATYENDRA DUBEY AND Prime Minister (PMO ). Satyendra
S. MANJUNATH Dubey was working as an engineer
with the NHAI Bihar and assigned to
In what follows I shall elaborate the
this pet projec t of the then P rime
cases of these two martyrs referred
Minister Atal Bihari Vajpayee. Dubey
above. Both of them died in the moth
had written a letter to the P rime
of November. Satyendra Dubey, a 31
Minister Atal Bihari Vajpayee exposing
year old civil engineering graduate
the low qu ality work and other
from IIT, Kanpur, was gunned down
irregularities in the construction of the
by unidentified assailant (Gaya Bihar,
four-lane road. He wrote a letter to
India) on November 27, 2003. He was
the PM’s office which was received on
working with the National Highway
N ovember 11, 2002. Du bey had
Authority of India and assigned to the
requested to keep his name secret. But
G olden Q u adrilateral projec t that
PM’s office circulated his letter along
connects the four corners of India. He
with the file among the bureaucracy.
was posted at Koderma, Jharkhand. He
Noting on the file, bears witness to this.
was trying to expose the poor
None of the officers of the PM’s office
implementation of work and rampant
realized the gravity of the situation and
corruption and irregularities to PM’s
the danger to whic h Du bey was
office. Just after two years in
exposed to by the movement of the file
November 19, 2005, S Manjunath was
that contained his letter. The honest
gunned down by Pawan Kumar Mittal
officer who was working with all good
(alias Monu) the son of a Petrol pump
intention and dedicated to the cause of
owner in Lakhmipur Kheri in Uttar
nation building lost his life for blowing
Pradesh. He was working for Indian
the whistle against the offender. The
O il Corporation as an area sales
fact finding team of Indian Express
manager. Manjunath was 27 years old
revealed another fact which is more
and an MBA from IIM – Lucknow. He
puzzling that the young engineer wrote
was trying to prevent adulteration of
a second letter to PMO expressing his
petrol.

concern that his first letter was leaked
and he was exposed to wrath of the
offender. He was afraid, because the
c ontent of his letter c ontained
information about wrong doings of the
contractors and NHAI officials. He was
anticipating some troubles and thinking
that the mischief makers may cause
physic al harm to him (The Indian
Express, Nov. 30. 2003).
The letter said:
“The NHAI officials showed great
hurry in giving mobilization advance to
selected contractors for financial
c onsideration. In some c ases the
contrac tors have been given
mobilization advance just a day after
signing the contract agreement. The big
contractors have been able to get all
sorts of help and secret information and
documents from NHAI officials and
even note sheets carrying approval of
chairman have been given. The entire
mobilization advance of 10% of contract
value, which goes up to 40 crore in
certain cases are paid to contractors
within a few weeks. But there is little
follow u p to ensu re that they are
actually mobilized at the same pace, and
the result is that the advance remains
lying with contractors or siphoned to
their other activities”.
Dubey also highlighted the problems of
sub-c ontrac ting by the primary
contrac tors. “Though the NHAI is
going for international competitive
bidding to procure the most competent
Patra, Beyond Whistleblowing: A ... 129
civil contractors for execution of its
projec ts, when it c ame to actual
execution, it was found that most of the
works, (sometimes even up to 100
percent) were subcontracted to petty
contractors who did not have sufficient
expertise of exec uting su ch big
projects,” he said Everyone in the
NHAI is aware of the phenomenon of
subcontracting but turned the other
way.
“I have written all these in my
individual capacity. However, I will
keep on addressing these issues in my
official capacity in the limited domain
within the powers delegated to me,”
he clarified. In another letter to the
P roject Director, NHAI, Koderma,
Jharkhand, on July 26, two days before
he was to take over as Project Manager
in G aya, Bihar, Dubey expressed
displeasure over the transfer saying it
was baffling and would not serve the
interest of the project in Jharkhand.In
his letter also, he had drawn the
attention of the Project Director to some
‘irregularities’ c ommitted by
contrac tors and consu ltant for the
project. Authorities of NHAI closed
their eyes to the ways in which the
work of the prestigious project was
progressing which forced Dubey to do
the right thing by alerting the PMO.
A patriot with strong commitment to
duty believed the projec t was of
“unparalleled importance to the
nation”. Dubey categorically put the
130 Vilakshan, XIMB Journal of Management ; March, 2008

whole activity in black and white that
explained the gravity of the situation
and the rots that needs be cleaned in
from this big project. The tragic
u ntimely demise of the young
IIT,Kanpur engineer put the entire
nation to reflect on the kind of risk one
has to take to fight against corruption.
In a handwritten letter to his friend, the
hero of this story had written: “My
conscience is my biggest virtue, my
wealthiest treasure and my best guide
or friend. I always do what my
conscience tells or compel me to do. I
want to keep this candle of humanity
ever glowing in my heart.’’ The hero’s
story was a shocking one with a sob
ending.
After effects
The National Human Rights Commission
issued notices to the Bihar police and the
National Highways Authority of India in
connection with the Satyendra Dubey
murder case. The commission has asked
NHAI why Dubey’s identity was not
protected. Santosh Kumar, director
general, Investigations, was asked to
conduct an inquiry and submit the report
within three weeks .The prime minister
immediately asked the CBI to investigate
the case ( rediff.com.). Media reporters
Table-1: Sequence of Events of Satyendra Dubey Murder Case
exposed the lapses of the Bihar police and
the NHAI’s for their failure to act on
Dubey’s complaints.
IITians ganged together to generate
support for one of their dearest fearless
friends who laid down his life for
national interest. They questioned the
responsibility of the police and the Prime
Minister’s office, and the level of
transparency in the CBI probe.
The entire alumnae raised their general
voice of concern that “as law abiding
citizens and having faith on the system
when one files a complaint or brings
some wrong doing before the local
police; he believes that the law
enforcement authorities will protect him.
The minimum expectation of a citizen
from the State is a reasonable level of
safety and protection for his life and
property. The State ought to ensure this
at all level (personal and professional
life)”. Dubey got national and
international attention as a whistle
blower. Satyendra K. Dubey Memorial
Award was instituted by IIT Kanpur in
the memory of Mr. Satyendra K. Dubey
(BT/CE/1994/IITK) for his exemplary
life and supreme sacrifice. The sequence
of events leading to Satyendra Dubey
murder is given in Table-1

November 2002 Satyendra Dubey sent a letter to the PMO detailing system in the National
Highway Authority of India. He named four contractors and their
misdeeds. In order to protect himself, he also made a special request to
be kept secret when the PMO investigated the matter.
 Patra, Beyond Whistleblowing: A ... 131

Satyendra’s name was not protected and the file containing his complaint
was circulated among various offices. This was like issuing a public
contract for his life.
November 27, 2003 Satyendra was murdered in Gaya, the place where he lived and worked
for NHAI.
News reports about Satyendra’s murder stirred the Nation and
unleashed the outrage.
Within days the Prime Minister’s Office and NHAI issued statements
defending and trivializing Satyendra’s death.
December 5, 2003 Bihar govt. wakes up to IITian’s murder.
December 9, 2003 CBI to probe Dubey Case: PM Narayana Murthy calls for probe into
Satyendra Dubey’s murder. Dubey murder figures in Parliament.
December 10, 2003 Why was not Dubey protected: NHRC.
December 11, 2003 Govt. denies leaking Dubey’s identity. Bihar submits highway security
plan. How will you ensure smooth completion of Golden Quadrilateral
Project?
December 12, 2003 Hearing of PIL on Satyendra Dubey on January 5.
December 14th, 2003 The case was handed over to the CBI.
December 16, 2003 CBI team in Gaya to probe Dubey’s murder.
December 18, 2003 Patna High Court to monitor security on highway project in Bihar.
December, 26, 2003 The CBI said that according to the evidence given by Mr. Pradeep
Kumar, Satyendra had been killed when resisting thieves who were
trying to kill him. Most people refused to believe this and the CBI’s
explanation further intensified the outrage.
December 28, 2003 CBI detains one person in Dubey murder case.
January 5, 2004 SC notice to PMO, Centre, Bihar govt. on Dubey.
January 6, 2004 Satyendra Dubey killed for resisting robbers. Accused.
January, 2004 key witness, Pradeep Kumar, “disappeared”.
Two other witnesses, who were interrogated by the CBI in this case,
allegedly committed suicide within a day in the end of January.
February 02, 2004 Dubey case: FIR against CBI officials. Dubey case: CBI denies hand in
suicides.
February 04, 2004 Dubey Case: ‘Suicides hampering CBI probe”.
February 05, 2004 Dubey Case: CBI rules out change of officials.
132 Vilakshan, XIMB Journal of Management ; March, 2008

March 03, 2004 Centre Okays security plan for Golden Quadrilateral Project.
March 12, 2004 Dubey Case: SC notice to CBI, Centre, Bihar government.
There was no investigation of these murky happenings or the CBI’s role
in these deaths. After keeping quiet for about six months, the CBI again
repeated the investigation in June, 2004.
September 03, 2004 CBI files charge sheet in Dubey murder case.
September 29, 2004 Case against NHAI project director named by Satyendra Dubey.
October 27, 2004 Bihar College named after Satyendra Dubey.
There has been no public investigation of the alleged corruption within
the NHAI to attempt to set things right.
January 13, 2005 Charges filed in Satyendra Dubey murder case.
September 13, 2005 Dubey murder accused escapes.

Key Issues Raised by Satyendra Dubey Shailesh Gandhi, an aggrieved citizen

are Still Unanswered
Dubey’s letter contained the names
Centrodosity of Russia, China Coal of
China, and Pioneer Constructions Ltd.
as being guilty of taking the contracts
by means of bribing and subsequently
giving it away to subcontractors and
making enormous profit without doing
any value adding work. He also talks
of up to Rs. 40 crores being given to
contractors as mobilization advance,
which is evidently diverted; partly to pay
equ ipment advances. There is no
justification for giving advances to
contractors if they do not have capacity
to do the jobs. The corrupt practices
highlighted by Dubey are routine in
most of the infrastructure projects of the
Government of India. Why
investigation has not been done on the
detailed allegations made by Dubey?
expressed his worries and says:
“The minimum ethical standard is that
when as Institutions, Organizations, or
Media, we do not compromise our
honesty, whenever these Institutions
deviate, others must challenge them. It
admits mistakes than to pretend we are
infallible. To refuse to admit errors is
the characteristic of our entire leadership
from the political, bureaucratic and
business class. If all the institutions which
honoured Satyendra’s memory raise their
voice for the sake of their own credibility,
the truth will come out. Honesty is a
value, which is basic to the well being of
a society. As individual society, we have
to bring it to the centre stage of our
National agenda and debate five decades
of the last century, Satyendra was the
prime mover of our nation reason for the
affluence of the Developed nations is also

an insistence on home and publicly. The
organized workers have alternatives to
defend their own turf. Who will defend
Satya? And without Satya can there be a
better India?” (Shailesh Gandhi,Http”//
s at yam e v aj a ya t e. i n fo /
Satyendra_Dubey.htm. ,dated: 11/3/
2007).
The fundamental duty of any democratic
government is to protect its citizens from
the evil force of the soc iety and
encourage them to travel the path of
truth. In India “Satyameva Jayate”is the
basic principle we adopt to regulate our
conduct in public and private life. In
order to accomplish truth one needs
legal and moral support from the system.
Satyendra Kumar Dubey was killed for
telling the truth .He could have chosen
to keep quiet, like the majority of young
professionals of this country. He could
have continued doing his job as a deputy
general manager in the Centre’s
National Highway Authority of India
(NHAI) and shut his eyes to all the
wrong doings taking plac e in the
prestigious project .But Dubey opted
to travel on the path of truth did the
right thing by alerting the PMO(Indian
Express). Government promised to
protect future Dubeys bu t we all
witnessed another Dubey just after two
years.
3.2 S. Manjunath Case
The 27-year-old young engineering
graduate asked his teacher a month
Patra, Beyond Whistleblowing: A ... 133
before he was gu n n ed down on
November 19, 2005, for standing up
against corruption .”Sir, tell me what
life is this, if we have nothing to die
for?” Manjunath’s question regarding
the finer aspect of human living dig up
values that goes beyond ordinary,
monotonous way of living. Professor
Debashi s Chatterjee o f IIM-L
dedicating his book, ‘Break Free(2007),
to his f ormer stu dent, states
“Manjunath -a man who broke free.”
In the preface of his book he writes
that: “M anju was not the typic al
business school wonder boy who had
a way with cold statistics and fuzzy
logics. He was passionate to a fault.
He would often visit me with questions
beyond personal success or career…
…… He was like a wild bird looking
beyond the nest for an adventure in
the wilderness,” Manjunath was an
upright and honest man – an idealist
and passionate about values, and about
making a difference to Society. It was
this passion, this standing up for what
he believed was right, that cost him
his life. In premium Business Schools
“the job you get at the end of the
placement process determines your
worth in the pee r grou p. At an
unglamorous location in Lakhimpur
Kheri, su pervising distribu tion of
petrol and diesel in several filling
stations, Manjunath had a very modest
beginning, unlike his classmates who
had cushy marketing jobs in MNCs.
But he took his work rather seriously.”
134 Vilakshan, XIMB Journal of Management ; March, 2008
He had outdone his classmates because
of what he died for.
The Scam
On September 13, the day he sealed the
Mittal outlet (the owner’s son Monu
Mittal is prime accused in his murder),
Manjunath had sealed another petrol
pump in the area— Mitauli’s L D Service
Station, owned by one Dinesh Seth. Like
the Mittal pump, the L D Service Station
was also allowed to open a month later,
on October 15, with a warning from
Manjunath that a second offence would
invite permanent shutdown.
Rajendra Singh, manager of the L D
Service Station, said their samples “were
found clean, so we were allowed to start
work.” Incidentally, Seth also owns the
sole kerosene depot which serves the 2
lakh population of the surrounding 132
villages. Every month, the depot receives
about 1.20 lakh litres of kerosene. And
going by the fair price shop owners of
the area, a great deal of it is not
distributed.
For example, the sole fair price shop
catering to Mainhan Gram Sabha—
comprising Khotena, Ranibehr and
Mainhan villages—which should get
1,000 litres of kerosene per month, is
given only 800 litres.
The shop owner, Mahesh Kumar, said he
is not given any receipt. “The rest, a 200-
litre drum of kerosene, has to be
surrendered,” he said. The siphoning of
kerosene is supported by a PDS scam on
the sidelines. PDS kerosene which should
sell for Rs. 10 a litre fetches Rs. 40 a litre
in the black market.
“No one in Lakhimpur gets more than
two litres of kerosene a month even
though the official entitlement is five
litres.” The district supplies inspector has
alleged involvement in the racket,
Predictably, Manjunath’s drive was
acquiring an avalanche of support from
villagers across Lakhimpur Kheri. The
IOC officer was alerted by a local youth,
one of the many whom he had organized
as informants.
In fact, it was a young customer who
blew the whistle on the L D Service
Station. Manjunath had cultivated cordial
relations with the locals in order to
develop a network of informants. And
the youth had called on Manjunath’s cell
phone to alert him about the L D Service
Station.
Said Devendra Prasad Misra in Udehra
village: “Everyone cheats us. We don’t
even get our due of two liters a month.
Don’t you know about that IOC officer
Manjunath? The one who was murdered
because he cracked down on petrol
pumps? We have heard he refused a Rs.
4.50 lakh bribe from the petrol
mafia”(The Indian Express).
The Plot to Kill
“Manjunath was staying at a hotel in
Gola on November 19. Around 4 pm, he
went to check the samples at the Mittal

Petrol Pump and started watching the
India-South Africa cricket match on a TV
set there. He saw the entire first session
till almost 6 pm. Unfortunately he forgot
the measuring instrument on Monu
Mittal’s table and left the Pump. Monu
knew that Manju would definitely come
back to get it. He decided to kill him
then”.
Monu locked the instrument in his
almirah. “He knew that Manjunath
would have to meet him to get the
instrument back. He alerted his other
accomplice to be ready for his phone call.
Monu waited till 8 pm but Manjunath did
not turn up. Monu then left the pump.”
However, on his way back home, he
called Manjunath on his cell phone and
reminded him that he had forgotten his
measuring instrument.
The trick worked. Manjunath turned up
at the pump around 9.30 pm and the
employees told him that the keys of the
almirah were with Monu. One of the
employees called Monu and he arrived
in 10 minutes. “But Monu didn’t come
alone. He was accompanied by Devesh
Agnihotri, a criminal with 10 cases
against his name. They talked to
Manjunath and even treated him to tea.
Then, around 10 pm, they executed the
plan.”
As Monu and Agnihotri accompanied
Manjunath back to his car, one of his
employee s ru shed to tu rn off the
generator. “We have c h ec ked the
genera tor and it has a pro blem.
Patra, Beyond Whistleblowing: A ... 135
Whenever it is switched off, it gives
out a sequence of loud bursting sounds
for so me 5-8 sec onds. So a s the
generator started booming and the
lights w ent off, both Monu and
Agnihotri pulled out their guns and
shot Manjunath. Then they pushed him
into the rear seat and asked two of
their employees to dispose of the
body.” “ The ac c u sed ev en threw
Manjunath’s spectacles into a nullah
and planned to throw his body in the
Katna River—the river flows into
Barabanki district. They had driven
almost 50 km before being caught.”
He was killed for doing his duty for IOC
and Satyendra Dubey—the IIT engineer
and NHAI official was killed in Gaya
after he complained of corruption on the
Golden Quadrilateral.
Reaction from Family and Friends
Manjunath, the eldest of three children,
had told his father about the risks, and
the father had advised him “to let go of
some things” because he was all alone.
“He was killed for doing his duty,” said
a tearful Shanmugham after the
cremation. “He told me many times that
he was working in an area with many
mafia gangs and that anything could
happen to him. I never thought it could
happen,” he said, fighting to regain his
composure. “He used to tell me about the
lack of proper controlling systems and
official support when it came to stopping
adulteration and booking wrongdoers in
136 Vilakshan, XIMB Journal of Management ; March, 2008
UP. He said it is a lawless world and for
survival, one has to keep mum even if
there are irregularities,” said
Shanmugham. “He wanted the dealers to
follow all norms, but his father used to
tell him ‘you are alone, don’t get worked
up, let some things go’. He was a
responsible manager and committed to
his company and its sales. He loved the
challenge.”
Manjunath’s death has shocked and
outraged all those who knew him. “He
was suc h a free spirit. He had no
enemies and yet he suffered such a
heinous fate. Just because he was doing
his duty,” his IIM classmate Sunit Sapra
wrote in an e-mail to The Indian
Express. “The case is no less than the
killing of Satyendra Du bey. The
criminals must be brought to justice and
Manju’s sacrifice must be given the
respect it deserves.”
“He would always keep his mind on the
silver lining of a dark cloud, always
laughing and joking around. You fought
the odds real hard. Goodbye Machan,”
wrote Karthik Parthasarathy, IIM-L
Batch of 2003. “He sang from the bottom
of his heart, and with a catching
enthusiasm. He is one of those singers
who made the listeners experience the
song.
A Great relief
After an anxious wait for the
Shanmugham family, Monday turned
into a great relief when the news trickled
from Uttar Pradesh that the main accused
in the murder was sentenced to death.”It
has been a long and anxious day for us
waiting to know the quantum of
sentence- We are relieved to learn that
at least the main accused has been given
death sentence and the other accused are,
condemned to jail for life,”(Manjunath’s
father M. Shanmugham told IANS on
phone from Kolar Gold Fields (KGF),
about 100 km from here).
Expressing satisfaction at the pace the
case was taken up with and justice
delivered, Manjunath’s father said his
family compares Lakhimpur Kheri
District Judge S.M.A. Abidi to god for
conducting a fair trial, finding the
accused guilty and convicting them on
merit.
“Justice Abidi is like god for us. He has
done a great justice to my brave son
Manju. Though all the accused deserved
death for the heinous crime, he ensured
the main killer (Pawan Kumar Mittal) did
not escape capital punishment. It is a great
relief the case was handled in a record
time and the judgment delivered soon
after conviction.”
Lauding Manju’s friends, especially his
friends from the Indian Institute of
Management (IIM), Lucknow, the district
police, public prosecutor and the
company’s counsel (D.P. Singh) for their
moral and financial support in fighting
the case, Manjunath’s family was ready
to fight the accused in the high court or
even in the Supreme Court.
 Patra, Beyond Whistleblowing: A ... 137

“We will fight it out till the last to ensure
Manju’s soul rests in peace,” said
Shanmugham, an employee of the state-
owned Bharat Earth Movers Ltd (BEML)
at KGF.
Giving full credit to the Manjunath
Memorial Trust, set up by his lifelong
friends, batch mates and well wishers.
Shanmugham hoped the sacrifice his son
made and the judgment in his murder case
would ensure honesty, integrity and fight
against corruption carried on as a crusade
to cleanse the system and the country
from such evils ( March 26 IANS). The
sequence of events relating to death of
Manjunath is given in Table-2.

Table: 2- Sequence of Events Relating to Death of Manjunath

November 22, 2005 Samples fail test, pump owners kill fuel inspector
An Indian Oil Corporation sales manager was shot dead last Saturday by the
owners of an Uttar Pradesh petrol pump whose operations were suspended
for a month in September after its fuel samples failed quality tests.
November 24, 2005 ‘My son told me about the mafia, he was killed for doing his duty for IOC’
Adulterated Fuel Father of IIM graduate killed for shutting down petrol
pump says he knew of danger; batchmates say can’t let him vanish into
the night
November 25, 2005 Manjunath had evidence to close pump down, owner’s son called him to
his murder
IOC Dealer whose son prime suspect in murder had been fined Rs 75,000,
first time in 29 years
Pall of gloom at IIM-L
Had it not been for prior commitments made to corporate houses, the
Indian Institute of Management-Lucknow would have cancelled its annual
festival, INDEX ’05, to mourn the death of its alumnus, S Manjunath.
Manjunath killing: angry IOC demands action against mafia
Anger and frustration were the two overriding emotions at the meeting
of 100-odd Indian Oil Corporation officials held today, in the wake of the
murder of S Manjunath — their area sales manager in Lakhimpur Kheri
district.
‘Where do we see such courage’
We have received an outpouring of letters from readers in India and
overseas, many of them former classmates of the slain Manjunath
This system of ours
Wanted: bright, young, honest Indians willing to die in vain
138 Vilakshan, XIMB Journal of Management ; March, 2008

November 26, 2005 Murder most foul was also murder most planned
Manjunath They called him back to collect measuring instrument, masked
sound of gunshots with generator
‘The last such sacrifice’
Letters continue to come in to The Indian Express, condemning Manjunath’s
murder, commiserating with his bereaved family, and calling for justice
November 27, 2005 ‘My poor sales officers are helpless...it’s very dangerous to raid’
Three months before IIM graduate Manjunath was hired by IOC as sales
officer, his chairman had told a Parliamentary committee:
State wakes up, orders raids on petrol pumps
District officials to crack down on all petrol pumps; police search
Manjunath’s house in Kheri, take his computer, official files
November 28, 2005 Local youth helped Manjunath seal third violating pump in Lakhimpur
Kheri
L D Service Station owner also sole kerosene supplier for 132 villages
IOC shuts down Mittal pumps in Lakhimpur
The Indian Oil Corporation has terminated the retail dealerships of the
two pumps owned by the Mittals in Lakhimpur Kheri. The fuel tank
machines at both pumps are in the process of being dismantled.
Monu’s phone records evidence enough: Police
The Lakhimpur Kheri police will move court to seek remand of Monu
Mittal, main accused in the murder of Indian Oil Corporation official S
Manjunath — a graduate from IIM-Lucknow.
November 29, 2005 Manjunath has one debt after death: his IIM MBA loan
While the oil mafia tried to entice him with bribes to turn a blind eye to
fuel adulteration, murdered IOC sales manager S Manjunath refused to
waver in the line of duty, despite his own financial constraints.
November, 30, 2005 To loosen cartel hold, Manjunath okayed seven new pumps in Lakhimpur
Kheri
The young sales manager might have thought he was killing two birds
with one stone. When S Manjunath, the murdered IOC executive,
recommended increasing the number of petrol pumps in Lakhimpur
Kheri district, he would not only have addressed the sliding diesel sales
figures but also loosened the grip of the cartel that controlled oil business
in the region.
PMO steps in, Govt for 2 kerosene rates
Proposal: Rs 10/l for BPL, Rs 20/l for rest to reduce price gap with diesel,
lower ‘adulteration’ incentive
December 1, 2005 We can only direct states, says Patil
Rajya Sabha debate: Members demand security for PSU officials on duty
One life, two prices
 Patra, Beyond Whistleblowing: A ... 139

Distorted pricing is the lifeblood of economic crime. Even a tragic death

can’t drive this home
December 2, 2005 IOC, PNB to pay off Manjunath’s MBA debt
Consolation, if any, for murdered IOC officer S Manjunath’s family came
yesterday when Indian Oil Corporation chairman S Behuria handed over
a cheque of Rs 26 lakh to his father M Shanmugham.
December 09, 2005 Manjunath’s death reaches the Prime Minister’s desk
Murder Singh calls special meeting to discuss pricing, security; NSA will
attend, Chief Secys will meet today
December 10, 2005 States, Centre begin talks on how to check doctored diesel
Manjunath All states agree on more security, many oppose 2 kerosene
rates, say make income criterion
December 12, 2005 Role of Cong leader’s son alleged in petrol racket
A young IAS officer caught two oil tankers allegedly involved in oil
adulteration in Haridwar. A son of a Congress party leader holding
ministerial status is alleged to be involved in the racket.
December 16, 2005 Five days before Manjunath’s murder, Govt issued an SOS
Just five days before IIM graduate S Manjunath was shot dead for blowing
the whistle on kerosene adulteration in a petrol pump, the Petroleum
Ministry had ordered oil companies, including Manjunath’s Indian Oil
Corporation, to test a series of stringent measures meant to curb
adulteration.
December 17, 2005 Manjunath murder: ‘pricing is key’
Oil Either 2 kerosene rates or give cash/coupons to BPL customers: Aiyar
January 1, 2006 At Mumbai marathon, he runs for friend Manjunath
IIM batchmate and football team mate Dharmendra comes all the way
from Bangalore
February 16, 2006 Manjunath murder: Forensic tests confirm police stand
It’s official now: S Manjunath, the Indian Oil Corporation Lakhimpur
Kheri sales manager who died on the job last year, was murdered.
February 22, 2006 Chargesheet against 8 in Manjunath murder case
We feel the case would reach its logical end, say cops
March 27, 2007 Manjunath’s father relieved, compares judge with God

Source: The Indian Express

140 Vilakshan, XIMB Journal of Management ; March, 2008
4.0 BEYOND WHISTLEBLOWING
Satyendra Dubey – who had reported
the wrong doing to the PMO in the
National Highway Authority of India
project, is still alive. Law Ministry is
coming up with whistleblower
protection act (see Appendix-2).S
Manjunath will continue to live for ever
for cleaning up the mess. Like Socrates
these two young martyrs were guided
by their wisdom and have the shown
highest form of professionalism,
commitment to ethics and dedication for
the common good. They were not
merely whistleblowers, bu t mu ch
beyond .
REFERENCES
Aristotle (1954) The Nicomachean Ethics, tr.
W.D.Ross, Oxford, Oxford University Press.
Beauchamp, T. L. and Bowie, N. E. (1988), Ethical
Theory and Business 3rd edn. Prentice Hall,
Englewood Cliffs.
Brison, S. J. (1998), “The Autonomy Defense of
Free Speech”, Ethics 108(2), 312-339.
Business Week (2007) A man Called Manchan
(Case study) Special Issue on Business Ethics.
Chadwick, Ruth F. (ed) (1994) Ethics and the
professions, Aldershot, Avebury.
Chatarjee Debasis (2007) Broke Free, Penguin
Books.
Chryssides, G. and Kaler, J. (1996), Essentials of
Business Ethics, McGraw-Hill Book
Company, London.
Coase, R. H. (1960), ‘The Problem of Social
Cost’, Journal of Law and Economics.
3(1),1—44.
Coope, Christopher Miles (11, 994) pp.71-7,’
Justice and jobs: three skeptical thoughts
about rights in employment’, Journal of
Applied Philosophy.
Corvino, J. (2002), ‘Loyalty in Business?’, Journal
of Business Ethics 41(1-2), 179-185.
De George, R. T. (2006), Business Ethics 6th edn,
Pre-ntice Hall, Upper Saddle River.
Hart, H.L.A. (1961), the concept of law, Oxford,
Oxford University press.
India Asia News Service, Tuesday, 27 March 2007.
Jubb, P. B. (1999), ‘Whistleblowing: A Restrictive
Defi-nition and Interpretation’, Journal of
Business Ethics 21(1), 77-94.
Lindbolm, Lars, (2007) Dissolving the moral
Dilemma of Whistle blowing, Journal of
Business Ethics 76: 413 -426.
Mill, J. S. (1859), On Liberty, in On Liberty and
Other Essays, Cambridge: Oxford University
Press, 1998.
Nash, Laura, (1990) Good intentions Aside,
Boston, Harvard Business School Press.
Nuyen, A. T. (1999), ‘The Value of Loyalty’,
Philosophical Papers 28(1), 25-36.
Plato Phaedo’,(1959) in last days of Socrates,2nd
edn. Tr. Hugh Tredennick, Harmondsworth,
Penguin.
—— ‘Apology’(1959), last days of Socrates
Translated by Benjamin Jowett, Socrates’
Defense, Harmondsworth, Penguin.
Sternberg, Elaine, (1994) Just Business, London,
little, Brown.
The Indian Express, 01 December 2005
The Indian Express, 02 December 2005
The Indian Express, 09 December 2005
The Indian Express, 10 December 2005

The Indian Express, 12 December 2005
The Indian Express, 16 December 2005
The Indian Express, 16 February 2006
The Indian Express, 16 January 2006
The Indian Express, 17 December 2005
The Indian Express, 22 February 2006
The Indian Express, 22 November 2005
The Indian Express, 24 November 2005
The Indian Express, 25 November 2005
The Indian Express, 26 November 2005
Patra, Beyond Whistleblowing: A ... 141
The Indian Express, 27 November 2005
The Indian Express, 28 November 2005
The Indian Express, 29November 2005
The Indian Express, 30 November 2005
Valasquez, Manuel, (2006) Business Ethics:
Concept and Cases, Pearson Education, New
Delhi.
Whitbeck, C. (1998), Ethics in Engineering
Practice and Research, Cambridge
University Press, Cambridge.
142 Vilakshan, XIMB Journal of Management ; March, 2008

APPENDIX 1
Criteria For Justifiable Whistleblowing

According to Richard T De George (2006) there are three conditions that

must hold for whistle-blowing to be morally permissible, and two
additional conditions that must hold for it to be morally obligatory. The
three conditions that must hold for it to be morally permissible are:

The firm through its product or policy will do serious and considerable
harm to the public, whether in the person of the user of its product, an
innocent bystander, or the general public. Once an employee identifies a
serious threat to the user of a product or to the general public, he or she
should report it to his or her immediate superior and make his or her
moral concern known. Unless he or she does so, the act of Whistle
blowing is not justifiable.

The two additional conditions for Whistle blowing to be morally

obligatory: Whistleblower must have accessible documented evidence
that would convince a reasonable, impartial observer that one’s view of
the situation is correct, and that the company’s product or practice posses
a serious and likely danger to the public or to the user of the product.

The employee must have good reason to believe that by going public the
necessary changes will be brought about. The chance of being successful
must be worth the risk one takes and danger to which one is exposed.
 Patra, Beyond Whistleblowing: A ... 143

APPENDIX 2
Government Action; Protecting future Dubeys

The full text of the government resolution, issued on April 21, empowering the
Central Vigilance Commission to act on the complaints of whistle-blowers and
to protect them:

(Ministry of Personnel, Public Grievances and Pensions (Department of

Personnel and Training Resolution New Delhi, the 21st April, 2004).

No.371/12/2002-AVD-III: Whereas while hearing Writ Petition © No.539/

2003 regarding the murder of Shri Satyendra Dubey, the Supreme Court
desired that pending enactment of a suitable legislation, suitable machinery
should be put in place for acting on complaints from “whistle-blowers”.

The Public Interest Disclosure and Protection of Informers’ Bill, 2002, drafted
by the Law Commission is under examination.

Now, therefore, the Central Government hereby resolves as under:

1. The Central Vigilance Commission (CVC) is hereby authorized as the

designated agency to receive written complaints or disclosures on any
allegation of corruption or of misuse of office by any employee of the
Central Government or of any corporation established by or under any
Central Act, government companies, societies or local authorities owned
or controlled by the Central Government. The disclosure or complaint
shall contain as full particulars as possible and shall be accompanied by
supporting documents or other material.

2. The designated agency may, if it deems fit call for further information
or particulars from the persons making the disclosure. If the complaint
is anonymous, the designated agency shall not take any action in the
matter.

3. Notwithstanding anything contained in the Official Secrets Act, 1923,

any public servant other than those referred to in clauses (a) to (d) of
Article 33 of the Constitution, or any other person including any non-
governmental organisation, may make a written disclosure to the
designated agency.
144 Vilakshan, XIMB Journal of Management ; March, 2008

4. If the complaint is accompanied by particulars of the person making the

complaint, the designated agency shall take the following steps: The
designated agency will ascertain from the complainant whether he was
the person who made the complaint or not.

5. The identity of the complainant will not be revealed unless the complainant
himself has made the details of the complaint either public or disclosed his
identity to any other office or authority.

6. After concealing the identity of the complainant, the designated agency

shall make, in the first instance, discreet inquiries to ascertain if there is
any basis of proceeding further with the complaint. For this purpose, the
designated agency shall devise an appropriate machinery.

7. Either as a result of the discreet inquiry, or on the basis of the complaint

itself without any inquiry, if the designated agency is of the opinion that
the matter requires to be investigated further, the designated agency
shall officially seek comments or explanations from the head of the
department of the concerned organisation or office. While doing so, the
designated agency shall not disclose the identity of the informant and
also shall request the concerned head of the organisation to keep the
identity of the informant secret, if for any reason, the concerned head
comes to know the identity.

8. After obtaining the response of the concerned organisation, if the

designated agency is of the opinion that the investigations reveal either
misu se of offic e or su bstantiate allegations of c orru ption, the
designated agency shall rec ommend appropriate action to the
concerned government department or organisation. These shall, inter
alia, include following:

a) Appropriate proceedings to be initiated against the concerned government

servant.

b) Appropriate administrative steps for redressing the loss caused to the

Government as a result of the corrupt act or misuse of office, as the case
may be.
 Patra, Beyond Whistleblowing: A ... 145

c) Recommend to the appropriate authority/agency initiation of criminal

proceedings in suitable cases, if warranted by the facts and circumstances
of the case.

d) Recommend taking of corrective measures to prevent recurrence of such

events in future.

9. For the purpose of making discreet inquiry or obtaining information from

the concerned organization, the designated agency shall be authorized to
call upon the CBI or the police authorities, as considered necessary, to
render all assistance to complete the investigation pursuant to the complaint
received.

10. If any person is aggrieved by any action on the ground, that he is being
victimized due to the fact that he had filed a complaint or disclosure, he
may file an application before the designated agency seeking redress in
the matter, who shall take such action, as deemed fit. The designated
agency may give suitable directions to the concerned public servant or the
public authority as the case may be.

11. Either on the application or the complainant, or on the basis of the

information gathered, if the designated agency is of the opinion that
either the complainant or the witnesses need protection, the designated
agency shall issue appropriate directions to the concerned government
authorities.

12. The machinery evolved herein shall be in addition to the existing

mechanisms in place. However, secrecy of identity shall be observed,
only if the complaint is received under this machinery.

13. In case the designated agency finds the complaint to be motivated or

vexatious, the designated agency shall be at liberty to take appropriate
steps.

14. The designated agency shall not entertain or inquire into any disclosure:

(a) In respect of which a formal and public inquiry has been ordered under
the Public Servants Inquiries Act, 1850; or
146 Vilakshan, XIMB Journal of Management ; March, 2008

(b) In respect of a matter which has been referred for inquiry under the
Commissions of Inquiry Act, 1952.

15. In the event of the identity of the informant being disclosed in spite of the
designated agency’s directions to the country, the designated agency is
authorized to initiate appropriate action as per extant regulations against
the person or agency making such disclosure.

16. The machinery created herein shall operate till Parliament passes a law on
the subject.
Perspective

Private Equity — Gaining Momentum*

Naliniprava Tripathy1

Abstract
Indian financial markets have progressively become more attuned to the international market forces. At
present both foreign and domestic companies look to expand into the emerging markets in Asia and
globally integrate a business plan across a broad spectrum of cultures, languages, markets and laws. In
this process the private equity firms and private equity funds have played key roles in providing access
to funding, resources, operational expertise, expansion, etc. Private equity funds are the pools of capital
invested by private equity firms. In the present environment of competition many companies need help
of PE firms to increase their market competence and value of brand for strengthening market ability. PE
firms usually have long experience and they are able to help immensely with the business strategy,
corporate governance and organizational development by generally bringing in best practices. Keeping
these in view, this paper highlights major role played by the PE firms for improving the efficiency of
companies in the business world of India. Secondly, this paper also throws some light on how the PE
firms are facing challenges in India in form of bureaucracy norms, regulatory limits in certain sectors,
poor infrastructure, etc. This paper concludes that there is a high potential in terms of more mature and
convenient environment for private equity in India.

1.0 INTRODUCTION improve c ompany’s presenc e and

The robust financial markets of India are
now experiencing a strong growth,
enc ouraged by domestic and
international investments. At present,
sophisticated investors are looking out
for more localized investment and
alliance opportunities for new targets
and markets for investing in innovative
asset classes. They believe that
partnering with the right team can
competitive edge by providing insight
into the local decision-making process,
overcoming cultural barriers,
interpreting laws and, most
importantly, maintaining important
relationships that will add value to a
company’s expansion strategy. Another
benefit of partnering with locals is that
they will know how to approach and talk
to promising entrepreneurs, who might

* Received August 3, 2007; Revised February 23, 2008

1. Associate Professor, Indian Institute of Management, Indore, email: nalini@iimidr.ac.in
148 Vilakshan, XIMB Journal of Management ; March, 2008
be reluctant to bring in outside capital
and foreign advice to enable growth of
their young company. One of them is
private equity. P rivate equity has
arrived as a major component of the
alternative investment universe and is
now broadly accepted as an established
asset class within many institutional
portfolios. Private equity investment is
typically a transformational, value-
added, active investment strategy.
Private equity funds typically control
management of the companies in which
they invest, and often bring in new
management teams that focus on making
the company more valuable. Private
equ ity executives face increasing
professional and personal liability for
the performance of their funds and
Portfolio Company.
2.0 WHAT IS PRIVATE EQUITY?
Private equity is a broad term that
refers to any type of equity where the
equity is not freely tradeable on the
public market. It refers to the manner
in which the funds have been raised,
namely on the private markets, as
Fig-1
Source: http://venturechoice.com/articles/why_n_how_to_inv_in_priv_equity.htm
opposed to the public markets. It is the
mode of financing private companies
by third parties,who are high networth
investors seeking higher rates of
return. Passive institutional investors
may invest in private equity funds,
which are in turn u sed by private
equity firms for investment in target
companies.Categories of private equity
investment include leveraged buyout,
venture capital, growth capital, angel
investin g, mezzanine c ap ital and
others.
Private Equity falls into two broad
groups: venture capital and other private
equity. Private equity investing is often
divided into the categories described in
Fig-1. Private equity is the universe of
all venture and buyout investing,
whether such investments are made
through funds, funds of funds or
secondary investments. Most other
private equity is invested in more mature
or later-stage companies. Private equity
is generally part of an LP’s(Limited
Partners ) overall investment strategy that
may include real estate, bonds, and
publicly traded company stock.
 Tripathy, Private Equity Gaining ... 149

3.0 IS PRIVATE EQUITY A SENSIBLE INVEST- stock market. This means they can make
MENT FOR THE AVERAGE INVESTOR? tough or controversial decisions without
having considered the shareholders
Private equity is a favoured asset class
without releasing sensitive information.
for professional managers because it has
Hence they are accountable only to small
historically produced superior returns.
groups of private investors and lenders,
Private-equity deals are making investors
rather than to stock market investors and
rich. The Economist reported recently that
company employees. They do not even
during 1980 – 2001 the top quartile of
release information to outside people
private-equity funds produced an annual
and journalists to interfere and making
rate of return of 23 percent. According
enquiries into their personal business
to Thomson Financial, buyout funds
affairs.
averaged gains of 25.5 percent for the
year ended March 31, 2006 and 17.6 5.0 INTERNATIONAL SCENARIO
percent for the past three years. (Fortune
In the U.S. many private equity firms
Magazine, October 24, 2006). Over the
recently have been gobbling up retail
past ten years, the score is 11.4 percent a
businesses, which usually perform well
year vs. 6.6 percent; over the past 20
in market downturns. After a historic for
years, 14.2 percent vs. 9.8 percent
private equity professionals in year 2006,
(Fortune Magazine, November 27, 2006).
there are no signs that 2007 will be any
Its investment risk is spreading over long
different. The first quarter’s $44 billion
time periods, in multiple industry sectors,
mark signals a 67% increase from the 46
and in a large number of investments.
funds that raised $26.6 billion in the first
Professional money managers know how
quarter of 2006.The Private Equity
to do so, that is why private equity has a
Analyst study found that on top of the
prominent place in large investment
first quarter another 400 other funds are
portfolios, even in conservative ones like
trying to raise another $130 billion. The
those of pension funds.
amount of money private-equity firms
4.0 HOW PRIVATE EQUITY GROUPS WORK? have spent buying companies totals just
over $900 billion in 2006 according to
In many ways, private equity groups
financial data provider Dealogic.
operate just like house buyers. They are
looking for bargains. They usually stump The Dow Jones Private Equity Analyst
up a bit of money, a deposit; up front, recently reported that U.S. private equity
and then rely on the bank to lend them shops have raised $44.3 billion out of 68
the rest. They are looking for a quick, funds in the first quarter of 2007. In 2007,
profitable sale, usually within three to industry magazine Private Equity
seven years. And they do things in International launched a ranking of the
relative privacy, often de-listing their largest 50 private equity firms in the
acquisitions if they were quoted on any world called the PEI 50. The Carlyle
150 Vilakshan, XIMB Journal of Management ; March, 2008

Group ranked at the top, followed by Table-1: PEI 50’s (Private Equity
KKR and then Goldman Sachs. The PEI International)
50 found that the largest 50 firms in the
world had raised $551 billion over five 1. The Carlyle Group
years. The top 10 constituent firms in PEI 2 Kohlberg Kravis Roberts
50’s (Private Equity International) 2007 3 Goldman Sachs Principal
Investment Area
rankings are shown in Table 1.
4 The Blackstone Group
On February 07, 2007, the global Private 5 TPG
equity market observed the biggest ever 6 Permira
deal as Blackstone, a (PE) firm, took 7 Apax Partners
over the control of Equity office 8 Bain Capital
properties trust, the largest Real estate 9 Providence Equity Partners
Investment Trust (REIT) in USA for 10 CVC Capital Partners
$38.9bn, beating the Vornado Realty
Trust. The numbers of such high profile Source: www.privateequityinternational.com
deals are ever-rising, thus adding to the
industry’s prestige. The Table-2 depicts the top 10 deals of
all-time
Table-2: Top 10 deals of All-time
Company Value ($bn) Acquirer Year

Equity office Properties trust 38.90 Blackstone 2007

Hospital Corp.Of America 32.7 Bain, KKR. Merrill Lynch 2006
RJR Nabisco 31.1 KKR 1989
Harrah’s entertainment 27.4 Apolo, Texas pacific 2006
Clear channel communications 25.7 Caryle, Riverstone, 2006
Goldman sahs
Kinder Morgan 21.6 Black stone, Carlye,permira, 2006
Texas pacific
Free scale Semiconductor 17.6 Cerberus 2006
Albertson’s 17.4 Caryle, Clayton Bubillier 2006
and Rice, Merrill Lynch
Hertz 15 Apax, Blackstone,KKR, 2005
Permira,Providence
TDC 13.9 2005

SOURCE: http://money.cnn.com/magazines/fortune/fortune_archive/2007

6.0 INDIAN SCENARIO
Global PE firms are exploring
opportunities of investment in India due
to expanding consumer market in India,
reforms and slowdown of US market.
The last three years have seen
unprecedented private equity inflows
into India. Mostly PE firms are improving
their presence in the real estate and also
in infrastructure and telecom business.
India Inc. has witnessed strategic M&A
deals worth of $24.06 billion in the first
11 months of 2006, both within the
country as well as overseas. Apart from
Table-3: Top PE investments (July-Sept 2006) ($ mn)
Company Amount
Quattro BPO Solutions 100
Centurion bank of Punjab 90.7
UTI bank 80
Aryan Coal Beneficiations 66
Gujarat Pipavav port 65.2
Source: The economics Times, October11, 2006
Today, there are more than 150 private
equity players in the local ring and all of
them have carted in corpulent corpuses.
They need to invest fast and they need
the people to help them do it. Private
equity firms have made lucrative returns
from early bets on companies. The
Business Process Outsourcing (BPO)
industry, which grew by 37 per cent to
$6.3 billion in FY06 and touched $8 - 8.5
billion by the end of FY07, has actually
been a runaway success. And now, lured
Tripathy, Private Equity Gaining ... 151
this, PE investments to the tune of $6.62
billion have taken place till November
2006. Out of the total 299 deals of the
year 2006, 26 deals were worth more
than $50 million compared to just nine
such deals of its previous year. Private
equity deals rose 230% to $7.46 billion
in 2006 in India, compared with $2.26
billion in 2005. M&As involving Indian
companies, in the same period, rose by
150% from $20 billion in 2005 to $50
billion. Table-3 provides the data
regarding the top PE investments in
Indian market.
Investors
Olympus Capital
Bank Muscat,ICICI Venture
Chrys capital
Warburg Pincus
Others
by the massive opportunity and high
returns, private equity (PE) is foraying
into Indian real estate in a big way. While
2006 saw private equity investments
worth $500 million (Rs 2,080 crore), the
first six months of 2007 have already seen
deals worth about $755 million (Rs 3,145
crore) announced.
Warburg Pincus, the largest private
equity investor in India,has invested
in Amtec Auto, Kotak mahindra,Moser
152 Vilakshan, XIMB Journal of Management ; March, 2008

Baer, max Indi a and N ic holas Growth of PE/VC in India 2000 - 1H2007 (US$

Piramal.Nearly $135 billion of private millions)

equity was invested globally in 2005. 8000 7500 350

7000
Buyou ts by private equ ity players
299 300
280
6000 5648
250

accounted for 8% of the total M&A 5000

200

ac tivity in India du ring the year

4000
161
146 150
3000
2200
2007.Fin ance sec tor has been the
110 100
2000 1650
1160 78 71
937 56 50
biggest recipient and has attracted $2
1000 591 470

0 0

billion with 11 deals, followed by Series2 Series1

construction $418 million with 9 deals,

textiles $309 million in 7 deals. Today, Fig-1 Growth of PE/VC In India 2000-1H2007
(US$ Millions)
the private equity funds are interested
Source: TSJ Venture Intelligence India
in different sectors in economy and are October 2007
holding diverse types of companies in
PE deals are rising in India in various
their portfolio. PE funds are showing
sectors, ie., Information technology and
greater interest in Indian companies in
IT- enabled services, banking, financial
the major cities which is depicted in
services, insurance, engineering and
Table- 4.
construction, real estate and telecom
Table-4:Top Cities attracting PE among other sectors. Financial services
Investments in 2006. sector continued to score as a favourite
sector for PE firms in 2007 containing
City Number Value 37percent followed by 16 percent by IT
of Deals (US$M)
and ITES, 14 percent by shipping and
Mumbai 69 1,780 logistics as shown in Fig-2.
Delhi/NCR* 41 395 4%
2%1% 16%
5%
Bangalore 40 1,525 1
2
Chennai 22 354 3
14% 7% 4
Hyderabad 17 492 5
2% 6
Pune 10 1,114 7
3%
8
*National Capital Region 7% 9
10
Source: TSJ Venture Intelligence India October 2%
11
2007 12

37%
With regard to growth in PE/VC in India
Fig-2 PE Investments by Industry (First Half
during 2000 – 07, the data relating to of 2007)
series 1 and series 2 are given in
Source: TSJ Venture Intelligence India
Figure -1. October 2007
 Tripathy, Private Equity Gaining ... 153

Late-stage investments accounted for 67 Table-6. India obtained the number two
while PIPE (PE investments in Public positions only after Japan with respect
Equity or in listed companies) accounted to the receipts of private equity flows
for 34 of the deals. Early-stage according to Center for Asia’s private
investments accounted for about 24 deals equity research.
during first half of 2007 as shown in 7.0 MAJOR GROWTH DRIVERS OF PE IN-
Table-5. VESTMENT IN INDIA
Table-5: PE Investments by Stage: 2007
The performance of stock market,
(First Half)
possibility of fast growth and maturing
Stage of Company No. Of Amount of the mergers and acquisitions activity
Deals (US$M) has played a key role in the development
Early Stage 24 154 of private equity market in India. The
following are some of the key points:
Growth Stage 25 1082
Late Stage 67 2162
• India is rapidly turning out to be an
investment driven economy due to
PIPE (Private 34 1714
solid underpinnings for economic
investment in
public equity) growth, democratic government, a
strong education system,
Buyout 6 440
widespread knowledge of English
Others 6 47 and a deep pool of expatriates
Source: TSJ Venture Intelligence India October experienced in Western businesses.
2007
• Annual GDP growth, averaging
Global private equity firms in the Indian around 9 % over the last three years,
market are continuously on the rise. PE has made the country among the
investments have increased recently in fastest developing major economies
comparison to investment in china, which in the world.
saw investments of $2.6 billion as per • Private equity deals in India is greatly
attributed to its strong corporate
Table-6: Private Equity Inflows to Asia
performance, robust and transparent
(USD Billion) capital markets, buoyant economy,
Destination 2005 2006 2007(July) and burgeoning middle-class.
Japan 4.65 10.89 4.91 • A rapidly growing economy with a
China 3.87 8.27 2.6 superior rate of Return on Equity
(ROE) vis-à-vis other markets in the
India 1.71 5.44 3.7
region, low volatility in ROE, a
Source:http://www.asiape.com/ strong financial system, and low
?Publications:Asia_Private_Equity_Review:APER0706MY gearing are a few other reasons.
154 Vilakshan, XIMB Journal of Management ; March, 2008
• One of the biggest triggers for the
rise of the Indian economy is the low
interest rate regime. It has changed
the face of the Indian corporate that
have not only weathered global
competition, but also managed to
influence the steep hike in fuel prices.
• IPO norms are stringent and SEBI is
bringing in future reforms like IPO
Grading and easier de-listing norms
to make the investment climate
attractive.
• India’s Sensex 30 — that country’s
version of the U.S. Dow-Jones
Industrial Index — broke through
21,000 in 2007.The price-to-earning
ratio for India stocks is increasing,
which is encouraging to foreign
private equity firms to make their
India investment destination.
• India has firmly established itself as
the world’s IT super power with
almost all major software
development companies having an
Indian development centre. India is
also developing some retail financial
service businesses, which is
attracting PE investments.
• The nature of entrepreneurship in
India is different because large
numbers of Indian entrepreneurs
have been able to work abroad as
expatriates in many roles. This, no
doubt, becomes manifest in the kinds
of businesses they develop,
particularly in information
technology. Again India has an
advantage in healthcare including
biotech, pharmaceuticals,
telemedicine, banking, engineering
and construction which have
attracted a significant chunk of PE
investments.
• In India, many listed companies act
more like privately held firms
because they are under tight control,
usually by founders.
• India made an all-out push to
promote itself as a business-friendly
environment for investment. The
government has also decided to lift
the limit on foreign direct
investment for the development of
airports, mining for diamonds and
other precious stones, and power
trading which leads to growth of PE
investments in India.
• Main economic forces, which are fuel
for attractive private equity growth
and investment opportunities in
India, are combination of a growing
Indian consumer class and an
evolving set of differentiated Indian
skills.
• The first generation of private equity
players has significant success in last
several years.
• There are strong PE funds in India
like HDFC PE, ICICI PE, Kotak
Mahindra PE, UTI Venture, GVFL
Ltd etc. which provide genuine
liquidity option.
• Competition in the market and the
strategy to improve cost effectiveness
has generated the feeling of security

and many companies seek the help
of private equity investment to
improve their performance.
This changed “growth foc used”
mindset of Indian entrepreneurs will
give rise to continued and growing
demand for PE in future.
8.0 PROBLEMS OF PE INVESTMENTS
Although India is an integral part of the
global economic chain, its plan is not
always matched by its ability to
implement changes. Most of private
equity investors are now seriously
considering China, because it has
provided spectacular private-equity
returns in recent years (Source:
Knowledge Wharton, Oct, 2006). Further
cheap labour and foreign direct
investment have made China the world’s
manufacturing powerhouse. Chinese
companies with good management are
growing at a rate of 30% internally and
30% globally and there are at least 3
million privately owned companies in
China. Out of these China believes that
300,000 would qualify to list on
NASDAQ or NYSE. (Source: Knowledge
Wharton, Oct 2006) Apart from this,
there are more Internet users and
engineers in China than any other
country. China also has a strong
entrepreneurial culture, thus China is a
direct competitor of India. Most of the
private equity investors draw a
comparison across both the countries.
Secondly,there is no listed public market
available for the vast majority of private
equity investments in india.
Tripathy, Private Equity Gaining ... 155
Thirdly, the Indian public markets lack
liquidity and many Indian companies are
thinly traded in markets which are
controlled by powerful local brokerages.
Fourthly, Mid-cap funds are often
constrained by several factors i.e. in
investment circles. The equity purchased
by the fund is not freely tradable if the
portfolio of the company is not listed in
the stock exchange. Liquidity of the
stocks becomes a major issue.
Fifthly, India’s economy is largely being
built by closely held family businesses,
with minority private equity investors
having less scope to hire and fire.
Lastly, The Indian market is already one
of the expensive markets in Asia today.
This is resulting in high cost deals, which
may in long run affect the return on
investment of private equity companies.
9.0 EMERGING CHALLENGES
Indian corporate is by and large family
owned business. Hence it is an
imperative need for Indian business to
unlock the value of their business and
expand for global competition. As there
are multiplayer authorities like RBI,
SEBI, Finance Ministry, Foreign
Investment Board, Department of
Industrial Policy and Promotion, it is
advisable to have separate regulatory
authority for smooth growth of PE space
for the development of the economy. It
is needed to target the beneficiaries of a
growing consumer class, forge key local
relationships, leverage global networks,
and plot a flexible course to exit for the
156 Vilakshan, XIMB Journal of Management ; March, 2008
growth of PE investments in India. Vast
majority of private equity investments
in India involve minority control, so
multinational private equity funds should
leverage global networks to maximize
their ‘network effect’ and influence
management teams. Apart from this, PE
firms are facing a few challenges in the
form of bureaucracy norms; regulatory
limits in certain sectors, poor
infrastructure, etc.
10. CONCLUSION
There is a good potential for PE firms in
India as a result of sustained economic
growth drivers across sectors. The
economy’s size from $800 billion in 2005
is estimated to increase to $5040 billion
in 2020 (source: Evalueserve). In
addition, Indian companies are
successfully integrating non-Indian
entities and M&A are likely to grow at a
rapid pace. There is a huge demand-
supply gap and there is increasing
demand for investment in infrastructure.
In the near future PE funds will have
direct or indirect funding in the
infrastructure sector. India’s conducive-
environment are the basis for private
equity to grow and this in turn is likely
to lead to a virtuous cycle of further
improvements in the economic and
infrastructure environment.
REFERENCE
Abe de Ramos “The Answer is Private” CFO
Asia, February 2005
Business Development | Sub-Saharan
AfricaOctober 05, 2006 - 09:00,
Deloitte, “Central Europe Private Equity
Confidence Survey” (2007), July.
Evalueserve Research Publication, 2006.
Fortune Magazine, November 27, 2006
Fortune Magazine, October 24 2006
Heel, Joachim Kehoe, Conor, “Why Some
Private Equity Firms do Better than others,”
Mc Kinsey Quarterly, 2005, Issue 1.
http://allafrica.com
http://knowledge.warton.upenn.edu
http://money.cnn.com/magazines/fortune/
fortune_archive/2006/11/27
http://money.cnn.com/magazines/fortune/
fortune_archive/2007
http://n.wikipedia.org
http://venturechoice.com/articles/
why_n_how_to_inv_in_priv_equity.htm
http://www.altassets.net
h t t p : / / w w w . a s i a p e . c o m ?
Publicati ons:Asia_Private _Equity_
Review:APER0706MY
http://www.illinoisvc.org
http://www.isb.edu
Just IN PRINT, vol. No.1, Issue no.3, October 1-
15, 2007
Knowledge Wharton, Oct 2006
Price water house Coopers, November, 2004,
“European Private Equity Tax Survey,”.
Private Equity: Capitalism’s New Kings, The
Economist, November 25, 2004
TSJ Venture Intelligence India, October 2007.
www.incrementaladvantage.com
www.indiavca.org
www.privateequityinternational.com
www.ventureintelligence.in
Management case
Fabindia Overseas Private Limited*
1.0 INTRODUCTION
In July 2007, a TNN reporter broke the
news that a private investment fund led
by the former World Bank President
James Wolfensohn, had picked up a 6%
stake in Fabindia, an Indian ethnic wear
company, for $11 million. That put the
value of the company at around $183
million or Rs.730 crore. Fabindia, in fact,
was approached by a number of potential
investors but they chose to go with the
investment vehicle promoted by
Wolfensohn because they were keen to
choose an investor who shared their
values.
Various reports mentioned that the funds
so raised by Fabindia would be used for
financing the expansion plans of the
company. The fund would also be used
to develop support structure particularly
for providing advanced technology and
training to the artisans, who were the
prime suppliers of fabrics and other raw
materials to the company.
2.0 ORIGIN
John Bissell who founded Fabindia was
born in Hartford in Connecticut and was
* Received January 29, 2008; Revised March 3, 2008; Both authors have contributed equally to the
development of this case.
1. Professor, Xavier Institute of Management, Bhubaneswar, email: brajaraj@ximb.ac.in
2. Associate Professor, Xavier Institute of Management, Bhubaneswar, email: rajeev@ximb.ac.in
B. Mohanty1 & Rajeev Roy2
educated at the Brooks School in North
Andover, Massachusetts, and at Yale. He
was introduced to India by his father,
who told him stories of his time in India
when he was posted there during the
Second World War.
John Bissell worked as a buyer for the
American departmental store, Macy’s. In
1958, under a programme run by the Ford
Foundation, he came to India to advise
the Central Cottage Industries
Corporation which was formed by the
Indian government mainly to showcase
Indian handlooms and handicrafts. His
role was to advise on issues relating to
marketing Indian handicrafts.
He was new to India and he did not know
any Indian language. In spite of these
inconveniences, he travelled extensively
over India and met several craftsmen. He
came across a lot of skill, but he could
see that the talented craftsmen had no
idea about marketing their products and
they were in no position to access distant
urban or international markets. He liked
his experiences in India and kept coming
back.
158 Vilakshan, XIMB Journal of Management ; March, 2008
His experience in the retail business
allowed him to recognize an
entrepreneurial opportunity and he
decided to set up a business based on
Indian crafts, particularly traditional
weaving and handlooms.
Initially his goal was to export to the
US and to other western countries.
With that aim in mind, he incorporated
Fabindia in 1960. The c ompany
operated from Bissell’s residence in the
posh Golf Greens locality in New Delhi.
The company was mainly into
exporting and initially its business was
concentrated on upholstery fabrics,
durries and rugs. Growth was slow for
the company and in 1965 the company
moved out of his house and into a
proper office. By then, Fabindia had an
annual turnover of rupees 20 lakh. Most
of this turnover was accounted for by
a single buyer and a single supplier. A.
S. Khera made durries and other home
furnishings in his workshop in Panipat
and most of the output was purchased
by the UK based Habitat, which was
founded by a famous interior designer,
Sir Terence Conran.
On the personal front, Bissell married
Bimla Nanda, who served as the social
secretary to the American Ambassador
in India. Soon, they had a daughter,
Monsoon, and a son, William.
3.0 THE START OF RETAIL
Bissell’s business continued without much
of change in its approach till about 1976,
when he opened the first Fabindia retail
outlet in the Greater Kailash market, an
upmarket shopping area in South Delhi.
During the early days, merchandising
was not a planned activity. Whenever
Bissell saw something of interest, he
procured it for display at the store.
Sometimes he would invite the craftsmen
also, to display the products and assist
in the sale. This orientation of customer
relationship later became a part of the
culture in the company.
Bissell’s Greater Kailash shop was a
success and he attracted a distinct type
of visitors to his shop. But in spite of
such success in its direct retail business,
Fabindia remained dependent on
exporting and Habitat continued to be
their single major buyer. In the early
80’s, Fabindia made a signific ant
addition to their range by adding ready
to wear garments in their retail
offerings. From late 70’s, Bissell had
thought of marketing readymade
garments. In an interview in 1977, he
had said, ‘’The greatest thing that
happened to our business was the move
in Europe and America a few years back
to the natural look - natural textures,
natural fibres - and away from things
like polyester and nylon’’. Similarly, in
India, a distinct group was emerging like
in Europe and America. Some of India’s
new young politicians patronized
Fabindia and were able to provide
Fabindia with nationwide exposure for
its products. In spite of all that, their
domestic retail business grew slowly and
they continued to focus their primary
efforts on their export business.
 Mohanty et.al, Fabindia Overseas Private ... 159
4.0 BREAK-UP WITH HABITAT AND SUBSE-
QUENT GROWTH
All that changed in 1992. An unexpected
development came as a shock to Bissell.
Habitat, with whom a close business
relationship had grown over the last
more than 30 years, was acquired by a
larger firm and the new entity abruptly
ended the long buying arrangement with
Fabindia. Fabindia had not tried to
develop any strong relationships with
other foreign buyers and even in the face
of such a crisis, it was unable to find any
bulk buyer, who could provide an
alternative buying support.
One viable option was to aggressively
develop their domestic retail operations.
But, before Bissell could come up with a
strategy for his business, he suffered a
paralytic stroke. This led to William
Bissell, his son, to step in to run Fabindia.
Very quickly, he was able to set Fabindia
on the path towards domestic expansion.
Eighteen years after opening their first
store, Fabindia opened their second store
in Delhi in 1994.
John Bissell’s bad health continued and
in 1998, he succumbed to aneurism - a
disease related to blood vessels. In 1999,
at the age of 32, William formally took
over as the Managing Director of
Fabindia. The Company’s domestic
expansion had been spectacular after
William’s taking over. By 2001, Fabindia
had six stores concentrated in the metro
cities. By the end of 2004, these had
increased to 20, and the company was
seriously considering expanding its
stores into the tier-II and tier-III cities as
well as overseas. By the end of 2007
Fabindia had 75 retail stores across India
and in addition stores in Dubai, Rome
and Guangzhou in China.
5.0 PRODUCTS AND PRODUCT MIX
The products of Fabindia in the initial
years consisted of only upholstery fabrics
for export to overseas markets. Then in
the early part of 1980s readymade
garments were added to its product line
and in 2004 organic products were added.
In 2006 body care products were
introduced. Thus, the product mix of
Fabindia could be divided into three
broad groups, namely Garments, Home
Products and Organics.
Garments
Though Fabindia was the supplier of
upholstery fabrics initially, it gained
popularity as a retailer of readymade
garments. It started with men’s wear
which occupied a shelf in some select
stores. Gradually a whole corner was
occupied with men’s wear, women’s wear
and kid’s wear in all the stores. In
October 2007 teen’s wear was also
launched which comprised camisoles in
beautiful prints, khadi salwar sets in
vibrant colours and kalamkari skirts. In
2006 70% of the Fabindia’s revenue came
from garments segment. Along with
readymade garments Fabindia stores
have a wide collection of accessories like
dupattas in a variety of colours, weaves,
fabrics and prints, scarves and stoles in
silk and cotton ,neck ties and shawls.
160 Vilakshan, XIMB Journal of Management ; March, 2008
Fabindia’s garments were known for
their ethnic look. These garments used
vegetable-based and other natural dyes
and were generally in soft colours. There
was a fine-tuned balance between
tradition and modernity. Hand block
printed short kurtas, mix and match
churidar kurta sets with or without
dupattas, straight skirts in raw cotton,
long crinkled skirts and white cotton or
chanderi dupattas were some of the very
popular items among garments. Some
Fabindia customers who used Fabindia
garments said that these were very
comfortable to wear and were fine
combinations of Indian aesthetics and
western design sensibility.
Home products
In India there were hardly any organized
outlets for home furnishings be it
upholstery, curtains, linens or home
furniture. Mostly the local carpenters dealt
with the local demand where furniture
was made as per customer specification.
Similar was the case with curtains and
linens. There were local showrooms which
catered to the need. Fabindia was one of
the first retailers in India that offered a
“complete home solution”. The Fabindia
range of home products comprised
upholstery, curtain fabric and readymade
curtains and bed linens. Home furnishings
comprised furniture made of only wood
and metal, which went well with the
philosophy of Fabindia.
Fabindia was into almost all elements
of home décor and furnishing. A web
story on a website popular in the Middle
East rated Fabindia very highly, saying
‘If I can tempt you away from the malls
for just one visit – then I urge you to
put Fabindia on your list’
(www.7days.ae, 2007)
Organics
Fabindia entered into the Organic
product market with full commitment in
2004. Its product range comprised ready
to eat items like dry fruits, cereals,
honey, jams, pickles and coffee. In 2006
it added a range of body care products
to its product mix. It included shampoos,
soaps, hair oils, moisturizers, body
scrubs, face packs, hair conditioners and
skin care products.
Fabindia promoted its products, mostly
through posters, word of mouth and
events. The youth leaders who
patronized Fabindia garments were like
brand ambassadors for Fabindia. The
news reports also to a certain extent
worked as advertisement for Fabindia.
One such news item which described the
organic products is given in Box 1.
6.0 STORES AND THEIR MANAGEMENT
Most Fabindia stores are owned or leased
by Fabindia and Fabindia operated the
stores. There are a few exceptions like
the joint venture in Rome and the
franchise outlet in China. The number of
Fabindia stores has increased over the
years, particularly under William Bissell.
From three stores in 1996 it has gone up
to 75 stores in 2007. The growth can be
seen from Figure-1. The growth in sales
and profit are shown in Figure 2.
 Mohanty et.al, Fabindia Overseas Private ... 161

Box 1: News Item on Fabindia Organic Products.

Saturday, March 5, 2005, The Indian Express.Fabindia has launched organic food
products after due certification as per the standards set by the International Federation
of Organic Agriculture (IFOAM) and the National Programme for Organic Production
(NPOP). This latest initiative by Fabindia, the pioneers in the field of promotion of
cottage industry on a mass scale, has made available organically grown and certified
varieties of rice, flour, pulses, beans, teas and coffees, sugar and jaggery, honey, cashew,
groundnuts, walnuts, salts, peppers, and herbs at Fabindia stores across the country,
including the Sector 9 outlet at Chandigarh. Organic food is better due to its nutritional
levels and exclusion of toxic chemicals and GMOs and contains higher levels of essential
minerals, vitamins and anti-oxidants. Worldwide, the demand for organic goods is
tremendous. Statistics are predicting that the global market was only $17 billion in the
year 2000, may touch the $31 billion mark by 2005 and India’s current share is only
0.001 percent. In 2002, according to government statistics, from a total food production
of over 200 million tonnes, the country produced only 14,000 tonnes of organic food
products.According to Dilraj, manager, Fabindia, Chandigarh, “Through the
certification process, we have ensured that the customer actually gets organic food. We
have worked to build relationships with farmers and farm cooperatives, ensuring that
our fair trade policy is maintained. From the pristine slopes of Himachal Pradesh and
the fertile valleys of Punjab, right across India to the natural forests of Coorg region in
Karnataka and the plains of TamilNadu, farmers are supplying us with organic varieties
that are ideally suited to their own local conditions. Our policy of fair trade makes
traditional organic farming a viable modern economic option. We believe in giving
farmers a fair price for their produce, and in supplying the very highest quality food to
our customers,” she added.

80 140

70 120
60
100
50
80 Turnover
40
60 Profits
30

20 40

10 20

0 0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006

Figure 1: Growth of Stores since William took Figure 2: Profit and Turnover in Rupees
over as MD Crores (2002 to 2006)
162 Vilakshan, XIMB Journal of Management ; March, 2008
Fabindia has primarily three different
kinds of stores, namely, premium stores,
regular stores and concept stores. Both
premium and regular stores carried the
full range of merchandise but in premium
stores, the proportion of high end goods
is much more than in the case of regular
stores. Concept stores have been opened
to test new markets. These are typically
small stores with very few types of
products in stock. Overall, Fabindia dealt
in over 150,000 stock keeping units
(SKU’s). However, no single store carried
all the items.
Fabindia stores focused on creating the
right ambience. Many of these stores are
located in famous historical landmarks,
such as in Jeroo in Mumbai, Ilford House
in Chennai and Charles Correa’s house
in Bangaluru. The stores themselves have
décor and layouts that highlight their
traditional and natural focus. Even store
personnel are encouraged to wear clothes
that reflect the Fabindia ethos of
traditional and natural look.
With regard to the management of stores,
the managers are given a lot of
independence in the way they operate.
They are given budgets for buying and
for operational costs. Store budgets are
set centrally after consultations with the
store managers. Budgets are determined
primarily on the basis of previous year’s
sales, next year’s forecasts and other
external factors.
Store managers interact continuously
with merchandisers to stay abreast of
anticipated new styles and trends.
Managers regularly go for field visits to
explore new possibilities. They also
attend regular training programmes
where the accent is on learning modern
methods of retail management as well as
remaining true to Bissell’s vision for the
firm. The ‘mystery shopper’ technique is
used to keep a watch on operations in
stores.
7.0 DESIGN
Fabindia made its first foray towards
incorporating contemporary design in
1977, when it invited the designer, Riten
Mazumdar, to design and make a
calligraphy-based home furnishings
collection. This was a highly successful
endeavour and it encouraged the
company to bring about new innovations
in its products. This practice of inviting
designers has continued to this day. Very
often, weavers and craftsmen are invited
to interact with the designers and to hold
demonstrations and exhibitions in
Fabindia stores.
In a recent buyer-seller meet in Varanasi,
representatives of Fabindia met local
weavers and traders. A small display and
demonstration of local weaves and crafts
was organized. The Fabindia
representatives gave inputs on current
market trends and emerging designs.
They stressed on the importance of
product innovation and diversification.
Taking this further, Fabindia suggested
a prototype development project.
Merchandisers from Fabindia indicated
their preferences and the local weavers’
 Mohanty et.al, Fabindia Overseas Private ... 163
cooperative worked with a designer from
the National Institute of Design (NID) to
develop samples as per Fabindia’s
specifications. The project was very
successful and Fabindia placed an initial
order for fabric worth Rs.24 lakh.
8.0 SUPPLY CHAIN
Fabindia’s supply chain is uniquely
designed keeping in mind its unique
business model and its ideology. Most
of its suppliers are based in rural India.
For fabrics, the suppliers are mainly
weavers but there are also a few larger
fabricators. Fabindia sourced its organic
products from farmers, small scale
manufacturers and non government
organizations (NGO).
As many of its suppliers are uneducated,
much of Fabindia’s purchasing is carried
out without written contracts. The system
operates on trust and verbal
commitments.
On the other hand, Fabindia is far more
flexible and forgiving than many other
procurers, especially from the West.
Fabindia understands the limitations of
its weavers and small suppliers. So if
there are some minor changes in the
originally agreed upon design, the goods
are not rejected or returned. The
procurement team talks with others in
the organization and tries to find some
way to gainfully use the fabric.
Also a number of times the supplies are
delayed. This can play havoc with
centralized planning, especially when
sales and demand patterns are heavily
dependent on the prevailing season.
Getting a delayed supply of fabric, meant
for winter, could mean storing it for
almost a year, that is till the next winter.
In spite of such issues, Fabindia does not
turn away suppliers who deliver late.
Till recently, Fabindia used to make spot
payments for all deliveries. Now they
pay within 15 days of delivery. Many old
employees at Fabindia resented this
move and said that this is not in keeping
with the ideology of Fabindia. William
was able to convince them that for such
a large organization, business sense
dictated a change in their established
practice. He reiterated that Fabindia was
a ‘for profit’ organization with social
motives.
There are some practices in Fabindia
which might seem like ad hoc procedures.
Weavers sent their fabric in ‘thaans’. A
thaan was a roll of fabric that could be
20 to 25 metres long. The weaver’s
statement regarding the length was
generally accepted and only random
checks were occasionally carried out to
cross check the statements.
9.0 PHILOSOPHY
Fabindia believes that it does more than
just collect and sell handicrafts. It sees
itself as an enabler of a certain way of
life. By doing its business in a certain
way, it is trying to demonstrate that
the urban living model is not the only
path to development for a society. It is
trying to prove that old patterns of
living do not have to be sacrificed for
164 Vilakshan, XIMB Journal of Management ; March, 2008
the sake of modernization and
development.
Gandhiji had a vision of an India built
around its villages but the model of
development followed in India and
elsewhere led to the growth of an urban
centric economy. Fabindia is trying to
present an alternate vision. Growth of
urban areas does not necessarily mean
the death of the village. One is not
necessarily better than the other. Both
need each other. There exists a symbiotic
relationship.
Long before corporate social
responsibility and eco-friendly business
practices were seriously talked about in
management, Fabindia practised these
concepts. Production of organic products,
bringing out the village based skills
which were hitherto hidden from the
world, providing equitable employment
to traditional artisans and market for
their products, enabling the rural
craftsmen to form self sustaining
community based organizations and
promoting natural dyes, natural fabrics,
etc, were some of its activities symbolic
of its socially responsible and eco-
friendly practices.
10.0 COMMUNITY-OWNED ENTERPRISE
Fabindia is trying to establish community
owned enterprises in which artisans will
be the shareholders of newly formed
companies. The small and medium scale
artisans, who quite often run short of funds
could trade their shares to obtain funds for
running their businesses in the times of need.
This is in line with the company
philosophy and mission.
The company has tied up with ICICI
Bank’s Sandhi Craft Foundation, which
will provide Rs.100 crores over five years
to Artisans Micro Finance Private limited
(AMFPL), which will help establish these
community owned companies. Fabindia
will guarantee 8% of the 100 crores
through a bank guarantee of 4% and an
FDR for the other 4%.
The companies will be of varying sizes
and 49 % of their equity will be held by
AMFPL, 15% by outside investors and
the balance 36% by the local craftspersons.
The companies will have access to a
maximum investment of two crores
rupees and they can avail a loan of
another one crore rupees. AMFPL will
also work to establish a new trading
system, to enable shareholders to buy or
sell their shares a few times a year.
Providing a market for trading shares
will enhance the value of their
shareholding. A corporate structure will
help artisans to raise funds for working
capital.
AMFPL has a long term goal of
establishing 100 community owned
enterprises. The first 20 are targeted to
be set up in the first 18 months itself.
Within a few months of its launch in 2007,
AMFPL had already established nine
companies in Faridabad, Jodhpur, Jaipur,
Bikaner and Bhuj.
Apart from finance, Fabindia also hopes
to improve quality standards and supply
 Mohanty et.al, Fabindia Overseas Private ... 165
technological know-how. A design panel
was to be set up to help artisans to create
designs in sync with market demand.
Also, heads of the companies were to
undergo a course on business
administration in a leading business
school.
The inspiration to set up AMFPL came
from the success of Delhi Artisans
Handicrafts Pvt. Ltd. It was established
in the early 90’s and it currently has a
turnover of Rs.10-15 crore. Artisans held
shares and the share prices had seen a
25-fold increase over this period.
11.0 AWARDS AND ACCOLADES
Fabindia is very careful to maintain its
brand and its brand has won a number
of accolades. Fabindia won the ‘Best
Indian Retail Brand’ in 2005 and 2006. It
has also won awards for ‘Designer
Promoting Indian Craft or Technique’ at
the Idea Zee Fashion Awards.
12.0 COMPETITION
Fabindia’s main competitors are the
ethnic wear retailers like Khadder, W
and Good Things, who are also
expanding at a rapid pace. W, for
example, has well over 30 exclusive
stores now, in addition to being available
at some multi-brand outlets.. There is
also severe competition from the ethnic
wear labels of modern Indian retail
chains, such as Shoppers Stop and
Pantaloons. Stand alone stores like Shristi
and Biba in Bangalore, Prapti in Kolkata
and Sadka and Shoma in Delhi have been
doing well for a while and could pose a
challenge by expanding.
New competition is expected from
overseas retailers also. The government
has already permitted single brand
retailers to set up shop and others like
Carrefour, Walmart and Metro have
devised ways to get into the Indian
market. Powerful Indian business houses
like Tata, Reliance and Birla are
expanding their retail businesses.
13.0 FUTURE
From a turnover of 36 crore rupees in
2000-01, Fabindia has grown to having a
turnover of Rs.130 crore in 2005-06. It
registered a CAGR of about 38% in the
period 2002-06. Such phenomenal growth
has not come at the cost of profits. The
profitability has been maintained at a rate
of 6% for the entire period (See Figure-
2). For Fabindia William Bissell has set a
very ambitious target of reaching 250
stores and a turnover of Rs.1000 crore
by 2011.
The growth is expected to come from new
stores as well as increase in sales from
existing stores. That increase will be
achieved by increased emphasis on
premium products. Also, Fabindia has
attempted to decrease its dependence on
fabric based businesses by increasing its
other product lines. Currently organic
foods, body care products and
handicrafts form a significant part of its
total sales.
Growth in locations was expected to
come from expansion in promising
166 Vilakshan, XIMB Journal of Management ; March, 2008
overseas markets as well as a greater
penetration of the markets in smaller
towns in India. Fabindia planned to
expand significantly in tier-II and tier-III
cities in India.
India has a flourishing retail business but
most of it is in the unorganized sector.
There are estimated to be over 120 lakh
stores in the country. Of this, organized
retail is only 3% but is growing at the
rate of 18%. This organized retail sector
is vying for a share of the spending of
India’s rapidly growing middle class
whose purchasing power is estimated to
be around Rs. 10 lakh crore. An estimate
made by a professional demand
forecaster shows that out of the total
retail business potential, the Indian
market for ethnic wear is likely to be a
about Rs. 9000 crore.
REFERENCES
Acharya, T. (1999) Weaving a new life. India
Together, May
Bagchi, S. (2005) Be Indian, but Indian. The
Telegraph, 4 June
Bajaj, K. (2007) Fabindia’s fabulous march.
Business Today, 3 October
Chakravarty, C. (2007) Wolfensohn’s private
fund picks 6% in Fabindia. Economic Times,
9 July
Deshpande, T.A. (2007) Fabindia set to spawn
community companies. SME World, Business
Standard, 25 May
Fabindia (2007) 7 May 2007 www.7days.ae
Indian Express (2005) Fab food. Footloose, The
Indian Express, 5 March
Indian Handloom Cluster. Varanasi Handloom
fabric marketing with Fab India- A new
marketing support to handloom weavers.
May 2007 http://indianhandloomscluster-
dchl.net
Kaimal, R. (2002) A school may be a harbinger
of change in rural Rajasthan. Outlook India,
4 November
Kale, R. (2007) Design: Retail. India Today, 26
September
Rynne, G. The Fabindia Model: Ghandi Lives.
27 November 2007 http://
globalicity.blogspot.com
Singh, N. (2007) Fabindia charts out global
expansion plan. The Times of India, 16
August
Singh, U. (2005) Artisans, weavers happy over
good prospects. Hindustan Times, 20
January
The Hindu Business Line (2007) Fabindia, ICICI
start fund for craft cos. The Hindu Business
Line, 24 March
The Telegraph (2007) Store casts ethnic spell. The
Telegraph, 24 September
TNN (2002) Straight answers. Calcutta Times,
The Times of India, 18 December
Varghese, N. (2005) Fabindia plans more outlets
in South. The Hindu Business Line, 16
September
Management case

BSNL – Making the Elephant Dance*

M. N. Tripathi1

In April 2003, Mr. Anil Sawant, Chief
General Manager, BSNL had just come
out of a strategy meeting with some of
his senior colleagues. His brow was
creased with anxiety at the prospect of
the new developments in the telecom
sector and the rapid strides that
competition had taken. He knew that
although there was still no cause for
extreme alarm, the writing was on the
wall as far as what the future held for
the organization. The monopolistic hold
that the company enjoyed all these years,
was for ever, a thing of the past. In fact,
his major concern now was what steps
he needed to take urgently to prevent
yielding any further space to competition.
Even after a protracted meeting, there
was still no consensus on what should
be done to stem the rot.
1.0 THE INDUSTRY
Until the last decade, telecommunications
was state run in India; the private sector
was reluctant to invest in long gestation
industries like telecom. Learning from the
experience of developed countries, India
moved towards privatization of the
telecom industry by adopting the
Telecom Policy of 1994.
In 2001, telephone penetration in India
was 3.5 % and cellular phone distribution
was a meagre 0.25%, compared to 85%
in UK and almost 95% in some
Scandinavian countries. Mobile telephony
grew from 10 million subscribers in 2001
to 150 million subscribers in 2007. Both
GSM and CDMA technologies
contributed to this growth of the cellular
telephone sector.
The Indian Union Ministry of
Communications oversees operations of
this industry and determines policy
guidelines. The Telecom Authority of
India (TRAI) is the regulatory body
which determines toll rates and acts as
an arbitrator, wherever necessary. In
1986, telecom operations for Delhi and
Mumbai were moved out of the
Department of telecommunications (DoT)
and given to Mahanagar Telephone
Nigam Limited (MTLN), a public sector
corporation. Following that, the
Government launched Bharat Sanchar
Nigam Limited (BSNL) in an effort to

* Received November 28, 2007; Revised February 25, 2008

This case has been prepared with the help of inputs provided by Mr. Alok Ranjan Mahapatra,
Ex PGP 2001-2004 and Mr. Harsh Laad of Ex PGP 2005-2008. The author gratefully acknowledges
this help.
1 Associate Professor, Xavier Institute of Management, Bhubaneswar, emali:mnt@ximb.ac.in
168 Vilakshan, XIMB Journal of Management ; March, 2008
corporatize the remainder of DoT,
empowering the new company to venture
into new areas like basic, cellular and
internet services.
The Telecom Policy of 1994 saw
liberalization of the sector. Since even
average telecom services were difficult
for the Government to provide, basic and
value-added services were thrown open
to private players. However, due to
inexperience in dealing with such
developments, some policy steps to
regulate competition, led to confusion.
The new Telecom Policy of 1999
remedied the flaws in the earlier policy
along with opening up the bandwidth
segment for overseas communication to
the private sector.
The country now has a total capacity of
29 million lines. The Long Distance
transmission network has 300,000 km of
terrestrial network, including 100,000 km
of optical fibre. Fully automatic national
and international subscriber dialing
service is available almost everywhere in
the country. International communication
has improved through use of satellite
communication and submarine links. The
voice and non-voice telecom services
include data transmission, fax, mobile,
radio, radio paging, V-SAT and leased
line facilities.
The Indian economy is on a path of
resurgence. The gradual opening up of
the economy post-reforms ensured
steady growth even at a time when other
countries were in the grip of a massive
slowdown. Progressive reforms such as
the removal of restrictions on foreign
investment and industrial delicensing are
responsible for this growth (Exhibit I).
Tailoring the EXIM policy to promote
exports and aligning the import duties
to meet WTO commitments further
contributed to this development. This
trend is expected to continue in the next
five years, driven by a favourable
business policy environment in terms of
tax cuts, broadening tax base and a soft
interest regime. The TRAI has earned a
growing reputation for independence,
transparency and competence. Despite
the political interference, challenges to its
authority, accusations of ineptitude by
private players, this regulatory body has
been able to weather the storms and has
carved out the road map for the telecom
sector.
Such structural changes have had a
positive impac t on the
telecommunication sector and a CAGR
of 13% is estimated for the period 2002-
2006. The future of the industry lies in
the mainline and cellular segments and
constant technological innovations such
as Internet Protocol (IP) based services.
Revenues from voice services will
experience sustained growth even as
those from data services are expected
to increase sharply due to a surge in
usage. As per a recent report from Frost
and Sullivan, “In the last quarter of 2001,
the number of cellular subscribers had
reached the 5 million mark due to the
continuous fall in airtime rates, achieving

0.5% mobile penetration in India.
Revenues from cellular phones are
expected to grow at a CAGR of 37%
during the period 2002-2006, with higher
data usage and multimedia services.”
2.0 THE COMPANY
BSNL was formed on 1st October 2000
from the erstwhile Department of
Telecommunications. With revenues of Rs
22000 crores (Exhibit II) in 2001-02,
annual capital investment of over Rs 16000
crores (Exhibit III) and a cumulative
investment in gross fixed assets (Exhibit
IV) over Rs. 90000 crores (US $ 20.64
billion), BSNL is the largest public sector
undertaking serving 34 million
consumers. Cumulative fixed assets has
grown at an average annual rate of over
20% in the last 15 years, and is expected
to cross Rs. 100,000 crores (US $ 21.2
billion) in 2001-02.
3.0 CORPORATE MISSION AND VISION
Mission – To provide world class
telecom services on demand using state-
of-the-art technology for our valued
customers at affordable prices
Vision – BSNL would like to be a high-
tech customer oriented company with
emphasis on value addition.
Objectives
1. Provide telephone on demand by
March 2003
2. Provide telephone in all villages of
India by Dec 2002
Tripathi, BSNL – Making the Elephant ... 169
3. Raise telephone density from 3.5 to
7 by 2005 and 15 by 2010
4. Provide bandwidth on demand
5. Build customer’s confidence through
quality and reliable service
6. Provide world class telecom
infrastructure
4.0 THE CURRENT SITUATION
In the last few years the
telecommunications scenario had vastly
changed. BSNL had been at the forefront
of this revolution by ushering in changes,
which until a few years ago would have
been thought well nigh impossible.
Technological advances had enabled the
company to offer services such as faster
access to internet users as against the dial-
up modem connections. Basic landline
telephones double up as answering
machines, alarm clocks, voice mail service,
wake-up/reminder services and many
more.
With new technology such as CDMA,
it was possible for mobile telephony to
get a major fillip, because subscribers
had the option to go mobile at local
rates. Simultaneously, the reduction in
mobile telephony rates encouraged
customers to go mobile, which saw the
c ustomer base swell to gigantic
numbers. BSNL, which was a pioneer
in bringing these services, offered all
these services, apart from a host of
corporate services.
However, the market meanwhile had
changed in the last five years. BSNL
170 Vilakshan, XIMB Journal of Management ; March, 2008
through its predecessor, DoT was the
only player then, but now several players
had joined the fray. Earlier, BSNL was
the monopoly operator offering a basket
of products and services to customers
who had no choice but to select from this
basket. But now BSNL was one among
many others who offered consumers a
wide choice of products and services in
this over Rs 50000 crores telecom market.
The company’s efforts to woo its
customers is reflected in a minutes of a
vendor conference held in the corporate
office at Delhi. (Exhibit V)
5.0 PRODUCTS
BSNL is present in almost all product
categories in the telecom market of India
(Exhibit VI). In fact, it had launched most
of the products that dominate today in
the market except for cellular services,
where it entered last and is today the
second largest operator behind Bharti
Telecom. The product range consisted
of
• Basic services
• Cellular services (Post paid and
prepaid)
• National Long Distance
• Internet service provider
• Phone plus services
• Answering machine services
• ISDN
• Centrex
• Intelligent Network services
• Leased Lines
• Managed Leased Lines Network
• Webfone Services
• DIAS
• MPLS-VPN
• Broadband Services, etc
Exhibit VII indicates the companywise
distribution of revenues for the year
2002-03.
6.0 BRANDING
During 2002, BSNL decided to go on a
branding exercise to give its product
and itself a distinct identity amongst the
u sing pu blic. Being a government
owned company, without the
‘Navratna’ status it had constraints in
choosing the agency, since it had to go
through a bidding process, with the
contract going to the lowest bidder.
Soubhagya, a Delhi based agency got
the contract to handle this branding
exercise. The advertising objectives
centred round the range of products
and services offered by the company
withou t trying to get in any
differentiation with competition. The
c ampaign was sporadic since the
territorial circles were authorized to
carry the advertisements as per the
local festivals and holidays in their
respec tive circles. O wing to its
monopoly status till late 2002, there has
never been any serious attempt made
by the organization to identify any
particular customer segments for its
range of produ c ts. As a resu lt all

c ommunic ation was direc ted at
everybody, thereby losing focus on the
partic ular cu stomer segments that
needed to be addressed. While
positioning its c ellu lar services
‘Cellone’, BSNL never cared to identify
the profitable customer segments, and
pushed for its coverage and pricing
only, supposedly its strengths. To
attract numbers, the campaign had a
distinct middle class slant, which kept
away the high-end customers. Except
for giving information, there was very
little persuasion to bring in new
cu stomers. Since it was left to the
respective circles to advertise as per
their local needs, there was no common
message carried by different circles.
Sometimes these advertisements from
different circles, appeared in the same
medium, thereby confusing the public.
Lately, the company has been spending
more on promotions with competition
hotting up. It has resorted to use of TV
and radio apart from extensive outdoor
advertising. In TV, prime time slots
were taken in BBC, CNBC and Star
News channels in the 9 – 10 pm slots.
These campaigns were for spec ific
periods and the frequency was limited
to 2-3 runs during the course of the
programme. Also, family serials and
sports programmes were used to run
this campaign. Exhibits VIII - X.
7.0 PERSONNEL
Being a government department before
it was corporatised, BSNL continued to
Tripathi, BSNL – Making the Elephant ... 171
have a lot of baggage in terms of
inefficient, ill trained and demotivated
manpower. To keep up with competition
the organization needed to step up
efficiency by using the latest technology,
but the manpower was ill trained to take
advantage of it. Training programmes
designed to upgrade skills at the various
levels in most cases, were shunned by
employees since morale had sunk in to
such levels that they did not appreciate
the value of such programmes.
Employees used to working lethargically
for years were unable to cope with the
changes that technology and competition
brought in upon them. While the younger
employees found it easier to learn and
cope with the new changes it was
exceedingly difficult for the senior
employees who had fixed mind sets,
lethargic working styles and were
looking forward to retirement, to manage
this transformation.
8.0 THE ISSUES
Mr. Anil Sawant knew that there were
no easy solu tions. Within the
constraints posed by the organization
he had to bring this turnaround in
BSNL. He knew it was possible, because
BSNL had a lot of strengths, which
could be leveraged to bring about this
transformation. However, he also
knew that the service aspects of the
business and getting his employees to
perform would be critical to the success
of this venture. He was just not sure as
to how to go about climbing this
seemingly steep mountain.
172 Vilakshan, XIMB Journal of Management ; March, 2008

EXHIBIT I
Major Economic Indicators of the Indian economy
(Year-on-year Percentage Changes)
Year GNP GDP Agri Foodgrains Industrial Electricity
Production Index Production Index Production Index generation
90-91 5.5 5.6 3.8 3.2 8.2 7.8
91-92 1.1 1.3 -2.0 -4.5 0.6 9.1
92-93 5.1 5.1 4.2 6.6 2.3 5.0
93-94 5.9 5.9 3.8 2.7 6.0 7.3
94-95 7.2 7.3 5.0 3.8 9.1 8.1
95-96 7.5 7.3 -2.7 -5.8 13.0 8.6
96-97 8.2 7.8 9.3 10.5 6.1 4.3
97-98 4.9 4.8 -5.9 -3.6 6.7 6.6
98-99 6.4 6.5 7.6 5.9 4.1 6.5
99-00 6.2 6.1 -0.6 3.0 6.7 5.2
00-01 4.0 4.4 -6.0 -6.2 5.0 1.0
01-02 6.0 5.8 7.5 7.7 2.7 3.1
02-03 3.9 3.8 -14.9 -17.8 5.7 3.2
03-04 8.7 8.5 18.3 21.7 7.0 5.0
04-05 7.4 7.5 -25.8 -6.9 8.4 5.0
05-06 9.0 9.0 7.9 5.0 9.0 5.1
Source: Statistical Outline of India, Tata Services Ltd, Dept of Economics and Statistics, Mumbai

EXHIBIT II
Bharat Sanchar Nigam Limited
Revenues (Rs crores)

25000

20000

15000

10000

5000

0
86-87 94-95 95-96 96-97 97-98 98-99 99-00 00-01 2-Jan
 Tripathi, BSNL – Making the Elephant ... 173

EXHIBIT III
Bharat Sanchar Nigam Limited
Annual Capital Investment (Rs crores)

18000
16000
14000
12000
10000
8000
6000
4000
2000
0
86-87 94-95 95-96 96-97 97-98 98-99 99-00 00-01 2-Jan

EXHIBIT IV
Bharat Sanchar Nigam Limited
Cumulative Gross Fixed assets (Rs crores)
174 Vilakshan, XIMB Journal of Management ; March, 2008

EXHIBIT V

Minutes of the Vendor Conference held on 19.05.02 at 3.00 PM at BSNL Corporate Office
regarding Empanelment of Advertising Agencies for BSNL Corporate Office.
Posted on: 2006-05-23
No. 12-4/05-Mktg.
Minutes of the Vendor Conference held on 19.05.02 at 3.00 PM at BSNL Corporate Office
regarding Empanelment of Advertising Agencies for BSNL Corporate Office.
A Vendor Conference was held on 19.05.02 at 3.00 PM regarding Empanelment of Advertising
Agencies in BSNL Corporate Office in presence of DDG(Mktg.), DDG(BBF) & Jt. DDG(Mktg.I)
in conference hall 9 th floor, Statesman House, New Delhi. Following representatives of
Advertising agencies were present:-
1. Shri Harish Sharma & Divendra Srivastava M/s Percept H
2. Shri Subhash Gulati & Arjun Mukherjee M/s R.K. Swamy
3. Shri Gopal Vyas & Ms. Shikha Jain M/s Pressman
4. Shri Jhoy Roy & Subodh Pal Singh M/s Triton
5. Shri Rajakumar M/s Grey Worldwide
6. Shri Ashutosh & Ms Jaya M/s Lintas

2. The above mentioned representatives have taken participation in above mentioned

Vendor Conference. Following clarifications were made during the Conference in which
the following issues were raised: -

Points Raised by Vendors Clarifications

1. Section VIII – Bid Security Form : Whereas Format is Ok.
........................... (hereinafter called “the Bidder”)
has submitted its bid dated.......……..for the
Appointment of Advertising agencies & media
House for BSNL Corporate office, new Delhi vide
Tender No 12-4/2005-Mktg dated ....……….. The
wordings to be reworked.
2. Section II Clause 21.2 & Section XI clause 23. Concept Note on the creative or Media
Clarification about the point 4, which is “Concept brief given for Business brief given with
note on the creative or media brief given for the Tender Document is uploaded on
business brief given with the Tender Document. BSNL website. (Annexure ‘A’ please)

(Ashok Maheshwari)
Jt. DDG(Mktg.I)
 Tripathi, BSNL – Making the Elephant ... 175

ANNEXURE ‘A’

No. 12-4/02-Mktg.

Sub : - Empanelment of Advertising Agencies for BSNL Corporate Office

Please refer to Section II Clause 21.2 & Section XI clause 23

Brief for Mobile services

BSNL is no. 2 GSM operator of India. After launch of GSM services BSNL was able to create a
new market for its services. Most of the users who subscribed for BSNL services in 2002 were
new users of BSNL. Since launch BSNL had high demand for its GSM services and BSNL was
not able to meet the demand except Punjab. However BSNL is facing following problems.

• The revenue from value added services is less in comparison of other operators.

• BSNL is facing declining demand in bigger cities.

• The high user and sec A customer segment prefers other service providers.

Now BSNL has planned 60 million capacity and already floated tender for the same. You are
requested to submit a concept note on advertising strategy for BSNL GSM services, so that
BSNL can utilize additional capacity to generate higher revenue and customer satisfaction.
Further provide strategy to create distinct Brand image and generate higher revenue from
value added services.

Brief for Landline services

BSNL is facing problem of declining demand for BSNL landline services. In fact BSNL is
loosing approximately 30 lakh customers every year. Problems are manifold ranging from
service consideration to positioning of landline vis-a-vis mobile and FWP of CDMA providers.
However landline offers distinct advantages like voice clarity and broadband services.

BSNL wants a answer to Aggressive marketing of competitor so that the slide of landline
services can be stopped.

Brief for media

BSNL intends to spend approximately Rs 150 crores in next two years. Concept note on media
strategy and planning is required to improve overall brand image and brand image of its
various services.
176 Vilakshan, XIMB Journal of Management ; March, 2008

EXHIBIT VI EXHIBIT VII

Breakup of Telecom Revenues (2002-03) Company wise Telecom Revenues (2002-03)

Sl. Category Revenue % contri Growth Sl Company Revenue Share

No. (Rs Cr) bution rate (%) No. (Rs Cr) %
1 BSNL 27500 55
1 Basic 28704 57 9
2 MTLN 6022 12
Services
3 VSNL 4183 8
2 Cellular 8057 16 51 4 Bharti 3083 6
Services 5 Idea 1080 2.1
3 NLD 6043 12 (21) 6 Hutchinson Max 711 1.4
7 Data Access 632 1.3
4 ILD 5539 11
8 Spice 550 1.1
5 Internet 1285 2.6 9 BPL Mobile 522 1.0
6 Others 730 1.4 10 Hutchinson Essar 483 1.0
11 Others 5592 11
Total 50358
Total 50358
(Source: Business standard: 8th National Telecom (Source: Business Standard: 8th National Telecom
Survey - 31 July, 2003) Survey – 31 July, 2003)
EXHIBIT VIII
 Tripathi, BSNL – Making the Elephant ... 177

EXHIBIT IX
178 Vilakshan, XIMB Journal of Management ; March, 2008

EXHIBIT X
Management case
The Case of Raw Material Supply in the
Wood Carving Clusters of Orissa*
1.0 BACKGROUND
The Woodcarving profession has existed
in Orissa since ancient times and
developed under the influence of Bengal
and South India. In Orissa, the major
centres of wooden handicrafts include
Bhubaneswar, Barpali, Berhampur,
Bhograi, Cuttack, Khalikote, Koraput,
Mayurbhanj, Phulbani, Puri, and
Sambalpur among others.
Wood Carving in Orissa is broadly
grouped into plain woodcarvings and
wooden items. Plain woodcarvings are
largely seen in Puri-Konark –
Bhubaneswar clusters and Bargarh
cluster. These items are made with light
varieties of wood and painted with
vegetable dye and mineral colours. The
wood and sculptors use the simple
carpentry tools like hammer, chisel etc.
Mainly white teak and rosewood is used
for plain woodcarvings. This art is
practised mainly in Bhubaneshwar, Puri,
Konark, and Cuttack. Wood articles are
usually made from harder and darker
wood and this craft is practised mainly
in Daspalla, Khandapara, Phulbani and
Nayagarh areas. Wood sculptures,
* Received December 10, 2007; Revised January 19, 2008
1. Faculty, Xavier Institute of Social Service, Ranchi, email: debaduttakp@gmail.com
Debadutta Kumar Panda1
images of gods and goddesses, animals
like elephants, peacocks, and horses,
masks, toys, boxes and bowls are all
extremely well designed and there
exemplify the art of wood carving in the
state of Orissa.
Wood carvers as well as the wood
carving industry have been suffering due
to various reasons. Supply of the right
type of wood and at right time is one of
the major reasons. In the present case,
analysis of the supply chain has been the
prime focus of the study. The objective
is to find out the problems in the supply
chain and possible approaches to alleviate
these problems.
2.0 METHODOLOGY INVOLVED IN THE
STUDY
This study is based on both primary and
secondary information. In the first phase,
wood carving clusters were identified
from secondary sources. The mapping of
artisan clusters and the uses of different
types of raw materials were done through
collection of information from
government departments, non-
government organizations, educational
180 Vilakshan, XIMB Journal of Management ; March, 2008
institutions and development consulting
firms which are working on handicrafts.
For the primary study, different clusters
of woodcarving were chosen based on the
types of raw material used. Three
woodcarving clusters namely, Puri-
Bhubaneswar-Konark cluster, Cuttack
cluster and Naygarh-Daspallha-
Khandapada cluster were chosen for the
study. In-depth personal discussions were
made with artisans. In-depth discussions
were carried out with the middlemen,
involved in the supply of the raw
materials, i.e., wood to the artisans.
Personal discussions were held with the
key informants from various sources of
supply of raw material for woodcarving.
Consultations and discussions were
conducted with various government
organizations, non-government
organization, traders and educational
institutions. Government reports and
policy documents were also reviewed to
understand the policies and current status
of the craft.
3.0 METHODOLOGY FOR DEMAND ESTIMA-
TION
The demand estimation was based on the
annual potential of raw material use per
artisan, type of raw material use, and
number of artisans and their preferred
kind of raw materials. The demand
estimation was made by taking average
demand of 25 artisans chosen randomly
from the three clusters. Then the
cumulative average was taken and later
the cumulative average was multiplied
with the number of artisans. The supply
of raw material is calculated based on the
total raw material chanellised from each
source.
The Limitations in the Demand Estimation
1. Artisans kept on changing the types
of raw material based on the sales
demand.
2. The average uses of wood per
artisans varied widely and are
largely dependent upon the
intricacies and complexity of the
craft.
4.0 WOOD CARVING CLUSTERS IN ORISSA
The major wood carving clusters are
located in Cuttack, Puri-Bhubaneswar-
Konark, Khairapadar- Bhawanipatna-
Rengalpalai- Narla- Kandargarh,
Basudevpur -Chandabali – Thidi-
Dhamnagar, Khandapada – Dasapalla-
Nayagarh, Nawarangpur- Debugaon-
Chandanhandi, Khallikote- Berhampur-
Dharakote and Sambalpur. There are
4795 artisans in the practice of
woodcarving in Orissa. Moreover, the
artisans of Puri-Bhubaneswar-Konark
cluster and Nayagarh-Khandapada-
Dasapalla clu ster, Khairapadar-
Rengalapalli cluster are found to be the
most active and the artisans/artisan
families are almost fully dedicated to
their profession.
5.0 RAW MATERIAL FOR WOOD CARVING
There are several types of wood used for
carving in Orissa. The major wood used
for carving is white teak (locally known
as Gambhari) and the rose wood (locally
known as Sisu). Other types of wood
used for carving are sandal wood, neem

wood (Nimba), mango wood, Kurum
(local), Katrang (local), Akasia and Kendu
(local). The plain woodcarvings are
mostly done on a soft creamish wood
called Gambhari or white teak. Wood
carved articles using the creamish
Gambhari and the harder and darker Sisu
or rose wood is a specialty of the artisans
from Daspalla and Puri clusters.
7.0 SUPPLY CHAIN OF RAW MATERIAL IN
WOOD CARVING
Orissa Forest Development Corporation
is responsible for cutting and selling of
the timber. It is the sole authority to trade
timber both in round as well as in sawn
Official
Supply
Felling of Wood by
Forest Dept.
Setting Up of Interim
Depot
Transportation of
Logs/Wood to the Govt.
Depot/Saw Mills
Auction of Timber
Figure-1: Supply chain of Wood for Artisans
Panda, The case of raw material ... 181
forms in different dimensions from their
specified depots. This process involves a
number of stages.
The Orissa Forest Development
Corporation Limited (OFDC) permits the
use of only non-fruit bearing trees in the
forest. Cutting of fruit bearing trees like
mango, jack fruit etc can be done if the
OFDC gets an order from the
government to cut the forest for a specific
purpose for example, construction of new
highways, development of industries etc.
The supply chain of wood is shown in
Figure – 1. The stages involved in the
official supply chain in explained below:
Unofficial Supply
Wood Supply From Wood Felling by
Other States tribals, Villagers
and Others
Hardwood &
Soft Wood
Private
Sawmills
Timber Merchants
ARTISANS
182 Vilakshan, XIMB Journal of Management ; March, 2008
Stage - I: During cutting of the
trees, the OFDC sets up an interim
depot where initially the timber is
stored. Then the ‘lot’ formation is
collated based on species, and girth
class. If a particular species of wood
falls short for a lot, then a mixed lot
is formed. After reaching a truckable
point, each lot of wood is numbered
and transported to the forest
department depot.
Stage – II: The forest department
depot sells the timber through
auction and retail selling. The auction
is conducted twice every month and
the buyers in the auction are usually
timber merchants, as the auction is
based on a huge quantity and at least
not less than one lot at a time.
In the retail selling, an individual goes
to the Depot of the forest department
and takes permission from the supervisor
to get information about the availability,
type, species and girth class of the wood.
After that the individual places an order
for the log/wood. Then permission is
issued by the divisional manager and
after that a price is fixed for the selected
log. After the payment, the log is
transferred to the purchaser.
Stage – III: The purchased timber is
then transported to the Government
permitted sawmills by the purchaser.
At the time of purchase a chalan is
issued in the name of the person
containing the number of the timber
which he has purchased. The timber
is transported to sawmill, which has
the permission to saw the timber and
convert it into different sizes. There
again before sawings the previous
chalan is verified and another new
chalan is issued.
Once every month there is a general
auction of round timbers from each depot
on a pre-fixed date. The auction details
are advertised in the local dailies both in
Oriya and English. Auction takes place
at the timber depot site where purchasers
gather and bid the purchase price in the
presence of the Divisional Manager and
the subordinate staff of a particular
division. Before announcing the auction,
lots are formed comprising different girth
classes’ species wise. The prices quoted
by the bidders are tabulated and sale is
ratified in favour of the highest bidder.
7.0 DRAWBACKS IN THE SUPPLY CHAIN
The artisan may buy timber from the
forest depot through retail selling or
from the timber merchant. Generally, the
artisans buy the wood from the timber
merchants, as they cannot afford to
participate in the auction due to lack of
finance. Also the artisans prefer to
purchase according to requirement or
order placed on the artifacts.
The price of the wood purchased by the
artisans from the timber merchant is more
than the government price as it includes
commission and profit of the merchant
involved. For the direct purchase of
wood from the forest depot, first the
artisan goes to the depot of the forest
department and takes the permission

from the supervisor to get information
about the availability, type, species, size
and shape of the wood. After that the
artisans places an order for the log/
wood. Permission is issued by the
divisional manager after a price is fixed
on the selected log. After the payment,
the log is transferred to the artisan. It is
a time taking process as sometimes the
divisional manager is not available and
the permission process is delayed.
In order to participate in the auction, one
has to get registered and deposit a fixed
percentage of the security deposit in the
form of Bank Draft. In case he fails to
succeed as the highest bidder, his
security amount is refunded and in case
of a successful bid, the security amount
is adjusted from the sale price. But many
times the carvers do not have enough
money to pay the security amount and
bid for the highest price. Moreover the
sculptors do not have enough time to
enter into the legalities of bidding and
formal transactions.
8.0 MAJOR BOTTLENECK IN TIMBER SALE
AND SAW MILLS
Generally the wood used for carving i.e.,
Rose Wood, Teak, Sal etc. remain
unavailable with the forest depot or
private timber merchants. The carver
often visits the forest depot and private
timber merchants a number of times to
get the desired wood. Most of the time
the carver has to wait for a month or even
longer to get the wood and incurs huge
expenses in repeated visits to forest
depot and timber merchants.
Panda, The case of raw material ... 183
Among the total timber or wood
produced, a major chunk of wood is
taken by the private parties, contractors
and individuals, who are basically non-
artisans, for furniture, housework and
other purpose. So these private parties,
contractors and individuals like to
purchase the wood/timber as soon as
possible and are ready to pay more. So
unofficially the cost of the wood is
escalated, thus making it unaffordable for
small artisans.
Now-a-days the White Teak (which is
mostly used for carving purpose) is often
used for furniture and other wood work
that leads to the diversion of wood from
the artisans to non-artisans.
Supply chain (unofficial)
On an average 45 % of the total timber
used for carving, is supplied unofficially
from village areas (unofficial sources). A
majority of the clusters from Phulbani
district, Nayagarh district, Kalahandi
district and Dhenkanal districts get
wood (mostly Gambhari, Sisu and local
wood like Katrang, Kurum etc.) from
local villagers and traders. On an average,
40 cubic feet of wood is supplied every
month to carvers of the above districts
unofficially by traders, villagers and
forest dwellers.
Unofficial sources of wood supply were
very much appreciated by artisans as it
ensured timely supply, and supply at the
doorstep. At times, when artisans get
good orders, timely availability of raw
material is more important than high
price of wood.
184 Vilakshan, XIMB Journal of Management ; March, 2008
9.0 PRODUCTION AND SALE OF TIMBER
WOOD
Annual Timber Production and Sale
Year Production Sold
(Cubic Meter) (Cubic Meter)
2000-01 34411 22043
2001-02 20503 21020
2002-03 22017 13203
2003-04 19047 9883
2004-05 5727 12594
2005-06 NA 10089
(Source: Orissa Forest Development
Corporation Limited, Bhubaneswar, 2007)
The production of timber varied from
year to year. Sometimes, the production
has shown negative growth, which led
to a short supply in the market. Also the
production and sale of timber were not
in the same proportion. Though the
production was high in 2001, 2003 and
2004, the timber sale was much lower
than the production. Often this happened
when all the timber cut in a year or season
was not fully sold as some of the timber
remained as stock either due to bad
quality or remained unpurchased. The
merchants purchased the wood from
other neighbouring states (mostly from
Chhattisgarh) and sold the timber at an
escalated price in the market.
From the year 2000 to 2005, there was a
continuous decline (except slight
variation) in the production and sale of
timber. As the production and sale of
timber decreased, a price escalation in the
market was largely seen in private
sawmills. The shortage of raw material
was due to high industrial uses i.e.,
furniture and house construction, which
led to less raw material being available
for woodcarving.
The major issue in timber was the
availability at a particular time at
sawmills or forest godown. At a
particular time, even if timber was
available, carvers could not store it in
their work place or home due to legal
difficulties. Again, carvers were unable
to purchase in bulk due to lack of financial
strength.
At a particular time, when there was
timber shortage in the market, whatever
timber was available it was chanellised
for housing, furniture (by price escalation
in the market) and other industrial
purposes. Sawmillers gave greater
preference to furniture and house
construction as they were purchasing in
bulk and they happened to be high value
customers.
10.0 ESTIMATION OF ANNUAL DEMAND OF
WOOD FOR ARTISANS
The consumption of wood for carving
varied depending on the size and
intricacy of the work. At times even a
small size wood took a long time for
carving and vice versa, based on the
amount and intricacy of the carving
work. But assuming that the market
demand is created properly for the sale
of the wood carved product and the
supply is maintained properly, then the
potential consumption of wood per
 Panda, The case of raw material ... 185

carver per annum was about 40 cubic Some details about the wood carving
feet and about 80% of this was in rose industry and wood supply are given
wood, white teak and local varieties. below:

Average demand for wood per carver/annum: 40 Cft

Total No. of carvers: 4795
Average demand for wood for carving/Annum: 1,91,800 Cft
Average demand for Rose wood & White Teak (70%): 1,34,260 Cft1
Average demand for hard wood (Sal, Piasal, Teak) (23%): 44,114 Cft
Average demand of other wood Neem, Kurum, Mango,
Sandal, Kendu, Chakunda) (7 %) 13,426 Cft
The average production of timber wood from OFDC: 20341 cubic meter
7, 18, 037 cubic feet
The average sale of timber wood from OFDC 14805 cubic meter
5, 22, 616 cubic feet

As per the policy of Department of

Forest, Government of Orissa, no
sawmill could saw any wood unless
permitted by the Government even
though all sawmills could sell the timber
after fulfilling all legal formalities. There
were 173 sawmills in Orissa but 156
sawmills only had valid license.
The government had cancelled the
license of 17 sawmills. There was no Figure-2: Distinctive Distribution of Sawmills
sawmill in Nayagarh division, and Carves
Dhenkanal division, Phulbani division,
The forest policy says that– “Forests are
and Kalahandi division, where most of
not to be exploited, but are to be conserved
the wood carvers were located. On the
for soil and environment and meet the
other hand 15 sawmills (10 %) were
subsistence requirement of the people”.
present in Baripada (Mayurbhanj) and
66 sawmills (42 %) were located in However, instead of supporting people
Rajnagar where there were no wood for subsistence requirement, timber is
carvers (According to the report of supplied mostly to big wood based
Orissa Forest Development Corporation, industries and urban households. This
Bhubaneswar, 2007). The distinctive hampers the timber supply to poverty
distribution of sawmills and carvers are stricken artisans who depend on wood
shown in Figure -2. carving for a living.
186 Vilakshan, XIMB Journal of Management ; March, 2008
The Land Ceiling Policy of government
has seriously affected the wood carver
artisans, as they were unable to raise
large-scale plantations for meeting their
raw material needs.
The farmers and community producers
were also affected by policies related to
regulation of felling and transportation
of forest produce, mostly the timber
wood. Prior permission was needed for
felling of trees even on private land and
special transit permission are needed to
transport such timber. This led to
insufficient appreciation by the farmers
and community producers. The major
sources of supply of raw materials to the
artisans (where sawmills are not located
or there is no institutional supply
mechanism) remained out of the stock
and to fill the gap wood were chanellised
illegally from the forest.
The 1988 National forest policy stated that
the forestry enterprises should not be
supplied with raw material from the state
forests and they should instead meet
their requirements through adopting
alternative raw materials, imports or
from farmland. It further stated that no
new forestry enterprises are permitted
except village and cottage level
enterprises. But unfortunately, the state
government did not have any record on
the end user (whether artisans or
commercial enterprises) of the forest
timber.
11.0 SOME OBSERVATIONS
Absolute scarcity, locational mismatch
between availability and need, and lack
of access were the principal constraints in
relation to wood availability for wood
carving artisans. The overarching raw
material constraints could be traced to
rapidly shrinking of stock at institutional
sources, poor geographical distribution
and large scale supply to wood based
industries. The competing demand for
raw material (i.e., Timber Wood) kept the
large wood based industries and urban
consumer at higher end, and pushed down
the artisans at the lower end.
Three major issues remained as the
biggest hurdles in the provision of raw
material for wood carving, (1) The
regularity in supply of wood, (2)
availability of a particular species of
wood, and (3) Availability of wood at a
particular place. The institutional and
legal framework in timber wood supplies
was in the favour of large wood based
industries than poor artisans. The state
government retained almost all of the
control over timber wood management,
regulation, monitoring, and timber
harvesting and marketing. To some
extent, the demand of wood was met
from unofficial sources, as there was a
high scarcity of wood in institutional
sources. The types of species of wood
used for carving depended upon three
factors, (1) availability of the species, (2)
choice and expertise of the carver, and
(3) market demand or sales demand.
Moreover, there was no concrete policy
in the state regarding supply of wood for
artisans. Universal policy for large wood
based industry and small artisans had
increased the gap. Also there was an
unplanned exploitation of forest resources
particularly timber wood. Within the

forestry sector, most emphasis is given to
large wood based industries even though
the “small wood carving sector” had
employed more number of people and
kept on bringing huge revenue from
national and international tourists.
Though wood and timber are
symbolically related to rural areas and
rural enterprises, there was a sharp decline
in timber uses by rural households
12.0 PROPOSAL FOR CONSIDERATION
In the light of developments, the agencies
were considering several possibilities to
help the wood carving industry and the
artisans. Some of these are briefly
narrated below:
1. Establishment of Wood Banks in
artisan clusters: With the Inter-
departmental initiatives from the
government, wood banks could be
set up in wood carving clusters.
NGOs and cooperatives could be
encouraged for establishment and
management of Wood Banks in
artisan clusters. Government and
financial institutions can extend
financial support to Wood Banks for
artisans, Department of forest could
ensure supply of softwood to wood
banks and Department of
Handicrafts could play a supportive
and supervisory role in the
procurement and supply of wood
through wood banks.
2. Provision of formal financial
assistance: Financial assistance could
be provided to wood carving
clusters. Financial institutions like
Panda, The case of raw material ... 187
commercial banks, SIDBI and
Microfinance Institutions may
extend their arms to the artisans with
customized repayment schedules.
3. Encouragement of Social Forestry,
Farm Forestry and Village Forestry:
These could be helpful to meet the
growing demand of local wood like
Kurum, Katrang, Keli Kadamba etc.
(where there are less legal
restrictions) through social forestry
and through trees grown on farm
land.
4. Afforestation of Softwood Trees:
Ground level survey with the help
of GIS technologies could be made
to identify large tract of wasteland,
and government, private and non-
government institutions/organiza-
tions could be encouraged to affor-
est species (Gambhari, Sisu and
other locals) largely used for wood-
carving.
5. Systematic Felling of Trees with
Proper Regenerating Measures: Seeing
the importance of wood carving sector
and social security of wood carvers,
the department of forest could
consider making provision in its policy
for systematic and planned felling of
softwood trees like Gambhari and
Rosewood with appropriate
regenerating measures to meet the
artisans’ raw material demand.
6. Use of Information and
Communication Technologies for
Forward and Backward Linkage: A
major thrust could be given for
188 Vilakshan, XIMB Journal of Management ; March, 2008
linking the wood carving clusters
with markets (raw material suppliers
and carved product purchasers) with
the help of information and
communication technologies.
7. Linking Artisan Clusters with
Tourism: Tourists have
inquisitiveness about seeing the
carving process and places of
production of wood carved products.
Also, tourists might be able to buy
the wood carved products from the
artisans directly (No middleman will
be involved) and the tourists could
have an impression and confidence
of buying the original products from
the carvers. In the process, the tourist
inflow will be increased and the
artisans concern for sale of carved
products will be solved. There will
be a regular flow of money from
tourists to artisan and it will enable
the artisans to purchase raw
materials with minimum time gap.
8. Establishment for Wood Seasoning
Plants: There could be initiations from
government and private sectors for
wood seasoning and wood
preservation plants. Entrepreneurs
could be encouraged and government
could come out with appropriate
modalities for wood seasoning and
wood preservation plants under
public private partnerships. Apart
from sawmill and godowns, Orissa
Forest Development Corporation
could come up with wood seasoning
and wood preservation plants.
9. Minimum Time Period for Delivery:
The forest policy possibly could
address the importance of raw material
for wood carvers and department of
forest should tailor minimum time
period for delivery of wood to the
artisans from forest godowns under
retail sale. Stringent action should be
taken in case there is an increase in
transition period in wood supply to
artisans from the forest godowns.
10. Forward Linkage and Backward
Linkage: Government and non-
government organizations, who are
currently engaged in forward linkage
of wood carving products, should be
engaged in backward linkage also.
The authorities, with the above facts and
suggestions were pondering over what
policy changes should be made and what
steps should be taken to make the changes
work.
REFERENCES
Action plan on self employment through
Development of Handicrafts in Orissa
(2004-09), Directorate of Handicraft and
Cottage Industries, Orissa Bhubaneswar
Annual Report, 2001, 2002, 2003, 2004, 2005, 2006
of Orissa Forest Development
Corporation, Bhubaneswar
Handicraft and Cottage Industries of Orissa, 2003,
Directorate of Handicraft and Cottage
Industries, Orissa Bhubaneswar
Investment Climate for Handicraft Production
in Orissa, Shanghvi Presentations
National Forest Act, 1998 document
National Forest Policy, 2002 document
Orissa Industrial Policy, 2001 document
Report on the State Level Workshop on craft
clusters development in Orissa, organized
by Development Commissioner of
Handicraft, March, 2003
The Indian Forest Act, 1927 documents
Book Review
Rastogi, P.N., (2003): Managing Creativity, Macmillan, New Delhi,
Managing Creativity, authored by Rastogi,
is a meaningful contribution to the subject
of enhancing the creative talents of the
practising managers. The author admits
in the preface that since creativity does
not come automatically, it needs to be
cultivated ‘in a systematic and sustained
manner’ (p.v). Accordingly, the chapters
have been laid-out thoughtfully to enable
even a lay reader to follow the line of
thought developed by the author.
In Chapter 1 (Introduction) the author
lucidly explains the meaning of
‘creativity’ thus,
“ Creative thinking involves the ability
to find solutions to problems by
changing one’s point of view when normal
approaches … fail to provide the needed
answers” (p. 3).
Thus, the creativity-instinct is believed
to be triggered when the conventional
methods for fixing problems are
challenged. However, it is equally true
that some individuals facing challenge
succumb to anxiety. Another
fundamental aspect of creativity, of which
most are ignoramous, has also been
highlighted,
* Received November 11, 2007, Revised January 14, 2008
1. Lecturer, Kolkata Centre of BIT (Mesra), Kolkata, email: debu_0876@rediffmail.com
pp. 166, Rs.198.00*
Reviewer: D. Chakraborty1
“Creativity is not restricted to thinking.
Its scope and application extend to all
facets of human endeavour …
imaginative exploration … testing their
solutions … and implementing the
solutions by securing the willing
cooperation of others” (p.3).
The author has made the intentions clear
by not adhering to the commonly held
view of creativity for its sake only. The
probable reason is that managers, and not
artists, comprise the target audience of
this book. It is true that so long as a
manager cannot translate his thoughts/
ideas into workable solutions, his inputs
will not be considered valuable.
Chapter 2, with ‘Creativity as a
Competitive Resource’ as its title, brings
out a vital difference between ‘individual
creativity’ and ‘group creativity’ (pp.9 -
11). Working in an organization implies
working in group(s). Unless a group
leader takes an unilateral stance in
decision-making, it is usually the
culmination of a group effort. Therefore,
the author remarks,
“ Most human beings are potentially
creative in the areas of their strong
190 Vilakshan, XIMB Journal of Management ; March, 2008
interest. Their creative potential can be
brought out and amplified, … in group
settings” (p.10).
Hence, there is a word of
encouragement for those who feel that
they are not creative. Creativity has
even been considered to be a ‘resource’
because it adds to the competitive edge
of a company in terms of new product
development, promotional strategy etc.
(pp. 11-12). However, this view invites
a deeper question: is creativity a
‘resource’ or a ‘source’? It will be taken-
up later.
Chapter 3 on the Cultivation of Creativity
throws light on the ‘thought-skills’ (p.16)
required for creativity. The author
elucidates two different types of
approaches (pp. 16-20) to creative
thinking:
(a) Convergent Thinking (a problem
with plural solutions)
(b) Divergent Thinking (uncommon
thinking resulting in novel solutions)
Lack of corporate examples in explaining
the points (a and b) will cause a little
difficulty for a general reader to
understand the ‘process’ of creative
thinking. The concepts of ‘forced
relationship’ and ‘visualizing future
solution state’ (pp.21-2 and 24-5) the
author suggests,
(i) ‘To get out of our automatic mode
of thinking, … must discover, make
or seek out non-familiar and non-
habitual linkages among unrelated
facts and objects.”
(ii) “… try to create a vision of what a
solution might look like.”
But a couple of questions remain
unanswered: How do the skills of
relating unrelated facts be ‘discovered’?
How does a person ‘create a vision’?
The author offered a useful insight when
he observed, ‘ The ability to find the
positive potential in a problem is a mark
of creative openness, receptivity, and
flexibility” (p.22). Moreover, the
distinctions between ‘traditional
thinking’ and ‘creative thinking’ (pp.25-
6) are quite helpful and relevant. For
example, the former is orderly and
sequential and the latter, disorderly and
parallel. But the second difference, which
states, ‘Traditional logical thinking
operates in terms of dichotomies, polar
categories, and contradictions …
Creative thinking, … embraces both sides
of a contradiction or dichotomy in order
to generate, … a new way forward’
(p.25) is ambiguous. One fails to identify
the distinction between ‘ thinking in
terms of dichotomies’ and ‘embraces both
sides of a contradiction’.
‘Generating Creative Ideas in
Individuals’ (Chapter 4) has identified
seven different ‘techniques’ (p.28) to
facilitate generation of creative ideas for
solving problems. The author has done
a commendable job of lucidly explaining
the techniques. However, at times
reading has been a bit tedious due to lack
of interesting examples e.g.. PMI
Approach (pp. 36-7), ISA Perspective
(p.38) etc. Even the example pertaining

to ‘Envisionment Approach’ (p.36) could
have been enriched if the process
involved in it had been highlighted.
However, the examples, related to ‘Using
Random Matching’ (pp.34-5), especially
the idea of cotton buds that came to Leo
Gerstenzang when he noticed his wife
wrapping cotton on toothpicks to clean
their baby’s ear, were of immense
learning value.
In chapter 5 (Generating Creative Ideas
in Groups) twelve different approaches
for generating ideas in groups have been
discussed. Of all these approaches,
barring only ‘Induced Dissociation’,
have been explained adequately (p.47).
The technique of induced dissociation
involves keeping the mind in a blank
state. However, no effort was made to
explain what does the ‘blank state’ mean
and how can it be achieved. This apart,
it would have been of some help to an
avid student of the subject had the
author identified those techniques that
are presently popular. Some of the
techniques (like Morphological Method,
Genetic Learning Approach etc.) being
a bit sketchy will remain
incomprehensible to those who are
unfamiliar with the subject.
Chapters 6 and 7 (Diagrammatic Methods
for Creative Problem Exploration and
Coping with Uncertainty in
Technovation) provide an outline to the
process of creativity. The contents of
chapter 6 comprising the technical
processes for enhancing creativity are
more advanced and hence demand
Chakraborty, Managing Creativity ... 191
rigorous mental discipline. However, all
the five techniques have been highlighted
and explained in simple terms. The ‘Tree
or Systems Flow Diagram’ has been
explained as a, “… technique … to
systematically map out the full range of
paths and tasks that need to be
accomplished for achieving an overall
goal” (pp.60-2). But is it not true that
systematic charting-out of the options for
accomplishing a goal calls for adequate
experience? The author could have
referred to a positive correlation between
creativity and experience. Another
technique involving ‘Ishikawa Diagrams’
despite lucid exposition remains only
partly comprehensible to a reader as
there is lack of any diagrammatic
representation (pp.62-4). However, the
name of the technique suggests that there
should have been diagrams. Deliberation
on the ‘Matrix Diagrams’ (pp. 65-9) sans
application in real life cases poses a similar
drawback. Chapter 7 deals with
uncertainties thrownup due to
technological innovations. The author
himself admits, “ Technovation is a
messy, disorderly, and highly uncertain
process” (p.70). One feels that the
techniques discussed in the chapter
cannot be appreciated in entirety unless
someone is a part of such creative
processes in any organization. Therefore,
a person unless exceptionally interested
to know about creativity, or doing any
research work on it, may even skip
reading the chapter.
‘Heuristics for Stimulating Creative
Ideas/Insights’ (Chapter 8) is a
192 Vilakshan, XIMB Journal of Management ; March, 2008
meaningful contribution towards
enriching the book. Heuristics are tactical
rules for guiding creativity along the line
of empirical experience (p.82). The
meaning assumes significance because,
unlike the techniques mentioned earlier,
creativity based on heuristics cannot be
subjected to any defined process. Hence,
there is a general perception that the
creative sparks based on such methods
(like intuition, meditation, learning from
nature, idealizing etc.) occur at random.
The mainstream scholars contend that
creativity cannot be developed in this
manner because it then becomes a matter
of chance. Despite these odds the author
admits,
“ The individuals and groups may get
locked into older, conventional, and
familiar modes of thought … . Under
such conditions, some tactics, means or
rules which may serve to stimulate the
production of new and fresh ideas,
insights, or viewpoints, may be very
useful” (p. 82).
This indicates the possibility of getting
confined to the conventional mode of
thinking by adhering to a predetermined
path. Naturally this goes against the very
spirit of creativity.
The author has taken great pains to pen
down thirty-five different methods to
creative problem solving. These methods
have been explained crisply in a reader-
friendly manner with suitable examples.
Chapters 9 and 10 (Utilizing Creativity
of Groups and Fostering Creativity and
Innovation in Organizations) essentially
highlight the relevance and importance
of formation of groups to facilitate
creativity. Emphasis has been added to
depict the importance of sustained
training programmes with the objective
of making creative problem solving in
groups a part of an organization’s
culture (pp.108-9, 114). However, one
observes that there has not been much
effort by the author to outline the
methods to enc ou rage individual
creativity in the book. Throughout, the
focu s has been on grou p. Suc h an
approach appears to be handicapped
considering that a group is a sum total
of individuals. Therefore, the quality of
creative output of a group should have
direct bearing on the quality of creative
output of an individual.
Chapter 11 (Creativity as the Core of
Competitive Excellence) deals with the
importance of creatively handling new
problems, situations and demands to
remain ahead of the c ompet itors
(p.121). Therefore, it has been
suggested that the employees be dealt
with in a more humane manner and
not just as labour inputs. The author
adds, “ …organizations view their
employees as valuable resources …”
(p.122). This observation sounds a bit
jarring. So far, the line of argument
viewed human beings to be the source
of creative ideas. Then how come the
employees be deemed as ‘valuable
resou rc es’ when they are in effect
sources of creativity?

Appendices (I and II) essentially
distinguish between the Japanese and
American approaches to managing
creativity. One of the fundamental
distinctions between the Japanese and
American approaches is that through
creativity the former aims at developing
motivation, job satisfaction and
teamwork (p.129). The latter, on the
other hand, encourages creativity to, ‘…
sustain high level of innovation and
commercial success’ (p.140). This apart,
the other unique feature of Japanese
approach is that even, “… hierarchically
lower level employees are invited to
participate in the problem finding phase”
(p.130). Later the author adds, “ Most
American and Indian managers do not
understand the importance of involving
employees in early phases of problem
finding activities’ (p.130). That the Indian
companies have been clubbed together
with American and not Japanese
companies, although Indian and Japanese
are culturally more in tune with one
another. The Indian companies adopt
American management concepts and
techniques instead of adapting them. The
author has not mentioned if monetary
rewards are doled out to the employees
serving American firms for generating
creative ideas. The Japanese firms
however offer negligible sum as
incentives (p.132).
It is now appropriate to have a little more
of conceptual clarity on creativity which
has so-far been ignored in this book.
Associated with creativity are two
phrases (Chakraborty, 1989):
Chakraborty, Managing Creativity ... 193
(a) adaptive or incremental creativity
(AC)
(b) break through or quantum creativity
(BC)
It is felt that creativity techniques
applied in business organizations are
mostly of AC type and rarely of BC
type. For instance, the transition from
Boeing 707 to Boeing 747 represents AC
whereas shift from propeller plane to
jet plane is BC. For the former while
technique like brain storming is crucial
and for the latter brain stilling is
essential. Modern day management
practices (borrowed heavily from
America) hardly repose any faith in
brain stilling as a technique for creative
problem-solving. Hence, it is argued
that these two concepts represent a
certain degree of culture-specificity –
brain storming depicts the Western and
brain stilling the Eastern approaches.
(Chakraborty, 1989).
The concept of brain stilling essentially
involves different types of breathing
techniques to quieten the mind from
fleeting thoughts. This allows the right
lobe of the brain (which is the seat of
direct intuition and synthesized
comprehension) to become active. This
technique is not as unscientific as yet it is
made out to be. It is pertinent to listen to
Prof. M.H. Wilkins (Nobel Laureate in
1962),
“The logical and rational is a very
important element in science. Bu t
emphasis of that tends to make people
194 Vilakshan, XIMB Journal of Management ; March, 2008
not notice the absolutely essential role of
intuitive. In fact, in any creative activity
you can never analyze the whole
proc ess c ompletely bec ause
psychological and other dimensions are
at work. Nobody u nderstands the
nature of creative process. Certainly
not the rational scientist” (Wilkins,
1986).
Thus, the above statement from a Nobel
Laureate refutes the commonly held
notion that since intuitive decisions
cannot be objectively verified therefore
they are unreliable. Sri Aurobindo, the
leading seer-philosopher of modern
India, asserts,
“In … Yoga the whole principle is to
open oneself to the Divine influence. It
is there above you and, if you once
become conscious of it, you have then
to call it down into you. … In the quiet
mind there will be a progressive
preparation for the experience. But you
must not bec ome impatient”
(Aurobindo, 1973).
Thus, it is evinced at once how
significantly different the oriental temper
is as compared to the occident at ones
when it comes to problem solving by
adopting creative techniques.
REFERENCES
Aurobindo, Sri (1973), On Self-Perfection, Part I
(Pondicherry: Sri Aurobindo Society),
pp.23-4.
Chakraborty, S.K. (1989), Foundations of
Managerial Work: Contributions from Indian
Thought, (New Delhi: Himalaya), pp.261-2,
264-5
Wilikins, M.H. (1986), Interviews With Nobel
Laureates and Other Eminent Scholars
(Bombay: Bhaktivedanta Institute), p.39
Book Review
Subhash Sharma (2007), New Mantras in Corporate Corridors, New Age
International, New Delhi, pp.558, Price Rs.295/-*
P aradigm shift in management
education is the need of today’s global
environment. A journey from Taylor’s
scientific era to new age management
era highlighting Indian concept of
management mantra and shaping these
in an integrated ‘new model’ of
management by Professor Subhash
Sharma is a pioneering contribution in
management literature. It is pioneering
, because he has penetrated into the
studies of Veda, Geeta, Panchtantra
stories, Mahabharata, Ramayana,
Kabir’s work etc. to develop these
ideas with reference to management.
He has worked towards ‘model
building’ frameworks throu gh a
‘creative and meditative research’
approach.
Sharma’s attempt in his rec ently
published integrated research work,
New Mantras in Corporate Corridors:
From Ancient Roots to Global Routes
forces management intellectuals to
raise following thought provoking
issues.
* Received March 3, 2008.
1. Director, B.M. College of Management, Surat, email:amarsabani@yahoo.com
Reviewer: A.S. Abani1
1. Shou ld management t eac h ing
move from mind colonization to
liberali zation or exte nsion of
master – master process of learning
from each other? The integrated
model presented in Fig 1.3 of New
Mantras in Corporate Corridors,
indicates how Indian concepts,
thinkers and sc holars (Su labh
Sutra, Buddha, Mahavir, Kautiya,
Aryabhat, Bhaskaracharya, Kabir,
Tulsi, Vivekanand, Aurobindo,
Gandhi and others such as C V
Raman, J C Bose, Ha rgovind
Khuran a, Meghnad Shah,
Chandrashekhar, Ramanuja, Vinod
Dham of Pentium chips, , Deepak
Chopra of alternative medicine,
Sabir Bhatia of free mail service
etc .) h ave influ enc ed and
awakened western scholars and
how Indian scholars have gained
from this heritage as well as from
intellec tu al interac ti on with
western sc h olars an d made
significant achievements.
196 Vilakshan, XIMB Journal of Management ; March, 2008
The proposed models with ancient roots
have global appeal. This is reflected in
the model of complementary approach of
Holistic Development ( Fig 2.4, p. 37),
Indian model for corporate development
(Fig. 4.3, p.77) as well as in Kautilaya’s
theory of motivation (Sam, Dam, Bheda,
Dand) approximating itself to theory X
and theory Y. The Kautilayan strategic
model (p.106) has also been excellently
presented.
The author has made efforts towards
‘modulation’ of thoughts on Enlightened
Leadership (Fig. 9.2, p.177), Theory K
(Kutumb), Y in trinity (Laxmi, Saraswati,
Durga) model of leadership and OSHA
model of self awareness and its relevance
to X,Y,Z theories. Model of ‘hierarchy of
men’ representing HOPE (Higher Order
Purpose of Existence) is a model for
transformation to better world which
works towards the self-actualization
paradigm.
The Human Quantity Development
(HQD) model rotates around ‘manas’,
vachan and karam with subset of seven
c omponents, namely, (i) Thought-
Action analysis, (ii) Negergy- Synergy
grid (iii) SO - SO window (iv) Stimulus-
Vivek-Response (v) G/T Ratio (vi)
Relationship analysis and (viii) E-N-U
Action analysis. These are c lassic
examples of modulation for corporate
management.
BCG matrix model of strategy replaced
by growth rate and value addition
with the help of plant life metaphors
by the au thor is a step to wards
simplific ation of present ation of
c omplic ated ideas for better
understanding (Fig. 18.5, p.301). There
are a number of other impo rtant
models, such as KPCL, BEST, CINE
Matrix, FATE Analys is, 9 T
framewor k of TRM yantr a, EP IS
(Enterprise Performance Improvement
Systems) based on value chain matrix
and mana gement c ontrol system.
Using the brain metaphor, he has also
gone be yond Mc Kinse y’s 7 S
framewo rk and su gge sted a
c omprehensive framework of VSP
yantra that suggests co-alignment of
nine elements represented by V vector
(Visio n, Vistas, Valu es), S vec tor
(Strategy, Structure, Systems) and P
vec tor (P urpose, P rocess, P eople).
Thus, the book is full of simple models
for easy learning and easy practice of
management concepts.
The book reflects the type of changes that
are required in terms of revision of
courses focusing on value based
internalization of management ideas with
roots in Subhasitani, Arthashastra, Veda
etc.
2. What strategies should be adopted
in teaching and practice by modern
managers with greater intensity to
again re-institutionalize Indian
management mantras with roots in

wisdom and knowledge from
ancient texts? In what ways re-
surfing of ‘Indian Management
mantras’ can be achieved in the era
of Holistic Globalization or
Viswanisation?
The book su ggests the need for a
paradigm shift from Darwin to Dharma,
Maslow to Moksha and Marx to
Mahatma. The totally different and
unique work, presented in the book is
based on ‘Gap Analysis’ of management
ideas and is the first step towards
revolu tionary thinking and
contribu tion in re-surfing and‘re-
surfacing’ Indian management mantras
and its Viswanisation. This approach
opens new vistas of researc h
opportunities based on Kabir Ke Dohe,
principles followed in Mahabharat,
Kautilaya’s Arthasastra, Geeta, Vedas
and many folk stories of local civilized
societies (some are reflected in children
literatu re like old Chanda Mama
magazine ).
3. “Challenging with confidence” is
another issue which needs to draws
our attention. There is a need to
c hallenge and replace existing
concepts and thou ghts and
establish new ones. Academicians
must take the lead in this context.
The author with great confidence
raised an issue based on Geeta. He
has sharply contrasted, “Arrival of
Abani, New Mantras in Corporate ... 197
the best to lead the rest” from
Geeta with Darwin’s “survival of
the fittest to eliminate the rest”. It
can be perceived that both views
are correct but in Geeta it is said
with a positive approach and in
Darwin’s philosophy with negative
approach. G eeta represents the
Dharma to protect the people and
lead them. Quite often, we go for
critical analysis, we get divergent
thoughts and ideas. We hesitate
and demonstrate lack of confidence
and thus ideas remain in cell. We
need to overcome this hesitation
and the book amply demonstrates
that this can be achieved.
4. Towards A N ew Researc h
Approac h: The author’s work
amply demonstrates a new research
approach viz. approach of creative
and meditative researc h . This
approach can be u sed as a
supplement to quantitative and
qualitative research approaches.
This approac h leads to meta
synthesis of ideas and opens new
opportunities for creative synthesis
for development of new
knowledge.
The metaphor of recent Hindi movie,
‘Taare Jamin Pe’ applies to Sharma’s
creative and innovative work in
management education as well as in
related social sciences. The book
proposes teaching through ‘corporate
198 Vilakshan, XIMB Journal of Management ; March, 2008

rhymes’. By raising certain issues for management. Then India’s contribution

management education, as raised in this to management will become world
book, we can carry forward this new known just as its knowledge workers
revolution of India’s mind liberation and and knowledge professionals are world
creative churning in the field of known.
 199

Xavier Institute of Management

Bhubaneswar

Xavier Institute of Management, Bhubaneswar (XIMB) has completed 20 years of purposeful

existence, offering management education “with a human face”. During this period, XIMB
has established an identity of its own and a consistent position among the best B-schools in
the country. It is known not only for its Post-Graduate Programmes but also for developmental
projects. The institute owes its origin to a “Social Contract” between the Government of
Orissa and the OJS (Orissa Jesuit Society). The Management of the institute is in the hands of
a Board of Governors, consisting of Jesuit Fathers, senior representatives of the Government
of India and Government of Orissa, eminent industrialists and educationists.
The institute offers three post graduate programmes, two certificate programmes and one
doctoral programme (known as Fellow Programme). These are :

l PGDM : Two-Year Full-Time Post-Graduate Diploma Programme in Management

(Residential);
l PGDMCRMS : Two-Year Full-Time Post-Graduate Diploma Programme in Rural
Management (Residential);
l PGDM for Executives : Three-Year Post-Graduate Diploma Programme in Management
for Working Executives. This is offered in two mode-one involves week-end classes
and the other 15 days class in every term.
l PGCBM : One year Post-Graduate Certificate Programme in Business Management
using Video Conferencing Technology.
l PGPMI : XIMB in collaboration with ICICI is offering a one year Certificate programme
namely, “Post Graduate Programme in Management and Insurance” to nurture
professionals for the emerging insurance industry.
l FPM : Fellow Programme in Management (Residential).

All PGDM courses along with the Fellowship Programme of the institute are approved by
the All India Council for Technical Education (AICTE), Government of India. Since XIMB is
an autonomous institute not affiliated to any university, it does not grant degrees. The full-
time PGDM of XIMB is recognised by the Association of Indian Universities (AIU) as equivalent
to an MBA degree from an Indian University.

National Academic Recognition Information Centre for the United Kingdom (UK NARIC)
recognises XIMB’s PGDBM as comparable to British Master’s degree standard.
XIMB has a tie-up with several European, American and Afrian Schools for student exchange
programmes.
200 Vilakshan, XIMB Journal of Management ; March, 2008

MDP CALENDAR (2008-2009)

Sl. Programme Days Dates Programme Prog. Fees
No. Venue Cordinator Res Non-Res

1 MIS Skills for Competitive 3 May 20-22, 2008 Bhubaneswar Prof. Dipak Mishra 12000 9000
Advantage of Business Managers Prof. Sanjay Mohapatra
2 Emotional Intelligence for 5 June 2-6 , 2008 Bangalore Fr. P.T. Joseph, SJ 28000 NA
Managerial Effectiveness
3 Innovation as a tool for 3 June 24-26, 2008 Bhubaneswar Prof. Jacob D Vakkayil 12000 9000
organizational effectiveness
4 Credit Risk Management 3 July 21-24, 2008 Bhubaneswar Prof. Sridhar Dash 12000 9000
5 Meeting Corporate Objectives 3 July28-30 Bhubaneswar Prof. Snigdha Pattnaik 12000 9000
through the Balanced Scorecard Prof. Sanjay Mohapatra
6 Transnational Business Strategies 2 Aug. 12-13, 2008 Bhubaneswar Prof. Amar KJR Nayak 8000 6000
7 Personal Growth & 5 Sept. 1-5, 2008 Puri Fr. P.T. Joseph, SJ 30000 NA
Effectiveness Lab.
8 Selling Skills 3 Sept. 04-06, 2008 Bhubaneswar Prof. M.N. Tripathi 12000 9000
9 Strategic Compensation 3 Sept. 8-10, 2008 Bhubaneswar Prof. S.S. Ganesh 12000 9000
Management
10 Teamwork Competency for 3 Sept. 15-17, 2008 Bhubaneswar Fr. Tony Uvary 12000 9000
Star Performers Fr. George Joseph
11 Business Analytics : Scoring & 6 Sept. 22-26, 2008 Bhubaneswar Prof. Sridhar Dash 24000 18000
Customer Segmentation Prof. Subhajyoti Ray
12 Logistic & Supply Chain 3 Nov. 3-5,2008 Bhubaneswar Prof.S K Bishwal 12000 9000
Management
13 Lab on Entrepreneurship 3 Nov. 11-13, 2008 Bhubaneswar Prof. Rajeev Roy 12000 9000
14 Marketing Research for Sales 3 Nov. 19-21, 2008 Bhubaneswar Prof. Sandip Anand 12000 9000
Professionals
15 Journey towards excellence for 3 Nov. 3-5,2008 Bhubaneswar Prof. Snigdha Patnaik 12000 9000
professional women
16 Customer Service Management 2 Nov. 21-22, 2008 Bhubaneswar Prof. M.N. Tripathi 8000 6000
17 Train the Trainers 6 Nov. 24-29, 2008 Bhubaneswar Prof. Saveeta Mohanty 24000 18000
18 Counselling skills using Neuro – 5 Dec. 1-5, 2008 Bhubaneswar Fr. P.T. Joseph, SJ 20000 NA
Linguistic Programming techniques
19 Demand Estimation, Forecasting 3 Jan. 08-10, 2009 Bhubaneswar Prof. P. Mishra 12000 9000
& Market Data Analysis
20 Mentoring & Coaching for 5 Jan. 12-16, 2009 Bhubaneswar Fr. P.T. Joseph, SJ 20000 NA
Performance effectiveness
21 Negotiation Skills 3 Jan. 15-17, 2009 Bhubaneswar Prof. M.N. Tripathi 12000 9000
22 Project Implementation 3 Jan. 19-21,2009 Bhubaneswar Prof. W.S. William 12000 9000
& Monitoring
23 Effective Communication & 3 Jan. 20-22, 2009 Bhubaneswar Prof. I. Kumar 12000 9000
Presentation Skills
24 Basic Leadership Skills 5 Jan. 20-24, 2009 Bhubaneswar Fr. George Joseph, Sj 20000 15000
Fr. Tony Uvary, Sj
Prof. Jacob D Vakkayil
25 Developing Change Champions 5 Feb. 24-28, 2009 Bhubaneswar Prof. S. Peppin 20000 15000
for Organizational Excellence Prof. Snigdha Pattnaik
26 Business Intelligence for 3 Mar. 2-4, 2009 Bhubaneswar Prof. P. K. Bala 12000 9000
Managers
 GUIDELINES FOR CONTRIBUTORS
ILAKSHAN is a bi-annual journal. The papers
published in the journal go through blind peer-
review. It publishes original research-based articles,
perspectives, cases on topics of current concern
and book reviews in all areas of Management. A
general guideline for contributors is given below.
1. Manuscripts should be of approximately 10,000
words (20 to 40 A-4 size pages, typed in double
space). Manuscripts should be submitted along
with a soft copy or by e-mail with the cover
page bearing only the title of the paper and
author’s names, exact designation, official
address, e-mail and phone/fax numbers.
2. Article should accompany an abstract of about
150 words.
3. Tables and Figures : Their location in the text
should be indicated as follows :
Table-1 about here
4. Endnotes : All notes should be indicated by
serial numbers in the text and literature cited
should be detailed under reference in
alphabetical order of the surnames followed by
year of publications immediately after the
author’s name.
5. References :The list must mention those sources
actually cited in the text or notes and to the
extent other sources possible which are essential
for understanding the topic. Author’s name
should be the same as in the original source.
a) In the text, the references should appear as
follows : Dayal (2002) has shown.... or Recent
studies (Ramnarayan 2002; Murthy, 2001)
indicate...
b) Journal references should be listed as follows:
Khandwalla , P. N., (20 01). “Creative
Restructuring,” Vikalpa, 26(4), 3-18.
c) Books should be referred to as follows :
Sugandhi, R. K., (2002). Business to Business
Marketing, New Age International, New Delhi.
d) References from Internet should be referred to as
follows : Hesterbrink, C., E-Business and ERP :
Bringing two paradigms together, October 1999;
Pricewaterhouse Coopers., www.pwc.com.
For more than one publication by the same
author, list them in chronological order, with the
older item first. For more than one publication
in one year by the same author, use small (lower
case) letters to distinguish them (e.g., 1980a,
1980b).
6. British spellings should be followed throughout
(programme, not program) the manuscript.
7. Numerals should be used one to twelve in words,
thirteen and above in figures, unless the reference
is to percentages (5 percent), distance (5 km), or
age (10 years old). Use 1990s and 19th century.
8. No stop should be used after abbreviations (UK,
MBA), but should be used after initials (K. S.
Singh).
9. Double quotes should be used throughout. The
use of single quotes is to be restricted for use
within doubles quotes, e.g., “In the words of Szell,
the ‘economic question’ is today....” Quotations
in excess of 45 words should be separated from
the text with a line space above and below and
indented on the left. Quotes should be cited
accurately from the original source, should not
be edited, and should give the page numbers of
the original publication.
10.Capitalisation should be kept to the minimum
and should be consistent.
11.An author will receive free of cost 10 offprints
and a copy of the issue in which his/her paper
appears and in addition, one copy each of the
three subsequent issues.
12.Manuscripts not considered for publication will
not be sent back. Those submitting papers should
also certify that the paper has not been published
or submitted for publication elsewhere and that
it represents author’(s) own work.
13.Every contribution for publication is provided
with a code number. The author is required to
indicate the code number during all enquiries.
14.Manuscripts and all correspondence should be
addressed to : Editor, Vilakshan, Xavier Institute
of Management, Xavier Square, Bhubaneswar -
751013, India, Ph.: 91 - 674 - 3983893, 3012345
(Pilot No.) Fax : 9 1- 6 74-2 3009 95,
E-mail :brajaraj@ximb.ac.in
Printed and published by Dr P. T. Joseph s.j., Director, Xavier Institute of Management,
Bhubaneswar on behalf of Xavier Institute of Management, Bhubaneswar (Society) and printed
at Capital Business Service & Consultancy, B-51, Sahid Nagar, Bhubaneswar and published
at Xavier Institute of Management, Xavier Square, Chandrasekharpur, Bhubaneswar-751 013.
Editor: Professor Brajaraj Mohanty